About us

Risk management

Our Approach

As with any business we face risks and uncertainties. We believe that effective risk management supports the successful delivery of our strategic objectives. We have an established risk management framework to identify, evaluate, mitigate and monitor the risks we face as a business. Our risk management framework incorporates both a top-down approach to identify our principal risks and bottom-up approach to identify our operational risks.  The Executive Leadership Team (ELT) perform a robust assessment of the principal risks on a periodic basis and with the Audit Committee at least twice a year. The review includes an assessment of the movement in the risks, the strength of the controls relied on and the status of mitigating actions. The principles of risk management have also been embedded into the day to day operations of the business units and corporate functions.

The long-term viability statement, set out later in this section, provides a broader assessment of the longer term prospect of the Group after consideration of the principal risks and availability of funding.


Principal Risks and uncertainties

The Board have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business  model, future performance, solvency or liquidity. Outlined in this report are the Group’s principal risks (gross) and uncertainties, and the key mitigating activities in place to address them. These are the principal risks of the Group as a whole and are not in any order of priority. We are exposed to a variety of other risks but we report those we believe are likely to have the greatest current or near-term impact on our strategic and operational plans and reputation. They are grouped into external risks, which may occur in the markets or environment in which we operate, and operational risks, which are related to internal activity linked to our own operations and internal controls. The ‘Changes since 2016/17’ highlight changes in the profile of our principal risks or describe our experience and activity over the last year.

Risk appetite

Our approach is to minimise exposure to reputational, financial and operational risk, while accepting and recognising a risk/rewards trade-off in pursuit of our strategic and commercial objectives. As a food manufacturing company, with many well known brands, the integrity of our business is crucial and cannot be put at risk. Consequently, we have a zero tolerance for risks relating to Occupational Health & Safety and food safety. We operate in a challenging and highly competitive market place and as a result we recognise that strategic, commercial and investment risks will be required to seize opportunities and deliver results at pace. We are therefore prepared to make certain financial and operational investments in pursuit of growth objectives, accepting the risks that the anticipated benefits from these investments may not always be fully realised. Our acceptance of risk is subject to ensuring that potential benefits and risks are fully understood and sensible measures to mitigate those risks are established.



1. Market and retailer actions

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 Risk Trend

Risk and potential impact
As a primarily UK based company, our sales are concentrated with a relatively small number of major customers who operate in a highly competitive market. Actions taken by these retailers (for example changes in pricing and promotion strategies), may negatively 

How we manage it
  • We have strong relationships with the major retailers built on the strength of our brands, our expertise in our categories and shopper insight.
  • We have a programme of continuous innovation rooted in customer insight and designed to build category growth for our customers and brands.
  • We are growing our International business which reduces dependence on the UK market.

Changes since 2016/17

  • Since last year, the UK Grocery market has returned to growth albeit the level of competition remains high.
  • Consolidation of retailers and/or wholesalers continues in the market and a further consolidation is now proposed between two of our largest customers.
2. Brexit & macroeconomic environment Link to strategyProfit-growth-icon-(3).jpgCost-efficiency-icon-(2).jpg  Risk trend
Risk and potential impact
The strength of the UK economy can have an impact on demand for our products. While much uncertainty remains over the exact form of the UK’s exit from the EU, a further devaluation of Sterling against the Euro would increase the Group’s cost base, potentially affecting margins and hence funds available for investment. The Group is also exposed to cyclical inflation in soft commodities and other inputs to our business.
How we manage it
  • We manage the impact of commodity price inflation and foreign exchange volatility through hedging activity and ongoing supplier risk management.
  • A cross-functional committee headed by the CFO and Procurement and Central Operations Director has been put in place to manage the Group's readiness for Brexit. 
Changes since 2016/17
  • The UK has agreed a draft withdrawal agreement with the EU with an exit date of March 2019 and a transition period (up to December 2020). If intrusive customs controls were introduced at UK ports following the end of  the transition period, any resultant disruption would be likely to adversely affect our supply chain.
  • It is becoming harder to recruit temporary labour, particularly for logistics and manufacturing operations.
3. Operational integrity  Link to strategyProfit-growth-icon-(3).jpgCost-efficiency-icon-(2).jpgMoney-icon-(1).jpg  Risk trend
Risk and potential impact
Delivery of our strategy depends on our ability to minimise operational disruption from issues with facilities, factory infrastructure as well as procurement and logistics functions. Supply chain weaknesses e.g. disruption due to unforeseen events and single supplier risks, may impact negatively on our reputation, financial performance and key customer relationships.
How we manage it
  • We have a crisis management process in place and business continuity plans are reviewed and refreshed on an ongoing basis.
  • Insurance coverage is in place to mitigate against the financial impact of material site issues.
  • We have an on-going programme to consolidate our warehousing and distribution capability to increase our operational efficiency. There are close relationships at all levels of the business with our outsourced logistics provider.
  • Procurement category plans are in place to mitigate against single supplier risk.
  • We have robust quality management standards applied and rigorously monitored across our supply chain.
Changes since 2016/17
  • The first phase of warehouse consolidation project experienced some implementation issues which impacted on customer service levels during 2017, which have since improved.
  • The second phase of the programme is in progress and senior management are closely monitoring progress and performance; albeit there is no absolute guarantee that further challenges will not be encountered.

