Annual Financial Report & Notice of AGM

RNS Number : 2467R

Kingfisher PLC

26 June 2020

 

26 June 2020

KINGFISHER PLC

(the "Company")

Annual Report and Accounts 2019/20 and Notice of 2020 Annual General Meeting

The Company's Annual Report and Accounts for the year ended 31 January 2020 (the 'Annual Report') and Notice of Annual General Meeting to be held on 24 July 2020 have been published on the Company's website www.kingfisher.com (together 'the Documents'). The Documents have also been posted or otherwise made available to shareholders, depending on their elected method of communication.

In accordance with Listing Rule 9.6.1 a copy of the Documents, together with the Form of Proxy have also been submitted to the National Storage Mechanism and will shortly be available for inspection at  https://data.fca.org.uk/#/nsm/nationalstoragemechanism .

The final results for the year ended 31 January 2020, released by the Company on 17 June 2020, include the information required pursuant to Rules 4.1 and 6.3.5R of the UK Disclosure Guidance and Transparency Rules, excepting publication of the responsibility statement of the Directors in respect of the 2020 Annual Report, a description of the principal risks and uncertainties facing the Company, and the related party transactions carried out by the Company and its subsidiaries during the year, which are detailed below:

1.  Principal risks

The principal risks and uncertainties facing the Company are set out below.

1. LEVEL AND IMPACT OF CHANGE

As we continue to evolve our business, there are significant programmes of work underway targeting improvements in our offer, market positions and cost base. These programmes may not achieve their objectives and have the potential to disrupt our business if we fail to properly prioritise activity and manage change effectively. Failure to realise programme targets and/or business disruption could result in weaker than anticipated sales growth and a failure to maintain operating margins or generate sufficient cash to meet our objectives.

Link to strategic priorities

· 'Focus and fix' in 2020 · Move to a balanced, simpler local-group operating model with an agile culture · Grow e-commerce sales · Build a mobile-first, service orientated customer experience · Differentiate and grow through own exclusive brands (OEB) · Test new store concepts and adapt our store footprint · Source and buy better, reduce our costs and our inventory

How our risks have changed

No change. Change has been a constant feature of our business for some time and we have established processes in place to manage, monitor and report the delivery of strategic activities arising from these programmes.

How we manage and monitor the risk

· Central Transformation & Results Delivery Office established with Group Executive-level leadership. · Clearly prioritised strategic change taskforces established with Group Executive ownership and measurable outcomes. · Monthly tracking against key milestones and reporting to the Group Executive and the Board. · Regular strategic updates to the Board. · Retail banner Transformation Directors in place to design and deliver change into the business. · Periodic reviews of governance and enabling activities undertaken by Internal Audit.

2. CONTAGIOUS DISEASES

A prolonged global health threat could adversely affect our business by disrupting our and our partners operations, causing a significant reduction in footfall and consumer spending and by negatively impacting our ability to receive products from affected countries. Also, high levels of absence in our workforce could impact our ability to operate stores or provide appropriate functional support to our business. Such restrictions and/or reductions in demand could adversely affect our financial condition and results of operations.

Link to strategic priorities

· 'Focus and fix' in 2020 · Responsible business

How our risks have changed

New risk.

How we manage and monitor the risk

We monitor the development of such events closely, convening a Group-led Crisis Committee to bring together functional leaders to determine the additional actions necessary to manage the consequences of a situation and its impact on our people and operations. We started to convene the Group Crisis Committee in late January to consider the impact of the Covid-19 outbreak. Since then, the Committee has met frequently to monitor events and response strategies closely. The Board provides regular oversight to evaluate the impact of Covid-19 on Kingfisher, including impact on long term viability and going concern. The health and safety of our colleagues and customers has remained our top priority, alongside supporting governments to limit the spread of the virus. We have mobilised business continuity and crisis teams in each of our markets with response measures including: · Implementing changes to our stores (the majority initially closed for browsing, with a move to contactless click and collect or home delivery models and a limit on ranges to essential items. Almost all of our stores are now open with strict hygiene and social distancing measures enforced). · Redeploying or furloughing selected Group colleagues. · Moving office-based staff to a work from home basis. · Significantly reducing discretionary spend, including freezing of pay reviews and recruitment. · Stopping all non-committed capital expenditure. · Taking advantage of other working capital optimisation measures, e.g. delays or holidays for rates and taxes. · Reprioritisation of sourcing requirements and adjusting purchasing plans. We will continue to adjust our response activities as publicly available information evolves.

