DJ Travis Perkins: Publication of 2020 Annual Report
Travis Perkins (TPK) Travis Perkins: Publication of 2020 Annual Report 02-March-2021 / 19:55 GMT/BST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. =---------------------------------------------------------------------------------------------------------------------- Publication of the Annual Report 2020 Further to the release of its results announcement this morning, Travis Perkins plc (the "Company") announces that it has today published its Annual Report for the year ended 31 December 2020. The Company's Annual Report 2020 can be viewed on the Company's website - https://www.travisperkinsplc.co.uk/investors/results-reports-and-presentations/year/ 2021 In accordance with rule 9.6.1 of the Listing Rules, copies of the following documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/ nationalstoragemechanism - Annual Report and Accounts 2020; A condensed set of the Company's financial statements and information on important events that have occurred during the year and their impact on the financial statements were included in the Company's announcement. That information together with the information set out below which is extracted from the Annual Report constitute the requirements of Disclosure and Transparency Rule ("DTR") 6.3.5 which is to be communicated via a Regulatory Information Service in unedited full text. This announcement is not a substitute for reading the full Annual Report. Page and note references in the text below refer to page numbers in the Annual Report. To view the preliminary announcement, visit the Company's website: www.travisperkinsplc.co.uk Enquiries: Matt Worster Matt.worster@travisperkins.co.uk +44 (0) 7990 088548 Robin Miller Robin.miller@travisperkins.co.uk +44 (0) 1604 592533 STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES For the year ended 31 December 2020 In an exceptional year dominated by the global pandemic, we have demonstrated a clear understanding of the risks we face and taken a proactive approach to risk management to identify and pursue opportunities, drive better decision making and, most importantly, prioritise the safety and well-being of the Group's colleagues and customers. The pandemic has required an ongoing and agile assessment of risks, challenges and issues, adjusting to the development of Covid-19 in real time. The pandemic and its wider economic effects continue to bring uncertainty to our operations and the delivery of our strategic objectives. Even with a mass vaccination programme, this uncertainty is likely to persist. Risk management framework We operate in an industry and markets which, by their nature, are subject to a number of inherent risks. In common with most large organisations we are also subject to general commercial, political and economic risks. We are able to mitigate those risks by adopting different strategies and by maintaining a strong system of internal control which is routinely tested and assured. Our risk management framework has three pillars: * Top down - activities at the Board and Group Leadership Team levels, focused on material risks to the strategy and operations. * Bottom up - activities across the Group that capture risk perspectives that are significant at a business unit, programme or functional level. * Emerging risk - new and emerging risks are considered through the regular risk activities above, the results of assurance activities, and, at least twice a year, through a process that assesses our risk set against external benchmarks. The output from each pillar informs the process to determine our principal risks. Responsibility and oversight The Board has overall responsibility for risk management and internal controls, and for reviewing their effectiveness at least annually. The Board is supported in its assessment by the work of the Audit Committee, which regularly assesses the risk framework and the results of key assurance processes, including the work of Internal Audit, to provide assurance to the Board that risk is being effectively managed throughout the Group. Further details on risk management responsibilities and oversight are given in the Corporate Governance Report on page 79. Risk appetite The Board accepts that, in order to achieve its strategic objectives, and generate suitable returns for shareholders, it must accept, and manage, a certain level of risk. It undertakes an exercise, at least annually, to consider the nature and level of risk it is prepared to accept to deliver the strategy. Risk appetite is set across a suite of risk categories directly relevant to the Group, supported by high-level risk statements which set out the expectations for the management and control of each category of risk. The resulting assessment of risk appetite has been set to balance opportunities for growth and business development in areas of potentially higher risk and return, whilst prioritising safety and maintaining the Group's reputation, legal and regulatory compliance and the desired high levels of customer service and satisfaction. In addition to its annual review in September, earlier in the year the Board also assessed whether the level of change prompted by Covid-19 might lead it to revise its risk appetite. This review concluded that the Group's response to Covid-19 had not sought to take additional risk and that its risk appetite in related risk categories was already, and remained, one of low risk. Risk assessment and reporting Our risk management processes aim to identify and assess risks before they impact on activities, position the businesses and support functions to effectively manage those risks and leverage related opportunities. The Board has developed a risk reporting framework that ensures it has visibility of key risks, the potential impacts on the Group and how and to what extent those