11 Jul 2018 09:05
11 July 2018
ANNUAL REPORT AND NOTICE OF ANNUAL GENERAL MEETING
Dixons Carphone plc (the 'Company') has today published its Annual Report and Accounts 2017/18 and Notice of Annual General Meeting 2018. 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 2018, they have been posted or otherwise made available to shareholders and have also, in compliance with Listing Rule 9.6.1, been 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 2018 will be held at 11.00am on Thursday 6 September 2018 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 2017/18 and is reproduced here solely for the purposes of complying with the requirements of Disclosure Guidance and Transparency Rule ('DTR') 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 21 June 2018 and is available on the Company's website at http://www.dixonscarphone.com/~/media/Files/D/Dixons-Carphone/documents/2017-18-preliminary-results-pr.pdf.
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 2017/18. Defined terms used in the Appendix refer to terms as defined in the Annual Report and Accounts 2017/18. Page numbers and cross references in the Appendix refer to pages and sections of the Annual Report and Accounts 2017/18.
Appendix
A. Principal risks to achieving the Group's objectives (pages 15 to 18)
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 45 to 47. The risks are linked to the strategy and KPIs as outlined on pages 8 and 9. The principal risks and uncertainties, together with their potential impacts and changes in net risk since the last report, are set out in the tables below along with an illustration of what is being done to mitigate them.
Risks and potential impacts
Dependence on networks
Risk owner: Managing Director, Carphone Warehouse
Risk category: Strategic
What is the risk?
Failure to identify and respond effectively to shifting market dynamics, such as network and hardware disintermediation, multiplay and regulatory change
What is the impact?
· Reduced revenue and profitability
· Deteriorating cash flow
· Reduced market share
How we manage it
Commercial agreements with all the major MNOs, designed to align interests and drive value for both parties. The agreements with the MNOs are reviewed and updated regularly to ensure they remain sustainable
Changes since last report
This risk has increased over 2017/18 due to the need to stabilise our performance in mobile
Dependence on key suppliers
Risk owner: Chief Commercial Officer
Risk category: Strategic
What is the risk?
The Group is dependent on relationships with key suppliers to source products on which availability may be limited
What is the impact?
· Reduced revenue and profitability
· Deteriorating cash flow
· Reduced market share
How we manage it
Continuing to leverage the scale of operations to strengthen relationships with key suppliers and maintain a good supply of scarce products
Changes since last report
This risk has remained stable over 2017/18
Impact of Brexit
Risk owner: Group Chief Executive
Risk category: Strategic
What is the risk?
Economic uncertainty and impact on consumer confidence caused by the decision of the UK to leave the European Union ('Brexit').
Longer term changes in regulation and other frameworks that may impact our ability to operate across our European businesses
What is the impact?
· Reduced revenue and profitability
· Deteriorating cash flow
· Reduced market share
How we manage it
· Strategic and business planning
· Long-term credit facilities in place
· Foreign exchange hedging to mitigate impact of currency fluctuation
· Contingency planning to address wider regulatory and legislative changes
Changes since last report
Given the potential for a transition period, the risk has decreased in its immediacy
Greek business
Risk owner: Managing Director, Kotsovolos
Risk category: Strategic
What is the risk?
Economic uncertainty and / or possibility of Greece's exit 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
What is the impact?
· Reduced revenue and profitability
· Deteriorating cash flow
How we manage it
· Ongoing monitoring of local political and economic developments
· Focus on optimising business performance and management of costs
· Operation of controls over supplier funding and consumer credit arrangements to reduce risk exposure
Changes since last report
This risk has remained unchanged over 2017/18
Consumer environment and business model
Risk owner: Group Chief Executive
Risk category: Strategic
What is the risk?
Failure to respond with a business model that enables the business to compete against a broad range of competitors on service, price and / or product range.
Failure to respond effectively to changes in the industry, economic and / or competitor landscape.
Failure to respond to changes in consumer preferences and behaviours
What is the impact?
· Reduced revenue and profitability
· Deteriorating cash flow
· Reduced market share
How we manage it
· Focus on the core business and on fewer, bigger initiatives
· Stabilise our performance in mobile through improvements to our proposition and network agreements
· Investments in both our customer and colleague propositions
· Continued focus on driving cost improvements through cost-efficiency initiatives and review of store estate
· Differentiation from competitors through strategic partner relationships, innovative propositions, and high quality customer service
Changes since last report
This risk has increased in 2017/18 given changes to customer behaviours in the mobile sector
Non-compliance with Financial Conduct Authority ('FCA') and other financial services regulation
Risk owner: General Counsel and Company Secretary
Risk category: Regulatory
What is the risk?
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.
The business also operates under financial services regulations in the Republic of Ireland
What is the impact?
· Reputational damage
· Financial penalties
· Reduced revenues and profitability
· Deteriorating cash flow
· Customer compensation
How we manage it
· Board oversight and risk management structures actively monitor compliance and ensure that the Company's culture puts customer outcomes first
· Approved Persons perform oversight, monitoring of compliance, adherence to policy and monitoring of any required 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
· Continuous review of the operation and effectiveness of compliance standards and controls, with the development of control improvement plans where required
· Training programmes for colleagues implemented across the retail estate
Changes since last report
This risk has remained stable over 2017/18
Data Protection
Risk owner: Data Protection Officer
Risk category: Regulatory
What is the risk?
