Board and Audit Committee
Overall oversight of risk management and internal control framework.
- Full annual review of effectiveness of risk management and internal control systems, corporate risk register, and risk appetite undertaken by Audit Committee with assessment delivered to Board for approval.
- Update on changes to risk and internal control environment presented by Internal Audit to Audit Committee at each meeting.
Regular KPI reporting
Regular management presentation to
Board and Audit Committee
Internal Audit Reports
Corporate Risk Register
Shops, Garages, Distribution Centres and Customer-Facing Businesses
First Line of Assurance
Operating within agreed policies and procedures, for example:
- Delegated authorities ('How We Do Business').
- Quality Standards.
- Retail guidelines ('Retail Basics').
- Health and Safety policies.
- Colleague handbooks.
Second Line of Assurance
- Identify developments in risk and internal control environment.
- Develop and implement strategy, policies, procedures and controls to manage risk.
Risk and internal control analysis
Third Line of Assurance
- Independently review quality of key internal controls and management assessment of risk.
- Challenge management to enhance control environment.
- Maintain corporate risk register.
Risk and internal control analysis
Risk Management Framework
The Audit Committee and the senior management team support the Board to maintain a framework for risk management. The purpose is to identify risk and subsequently measure and control it, to protect the interests of key stakeholders and safeguard the delivery of our strategic objectives.
Each principal risk has an Executive owner and is contained within a corporate risk register, which is subject to a 'top-down' review. Operational risk registers are maintained to provide greater granularity, a 'bottom-up' perspective and a further means of identification for emerging risk. The management of risk follows a methodology for assessment to establish the appropriate response in accordance with our risk appetite.
Risk Oversight and Governance
The Board has overall responsibility for the management of risk and the identification of principal risks that may affect the Group's strategic objectives. During the year the senior management team reviewed all principal risks in detail and provided oversight of how all the Group's key risks are managed.
A review of risk is a standing agenda item at each Audit Committee to allow time for the consideration of changes to the corporate risk register. The Audit Committee reviews presentations on topics in relation to key risk areas with recent focus on cyber security, inventory management and regulatory insight provided by the Compliance Committee. Please the Audit Committee Report for details of Audit Committee activities during the year.
The Board carried out an assessment of the Group's principal risks during the year, considering whether existing risks had changed in severity and whether new risks had materialised during the year.
This year we identified a new risk around our 'Value proposition' recognising that, as more retail sales move online, the value of our service proposition and commitment to be a super specialist could be eroded by online providers competing on price. We also considered the risks associated with the evolution of our digital offering, where earlier this year we enhanced our online presence with the launch of our integrated Group web platform, bringing Retail and Autocentres together for the first time. In recognition of our continued investment in digital we have made cyber security a standalone risk and refined our regulatory and compliance risk to include security of data.
The risks associated with Brexit remain largely unchanged recognising that, although we are now well into the transition period, there is no sign yet that a deal has been reached that will clarify our future trading position with the EU.
The COVID-19 strain of the coronavirus impacted the final weeks of our financial year significantly, leading to a prolonged lockdown across the UK and Ireland, with movement restricted. Our colleagues, customers and suppliers have experienced disruption with significant personal and operational challenges. The pandemic and the social and macroeconomic impact it wrought has created a risk event that is now a significant factor in the future viability of the Group, which has been considered in detail as set out in the Viability Statement. A new standalone risk for COVID-19 has been included, outlining our response to the uncertainties and potential impact.
In the initial response phase to COVID-19, our priority was to safeguard the health and wellbeing of our colleagues and customers, and to mitigate an anticipated sharp decline in demand. The Government identified Halfords as a provider of essential products and services to the UK public, and it was therefore important that we responded swiftly to enable safe delivery of our motoring and cycling proposition. We quickly adapted our retail operations by implementing a 'dark store' model, serving customers from the store entrance, and accelerated the enhancements of our Group web platform, as customers switched to online ordering. We moved into a resilience phase early in the lockdown period following extensive modelling of the financial impact of COVID-19. It was necessary to impose tighter control over liquidity, which informed our decisions on a series of measures, including the furloughing of colleagues and negotiating payment terms with our suppliers. Resilience will remain central to our risk management focus throughout 2021; however, in readiness for the lifting of lockdown restrictions, we are preparing for the recovery phase and ultimately new ways of working.
Where the impact of the pandemic has exacerbated a principal risk, we have incorporated a commentary on the COVID-19 mitigation being taken.
