During the year the Board carried out a robust assessment of the financial risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

The Company’s business, results and financial condition are influenced by a range of risks and uncertainties, a number of which remain beyond the control of the Board.

The Board reviews key risks and controls and, whilst the following highlights some of the key risks that have affected or could affect the Company, it is not an exhaustive analysis of the threats that may affect or influence the conduct of the business.

Area of riskDESCRIPTIONPOTENTIAL IMPACTMITIGATION
Market demand

A significant proportion of the Company’s revenue arises from trade with independent retailers and flooring contractors. The activity levels within this customer base are determined by consumer demand created through residential property refurbishment or moves, new residential housing developments and a wide range of commercial refurbishment and building projects.

Periods of economic recession that create reduced consumer confidence or contraction in the construction industry and changes in trends and preferences all have the potential to affect market activity and demand for products supplied by the Company. This risk has been a feature of the floorcovering markets since 2008 in the territories where the Company has traded.

Market activity is monitored daily in each individual business and collectively at Company level. This visibility allows prompt response to factors adversely affecting trading. Furthermore, since the Company’s principal activities are supply and distribution, the Company has the ability to react quickly to market changes. In addition, the development of a range of regional, national and specialist businesses provides the Company with broad market penetration and the capability to manage the downside risk arising from a market contraction.

Competitor risk

The Company operates across four geographical markets, each of which has a number of similar trading characteristics. Within each market, the Company competes directly with a variety of regional and national distributors and manufacturers selling directly to its customer base and indirectly with multiple retail chains.

The emergence of a competitor with a strong business model could undermine the Company’s growth objectives.

The Company seeks to sustain its competitive position by maintaining close relationships with its supplier and customer base. Substantial and continued investment in management and facilities, an extensive product offering, a knowledgeable selling resource, product availability, IT, efficient material handling and logistics enables the Company to continue to improve its market leading position.

Technology

The software platform is a vital component of the Company’s operating strategy, underpinning the delivery of operational objectives and providing the framework for the maintenance of financial control.

Given its importance, any prolonged system failure has the potential to adversely affect business performance.

Each business has its own dedicated hardware and failure in one will not interrupt another. Furthermore, the Company operates well defined backup procedures and has contingency plans in place to enable swift recovery from a failure of this nature.

People

The Company’s ability to deliver continued success is very dependent upon its people.

An inadequate pool of suitably qualified and talented people can disrupt business development and undermine the Company’s ability to deliver sustainable growth.

Recruitment, training and development are aimed at ensuring the Company has suitably skilled and qualified people to meet the current and future operational needs of its businesses. Furthermore, the Company is committed to creating opportunities for individuals to progress their careers.

Employee benefits

The costs associated with funding the Company’s defined benefit plans continue to be affected by the volatility in investment returns, bond yields, inflation and an improving mortality trend.

The Company operates defined benefit plans in the UK and Switzerland. As at 31 December 2016, the UK plan deficit of £18.3 million represented 80% of the total Company deficit. An increase in the plan deficit could require the Company to increase the deficit reduction contributions.

The Company’s most recent triennial valuation of the UK plan was assessed as at 31 March 2014. The trustees commissioned an annual update valuation as of 31 March 2016. As a result of the 2014 valuation, it was agreed to decrease the deficit reduction contribution during 2016 to £2.1 million rising to circa £2.2 million in 2017 due to an agreed 3.3% increase. This 3.3% increase will occur each subsequent 1 January, with a view to eliminating the shortfall by 30 April 2019. The next triennial valuation will take place at 31 March 2017.

The reduction in the annual UK contribution has been agreed by the Company and trustee because the trustee is content with setting a deficit reduction programme over a longer time frame given the underlying financial strength of the Company.

Legislation and regulation

The Company’s operations are regulated by a variety of laws and regulations, the principal ones relating to health and safety, the environment, employment, commerce, corporate, financial reporting and taxation.

Failure to comply could cause reputational harm and lead to serious civil or criminal proceedings, causing disruption to the Company’s operations and leading to financial loss.

The Company manages its obligations through a framework of set policies and procedures and, where appropriate, engages the services of competent third– party advisers.