Annual Financial Report

RNS Number : 9114O

Home Retail Group Plc

02 June 2015

 



2 June 2015

Home Retail Group plc

(the "Company")

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

·      the annual report and financial statements 2015 (the 'Annual Report')

·      the notice of annual general meeting 2015

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 2015 annual general meeting at the Holiday Inn, 500 Saxon Gate West, Milton Keynes, MK9 2HQ on 1 July 2015 at 11:00am.

Set out below is the additional regulated information in unedited full text as required by DTR 6.3.5R of the Financial Conduct Authority's Disclosure Rules and Transparency Rules. This additional regulated information is to be read in conjunction with the full year results which were published on 29 April 2015 and includes a description of the principal risk factors for the Company, and a statement of directors' responsibilities, both as set out in the Annual Report.

The additional information below should be read with, and is not a substitute for, the full Annual Report.

ADDITIONAL INFORMATION

Principal risks and uncertainties

The principal risks and uncertainties to achieving the Group's strategic priorities together with the mitigating activities are outlined below. For further information on how the Group manages risk, see page 37 of the corporate governance section within the Annual Report.

RISKS & UNCERTAINTIES	EXAMPLES OF MITIGATING ACTIVITIES
Business strategy Impact on shareholder value • Inappropriate strategies • Poor investment decisions • Inadequate execution	As outlined within our strategic report on page 5 both Argos and Homebase have clear strategic plans. As we continue to undertake a number of significant investments, particularly in the digital area within Argos, the delivery of forecasted benefits is critical to the realisation of both the Argos Transformation Plan and the Homebase Productivity Plan.  Strategic issues, including risks and opportunities, are discussed at every Board meeting. All material investments are evaluated and monitored at the Board and Group Executive Board.  Programme governance structures are in place, supported by an established project management environment, with selected projects reviewed by Internal Audit. Considerable time is dedicated to strategic review, with regular performance reviews of strategic KPIs at various executive meetings across the Group. We strive to effectively communicate with key stakeholders such as investors, colleagues, suppliers and government.
Trading environment Impact on sales, gross margins, costs, profit and cash of: • Economic and market conditions • Cost of raw material products/ services/utilities • Competitor activity • Seasonality and/or weather • UK-centric store network	The Group's business reviews on (pages 12-21) demonstrate that both businesses are achieving growth in highly competitive trading environments. Both brands are progressing on the delivery of their strategic plans.  The universal appeal strategy (page 5) within Argos aims to broaden customer appeal. Furthermore, price tracking versus our competition and dynamic pricing ensures price competitiveness is maintained. This, coupled with a planning process which supports the business through new product launches, seasonal changes, extreme weather variations and a programme of promotional activity, seeks to reduce trading risk from increased competitive pressures.  Sales across the Group are supported by our in-house Financial Services business, providing the option to promote on price and/or credit.  Disciplines exist to maintain control of working capital. Cash generation is a key management objective (see remuneration scheme metrics on pages 44 to 61) and we maintain strong relationships with our banks and credit insurers.  We have a well-established continuous improvement programme which constantly reviews and challenges the Group's cost base to maintain our low-cost operating model. This includes ongoing evaluation to optimise the Group's store network, which has resulted in a strategy to reduce space within Homebase.
Infrastructure/ development projects Impact on costs and future capabilities • Delay or failure to manage and implement major business and infrastructure projects effectively • Reliance on third-party service providers (eg IT)	The strategies of both businesses outlined on pages 5 and 6 require a demanding schedule of projects. Our governance framework is instrumental in ensuring the delivery of all aspects of the strategic plans.  Detailed planning, including review of any trial learnings occurs prior to any subsequent roll-out. The Board receives regular progress updates on all major change programmes. Post completion, major investments are subject to a post-investment review at various levels within the management structure.  The Group has entered into a number of strategic technology partnerships to enhance innovation and delivery, alongside investment in a team of digital specialists to support both the delivery of the Argos Transformation Plan and the day-to-day IT operations of the Group. We work very closely with our partners and have a dedicated commercial management team to manage such contracts.
Our colleagues Impact on service quality, innovation and costs • Reliance on key personnel • Availability of specialist skills • Pension obligations	The Group values its colleagues and their contribution to the success of the organisation. Competitive remuneration packages, with oversight from the Remuneration Committee, in parallel with active succession planning, a strong focus on learning and development and both A-Level and Graduate recruitment programmes enable the Group to both attract and retain an engaged workforce.  The Group has a suite of development programmes for colleagues across all levels of the organisation. Digital up-skilling of colleagues is supporting business change and enabling greater workplace flexibility.  We are committed to open communications with colleagues at all times and monitor employee satisfaction through listening groups and employee forums.  We deployed pensions auto-enrolment, making saving into a defined contribution scheme accessible to all colleagues. We have a good relationship with the Trustees of the Group's closed defined benefit pension scheme which helps to ensure that we manage the scheme's future obligations as efficiently as possible.
