Dar ty plc Annual r epor t 2 014 /15
Darty plc Annual report 2014/15
9.8mm spine
Certain statements made in this report are forward looking statements.
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Contents
Overview 01 Welcome 02 Highlights 03 Chairman’s statement Strategic report 05 Our markets 06 Our business model 07 Strategy09 Chief Executive’s review 17 Operating review 18 Financial review 21 Principal risks 23 Corporate responsibility Directors’ report 28 Board of Directors 30 Directors’ report Corporate governance 34 Corporate governance
40 Report on Directors’ remuneration and related matters
52 Statement of Directors’ responsibilities
Financial statements and notes (IFRS)
53 Independent auditors’ report to the members of Darty plc 58 Group income statement
59 Group statement of comprehensive income 60 Group statement of changes in equity 61 Group balance sheet
62 Group cash flow statement 63 Notes to the financial statements
Darty plc (UK GAAP)
110 Independent auditors’ report to the members of Darty plc 112 Company balance sheet 113 Notes to the Company
financial statements
Other information
119 Shareholder information 120 Group five-year summary
Online growth
Strong kitchens offer
Reducing
environmental impact
Darty brand
development
Successful franchise
operation
Improved
customer offer
Expansion in
the Netherlands
The Darty Group is a multi-channel electrical retailer
trading from over 400 stores and websites.
We sell a full range of electrical products from major home and small domestic appliances
to all the latest vision and multimedia products. This is supported by our leading customer
service offer in-store, online, for home delivery and after-sales.
We operate as Darty and Mistergooddeal.com in France, Vanden Borre in Belgium and BCC
in the Netherlands.
* Including Mistergooddeal.com ** Including 43 franchise stores
France
*
Revenue
(€m) Revenue growth Retail profit (¤m) Number of stores** Selling space sqm (000s) Web sales (% of total sales)
2,813.5 3.5%
70.0
265
322.7
17.4
Belgium and the Netherlands
Revenue
(¤m) Revenue growth Retail profit (¤m) Number of stores Selling space sqm (000s) Web sales (% of total sales)
698.6
1.7%
14.8
135
142.8
13.1
Overview
Overview
Highlights
Delivering our strategic plan – ‘Nouvelle Confiance’
•
Investment in our growth initiatives:
•
39 franchise stores opened in the year
delivering strong sales uplifts;
•
Over 22 per cent increase in web generated
sales in France following the acquisition of
Mistergooddeal.com, bringing web penetration
to over 17 per cent of product sales;
•
Expanded the kitchen offer into 16 further
stores to a total of 71 stores; and
•
Built on an improved performance at BCC
with the acquisition of 18 profitable stores to
become the leading multi-channel retailer in
the Netherlands.
•
Market outperformance in both France and
the Netherlands.
•
Completed the elimination of losses in our
non-core markets with the sale of our
shareholding in Datart in the Czech Republic
and Slovakia.
•
The Board is recommending a final dividend of
2.625 cents per share (2014: 2.625 cents) bringing
the total dividend for the year to 3.5 cents per
share (2014: 3.5 cents).
Financial summary for the 12 months ended 30 April 2015
Group 2014/15 2013/14 restated1 Revenue €3,512.1m €3,404.4m LfL sales (1.6)% 1.9% Retail profit2 €74.9.m €85.5m Operating profit €60.3m €53.4m Adjusted PBT3 €51.3m €72.1m
Profit/(loss) for the year €13.8m €(6.6)m
Adjusted EPS3 5.8 cents 6.5 cents
Basic EPS 2.7 cents (0.6) cents
Net debt €223.8m €185.2m
Total dividend 3.5 cents 3.5 cents
1 Restated following the sale of Datart, now classified as discontinued operations, the CVAE reclassification from operating profit to taxation and the legacy UK retirement benefit scheme expenses from finance costs to operating profit. 2 Retail profit represents total operating profit before the share of joint venture and
associates’ interest and taxation, the movement in options and related charges over non-controlling interests, gain on disposal of available-for-sale investments, legacy UK retirement benefit scheme expenses, exceptional items and amortisation and impairment of acquisition related intangible assets.
3 Excludes the share of joint venture and associates’ interest and taxation, the movement in options and related charges over non-controlling interests, gain on disposal of available-for-sale investments, legacy UK retirement benefit scheme expenses, exceptional items, net interest on pension schemes and amortisation and impairment of acquisition related intangible assets.
Overview
Chairman’s statement
We launched Nouvelle Confiance, our three stage strategic plan to restore shareholder value, nearly three years ago and we have successfully executed all the key components on schedule.
The first stage was to identify and eliminate the losses at our non core businesses in Italy, Spain, Turkey and the Czech Republic and Slovakia to refocus on our core markets in France, Belgium and the Netherlands. This process was completed in July 2014 with the disposal of Datart in the Czech Republic and Slovakia.
Having refocused the Group, we set out to create value from our market leadership position, drive greater efficiency and reduce costs and we devised a four point action plan (the ‘4Ds’) to:
•
Drive trading by delivering on promise to customers;•
Digitalise Darty by further enhancing our multi-channel offer and leading websites;•
Develop our brand by improving our product and market leading service offerings as well as expanding our customer base; and•
Deliver cost efficiencies.I am pleased with the continued success we have had and a full account of our activities and achievements can be found in the Chief Executive’s review.
The third component of the plan was to identify future growth opportunities. We announced last year our initiatives to expand the Darty portfolio through a franchise operation, extend our ‘low price’ offer through the acquisition of Mistergooddeal.com and a progamme to increase the number of stores in France with the kitchen offer. We have been busy implementing all three programmes and I am pleased that during the last year we opened 39 franchise stores, integrated the Mistergooddeal.com business into Darty France helping us increase web generated sales by over 22 per cent and expanded the kitchen offer by a further 16 stores to 71 stores. We still have more to do to ensure growth in shareholder value but we have a strong platform for the future. Given the progress we have made, the Board is recommending a final dividend of 2.625 cents per share, bringing the total dividend for the year to 3.5 cents per share, reflecting our confidence in our ability to deliver improved results in the medium term. Dominic Platt, our Finance Director for over five years, will be leaving the Group on 30 June and I would like to thank him for his valuable contribution to the business and wish him every success for the future. His successor Albin Jacquemont joined the Group in March and joins the Board as Finance Director on 18 June. He is already making a positive impact and I look forward to working with him over the coming years. Finally I must thank all our colleagues across the Group for their hard work and loyalty, particularly in these difficult trading times.
We have delivered on our Nouvelle Confiance plan
and have a strong platform for the future.
Alan ParkerCBE Chairman
Successful franchise operation
Our franchise programme is proving extremely successful and popular with both
the franchisees and their customers.
The store owners are enjoying the benefit of the Darty brand with wider ranges,
access to the full Darty service offer and Darty.com.
