Kingfisher Regulatory News (KGF)

1. Our People

Our colleagues are critical to the successful delivery of our 'Powered by Kingfisher' strategy. We are rebalancing responsibilities between Group and local level to set the right conditions for our individual banners to grow and to leverage the Group's scale and expertise to meet customer needs.

Failure to manage the impact of organisation changes, to attract, retain and develop colleagues with the appropriate skills, capabilities and diverse backgrounds, or to have adequate succession plans, could impact our ability to meet our business objectives.

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.

Link to strategic priorities

· 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)

· Lead the industry in Responsible Business practices

How we manage and monitor the risk

· The Board has approved our Group strategy for people and culture, with individual priorities agreed for each banner and function.

· The Group Executive and Board hold regular talent reviews focused on ensuring the senior leadership group has the required capabilities to deliver the strategy and on activities to strengthen our leadership succession pipeline.

· We have continued to invest in developing our leaders as their roles change in the new strategy and have conducted a capability review to identify future skill requirements (with a particular focus on technology and commercial functions). We have invested in tools and infrastructure to support our colleagues' learning, including a leadership development portal for bite-size instant learning and e-learning for our store teams on new products.

· We have implemented a rebalanced commercial operating model, placing significant emphasis on providing transparency of accountability, engaging and retaining colleagues during the change and defining effective future ways of working. We have also launched several Centres of Excellence to provide expertise and drive innovation and facilitate sharing of learnings and best practices across the Group. In addition, we are implementing our new IT operating model, which will enable our people to deliver change to our systems with greater agility and pace.

· A cross-functional taskforce was set up to identify opportunities to embed the key cultural shifts required to deliver the new strategy, focused on building agility, trust and an inclusive environment.

· Each banner has a tailored diversity and inclusion plan and relevant targets are linked to the remuneration of senior leaders.

· The physical and mental wellness of our colleagues has been a priority during the year with additional communications, provision of external support (e.g. mental health awareness training for line managers), new processes to protect our teams and regular listening to ensure concerns were quickly addressed. We adapted our annual colleague survey to specifically check in on key lessons learned during the first Covid-19 lockdown.

2. Level and Impact of Change

Under our strategic plan 'Powered by Kingfisher', the business is utilising its core strengths and commercial assets, and 'powering' its distinct retail banners to address the significant growth opportunities that exist within the home improvement market. Actions are already underway bringing continuous improvements to our offer, market positions and cost base. We have strong ambitions that require changes to roles and ways of working, while continuing to implement our IT systems programme.

Where relevant we may also consider complementary acquisitions, partnerships and joint ventures to optimise our business activities and support our strategy.

Failure to properly prioritise activity and manage change effectively could result in weaker than anticipated sales growth, reduced operating margins or insufficient cash being generated to meet our objectives.

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.

Link to strategic priorities

· 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 compact store concepts and adapt our store footprint

· Source and buy better, reduce our costs and our inventory

· Lead the industry in Responsible Business practices

How we manage and monitor the risk

· Our 'Powered by Kingfisher' strategy has been clearly articulated to all colleagues.

· The Board has approved three-year plans for each banner and Group Function, that are aligned with delivering the strategy.

· The strategy has been externally validated by a global consultancy business.

· A central Results Delivery Office provides monthly reporting to the Group Executive and quarterly to the Board, based on a set of circa 60 KPIs, measuring the implementation and performance of strategic initiatives.

· Each of our key growth pillars is led and monitored by one of our banners or Global Functions, with monthly review points with the Group Executive sponsor.

· Annual strategic review and six-monthly updates performed with the Board, considering the agreed priorities and making changes where appropriate.

· Regular communication with all colleagues on the delivery of the strategy, key changes being made and forthcoming business developments.

· Periodic reviews of governance and enabling activities undertaken by Internal Audit.

· We have a dedicated M&A function, with accountability resting with the Chief Transformation and Development Officer. M&A activity exceeding £10 million in value requires Kingfisher plc Board scrutiny and approval.

3. Contagious Diseases

A prolonged global health threat and associated government restrictions could adversely affect our operations and those of our partners and suppliers. This could cause a significant reduction in footfall and consumer spending and could negatively impact our ability to receive products from affected countries. High levels of absence in our workforce could impact our ability to operate stores and warehouses, deliver products or provide appropriate functional support to our business. There is also a risk that we are perceived not to prioritise safety by our customers, colleagues or stakeholders, which could negatively impact our brands.

