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REG - Watches of Switzlnd. - Annual Financial Report

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RNS Number : 9791W  Watches of Switzerland Group PLC  18 July 2024

18 July 2024

 

Watches of Switzerland Group PLC (the "Company")

Annual Report and Accounts 2024

 

 

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

 

1.     Annual Report and Accounts 2024; and

 

2.    Notice of Annual General Meeting of the Company, to be held at 36
North Row, London W1K 6DH at 2.30pm on 3 September 2024

 

In accordance with DTR 6.3.5(3) the Annual Report and Accounts 2024 and the
Notice of Annual General Meeting are accessible on the Group's website:
thewosgroupplc.com (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 FY24 results
announcement on 27 June 2024. That information together with the information
set out below which is extracted from the Annual Report and Accounts 2024
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 2024. Page and note references in the text
below refer to page numbers in the Annual Report and Accounts 2024. To view
the FY24 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 and US.                              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 acquisition of Roberto Coin Inc. in the US moves the Group into the          Expansion of the property portfolio or potential acquisitions must meet strict
 wholesale sector, a sector within which the Group has more limited existing      payback criteria. Return on investment of marketing and other investment
 internal expertise. There is strong reliance on incumbent management at          activity is monitored closely
 Roberto Coin Inc. to deliver the Group's strategy.

                                                                                Key management information is provided to the Board on a regular basis to help
 As the Group continues to make acquisitions, these may prove unsuccessful or     inform strategic decision-making
 divert its resources. Further growth through acquisition is dependent upon the

 Group's ability to identify suitable targets, conduct effective due diligence,
 negotiate transactions on favourable terms, complete such transactions and

 successfully integrate the acquired businesses.                                  The Group has adapted its strategy to take advantage of online trading, client

                                                                                appointments and introduced the Luxury Watch and Jewellery Virtual Boutique to
                                                                                  maximise sales

 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     The Group has diversified its operations through the expansion of mono-brand
 permanent changes in client behaviours or to change working practices, is        boutiques, ecommerce platforms and enhanced luxury branded jewellery offers.
 paramount in the current environment.                                            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 brand partners and other
 limited number of brand partners and the production of luxury watches is         suppliers, many of which have been 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 continued 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 brand partners to identify product trends
 a change of control and/or management of the Group. The Group is subject to      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.

                                                                                Client experience is further elevated through new, larger showrooms that are
                                                                                  supported by the brands

 The Group's business model may also come under significant pressure should the
 owners of luxury watch and jewellery brands choose to distribute their own

 watches, increasingly or entirely by-passing third-party retailers such as the   In-depth training for showroom colleagues is provided, including specific
 Group.                                                                           training provided by the brand partners

                                                                                  The Group's sales mix is becoming more broad-based, with less reliance on
                                                                                  individual brands to drive success

                                                                                  Review opportunities to extend our expertise into complementary business and
                                                                                  service models
 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.

                                                                                Our Xenia Client Experience Programme further elevates our client experience
 The increased number of registration of interest (ROI) watches could adversely   proposition (refer to page 40)
 impact the perceived client experience.

                                                                                Our brand partners audit and assess our client experience enabling us to
 The Group faces competition and any failure by the Group to compete              independently benchmark and evaluate our performance
 effectively could result in a loss of market share or the ability to retain

 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     Exceptional training is provided for our showroom colleagues, and other
 refining of minerals on the environment, labour conditions in the supply         client-facing colleagues, to allow them to provide the best client service,
 chain, and the availability and perception of substitute products, such as       along with in-depth product knowledge
 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 the client 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

                                                                                  Our Luxury Watch and Jewellery Virtual Boutique experience is a unique
                                                                                  differentiator and recognised as a competitive advantage, as is the Group's
                                                                                  scale and technological capabilities

                                                                                  Consumer trends are monitored to ensure product ranges remain aligned to
                                                                                  client demand
 Colleague Talent and Capability

 The Group depends on the services of key talent to manage its business, and      The Trading Board considers the development of senior management to ensure
 the departure of such colleagues 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 strong relationships with the Group's retail colleagues.

