00110252 annual review 2015 - wilko | corporate |...

Tackling our to do list

Annual Review 2015/16

06 Wilko Annual Review 2015

12

Contents

Here, there and everywhere – more new stores throughout the UK 18

Going global with Wilko Asia

15

04 Who we are

05 Our highlights

06 Lisa’s message

08 Meet the team – The holding board

10 Meet the team – The trading board

12 Strategy plan and customers

14 W’innovate

15 Wilko Asia

16 Quality, value and choice

17 Stay Low Price

18 New stores

19 Existing estate improvements

20 Wilko digital

21 Making the headlines

22 Training and development

23 Doing our bit

24 Good causes

25 Paying our way

26 Governance and risk management

28 Financial review

Switched on to the digital marketplace20

The place to come to get stuff done

04

Wilko Annual Review 2015 03

over the next 5 years

More investment, with a plan to open more than

100 stores

7%year on year to

Customer satisfaction up

78%

6/10 households now shop with Wilko


The place to come to get stuff doneWe’re a family business run for families.

Here for lifeFrom kids to grandparents, families keep coming back to Wilko – we’re here for the savvy shoppers, the hardworking families, who want and deserve value, quality and convenience. Our customers know they can depend on us, they trust us – and when we’ve asked them, some say they love us.

Serving over 7 million

customers per week

Our family owners see their role as providing patient (but challenging) capital and stable ownership from which short, medium and long-term growth can be delivered with emphasis placed on the long term. The adage that family companies plan in generations is apt for Wilkos. Our owners challenge, they are patient and they think long term (often in 15 year cycles equating roughly to a generation of owners).

Already an octogenarian, Wilkos is in its third generation of family owners: from founding owners JK and Mary Wilkinson, through expansion under the sibling partnership of Tony Wilkinson supported by his sister Barbara (expanding from 11 to 215) to the cousins’ confederation. April 2014 saw that change with Barbara Wilkinson, Karin Swann and Nicholas Wilkinson ceasing to hold shares, leaving Wilkos firmly in the hands of Tony Wilkinson and his family.

And Wilkos became Wilko Group creating a classic but simple holding company structure. The original company: Wilkinson Hardware Stores Ltd taking the name Wilko Retail Ltd as it rebranded all its activities Wilko: fully embracing the name customers have used for decades; recognising the ranges outside hardware (though this remains at the heart of activities); and embracing digital under wilko.com. Out of respect for our heritage the holding company is named after where it all started: Wilkinson Hardware Stores Ltd. Within the Group, newer activities grow with Wilko Asia Ltd, our global sourcing business, and W’Innovate Ltd, our macro trend, new product design and development business, both making strides forward during the year.

About our Boards We made changes to our Boards, reflecting our new group structure.

At holding board level during 2014 we welcomed Sean Toal as our Chief Operating Officer. Sean joined us after a long and illustrious career at the Co-op. We welcomed back John Jackson for his second stint for us as a Non-Executive Director.

During 2015 we said goodbye to Ian Ellis our long standing Chief Financial Officer and welcomed Aidan Connolly in his stead. Aidan has worked in many structures and businesses across the globe, but joined us most recently from Worldpay.

We recognised the need for a new trading board for Wilko Retail composed of some existing players joined by some new ones. The existing players are: Robin Lassiter (Retail Director), Frankie Adams (Trading Director) and Cath Fox (Human Resources Director). The new directors are: Mark Hale (Supply Chain Director) and Ian Ayling (Marketing Director).

A great place to shop Retailing in the saturated market that is the UK doesn’t get any easier. This year, with our new group structure in place and under streamlined ownership, we made positive steps forward, always with our customers in mind. The financials show that this delivered growth for us in sales and customers and that growth has carried into profit.

This annual review covers our big activities during the year. For me the highlights were many and varied:

• We saw customers continue to shop differently across our high street, city centre, retail park and digital offers

• We got back into opening new stores in places that we know customers want to shop

• We went back to our roots and worked hard on creating Stay Low Prices or SLP. Wilkos is and has always been focused on helping our customers

A great place to own

Family owned private limited companies invariably conduct their business privately. Wilkos rarely discusses ownership save to punctiliously, annually thank family shareholders for their unswerving support.

to get done the jobs they have to do and those jobs are many and varied. We provide useful products to help them, with great quality and at great prices. SLP promises that these variety of value products offer quality at its best at prices that are low and will stay that way

• We talked more to our customers through press and leaflets and radio. 2014 and 2015 saw us start to apply the complicated analysis that is econometrics to the ways we talk to our customers. We did this to find out the best ways to talk to our customers so that they really do hear what we say in a way that’s important to them

• And we listened, getting closer to our customers by developing our customer insight so we learn more and more about our customers and what they want from us every day

A great place to work We have fabulous team members and we are thankful to them every day for everything they do for our customers and our business. We listened better to our team members by reinstating our team member engagement survey, which gave us a respectable 50.8% Net Promoter Score; which we’re told is good for retail, but it’s not good enough for us. We’re working hard to build a better relationship with our team members.

