The Board recognises the need for a robust system of internal controls and risk management.
The Group operates in an environment that is constantly changing and as a result the risks it is facing change over time. The Group’s management have developed processes to assess risks and to develop strategies for dealing with these risks on an ongoing basis. A formal review of these risks is carried out by the Group once a year.
The review process involves the classification of risks, assessment to determine the relative likelihood of them impacting the business and the potential severity of the impact, and determination of whether changes to management processes are needed to manage them effectively.
The directors have identified the following as principal risks and uncertainties:
Talent Retention
Potential Impact
Loss of key personnel and employee churn and failure to attract sufficient high-quality people could impact the Group’s ability to achieve its Project 50 strategy.
Mitigation
The Remuneration Committee reviews annually key personnel rewards so that they are competitive and commensurate with performance. Long-term incentive plans were implemented for the executive management and senior leadership teams during the year. Personal development plans and reviews as well as training programmes were introduced for all employees to ensure both business and personal needs are met. The business also moved to a hybrid way of working and office culture, to support employees with greater flexibility
Consumer And Customer Trends
Potential Impact
Consumer preferences and buying habits could lead to our products not meeting consumer needs or not being readily available for purchase, as well as impacting our customers’ strategies.
Mitigation
Regular reviews of EPOS and market dashboards, as well as maintaining close contact with customers facilitates our understanding and alignment with their strategies. The creation of our DTC marketplace will provide a significant change in the frequency and quality of our interaction with consumers helping to create products that fulfil their needs. Our investment in new product development will closely follow their feedback and wider market trends including sustainability.
Product Quality And Compliance
Potential Impact
Inconsistent quality or non-compliance with regulations would have a severe impact on service levels, customer relationships and have financial repercussions.
Mitigation
The Company has a well-defined new product development process that incorporates product quality and compliance verification. We also partner with long-term, established key suppliers with excellent product quality controls and adherence to compliance standards. We also employ compliance consultants for product labelling verification and registration.
Supply Chain Disruption
Potential Impact
Disruption to the supply chain could limit availability of products and thereby reduce sales and business performance.
Mitigation
The Group maintains a detailed forecast and demand planning process to maximise product availability while optimising its inventory levels. The team has strong, long-term relationships with major suppliers, supported by regular reviews to ensure continuity of supply at competitive prices and early visibility of any issues. Depending on circumstances, the business will invest working capital in additional inventory for fast-moving product lines to ensure availability of supply.
Covid-19
Potential Impact
Covid-19 has the potential to continue to impact many of our key stakeholders including customers, consumers, suppliers and employees as well as the economic environment.
Mitigation
We have established and embedded new working practices to operate in a hybrid virtual/office environment, while customer, consumer and supplier changes are regularly reviewed. Our key strategic pillar of investing in our DTC platform will enable the Group to offset changes to consumer buying behaviours, enabling purchase of our brands.
Pension Fund Deficit
Potential Impact
The revaluation of the defined benefit pension plan on a technical provision basis at each reporting date can cause large fluctuations in valuations based on factors outside the Group’s control and drive increases in cash payments into the fund.
Mitigation
There is an agreed deficit recovery plan fixed until November 2037. The next triennial review on which a new schedule will be agreed will be on 5 April 2023. The deficit recovery plan provides a degree of certainty over cash flows between triennial reviews. The Group maintains a close relationship and regular communication with the Trustees. Further information on the pension scheme recovery plan can be found in the Financial Review.
Cyber Security
Potential Impact
The Group is exposed to the risk of increasingly sophisticated cyber-attacks aimed at causing business disruption, capture of confidential data for financial gain, and reputational damage.
Mitigation
The business has undertaken an assessment of its current control environment versus the Centre for Internet Security (CIS) controls framework. It has already progressed an improvement plan, which will continue into next year, to achieve sufficient maturity in this framework, investing in software, policies, procedures and training. A cyber security review is also being incorporated into our supplier review to support the robustness of our supply chain. In addition, the Group maintains cyber insurance.