Annual Financial Report & Notice of AGM

RNS Number : 6533L

Kingfisher PLC

20 April 2018

 

20 April 2018

 

KINGFISHER PLC

(the "Company")

Annual Report and Accounts

In compliance with Listing Rule 9.6.1, the Company announces that the following documents have today been submitted to the UK Listing Authority and will shortly be available for inspection via the National Store Mechanism at www.hemscott.com/nsm.do

·       Annual Report and Accounts for the year ended 31 January 2018 (the "2017/18 Annual Report")

·       Notice of Annual General Meeting 2018

·       Proxy Form in respect of the Annual General Meeting 2018

The above documents have also been posted or otherwise made available to shareholders. The 2017/18 Annual Report and the Notice of Annual General Meeting 2018 have also been published on the Company's website at Kingfisher plc - Investors.

Additional Information required by Disclosure and Transparency Rule 6.3.5

In compliance with DTR 6.3.5, the following information is extracted from the 2017/18 Annual Report and should be read in conjunction with the Company's Final Results announcement for the year ended 31 January 2018 issued on 21 March 2018.  Both documents are available at www.kingfisher.com and together constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service.  Page and note references in the text refer to page numbers and notes contained in the 2017/18 Annual Report.  This announcement is not a substitute for reading the 2017/18 Annual Report in full.

1.       Risks

RISK MANAGEMENT

Given the scale of our businesses, the Board recognises that the nature, scope and potential impact of our business and strategic risks is subject to constant change. As such, the Board has implemented the necessary framework to ensure that it has sufficient visibility of the principal risks and the opportunity to regularly review the adequacy and effectiveness of our mitigating controls and strategies.

OUR APPROACH TO RISK MANAGEMENT

To Identify Our Risks, we start with our strategic pillars and consider what might stop us achieving our ONE Kingfisher plan. The process is therefore looking at the risks we face within our strategic planning period. The approach combines a top-down strategic company-level view and a bottom-up operational view of the risks at Operating Company and functional level. Meetings are held with our Operating Company leadership teams to identify the risks within the operations. To identify our principal risks, discussions are held with the Group Executive and non-executive directors. The information from the operational assessments is also considered to arrive at our principal risks. The table on page 41 shows how the principal risks link to the strategic pillars.

To Assess Our Risks, we consider the potential financial, reputational, regulatory or operational impact and probability that the risk may materialise. This helps us to assess the level of control we need to put in place. For each of the principal risks, we have included an assessment of the change in risk from last year. This assessment is based on the external environment, the company's operations, and before considering the impact of the controls in place. We have considered whether the risk is increasing, decreasing or remains unchanged.

To Manage Our Risks, ownership is assigned at all levels. Each Operating Company leadership team owns and is responsible for managing its own risks, putting appropriate controls in place and procedures to ensure that the controls are operating effectively. The same process is followed for our principal risks.

To ensure we effectively Monitor Our Risks, the principal risks are reviewed by the Group Executive and Board twice a year. Changes to the principal risks and mitigation strategies are considered as part of this review. During the year, the Audit Committee reviews the risk assessment process and receives presentations from some of the Operating Companies. These presentations include the risk assessment for the Operating Company enabling the Audit Committee to monitor the risks and level of control in place. Internal Audit also considers the risks at Operating Company and Group level when developing the internal audit plan.

The Corporate Governance report on page 54 gives further details about our governance processes.

Risk management process

Management

Group Executive

The Group Executive takes ownership of the principal risks. They are accountable for identifying, assessing and managing the principal risks, and for reviewing and assessing the Operating Company risks.

Operating Company Boards

The Operating Company boards are accountable for identifying, assessing and managing the risks within their Operating Company.

Governance

Board

The Board has overall responsibility for our risk management, and for the level of risk that the company is willing to take.

Audit Committee

The Audit Committee takes responsibility for overseeing the effectiveness of risk management and internal control systems, including reviewing the process the company has put in place to identify, assess and manage our risks.

THIS YEAR'S UPDATE

The principal risks have been reviewed this year in light of the progress made against our transformation plan. We have decided that the following risks are no longer principal risks. Each of these areas are still monitored and managed, however we do not believe they are principal risks for us.

·       We fail to manage the transformation of organising Kingfisher as a more unified company with a unified customer offer rather than a collection of individual businesses, impacting the delivery of the anticipated benefits and disrupting the underlying business.

This risk relates to our transformation and strategic pillars. The principal risks for 2018/19 cover each of our strategic pillars and this risk is reflected in those risks.

·       Our investments fail to deliver value to the company.

As the key investment in the Company relates to our transformation we believe that this risk is also covered in our other principal risks

·       We fail to identify and maximise potential cost reductions and efficiency savings.

A plan is in place to deliver the savings and is delivering against targets to date, therefore we do not think this is a principal risk.