We now have over 40 stores in operation and are on track for 100 by 2016/17.
“ Typically my sales are up by
50–75 per cent every month
so I am very pleased to have
joined the Darty store network.”
Strategic report
Our markets
We are the third largest specialist electricals retailer in Europe by sales. As of 30 April 2015, we continue to hold leading positions in the markets in which we operate. In France, we are the market leader, based on industry reports by GfK, with a 14.7 per cent share of the French electricals retail market, with an additional 0.4 per cent share coming from the acquisition of Mistergooddeal. com. In Belgium we have 10 per cent share of the electricals retail market and in the Netherlands we have 5.6 per cent share of the Dutch electricals retail market. In the Netherlands following the acquisition of 18 stores from a competitor we are a leading multi-channel electricals retailer in the market.
In terms of product categories our brands tend to have a higher share in major home and small domestic appliances than vision, communication and multi-media product ranges.
We believe that our leading brand position in France, and in our other core markets, results from a combination of factors, including our reputation for quality and convenience, the range and diversity of our products and our extensive network of stores situated in high traffic areas and leading websites. In France, our primary market, Darty is the most widely recognised electricals retail brand (Source: TNS Sofres, March 2015). It also has a significantly better image than its competitors for its stores and sales staff, choice of products and quality of service.
Our strong brand recognition and the fact that consumers associate our brand with choice, service and price competitiveness are key drivers of consumer interest in our products, visits to our stores and websites and our ability to generate high sales volumes and attractive margins. Our strong brand recognition also provides us with a solid platform to further expand both our product and service offering and our network of stores and e-commerce platforms.
2012/13 2012/13 2012/13 2013/14 2013/14 2013/14 2014/15 2014/15 2014/15
Market size €17.7 billion
Market share %
Market size €3.9 billion Market size €6.1 billion
France
Belgium
Netherlands
13.4
14.3
14.7
9.9
10.5
10.0
Strategic report
Our business model
We are the number one electricals retailer in France, the number two electricals retailer in Belgium and, following
our recent acquisition, we are a leading multi-channel player in the Netherlands, our core markets. We operate
under some of the most highly established brands in our sector. We display, sell, distribute and provide after-sales
support for a wide range of electrical products and associated accessories and services, from major home and small
domestic appliances to the latest vision and audio and telecommunication and multimedia products. We market
and distribute our products through our network of 400 stores and leading websites and mobile applications.
Business model Strategy 2014/15 progress Future opportunities KPIs
Market leading brands in our core markets in France, Belgium and the Netherlands Identify and eliminate losses in non-core businesses and strengthen leadership positions in core markets
Completed the disposal of Datart in the Czech Republic and Slovakia
Acquired 18 profitable stores in Holland Successfully opened 39 franchise stores
Ongoing review of market consolidation opportunities Further roll-out of the Franchise model Retail profit ¤m Number of franchise stores Unrivalled service offer before, during and after-sales
Drive trading by further improving our value added service proposition
Trialled and rolled out the successful new after-sales service initiative ‘Le Bouton’ Launched same day delivery and after sales service intervention
Continue to assess opportunities for extended service offers LFL sales Market share Fully integrated multi-channel platforms comprising stores, websites and mobile applications
Digitalise Darty by further enhancing our websites and driving web generated sales
Expanded ‘Click and collect’ offer Programme to equip staff with tablets and provide in-store WiFi Information screens introduced to larger stores
Continue to exploit opportunities from new technology
Roll-out use of tablets for staff and in-store WiFi availability Internet sales growth Web-generated sales Extensive offer of all
electrical products and accessories with all major brands and own-label and licensed ranges
Develop our brand by improving our product offerings and expanding our customer base
Integrated Mistergooddeal.com into the main Darty operation
Rolled out the kitchen offer to a further 16 stores
Further roll-out of the
kitchen offer Number of stores with the kitchen offer Cost effective operations Deliver cost efficiencies by implementing cost saving initiatives
Completed ¤50 million cost saving programme on schedule
Ongoing cost efficiency with focus on after-sales service
Retail profit margin
A more detailed description of progress made during the year ended 30 April 2015 and our opportunities for growth can be found in the Chief Executive’s review on pages 9 to 15.
RESEARCH DELIVERY STORE ONLINE PC TABLET MOBILE ONLINE PC TABLET MOBILE CLICK AND COLLECT INSTORE WIDER CHOICE EX PERT ADVICE CO LL ECTION POINTS SEE TOUCH P RIC E COMPARISON INSTALLATION TA K E A WAY OLD APPLIA NC E INSTORE
I WANT TO BUY A WASHING MACHINE
Strategic report
Strategy
Multi-channel retailing
We want our customers to have a choice of how to research, buy and receive the products they want from our stores, websites and mobile apps.
Research – online from PCs, laptops, tablets and mobile phones or in-store. Buy – online, in-store or on the phone via our call centres.
Delivery – Home delivery, collect from our stores or collection points or take away from the store on purchase. Being a multi-channel retailer we can reach more customers outside of our stores and we make more efficient use of the infrastructure of our stock, warehousing and home delivery, whatever the type of purchase.
In December 2012, we launched our ‘Nouvelle Confiance’ strategic plan, the principal components of which were to:
•
identify and eliminate losses at our non-core businesses and refocus on core markets;•
create value from our market leadership and efficiency savings; and•
identify future growth opportunities. Following our exit from our businesses in the UK, Italy, Spain and Turkey, we completed the elimination of losses in our non-core markets with the disposal of our majority shareholding in Datart in the Czech Republic and Slovakia in August 2014. We are now totally focused on our core businesses in France, Belgium and the Netherlands.In February 2015, our business in the Netherlands, BCC, completed the acquisition of 18 profitable stores from HiM Retail, strengthening its market position. The stores geographically complement the current portfolio and bring the total number of BCC stores to 75, making it the leading multi-channel electrical retailer in the market. Most stores have now been rebranded to BCC and are showing on average a 15 per cent sales uplift.
The ‘4Ds’
In order to create value from our market leadership, drive greater efficiency and reduce costs, we developed a four-point plan (‘4Ds’), focusing on our principal business in France to:
Drive trading by delivering on our promise to customers;
Digitalise Darty by further enhancing our multi-channel offer and leading websites;
Develop our brand by improving our product and market-leading service offerings as well as expanding our customer base; and
Deliver cost efficiency by implementing cost savings.
1 2
3
“ A new after-sales service
initiative ‘Le Bouton’ was
launched in October offering
customers immediate support
at the touch of a button.”
Darty brand development
This year we celebrated 40 years of the famous ‘Contrat de
Confiance’, Darty’s price, choice and service promise to its
customers. We took the opportunity to evolve this long heritage
for service and modernised the brand’s image in keeping with
the changing expectations of our customers and to raise our
awareness even further.
