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This site is under development and will be the new home of Wolseley plc, the world’s leading specialist distributor of plumbing and heating products, when we change our name to Ferguson plc on 31 July 2017. Please come back then and visit us then. In the mean time, please visit our current live site below for further information Thank you.

www.wolseley.com

Principal Risks

The materialisation of these risks could have an adverse effect on the Group’s results or financial condition. If more than one of these risks occur, the combined overall effect of such events may be compounded.

The chart shows management’s assessment of material risks before mitigating controls and actions. Various strategies are employed to reduce these inherent risks to an acceptable level. 

The effectiveness of these mitigation strategies can change over time, for example with the acquisition or disposal of businesses. Some of these risks remain beyond the direct control of management. The risk management programme, including risk assessments, can therefore only provide reasonable but not absolute assurance that risks are managed to an acceptable level.

The Group faces many other risks which, although important and subject to regular review, have been assessed as less significant and are not listed here. These include, for example, natural catastrophe and business interruption risks and certain financial risks.

 

Risks to the drivers of profitable growth

The symbols shown at the bottom of this page are displayed alongside each of the risks below to indicate which of the strategic drivers of growth are most threatened by that risk.

The drivers of profitable growth are described here

A: New competitors and technology

 

Definition and impact

Changes during the year

Mitigation

Inherent risk level
High

 

Trend
No change

ddd

Wholesale and distribution businesses in other industry sectors have been disrupted by the arrival of new competitors with lower-cost transactional business models or new technologies to aggregate demand away from incumbents.

 

The Board is attuned to both the risks and opportunities presented by these changes and is actively engaged as the Group takes action to respond.

A dedicated team and increased resources were allocated to the exploration and incubation of new business models and new technologies. The creation of Ferguson Ventures allows us to partner with start ups and our innovation lab explores emerging technologies. 

The Group develops and invests in new business models, including e-commerce, to respond to changing customer and consumer needs. This will allow the Group to accelerate the time to market for new revenue streams and gain insight on new disruptive technologies and trends.

 

The Group remains vigilant to the threats and opportunities in this space. The development of new business models in our market place is closely evaluated – both for investment potential and threats.

B: Market conditions

 

Definition and impact

Changes during the year

Mitigation

Inherent risk level

High

 

Trend

No change

ddd

This risk relates to the Group’s exposure to short-term macroeconomic conditions and market cycles in our sector (i.e. periodic market downturns).

 

Some of the factors driving market growth are beyond the Group’s control and are difficult to forecast.

The Group has maintained a strong balance sheet throughout the year and other measures have been taken to manage the cost base in line with forecast growth.

 

The Group has again tested its financial forecasts, including cash flow projections, against the impact of a severe market downturn.

 

The UK’s withdrawal from the European Union continues to create a level of uncertainty affecting the UK economy, although this is not expected to have a material impact on the Group. 

The Group cannot control market conditions but believes it has effective measures in place to respond to changes. Ferguson continues to reinforce existing measures in place, including:

 

– the development of our business model;

 

– cost control, pricing and gross margin management initiatives, including a focus on customer service and productivity improvement;

 

– resource allocation processes; and

 

– capital expenditure controls and procedures.

C: Pressure on margins

 

Definition and impact

Changes during the year

Mitigation

Inherent risk level
High

 

Trend
No change

ddd

The Group’s ability to maintain attractive profit margins can be affected by a range of factors. These include levels of demand and competition in our markets, the arrival of new competitors with new business models, the flexibility of the Group’s cost base, changes in the cost of commodities or goods purchased, customer or supplier consolidation or manufacturers shipping directly to customers.

 

There is a risk that the Group may not identify or respond effectively to changes in these factors. If it fails to do so, the amount of profit generated by the Group could be significantly reduced.

Pressure on margins remained high during the period under review, primarily due to levels of competition.

 

In response, the Group has continued to manage its cost base in line with changes in expected growth rates. Business unit performance, including margins achieved, were monitored on a monthly basis throughout the year.

 

Ongoing gross margin was 30 basis points ahead with growth driven by improved product mix and procurement in USA, Canada and Central Europe.

The Group’s strategy for tackling this issue remains unchanged. This includes continuous improvements in customer service, product availability and inventory management. Revenues from e-commerce and other growth sectors continue to expand and the Group has made acquisitions in these areas during 2017/18.

 

The performance of each business unit is closely monitored and corrective action taken when appropriate.

 

Resource allocation processes invest capital in those businesses capable of generating the best returns.

D: Information technology

 

Definition and impact

Changes during the year

Mitigation

Inherent risk level
High

 

Trend
New

ddd

With the appointment of a new Chief Information Officer, the Group now has a clearly defined global technology strategy and roadmap.

 

Technology systems and data are fundamental to the future growth and success of the Group. Information Technology (IT) risks are categorised as strategic and operational.

 

Strategic risks are threats that could prevent execution of the IT strategic plan such as inadequate leadership, poor allocation/management of resources and/or poor execution of the organisational change of management necessary to adopt and apply new business processes.

 

Operational risks include business disruption resulting from system failures, fraud or criminal activity. This includes security threats and/or failures in the ability of the organisation to operate, recover and restore operations after such disruptions. While cyber security threats have resulted in minimal impact to date, this risk continues to persist and evolve.