3. BUSINESS RESILIENCE

Technology is key to our business and the achievement of our strategic objectives. We are increasingly reliant on resilient and secure systems and networks to maintain our operations. Similarly, we are dependent on complex supply chains and delivery solutions to deliver our products to our customers. A significant failure of our IT infrastructure or key systems could result in the loss of data or an inability to operate efficiently, with an adverse financial, regulatory or reputational impact. A disruption to our supply chain could have a similar impact.

Link to strategic priorities

· Grow e-commerce sales · Build a mobile-first, service orientated customer experience · Source and buy better, reduce our costs and our inventory

How our risks have changed

No change. We recognise that complexity in our business and supply chain inevitably results in a high level of risk. We maintain a programme of continuous improvement to understand and manage the evolving risk landscape.

How we manage and monitor the risk

IT infrastructure: · A common IT infrastructure is in place across our markets. We work closely with our suppliers to maintain the stability of our environment. · We operate from highly resilient data centres that are tested regularly. · We have tested and proven everything that is essential/common to the 'infrastructure stack'. We continue to learn and enhance both our solution and our understanding. · We have been operating core solutions with volume/stress for some time and we continue to assess the efficiency and capability of the solution/infrastructure. Where appropriate we have taken action to ensure we have an environment that is fit for purpose. · We deploy a robust suite of tools to identify and manage internal and external threats to our infrastructure, systems and platforms. · Service continuity is embedded with our IT culture. Supply chain: · A new three-year Supply and Logistics roadmap will be developed in 2020/21 which will consider our future logistics capacity needs based upon the various sourcing, inventory and sales generative strategies identified in the Group's strategic planning activities. · A full review of our business continuity plans is underway looking at our internal points of failure and key partner disaster-recovery plans to ensure that a response to supplier and logistics failures is also built into the actions. Plans are being tested live as part of our Covid-19 response activities. · The Group Supply Chain function has established a programme management office that governs all major supply chain change programmes. This links into the overall Group strategic governance framework. · We identify key suppliers by category to establish capacity and volumes and assess the impact of an interruption in supply. · See Principal Risk 7 for more detail about Brexit planning.

4. COMPETITION

Intensifying competition, including online, may put downward pressure on sales and margins and could have an adverse effect on our revenues and profitability. We compete with many companies in each of our markets. Targeted actions by competitors could negatively impact our market share, the value of our assets and our financial results.

Link to strategic priorities

· Build a mobile-first, service orientated customer experience · Differentiate and grow through own exclusive brands (OEB) · Source and buy better, reduce our costs and our inventory

How our risks have changed

New risk.

How we manage and monitor the risk

We monitor our performance to react quickly to targeted actions by competitors via: · Enhanced rapid-insight key performance metrics. · Reinforced performance reviews tracked by the Offer and Sourcing board to respond to risks. We are building a differentiated offer through: · Customer trend monitoring in all our markets to anticipate and develop an appropriate offer. · A clearly defined set of range principles and customer projects to create a compelling offer and to reinforce differentiation of our offer to build sales growth and margin improvement. · Periodic review of the offer strategy and range review roadmap to prioritise key programmes. · Building strong programmes, deployed across the Group, to benefit from volume and lower purchase price to be able to compete on prices. We are focusing on a strong customer journey, including: · End-to-end project planning activities to ensure 'in full, in time' delivery. · Supplier management processes in place covering selection, risk assessment, monitoring of supplier responses and communication. · Clear minimum standards for suppliers covering credit, sustainability, quality and technical. · Dual sourcing where needed to avoid disruption in the event of supplier failure.

5. CHANGING CUSTOMER PREFERENCES

As customer preferences change, we must ensure we have innovative digital channels supported by a strong and agile infrastructure, including supply chain and logistics capability and an optimised property portfolio, to make our product sufficiently compelling to customers and available when and where they want it. Failure to optimise our channels could affect our ability to stimulate spend and deliver the desired sales growth. It could also adversely impact the value of our assets and our financial results.

Link to strategic priorities

· Focus and fix' in 2020 · Grow e-commerce sales · Build a mobile-first, service orientated customer experience · Test new store concepts and adapt our store footprint

How our risks have changed

Increasing. Failure to keep pace with changing customer preferences is a key risk for us and an area we recognise is evolving rapidly. We continue to enhance our priorities and processes to manage and monitor the risk.