·       We fail to deliver our sustainability targets due to not integrating our sustainability plan into the day to day operations of the business.

Sustainability remains an important area for the Group and is now integrated into the operations and therefore we do not think this is one of our principal risks.

·       We fail to maintain a safe environment for our customers and store colleagues which results in a major incident or fatality that is directly attributable to a failure in our Health & Safety management systems.

Health & Safety is a very important area to the company and is managed and monitored in each of our operations. This area does by its nature present some risk to the business, but we no longer consider it a principal risk.

We have added two new principal risks relating to the EU referendum outcome and cyber and data security. Both these areas have been considered in previous years by the Group Executive and Board as potential principal risks. This year, we think the risk has increased and therefore included both areas in our principal risks. Further details are included on pages 42 to 47.

OUR PRINCIPAL RISKS

The principal risks to delivering our strategy are set out on the following pages.

1. TECHNOLOGY DELIVERY

Technology is key to enabling our strategy, meeting customer needs and growing the business. Our Unified IT platform is designed to deliver our requirements in line with the plan to support the strategy. Failure to do this may impact the anticipated benefits and disrupt the underlying business.

Strategic Pillar

- Digital

How our risks have changed

No change. The implementation is complete at B&Q and is nearing completion at Castorama France. The roll-out is commencing in the remainder of our Operating Companies. The risk is increased for us as more of the estate is exposed to the implementation. However this is balanced by the lessons learnt to date and the opportunity to see the systems running day to day and helping us identify any additional capacity or actions required.

How we manage and monitor the risk

·     Change control procedure in place with the leadership team having final approval on all functional changes. ·     The roll-out plan avoids a 'big bang' implementation approach. Instead gradual increments are implemented over a short period, ensuring that dual running is kept to a minimum and allowing any issues to be identified and resolved before moving on. ·     Process in place to establish learning points and to ensure these are built into future roll outs. ·     'Agile' ways of working are already in place and are currently being enhanced to support the appropriate areas. ·     Existing partners have skills that can support our needs in this area. ·     Retaining knowledge by ensuring the colleagues who established the template are involved in the programme through the central team or via the local roll-out. ·     Applications are being provided in accordance with our proposed three-tier architecture, which provides flexibility to areas where innovative ideas are most likely, tools are typically agnostic and therefore can be interchanged in the event this is required. ·     Digital IT team is integrated within the overall IT function with common release management and operations in place. ·     Transformation team and Operating Company transformation directors in place to deliver the transformational change.

2. UNIFYING OUR OFFER & PROCESSES

We aim to offer customers a product range which is differentiated from that of our competitors through innovation and exclusivity. We are unifying our offer and standardising our activities and processes. This is a large and complex project, therefore there is a risk of not delivering the projected benefits.

Strategic Pillar

- Unified & Unique Offer

How our risks have changed

Increasing. There are plans in place for the range changes and the process is better understood following the implementations from last year, however as this project progresses the level of ranges impacted continues to increase and our risk exposure increases.

How we manage and monitor the risk

·      Teams with specialised roles to develop and take the best practice and the best products from across the company. ·      Strong project management process in place, including capturing lessons learned for continuous improvement. ·      Monthly tracking and review by the Offer & Supply Chain board to identify and respond to potential risks. ·      Validation and governance processes in place for business case approvals of range and procurement decisions. ·      Clearly defined range and purchasing standards, principles and methodology with guidance and support from expert leads. ·      Performance of the ranges and brands is tracked and strategies updated accordingly. ·      A strong sourcing network which is focused on securing company buying opportunities. ·      Vendor management process in place which includes vendor selection, risk assessments, monitoring of vendor responses, and communication. ·      Systems and data improvements have been identified and are part of the unified IT platform implementation.

3. CHANNEL DEVELOPMENT

As consumer preferences continue to change we must ensure we create a culture of innovation in our offer, format and digital channels that keeps pace with changing consumer behaviours and our competitors, to be able to stimulate spend and deliver the desired sales growth.

Strategic Pillar

- Unified & Unique Offer - Digital - Retail Operations

How our risks have changed

No change. Failing to keep pace within the digital area is a risk for us. However, we have continued to make good progress this year to ensure we are better positioned to fulfil our digital ambitions.

