Global Sourcing at Kingfisher
Analysts & Investor Briefing January 20th 2000

Agenda

4.00pm Introduction Geoff Mulcahy Chief Executive Dido Harding Director of Global Sourcing Serge Amiard Commercial Director, KESA
4.10pm Overview of Global Sourcing
4.40pm Kingfisher Electrical S.A. Common European Strategy 5.10pm Questions

World class retailing

Polarisation between world class winners and local losers Hallmark of being world class is ability to generate high rate, long term growth We need engines for growth, to deliver sustained long term value
Building an engine for growth
Marketing scale, Pricing reinvestment DEVELOP POWERFUL FORMAT

Scale gains

CAPABLE SOURCING, SUPPLY CHAIN

Bigger roll out

MAJOR EXPANSION

GROWTH

Allows re-investment into virtuous circle
The gross and net margin question
There is nothing new about falling gross margins in Kingfisher Dont believe all the PR Media interest + international comparisons have increased profile In most areas of our business we are leading the agenda

Our objective

To generate more cash margin over the same fixed investment, thus:
increasing stock turn increasing ROI measure GMROI
By removing artificial price discounts
in-store discounts 50% off deals artificial sales
Best price all the time, Best choice, Best service

Illustrative example

Before After
Before sourcing cost advantages
Price Product cost Gross margin Instore discounts Advertising Redundant stock Achieved gross margin
Customer pays lower price of 95 vs.(100-4=96) Retailer achieves higher gross margin Smoothed demand gives manufacturing and supply efficiencies which will give improved terms

The winning formula

The retailers that survive & prosper are those that have a strategy to continue to improve the customer offer

Price Service Choice

Kingfisher has these characteristics
leading market positions international scale efficient retail formats and supply global sourcing

which benefit

our customers our employees
and add value for our shareholders
Overview of Global Sourcing
Dido Harding Director of Global Sourcing

Objectives

What is Global Sourcing? How much is it worth to Kingfisher? What are we doing about it?

What is global sourcing?

1. Joint buying.
Joint Buying of Camcorders

Number of SKUs

= joint buying opportunities

Identical SKUs

Total Similar Total Sold in Unique after after more than to one matching identical one OpCo OpCo identical & similar
Joint European Buying: Why can we do this now?
Customer needs are changing The internet and the Euro are creating much greater price transparency
more commonality across Europe Kingfisher now has the scale and the geographic coverage Our suppliers are increasingly capable of operating on a pan-European basis
1. Joint buying. 2. Direct Sourcing
Examples of Direct Sourced product

B&Q knife

WAS sourced for 88p NOW sourced for 40p

Castorama wrench

WAS sourced for FF8.50 NOW sourced FF2.00
Kingfishers Asian Direct Sourcing

m Value Bought at FOB

2000 budget

2003 goal

1. Joint buying 2. Direct sourcing 3. Brand development

PROline

Cash Benefits from Global Sourcing

1999/2000 Million Euro

42-58m

DIY Joint Buying

KESA Joint Buying

Cross Group Joint Buying

Direct Total Sourcing including Proline (Estimated)
Potential Cash Benefits by 2003/4
Million Euro per annum 100 290

Electrical

General Group Merchandise Total

What do we need to do?

Think Kingfisher and Kingfisher sector not OpCo Know where and how our products are made AND what our customers want Make it easy Make global sourcing part of our business culture

What is our action plan?

Joint Buying
Continue to capture quick wins Implement more effective ways of buying within sectors and across sectors

Direct Sourcing

Continue to develop Kingfisher Asia in Hong-Kong Opening a satellite sourcing office in Shanghai Implement new direct sourcing processes Develop plans for a larger direct sourcing network

Brand Development

Extend PROline range and build the brand Examine our other own brands

In summary

There is a huge sum of money to be gained It will be a great challenge - and will require a truly global multicultural business and we have a big action plan already well underway to deliver it

E L E C T R I C A L

European Common Strategy and Approach
Electrical Competitive Landscape

Retail is going global

Large global retailers are our competitors
Internet and Euro give price transparency Europe is becoming one territory
Three major players with different approaches New entrants: internet, overseas

