Principal risks and uncertainties
RISK MANAGEMENT
Our approach to risk management Our businesses perform risk assessments group. The key risks, mitigating controls The delivery of our strategic objectives which consider materiality, risk controls and relevant policies are summarised and the sustainable growth (or long-term and specific local risks relevant to the and the Board confirms the group’s shareholder value) of our business, is markets in which they operate. The principal risks. These are the risks which dependent on effective risk management. collated risks from each business are could prevent Associated British Foods We regularly face business uncertainties shared with the respective divisional from delivering its strategic objectives. and it is through a structured approach to chief executives who present their This report also details when formal risk management that we are able to divisional risks to the group executive. updates relating to the key risks will mitigate and manage these risks and be provided to the Board throughout The group’s Director of Financial Control embrace opportunities when they arise. the year. receives the risk assessments on an These disciplines have proved to be annual basis and, with the Finance Key areas of focus this year effective as we navigate our way Director, reviews and challenges them Effective risk management through the challenges resulting from with the divisional chief executives, on processes and internal controls the COVID-19 pandemic. an individual basis. We continued to seek improvements The diversified nature of our operations, in our risk management processes to These discussions are wide ranging and geographical reach, assets and ensure the quality and integrity of consider operational, environmental and currencies are important factors in information and the ability to respond other external risks. These risks and their mitigating the risk of a material threat swiftly to direct risks. During the year, impact on business performance are to the group’s sustainable growth and the Audit Committee on behalf of the reported during the year and are long-term shareholder value. However, Board conducted reviews on the considered as part of the monthly as with any business, risks and effectiveness of the group’s risk management review process. uncertainties are inherent in our management processes and internal business activities. These risks may Group functional heads including controls in accordance with the 2018 have a financial, operational or Legal, Treasury, Tax, IT, Pensions, HR, UK Corporate Governance Code. Our reputational impact. Procurement and Insurance also provide approach to risk management and input to this process, sharing with the systems of internal control is in line with The Board is accountable for effective Director of Financial Control their view the recommendations in the Financial risk management, for agreeing the of key risks and what activities are in Reporting Council’s (FRC) revised principal, including emerging, risks place or planned to mitigate them. guidance ‘Risk management, internal facing the group and ensuring they are A combination of these perspectives control and related financial and business successfully managed. The Board with the business risk assessments reporting’ (the Risk Guidance). undertakes a robust annual assessment creates a consolidated view of the of the principal risks, including emerging The Board is satisfied that internal group’s risk profile. A summary of risks, that would threaten the business controls were properly reviewed and key these risk assessments is then model, future performance, solvency or risks are being appropriately identified shared and discussed with the liquidity. The Board also monitors the and managed. Finance Director and Chief Executive group’s exposure to risks as part of at least annually. COVID-19 the performance reviews conducted The COVID-19 pandemic continues to at each Board meeting. Financial risks The Director of Financial Control holds be a worldwide crisis and the situation are specifically reviewed by the meetings with each of the non-executive is still uncertain. Authorities continue to Audit Committee. directors seeking their feedback on the impose restrictions on both a regional reviews performed and discussing the Our decentralised business model and local basis. Since March, when the key risks, which include emerging risks, empowers the management of our pandemic became apparent, the Audit and mitigating activities identified businesses to identify, evaluate and Committee, on behalf of the Board through the risk assessment exercise. manage the risks they face, on a timely have provided ongoing support and Once all non-executive directors have basis, to ensure compliance with challenge of management’s processes been consulted, a Board report is relevant legislation, our business and internal controls. prepared summarising the full process principles and group policies. and providing an assessment of the status of risk management across the
84 Associated British Foods plc Annual Report and Accounts 2020 Strategic report
Whilst our businesses had not planned We have raised the level of monitoring • Disruption to EU-UK logistics – for a global pandemic, under extraordinary for phishing attempts and other security The businesses that could be circumstances, our teams reacted with threats. In addition, we have issued impacted by this have reviewed immediacy to adapt to the evolving security awareness advice on secure their exposure and where appropriate situation. Effective communication both home-working best practices. have plans to increase inventory within the divisions and across the group levels to partially mitigate the risk. We have also increased disciplines to has ensured that appropriate actions The ability to do this is constrained ensure that user devices are regularly were taken to enable our food by warehouse availability and the shelf patched and upgraded to reflect businesses to operate fully, providing life of the goods. changing IT security threats. Revised safe, nutritious, affordable food to guidance for laptop and desktop • Data – Where necessary, the customers and meeting increased patching has been issued to all businesses have agreed Standard demand. Primark stores were able to businesses to ensure that systems Contractual Terms to enable certain reopen safely as restrictions were lifted. are up to date and secure. personal data to be transferred from Many lessons have