Each business is responsible for its own risk management assessment which is reported to the group’s Director of Financial Control annually. Our decentralised business model empowers the boards and management of our businesses to identify, evaluate and manage the risks they face on a timely basis. Key risks and internal control procedures are reviewed at group level by the board.
We require all businesses to implement appropriate levels of risk management to ensure compliance with all relevant legislation, our group health, safety and environment policies, our overriding business principles and group policies relating to them, taking into account business needs and local circumstances.
Each business is responsible for regularly assessing its health, safety and environmental risks with managers, operators, contracting companies and specialist staff working together to identify hazards. Appropriate operational procedures and controls are put in place
to mitigate risks and all employees are provided with appropriate information, training and supervision. Further details of our risk mitigation activities can be found in the Our principles section of our Corporate Responsibility report.
The board reviews annually the material financial and non-financial risks facing our businesses and, on a rolling cycle basis, reviews the effectiveness of the risk management process and the resources that our individual businesses devote to them. The principal risks
currently identified by our businesses and reviewed by the board are:
Issue | Risk | Mitigation |
PEOPLE | | |
Product safety | Reputational damage caused by food hygiene or safety incidents. Non-compliance with regulatory requirements. Safety concerns over use of Bisphenol-A in packaging. | Food safety put before economic considerations. Consistently high standards maintained in sourcing and handling of raw materials and manufacturing. Food safety systems regularly reviewed for efficacy and compliance. Documented and tested product recall procedures regularly reviewed. New scientific research monitored proactively. Independent audit processes in place which provide a level of assurance on product safety. All sites have quality and food safety audits carried out by local quality control staff. |
Health and nutrition | Health concerns over fat, sugar and salt content of foods. Inappropriate advertising to children. | Our recipes are regularly reviewed and reformulation is conducted as necessary to optimise the nutritional profile of products. Our UK Grocery group has signed the UK Government’s ‘Responsibility Deal on Public Health’ and associated pledges to reduce salt, remove trans-fats and to promote healthy eating and lifestyle options to our employees. Guideline Daily Amount or equivalent nutritional information provided to consumers in the UK and Australia. Products marketed responsibly, following accepted codes of practice. |
Workplace health and safety | Potential for fatal accidents and serious injuries to employees and visitors. | Group health and safety policy in place. Increased financial investment in health and safety management. Information and guidance provided to our businesses. Internal and external audits of health, safety and management reporting extended. |
Employee rights | Non-compliance with internationally recognised standards. Inability to recruit and retain high calibre people at all levels necessary to achieve business performance targets and maintain profitable growth. | International Labour Organisation conventions are taken into account and we strive to observe the UN Universal Declaration of Human Rights in the management of all businesses. Staff throughout the group are recruited, trained and rewarded according to performance alone. Groupwide whistleblowing policy in place and kept under review. |
Management succession | Failure to plan for succession to key roles could lead to a lack of management continuity and sub-optimal operational or financial performance. | Each business has a succession plan which is reviewed with group management twice a year, and with the board, annually. Development of our senior managers is co-ordinated by the Group HR Director and the Head of Executive Development. A small number of executive search companies have been briefed to introduce us to talented executives from other companies who could add value to the group. |
Input costs, suppliers and supply chain reliability | Damage to brands caused by supply chain weakness e.g. poor conditions for workers. Disruption to raw material supplies and production caused by problems with suppliers, natural disasters and other incidents. | Extensive audit programme for labour standards of suppliers. Continued work, in partnership with suppliers and NGOs, to improve working conditions e.g. via training. Business continuity and disaster recovery planning regularly reviewed. |
Ethical business practices | Penalties imposed or reputational damage suffered through bribery, corruption or unfair competition. | All group businesses required to sign up to the group’s Business Principles and Anti-Bribery and Corruption Policy with training provided to all staff. |
ENVIRONMENT | | |
Climate change | Long-term increase in energy prices. Physical threats to operations from climate change e.g. flooding. Altered weather patterns affecting crop productivity. | Compliance with the group’s Environment Policy. Best available techniques employed to reduce energy consumption – statutory requirement for all sites subject to the EU’s Pollution Prevention and Control regime. Own electricity generated where possible, e.g. through combined heat and power plants and use of bagasse (waste sugar cane fibre). Agricultural raw materials sourced from a wide range of geographical locations and suppliers. Substantial investment to improve environmental risk management and energy efficiency. |
