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www.wolseley.com

Risk Management

Monitoring risk throughout the Group

The Board is ultimately accountable for the system of risk management at Ferguson. The Board, Audit Committee and Executive Committee review risks and controls in the context of the Group’s strategic plan and objectives. Throughout the year, information is provided directly from front line operations, via corporate functions and independent audits.

Risk analysis during the year

2016/17 risk and control assessments

Ferguson formally reviews its principal Group and business unit risks every six months – at the half-year and at the year-end.

In January and July 2017, the Board provided its perspective on risks relating to the Group’s strategy for 2017/18 and beyond. The Board’s assessment was combined with bottom-up risk reports received from business units in February and August 2017 to produce an overall risk profile for the Group.

This risk report, listing principal and “emerging” Group risks and key business unit risks, was reviewed, amended and finalised with the Executive Committee in March and September 2017. The mitigation in place for for each principal risk was then reported to and reviewed by the Audit Committee.

Throughout the year, members of the Board, Audit Committee and Executive Committee have received updates on the Group’s principal risks, as follows:

  Risk Updates Provided

A

New competitors

and technology

Formal analysis and update provided

to the Board in September 2016.

Related risks considered by the

Board in January and July 2017 and

by the Executive team in March and

September 2017.

 

B

Market conditions

Monthly performance reviews with

CEO and CFO. CEO update to the Board at each Board meeting.

 

C

Pressure on margins

D

Information security

Reports on the status of the Group’s

information security programme were

provided to the Executive Committee

and the Board and the Audit

Committee throughout the year.

 

E

Litigation

The Group General Counsel regularly

provides updates to the Executive

Committee and the Board on changes

in legislation and any material litigation

or exposures. Reports were provided

on how the Group mitigates the risk of

product integrity and related exposure.

 

F

Health and safety

Performance updates were provided at

every Executive Committee and Board

meeting during the year.

 

G

Strategic change

Monthly performance reviews with

CEO and CFO. CEO update to the

Board at each Board meeting.

 

H

Regulation

The status of the Group’s anti-bribery

programme was reported to the Audit

Committee in January 2017

I

Talent management

and retention

 

The Board, supported by the

Nominations and Audit Committees,

has received detailed updates

throughout the year from leadership

teams around the Group.

 

Longer-term viability of the Group

Building on this risk analysis, the Directors have assessed the Group’s prospects and viability in light of its current financial position, strategic plan and principal risks. The Board believes that a three-year viability assessment period to July 2020 is appropriate as this timeframe aligns with the Group’s planning horizon. Furthermore, the Group’s principal risks are ongoing in nature and could materialise at any time. None are triggered by a specific, known event that will happen beyond that three-year timeframe. Forecasting beyond the three-year timeframe does not therefore provide additional accuracy or risk insight.

Strategic plans have been prepared by all business units and financial forecasts and budgets have been reviewed by the Board. The principal risks to the Group’s strategy were formally reviewed by the Board in January and July 2017. Consideration has also been given to the strength of the Group’s balance sheet and its credit facilities.

Financial forecasts have been tested against an unlikely, but realistic, worst-case scenario. This incorporates a material downturn occurring in the Group’s major markets. The material assumptions used in this analysis were based on a hypothetical market downturn resulting in a 20 per cent shortfall in forecast Group revenue in 2018, lasting for one year, followed by annual growth rate of 5 per cent thereafter. The impacts of the revenue fall have been flowed through the cash flow statement on a line by line basis using management assumptions which have then been tested against the historical trends experienced by the Group in the last economic downturn of FY08 – FY10. The testing took account of a number of mitigating cash flow actions available to the business to respond to the market downturn – for example, a reduction in working capital, capital expenditure and tax alongside the elimination of acquisitions.

Based on these assumptions, and considering the Group’s financial position, strategic plans and principal risks, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment.

UK referendum result – June 2016

The UK referendum result of a vote to leave the European Union has resulted in some market uncertainties including a material weakening of sterling against the Group’s principal trading currencies, of which the most significant is the US dollar.

The weakening of sterling has had a translation impact on the Group’s financial statements with a beneficial impact on results. Since the large majority of the Group’s profit is derived from activities outside of the UK and Europe, the Group does not, at this point in time, envisage a material adverse impact in the future.  The Company will continue to monitor developments.