Lisa


A big thank youWe know we couldn’t do anything at all without people so we have a lot of thank yous.Thank you to our customers: the 7 million visitors to store per week and the 150,000 visits to wilko.com per day who keep our business grounded.Thank you to our team members the 20,600 of you whose daily work keeps Wilkos running and moving forwards. Thank you to our suppliers both branded and own brand without whom we wouldn’t be able to deliver great branded and own brand products at great prices.Thank you to our advisors who keep us firmly on the straight and narrow.And as always thank you to our shareholders for your patience, your challenge, your capital and long-term, stable ownership

Wilko Strategic Review 2015 0908 Wilko Strategic Review 2015

Sean Toal Chief Operating OfficerSean joined Wilko in July 2014 to take on the role of Chief Operating Officer. Sean is a dedicated, results-driven retailer with a long record of success and clear strategic thinking. Sean’s main focus is developing key operational areas including retail, distribution and buying as we continue to drive the business forward.

Sean began his early career in food retailing with Somerfield in 1986. After 15 years at Somerfield, Sean moved to United Co-operatives as General Manager – Retail Operations. In July 2007, United Co-operatives merged with the Co-operative Group and Sean was appointed Director of Food Retail Operations for the Co-operative Group and played a key role in the successful integration of the two Co-operative Societies. Sean also led the operational integration of Somerfield following the acquisition in March 2009.

Sean was appointed Commercial Director in January 2010 and led the combined Marketing and Trading teams up to his appointment as Acting Chief Executive Officer in September 2011. In January 2012, Sean was promoted to the position of Chief Operating Officer for Food.

Steve Sinclair Non-Executive Director Steve joined the Wilko Board as a special advisor in 2009, and was asked to join as a Non-Executive Director in 2011.

Steve has a degree in Architecture from UCL, an MBA from London Business School, and a diploma in Finance and International Marketing from New York Graduate School.

After 2 years with McKinsey, he worked as the Executive Assistant to the Chairman of Royal Worcester Plc, before joining the Board of Allied international designers in 1985.

He set up his own design business with funding from 3i and sold out to WPP after 7 years of successful trading. He was then asked by the CEO to take up the role of Marketing Director in Boots and then subsequently moved as Strategic Marketing Director to WH Smith.

He joined PwC as a Senior Director in consulting in 2007 and led the firm in developing and leading the Customer Experience practice. In 2015 Steve was promoted to head up the Sales and Marketing function for the UK and EMEA firm with a budget of over £60m.

The holding board

Meet the

Lisa Wilkinson Director Lisa, granddaughter of the founder of Wilkinson; JK Wilkinson, became a Family Non-Executive Director of Wilkinson in February 2004. She takes the view that her role is to represent and maintain the values of the family in the Boardroom.

Lisa started her working life in the legal profession as a solicitor in private practice, a career she enjoyed for over 10 years. Graduating from Leeds University in English and History (joint Hons) and then converting to Law at Leicester Polytechnic, she joined Eversheds in Nottingham before moving to Edge Ellison (now part of Hammonds Suddards Edge) in Birmingham and latterly working at DLA (now DLA Piper) in London. Throughout her legal career, Lisa specialised in Discrimination and Employment Law, instructed predominantly by large corporate commercial clients.

While a practising solicitor, Lisa actively took an interest in the Wilkinson business, including taking up the role as trustee to the company pension scheme and in 2004 she chose to end her formal legal career to become a Director of Wilko.

Lisa is the daughter of Tony Wilkinson who led the second generation of the Wilkinson family. She too hopes that the fourth generation will continue the legacy of Wilkinson family ownership and will feel the same passion for this privately owned business.

John Jackson Non-Executive DirectorJohn Jackson has been a Non-Executive Director for 7 years. A qualified Chartered Certified Accountant, he is Chairman of the Audit & Risk Committee. John was Managing Director of Bristol-Myers Pharmaceuticals, CEO of Cheseborough Ponds, Managing Director of The Body Shop International Plc and Virgin Group Board Director responsible for Retail & Leisure.

In 2007 John joined Jamie Oliver Group as Group CEO. In 2014 John also became Chairman of the Rick Stein Group. He is currently Senior Non-Executive Director of Game Digital Plc, Non-Executive Director of Playtech Plc, with previous Non-Executive roles including Thorntons Plc, Luminar Plc and The Restaurant Group Plc.

Aidan Connolly Chief Financial Officer Aidan Connolly joined the business as Chief Financial Officer in October 2015. Aidan joined Wilko’s from Worldpay, which is the UK’s leading card acquirer and the fifth largest global payment services business. Aidan sits alongside Lisa and Sean on the Board and will focus on driving a positive and sustainable future for our customers.

Aidan’s extensive career has seen him as both Chief Financial Officer and Chief Executive for a number of public and private companies in the UK, Europe and the USA. Aidan’s wide-ranging experience includes several spells in consumer goods and retail: from businesses making, selling and fitting window blinds (as the UK’s third largest blinds retailer); to selling high-end wallpaper and fabrics via some of the UK’s top luxury brands; to creating and selling 6 million holidays a year, mostly through the 700+ stores in MyTravel’s high street travel agency. He has worked to make online sales quicker, safer and more enjoyable at several of his previous companies.

Aidan originally trained as a Chartered Accountant and holds a law degree, specialising in tax in his early career.

team

Wilko Strategic Review 2015 1110 Wilko Strategic Review 2015

The trading boardRobin Lassiter Retail Director Robin is the Retail Director for Wilko, and has held a number of senior roles at Wilko since 2006, including Multichannel and Business Transformation as well as Retail Operations. Robin is responsible for all of the 381 stores, our online business and Central Operations in Worksop.

