21st Mar 2006 07:03
Kingfisher PLC21 March 2006 KINGFISHER PLC CONSOLIDATED INCOME STATEMENT For the year ended 28 January 2006 Before Exceptional Total Before Exceptional Total exceptional items exceptional items items (note 3) items (note 3)£ millions Notes 2006 2006 2006 2005 2005 2005 Continuing operations Revenue 2 8,010.1 - 8,010.1 7,649.6 - 7,649.6Cost of sales (5,165.1) (7.9) (5,173.0) (4,785.7) - (4,785.7)Gross profit 2,845.0 (7.9) 2,837.1 2,863.9 - 2,863.9Selling and distribution (2,005.0) (181.0) (2,186.0) (1,834.1) - (1,834.1)expensesAdministrative expenses (390.7) (26.4) (417.1) (370.7) - (370.7)Other income 24.2 18.9 43.1 17.0 4.0 21.0Other expenses - (19.0) (19.0) - (17.7) (17.7)Share of post tax results of 11.4 - 11.4 14.0 - 14.0joint ventures andassociatesOperating profit 2 484.9 (215.4) 269.5 690.1 (13.7) 676.4 Analysed as:Retail profit before central 533.0 (219.1) 313.9 740.2 2.7 742.9costsCentral costs (37.8) 3.7 (34.1) (37.3) (16.4) (53.7)Share of joint venture and (10.3) - (10.3) (12.8) - (12.8)associate interest andtaxation Total finance costs (51.6) - (51.6) (43.9) - (43.9)Total finance income 13.9 - 13.9 15.2 - 15.2Net finance costs 4 (37.7) - (37.7) (28.7) - (28.7) Profit before taxation 447.2 (215.4) 231.8 661.4 (13.7) 647.7 Income tax expense 6 (161.6) 68.8 (92.8) (206.5) 5.3 (201.2)Profit for the year 285.6 (146.6) 139.0 454.9 (8.4) 446.5 Attributable to:Equity shareholders of the 139.5 446.0parentMinority interest (0.5) 0.5 139.0 446.5 Earnings per share 7Basic 6.0 19.3Diluted 6.0 19.2 The proposed final dividend for 28 January 2006, subject to approval byshareholders at the Annual General Meeting, amounts to £160.0m (2005: £159.7m). Adjusted earnings per share information is provided in note 7. KINGFISHER PLC CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 28 January 2006 £ millions Notes 2006 2005Actuarial losses on post employment benefits 12 (45.6) (79.3)Currency translation differences 12 28.4 59.7Cash flow and net investment hedges - Gains deferred in equity 12 7.5 - - Transferred to income statement in the period 12 (2.7) - - Transferred to initial carrying amount of asset 12 3.2 -Tax on items taken directly to equity 12 20.1 24.8Net income recognised directly in equity 10.9 5.2Profit for the financial year 139.0 446.5Total recognised income and expense for the year 149.9 451.7 Attributable to:Equity holders of the parent 149.4 451.6Minority interests 0.5 0.1 149.9 451.7 Effect of changes in accounting policy on adoption of IAS 39 Attributable to:Equity holders of the parent (2.2) -Minority interests - - (2.2) - KINGFISHER PLC CONSOLIDATED BALANCE SHEET As at 28 January 2006 £ millions Notes 2006 2005 Non-current assetsGoodwill 2,558.8 2,463.1Intangible assets 101.7 69.9Property, plant and equipment 3,265.0 3,031.8Investment property 15.3 18.7Investments accounted for using equity method 185.0 173.7Other receivables 51.7 26.6 6,177.5 5,783.8Current assetsInventories 1,355.3 1,320.0Trade and other receivables 570.6 453.9Income tax 20.7 8.8Cash and cash equivalents 234.1 162.1 2,180.7 1,944.8Total assets 8,358.2 7,728.6 Current liabilitiesShort-term borrowings (346.8) (184.9)Trade and other payables (1,750.8) (1,687.9)Provisions (46.6) (10.1)Current tax liabilities (77.0) (113.6) (2,221.2) (1,996.5)Net current liabilities (40.5) (51.7)Total assets less current liabilities 6,137.0 5,732.1 Non-current liabilitiesLong-term borrowings (1,255.5) (818.3)Other payables (5.7) (0.9)Provisions (111.4) (7.7)Deferred income tax liabilities (204.4) (192.2)Post employment benefits 16 (239.6) (325.7) (1,816.6) (1,344.8)Total liabilities (4,037.8) (3,341.3) Net assets 4,320.4 4,387.3 Capital and reservesShare capital 2,450.0 2,434.9Other reserves 12 1,861.0 1,949.7Minority interests 9.4 2.7Total equity 4,320.4 4,387.3 KINGFISHER PLC CONSOLIDATED CASH FLOW STATEMENT For the year ended 28 January 2006 £ millions Notes 2006 2005 Net cash flows from operating activities 9 304.1 531.5 Cash flows from investing activitiesPurchase of subsidiary and business undertakings 11 (167.5) (0.4)Cash acquired on purchase of subsidiary undertakings 6.5 -Sale of subsidiary and business undertakings - 10.4Purchase of associates and joint ventures (2.2) (3.4)Sale of associates and joint ventures - 4.8Payments to acquire property, plant and equipment & investment property (435.3) (387.6)Payments to acquire intangible fixed assets (71.7) (25.7)Receipts from sale of property, plant and equipment & investment property 111.2 20.9Receipts from sale of intangible fixed assets 0.4 -Receipts from sale of available for sale financial assets 3.6 0.4Dividends received from joint ventures and associates 4.9 2.3Net cash (used) in investing activities (550.1) (378.3) Cash flows from financing activitiesInterest paid (39.3) (37.5)Interest element of finance lease rental payments (6.6) (5.9)Interest received 10.9 25.2Exceptional finance receipt - 23.9Proceeds from issue of share capital 9.7 18.0Capital injections from minority interests 1.7 -Receipts from the sale of own shares 2.6 14.0Increase in medium term notes 373.5 -Increase in other loans 150.5 94.8Capital element of finance lease rental payments (7.8) (11.3)Receipts from sale of available for sale financial assets - 7.9Dividends paid to Group shareholders (247.4) (204.8)Dividends paid to minority interests - (0.7)Net cash generated/(used) in financing activities 247.8 (76.4) Net cash increase in cash and cash equivalents 10 1.8 76.8 Cash and cash equivalents at beginning of period 105.9 28.1Currency translation differences 6.0 1.0 Cash and cash equivalents at end of year 113.7 105.9 For the purposes of the cash flow statement, cash and cash equivalents areincluded net of overdrafts repayable on demand. These overdrafts are excludedfrom cash and cash equivalents disclosed on the balance sheet. KINGFISHER PLC NOTES TO THE FINANCIAL INFORMATION For the year ended 28 January 2006 1. General information a) Basis of Preparation The consolidated income statement, consolidated balance sheet, consolidated cashflow statement, consolidated statement of recognised income and expense andextracts from the notes to the accounts for 28 January 2006 and 29 January 2005do not constitute the Group's Annual Report & Accounts. The auditors havereported on the Group's statutory accounts for each of the years 2006 and 2005under section 235 of the Companies Act 1985, which do not contain statementsunder sections 237 (2) or (3) of the Companies Act and are unqualified. Thestatutory accounts for 2005 under UK GAAP have been delivered to the Registrarof Companies and the statutory accounts for 2006 will be filed with theRegistrar in due course. Copies of the Annual Report & Accounts will be postedto shareholders during the week beginning 17 April 2006. The consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion and International Financial Reporting Standards issued by the IASB, andwith those part of the Companies Act 1985 applicable to companies reportingunder IFRS. All International Financial Reporting Standards issued by the IASBand effective at the time of preparing these consolidated financial statementshave been adopted by the EU through the endorsement procedure established by theEuropean Commission. The Group had previously reported under UK GAAP. Thedisclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS asadopted by the EU are given in note 14. Since the company is not affected by the provisions regarding portfolio hedgingthat are not required by the EU-endorsed version of IAS 39, the accompanyingfinancial statements comply with both International Financial ReportingStandards as adopted by the European Union and International Financial ReportingStandards issued by the IASB. The consolidated financial statements have been prepared under the historicalcost convention, as modified by the revaluation of available for saleinvestments, financial assets and liabilities (including derivative instruments)held at fair value through the income statement. The clarification of IAS 21 has been adopted in these financial statements. Theclarification requires exchange differences arising on a monetary item thatforms part of a reporting entity's net investment in a foreign operation to berecognised initially in a separate component of equity in the consolidatedfinancial statements. This requirement applies irrespective of whether themonetary item results from a transaction with the parent or with any of itssubsidiaries. As a result of this clarification, gains and losses onintercompany balances previously recognised in the income statement within netfinance costs are no longer recognised in the income statement but ratherdirectly in reserves which offset the equal and opposite amount in reservemovements on consolidation. The impact of this change is a reduction in profitbefore tax of £12.0m for the year ended 29 January 2005 and a reduction in netassets of £nil at 29 January 2005. With regard to leases that contain predetermined, fixed minimum rentalincreases, the International Financial Reporting Interpretations Committee(IFRIC) have recently clarified that it is necessary to account for these leaseson a straight-line basis over the life of the lease. Formerly, the Groupaccounted for these property lease rentals such that the increases were chargedto the income statement in the year that they arose. This represents a changefrom the Group's IFRS information previously announced. The impact of thischange is a reduction in profit before tax of £1.7m for the year ended 29January 2005 and a reduction in net assets of £4.2m at 29 January 2005. The Group has taken the option to defer the implementation of the standards IAS32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'FinancialInstruments: Recognition and Measurement' until the financial year ended 28January 2006. In accordance with IFRS 1 paragraph 36A comparative informationfor financial instruments for the year ended 29 January 2005 has been preparedin accordance with UK GAAP. Details of the Group's accounting policies, asdefined under UK GAAP, can be found in the accounting policies note of theannual report and accounts for the year ended 29 January 2005 and in note 15 ofthese accounts. Details of the accounting policy change are provided in note15. The Group has chosen to early adopt the EU endorsed Amendment to IAS 19 'Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosures',the amendments only being mandatory for annual periods beginning on or after 1January 2006. As a result, actuarial gains and losses are recognised in thestatement of recognised income and expense. b) Use of adjusted measures Kingfisher believes that retail profit, adjusted profit before tax, adjustedprofit after tax and adjusted earnings per share provide additional usefulinformation on underlying trends to shareholders. These measures are used byKingfisher for internal performance analysis and incentive compensationarrangements for employees. The terms 'retail profit', 'exceptional item' and 'adjusted' are not defined terms under IFRS and may therefore not be comparablewith similarly titled profit measures reported by other companies. It is notintended to be a substitute for, or superior to GAAP measurements of profit. Theterm 'adjusted' refers to the relevant measure being reported excludingexceptional items, financing fair value remeasurements and amortisation ofacquisition intangibles. Retail profit is defined as operating profit beforecentral costs (the costs of the Corporate Centre), exceptional items and theGroup's share of joint venture and associate interest and tax. The separate reporting of non-recurring exceptional items, which are presentedas exceptional within their relevant consolidated income statement category,helps provide a better indication of the Group's underlying businessperformance. The principal items that will be included as exceptional items are: • non trading items included in operating profit such as profits and losses on the disposal of subsidiaries, associates and investments which do not form part of the Group's trading activities; • gains and losses on the disposal of properties; and • the costs of significant restructuring and incremental acquisition integration costs. 