risks are mitigated. Our risk management activities continue to be developed to support management's assessments of threats and opportunities that could materially impact strategic delivery, performance, compliance and reputation. Whilst Covid-19 has dominated risk activities for much of 2020, there has also been a focus on developing and delivering the risk assessments required by the newly developed minimum standards that underpin our 12 material ESG focus areas. This work will continue into 2021. In addition, a plan has been developed to further embed risk assessment into key strategic and performance reviews in 2021, bringing an increased and regular focus on risk and opportunity management at key decision points. Risk assurance We operate a "three lines of defence" model to obtain assurance that major risks are adequately mitigated and controlled, as set out below. Oversight is provided by the Group Leadership Team and the Audit and Stay Safe Committees, which includes review of progress against agreed improvement actions. Regular updates on assurance activities are provided to the Board. Line of Source of assurance Nature of assurance defence Business operations & operational 1st management Direct assurance - execution of policies and procedures, training completion, management controls and monitoring, key performance indicators and self-assessments Branches & distribution centres Central functions Includes Safety, Management assurance - risk management programme, compliance and monitoring 2nd Fleet, Legal, activities, central governance processes (including the setting of policies, Finance, IT procedures and training) and HR Independent reviews Independent assurance - internal audit activities and third party audits and reviews 3rd Internal audit, that objectively assess the adequacy and effectiveness of governance, risk management and controls and support continuous improvement external audit and other third parties
Principal risks
The Board and Group Leadership Team robustly assesses the Group's principal and emerging risks at least twice a year. During 2020 the Board has considered principal risks at four meetings, including detailed assessments of the impact of Covid-19 on the risk set. The principal risks that we consider to have a potentially material impact on the Group's operations and the achievement of its strategic objectives are set out below. They are ordered by risk category rather than relative size of risk. The inherent risk (before the operation of mitigating controls) is stated for each risk together with an indication of the current trend for that risk and strategic objectives that are potentially impacted. Further detail in respect of the potential impact of these risks and the mitigating actions taken are explored on the following pages. The scope and potential impact of risks will change over time. As such the risks set out below should not be regarded as a comprehensive statement of all potential risks and uncertainties that may manifest in the future. Additional risks and uncertainties that are not presently known to us, or which are currently deemed immaterial, could also have an adverse effect on the Group's future operating results, financial condition or prospects.
Risk category Principal risks Strategic Risk trend - Risk trend - Inherent risk objective objective 2020 2019 - - Market conditions
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DJ Travis Perkins: Publication of 2020 Annual Report -2-
Pandemic NEW ABC High External AE N High Changing customer & competitor ABC ABDE - High Medium landscape - Supplier risks - - - Medium Portfolio management - Strategic Change management BCDE ACDE ABCE - High ESG NEW - High N IT systems and infrastructure AD - - High Technological Cyber threat and data security AE High - - - - People ABC Operational AE Medium Medium Health, safety & well-being Legal ABCDE - - Medium compliance - -
Key A. Best-in-class services B. Focus on trade C. Advantaged businesses D. Simplify the Group E. Financial strength
N New
- Increasing
- Decreasing
- Limited change year-on-year
Key disruptive risks that may impact the viability of a strategy or business model are also identified and managed. Whilst several principal risks, including market conditions, supplier risks and the changing customer and competitor landscape, include elements that are considered disruptive in nature, they are categorised above according to the primary driver of the risk.
Key changes in the year
The risk environment in which we operate does not remain static and the Board has made the following changes to the principal risk set in 2020:
* Covid-19 was identified as an emerging risk in the 2019 report and has been the dominant area of focus for our risk management activities throughout 2020. Pandemic risk, specifically in relation to Covid-19, is now recognised as a new principal risk due to the inherent uncertainty associated with it. A pandemic is one of the very few risks that could result in the complete shutdown of our operations. Covid-19 has the potential to amplify or accelerate the onset of certain of our other principal risks and this potential for risk interdependencies has been kept under review during 2020, alongside the additional mitigation measures implemented.
* Brexit risk assessment and contingency planning remained a focus in 2020. In preparation for the end of the transition period, to offset potential disruption to the flow of goods in the event of "no deal", the business units again built targeted contingency stocks in the categories deemed most at risk, to ensure stock remained available to customers. To date, there has been little Brexit-related impact to the flow of goods although Covid-19 related disruption at certain ports has impacted us in a limited way. The Board no longer considers Brexit to be a principal risk.