How we manage and monitor the risk

· During the year, we made eight new appointments to the Group Executive, two of which were the roles of Chief Customer and Digital Officer and Chief Supply Chain Officer. We have also brought together the Digital and IT teams to better align their activities. · A Group digital strategy has been developed, with various digital priority programmes underway. · We have an established regular Digital Governance Forum to monitor financial and project portfolio performance and to prioritise upcoming digital initiatives. · We have launched a number of strategic programmes which include store concepts and service platforms, offer and range, and our digital journey.

6. POLITICAL AND MARKET VOLATILITY

Geopolitical uncertainty and local volatility, including strikes and work stoppages, exist across all the markets in which we operate, exposing us to potential risks which may impact consumer confidence, availability of our workforce or negatively impacting our ability to receive products from affected countries potentially disrupting the day-to-day operations of our business.

Link to strategic priorities

· Move to a balanced, simpler local-group operating model with an agile culture

How our risks have changed

Increasing. We have seen an increased level of uncertainty relating to the economy across our key markets, heightened geopolitical tensions, disruption in some of our markets and continued currency volatility.

How we manage and monitor the risk

Treasury mitigations · The provision of supply chain finance programmes to support suppliers. Additional information on these arrangements can be found in note 21 of the consolidated financial statements. · Portfolio of international banking partners that provide flexibility and reliable local retail cash and card payment processing services. · Access to funding, both debt funding, including an up-to-date Debt Capital Markets programme, and significant committed liquidity facilities. · 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. Monitoring and engagement activities · The Corporate Affairs team actively monitors the political and economic situations in the countries in which we operate or which may impact our operations. · Strategies in place to identify, monitor and aim to influence changes to legislation which may impact the business. · The Corporate Affairs team oversees direct policy and political engagement with dedicated resource in the UK, France, Belgium, Poland and Romania. This is supported by local representatives in our retail banners and our membership of key business trade associations in every market. · Crisis management processes and teams in place to monitor and manage situations as they arise. · Group Offer and Sourcing teams manage supplier relationships with the aim of managing cost and quality and maintaining appropriate levels of product availability through periods of disruption.

7. BREXIT

Following completion of the UK exit agreement, significant risks remain from the ongoing negotiation of the future trade agreement with the European Union and possible divergence of the UK regulatory framework. Failure to reach an adequate agreement within the currently agreed transition period may impact our purchase costs, the continuity of our supply chain and our ability to operate our European businesses as we do today. These conditions also present economic uncertainty impacting UK consumer confidence.

Link to strategic priorities

· Move to a balanced, simpler local-group operating model with an agile culture

How our risks have changed

No change. This risk has reduced since the conclusion of the UK exit agreement at the end of January 2020 and avoidance of the previous no-deal Brexit scenario. However, the risks surrounding the ongoing trade negotiations remain significant.

How we manage and monitor the risk

· A multi-functional Kingfisher Brexit Steering Group has been in place since the 2016 referendum. This group is responsible for monitoring the Brexit process and agreeing actions. · We continue to engage directly with Government and alongside key trade bodies. · We continue to consider different Brexit scenarios, preparing mitigation plans across key operational areas, including: · Import duties and related import costs and mitigations through alternative sourcing arrangements. · Improvements to importation and customs clearance processes to avoid delays at borders. · Supply chain disruption risks and use of alternative ports and distribution arrangements. · Working closely with our suppliers to ensure they have similarly made adequate preparation. · Updating our product standards and documentation to ensure products remain compliant for sale in both EU and UK markets. · Monitoring and updating our regulatory procedures generally.

8. ATTRACTING, RETAINING AND INVESTING IN OUR PEOPLE CAPABILITY

Our colleagues are critical to the successful delivery of our strategy and business. Failure to achieve an effective organisational design, appropriate ways of working and the right balance of skills, capability and capacity as well as adequate succession plans, could impact our ability to meet our business objectives.

Link to strategic priorities

· 'Focus and fix' in 2020 · Move to a balanced, simpler local-group operating model with an agile culture · Lead the industry in Responsible Business practices

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 have plans in place to manage these.

