The Group is exposed to a number of risks in the markets it operates across. The Board considers the risks to the business and the adequacy of internal controls with regard to the risks identified at every Board meeting. It formally reviews and documents the principal risks to the business at least annually.
Risk management structure and process
1. Identify risk
The Board has overall responsibility for monitoring the Group’s systems of internal control, for identification of risks and for taking appropriate action to prevent, mitigate or manage those risks. The Board will continually assess and review the business and operating environment to identify any new risks for consideration.
2. Assess risk
A detailed schedule of risks is considered at each Board meeting under the following categories: macro-economic and political, continuity and disruption, trading and product, operational and supplier, accounting and internal controls, legal and regulatory and external investment and performance. These risks are graded against a criteria of likelihood and potential impact in order to identify the key risks impacting the Group (see heat map below).
3. Mitigate risk
The Board seeks to ensure that the Group’s activities do not expose it to significant risk. The Group’s aim is to diversify sufficiently to ensure it is not exposed to risk of concentration in product, market or channel.
4. Update risk register
The risk register is updated at each Board meeting. The Board meets formally at least five times each year.
5. Review and evaluate risks
The Board and senior managers are all responsible for reviewing and evaluating risk. The Executive Directors meet at least monthly to review ongoing trading performance, discuss budgets and forecasts and consider new risks associated with ongoing trading.
Feedback from these meetings regarding changes to existing risks or the emergence of new risks is then provided to the Board.
Principal risks and uncertainties
The Covid-19 pandemic outbreak in 2020 was an unprecedented event which brought major disruption to retail markets around the world, including our three key markets of the UK, US and South Korea.
The closure of non-essential retail meant an accelerated shift to sales made in online channels and an uncertain outlook for physical retail stores which had to close for large parts of 2020.
The Group sells into more than 70 countries around the world, although the vast majority of sales are concentrated into three key markets. We continue to monitor the impact of Covid-19 restrictions in these markets and any material disruption to our product supply, key sales markets or staff. We remain in close communication with our teams around the world to ensure their health and safety, and continue to respond to any challenges as they arise.
The Groups continues to monitor and maintain close relationships with its key customers and suppliers to be able to identify signs of financial difficulties in order to prevent or limit any potential losses. Customer orders and sales trends in major markets are constantly reviewed to enable early action to be taken in the event of sales declining.
The Group will continue to monitor the impact of Covid-19 and ongoing retail conditions.
The Group faces strong competition in most of the major markets in which it operates. This presents a risk of losing market share, revenue and profit.
The risk is managed by ensuring that high quality and innovative products are brought to market, maintaining strong relationships with key customers and ensuring the Group is aware of local market conditions, trends and industry-specific issues and initiatives. This enables the Group to identify and address any specific matters within the overall business strategy.
The Group continues to invest in both its strong brands and new product development in order to provide a point of difference to its competitors.
Skilled senior managers and personnel are essential in order to achieve the strategic objectives of the Group. Failure to recruit and retain key staff would present significant operational difficulties for the Group.
Existing staff are provided with relevant training and career progression to improve motivation. The Group has a clearly defined recruitment policy which ensures that new employees meet the required standard and experience for each position. Management also seeks to ensure that personnel are appropriately remunerated and that good performance is recognised.
The Group remains committed to hiring and retaining key personnel in order for the business to achieve its strategic objectives.
The Group’s purchasing activities could expose it to overreliance on certain key suppliers or markets and, as a result, inflationary pricing pressure. Production is split between UK factories and outsourced supply, which allows the Group to mitigate some of the risk presented by suppliers. The ongoing outbreak of Covid-19 has the ability to disrupt our supply chain.
For the manufacturing process conducted in the UK, the Group ensures that key raw materials are available from more than one source to ensure continuity and competitive pricing of supplies. For the sourcing process, suppliers are carefully selected and the Group seeks to maintain a sufficient breadth in its supplier base such that the risk remains manageable. The Group also ensures that all intellectual property rights are retained and easily transferable should an alternative supplier be required.
The Group continues to ensure dual-supply where practical and maintain strong supplier relationships. The Group will continue to review and monitor any potential disruption due to Covid-19.
Financial risk is wide-ranging and covers capital management, credit risk, currency risk and liquidity risk. The risks presented in these areas include the failure to achieve business goals, potential financial losses caused by default, reduction in profit due to currency fluctuations, insufficient funds to continue trading and going concern threat.
The Group’s approach to risk management and mitigating systems are covered in the financial risk management objectives in note 33 on pages 94 to 97.
The Group is cash generative with significant headroom within current borrowing facilities, and has traded profitably during the disruption Covid-19 has brought to 2020. The Board have a detailed budget review process and assess performance, including cash flow and liquidity, as part of regular management information reviews.
Regular currency forecasts are reviewed in order to ensure the Group is not detrimentally impacted by any major exchange rate fluctuations.
The Group has a net cash balance at the year end and significant headroom within ongoing borrowing facilities. The Group also has a strong natural currency hedge and continues to monitor currency fluctuations.