Air pollution | Unacceptable impact on environment and offence caused to local communities by emissions to air. | Plant and process changes assessed in advance before authorisation sought. As a minimum, comply with emission standards in country of operation. |
Disposal of water and waste water | Legal sanction and reputational damage because of non-compliance with regulations and licences. | Responsibility assigned to senior executives in all businesses and specialists employed. As a minimum, comply with standards in country of operation. Our UK Grocery group supports the Courtauld 2 Commitment to reduce packaging waste, the Food and Drink Federation ‘Fivefold Environmental Ambition’ and the Institute of Grocery Distribution Water Savings Initiative. Waste reduced, re-used or recycled wherever practicable. |
Water availability | Water shortages and increased cost of water. | Water-intensive sites in areas of water stress identified, and efforts focused on water reduction in these areas. Investing heavily in the quality of our water usage data to enable improved monitoring and management of our water use. |
Resource efficiency | Unnecessary costs from inefficient use of natural resources. | Use of raw materials optimised. Packaging waste minimised consistent with food safety and product protection. Fuel consumption in transport minimised. |
Palm oil | Reputational damage from unsustainable sourcing of palm oil. | Group policy introduced to buy all palm oil from sustainable sources by 2015. |
Genetically modified (GM) crops | Consumer concern over use of GM food ingredients. | Recognised as a sensitive issue for some consumers and trends monitored by market. |
FINANCIAL AND REGULATORY | |
|
Competition rules | Penalties for failing to comply with the 1998 Competition Act, the 2003 Enterprise Act, relevant EU law and all relevant competition legislation. | Clear policy direction and close support from specialist in-house legal department. Compulsory awareness training. |
Global economic slowdown and changing consumer demand | Demand for our products declines due to uncertainty over economic outlook and impact on disposable incomes. | Mitigated by diversity of business portfolio and geographic reach. Substantial investment in research and development, product quality, advertising and promotion, and focus on cost management. |
Financial, currency and commodity risks | Loss sustained as a result of failure of internal controls or fraud, and exposure to foreign currencies, interest rates, counterparty credit risk, liquidity risk, and changes in market prices especially for energy and commodities. | Adherence to the group’s financial control framework and Anti-Fraud Policy. Treasury operations are conducted within a framework of board-approved policies and guidelines. Sufficient funding is maintained by way of external loans and committed bank facilities which are renewed or extended on a timely basis having regard to the group’s projected funding needs. Financial transactions are dealt through financial institutions with a credit rating of A or better. Details of the group’s accounting and risk management policies with respect to financial instruments and associated quantitative and qualitative disclosures are set out in note 24 on pages 93 to 104 of the Annual Report and Accounts 2011. |
Tax compliance | Failure to comply with local tax law resulting in underpayment of tax and exposure to related interest and penalties. | The group has a financial control framework and a board-adopted Tax Policy requiring all businesses to comply fully with all relevant local tax law. In-house tax specialists are employed and local external tax advisor support is taken as appropriate. Provision is made for known issues based on management’s interpretation of country-specific tax law and the likely outcome. Any interest and penalties on tax issues are provided for in the tax charge. Tax benefits are not recognised unless it is probable that the position taken is sustainable. Management reviews each material tax benefit to assess whether a provision should be taken against full recognition of the benefit on the basis of potential settlement through negotiation and/or litigation. |
Loss of a major site | The loss of one of our key sites could present significant operational difficulties. | Our businesses have business continuity plans in place to manage the impact of such an event and group insurance programmes to mitigate the financial consequences. |
Regulatory and political | Failure to recognise political or cultural differences in the many countries in which we operate could directly impact the success of our operations. | We remain vigilant to future changes and the increased risk presented by emerging markets. We engage with governments and NGOs to ensure the views of our stakeholders are represented and we try to anticipate, and contribute to, important changes in public policy. Our financial control requirements are consistently applied wherever we operate. |
Major capital projects and acquisitions | Risk of overspending initial cost estimates, overrunning construction timelines and failure to meet design specifications. | All major projects are managed by dedicated teams who work in close liaison with business management. Project plans are reviewed and approved by group management and, for larger projects, by the board. Updates on progress are provided throughout the project. |