 An inability to recruit and retain suitably qualified colleagues, especially
 with specialised knowledge of luxury watches and jewellery, would have a

 material impact on the Group.                                                    The Company's recognition programmes are in place to incentivise and motivate
                                                                                  colleagues

                                                                                  A wide range of training and development programmes are available to
                                                                                  colleagues

                                                                                  The Colleague 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

                                                                                  We utilise a two-way engaging communications platform, Workplace, globally.
                                                                                  This social channel underpins Group communications to colleagues
 Data Protection and Cyber Security

 The increasing sophistication and frequency of cyber-attacks, coupled with       Dedicated Group Data Protection Officer in place
 data protection laws, highlight the escalating information security risk

 facing all businesses.                                                           Significant investment in systems development and security programmes

 As the Group operates in the UK and US markets, the regulatory environment       Systems vulnerability and penetration testing is carried out regularly
 surrounding these areas is considered more complex.

                                                                                The Group Data Protection Committee meets regularly to review related
 Security breaches and failures in the Group's IT infrastructure and networks,    processes and emerging risks
 or those of third parties, could compromise sensitive and confidential

 information and affect the Group's reputation.

                                                                                  Information security and data protection policies, procedures, and training in

                                                                                place
 Theft or loss of Company or client data or potential damage to any systems

 from viruses, ransomware or other malware could result in fines and
 reputational damage to the business that could negatively impact on our sales.

                                                                                  Enhanced multi-factor authentication (MFA) enforced across the Group

                                                                                  Next Generation email security system implemented

                                                                                  New 24/7 security operations centre (SOC) service onboarded

                                                                                  Improved reporting capabilities allow all colleagues to promptly report any
                                                                                  suspicious content or activity they encounter

                                                                                  External maturity assessment conducted to validate continuous security
                                                                                  improvement programme
 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 continue their relationship with us

                                                                                and to purchase in the event of disruption to any single channel
 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 deter
                                                                                  and prevent crime and, in the event of an incident, protect people and

                                                                                products
 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,

 including labour strikes and adverse weather.                                    A comprehensive insurance programme is in place to offset the financial

                                                                                consequences of insured events

 The Group may experience significant theft of products from its showrooms,

 distribution centres or during the transportation of goods. Loss of high-value   A detailed IT development and security roadmap is in place aligned to our
 low-availability pieces could damage our reputation and our clients may become   strategy
 less inclined to visit our showrooms.

                                                                                Reliable and reputable third-party logistic partners have been engaged to
 Disruptions to, or failures in, the Group's IT infrastructure and networks, or   ensure the secure transportation of goods
 those of third parties, could disrupt the Group's operations, especially

 during periods of increased reliance on these systems such as those
 experienced during the pandemic lockdowns.

                                                                                The Group has in place action plans to effectively deal with the impact of a
                                                                                  pandemic on business operations

 The Group relies on IT networks and systems, some of which are managed by
 third parties, to process, encrypt, and transmit electronic information, and

 to manage or support a variety of business processes and activities, including   Revised and enhanced the crisis response programme implemented Group-wide
 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 Group policies and procedures are in place, including, but not limited
                                                                                  to, anti-bribery, corruption and fraud, whistleblowing, and data protection

 As the Group continues its US expansion and trades in increasing state
 jurisdictions, there is a risk the business lacks the detailed knowledge of

 local US laws and regulations resulting in a breach, significant fine, and       Mandatory induction briefings and training for all colleagues on regulation
 reputational impact.                                                             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, with a     Regular monitoring of economic and political events
 more limited European footprint. 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       The Group updates internal return on investment hurdles and criteria to
 manage its inventory in line with client demand.                                 reflect changing market environments

 Ongoing legal, political, and economic uncertainty in the UK, US and             Detailed sales and inventory data is analysed to anticipate future trends and
 international markets could give rise to significant currency fluctuations,      demand, taking into consideration the current economic environment
 interest rate increases, adverse taxation arrangements or affect current

 trading and supply arrangements.

                                                                                  Through continued expansion in the US, the Group is not wholly dependent on
                                                                                  the economic or political environment in one single market
 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                        Excellent client experience is a key priority of the Group and subject to
                                                                                  independent scrutiny by our major brand partners through mystery shopping
                                                                                  programmes

                                                                                  The Group undertakes regular client engagement to understand and adapt the
                                                                                  product, offer, and showroom environment

                                                                                  The use of impactful, digital-led marketing, along with an in-depth knowledge
                                                                                  of products, makes the Group an authority in the markets it serves

                                                                                  Training and monitoring of adherence by colleagues to Group policies and
                                                                                  procedures

                                                                                  The Group has conducted a materiality assessment to understand the priorities
                                                                                  and focus areas of its stakeholders, including colleagues, brand partners and
                                                                                  other suppliers, investors and community groups
 Financial and Treasury

 The Group's ability to meet its financial obligations and to support the         The Group maintains a £225 million revolving credit facility with a term of
 operations and expansion of the business is dependent on having sufficient       four years remaining
 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.

