Annual Report and Accounts 2007/08
The directors are pleased to present their report for the financial year ended 2 February 2008.
Principal activities and developments in the year
Kingfisher is an international home improvement business operating in markets that fit strategic criteria of attractive scale, structure and economics. Operating principally through its main retail brands B&Q, Castorama, Brico Dépôt and Screwfix, Kingfisher operates in nine countries across Europe and Asia and is market leader in five countries. This continues to give the Group an excellent platform for growth in all of its markets. In addition, Kingfisher has property interests in the countries in which it operates, which are primarily managed through the relevant retail business.
A review of the business, providing a comprehensive analysis of the main trends and factors likely to affect the development, performance and position of the business, including environmental, employee and social and community issues, together with the Group's Key Performance Indicators (KPIs), and a description of the principal risks and uncertainties facing the business and which should be treated as forming part of this report by reference is detailed as follows:
Kingfisher at a glance, KPIs, review of the business and progress, including the Operating review, and an overview of markets, Group talent development, the Group sourcing programme and corporate responsibility, Financial Review and risks.
In total, 85 net new stores (excluding discontinued operations) were opened in the year, taking the Group's total to 780.
In the UK, B&Q continued its modernisation programme, with 38 larger stores now trading in the new format. 60% of its product ranges were updated during the year. Screwfix continued the expansion of its trade counters nationwide, taking the number of branches from 38 to 93.
In August 2007 Kingfisher agreed to sell its freehold interest in B&Q's distribution centre in Worksop, Nottinghamshire for a total of £73m. The sale gave rise to a pre-tax exceptional gain of £40m.
In France, 42% of Castorama's selling space is now trading in the new format and Brico Dépôt opened eight stores during the year.
On 4 January 2008 Kingfisher sold its 50% joint venture stake in B&Q Taiwan to its joint venture partner, Test Rite International.
In South Korea where the Group's two trial stores were making progress, opening sufficient stores to achieve economic scale in a reasonable timeframe appeared unlikely. Accordingly, the business was closed during the year.
In Russia, Castorama continued to make good progress with two new stores opened, including the first in Moscow.
Results and dividends
The profit before taxation of the Group amounted to £395m (2006/07: £450m) with a profit after taxation of £272m (2006/07: £338m).
During the year, the market value of the Group's land and buildings increased to £3.5bn; £0.8bn above their net carrying amount. The market value of the Group's investment properties increased to £44m; £15m above their net carrying amount.
Kingfisher paid an interim dividend of 3.85p (2006/07: 3.85p) per ordinary share amounting to £90m (2006/07: £90m) on 16 November 2007. The directors recommend a final dividend of 3.4p (2006/07: 6.8p) per ordinary share amounting to £80m (2006/07: £159m) to be paid on 13 June 2008 to those shareholders whose names are on the register of members at the close of business on 18 April 2008, making a total for the year of 7.25p (2006/07: 10.65p) per ordinary share amounting to £170m (2006/07: £249m). The ex-dividend date will be 16 April 2008. Dividend cheques and tax vouchers will be posted on 11 June 2008.
The Dividend Reinvestment Plan (DRIP) is available to all shareholders who would prefer to invest their dividends in the shares of the Company. If shareholders wish to elect for the DRIP for the final dividend and have not already done so, a letter or completed DRIP mandate form must be received by the Company's Registrars by 22 May 2008. Certificates for shareholders electing for the DRIP will be posted by no later than 26 June 2008. Further details of the DRIP and an application form are available from the Company's Registrars whose details can be found in the Shareholder information.
John Nelson stepped down from his role as Deputy Chairman at the Annual General Meeting ('AGM') in 2007 but remained as Senior Independent Director. Gerry Murphy stepped down from his role as Group Chief Executive on 2 February 2008. Ian Cheshire was appointed Group Chief Executive on 28 January 2008.
Re-election of directors
The Articles of Association require one third of the directors who are subject to retirement by rotation to retire and submit themselves for re-election at the AGM each year and, in any event, at least once every three years. Accordingly, Ian Cheshire and Hartmut Krämer retire by rotation and are offering themselves for re-election. Having served for over 10 years as a non-executive director, and in accordance with the Combined Code, Michael Hepher is also retiring and offers himself for re-election. He has taken this step to provide continuity of Board membership as Kingfisher's new Group Chief Executive takes office. The Board continues to believe that the two non-executive directors standing for re-election are independent, and that they make an effective and valuable contribution to the Board, demonstrating continued commitment to the role. In Mr Hepher's case, his independence is assured through his continued application of his breadth of experience in a manner that provides challenge within a supportive context. He maintains strong principles, acting as the conscience of shareholders as well as an ambassador for the business.
Neither of the non-executive directors standing for re-election has a service contract with the Company.
The directors who held office at 2 February 2008 had the following interests in the shares of the Company:
2 February 2008
3 February 2007
or, if later, on appointment
|Gerry Murphy (until 2 February 2008)||497,604||359,151|
Between 2 February 2008 and 26 March 2008 there was no change in the relevant interests of the directors.
