Annual Financial Report

RNS Number : 0697F

Dixons Carphone PLC

10 July 2019

 

10 July 2019

ANNUAL REPORT AND NOTICE OF ANNUAL GENERAL MEETING

Dixons Carphone plc (the 'Company') has today published its Annual Report and Accounts 2018/19 and Notice of Annual General Meeting 2019. These documents are available to view on the Company's website at www.dixonscarphone.com/investors. In addition, along with the Form of Proxy for the Annual General Meeting 2019, they have been posted or otherwise made available to shareholders and have also, in compliance with Listing Rule 9.6.1, been  submitted to the National Storage Mechanism, where they will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM.

The Company's Annual General Meeting 2019 will be held at 11.00am on Thursday 5 September 2019 at Hilton London Kensington Hotel, 179-199 Holland Park Avenue, London W11 4UL.

The information included in the Appendix to this announcement has been extracted from the Annual Report and Accounts 2018/19 and is reproduced here solely for the purposes of complying with the requirements of Disclosure Guidance and Transparency Rule ('DTR') 6.3.5 in respect of how to make annual financial reports available to the public.

The content of this announcement, including the Appendix, should be read in conjunction with the Company's Preliminary Results announcement, which was released on 20 June 2019 and is available on the Company's website at

https://www.dixonscarphone.com/~/media/Files/D/Dixons-Carphone/documents/2018-19-preliminary-results-pr.pdf

Together, these announcements constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full Annual Report and Accounts 2018/19. Defined terms used in the Appendix refer to terms as defined in the Annual Report and Accounts 2018/19. Page numbers and cross references in the Appendix refer to pages and sections of the Annual Report and Accounts 2018/19.

Appendix

A. Principal risks to achieving the Group's objectives (pages 22 to 24)

The Group recognises that taking risks is an inherent part of doing business and that competitive advantage can be gained through effectively managing risk. The Group continues to develop robust risk management processes, integrating risk management into business decision-making. The Group's approach to risk management is set out in the Corporate Governance Report on pages 57 to 59. The risks are linked to the strategy on pages 9 to 12. The principal risks and uncertainties, together with their potential impacts and changes in net risk since the last report, are set out in the tables below along with an illustration of what is being done to mitigate them.

Risks and potential impacts

Dependence on key suppliers

Risk owner: Chief Commercial Officer

Risk category: Strategic

What is the risk?

The Group is dependent on relationships with key suppliers to source products on which availability may be limited.

What is the impact?

·    Reduced revenue and profitability

·    Deteriorating cash flow

·    Reduced market share

How we manage it

Ensuring alignment of Key Suppliers to the opportunities presented through the Future DC Strategy.

Continuing to leverage the scale of operations to strengthen relationships with key suppliers and maintain a good supply of scarce products.

Changes since last report

This risk has remained stable over 2018/19.

Impact of Brexit

Risk owner: Group Chief Executive

Risk category: Strategic

What is the risk?

Economic uncertainty and impact on consumer confidence caused by the decision of the UK to leave the European Union ('Brexit').

Longer term changes in regulation and other frameworks that may impact our ability to operate across our European businesses.

What is the impact?

·    Reduced revenue and profitability

·    Deteriorating cash flow

·    Reduced market share

How we manage it

·     Contingency planning to address immediate operational impacts

·     Monitoring of wider regulatory and legislative changes

·     Strategic and business planning

·     Credit facilities in place

·     Foreign exchange hedging to mitigate impact of currency fluctuation

Changes since last report

This risk has increased over the period 2018/19 given the uncertainty associated with Brexit.

Business Transformation

Risk owner: Group Chief Executive

Risk category: Strategic

What is the risk?

Failure to respond with a business model that enables the business to compete against a broad range of competitors on service, price and / or product range.

Failure to respond effectively to shifting market dynamics in the mobile sector such as network and hardware disintermediation.

Failure to respond to changes in consumer preferences and behaviours.

What is the impact?

·    Reduced revenue and profitability

·    Deteriorating cash flow

·    Reduced market share

How we manage it

·    Future DC Strategy defined and communicated

·    New Executive Committee in place and Global Leadership team established

·    Management and Operating Model restructured to create joined up business

·    Transformation Programme office established and delivering key strategic objectives

·    Renegotiated contracts with the MNOs

·    Launch of new customer credit proposition

Changes since last report

This risk has remained unchanged over 2018/19, although delivery of the Transformation Plan will aim to reduce this risk over the 2019/20 period.