How we manage and monitor the risk

· We have announced the appointment of a new Chief People Officer to the Group Executive. · Work has continued through the year to ensure our HR processes, policies and guidelines are fit for purpose and in line with our ambition with a focus on recruitment, reward, talent and engagement. · The Nomination Committee oversees the Board composition and succession planning, and the Remuneration Committee oversees the reward policy. · We have ensured time allocated at Group Executive and Board meetings to work on succession planning, holding leaders accountable for developing their own successors. · We have continued to invest in leadership and talent programmes to strengthen succession pipelines and drive change. These include development activities for our store-based colleagues and how we support and recognise the role of our customer advisors across the organisation. · Delivery of Home Improvement and Range Academies to build capability and inform colleagues of new ways of working and product ranges. · Engagement processes are in place to enable us to check across all our colleagues our ability to drive the changes we need whilst being able to respond to insights which may impact on our duty of care as an employer.

9. LEGAL AND REGULATORY

The Group's operations are subject to an increasing range of regulatory requirements in the markets in which it operates. A major corporate issue or crisis, a significant fraud or material non-compliance with legislative or regulatory requirements would impact our brand and reputation, could expose us to significant fines or penalties and would require significant management attention.

Link to strategic priorities

· Source and buy better, reduce our costs and our inventory · Lead the industry in Responsible Business practices

How our risks have changed

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

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. · Group-wide mandatory training on Code of Conduct (which includes a module on anti-bribery and corruption) was rolled out in 2019 and will be continued in 2020. · Responsibility for compliance with our Code of Conduct rests with each retail banner Chief Executive Officer. · Appropriate resources are available to our retail banners to ensure that both colleagues and suppliers are aware of, and comply with, the Code of Conduct. · Legal teams at Group-level and in each of our retail banners work and communicate together to form a legal and compliance network. · Communications teams at Kingfisher and each of our retail banners work together to form a communications network. · A Crisis Communications team is in place to manage major incidents. · Policies and procedures are in place to support the health and safety, environmental, ethical, fraud, data protection, crisis management, legislative and regulatory areas. Health & safety data is reported quarterly to the Board. · Modern Slavery Steering and Working Groups oversee an action plan to address risks of modern slavery and our annual transparency statement, which is published in line with legal requirements. · Data Protection training is in place for all colleagues and a Fair Competition training module is available to key individuals in high‑risk areas. · Anti-bribery training is in place and all key individuals must complete this training. · A whistleblowing hotline, facilitated by an independent third party, is in place throughout the Group. All calls are followed up and investigated where necessary. Statistics and trends are monitored at the local Audit Committee level and reported regularly to the Board. · A risk-based third-party due diligence process is in place to assess and mitigate risks such as bribery and corruption, personal data processing and modern slavery. · A Group policy and training is in place for appropriate colleagues to make them aware of their obligations under the Market Abuse Regulation.

10. CYBER AND DATA SECURITY

The risk of a sustained cyber-attack has increased in the retail sector. Failure to meet our legal and regulatory obligations in respect of data privacy and security could result in financial penalties and adverse reputational damage, as well as impacting our ability to maintain efficient operations.

Link to strategic priorities

· Grow e-commerce sales · Build a mobile-first, service orientated customer experience · Lead the industry in Responsible Business practices

How our risks have changed

Increasing. In line with other organisations we continue to see an increase in the frequency and sophistication of cyber-attacks and security incidents which require us to remain vigilant in this area. The risk is extending beyond traditional IT environments into business processing and supply chain increasing the risk landscape.

How we manage and monitor the risk

Cyber security · Cyber security continues to receive Group Executive-level sponsorship and Board focus. · Dedicated IT Governance boards are established to monitor this evolving risk and the associated mitigating controls. · As part of our IT planning processes, we have established a roadmap which covers security, governance and identity initiatives to continue to mature the tools and capabilities we have available to us. · Independent reviews are performed of our cyber security processes and initiatives on an annual basis. · We regularly review the cyber threats facing Kingfisher and have been working with partners and security specialists to implement tools and processes to better identify and remediate vulnerabilities. Data protection · A data protection organisational structure has been deployed within the Group. · We have data protection and management policies in place. · Data protection has been enhanced in light of GDPR including: · Data privacy impact assessments. · Assessments for new and existing suppliers. · Annual e-learning awareness training for all colleagues. · Checkpoints within IT developments to ensure compliant design and delivery.

11. REPUTATION AND TRUST

Our customers, colleagues, suppliers and the communities in which we operate expect us to conduct our business in a way that is responsible. Our Code of Conduct establishes the behaviours we expect of ourselves and others and we have publicly communicated ambitious Responsible Business targets. Failure to deliver on our obligations and commitments could undermine trust in Kingfisher, damage our reputation and impact our ability to meet our strategic objectives.

