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, 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 financial strategic risks consist in failing to achieve revenue mainly due to entry of new competitors, the introduction of new products, brands and revenue models. 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 pro-active omnichannel 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. Further information regarding a number of specific financial risks connected with normal business operations is provided under risks in the general notes to the financial statements.
In terms of operational strategic risks, the company recognises the risk of supplier side consolidation, which may threaten margins (and supplies). 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.
In legal strategic terms, there is a risk of non-compliance with laws and regulations in various areas, including product liability, consumer protection and reporting. These risks are mitigated by systematically requesting advice from experts with the relevant knowledge, including legal specialists, tax specialists, accountants and competent authorities. In addition, audits are regularly performed.
The social strategic risks primarily relate to damage to the company’s image and reputation as a result of defective products or irresponsible conduct in a wider sense. It should be noted with regard to the product range that the formulas do not manufacture products themselves. Control systems ensure that products meet the applicable requirements. To ensure responsible conduct, the organisation applies codes of conduct in various areas. The corporate culture, in which integrity and ethical business conduct are core values, significantly contributes to mitigating risks. The company also has a Whistleblowers policy.
The main operational risks relate to the availability of information systems that support the primary processes and the availability of the logistics facilities. 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. Specific attention was directed in 2015 at the risk of cybercrime. The logistical risks relate mainly to the situation in the Netherlands, where three distribution centres (DCs) are used. In the event of a calamity at one of these DCs, the other two can be used as alternatives. In addition, each DC has its own business continuity plan.
Beter Bed Holding explicitly defined its tax principles in 2015. The main principles are that Beter Bed Holding maintains an open relationship with the tax authorities in the countries in which it operates, agrees tax rulings only to confirm the correct interpretation (and application) of the tax rules and tax laws and does not adopt (abnormal) tax arrangements directed solely at tax avoidance. 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 reports twice a year on relevant tax issues to the Audit Committee.
Independent auditor's report
The independent auditor obtains an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. He reports his findings to the management board and supervisory board in his board report and independent auditor's report.