REG - Watches of Switzlnd. - Annual Financial Report
27/07/2022 13:15
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RNS Number : 9577T Watches of Switzerland Group PLC 27 July 2022
27 July 2022
Watches of Switzerland Group PLC (the "Company")
Annual Report and Accounts 2022
In compliance with Listing Rule 9.6.1, the Company announces that the
following documents have today been submitted to the UK Financial Conduct
Authority, and will shortly be available for inspection via the National
Storage Mechanism at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
· Annual Report and Accounts 2022; and
· Notice of Annual General Meeting of the Company, to be held at 36
North Row, London W1K 6DH at 2.30pm on 1 September 2022
In accordance with DTR 6.3.5(3) the Annual Report and Accounts 2022 and the
Notice of Annual General Meeting are accessible on the Group's website:
thewosgroupplc.com/governance
(https://www.thewosgroupplc.com/investors/results-centre/) /
A condensed set of Watches of Switzerland Group PLC financial statements and
information on important events that have occurred during the year and their
impact on the financial statements were included in the Company's FY22 results
announcement on 7 July 2022. That information together with the information
set out below which is extracted from the Annual Report and Accounts 2022
constitute the requirements of DTR 6.3.5 which is to be communicated via an
RNS in unedited full text. This announcement is not a substitute for reading
the full Annual Report and Accounts 2022. Page and note references in the text
below refer to page numbers in the Annual Report and Accounts 2022. To view
the FY22 results announcement visit the Company website:
thewosgroupplc.com/investors
(https://www.thewosgroupplc.com/investors/results-centre/)
For further information, please contact:
Laura Battley
Company Secretary and General Counsel
+44 (0)20 7317 4604
companysecretariat@thewosgroup.com (mailto:companysecretariat@thewosgroup.com)
Additional Information
Principal risks and uncertainties
Below are descriptions of our principal risks and uncertainties and
explanations of how we manage or mitigate the risk. It is recognised that the
Group is exposed to risks wider than those listed. However, we have disclosed
those we believe are likely to have the greatest impact on our business at
this moment in time.
Principal risk description How we manage or mitigate the risk
Business Strategy Execution and Development
If the Board adopts the wrong strategy or does not implement its strategy The Board reviews its business strategy on a regular basis to determine how
effectively, the business may suffer. sales and profit can be maximised, and business operations can be made more
efficient
The Group's growth strategy exposes it to risks and the Group may encounter
setbacks in its ongoing expansion in the UK, US, and Europe. The Board has significant relevant experience, including in the retail and
luxury markets
The Group's significant investments in its showroom portfolio, IT systems,
colleagues and marketing may be unsuccessful in growing the Group's business The CEO provides updates to the Board on key development opportunities and
as planned. initiatives
The Group may make acquisitions or other investments that prove unsuccessful Expansion of the property portfolio or potential acquisitions must meet strict
or divert its resources. Successful growth through future acquisitions is payback criteria. Return on investment of marketing and other investment
dependent upon the Group's ability to identify suitable acquisition targets, activity is monitored closely
conduct appropriate due diligence, negotiate transactions on favourable terms,
complete such transactions and successfully integrate the acquired businesses.
Key management information is provided to the Board on a regular basis to help
inform strategic decision-making
The Group may fail to respond to the pressures of an increasingly changing
retail environment effectively and rapidly. The re-evaluation of priorities
and their delivery, including the consideration of initiatives to respond to
permanent changes in client behaviours or to change working practices, is The Group adapted its strategy to take advantage of online trading and remote
paramount in the current environment. clienteling activities to maximise sales throughout lockdown periods and post
re-opening
The Group has diversified its operations through the expansion of mono-brand
boutiques and ecommerce platforms. Having entered the US market and the
European market, there is international market diversification reducing
reliance on one territory.