4. Technology

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 Risk trend

Risk and potential impact
A successful cyber attack or other systems failure could result in us not being able to manufacture or deliver products, plan our supply chain, pay and receive money, or maintain proper financial control. This could a have major customer, financial, reputational and regulatory impact on our business.

How we manage it

  • We use a range of techniques including firewalls, anti-virus software, and duplicated systems that are comparable to those used in peer companies.

Changes since 2016/17

  • Organisations in all sectors are targeted by an increasing volume and sophistication of cyber attacks which in certain cases have caused major disruption to their factory operations and supply chains.
  • During 2017/18 the audit committee formally reviewed IT security and where recommendations for improvement were made these are in hand.

5. Legal compliance

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 Risk trend

Risk and potential impact
Our business is subject to a number of legal and regulatory requirements and must continuously monitor new and emerging legislation in areas such as Health & Safety, listing rules, competition law, food safety, labelling and environmental standards. Failure to comply with such requirements may have a significant negative impact on our reputation and incur financial penalties.

How we manage it

  • We have leading food industry processes in place to manage Health & Safety and food safety issues (including an ongoing programme of internal and external audits).
  • We have dedicated Legal and Regulatory teams in place to monitor the laws and regulations to ensure compliance and defend against litigation where necessary.

Changes since 2016/17

  • Other than in respect of GDPR, where we have taken a committed approach to compliance, there have been no significant changes to the legal and regulatory landscape and we continue to monitor compliance.

6. Product portfolio

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 Risk trend

Risk and potential impact
Demand for our products is subject to changes in consumer trends and government legislation. Furthermore, sales of many of the Group’s products can be adversely affected by warm seasonal weather conditions. Failure to keep our product ranges contemporary and relevant to our consumers would lead to a diminishing consumer demand which will impact negatively on our reputation and financial performance.

How we manage it

  • We have a programme of innovation, based on deep rooted consumer insights, to continuously modernise our portfolio of distinctly British brands to ensure they remain relevant to today's shoppers.

Changes since 2016/17

  • A growing proportion of our sales are from new products and we look to build on this.
  • Public Health England guidelines called for a 20% reduction in sugar which is a core ingredient in some of our products.
  • In January 2018, the government announced its environmental strategy which includes a target to reduce the use of plastic in packaging.
  • We remain on target to achieve reductions of up to 1,000 tonnes in sugar from our portfolio by the end of 2018.
  • We have developed a strategy to reduce and recycle the plastic in our packaging.

7. HR and employee risk

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 Risk trend

Risk and potential impact
We may be unable to attract and retain the critical capabilities and skills needed in our business to deliver our strategy, business plan and projects.

How we manage it

  • We continue to invest in colleague development and engagement initiatives on a focused basis.
  • We have processes in place to attract talent into the business with the right capabilities and behaviours.
  • We have succession plans in place to retain our internal talent pipeline.

Changes since 2016/17

  • The restructuring of roles as part of our efforts to deliver cost savings in early 2017 was completed swiftly and the new business structure has stabilised.
  • We successfully filled a significant number of key management vacancies through our internal talent pipeline and through direct sourcing.
  • Reward and variable compensation schemes have been strengthened.
  • We have invested in leadership development for our colleagues.

8. Strategy delivery

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 Risk trend

Risk and potential impact
Our balanced strategy seeks to deliver revenue growth, cash generation and cost efficiency. The strategy focuses marketing investment behind key brands. Our strategy may take longer than expected to deliver results which may impact on our ability to grow shareholder value.

How we manage it

  • Given the seasonal nature of many of our brands media investment is targeted in the periods of peak consumer demand and through the most cost effective channels.
  • Our new and existing product development programmes are based on deep consumer insight and continue to make our product ranges more relevant to the ever changing lives of our consumers.
  • Our strong strategic relationships with our key customers facilitate the creation and joint ownership of plans for mutual growth.

Changes since 2016/17

  • Our financial results for 2017/18 demonstrate that we are delivering against our strategy and this is supported by our internal plans for 2018/19.
  • As mentioned previously a key change is the increase in value generated by our product development programme which is growing and ahead of our strategic road map.
  • Our collaboration initiatives with Nissin and Mondel─ôz International continue to be successful with strong consumer demand which continues to increase.

