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Our approach to risk management


The delivery of our strategic objectives and the sustainable growth (or long-term shareholder value) of our business, is dependent on effective risk management. We regularly face business uncertainties and it is through a structured approach to risk management that we are able to mitigate and manage these risks and embrace opportunities when they arise. These disciplines remain effective as we continue to navigate our way through the ongoing challenges resulting from COVID-19 and the changing risk landscape as the world starts to emerge from the pandemic.

The diversified nature of our operations, geographical reach, assets and currencies are important factors in mitigating the risk of a material threat to the Group’s sustainable growth and long-term shareholder value. However, as with any business, risks and uncertainties are inherent in our business activities. These risks may have a financial, operational or reputational impact.

The Board is accountable for effective risk management, for agreeing the principal, including emerging, risks facing the Group and ensuring they are successfully managed. The Board undertakes a robust annual assessment of the principal risks, including emerging risks, that would threaten the business model, future performance, solvency or liquidity. The Board also monitors the Group’s exposure to risks as part of the performance reviews conducted at each Board meeting. Financial risks are specifically reviewed by the Audit Committee.

Our decentralised business model empowers the management of our businesses to identify, evaluate and manage the risks they face, on a timely basis, to ensure compliance with relevant legislation, our business principles and Group policies.

Our businesses perform risk assessments which consider materiality, risk controls and specific local risks relevant to the markets in which they operate. The collated risks from each business are shared with the respective divisional chief executives who present their divisional risks to the Group Executive.

Emerging risks are identified and considered at both a Group and individual business level, with key management being close to their geographies. These risks are identified, as part of the overall risk management process, through a variety of horizon-scanning methods including geopolitical insights; ongoing assessment of competitor activity and market factors; workshops and management meetings focused on risk identification; analysis of existing risks using industry knowledge and experience to understand how these risks may affect us in the future; and representation and participation in key industry associations.

The Group’s Director of Financial Control receives the risk assessments on an annual basis and, with the Finance Director, reviews and challenges them with the divisional chief executives, on an individual basis.

These discussions are wide-ranging and consider operational, environmental and other external risks. These risks and their impact on business performance are reported during the year and are considered as part of the monthly management review process.

Group functional heads including Legal, Treasury, Tax, IT, Pensions, HR, Procurement and Insurance also provide input to this process, sharing with the Director of Financial Control their view of key risks and what activities are in place or planned to mitigate them. A combination of these perspectives with the business risk assessments creates a consolidated view of the Group’s risk profile. A summary of these risk assessments is then shared and discussed with the Finance Director and Chief Executive at least annually.

The Director of Financial Control holds meetings with each of the non-executive directors seeking their feedback on the reviews performed and discussing the key risks, which include emerging risks, and mitigating activities identified through the risk assessment exercise. Once all non-executive directors have been consulted, a Board report is prepared summarising the full process and providing an assessment of the status of risk management across the Group. The key risks, mitigating controls and relevant policies are summarised and the Board confirms the Group’s principal risks. These are the risks which could prevent the Group from delivering its strategic objectives. This report also details when formal updates relating to the key risks will be provided to the Board throughout the year. 

 

Key areas of focus this year

Effective risk management processes and internal controls

We continued to seek improvements in our risk management processes to ensure the quality and integrity of information and the ability to respond swiftly to direct risks. During the year, the Audit Committee on behalf of the Board conducted reviews on the effectiveness of the Group’s risk management processes and internal controls in accordance with the 2018 UK Corporate Governance Code. Our approach to risk management and systems of internal control is in line with the recommendations in the Financial Reporting Council’s (FRC) revised guidance ‘Risk management, internal control and related financial and business reporting’ (the Risk Guidance).

The Board is satisfied that internal controls were properly maintained and that key and emerging risks are being appropriately identified and managed.

COVID-19

Effective communication both within our businesses and across the Group has ensured that our food businesses continued to operate, providing safe, nutritious and affordable food to customers. Primark’s leadership demonstrated agility in responding to store activities being restricted at short notice. In addition, its effective planning ensured that the UK stores were well prepared for a safe reopening from 12 April.

