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Risk Management

Monitoring risk throughout the Group

The Board is 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 assurance.

Risk analysis during the year

2018/19 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 2019, the Board provided its perspective on risks relating to the Group’s strategy for 2019/20 and beyond. The Board’s assessment was then combined with bottom-up risk reports received from business units in February and August 2019 to produce an overall risk profile and report for the Group.

This risk report, listing principal and emerging risks and how they have changed, was reviewed, amended and finalised with the Executive Committee in March and July 2019. The mitigation in place for each principal risk was then reported to and reviewed by the Audit Committee in March 2019 and in September 2019.

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 update provided to the Board in January 2019. Related risks considered by the Board in January and July 2019 and by the Executive team. 

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 Technology 

Reports on the status of the Group’s information technology strategy and operational risks were provided to the Executive Committee, the Board and the Audit Committee throughout the year.

E

Health and safety

Performance updates were provided at every Executive Committee and Board meeting during the year.

F

Regulations

With the appointment of a new General Counsel, the Group will be conducting a broader assessment of the Group’s compliance programme in 2019/20. The status of the Group’s anti-bribery programme was reported to the Audit Committee in January 2019.

G

Talent mangement and retention

The Board, supported by the Nominations and Audit Committees, has received detailed updates throughout the year from leadership teams around the Group.

H

Macro political tax risk

Reported on tax risks and future reforms to the Audit Committee in September 2018 and March 2019. The Group is focused on the ongoing uncertainty regarding tariffs and international trading (in particular between the USA and China) and responding with appropriate actions.

Viability statement

Based on the outcomes of the scenarios 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 period of their assessment.

UK withdrawal from the European Union

The UK leaving the European Union (“EU”), and the uncertain terms of such withdrawal, continues to produce some market uncertainties including volatility in the sterling exchange rate against the US dollar. From 2018 the Group changed the presentation of its financial statements from sterling to US dollars which has greatly reduced the impact of foreign exchange rate movements, most notably sterling, on reported revenue and trading profit. Since the large majority of the Group’s profit is derived from North America, the Group does not envisage a material adverse impact from sterling vs US dollar exchange rates in the future. There is a risk that leaving the EU adversely affects UK domestic demand which could have a negative impact on the business. Leaving the EU without future certainty over future tariffs and regulations could impact the UK’s supply chain and lead to inventory shortages which could adversely impact demand. In addition, disruption in the financial markets could adversely affect the share price. The Group will continue to monitor developments.