Chairman's Review - Trustee Board

During the Scheme year under review, employees of UK companies within the
Kingfisher Group were able to join either the Pension Scheme or the Retirement Trust, subject to certain eligibility conditions.

The Pension Scheme is a 'Final salary scheme' and provides benefits based on a member's salary and service.

The Retirement Trust is a 'money purchase scheme' and provides benefits based on what a member's accumulated fund value will purchase at retirement.

This Report gives information about both the Scheme and the Trust and their management
during the Scheme year 2003-04.

The year to March 2004 has been one of enormous change and challenge for everybody involved in running the Kingfisher pension schemes.

At this point, the most obvious change is that a new Chairman is reviewing the pension scheme year in place of Roger Jones. Roger retired from the Trustee Board in August, having served for many years as both a member of the Board and Chairman. Taking up the Chairman's mantle, I would firstly like to thank Roger, both personally and on behalf of the Board, for the commitment and integrity he brought to both roles. His skill and guidance have set a sure course for both me and the Board to follow, and we are grateful for his efforts. On behalf of the Board, I wish Roger a long and happy retirement.

As well as a change in Chairman, there has also been significant change in the composition of the Trustee Board. Towards the end of the 2002-03 Scheme year, and following the completion of the Woolworths, Superdrug and Time Retail bulk transfers, Kingfisher proposed new arrangements for the appointment of Trustee directors. These proposals were accepted by the Trustees and (through statutory consultation) by the members in June 2003. As a consequence, John Martin and Liz Wright retired from the Trustee Board and Helen Jones and Angela Taylor were appointed. Following completion of the Comet de-merger arrangements, Ian Edwards and Brian Venters resigned from the Board and Roger Blundell and Charles Baker were appointed (from 1 April 2004) in their place. I would like to take this opportunity to thank all the retiring trustees for their hard work and commitment to the Pension Scheme and Trust, and to welcome the new directors to the Trustee Board. Further details of the trustee changes are to be found on pages 6 and 7.

Perhaps the year's greatest challenge was set by the Company when, as part of its wide-reaching business transformation programme, it announced proposals for significant changes to pension provision throughout the group. Although these changes won't impact until the current Scheme year, the foundations for the future success of the new arrangements have already been laid. The proposals included the closure of the Retirement Trust, and Kingfisher duly notified the Trustee Board that no further contributions would be made to the Trust after 31 March 2004. In supporting these proposals, the Board anticipates that many more employees and pension scheme members will be offered the opportunity of long-term assistance towards making adequate pension provision for retirement.

Before implementing the changes, extensive consultation was undertaken with all 38,000 of our current UK-based employees and pension scheme members, with everybody being given an opportunity to join or remain a member of the Pension Scheme and to select either final salary or money purchase provision. Although Pension Scheme members have been asked to pay more to maintain the same level of pension accrual, most have agreed to do so, and indeed, many Retirement Trust members have taken the opportunity to pay higher rate contribution to enjoy the benefit of a final salary pension. Further information is to be found on page 4. I would like to take this opportunity to thank Colin Hately and the pensions team for their hard work and professionalism in ensuring the successful implementation of the new arrangements.

Following the de-merger of Kesa Electricals and Comet Group, detailed arrangements have been made to ensure the successful transition of members, whether currently or previously employed by Comet, to new pension arrangements. The pension administration for Comet members was handed over to new management at 31 March, and arrangements are now being made to complete the actuarial calculations to enable the transfer of assets from the Pension Scheme in the coming months. Arrangements are also being made to transfer members' benefit entitlements from the Retirement Trust to a new Stakeholder arrangement set up by Comet. Further information is to be found on page 5.

Turning to the wider perspective, pensions are still hitting the headlines, with the Government announcing a number of legislative changes, firstly with the introduction of a complex Pensions Bill (with an accompanying raft of regulations) and secondly, through radical proposals to simplify pension scheme taxation. The Trustee Board has received initial reports, and when the detailed proposals are confirmed, will consider the appropriate measures to be undertaken to ensure compliance with the new legislation.

Finally, amidst all the change, I am pleased to report that for the thirteenth year running, all pensions have been increased in line with inflation.

Tony Stanworth

Benefits Review

For many years, Kingfisher has provided employees with the opportunity to save for a more financially secure retirement through membership of either the Pension Scheme or the Retirement Trust. Although these arrangements have stood employees in good stead over a number of years, it was felt that the time had come to make a number of changes to reflect the current economic climate and workplace practices.

The rising cost of providing good pensions, and the uncertainty of the financial commitment of doing so, had become a cause of concern. It was also perceived that most of Kingfisher’s pension costs were directed to a relatively small proportion of the group’s employees, whilst for the majority, pension provision was at a relatively low level. Kingfisher therefore decided to alter its pension arrangements, partly to gain better control over its pension costs and also to enable more employees to make adequate provision for retirement.

Kingfisher and the employing companies have met the cost associated with undertaking the benefits review and implementation of the changes.

During the period between January and March, all employees were consulted about the changes, and given the opportunity to select either final salary or money purchase provision for the future.

