Combined Code statement
Kingfisher is committed to maintaining the highest standards of corporate governance. The Board endorses the principles set out in the Combined Code and during the year ended 28 January 2006 the Company has complied in full with the requirements of the Code with the exception that the Chairman has not formally held meetings with the Non-Executive Directors collectively in the absence of the Executive Directors, although one informal meeting of the Non-Executive Directors, without the Chairman, has been held. However, in addition to the usual opportunities that the Chairman and the Non-Executive Directors have for contact and discussion, the Board has decided to hold such meetings at least annually in future.
Board of Directors
The role of the Board is to determine the Group's strategy and provide vision and entrepreneurial leadership. It oversees management's implementation of the strategy and acts as a sounding board for senior executives. It also provides a critical overview of strategic risks and monitors the adequacy of the Group's control environment.
The matters which are reserved to the Board and the authorities delegated to management are contained within the Matters Reserved for the Board (available at www.kingfisher.com) as well as within various policies covering such matters as treasury management, capital expenditure approvals, legal matters and internal audit.
These policies and the system of internal controls are also supported by Kingfisher's Code of Conduct. This was updated and re-issued during the year. The Code of Conduct is available to all employees in French and English and, to the extent possible, forms part of the employees' contract of employment.
For 11 months of the year, Kingfisher's Board comprised the Chairman, the Deputy Chairman, five other independent Non-Executive Directors, the Group Chief Executive and two other Executive Directors. Peter Jackson was appointed as a Non-Executive Director on 3 January 2006. He will take over as Chairman at the conclusion of the AGM in May 2006 when Sir Francis Mackay retires. On appointment he was independent in accordance with the Combined Code.
Having regard to the Combined Code and the output from the Board evaluation process, the Board believes all the Non-Executive Directors to be independent.
There is a clear and documented division of responsibilities between the Chairman and the Group Chief Executive, which can be obtained at www.kingfisher.com. The Senior Independent Director is John Nelson.
All Directors are provided with, and have full and timely access to, information that enables them to make informed decisions on corporate and business issues, including operational and financial performance, risk management and business plans. In particular, the Board receives monthly information on the performance and results of the Group and the individual operating businesses. The Executive Directors receive information on sales and margin for the Group and the individual businesses on a weekly basis and, for the major businesses, sales on a daily basis.
In addition to the schedule of matters reserved for itself, the Board has delegated certain matters to a number of standing Committees with defined Terms of Reference, which are published on the Company's website at www.kingfisher.com. The Board members' length of service and their Committee membership is shown in the following table:
|Name||Length of service||Age||Board Committee membership|
|Francis Mackay||4 years and 6 months||61||Nomination (Chairman)|
|Phil Bentley||3 years and 5 months||47||Audit (Chairman), Nomination|
|Ian Cheshire||5 years and 10 months||46||Social Responsibility2, Executive2|
|Michael Hepher||8 years and 7 months||62||Audit, Remuneration, Nomination|
|Peter Jackson||3 months||59||Nomination|
|Hartmut Krämer||3 years and 4 months||59||Nomination|
|Gerry Murphy||3 years and 2 months||50||Nomination, Social Responsibility2|
|Finance2, Executive2, Disclosure1|
|John Nelson||4 years and 2 months||58||Remuneration (Chairman), Audit,|
|Margaret Salmon||8 years and 7 months||58||Audit, Remuneration, Nomination,|
|Duncan Tatton-Brown||2 years and 2 months||41||Finance2, Executive2, Disclosure1|
The Directors' biographies, which can be found in Our management, illustrate the Directors' range of experience, which is intended to provide an effective Board to lead and control Kingfisher. Non-Executive Directors are appointed for an initial term of three years.
On appointment, each Director receives a tailored induction programme which includes:
- Store visits;
- Meetings with management of the operating businesses; and
- External training courses at the Company's expense, if required.
