Risks

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Risks

Given the scale of our businesses, the Board of Directors recognises that the nature, scope and potential impact of our key 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 Group’s key risks and the opportunity to regularly review the adequacy and effectiveness of our mitigating controls and strategies. See the Corporate Governance report. The Board considers that the principal risks to achieving its strategic aims are set out below.

Easier

Strategic Aim	Group Risks	Risk Mitigation Strategies
1. Making it easier for our customers to improve their home	We fail to deliver value and demand through the easier initiatives.	Deliver value and demand: Across our key markets we are committed to ensuring that our stores are aligned with our aim to make the customer experience easier through a combination of: Creating a better physical environment through clearer store navigation, stronger and smarter visual merchandising, and the enhanced use of technology to guide staff through our stores. Investment in data analytics to provide improved customer insight to enhance our understanding of our customers’ needs. Investment in our pricing strategy to redefine everyday low pricing (EDLP) credentials through price reduction programmes across key buying groups and redesigning promotional principles. Ensuring customers’ needs are satisfied through improved stock availability, an increased emphasis on self-service and availability of financing options. Making home improvement easier for customers through DIY classes, online ‘how-to’ videos and social media.
2. Giving our customers more ways to shop	We fail to invest in the systems and supply chain platforms necessary to maintain either competitive parity or advantage, amongst online or multi-channel competitors.	Systems and supply chain: We will also invest in our supply chains to ensure we can meet our customer demands. This will include the acquisition of higher specification distribution centre solutions in the UK, Poland, Turkey and China, the investment in better business information and forecasting technology (e.g. new warehouse management and forecasting and replenishment systems due in B&Q UK in 2012/13) and the introduction of better and leaner store stock management procedures.

Common

Strategic Aim	Group Risks	Risk Mitigation Strategies
3. Building innovative common brands	We fail to ‘unlock’ the potential to generate further shareholder value through the optimisation of combined purchasing and commercial synergies, while retaining accountability at the Operating Companies.	Purchasing and commercial strategies: Making the most of commercial opportunities through common brands and synergies remains a priority across the organisation. The development of the 11 Group brands is key to delivering the differentiation of product ranges with competitors; stimulating innovation, and increasing scale efficiencies and margin growth. Category plans are being developed across operating companies. Commercial synergies also include sharing supply chain and stock efficiencies. This will be driven by joint buying in selected categories across the UK and French businesses, starting with tiles and flooring in 2012. The Kingfisher Brands Network (KBN) is also looking to drive value through reduced direct import stock holdings, shared European consolidation hubs and shared national transport networks. This investment is, however, dependent on the outcome of a number of trials underway to validate the potential return and benefits from the KBN investment.
4. Driving efficiency and effectiveness everywhere	Our continued investment in own brand and sourcing will increase our exposure to reputational damage resulting from significant product or service failures, due to poor quality of design, manufacture or installation.	Product or service failures: Clear processes and procedures are in place across our businesses to ensure that the products we sell are compliant with local certification and regulatory requirements. For our own brand products we continue to develop the quality management tool (QMT) platform to ensure that our direct import and own brand products are subject to consistent supplier and product assessment and approval processes.

