KINGFISHER PLC 21 April 2017
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 2017 (the '2016/17 Annual Report')
§ Notice of Annual General Meeting 2017
§ Proxy Form in respect of the Annual General Meeting 2017
The above documents have also been posted or otherwise made available to shareholders. The 2016/17 Annual Report and the Notice of Annual General Meeting 2017 have also been published on the Company's website at www.kingfisher.com/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 2016/17 Annual Report and should be read in conjunction with the Company's Final Results announcement for the year ended 31 January 2017 issued on 22 March 2017. 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 2016/17 Annual Report. This announcement is not a substitute for reading the 2016/17 Annual Report in full.
1. Principal Risk Factors
RISK MANAGEMENT
Given the scale of our businesses, the Board of Directors 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 and functional leaders 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 below 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 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. The Operating Company leadership team owns and is responsible for managing its own risks. Each leadership team is responsible for putting appropriate controls in place and procedures to ensure that the controls are operating effectively. The same procedure 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.
THIS YEAR'S UPDATE
Having followed the process set out above, and in light of a strategy that remains unchanged, we have made no material changes to our principal risks.
However, as part of this year's risk assessment, we did consider the impact of the result of the EU referendum on our principal risks. We have established a Brexit working group to monitor developments and to keep under review our principal risks and mitigations. Whilst the principal risks currently remain unchanged, we recognise that Brexit may impact the level of risk we face and this has been reflected in the statements made regarding the change in risk.
During the year, the Board has also considered the nature and level of risk that we are prepared to accept to deliver our business strategies, and has reviewed and approved our internal statement of risk appetite. This describes desired levels of acceptable risk, supported by high level qualitative risk statements, ensuring that risks are proactively managed to the level agreed by the Board.
The Corporate Governance report on page 52 gives further details on our governance processes.
OUR PRINCIPAL RISKS
The Board considers that the principal risks to achieving its strategic aims are set out on the following pages.
1. ORGANISATION OF THE COMPANY | 2. UNIFYING OUR OFFER & PROCESSES |
Organising Kingfisher as a more unified company with a unified customer offer, rather than a collection of individual businesses, fails to deliver the anticipated benefits. | We fail to deliver the benefits of a more unified and unique offer and standardised activities and processes. |
Strategic Pillar | Strategic Pillar |
- Unified & Unique Offer | - Unified & Unique Offer |
How our risks have changed | How our risks have changed |
Decreasing. We believe our risk exposure has decreased since last year. Progress has been made on the organisational design and we have a coordinated plan in place, with a series of planned changes. | Increasing. As this project progresses the level of ranges impacted is increasing and our risk exposure increases. |
How we manage and monitor the risk | How we manage and monitor the risk |
- Monthly tracking against key strategic milestones in place. - Monthly reporting to the plc Board, Group Executive, Operating Company Chief Executives and Finance Directors. - Programme of strategic updates to the Group Executive and the Board planned during the year. - Regular meetings with the Operating Company Chief Executives to monitor progress, ensure buy in and resolve potential issues. - A new process has been introduced to deliver the transformational change, including tracking alignment, dependencies and expectations. | - 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. - Group implementation task force in place to steer the aspects of 1) merchandising solutions, 2) store implementation, 3) stock clearance, 4) supply and logistics. - 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. PRICE COMPETITIVENESS | 4. SUSTAINABILITY DELIVERY |
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 may result in a loss of market share. | We fail to deliver our sustainability targets due to not integrating our sustainability plan into the day-to-day operations of the business. |
Strategic Pillar | Strategic Pillar |
- Unified & Unique Offer | - Unified & Unique Offer |
How our risks have changed | How our risks have changed |
Increasing. This continues to be a key area of focus for us. This is an area of increasing risk as we continue to review our ranges. We are taking the necessary steps to stabilise and reduce this risk. | No change. While the risk exposure in this area continues to increase with our changing operations and increased legislation, we continue to take steps to mitigate this and we feel that this results in the risk remaining unchanged. |
How we manage and monitor the risk | How we manage and monitor the risk |
