26 Deferred tax
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:
| £ millions | 2006 | 2005 |
|---|---|---|
| Deferred tax liabilities | (304.9) | (309.3) |
| Deferred tax assets | 100.5 | 117.1 |
| (204.4) | (192.2) |
The gross movement on the deferred income tax account is as follows:
| £ millions | 2006 | 2005 |
|---|---|---|
| Beginning of the year | (192.2) | (203.9) |
| Exchange differences | (7.4) | (4.5) |
| Arising on acquisition of subsidiary | (10.2) | – |
| Income statement charge | (14.7) | (10.7) |
| Tax charged to equity | 20.1 | 26.9 |
| End of the year | (204.4) | (192.2) |
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:
Deferred tax assets
| £ millions | Provisions | Tax losses |
Retirement benefit obligations |
Other | Total |
|---|---|---|---|---|---|
| At 1 February 2004 | 21.9 | 0.5 | 69.5 | 3.2 | 95.1 |
| (Charge)/credit to income | (3.1) | 0.6 | (0.6) | 3.2 | 0.1 |
| Charge to equity | – | – | 23.8 | (0.3) | 23.5 |
| Exchange differences | (1.6) | – | – | – | (1.6) |
| At 29 January 2005 | 17.2 | 1.1 | 92.7 | 6.1 | 117.1 |
| Credit/(charge) to income | 4.3 | – | (37.7) | – | (33.4) |
| (Charge)/credit to equity | – | – | 14.5 | 4.4 | 18.9 |
| Arising on acquisition of subsidiary | – | 0.9 | – | – | 0.9 |
| Exchange differences | (2.5) | (0.5) | – | – | (3.0) |
| At 28 January 2006 | 19.0 | 1.5 | 69.5 | 10.5 | 100.5 |
Deferred tax liabilities
| £ millions | Accelerated tax depreciation |
Gains on property |
Total |
|---|---|---|---|
| At 1 February 2004 | (111.4) | (187.6) | (299.0) |
| Credit/(charge) to income | 27.5 | (38.3) | (10.8) |
| Credit to equity | 0.2 | 3.2 | 3.4 |
| Exchange differences | (2.9) | – | (2.9) |
| At 29 January 2005 | (86.6) | (222.7) | (309.3) |
| (Charge)/credit to income | (6.9) | 25.6 | 18.7 |
| Credit to equity | – | 1.2 | 1.2 |
| Arising on acquisition of subsidiary | – | (11.1) | (11.1) |
| Exchange differences | (4.4) | – | (4.4) |
| At 28 January 2006 | (97.9) | (207.0) | (304.9) |
At the balance sheet date, the Group has unused tax losses of £79.1m (2005: £39.2m) available for offset against future profits. A deferred tax asset has been recognised in respect of £4.5m (2005: £3.3m) of such losses. No deferred tax asset has been recognised in respect of the remaining £74.6m (2005: £35.9m) due to the unpredictability of future profit streams. Included in unrecognised tax losses are tax losses arising in China and South Korea of £53.2m (2005: £16.1m) which can only be carried forward in the next one to five years and tax losses arising in Spain of £13.2m (2005: £11.1m) which can only be carried forward for up to 15 years. Other losses may be carried forward indefinitely.
No deferred tax is recognised on the unremitted earnings of overseas subsidiaries and joint ventures. As the earnings are continually reinvested by the Group, no tax is expected to be payable on them in the foreseeable future. If the earnings were remitted, tax of £36.6m (2005: £369.5m) would be payable.
The closing deferred tax balance of £204.4m includes liabilities of £6.0m (2005: £4.2m) and assets of £40.1m (2005: £59.4m) expected to reverse within 12 months of the balance sheet date.
27 Post employment benefits
The Group operates a variety of post employment benefit arrangements covering both funded and unfunded defined benefit schemes and funded defined contribution schemes. The most significant are the funded, final salary defined benefit and defined contribution schemes for the Group’s UK employees, however various defined benefit and defined contribution schemes are operated in France, Poland, Italy, China and South Korea. In France and Poland, they are retirement indemnity in nature, and in South Korea and Italy termination indemnity in nature.