Peter Jackson's induction programme includes spending time with the managements of B&Q UK, Castorama France and Brico Dépôt and visiting a number of their and competitors' stores. Visits to Poland and China are scheduled for later this year as are meetings with investors.
External training at the Company's expense is available on an ongoing basis and the Board visits and meets with a number of operating companies and their management teams each year.
In addition, ad hoc update training is provided on appropriate matters and in 2005 this included a presentation and discussion on the new Listing Rules and the impact of the Market Abuse and Prospectus Directives.
The Board regards independent performance evaluation as an important part of monitoring and improving its effectiveness. The Board has recently completed another review, which was conducted by Independent Audit Limited. Independent Audit also reviewed the Audit, Nomination and Remuneration Committees in relation to their Terms of Reference and Combined Code requirements. A number of recommendations have been made to improve the efficiency and effectiveness of the Board. Sir Francis Mackay has asked Peter Jackson, as Chairman-designate, to assume responsibility for taking this work forward with the Board as an important part of his preparation for becoming Chairman in May 2006.
The results of the Board evaluation will also be used by the Chairman and Peter Jackson for assessing the individual performance of Directors and will inform the Nomination Committee's assessment of the skills required by any new Non-Executive Directors.
The attendance record of individual Directors at Board and Committee meetings is detailed below.
|Board meetings||Committee meetings|
1Appointed to the Board on 3 January 2006.
2Appointed to the Audit Committee on 9 September 2005.
meetings in year
Details of the Audit and Nomination Committees are provided in the individual reports of those Committees. The details of the Remuneration Committee are in the Remuneration Report; the details of the remaining two Committees are:
- Social Responsibility Committee – comprised Margaret Salmon (Chairman) plus the Group Chief Executive, Ian Cheshire and representatives of the operating companies. This Committee was responsible for developing a general policy for the Group and overseeing the activities of the operating companies relating to environmental, community and equal opportunities matters. The Board Director with overall responsibility for environmental matters remains the Group Chief Executive. No formal meetings of the Committee were held during the year; however, CSR issues were discussed with senior management across the year at meetings of the senior management team.
- Finance Committee – comprised the Group
Chief Executive, the Group Finance Director and
any one other Director, with a quorum of two
Directors, one of which had to be either the Group Chief Executive or
the Group Finance Director. The Committee was responsible for the treasury
operations of the Group, the approval and authorisation
of financing documents and signature authorities
on bank accounts, within its terms of reference and the authority limits
laid down by the Board. It reviewed borrowing arrangements and other
financial transactions. It also allotted new shares in the Company to
Kingfisher employees following the exercise of share options.
With effect from 29 January 2006 the responsibilities of the Social Responsibility Committee and the Finance Committee have been taken over by the Executive Committee. This Committee formally comprises the Executive Directors of the Company. In addition members of the senior management team attend the meetings. The reasons for the change were to:
- Introduce an effective method of ensuring the active participation of senior operational management in understanding the key issues facing Kingfisher, as a UK listed company;
- Re-emphasise to the businesses the importance the Board places on Social Responsibility and, consequently, to have the active participation of the senior management of the businesses in the debate and implementation of solutions; and
- Reduce, overall, the number of meetings senior executives need to attend.
All Directors have access to, and the services of, the Company Secretary and may take independent professional advice at Kingfisher's expense.
The Company Secretary acts as secretary to all of the above Committees.
The Company Secretary is also responsible for facilitating the induction and professional development of Board members as well as ensuring good information flows within the Board, its Committees and between the Non-Executive Directors and senior management.
Relations with shareholders
Kingfisher is committed to an active dialogue with its shareholders through a planned programme of investor relations. This activity is a key component of its corporate communications programme and is headed by the Group Communications Director, Ian Harding.
Shareholders also receive Annual and Interim Reports and the Investors' section of Kingfisher's website (www.kingfisher.com/investors) includes copies of all these, all trading updates, press announcements and presentations to shareholders.