2. Segmental analysis The Group's primary reporting segments are geographic, with the Group operatingin four main geographical areas, being the UK, France, Rest of Europe and Asia.The Group only has one business segment being retail sales, therefore nosecondary segment disclosure is given. The 'Rest of Europe' segment consists of B&Q Ireland, Castorama Poland,Castorama Italy, Castorama Russia, Brico Depot Spain, Koctas and Hornbach.Poland has been included separately as it meets the reportable segment criteriaas prescribed by IAS 14. The 'Asia' segment consists of B&Q China, B&Q Korea andB&Q Taiwan. The segment results for the year ended 28 January 2006 are as follows: £ millions United France Poland Rest of Asia Total Kingdom Europe External revenue 4,172.0 2,724.9 417.0 378.2 318.0 8,010.1 Segment result before joint ventures and 10.9 228.9 52.5 20.3 (20.4) 292.2associatesShare of post tax results of joint ventures and - 0.3 - 5.5 5.6 11.4associatesTotal segment result 10.9 229.2 52.5 25.8 (14.8) 303.6Unallocated central costs (34.1)Operating profit 269.5Net finance costs (37.7)Profit before taxation 231.8Income tax expense (92.8)Profit for the year 139.0 The segment results for the year ended 29 January 2005 are as follows: £ millions United France Poland Rest of Asia Total Kingdom Europe External revenue 4,277.3 2,546.7 321.9 292.0 211.7 7,649.6 Segment result before joint ventures and 445.0 209.9 46.2 18.4 (3.4) 716.1associatesShare of post tax results of joint ventures and - 0.7 - 9.9 3.4 14.0associatesTotal segment result 445.0 210.6 46.2 28.3 - 730.1Unallocated central costs (53.7)Operating profit 676.4Net finance costs (28.7)Profit before taxation 647.7Income tax expense (201.2)Profit for the year 446.5 3. Exceptional items The following are considered to be one-off items which have been charged inarriving at profit before interest and taxation: £ millions 2006 2005Included within cost of sales, selling & distribution and administrative expenses:B&Q UK - reorganisation costs (205.3) -OBI China - integration costs (10.0) - (215.3) - Included within other income:Profit on disposal of properties 15.3 3.1Profit on disposal of available for sale financial 3.6 0.9assets 18.9 4.0 Included within other expenses:B&Q UK - financial services termination fee (19.0) -Loss on sale of operations - (17.7) (19.0) (17.7) Total exceptional items (215.4) (13.7) Current year The Group incurred a £205.3 million restructuring charge in B&Q UK relating tothe planned closure of 21 stores, the downsizing of a further 16 stores and thecosts of streamlining B&Q's corporate offices . A further charge of £19.0m wasincurred following B&Q's decision to terminate a contract with its currentsupplier of consumer credit services, which gave rise to the repayment of partof the original proceeds received on disposal of Time Retail Finance in 2003. £10m of costs were also incurred in relation to the integration of the OBI Chinabusiness into B&Q China. These costs include the incremental costs of thededicated integration team, re-branding costs and the write-off of property,plant and equipment which were not deemed suitable for the B&Q China businessmodel. The Group disposed of a number of properties during the year giving rise to aprofit of £15.3m. The Group also disposed of its investment in improveline.com,for cash consideration of £3.6m and realising a profit of £3.6m as theinvestment had been fully provided against in a prior year. Prior year During the prior year, the Group provided £17.7m against the remaining balanceof the unsecured working capital loan advanced to the purchases of the ProMarktbusiness as part of the disposal. 4. Finance costs £ millions 2006 2006 2005 2005Bank and other interest payable 46.7 36.7Less amounts capitalised in the cost of qualifying assets (3.3) (3.8)Interest payable 43.4 32.9Finance lease charges 6.0 5.9Net interest charge on pension schemes 3.8 5.1Financing fair value remeasurements (1.6) -Total finance cost 51.6 43.9 Bank and other interest receivable (13.9) (15.2)Total finance income (13.9) (15.2) Net finance costs 37.7 28.7 5. Dividends £ millions 2006 2005Amounts recognised as distributions to equity holders in the year:Final dividend for the year ended 29 January 2005 of 6.8p per share (31 January 159.7 143.42004: 6.15p per share)Interim dividend for the year ended 28 January 2006 of 3.85p per share (29 January 89.5 89.92005: 3.85p per share)Dividend paid to Employee Share Ownership Plan Trust (ESOP) shares (1.8) (3.1) 247.4 230.2 Proposed final dividend for the year ended 28 January 2006 of 6.8p per share 160.0 The proposed final dividend for the year ended 28 January 2006 is subject toapproval by shareholders at the Annual General Meeting and has not been includedas a liability in these financial statements. For the 2005 interim dividend, a scrip dividend alternative was offered toshareholders at 1 share for every 80 ordinary shares and was elected for byholders of 520.9 million shares. For the 2004 final dividend, a scrip dividendalternative was offered to shareholders at 1 share for every 47 ordinary sharesand was elected for by holders of 86.5 million shares. A cash dividend and the Dividend Reinvestment Plan (DRIP) for the year ended 28January 2006 has been approved for payment with allotment due on 2 June 2006.The ex-dividend date will be 5 April 2006 and the record date will be 7 April2006. If shareholders wish to elect for the DRIP for the dividend for the yearended 28 January 2006 and have not already done so, a letter or completed DRIPmandate form must be received by Kingfisher's Registrars, Computershare InvestorServices PLC, by 11 May 2006 at the latest. 6. Income tax expense £millions 2006 2005 UK corporation taxCurrent tax on profits for the period 7.2 280.8Adjustment in respect of prior periods (15.8) (8.3) (8.6) 272.5Double taxation relief (0.4) (156.1) (9.0) 116.4Foreign taxCurrent tax on profits for the period 86.9 73.9Adjustments in respect of prior periods 0.2 0.2 87.1 74.1 Deferred taxCurrent year 20.2 13.4Adjustment in respect of prior periods (4.3) (1.8)Attributable to changes in tax rates (1.2) (0.9) 14.7 10.7 92.8 201.2 A tax credit of £68.8m has been recognised in the income statement relating toexceptional items, of which £40.1m is credited against the current year taxcharge in relation to the £215.4m net exceptional charge, with the remaining£28.7m credited in respect of prior periods, relating to tax previously providedon exceptional items which is no longer required. 7. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares in issueduring the year, excluding those held in the Executive Share Option Plan (ESOP)which are treated as cancelled. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. These represent share options granted to employees where the exerciseprice is less than the average market price of the Company's shares during theyear. Supplementary earnings per share figures are presented. These exclude theeffects of exceptional items, IAS39 financing fair value, remeasurements andamortisation of acquisition intangibles to allow comparison of underlyingtrading performance on a consistent basis. Discontinuing operations have not been shown separately as all business iscontinuing. 2006 2005 Earnings Weighted Per share Earnings Weighted Per share average amount average amount number of number of shares shares £m millions pence £m millions penceBasic earnings per shareEarnings attributable to ordinary shareholders 139.5 2,324.7 6.0 446.0 2,307.5 19.3Effect of dilutive securitiesOptions 10.3 - 16.9 (0.1)Diluted earnings per share 139.5 2,335.0 6.0 446.0 2,324.4 19.2Basic earnings per share 139.5 2,324.7 6.0 446.0 2,307.5 19.3Effect of non-recurring costsExceptional items 215.4 9.3 13.7 0.6Tax impact arising on exceptional items (40.1) (1.7) (5.3) (0.2)Financing fair value remeasurements (1.6) (0.1) - -Tax impact arising on financing remeasurements 0.5 - - -Amortisation of acquisition intangibles 0.1 - - -Reversal of prior year exceptional tax charge (28.7) (1.2) - -Basic - adjusted earnings per share 285.1 2,324.7 12.3 454.4 2,307.5 19.7Diluted earnings per share 139.5 2,335.0 6.0 446.0 2,324.4 19.2Effect of non-recurring costsExceptional items 215.4 9.2 13.7 0.5Tax impact arising on exceptional items (40.1) (1.7) (5.3) (0.2)Financing fair value remeasurements (1.6) (0.1) - -Tax impact arising on financing remeasurements 0.5 - - -Amortisation of acquisition intangibles 0.1 - - -Reversal of prior year exceptional tax charge (28.7) (1.2) - -Diluted - adjusted earnings per share 285.1 2,335.0 12.2 454.4 2,324.4 19.5 8. Operating leases The Group's operating lease charges were as follows: Year ended Year ended£millions 28 January 2006 29 January 2005Land and buildings 275.7 226.7Plant and equipment 26.0 22.9 9. Net cash flows from operating activities £ millions 2006 2005Group operating profit 269.5 676.4 Adjustments for:Depreciation of property, plant and equipment and investment property 149.8 135.6Amortisation of intangible assets 32.0 23.7Impairment loss on property, plant and equipment and investment property 40.1 -Impairment loss on intangible assets 7.5 -Share based compensation charge 14.1 6.7Loss on sale of operations - 17.7Share of post tax results of joint ventures and associates (11.4) (14.6)Loss on disposal of property, plant and equipment and investment property* 22.5 2.8Loss on disposal of intangible assets 2.0 -Profit on disposal of available for sale financial assets (3.6) (0.9)Operating cash flows before movements in working capital 522.5 847.4 Movements in working capital (excluding the effects of acquisitions and disposalsof subsidiaries and exchange differences on consolidation):Increase in inventories (33.3) (246.6)Increase in trade and other receivables (97.3) (72.9)Increase in trade and other payables 27.3 175.2Decrease in post employment benefits (135.2) (4.3)Increase in provisions 140.2 - (98.3) (148.6) Cash generated by operations 424.2 698.8Income taxes paid (120.1) (167.3)Net cash flows from operating activities 304.1 531.5 *Includes £19.6m relating to the B&Q UK restructuring and included within the£205.3m exceptional charge (note 3). 10. Reconciliation of net debt Net debt incorporates the Group's borrowings (together with related fair valuemovements of derivatives on the debt), bank overdrafts and obligations underfinance leases, less cash and cash equivalents. £ millions 2006 2005Net debt at start of year (841.1) (891.4)Net increase in cash and cash equivalents 1.8 76.8Decrease in available for sale financial assets - (7.9)Amortisation of underwriting and issue costs of new debt (0.5) -Increase in debt and lease financing (516.2) (30.4)Currency translation differences and fair value adjustments on financial 0.8 11.8instrumentsNet debt at end of year (1,355.2) (841.1) 11. Acquisitions On 30 June 2005, the Group acquired 100 per cent of the issued share capital ofOBI Asia Holdings Limited (the name of which was subsequently changed to B&QAsia Holdings Limited) for cash consideration of £143.5m generating goodwill of£73.9m. OBI Asia Holdings Limited was the parent company of OBI AG's homeimprovement retailing operations in China. A number of its subsidiaries haveminority interests ranging from 3% to 35%. Kingfisher also acquired the remaining minority interest in two of its B&Q Chinasubsidiaries for cash consideration of £6.8m generating goodwill of £2.7m, andacquired a number of stores in France through either company or businessacquisitions for cash consideration of £17.2m, generating goodwill of £13.0m. Total purchase consideration for the above acquisitions amounted to £167.5m withtotal goodwill arising of £89.6m. All these acquisitions have been accounted forby the acquisition method of accounting. There were no material disposals during the year. There were no material acquisitions or disposals for the year ended 29 January2005. 