Expand

Strategic Aim	Group Risks	Risk Mitigation Strategies
5. Growing our presence in existing markets	Uncertainty surrounding the resilience of the global economy and the future of the eurozone continues to impact both consumer confidence and the long-term sustainability and capabilities of our supplier base.	Global economy: With continuing volatility and uncertainty across all of the economies in which we operate, particularly within the Eurozone, Group Treasury continue to monitor potential exposures and risks with our operating companies and provide effective risk management solutions. These include: The provision of supply chain finance programmes to support strategic suppliers. Support from a strong portfolio of international banking partners that provides 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 mix of cash deposits and debt financing that seeks to minimise the impact of foreign exchange currency volatility on the Group P&L. A hedging policy for imported product that ensures that operating companies have, on average, 50% of the next 12 months’ USD requirements secured at any given time. We have assessed a number of alternative scenarios in relation to the volatility and uncertainty within the Eurozone. For each of these scenarios a range of mitigation strategies is being developed covering the impact on the Group, our individual operating companies and suppliers.
6. Expanding in new and developing markets	Retailing is changing due to the growth of online and multi-channel retailers. There is a risk that if we fail to adapt our business model and do not take advantage of the opportunities created by changes in technology then we may be unable to maintain and grow our market position.	Business model: The environment in which we trade is changing rapidly and we face challenges in expanding in some markets. We continue to counter the growing competitive threat posed by both pure play internet and multi-channel retailers through our long-term online and multi-channel investment programme across our key markets. For example, the investment in our multi-channel project will provide the necessary infrastructure to develop a compelling internet and multi-channel offering across our businesses that will include the options to deliver enhanced ‘click, pay and collect’ functionality and improvements to the availability of products ranged online. We will also continue to work on flexible ordering options for customers, the development of online and mobile applications to enhance the customer online experience and the ability to visualise projects across their homes. We will also continue to invest in our existing store portfolio but will seek to minimise its cost base and optimise its sales densities. For example in France we will seek to minimise and challenge lease indexation while, in the UK, B&Q is looking to optimise its property portfolio through the creation of regional hubs supporting destination stores and feeder stores. We will also start a number of trials, throughout 2012, where we will seek to expand in existing territories via new formats, and try low-risk market entry strategies based on the utilisation of current operating company skills and resources.

One Team

Strategic Aim	Group Risks	Risk Mitigation Strategies
7. Developing leaders and connecting people	We do not make the necessary investment in our people to ensure that we have the appropriate calibre of staff, skills and experience.	Investment in people: Across our businesses we are developing our talent, building our leadership capability and connecting our people through intelligent networks. Specific examples of this include: The continued investment in development of our senior leaders through the Kingfisher Academy, including the 2020 Leadership Programme and the development of networks across our businesses. Focused development activities across our store-based colleagues, including the roll out of national apprenticeship schemes across our UK and French businesses and the increased focus on how we support and recognise the role of our customer advisors across the organisation. Recognition of the importance of ensuring a constant flow of developing talent through structured graduate and management trainee programmes (e.g. City & Guilds accreditation in the UK and the Viva2 and Perspective Programme in France), providing structured and sustainable career development paths supported by new and innovative coherent reward and bonus frameworks.
8. SUSTAINABILITY: BECOMING NET POSITIVE	Impact on Kingfisher’s reputation and brand arising from a major environmental or ethical failure, a significant corporate fraud or material non-compliance with legislative or regulatory requirements resulting in punitive or custodial sentences.	Reputation: Group Legal continue to work with operational management to resolve any potential issues arising from new legislation or any suspected breaches of existing legislation or Group policies. We have invested significant resources to ensure that all of our businesses have the necessary resources to manage the legislative or regulatory challenges presented by their respective jurisdictions. We aim to maintain the highest ethical standards across the organisation through improvements to our Code of Conduct, the revamping of the ‘whistle blowing’ facilities available to both employees and suppliers through the ‘Speak Up’ service, and the appointment of compliance officers to all of our Operating Companies. Our commitment to sustainability remains a key value for Kingfisher and across the organisation we continue to ensure that we engage with our key environmental partners and stakeholders (including the FSC, WWF, TFT and GNFT). We also see a commitment to sustainability as a key value driver across our businesses and, where practical, integrate sustainable practices into our business models and our property, logistics and distribution networks. We also operate a number of customer initiatives to raise awareness of our work in key areas including timber, energy, innovation and community.

Operational risks
This year we have focused our disclosure on the significant risks the Group faces in relation to the strategic aims. We recognise, however, that the Group faces a number of operational risks on an ongoing basis including, failure to comply with legislative and regulatory changes, IT security, environmental or ethical failure and health and safety failure. These are important risks for the Group and we continue to invest in ensuring we have the right policies and procedures in place to mitigate and monitor each of these. We continue to ensure that any breaches of these policies or any incident that may affect the safety of our employees or customers is dealt with immediately and reported at the appropriate level within the organisation.