Non-compliance with Financial Conduct Authority ('FCA') and other financial services regulation

Risk owner: Chief Customer Officer

Risk category: Regulatory

What is the risk?

Failure to manage the business of the Group in compliance with FCA regulation and other financial services regulation to which the Group is subject in a number of areas including the mobile insurance operations of The Carphone Warehouse Limited and the consumer credit activities of DSG Retail Limited.

What is the impact?

·    Reputational damage

·    Financial penalties

·    Reduced revenues and profitability

·    Deteriorating cash flow

·    Customer compensation

·    Loss of competitive advantage

How we manage it

·    Board oversight and risk management structures actively monitor compliance and ensure that the Company's culture puts customer outcomes first

·    Approved Persons perform oversight, monitoring of compliance, adherence to policy and monitoring of any required mitigating actions

·    Internal committees, including a dedicated FCA compliance committee, and control structures to ensure appropriate compliance (e.g. undertaking quality assurance procedures for samples of mobile phone sales) and to react swiftly should issues arise

·    Continuous review of the operation and effectiveness of compliance standards and controls, with the development of control improvement plans where required

·    Compliance training programmes for colleagues

Changes since last report

This risk has remained stable over 2018/19.

Data Protection

Risk owner: Chief Customer Officer

Risk category: Regulatory

What is the risk?

Major loss of customer, colleague, or business sensitive data.

Adequacy of internal systems, policy, procedures and processes to comply with the requirements of EU General Data Protection Regulation ('GDPR').

What is the impact?

·    Reputational damage

·    Financial penalties

·    Reduced revenue and profitability

·    Deteriorating cash flow

·    Loss of competitive advantage

·    Customer compensation

How we manage it

·    The operation of a Data Management Function to ensure compliance with GDPR compliant operational processes and controls

·    The operation of a Data Protection Office to ensure appropriate governance and oversight on the Group's data protection activities. Control activities operate over management of customer and employee data in accordance with the Group's data protection policy

and processes

·    Investment in information security safeguards and IT security controls and monitoring

Changes since last report

The risk has decreased over 2018/19 as GDPR compliance processes have begun BAU operation.

IT systems and infrastructure

Risk owner: Chief Customer Officer

Risk category: Technology

What is the risk?

Failure to appropriately invest in IT systems and infrastructure, or an inability to effectively integrate IT assets across the Group constrains the Group's ability to grow and / or adapt quickly. A key system becomes unavailable for a period of time.

What is the impact?

·    Reduced revenue and profitability

·    Deteriorating cash flow

·    Loss of competitive advantage

·    Restricted growth and adaptability

·    Reputational damage

How we manage it

·    Ongoing IT transformation to align IT infrastructure to Future DC strategy

·    Significant investment being made in IT systems and infrastructure across the Group, supported by rigorous testing processes

·    Individual system recovery plans in place in the event of failure which are tested regularly, with full recovery infrastructure available for critical systems

·    Long-term partnerships with 'tier 1' application and infrastructure providers established

Changes since last report

This risk has increased in 2018/19 as a result of deficiencies arising from the implementation of the new finance system.

Information security

Risk owner: Group Chief Financial Officer

Risk category: Risk Operational

What is the risk?

Vulnerability to attack, malware, and associated cyber risks.

What is the impact?

·    Reputational damage

·    Financial penalties

·    Reduced revenue and profitability

·    Deteriorating cash flow

·    Customer compensation

·    Loss of competitive advantage

How we manage it

·    Investment in information security safeguards, IT security controls, monitoring, in-house expertise and resources as part of a managed information security improvement plan

·    Information Security and Data Protection Committee comprising senior management, set up with responsibility for oversight, co-ordination and monitoring of information security policy and risk

·    Information security policy and standards defined and communicated

·    Training and awareness programmes for employees

·    Audit programme over key suppliers' information security standards

·    Introduction of enhanced security tooling

·    Ongoing programme of penetration testing

Changes since last report

Despite substantial investment in this area, our overall information security risk position has increased in 2018/19 as a result of a background of an increasing external threat environment.