9. International expansion

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 Risk trend

Risk and potential impact
Our plans to expand our international business are subject to global market forces; fluctuations in national economies and currency movements; societal and political changes; a range of consumer trends and evolving legislation. Failure to recognise and respond to any of these factors could directly impact on our future profitability and rate of growth.

How we manage it

  • We carry out careful due diligence prior to entering a new market.
  • We closely monitor current and forecast performance of our business and where required adapt our marketing approach.

Changes since 2016/17

  • We have since renewed our licence with Mondel─ôz International which has given us access to a broader range of Cadbury products and geographies.
  • Our focus is to continue building our presence in Australia and the USA and we are currently exploring opportunities to enter new markets.

10. Treasury and pensions

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 Risk trend

Risk and potential impact
We are the sponsoring employer of a number of large historical pension schemes and also have significant amounts of long-term debt, these items taken together are a substantial liability on the balance sheet. Tri-annual pension fund valuations, and hence requests for deficit repair contributions (“DRCs”), are heavily impacted by financial market conditions over which the Group has no control. Trustees could potentially request DRC’s which are not compatible with the Group’s ability to pay. Furthermore, our ability to manage our debt capital structure may be impacted by market trends which are outside of our control e.g. interest rate movements or volatility in the high yield debt markets.

How we manage it

  • Our executive directors are actively engaged with the pension trustees on scheme funding and investment matters. The RHM pension scheme has a high degree of hedging.
  • We have a strong relationship with our banking group and continue to review our debt capital structure and revolving credit facilities.

Changes since 2016/17

  • During the year, the RHM pension scheme has reduced its investment risk.
  • Our revolving credit facility has been extended from December 2020 to December 2022.

Brexit implications

The Board continues to keep the possible implications of Brexit for the Group’s operations under review. A cross-functional team, led by two Executive Leadership Team members, is in place to manage the Group’s readiness for Brexit. Since the Article 50 Notice having been served, there have been further announcements about the likely terms of the post-Brexit trade arrangements between the UK and the EU, as well as about any possible transitional arrangements (including the Irish Border) and time period.

Nevertheless, at this time there still remains significant uncertainty about the probable impact on the Group. Although we are a UK based business, we purchase a meaningful amount of our commodities from the EU which leaves us exposed to movements in Sterling and Euro quoted commodities. Our supply chain is also primarily UK based although we do have a seasonal labour workforce from EU countries in our Sweet Treats business. Depending on the arrangements agreed between the UK and the EU, the issues that could directly affect our operations, potentially causing us to incur additional cost, are likely to be:
  1. The imposition of tariffs on finished goods and commodities traded between the UK and EU;
  2. Potentially higher logistics and administration costs due to increased customs border checks; and
  3. Potential delays at UK ports impacting supply of raw materials to our factories.
A further, indirect, issue that could affect our future performance would arise if the Brexit process caused significant revisions to macroeconomic performance in the UK, thus impacting on our performance in this market.

Long-term viability statement

The Board have determined that the most appropriate period over which to assess the Group’s viability, in accordance with the UK Corporate Governance Code, is three years. This is consistent with the Group’s business model which devolves operational decision-making to the businesses, each of which sets a strategic planning time horizon appropriate to its activities which are typically of three years duration.

The Board also considered the nature of the Group’s activities and the degree to which the business has changed and evolved in the relatively short-term. The Board considered the Group’s profitability, cash flows and key financial ratios over this period and the potential impact that the principal risks and uncertainties set out above could have on the solvency or liquidity of the Group.

Sensitivity analysis was applied to these metrics and the projected cash flows were stress tested against a number of severe but plausible scenarios. As of 31 March 2018, £202.0m of committed borrowing facilities available to the Group were undrawn. The Board considered the level of performance that would cause the Group to breach its debt covenants (see note 17 on pages 86 and 87 of the 2017/18 annual report) and a variety of factors that have the potential to reduce trading profit substantially. These included the rate and success of the Group's strategy; actions which could damage the Group’s reputation for the long-term and macroeconomic influences such as fluctuations in world currency, commodity markets and the implications of the UK’s withdrawal from the EU (Brexit).

The Board have considered the principal risks and uncertainties and the potential impact of these on the Group’s profitability or available cash resource. In assessing the Group’s viability, the Board also considered all of the severe but plausible scenarios simultaneously materialising and for a sustained period, in conjunction with mitigating actions such as reducing discretionary costs. The likelihood of the Group having insufficient resources to meet its financial obligations and remain within its covenants is unlikely under this analysis.

Based on this assessment, the Board confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period to 31 March 2021.

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