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Watches of Switzlnd. (WOSG)

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Tuesday 15 September, 2020

Watches of Switzlnd.

Annual Report and Accounts 2020

RNS Number : 9310Y
Watches of Switzerland Group PLC
15 September 2020
 

Watches of Switzerland Group PLC (the "Company")

 

Annual Report and Accounts 2020

 

In compliance with Listing Rule 9.6.1, the Company announces that the following documents have today been submitted to the UK Listing Authority, and will shortly be available for inspection via the National Storage Mechanism at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

 

· Annual Report and Accounts 2020;

 

· Notice of Annual General Meeting of the Company, to be held at 36 North Row, London W1K 6DH at 1pm on 14th October 2020; and

 

· Proxy Form for the 2020 Annual General Meeting.

 

In accordance with DTR 6.3.5(3) the Annual Report and Accounts 2020 and the Notice of Annual General Meeting are accessible on the Group's website: https://www.thewosgroupplc.com/investors/results-centre/

 

A condensed set of Watches of Switzerland Group PLC financial statements and information on important events that have occurred during the year and their impact on the financial statements were included in the Company's FY 20 results announcement on 13th August 2020. That information together with the information set out below which is extracted from the Annual Report and Accounts constitute the requirements of DTR 6.3.5 which is to be communicated via an RNS in unedited full text. This announcement is not a substitute for reading the full Annual Report and Accounts. Page and note references in the text below refer to page numbers in the Annual Report and Accounts 2020. To view the FY 20 results announcement visit the Company website: https://www.thewosgroupplc.com/investors/results-centre/

 

For further information, please contact:

Allegra Perry, Investor Relations

+44 (0)20 7317 4600

[email protected]

  

Additional Information

 

Principal risks and uncertainties

 

Below are descriptions of our principal risks and uncertainties and explanations of how we manage or mitigate the risk. It is recognised that the Group is exposed to risks wider than those listed. However, we have disclosed those we believe are likely to have the greatest impact on our business at this moment in time.

 

Principal risk description

How we manage or mitigate the risk

Business strategy execution and development:

If the board adopts the wrong strategy or does not implement its strategy effectively, the business may suffer.

 

The Group's growth strategy exposes it to risks and the Group may encounter setbacks in its ongoing expansion in the UK and the US.

 

The Group's significant investments in its store portfolio, IT systems, colleagues and marketing may be unsuccessful in growing the Group's business as planned.

The Group may make acquisitions or other investments that prove unsuccessful or divert its resources. Successful growth through future acquisitions is dependent upon the Group's ability to identify suitable acquisition targets, conduct appropriate due diligence, negotiate transactions on favourable terms, complete such transactions and successfully integrate the acquired businesses.

 

The Group may fail to effectively and rapidly respond to the pressures of an increasingly changing retail environment, including from the impact of COVID-19. The re-evaluation of priorities and their delivery, including the consideration of initiatives to respond to permanent changes in customer behaviours or to change working practices, is paramount in the current environment

 

 

 

The Board reviews business strategy on a regular basis to determine how sales and profit can be maximised, and business operations be made more efficient

 

The Board has significant relevant experience, including in the retail and luxury markets

 

The CEO provides updates to the Board on key development opportunities and initiatives

 

Expansion of the property portfolio or potential acquisitions must meet strict payback criteria. Return on investment of marketing and other investment activity is monitored closely

 

Key management information is provided to the Board on a regular basis to help inform strategic decision making

 

The Group adapted its strategy to take advantage of online trading and remote clientelling activities to maximise sales throughout the lockdown period and post re-opening. All operational and capital expenditure has been reviewed to ensure that spending is aligned with the new operating model

 

The Group has diversified its operations through the expansion of mono-brand boutiques and ecommerce platforms. Having entered the US market in 2017 there is international market diversification reducing reliance on one international territory

 

Key suppliers and supply chain:

The manufacture of key luxury watch brands is highly concentrated among a limited number of brand owners and the production of luxury watches is limited by the small number of master watchmakers and the availability of artisanal skills. Owners of luxury watch brands control distribution through strict, selective distribution agreements. Consequently, the relationship with owners of luxury watch brands is crucial to the Group's success.

