Shareprice

The Board confirms that it has carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. The Board’s assessment of the principal risks and uncertainties facing the Group and the mitigation in place is set out below.

Competition, market and customers

Link to business goals:

1 2 3

Performance Indicator:

Product complaints and recalls

View Key

Business Plan link:

Product

Executive responsibility:

Product Director 

Reports to:

Chief Executive

Impact compared to 2015/16:

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Description

The Group competes with a wide variety of retailers across multiple channels and across a broad spectrum of price-points. Failure to maintain a competitive offer in the Homewares market on multiple fronts (price, range, quality and service) and/or to respond to changing customer needs could materially impact profitability and limit opportunities for growth.

A downturn in consumer spending will impact sales and productivity.

How we mitigate

  • Comparative performance within the Homewares market tracked monthly across all main product categories
  • Customer insight research gauges relative customer perception and experience
  • Investment in store design and marketing designed to communicate our credentials on range, choice and value
  • We continually focus on new product development, both in existing and new Homewares categories, to strengthen our specialist proposition

Board oversight:

  • Reviewed annually in depth by the Board at its Strategy Day and through the “what keeps us awake” discussion.
  • Business plan review once per annum.

Progress in 2016/17

  • Dunelm continues to lead the UK Homewares market with an increased estimated share of 7.9% in 2017 (7.8% in 2016)
  • Detailed customer profiling work completed to inform decisions on product and offer
  • Improved customer feedback mechanism implemented
  • Worldstores acquisition has increased our share of the high growth Online market, and enabled us to provide a significantly wider product range and enhanced home delivery service
  • Enhancements made to our existing Online offer to improve the website for customers
  • New store formats successfully implemented in seven new stores and 11 major refits
  • Continued product innovation in existing categories and strengthened seasonal campaigns
  • Progress made to develop our furniture and Made to Measure offers
  • Marketing to emphasise the value that we offer across all price points

Brand damage

Link to business goals:

1 2 4

Performance Indicator:

Product complaints and recalls

View Key

Business Plan link:

Product

Executive responsibility:

Product Director

Reports to:

Chief Executive

Impact compared to 2015/16:

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Description

The quality and safety of our products and services is essential to the business.

We must also ensure that our suppliers share and uphold our approach to business ethics, human rights (including safety and modern slavery) and the environment.

Failure to do so could result in harm to individuals with the potential for customers, colleagues and other stakeholders to lose confidence in the Dunelm brand.

How we mitigate

  • We have a range of policies specifying the quality of products and production processes which suppliers must adhere to
  • We operate a full test schedule for all new products and on a sample basis for ongoing lines, overseen by our specialist product technology team
  • Food hygiene is maintained through the adoption of clear operating guidelines contained in our food safety manual. Staff certification is compulsory and risk assessments, equipment inspections and compliance audits are performed regularly to ensure standards are maintained
  • All stock and food suppliers and the majority of our other suppliers are required to sign up to our Anti-Bribery and Ethical Code of Conduct which is in line with international guidelines, and also specifically covers modern slavery
  • We conduct periodic audits on all suppliers of own brand products against our Code of Conduct
  • Selected non-stock suppliers are assessed against our modern slavery audit

Board oversight:

  • Ethical trading/modern slavery and product safety reviewed annually ‘in depth’ by the Board.

Progress in 2016/17

  • Committed suppliers and overseas agents continue to work directly with factories to deliver more ‘green’ ratings against our Ethical Code of Conduct
  • Clearer communication to suppliers about corrective actions and what is expected in order to make the improvements
  • Food safety procedures in store simplified and training reinforced. Key risks now monitored by operational audit review
  • Timber policy adopted
  • Policy on Modern Slavery adopted and awareness programme launched with colleagues and key partners

For further information please see the Corporate Responsibilities Report.

Portfolio expansion

Link to business goals:

1 2 3

Performance Indicator:

Number of new store openings and pipeline

View Key

Business Plan link:

Store format

Executive responsibility:

Property Director

Reports to:

Chief Executive

Impact compared to 2015/16:

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Description

Availability of vacant or new retail space in the right location is essential to deliver our strategy to expand our national coverage through growth in our store portfolio. Inability to secure or develop the required retail trading space to deliver our superstore format will limit our pace of expansion or force us to compromise our offer.

How we mitigate

  • Our property team actively monitors availability of retail space with the support of professional advisers
  • Financial modelling helps us assess the viability of potential sites
  • The Group’s strong cash generation and funding headroom provide an attractive covenant to landlords and the ability to acquire freehold units if appropriate

Board oversight:

  • Property strategy reviewed annually by the Board.

Progress in 2016/17

  • We have opened seven new stores in the year, including two in the London area
  • We are planning to open ten new stores in 2017/18
  • Emphasis on sourcing stores in the London area, where we are relatively under-represented

People and culture

Link to business goals:

4

Performance Indicator:

Colleague retention

View Key

Business Plan link:

All

Executive responsibility:

People Director

Reports to:

Chief Executive

Impact compared to 2015/16:

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Description

The success of the business could be impacted if it fails to attract, retain and motivate high calibre colleagues.

