20 Jul 2016 09:00
20 July 2016
ANNUAL REPORT AND NOTICE OF ANNUAL GENERAL MEETING
Dixons Carphone plc (the 'Company') has today published its Annual Report and Accounts 2015/16 and Notice of Annual General Meeting 2016. These documents are available to view on the Company's website at www.dixonscarphone.com/investors. In addition, along with the Form of Proxy for the Annual General Meeting 2016, they have been posted or otherwise made available to shareholders and also submitted to the National Storage Mechanism, where they will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM.
The Company's Annual General Meeting 2016 will be held at 11.00am on Thursday 8 September 2016 at Hilton London Kensington Hotel, 179-199 Holland Park Avenue, London W11 4UL.
The information included in the Appendix to this announcement has been extracted from the Annual Report and Accounts 2015/16 and is reproduced here solely for the purposes of complying with the requirements of Disclosure and Transparency Rule 6.3.5 in respect of how to make annual financial reports available to the public.
The content of this announcement, including the Appendix, should be read in conjunction with the Company's Preliminary Results announcement, which was released on 29 June 2016 and is available on the Company's website at https://www.dixonscarphone.com/media-centre/press-releases/201516-preliminary-results-and-strategy-update.
Together, these announcements constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full Annual Report and Accounts 2015/16. Defined terms used in the Appendix refer to terms as defined in the Annual Report and Accounts 2015/16. Page numbers and cross references in the Appendix refer to pages and sections of the Annual Report and Accounts 2015/16.
Appendix
A. Principal risks to achieving the Group's objectives (pages 20 to 23)
The Group recognises that taking risks is an inherent part of doing business and that competitive advantage can be gained through effectively managing risk. The Group continues to develop robust risk management processes, integrating risk management into business decision-making. The Group's approach to risk management is set out in the Corporate Governance Report on pages 44 to 46. The principal risks and uncertainties, together with their potential impacts, are set out in the tables below along with an illustration of what is being done to mitigate them.
Specific risks and potential impacts - Example mitigating actions and related strategic priorities
Principal risk
1. Dependence on networks and key suppliers
Specific risks
· The Group is dependent on relationships with key suppliers to source products on which availability may be limited
· Changes in MNO strategies in relation to the Group, or more generally, and / or their performance, could materially affect the revenues and profits of the business
· Mergers between the MNOs could lead to a change in their strategies and relationships with the Group
Potential impacts
· Reduced revenue and profitability
· Deteriorating cash flow
· Reduced market share
Example mitigating actions
· Multi-year commercial agreements are in place with all the major MNOs, which closely align interests and drive value for both parties
· Continuing to leverage the scale of operations to strengthen relationships with key suppliers and maintain a good supply of scarce products
Change in risk in 2015/16
< >
This risk has remained stable over 2015/16
Principal risk
2. Consumer environment and sustainable business model
Specific risks
· Failure to respond with a business model that enables the business to compete against a broad range of competitors on service, price and / or range in a changing economy
· Failure to respond effectively to changes in the industry, economic and / or competitor landscape
· Failure to accommodate changes in consumer preferences and behaviours
Potential impacts
· Reduced revenue and profitability
· Deteriorating cash flow
· Reduced market share
Example mitigating actions
· Strategic and business planning takes into account varying economic scenarios, with ongoing monitoring by finance and senior executives
· Close scrutiny of product performance, trading results, competitor activity and market share
· Use of customer insight / advocacy to monitor success of initiatives and actions
· Continued focus on driving cost improvements through cost-efficiency initiatives
· Ongoing evolution of our multi-channel proposition
· Differentiation from competitors through strategic partner relationships, innovative propositions, and high quality customer service
· Working to leverage expertise and scale to build partnerships with other retailers and businesses through Connected World Services
· Development of consumer services
Change in risk in 2015/16
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This risk is unchanged as the nature and challenges in our business environment are consistent with the prior year
Principal risk
3. Greek exit from the Euro
Specific risks
· Possible exit of Greece from the Euro ('Grexit') could lead to a deterioration in consumer confidence and disposable income resulting in a significant impact on our Greek business, Kotsovolos
Potential impacts
· Reduced revenue and profitability
· Deteriorating cash flow
Example mitigating actions