We have introduced a number of initiatives including instore
Wifi availability, a very contemporary and widespread marketing
campaign, a series of instore events and ‘Le Bouton’.
Strategic report
Chief Executive’s review
Across the Group we delivered on new initiatives to
improve our multi-channel proposition which led to
market share gains in France and the Netherlands.
The ‘4Ds’
1 Drive trading
In a market that saw a small decline in France over the year we delivered further market share gains, kept footfall stable and improved our store conversion rate. During the period Darty held a number of events to drive trading. A successful World Cup campaign helped deliver strong vision sales during May and June and the July Sale received a positive response from customers. The ‘Back to school’ campaign run from late August through September, delivered sales below expectation due to limited stock and the January Sale was impacted by events in Paris at the beginning of the month. We supported these campaigns by weekly monitoring of our instore and online prices to confirm our competitiveness. On a ‘service included’ basis we continue to compare very favourably against all store based retailers and all web pure players and we have recovered our number one position in the TNS Sofres survey. In addition, during the year we celebrated 40 years of ‘Contrat du Confiance’, our price, choice and service promise to our customers, and we took the opportunity to simplify and modernise the Contrat providing us with a unique marketing platform.
As part of the Darty service offer, delivery, installation and after-sales service have historically been included for free with the majority of product purchases. A premium ‘paid for’ delivery is now available for specific two hour time slots from 7am to 9am, and 5pm to 9pm and ‘Chronopost’ next day delivery if ordered by 1pm for non-bulky items. In March we enhanced the service offer with ‘paid for’ same day delivery for large appliances in the Paris and Lyon regions, if ordered before 4pm and delivered by 9pm, and in Paris same day after-sales service intervention if contacted by 4pm. As a result we have regained the leading
position in home delivery and extended our lead against all our competitors for after-sales service (source: TNS survey). After the end of the financial year we launched a new Store card, ‘Carte de credit connectée’, with the objective of providing customers with greater value beyond purely a financing solution. For a ¤15 annual fee, which is subsequently refunded in Darty vouchers, customers receive a Visa debit/credit card which is also a loyalty card. Every time a customer uses the card to complete three transactions worth over ¤50 each at Darty they will be given a ¤10 gift card. Additional benefits include free subscription to ‘Le Bouton’, our new 24/7 after-sales service initiative launched last year, special offers on products, VIP shopping evenings and access to flexible financing offers and free credit.
2 Digitalise Darty
As a successful multi-channel retailer, we continue to develop a seamless approach between our websites and stores. During the period we continued the programme of digitalising the store network which includes free WiFi, equipping sales staff with tablets to demonstrate products and provide price and availability and large display screens. By the end of the financial year we had digitalised 64 stores including two franchises, with over 1200 tablets being utilised by staff, and we had over 340 screens across 30 stores. Throughout the year we saw an improvement in the level of sales made utilising a tablet to 14 per cent of store sales, with the best stores approaching 40 per cent. We plan to digitalise a further 60 stores during 2015/16.
Visits to Darty.com grew over 22 per cent for the year to over 160 million and towards the end of the period the website was refreshed to improve its look, feel and content, making it more modern,
Régis Schultz
Online growth
We have successfully grown our online business with a 22 per cent
increase in web generated sales. The acquisition last year of
Mistergooddeal.com is enabling us to offer a wider choice of
price-entry products, attracting a more diverse customer base.
We have integrated the business into Darty, utilising our
infrastructure and creating greater cost efficiencies.
“ This year in France we
achieved a 22 per cent
uplift in web generated
sales bringing web
penetration to over
17 per cent of total
products sales.”
Strategic report
Chief Executive’s review
During the year we saw significant increases in penetration of our ‘Click and collect’ service, where customers can reserve online and collect an hour later from their chosen store, or from a Click and collect locker in certain high traffic stores. Penetration of Click and collect increased by 540 basis points to 20 per cent of web sales, with penetration reaching 30 per cent in the peak trading month of December compared to just over 20 per cent the prior year.
3 Develop our brand
Building on Darty’s long heritage for service and its famous ‘Contrat de Confiance’, a new initiative, ‘Le Bouton’, was launched nationwide in October. By pushing a dedicated wireless ‘button’ or via a mobile app, customers can make direct contact with Darty’s market leading after-sales service support, 24 hours a day, seven days a week. We aim for a service assistant to call the customer
back within two minutes to assess and solve the problem either over the phone or by a subsequent home visit. The service is available for all electrical products but for those not originally bought from Darty or out of warranty there is a charge for any repairs required. The service is available for a small monthly subscription of ¤3/month, or ¤8/month including multimedia products, plus ¤25 for the wireless button. Over 35,000 buttons had been issued by the end of the year, including six, 12 or 24 month subscription bundled with an extended warranty purchase. Our intention is to fully integrate the button into the extended warranty offer. As market leader in France we continue to receive support from leading manufacturers in gaining access to exclusive products, with particular emphasis on being ‘first to market’ for new products. During the period this was evidenced by significant sales of large
screen OLED and Ultra HD/4K televisions, particularly ahead of the football World Cup in May and June. Increasingly connected products and dedicated areas in-store and online are being introduced into the offer for both the home and health, such as connected security, lighting, thermostats and fitness trackers. As recognition for the recent progress we have made with the brand, our net promoter score increased over the second half of the year. We also won a number of awards during the year including one from LSA for our ‘Click & Collect’ service, the ‘Nuit des Rois’ digital marketing award for ‘Le Bouton’ and the ‘IREF Satisfactions Clients’ award for the electricals sector. In addition, we have seen improving colleague engagement through our annual staff opinion survey.
20
PER CENT
penetration of Click and collect
increased to 20 per cent of
total web sales.
Improved customer offer
We continually improve our offer to build customer loyalty and increase web
and store traffic to keep one step ahead of the competition with a seamless
approach between our websites and stores.
We are a true multi-channel retailer. Our customers can research for a product
online or in our stores; buy online, in-store or by phone; and then obtain their
product via either home delivery, collect from our stores or collection points
or takeaway from our stores on purchase.
“ Over the last year in
France we have recorded
73 million visits to our
stores and over 165 million
visits to our websites.
Customer information
is gathered to provide
a database for more
specific and tailored
marketing purposes.”
We are focused on building on our achievements
to date by investing in our customer proposition,
reducing the cost base and delivering improved
profitability through our growth initiatives.