As at 26 March 2008 no person who was then a director had any interest in any derivative or other financial instrument relating to the Company's shares and, so far as the Company is aware, none of their connected persons had any relevant interest.
The directors' interests in options over shares of the Company as at 2 February 2008 are shown within the Remuneration report.
Deeds of indemnity
As at the date of this report, indemnities that are 'qualifying third party indemnity provisions' for the purposes of the Companies Act 2006 are in force under which the Company has agreed to indemnify the directors, to the extent permitted by law, in respect of all losses arising out of, or in connection with, the execution of their powers, duties and responsibilities, as directors of the Company or any of its subsidiaries. Such indemnities were also in force in respect of each person who was a director of the Company at any time during the financial year ended 2 February 2008.
The directors confirm that, after reviewing expenditure commitments, expected cash flows and borrowing facilities, they have a reasonable expectation that Kingfisher has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing these accounts.
The Board continues to emphasise high standards of customer care and service in each operating company. The commitment of employees to this principle is vital, and each operating company has developed channels of communication to help people to expand their knowledge of, and involvement with, Kingfisher.
These channels include engagement surveys, briefing groups, internal magazines and newsletters that report on business performance and objectives, community involvement and other issues. Kingfisher's intranet systems are also used to communicate results announcements to employees throughout the Group and to distribute information about other important business developments.
Directors and senior management regularly visit stores and discuss with employees matters of current interest and concern.
To supplement existing communication within each business, the Kingfisher European Forum was established in 2003. The Forum provides information and consultation with employee representatives from Kingfisher's businesses in EU countries on specified trans-national business issues affecting those countries.
We are committed to, and focused on, the development of our people and have identified a talent population across the organisation in whom we will invest significantly to further the capability of our leaders, both now and in the future. We are committed with passion and energy to the challenges we face across our business and strive for excellence in our leadership.
The use of in-house and specialist training programmes as well as links with the general educational sector, reinforces Kingfisher's commitment to employee involvement and development. Employees are also represented on the trustee board of Kingfisher's UK pension arrangements.
All UK employees (as well as those in Ireland and Hong Kong) are entitled to participate in Kingfisher's long-standing Savings-Related Share Option Scheme (ShareSave), regardless of number of hours worked, provided they meet certain service conditions. In addition, save-as-you-earn plans, not linked directly to the purchase of Kingfisher shares, operate in other countries along similar lines to the UK scheme, taking account of local tax and legal requirements.
Respect for the diversity of people
Kingfisher is committed to treating its employees and customers with dignity and respect, and to valuing diversity.
Kingfisher strives to create an environment that respects, welcomes and enables employees to reach their full potential for their own benefit and that of the Company.
It is Kingfisher's policy to:
- Ensure there is no discrimination in employment on the grounds of race, gender, age, disability, marital status, sexual orientation or religious belief;
- Implement measures in stores to ensure a level of customer service for disabled people equivalent to that offered to non-disabled people; and
- Maintain a mechanism which customers and employees can use to give feedback on our performance and ensure that all customer comments are analysed, responded to and acted upon.
Kingfisher sets specific standards on diversity across the Group through its social and environmental programme 'Steps to Responsible Growth'. Guidance has been developed for Kingfisher's subsidiaries to help them understand diversity and to ensure they meet the standards required within Steps. Diversity data is published in the Corporate Responsibility Report, available on the website www.kingfisher.com/CR
Kingfisher and its subsidiaries made contributions to charity/community projects worth an estimated £1.5m in the financial year ended 2 February 2008 – equivalent to 0.4% of pre-tax profits. This included cash donations (£0.3m) and gifts-in-kind (£1.0m – retail cost). Support was also given through the donation of time by employees (£0.2m).
Supplier payment policy
The Company does not impose standard payment terms on its suppliers but agrees specific terms with each of them, and then pays in accordance with those terms. The Company is a holding company and therefore has no trade creditors.
Disclosure of information to auditors
Each person who is a director at the date of approval of this report confirms that: so far as he or she is aware, there is no relevant audit information of which the Company's auditors are unaware; and each director has taken all the steps that he or she ought to have taken as a director to make him or herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 234ZA of the Companies Act 1985.
Pursuant to Section 992 of the Companies Act 2006, which implements the EU Takeovers Directive the Company is required to disclose certain additional information. Such disclosures, which are not covered elsewhere in this Annual Report, include the following:
Significant agreements – change of control
There are a number of agreements that take effect, alter or terminate upon a change of control of the Company following a takeover bid, such as bank loan agreements, Eurobond documentation, private placement debt and employees' share plans. None of these are deemed to be significant in terms of their potential impact on the business of the Group as a whole except for the following:
- The £500m credit facility dated 15 March 2005 between, the Company, HSBC Bank plc (as the facility agent) and the banks named therein as lenders, contains a provision such that in the event of a change of control, any lender may, if they so require, notify the agent that they wish to cancel their commitment whereupon the commitment of that lender will be cancelled and all their outstanding loans, together with accrued interest, will become immediately due and payable;
- The $466.5m US Private Placement notes, issued pursuant to a note purchase agreement dated 24 May 2006 by the Company to various institutions, contains a provision such that in the event of a change of control, the Company is required to make an offer to the holders of the US Private Placement notes to prepay the principal amount of the notes together with interest accrued;
- The €550m Medium Term Notes (MTNs), issued on 23 November 2005 under the Group's €2,500m MTN programme by the Company to various institutions, contains an option such that in the event of a change of control and as a result of the change of control the Company's credit rating is downgraded below investment grade (BBB-, or equivalent or better) any holder of the MTNs may require the Company to prepay the principal amount of that note together with interest accrued.
