Kingfisher is expected to cut its dividend payouts and accelerate expansion abroad after the DIY group said that Gerry Murphy, its chief executive, would step down with a payoff of up to £2.25 million (see Commentary, page 49).

Mr Murphy, who joined the retailer five years ago, has been under pressure from investors for nearly two years after the performance of the core B&Q chain weakened and profits shrank by a quarter.

The former Carlton Communications boss was seen to have failed to prepare Kingfisher for the dramatic slowdown in DIY sales in 2005 and to have balked at cutting the dividend to fund investment in the business.

Geoff Ruddell, an analyst with Morgan Stanley, said: “Kingfisher’s strategy was always ambitious and relied on a strong UK DIY market.

“As the market is now clearly turning down again, something had to give.”

Peter Jackson, the chairman, insisted that the strategy of building positions in fast-growing markets, such as China, and improving the established businesses such as B&Q and Castorama “is the right one”.

However he raised the possibility that Kingfisher would trim its dividend and focus capital instead on higher-growth international retail saying: “We are determined to build with vigour on this strategy, maximising group synergies and sharpening our focus on capital allocation and investment returns.”

Kingfisher shares, which fell to a five-year low of 170p last month, yesterday slipped 7½p to 189½p.

Mr Murphy, 51, will leave with a possible maximum payment of £2.25 million, plus 450,000 shares. His will receive compensation of up to £1.6 million in phased payments over a year; a £250,000 payment into his pension and 200,000 shares from an incentive scheme, worth £400,000 at today’s prices. The payout will be lower if he begins a new job within the year.

Ian Cheshire, who is leading Kingfisher’s attempts to revive B&Q, is tipped as a likely successor.

Kingfisher is also expected to approach big retail names such as Richard Baker, who recently left Alliance Boots, and Richard Brasher, the Tesco board director.

Mr Jackson said: “The board believes there is strong internal succession for the role, but we will take time for a thorough external search.”

Mr Murphy’s decision to leave came after boardroom discussions over the company’s direction in the next three to five years.

It was felt that the chief executive could not commit himself to remaining with the group for a full five years and therefore clarity was required over his succession.

Kingfisher has had a difficult six months, its shares plunging 37 per cent while UK trading has been poor, like-for-like sales down 2 per cent. It issued a profit warning in September and forecast a tough period.

At the beginning of the year, the group was seen as a private equity takeover target – largely because of its large freehold property portfolio valued at around £3.2 billion. However, turmoil in the financial markets appears to have put paid to hopes of a takeover bid for now and the share price has fallen right back.

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