Health and Safety

Risk owner: Chief Operating Officer

Risk category: Operational

What is the risk?

Failure to effectively protect customers and / or colleagues and / or contractors from injury or loss of life.

What is the impact?

·    Employee / customer injury or loss of life

·    Reputational damage

·    Financial penalties

·    Legal action

How we manage it

·    Group Health and Safety strategy

·    Group Health and Safety policy

·    Health and Safety management / governance committee

·    Comprehensive set of policies and standards supporting continued improvement

·    Operational Health and Safety teams located across business units

·    Risk assessment programme covering retail, support centres, distribution and home services

·    Health and Safety training and development framework

·    Health and Safety inspection programme

·    Audit programme including factory audits for own brand products and third-party supply chains

Changes since last report

This risk has decreased in 2018/19 as a result of continuing action to improve our Health and Safety processes.

Business Continuity

Risk owner: Chief Operating Officer

Risk category: Operational

What is the risk?

A major incident impacts the Group's ability to trade and business continuity plans are not effective, resulting in an inadequate incident response.

What is the impact?

·    Reduced revenue and profitability

·    Deteriorating cash flow

·    Reputational damage

·    Loss of competitive advantage

How we manage it

·    Business continuity and crisis management plans in place and tested for key business locations

·    Disaster recovery plans in place and tested for key IT systems and data centres

·    Crisis team appointed to manage response to significant events

·    Major risks insured

Changes since last report

This risk has remained stable over 2018/19.

Tax liabilities

Risk owner: Group Chief Financial Officer

Risk category: Financial

What is the risk?

Crystallisation of potential tax exposures resulting from legacy corporate transactions, employee and sales taxes arising from periodic tax audits and investigations across the various jurisdictions in which the Group operates.

What is the impact?

·    Financial penalties

·    Reduced cash flow

·    Reputational damage

How we manage it

·    Board and internal committee oversight that actively monitors tax strategy implementation

·    Appropriate engagement of third-party specialists to provide independent advice where deemed appropriate

Changes since last report

The Group continues to co-operate with HMRC in relation to open tax enquiries. Whilst the quantum of the risk has remained stable, the likelihood of litigation has increased over 2018/19.

Product Safety

Risk owner: Chief Operating Officer

Risk category: Operational

What is the risk?

Unsuitable procedures and due diligence regarding product safety, particularly in relation to OEM sourced product, may result in poor quality or unsafe products provided to customers which pose risk to customer health and safety.

What is the impact?

·    Financial penalties

·    Reduced cash flow

·    Reputational damage

How we manage it

·    Factory Audits conducted over OEM suppliers

·    Technical Evaluation of OEM products prior to production

·    Product inspection of OEM products prior to shipment

·    Monitoring of reported incidents

·    Safety Governance reviews conducted by internal by Technical and Business Standards teams

Changes since last report

This risk was added to the Group risk profile in 2018/19 as disclosed in the 12 December 2018 interim statement.

Long term and diversification of funding

Risk owner: Group Chief Financial Officer

Risk category: Financial

What is the risk?

Ensuring that the nature and structure of the Group's committed funding activities remain optimal.

What is the impact?

·    Restricted growth and adaptability

·    Reputational damage

How we manage it

·    Unsecured credit/loan facilities

·    Regular review of the long term and short-term cash flow projections for the business

·    Regular review of the Group's capital structure

Changes since last report

This risk was added to the Group risk profile in 2018/19 following the new management team decision to explore the potential for more diverse sources of funding.

B. Responsibility Statement (page 103)

We* confirm that to the best of our knowledge:

·    the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

·    the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

·    the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group and the Company's performance, business model and strategy.

By Order of the Board

Alex Baldock, Group Chief Executive

Jonny Mason, Group Chief Financial Officer

19 June 2019

* The directors of Dixons Carphone plc as at 19 June 2019 are listed on pages 48 and 49 of the Annual Report and Accounts 2018/19.

ENDS

For further information:

Nigel Paterson            General Counsel and Company Secretary    [phone]

Assad Malic                Group Corporate Affairs Director                   [phone]

 

END

 

 

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