Key Suppliers and Supply chain
The manufacture of key luxury watch brands is highly concentrated among a The Group fosters strong relationships with suppliers, many of which have been
limited number of brand partners and the production of luxury watches is held for a significant length of time
limited by the small number of master watchmakers and the availability of
artisanal skills. Owners of luxury watch brands control distribution through
strict, selective distribution agreements. Consequently, the relationship with
owners of luxury watch brands is crucial to the Group's success. Supplier distribution contracts are monitored to ensure ongoing compliance
with contractual obligations
Some of the Group's distribution agreements with luxury watch brands provide
owners of such brands with a right to terminate the agreement in the event of The Group works collaboratively with jewellery brands to identify product
a change of control and/or management of the Group. The Group is subject to trends and forward demand
the risk that owners of luxury watch brands may decide to terminate these
contracts or otherwise not to renew them upon expiry, or to reduce the number
of agencies they grant to the Group.
Continued focus on providing exceptional client experience, representing the
brands in the best possible way
The Group's distribution agreements with suppliers do not guarantee a steady
supply of merchandise.
In-depth training for showroom colleagues is provided, including specific
training provided by the brand partners
The Group's business model may also come under significant pressure should the
owners of luxury watch brands choose to distribute their own watches,
increasingly or entirely by-passing third-party retailers such as the Group. The Group's sales mix is becoming more broad-based, with less reliance on
individual brands to drive success
As a result of COVID-19 or other pandemics, supplier manufacturing operations
could be forced to close, impacting operational activities, client experience
and business strategy
Client Experience and Market Risk
An inability to maintain a consistent high-quality experience for the Group's The Group provides the ultimate luxury environment for its clients to feel
clients across the sales channels, particularly within the showroom network, welcome, appreciated and supported
could adversely affect business.
The launch of our Xenia client service programme further elevates our client
The increased number of registration of interests and waiting times for luxury experience proposition
watches could adversely impact the perceived client experience.
Exceptional training is provided for our showroom colleagues, and other client
The Group faces competition and any failure by the Group to compete facing colleagues, to allow them to provide the best client service, along
effectively could result in a loss of market share or the ability to retain with in-depth product knowledge
supplier agencies. Long term consumer attitudes to diamonds, gold and other
precious metals and gemstones could be affected by a variety of issues,
including concern over the source of raw materials, the impact of mining and
refining of minerals on the environment, labour conditions in the supply The Group is improving and formalising its registration of interest process
chain, and the availability and perception of substitute products, such as
cubic zirconia and laboratory- created diamonds. Equally, longer term consumer
attitudes to more technologically advanced watches, such as 'smart watches'
could reduce consumer demand for luxury watches. The CRM database allows the Group to engage with clients on their journey from
a potential to a loyal client
The Group continues to invest in and develop its product offering to improve
the value offered to consumers, retailers, and manufacturers
Competitor activity is monitored in detail, enabling strategic decision-making
on key market positions
The diversification of the Group through mono-brand boutiques and significant
online presence together with the Group's scale and technological capabilities
are competitive advantages for the Group.
Colleague Talent and Capability
The Group depends on the services of key personnel to manage its business, and The Trading Board considers the development of Senior Management to ensure
the departure of such personnel or the failure to recruit and retain suitable there are opportunities for career development, promotion, and appropriate
personnel could adversely affect the Group's business. succession
Client experience is an essential element in the success of the Group's The Nomination Committee considers the succession planning for the Board, and
business, where many clients prefer a more personal face-to-face experience Senior Management
and have established personal relationships with the Group's sales colleagues.
An inability to recruit, train, motivate and retain suitably qualified
colleagues, especially with specialised knowledge of luxury watches, would
have a material impact on the Group. The Group's 'VibE' recognition programme is in place to incentivise and
motivate colleagues
A share save scheme has been launched for all colleagues to participate in the
growth of the Group
A wide range of training and development programmes are available to
colleagues, including the Group's own Academy
A group-wide engagement survey provides an insight into what colleagues feel
would make the Group an even better place to work
The Group continually reviews the remuneration and benefits packages for all
colleagues
A focused project group has been established, with an objective to monitor and
reduce retail labour turnover, particularly in the first year of employment
The Group is initiating a shift from part time to full time contracts for
retail colleagues
A talent bank has been established, which provides a pipeline for management
and high potential hires
A two-way engaging communications platform, Workplace, was successfully
piloted and launched in both the UK and US. This new social channel will
underpin Group communications in the coming years.