Link to strategic priorities

· 'Focus and fix' in 2020 · Lead the industry in Responsible Business practices

How our risks have changed

New risk.

How we manage and monitor the risk

Governance · Our Code of Conduct establishes the core behaviours we expect of ourselves and others and we have publicly communicated ambitious Responsible Business principles and measures. See principal risk 9 for more detail. · A new Responsible Business Committee of the Board has been established (see the Responsible Business section on pages 22 to 25). · Our annual reward measures help to ensure that Environment, Social and Governance (ESG) issues and stakeholder concerns are further prioritised. · Issues Tracking and Stakeholder Dialogue · Monitoring of external stakeholders' views of our company through traditional and digital media for all our companies. · Regular stakeholder engagement and employee engagement means that listening and responding to stakeholder concerns is fully entrenched within the corporate strategy. · For colleagues, this ranges from established Employee Forums and Works' Councils in all of our businesses including a collective forum that meets with the CEO and members of the Board, including the Chairman. · Externally we have regular engagement with NGO partners in our key markets, including Shelter, Forum for the Future, Green Alliance, and the Centre for European Reform, which helps to ensure that the company remains close to social and environmental concerns. (Read more about company stakeholder engagement on pages 18 to 19 and Board stakeholder engagement on pages 56 to 57). Due Diligence and External Assurance · Our Annual Report covers how we manage our business in the interests of all stakeholders in line with section 172 of the Companies Act while our annual Responsible Business report covers our approach and performance on ESG issues in greater depth. · Our due diligence of suppliers covers a range of ESG issues, from environment to modern slavery; and includes our policy framework and supplier standards which we expect suppliers to adhere to; supplier training and capacity building; and auditing of high-risk suppliers. · Our due diligence extends to the data we disclose. Selected ESG data in the annual Responsible Business report and Modern Slavery Statement is independently audited by DNV GL. · Independent ratings agencies also monitor and rate our ESG performance throughout the year - including MSCI, CDP, Sustainalytics and ISS ESG. · Communications and Issues Management · Kingfisher and its companies have a network of communications teams, who undertake comprehensive communications planning for key developments and issues. We work with a network of external reputation advisers in all our key markets. · Kingfisher plc maintains a Crisis Management Framework and Business Continuity Plans for all the Group. This includes a Crisis Communications Plan and core central team made up of the Internal Audit and Risk Director; Director of Enterprise Risk; Corporate Affairs Director; and Head of Media Relations.

12. ACQUISITIONS AND DISPOALS

As part of the optimisation of our business activities we may from time to time divest activities or acquire new businesses. Divestments or acquisitions are based on detailed plans that assess the value creation opportunity for the company. These plans are inherently uncertain and provide execution and market risks which might have been overlooked or incorrectly forecasted. If an existing, or future, divestment or acquisition effort is delayed or is not successful, we may incur additional costs and the value of our asset may decrease significantly and have an adverse effect on our revenues and profitability.

Link to strategic priorities

· Focus and fix' in 2020 · Move to a balanced, simpler local-group operating model with an agile culture

How our risks have changed

New risk.

How we manage and monitor the risk

· We have created a Group Investment Committee (GIC) and strengthened review and approval activities of potential acquisition and disposal activity through the Finance Committee. · The Group delegation of authority requires Kingfisher plc Board scrutiny and approval of all mergers and acquisitions (M&A) activity exceeding £10 million in value and CEO approval for all activity below £10 million. · Our long-term business plan process regularly assesses the business strategy and performance of each entity within the portfolio against strategic KPIs. · The Group Executive conducts periodic deep dives on portfolio performance. · The Audit Committee receives a rolling review of business unit risks and operations throughout the year. · We have a dedicated M&A function with appropriately skilled experts and use of approved external advisors. Clear accountability for M&A process rests with the Chief Transformation and Development Officer. · We have a structured M&A project management approach including a transaction playbook and project governance that ensures all relevant functional experts are consulted in the M&A process.

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:

	2019/20		2018/19
£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	0.3	-	0.4	-
Transactions with Crealfi S.A. in which the Group holds a 49% interest Provision of employee services  Commission and other income	0.1 4.9	- 0.2	0.6 5.7	- 0.3
Transactions with Kingfisher Pension Scheme Provision of administrative services	1.0	0.2	1.5	-

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 27.

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 parent 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 position and performance, business model and strategy.

Paul Moore, Group Company Secretary

Tel: [phone]

Kingfisher plc

3 Sheldon Square, London W2 6PX

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