4 Deliver cost efficiency
Throughout the Group, we had targeted annual gross cost savings over three years of ¤50 million per annum by 2015/16, from delivering a more efficient operating model, continuing to adapt our cost structure and leveraging synergies between our operating companies. To accelerate the achievement of the savings by 2014/15, a social plan was implemented in France last year and proceeded as planned. ¤30 million of benefits were achieved over the prior two years with the final benefit of ¤20 million achieved in full this financial year. Total Group underlying costs (excluding the Mistergooddeal.com acquisition) were down over 2 per cent (¤27 million) despite incremental costs related to our increased store activity. While this major programme has now been completed, we continue to work on all opportunities to improve cost efficiency in the business, with a particular focus in France in 2015/16 on the after-sales service infrastructure and increasing ‘Click and collect’ penetration to further reduce home delivery costs. We also continue to manage our freehold property to ensure maximum value to the Group. Following over ¤45 million of total proceeds in the prior two years, ¤13.9 million was delivered this financial year, with a similar amount expected in 2015/16.
Growth initiatives
In 2013 we identified and introduced initiatives to help secure our future growth, including:
•
expanding the Darty portfolio into smaller catchment areas with the opening of franchise stores;•
extending our low price/pay-as-you-go services offer through theMistergooddeal.com channel; and
•
a programme to increase the number ofstores in France with the kitchen offer.
Franchise stores
Darty is the market leader in France with 70 per cent of consumers within a 30-minute drive time of a store. The remaining 30 per cent of consumers represent an opportunity to further exploit the existing infrastructure of our multi-channel offer. Typically these consumers will reside in smaller catchment areas, usually below 100,000 inhabitants where it is uneconomic to open a typical Darty store. To address these smaller catchment areas we established a franchise operation last financial year.
The independent owner invests to refurbish their own store to a Darty store, consistent in terms of both branding and offer with the rest of the store portfolio. We charge the franchisee for the supply of product ranges and provision of home delivery and after-sales services. A franchise fee is also charged for use of the brand and marketing support.
At the end of the financial year we had opened 43 stores including four overseas. Performance has been encouraging with significant sales uplifts and a net promoter score above the Darty average. We expect to open around 25 additional stores in 2015/16, bringing the total to around 70 stores.
Strategic report
Chief Executive’s review
70
PER CENT
of consumers are within
a 30-minute drive time
of a Darty store.
Strong kitchens offer
Thanks to improving the density of our merchandising in all other
product categories, we now offer our bespoke kitchen range and
service in over 70 stores, making sure we are capitalising on this
fast growing area of the market.
Our medium term aim for the offer to be in 120 stores, in all
catchments of over 200,000 inhabitants, is well on track.
“ The service and quality of
Darty Kitchens is excellent.
The price is good and the
after-sales service and
installation is very efficient
and smooth.”
only 62 per cent compared to a European average of around 80 per cent and a growing electricals built-in market. At the same time, competitors are consolidating and, as Darty builds scale, consumer recognition of our kitchens offer is consistently improving year-on-year. As a result of increasing the density of merchandising in other product categories, we are now able to install the kitchen offer in smaller stores in the portfolio. We now have 71 stores with the offer generating over €80 million of revenue. Commercial initiatives during the year included interest free credit offers as well as a partnership with house builder, Bouygues Immobilier for customers to select a Darty kitchen to be installed in their new property. Given the acceleration of openings in the year, the time to reach maturity and pre-opening costs incurred ahead of the initial customer orders, a loss was made in 2014/15 of ¤4 million. At the end of the period a new catalogue was launched in print and online, featuring 32 different kitchen models, supported by a TV campaign from early May. With a further 13 stores planned to have the offer in 2015/16, together with changes to the management team, infrastructure and planned productivity improvements, we expect to move to profitability in the current financial year.
Outlook
Whilst we have started to see signs of improvement in consumer confidence, the product cycle will continue to have an impact on our markets which are expected to remain challenging. We are focused on building on what we have achieved through Nouvelle Confiance by investing in our customer proposition in all our businesses, reducing the cost base and delivering improved profitability.
Régis Schultz
Chief Executive
Strategic report
Chief Executive’s review
Mistergooddeal.com
To increase Darty’s share of the fast growing market for an entry price offer, we acquired Mistergooddeal.com towards the end of the last financial year. Mistergooddeal.com is a leading French electricals website, predominantly in white goods at the price entry end of the market, with no service included. We have retained the brand name and are extending the product offer with the introduction of our own label brands. Darty’s existing service infrastructure is now being used to offer Mistergooddeal. com customers additional services on a pay-as-you-go basis, with home delivery being offered from October and all suitable Darty stores can now be used as customer collection points.
Initial trading was weaker than expected due to very competitive activity in the entry price end of the market. With a new management team in place from October 2014 we deepened and accelerated the integration of the business into the main Darty operation to help speed up and deliver further cost savings. The head office was integrated in January 2015 followed by the IT and warehousing in April 2015. A new look website was launched at the end of the year, on Darty’s IT platform. We also made changes to the product offer, exiting non-core categories such as furniture and extending small domestic appliance and vision ranges. The retail loss for 2014/15 was ¤7.7 million but with the actions being taken commercially and particularly on the cost base, we expect to approach breakeven for 2015/16.
Kitchens
Our kitchens business in France is an example of our ability to continually develop the Darty brand further, and move into a new, related product area, build a relevant market position and drive profitability. The kitchen market has solid fundamentals with the fitted kitchen equipment rate in France being
16
FURTHER STORES
expanded the kitchen offer into
16 further stores increasing the
total to 71 stores.
“ We now have 75 stores in the
BCC chain and have become a
leading multi-channel electrical
retailer in the market.”
Expansion in the Netherlands
Our business in the Netherlands, BCC, has seen much better results
recently and we have driven this further forward with the acquisition
of 18 profitable stores from a competitor.
All these stores geographically complement the existing portfolio.
They have already been refitted and branded as BCC and are
leveraging the existing store and after-sales service support
infrastructure in the Netherlands.
France
Total revenue was up 3.5 per cent including Mistergooddeal.com and the franchise business and the Darty brand again outperformed the market for the period. Like-for-like sales fell 2.0 per cent with trading up against strong comparatives from the prior year (like-for-like sales up 2.8 per cent), particularly in the second half. We saw continued strong growth in communications and white goods were also positive. The rate of decline in vision slowed significantly, with growth in May and June reflecting a successful football World Cup campaign with strong sales of new technologies (OLED and Ultra HD) and large screen sizes. We saw a fall in multimedia due to declining volumes and average selling prices for tablets and a poor digital camera market.
Overall web-generated sales continued to grow, albeit in a slower market, to over 15 per cent of total product sales, and to over 17 per cent including Mistergooddeal.com. Click and collect at Darty.com was increasingly popular with customers, rising over 40 per cent to 20 per cent of web sales. Underlying gross margin was down around 90 basis points reflecting competitive French market conditions not fully offset by an improving product mix. Overall gross margin for France was down around 180 basis points after taking account of the lower margin franchise and Mistergooddeal.com operations which had an impact on gross margin of 70 and 20 basis points, respectively.
