Posting of annual report and Notice of AGM
31 May 2016
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 2016 (the 'Annual Report')
· the notice of annual general meeting 2016
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 2016 annual general meeting at the Holiday Inn, 500 Saxon Gate West, Milton Keynes, MK9 2HQ on 29 June 2016 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 27 April 2016 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
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RISKS & UNCERTAINTIES |
EXAMPLES OF MITIGATING ACTIVITIES
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Business strategy Impact on shareholder value
• Inappropriate strategies • Poor investment decisions • Inadequate execution
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Our strategic report on pages 5 and 6 details how Argos continues to progress towards retail digital leadership whilst maintaining its heritage and mass-market appeal by evolving the role of the traditional catalogue. Balancing the investment in Argos' Transformation and delivering shareholder value is of paramount importance to the Board.
Strategic issues, including risks and opportunities, are discussed at every Board meeting. All material investments are evaluated and monitored at both the Group Executive Board and the 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.
We strive to effectively communicate with key stakeholders such as investors, colleagues and suppliers.
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Trading environment Impact on sales, gross margins, costs, profit and cash of:
• Economic and market conditions • Cost of products/ services/ utilities • Competitor activity • Seasonality and/or weather • UK-centric store network
The Argos business review (pages 12 to 15) summarises trading performance.
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We operate in a highly competitive and diverse marketplace which demands both strategic and tactical risk management approaches. Commercial advantage is gained through breadth and depth of product ranges however this also attracts a broad set of competitors all with different dynamics.
The universal customer appeal strategy (page 14) within Argos aims to broaden customer appeal. Furthermore, price tracking versus our competition and dynamic pricing aims to ensure that 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 in Argos are supported by our in-house Financial Services business, providing the option to promote on price and/or credit.
Cash generation is a key management objective (see remuneration scheme metrics on pages 41 to 52) and we maintain good relationships with our banks and credit insurers.
We have a well-established operational improvement programme which constantly reviews and challenges the Group's cost base to maintain our low-cost operating model.
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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
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The Group's strategy is outlined on pages 5 and 6. Our governance framework is instrumental in ensuring the delivery of all aspects of the strategic plan.
Detailed planning, including review of any pilot learnings occurs prior to any subsequent roll-out. The Group Executive Board and the Board receive 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.
Argos is investing in the recruitment of digital engineers and specialists to deliver the transformation agenda. Our in-house colleagues work alongside leading technology partners to enhance innovation and build the knowledge infrastructure for a sustainable digital future in addition to managing the day-to-day IT operations.
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Our colleagues Impact on service quality, innovation and costs
• Reliance on key personnel • Availability of specialist skills • Pension obligations
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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.
We regularly review remuneration, benefits and employment policies to ensure we are able to retain and attract talented individuals.
In line with our strategy, colleagues continue to invest time in digital up-skilling which is also an enabler for workplace flexibility.
We are committed to open communications with colleagues at all times and monitor employee satisfaction through listening groups and employee forums.
A defined contribution pension scheme is 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 obligations as efficiently as possible.
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Our customers Impact on sales, profit and growth potential
• Failing to meet customers' existing and future expectations • Consumer preferences • Changing demographics and behaviours
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Understanding our customers is essential to the success of our strategy. We are investing to better understand our different customers so as to provide insight to enable us to improve our customer offering and Argos has introduced the Net Promoter Score (NPS) as a measure of customer satisfaction. This measure has been included in the FY17 broadband bonus scheme (see remuneration scheme metrics on page 45). We continuously engage with our customers, increasingly via social media, to gather feedback.
The launch of Argos Fast Track Delivery and Fast Track Collection, plus the expansion of our eBay partnership demonstrate how we are responding to the increasing needs of customers by providing convenience options for greater choice in how they shop.
The Group supports the Government's 'Go ON UK' initiative, which aims to improve digital inclusion across society.
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Operations Impact on costs and proposition delivery of a failure to ensure appropriate processes are in place to manage the complexity of operations, including supply chain, multi-channel and customer service
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Argos' significant change agenda puts pressure on day-to-day operations. Retaining our core competencies for competitive advantage is being achieved through executive oversight and cross-functional working parties. Product availability remains a key priority. We mitigate complex supply chain risks through robust processes and new initiatives to enable product immediacy for customers on a wide range of products.
