Annual Report and Accounts - Hemscott IR

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Statement of Principal Risks and Uncertainties FOR THE YEAR ENDED 31 DECEMBER 2012 A number of factors affect the operating results, financial condition and prospects of each of the businesses in the Travis Perkins Group. This section describes the risk factors that are considered by the Directors to be material, their potential impacts and the factors that mitigate them. However, these should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties. Additional risks and uncertainties that are not presently known to the Directors, or which they currently deem immaterial, may also have an adverse effect on the Group’s operating results, financial condition or prospects. RISK DESCRIPTION Market conditions The Group’s products are sold to tradesmen and retail customers for a broad range of end uses in the built environment. The performance of the market is affected by general economic conditions and a number of specific drivers of construction and DIY activity, including housing transactions, net disposable income, house price inflation, consumer confidence, interest rates and unemployment. IMPACT DIRECTION Adverse effect on financial results. RISK MITIGATION The Board conducts an annual review of strategy, which includes an assessment of likely competitor activity, market forecasts and possible future trends in products, channels of distribution and customer behaviour. The Group maintains a comprehensive tracking system for lead indicators that influence the market for the consumption of building materials in the UK. Significant events including those in the supply chain that may affect the Group are monitored by the Executive Committee and reported to the Board monthly by the Group Chief Executive. Competitive pressures Market trends, particularly in respect of customers’ preferences for purchasing materials through a range of supply channels and not just through our traditional competitors may affect the Group’s performance so making traditional branch based operations less relevant. Public sector buying groups could reduce sales if public bodies chose to buy direct from the manufacturers. Disintermediation may become more of a threat if manufacturers decide to deal directly with the end user. Adverse effect on financial results. Changes to market practice are tracked on an on-going basis and reported to the Board each month. We are building our multi-channel capabilities so they compliment our existing operations and provide our customers with the opportunity to transact with the group as they wish. The Group is leading the industry in terms of the development of new and innovative supply solutions, and works closely with customers and suppliers on a programme of continuous improvement of current models. We continue to refine our pricing strategies to ensure we retain our competitiveness. The Group’s branding strategy allows it to use sites flexibly. Alternative space utilisation models are possible, including maintaining smaller stores and implanting additional services into existing branches. Information technology The operations of the Group depend on a wide range of complex IT systems operating efficiently and effectively. The rapid expansion of the Group together with an increasing demand for IT services, particularly as we embrace modern and future platforms such as multi-channel, could result in development programmes being delayed. Increasing levels of cyber crime represent a significant threat with the potential to cause loss of system availability or financial loss. Adverse effect on financial results. Adverse effect on the Company’s reputation. The strategic demands of the business, resources available to IT, performance levels of key systems and IT security are kept under review by the Executive Committee. Maintenance is undertaken on an on-going basis to ensure the resilience of group systems, with escalation procedures operating to ensure any performance issues are resolved at an early stage. Our three data centres mirror each other with data processing switched from one to the other on a regular basis. An IT disaster recovery plan exists and is tested regularly together with the business continuity plan with arrangements in place for alternative data sites for both trade and consumer businesses. Off-site back-up routines are in place. 44
T R A V I S P E R K I N S A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 2 RISK DESCRIPTION Colleague recruitment, retention and succession IMPACT DIRECTION RISK MITIGATION Many colleagues have worked for the Group for some considerable time during which they have gained valuable knowledge and expertise. The ability to recruit, retain and motivate suitably qualified staff is an important driver of the Group’s overall performance. Ensuring succession for key positions throughout the Group is important if it is to continue to be successful in the future. Avoiding ‘recession fatigue’ amongst our key management layers and ensuring a continuous flow of innovation in the Group. Supplier dependency and direct sourcing The Group is the largest customer of many of its suppliers. In some cases, those suppliers are large enough to cause significant difficulties to the Group if they become unable to meet their supply obligations. Alternative sourcing is available, but the volumes required and the time it may take those suppliers to increase production could result in significant stock-outs for some considerable time. We have rapidly expanded our direct sourcing capabilities, which has increased the Group’s reliance on overseas factories producing product. This increases the Group’s exposure to sourcing, quality, trading, warranty and currency issues. Potential for European anti-dumping legislation to be extended to cover further Asian countries so increasing the cost of some imported products. Inability to develop and execute our development plans. Competitive disadvantage. Adverse effect on financial results. Adverse effect on the Company’s reputation. The Group Human Resources Director monitors staff engagement and turnover by job type and reports to the Executive Committee regularly and to the Board annually. Succession plans are established for the most senior positions within the Group and these are reviewed annually. Our reward and recognition systems are actively managed to ensure high levels of employee engagement. A wide-range of training programmes are in place to encourage staff development, whilst management development programmes are used to assist those identified for more senior positions. Salaries and other benefits are benchmarked annually to ensure that the Group remains competitive. The commercial and financial teams monitor the financial position of the Group’s key suppliers. Where possible, contracts exist with more than one supplier for key products. The Group has made a significant investment in a new Far East infrastructure to support its direct sourcing operation. Comprehensive checks are undertaken on the factories producing product, the quality and suitability of that product before it is shipped to the UK. REPORTS Defined benefit pension scheme funding The Group is required by law to maintain a minimum funding level in relation to its on-going obligations to provide current and future pensions for members of its pension schemes who are entitled to defined benefits. Some issues could adversely affect the funding of these obligations including poor performance of the pension fund investments and increasing longevity of pension scheme members. The level of contributions required from the Group to meet the benefits promised in the final salary schemes will vary depending upon the funding position of those schemes. Adverse effect on financial condition. All of the Group’s final salary pension schemes are closed to new members. For the Travis Perkins scheme, pensionable salary inflation has been capped at 3% per annum. The scheme’s investment policy is kept under regular review to ensure asset profiles are kept in line with the profile of liabilities. 45
Page 1 and 2: TRAVIS PERKINS PLC Travis Perkins T
Page 3 and 4: T R A V I S P E R K I N S A N N U A
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Page 20 and 21: Chairman’s Statement FOR THE YEAR
Page 22 and 23: Chief Executive’s Review of the Y
Page 24 and 25: C H I E F E X E C U T I V E ’ S R
Page 30 and 31: Post year end acquisition We expect
Page 32 and 33: Deputy Chief Executive’s Review o
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Page 42 and 43: F I N A N C E D I R E C T O R ’ S
Page 44 and 45: F I N A N C E D I R E C T O R ’ S
Page 48 and 49: Environmental Report FOR THE YEAR E
Page 50 and 51: E N V I R O N M E N T A L R E P O R
Page 52 and 53: Health and Safety Report FOR THE YE
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Page 56 and 57: Directors Robert Walker Geoff Coope
Page 58 and 59: Corporate Responsibility Statement
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Page 82 and 83: Statement of Directors’ Responsib
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Page 86 and 87: Balance Sheets As at 31 December 20
Page 88 and 89: Consolidated Statement of Changes i
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NOTES TO THE FINANCIAL STATEMENTS 4
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Five Year Record Consolidated incom
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Notice of Annual General Meeting No
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Notes to the Notice of Annual Gener
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Directions to the Annual General Me
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Other Shareholder Information recei
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140 Shareholder Notes
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TRAVIS PERKINS PLC Travis Perkins p
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Annual Report and Accounts - Hemscott IR

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