Data Protection and Cyber Security
The increasing sophistication and frequency of cyber-attacks, coupled with Significant investment in systems development and security programmes
data protection laws, highlight the escalating information security risk
facing all businesses.
Systems vulnerability and penetration testing is carried out regularly
As the Group operates in both the US, UK, and European markets, the regulatory
environment surrounding these areas is considered more complex.
The Data Protection Committee meets regularly to review related processes and
emerging risks
Security breaches and failures in the Group's IT infrastructure and networks,
or those of third parties, could compromise sensitive and confidential
information and affect the Group's reputation. GDPR policies, procedures, and training in place
Theft or loss of Company or client data or potential damage to any systems Strict access rights are in place to limit access to data and reports to
from viruses, ransomware or other malware could result in fines and limited people
reputational damage to the business that could negatively impact on our sales.
Regular communication with colleagues on the risk of 'phishing' emails and
alerts of identified examples
Security Information and Event Management (SIEM) tools have been introduced
across the Group's technology estate
VPN security controls have been enhanced considering the increased requirement
for use through working from home arrangements
Enhanced password security measures have been introduced to decrease the
likelihood of a breach
Business Interruption
Adverse weather conditions, pandemics, travel disruption, natural disasters, The Group has a framework of operational procedures and business continuity
terrorism, acts of war or other external events could adversely affect plans that are regularly reviewed, updated, and tested
consumer discretionary spending or cause a disruption to the Group's
operations.
The multi-channel model allows clients to purchase online from the safety and
comfort of their homes
The inability of the Group to be able to operate showrooms or a significant
reduction in available colleagues to operate the business, such as during a
material pandemic, would significantly impact the operations of the business.
Robust security arrangements are in place across our showroom network to
protect people and products in the case of security incidents
The Group offers flexible delivery options (home delivery or click and collect
in showroom) and its online operations rely on third-party carriers and
transportation providers. The Group's shipments are subject to various risks, A comprehensive insurance programme is in place to offset the financial
including labour strikes and adverse weather. consequences of insured events
The Group may experience significant theft of products from its showrooms, Business critical systems are based on established, industry leading package
distribution centres or during the transportation of goods. If a hold-up, solutions
burglary, or other theft incident takes a violent turn, the Group may also
suffer reputational damage and our clients may become less inclined to visit
our showrooms.
A detailed IT development and security roadmap is in place aligned to our
strategy
Disruptions to, or failures in, the Group's IT infrastructure and networks, or
those of third parties, could disrupt the Group's operations, especially
during periods of increased reliance on these systems such as those Reliable and reputable third-party logistic partners have been engaged to
experienced during the pandemic lockdowns. ensure the secure transportation of goods
The Group relies on IT networks and systems, some of which are managed by The Group put in place action plans to effectively deal with the pandemic
third parties, to process, encrypt, transmit and showroom electronic impact on business operations which could be applied to future pandemics.
information, and to manage or support a variety of business processes and
activities, including sales, supply chain, merchandise distribution, client
invoicing and collection of payments.
Regulatory and Compliance
Fines, litigation, and reputational damage could arise if the Group fails to The Group actively monitors both regulatory developments in the UK, US, and
comply with legislative or regulatory requirements including, but not limited Europe and compliance with existing obligations
to, consumer law, health and safety, employment law, data protection,
anti-bribery and corruption, competition law, anti-money laundering and supply
chain regulations.