Robin has worked in the UK and the US, including a long period at Sainsbury’s covering a number of Commercial, Operations and Online roles.

Robin is a Non-Executive Director of Enactus UK and sits on the BITC East Midlands Advisory Board and the Healthy High Streets Steering Committee.

Ian Ayling Strategic Marketing Director Ian joined Wilko as Strategic Marketing Director in October 2015. He started his career in FMCG marketing and managed a variety of well known British brands, from Pot Noodle to Mr. Kipling – eventually operating as Marketing Director for Rank Hovis McDougall’s cake division.

In 2005 Ian joined Dunnhumby to lead the marketing and customer development programme with Tesco. Then in 2011 he joined the Co-op as Customer Change Director to rebuild and grow their food business as a convenience retailer.

Ian has also joined our Board of Directors for W’innovate, our product design and development company.

Frankie Adams Trading DirectorFrankie joined Wilko in 2009 to head up FMCG trading and was subsequently promoted to Trading Director a year later.

Frankie has a degree from Oxford University and a masters degree from Bath University and began his career with Nestle UK on the graduate scheme. After 6 years at Nestle, Frankie moved to Asda where he successfully led several different buying areas.

Since he has been at Wilko, Frankie has led a major review programme across all our ranges and products, driven commercial results with passion and focus and created a strong emphasis on cross-functional working to deliver excellent results.

Mark Hale Supply Chain Director Mark joined Wilko in March 2015 to take on the role of Supply Chain Director. Mark’s key focus is on driving efficiencies across the operation while developing the Supply Chain to support the strategy of the business.

Mark began his early career in heavy chemical companies ICI and Shell before moving to the Co-operative Group in 1992. At the Co-operative he worked in numerous roles across four of the businesses – Food, Travel, Pharmacy and Funerals. Mark held a number of Director roles before becoming the Supply Chain Director for the Food business.

Mark has a masters degree in ‘Managing IT in business’ which he obtained through a part learning programme with Salford University.

Cath Fox HR & Talent Director Cath joined Wilko’s in 1990 and has 26 years of HR experience with Wilko’s. Cath leads the HR and Talent teams to deliver effective solutions to meet our strategic business objectives.

Cath’s background in HR covers areas such as strategic planning, cultural change management and participation in corporate governance.

Cath also has overseas experience working on a secondment basis as Head of HR for Wilko Asia, and has undertaken other commercial secondments including a project management role for the stationery major category review. These experiences have given Cath valuable knowledge and an understanding of the retail end to end general commercial process.

Haroon Rasool Wilko Asia Managing Director Haroon started his career in pharmaceutical research as an auditor and quickly progressed onto heading up technical for an international food manufacturer. He joined Sainsbury’s in 2002 where he held various roles culminating in heading up Quality in Asia. Haroon was a key leader in establishing Sainsbury’s Global Sourcing Division in Hong Kong in 2005.

Haroon holds a PGCE from the University of Cambridge, MSc in Food Science from the University of Leeds and BSc (Hons) in Biotechnology from University College London.

Haroon joined Wilko Asia in August 2008 to lead Global Sourcing Quality & Social Compliance. Haroon is the co-founder of Wilko Asia and has been integral in establishing our global sourcing operations. Haroon was appointed Managing Director of Wilko Asia in March 2015.

Additional support to the Wilko Group

We understand our customers because we’re just like them – we’re keen gardeners, pet lovers, eager bakers and handy decorators. We have busy lives and families, so we understand the importance of good quality products at the right price.

Part of the family We consider our customers part of the Wilko family and we know what matters to them when they shop with us. With busy families and lots of to dos we need to keep ahead of our competition and truly understand the needs of our customers all year round. Whether it’s looking for value in January, refreshing the home in March and April, garden and outdoor furniture throughout the summer, getting the kids back to school and college in September to looking for inspiration at Christmas – we’ve got the stuff our customers need to get the job done.

Helping our customers get their to dos done

“ We’re here to help families to run, repair, maintain, improve and live in their homes and gardens.”

Lisa Wilkinson Director

12 Wilko Strategic Review 2015

6/10 households shop with Wilko

79%

78%

78%

Team member helpfulness improved by 2% year on year to

Team member friendliness improved by 1% year on year to

Customer satisfaction up 7% year on year to

Victoria Bradley Design Manager, W’innovate

“In 2013, I recruited a team, created a strategy and a business plan and set off to develop the concept of W’innovate. We knew 3 things from the outset. We wanted to offer design services. We wanted to create a graduate centre of excellence. We wanted to potentially become a product brand. All of this I believe in, it excites me greatly and we’re on a journey.

We’ve grown the team from 3 to 10 designers and have taken the number of products we’ve designed from 0 to over 2,000 lines.

The final piece that gives this start up company the edge of infinite potential is the strength, backing and infrastructure of belonging to large company.”

Wilko Operational Review 2015 1514 Wilko Operational Review 2015

We’re a design consultancy that specialises in own brand, domestic, consumer-led products. Our ethos is that well designed products shouldn’t cost the earth and should be available to the masses – everyday products for everyday people. To do this we have to be both commercially savvy and resourceful in our design approach. We take time to understand the needs of the end user, considering how, when and where the products will be put to use.