 

Some of the Group's distribution agreements with luxury watch brands provide owners of such brands with a right to terminate the agreement in the event of a change of control and/or management of the Group. The Group is subject to the risk that owners of luxury watch brands may decide to terminate these contracts or otherwise not to renew them upon expiration, or to reduce the number of agencies they grant to the Group.

 

The Group's distribution agreements with suppliers do not guarantee a steady supply of merchandise.

 

The Group's business model may also come under significant pressure should the owners of luxury watch brands choose to distribute their own watches, increasingly or entirely by-passing third party retailers such as the Group.

 

As a result of COVID-19, supplier manufacturing operations could be forced to close, impacting operational activities, customer experience, and business strategy.

 

 

The Group fosters strong relationships with suppliers, many of which have been held for a significant length of time

 

The Group works collaboratively with suppliers to identify product trends and forward demand

 

Continued focus on providing the best customer experience, representing the brands in the best possible way

 

In-depth training for store colleagues is provided, including specific training provided by the brand owners themselves

Customer experience and market risks:

An inability to maintain a consistent high-quality experience for the Group's customers across the sales channels, particularly within the store network, and during the COVID-19 pandemic, could adversely affect business.

 

The Group faces intense competition from other retailers, including online retail companies, and any failure by the Group to compete effectively could result in a loss of market share or the ability to retain supplier agencies. Aggressive discounting by competitors may also adversely affect the Group's performance in the short term. The Group also competes with the grey market, where unauthorised dealers may be offering significant discounts.

 

Long term consumer attitudes to diamonds, gold and other precious metal and gemstones could be affected by a variety of issues, including concern over the source of raw materials, the impact of mining and refining of minerals on the environment, labour conditions in the supply chain, and the availability and perception of substitute products, such as cubic zirconia and laboratory-created diamonds. Equally, longer term consumer attitudes to more technologically advanced watches, such as 'smart watches' could reduce the consumer demand for luxury watches.

 

 

The Group provides the ultimate luxury environment for its customers to feel welcome, appreciated and supported

 

Initiatives launched in response to the COVID-19 lockdown to continue making product available safely to customers

 

Exceptional training is provided for our store colleagues, and other customer facing colleagues, to allow them to provide the best customer service, along with in-depth product knowledge

 

The CRM database allows the Group to manage the customer from a potential to a loyal customer

 

The Group continues to invest in and develop its product offering to improve the value offered to consumers, retailers and manufacturers

 

Competitor activity is monitored in detail, enabling strategic decision making on key market positions

 

The diversification of the Group through mono-brand boutiques and significant online presence together with the Group's scale and technological capabilities are competitive advantages for the Group

Colleague talent and capability:

The Group depends on the services of key personnel to manage its business, and the departure of such personnel or the failure to recruit and retain suitable personnel could adversely affect the Group's business.

 

Customer experience is an essential element in the success of the Group's business, where many customers prefer a more personal face-to-face experience and have established personal relationships with the Group's sales colleagues. An inability to recruit, train, motivate and retain suitably qualified colleagues, especially with specialised knowledge of luxury watches, would have a material impact on the Group.

 

 

The Trading Board considers the development of senior management to ensure there are opportunities for career development, promotion, and appropriate succession

 

The Nomination Committee considers the succession planning for the Board

 

The Group's award winning 'VibE' recognition programme is in place to incentivise and motivate all colleagues

 

A wide range of training and development programmes are available to colleagues, including the Group's own Academy

 

A Group wide engagement survey provides an insight into what colleagues feel would make the Group an even better place to work

 

The Group continually reviews the remuneration and benefits packages for all colleagues to make sure they are appropriately rewarded for the substantial contribution they make to the Group's growth and success. These benefits and the value they bring to colleagues are continually communicated to ensure they are taking advantage of them

 

A focused project group has been established with an objective to monitor and reduce retail labour turnover, particularly in the first year of employment

 

The Group is initiating a shift from part time to full time contracts for retail colleagues

 

A talent bank is in the process of being established, which will provide a pipeline for management and high potential hires

 

Business interruption and IT infrastructure:

Adverse weather conditions, pandemics, travel disruption, natural disasters, terrorism, acts of war or other exogenous events could adversely affect consumer discretionary spending or cause a disruption to the Group's operations.

