Annual Financial Report

RNS Number : 7664I

Home Retail Group Plc

03 June 2014

 

Home Retail Group plc

(the "Company")

Annual Report and Financial Statements 2014

Notice of Annual General Meeting 2014

Proxy Form

The Company has today published the following documents on its website, www.homeretailgroup.com:

·      Annual Report and Financial Statements 2014

·      Notice of Annual General Meeting 2014

·      Proxy Form

A copy of the above documents has been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.Hemscott.com/nsm.do  

The Company will hold its 2014 Annual General Meeting at the Jurys Inn Milton Keynes, Midsummer Boulevard, Milton Keynes, MK9 2HP on 2 July 2014 at 11.00 am.

Attached to this announcement is the additional information required under Rule 6.3.5 of the Disclosure and Transparency Rules of the Financial Conduct Authority, including a description of the principal risk factors for the Company, as set out in the Annual Report and Financial Statements 2014, and a statement of directors' responsibilities.

ADDITIONAL INFORMATION

Principal risks and uncertainties

The principal risks and uncertainties to achieving the Group's strategic priorities together with our mitigating activities are outlined below. For further information on how the Group manages risk, see business reviews on pages 12 to 21 and also page 37 of the corporate governance section within the Annual Report and Financial Statements 2014.

RISK AND UNCERTAINTY	DESCRIPTION AND EXAMPLES OF MITIGATING ACTIVITY	OTHER MITIGATING ACTIVITIES
Business strategy Ø  Inappropriate strategies Ø  Poor investment decisions Ø  Inadequate execution	As referenced within our strategic section on page 5, both Argos and Homebase have clear strategies for growth and as a Group we will continue to make significant investment in both brands to deliver these strategies.  At every Plc and Operating Board meeting, strategic issues including risks and opportunities are discussed. In addition, time is dedicated to strategic reviews at various executive meetings across the Group.	·         Regular review of performance against strategic targets ·         Engaging with strategic advisors to enrich and challenge internal intellect ·         Communication with stakeholders, investors, colleagues, suppliers, government etc.
Trading environment Impact on sales, gross margins, costs, profit and cash of: Ø Economic and financial conditions Ø Cost of raw material products/services/utilities Ø Competitor activity Ø Seasonality and/ or weather Ø UK-centric store network	Our business reviews clearly demonstrate that both brands have made progress towards the delivery of our strategic priorities as well as trading strongly in what continues to be a subdued consumer environment. Our broad customer demographic appeal, which we continue to strengthen, provides mitigation against the risk of variable levels of recovery across the UK economy. Sales across the Group are assisted by our in-house Financial Services business, making it easier for our customers to buy the products they want. We have robust planning processes; however, unseasonal or extreme weather events have the potential to create significant sales variations. We have embedded disciplines to maintain strong management of working capital and cash generation and we have strong management of key relationships with banks and credit insurers.	·         Price tracking versus our competition and dynamic pricing to ensure price competitiveness is maintained ·          Enhancing customer choice by continuing to strengthen product range architecture ·         Providing customers with a range of financing options to facilitate retail purchases ·         Continuous review and challenge of our cost base to maintain our low-cost operating model ·         Ongoing evaluation to optimise the Group's store network
Infrastructure development/ projects Delay or failure to manage and implement major business and infrastructure projects effectively	Both businesses have a demanding schedule of projects to deliver. Our governance framework will be instrumental in ensuring successful delivery of all aspects of the strategic programmes.	·         Detailed approval and planning process prior to project commencement ·         Board review of status/progress of major change programmes ·         The Group has entered into a number of strategic technology partnerships to enhance innovation and delivery ·         Post-project implementation reviews
Our colleagues Ø  Reliance on key personnel Ø  Availability of specialist skills Ø  Pension obligations	The Group values its colleagues and their contribution to the success of the organisation. Internal and external training schemes and an A-level and graduate recruitment programme alongside active succession planning enable the Group to both attract and maintain a strong workforce. We are adaptive in our quest for talent and establishing new ways of working to attract and retain the next generation of industry leaders. We are committed to open communications with colleagues at all times and monitor employee satisfaction through listening groups and employee forums	·         Competitive remuneration packages with oversight by the Remuneration Committee ·         Twice-yearly comprehensive succession planning sessions, up to Operating Board level ·         Suite of development programmes for high-potential colleagues at all levels of the organisation ·         Deployment of pensions auto-enrolment, making saving into a defined contribution scheme accessible to all colleagues ·         Active collaboration with pension trustee to support a sustainable reduction of the closed defined benefit fund deficit
Our customers Ø  Failing to meet expectations Ø  Consumer preferences Ø Changing demographics	Both businesses are customer-centric, with the customer at the heart of their strategies.  We are continuously listening and responding to our customers to enhance their shopping experience. Both businesses continue to expand product choice and services which, combined with improved store and product presentation, will benefit our customers.	·          Extend use of technology platforms and innovations to give customers choice in how they shop with us ·          Understanding customer engagement and building on the existing loyalty to our brands ·          Continuous review of key customer metrics such as mystery shopping and exit interviews ·          Engaging with customers through social media