Underlying total costs (excluding Mistergooddeal.com) reduced by ¤25 million, 3 per cent, reflecting the benefit of the cost programme implemented last year. Total costs were broadly flat.
Retail profit was ¤70.0 million compared to ¤87.2 million in the prior year. This included ¤7.7 million (2014: ¤0.9 million) retail loss for Mistergooddeal.com, a loss of around €4 million for the kitchen business, and a break-even performance from the franchise operation.
During the period five stores were opened, six closed, five relocated, three extended and three rightsized or refurbished. We also opened 39 franchise stores and added the kitchen offer to 16 additional stores. Plans for 2015/16 are for six relocations, five refurbishments and four rightsizings. We expect to open around 25 more franchise stores and introduce the kitchen offer to a further 13 stores.
Belgium and the Netherlands
At Vanden Borre in Belgium and BCC in the Netherlands overall revenue was up 1.7 per cent, and down 0.3 per cent on a like-for-like basis. Web-generated sales continued to grow strongly, up over 20 per cent, to over 13 per cent of total product sales, with Click and collect sales up 10 per cent to over 27 per cent of web sales.
With a new local management team in place, BCC saw a continued improvement in performance, first seen at the end of last year. We saw positive like-for-like sales in store and particularly on the web, market share gains in all major product categories and an improved gross margin. The acquisition of 18 profitable stores
Strategic report
Operating review
from a competitor completed in February, with the majority of stores converted to BCC by the year end. The acquired stores accounted for ¤8.0 million revenue in 2014/15 and are expected to contribute around ¤45 million revenue in 2015/16. Earlier in the period Vanden Borre focused trading on margin in a more promotional market with, inevitably, some impact on revenue against a strong performance last year. The like-for-like sales trend improved in the second half of the year and web sales saw strong growth following the introduction of ‘next’ and ‘same day’ delivery.
Overall gross margin saw a small improvement of 20 basis points, with total costs flat. Retail profit improved to ¤14.8 million compared to ¤9.3 million in the prior year with a strong reduction in losses at BCC, even after incurring some acquired stores integration costs, and a further growth in profits at Vanden Borre. Excluding the acquired stores there was one store closure at BCC and one new store opening at Vanden Borre. For 2015/16 we plan to close one store at BCC and open one at Vanden Borre.
18
NEW STORES
We acquired 18 profitable stores
in the Netherlands making us the
leading multi-channel retailer in
that market.
Strategic report
Financial review
Revenue and retail profit
Group revenue at ¤3,512.1 million, was up 3.2 per cent including Mistergooddeal. com and the franchise stores. On a like-for-like basis Group revenue was down 1.6 per cent, with slower second and third quarters against much stronger comparatives from the prior year. In terms of product categories we saw continued strong growth in communications and white goods was also positive. The rate of decline in vision slowed significantly, with growth in May and June reflecting a successful football World Cup campaign with strong sales of new technologies (OLED and Ultra HD) and large screen sizes. We saw a significant fall in multimedia due to declining volumes and average selling prices for tablets and a poor digital camera market. Our web-generated sales continued to grow and including Mistergooddeal.com were up over 22 per cent, now representing over 16 per cent of total product sales. Click and collect was increasingly popular with customers and represented over 24 per cent of all web sales. Underlying gross margin declined by around 80 basis points for the period where we started to see some benefit from an improving product mix, but was insufficient to off-set ongoing product category margin pressure in challenging and promotional market conditions. After taking into account the business mix effect of the lower margin Mistergooddeal.com and franchise operations, total gross margin was down 150 basis points.
Underlying costs, excluding Mistergooddeal.com, were down ¤27 million, over 2 per cent, reflecting the benefits of our cost savings
programme in France. Total costs including Mistergooddeal.com were broadly flat. Group retail profit was ¤74.9 million compared to ¤85.5 million for the same period last year, including losses of ¤7.7 million from Mistergooddeal.com (2014: Retail loss ¤0.9m), an improvement in Belgium and the Netherlands from ¤9.3 million to ¤14.8 million and a reduction in head office costs from ¤11.0 million to ¤9.9 million.
Exceptional items
Exceptional items totalled ¤13.7 million (2014: ¤29.4 million). ¤14.5 million related to property charges and impairment costs in France, mainly as a result of a programme to improve store portfolio performance. ¤7.1 million related to reorganisation costs associated with integrating Mistergooddeal.com into the Darty business (¤4.8 million) and other reorganisation costs mainly relating to the transfer of some head office functions from London to Paris (¤2.3 million). In addition, there was a ¤7.9 million exceptional gain (¤6.4 million in France and ¤1.5 million in Belgium and the Netherlands) arising following the review of absorption of distribution costs into the carrying value of inventory.
Operating profit
Operating profit was ¤60.3 million (2014: ¤53.4 million) with reduced exceptional charges off-setting a decline in retail profit.
Group revenue, including Mistergooddeal.com
and the franchise operation, increased by
over three per cent to €3,512.1 million.
Dominic Platt
Net finance costs
The net finance costs were ¤23.6 million (2014: ¤13.4 million) excluding IAS 19 pension interest of ¤3.8 million (2014: ¤2.6 million). The net finance cost increase reflects the full year impact of the refinancing of the Group in February 2014.
Adjusted profit before tax
The adjusted profit before tax was ¤51.3 million (2014: ¤72.1 million).
Taxation
The effective tax rate for the Continuing Group on adjusted profit before exceptional items, including the share of joint venture and associates’ tax was 23.2 per cent (2014: 44.4 per cent) and including the CVAE reclassification of €10.7 million (2014: €11.1 million) from operating profit to taxation was 39.3 per cent (2014: 52.6 per cent). The decrease in tax rate from 2014 is due primarily to lower French group profits which being taxed at a higher rate than the group tax rate has a beneficial impact on the group tax rate. This impact is partially offset by an improved performance in the Netherlands where tax credits are not currently recognised on losses.
The Company has received a demand from the French Tax Authority, claiming up to €15.3 million in unpaid taxes and penalties relating to the Group’s holding company structure. Extensive
professional advice has been obtained and the Company believes it has a very strong defence and much of the claim is without merit. A provision has been made based on our best estimate of the expected outcome.
Based on a total charge of €18.7 million (2014: €27.4 million) the total tax rate is 55.3 per cent (2014: 71.7 per cent) on unadjusted profits, reflecting that tax relief is not recognised on all exceptional and other non-retail profit items. The effective tax rate for the continuing Group on adjusted profit before exceptional items, including the share of joint venture and associates’ tax is expected to be mid 30s per cent in 2015/16 including the CVAE charge of around €11 million.
Profit for the period
The profit for the period from continuing operations increased to ¤15.1 million (2014: ¤10.8 million). Loss for the period from discontinued operations reduced to €1.3 million (2014: loss ¤17.4 million). Total profit for the period increased to ¤13.8 million (2014: loss ¤6.6 million).