Such restrictions and/or reductions in demand could adversely affect our financial results and the financial condition of the Group.

How our risks have changed

No change. We now have procedures in place to enable us to protect our colleagues and customers while continuing to trade. However, the risk of new variants and new diseases remains possible.

Link to strategic priorities

· Lead the industry in Responsible Business practices

How we manage and monitor the risk

· The health and safety of our colleagues and customers remains our top priority, alongside supporting governments to limit the spread of the virus. We have implemented changes to all our stores, with strict hygiene and social distancing measures in place. We significantly invested in PPE to ensure availability for our staff, deep cleaned stores where required and allowed staff to self-isolate while continuing to be paid.

· We have communicated regularly to colleagues and customers, providing reassurance and responding to common concerns.

· Our Group Crisis Committee has met at least weekly throughout the year in response to the pandemic, with representation from banners and functions. The committee monitors events, changes in governments' approaches and response strategies. The Board provides regular oversight to evaluate the impact of Covid-19 on Kingfisher.

· Close liaison with governments to ensure we can continue to provide essential goods while playing our role to limit transmission of the disease.

· We have ensured that our office-based colleagues are able to work from home, in line with local governmental guidance, with access to appropriate equipment. Ongoing line manager training and mental health 'wellness' awareness has been provided for working in this way.

· We have mobilised business continuity and crisis teams in each of our markets, to ensure our response is prompt and tailored to the local situation.

· If required, we are able to significantly reduce discretionary spend (including freezing pay reviews, delaying bonus payments and/or recruitment), stop all non-committed capital expenditure, reprioritise sourcing requirements and adjust purchasing plans.

· We regularly monitor customer, colleague and stakeholder sentiment through social media and colleague feedback. This output is used to influence the operational decisions we take.

4. Supply Chain Resilience

A resilient supply chain is key to our business and the achievement of our strategic objectives. We are dependent on complex supply chains and delivery solutions to deliver our products to our customers. This year, there has been significant disruption caused by the pandemic with congestion at ports and an increased demand for containers. The pandemic has also caused operational difficulties for our suppliers, testing their ability to respond quickly to changes in demand. Major disruption to our supply chain could result in reduced levels of product available for sale, with an adverse financial and reputational impact.

How our risks have changed

No change. Although there have been specific challenges to our supply chain as a result of the pandemic and Brexit, we have responded effectively.

Link to strategic priorities

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

· Grow e-commerce sales

· Source and buy better, reduce our costs and our inventory

How we manage and monitor the risk

· A new three-year Supply and Logistics roadmap was developed in 2020/21. It considers our future logistics capacity needs based upon the various sourcing, inventory and sales generative strategies identified in the Group's strategic planning activities.

· Business continuity plans are updated regularly, covering our internal points of failure and key partner disaster-recovery plans. The actions include a response to supplier and logistics failures, and plans were tested live as part of our Covid-19 response activities.

· Established partnerships with key transportation and logistics suppliers to align planning and secure capacity.

· A multi-functional Kingfisher Brexit Steering Group has been in place since 2016. This group is responsible for monitoring any issues arising from the recent Brexit deal.

· Since the start of the pandemic, a weekly meeting of Supply Chain Directors from across the Group has been held to identify and agree key actions to respond to the changing supply needs.

· In addition, a working group from our supply chain and sourcing teams is addressing supply challenges in critical categories and identifying where we anticipate future potential supply issues may occur.

· We have accelerated the implementation of store-based fulfilment for customer orders to support the business operation and increased demand during lockdown.

· We have an agreed supplier strategy which includes guidance on choosing which regions to source from and when to use more than one factory or supplier to increase resilience.

· There is a robust process for selecting individual suppliers. This includes checks on financial strength, ethical and environmental risks and their ability to manufacture the products to the agreed specification.

· We continually review key suppliers by category to establish capacity and volumes and assess the impact of an interruption in supply.

5. Competition

Our competitors include both traditional store-based and online retailers. The pandemic has accelerated changes in the market, with a sharp rise in the use of online marketplaces. Competitors are also developing their offers, including both direct-to-customer operations and the services offered. Targeted actions by competitors could negatively impact our market share, the value of our assets and our financial results.

How our risks have changed

No change.

Link to strategic priorities

· 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)

· Source and buy better, reduce our costs and our inventory

How we manage and monitor the risk

We are building a differentiated offer through:

· Clear positioning for each of our banners, with different operating models to address diverse customer needs.