Clear policies and procedures are in place, including, but not limited to,
anti-bribery and corruption, whistleblowing, and data protection
As the Group expands in the US and Europe, there is a risk the business lacks
the detailed knowledge of US and European laws and regulations resulting in a
breach, significant fine and reputational impact. Mandatory induction briefings and training for all colleagues on regulation
and compliance
Experienced in-house legal team with external expertise sought as needed
The established culture and values foster open, honest communication
Operational activities have been amended, and continue to be updated, to
comply with guidance provided by the Government to prioritise the safety of
colleagues and clients
Regulatory compliance reviews form part of the rolling internal Audit plan.
Economic and Political
The Group's business is geographically concentrated in the UK and US, and is Regular monitoring of economic and political events
expanding into Europe. Any sustained stagnation or deterioration in the luxury
watch or jewellery markets or decline in consumer spending in these
territories could have a material adverse impact on the Group's business.
Focus on client service to attract and retain clients
The Group or its suppliers may not be able to anticipate, identify and respond
to changing consumer preferences in a timely manner, and the Group may not Detailed sales data is analysed to anticipate future trends and demand, taking
manage its inventory in line with client demand. into consideration the current economic environment
Ongoing legal, political, and economic uncertainty in the UK, US and Through the expansion into the US and Europe, the Group is not wholly
international markets could give rise to significant currency fluctuations, dependent on the economic or political environment in one single market.
interest rate increases, adverse taxation arrangements or affect current
trading and supply arrangements.
Brand and Reputational Damage:
The Watches of Switzerland Group's trading brands and its corporate brand are The Group has a clear and open culture with a focus on trust and transparency
an important asset, and failure to protect the Group's reputation and brand
could lead to a loss of trust and confidence. This could result in a decline
in the client base, affect the ability to recruit and retain the best people,
and damage our reputation with our suppliers or investors. Training and monitoring of adherence by colleagues to Group policies and
procedures
Good client experience is a key priority of the Group
The Group undertakes regular client engagement to understand and adapt the
product, offer, and showroom environment
The use of bold, impactful, digital-led marketing, along with an in-depth
knowledge of products, makes the Group an authority in the markets it serves.
Financial and Treasury:
The Group's ability to meet its financial obligations and to support the The Group's net debt/cash position, available funding and cash flow
operations and expansion of the business is dependent on having sufficient projections are regularly monitored by management and the Board
funding over the short, medium, and long term. The Group is reliant on the
availability of adequate financing from banks and capital markets to meet its
liquidity needs.
Exchange and interest rates are regularly reviewed to determine if hedging
should be put in place
The Group's level of indebtedness could adversely affect its ability to react
to changes in the business and may limit the commercial and financial
flexibility to operate the business. A three-year strategic cash flow is prepared and stress-tested, including the
impact on covenant calculations
The Group is exposed to foreign exchange risk and profits may be adversely
impacted by unforeseen movements in foreign exchange rates. Quarterly meeting with the lenders agent to update on forecast and trading.
Significantly reduced trading over an extended period, due to the pandemic,
could impact the business's ability to operate within committed credit
facilities. This has been considered as part of the Group's going concern and
viability assessment on page 166 in the Annual Report and Accounts 2022.
Climate Change
The Group has recognised the potential reputational, operational, and Climate-related issues are addressed at least three times a year by the ESG
financial impacts of climate change on our business, which has led to this Committee, and our CFO has taken operational responsibility for
risk being moved from an emerging risk in FY21 to a principal risk in FY22. climate-related issues. Management assess and manage climate-related risks and
opportunities via the Audit Committee, where reports on progress towards
carbon reduction targets are presented
The increased frequency of extreme weather events may lead to the significant
disruption of retail showrooms, offices, and distribution centres, through
flooding and strong winds. The supply chain may also be impacted through The Group undertook a qualitative and quantitative climate scenario analysis
transporting goods to showrooms. (CSA) in 2021 which has identified risks and opportunities for the business
and provided materiality and financial impacts of these risks to the business.