Earnings per share
Adjusted earnings per share, excluding the IAS 19 net interest on pension schemes, was 5.8 cents (2014: 6.5 cents). Continuing basic and diluted earnings per share was 2.9 cents (2014: 2.1 cents).
Cash flow
Cash generated from operations was €60.7 million (2014: €18.4 million) principally as a result of a reduction in cash outflows related to discontinued operations. Net capital expenditure was €36.8 million (2014: €32.2 million), reflecting lower proceeds from property disposals of €13.9 million (2014: €29.7 million). Proceeds from the sale of operations relating to the sale of
Darty Turkey and Datart was €10.1 million. Cash costs of acquisitions mainly for stores at BCC in the Netherlands was €9.8 million. Interest paid was €22.9 million (2014: €21.4 million) and tax paid was €21.2 million (2014: €9.9 million) reflecting phasing of payments in France. The dividend payment remained
unchanged at 3.5 cents per share, but the strengthening of sterling against the euro for shareholders electing a sterling dividend payment increased the cash payment to €18.4 million (2014: €18.0 million).
Net cash outflow from continuing operations was €30.9 million (2014: net cash inflow €18.0 million). Net cash outflow from the discontinued operations was €5.6 million (2014: €57.5 million). Total net cash outflow was €36.5 million (2014: €39.5 million).
Net debt
Closing net debt was ¤223.8 million compared to ¤185.2 million on 30 April 2014. As at 30 April 2015, ¤57 million was drawn under the Group’s committed facilities (30 April 2014: ¤20 million) in addition to the Group’s ¤250 million High Yield Bond.
Retirement benefit obligations
The IAS 19 net pension liability was ¤103.4 million (2014: ¤104.6 million), split ¤38.2 million (2014: ¤60.1 million) in the UK and €65.2 million (2014: ¤44.5 million) in France. The movement in the UK net liability benefitted from the performance of the assets outstripping liabilities. The deficit of the UK scheme in sterling was £27.9 million.
The increase in the net liability in the French schemes mainly reflects a fall in corporate bond yields. The cash cost of the UK scheme was ¤12.9 million and the French scheme was ¤0.9 million.
Balance sheet
Following the disposal and closure of discontinued operations from 2012 onwards including Comet, Darty Italy, Darty Spain and Darty Turkey and exceptional items from recent restructuring, we have reported net liabilities. At 30 April 2015 net liabilities totalled ¤323.9 million (2014: ¤316.9 million). Under our accounting policies, freehold property is carried at cost. Our freehold property portfolio in France, representing in the main around one third of the store portfolio, has a carrying value of ¤102 million, compared with a market valuation of approximately ¤350 million. In addition we carry no internally generated goodwill for our market leading brands.
Dividends
The Board is recommending an
unchanged final dividend of 2.625 cents per share. The ex-dividend date will be 22 October 2015, the record date will be 23 October 2015 and the payment date will be 13 November 2015.
Financial presentation
Datart has been reclassified as a discontinued operation following the signature of a sale and purchase agreement with SEW-1001 a.s. to sell the Group’s 60 per cent shareholding on 22 July 2014. The prior year comparatives have been restated accordingly.
Two accounting treatments are possible for the business tax, CVAE (Cotisation sur la Valeur Ajoutée des Entreprises) – either as an operating expense or as income tax. In line with the treatment adopted by French retail listed peers the decision has been taken to reclassify from an operational expense in the retail profit of the France reported segment, to income tax. CVAE was ¤10.7 million for the year ended 30 April 2015 (2014: ¤11.1 million). In addition, having reviewed possible treatments under IAS19 Revised, retirement benefit scheme expenses of ¤1.3 million (2014: ¤1.4 million) relating to the legacy UK pension scheme have been reclassified from finance costs to operating profit in line with most common practice. These costs have been reclassified as an operating cost, outside of retail profit, as they relate to Comet, a discontinued business.
Strategic report
Financial review
Key performance indicators
Definition/source Performance
Sales:
Total revenue growth Like-for-like sales growth
Like-for-like sales are calculated based on stores that have been open for a full year and the first full four weeks of trading have passed. Stores where retail space has been added or where a complete format redesign (including addition of a mezzanine floor) has taken place, which involves material capital expenditure are excluded from like-for-like sales calculations. Sales through internet sites are included.
Internet sales growth
Percentage increase in web-generated sales.
Multi-channel sales
Web-generated sales as a percentage of total product sales.
2015: 3.2%
2015: (1.6)%
2015: 22.2%
2015: 16.1%
2014: 0.8%
12014: 1.9%
12014: 12.2%
12014: 14.3%
1 Profitability: Retail profitRetail profit represents continuing Group total operating profit before the share of joint venture and associates’ interest and taxation, movement in options and related charges over non- controlling interests, impairment of available-for-sale financial assets, exceptional costs and amortisation and impairment of acquisition related intangible assets.
2015: €74.9m
2014: €85.5m
1Retail profit margin
Retail profit as a percentage of total revenue.
2015: 2.1%
2014: 2.5%
1
Adjusted earnings per share
Excludes the effects of movement in options and related charges over non-controlling interests, realised losses on available-for-sale financial assets, exceptional costs, exceptional finance costs, tax effects of exceptional items, discontinued operations and amortisation of acquisition related intangible assets.
2015: 5.8 cents
2014: 6.5 cents
1Cash flow:
Free retail cash flow
Free cash flow is defined as cash generated from operations and net sale of business operations and subsidiary less net capital expenditure and investments.
2015: €25.6m
2014: (€1.2)m
Non-financial:
Market share
Share of the total electricals market in each country (source: GfK).
Franchise stores
Number of Darty franchise stores.
Kitchens
Number of Darty stores with a kitchen offer.
France 2014: 14.3% 2015: 14.7%
2014: 4
2015: 43
2014: 55
2015: 71
Belgium 2014: 10.5% 2015: 10.0% Netherlands 2014: 5.2% 2015: 5.6%1 Restated following the sale of Datart, now classified as discontinued operations, the CVAE reclassification from operating profit to taxation and the legacy UK retirement benefit scheme expenses from finance costs to operating profit.
The Group manages its performance using these key performance indicators in place at a Group and business level. Prior year KPIs have been restated for the new continuing Group to ensure like-for-like comparison.
The Group also has a set of non-financial KPIs; details of these are set out in the Corporate responsibility report on pages 23 to 27.
Dominic Platt
Strategic report
Principal risks
Risk Actions taken Actions to be taken
Legislative and regulatory risks
The Group’s operations are subject to extensive regulatory requirements, particularly in relation to its buying and selling products and after-sales services, its advertising, marketing and sales practices, its employment and pensions policies and planning and environmental issues. Changes in laws and regulations and their enforcement may adversely impact the Group’s operations in terms of costs, changes to business practices, and restrictions on activities. The Group’s businesses may also be adversely affected by changes in tax laws and increasing reviews by tax authorities of corporate tax plans.