been learnt over the EU to the UK. EU Exit the past six months and we have Following the UK’s referendum decision • People – The businesses have developed a flexible set of possible to leave the EU in 2016, the group publicised the UK government’s responses that are ready to be deployed established an EU Exit Steering Settled Status Scheme and where in the event of further restrictions being Committee which consists of a small appropriate have assisted employees imposed, whether that be locally, dedicated team. This steering with the application process. regionally or globally. committee worked with all the Our principal risks and uncertainties When this virus was first identified, our businesses to assess the risks and The directors have carried out an initial concern was the supply of goods opportunities arising from the UK’s assessment of the principal risks facing for Primark and, to a lesser extent, some decision to leave the EU. Primark Associated British Foods, including food ingredients sourced from China. As operates largely discrete supply chains emerging risks, that would threaten its the pandemic progressed, the most for its stores in each of the UK, US and business model, future performance, significant challenges we faced were Europe and the group’s food production solvency or liquidity. Outlined below maintaining the production of essential is largely aligned with the end market. are the group’s principal risks and food and food ingredients and the cash As a result, there is relatively little group uncertainties and the key mitigating flow impact arising from the closure of cross-border trading between the UK activities in place to address them. all Primark stores between March and and the EU. We therefore quickly These are the principal risks of the their reopening, in line with local market concluded that the overall impact of EU group as a whole and are not in any regulations, throughout May, June and exit on the group was relatively minor. order of priority. July. We took immediate steps to ensure We recognise that the outcome of adequate cash liquidity. Associated British Foods is exposed the negotiations between the UK and to a variety of other risks related to a Whilst Primark stores were closed, the EU remains uncertain. While we range of issues such as human we paid for in full, and took delivery of, would prefer a negotiated free trade resources and talent, community very large amounts of completed stock. agreement, we are prepared for any of relations, the regulatory environment A fund was established to ensure the potential outcomes. and competition. These are managed everyone in a vulnerable country who Over the last year the group and the as part of the risk process and a number worked on a Primark garment, whether individual businesses have taken steps of these are referred to in our 2020 completed or not, is paid for that to mitigate possible impacts of the Responsibility Update. Here, we report work. In July, we committed to pay transitional period ending without a the principal risks which we believe are our garment suppliers in full for all negotiated free trade agreement. The likely to have the greatest current or outstanding finished garments key risks identified, and the actions near-term impact on our strategic and and to utilise or pay for any finished taken are as follows: operational plans and reputation. fabric liabilities. • Imports to the UK – The UK They are grouped into external risks, A significant number of our employees government has indicated the tariffs which may occur in the markets or continue to work from home. To on imports in the absence of a free environment in which we operate, and support seamless homeworking trade agreement. We expect these operational risks, which are related to we modified our IT infrastructure, to have a net positive impact on the internal activity linked to our own increased bandwidth with our group. All necessary registrations have operations and internal controls. telecommunications partners and been completed. Where goods are deployed collaboration tools. The ‘Changes since 2019’ describe imported into the UK by third parties our experience and activity over the The extent of remote working has on behalf of the businesses, last year. increased the risk of users falling victim assurances have been sought that to phishing attacks because users rely these will be available when required. primarily on email communication. We have an ongoing phishing testing regime and there is regular communication with all users to remind them of the risks.
Annual Report and Accounts 2020 Associated British Foods plc 85 Principal risks and uncertainties continued
External risks
MOVEMENT IN EXCHANGE RATES Increased
Context and potential impact Board-approved policies require businesses Primark covers its currency exposure on Associated British Foods is a multinational to hedge all transactional currency purchases of merchandise denominated in group with operations and transactions in exposures and long-term supply or purchase foreign currencies at the time of placing many currencies. contracts which are denominated in a orders, with an average tenor of Primark’s Changes in exchange rates give rise to foreign currency, using foreign exchange hedging activity of between 3 and 4 transactional exposures within the forward contracts. months. There was a minimal transactional businesses and to translation exposures Cash balances and borrowings are largely effect from changes in the US dollar when the assets, liabilities and results of maintained in the functional currency of the exchange rate on Primark’s largely dollar overseas entities are translated into sterling local operations. denominated purchases for the year in upon consolidation. aggregate. Cross-currency swaps are used to align There has been a greater level of volatility Mitigation borrowings with the underlying currencies in sterling exchange rates against our major Our businesses constantly review their of the group’s net assets (refer to note 26 to trading currencies during the financial year, currency exposures and their hedging the financial statements for more caused in part by the impact of the instruments and, where necessary, ensure information). COVID-19 pandemic and by continued appropriate actions are taken to manage the Changes since 2019 EU exit uncertainty. impact of currency movements. Sterling strengthened against some of our major trading currencies this year, resulting in a loss on translation of £16m.