12. Reserves The movements in the Group's consolidated reserves in the year ended 28 January2006 and the comparative year are summarised as follows: £ millions Hedging Translation Non-distributable Retained Total reserve reserve reserves earningsBalance at 1 February 2004 - - 159.0 1,550.7 1,709.7Actuarial losses on post employment benefits - - - (79.3) (79.3)Scrip dividend alternative - - - 25.4 25.4Treasury shares disposed - - - (13.1) (13.1)Share-based compensation charge - - - 6.7 6.7Currency translation differences - 59.7 - - 59.7Tax on items taken from/transferred to - (3.6) - 28.4 24.8equityNet gains and losses recognised directly in - 56.1 - (31.9) 24.2equityProfit for the year - - - 446.0 446.0Total recognised income and expense for the - 56.1 - 414.1 470.2yearDividends - - - (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 (4.4) 0.7 - 1.5 (2.2)IAS 39Restated balance at 30 January 2005 (4.4) 56.8 159.0 1,736.1 1,947.5Actuarial losses on post employment benefits - - - (45.6) (45.6)Treasury shares disposed - - - (2.6) (2.6)Share-based compensation charge - - - 14.0 14.0Share-based compensation - shares awarded - - - (0.9) (0.9)Currency translation differences - 28.4 - - 28.4Gains and losses deferred in equity 7.5 - - - 7.5Transferred to income statement in the (2.7) - - - (2.7)periodTransferred to initial carrying amount of 3.2 - - - 3.2assetTax on items taken from/transferred to (2.4) 6.9 - 15.6 20.1equityNet gains and losses recognised directly in 5.6 35.3 - (19.5) 21.4equityProfit for the year - - - 139.5 139.5Total recognised income and expense for the 5.6 35.3 - 120.0 160.9yearDividends - - - (247.4) (247.4)At 28 January 2006 1.2 92.1 159.0 1,608.7 1,861.0 13. Post employment benefits The Group operates a variety of post employment benefit arrangements coveringboth funded and unfunded defined benefit schemes and funded defined contributionschemes. The most significant are the funded, final salary defined benefit anddefined contribution schemes for the Group's UK employees; however variousdefined benefit and defined contribution schemes are operated in France, Poland,Italy, China and Korea. In France and Poland, they are retirement indemnity innature; and in Korea and Italy termination indemnity in nature. The most recent actuarial valuations of plan assets and the present value of thedefined benefit obligations were carried out at 28 January 2006. The principalactuarial assumptions and expected rates of return used were as follows: 2006 2005 UK Other UK OtherAnnual percentage rate % % % %Discount rate 4.7 4.0 to 6.0 5.3 4.2 to 5.5Salary escalation 4.3 2.0 to 6.7 4.3 2.0 to 6.7Rate of pension increases 2.7 n/a 2.7 n/aPrice 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 4.0Overall expected rate of 6.1 4.0 6.6 4.0return The overall expected rate of return is effectively a weighted average of theindividual asset categories and their inherent expected rates of return. The main financial assumption is the real discount rate, i.e. the excess of thediscount rate over the rate of inflation. If this assumption increased/decreasedby 0.1%, the UK defined benefit obligation would decrease/increase byapproximately £30m, and the annual UK current service cost would decrease/increase by approximately £1.4m. 13. Post employment benefits continued The assumptions for pensioner longevity are based on an analysis of pensionerdeath trends under the scheme over the period from 1998 to 2004, together withallowances for future improvements to death rates for all members. The specifictables used are the same as those used in the 2004 funding valuation, namelyPMA92C2010 for male pensioners, PFA92C2010 (+2 year age rating) for femalepensioners. Further allowances for improving longevity are included for membersyet to retire. Based on observed trends, the assumed average age at death forcurrent 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 atdeath is 84.4 for a male and 85.8 for a female. These assumptions will bereviewed following the next funding valuation due no later than as at 31 March2007. The amounts recognised in the income statement are as follows:£ millions 2006 2005 UK Other Total UK Other TotalAmounts charged to operatingprofit:Current service cost 33.2 3.7 36.9 33.8 3.7 37.5Past service cost - - - 0.5 - 0.5Total operating charge (note 8) 33.2 3.7 36.9 34.3 3.7 38.0Amounts credited/(charged) to other financecosts:Expected return on pension scheme assets (58.9) (0.4) (59.3) (51.5) (0.4) (51.9)Interest on pension scheme 61.7 1.4 63.1 55.5 1.5 57.0liabilitiesNet financing cost (note 6) 2.8 1.0 3.8 4.0 1.1 5.1Total charged to income 36.0 4.7 40.7 38.3 4.8 43.1statement The amounts recognised in the balance sheet is determined asfollows: 2006 2005£ millions UK Other Total UK Other TotalPresent 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 9.4 893.4Net liability recognised in the balance sheet (210.6) (29.0) (239.6) (302.1) (23.6) (325.7) Movements in the deficit during the year: 2006 2005£ millions UK Other Total UK Other TotalDeficit at start of year (302.1) (23.6) (325.7) (228.0) (18.3) (246.3)Total service cost charged in the income statement (as (33.2) (3.7) (36.9) (34.3) (3.7) (38.0)above)Interest cost (61.7) (1.4) (63.1) (55.5) (1.5) (57.0)Expected return of pension scheme assets (as 58.9 0.4 59.3 51.5 0.4 51.9above)Actuarial gains and losses (43.2) (2.4) (45.6) (78.8) (0.5) (79.3)Contributions paid by employer 170.7 1.6 172.3 43.0 1.1 44.1Exchange differences - 0.1 0.1 - (1.1) (1.1)Deficit at end of year (210.6) (29.0) (239.6) (302.1) (23.6) (325.7) 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% 509.7 - 509.7 57%Bonds 449.4 - 449.4 37% 262.8 - 262.8 29%Property 96.7 - 96.7 8% 80.2 - 80.2 9%Other 25.2 10.1 35.3 3% 31.0 9.4 40.4 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. 14. Explanation of transition to IFRS Kingfisher plc reported under UK GAAP in its previously published financialstatements for the year ended 29 January 2005 and this is the first year thatthe company has presented its financial statements under IFRS. The analysisbelow shows a reconciliation of net assets and profit as reported under UK GAAPas at 29 January 2005 to the revised net assets and profit under IFRS asreported in these financial statements. A reconciliation of the net assets isprovided from UK GAAP to IFRS at the transition date, being 1 February 2004. Previously published IFRS information has been adjusted in accordance withclarification of IAS 21 and recent IFRIC guidance concerning the accountingtreatment of fixed minimum rental increases, both of which are described morefully in note 1a. With the exception of these areas, the adjustments set outbelow are those that were notified to investors in the press release dated 17March 2005 which is available on www.kingfisher.com. To aid comparability, the UK GAAP numbers presented below have been reformattedusing the new IFRS format rather than the previously disclosed UK GAAP format. Reconciliation of the consolidated income statement for the year ended 29January 2005 £ millions Notes UK GAAP Effect of IFRS transition to IFRS Revenue 7,649.6 - 7,649.6Cost of sales (i),(k) (4,783.3) (2.4) (4,785.7)Gross profit 2,866.3 (2.4) 2,863.9 Selling and distribution expenses (d),(g),(i) (1,834.4) 0.3 (1,834.1)Administrative expenses (d),(f),(g) (363.4) (7.3) (370.7)Other income 17.9 3.1 21.0Other expenses (m) (17.7) - (17.7)Share of post tax results of joint ventures and (a),(e) 27.5 (13.5) 14.0associatesOperating profit 696.2 (19.8) 676.4 Analysed as:Retail profit 747.9 (7.7) 740.2Central costs (36.1) (1.2) (37.3)Acquisition goodwill amortisation (net) (b) 1.0 (1.0) -Exceptional items (m) (16.6) 2.9 (13.7)Share of joint venture and associate interest and (a),(e) - (12.8) (12.8) taxation FinancingNet finance costs (a),(d),(g) (25.3) (3.4) (28.7) Profit before taxation 670.9 (23.2) 647.7 Income tax expense (a),(e) (201.4) 0.2 (201.2)Profit for the year 469.5 (23.0) 446.5 Reconciliation of the statement of recognised income and expense for the yearended 29 January 2005 £ millions Notes UK GAAP Effect of IFRS transition to IFRS Actuarial losses on defined benefit pension schemes (d) - (79.3) (79.3)Gain on revaluation of properties (h) 175.8 (175.8) -Currency translation differences 65.2 (5.5) 59.7Tax on items taken directly to equity (2.5) 27.3 24.8Net income recognised directly in equity 238.5 (233.3) 5.2Profit for the financial period 469.5 (23.0) 446.5Total recognised income and expense for the year 708.0 (256.3) 451.7 Attributable to:Equity holders of the parent 707.9 (256.3) 451.6Minority interests 0.1 - 0.1 708.0 (256.3) 451.7 14. Explanation of transition to IFRS continued Reconciliation of consolidated balance sheet as at 1 February 2004 (date oftransition to IFRS) £ millions Notes UK GAAP Effect of IFRS transition to IFRS Non-current assetsGoodwill (b) 2,455.3 - 2,455.3Intangible assets (c) - 68.2 68.2Property, plant and equipment (c),(g),(h) 2,769.2 (37.1) 2,732.1Investment property (h) 12.0 (6.3) 5.7Investments accounted for using equity method (b) 145.7 17.0 162.7Available for sale financial assets 0.2 - 0.2Other receivables 25.8 - 25.8 5,408.2 41.8 5,450.0Current assetsInventories (k) 1,071.7 (10.8) 1,060.9Trade and other receivables 491.6 1.2 492.8Income tax 1.4 - 1.4Investments (l) 23.8 (13.8) 10.0Cash and cash equivalents (l) 144.2 13.8 158.0 1,732.7 (9.6) 1,723.1Total assets 7,140.9 32.2 7,173.1 Current liabilitiesShort-term borrowings (g) (267.6) (0.8) (268.4)Trade and other payables (d),(f),(i), (1,584.5) 122.1 (1,462.4) (j)Current tax liabilities (79.2) - (79.2)Provisions (0.9) - (0.9) (1,932.2) 121.3 (1,810.9)Net current liabilities (199.5) 111.7 (87.8)Total assets less current liabilities 5,208.7 153.5 5,362.2 Non-current liabilitiesLong-term borrowings (g) (744.2) (46.8) (791.0)Other payables (0.7) - (0.7)Deferred income tax liabilities (e) (14.6) (189.1) (203.7)Post employment benefits (d) (25.1) (221.2) (246.3)Provisions (17.5) - (17.5) (802.1) (457.1) (1,259.2)Total liabilities (2,734.3) (335.8) (3,070.1)Net assets 4,406.6 (303.6) 4,103.0 Capital and reservesShare capital 2,390.4 - 2,390.4Other reserves (d),(e),(h) 2,013.3 (303.6) 1,709.7Minority interests 2.9 - 2.9Total equity 4,406.6 (303.6) 4,103.0 14. Explanation of transition to IFRS continued Reconciliation of consolidated balance sheet as at 29 January 2005£ millions Notes UK GAAP Effect of IFRS transition to IFRS Non-current assetsGoodwill (b) 2,463.1 - 2,463.1Intangible assets (c) - 69.9 69.9Property, plant and equipment (c),(g),(h) 3,247.9 (216.1) 3,031.8Investment property (h) 22.8 (4.1) 18.7Investments accounted for using equity method (b) 158.3 15.4 173.7Other receivables 26.6 - 26.6 5,918.7 (134.9) 5,783.8Current assetsInventories (k) 1,333.0 (13.0) 1,320.0Trade and other receivables 451.6 2.3 453.9Income tax 8.8 - 8.8Investments 9.4 (9.4) -Cash and cash equivalents (l) 152.7 9.4 162.1 1,955.5 (10.7) 1,944.8Total assets 7,874.2 (145.6) 7,728.6 Current liabilitiesShort-term borrowings (g) (184.0) (0.9) (184.9)Trade and other payables (d),(f),(i), (1,822.7) 134.8 (1,687.9) (j)Current tax liabilities (113.6) - (113.6)Provisions (10.1) - (10.1) (2,130.4) 133.9 (1,996.5)Net current liabilities (174.9) 123.2 (51.7)Total assets less current liabilities 5,743.8 (11.7) 5,732.1 Non-current liabilitiesLong-term borrowings (g) (772.4) (45.9) (818.3)Other payables (0.9) - (0.9)Deferred income tax liabilities (e) (20.8) (171.4) (192.2)Post employment benefits (d) (17.8) (307.9) (325.7)Provisions (7.7) - (7.7) (819.6) (525.2) (1,344.8)Total liabilities (2,950.0) (391.3) (3,341.3)Net assets 4,924.2 (536.9) 4,387.3 Capital and reservesShare capital 2,434.9 - 2,434.9Other reserves (d),(e),(h) 2,486.6 (536.9) 1,949.7Minority interests 2.7 - 2.7Total equity 4,924.2 (536.9) 4,387.3 14. Explanation of transition to IFRS continued Explanation of reconciling items between UK GAAP and IFRS (a) Presentation of joint ventures and associates The presentation of the Group's share of the results of joint ventures andassociated undertakings in the Group's consolidated income statement has changedunder IFRS. Under UK GAAP the Group's share of joint venture and associatedundertaking operating profit, interest and tax were disclosed separately in theconsolidated income statement. In accordance with IAS 1 'Presentation ofFinancial Statements', the results of joint venture and associated undertakingshave been presented net of interest and tax as a single line item. There is noeffect on the net result for the financial period from this adjustment. (b) Intangible assets - Goodwill IFRS 3 'Business Combinations' requires that negative goodwill is recognisedimmediately in the income statement as opposed to being amortised. The negativegoodwill that arose on the acquisition of the shares in Hornbach has beencredited back to opening reserves under IFRS and increases the Group's interestin joint ventures and associates by £19.3m. The removal of the amortisationcredit in the year ended 29 January 2005 reduced profit before tax by £1m. The non-amortisation of positive goodwill required under IFRS has no impact asall positive goodwill held was deemed to have an indefinite life under UK GAAP. (c) Intangible assets - Computer software Under UK GAAP all capitalised computer software