From our ideology of having graduate designers at the heart of our business, to the methods we use to approach design, right through to the ideas that we create, we make small but continual changes to improve our design process and the products we produce.

The teamTalent is our most valuable asset. We recruit commercially savvy individuals with all levels of experience.

We also have an altruistic agenda to provide opportunities for recently qualified designers. We demonstrate our commitment to this through our sponsorship of New Designers each year. It allows us to meet the next generation of commercial designers and keeps us up to date with emerging talent and the quality of projects that degrees are producing.

From its offices in Hong Kong and Delhi, Wilko Asia is responsible for sourcing products from China, South East Asia and the Indian subcontinent. Its 57 team members work hard to ensure we can offer our customers the best products at the right price.

Thoughtful creativity – designing and making purposeful products that make everyday life easier or better

Quality assuredQuality is a top priority for the team. Using over 300 factories throughout Asia, they now ship over 4,000 different products to the UK – each of which has been rigorously sampled and tested to make sure they meet our exacting high standards.

Playing fair with everyone As part of an ethically ran family business, Wilko Asia has undertaken a social compliance initiative throughout all its suppliers to ensure the products they supply are sourced and produced ethically. Our suppliers and their factories are regularly assessed by independent auditors to ensure their ongoing compliance.

Going gl bal with Wilko Asia

W’innovate

Over

4,000 different products

We source from over

300factories across Asia

57 team members


In March 2015, we launched our new value proposition ‘Stay Low Price’ – a multi-million pound investment in thousands of everyday low prices to drive our competitive edge in an aggressive marketplace.

Our ‘Stay Low Price’ focuses on stuff our customers need at prices that’ll stay low all year round. We keep an eye locally to make sure we bring customers the best prices and are always competitive, our prices will beat or at least match our competitors.

As part of the launch, we extended our range from 250 to over 4,000 products and we made our promotional offers stronger and more focused for our customers – with 50 of our offers being market leading! We also focused on making sure our pricing was simple and easy to understand and that the products were easy to find in store.

Here are some key facts about stay low price:

• Stay low price means our prices will stay low for 12 months. Guaranteed

• 4,000 lines of our customers’ most important to do products were introduced in 2015

• Our stay low prices will match or beat our competitors

Quality, value and choiceAt the heart of everything we do is helping our customers get their to dos done and making sure they have everything they need to run, repair, maintain, improve and live in their homes and gardens.

To achieve this we need to make sure we always supply them with the right products at the right price. That’s why as well as providing the right range of products, we also constantly strive to improve their quality and value for money.

Over 1,000 products in our Home and Kitchen ranges have

a customer 5 star rating on wilko.com

Just some of the improvements we’ve made to our Home and Garden range…

• We’ve increased the thread count to 144 on all our printed duvets

• Added depth and strength to our woven storage baskets

• Improved the design of our stainless steel bathroom cabinet – making it less likely to scratch

• We’ve improved the spec of our plastic handled cutlery

• Wilko Ultra kitchen towel now outperforms the brand leader for strength

• Increased the size of garden bulbs to give better plant yield

• Our Wilko Tomato Feed now matches the performance of the leading brand

“ Does the job! What a fab little toaster this is. Not too small, fits perfectly in my kitchen”

Hello Stay Low Price

Order & CollectOrder by 2pm, collect from 2pm tomorrow

BLACKFRIDAY

CYBERMONDAY

Our 8 new stores generated £6.6 million in additional sales serving nearly 750,000 additional customers


Our 8 new stores generated an additional £6.6 million, serving nearly 750,000 customers.

Expanding our space In recent years we’ve noticed that although our customers love our local high street stores, they want the option to drop into Wilko when they’re out shopping on a retail park.

We’re putting our stores where our customers want to shop, on high streets and retail parks

in all different shapes and sizes. We ensure we check out what our customers want and need wherever we lay down our space to ensure we get the right product and range in store for our customers’ needs. We also ensure our stores are accessible for everyone – whether that’s creating or checking the availability of public transport links and parking spaces.

A capital idea For decades, we’ve been right at the heart of retail in the UK. So it makes sense that we’d have stores in our capital city.

So far we have 7 stores in the capital – at Tottenham Hale, Kensington High Street, Tooting, Fulham, Stratford, Wood Green and – most recently – Hammersmith. We make

sure that every store’s product range, use of language and photography is appropriate for the customers who live and work locally.

We’re really excited about the opportunities that opening more stores in London generates for Wilko. We’re delighted to bring our value, quality and ranges to our capital and we’re looking at the many interesting locations that London has to offer.

And we’re still at the heart of the high street Although we’re now opening stores beyond the traditional high street, it’s here where we began and it’s here that we intend to stay. Our customers love the fact they can ‘pop down to Wilko’ and get everything they need for their homes and gardens, all under one roof.

OUR

STORES SERVE3817MILLION

CUSTOMERSEVERY WEEK

Putting our stores where our customers want to shop

Evolving our existing estateAs well as opening 8 new stores this year, we’ve also put a great deal of time and effort into keeping all our existing stores up to date and in line with our high brand standards.