· A number of exit scenarios have been modelled in order to understand and mitigate the potential impact on the Group's business
· Review of local funding arrangements including factoring of debtor receivables
· Reduction in credit risk exposure by tightening control over customer credit arrangements
Change in risk in 2015/16
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The threat of imminent Grexit has been averted. Political instability and economic uncertainty remain in Greece but the situation is perceived to be stabilising and our local business continues to perform well. This risk has decreased in likelihood but will remain on our risk register under a watching brief
Principal risk
4. IT systems and infrastructure
Specific risks
· Failure to invest adequately and appropriately in IT systems and infrastructure, or an inability to effectively integrate IT assets across the Group constrains the Group's ability to grow and / or adapt quickly
· A key system becomes unavailable for a period of time
Potential impacts
· Reduced revenue and profitability
· Deteriorating cash flow
· Loss of competitive advantage
· Restricted growth and adaptability
· Reputational damage
Example mitigating actions
· Significant investment being made in IT systems and infrastructure across the Group, supported by rigorous testing processes
· Post-merger IT transformation to align IT infrastructure to future needs of the business
· Individual system recovery plans in place in the event of failure which are tested regularly, with full recovery infrastructure available for critical systems
· Long-term partnerships with 'tier 1' application and infrastructure providers established
Change in risk in 2015/16
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This risk has remained stable over 2015/16
Principal risk
5. Information security
Specific risks
· Major loss of customer, colleague, or business sensitive data
· Vulnerability to attack, malware, and associated cyber risks owing to under-investment in people, systems, and safeguarding processes
Potential impacts
· Reputational damage
· Financial penalties
· Reduced revenue and profitability
· Deteriorating cash flow
· Loss of competitive advantage
Example mitigating actions
· Implementation of a UK&I Information Security Improvement Plan
· Investment in information security safeguards, IT security controls, monitoring, in-house expertise and resources
· Committee comprising senior management in UK&I, set up with responsibility for oversight, co-ordination and monitoring of information security policy and risk
· Recruitment of a Chief Information Security Officer
· Ongoing training and awareness programmes for employees
· Ongoing programme of penetration testing
Change in risk in 2015/16
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Our overall information security position has been hardened in response to increases in external threats. We continue to undertake significant management effort and investment to reduce this risk exposure
Principal risk
6. Financial Conduct Authority ('FCA') regulation
Specific risks
· Failure to manage the business of the Group in compliance with FCA regulation to which the Group is subject in a number of areas including the mobile insurance operations of The Carphone Warehouse Limited and the consumer credit activities of DSG Retail Limited
Potential impacts
· Reputational damage
· Financial penalties
· Reduced revenues and profitability
· Deteriorating cash flow
· Customer compensation
Example mitigating actions
· Board oversight and risk management structures actively monitor compliance
· Senior management perform oversight, co-ordination and monitoring of governance, ensuring regulatory compliance and adherence to policy and monitoring of mitigating actions
· Internal committees, including a dedicated FCA compliance committee, and control structures to ensure appropriate compliance (e.g. undertaking quality assurance procedures for samples of mobile phone sales) and to react swiftly should issues arise
· Ongoing investment in the compliance team
· Continuous review of the operation and effectiveness of compliance standards and controls with the development of control improvement plans where required
· New training programmes for colleagues implemented across the retail estate
Change in risk in 2015/16
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This risk has increased over 2015/16 due to the expansion of the FCA's regulatory regime into consumer credit and a general increase in regulatory focus across our operations
Principal risk
7. Colleague retention and capability
Specific risks
· The organisational structure and related accountabilities restrict the ability to run the business effectively and adapt to market change
· Failure to attract, develop and retain quality and depth of necessary leadership and management talent
· Maturing of long term incentive schemes may increase risk of higher turnover in senior management population
Potential impacts
· Reputational damage
· Reduced revenue and profitability
· Deteriorating cash flow
· Loss of competitive advantage
Example mitigating actions
· Ongoing review to ensure appropriate and effective roles, responsibilities, and accountabilities
· Defined and standardised performance management frameworks in place, with talent and succession plans maintained and reward aligned to attract and retain the best talent