Maintaining the culture of our business, embodied in our ‘business principles’ is essential to deliver our strategy and ensure the long term sustainability of our business.

How we mitigate

  • The composition of the Executive team is regularly reviewed by the Board to ensure that it is appropriate to deliver the growth plans of the business
  • Succession plans and annual appraisals are in place across the Group
  • High calibre individuals are retained and developed through sponsored talent management and development
  • ‘Business principles’ in place to describe our values and business culture
  • The Group’s remuneration policy detailed in the 2017 Annual Report and Accounts, is designed to ensure that high calibre executives are attracted and retained. Lock-in of senior management is supported by awards under the Long Term Incentive Plan

Board oversight:

  • People plan and talent management reviewed annually by the Board.

Progress in 2016/17

  • Terms and conditions aligned across the Group (including at Worldstores) to ensure fair and consistent treatment
  • Store teams restructured to provide greater clarity and visibility of development and promotion opportunities
  • Further investment in training and development
  • Business principles further reinforced through communication and incorporation into recruitment, induction, training and appraisal processes; and through colleague communications
  • Since year end, the recruitment of a new Chief Executive to replace John Browett, who resigned on 29 August 2017, is a high priority for the Nominations Committee and the Board

Regulatory, environment and compliance

Link to business goals:

2 3 4

Performance Indicator:

Prosecution and other regulatory action

View Key

Business Plan link:

All

Executive responsibility:

Company Secretary

Reports to:

Chief Financial Officer

Impact compared to 2015/16:

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Description

The Group risks incurring penalties, damages, claims and reputational damage arising from failure to comply with legislative or regulatory requirements across many areas including, but not limited to, trading, Health and Safety, employment law, data protection, Bribery Act, advertising, human rights and the environment.

How we mitigate

  • Policies and codes of practice are in place outlining mandatory requirements within the business for all key compliance areas. These are regularly reviewed and updated
  • Operational management are also responsible for liaising with the Company Secretary and external advisers to ensure that potential issues from new legislation are identified and managed
  • Dedicated Group Health and Safety function to oversee this aspect of compliance
  • Training on the requirements of the Bribery Act and Competition Law is in place for all relevant colleagues and policies are communicated to all suppliers
  • We have a whistle-blowing procedure and helpline which enables colleagues to raise concerns in confidence

Board oversight:

  • Monthly Board report on Health and Safety.
  • Health and safety reviewed in depth by the Board at least annually.
  • Non-compliances reported by the Company Secretary by exception.

Progress in 2016/17

  • Implementation plan adopted for the General Data Protection Regulation
  • Compliance policies and controls at Worldstores Group brought in line with Dunelm standards
  • Training on Modern Slavery Act completed by all senior managers, and Modern Slavery statement published
  • Health and safety policies and audit procedures strengthened through more focused audits and user-friendly training

IT systems, data protection and cyber security

Link to business goals:

2 3 4

Performance Indicator:

Number of major incidents

View Key

Business Plan link:

All

Executive responsibility:

Chief Information Officer

Reports to:

Chief Executive

Impact compared to 2015/16:

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IT systems, sensitive data and cyber risk

Description

Dunelm is dependent on the continued availability, integrity and capability of key information systems and technology. A major incident (including a cyber-attack), sustained performance problems or failure to keep technology up to date could constitute a significant threat to the business, at least in the short term.

The risk of loss of data including customer data could have a significant adverse reputational impact.

How we mitigate

  • Business critical systems are based on established, industry leading package solutions, or are established systems which have been developed in-house with full support in place
  • A detailed IT development and security roadmap is in place
  • We have a disaster recovery strategy designed to ensure continuity of trade
  • Authorisation controls and access to sensitive transactions are kept under constant review
  • Information Security Steering Group in place to oversee the Group’s approach to IT security and data protection

Board oversight:

  • Cyber security is a standard agenda item for the Audit and Risk Committee.
  • IT strategy reviewed annually by the Board.
  • Major security incidents reported by the Company Secretary.

Progress in 2016/17

  • Continued investment is being made in the capability of our IT function and in maintaining and upgrading business critical systems
  • The IT Roadmap is aligned to and reviewed alongside our strategic initiatives
  • We have adopted the Government’s ‘10 steps to cyber security’ as a template to assess our position; progress has been made against all measures during the year
  • Controls at Worldstores have been assessed and incorporated into the cyber security programme
  • Implementation plan adopted for the General Data Protection Regulation

Supply chain disruption

Link to business goals:

2 3 4

Performance Indicator:

Service levels in respect of store fulfilment

View Key

Business Plan link:

Supply chain

Executive responsibility:

Supply Chain Director

Reports to:

Chief Executive

Impact compared to 2015/16:

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Business interruption and infrastructure

Description

Supply chain disruption could disrupt stock flows from DCs to stores and customer’s homes, leading to an impact on trading or cost / efficiency implications.

Loss of the store support centre, the manufacturing centres, or our contact centre could impact our ability to trade and divert focus from long term strategy and planning.