Last year we revamped, resized and refitted 87 of our existing stores – helping to stimulate sales and drive brand loyalty, to enhance our customers’ shopping experience. Improved fixtures, better adjacencies, local relevance and optimal use of space have all been used to make our customers’ shopping experience the best it can possibly be.

And we’re not done – we’ll keep constantly evolving and improving our stores, looking for new and better ways to help our customers get their to dos done.

11 revamps

20 Wilko Operational Review 2015

We get people talking

We love talking, it connects us to our customers. And when we’re not talking through the radio, press, Facebook and Twitter, we’re helping our customers on our Wilko life blog too.

Instagram followers

10,000

facebook followers

140,000

Twitter followers60,000

“‘ This place is amazing,’ I beam

at the smiling checkout girl as

she rings up my items”

Alice Smellie, The Daily Mail

And it’s not just our customers who love us, in 2015 we also received some great media coverage too… Top of the shops We did well in a recent satisfaction survey run by consumer champions Which? They asked 1,000s of customers which of the big high street stores had the best service and warmest welcome – and we came in the top 20, beating big names like Tesco and Ikea.

We also had great feedback on the moneysavingexpert.com website, with 85% of shoppers asked saying they loved us – again beating brands like Morrisons and Homebase.

Super brand news We appeared alongside treasured names like Marks & Spencer in a list of alternative super brands published by retail data consultancy Ikano Insight. It recognised brands with the best understanding of their customers, long-term loyalty and engagement.

The place to be seen An article in the Daily Mail describes us as the latest go-to brand for middle class shoppers looking for a good deal. Comparing the quality of our products and service with the likes of John Lewis and House of Fraser – but with far better value for money.

Making the headlines of shoppers surveyed

said they loved us

85%

Wilko Operational Review 2015 21

As seen on TV – the best for bathroom paint‘Shop well for less’ on BBC1, featured 5 well known paint brands and put them to the test. In a blind test a customer picked our Wilko Bathroom paint as the best for quality, coverage and colour. We saw an 80% sales uplift after the programme aired.

Our online business is growing fast and has never been more important to us in delivering convenience for our customers. It’s an area we’re really excited to invest in!

Order and collect As part of our 5 year strategy plan, we’re constantly looking for ways to improve our convenience to make it easier for customers to shop with us. One way we’re doing this is by focusing on our order and collect service and our wilko.com service which not only makes us more convenient to shop with but also provides customers with an increased range and choice of products at great value!

Bringing it to life Not only do we work hard to make sure our customers’ online shopping experience is as simple and enjoyable as possible, we also put a great deal of effort into providing them with all the help and inspiration they need. Our blog aims to give our customers up-to-the-minute advice on how to do everything from unblocking a plughole to creating their perfect look for less. If it needs doing, our online team can help them do it.

Our customers shop with us 24/7 – online and in store

When people talk to us and about us on social media, it drives traffic to wilko.com. In 2015,

nearly 56 million visits toour website came via social media*

IMRG rated wilko.com within the “Leading” websites

Top 28/500 in their 2015

annual report

*Information correct as of 31/01/16

22 Wilko Operational Review 2015 Wilko Operational Review 2015 23

Being a fair, responsible and ethical retailer.

Since 1930 we’ve been selling products at a fair and honest price to millions of people. In that time we have always taken responsibility for our actions and have committed to minimising any negative impact on people and the environment. We have a strict Corporate Responsibility Strategy, which is embedded in every team member.

Doing our bit locally and globally To save energy,

we’ll move all lighting to LED in due course,

25% has already been completed

Within our distribution centres intelligent systems switch off power

to rooms that aren’t being used

Our transport policy has received 5-star Ecostar accreditation

We do not test any of our products or their

ingredients on animalsWe’re ensuring,

with regular audits, that none of our

products are manufactured in

factories that have unsafe or unacceptable

working practicesWe’re working with The

Woodland Trust to use sustainable sources of timber in all our wood and paper products

18,492 team members took part, that’s

of our team88%

of responses were positive

On average

66%“I understand who my customer is and what I need to do to put my customer first.” 83%

50.8%Our net promoter score was

Well above average for our sector

In October 2015, we ran our annual engagement survey, asking team members what it’s like to work at Wilko.

74%

Our team members are crucial to making the customer shopping experience memorable and repeatable – so it’s reassuring that our team members have scored this question highly.

Training and development

“ I understand how my work contributes to the success of Wilko.”

Paying our way UK taxes paid

£134m

Overseas tax paid

£ m

Collected by Wilko on behalf of HMRC

£29m

Total tax remitted

£164m


Helping good causes and doing our bit for charity is a key part of our business. This year team members across the business nominated 25 local charities they were passionate about or had a connection with – and after a lot of hard work (and fun) ended up raising over £1 million for our 25 regional chosen charities.

Bags of money for good causesIn the first six months of the Government’s 5p carrier bag charge, we sold over 18 million bags and raised £133,461 for charities based across England, Wales and Scotland.

Helping HandsAs part of our Helping Hands fund, Wilko gave £300 to each store to help their local community. That’s a total donation of £76,200 to local charities and community groups in need of support. 19 stores near the Bristol area pooled their Helping Hands budget together and paid for over 250 senior citizens to have a day at the cinema to watch Dad’s Army.