· 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.

· Giving greater autonomy to local banners and allowing more local ranges, services and store formats that are tailored to customers' needs.

· Competing on price by using the scale of our Group to benefit from volume and lower purchase prices.

We monitor our performance, and that of our competitors, to react quickly to targeted actions via:

· Comparison of price indices vs competition in our key categories and measure customer price perception on a regular basis.

· Customer trend monitoring in all our markets to anticipate and develop an appropriate offer.

6. Changing Customer Preferences

The pandemic has caused an acceleration in the pace of change, with a greater use of e-commerce solutions for Click & Collect and home delivery. We must ensure we have innovative digital channels supported by an agile and reliable infrastructure, including technology and logistics capability, and an optimised property portfolio with in-store services, to make our product sufficiently compelling to customers and available when and where they want it. Failure to identify new trends and optimise our channels could affect our ability to stimulate spend and adversely impact the value of our assets and our financial results.

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 even more rapidly due to the pandemic. We continue to enhance our priorities and processes to improve our capability and speed of delivery.

Link to strategic priorities

· Grow e-commerce sales

· Build a mobile-first, service orientated customer experience

· Test compact store concepts and adapt our store footprint

How we manage and monitor the risk

Innovation

· A Group digital strategy has been developed and approved by the Board, with various priority programmes underway.

· New teams have been created to take the lead on customer insight, digital experience and data.

· We have an established Product Council, meeting on a quarterly basis, to monitor financial and project portfolio performance and to prioritise upcoming digital initiatives.

· We have launched strategic programmes to grow e-commerce, focusing on putting stores at the centre of our fulfilment model.

· We are developing our service offer with the recent acquisition of NeedHelp, one of Europe's leading home improvement services marketplaces, and the trialling of third-party tool hire concessions in the UK.

· We have continued to develop our understanding of compact store formats with openings in the UK and France and the first concessions in ASDA (UK).

· We have a new strategic direction for technology, moving away from a long-release and waterfall-based approach to a product and agile-based methodology.

7. Political and Market Volatility

Kingfisher operates in eight countries and relies on a global supply base, exposing us to geopolitical uncertainty and local volatility. Forms of disruption could include strikes, work stoppages and/or our ability to receive products from affected countries. This could also include the restrictions imposed by different governments in response to the current pandemic. Market volatility has increased due to the pandemic, creating a prolonged economic downturn resulting in changing customer behaviours and reduced consumer confidence. If governments try to recoup their budget deficits incurred through taxation, this will create additional burdens on businesses. These impacts could potentially disrupt the day-to-day operations of our business and our ability to meet our strategic objectives.

How our risks have changed

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

Link to strategic priorities

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

How we manage and monitor the risk

Monitoring and engagement activities

· Our Corporate Affairs team actively monitors the political and economic situations in the countries in which we operate, or which may impact our operations. This is supported by membership of key business trade associations in every market.

· Strategies are in place to identify, monitor and influence changes to legislation that may impact our business.

· Crisis management processes and teams are in place to monitor and manage situations as they arise.

· Group Offer and Sourcing teams manage supplier relationships with the aim of maintaining appropriate levels of product availability through periods of disruption.

Mitigation activities

· Each banner has a strategy for product offer and pricing that is designed to address consumer confidence.

· The Group has access to significant committed liquidity facilities and debt funding, through drawn term loans and the ability to issue debt into the capital markets through its European Medium-Term Note (EMTN) programme.

· Cash holdings are diversified across a number of financial institutions (for which credit risk is closely monitored).

· We have 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.

8. Legal and Regulatory

The Group's operations are subject to a broad 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 brands and reputation, could expose us to significant fines or penalties and would require significant management attention.

How our risks have changed

No change.

Link to strategic priorities

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

· Source and buy better, reduce our costs and our inventory

· Lead the industry in Responsible Business practices

How we manage and monitor the risk

Policies and procedures:

· Policies and procedures are in place including, but not limited to: Code of Conduct, Anti-Bribery and Corruption, Gifts & Hospitality, Data Protection, Money Laundering, Fair Competition and Market Abuse Regulation.

· A new Goods Not For Resale Vendor Engagement Assessment tool was implemented in October 2020, to increase the level of supplier due diligence covering business integrity, data protection and information security.

· A whistleblowing policy and hotline, facilitated by an independent third party, is in place throughout the Group. All calls are followed up and investigated where necessary.