was included within property,plant and equipment on the balance sheet. Under IFRS, only computer softwarethat is integral to a related item of hardware should be included as property,plant and equipment. All other computer software should be classified as anintangible asset. Accordingly, a net balance sheet reclassification has beenmade of £68.2m at the opening balance sheet date and £69.9m at 29 January 2005between property, plant and equipment and intangible assets. There was noimpact on the income statement from this reclassification. (d) Post employment benefits Under UK GAAP the Group applied the provisions of SSAP 24 which aresignificantly different to IAS 19. As disclosed in note 1, the Group haselected to early adopt the amendment to IAS 19 'Employment Benefits' issued bythe IASB on 16 December 2004 which allows all actuarial gains and losses to becharged to equity. Other differences include valuing pension scheme assets atbid value as opposed to mid value and the split of the charge to the incomestatement between operating (service charge) and financing (return on pensionscheme assets and interest on pension liabilities). The Group's opening IFRS balance sheet reflects the assets and liabilities ofthe Group's defined benefit schemes totalling a net liability of £246.3m. Thetransitional adjustment of £221.2m to opening reserves comprises the reversal ofentries in relation to UK GAAP accounting under SSAP 24 less the recognition ofthe net liabilities of the Group's defined benefit schemes. The incrementalcharge arising from the adoption of IAS 19 on the Group's income statement inthe year ended 29 January 2005 was £6m, being the total of £0.9m to operatingprofit and £5.1m to net financing charges. The actuarial loss before tax of £79.3m arising in the year ended 29 January2005 has been recorded in the statement of recognised income and expense. Thepension deficit under IFRS at 29 January 2005 was £325.7m. (e) Deferred and current taxes The scope of IAS 12 'Income Taxes' is wider than the corresponding UK GAAPstandards, and requires deferred tax to be provided on temporary differencesrather than just taxable timing differences as under UK GAAP. As a result, the Group's IFRS opening balance sheet at 1 February 2004 includedan additional deferred tax liability of £189.1m. The majority of thisadjustment related to the deferred tax provided on the revaluation reserve lessthe deferred tax asset recognised on the pension deficit at 1 February 2004. The 'income tax expense' on the face of the consolidated income statementcomprises the tax charge of the Company and its subsidiaries under IFRS. TheGroup's share of its joint venture and associated undertakings' tax charges isshown as part of the 'share of post tax result of joint ventures and associates'within operating profit. (f) Share-based payment IFRS 2 'Share-based Payment' requires that an expense for equity instrumentsgranted is recognised in the income statement based on their fair value at thedate of grant, with a corresponding increase in equity. This expense, which isprimarily in relation to employee option and performance share schemes, isrecognised over the vesting period of the scheme. Under UK GAAP, the incomestatement charge, if any, was based on the difference between the exercise priceand the market price on the date of issue with a corresponding increase inaccruals. The Group elected to apply IFRS 2 only to relevant share based paymenttransactions granted after 7 November 2002. The additional pre-tax chargearising from the adoption of IFRS 2 on the Group's income statement for the yearended 29 January 2005 was £1.8m. The impact from the adoption of this standardis small as the Group ceased offering share options in 2003 and replaced themwith deferred shares for which a charge equating to the market value of thedeferred shares was recognised under UK GAAP. (g) Capitalisation of building leases IAS 17 'Leases' requires that the land element of leases on land and buildingsis considered separately for the purposes of determining whether the lease is afinance or operating lease. A majority of the Group's buildings are on leasesof 25 years or less which remain as operating under IFRS. There are a smallnumber of leases greater than 25 years where the building element of the leasehas been classified as a finance lease based on the criteria set out in IAS 17. 14. Explanation of transition to IFRS continued As a result, the Group's IFRS opening balance sheet at 1 February 2004 includesadditional property, plant and equipment of £30.6m and additional finance leaseobligations of £47.7m included within current and non-current borrowings. Themain impact on the income statement is that the operating lease payment chargedto operating profit under UK GAAP is replaced with a depreciation charge for theasset (in operating profit) and an interest expense charge (in financing costs). Whilst the total charge for a lease over the life of the lease will be thesame under UK GAAP and IFRS, the profile of the charge is different, with thecharge being more front loaded under IFRS. The net pre-tax impact on the incomestatement for the year ended 29 January 2005 was a further charge of £1.3m. (h) Valuation of properties The Group has previously applied a policy of annual revaluations of propertyunder UK GAAP. The Group has now elected to treat the revalued amount ofoperating properties at 1 February 2004 as deemed cost as at that date and willnot revalue for accounts purposes in future. The revaluation gain of £175.8mrecognised under UK GAAP for the year ended 29 January 2005 was thereforereversed under IFRS. Investment property was previously revalued annually under UK GAAP. Followingthe disposal of the Chartwell Land investment property portfolio in 2004, theamount of investment property now held by the Group is insignificant. The Grouphas elected to restate the remaining investment property to historical costunder IFRS. This results in an increased gain on disposal of properties of£2.9m for the year ended 29 January 2005 under IFRS. There are no othermaterial impacts of this change on the income statement. (i) Lease incentives Under UK GAAP, lease incentives were recognised over the period to the