Over the upcoming year, these results are being incorporated into our
financial planning. The results of the CSA are also informing our US and UK
In a changing climate, there is the potential for higher insurance premiums business continuity plans for extreme weather events
for business operations, especially ones located in specific geographies.
Mitigation initiatives are being implemented across the portfolio. These
The increasing cost of energy and potential regulatory mechanisms on direct include:
carbon emissions, may impact business financials and profit if the Group
cannot transition to a more low carbon business model. Smart metering
Temperature controls
The Group's reliance on premium raw materials, which is a finite resource, Collaboration with landlords to improve
increases its exposure to resource scarcity, and the potential increased cost HVAC efficiencies
of obtaining these resources in a challenging supply chain environment.
Electric vehicles used for company car and operational
fleets
The Group may fail to implement its mitigation strategy to reduce its impact
on the climate and manage the risk appropriately, leading to increased
scrutiny from stakeholders and investors, resulting in reputational damage. Promoting the sustainable sourcing of our precious stones and metals, auditing
our suppliers, and increasing our environmentally friendly product range
The Group monitors its GHG emissions on an annual basis and has set near term
SBTs aligned to 1.5°C under the Paris Climate Agreement of 50% absolute
reduction in Scope 1 & 2 and 42% absolute reduction in Scope 3 emissions
by 2030 from a baseline year of FY20.
Further information on the financial risks we face and how they are managed is
provided on pages 138 to 144 of the Annual Report and Accounts 2022.
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report and Accounts in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each
financial year that give a true and fair view of the state of affairs of the
Group and the Company as at the end of the financial year, and of the profit
or loss of the Group for the financial year.
Under that law the Directors have elected to prepare the Group Financial
Statements in accordance with UK adopted International Standards and have
elected to prepare the Company's financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice, including FRS 102 (The
Financial Reporting Standard applicable in the United Kingdom and the Republic
of Ireland) and the Companies Act 2006.
Under company law, the Directors must not approve the Financial Statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and the Company and of the profit or loss of the Group
for that period.
In preparing the Annual Report and Accounts, the Directors are required to:
- Select suitable accounting policies in accordance with IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors (or in respect of the
parent company Financial Statements, Section 10 of FRS 102) and then apply
them consistently;
- Make judgements and accounting estimates that are reasonable and prudent;
- Present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
- Provide additional disclosures when compliance with the specific
requirements in IFRSs (or in respect of the parent company financial
statements, FRS 102) is insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the Group's
financial position and financial performance;
- For the Group Financial Statements, state whether International Financial
Reporting Standards in conformity with the requirements of the Companies Act
2006 and UK adopted international accounting standards have been followed,
subject to any material departures disclosed and explained in the Financial
Statements;
- For the Parent Company Financial Statements, state whether applicable UK
accounting standards, FRS 102, have been followed, subject to any material
departures disclosed and explained in the Parent Company Financial Statements;
- Prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Group and the Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's and the Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that the financial statements
comply with the Companies Act 2006 and, as regards the Group Financial
Statements, Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic report, Directors' report, Directors' Remuneration
Report and Corporate Governance statement that comply with that law and those
regulations. The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Company's website.
Each of the Directors, whose names and functions are listed on pages 182 and
183 of the Annual Report and Accounts 2022 confirms that, to the best of their
knowledge:
- that the Group Financial Statements, which have been prepared in accordance
with UK adopted international accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit of the Group;
- that the Annual Report and Accounts 2022, including the Strategic Report,
includes a fair review of the development and performance of the business and
the position of the Company and undertakings included in the consolidation
taken as a whole, together with a description of the principal risks and
uncertainties that they face;
- that they consider the Annual Report and Accounts 2022, taken as a whole, is
fair, balanced and understandable and provides the information necessary for
shareholders to assess the Company's position, performance, business model and
strategy.
The Directors of Watches of Switzerland Group PLC are listed in the Group's
Annual Report and Accounts 2022 and on the Group's website: thewosgroupplc.com
(http://thewosgroupplc.com/)
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