UPDATE 2-Kingfisher to reward shareholders after revamp pays off

Tue Mar 25, 2014 8:17am EDT

* FY underlying pretax profit 744 mln stg, up 4.1 pct

* Forecasts were in 738 mln-748 mln range

* To return 200 mln stg to shareholders in 2014-15 year

* Sells Hornbach stake for 195 mln stg

* Shares up 5.7 pct, hit highest in 14 years (Recasts, adds CEO, analyst comment, shares)

By James Davey

LONDON, March 25 (Reuters) - Kingfisher, Europe's No. 1 home improvement retailer, set out plans for a multi-million pound programme of extra rewards for shareholders, underscoring the strength of its recent performance and helping lift its shares to a 14-year high.

The group, which runs market leader B&Q in Britain and trades as Castorama and Brico Depot in France, has offset weak demand in many markets with a scheme tagged "creating the leader", designed to improve profitability by measures such as buying more goods centrally and directly from places like China.

In the first return of capital to investors in its 32-year history, Kingfisher said it plans a multi-year programme starting with a 200 million pounds handout in its current financial year through January 2015.

"When we say multi-year, it's more than one and less than five," Chief Executive Ian Cheshire told reporters. He said the mechanism of return could vary between share buybacks, special dividends and the issue of different class shares. An overall target for the programme had not been set.

The company, which said it was well placed to benefit from a pick-up in consumer spending as Europe's economies return to growth, ended its financial year with net cash of 238 million pounds, even before taking account of the 195 million raised from the disposal of its 21.2 percent stake in Germany's Hornbach, also announced on Tuesday.

Kingfisher said that after a tough first quarter, trading conditions improved through the year, with the exception of a persistent weak economic backdrop in France, its most profitable market. It won market share in France, the UK and Poland.

The group, No.3 in the world by sales behind U.S. groups Lowe's and Home Depot, met forecasts with a 4.1 percent rise in yearly profit before tax and one-off items to 744 million pounds ($1.2 billion). Analyst forecasts had been in a range of between 738 million and 748 million.

BIG MARKET

In addition to the Hornbach disposal, the group also set out a batch of other international measures, including a search for a local strategic partner for its lossmaking B&Q China business, aiming to replicate a partner approach it adopted in Turkey.

It said it would target expansion in Germany through its Screwfix business. It plans to open four outlets in Germany in the current year and will offer full next-day national delivery.

"If you take the fact that we've got over 350 (Screwfix outlets) in the UK and Germany is at least twice the size, you've got a very big market," said Cheshire.

Combined with an entry into Portugal with two Brico Dépôt stores, the combined investment impact on 2014-15 profit would be a net charge of around 10 million pounds.

B&Q China, which trades from 39 stores, made a loss of 6 million pounds in 2013-14. "We believe there is a long-term home improvement market in China which is going to be very big," said the CEO, adding that potential local partners had already expressed interest.

Cheshire said the group's view of how fast it will develop in Russia, which contributes 5 percent of group sales, would be influenced by further economic sanctions, trade and currency issues, but added: "The long-term prognosis for the Russian retail sector still remains very strong."

Kingfisher shares, up 41 percent over the last year, were up 5.7 percent at 430p by 1018 GMT, valuing the business at 10.2 billion pounds. The stock rose as high as 436.8p, its highest since late 2000.

Total group sales rose 3.5 percent on a constant currency basis to 11.1 billion pounds. Sales at stores open over a year rose 0.7 percent.

The company said it would pay a year-end dividend of 6.78p per share, taking its full-year total to 9.9p, up 4.7 percent. ($1 = 0.6065 British Pounds) (Editing by Paul Sandle and David Holmes)