                                                                                The Group's net cash position and available funding is actively managed
                                                                                  through a Group Treasury policy and cash flow projections are regularly

                                                                                monitored by management and the Board
 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.

                                                                                Exchange and interest rates are regularly reviewed to determine if hedging
                                                                                  should be put in place

 The Group is exposed to foreign exchange risk and profits may be adversely
 impacted by unforeseen movements in foreign exchange rates.

                                                                                A three-year strategic cash flow is prepared and stress-tested, including the
                                                                                  impact on covenant calculations

 Significantly reduced trading over an extended period, due to a pandemic,
 could impact the business's ability to operate within committed credit

 facilities.                                                                      Quarterly meeting with the lenders' agent to update on forecast and trading

                                                                                  To support the financing of the Roberto Coin Inc. acquisition and provide
                                                                                  additional headroom, a short-term loan facility of US$115 million has been
                                                                                  agreed, extendable up to February 2026
 Climate Change

 The increased frequency of extreme weather events may lead to the significant    The Board has overall responsibility for managing climate- related risks, as
 disruption of retail showrooms, offices, and distribution centres, through       well as ensuring our strategy creates value and achieves our Purpose to WOW
 flooding and strong winds. The supply chain may also be impacted through         our clients, while caring for our colleagues, our communities and our planet
 transporting goods to showrooms.

                                                                                Climate related issues are addressed on a regular basis by the ESG Committee,
 In a changing climate, there is the potential for higher insurance premiums      which is chaired by an Independent Non-Executive Director
 for business operations, especially ones located in specific geographies.

                                                                                The ESG Committee challenges our ESG Steering Group on progress against goals
 The increasing cost of energy and potential regulatory mechanisms on direct      and targets
 carbon emissions, may impact business financials and profit if the Group

 cannot transition to a more low-carbon business model.

                                                                                  Key climate related risks and opportunities are governed via our Audit &

                                                                                Risk Committee along with the accuracy of and compliance with ESG-related
 The Group's reliance on premium raw materials, which are a finite resource,      disclosures, including TCFD
 increases its exposure to resource scarcity, and the potential increased cost

 of obtaining these resources in a challenging supply chain environment.

                                                                                  The ESG agenda continues to evolve rapidly and climate training has been

                                                                                introduced for Board members to ensure they have sufficient knowledge for
 The Group may fail to implement its mitigation strategy to reduce its impact     effective decision-making
 on the climate and manage the risk appropriately, leading to increased

 scrutiny from stakeholders and investors, resulting in reputational damage.

                                                                                  The CEO has overall operational responsibility for climate strategy and the
                                                                                  mitigation of related risks

                                                                                  The CFO has day-to-day operational responsibility for climate- related risks
                                                                                  and opportunities and chairs a regular ESG Steering Group, which reports into
                                                                                  the ESG Committee

                                                                                  The Group has a dedicated Head of Sustainability and ESG, who has significant
                                                                                  experience in relation to climate change

                                                                                  The ESG Steering Group is responsible for assessing and managing climate
                                                                                  related risks and opportunities against KPIs aligned to our ESG pillars of
                                                                                  'People, Planet and Product' and ensuring all operational matters in respect
                                                                                  of our ESG Strategy are fully embedded into our business strategy and
                                                                                  operation, including an underpin to Group bonus programmes (refer to pages
                                                                                  185)

                                                                                  Each ESG pillar is supported by Working Groups, which include senior
                                                                                  operational managers, with input from external consultants

                                                                                  The Group undergoes numerous external assessments on climate and
                                                                                  sustainability activities

 

Further information on the financial risks we face and how they are managed is
provided on pages 130 to 139 of the Annual Report and Accounts 2024.

 

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 accounting 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. 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 148 and
149 of the Annual Report and Accounts 2024 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 2024, 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 2024, 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 2024 and on the Group's website: thewosgroupplc.com
(http://thewosgroupplc.com/)

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