Potential changes to legislation and regulatory requirements are monitored with the help of external advisers, and the business model and processes have been adapted to seek to minimise the impact of these changes. Have sought to ensure governmental and regulatory bodies understand the impact of current and proposed legislation on both the business and its customers.
Implemented packages for our customers, providing them with a wider range of services, not only repair services but also assistance in usage such as our Pack Serenity multimedia assistance service and ‘Le Bouton’.
Briefing sessions for key executives on the likely impact of legislative and regulatory change so there is sufficient time to develop action plans to mitigate any adverse effects.
Continue to ensure legislators and regulators are aware of the potential impact of their policies.
Further development of additional service packages for our customers.
Economic environment
The economic environment can influence the level of consumer expenditure on electrical goods in a number of ways. It can also affect the level of promotional activity in the market, which impacts prices and margins. Other economic factors that may adversely affect sales include interest rates, government economic policy and levels of personal debt. Deteriorating market conditions could adversely impact profitability and cash generation, and delay the delivery of growth in our core businesses.
The implementation of the ‘4Ds’ strategy has improved store footfall. Launched initiatives such as Darty Days, ‘Les Immediats’ and digital stores to improve trading.
Offset some of the adverse effects by trading across a number of categories, as well as by further introducing new channels such as franchising.
Acquired Mistergooddeal.com to help address the increased demand for lower quartile products.
By taking corporate action, the losses incurred in Italy, Spain, Turkey and the Czech Republic and Slovakia have been eliminated. Losses in the Netherlands have been reduced. Completed a refinancing of the Group’s debt facilities to secure long-term funding to support our future growth plans.
Continued to explore ways to improve our cash generation.
Continued roll-out of the ‘4Ds’ strategy. Review of the store portfolio with a view to relocating poorly located stores. Continued roll-out of the franchising initiative.
Further integration of Mistergooddeal. com into Darty France.
Seek solutions to ensure all businesses are more profitable.
Organisational and business change
There are a large number of initiatives across the Group following implementation of the strategic review that could disrupt the business. The implementation of all of the initiatives may be delayed or hindered by a complex regulatory environment, social unrest and project management issues.
Implemented improved change and project management processes.
Ongoing dialogue with employees and unions.
Improve prioritising of initiatives. Improved internal communications.
The taking of risk is an inherent part of doing business and the skill in business is to manage risk effectively.
The Board and senior management have invested time to identify and assess the key risks facing the business
and actively manages those risks. Risk management is performed from both a top-down and a bottom-up
perspective, ensuring that strategic and operational risks are appropriately addressed.
The principal risks and uncertainties to delivering our strategy are set out below together with an illustration of what actions are being taken to mitigate the effect of those risks on the business and its customers.
Strategic report
Principal risks
Risk Actions taken Actions to be taken
Information technology
A number of IT projects are planned to replace large legacy applications built for individual operating companies. If not properly planned and implemented, there could be significant interruption to the business and additional costs could arise. The reliance on IT systems means the business can be severely adversely impacted if they fail.
The increased use of online payments and credit card payments has increased the risk of the loss of personal data.
IT Project Committee established. Plan put in place to prioritise removal of old applications.
Tested recovery plans across our business. Reviewed robustness of current protections for customer personal data.
Enhance change management to prepare staff and processes for organisation and systems changes.
Plans to improve emergency and disaster recovery plans. Continued monitoring and where necessary, altering systems and protections to meet changing threats.
Profit and cash
The level of profit margin in electrical retailing is significantly less than that of many other retailers and is largely determined by the market, consumer demand, manufacturer supply, competition and government regulations.
Industry practice has heightened the focus on supplier relationships and potential impact on financial reporting.
Protected margins, as far as possible, through buying arrangements and by maintaining an efficient sourcing operation. Reviews have been made regarding revenue recognition and collectability of supplier rebates.
Cost structures have been actively managed in order to mitigate the impact of product margin erosion and increased improvement in working capital management.
Continued development of additional OEM, exclusive and licensed products. Take legal action to protect our position where necessary.
Cost mitigation plans will continue to be implemented and focus on working capital management.
Reputational risks
The Group’s success is dependent, in part, upon the strength of the Group’s brands and their reputation. The Group operates in an industry where integrity, customer trust and confidence are important and any adverse publicity concerning corporate behaviour, policies and strategies could damage that customer trust and damage the Group’s reputation and brands.
A number of internal controls and processes have been put in place to try to limit the number and harmful effect of such incidents.
Regular reviews of the likely threats to reputation, together with monitoring of the media, including social media.
Pension scheme liabilities
Following the sale of Comet, the UK defined benefit scheme for Comet employees was retained by the Group. There is a smaller defined benefit scheme in France for senior Darty employees. Both schemes are currently in deficit. These deficits are volatile as a result of changes in the assumptions regarding life expectancy, discount rates (based on gilt yields and company covenant), inflation and future salary increases, risks regarding the value of investments and the returns derived from such investments. Adverse movements in these assumptions could increase the deficit, increasing the funding requirement to the schemes from the Group.
A number of deficit mitigation measures have been undertaken, and will be taken in the future, to reduce both the size of the deficit and its volatility.
Triennial valuation agreed in the UK.
Continue to examine strategies and additional opportunities to mitigate the deficit in both the UK and France.
Strategic report
Corporate responsibility
It has long been our belief that good CR practice makes sound financial sense. However, a ‘one size fits all’ approach is not appropriate because of the different sizes of our businesses. Therefore the majority of our activities are locally driven, reflecting customer demands and market sensitivities. However, there is a CR team comprising senior managers from each of the businesses. Chaired by the Company Secretary, the team meets to share best practices and develop practical performance measures that can be adopted across the Group.
Our initiatives fall into four key areas:
Environment
Improving the Group’s use of energy, the impact of our transport fleet and our use of bulk materials such as paper and packaging, by minimising waste, increasing energy efficiency and reducing our consumption of materials.
Supply chain
Improving labour, environmental and social practices in the Group’s supply chain as well as ensuring that our suppliers and business partners are made aware of our requirements and take all reasonable steps to ensure they are met.
People
Providing a working environment that is conducive to the recruitment and retention of the widest possible range of talented staff; and offering them a safe and healthy place of work – we aim to be recognised as a good employer seeking to reward people fairly and to provide equality of opportunity, personal development and training.
Communities
Working for our customers and local communities, contributing to community activities in the areas we serve; and supporting and encouraging staff fundraising for appropriate charitable organisations.
Environment
As an electrical retailer we have a relatively low direct environmental impact, but we still seek to minimise the environmental impact of all our operations throughout the Group. We also want to ensure that neither our products nor our operations adversely affect the health of our customers, our employees or the community at large.