How we mitigate

  • Supply chain strategy in place to ensure capacity is in line with five year plan
  • Physical infrastructure – All Dunelm non-store facilities are subject to disaster recovery plans and could all operate from fall-back facilities
  • Suppliers – The Group seeks to limit dependency on individual suppliers by actively managing key supplier relationships

Board oversight:

  • Disaster recovery is a standard Audit and Risk Committee agenda item.

Progress in 2016/17

  • New warehouse facility opened at Stoke to increase capacity and efficiency, and provide a further fall-back facility for our existing warehouse
  • In-house two-man delivery capability secured through the Worldstores acquisition.
  • Agreements with partners extended to secure service continuity
  • Sourcing policy adopted to improve supplier management and robustness of supply for key product categories

Business efficiency

Link to business goals:

2 3 4

Performance Indicator:

EBITDA%

View Key

Business Plan link:

Store operations, supply chain

Executive responsibility:

Chief Financial Officer, Stores Director (Store Operations)

Reports to:

Chief Executive

Impact compared to 2015/16

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Description

Failure to operate the business in an efficient manner leads to additional cost and operating margin pressure, and could constrain our profitability and our ability to compete and grow the business in line with our strategy.

Failure to anticipate or manage cost price volatility in key areas such as freight, raw materials, energy and exchange rates may lead to increased cost, margin pressure and lower profitability.

How we mitigate

  • Costs are managed by the Board and Executive Board through the budget and forecasting process and monthly management accounts reviews
  • Projects are in place to simplify store processes to reduce store operating costs and improve stock management
  • Dunelm’s scale, growth and increased buying power allows it to secure supply of key services and raw materials at competitive prices. Commodity price tracking covers all key materials
  • Major non-stock purchase contracts regularly tendered

Board oversight:

  • Board receives monthly management accounts.
  • Strategic Business Plans and budget reviewed by the Board at least annually.

Progress in 2016/17

  • Our store operating model initiative has delivered productivity improvements enabling us to absorb the additional colleague costs arising from the living wage legislation in 2016/17
  • This project will continue in 2017/18 as we absorb further increases in the living wage and the apprenticeship levy
  • We are working with our suppliers to deliver efficiency improvements to help mitigate the additional costs arising from the fall in the value of sterling following the Brexit vote in June 2016, and other raw material price increases
  • Our “keep it simple” project has delivered cost savings at our Store Support Centre through streamlining processes and reducing waste

Finance and treasury (including Brexit impact)

Link to business goals:

3

Performance Indicator:

Operating cash conversion,
Banking covenants,
Loan headroom

View Key

Business Plan link:

All

Executive responsibility:

Chief Financial Officer

Reports to:

Chief Financial Officer

Impact compared to 2015/16

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Description

Lack of access to appropriate levels of cash resources or exposure to significant variations in interest rates or exchange rates could have an impact on the Group’s operations and growth plans.

How we mitigate

  • The Group has a £150m, five-year revolving credit facility in place until February 2020
  • Further, uncommitted borrowing facilities have been agreed for possible short term working capital requirements
  • Dunelm works with a syndicate of long term, committed partner banks
  • A Group Treasury Policy is in place to govern levels of debt, cash management strategies and to control foreign exchange exposures
  • Hedging is in place for foreign exchange, and freight and energy prices are agreed in advance, to help mitigate volatility and aid margin management

Board oversight:

  • Board receives monthly treasury report

Progress in 2016/17

  • Net Debt at the end of the year was £122.1m (0.86× EBITDA before exceptional items). Since our debt is higher than in recent years we are managing our cash more closely
  • Foreign currency hedges are in place covering approximately 70% of expected purchases in FY18
  • The impact of the fall in the value of sterling following the United Kingdom’s vote to exit from the European Union has been partly mitigated through efficiency improvements agreed with our suppliers

Failure to successfully integrate the Worldstores business

Link to business goals:

1 2 3 4

Performance Indicator:

Sales and gross margin

View Key

Business Plan link:

Digital, supply chain

Executive responsibility:

Chief Executive

Impact compared to 2015/16

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Description

Failure to successfully integrate the Worldstores business could disrupt the core Dunelm business and risk failure to deliver the full benefits of the acquisition.

How we mitigate

  • Implementation plan in place to focus on driving sales across the combined business, achieving synergies and harmonising risk management and compliance standards to an appropriate level
  • Focus on ensuring minimum distraction to the core Dunelm business. Dedicated resource allocated to the plan
  • Retention arrangements in place with key management and Executive team focus on communication and
    building relationships across both businesses

Board oversight:

  • Board receives a monthly presentation on progress against the implementation plan.

Progress in 2016/17

  • Combined executive and senior management team in place, many back-office functions combined, and now aligned employment terms and conditions across the Group
  • Supply chain consolidation commenced, with closure of Peterborough distribution centre and combined two-man fleet
  • Worldstores products listed on new “Dunelm.com/extra” site
  • Plan in place to consolidate IT platforms
  • Consolidation of supply base commenced
  • Strategic development plans in place for Kiddicare business