 

The inability of the Group to be able to operate stores or significant reduction in available colleagues to operate the business, such as during the COVID-19 pandemic, would significantly impact the operations of the business.

 

The Group offers flexible delivery options (home delivery or click-and-collect in-store) and its online operations rely on third party carriers and transportation providers. The Group's shipments are subject to various risks, including labour strikes and adverse weather.

 

The Group may experience significant theft of products from its stores, distribution centres or during the transportation of goods. If a hold-up, burglary or other theft incident takes a violent turn, the Group may also suffer reputational damage and our customers may become less inclined to visit its stores.

 

Disruptions to, or failures in, the Group's IT infrastructure and networks, or those of third parties, could disrupt the Group's operations, especially during periods of increased reliance on these systems such as those experienced during the COVID-19 lockdown.

 

The Group relies on IT networks and systems, some of which are managed by third parties, to process, encrypt, transmit and store electronic information, and to manage or support a variety of business processes and activities, including sales, supply chain, merchandise distribution, customer invoicing and collection of payments.

 

 

The Group has a framework of operational procedures and business continuity plans that are regularly reviewed, updated and tested

 

The multi-channel model allows customers to purchase online from the safety and comfort of their homes

 

Robust security arrangements are in place across our store network to protect people and products in the case of security incidents

 

A comprehensive insurance programme is in place to offset the financial consequences of insured events

 

Business critical systems are based on established, industry leading package solutions

 

A detailed IT development and security roadmap is in place aligned to our strategy

 

Reliable and reputable third party logistic partners have been engaged to ensure the secure transportation of goods

The Group put in place action plans to effectively deal with the COVID-19 pandemic impact on business operations

Data protection and cyber security:

The increasing sophistication and frequency of cyber-attacks, coupled with the General Data Protection Regulation (GDPR), highlight the escalating information security risk facing all businesses.

 

As the Group operates in both the US and UK markets, the regulatory environment surrounding these areas is considered more complex.

 

Security breaches and failures in the Group's IT infrastructure and networks, or those of third parties, could compromise sensitive and confidential information and affect the Group's reputation.

 

Theft or loss of Company or customer data or potential damage to any systems from viruses, ransomware or other malware could result in fines and reputational damage to the business that could negatively impact on our sales.

 

Potential additional COVID-19 related security risks in relation to increased working from home arrangements, an increase in phishing campaigns, and increased reliance on third parties supporting critical support services.

 

 

Significant investment in systems development and security programmes

 

Systems vulnerability and penetration testing is carried out regularly

 

The Data Protection Committee meets at least six times a year to review related processes and emerging risks

 

GDPR policies, procedures and training in place

 

Strict access rights are in place to limit access to data and reports to limited people

 

Regular communications with colleagues on the risk of 'phishing' emails and alerts of identified examples

 

SIEM ("Security Information and Event Management") tools are being introduced across the Group's technology estate

 

VPN security controls have been enhanced in light of the increased requirement for use through working from home arrangements

 

Regulatory and compliance:

Fines, litigation and reputational damage could arise if the Group fails to comply with legislative or regulatory requirements including, but not limited to, consumer law, health and safety, employment law, GDPR and data protection, anti-bribery and corruption, competition law, anti-money laundering, and supply chain regulations.

 

Due to the Group expanding into the US, there is a risk the business lacks the detailed knowledge of US laws and regulations resulting in a breach, significant fine and reputational impact.

 

There is a risk that the Group could fail to adequately look after the health and wellbeing of its colleagues and customers, especially considering the challenges faced by COVID-19, with potential breaches of health and safety laws and regulations.

 

 

The Group actively monitors both regulatory developments in the UK and US and compliance with existing obligations

 

Clear policies and procedures are in place, including, but not limited to, anti-bribery and corruption, whistleblowing, and data protection

 

Mandatory induction briefings and training for all staff on regulation and compliance

 

Experienced in-house legal team with external expertise sought as needed

 

The established culture and values foster open, honest communication

 

Operational activities have been amended, and continue to be updated, to comply with guidance provided by the government to prioritise the safety of colleagues and customers

 

Economic and political:

The Group's business is geographically concentrated in the UK and US. Any sustained stagnation or deterioration in the luxury watch or jewellery markets or decline in consumer spending in the UK or US could have a material adverse impact on the Group's business.