Our principal risks are described on the following pages, along with a summary of our mitigation activities.
The evolution of risk is actively considered at Board level and across the senior management team. The retail sector is changing rapidly, and this requires us to regularly monitor the velocity of change as digital trends, and now COVID-19 implications, impact the market at pace. The climate change agenda is a significant area of emerging risk that we are seeking to gain greater impact into. We conduct horizon scanning with subject matter experts, who contribute to the risk management process with insight on key risk themes such as economic, environmental, technological, societal, and geopolitical.
The Board approved the risk appetite of the business following a formal review led by the Audit Committee. Risk appetite guidance based on the categories of Strategy, Financial, Compliance and Operational articulates the Board's willingness to accept risk in pursuit of our strategic objectives and informs the assessment of our principal risks. By grouping our risks into the four categories, the Board was able to clearly identify that, although we have a conservative view on risk, there is greater appetite for strategic risk in contrast to a low threshold for compliance risk.
|Risk Title||Risk Description||Current Mitigation||Focus in 2020 |
Priorities in 2021
|Capability and capacity to effect significant levels of business change||If we do not have sufficient capacity and capability (in terms of our people, processes and systems) to successfully implement the changes necessary across the business, we will not realise the expected benefits of our strategy and the business will not be sustainable.||Strategic priorities have been clearly defined following an in-depth strategic review, supported by comprehensive customer, colleague, market and competitor research and with powerful insights from our Single Customer View.|
A Transformation Board provides governance over the change programme necessary for the delivery of the Strategy. The Board ensures there is a robust approval process for each project, allocates resource and monitors progress. Project Managers are in place within the business to whom projects can be assigned and this has been supplemented by specialist resource to boost capability. In effecting change, Halfords is requiring all contributing colleagues to observe the principles of Responsible, Accountable, Consulted and Informed ("RACI").
In response to COVID-19 we have adapted the short-term strategic plan to focus on those activities that either respond to emerging customer trends, such as the significant shift to digital channels, or improve the long-term health of the business, such as colleague engagement and fixed cost reduction. This level of focus will ensure we utilise our resources on the most important programmes only in the year ahead, with the objective of further strengthening the business foundations before embarking on some of the more transformative, and capital intensive, aspects of the plan.
- Accelerated growth in our motoring services business.
- Specialist resource brought in to boost existing capability.
- Robust business case template and Capital allocation model developed.
- New capability from IT restructure.
- Annual strategic plan 'refresh' to involve review of progress to date and pivot for COVID-19 opportunities and threats.
- Focus on Free Cash Flow to maintain sufficient capital for investment.
|Stakeholder support and confidence in strategy||If we fail to secure and maintain our stakeholders' (investors, suppliers, colleagues) support for our strategy, they may lose confidence in the business and withdraw their resources.||Progress against our strategic objectives is shared with colleagues on a weekly and monthly basis through team huddles and they also receive a weekly blog from the CEO and a monthly newsletter. Quarterly updates with Q&A are given by our CEO, live streamed to all distribution centres, stores and autocentres.|
Throughout the year we engaged with our suppliers, keeping them informed of our strategic plans as key partners and listening to their insights and observations to enhance our working relationship.
We maintain regular contact with key investors via a series of written communications, roadshows and regular one-to-one meetings.
The Board holds regular meetings with shareholders and their representatives. Recent discussions have focused on the impact of COVID-19 on our strategic ambitions and the opportunities and risks this creates for the Group in the short and long-term.
- Series of conferences relaying strategy to our colleagues and suppliers.
- Presentation of accelerated services strategy to investment community
- Colleagues and shareholders.
- Revised internal communications strategy.
- Replaced financial PR advisors.
- Launch new 'Investment Case' to the analyst and investor community.
- Communicate to all stakeholders our 'fast start' FY21 investment plans and guidance on the impact of COVID-19.
|Brand appeal and market share||If we continue to lose brand relevance, we will be unable to maintain and grow our customer base and build market share.||Our brand purpose is to "Inspire and Support a Lifetime of motoring and cycling". Our focus on ensuring relevance is centred around having a proposition that meets the needs and wants of our customers and ensuring that they are aware of our offer.|
During the year we enabled greater awareness of our Group proposition through the launch of our newly integrated digital platform providing customers with seamless access to all our brands. Giving customers improved accessibility to services that they may not previously have known we provided was further supported by the flexibility afforded by our financial services offering through all channels.