As we continue to invest in our digital capabilities our focus is also on the supporting infrastructure to ensure a leading edge, multi-channel proposition is maintained.
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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
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The Group has strong global sourcing capabilities and established buying operations in Asia and seeks further opportunities for sourcing efficiencies to control the cost of goods sold which thereby benefits customers.
The Group takes seriously the safety and quality of its products. We have a robust risk-based approach to assurance and are members of Sedex, a global audit data platform. All of our own-brand direct-source factories are audited against our ethical standards using an accredited scheme. We build successful partnership across our supply chain so that when issues are identified we can work collaboratively to drive improvements in productivity and benefit customers.
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.
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Regulatory environment Impact on costs and reputation
• Changes to/breach of UK and overseas legislation and regulation, eg consumer protection, environmental regulation • Changes in UK fiscal/ employment policy, eg National Living Wage • Changes to/breach of FCA requirements
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Good governance practices are important to the Group, demonstrated through membership of industry representation groups, including the British Retail Consortium and ongoing engagement with regulatory bodies such as the Financial Conduct Authority (FCA).
We have specialists that ensure robust controls are in place to manage risks such as consumer law, health and safety, advertising standards, data protection and cyber security. We have also complied with the requirements of the National Living Wage legislation and we maintain compliance with other existing regulations and also monitor future developments through pro-active engagement with government and regulators.
As a leading retailer, the Group encourages diversity and equality.
Our financial services products are regulated by the FCA and through our retail credit accreditation the Group has made significant progress during the year in developing the robust mechanisms which are in place to manage all risks, including the approval of new products and its conduct towards customers, ensuring fair customer outcomes.
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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 • Delay or interruption in products or services provided by third-party suppliers
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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 establishing remote IT disaster recovery capabilities. The Argos website is a critical asset which is continuously monitored to maintain availability supported by incident management.
Cyber security is of paramount importance to Argos given the volume of customer data that is handled on a daily basis. Specialist teams identify threats and potential vulnerabilities and deploy a variety of controls on a continuous and risk-based approach to mitigate the risks.
The Group has robust contractual arrangements and comprehensive supplier management, particularly for key service partners. We actively monitor the supply base to identify exposures and identify suitable contingency solutions, working towards a sustainable outcome for all parties when issues arise.
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Transactional risks arising from the disposal of Homebase
• Complex separation • Smaller and less diverse Retained Group • Increased costs
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The process of separating Homebase from the Group is complex, involving the separation of significant business systems and operations. We entered into a Transitional Services Agreement which identifies how services will be provided during the transition period.
The disposal of Homebase necessitates a significant cost reduction programme for the Retained Group. There is a risk that this cost reduction program takes longer than anticipated, which would have an adverse impact on profit. We have already commenced this exercise and have a detailed plan to achieve the required savings in an appropriate period of time.
The reduction in size and diversification of the Group may increase the challenge of attracting and retaining talented colleagues.
The purchasing power of the Group may be reduced going forward. Although we have robust commercial relationships which we will leverage, the disposal of Homebase could prompt suppliers to seek to renegotiate supply arrangements.
Our exposure to seasonality risk has increased with the disposal of Homebase. Argos sales are highest in the Christmas trading period, whilst Homebase was typically strongest in the summer trading period as a result of external DIY and garden categories. The Group will no longer fully benefit from this seasonal diversification.
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Risks arising from the proposed purchase of the Retained Group by J Sainsbury plc
• Complex transaction • Increased costs
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The proposed purchase of the Retained Group by J Sainsbury plc will be complex and will create uncertainty which could increase the challenge of attracting and retaining talented colleagues, lead to an increase in costs, increase the difficulty of providing services to customers or disrupt relationships with suppliers.
There could also be a risk of lower levels of focus on delivering the Group's strategy in the period up to the possible transaction. |
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 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 Group Audit and Risk Committee, the directors consider that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
Each of the directors, whose names and functions are listed in the Board of Directors section on page 30 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
This information is provided by RNS
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