- A new pricing strategy and governance has been decided, where Offer & Supply Chain now sets recommended prices on all unified ranges, securing the best selling price whilst protecting 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. | - Governance is overseen by the Group Sustainability Committee, a sub-committee of the Group Executive. - Capacity building and sharing of best practice e.g. annual network meetings of Operating Company sustainability teams supported by monthly WebEx meetings. - Advice from expert partners. - Engagement with external stakeholders to identify and mitigate sustainability risks. - Regular review of company positions and policies to support the sustainability strategy. - Annual monitoring and reporting of sustainability Key Performance Indicators (KPIs) and progress against targets to the Group Executive. - Ongoing work towards sustainability targets within Operating Companies, with annual progress reports signed off at Board level. - Development of sustainability plans and responsibilities within unified buying functions including Offer & Supply Chain (procurement of goods for resale) and Group Purchasing team (procurement of Goods Not For Resale). |
5. DIGITAL AND FORMAT | 6. INVESTMENT VALUE |
We fail to create a culture of innovation in our offer, format and digital channels to stimulate consumer spend and deliver the desired sales growth. | Our investments fail to deliver value to the company. |
Strategic Pillar | Strategic Pillar |
- Unified & Unique Offer - Digital - Retail Operations | - Operational Efficiency |
How our risks have changed | How our risks have changed |
No change. We are exposed to risk in this area, particularly in failing to keep pace within the digital area, however, we feel the steps we have continued to take this year have ensured that we are better positioned to fulfil our digital ambitions. | No change. We do not believe that our risk exposure has increased from last year, We continue to invest significant capital expenditure in line with our transformation plan and our controls have been enhanced in this area. |
How we manage and monitor the risk | How we manage and monitor the risk |
- Digital strategy developed for the Group. - Digital priorities programmes underway, Brilliant Basics and customer journeys. - Digital Forum in place to develop and deliver a unified strategy for the Group. - Plans in place for a digital centre of excellence and digital delivery, roles, skills and knowledge have been defined, resource recruitment underway. - The 'Easier' unified IT programme is being rolled out across the Group to provide the systems and capabilities required to deliver the foundations for the digital strategy. - Trial stores identified and guiding principles for these stores being developed. - Group Concept Director appointed. - Retail concepts and common and unique customer experience being developed. | - On-going assessment of opportunities for expansion, in terms of both online and bricks and mortar retail, across all the territories and regions in which we operate. - Regular updates are given to the leadership team and all decisions are approved in line with our investment methodology. - Country and market entry strategies are based on the application of a proven operating model and supported by the part of the business with the most relevant experience, capabilities and capacity to successfully lead a market entry strategy. - Proposed acquisition or market entry strategies are subject to challenge and due diligence from both the leadership team and specialist functions. - Due diligence exercises are supported by external and independent advisers when necessary. - Following an acquisition, integration plans are prepared and monitored at Operating Company and company levels. - Existing management teams are supplemented with company resources to monitor and assist with the integration. - All investments are evaluated and monitored via our post-investment review methodology in place across the business. - The financial performance of investments is monitored ensuring early corrective action can be taken if needed. |
7. TECHNOLOGY DELIVERY | 8. EFFICIENCY SAVINGS |
Our unified IT platform fails to deliver the requirements in line with the plan needed to enable/support the delivery of the company strategy. | We fail to identify and maximise potential cost reductions and efficiency savings. |
Strategic Pillar | Strategic Pillar |
- Digital | - Operational Efficiency |
How our risks have changed | How our risks have changed |
Increasing. The implementation within B&Q is nearing completion and the roll-out is commencing in the remainder of our Operating Companies. Whilst we have confidence in the solution and our roll-out process, the risk is increased for us as more of the estate is exposed to the implementation. | No change. The project targets were based on an initial number of estimated savings. A plan is now in place to deliver these savings. |
How we manage and monitor the risk | 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 dual running 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. - A new process has been introduced to deliver the transformational change, including tracking alignment, dependencies and expectations. - 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. | - Each Operating Company reviews its cost base and identifies potential savings as part of the planning process. - Identified savings are monitored as part of the budgeting and forecasting processes. - As part of our investment in IT we have identified a number of benefits and benchmarked these externally. - One of our strategic pillars is Optimising our Operational Efficiency which is driven by our Goods Not For Resale opportunity. Specific controls in this area are as follows: o A project team is in place to review categories of spend across the company and not only identify cost savings but also opportunities to work in a more effective way. o Project teams are supported by a Steering Group whose responsibilities include monitoring plans, milestones and the financial impact for each category. o Initial review committed to delivery of targets over the first three years. Year 1 has delivered earlier than plan, we have plans in place to deliver Year 2 and Year 3 is now being planned. o Regular reporting and review against budget targets and forecast. o Procurement Excellence Programme launched to optimise key processes within the procurement function. |