We also give team members one day per year to volunteer in their local community – that’s over half a million hours!

Helping the peop e around us

regional charities25

Final amount raised

over £1m

We continue to make a significant contribution in terms of taxes/levies paid, primarily in the UK but also through our sourcing operations in Hong Kong and India. During 2015/16 we paid or recorded charges of over £134m in taxes/levies in the UK alone.

We believe in acting responsibly and pay our fair share of taxes in each jurisdiction in which we operate. We don’t and never will use questionable structures to evade taxes.


SummaryThe governance structures provide effective lines of leadership and accountability for the ongoing management and stewardship of the group. Non-executive directors and the Family Director hold executive directors to account through the Board and its committees.

Long-term viabilityWith a robust governance framework and a strong strategic plan which is driving improvement in key performance indicators we are confident that the group has a strong future and is viable.

Governance and risk management

Risk Mitigation

IT resilience and infrastructure – under-investment, outdated technology, increasing data volumes stretching capacity and additional IT support for the strategic projects all present risks.

The Board has approved significant investment in this area. IT transformation plan has been delivered to board with monthly updates, and focuses on addressing priority risks. Recruitment of additional resources needed to deliver the plan is already under way.

Business strategy – ability to absorb change – as we continue our strategic programme, considerations are currently being given to our ability to absorb change over the next 12 months.

Work is ongoing on the re-sequencing of the strategic project portfolio and this involves driving an understanding of the implications of significant planned IT change to the wider business.

Managing the talent pool – the strategic objectives will only be achieved if executed well by team members. Without alignment of values and skill-sets to the strategy there is a risk of non-delivery.

A number of key activities are already under way including:

• Relaunch of internal future executive development programmes

• Business objectives cascade

• New retail talent strategy including graduates and apprentices

• Engagement survey actions

Digital strategy – a digital mindset needs to be embedded across all areas of the business. We need to be responsive to changes in technology and customer behaviours to achieve our goals.

A clear Digital strategy is being finalised to emphasise the importance throughout the business.

Weekly meetings between the core digital team and integrated departments are already in place with particular emphasis on IT, as a key enabler of delivery of the Digital strategy.

Health and safety culture – during 2015, for the first time in the Group’s history, we were prosecuted and pleaded guilty to a health and safety offence. We received a fine, reduced by 33% as a result of the risk improvements we have made since the accident. The health and safety of our employees and customers is a paramount consideration.

We will invest in our culture, communications and leadership to ensure that health and safety is always front of mind. We have approved a substantial increase in resources to support this.

Crisis management – in the event of a disaster scenario we need to ensure business continuity. Plans that encompass robust crisis and incident management, mitigation and communication responses are currently being prepared to address such situations.

There is a core crisis team in place. External specialists have been engaged to support effectiveness of crisis process through scenario testing.

Risk identification and managementARC carries responsibility for risk management and internal control. Meeting five times a year, ARC maintains a strategic risk register covering a wide range of business risks; the register is a dynamic document and is formally reviewed at least annually.

ARC is supported in the management and monitoring of business risks by the Risk Executive Committee (REC).

This consists of Trading Directors who are required to present risk reports and mitigation plans for their department. ARC also approves the annual internal audit plan and receives key internal audit findings at each ARC meeting.

Principal strategic risks identified are as follows:

* LW, SS and JJ are members of ARC and RNC

Holding board

Wilkinson Hardware Stores Limited

Meets 4 weekly

WHSL board meets 13 times a year/4 weekly

Trading board

Wilko Retail Limited

Meets weekly

(Week 4 meeting Change Board)

W’innovate Limited

Product design & development company

Full W’innovate board meets once/Q W’innovate Showcase in other months

Directors: LW, FA, CU, IA

Wilko Asia Limited

Sourcing company

Full board meets twice a year in Hong Kong

Directors: LW, FA, HR, David Wei

ARC* RNC*

As a private company we are not required to demonstrate compliance with the UK corporate governance code or to disclose our corporate governance arrangements. The code represents best practice and we are moving towards compliance with most of its elements. Though not fully compliant, we believe we have robust governance in place and wish to be open and transparent with stakeholders about our approach to effective control and stewardship.

Overall control of the Group is through the Holding Board:

• The Holding Board delegates authority in specific areas to other sub-committees

• Audit and Risk Management – Audit and Risk Committee

• Remuneration and nominations – Remuneration and Nominations Committee

• Executive management of subsidiary trading businesses – Trading board and other executive boards for W’innovate and Wilko Asia

The current arrangements are under review, in the future we will move to a more transparent structure.

Summary of Key Boards and CommitteesHolding BoardHolding Board is a unitary board chaired by Lisa Wilkinson, Family Director. Other Directors are Sean Toal, Chief Operating Officer (COO), Aidan Connolly, Chief Financial Officer (CFO), John Jackson and Steve Sinclair (non-executive directors). It provides oversight and challenge to the Trading Board over its day to day running of the business. It also is the ultimate level of approval for significant strategic changes, particularly those affecting the Wilko brand and adherence to shareholders’ principles. Holding Board delegates authority in specific areas to the following committees.

