Annual Financial Report

RNS Number : 9294F

Kingfisher PLC

04 May 2011

4 MAY 2011

KINGFISHER PLC - ANNUAL FINANCIAL REPORT AND NOTICE OF ANNUAL GENERAL MEETING

Kingfisher plc (the "Company") announces that the following documents have today been posted or otherwise made available to shareholders and published on the Company's website at www.kingfisher.com or by using the links below:

§ Annual Report and Accounts for the year ended 29 January 2011 (the "2010/11 Annual Report")

www.kingfisher.com/reports

§ Notice of Annual General Meeting 2011

www.kingfisher.com/agm

§ Proxy Form.

www.kingfisher.com/agm

In accordance with Listing Rule 9.6.1, the documents listed above have also been submitted to the UK Listing Authority via the National Storage Mechanism.

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 2010/11 Annual Report and should be read in conjunction with the Company's Preliminary Results announcement for the year ended 29 January 2011 issued on 24 March 2011. 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 references in the text refer to page numbers in the 2010/11 Annual Report. This material is not a substitute for reading the 2010/11 Annual Report in full and page numbers and cross-references in the extracted information refer to page numbers and cross-references in the 2010/11 Annual Report.

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: Sustainable model for emerging markets.

Although the Company has established a strong market share and brand presence in our key emerging markets there is a risk that we do not develop a sustainable business model that will

deliver long term opportunities for growth and the desired return on invested capital.

In both Turkey and Poland we benefit from clear market leadership positions supported by strong management teams and robust business models.

Our Russian business has seen a step change in leadership capabilities and store investment programme. We continue to focus on ensuring we have the right disciplines, processes and customer offer to deliver a sustainable long-term return.

We have delivered the first phase of our turnaround in China and with continued improvements in performance we remain on track to eliminate losses during 2011/12.

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.

The Group is focused on self-help actions to manage in difficult economic environments.

Strong self-help measures and cash generation throughout 2010 have contributed to the robust health of our balance sheet and available funding.

With the ongoing availability of undrawn bank facilities and the recovery of the bond markets, we are confident that we have sufficient financial

flexibility to mitigate the impact of 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 real shareholder value through the optimisation of combined purchasing and commercial synergies.

2010 has seen a significant increase in our direct sourcing initiatives across the Group and direct sourcing through the Kingfisher Sourcing Organisation now totals US$1.3 billion.

A new Group Commercial Board has been set up to deliver a challenging programme to drive an increased alignment of products and ranges

across businesses. Key steps within this programme will include:

implementing common and own brand ranges

between the UK and France from which the

rest of the Group can also select

continued investment in direct sourcing to

support the common range and own brand

development

a step change in product innovation

investment in uniquely developed product,

available across the Group

4: Our systems and supply chain infrastructures lack the flexibility and capability to support the delivery of our

strategic plans.

Our continued investment in delivering new and innovative products and solutions to our customers will continue to place increasing demands on our existing supply chain and systems infrastructure.

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 which may not yet have the necessary logistics infrastructure and capabilities in place to accommodate

our ambitious direct sourcing plans.

We have a programme to ensure that we focus our information technology resources on both maintaining or extending the useful lives of

our existing technologies and developing solutions that support revenue generative opportunities and productivity initiatives.

Where possible, we are also seeking to eliminate complex or heavily bespoke technologies to reduce our running costs.

We continue to invest in our supply chain infrastructures to support our growth plans. In 2010 we made important enhancements to our supply chain capabilities and facilities in Poland, China and Turkey and, in 2011, will be making a significant investment in our distribution facilities in the UK.

5: We fail to adapt our formats and models to meet ongoing changes in consumer trends, particularly given the impact of developments in the multi-channel sphere.

Across our businesses we operate in increasingly sophisticated and changing markets. Our customers are increasingly using the internet more interactively not just to make purchases but also to seek inspiration and ideas for their homes.

The ability to offer our customers a full and compelling multi-channel offering in terms of products, ideas, delivery options 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 not only our multi-channel capabilities, but also to ensure that we

stay at the forefront of how to connect and engage with our customers through social media and 3G technology.

We also continue to invest to improve the quality and depth of our knowledge and understanding of customer insights 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 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 80,000 employees and six million customers visiting over 850 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 a people business and there is a risk that, given economic pressures, we fail to maintain 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 across the organisation and are committed to ensuring that our people are given opportunities to develop themselves to the benefit of the organisation and

our customers.

This is done through a wide range of development opportunities ranging from store-based training programmes, supported by the delivery of nationally accredited and recognised qualifications and apprenticeship schemes, to leadership academy programmes for our senior managers.

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.

We also remain committed to the ongoing assessment and measurement of our people's engagement with the business and

engagement surveys are completed across the Group.

8: The risk of penalties or punitive damages arising from failure to comply with 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 corporate affairs 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 exponentially.

Kingfisher is committed to a long-term investment in promoting ethics, social responsibility and environmental sustainability.

Kingfisher's Future Homes strategy sets out a policy and framework for integrating sustainability into the business, and includes specific standards and targets for all operating companies.

A Corporate Responsibility (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.

Appropriate corporate planning processes are in place to ensure that our operating company and divisional strategies are aligned and contribute

to the Delivering Value programme.

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:

2010/11

2009/10

£millions

Income/

(expense)

Receivable/

(payable)

Income/

(expense)

Receivable/

(payable)

Transactions with Koçtas¸ Yapi Marketleri Ticaret A.S. in which the Group holds a 50% interest

Commission and other income

1.0

0.8

0.6

0.3

Transactions with Hornbach Holding A.G. in which the Group holds a 21% interest

Commission and other income

Other expenses

3.6

(0.2)

0.4

2.8

(0.2)

0.3

Transactions with Crealfi S.A. in which the Group holds a 49% interest

Provision of employee services

Commission and other income

0.1

6.7

1.6

0.1

7.1

1.3

Transactions with Kingfisher Pension Scheme

Provision of administrative services

1.4

0.1

1.5

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

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; 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.