As the pre-eminent voice of the cycling and motor services sector, we have lobbied Government on expediting E-scooter trials, expansion of the Cycle-to-Work scheme and more recently the COVID-19 related MOT extension. We also take a lead on product innovation, investing in new E-mobility and providing servicing for hybrid vehicles, serving the growth in electrification.
We have significantly improved our social engagement this year, seen a greater mix of new customers as well as more female customers and a younger audience with our proposition enhancements and marketing investments.
Our HME expansion has added strength to our convenience credentials as has our emerging built bikes to door initiative.
Status as an essential retailer is a responsibility we have taken seriously and one which our colleagues have embraced with pride. 'Essential' status has allowed us to promote awareness of our services offering whilst serving the nation and key workers during the crisis.
A £2 billion pound package provided by the Government as part of its cycling and walking investment strategy was announced in May. We anticipate high demand for the 'fix your bike' voucher scheme, having experienced significant growth in our cycle repair business over the period.
- A new digital web platform offering seamless access to the brands' services and products.
- Enhancing our services proposition and awareness with a greater emphasis on serving the growth in electrification.
- Reaching new audiences through our partnerships, marketing activity and channel optimisation.
- Development of our customer strategy to adapt and optimise the experience across all touch points.
- Grow momentum in our Group services offer and enhance our convenience with improvements to our delivery proposition.
- As we emerge from lockdown, continue our PR momentum and social engagement, building an industry voice as a customer champion and keeping the nation moving.
|Value Proposition||Customers are not persuaded by our value proposition and we lose market share to online retailers and discounters. Purely competing on price leads to a diminution of financial returns.||To differentiate ourselves in a competitive retail market our vision is to consolidate Halfords as a super-specialist in motoring and cycling. Our strategy emphasises the importance of creating value for the customer by delivering services alongside the sale of a product.|
During the year we grew our UK services footprint with the acquisition of McConechy's, based in Scotland and the North of England. The UK market for motoring services is fragmented with no clear market leader. With the average age of UK cars increasing, we are well positioned to become the UK's leading independent provider of MOT and servicing to motorists across the country.
During the year we also acquired the assets of Tyres on the Drive to significantly bolster our mobile services offering, which provides convenience and peace of mind to our customers, demonstrated by strong customer demand and high Trustpilot scores.
With our Klarna partnership offering financial solutions across channels and for the Group, our products and services are more accessible for many customers.
Demand for our cycling range has been unprecedented throughout lockdown, during which time, as the UK's leading cycle retailer, we were able to demonstrate our role in enabling more people to ride more often.
During the lockdown period there has been high demand for home delivery fulfilment, particularly bikes. We grew our bike to door initiative. We also launched 'Payment online', providing full online functionality and ease of purchase for customers.
- Additional services capacity via the acquisition of McConechy's and Tyres on the Drive.
- Launched new service offerings e.g. WeCheck.
- Developed our Financial Services offering across the Group.
- Grow Halfords Mobile Expert, increasing to over 200 vans.
- Develop our digital offer via the optimisation of the new Group web platform with a focus on improving convenience to customers.
- Enhancing solution selling for key product categories alongside momentum in growing service-related sales.
|Risk Title||Risk Description||Current Mitigation||Focus in 2020 |
Priorities in 2021
|Brexit||Changes to consumer confidence, the cost of doing business or the way in which we run our operation as a result of Brexit results in materially lower profits or organisational strain.||In January the UK withdrawal agreement from the EU received Royal Assent, triggering a transition period that is due to expire on 31 December 2020. Throughout the year preparations were maintained for a no-deal scenario.|
We have a Brexit steering committee that evaluates the risk factors to the business in support of the Group's post-Brexit readiness. Actions taken to date include:
- Authorised Economic Operator ("AEO") status secured in full, allowing lower friction customs procedures;
- Comprehensive Customs Guarantee ("CCG") granted in conjunction with AEO allowing deferral of all VAT and Duty payments with a lower guarantee level;
- an ongoing 18-month hedging policy;
- buffer stocks maintained within Halfords and with vendors to mitigate border delays;
- lead times extended for European vendors;
- support provided to our EU workers based in the UK.
In the period to December, we will continue to work on our readiness and have identified areas of focus. Vendor negotiations are ongoing and terms changes are likely to be required as we move out of the transition period. We have modelled the costs our suppliers are likely to incur, enabling us to engage in constructive negotiations.