COVID-19 has resulted in increased volatility and uncertainty in almost all of our markets, particularly the UK, Europe and the US, where there is a high risk of inflation impacting on energy, commodities and wages. During the year, changes in public health measures in our major markets to control the spread of COVID-19, and the Delta variant in particular, have impacted both our customers and employees. Whilst the UK now has an advanced vaccination programme and the majority of COVID-19 restrictions have been lifted, the outlook is currently more mixed in a number of countries in which we operate. For example, there continue to be ongoing lockdowns in place across Australia and New Zealand. In addition, our retail business continues to adapt to localised restrictions and special arrangements for shoppers in some of our markets, for example in Portugal and Slovenia.

As the world starts to emerge from the COVID-19 pandemic, there are continuing impacts our consumers, customers, retailers, suppliers and our employees. Across a number of our businesses, there is the risk of increased pressure on the supply chains resulting from labour shortages as economies reopen which are exacerbated by employee health and safety concerns. The closure of the Suez Canal in March compounded some supply chain challenges that resulted from the pandemic and increased buying as economies have reopened. We have contracts in place for major parts of our business to ensure that we have the cost, stability and interim security of volumes in the volatile inbound market. Our businesses are reliant on the availability of skilled HGV drivers. Whilst there is currently a shortage of drivers in other parts of Europe, the USA and Australia, the situation has been exacerbated in the UK as a result of the EU exit. We continue to work closely with our major carriers and logistics partners to minimise supply chain disruption. The situation remains fluid and is being closely managed and monitored.

Throughout the pandemic, the Audit Committee, on behalf of the Board has provided ongoing support and challenge to management’s processes and internal controls. Numerous lessons have been learnt and we have developed a flexible set of possible responses that are ready to be deployed in the event of further restrictions being imposed, whether that be locally, regionally or globally.

EU Exit

Our businesses were well prepared for the end of the Brexit transition period and we have seen no material disruption to our supply chains. We have experienced a small increase in the administrative costs of trading and in limited cases duties related to our trading with the EU.

Regulatory changes

Our businesses are facing a large number of regulatory changes over the coming years with new requirements being developed in a number of areas including the Task Force on Climate-related Financial Disclosures (TCFD), Environmental, Social and Governance (ESG), extended producer responsibility regarding packaging and plastics and the potential requirements resulting from the BEIS White Paper: Restoring Trust in Audit and Corporate Governance. For each of these areas, groupwide initiatives are well advanced to meet the specific requirements. The extent of change will have an impact on the capacity of management at the time when they are dealing with the ongoing challenges resulting from COVID-19, alongside the day-to-day growth of our businesses.

Environment

We have a clear sense of social purpose: it exists to provide safe, nutritious and affordable food, and clothing that is great value for money. We are set on a mission: to continue to make food and clothes available and affordable and also carbon neutral as quickly as we can. The people in our businesses are motivated by the excitement that comes from driving social and environmental improvement. ESG isn’t simply a matter of risk mitigation. ESG factors, including the potential implications of climate change, are considered as part of our well-established risk management framework and they also frame opportunities for our businesses to become better. Our leaders are empowered to include the prioritisation of mitigation of environmental impacts as a central aspect of their business plans, sharing learnings from the leaders in other Group businesses and from the Group and applying industry best practice. The Board reviews each business segment in depth every year, and ESG factors are central to the analysis and discussion.

Our culture and values, and particularly our devolved decision-making model, empower the people closest to risks to make the right judgements to mitigate risks. In respect of ESG, each of our businesses has prioritised and is devoting most resources to those ESG factors which are of greatest relevance and will make the greatest long-term difference. They are also challenged by the centre through detailed reviews of the Group’s environmental performance, health and safety performance, and its diversity, equity and inclusion and workforce engagement programmes.

Our principal risks and uncertainties

The directors have carried out an assessment of the principal risks facing the Group, including emerging risks, that would threaten its business model, future performance, solvency or liquidity. Outlined on pages 90 to 94 of the Annual Report 2021  are the Group’s principal risks 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 report the principal risks which 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 2020’ describe our experience and activity over the last year.

The Group is exposed to a variety of other risks related to a range of issues such as human resources and talent, community relations, the regulatory environment and competition. These are managed as part of the risk process and a number of these are referred to in our 2021 Responsibility Update

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