Management have prepared for, and will continue to implement, the required changes to customs procedures, product standards and the recruitment of EU citizens, which remain the more significant areas of Brexit impact for the Group. Where relevant, Brexit-related risks have been incorporated into our other principal risks, and the underlying "bottom up" risk management processes.
* ESG is an area of increasing importance, as we recognise our impact and potential influence on the environment, the construction industry and wider society. We are seeking to take a leading position on ESG matters, which both addresses our responsibilities and an increasing level of interest and expectations from our customers, investors and other stakeholders. Accordingly ESG matters have been added as a principal risk.
* The risks in relation to Portfolio Management and Capital Allocation have been combined.
* In relation to principal risks brought forward from 2019, the Board considers that the market conditions risk, supplier risks and the changing customer and competitor landscape risk are increasing. All other risk trends are unchanged.
Emerging risks
As part of the overall risk assessment process, and in line with the requirements of the UK Corporate Governance Code, we capture and monitor areas of uncertainty that do not currently present a significant risk but which have the potential to adversely impact the Group in the future. These emerging risks are identified from regular reviews of risk research and other publications, alongside perspectives on emerging risks collated from assessments made by the business unit and functional leadership teams and the results of assurance activities. The emerging risks considered by the Board during 2020 included sustainability and climate change matters, digital technologies and, as a result of the pandemic, the impacts of changes to working locations and ways of working.
Market conditions Impact Risk description Risk mitigation Our markets are highly fragmented and cyclical in nature and performance is affected by general economic conditions and a number of specific drivers of construction, repairs, maintenance and improvement and DIY activity. These include the Our businesses all hold #1 or #2 positions in their volume of housing transactions, driven by chosen markets. mortgage availability and affordability, house- price inflation, the timing and nature of government activity to stimulate activity, net disposable income, consumer confidence, interest We maintain a comprehensive tracking system for lead rates and unemployment levels. indicators that influence the market for the consumption of building materials in the UK. The fundamental long-term market drivers remain robust despite Covid-19 related uncertainty in The Board conducts an annual review of strategy, the short-term. Whilst a number of longer-term which includes an assessment of likely competitor themes are beginning to impact the industry, activity, market forecasts and possible future - Adverse these present us with both opportunities and trends in products, channels of distribution and effect on risks in responding to the changes: customer behaviour. financial results - Traditional ways of working in the industry - Loss of will change, driven by technology and an market share increasing move to modern methods of Significant events that may affect the Group are construction. monitored by the Group Leadership Team and reported - There is a need to address a growing to the Board monthly by the Group CEO. Should market productivity challenge in the construction conditions deteriorate then the Board has a range of sector alongside an increasing scarcity of options dependent upon the severity of the change. technical knowledge, which will hinder Historically these have included amending the industry growth if unaddressed. Group's trading stance, cost reduction, changing the - There is a drive for greater digitisation, focus or lowering capital investment and reducing which has accelerated as a result of the the dividend. pandemic. - The ability to deliver and measure social value will become fundamental to long-term success. We have established a number of partnerships to explore opportunities to work with companies involved in modern methods of construction. We must also manage the impacts of changing building standards and the UK Government's future framework for heat in buildings through the products and services that we offer. Pandemic Impact Risk description Risk mitigation The Covid-19 pandemic has significantly impacted our operations and results in 2020. It is not clear how long the pandemic will last, how much We acted quickly to respond to the challenges posed more extensive it may yet become, what impact by Covid-19 with the safety and well-being of further virus variants could have, how quickly colleagues and customers our overriding priority in
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approved vaccines will be distributed and how our continued response to the pandemic. effective they prove to be, or what further measures may be introduced by governments to mitigate the associated health, economic and societal impacts. Tiered crisis response teams were mobilised before the first UK lockdown to coordinate activity. These teams continue to monitor the situation closely, with regular oversight from the Board, and update Central UK Government, and the devolved measures, advice and communications as required. authorities in other parts of the UK, have deemed the Group to be an essential provider to ensure critical national infrastructure remains operational and homes remain warm and dry. Any Colleagues have been regularly consulted with change to this status would significantly impact throughout the pandemic and are empowered to call - Detrimental our operations and results. out unsafe practices. Several incidents in recent impact to months suggest that Covid-19 has been an influencing health and factor both in terms of the physical and mental well-being impacts to colleagues of adapting to changed