How we manage and monitor the risk

·      A Group digital strategy has been developed and a prioritised delivery roadmap is underway across the local markets. ·      Digital priorities programmes underway, Brilliant Basics and Home Improvement Platform. ·      A monthly Digital Governance forum is in place to monitor financial and project portfolio performance and to prioritise upcoming digital initiatives, ensuring we deliver the greatest benefits/features to customers through our digital channels across our Brilliant Basics and Home Improvement Platform developments. ·      Group mobile platform built and launched in B&Q; this will extend to desktop during 2018 to improve diy.com customers' experience further. A roll-out plan has also been developed for our other local markets in line with Easier and Group Transformation timelines. ·      Plans in place for a digital centre of excellence and digital delivery, roles, skills and knowledge have been defined. Resource recruitment underway. The ways of working are also being reviewed across all digital functions. ·      Unified IT programme continues to be rolled out across the Group to provide the systems and capabilities required to deliver the foundations for the digital strategy. ·      Click & Collect now live in B&Q stores to join up digital and offline journeys. This will be rolled group wide with the unified IT platform. ·      Group Concept Director appointed. ·      Retail concepts and common and unique customer experience being developed. ·      Starting to develop plans combining the best of store format and digital.

4. MACRO-ECONOMIC FACTORS

With continuing geopolitical uncertainty and market volatility across all the economies in which we operate, we are exposed to potential risks which may impact both consumer confidence and the long-term sustainability and capabilities of our supplier base.

Strategic Pillar

- Retail Operations

How our risks have changed

Increasing. There are still a number of uncertainties relating to the economy and heightened geopolitical tensions in some of our markets.

How we manage and monitor the risk

·      The provision of supply chain finance programmes to support suppliers. ·      Portfolio of international banking partners that provide flexibility, access to funding and reliable local retail cash and card payment processing services. ·      Diversification of cash holdings across a number of financial institutions with the strongest short-term credit rating. ·      An appropriate and prudent mix of hedging policies, cash deposits and debt financing to minimise the impact of foreign exchange currency volatility on the company. ·      Offer and pricing strategies designed to address consumer confidence. ·      Government Affairs team actively monitors the political and economic situations in the countries in which we operate or may impact our operations. ·      Strategies in place to identify, monitor and aim to influence changes to legislation which may impact the business. ·      The Government Affairs team oversees direct policy and political engagement with dedicated resource in the UK, France, Belgium, Poland and Russia, supported by local representatives in our Operating Companies and our membership of key business trade associations in every market.

5. EU REFERENDUM

Following the decision to leave the EU we have seen increased economic uncertainty, exchange rate volatility and an impact on consumer confidence in the UK market. This is likely to continue until EU exit negotiations are complete. These negotiations may result in further changes to regulation and operational frameworks which may impact our ability to operate across our European businesses as we do today.

Strategic Pillar

-    Retail Operations

How our risks have changed

Increasing. This risk has increased due to the continuing uncertainty as to the operational implications of the decision to leave the EU and the impact on trading performance from impacts on the economy in our key markets. We have therefore decided to specifically include this within our principal risks.

How we manage and monitor the risk

·      Brexit Steering Group has been in place since the 2016 referendum. ·      Actively monitoring the Brexit process via the Government Affairs team, Treasury, Finance and Tax, People and IT teams alongside UK and French Operating Companies. ·      Work is underway to consider the implications of Brexit, considering different scenarios and preparing mitigation plans. ·      As the situation becomes clearer and the mechanics of an exit are known, more detailed plans will be prepared. ·      Updates are planned for the Board as part of the forward plan of work for the year.

6. INVESTING IN OUR PEOPLE

Our colleagues are critical to the successful delivery of our strategy and business. We must make the necessary investment in our people to ensure that we have the appropriate capacity, skills and experience.

Strategic Pillar

-    Unique and Unified -    Digital -    Operational Efficiency -    Retail Operations

How our risks have changed

No change. We continue to monitor and manage this risk closely. While the risk exposure is significant we have a clear understanding of the scale of the change and plans in place to deliver the model.

How we manage and monitor the risk

·      The Chief People Officer is leading the work to improve our capabilities, ensuring we have effective KPIs and relevant reward structures. ·      Work is underway to redesign, where required, HR processes, policies and guidelines to ensure they are fit for purpose and in line with our ambition. Initial focus will be on recruitment, reward, talent and engagement. ·      Remuneration Committee oversees the reward policy. ·      New engagement tool introduced to ensure we have an appropriate and timely engagement methodology which enables us to check across all staff our ability to drive the changes we need whilst being able to respond to any insights which may impact upon our duty of care as an employer. ·      Creating a strong pipeline of developing talent through structured programmes including graduate and high potential schemes for the development of senior leaders. ·      Nomination Committee oversees the Board composition and succession planning. ·      Continue to invest in development activities for our store-based colleagues and in how we support and recognise the role of our customer advisors across the organisation. ·      Home Improvement and Range Academies developed to build capability and inform colleagues on the new ways of working and product ranges.

7. PRICE COMPETITIVENESS

We continue to face a broad range of competitors across our markets. A lack of actual or perceived price competitiveness, particularly when compared to more discount based or online competitors, would affect our ability to maintain market share or result in a loss of market share

Strategic Pillar

Unified and Unique Offer

How our risks have changed

No change. We have taken further steps this year to monitor and manage this risk and therefore believe the risk level is unchanged.

