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. The implementation is complete at B&Q and is nearing completion at Castorama France. The roll-out is commencing in the remainder of our Operating Companies. The risk is increased for us as more of the estate is exposed to the implementation. However this is balanced by the lessons learnt to date and the opportunity to see the systems running day to day and helping us identify any additional capacity or actions required.

How we manage and monitor the risk

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

·     The roll-out 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 roll outs.

·     '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.

·     Retaining knowledge by ensuring the colleagues who established the template are involved in the programme through the central team or via the local roll-out.

·     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.

·     Transformation team and Operating Company transformation directors in place to deliver the transformational change.

2. UNIFYING OUR OFFER & PROCESSES

We aim to offer customers a product range which is differentiated from that of our competitors through innovation and exclusivity. 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 delivering the projected benefits.

Strategic Pillar

- Unified & Unique Offer

How our risks have changed

Increasing. There are plans in place for the range changes and the process is better understood following the implementations from last year, however as this project progresses the level of ranges impacted continues to increase and our risk exposure increases.

How we manage and monitor the risk

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

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

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

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

·      Clearly defined range and purchasing standards, principles and methodology with guidance and support from expert leads.

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

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

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

·      Systems and data improvements have been identified and are part of the unified IT platform implementation.

3. CHANNEL DEVELOPMENT

As consumer preferences continue to change we must ensure we create a culture of innovation in our offer, format and digital channels that keeps pace with changing consumer 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.

·      Digital priorities programmes underway, Brilliant Basics and Home Improvement Platform.

·      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/features to customers through our digital channels across our Brilliant Basics and Home Improvement Platform developments.

·      Group mobile platform built and launched in B&Q; this will extend to desktop during 2018 to improve diy.com customers' experience further. A roll-out plan has also been developed for our other local markets in line with Easier and Group Transformation timelines.

·      Plans in place for a digital centre of excellence and digital delivery, roles, skills and knowledge have been defined. Resource recruitment underway. The ways of working are also being reviewed across all digital functions.

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

·      Click & Collect now live in B&Q stores to join up digital and offline journeys. This will be rolled group wide with the unified IT platform.

·      Group Concept Director appointed.

·      Retail concepts and common and unique customer experience being developed.

·      Starting to develop plans combining the best of store format and digital.

4. MACRO-ECONOMIC FACTORS

With continuing geopolitical uncertainty and market volatility across all the economies in which we operate, we are exposed to potential risks which may impact both consumer confidence and the long-term sustainability and capabilities of our supplier base.

Strategic Pillar

- Retail Operations

How our risks have changed

Increasing. There are still a number of uncertainties relating to the economy and heightened geopolitical tensions in some of our markets.

How we manage and monitor the risk

·      The provision of supply chain finance programmes to support suppliers.

·      Portfolio of international banking partners that provide 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 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.

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

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

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

5. EU REFERENDUM

Following the decision to leave the EU we have seen increased economic uncertainty, exchange rate volatility and an impact on consumer confidence in the UK market. This is likely to continue until EU exit negotiations are complete. These negotiations may 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. We have therefore decided to specifically include this within our principal risks.

How we manage and monitor the risk

·      Brexit Steering Group has been in place since the 2016 referendum.

·      Actively monitoring the Brexit process via the Government Affairs team, Treasury, Finance and Tax, People and IT teams alongside UK and French Operating Companies.

·      Work is underway to consider the implications of Brexit, considering different scenarios and preparing mitigation plans.

·      As the situation becomes clearer and the mechanics of an exit are known, more detailed plans will be prepared.

·      Updates are planned for the Board as part of the forward plan of work for the year.

6. INVESTING IN OUR PEOPLE

Our colleagues are critical to the successful delivery of our strategy and business. We must make the necessary investment in our people to ensure that we have the appropriate capacity, skills and experience.

Strategic Pillar

-    Unique and Unified

-    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.

·      Remuneration Committee oversees the reward policy.

·      New engagement tool introduced to ensure we have an appropriate and timely engagement methodology which enables us to check across all staff 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.

·      Nomination Committee oversees the Board composition and succession planning.

·      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.

7. PRICE COMPETITIVENESS

We continue to face a broad range of competitors across our markets. A lack of actual or perceived price competitiveness, particularly when compared to more discount based or online competitors, would affect our ability to maintain market share or result in a loss of market share

Strategic Pillar

Unified and Unique Offer

How our risks have changed

No change. We have taken further steps this year to monitor and manage this risk and therefore believe the risk level is unchanged.

How we manage and monitor the risk

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

·    Regular pricing studies undertaken with regards to the market and price positioning aligned with competition.

·    Investment in pricing to reinforce and communicate our value credentials.

·    Developing improved customer insight and analytical tools to optimise product ranging and pricing strategies.

·    More targeted use of online and mass media tools to communicate and reinforce price perception.

·    Role of Director of Pricing created, responsibilities include overseeing the pricing strategy for the Group.

8. LEGAL AND REGULATORY

The Group's operations are subject to a broad 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.

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 for us.

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 Chief Executive.

·    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 in Group and each of our Operating Companies work and communicate together to form a legal 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 & 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 throughout the Group and all calls are followed up, including monitoring at the local Audit Committee level.

·    Market Abuse Regulations 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. This risk has been monitored by the Group Executive and Audit Committee for the last few years, however this year we have decided to add this area to our principal risks as we believe the risk of this type of incident is increasing.

How we manage and monitor the risk

Cyber Security

·      Cyber security continues to receive Executive level sponsorship and Group Audit Committee focus.

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

·      Independent reviews are performed of the Cyber security processes and initiatives on an annual basis.

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

·      We have a clear roadmap for 2018 to further enhance our threat intelligence and incident responses to meet the challenges of the continually changing cyber environment.

Data Protection

·      We have data protection and management policies in place.

·      Steps are being taken to enhance data protection in light of the General Data Protection Regulation (GDPR) being introduced in May 2018.

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