Defined contribution schemes
Pension costs for defined contributions schemes, at rates specified in the individual plans’ rules, are as follows:
| £ millions | 2006 | 2005 |
|---|---|---|
| Defined contribution schemes (note 8) | 3.7 | 2.1 |
Defined benefit schemes
| Balance sheet obligations: | ||
|---|---|---|
| £ millions | 2006 | 2005 |
| Defined benefit liabilities | 239.6 | 325.7 |
The amount of the defined benefit obligation at 28 January 2006 which relates to funded defined benefit schemes is £232.0m (2005: £320.0m).
| Income statement charge: | ||
|---|---|---|
| £ millions | 2006 | 2005 |
| Pension benefits charged to operating profit (note 8) | 36.9 | 38.0 |
| Net finance cost (note 6) | 3.8 | 5.1 |
| 40.7 | 43.1 |
The most recent actuarial valuations of plan assets and the present value of the defined benefit obligations were carried out at 28 January 2006. The principal actuarial assumptions and expected rates of return used were as follows:
| 2006 | 2005 | |||
|---|---|---|---|---|
| Annual % rate | UK % |
Other % |
UK % |
Other % |
| Discount rate | 4.7 | 4.0 to 6.0 | 5.3 | 4.2 to 5.5 |
| Salary escalation | 4.3 | 2.0 to 6.7 | 4.3 | 2.0 to 6.7 |
| Rate of pension increases | 2.7 | n/a | 2.7 | n/a |
| Price inflation | 2.7 | 2.0 to 2.5 | 2.7 | 2.0 to 2.5 |
| 2006 | 2005 | |||
| % rate of return | UK % |
Other % |
UK % |
Other % |
| Equities | 7.6 | – | 7.8 | – |
| Bonds | 4.2 | – | 4.7 | – |
| Property | 5.9 | – | 6.2 | – |
| Other | 3.7 | 4.0 | 3.7 | 4.0 |
| Overall expected rate of return | 6.1 | 4.0 | 6.6 | 4.0 |
The overall expected rate of return is effectively a weighted average of the individual asset categories and their inherent expected rates of return.
The main financial assumption is the real discount rate, i.e. the excess of the discount rate over the rate of inflation. If this assumption increased/decreased by 0.1%, the UK defined benefit obligation would decrease/increase by approximately £30m, and the annual UK current service cost would decrease/increase by approximately £1.4m.
The assumptions for pensioner longevity are based on an analysis of pensioner death trends under the scheme over the period from 1998 to 2004, together with allowances for future improvements to death rates for all members. The specific tables used are the same as those used in the 2004 funding valuation, namely PMA92C2010 for male pensioners, PFA92C2010 (+2 year age rating) for female pensioners. Further allowances for improving longevity are included for members yet to retire. Based on observed trends, the assumed average age at death for current pensioners reaching age 60 is 81.2 for a male and 83.3 for a female. When members who are yet to retire reach age 60, our assumed average age at death is 84.4 for a male and 85.8 for a female. These assumptions will be reviewed following the next funding valuation due no later than as at 31 March 2007.
The amounts recognised in the income statement are as follows:
| 2006 | 2005 | |||||
|---|---|---|---|---|---|---|
| £ millions | UK | Other | Total | UK | Other | Total |
| Amounts charged to operating profit: | ||||||
| Current service cost | 33.2 | 3.7 | 36.9 | 33.8 | 3.7 | 37.5 |
| Past service cost | – | – | – | 0.5 | – | 0.5 |
| Total operating charge (note 8) | 33.2 | 3.7 | 36.9 | 34.3 | 3.7 | 38.0 |
| Amounts credited/(charged) to other finance costs: | ||||||
| Expected return on pension scheme assets | (58.9) | (0.4) | (59.3) | (51.5) | (0.4) | (51.9) |
| Interest on pension scheme liabilities | 61.7 | 1.4 | 63.1 | 55.5 | 1.5 | 57.0 |
| Net financing cost (note 6) | 2.8 | 1.0 | 3.8 | 4.0 | 1.1 | 5.1 |
| Total charged to income statement | 36.0 | 4.7 | 40.7 | 38.3 | 4.8 | 43.1 |
Of the charge to operating profit for the year, £25.4m (2005: £27.7m) and £11.5m (2005: £10.3m) were included, respectively, in selling and distribution and administrative expenses and £3.8m (2005: £5.1m) was included in finance costs. Actuarial gains and losses have been reported in the statement of recognised income and expense.