A change of control will be deemed to have occurred if any person or persons acting in concert (as defined in the City Code on Takeovers and Mergers) at any time is/are or become(s) interested in more than 50% of the issued ordinary share capital of the Company or shares in the capital of the Company carrying more than 50% of the voting rights normally exercisable at a general meeting of the Company.
Share capital and control
Details of the Company's issued share capital are set out within note 10. All of the Company's issued ordinary shares are fully paid up and rank equally in all respects.
The ordinary shares are listed on the Official List and traded on the London Stock Exchange and are also listed on the Paris Bourse in France. In addition, the Company has entered into a level I American Depositary Receipt programme with the Bank of New York Mellon, under which the Company's shares are traded on the over-the-counter market in the form of American Depositary shares.
During the year ended 2 February 2008, options were exercised pursuant to the Company's share option schemes, resulting in the allotment of 1,789,548 new ordinary shares. No new ordinary shares have been allotted under these schemes since the end of the financial year to the date of this report.
Rights attaching to shares
The rights and obligations attaching to the Company's ordinary shares, in addition to those conferred on their holders by law, are set out in the Company's Articles of Association (“the Articles”), copies of which can be obtained from Companies House in the UK or by writing to the Company Secretary.
The holders of ordinary shares are entitled to receive the Company's reports and accounts, to attend and speak at general meetings of the Company, to appoint proxies and to exercise voting rights.
Transfers of shares
There are no restrictions on the transfer of ordinary shares or on the exercise of voting rights attached to them, except (i) where the Company has exercised its right to suspend their voting rights or to prohibit their transfer following the omission of their holder or any person interested in them to provide the Company with information requested by it in accordance with Part 22 of the Companies Act 2006 or (ii) where their holder is precluded from exercising voting rights by the FSA's listing rules or the City Code on Takeovers and Mergers.
Purchase of own shares
At the AGM on 31 May 2007, shareholders approved a resolution for the Company to make purchases of its own shares to a maximum number of 235,920,341 ordinary shares. This resolution remains valid until the conclusion of this year's AGM. As at 2 February 2008 the directors had not used this authority. It is Kingfisher's present intention to cancel any shares acquired under such authority, unless purchased to satisfy outstanding awards under employee share incentive plans. A resolution will be proposed at this year's AGM to renew this authority.
Issue of shares
At the 2007 AGM shareholders approved a resolution to give the directors authority to allot shares up to an aggregate nominal value of £104,267,996. In addition, shareholders approved a resolution giving the directors a limited power to allot shares for cash other than pro rata to existing shareholders. These resolutions remain valid until the conclusion of this year's AGM. Resolutions will be proposed at this year's AGM to renew these authorities. The directors have no present intention to issue ordinary shares, other than pursuant to employee share schemes and pursuant to the DRIP.
Further explanation of the resolutions is included with the notice of the meeting circulated to shareholders with this report.
As at 26 March 2008, the Company had been notified in accordance with the Disclosure and Transparency Rules of the UK Financial Services Authority of the following interests in the Company's shares:
|Company||Number of shares held||Percentage of issued share capital held|
|Brandes Investment Partners, L.P.||118,049,678||5.00%|
|Capital Research and Management Company||119,203,483||5.05%|
|Legal & General Group plc||96,039,913||4.07%|
|Templeton Global Advisors Limited||149,231,047||6.32%|
|Walter Scott & Partners Limited||92,178,075||3.90%|
Appointment and replacement of directors
The Company's rules about the appointment and replacement of directors are contained in the Articles and accord with usual English company law provisions. The powers of the directors are determined by UK legislation and the Memorandum and Articles of Association of the Company in force from time to time.
New Articles of Association
Changes to the Articles must be approved by the shareholders passing a special resolution. A resolution will be put to this year's AGM to adopt new Articles with effect from 1 October 2008, primarily as a result of changes to English company law introduced by the Companies Act 2006. An explanation of the main changes proposed to be made to the Articles is included with the notice of the meeting circulated to shareholders with this report.
Directors’ responsibility statement pursuant to DTR4
The directors confirm that, to the best of each person's knowledge:
- the Group financial statements in this report, which have been prepared in accordance with International Financial Reporting Standards (IFRS's) as adopted by the EU, IFRIC Interpretation and those parts of the Companies Act 1985 applicable to companies reporting under IFRS, give a true and fair view of the assets, liabilities, financial position and profit of the Group taken as a whole; and
- the parent Company financial statements in the report, which have been prepared in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) and applicable law give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
- the management report contained in this report includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face.
By Order of the Board
26 March 2008