firstmarket rent review. Under IFRS (SIC 15), lease incentives are required to berecognised over the entire lease term. As a result, the Group's IFRS openingbalance sheet at 1 February 2004 includes additional deferred income of £21.7mand operating profit for the year ended 29 January 2005 was reduced by £4.5m. (j) Post balance sheet events IAS 10 'Events after the Balance Sheet Date' requires that dividends approvedafter the balance sheet date should not be recognised as a liability at thatdate as the liability does not represent a present obligation as defined by IAS37 'Provisions, Contingent Liabilities and Contingent Assets'. The final dividend declared in March 2004 in relation to the financial yearended 31 January 2004 of £143.4m was reversed in the opening balance sheet andcharged to equity in the year ended 29 January 2005. The final dividend accruedfor the year ended 29 January 2005 of £159.7m was reversed in the IFRS balancesheet as at 29 January 2005. (k) Inventories IAS 2 requires the inclusion of certain elements of income from suppliers andother similar items in the cost of inventories which is a more encompassingrequirement than UKGAAP. The value of inventories were reduced by £10.8m at 1February 2004 and £13.0m at 29 January 2005. (l) Cash IAS 7 'Cash Flow Statements' defines cash equivalents as being short-term,highly liquid investments that are readily convertible to known amounts of cashand which are subject to an insignificant risk of changes in value. Cashdeposits with a maturity of less than three months have therefore beenreclassified at both balance sheet dates as cash. (m) Exceptional items There are no FRS 3 non-operating exceptionals equivalent under IFRS andtherefore items not relating to underlying business performance such as propertydisposal profits and losses are now included within operating profit. See note 1(b) for further information. (n) Significant changes to the cash flow statement under IFRS are as follows: • Cash flows reported under IFRS and UK GAAP are defined differently -under IFRS, cash flows, referred to as 'cash and cash equivalents', include bankdeposits repayable within 3 months. Under UK GAAP, these were treated asshort-term deposits. • IFRS requires cash flows to be reported under the three headings ofoperating, investing and financing activities whereas UK GAAP requires cashflows to be reported in greater detail under the nine standard headings, such astaxation and interest. • IFRS requires foreign currency translation differences to be includedon the face of the cash flow statement in order that opening and closing cashand cash equivalent balances may be reconciled. This is not a requirement underUK GAAP. 15. First time adoption IAS 32 and IAS 39 As explained in note 1a, Kingfisher plc took the option to defer theimplementation of IAS 32 and IAS 39 until 30 January 2005. The adoption of IAS32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'FinancialInstruments: Recognition and Measurement' with affect from 30 January 2005results in a change in the Group's accounting policy for financial instruments.The impact of these standards on the Group's opening balance sheet is shownbelow. The principal impact of IAS 32 and IAS 39 on the Group's financial statementsrelates to the recognition of derivative financial instruments at fair value.Financial assets and financial liabilities that arise on derivatives that do notqualify for hedge accounting are held on the balance sheet at fair value withthe changes in value reflected through the income statement. The accountingtreatment of derivatives that qualify for hedge accounting depends on how theyare designated. The different accounting treatments are explained below. Fair value hedges The Group uses interest rate and cross currency swaps to hedge the exposure tointerest rates and currency movements of its issued debt. Under UK GAAP,derivative financial instruments held for hedging were accounted for using hedgeaccounting and were not recognised at fair value in the balance sheet. Under IAS 39, derivative financial instruments that meet the 'fair value'hedging requirements are recognised in the balance sheet at fair value withcorresponding fair value movements recognised in the income statement. For aneffective fair value hedge, the hedged item is adjusted for changes in fairvalue attributable to the risk being hedged with the corresponding entry in theincome statement. To the extent that the designated hedge relationship is fullyeffective, the amounts in the income statement offset each other. As a result,only the ineffective element of any designated hedging relationship impacts thefinancing line in the income statement. Cash flow hedges The Group hedges the foreign currency exposure on inventory purchases. Under UKGAAP, foreign currency derivatives were held off balance sheet. Under IAS 39,derivative financial instruments that qualify for cash flow hedging arerecognised on the balance sheet at fair value with corresponding fair valuechanges deferred in equity. Net investment hedges The gains or losses on the translation of currency borrowings and cross currencyswaps used to hedge the Group's net investments in foreign entities arerecognised in equity. Provided the hedging requirements of IAS 39 are met andthe hedging relationship is fully effective, this treatment does not differ fromUK GAAP. On the adoption of IAS 32 and IAS 39, there is no material impact for the Groupof other financial assets and liabilities that are not part of a designatedhedge relationship. The adjustments to the opening balance sheet at 30 January 2005 are as follows: Opening balance sheet Effect of adoption Restated opening under IFRS of IAS 32 and IAS position at 30 39 January 2005Non-current assetsOther receivables 26.6 24.9 51.5 Current assetsTrade and other receivables 453.9 1.8 455.7 Current liabilitiesTrade and other payables (1,698.0) (17.9) (1,715.9) Non-current liabilitiesLong-term borrowings (818.3) (12.7) (831.0)Deferred tax liabilities (192.2) 1.7 (190.5) Impact on net assets (2.2) Translation reserve 56.1 0.7 56.8Hedging reserve - (4.4) (4.4)Retained earnings 1,949.7 1.5 1,951.2 Impact on equity (2.2) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Kingfisher