Annual Financial Report

RNS Number : 6143E

Home Retail Group Plc

01 June 2012

 



Home Retail Group plc

(the "Company")

Annual Report and Financial Statements 2012

Notice of Annual General Meeting 2012

Proxy Form

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

·      Annual Report and Financial Statements 2012

·      Notice of Annual General Meeting 2012

·      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 2012 Annual General Meeting at the Jurys Inn Milton Keynes, Midsummer Boulevard, Milton Keynes, MK9 2HP on 4 July 2012 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 Services Authority, including a description of the principal risk factors for the Company, as set out in the Annual Report and Financial Statements 2012, and a statement of directors' responsibilities.

ADDITIONAL INFORMATION

Principal risks and uncertainties

The principal risks and uncertainties that could impact the Group's performance and our mitigating activities are discussed below.  For further information on how the Group manages risk, see the business review and page 36 of the corporate governance report within the Annual Report and Financial Statements 2012.

Area of principal risk and uncertainty	Description and examples of mitigating activity
Trading environment Impact on sales, margins, costs, profit and cash of: Ø Economic conditions  Ø Cost of raw material products, services and utilities Ø Consumer preferences  Ø Competitor activity Ø Seasonality and/or weather  Ø UK-centric store network Ø Expansion and/or development of store network	As detailed in our chief executive's statement, the economic volatility experienced in recent years is expected to continue into the year ahead.  Within the UK, consumers continue to adjust their spending patterns in response to fluctuations in their disposable income.  This economic environment, including the response of other retailers to it, widens the possible forecasted outcomes of the Group's performance in respect of sales, costs, profit and cash generation.  We intend to build on the considerable cost savings achieved over the last three years, recognising that further sustainable cost reduction opportunities may be more challenging to achieve, which, coupled with a level of underlying cost inflation, may see an increase in costs.  Other mitigating activities include: ·      Empowering customer choice by strengthening range architecture ·      Price tracking versus our competition and dynamic pricing to ensure competitiveness is maintained ·      Evaluating lease renewals (c200 over next five years) to optimise the Group's store portfolio ·      Introduction of clothing ranges, including the exclusive Emma Bunton collection
Business strategy Ø Inappropriate direction Ø Poor investment decisions Ø Failure to execute	At every Plc and Operating Board meeting strategic issues are discussed in addition to the time that is dedicated to strategic reviews at various Executive meetings across the Group.  The Group maintains a clear vision to build successful businesses that bring unrivalled convenience and value to customers' everyday lives whether shopping at home or on the move.  The acquisition of Habitat brings a strong design heritage to the Group's portfolio.  Other mitigating activities include: ·      Monthly review of performance against strategic targets ·      Comprehensive strategic debates with non-executive directors and advisers ·      Communication with stakeholders; investors, colleagues, suppliers, government etc.
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 training schemes and the graduate recruitment programme maintain the succession pool and actively encourage promotion from within.  Additionally, in order to continue to improve our business and take advantage of opportunities, our existing capabilities are continually reviewed and strengthened if needed.  We are committed to open communications with colleagues at all times and monitor employee satisfaction through listening groups and employee forums. Other mitigating activities include: ·      Competitive remuneration packages, with oversight by the Remuneration Committee ·      Twice-yearly comprehensive succession planning sessions, up to Operating Board level ·      Strategies for recruitment/development of talent to deliver strategic priorities ·      Regular review of pension trustee activities and plans to mitigate the fund deficit ·      Suite of development programmes for high-potential colleagues at all levels of the organisation
Operations Failure to ensure appropriate processes are in place to manage the complexity of operations, including multi-channel and customer service	Our leading multi-channel capabilities provide the foundation for growth, building on the immediacy for customers of a wide range of products, coupled with the convenience of in-store collection of on-line products through our easy to use reservation services.  The marketplace creates a dynamic retail environment that requires the Group to evolve continually its media and promotional strategies.  Product availability remains a key priority as the Group mitigates complex supply chain risks through robust processes that ensure stock is in the right place at the right time to meet customer needs.  Other mitigating activities include: ·      Continuously improving  the efficiency and effectiveness of presenting the Argos catalogue to our customers ·      Re-structure of the Argos e-commerce teams to drive further innovation and capabilities ·      Maintaining and extending Homebase's award winning installation services for kitchens, bathrooms and bedroom furniture ·      Targeted investment in customer service, through refits and colleague training