CHANGES IN BRIEF

• Closure of the Pension Scheme to new entrants after 31 March 2004;

• Closure of the Retirement Trust from 31 March 2004;

• Addition of a new money purchase section to the Pension Scheme from 1 April 2004;

• Current employees, opportunity to choose either:

• Final salary pension, either:

     • Employee contribution of 7% of pensionable salary and accrual rate of 60ths of final        salary, or

     • Employee contribution of 5% of pensionable salary and accrual rate of 80ths of final        salary; or

• Money purchase pension, either:

       • minimum 3% employee contribution with matching 3% employer contribution
        (depending on service and grade, a higher matching employer contribution may be
         payable), or

       • 0% employee contribution with a 1% employer contribution (option available only at          31 March 2004);

• New employees on or after 1 April 2004 may join the money purchase section of the   Pension Scheme after meeting eligibility criteria;

• Money purchase section to participate in the State Second Pension (final salary section   remains contracted-out);

• Minimum life assurance benefit of twice salary in the event of death while working for a   Kingfisher company for all employees.

The Trustees have selected Standard Life to provide investment and administration services for the money purchase section.

All members of the money purchase section are required to choose how contributions by and in respect of them should be invested. Three “lifestyle” options plus a range of specialist funds have been made available for this purpose.

The Scheme and the Trust are managed by Kingfisher Pension Trustee Limited, a company established specially to act as Trustee. As the Trustee is a company, there have to be directors; the directors of this trustee company form the Trustee Board and are colloquially termed ‘Trustees.

Trustees are drawn from all levels within the Kingfisher Group, including Val Struthers who is a pensioner. In addition, one of the Trustees, Charles Woodward, is not employed within the Group and is chosen for his complete independence as well as his knowledge and experience of pension matters.

Before taking up their appointment, new Trustee Board directors receive both external and internal training.

The Trustee Board monitors and oversees both the Scheme and the Trust through committees, which focus on specific aspects of day-to-day operations. The four Committees (Accounts and Audit, Benefits, Investment and Sealing) report separately to the Trustee Board. The role of each Committee is briefly explained opposite.

CHANGES TO THE TRUSTEE BOARD
There is no set term of appointment to the Trustee Board, but appointments are reviewable after four years, or earlier if there is a change in a director's employment or personal circumstances. The power to appoint and remove Trustees rests with Kingfisher plc.

Under the terms of the Pensions Act 1995, Kingfisher plc opted out of the requirement to appoint Member Nominated Trustees, and alternative arrangements were adopted. Following the completion of the bulk transfers related to the demerger of the Woolworths Group and sale of Time Retail and Superdrug, Kingfisher proposed new arrangements for the appointment of Trustees. The proposals were approved by the Trustee Board and Scheme members in accordance with the Pensions Act 1995 and the composition of the Trustee Board was subsequently altered to reflect the terms of these proposals.

Roger Jones and Liz Wright resigned from the Trustee Board on 31 August 2003, John Martin resigned on 30 September 2003, and Ian Edwards and Brian Venters resigned on 31 March 2004.

Tony Stanworth was appointed as Chairman of the Trustee Board from 1 September 2003. After the end of the Scheme year, Roger Blundell and Charles Baker were appointed to the Trustee Board from 1 April 2004.

ACCOUNTS AND AUDIT COMMITTEE
Membership: Charles Woodward (Chairman); Helen Chandler; Ian Edwards;
Brian Venters; Helen Jones and Angela Taylor.

Liz Wright resigned from 31 August 2003 and Ian Edwards and Brian Venters resigned from 31 March 2004. Helen Jones was appointed from 1 September 2003 and Angela Taylor was appointed from 1 January 2004. Roger Blundell was appointed after the end of the Scheme year (from 1 April 2004).

The role of the Committee is to:
• approve the Accounts of the Scheme and Trust and the Report to members;
• arrange and approve the process of auditing the Accounts;
• monitor controls and record keeping; and
• approve budgets and monitor the expenses of running the Scheme and Trust.

BENEFITS COMMITTEE
Membership: Tony Stanworth (Chairman); Helen Chandler; and Brian Venters.
Neil Lister resigned on 31 May 2003 and Tony Stanworth was appointed in his place. Brian Venters resigned from 31 March 2004. Val Struthers was appointed after the end of the Scheme year (from 1 April 2004).

The Committee meets as necessary to exercise the Trustee's discretionary powers, particularly in relation to:

• the distribution of lump sum death benefits; and
• the granting of ill-health early retirement pensions (for Kingfisher Pension Scheme members).

INVESTMENT COMMITTEE
Membership: Charles Woodward (Chairman); Ian Edwards; Terry Hartwell;
Val Struthers and Duncan Tatton-Brown (non-Trustee).

Tony Stanworth resigned (from the Committee) from 30 September 2003 and Charles Woodward was appointed in his place. Helen Weir (non-Trustee member) resigned from 31 January 2004 and Duncan Tatton-Brown (non-Trustee member) was appointed in her place. Ian Edwards resigned from 31 March 2004. Roger Blundell and Charles Baker were appointed after the end of the Scheme year (from 1 April 2004).

The Trustee Board agrees the Statements of Investment Principles of the Pension Scheme and Retirement Trust. Day-to-day investment management is undertaken by external managers. The role of the Committee is to:

• make recommendations to the Trustee Board on strategy issues;
• monitor and review the managers; and
• decide on manager appointments and terminations.

SEALING COMMITTEE
Membership: Helen Jones (chairman), Tony Stanworth and Val Struthers.

Roger Jones resigned from 31 August 2003 and Helen Jones was appointed in his place. Val Struthers was appointed from 1 September 2003.

The role of the Committee is to authorise the affixing of the company seal to relevant documents.