The investor relations programme included formal presentations of full year and interim results, conference calls to discuss quarterly trading statements on three other occasions during the year and regular meetings between institutional investors and senior management.
Key shareholders were contacted before the appointment of Peter Jackson and representatives of institutions holding a majority of the Company's shares were consulted on the proposals regarding the revision to the Kingfisher Incentive Scheme and the introduction of the Performance Share Plan described in the Remuneration report and for which shareholder approval is being sought at the AGM in May.
The Board remains of the view that there are sufficient opportunities for the necessary dialogue with shareholders and the Board. Apart from the consultation noted above, these include regular meetings between investors and management, the availability of all the Non-Executive Directors for meetings if so requested by the shareholders and a standing invitation for the Non-Executive Directors to attend any of the meetings between shareholders and management. The Senior Independent Director, John Nelson, is available to shareholders if there are concerns that cannot be resolved through normal channels of communication.
The Board received regular reports concerning institutional shareholder meetings and their issues and concerns.
This process and reporting allows the Directors to develop the necessary understanding of the views of the shareholders and also enables the Board to judge whether the investors have a sufficient understanding of the Company's objectives.
Both institutional and private shareholders are welcome at the AGM, which includes a short presentation on the business. The AGM also provides an opportunity for shareholders to discuss with Executive and Non-Executive Directors any issues they have concerning the Company and its activities.
For a number of years Kingfisher has had clear rules and authorisation processes for the instruction of the auditors for non-audit work; this was reviewed and updated during the year and details can be found at www.kingfisher.com. The auditors are precluded from engaging in non-audit services that would compromise their independence or violate any laws or regulations affecting their appointment as auditors. Approval of the Chairman of the Audit Committee is required prior to awarding contracts for non-audit services to the external auditors in excess of a specified amount. The external auditors report to the Audit Committee annually on their independence from the Company. Periodic rotation of key partners is also required.
Accountability, risk management and internal control
The Board considers risk assessment, identification of mitigating actions and internal control to be fundamental to achieving Kingfisher's strategic corporate objectives within an acceptable risk/reward profile.
This system of internal control is:
- The Board's overall responsibility;
- Regularly, and at least annually, reviewed for its effectiveness by both the Board and the Audit Committee;
- In compliance with the Turnbull guidance; and
- Supported by Kingfisher's policies in such areas as Code of Conduct, legal and secretarial, finance and treasury.
However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss.
The key elements of this process are summarised below:
The Board, which:
- Has approved a set of policies, procedures and frameworks for effective internal control. These include the provision of quality internal and external reporting and compliance with applicable laws and regulations. They are periodically reviewed and updated;
- Regularly reviews and updates the Group's strategy and those of its operating companies;
- Reviews and assesses Kingfisher's key risks at least annually; reviews performance through a comprehensive system of reporting, based on an annual budget with monthly business reviews against actual results, analysis of variances, key performance indicators and regular forecasting;
- Has well defined policies governing appraisal and approval of capital expenditure and treasury operations;
- Seeks assurance that effective control is being maintained through regular reports from the Audit Committee and various independent monitoring functions.
The Audit Committee which, in respect of the Group:
- Monitors the integrity of the financial statements and any formal announcements relating to financial performance;
- Reviews internal financial controls and systems, and other internal control and risk management systems including reports from Internal Audit on material control weaknesses;
- Reviews the Group's Top Ten risks;
- Monitors and reviews the effectiveness of the internal audit function and the function's workplans;
- Considers and reviews the reports from the external auditors on the principal reporting issues faced by the Group.
The Executive Committee which, in respect of the Group:
and makes recommendations to the Board, where
- The strategic and business plans of the businesses and the strategic choices of the Group;
- The annual budget and capital expenditure proposals for the Group;
- Management Development and senior executive succession plans.
- Oversees and reviews the Group's CSR programme and operating companies' individual progress; with the Group Chief Executive reporting to the Board at least annually on issues, progress and recommendations for change.
