Annual Financial Report

RNS Number : 1905G

Kingfisher PLC

02 May 2014

 



2 MAY 2014

 

KINGFISHER PLC - ANNUAL REPORT AND ACCOUNTS 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 . The documents can be accessed using the links below:

§  Annual Report and Accounts for the year ended 1 February 2014 (the "2013/14 Annual Report")

           www.kingfisher.com/reports

§  Notice of Annual General Meeting 2014

           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 2013/14 Annual Report and should be read in conjunction with the Company's Preliminary Results announcement for the year ended 1 February 2014 issued on 25 March 2014.  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 in the 2013/14 Annual Report.  This material is not a substitute for reading the 2013/14 Annual Report in full and page numbers and cross-references in the extracted information refer to page numbers and cross-references in the 2013/14 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.

See the Corporate Governance report on pages 35 to 46

The Board considers that the principal risks to achieving its strategic aims set out below.

EASIER
Strategic Aim	Group Risks	Mitigation
Making it easier for our customers to improve their home	Our 'Easier' initiatives fail to deliver demand and value due to a lack of rigorous change management disciplines, capabilities and resources.	Across our markets we are committed to ensuring that our stores and online fulfilment channels are aligned with our desire to optimise our customers' retail experience. To support this we continue to evolve and innovate across our product ranges, formats and customer offer. However, changes are only implemented once we have completed an appropriate level of planning and testing, relative to the risk. In addition, we ensure for any such changes that the assumptions and insight that support the introduction of new products or services will deliver the benefits to both our customers and our shareholders.
Giving our customers more ways to shop	Our investment in systems and supply chain platforms fails to deliver the anticipated benefits.	We continue to invest in new systems and technologies to support the business including: ·      Warehouse management, forecasting and replenishment technologies to ensure we maximise operational agility and optimise the flow of product in order to meet customer demand; ·      Optimising distribution and logistics platforms to ensure we can deliver products via the most efficient routes to market; ·      The delivery of leading edge web architectures and platforms to provide a compelling online offer, including the options to deliver enhanced 'click, pay and collect' functionality, across smartphone and tablet-based applications; and ·      We are investing in our financial and operational systems to develop a Group- wide IT solution across our Operating Companies. All investments are evaluated and monitored via the project management methodologies in place across the Operating Companies. Post investment reviews are performed on all investments over £0.75 million after 12 months to assess the benefits achieved (see the Financial Review on page 25 for more information).
	As customers change the way they shop we fail to adapt our business model to these changes.	Across our businesses we recognise both the threats and opportunities presented by omnichannel retailing and are taking the necessary steps to ensure we remain competitive in our respective markets. We continue to invest in omnichannel technologies and take learnings from our businesses which have well developed models e.g. Screwfix. Within B&Q we are developing a platform which will be rolled out to the rest of the Group to offer alternative channels for customers. Our investment in the IT strategy project should provide systems and capabilities to respond to the changing ways in which customers shop. We are developing plans for each Operating Company to address how the business model needs to be adapted to cope with changes in consumer behaviour in each of our markets.
COMMON
Strategic Aim	Group Risks	Mitigation
Building innovative common brands	We fail to unlock the potential to generate further shareholder value through the optimisation of combined purchasing and commercial synergies, while retaining accountability at our Operating Companies.	The development of common brands and synergies remains a priority across the organisation. We aim to offer customers a product range which is differentiated from that of our competitors through innovation and exclusivity. To increase and maximise scale efficiencies we: ·      Are carrying out customer insight research to ensure that we understand customer buying behaviours, habits and our product insight across all of our businesses. In addition, we are ensuring that we are able to identify specific opportunities to drive the optimal, and most profitable, outcomes from our common buying decisions; ·      Are implementing common range reviews across our larger Operating Companies. Performance of the ranges and brands is tracked and strategies updated accordingly; ·      Have four sourcing offices focused on selected ranges; and ·      Are working with our vendors to ensure we achieve the best value for our customers.
	We fail to create enough innovation opportunities to sufficiently differentiate our product offer.	We view innovation as an area of future growth. We have an innovation team that is working with our suppliers to ensure that we develop and deliver innovative products to our customers. We recognise that this is an area where we need to do further work to maximise the opportunities and we are working with our Operating Companies to put plans in place.
EXPAND
Strategic Aim	Group Risks	Mitigation
Growing our presence in existing markets	Our investments in new store formats and customer proposition strategies fail to stimulate increased consumer spend and do not deliver the desired like-for-like growth in our mature markets.	Despite the ongoing challenges of global austerity programmes and their impact on consumer confidence, we are committed to re-investing in our mature markets to maintain market share and to ensure market leadership. We continue to invest in our existing store portfolio whilst seeking to minimise its cost base and optimise sales densities. Where there are opportunities to expand and innovate we will do so using a combination of existing and new formats  We will pursue low risk market entry and new flexible store format strategies based on the utilisation of current Operating Company skills and resources. We take the learnings from trials and ensure these are adopted across the Group in future projects. We continue to invest in our omnichannel strategy.
	Uncertainty surrounding the resilience of the global economy and volatility in the eurozone continues to impact both consumer confidence and the long term sustainability and capabilities of our supplier base.	With continuing market volatility and uncertainty across all of the economies in which we operate, particularly within the eurozone, we continue to monitor potential exposures and risks and provide effective risk management solutions to both our businesses and our strategic suppliers. These include: ·      The provision of supply chain finance programmes to support strategic suppliers. ·      Support from a strong 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; and ·      An appropriate and prudent mix of hedging policies, cash deposits and debt financing to minimise the impact of foreign exchange currency volatility on the Group. We have also assessed a number of alternative scenarios in relation to the volatility and uncertainty within the eurozone.
