The following general controls are in place at Beter Bed Holding to manage risks:
The organisation applies a matrix that describes the risks, their financial and other impact, the likelihood of their occurrence, the controls and the actions to be taken. This matrix is updated and discussed in the Audit Committee twice a year and the key points are reported to the Supervisory Board. The risks are classified in the categories Financial, Strategic/Operational, Board and Management, Legal, Social, Information and Tax.
As part of the annual budget cycle, the opportunities and threats identified by Beter Bed Holding for the Group as a whole and for the individual companies in economic, strategic and commercial terms are determined. The budget drawn up by the Management Board of Beter Bed Holding is discussed with and approved by the Supervisory Board.
All group entities (in the Netherlands and abroad) report monthly to the Group on the financial results achieved (revenue, margin, expenses and operating profit) and the financial position. These reports are discussed on a monthly basis by the Management Board of Beter Bed Holding with the various management teams, providing direct oversight of the various operating activities. Far-reaching uniformity is aimed for in the various reports to enhance their effectiveness. The administrative and accounting records for the operating activities are maintained in the SAP (ERP) environment (which has already been used for a considerable time in the organisation).
The effective operation of the accounts and internal control structure is reviewed every year by the external auditor as part of the audit of the financial statements. The audit findings are discussed by the external auditor with the Management Board, and, without the latter being present, with the Supervisory Board.
The principal risks for Beter Bed Holding and its affiliated operating companies are as follows:
The main financial risk consists in failing to achieve the budgeted revenue and therefore the planned cash margins, mainly as a result of changes in consumer behaviour in response to altered economic conditions. Revenues and order intakes for each formula are reported on a daily basis to manage this risk. On a weekly basis, data on realised margins, numbers of visitors, conversion and average tickets are added to them and commented on.
On the basis of the analyses, adjustments are made in the utilisation of marketing tools, including pricing policy and the use of advertising. In addition, cost budgets are periodically reviewed and adjusted if necessary. Economic and macroeconomic information from the market, including sector-specific reports, is also utilised. Further information regarding a number of specific financial risks connected with normal business operations is provided under risks in the general notes of the financial statements. A sensitivity analysis with respect to these risks is also included.
The strategic risks involve primarily the changed market and competition conditions, with the rise of new business models from an e-commerce perspective requiring express attention. Beter Bed Holding addresses this development in various ways. The positioning, product range, pricing and service level of the formulas in their own markets are continually refined based on frequent, extensive and thorough consumer research, market information and competition analysis. The company furthermore follows a proactive omni-channel strategy that has been elaborated and aligned to consumers’ wishes in each country. This strategy allocates an express role to the stores in combination with own online webshops and strategic web partners whenever possible.
In operational terms the potential business disruption by (strategic) suppliers constitutes a risk. To mitigate this risk, internal agreements are in place on the maximum share in revenue that an individual supplier can have within the group. In addition, regular consultation takes place at the highest executive level (CEO) with the principal suppliers. The organisation also applies an extensive system of supplier management, enabling continual monitoring of the performance of individual suppliers and early identification of indications of potential problems at suppliers. Moreover, the product range sourced from any one supplier can in principle be replaced within an acceptable timeframe.
Beter Bed encountered delivery problems in 2014 due to the fact that one supplier lost its production facilities in the floods in Bosnia. In connection with this, the supplier terms and conditions were made more stringent with respect to the alternative and fallback scenarios and insurance conditions.
Product liability is also a significant element in the group’s risk profile. Although the Beter Bed Holding formulas do not manufacture products themselves, they do recognise the need for these products to meet the applicable requirements.
Accordingly, as part of our Corporate Social Responsibility, Beter Bed Holding applies strict standards in the area of supplier conduct and the share of products in the product range carried that have been subjected to stringent tests is growing from year to year.
Beter Bed (in the Netherlands) depends on its own (three) distribution centres for deliveries of goods to its customers. In the event of a calamity in one of those centres, deliveries will be handled from the other two centres. This minimises the risk of failing to make deliveries. In addition, each distribution centre has its own business continuity plan.
Information and information systems
An unavailability of core systems (cash register system, stock management and goods management systems), as well as an unavailability of reliable data (integrity) are identified as potential risk areas. To manage those risks the IT architecture has been designed to ensure that the cash register systems can operate locally (standalone) and back-ups are continually made of the data of all back-office systems, and therefore the externally located IT infrastructure will be operational within the timeframe required for continuity purposes in the event of a calamity. System integrity is monitored by applying a clear release policy and strict ‘change management’ procedures.
As part of ‘horizontal monitoring’ Beter Bed Holding has signed a compliance agreement with the Dutch Tax and Customs Administration. This ensures that any tax issues are discussed openly and on the basis of full transparency. The Management Board also reports twice a year on relevant tax issues to the Audit Committee.
Reporting by the auditor
With a view to transparency in risk assessment the company summarises the main findings of the auditor concerning risks and risk management. Ernst & Young Accountants LLP, the external auditor, reports its findings annually and these are discussed with the Management Board and the Supervisory Board. The external auditor tested, among other things, the effective operation of the internal control system and compliance with statutory and regulatory requirements, both within the framework of and insofar as relevant to the audit of the financial statements. The auditor stated that the level of internal control, including the automated systems, was the same as in 2013. The auditor also issued recommendations for improvements in the formalisation of controls with regard to the automated systems in particular. The external auditor reported that, in its opinion, the internal control system, insofar as it was examined as part of the audit of the financial statements, met the relevant requirements with a view to managing risks in the year under review.