The actual return on pension scheme assets is as follows:
| 2006 | 2005 | |||||
|---|---|---|---|---|---|---|
| £ millions | UK | Other | Total | UK | Other | Total |
| Actual return on pension scheme assets | 185.7 | 0.5 | 186.2 | 84.5 | 0.5 | 85.0 |
The amounts included in the balance sheet, within non-current liabilities, arising from the Group’s obligations in respect of its defined benefit retirement schemes, are determined as follows:
| 2006 | 2005 | |||||
|---|---|---|---|---|---|---|
| £ millions | UK | Other | Total | UK | Other | Total |
| Present value of defined benefit obligations | (1,420.4) | (39.1) | (1,459.5) | (1,186.1) | (33.0) | (1,219.1) |
| Fair value of scheme assets | 1,209.8 | 10.1 | 1,219.9 | 884.0 | 9.4 | 893.4 |
| Net liability recognised in the balance sheet | (210.6) | (29.0) | (239.6) | (302.1) | (23.6) | (325.7) |
Movements in the present value of defined benefit obligations on the balance sheet are as follows:
| 2006 | 2005 | |||||
|---|---|---|---|---|---|---|
| £ millions | UK | Other | Total | UK | Other | Total |
| Defined benefit obligation at beginning of year | (1,186.1) | (33.0) | (1,219.1) | (1,013.1) | (27.1) | (1,040.2) |
| Total service cost charged in the income statement (as above) | (33.2) | (3.7) | (36.9) | (34.3) | (3.7) | (38.0) |
| Interest cost | (61.7) | (1.4) | (63.1) | (55.5) | (1.5) | (57.0) |
| Actuarial gains and losses | (170.0) | (2.5) | (172.5) | (111.8) | (0.6) | (112.4) |
| Contributions paid by employees | (12.6) | – | (12.6) | (14.1) | – | (14.1) |
| Benefits paid | 43.2 | 1.3 | 44.5 | 42.7 | 1.2 | 43.9 |
| Exchange differences | – | 0.2 | 0.2 | – | (1.3) | (1.3) |
| Deficit benefit obligation at end of year | (1,420.4) | (39.1) | (1,459.5) | (1,186.1) | (33.0) | (1,219.1) |
Movements in the fair value of scheme assets on the balance sheet are as follows:
| 2006 | 2005 | |||||
|---|---|---|---|---|---|---|
| £ millions | UK | Other | Total | UK | Other | Total |
| Fair value of plan assets at beginning of year | 884.0 | 9.4 | 893.4 | 785.1 | 8.8 | 793.9 |
| Expected return of pension scheme assets (as above) | 58.9 | 0.4 | 59.3 | 51.5 | 0.4 | 51.9 |
| Actuarial gains and losses | 126.8 | 0.1 | 126.9 | 33.0 | 0.1 | 33.1 |
| Contributions paid by employer | 170.7 | 1.6 | 172.3 | 43.0 | 1.1 | 44.1 |
| Contributions paid by employees | 12.6 | – | 12.6 | 14.1 | – | 14.1 |
| Benefits paid | (43.2) | (1.3) | (44.5) | (42.7) | (1.2) | (43.9) |
| Exchange differences | – | (0.1) | (0.1) | – | 0.2 | 0.2 |
| Fair value of plan assets at end of year | 1,209.8 | 10.1 | 1,219.9 | 884.0 | 9.4 | 893.4 |
The total net actuarial gains and losses for the year ended 28 January 2006 were a loss of £45.6m (2005: loss of £79.3m), as shown in the statement of recognised income and expense. The cumulative amount recognised in the statement of recognised income and expense at 28 January 2006 is a loss of £124.9m (2005: loss of £79.3m).