 

The Group or its suppliers may not be able to anticipate, identify and respond to changing consumer preferences in a timely manner, and the Group may not manage its inventory in line with customer demand.

 

Ongoing legal, political and economic uncertainty in the UK and international markets could give rise to significant currency fluctuations, interest rate increases, adverse taxation arrangements or affect current trading and supply arrangements. For example, continuing Brexit uncertainty may have an adverse impact on the UK economy.

 

 

Regular monitoring of economic and political events, including Brexit and COVID-19

 

Brexit risk assessment completed to identify potential areas of risk and mitigation

 

Focus on customer service to attract and retain customers

 

Detailed sales data is analysed to anticipate future trends and demand, taking into consideration the current economic environment

 

Through the expansion into the US, the Group is not wholly dependent on the economic or political environment in one single market

Brand and reputational damage:

The Watches of Switzerland Group's trading brands are an important asset and failure to protect the Group's reputation and brand could lead to a loss of trust and confidence. This could result in a decline in the customer base, affect the ability to recruit and retain the best people and damage our reputation with our suppliers.

 

 

The Group has a clear and open culture with a focus on trust and transparency

 

Good customer experience is a key priority of the Group

 

The Group undertakes regular customer

engagement to understand and adapt the product offer and store environment

 

The use of world-class marketing, along with an in-depth knowledge of products makes the Group an authority in the markets it serves

 

Financial and treasury:

The Group's ability to meet its financial obligations and to support the operations and expansion of the business is dependent on having sufficient funding over the short, medium and long term. The Group is reliant on the availability of adequate financing from banks and capital markets to meet its liquidity needs.

 

The Group's level of indebtedness could adversely affect its ability to react to changes in our business and may limit the commercial and financial flexibility to operate the business.

 

The Group is exposed to foreign exchange risk and profits may be adversely impacted by unforeseen movements in foreign exchange rates.

 

Significantly reduced trading over an extended period, as a result of the COVID-19 pandemic, could impact the business's ability to operate within committed credit facilities. This has been considered as part of the Group's going concern assessment on page 74.

 

 

The Group's debt position, available funding and cash flow projections are regularly monitored

 

Current lending facilities are in place until April 2023 and June 2024. Post year-end the Group further strengthened its liquidity position with a new £45.0 million facility agreement as part of the UK government CLBILS initiative, which matures in November 2021. On 18 June 2020 the covenant requirements on the UK facilities were amended to reflect a liquidity headroom requirement, rather than financial ratios, for the October 2020 and April 2021 covenant tests

 

 

Further information on the financial risks we face and how they are managed is provided on pages 64 to 73.

 

Directors' Responsibility Statement

 

The 2020 Annual Report contains the following statements regarding responsibility for the financial statements in compliance with DTR 4.1.12. Responsibility is for the full Annual Report and Accounts 2020 and not the condensed statements required to be set out in the Annual Report and Accounts announcement.

 

Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulations. 

Company law requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Group and the Company as at the end of the financial year, and of the profit or loss of the Group for the financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and have elected to prepare the Company's financial statements in accordance with United Kingdom Generally Accepted Accounting Practice including FRS 102 'The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland' and the Companies Act 2006. 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 Annual Report and Accounts, 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 IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and Company financial statements respectively; and

 

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

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and 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. Having taken all the matters considered by the Board and brought to the attention of the Board during the year into account, we are satisfied that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable

The Board believes that the disclosures set out in this Annual Report and Accounts provide the information necessary for shareholders to assess the Group's performance, business model and strategy. 

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

Each of the Directors, whose names and functions are listed on pages 84 and 85, 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 Strategic Report and Directors' Report contained in the Annual Report and Accounts  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.

 

The Directors of Watches of Switzerland Group PLC are listed in the Group's 2020 Annual Report, and on the Group's website: thewosgroupplc.com

 

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