Principal risks and uncertainties
Effective risk management is central to the board’s role in providing strategic oversight.
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.
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 balance sheet and results. Effective risk management is nevertheless central to the board’s role in providing strategic oversight and stewardship of the group. The board is accountable for ensuring that risk is successfully managed and undertakes a robust annual assessment of the principal risks, including those that would threaten the business model, future performance, solvency or liquidity, together with the internal control procedures and resources devoted to them.
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 which also reviews the effectiveness of the group’s risk mitigation processes.
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. The risk assessments consider materiality, risk controls and the likely impact against a range of criteria such as business objectives, health and safety, financial performance, the environment and community, regulation and reputation. The collated risks from each business are shared with the respective divisional chief executives who present their divisional risks to the group executive.
The group’s Director of Financial Control receives the risk assessments on an annual basis and, with the Group Finance Director, reviews and challenges them with the divisional chief executives. 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 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 summary of these risk assessments is then shared and discussed with the Group 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 and mitigating activities. 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.
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 aim to maintain a practical approach to effective risk management which allows our businesses the scope to address their current and potential risks. 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 board conducted reviews on the effectiveness of the group’s risk management processes and internal controls in accordance with the 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 reviewed and key risks are being appropriately identified and managed.
Last year, we identified the UK’s decision to leave the European Union as having had some immediate impact on our results as a consequence of the effect on currency markets. As the UK government continues its negotiations, uncertainty remains as to the extent to which our operations and financial performance will be affected in the longer term. At a group and business level, we have continued to prepare for changes in legislation, trade agreements and working practices in order to take advantage of the changing commercial landscape and to mitigate risk. We have contributed to governmentled consultations on the potential changes and their likely impact on businesses and markets to help inform the exit strategy.
Our principal risks and uncertainties
The directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Outlined here 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. Associated British Foods is 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’ highlight the significant variations in the profile of our principal risks or describe our experience and activity over the last year.