Duty and other at the border costs related to administrative burden and time delays will affect all importers and exporters, resource and shift changes have been adopted to minimise any additional cost. Our Republic of Ireland stores will become an export and we anticipate border controls across the Irish Sea. To allow continued replenishment and returns for all Irish stores we have adapted our logistics processes.
- Delivery against our corporate strategy to strengthen our appeal to consumers and reduce our exposure to currency risk.
- Explore revised tariff and duty regulations to identify new sourcing opportunities.
- Stock build, where appropriate, to mitigate short-term supply issues.
- Ongoing monitoring of negotiations in readiness for change.
|Sustainable business model||Changes in the UK economy (including consumer confidence and the value of the Pound) could materially impact our revenue and / or costs, and therefore the profitability of the business.|
Unless we can reduce our exposure to these economic variables (e.g. our foreign exhange exposure) and improve our ability to move quickly on fixed assets and property costs, we will not create a sustainable business model.
|A number of strategic initiatives are well advanced to reduce our exposure to changes in the UK economy that adversely impact 'business as usual' and the delivery of our Strategy:|
- procurement savings programmes in place for direct and indirect costs;
- supply chain efficiencies under review with opportunities for strategic sourcing alliances;
- developing opportunities to lower warehouse and distribution costs;
- working capital reduction programme targeted at reducing stock holding and aligning trade creditor terms;
- a formal hedging programme has been extended to reduce foreign exchange risk;
- initiatives to drive revenue by extending our service offering to our existing customer base through financial services products and B2B; and
- continued evaluation of the impact of the UK's departure from the European Union and the impact on trade tariffs.
The occurrence of the pandemic, has elevated this risk and financial resilience has therefore, become central to our decision-making and will remain a key consideration into the foreseeable future. Early in the crisis we were able to access substantial liquidity by drawing down fully on our overdraft and Revolving Credit Facility.
Recognition as an essential retailer has enabled us to trade well through the lockdown period, albeit at reduced levels. Postponing capital commitments, reducing our variable cost base and optimising our working capital position are some of the measures we have taken as we navigate through this period.
- Ongoing focus on building our services business, leading to a more resilient business and one less exposed to foreign exchange variation.
- Customer propositions designed to secure revenue from existing customer base (e.g. Financial Services, Motoring and Cycling Services, B2B).
- Strategic sourcing tie-ups (e.g. Mobivia).
- Strategic cost reduction programmes targeting a reduction in property cost, supply chain and goods not for resale spend.
- Planned improvements in cycling profitability.
- Working capital reduction via strategic stock reduction programmes.
|Risk Title||Risk Description||Current Mitigation||Focus in 2020 |
Priorities in 2021
|COVID-19||The viability of the business is at risk if we do not adapt our operations to safeguard our customers, colleagues and wider community, as well as taking the necessary steps to minimise cost and preserve liquidity.||In response to COVID-19, the Board took swift and decisive action to mitigate the potential impact, including a series of operational and financial measures to safeguard the business.|
As a provider of essential products and services to the UK public, we have remained open during the lockdown period. We were able to keep open most of our Retail estate on a 'dark-store' basis, enabling us to serve customers safely from the front of the store, whilst also ensuring our colleagues could operate in safe working conditions. As lockdown restrictions began to lift, we enabled a 'Retail Lite' programme to gradually start reopening stores to customers in accordance with social distancing requirements. We were able to open over 300 garages across our Autocentres and McConechy's brands, and operate all 77 mobile vans, a services proposition that was particularly popular during lockdown.
Proactive measures have been applied to obtain greater oversight and control of liquidity and cash management. We have negotiated terms with our commercial partners, reduced discretionary spend and paused capital investment. We have accessed Government support where available, such as the Job Retention Scheme and business rate relief. We have been in active dialogue with our existing lending syndicate to provide additional flexibility as required.
An economic contraction is likely, impacting consumer confidence and discretionary income. Our financial services proposition has performed well and will be a valuable option for customers seeking to spread their costs.
- Continue to build operational resilience by iterating the retail and garage operating environments to ensure the ongoing safety of our colleagues and customers.
- Target a gradual improvement in sales volumes and profitability by successfully meeting the increased demand generated by the changing customer behaviour coming out of lockdown – notably the trend to more cycling journeys and a likelihood of more motorists on the road.