How we manage and monitor the risk

·    A group pricing strategy is in place. The Offer & Supply Chain and trading functions set recommended prices on all unified ranges, securing the best selling price whilst optimising margin. ·    Regular pricing studies undertaken with regards to the market and price positioning aligned with competition. ·    Investment in pricing to reinforce and communicate our value credentials. ·    Developing improved customer insight and analytical tools to optimise product ranging and pricing strategies. ·    More targeted use of online and mass media tools to communicate and reinforce price perception. ·    Role of Director of Pricing created, responsibilities include overseeing the pricing strategy for the Group.

8. LEGAL AND REGULATORY

The Group's operations are subject to a broad range of regulatory requirements in the countries in which it operates. A major corporate issue or crisis, a significant corporate fraud or material non-compliance with legislative or regulatory requirements would impact Kingfisher's brand and reputation.

Strategic Pillar

-     Unified & Unique Offer -     Digital -     Retail Operations

How our risks have changed

Increasing. Regulatory requirements are increasing in many areas and therefore we see this as an area of increasing risk for us.

How we manage and monitor the risk

·    Employees and suppliers working for or with Kingfisher must conduct themselves according to our minimum standards of ethics and behaviours as defined by our Code of Conduct. ·    Responsibility for compliance with our Code of Conduct rests with each Operating Company Chief Executive. ·    Appropriate resources are available to our Operating Companies to ensure that both colleagues and suppliers are aware of, and comply with, the Code. ·    Legal teams in Group and each of our Operating Companies work and communicate together to form a legal compliance network. ·    Communications teams at Kingfisher and each of our Operating Companies work together to form a communications network. ·    A Crisis Communications team is in place to manage major incidents. ·    Policies and procedures in place to support the health & safety, environmental, ethical, fraud, crisis management, legislative and regulatory areas. ·    Anti-bribery training in place and all key individuals must complete this training. ·    Whistleblowing hotline throughout the Group and all calls are followed up, including monitoring at the local Audit Committee level. ·    Market Abuse Regulations policy and training in place.

9. CYBER AND DATA SECURITY

Cyber attacks and security incidents have increased in recent years and the retail sector is now a target. There have been a number of high profile attacks in the sector in recent times that have had an impact on operations, profitability and reputation.

Strategic Pillar

-    Digital -    Retail Operations

How our risks have changed

Increasing. This risk has been monitored by the Group Executive and Audit Committee for the last few years, however this year we have decided to add this area to our principal risks as we believe the risk of this type of incident is increasing.

How we manage and monitor the risk

Cyber Security ·      Cyber security continues to receive Executive level sponsorship and Group Audit Committee focus. ·      Dedicated IT Governance boards are established to monitor this evolving risk and the associated mitigating controls. ·      Independent reviews are performed of the Cyber security processes and initiatives on an annual basis. ·      We have reviewed the threats facing Kingfisher and have been working with partners and security specialists to implement tools and processes to identify and remediate vulnerabilities. ·      We have a clear roadmap for 2018 to further enhance our threat intelligence and incident responses to meet the challenges of the continually changing cyber environment. Data Protection ·      We have data protection and management policies in place. ·      Steps are being taken to enhance data protection in light of the General Data Protection Regulation (GDPR) being introduced in May 2018. ·      IT solutions and appropriate training regarding data protection and management.

2.       Details of Related Party Transactions

During the year, the Company and its subsidiaries carried out a number of transactions with related parties in the normal course of business and on an arm's length basis. The names of the related parties, the nature of these transactions and their total value are shown below:

	2017/18		2016/17
£millions	Income	Receivable	Income	Receivable
Transactions with Koçtas Yapi Marketleri Ticaret A.S. in which the Group holds a 50% interest   Commission and other income	0.7	0.2	1.0	0.4
Transactions with Crealfi S.A. in which the Group holds a 49% interest   Provision of employee services   Commission and other income	0.2 6.6	- 0.2	0.1 6.4	- 0.3
Transactions with Kingfisher Pension Scheme   Provision of administrative services	1.3	-	1.3	0.1

Services are usually negotiated with related parties on a cost-plus basis. Goods are sold or bought on the basis of the price lists in force with non-related parties.

The remuneration of key management personnel is given in note 8.

Other transactions with the Kingfisher Pension Scheme are detailed in note 26.

3.       Directors' Statement of Responsibility

The directors confirm that to the best of their knowledge:

·       the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;

·       the strategic report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face; and

·       the Annual Report and financial statements, taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy.

4.       Events after the balance sheet date

In February 2018, the Group commenced formal consultation with employee representatives regarding its plans in France to restructure the business as part of the Group's transformation plan. This is expected to result in an exceptional cost of around £35m.

Paul Moore, Group Company Secretary

Tel: [phone]

Kingfisher plc

3 Sheldon Square, London W2 6PX

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