Audit and Risk Committee (ARC)

ARC’s objective is to establish formal, robust and transparent arrangements to apply the corporate reporting, risk management and internal control principles and to maintain an appropriate relationship with the Company’s auditors. The committee is chaired by John Jackson and attended by Lisa Wilkinson and Steve Sinclair. The COO, CFO, Head of Finance and Internal audit manager assist the committee in carrying out its objectives.

Remuneration and Nominations

RNC’s objective is to establish formal, robust arrangements to create, recommend changes to, and oversee the application of remuneration and nominations policies. RNC is given authority to oversee and review remuneration arrangements for the group, recommend new positions and structural changes required to support strategic aims. RNC members consist of the non-executive Directors and Family Director assisted by executive members CFO, COO, rewards and pensions manager and HR Director.

28 Wilko Operational Review 2015

Improved trading in the financial year resulted in turnover increasing to £1,464m (2015 – £1,445m) driven by additional customer footfall, new stores and like for like growth. Combined with better margin control that saw gross profit percent increase to 40.3% (2015: 40.0%), overall gross profit rose to £590.1m (2015: £578.4m). Operating expenses fell £9.1m to £566.5m (2015: £575.6m), culminating in an operating profit increase of £20.7m to £23.6m (2015: £2.9m).

Profit on ordinary activities before movements on derivative financial instruments and tax for the year was £22.8m compared to £2.5m last year.

Key Performance IndicatorsAlongside absolute profit and debt measures, the business uses several key performance indicators (KPIs) to measure progress.

KPI 2016 2015

Total revenue growth / (decline)

1.4% (1.3%)

Like for like revenue growth / (decline)

0.6% (2.0%)

EBITDA £m £56.8m £39.1m

Customer growth / (decline)

0.8% (2.3%)

Operating return (“pence in the £”)

1.6% 0.2%

Return on Capital Employed*

13% 1.7%

*Calculated as EBIT** / (Shareholder Equity + Debt finance)** EBIT is also before movements on unrealised gains / losses

on financial instruments

RevenueImproved trading performance resulted in turnover growth of £19.9m year on year, with key metrics across the board all contributing. Like for like store performance was an improvement, posting a growth of 0.6% in 2016 compared to a 2.0% decline in 2015. We increased our estate from 373 stores to 381 and wilko.com sales increased 13.8% increasing our overall basket spend for the year too. This compares favourably with the overall market trend for non-food online sales, which showed growth of 12.7% during the same time. However, the percentage of online sales as a proportion of total sales is significantly lower than the non-food market average of 18.5% meaning we need to continue to focus on growth in this area.

Operating MarginOperating profit increased by £20.7m year on year to £23.6m (2015: £2.9m). This consisted of an increase in gross profit of £11.7m and a reduction in operating expenses of £9.1m. The £11.7m gross profit increase was driven by £8.0m as a result of the additional sales and £3.7m through trading rate improvement to 40.3% (2015: 40.0%). A key trading initiative this year was the launch of our Stay Low Pricing campaign, in which we committed to selling 4,000 lines at the lowest price on the high street. This generated 14% volume growth and 3% sales increase for the lines changed as part of the campaign. Rate dilution from the Stay Low Pricing campaign was offset by improved discount management and sourcing effectiveness. In terms of category performance the biggest areas of profit growth came from DIY, Cleaners and Christmas.

The £9.1m overhead savings materialised across a number of different areas. Team member costs reduced by £1.9m (after paying team member bonus) following the headcount restructure that commenced at the back end of 2015 for our head office, supply chain and retail departments. Marketing spend reduced in Q1 and Q2 as a result of not repeating the TV advertising that took place in 2015. Additional marketing investment was however injected into the Christmas campaign in Q4, helping drive the strongest quarter of comparative sales growth all year at 1.7%. Other savings year on year were generated in transport, contract maintenance, card handling and utilities. The utilities saving were the result of significant capital investment in LED lighting across a quarter of the estate in 2015. Plans are in place to extend LED lighting to the remainder of the estate over the next two years. Within the year we embarked on a five year strategic programme encompassing projects across IT, Supply Chain, Marketing, Customer Experience and Product. £4.1m of additional spend was attributable to these projects in year.

Finance Income and CostsNet finance costs of £0.9m increased by £0.5m year on year. We operated with more cash in the bank throughout 2016, generating additional interest receivable of £0.5m. Due to the high liquidity position we repaid the outstanding balance on the £25m loan in full in January 2016. Additional repayments prior to repaying the loan in full contributed an additional £0.2m of bank interest paid. The interest charge on the net pension liability also increased by £0.9m year on year to £1.1m in 2016 (2015: £0.2m).

TaxationThe tax charge of £6.9m this year represents an effective tax rate of 26.3%, predominantly due to depreciation being higher than capital allowances as a result of fixed asset spends which do not qualify for capital allowances. The tax does include a charge of £0.2m in respect of earlier years (2015: £0.8m credit).

Cash Flow and Net DebtLiquidity remains very strong with cash and cash equivalents increasing £27.3m to £96.0m at the end of 2016. Operating activities generated an inflow of £75.4m, predominantly as a result of £56.8m EBITDA (2015: £39.1m). Investing activities contributed to an outflow of £23.4m, largely due to spend on capital additions of £24.3m, whilst financing activities generated an outflow of £24.7m. £22.1m of this was early repayment of the loan taken out in 2015. The £96.0m cash balance and zero debt means the Group has access to significant resources to deliver its strategic priorities in the coming year.