The analysis of the scheme assets at the balance sheet date is as follows:
| 2006 | 2005 | |||||||
|---|---|---|---|---|---|---|---|---|
| £ millions | UK | Other | Total | % of total |
UK | Other | Total | % of total |
| Equities | 638.5 | – | 638.5 | 52% | 509.8 | – | 509.8 | 57% |
| Bonds | 449.4 | – | 449.4 | 37% | 262.7 | – | 262.7 | 29% |
| Property | 96.7 | – | 96.7 | 8% | 80.2 | – | 80.2 | 9% |
| Other | 25.2 | 10.1 | 35.3 | 3% | 31.3 | 9.4 | 40.7 | 5% |
| Total market value of assets | 1,209.8 | 10.1 | 1,219.9 | 100% | 884.0 | 9.4 | 893.4 | 100% |
The pension plans do not hold any other assets than those disclosed above.
The history of experience adjustments is as follows:
| UK | |||
|---|---|---|---|
| £ millions | 2006 | 2005 | 2004 |
| Present value of defined benefit obligations | (1,420.4) | (1,186.1) | (1,013.1) |
| Fair value of scheme assets | 1,209.8 | 884.0 | 785.1 |
| Net liability in the scheme | (210.6) | (302.1) | (228.0) |
| Experience adjustments on scheme liabilities | (170.0) | (111.8) | – |
| Percentage of scheme liabilities | 12.0% | 9.4% | n/a |
| Experience adjustments on scheme assets | 126.8 | 33.0 | – |
| Percentage of scheme assets | 10.5% | 3.7% | n/a |
| Other | |||
| £ millions | 2006 | 2005 | 2004 |
| Present value of defined benefit obligations | (39.1) | (33.0) | (27.1) |
| Fair value of scheme assets | 10.1 | 9.4 | 8.8 |
| Net liability in the scheme | (29.0) | (23.6) | (18.3) |
| Experience adjustments on scheme liabilities | (2.5) | (0.6) | – |
| Percentage of scheme liabilities | 6.4% | 1.8% | n/a |
| Experience adjustments on scheme assets | 0.1 | 0.1 | – |
| Percentage of scheme assets | 1.0% | 1.1% | n/a |
The estimated amount of contributions expected to be paid to the UK, France and other pension schemes during the next financial year is £102.4m (2005: £172.3m).
28 Provisions
| £ millions | Onerous property contracts |
B&Q restructuring provision |
Total |
|---|---|---|---|
| At 29 January 2005 | 17.8 | – | 17.8 |
| Charge to income statement | 0.8 | 224.3 | 225.1 |
| Utilised in the year | (7.5) | (77.4) | (84.9) |
| At 28 January 2006 | 11.1 | 146.9 | 158.0 |
| Included in current liabilities | 2.6 | 44.0 | 46.6 |
| Included in non-current liabilities | 8.5 | 102.9 | 111.4 |
| 11.1 | 146.9 | 158.0 |
Within the onerous property contracts provision, Kingfisher has provided against future liabilities for all properties sublet at a shortfall and long-term idle properties. The provision is based on the value of future cash outflows relating to rent, rates and service charges. This excludes idle properties related to the B&Q UK restructuring programme which are included in the B&Q restructuring provision.
The B&Q restructuring provision represents the estimated cost of the B&Q UK store and head office restructuring programme and the termination of the B&Q UK financial services arrangement as detailed further in note 5. This provision has been discounted to reflect the time value of money and the risks associated with the specific liabilities. The provision is expected to be utilised over the next two to three years. The ultimate costs and timing of cash flows are dependent on exiting the property lease contracts on the closed stores and sub-dividing and sub-letting the surplus space released from those stores to be downsized.