As one of Europe’s market leaders in large white goods, we specialise in offering our customers specific advice on the energy efficiency of our ranges. This enables them to make informed buying decisions in terms of power and water consumption. We also offer practical advice in-store and on the web on how to use the products in the most efficient way and we help dispose of them at the end of their lives.
This programme is tailored to each of our markets and is currently in its most advanced stages of implementation at Darty in France and has been, in part, adopted across all the Group. We were one of the first retailers to test the energy efficiency of all televisions, DVD players and computers that we sell and then promote the better performing products. Darty France has a dedicated section on its website, Darty.com, on environmental matters. Since September 2012, practical advice is given to customers to help them calculate their energy and water consumption on over 1,000 products including refrigerators, washing machines, dishwashers and TVs. This was extended to tumble dryers and wine coolers during 2013.
This financial year, Darty France launched a simulator for energy savings accessible on the Darty.com site to allow customers to estimate the energy consumption of their devices and evaluate the savings if they opt for their replacement.
A major Group strength, with our significant home delivery network, is our ability to facilitate the recycling of large white goods, helped by our efficient ‘reverse logistics’ capability. The ongoing rapid development of new technology creates increasing high levels of hazardous electronic and electrical waste, which is the background for the WEEE Directive. Its aim is to minimise the impact of electrical and electronic equipment on the environment when those products eventually become waste. In order to sell products within the EU manufacturers must demonstrate compliance with the regulations. This means that electrical retailers must offer take back facilities to cover all categories including smaller appliances such as kettles and microwaves. The newer A++ brands use up to 44 per cent less energy than products sold 10 years ago. While hand washing the dishes can use up to 50 litres of water, a modern dishwasher uses just 13 litres, and some models use just six litres.
Darty France offers to take away two items for recycling free of charge if it makes a home delivery for large white goods. The collected items are sorted in 72 collection sites where they are dismantled. In the 12 months to December 2014, Darty France collected 40,675 tonnes of product for recycling, the equivalent of over 1.19 million appliances. These were recycled into 21,182 tonnes of scrap metal, 6,130 tonnes of plastic and 3,100 tonnes of glass and similar items and saved 26,405 tonnes of CO2 emissions, and achieved a similar performance in 2013.
As a specialist electrical retailer Darty is well placed
to manage an effective approach to corporate
responsibility (CR) that is compatible with profitable
growth and enhances brand equity.
Strategic report
Corporate responsibility
All the stores in Darty France have dedicated recycling bins with separate compartments for mobile phones, small appliances, batteries, and ink cartridges. Darty France also collected 18 tonnes of batteries, and 6 tonnes of ink cartridges. With the ‘1 for 0’ scheme, Darty France collects all materials, with or without purchase from its stores or website. Vanden Borre in Belgium recycles 55 per cent of the products it collects when making a home delivery. BCC received an eco-certificate for its sustainability performance in the field of waste management, reducing the impact of its waste on the environment by 46 per cent by reducing and separating waste.
We believe that together this makes us one of the leading recyclers of MDA products in Europe; it sets us apart from many pure web players in particular. We also aim to reduce the amount of packaging we use and ensure that it can be recycled. We collect all waste packaging when delivering a household appliance unless the customer requests otherwise. At Darty France, Vanden Borre and BCC we have specialised equipment that compresses all polystyrene packaging collected from customers’ homes for recycling or reuse as garden furniture. At most of our operating companies, packaging waste is also collected from the warehouses and after-sales service centres; annually we recycle over 40,000 tonnes of packaging waste. We report our emissions data using an operational control approach to define our organisational boundary, which meets the definitional requirements of the regulations in respect of those emissions for which we are responsible. We have reported on all material emission sources that we deem ourselves to be responsible for. These sources align with our operational control and financial control boundaries. We do not have responsibility for any emission sources that are beyond the boundary of our operational control. For example, business travel, other than by car (including commercial flights), are not within our operational control and therefore are not considered our responsibility.
Supply chain
Our customers expect us to have procedures in place to ensure that the products we sell have been ethically produced and handled from the beginning right through to the end of the supply chain. Many of our electrical products are sourced through major international brands who have their own strong ethical and environmental policies in place. We do not have significant operations or retail outlets in countries that present a material risk from bribery or corruption, poor labour standards or restrict civil or political rights. However, some of our suppliers do.
There has been continued external attention and debate on the role of business and human rights. We welcome this focus as respect, fairness and integrity are an important part of the responsible way we run our business. We are committed to doing things the right way and this is reflected in our values and our Code of Conduct, which is available on our website. A respect for human rights is implicit in our employment practices and are within the high standards we expect from our suppliers. We continue to be guided by the International Labour Organization (ILO) core conventions and the recommendation of Professor John Ruggie, the UN Special Representative for human rights. In some areas, such as the elimination of child labour, our direct influence can be limited and in these situations our focus on partnerships is of critical importance. We also work with our suppliers to help them reduce their impact on the environment and to manage the challenges of sustainable growth. The Group
sources its own-label products principally from factories based in China that are committed to improving workers’ welfare and reducing environmental impact. Our audit procedures are benchmarked against leading international test houses, and are designed to ensure proper environmental standards are adhered to by our own-label suppliers in our factories and additionally to monitor the quality of our products.
We have an experienced quality team based in China with expertise in quality assurance to support our own branded products. In 2014, we carried out new qualification audits as well as two yearly surveillance audits on the 195 factories we use in South-East Asia. This is to ensure that our suppliers meet the strict social, environmental and supply chain standards we require. In 2014, a total of 100 audits were undertaken. In addition, the team carried out over 4,000 Final Random inspections.
Before shipment of any OEM product is allowed, the quality assurance team evaluates the product with comprehensive CE certification from approved European Notified Bodies. Any supplier who fails to meet our quality standards is delisted.
In 2014, a new programme was launched, to provide regular checking on the soon-to-be effective safety standards for our product range. This programme allows Darty to be at the leading edge in managing the impact in advance of any new changes related to compliance and testing concerns.
In addition, as a further environmental measure we are consciously trying to minimise the emissions from our transport operations. We continue to modify our logistics operation to achieve a more efficient use of the transport fleet and make use of satellite navigation systems to improve their delivery schedules. This not only reduces the distance the vans and lorries travel but also provides our customers with more predictable arrival times. The Group is constantly exploring new initiatives that make good CR sense while benefiting the businesses. At Darty France we have a programme of enhanced driver training, with the aim of reducing fuel consumption and CO2 emissions by some 15 per cent. Further savings have come from the introduction of new delivery vehicles with Euro 5 engines and ‘Stop and Start’ technology. Increased use of call centres and development of a database on repairs that provides first level resolution has led to less vehicle journeys to customers’ homes, not only improving our customer service, but also reducing our CO2 emissions.