- Target a series of 'fast start' programmes to aggressively take cost out of the business.
- Continue to stress test and reverse stress test our business model to ensure access to sufficient liquidity.
- Perform a 'lessons learned' review of our COVID-19 response and renew our business continuity planning.
|IT infrastructure failure||Failure in our IT system(s) may cause significant disruption to, or prevention of, normal business-as-usual activities.||Extensive controls are in place to maintain the integrity of our systems and to ensure that systems changes are implemented in a controlled manner. Halfords' key trading systems are hosted securely within data centres operated by a specialist company and in specialist cloud services operated by Microsoft. These systems are supported by disaster recovery arrangements, including comprehensive backup and patching strategies. IT recovery processes are tested regularly.|
Our cloud-based systems enabled minimal disruption as many of our colleagues transitioned to home working. Support from our service providers has ensured system stability for our remote workers.
- Introduction of new Group website hosted through Salesforce.
- Continue progression towards a fully cloud-based hosting structure.
|Skills shortage||We may be unable to recruit, retain and develop enough people to have the different mix of skills that we need at all levels across the business, in the near and longer term.||We have a strategy that relies on attracting and retaining colleagues who can inspire and support our customers and encourage them to build a lifetime relationship with the brand.|
Our in-house resourcing team have developed a recruitment website which highlights the importance of the Halfords behaviours and details the skills and experience required of our colleagues. There are clear and detailed recruitment processes in place which are reviewed regularly to respond to changes in the business.
In our stores, our Gears training programme provides our colleagues with structured training taking them through their first 18–24 months. We use our training programme to enhance skills, reinforce our behaviours, keep colleagues engaged and reach a competitive hourly rate of pay.
We also review our skills mix frequently to ensure that all stores have the right skill levels to provide the services needed to satisfy our customer needs. The analysis from these exercises leads us to target specific skills needed as a priority to ensure we keep any skills gap minimal. Using an experienced internal training team, we then develop and deliver a targeted plan to increase skill levels in any identified areas.
In our Autocentres, training is a fundamental part of our business and a great attraction tool for applicants. We support the training of colleagues ranging from our apprentices right through to a Level 3 Technician. We provide in-house Hybrid and MOT tester courses ensuring that we can service the full car parc. We apply a targeted approach to further enhance skill levels for centres as we do with stores, by mapping against the optimal skills mix.
To support FY21 requirements we translated some of our skills development material into Virtual Classroom content, allowing us to train colleagues whilst they remained in store.
- Pathway development enabling young talent to join our business.
- Update recruitment collateral in-line with our new values and behaviours programme.
- Move more of our eLearning training into video learning.
|Colleague engagement / culture||Our employment model may not be sufficiently attractive to recruit and retain the talent that we need.||Colleague engagement is vital to our success as a business. Engagement is a metric in the Executive bonus scheme and is monitored by the Board, under the direction of Helen Jones, the Non-Executive Director responsible for Colleague Voice.|
An annual engagement survey, administered and analysed by a third party, provides us with reports at team level. We create an environment which encourages colleagues to feed back to us about how we can make Halfords an even better place to work and this is clearly successful as last year we had a survey response rate of 93%. Our engagement index of 79% demonstrates that the majority of our colleagues enjoy working at Halfords.
The feedback received from colleagues through both our annual internal engagement survey, and the Sunday Times Top 25 Large Employer surveys formed the basis of functional engagement plans across the business. Regular listening groups are held – with a total of 111 across the Group as a whole.
A full review of the culture of our business was undertaken during the year, resulting in the definition of a revised colleague values and behaviours framework. This framework was built with input from c1,300 of our colleagues from across the business and is due to be launched in 2021. Further details can be found in the Corporate Governance Report.
The identification and development of top talent, so strengthening succession was also a key focus. This will remain a focus throughout 2021 and beyond.
A wellbeing newsletter was issued across the business on a weekly basis, ensuring colleague engagement has formed a key part of our response to the pandemic.
- Responsive action taken to address observations of colleagues from our engagement survey.
- Continued development of the business tools available to our colleagues, to improve their experience in the workplace.
- Significant increase in the number of listening groups held across the business.
- Launch of our new colleague values and behaviours framework.