Our customers Impact on sales, profit and growth potential • Failing to meet customers' existing and future expectations • Consumer preferences • Changing demographics and behaviours	Understanding our customers is essential to the success of our strategies. We are investing to better understand our different customers so as to provide insight to enable us to improve our customer offering. We continuously engage with our customers, increasingly via social media, to gather feedback.  The Group continues to use technological innovation to give customers choice in how they shop with us alongside expansion in both product choice and services across the Group. This, combined with improved store and product presentation and investment in customer service, will we hope, broaden customer appeal.  Argos is supporting the Government's 'Go ON UK' initiative by hosting digital inclusion workshops to help customers migrate to new technologies.
Operations Impact on costs and proposition delivery • Failure to ensure appropriate processes are in place to manage the complexity of operations, including supply chain, multi-channel and customer service	With significant change programmes in each business, retaining our core competencies for competitive advantage is being achieved via an effective project management office, executive oversight and cross-functional working parties.  Product availability remains a key priority as the Group mitigates complex supply chain risks through robust processes and new initiatives, such as 'hub & spoke', to enable product immediacy for customers on a wide range of products.  Homebase's Productivity Plan is centred on strengthening key operational processes and down-sizing the store estate to create a solid foundation for future growth. This is alongside Homebase maintaining its award-winning installation services for kitchens, bathrooms and bedroom furniture.  The Group is investing heavily in multi-channel capability, with improvements in digital capabilities in both businesses. We are exploiting existing infrastructure to develop market-leading fulfilment options and expanding into new opportunities such as the eBay partnership.
Sourcing, product quality and safety Impact on customers, costs and reputation • Product failures • Purchase of products whose cost base of manufacture is in currencies other than sterling, principally the US dollar  • Appropriateness of financial services products	The Group continues to leverage its global sourcing capabilities and established buying operations in Asia whilst seeking further opportunities for sourcing efficiencies to control the cost of goods sold which thereby benefits 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 conduct ethical audits of all own-brand direct-source suppliers, we have a robust risk-based approach to factory auditing and pre-shipment inspections of imports are carried out by a third party and also by our own quality teams in Asia. Furthermore, we are members 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. We hedge currency exposures and forward-buy freight commitments where possible.  We work with the Financial Conduct Authority (FCA) to monitor and review our financial services products to ensure fair customer outcomes.
Regulatory environment Impact on costs and reputation • Changes to/breach of UK and overseas legislation and regulation, eg consumer protection, environmental regulation  • Changes to/breach of FCA requirements  • Changes in UK fiscal/ employment policy, eg minimum wage	Good governance practices are important to the Group, illustrated by membership of industry representation groups, including the British Retail Consortium and ongoing engagement with regulatory bodies such as the FCA.  In addition to ensuring compliance with existing requirements such as data protection, health and safety and financial services regulation, we continually challenge our environmental impact by setting and achieving stretching targets for fuel efficiency, waste reduction and energy consumption. We are active in monitoring future developments and pro-actively engage with government and regulators such as the Department for Business, Innovation & Skills and Trading Standards Institute.  The FCA has assumed regulatory responsibility for consumer credit. The Group has a project team in place, supported by external experts, to review our governance and regulatory compliance arrangements and to progress our application for authorisation with the FCA as a consequence of this regulatory change.
Business interruption Impact on sales, costs and reputation • Cyber-attack/terrorism/acts of nature  • Failure or unavailability of operational and/or IT infrastructure, eg website/OMS  • Delay or interruption in products or services 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 testing our business continuity plans regularly, investing in incident management training and we have remote IT disaster recovery capabilities.  The threat of cyber-attack and particularly data loss is taken seriously by the Group and as such is subject to continual review. Specialist IT security resources have been engaged alongside an increased level of investment.  The Group has robust contractual arrangements and comprehensive supplier management, particularly for key service partners. We actively monitor the supply base to identify vulnerabilities and identify suitable contingency solutions, working towards a sustainable outcome for all parties when issues arise.

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 the 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 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 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, taken as a whole, is 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 34 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 includes 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

Company Secretary

 

END

 

 

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