Adequacy of internal systems, policy, procedures and processes to comply with the requirements of EU General Data Protection Regulation ('GDPR') which came into effect in May 2018.
Major loss of customer, colleague, or business sensitive data
What is the impact?
· Reputational damage
· Financial penalties
· Reduced revenue and profitability
· Deteriorating cash flow
· Loss of competitive advantage
How we manage it
· A comprehensive GDPR programme has been executed to put in place appropriate policy, procedures and processes to comply with requirements of GDPR
· Control activities operate over management of customer and employee data in accordance with the Group's data protection policy and processes
· Training programmes for colleagues on requirements for data protection
· Investment in information security safeguards and IT security controls and monitoring
Changes since last report
The risk has increased over 2017/18 with GDPR having come into effect and an increasing external threat environment
Information security
Risk owner: Chief Information Security Officer
Risk category: Operational
What is the risk?
Vulnerability to attack, malware, and associated cyber risks
What is the impact?
· Reputational damage
· Financial penalties
· Reduced revenue and profitability
· Deteriorating cash flow
· Loss of competitive advantage
How we manage it
· Investment in information security safeguards, IT security controls, monitoring, in-house expertise and resources as part of a managed information security improvement plan
· Information Security and Data Protection Committee comprising senior management, set up with responsibility for oversight, co-ordination and monitoring of information security policy and risk
· Information security policy and standards defined and communicated
· Training and awareness programmes for employees
· Audit programme over key suppliers' information security standards
· Ongoing programme of penetration testing
Changes since last report
Our overall information security risk position has increased in 2017/18 as a result of a background of an increasing external threat environment
Health and Safety
Risk owner: Group Property Director
Risk category: Operational
What is the risk?
Failure to effectively protect customers and / or colleagues and / or contractors from injury or loss of life
What is the impact?
· Employee / customer injury or loss of life
· Reputational damage
· Financial penalties
· Legal action
How we manage it
· Group Health and Safety strategy
· Group Health and Safety policy
· Health and Safety management / governance committee
· Comprehensive set of policies and standards supporting continued improvement
· Operational Health and Safety teams located across business units
· 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
Changes since last report
This risk has decreased in 2017/18 as a result of continuing action to improve our Health and Safety processes
Business Continuity
Risk owner: Group Chief Executive
Risk category: Operational
What is the risk?
A major incident impacts the Group's ability to trade and business continuity plans are not effective, resulting in an inadequate incident response
What is the impact?
· Reduced revenue and profitability
· Deteriorating cash flow
· Reputational damage
· Loss of competitive advantage
How we manage it
· 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
Changes since last report
This risk has remained stable over 2017/18
IT systems and infrastructure
Risk owner: Chief Information Officer
Risk category: Technology
What is the risk?
Failure to appropriately invest 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
What is the impact?
· Reduced revenue and profitability
· Deteriorating cash flow
· Loss of competitive advantage
· Restricted growth and adaptability
· Reputational damage
How we manage it
· Significant investment being made in IT systems and infrastructure across the Group, supported by rigorous testing processes
· Ongoing 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
Changes since last report
This risk has remained stable over 2017/18
Colleague retention and capability
Risk owner: Group HR Director
Risk category: People
What is the risk?
Failure to attract, develop and retain quality and depth of necessary leadership, management and colleague talent
What is the impact?
· Reputational damage
· Reduced revenue and profitability
· Deteriorating cash flow
· Loss of competitive advantage
How we manage it
· Ongoing review to ensure appropriate and effective roles, responsibilities, and accountabilities
· Defined and standardised performance management frameworks in place and reward aligned to attract and retain talent
· Long term incentive programme in place for senior management
· Development of appropriate Board succession planning, as set out in the Nominations Committee Report on pages 60 and 62
Changes since last report
This risk has remained stable over 2017/18
Major fraud
Risk owner: Group Chief Financial Officer
Risk category: Financial
What is the risk?
· 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
What is the impact?
· Reduced revenue and profitability
· Reputational damage
How we manage it
· 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
· Whistleblowing arrangements and procedures
Changes since last report
This risk has remained stable over 2017/18
Tax liabilities
Risk owner: Group Chief Financial Officer
Risk category: Financial
What is the risk?
Crystallisation of potential tax exposures resulting from legacy corporate transactions, employee and sales taxes arising from periodic tax audits and investigations across the various jurisdictions in which the Group operates
What is the impact?
· Financial penalties
· Reduced cash flow
· Reputational damage
How we manage it
· Board and internal committee oversight that actively monitors tax strategy implementation
· Appropriate engagement of third-party specialists to provide independent advice where deemed appropriate
Changes since last report
This risk was added to the Group risk profile in 2017/18 as disclosed in the 13 December 2017 interim statement
B. Responsibility Statement (page 92)
We* confirm that to the best of our 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
Alex Baldock, Group Chief Executive
Humphrey Singer, Group Finance Director
20 June 2018
* The directors of Dixons Carphone plc as at 20 June 2018 are listed on pages 36 and 37 of the Annual Report and Accounts 2017/18.
ENDS
For further information:
Nigel Paterson Company Secretary and General Counsel +44 (0)7843 634 505
Assad Malic IR, PR and Corporate Affairs Director +44 (0)7414 191 044