As our transformation to ONE Kingfisher progresses we are continuing to carry out a number of significant projects across the Group, while facing issues due to the external environment. The scope and pace of change may disrupt our business as usual activities and the external factors may

increase this risk.

Strategic pillar

- Unified & Unique offer

- Digital

- Operational efficiency

How our risks have changed

Increasing. This is an area of increasing risk for us as we transform the business in a changing external environment.

How we manage and monitor the risk

·      Programme of strategic updates to the Board planned during the year.

·      Monthly tracking against key milestones and reporting to the Group Executive and the Board.

·      Transformation function to coordinate and monitor progress.

·      Operating Company Transformation Directors in place to deliver the transformational change.

·      A release approach in place which:

o  Delivers groups of internally consistent deliverables.

o  Improves dependency management.

o  Delivers clearer implementation path.

2. TECHNOLOGY DELIVERY

Technology is key to enabling our strategy, meeting customer needs and growing the business. Our unified IT platform is designed to deliver our requirements in line with the plan to support the strategy. Failure to do this may impact the anticipated benefits and disrupt the underlying business.

Strategic pillar

- Digital

How our risks have changed

No change. Having completed all the core activities within B&Q and Castorama France (our biggest Operating Companies) as well as implemented a number of key modules in all other markets, which includes the rollout to stores, we have learnt and continue to learn with each implementation and this is then rolled into the next area of change.

How we manage and monitor the risk

·      Change control procedure in place with the leadership team having final approval on all functional changes.

·      The rollout plan avoids a 'big bang' implementation approach. Instead gradual increments are implemented over a short period, ensuring that dual running is kept to a minimum and allowing any issues to be identified and resolved before moving on.

·      Process in place to establish learning points and to ensure these are built into future rollouts.

·      'Agile' ways of working are already in place and are currently being enhanced to support the appropriate areas.

·      Existing partners have skills that can support our needs in this area.

·      We have good quality skills and capabilities both in the central team and in the local teams which has been essential as we have rolled out further and will be important for maintaining and enhancing the platform in the future.

·      Applications are being provided in accordance with our proposed three-tier architecture, which provides flexibility to areas where innovative ideas are most likely. Tools are typically agnostic and therefore can be interchanged in the event this is required.

·    Digital IT team is integrated within the overall IT function with common release management and operations in place.

3. UNIFYING OUR OFFER AND PROCESSES

We aim to offer customers a product range which is differentiated from that of our competitors through innovation, exclusivity and affordability. We are unifying our offer and standardising our activities and processes. This is a large and complex project therefore there is a risk of not executing this across the Group and delivering the projected benefits.

Strategic pillar

- Unified & Unique offer

How our risks have changed

No change. As the project progresses we have a better understanding of the risks following previous implementations and have used this information to improve our planning, execution and implementation of range changes.

How we manage and monitor the risk

·      A clearly defined set of range principles and the main customer projects that will provide the opportunity to create the unique offer have been defined.

·      Teams with specialised roles are tasked to develop and take best practice and the best products from across the company.

·      Strong sourcing network which is focused on securing company buying opportunities.

·      Validation and governance processes in place for business case approvals of range and procurement decisions.

·      The plan for each range change is discussed and agreed with the trading function and Directors at key points in the process.

·      Strong project management process including capturing lessons learned for continuous improvement.

·      Monthly tracking and review by the Offer & Sourcing board to identify and respond to potential risks.

·      Performance of the ranges and brands is tracked, and strategies updated accordingly.

·      Vendor management process in place which includes vendor selection, risk assessments, monitoring of vendor responses, and communication.

·      We have a systems roadmap which is reviewed regularly with IT to identify and prioritise key programmes.

4. CHANNEL DEVELOPMENT

As consumer preferences continue to change, we must ensure we create and deliver a culture of innovation in our format and digital channels that keeps pace with changing consumers behaviours and our competitors to be able to stimulate spend and deliver the desired sales growth.

Strategic pillar

- Unified & Unique offer

- Digital

- Retail operations

How our risks have changed

No change. Failing to keep pace within the digital area is a risk for us. However, we have continued to make good progress this year to ensure we are better positioned to fulfil our digital ambitions.

How we manage and monitor the risk

·      A Group digital strategy has been developed and a prioritised delivery roadmap is underway across the local markets.

·      Rollout of next generation e-commerce in local markets and development of new kitchens and bathroom capability to be deployed in local markets.