Our customers Ø Failing to meet expectations  Ø Consumer preferences Ø Changing demographics	Our team of customer insight professionals ensure that we listen and respond to our customers to enhance continually the shopping experience. The award winning 'Create Your Own Look' in Homebase is a great example of innovation which inspires customers. Mitigating actions include: ·      Engaging with all customer demographics through social media developments ·      Extended use of technology and innovations to give customers choice in how they shop with us ·      Improving customer experience through Argos re-brand activity ·      Understanding customer engagement and building on loyalty to our brands  ·      Continuous review of key customer metrics such as mystery shopping and exit interviews
Sourcing Ø Strength of supplier relationships Ø Purchase of products whose cost base of manufacture is in currencies other than sterling, principally the US dollar Ø Sale of products in currencies other than sterling, principally the euro in the Republic of Ireland	Overseas sourcing capabilities continue to be leveraged to benefit customers in these difficult economic times, further extending the popular Value ranges in both Argos and Homebase.  As with other retailers, this exposes the Group to fluctuations in freight costs.  The volatility of the global economy continues to create a risk of exposure to fluctuations in currency rates as over a third of the products ranged by Argos and Homebase are imported, with the majority sourced from Asia in US dollars.  Mitigating actions include: ·      Treasury policies to hedge currencies over appropriate time periods  ·      Forward buying of freight commitments to secure competitive rates ·      Adjustments to customer pricing to reflect movement in hedged currency rates ·      Strong supplier associations bringing innovation to everyday living (eg Smart TVs, 3D TVs and a wide range of tablets) ·      Seeking opportunities for further sourcing efficiencies
Infrastructure development/ projects Delay or failure to manage and implement major business and infrastructure projects effectively	The Group is committed to extending its multi-channel leadership and maintaining a robust infrastructure.  Strategic projects to replace or enhance key systems and infrastructure carry a degree of risk; however, we have dedicated project teams in place with strong governance frameworks to manage them.  Projects to enhance systems within our contact centres for home delivery continue and investment is being made in enhancing the in-store systems that support complex showroom activities for 'Big Ticket' within Homebase. Other mitigating activities include: ·      Detailed approval and planning process prior to project commencement ·      Board review of status/progress of major change programmes ·      Post project implementation reviews ·      Internal Audit attendance at  steering group for key projects ·      Management expertise in significant infrastructure/change programmes
Product safety Failure to manage supplier relationships and/or ensure appropriate quality checks are in place	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.  Argos and Homebase teams aim to work in conjunction with suppliers to ensure improvement opportunities are explored when failings are identified as a result of systematic checks.  Other mitigating activities include: ·      Rigorous quality/safety assessment programme for new products ·      Imported products go through pre-shipment inspections by a third party and our own quality teams in the Far East ·      Ongoing monitoring of quality/safety for goods on sale ·      Supplier relationship protocols ·      Robust risk based approach to factory auditing ·      Standard terms and conditions for all suppliers to meet required performance standards
Regulatory environment Ø Changes in UK and overseas legislation and regulation, eg consumer protection, environmental regulation Ø Changes in UK fiscal/employment policy, eg minimum wage	Good governance practices are important to the Group.  In addition to ensuring compliance with existing requirements such as data protection, we are active in monitoring potential future developments.  We also lobby, often with other retailers, to support and develop the industry and the interests of consumers.  In the last year we have launched our anti-bribery policy following the introduction of the UK Bribery Act.  Argos demonstrated sourcing strength in gaining accreditation from the Responsible Jewellery Council.  Supporting our existing work with the World Wildlife Fund, we are now working towards compliance with the EU Timber Regulations. Other mitigating activities include: ·      Membership of industry representative groups, including the British Retail Consortium ·      Pro-active engagement with government and regulators such as Financial Services Authority, UK Department of Business, Innovation and Skills (BIS) and Trading Standards ·      Dedicated working parties to manage operational change
Business interruption Ø Acts of terrorism 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 routinely testing our business continuity plans. The transfer of the Group's data centre to a secure facility was completed during the year.  The Group remains vigilant to supplier vulnerability and continues to work towards a sustainable outcome for all parties.  The additional risks of the UK hosting the 2012 Olympic and Paralympic Games have been assessed and contingency plans enhanced as appropriate.  Other mitigating activities include: ·      Business continuity and recovery planning ·      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 Company and Group for that

period.

In preparing the Group 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 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 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 page 32 the Annual Report and

Financial Statements 2012, 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 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

Secretary

1 June 2012

 

END

 

 

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