- Identification and development of top talent to strengthen succession.
|Critical physical infrastructure failure (including supply chain disruption)||Severe damage or failure of physical infrastructure may disrupt our supply chain and / or business as usual activities and prevent the fulfilment of customer orders.||Extensive research is conducted into quality and ethics before the Group procures products from any new country or supplier. The Group's strong management team in the Far East blends expatriate and local colleagues. It understands the local culture, market regulations and risks and we maintain very close relationships with both our suppliers and shippers to ensure that disruption to production and supply are managed appropriately.|
We work with suppliers in several territories to reduce the risks of disruption, and we monitor sourcing opportunities nearer to the UK.
We maintain firm security and protection measures at our distribution centres. We have business continuity plans to manage any incidents that may occur. Our logistics are overseen by an experienced, dedicated warehouse and logistics team who maintains contacts with a range of logistics businesses who could be utilised if necessary. As the conclusion of the Brexit transition period draws closer, we are continuing preparations for changes in the nature of the border between the UK and the Republic of Ireland.
We have worked exhaustively with our supply chain to respond to the unique challenges presented by the COVID-19 pandemic. Since the virus was first reported in China, and during the current lockdown restrictions in the UK, we have maintained supply to our customers despite the constraints and significant demand for some of our product lines.
- Refreshed our Business Continuity planning.
- Continued development of relationships with current and potential new suppliers.
- Post COVID-19 lockdown, immediate switch to home working for Support Centre colleagues, supported by enabling technology.
- Adaptations to critical work environments – e.g. Distribution Centres – to enable safe working conditions for colleagues.
- Alternative suppliers identified to address potential disruption in the supply chain arising from the ongoing implications of the pandemic.
- Review our Business continuity planning with lessons learned following the impact of COVID-19.
|Risk Title||Risk Description||Current Mitigation||Focus in 2020 |
Priorities in 2021
|Regulatory and Compliance||A failure to adhere to our legal and/or regulatory obligations for some or all of the Group's activities leads to an inability to meet our responsibilities to stakeholders and/or the imposition of financial penalties, placing a strain on the business.||We have a compliance team with a wide remit to set policy and verify that business activities are compliant with legal and regulatory obligations. In the past year, the Group has also established a dedicated Compliance Committee with senior input and attendance from all areas of the business to drive localised ownership and actions.|
The senior leadership team communicates tone from the top to provide guidance to colleagues on all policy commitments.
Regular horizon scanning to capture new regulations and guidance.
We have adhered to the 2020 Health Protection Regulations throughout the lockdown period, only opening our stores and autocentres when guidance was clear and we were satisfied it was safe.
- Strengthened the central compliance function to ensure focus on all relevant activities.
- Increase colleague awareness and understanding of personal responsibilities via improved visibility of Company policies and development of new training resources.
- Increase the number and frequency of onsite compliance audits to assess adherence to Company standards.
- Reinforce the need for a culture of compliance by default and design.
|Service quality||The service we provide to customers may fail to meet regulatory / safety requirements resulting in harm to customers and / or legal / financial penalty.||All our colleagues are provided with dedicated training and adhere to established quality control and safety procedures with compliance audits by management. We also have a dedicated compliance team monitoring our Autocentre operations.|
We provide centralised training for our retail colleagues through our Gears 1 and 2 programme to ensure they are consistently knowledgeable about our products and able to deliver a quality service to our customers. Colleagues also complete an annual assessment of their understanding of our quality procedures. We have four equipped training academies delivering training for Autocentre technicians and the technician grading assessment is linked to quality of workmanship as well as skills and qualifications.
Our products are risk assessed and rigorously tested for quality and safety by qualified engineers in our dedicated quality team. We monitor customer comments and complaints and, when necessary, we have established recall processes.
We continue to invest in our estate, and this is enabling us to enhance our service offering to customers by evolving the layout of our stores in addition to further developments in IT infrastructure, training and online functionality.
Our evolving 'Lite' model will apply to stores and autocentres for the foreseeable future, facilitating social distancing as we emerge from the COVID-19 lockdown.
We also enabled remote working for many of our colleagues not working in store, joining forces with our customer service team to respond to record levels of customer contact.
- Ongoing investment in training across Retail and Autocentres.
- Significant investment in garage technology, via workflow and self-audit capability, to support quality job completion.
- Monitoring of customer satisfaction through detailed review analysis.