·      A monthly Digital Governance Forum is in place to monitor financial and project portfolio performance and to prioritise upcoming digital initiatives, ensuring we deliver the greatest benefits and features to customers through our online channels and in store.

·      Group mobile and desktop platform has been built and launched in B&Q; new online search and content management capabilities will be launched in 2019 to improve diy.com customers' experience further. A rollout plan has also been developed for our other local markets in line with unified IT platform and Group transformation timelines.

·      Digital ways of working and increasing levels of Agile development are being progressed in all digital functions.

·      Unified IT Platform continues to be rolled out across the Group to provide the systems and capabilities required to deliver the foundations for the digital strategy.

·      Group Concept Director appointed.

·      Developing the concept combining the best of store format and digital in pilot stores to be launched in 2019.

·      Group Trading Director and trading team established.

·      Director of Pricing and Pricing Centre of Excellence created.

·      A Group pricing strategy is in place. The Offer & Sourcing and Trading functions set recommended prices on all unified ranges, securing the best selling price whilst optimising margin.

·      Pricing tools and tracking compliance in place.

5. POLITICAL ENVIRONMENT

With continuing geopolitical and local market uncertainty and market volatility across all the economies in which we operate, we are exposed to potential risks which may both impact consumer

confidence and disrupt the day-to-day operations of the business.

Strategic pillar

- Retail operations

How our risks have changed

Increasing. We have seen an increased number of uncertainties relating to the economy across our key markets, heightened geopolitical tensions, disruption in some of our markets and continued currency volatility.

How we manage and monitor the risk

·      Provision of supply chain finance programmes to support suppliers. Additional information on these arrangements can be found on page 150.

·      Portfolio of international banking partners that provide flexibility and reliable local retail cash and card payment processing services.

·      Access to funding: both debt funding, including an up-to-date debt capital markets programme, and significant committed liquidity facilities.

·      Diversification of cash holdings across a number of financial institutions with the strongest short-term credit rating.

·      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.

·      Offer and pricing strategies designed to address consumer confidence.

·      Corporate Affairs team actively monitors the political and economic situations in the countries in which we operate or those which may impact our operations.

·      Strategies in place to identify, monitor and aim to influence changes to legislation which may impact the business.

·      Corporate Affairs team oversees direct policy and political engagement with dedicated resource in the UK, France, Belgium, Poland and Romania. This is supported by local representatives in our Operating Companies and our membership of key business trade associations in every market.

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

6. EU REFERENDUM

Following the UK's decision to leave the EU we continue to see increased economic uncertainty, exchange rate volatility and an impact on consumer confidence in the UK market. These issues may impact our purchase costs, including additional import tariffs and packaging costs, and our operations, including supply chain delays for the UK, Ireland and Northern Europe. Assuming an agreement to exit is reached, the negotiations on the future relationship may also result in further

changes to regulation and operational frameworks which may impact our ability to operate across our European businesses as we do today.

Strategic pillar

-    Retail operations

How our risks have changed

Increasing. This risk has increased due to the continuing uncertainty as to the operational implications of the decision to leave the EU and the impact on trading performance from impacts on the economy in our key markets.

How we manage and monitor the risk

·      A Brexit Steering Group has been in place since the 2016 referendum. This group is responsible for monitoring the Brexit process and agreeing actions. The Group consists of Finance, Tax, Treasury, HR, IT, Legal, Corporate Affairs, Regulatory and Operational teams.

·      Third-party advisors were engaged to advise on risk and mitigation plans, especially in the event of a 'No Deal', and action plans developed.

·      We continue to engage directly with government and alongside key trade bodies.

·      Work has been done to consider the implications of Brexit, considering different scenarios and preparing mitigation plans across key operational areas including:

Import tariffs

·      We have assessed the impact of a 'No Deal' scenario on our tariff rates and have built mitigation contingency plans in case required.

·      We have also updated our sourcing tender process to take account of Brexit related risk in the selection of new vendors.

Customs clearance

·      We are taking steps to mitigate the risk of UK port delays in the event that customs clearance processes and transport infrastructures become overwhelmed, including improving our customs and import management capability.

Vendor readiness

·      We are working with our vendors through our buying offices to check that vendors are as ready as they can be for Brexit with necessary processes in place where they are responsible for importing product from EU to UK and from UK to EU.