FLUCTUATIONS IN COMMODITY AND ENERGY PRICES Unchanged
Context and potential impact We constantly monitor the markets in which Changes since 2019 Changes in commodity and energy prices we operate and manage certain of these EU sugar prices increased this year with a can have a material impact on the group’s exposures with exchange traded contracts reduction in stocks following lower EU sugar operating results, asset values and and hedging instruments. production in the last two campaigns. cash flows. The commercial implications of commodity The price of UK wheat, a key commodity for Mitigation price movements are continuously assessed our UK bakery business, increased during The group purchases a wide range and, where appropriate, are reflected in the the course of the year as a result of the of commodities in the ordinary course pricing of our products. impact of poor weather conditions on yields. of business.
OPERATING IN GLOBAL MARKETS Increased
Context and potential impact The group’s financial control framework and AB Sugar continues to reduce its cost base Associated British Foods operates in 53 Board-adopted tax and treasury policies through its performance improvement countries with sales and supply chains in require all businesses to comply fully with programme. many more, so we are exposed to global relevant local laws. We conduct rigorous due diligence when market forces; fluctuations in national Provision is made for known issues based entering, or commencing business activities economies; societal unrest and geopolitical on management’s interpretation of in, new markets. uncertainty; a range of consumer trends; country-specific tax law, EU cases and evolving legislation and changes made by Changes since 2019 investigations on tax rulings and their our competitors. Increased uncertainty as a result of the likely outcomes. COVID-19 pandemic. Authorities continue Failure to recognise and respond to any of By their nature socio-political events are to impose restrictions on both a regional these factors could directly impact the largely unpredictable. Nonetheless our and local basis. profitability of our operations. businesses have detailed contingency plans High inflation continued to adversely affect Entering new markets is a risk to any which include site-level emergency our yeast and bakery ingredients business business. responses and improved security based in Argentina. for employees. Mitigation 12 new Primark stores were opened in the Our approach to risk management We engage with governments, local year including our first store in Poland. incorporates potential short-term market regulators and community organisations to volatility and evaluates longer-term contribute to, and anticipate, important socio-economic and political scenarios. changes in public policy.
86 Associated British Foods plc Annual Report and Accounts 2020 Strategic report
HEALTH AND NUTRITION Increased
Context and potential impact over 600 events which promote exercise Notable examples include the Ryvita ‘Fibre Failure to adapt to changing consumer across the UK each year, helping over Fit’ campaign in the UK, through which the health choices or to address nutrition 500,000 people improve their fitness levels. business engaged over 50,000 consumers concerns in the formulation of our products These events are predominantly promoted in relation to the benefit of a high fibre diet. could result in a loss of consumer base and online, and HIGH5 assist in this promotion In addition, our sugar business’s campaign impact business performance. by highlighting events on their website and ‘Making Sense of Sugar’ has developed into via social media in conjunction with Mitigation a global platform. The aim is to provide nutritional advice. Consumer preferences and market trends factual information based on robust science are monitored continually. We invest in research with experts to to help inform and educate people about improve our understanding of the science sugar and the role it can play as part of a Recipes are regularly reviewed and and societal trends to support policy healthy balanced diet. reformulated to improve the nutritional value approach. of our products. Our businesses continue to assess the nutritional content of their products All of our grocery products are labelled with Changes since 2019 on an ongoing basis; and engage with nutritional information. Our Sugar and Grocery businesses have invested in communication linked to nutrition stakeholders, directly and through trade We develop partnerships with other and health during the year to help associations, in relation to changes to the organisations to promote healthy options. consumers make informed choices about regulatory and consumer operating Pre-COVID-19, our specialist sports- their diet. environment. nutrition brand HIGH5 typically supports
Operational risks
WORKPLACE HEALTH AND SAFETY Increased
Context and potential impact safety management and support a culture This year, over £46m was invested in Many of our operations, by their nature, of continuous improvement. safety risk management, of which £14m have the potential for loss of life or Best practice safety and occupational health was dedicated to COVID-19 safety workplace injuries to employees, guidance is shared across the businesses, measures for employees, customers contractors and visitors. co-ordinated from the corporate centre, to and other visitors to our stores and manufacturing sites. At the start of the Mitigation supplement the delivery of their own COVID-19 outbreak, we established a group Safety continues to be one of our main programmes. level steering committee to respond in a priorities. The chief executives of each Changes since 2019 timely manner to the dynamic changes business, who lead by example, are The safety performance of the group is including reimagining working environments accountable for the safety performance of reported in the 2020 Responsibility Update for many of our people. their business. at www.abf.co.uk/responsibility. Other investments this year included Our Health and Safety Policy and Practices In 2020 there were three work-related measures to improve working in confined are firmly embedded in each business, fatalities in our Spanish and southern Africa spaces and at height, fire risk assessments supporting a strong ethos of workplace operations. Our businesses have conducted and equipment upgrades, dust monitoring safety. thorough root cause analyses and are and air quality, improvements to lighting We have a continuous safety audit implementing safety changes. and safety signage and emergency first programme to verify implementation of aid training.