- Approves or, where appropriate, recommends to the Board any acquisitions or disposals of companies, businesses or significant assets;
- Reviews periodically as necessary the communications messages to the investor and City community for effectiveness and relevance. Ensures any issues regarding strategy and performance that the investor and City community are communicating are fully understood, that these are communicated appropriately to the Board and actions are taken to address any legitimate concerns;
- Oversees the work of the Treasury Committee and reviews and approves on behalf of the Board any significant or unusual treasury transactions within the limits set out in the Treasury Policy and exercises all powers of execution and delivery of the Board in relation to the approval and authorisation for signature of financing documents within the Committee's Terms of Reference and authority limits; and
- Allots new shares in the Company to employees following the exercise of share options in schemes approved by the Board.
The business head of each operating company/business area who:
- Ensures there is an adequately resourced and appropriately skilled internal audit and risk management function for their operating business;
- Maintains systems that continually identify and evaluate significant risks resulting from their strategies and that apply to their areas of the business;
- Reviews and monitors the effectiveness of internal control systems through an operating company audit committee and reports from internal and external audit functions;
- Has responsibility for identification and evaluation of significant risks to their business area, together with the design of mitigating controls;
- Has responsibility for and ensures the effective functioning of their operating company audit committee;
- Self-certifies that internal control processes are in place and that they comply with Group policies;
- Supported by their operating company audit committee, reports on any control weaknesses or breakdowns that could be material to the Group.
The Internal Audit and Risk Management function which:
- Works with the operating companies to develop, improve and embed risk management tools and processes into their business operations;
- Oversees the operation of the individual operating businesses' audit committees;
- Ensures that business risks are identified, managed and regularly reviewed at all levels of the Group and that Directors are periodically appraised of the key risks in accordance with the Turnbull guidance;
- Provides the Board with objective assurance on the control environment across the Group;
- Ensures that the operating companies have appropriate organisation and processes to carry out regular and effective reviews of their internal controls;
- Monitors adherence to the Group's key policies and principles;
- Provides the Group Audit Committee with necessary assurances on the control environment.
Whilst management at each operating business has responsibility for the identification and evaluation of significant risks applicable to their business and any mitigating actions to be taken, Group executive management reviews, identifies and evaluates the risks which are significant at a Group level as well as the mitigating actions against those risks. These are then considered by the Board after review by the Audit Committee. The type of risks identified include strategic risk, external factors (such as the competitive environment and regulations), change management programmes, health and safety, retention of key management and macro market risks. The Internal Audit plans are designed to address the controls and actions in relation to each business's significant identified risks. Where appropriate the risk management process will include the use of insurance.
The Directors confirm they have reviewed the effectiveness of this system of internal control, that any necessary action has been or is being taken to remedy any significant failings or weaknesses identified from the review and that it accords with the guidance of the Turnbull Committee on internal control.
Social, environmental and ethical
The Executive Committee oversees the social, environment and ethical (SEE) matters and reports to the Board through the Group Chief Executive. The Board recognises the importance of SEE matters and considers them on a regular basis. The Board receives timely and regular information concerning any risks that may be posed regarding such matters from the Group Chief Executive and the Executive Committee, whose role and responsibilities are outlined above and whose Terms of Reference can be obtained at www.kingfisher.com.
Consideration of the key SEE issues for the Group is embedded into the Group's strategic risk management framework and these issues and the associated relevant behaviours are regarded by the Board as fundamental to the operation of the Group. The significant areas are also covered by Kingfisher's Code of Conduct for employees, non compliance with which is a disciplinary issue. This, with the oversight exercised by the Executive Committee, results in the Board's view that it is not appropriate to remunerate specifically for SEE behaviours or targets.
The progress and issues considered during the year are highlighted in the Social Responsibility section. There is also a dedicated section of the Kingfisher website relating to the issues, measures and progress of each of the operating companies.
By Order of the Board
20 March 2006