Expanding in new and developing markets	Our investments in overseas expansion fail to deliver sufficient sales and profits.	We continually review and assess opportunities for expansion, in terms of both online and bricks and mortar retail, across all of the territories and regions in which we operate. Country and market entry strategies are based on the application of a proven operating model and supported by the Operating Company with the most relevant experience, capabilities and capacity to successfully lead a market entry strategy. We also ensure that any proposed acquisition or market entry strategy is subject to an appropriate level of challenge and due diligence from both the Group Executive and specialist Group functions which may include the Tax, Treasury, Legal, Group Finance and Group Risk and Internal Audit functions. This due diligence is also supported by external and independent advisors when necessary. Following an acquisition, integration plans are prepared and monitored at divisional and Group levels. Existing management teams are supplemented with Group resources to monitor and assist with the integration. We monitor the political and economic risks of operating in new and developing markets.
ONE TEAM
Strategic Aim	Group Risks	Mitigation
Developing leaders and connecting people	We do not make the necessary investment in our people to ensure that we have the appropriate calibre of staff, skills and experience.	Across our businesses we are developing our talent, building our leadership capability and connecting our people through intelligent networks. Specific examples of this include: ·      The continued investment in development of our senior leaders through the Kingfisher 'One Academy', including the 2020 Leadership Programme and the development of networks across our businesses. ·      Focused development activities for our store-based colleagues, including the roll out of national apprenticeship schemes across our UK and French businesses, and an increased focus on how we support and recognise the role of our customer advisors across the organisation, and ·      Recognition of the importance of ensuring a constant flow of developing talent through structured graduate and management trainee programmes, providing sustainable career development paths supported by new and innovative reward and bonus frameworks (see www.kingfishere.com/people).
Sustainability: Becoming Net Positive	We fail to deliver our sustainability targets due to not integrating our sustainability plan into the day to day operations of the business.	·      Our commitment to sustainability remains one of Kingfisher's key values and across the organisation we continue to ensure that we engage and take advice from our expert partners (WWF, BioRegional and Forum for the Future); ·      As part of our business planning process we set and annually review sustainability plans for each Operating Company; ·      Monthly Board reports monitor the progress of our largest Operating Companies in achieving their sustainability targets; ·      Data is reported annually to the Group and signed off by the local Boards; ·      Within each Operating Company responsibility has been assigned to a team or individual for the delivery of the sustainability targets. Meetings of the Corporate Social Responsibility teams are held twice a year to exchange best practice and progress common projects; ·      Our Net Positive Advisory Council provides an external review of our processes as well as technical support and advice (see page 19).
OPERATIONAL RISKS
Strategic Aim	Group Risks	Mitigation
Pricing	A lack of perceived price competitiveness, particularly when compared to more discount based or online competitors, would affect our ability to maintain or grow market share.	Significant investment in pricing to reinforce and communicate our value credentials. This is supported by: ·      The use of improved customer insight and analytical tools to optimise product ranging and pricing strategies; ·      Increased margin flexibility through partnerships with strategic vendors and the leveraging of Group buying opportunities; and ·      More targeted use of online and mass media tools to communicate and reinforce price perception (for example, price comparison websites, such as kitchen-compare.com and bathroomcompare.com in the UK).
Key supplier resilience and continuity	Key product suppliers lacking the necessary resilience or disaster recovery capabilities to manage the impact of on-going global economic volatility or the increasing impacts of extreme weather cycles and patterns on their operations and extended supply chains.	We continue to support our strategic suppliers through a combination of relationship management, and ongoing supplier vulnerability assessments, supported by supplier financing programmes where appropriate. We also seek to ensure continuity of supply through the expansion of our own brand programmes and dual sourcing strategies where possible and commercially viable. Ongoing investment in our sourcing offices outside of the Asia, notably in Poland and Turkey, also provides increased flexibility for our sourcing strategies.
Health & safety	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.	With 79,000 employees and millions of 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 reviews and challenges health & safety performance, standards and targets across our businesses. As 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 and that appropriate health and safety arrangements are in place to protect our employees and customers and that we comply with local regulatory requirements. The Group Health and Safety Committee sets the policy and standards for the Group. Compliance is monitored across our businesses through a programme of self-certification and Health & Safety audits, with issues reported through local Audit Committees and escalated to the Group Executive, Group Audit Committee or Board where necessary.(see the Governance report on page 36)
Environmental or ethical failure	Kingfisher's reputation and brand are affected by a major environmental or ethical failure, a significant corporate fraud or material non-compliance with legislative or regulatory requirements resulting in punitive or custodial procedures.	Both 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 Group Operating Company Chief Executive and appropriate resources are available to our businesses to ensure that both staff and suppliers are aware of, and comply with, the Code and our businesses can manage the legislative or regulatory challenges presented by their respective jurisdictions (see www.kingfisher.com/netpositive/code).

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:

	2013/14		2012/13
£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   Provision of employee services   Commission and other income	(0.1) 1.2	- 0.6	(0.2) 0.8	(0.1) 0.4
Transactions with Hornbach Holding A.G. in which the Group holds a 21% interest   Commission and other income	0.3	-	0.9	0.1
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	- 0.4	0.1 4.3	- 0.3
Transactions with Kingfisher Pension Scheme   Provision of administrative services	0.8	0.1	1.4	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 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 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 that 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.

Kathryn Hudson

Company Secretary

Tel:  [phone]

 

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