- Continued development of our colleagues and our estate to provide high levels of customer service.
|Cyber security||If we fail to sufficiently detect, monitor, or respond to cyber-attacks against our systems they may result in disruption of service; compromise of sensitive data; financial loss; reputational damage.||Following on from a review of our IT Operating Model, we have a Head of Information Security, sitting on the IT Leadership Group, to manage the IT security framework and ongoing development and review of our IT Security strategy and road map. Our IT Security partner, TCS, have been successfully onboarded and provide valuable support by managing vulnerability scans and our email and website security.|
A perpetual training programme exists for the benefit of our colleagues, raising awareness and promoting good security hygiene.
The Audit Committee is briefed by senior IT management on the business' IT security framework and continues to closely monitor this area.
We maintained testing of our defences in anticipation of a heightened threat. A major COVID-19 ransomware attack was successfully blocked, applying intelligence obtained from various security threat advisories.
- Process reviews and recommended improvements to increase overall security posture.
- Enhanced involvement of security at the start of project development (security by design).
- Awareness training delivered to all colleagues on information security and cyber security threats.
- Advanced programme of penetration testing and vulnerability assessments.
- Continued support and training for our colleagues to maintain good cyber hygiene
- Work towards fully managed Security Operations Centre (SOC) on target for 2021 to increase visibility of threat landscape.
In determining the appropriate basis of preparation of the financial statements for the year ended 3 April 2020, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future. The Board has concluded that it is appropriate to adopt the Going Concern basis, having undertaken a rigorous assessment of financial forecasts, with specific consideration given to the trading position of the Group in the context of the current COVID-19 pandemic in the UK.
Due to the Government's enforced lockdown, and the requirement of the UK population to self-isolate, the COVID-19 pandemic will result in a material reduction in our expected revenue and profit for the next financial period ending 2 April 2021. This is mainly due to decreased footfall in the first half of the next financial year arising from store and garage closures, revised store operating models and Government-enforced social distancing measures.
The Directors have reviewed the rapidly evolving situation relating to COVID-19 and have modelled a series of scenarios that cover the period to July 2021 and beyond in order to assess not only the Going Concern status of the Group but also longer-term viability (see Viability Statement).
For the Going Concern assessment, management focused on two key scenarios:
- A - Base Case – a steep sales reduction in the first half of the year resulting in a c.16% full year reduction in sales from FY20.
- B – Low Case – a more prolonged reduction in sales resulting in a c.27% full year reduction in sales from FY20.
The key assumptions used in these models are:
- A – Lockdown lifting in stages from end of May, furlough and rates benefits are received and further savings made across the business. Dividend suspended and working capital reduced;
- B – Same as Base Case but with consumers continuing to isolate at similar level until October, further reduced capital expenditure and increased furlough benefit;
The scenarios, particularly scenario B, are considered to be prudent given trading seen since the end of the FY20 financial year, but, when modelled, have a significant impact on sales, margin and cash flow. In response, the Directors have taken immediate and significant actions to reduce costs and optimise the Group's cash flow and liquidity. Amongst these are the following mitigations:
- Approval for increased funding to extend the available facilities from £200m to £225m;
- Approval for a covenant relaxation from syndicate banks to ensure that covenants are not breached in the next 12-month period;
- Reducing capital and investment expenditure through postponing or pausing projects and change activity;
- Freezing non-essential recruitment;
- Deferring or cancelling discretionary spend.
These mitigations were modelled within the scenarios and combined with the in-year Government support resulted in cost savings vs planned expenditure in FY21 of £89m.
The Group has a Revolving Credit Facility of £200m at the date of approval of these financial statements, which expires on 3 September 2022. In addition, the Group has access to a further £25m in the form of CLBILS financing (which expires in January 2021). The Group has no other debt or facilities. Covenants have been amended for the full financial year ending 2 April 2021.
The Board has a reasonable expectation that the Group and Company will be able to continue in operation and meet its liabilities as they fall due; retain sufficient available cash and not breach any covenants under any drawn facilities over the remaining term of the current facilities. They do not consider there to be a material uncertainty around the Group's or the Company's ability to continue as a going concern.
Credit Facilities, Change of Control and Share Schemes
The Group's credit facilities referred to above require the Group in the event of a change of control to notify the facility agent and, if required by the majority lenders, these facilities may be cancelled. The Group does not have agreements with any Director or colleague that would provide compensation for loss of office or employment resulting from a takeover, except that provisions of the Group's share schemes and Deferred Bonus Plan may cause options and awards granted to Directors and colleagues under such schemes and plans to vest on a takeover. Details of employee share plans are provided in Note 24.