Product standards

·      We are working with vendors to ensure they have taken necessary steps to update product testing accreditation and regulations around chemicals, horticulture etc. so they remain valid both in the UK and EU markets as regulations start to diverge.

Data

·      In order to continue to comply with General Data Protection Regulation we are acting to add additional clauses in some vendor agreements and inter-company agreements.

7. ATTRACTING, RETAINING AND INVESTING IN OUR PEOPLE CAPABILITY

Our colleagues are critical to the successful delivery of our strategy and business. We must ensure we take steps to retain and attract talent to the company and make the necessary investment in our people to ensure that we have the appropriate capacity, skills and capabilities.

Strategic pillar

-    Unified & Unique offer

-    Digital

-    Operational efficiency

-    Retail operations

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 plans in place to deliver the model.

How we manage and monitor the risk

·      The Chief People Officer is leading the work to improve our capabilities, ensuring we have effective KPIs and relevant reward structures.

·      Work is underway to redesign, where required, HR processes, policies and guidelines to ensure they are fit for purpose and in line with our ambition. Initial focus will be on recruitment, reward, talent and engagement.

·      Engagement process in place to ensure we have an appropriate and timely engagement methodology which enables us to check across all colleagues our ability to drive the changes we need whilst being able to respond to any insights which may impact upon our duty of care as an employer.

·      Creating a strong pipeline of developing talent through structured programmes including graduate and high-potential schemes for the development of senior leaders.

·      Continue to invest in development activities for our store-based colleagues and in how we support and recognise the role of our customer advisors across the organisation.

·      Home Improvement and Range Academies developed to build capability and inform colleagues on the new ways of working and product ranges.

·      Remuneration committee oversees reward policy.

·      Nomination committee oversees Board composition and succession planning.

8. LEGAL AND REGULATORY

The Group's operations are subject to an increasing range of regulatory requirements in the countries in which it operates. A major corporate issue or crisis, a significant corporate fraud or

material non-compliance with legislative or regulatory requirements would impact Kingfisher's brand and reputation and could expose us to significant fines.

Strategic pillar

-    Unified & Unique offer

-    Digital

-    Retail operations

How our risks have changed

Increasing. Regulatory requirements are increasing in many areas and therefore we see this as an area of increasing risk.

How we manage and monitor the risk

·      Employees and suppliers working for or with Kingfisher must conduct themselves according to our minimum standards of ethics and behaviours as defined by our Code of Conduct.

·      Responsibility for compliance with our Code of Conduct rests with each Operating Company CEO.

·      Appropriate resources are available to our Operating Companies to ensure that both colleagues and suppliers are aware of, and comply with, the Code.

·      Legal teams at Kingfisher and each of our Operating Companies work and communicate together to form a legal and compliance network.

·      Communications teams at Kingfisher and each of our Operating Companies work together to form a communications network.

·      A Crisis Communications team is in place to manage major incidents.

·      Policies and procedures in place to support the health and safety, environmental, ethical, fraud, crisis management, legislative and regulatory areas.

·      Anti-bribery training in place and all key individuals must complete this training.

·      Whistleblowing hotline operates throughout the Group and all calls are followed up, including monitoring at the local Audit Committee level.

·      Market Abuse Regulation policy and training in place.

9. CYBER AND DATA SECURITY

Cyber-attacks and security incidents have increased in recent years and the retail sector is now a target. There have been a number of high-profile attacks in the sector in recent times that have had an impact on operations, profitability and reputation.

Strategic pillar

-     Digital

-     Retail operations

How our risks have changed

Increasing. We continue to see an increase in the frequency and sophistication of cyber-attacks and security incidents which require us to remain vigilant in this area.

How we manage and monitor the risk

Cyber security

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

·      Dedicated IT governance boards are established to monitor this evolving risk and the associated mitigating controls.

·      As part of the IT planning process, we have established a roadmap which covers security, governance and identity initiatives to continue to mature the tools and capabilities we have available to us.

·      Independent reviews are performed of the Group's cyber security processes and initiatives on an annual basis.

·      We regularly review the threats facing Kingfisher and have been working with partners and security specialists to implement tools and processes to identify and remediate vulnerabilities.

Data protection

·      We have data protection and management policies in place.

·      Data protection has been enhanced in light of the General Data Protection Regulation.

·      IT solutions and appropriate training regarding data protection and management in place.