Capital spendingCapital additions for the year rose to £24.3m (2015: £13.3m), predominantly as a result of new stores and relocations in 2016. Spending of £24.3m on a proportional basis remains low for the size of our group and under investment in the business has been highlighted as a key strategic risk by the board – particularly in our IT infrastructure.

Return On Capital Employed (ROCE)ROCE for 2016 increased to 13.0% against last year’s 1.7% reflecting improved utilisation of existing assets driven by the increased profitability in the current year.

PensionIn addition to the defined contribution schemes provided by the Group, the business also operates a defined benefit scheme which was closed to future accrual post 31 July 2013. The estimate of the deficit on the scheme at the end of the year is £14.2m pre taxation (2015: £33.8m deficit). The reduction in deficit is mainly due to increases in corporate bond yields over the year leading to a rise in the discount rate from 3.2% to 3.75% p.a. Mortality assumptions have been updated to take account of latest scheme specific research. These factors caused a large decrease in liabilities which was only partially offset by a rise in long-term inflation expectations. The Group made additional contributions of £1.2m during the year to the defined benefit scheme and has committed to make a similar contribution in 2016/17.

Financial review

Consolidated profit and loss account

2016 £’000

2015 £’000

Turnover 1,464,475 1,444,563

Cost of sales (874,350) (866,114)

Gross profit 590,125 578,449

Operating expenses (566,487) (575,574)

Operating profit 23,638 2,875

Interest receivable and similar income 909 393

Interest payable and similar charges (1,796) (743)

Profit on ordinary activities before movements on derivative financial instruments

22,751 2,525

Unrealised gain on derivative financial instruments 3,204 19,954

Profit on ordinary activities before taxation 25,955 22,479

Tax on profit on ordinary activities (6,841) (6,613)

Profit on ordinary activities after taxation 19,114 15,866

Wilko Operational Review 2015 29

Wilko Annual Review 2015 3130 Wilko Annual Review 2015

Financial review

Consolidated cash flow statement

Consolidated balance sheet

2016 £’000

2015 £’000

Cash flow from operating activities

Operating profit

Current pension service costs

Pension administration costs

Depreciation of tangible fixed assets

Loss/(gain) on disposal of tangible fixed assets

Decrease/(increase) in stocks

Decrease in debtors

Increase in creditors and provisions

Taxation

23,638

7

(1,250)

33,183

885

2,953

205

17,728

(1,990)

2,875

8

(1,250)

36,190

(365)

(13,211)

8,606

6,434

(6,771)

Net cash inflow from operating activities 73,359 32,516

Cash flows from investing activities

Interest received

Purchase of tangible fixed assets

Disposal of tangible fixed assets

Cash transferred pursuant to Demerger

909

(24,343)

75

–

393

(13,343)

395

(39,504)

Net cash flows from investing activities (23,359) (52,059)

Cash flows from financing activities

Dividends paid

New bank loans raised

Interest paid

Repayments of borrowings

(1,874)

–

(733)

(22,071)

–

24,750

(537)

(2,679)

Net cash flows from finance activities (24,678) 21,534

Net increase in cash and cash equivalents 27,322 1,991

Cash and cash equivalents at beginning of year 68,690 66,699

Cash and cash equivalents at end of year 96,012 68,690

2016 £’000

2015 £’000

Fixed assets Tangible assets

Current assets

Stocks

Debtors

Cash at bank and in hand

Creditors: amounts falling due within one year

Net current assets

Total assets less current liabilities

Creditors: amounts falling due after one year

Provisions for liabilities

Net assets excluding pension liability

Pension liability

Net assets including pension liability

Capital and reserves

Called up share capital

Other reserves

Profit and loss account

Shareholders’ funds

147,626

150,349

51,209

96,012

297,570

(210,572)

86,998

234,624

(31,723)

(6,328)

196,573

(14,175)

182,398

19

171

182,208

182,398

157,428

153,302

56,408

68,690

278,400

(197,104)

81,296

238,724

(48,500)

(6,302)

183,922

(33,829)

150,093

19

171

149,903

150,093

Continuing operations None of the Group’s activities were acquired or discontinued during the current or previous period.

Company Secretary Mary Edgerton

Registered Office JK House Roebuck Way Manton Wood Worksop Nottinghamshire S80 3EG

Registered number 08856837 (England and Wales)

Auditors PKF Cooper Parry Group Limited Sky View Argosy Road East Midlands Airport Castle Donington Derby DE74 2SA

Bankers Lloyds Bank PLC

The figures and financial information for the financial period 2015/16 and comparatives do not constitute the statutory financial statements for those periods. The financial statements for the financial period ended 1st February 2016. This includes the auditors report which was unqualified and neither drew attention to any matters by way of emphasis nor contained a statement under section 498 (2) or (3) of the Companies Act 2006.

On 11 June 2014 our trading company Wilkinson Hardware Stores Limited changed its name to Wilko Retail Limited (still company number 0365335) and our new holding company (company number 08856837) changed its name to Wilkinson Hardware Stores Limited. Wilko Retail Limited remains a wholly owned subsidiary of the renamed holding company Wilkinson Hardware Stores Limited (company number 08856837).

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