Annual Financial Report

RNS Number : 0888L

Kingfisher PLC

30 April 2010

 



30 April 2010

KINGFISHER PLC - ANNUAL REPORT AND ACCOUNTS 2009/10

UK Listing Authority Submissions

The following documents have today been submitted to the UK Listing Authority in accordance with Listing Rule 9.6.1, and will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility, situated at The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London, E14 5HS (telephone number: [phone]):

·     Annual Report and Accounts 2009/10

www.kingfisher.com/Reports

·     Notice of Annual General Meeting 2010

www.kingfisher.com/AGM

These documents may also be accessed on Kingfisher plc's website via www.kingfisher.com, or by using the links above.

If you would like to receive a printed copy of any of the above documents,  please contact the Kingfisher plc's registrars, Computershare Investor Services PLC at The Pavilions, Bridgwater Road, Bristol BS99 6ZZ or via the shareholder helpline number 0870 702 0129.  

Additional Information

The following information is extracted from the Annual Report and Accounts 2009/10 and should be read in conjunction with Kingfisher plc's final results announcement for the year ended 30 January 2010 issued on 25 March 2010.  Both documents can be found 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 references in the text refer to page numbers in the Annual Report and Accounts 2009/10.  This material is not a substitute for reading the Annual Report and Accounts 2009/10 in full.

1.       Principal Risk Factors

"Given the scale and diversity of our businesses, the Board of Directors recognises that the nature, scope and potential impact of our key 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 Group's key risks and the opportunity to regularly review the adequacy and effectiveness of our mitigating controls and strategies.

The Corporate Governance report on pages 35 to 40 describes the systems and processes through which the directors manage and mitigate risks.

The Board considers that the principal risks to achieving its objectives are set out below:

Risk	Action
1: China fails to deliver the desired return Although the Company has established a significant market share and brand presence in our key Chinese consumer markets the business has not delivered the desired return on invested capital.	We have made solid progress with the turnaround programme in our operations in China and have implemented a number of key actions including: measures to strengthen the management team, a stock clearance plan to release working capital and a store re-organisation plan to ensure that our store locations are appropriate. We are now currently evaluating a new format and product ranges to ensure that the B&Q China proposition is aligned with our customers' needs in order to provide a sustainable and long-term return.
2: The fragility of economic recovery continues to undermine consumer confidence and restricts opportunities for growth. Uncertainty surrounding the resilience of the global economy and the ongoing effectiveness of fiscal stimulus and monetary measures continue to impact consumer confidence and present a difficult trading outlook across the retail sector, particularly in terms of delivering opportunities for growth.	We remain committed to the measures implemented throughout 2009 to ensure the Group is appropriately managed in a tough economic environment. Strong cash generation throughout 2009 has enabled the Group to reduce financial net debt from £1 billion at the end of 2008/09 to £250 million at the end of 2009/10. Given the robust health of our balance sheet, the ongoing availability of undrawn bank facilities and the recovery of the bond markets, we are confident that we have sufficient financial flexibility to manage the business through any worsening of the economic climate.
3: We fail to take advantage of our combined buying power synergies and economies of scale There is a risk that we fail to 'unlock' the potential to generate further shareholder value through the optimisation of combined purchasing and commercial synergies.	We have introduced challenging targets across our major operating companies to ensure we have identified those categories that will benefit most, in terms of optimising cash margin gains, from a more collective approach to both international contract negotiations and own-brand opportunities. Increased alignment of products, sourcing, and packaging strategies for our major own-brand products continue to drive cost price reduction opportunities. The Kingfisher Sourcing Organisation has also been enhanced to ensure it has the appropriate structures to deliver improved direct sourcing opportunities across the Group.
4: Our systems and supply chain infrastructures lack the flexibility and capability to support the delivery of our strategic plans Our ability to deliver the targets set by our seven steps to 'Delivering Value' strategy will undoubtedly place increasing demands on our existing supply chain and systems infrastructure and technologies. There is a risk that our infrastructure will lack the necessary scalability, flexibility and resilience to support its successful execution. This is particularly relevant to our operating companies in developing markets who may not yet have the necessary logistics infrastructure and capabilities in place to accommodate our direct sourcing plans.	We have plans to make the necessary information technology investment to maintain or extend the useful lives of our existing technologies and developing solutions that directly support our Delivering Value plans. Where possible, we are also seeking to eliminate complex or heavily bespoke technologies that may hold back new and innovative customer offers. We remain committed to ensuring that we invest in the right supply chain infrastructures to support our growth plans and allow us to maximise synergies and efficiency opportunities.
5: We fail to adopt our formats and models to meet ongoing changes in consumer trends, particularly the given the impact of developments in the multi-channel sphere. Across our businesses we operate in increasingly sophisticated and changing markets. Our customers are becoming increasingly comfortable with the idea of shopping online and are using the internet more interactively, not just to make purchases, but also to research and seek inspiration and ideas for their homes and families. The ability to offer our customers a full and compelling multi-channel offering in terms of products, ideas, delivery options, services and innovations is becoming increasingly important and there is a risk that if we fail to capitalise on the continued growth of the internet and invest in multi-channel technologies we will lose market share to both traditional home improvement and new online competitors.	Improving our multi-channel offer forms a core component of how we develop our customer proposition and we are investing to ensure we fully exploit our multi-channel capabilities. We are also investing in improvements to both the quality and depth of our knowledge and understanding of customer insight and market trends.
6: Impact of a major health and safety failure affects our reputation and results in harm to our employees, penalties or prosecution There is a risk that repeated health and safety failures could result in a major incident or fatality that is directly attributable to either a systematic or institutionalised failure in our health and safety management systems. This would result in damage to our reputation through adverse publicity, prosecution and censure.	With around 78,000 employees and six million customers visiting our stores each week, robust health and safety systems are a priority. The Board is committed to creating and sustaining a safe environment for both our staff and customers and regularly review and challenge health and safety performance, standards and targets across our businesses. Kingfisher's Corporate Centre is also responsible for facilitating the sharing of health and safety best practice between the Group's businesses and the development of minimum Group standards, which in some cases will be stricter than local regulatory requirements. While regulatory requirements vary from country to country, each operating company is required to designate a director with specific responsibility for health and safety. This person is then responsible for ensuring that a written health and safety policy is communicated to all staff, that appropriate health and safety arrangements are in place to protect our employees and that we comply with local regulatory requirements. The ultimate responsibility within each operating company remains with the local Managing Director.
7: We do not make the necessary investment in our people to ensure that we have the appropriate calibre of staff, skills and experiences across the Group Retail is fundamentally a people business and there is a risk that we fail to make the necessary investment in our people to ensure that we have the appropriate calibre of staff for specific roles and that skills and experiences are deployed in the best interests of the individual, the operating company and the Group.	We continue to invest in our people via effective staff training programmes. For example, in the UK, we have partnered with City & Guilds to deliver nationally accredited and recognised qualifications and apprenticeship schemes. We remain committed to the ongoing assessment and measurement of our people's engagement with the business. We invest in Group wide engagement surveys and dedicate time and resource to improving engagement. We have also introduced new elements to our share-based long-term incentive plans across our business, to ensure that senior management rewards are aligned with our targeted performance and earnings growth.
8: The risk of penalties or punitive damages arising from failure to comply with new legislative or regulatory requirements The geographic, political and cultural diversity of the markets in which we operate exposes us to wide ranging and complex legal and regulatory frameworks. There is a danger that we do not understand the risks associated with either existing or proposed changes to legislative requirements across the jurisdictions in which we operate.	Individual operating companies, supported where necessary by the legal and corporate responsibility department, are responsible for ensuring that they have access to sufficient legal and governance resource. Operational management are also responsible for liaising with either local legal resources or the legal and corporate responsibility department to resolve any potential issues arising from new legislation or any suspected breaches of existing legislation or Group policies. Where new operating companies are either acquired or created, formal Group-defined governance structures are established from the outset. At a minimum, these provide guidance regarding Board and Audit Committee processes and procedures, the implementation of which are subject to a review by the Legal and Corporate Responsibility Director and the internal audit department.
9: The potential impact to Kingfisher's reputation, arising from a major ethical or environmental failure As our customers become more knowledgeable about the environmental and social impact of our businesses, we are increasingly being asked to provide both products and product information that support our intent to operate an environmentally sustainable and ethically responsible business. As a result, the risks to our reputation, arising from a major environmental or ethical failure, increase.	Kingfisher is committed to its investment in promoting ethics, social responsibility and environmental sustainability. Kingfisher's strategy sets out a policy and framework for integrating sustainability into the business, and includes specific standards and targets for all operating companies. A CR risk assessment tool has been developed to help our operating companies identify and manage CR risks and opportunities. We also engage with key non-governmental organisations and industry forums (e.g. Forum for the Future, FTSE4Good and Business in the Community) to ensure that we are at the forefront of the environmental debate and assume a leadership position amongst our peers. For more details see the Corporate Responsibility section on page 18.
10. We do not implement the measures and disciplines to effectively assess the shareholder value delivered through the Delivering Value programme The successful execution of the Delivering Value programme is the basis on which we will assess our progress in delivering our key priorities of managing working capital, cash, costs, investment capital and returns to our shareholders. There is a risk that we do not implement effective criteria against which to monitor, manage and report our progress in achieving the programme's aims and objectives.	The new divisional management structure is collectively responsible for delivering the Group's results and implementing Group-wide initiatives. Appropriate corporate planning processes are in place to ensure that our operating company and divisional strategies are adequately monitored and contribute to the Delivering Value goals. For further details see the Delivering Value section on pages 2 to 3.

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:

		2009/10		2008/09
£millions	Income/ (expense)	Receivable/ (payable)	Income/ (expense)	Receivable/ (payable)
Transactions with Crealfi S.A. in which the Group holds a 49% interest      Provision of employee services      Commission and other income	0.1 7.1	- 1.3	0.2 4.2	- 0.3
Transactions with Koçtaş Yapi Marketleri Ticaret A.S. in which the Group holds a 50% interest      Commission and other income	0.6	0.3	0.6	0.3
Transactions with Hornbach Holding A.G. in which the Group holds a 21% interest      Provision of employee services      Commission and other income      Other expenses	- 2.8 (0.2)	- 0.3 -	0.1 0.6 (0.3)	- 0.2 -
Transactions with Kingfisher Pension Scheme      Provision of administrative  services	1.5	0.1	1.6	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 amounts outstanding are unsecured and will be settled in cash.  No guarantees have been given or received.  No provisions have been made for bad and doubtful debts in respect of the amounts owed by related parties.

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

3.       Directors' Statement of Responsibility

"We confirm that to the best of our 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; and

·           the business review, which is incorporated into the directors' 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 that they face."

Paul Moore

Head of Secretariat

Tel:  [phone]

 

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