9. INVESTING IN OUR PEOPLE | 10. HEALTH & SAFETY |
We do not make the necessary investment in our people to ensure that we have the appropriate capacity, skills and experience. | 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. |
Strategic Pillar | Strategic Pillar |
- Unified & Unique Offer - Digital - Operational Efficiency - Retail Operations | - Retail Operations |
How our risks have changed | 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. | No change. Our Safety network is embedded in the business and continues to work with the Operating Companies to ensure our minimum standards are maintained during the transformation. |
How we manage and monitor the risk | 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. - Reviewing our engagement methodology 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 e.g. LEAD programme (Leadership Exploration and Development) 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. | - The Board reviews and challenges Health & Safety performance, standards and targets across our Operating Companies. - Group Health and Safety Committee sets the policy and standards for the company. - Group Minimum Safety Standards with detailed guidance for identified risks are in place across the Operating Companies. - Dedicated Safety team and responsible Director in each of our Operating Companies to ensure the Health & Safety policy is implemented and communicated. - The Group Safety Officer monitors compliance and provides help and support to the Operating Companies. - Compliance is monitored across our Operating Companies through a programme of self-certification and Health & Safety audits, with issues reported through local Audit Committees and escalated to the leadership team, Group Audit Committee or Board where necessary. |
10. REPUTATION | 11. MACRO-ECONOMIC FACTORS |
Kingfisher's reputation and brand are affected by a major environmental or ethical failure, major corporate issue or crisis, a significant corporate fraud or material non- compliance with legislative or regulatory requirements resulting in punitive or custodial procedures. | Uncertainty surrounding the resilience of the global economy and increased geo-political volatility, may impact both consumer confidence and the long-term sustainability and capabilities of our supplier base. |
Strategic Pillar | Strategic Pillar |
- Retail Operations | - Retail Operations |
How our risks have changed | How our risks have changed |
No change. There is a potential for the risk to increase in this area as we go forward with our transformation, however, we are putting procedures in place to mitigate this risk and therefore believe there is no change in the risk. | Increasing. This is an area of increasing risk. There are still a number of uncertainties relating to the UK's exit from the EU and heightened geopolitical tensions in some of our markets. |
How we manage and monitor the risk | How we manage and monitor the risk |
- 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 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. - Policies and procedures in place to support the environmental, ethical, fraud, crisis management, legislative and regulatory areas. Specifically; o Competition law compliance messaging and training. o Working group in place to manage and oversee the new European and Russian Data Protection legal requirements. o Anti-bribery training in place and all key individuals must complete this training. o Whistleblowing hotline throughout the Group and all calls are followed up, including monitoring at the local Audit Committee level. o Disclosure policy and training in place. | - 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. - 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. - Actively monitoring the Brexit process via the Government Affairs team, Treasury, Finance and Tax teams alongside UK and French Operating Companies. - Work has begun to consider the implications of Brexit, including presenting high level implications of this to the Board. As the situation becomes clearer and the mechanics of an exit are known, more detailed plans will be prepared. |
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:
2016/17 | 2015/16 | |||
£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 | 1.0 | 0.4 | 1.2 | 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 6.4 | - 0.3 | 0.1 5.7 | - 0.3 |
Transactions with Kingfisher Pension Scheme Provision of administrative services | 1.3 | 0.1 | 1.2 | 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 disclosed in note 8.
Other transactions with the Kingfisher Pension Scheme are disclosed 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 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.
Paul Moore, Group Company Secretary
Tel: +44 (0)207 644 1041
Kingfisher plc
3 Sheldon Square, London W2 6PX
- Ends -
Kingfisher plc published this content on 21 April 2017 and is solely responsible for the information contained herein.
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