29 Share capital
| Allotted and fully paid | Number of ordinary shares millions |
Share capital £ millions |
Share premium £ millions |
Treasury shares £ millions |
Total £ millions |
|---|---|---|---|---|---|
| At 1 February 2004 | 2,331.4 | 366.3 | 2,150.9 | (126.8) | 2,390.4 |
| Scrip dividend alternative (2004 final) | 1.9 | 0.3 | (0.3) | – | – |
| Scrip dividend alternative (2005 interim) | 6.6 | 1.0 | (1.0) | – | – |
| Shares issued to satisfy share option scheme exercises | 8.1 | 1.4 | 16.6 | – | 18.0 |
| Treasury shares disposed to satisfy share option scheme exercises | – | – | – | 26.5 | 26.5 |
| At 29 January 2005 | 2,348.0 | 369.0 | 2,166.2 | (100.3) | 2,434.9 |
| Shares issued to satisfy share option scheme exercises | 5.3 | 0.8 | 9.1 | – | 9.9 |
| Treasury shares disposed to satisfy share option scheme exercises | – | – | – | 5.2 | 5.2 |
| At 28 January 2006 | 2,353.3 | 369.8 | 2,175.3 | (95.1) | 2,450.0 |
The total number of authorised ordinary shares is 3,022.7m shares (2005: 3,022.7m shares) with a par value of 15 5/7p per share (2005: 15 5/7p per share). All issued shares are fully paid.
Treasury shares represent the Kingfisher plc shares held by the Kingfisher Employee Share Ownership Trust.
30 Other reserves
| £ millions | Hedging reserve |
Translation reserve |
Non- distributable reserves |
Retained earnings |
Total |
|---|---|---|---|---|---|
| Balance at 1 February 2004 | – | – | 159.0 | 1,550.7 | 1,709.7 |
| Actuarial losses on post employment benefits | – | – | – | (79.3) | (79.3) |
| Scrip dividend alternative | – | – | – | 25.4 | 25.4 |
| Treasury shares disposed | – | – | – | (13.1) | (13.1) |
| Share-based compensation charge | – | – | – | 6.7 | 6.7 |
| Currency translation differences | – | 59.7 | – | – | 59.7 |
| Deferred tax on items taken from/transferred to equity | – | (3.6) | – | 28.4 | 24.8 |
| Net gains and losses recognised directly in equity | – | 56.1 | – | (31.9) | 24.2 |
| Profit for the year | – | – | – | 446.0 | 446.0 |
| Total recognised income and expense for the year | – | 56.1 | – | 414.1 | 470.2 |
| Dividends | – | – | – | (230.2) | (230.2) |
| At 29 January 2005 | – | 56.1 | 159.0 | 1,734.6 | 1,949.7 |
| First time adoption adjustment in respect of IAS 39 | (4.4) | 0.7 | – | 1.5 | (2.2) |
| Restated balance at 30 January 2005 | (4.4) | 56.8 | 159.0 | 1,736.1 | 1,947.5 |
| Actuarial losses on post employment benefits | – | – | – | (45.6) | (45.6) |
| Treasury shares disposed | – | – | – | (2.6) | (2.6) |
| Share-based compensation charge | – | – | – | 14.0 | 14.0 |
| Share-based compensation – Shares awarded | – | – | – | (0.9) | (0.9) |
| Currency translation differences | – | 28.4 | – | – | 28.4 |
| Gains and losses deferred in equity | 7.5 | – | – | – | 7.5 |
| Transferred to income statement in the period | (2.7) | – | – | – | (2.7) |
| Transferred to initial carrying amount of asset | 3.2 | – | – | – | 3.2 |
| Deferred tax on items taken from/transferred to equity | (2.4) | 6.9 | – | 15.6 | 20.1 |
| Net gains and losses recognised directly in equity | 5.6 | 35.3 | – | (19.5) | 21.4 |
| Profit for the year | – | – | – | 139.5 | 139.5 |
| Total recognised income and expense for the year | 5.6 | 35.3 | – | 120.0 | 160.9 |
| Dividends | – | – | – | (247.4) | (247.4) |
| At 28 January 2006 | 1.2 | 92.1 | 159.0 | 1,608.7 | 1,861.0 |
Deferred tax on items taken from/transferred to equity is comprised of UK corporation tax of £19.3m (2005: £24.0m) and overseas tax of £0.8m (2005: £0.8m).
Included within retained earnings is the historic revaluation reserve held prior to the adoption of IFRS amounting to £265.4m (2005: £278.6m).
The non-distributable reserve represents the premium on the issue of convertible loan stock in 1993, the merger reserve relating to the acquisition of Darty and the dividend in specie received from a subsidiary prior to the demerger of Woolworths.