· Store structures which provide a clear career path for colleagues, retaining and developing the best retail talent
· Bonus plans which include components relating to both business and personal performance
· Continued improvements in the quality of training courses and development programmes with specialist focus on core business areas
· Development of appropriate succession planning, as set out in the Nominations Committee Report on pages 55 to 56
Change in risk in 2015/16
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This risk has remained stable over 2015/16
Principal risk
8. Business continuity plans are not effective and major incident response is inadequate
Specific risks
· A major incident impacts the Group's ability to trade and business continuity plans are not effective resulting in an inadequate incident response
Potential impacts
· Reduced revenue and profitability
· Deteriorating cash flow
· Reputational damage
· Loss of competitive advantage
Example mitigating actions
· Business continuity and crisis management plans in place and tested for key business locations
· Disaster recovery plans in place and tested for key IT systems and data centres
· Crisis team appointed to manage response to significant events
· Major risks insured
Change in risk in 2015/16
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This risk has remained stable over 2015/16
Principal risk
9. Fraud
Specific risks
· Payment card fraud
· Manipulation or misuse of Electronic Point of Sale system and / or other payment systems
· Customer false identity and other 'no intention to pay' frauds in taking out network contracts
Potential impacts
· Reduced revenue and profitability
· Reputational damage
Example mitigating actions
· Fraud prevention and detection controls
· Real-time transaction monitoring
· 24/7 fraud and loss prevention teams
· Customer identity verification and credit checks for network contracts
· Liaison with banks, card providers and MNOs to identify and mitigate opportunities for fraud
· Reporting and oversight by the Audit Committee
· Whistle-blowing arrangements
Change in risk in 2015/16
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This risk has remained stable over 2015/16
Principal risk
10. Health and safety
Specific risks
· Failure to effectively protect customers and / or colleagues from injury or loss of life
Potential impacts
· Employee / customer injury or loss of life
· Reputational damage
· Financial penalties
Example mitigating actions
· Single Group health and safety policy
· Health and safety manager and team located across business units and markets
· Comprehensive set of policies and standards supporting continued improvement
· Risk assessment programme covering retail, support centres, distribution and home services
· Health and safety training and development framework
· Health and safety inspection programme
· Audit programme including factory audits for own brand products and third-party supply chains
Change in risk in 2015/16
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A comprehensive internal review of health and safety processes after the Merger has resulted in a reassessment of the risk. We continue to develop and implement policies, procedures and practices to mitigate this risk
Principal risk
11. Impact of Brexit
Specific risks
· Economic uncertainty and impact on consumer confidence caused by the decision of the UK to leave the European Union ('Brexit')
· Further adverse exchange rate volatility
· Longer term changes in tax, regulation and other frameworks that may impact our ability to operate across our European businesses
Potential impacts
· Reduced revenue and profitability
· Deteriorating cash flow
Example mitigating actions
· Long-term credit facilities in place
· Foreign exchange hedging to mitigate impact of currency fluctuation
· Long-term contingency planning to address wider regulatory and legislative changes
Change in risk in 2015/16
New risk
B. Responsibility Statement (page 82)
Each of the directors, whose names and functions are set out below*, confirm to the best of their knowledge:
· the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
· the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
· the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group and the Company's performance, business model and strategy.
By Order of the Board
Sebastian James, Group Chief Executive
Humphrey Singer, Group Finance Director
28 June 2016
* Directors of the Company as at 28 June 2016
Sir Charles Dunstone, Chairman
Sebastian James, Group Chief Executive
Andrew Harrison, Deputy Chief Executive
Humphrey Singer, Group Finance Director
Katie Bickerstaffe, Chief Executive, UK & Ireland
Graham Stapleton, Chief Executive, Connected World Services
Lord Livingston of Parkhead, Deputy Chairman and Independent Non-Executive Director
Tony DeNunzio CBE, Senior Independent Director
Andrea Gisle Joosen, Independent Non-Executive Director
Tim How, Independent Non-Executive Director
Jock Lennox, Independent Non-Executive Director
Baroness Morgan of Huyton, Independent Non-Executive Director
Gerry Murphy, Independent Non-Executive Director
ENDS
For further information:
Nigel Paterson Company Secretary & General Counsel +44 (0)203 110 4411
Kate Ferry IR, PR and Corporate Affairs Director +44 (0)7748 933 206