IT risks have remained material and are being closely monitored as we implement the global technology strategy and roadmap.

 

A new Chief Information Officer and Chief Information Security Officer have been appointed during the year.

 

The IT function has been reorganised to align resources and focus on the strategic plan.

 

Internal Audit and IT are partnering to transition IT General Control testing to Internal Audit.

 

Briefings on the status of the Group’s IT strategy were provided to the Board, the Audit Committee and the Executive Committee throughout the year.

 

Regular Board update checkpoints have been established to provide monitoring and oversight of execution of the IT strategic plan.

Business leadership is implementing a comprehensive change management programme designed to transition current business practices and norms to adopt new business capabilities.

 

A Business Technology Centre of Excellence is in place to drive organisational discipline around the prioritisation of business projects to ensure alignment with Ferguson’s strategic framework.

 

An assessment of information security capabilities is underway with the intent of driving a rolling three-year global roadmap of investments in processes, resources and technical defences necessary to continuously address emerging security threats.

 

Group level compliance processes continue to remain in place.

 

Disaster recovery systems, secondary data centres, resources and processes have been implemented to ensure business critical systems are recoverable in the event of a major disaster. Testing of critical infrastructure and application systems are in place and have been consistently executed across the Group.

 

Insurance coverage is in place, including data protection and cyber liability.

E: Health and safety

 

Definition and impact

Changes during the year

Mitigation

Inherent risk level
Medium

 

Trend
No change

ddd

The nature of Ferguson’s operations can expose its associates, contractors, customers, suppliers and other individuals to health and safety risks.

 

Health and safety incidents can lead to loss of life or severe injuries.

A new Vice President of Health and Safety joined this year. The Group has developed a functional strategic plan with clear objectives to address performance challenges. The hiring and deploying of health and safety professionals in the field will provide businesses with technical resources to more effectively mitigate risk. The overall performance across the Group is showing a slight improvement. 

Leadership of health and safety is key. Health and safety performance is reported to and discussed at all Executive Committee and Board meetings.

 

The Group maintains a health and safety policy and detailed minimum standard, which sets out requirements which all Ferguson businesses are expected to meet. Branches are audited against this standard.

F: Regulations

 

Definition and impact

Changes during the year

Mitigation

Inherent risk level
High

 

Trend
No change

ddd

The Group’s operations are affected by various statutes, regulations and standards in the countries and markets in which it operates. The amount of such regulation and the penalties can vary.

 

While the Group is not engaged in a highly regulated industry, it is subject to the laws governing businesses generally, including laws relating to competition, product safety, data protection, labour and employment practices, accounting and tax standards, international trade, fraud, bribery and corruption, land usage, the environment, health and safety, transportation and other matters.

 

Violations of certain laws and regulations may result in significant fines and penalties and damage to the Group’s reputation.

 

The most significant change in the level of regulation applying to the Group this year is the EU’s adoption of the General Data Protection Regulation (GDPR). The Group has adopted procedures and controls required by the legislation to ensure compliance.

 

Anti-bribery and anti-corruption practices in all businesses were reviewed during the year and the findings reported to the Executive Committee and to the Audit Committee.

 

The Group monitors the law across its markets to ensure the effects of changes are minimised and the Group complies with all applicable laws.

 

The Group aligns company-wide policies and procedures with its key compliance requirements and monitors their implementation.

 

Briefings and training on mandatory topics and compliance requirements including anti-trust, anti-bribery and corruption are undertaken.

G: Talent management and retention

 

Definition and impact

Changes during the year

Mitigation

Inherent risk level
Medium

 

Trend
No change

ddd

As the Group develops new business models and new ways of working, it needs to develop suitable skill-sets within the organisation.

 

Furthermore, as the Group continues to execute a number of strategic change programmes, it is important that existing skill-sets and talent are retained.

 

Failure to do so could delay the execution of strategic change programmes, result in a loss of “corporate memory” and reduce the Group’s supply of future leaders.

There has been no material change in the level of associate turnover during the year; however a number of senior management changes have occurred throughout the Group. These have included the appointment of key Group Services roles and a new Managing Director and Chief Financial Officer of Wolseley UK.

 

Talent management procedures were reviewed during the year.

 

 

All of the Group’s businesses have established performance management and succession planning procedures. Reward packages for associates are designed to attract and retain the best talent.

 

New Group Chief Financial Officer and new CEO, USA transitions complete.

 

A new talent review process will be launched across the Group.

 

The Group continues to invest in associate development.

H: Macro political tax risk

 

Definition and impact

Changes during the year

Mitigation

Inherent risk level
High

 

Trend
New

The wider macro political and economic situation is uncertain in many of the territories in which Ferguson operates and changes could affect the Group’s future tax rate. A combination of growing international trade pressures, withdrawal of quantitative easing by central banks and rising debt levels, is creating political uncertainty which could lead to changes to the prevailing tax regime. As a result, we anticipate that the effective tax rate may increase over the medium term.

Group Tax has allocated further resources to ensure the macro political uncertainties are being appropriately monitored and mitigation plans updated when the need arises.

 

The Group is engaged with the relevant tax authorities to proactively assess any proposed changes in tax policy.

 

Once policy changes are fully assessed the Group will ensure any changes are reflected in Ferguson’s tax strategy.