Training and communication:

· Revised Group-wide mandatory training on the Code of Conduct was rolled out in December 2020 with two modules for all staff (Code of Conduct, including anti-bribery and corruption, and GDPR) and two for head-office staff (Fair Competition & Market Abuse Regulation). These are required to be performed annually.

· An internal communication campaign was run during the year to raise awareness of the Code of Conduct and related processes.

Oversight and reporting:

· Our Legal & Compliance network is well established, for teams at Group and retail banners to work and communicate together.

· A new Group Ethics and Compliance Committee (GECC) was formed in November 2020, ensuring that the Code of Conduct, related Group Policies and Standards, as well as the Group approach to ethics and compliance, are adequate and effective. This includes approving compliance training and reviewing both compliance risks and the outcomes of investigations. The GECC will be mirrored in each of the retail banners.

· We have a Disclosure Committee in place to address our Market Abuse Regulation requirements.

· Whistleblowing statistics and trends are monitored in the Local Ethics and Compliance Committees and reported to the GECC and to the Audit Committee twice annually.

9. Cyber and Data Security

Cyber-attacks and security incidents have increased in recent years and the retail sector has joined a number of industry sectors as a target due to it becoming more data driven. Several high-profile organisations have suffered severe security incidents in recent times that have had an impact on operations, profitability and reputation, demonstrating the requirement not only to protect data but to have the ability to detect breaches and respond accordingly.

How our risks have changed

Increasing. We remain vigilant of the constantly changing threats we face, especially as we see the risk extending beyond traditional IT environments into business processing, the supply chain and connected device products we sell in stores.

Covid-19 has seen a global increase in cyberattacks against businesses trying to respond to the crisis. Combine this with a response of accelerated digital growth and the risk landscape grows.

Link to strategic priorities

· Grow e-commerce sales

· Build a mobile-first, service orientated customer experience

How we manage and monitor the risk

· Cyber security continues to receive Group Executive-level sponsorship and Board focus.

· Cyber security is an integral part of the IT strategy with a clear three-year plan to continue to develop and evolve our capabilities to meet new threats such as Ransomware.

· Cyber insurance is purchased to provide financial cover and additional loss management support, should we suffer an event at Group or banner level.

· New IT developments go through a 'Secure By Design' process to ensure solutions are secure and compliant with regulations when deployed.

· We perform security assurance on our supply chain where a third party processes our data.

· We undertake regular vulnerability scanning of our perimeter, e-commerce platforms, websites and core internal systems.

· We have a deployed a number of defensive and protective tools that are actively managed and monitored.

· We have a robust major incident management process to respond to and manage security incidents and data breaches.

· 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.

· We have assessed our capability against the National Cyber Security Centre's (NCSC) '10 steps to cyber security' and have robust controls in each area.

· Independent reviews are performed of our cyber security processes and initiatives.

10. Reputation and Trust

Our customers, colleagues, suppliers, investors and the communities in which we operate expect us to conduct our business in a way that is responsible. We have publicly communicated ambitious Responsible Business targets (see the Responsible Business section on pages 25 to 29 of the Annual Report). 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.

How our risks have changed

Increasing. During the last year, we have seen an increased level of scrutiny and higher expectations from our stakeholders, particularly around our response to Covid-19 and the environment.

Link to strategic priorities

· Lead the industry in Responsible Business practices

How we manage and monitor the risk

Governance:

· Our Code of Conduct establishes the core behaviours we expect of ourselves and others, including our suppliers.

· The Responsible Business Committee leads and oversees the delivery of the responsible business strategy. It is chaired by a non-executive director and includes the Chief Executive Officer.

· Proactively taking steps to support our communities, be it through our Covid-19 response or through our community priority (see the Responsible Business section on pages 25 to 29 of the Annual Report).

· 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.

· For colleagues, we have employee forums and works' councils in all of our businesses including a collective forum that meets with the CEO and members of the Board.

· Externally, we have regular engagement with NGO partners in our key markets, which helps to ensure that the company remains close to social and environmental concerns.

Due diligence and external assurance:

· 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.

· Independent ratings agencies also monitor and rate our ESG performance throughout the year - including MSCI, CDP, Sustainalytics and ISS ESG.

2020/21

2019/20

£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

0.2

-

0.3

-

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

Provision of employee services

Commission and other income

0.2

4.8

-

0.2

0.1

4.9

-

0.2

Transactions with Kingfisher Pension Scheme

Provision of administrative services

0.7

0.3

1.0

0.2