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 continues to disrupt our sales markets and operations around the world.
During 2021, there were further closures of non‑essential retail in some of our major markets, with the continued shift to online and omnichannel retail.
The Group sells into more than 70 countries around the world, although the 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 people. We remain in close communication with our teams around the world to ensure their health and safety is a priority, and continue to quickly respond to any challenges as they arise.
The Group maintains close relationships with our key customers and suppliers to identify any 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 declining sales.
The Group continues to invest in our online and digital capabilities and capacity in order to provide an increasingly direct to consumer element for product fulfilment.
The Group will continue to monitor sales trends in our major markets around the world and ensure we have the necessary digital capabilities in an omnichannel retail environment.
The Group faces strong competition in most of the major market in which we operate. 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.
We are increasingly working with partners in our key UK and US markets on direct to consumer fulfilment, and ensuring we have the capabilities to meet required service levels.
The Group continues to invest in both its strong brands and new product development to provide a point of difference, whilst working closely with key customers to provide a reliable and timely service.
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.
Management seeks to ensure that employees are appropriately remunerated and good performance is recognised and rewarded. Staff are also provided with relevant training for their roles 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.
The Group remains committed to hiring and retaining key personnel in order for the business to achieve our strategic objectives.
The Group’s purchasing activities could expose it to overreliance in certain key suppliers or markets.
The ongoing impact of Covid-19 to supply chains has the ability to create inflationary cost increases and disruption through additional lead times.
The Group both manufactures and sources product from a range of suppliers which reduces the impact of inflation or disruption in one market or supplier.
For the manufacturing processes in the UK, the Group ensures that key raw materials are available from more than one source to ensure continuity and competitive pricing.
For the sourcing process, suppliers are carefully selected to ensure a sufficient breadth in supply base.
The Group also ensures that all intellectual property rights are retained and easily transferable should an alternative supplier be required.
The Group continues to monitor the impact Covid-19 has made to supply chains to ensure our flow of products around the world is not disrupted.
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 loss 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 32 on pages 99 to 101.
The Group is cash generative with sufficient headroom within current borrowings facilities, and in 2021 has recovered to pre-Covid profitability levels.
The Board have a detailed and robust 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.