Changing Consumer Needs

Communications, Design. Upheaval in value sources
software, subscriptions, accessories

Digital Technology

From boxes to solution
Converging pattern across countries

Our ambition

A leading position in each local market The leading position in the European market by Opening Euro-format stores Developing E-commerce
Leveraging Commercial Advantage
Building consistent IT systems and supply chain
Leveraging Our Commercial Advantage Objectives
Combine international scale and local flexibility in order to:
bring a better offer to our customers change the relationship with suppliers in order to significantly reduce sourcing costs achieve profitable growth

Customer Strategy

To provide complete peace of mind:
Service that focuses on making our customers life easier Offer a choice of products and solutions that is comprehensive yet easy to understand Prices you can trust whenever you choose to buy
Implications for our Business

What we need

Continue to focus on customer needs

How we must do it

Improve local responsiveness in developing category management in the OpCos Centralise negotiation
Significantly reduce sourcing costs
Leveraging Commercial Efficiency
Lever 1 Lever 2 Lever 3 Harmonise terms on identical products Lower the costs by reducing the complexity of ranges Shift volumes to private label to lower the buying cost of entry price products Reduce the number of B brands to optimise the negotiation

Lever 4

Potential for SKU count reduction

Electrolux range

BUT Comet

AEG 50720

AEG 60309

Promarkt

FAURE LFV 1022
ZANUSSI FLS 1183 ZANUSSI FJS 1597

ZANUSSI FLS 1082

ZANUSSI FLS 1022 ELECTROLUX AW 1475 F

A MARTIN AW 1046

Only I identical SKU in 2 OpCos
A MARTIN AW 1046 ELECTROLUX AW 1275 F

ZANKER VF 2058

Possibility to bundle 12 different models into 5 and to harmonise prices on identical items

ZANUSSI FLS 1397

BCC not included
Working in co-operation with suppliers can lead to cost savings on both sides
Number of SKUs purchased Comet Promarkt Darty BCC NVDB BUT

172 53% 22% 25% 100%

% of SKUs with purchase over 50 units
Source: Analysis of a sample white goods category in 1999

Size of the Prize

Benefits of About 110m Euro

Estimated Benefits

Potential value Euro million

LEVER LEVER 2-4 2-4

LEVER LEVER 1 1

10% 20% (13%)

PROPORTION OF IDENTICAL MODELS PROPORTION OF IDENTICAL MODELS
Future Organisation: Key Processes

SECTOR

Supplier Selection Model Listing Store Range Building Negotiation Retail Price Setting Ordering Sales Stimulation Selects suppliers based on OpCos' input Defines range architecture and selects sku's Makes recommendations on distribution of the core range Negotiates with supplier Issues guidelines to OpCos Monitors achievement of Commitments Commitments influence OpCo's Commercial Department's incentives

Making it Happen

Change process will take one year
Start with suppliers which are ready Test new process Build up the new skills
Need to progress as fast as possible, and start quickly:
Show clear commitment Deliver real benefits
Will take first steps from February 2000

Start to implement Category Management in OpCos Appoint new people in Sector Change responsibilities for initial suppliers Learn by doing
What Will Happen Next Year

20% 80%

% Of Suppliers Negotiated Centrally

Target

Additional Additional 10-12 suppliers 10-12 suppliers 20-25% budget 20-25% budget
% Of Purchase Budget Negotiated Centrally

0% Now

First Steps By August

0% By End Of Year

How Transition Will Progress

Suppliers Suppliers

Option 1 : By category, all suppliers

Suppliers Categories

Option 2 : By supplier, all categories at once
Option 3 : Gradually by supplier

Suppliers

Option 4 : Big Bang

Summary

Leveraging our commercial advantage is critical in delivering our vision & strategy
We will be the first to do this And we must learn by doing
Significant benefits are available 2000 will see the start of a process to realise these benefits
Real customer focused approach Transfer of some supplier relationships to Sector Greater team-working across the business

First Steps start now

Questions