Operations Failure to ensure appropriate processes are in place to manage the complexity of operations, including multi-channel and customer service	Transitioning Argos away from catalogue-centric operations, whilst retaining core competencies for competitive advantage, is being achieved via cross-functional working parties with a strong project management office. Homebase's store investment programme is supported by extensive colleague training to ensure a step-change in both customer experience as well as the in-store environment. This will provide the ability to showcase the exclusive brands that offer competitive differentiation, such as Habitat and Odina. Product availability remains a key priority as the Group mitigates complex supply chain risks through robust processes and new initiatives to enable immediacy on a wide range of products.	·          Actively testing alternatives to the traditional Argos catalogue format ·          Maintaining and extending Homebase's award-winning ·          installation services for kitchens, bathrooms and bedroom furniture ·          Targeted investment in customer service ·          Exploiting existing infrastructure to develop market-leading fulfilment options
Sourcing, product quality and safety Ø Strength and management of supplier relationships Ø Appropriate quality and safety checks are in place Ø Purchase of products whose cost base of manufacture is in currencies other than sterling, principally the US dollar Ø Appropriateness of financial services products	Strong global sourcing capabilities with established buying operations in Asia continue to be leveraged to control the cost of goods sold and therefore benefit customers. The safety and quality of our products is of paramount importance to the Group. Suppliers are required to sign up to the Group's supply chain principles and to specific policies regarding products and their environmental impact. We look for opportunities to support ethical standards, including thorough ethical audits of all own-brand, direct-source suppliers and membership of Sedex, a collaborative platform for ethical supply chain data. With over a third of products imported, the volatility of the global economy exposes the Group to both currency fluctuations, particularly the US dollar, and changes in freight costs.	·         Seek opportunities for further sourcing efficiencies ·         Standard terms and conditions for all suppliers to meet required performance standards ·         Rigorous quality/safety assessment programme for products with regular review and approval of product safety management process by Trading Standards Primary Authority ·         Pre-shipment inspection of imports by a third party and our own quality teams in Asia ·         Robust risk-based approach to factory auditing ·         Treasury policies to hedge currencies and forward buying of freight commitments, with adjustments to customer pricing to reflect movement in hedged currency rates and freight costs ·         Monitoring and review of financial services products to ensure fair customer outcomes
Regulatory environment Ø  Changes in UK and overseas legislation and regulation, e.g. consumer protection, environmental regulation Ø  Changes in UK fiscal/employment policy Ø  Changes in regulation of financial services industry	Good governance practices are important to the Group. In addition to ensuring compliance with existing requirements such as data protection, health and safety and financial services regulations, we are active in monitoring potential future developments. For example, we continuously challenge our environmental impact by setting and achieving stretching targets for fuel efficiency, waste reduction and energy consumption. We also lobby, often with other retailers, to support and develop the industry and the interests of consumers. As a major employer in the retail sector, external influences on our cost base, such as increases to the national minimum wage, are an inherent risk which we continuously seek to offset through a pipeline of cost-efficiency initiatives.	·         Membership of industry representative groups, including the British Retail Consortium ·          Pro-active engagement with government and regulators such as the Department of Business, Innovation and Skills and Trading Standards ·         Dedicated working parties to manage operational change ·         Ongoing engagement with the Financial Conduct Authority regarding financial services and products
Business interruption Ø  Failure or unavailability of operational and/or IT infrastructure Ø Delay or interruption in service provided by third-party suppliers	A major incident could impact the ability of the Group to continue trading. We manage this risk by maintaining and regularly testing our business continuity plans. Mitigating against cyber-attacks is taken seriously by the Group to maintain confidence in the security and availability of all our shopping channels. The Group maintains good awareness of its supply base to identify vulnerabilities and works towards a sustainable outcome for all parties when issues arise.	·         Business continuity and recovery planning and testing ·         IT recovery plans including website resilience and penetration tests ·         Third-party supplier management

Statement of directors' responsibilities

The directors are responsible for preparing the annual report, the directors' remuneration report and the financial statements in accordance with applicable law and regulations. 

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.

In preparing these financial statements, the directors are required to:

·        select suitable accounting policies and then apply them consistently;

·        make judgements and accounting estimates that are reasonable and prudent;

·        state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and

·        prepare the Group financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy, at any time, the financial position of the Company and the Group and enable them to ensure that the financial statements and the directors' remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of information on the Group's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Having taken advice from the Audit Committee, the directors consider that the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

Each of the directors, whose names and functions are listed on page 33 of the Annual Report confirm that, to the best of their knowledge:

·        the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

·        the management report contained in the strategic report and the directors' report include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

A list of current directors of Home Retail Group plc is maintained on the Home Retail Group website,

www.homeretailgroup.com.

Gordon Bentley

Secretary

3 June 2014

 

END

 

 

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