Principal risk areas and mitigating actions

Below we have identified the key risks to our business from the UK exiting the EU without a withdrawal agreement. In each of these areas we are undertaking mitigating actions to attempt to reduce the impact of these risks on the business. We will continue to review and monitor the evolving external and internal risk landscape and, if necessary and appropriate, modify our actions accordingly

1. Reduced free movement of products, goods and services across the UK/EU border

A restriction on the smooth passage of goods across the UK / EU border has the potential to slow delivery times, which would impact the Group’s ability to maintain its high level of customer service.

Mitigating Actions

• We are investing in additional fast-moving inventory across our European network in the short term to lessen the customer service impact of potential delays at the UK / EU border.
• We have had, and continue to have, dialogue with our suppliers and freight forwarders in respect of their preparedness.
• We have approved Customs Freight Simplified Procedure (CFSP) status which offers the faster release of goods from customs at the airports and bonded areas. It will also support customs warehousing arrangements.

2. Increased tariff and duty costs on goods moving between the UK and EU

Following the UK’s exit from the EU, goods moving between the UK and EU member states, and other areas of the world, may be subject to additional tariff and duty costs. At this stage, before we know the detail of any exit deal and any reciprocal agreements, the exact impact of tariffs is difficult to assess. At present around 54% of our Group costs of goods flows through the UK.

Mitigating Actions

• Our international distribution network means we can work to mitigate this risk over time and continue to offer our customers the market-leading service they expect.
• Based on our assessment we believe that over time the vast majority of inventory needed to meet our EU customer needs could be sourced and retained directly within the EU post the UK’s exit. Under this scenario we would look to change product sourcing and supply routes and seek to source and hold as much inventory as feasible directly within our Continental Europe network.

3. Increased administration to process the required cross border data flows

Increased requirements for data collection may be required as shipments move across the UK / EU border, including more information for customs declarations and import / export forms for each consignment shipped into the EU. It is possible that this may require additional payments for customs clearance charges for goods moving across the UK / EU border.

Mitigating Actions

• We are engaged with the relevant authorities and continue to monitor guidance in all these areas closely.
• To reduce any potential increase in the administrative burden we are introducing an electronic trading system ahead of the UK leaving the EU.
• We will recruit and train additional resource to enhance our existing skilled export teams as necessary, although we do not expect the cost of this additional resource to be material.
• We will seek to optimise our product flows across our network to minimise the movement of goods across the UK / EU border and therefore minimise the increased potential administrative requirement.