ways of - Adverse The pandemic may lead to a significant and working, and as a necessary area of focus which may effect on prolonged impact for the Group in respect of: divert attention from more typical operational operations, hazards. Organisation-wide safety stand down financial - Operational disruption resulting from high briefings were run in 2020 for colleagues to reflect condition levels of colleague absence, attempts to and consider individual and collective actions that and results contain an outbreak at a Group location or can be undertaken to take responsibility for their further measures taken to contain virus own and each other's safety. Other major response peaks, whether localised or national. This measures include: could impact our ability to operate our branch and distribution network, or provide - Rapid changes to the network to enable functional support to the business, if this contactless collections and socially distanced cannot be delivered remotely. service. - Pressure on colleagues to adapt to rapidly - Enhanced hygiene routines and provision of PPE. changing circumstances, ways of working and - Supporting all colleagues able to work from home resourcing levels, which may impact their to do so, which will continue for the health and well-being. foreseeable future. - Disruption to our supply chain, which - Active, detailed management of cost and cash operates across multiple territories. In flow, including the suspension of the 2019 final addition to the proximate disruptive effects dividend, a 20% reduction in Board and Executive of the pandemic, the supply chain may also be pay for three months and the deferral of rates impacted by business closures and and VAT payments. consolidation activity. Regular communications to colleagues including a Levels of consumer confidence in an uncertain weekly pulse survey and extended well-being support. economic environment, which may adversely impact demand for our products and services. Changing customer & competitor landscape Impact Risk description Risk mitigation The evolution of customer behaviours has accelerated through the pandemic and this is expected to continue. Forced to move to more remote transactions, customers looked for digitally-enabled solutions. Whilst this drove an The Board is cognisant of the risks presented by the immediate focus on our digital transaction changing customer and competitor landscape and capabilities, the ability of these platforms to evaluates developments both in terms of threats and meet customer demand and keep pace with opportunities for the Group. Competitor activity is competitor developments will impact longer-term closely monitored, including potential consolidation growth and delivery of our strategy. activity. The process of digitisation introduces We have made significant progress in 2020 towards alternatives beyond our traditional competitors digitising key customer journeys and building tools and, through the move to more online purchasing, that complement our existing operations and enable there is increasing price transparency. This puts customers to transact with us through channels that pressure on the margin that can be achieved on best suit their needs. Initially focused on the distributed products in some instances. General Merchant business, these tools build on the existing high levels of digital engagement enjoyed by the Wickes and Toolstation businesses. The balance of delivered sales has moved - Adverse significantly during the pandemic and our ability effect on to develop this area and provide innovative High quality fulfilment of customer orders remains financial fulfilment solutions will be a key the main service differentiator across Trade results differentiator. Customers also increasingly value businesses. This is an area of ongoing focus for us - Loss of the ability to procure services that complement and will combine with the digital enablement market share their project, presenting us with both an initiatives to give better visibility and more opportunity and risk to meet that expectation. choice to customers. The Group appointed a Fulfilment Director in 2020 to focus these efforts. Increased focus on delivery and fulfilment may draw other new entrants into the market who We are able to use our sites flexibly to respond to operate business models which differ changes. Alternative space utilisation models are significantly from the traditional merchanting, possible, including maintaining smaller stores and retail and online formats from which we currently implanting additional services into existing operate. There is also an ongoing level of branches. The programme of restructuring announced portfolio change among our more established in June 2020 progressed our existing strategy to competitors. Both present potential threats to operate from fewer, larger branches with a greater the leading market share positions of our breadth and depth of product range. businesses. Pricing strategies across the Group are regularly These changes in the customer and competitor reviewed and refined to ensure they remain landscape, individually or in combination, may competitive. adversely impact the profitability of branch-based operations, impact pricing perceptions and, as a result, negatively impact our overall performance. Supplier risks Impact Risk description Risk mitigation Making decent returns is one of our cornerstones and drives us to treat both customers and suppliers fairly. We have established strong relationships with our key suppliers and work closely with them to We face a number of risks in relation to key agree contracts that are mutually beneficial. We supplier dependencies and relationships, overseas conduct due diligence in line with our commitment to sourcing and disintermediation, all of which responsible sourcing, and to ensure a continuous could adversely impact upon ranging and price. supply of quality materials. We are the largest customer to a number of our Where possible, contracts exist with more than one
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