Annual Report and Accounts 2020 Associated British Foods plc 87 Principal risks and uncertainties continued
Operational risks continued
PRODUCT SAFETY AND QUALITY Unchanged
Context and potential impact sites, by independent third parties and All Primark’s products are tested to, and As a leading food manufacturer and retailer, customers, and a due diligence programme must meet, stringent product safety it is vital that we manage the safety and is in place to ensure the safety of our retail specifications in line with and in some quality of our products throughout the products. instances above legal requirements. Primark supply chain. Our sites comply with international food continues to drive and improve product performance for quality and compliance Mitigation safety and quality management standards purposes through its product approval Product safety is put before economic and our businesses conduct regular mock processes, in country inspections centres considerations. product incident exercises. and management of its supply base. We operate strict food safety and All businesses set clear expectations of traceability policies within an organisational suppliers, with relevant third-party Changes since 2019 culture of hygiene and product safety to certification or other assessment a condition We did not have any major product recalls. ensure consistently high standards in our of doing business. Product testing and trials Businesses have continued to define and operations and in the sourcing and handling are undertaken as required and where refine KPIs in this area. of raw materials and garments. bespoke raw materials are purchased, the . businesses will work closely with the Food quality and safety audits are supplier to ensure quality parameters are conducted across all our manufacturing suitably specified and understood.
BREACHES OF IT AND INFORMATION SECURITY Increased
Context and potential impact Access to sensitive data is restricted and email communication. We have an ongoing To meet customer, consumer and supplier closely monitored. phishing testing regime and there is regular needs, our IT infrastructure needs to be Robust disaster recovery plans are in place communication with all users to remind flexible, reliable and secure to allow us to for business-critical applications and are them of the risks. We have raised the level interact through technology. adequately tested. of monitoring for phishing attempts and Our delivery of efficient and effective other security threats. In addition, we have Technical security controls are in place over operations is enhanced by the use of issued security awareness advice on secure key IT platforms with the Chief Information relevant technologies and the sharing of home-working best practices. Security Officer (CISO) tasked with information. We are therefore subject to identifying and responding to potential Improved cyber-security capability is in potential cyber-threats such as computer security risks. place within the group and across the viruses and the loss or theft of data. businesses allowing us to more effectively Changes since 2019 There is the potential for disruption to detect, respond and recover from disruptive The significant increase in employees operations from data centre failures, IT cyber-threats. working at home, as a result of COVID-19 malfunctions or external cyber-attacks. We have also increased disciplines to ensure restrictions, has had an impact on the that user devices are regularly patched and Mitigation delivery of IT services and increased our IT upgraded to reflect changing IT security In parallel to building IT roadmaps and and information security risks. threats. Revised guidance for laptop and developing our technology systems, we There is an ongoing programme of desktop patching has been issued to all invest in developing the IT skills and investment in both technology and people to businesses to ensure that systems are up capabilities of our people across our enhance the longevity of our IT to date and secure. businesses. environments. During the year we have reviewed and We continue to actively monitor and To support seamless homeworking we have tested IT disaster recovery plans across the mitigate any cyber-threats and suspicious IT modified our IT infrastructure, increased businesses. activity. bandwidth with our telecommunications We have established group IT security partners and deployed collaboration tools. policies, technologies and processes, all of The extent of remote working has increased which are subject to regular internal audit. the risk of users falling victim to phishing attacks because users rely primarily on
88 Associated British Foods plc Annual Report and Accounts 2020 Strategic report
OUR USE OF NATURAL RESOURCES AND Increased MANAGING OUR ENVIRONMENTAL IMPACT
Context and potential impact Our packaging and product design teams As a group we continue to develop our Our businesses rely on a secure supply of are working together to address the use of packaging to align with future environmental natural resources, some of which are single-use plastics and scale up solutions to packaging legislation in local geographies vulnerable to external factors such as natural the environmental impacts of our packaging. whilst balancing the needs to minimise food disasters and climate change. Our material Our businesses aim to be a good neighbour waste and carbon emissions with food environmental impacts are energy use and within their local communities. Aspects of safety and integrity at the core. Our UK resultant greenhouse gas emissions, water this include the monitoring and Grocery Group are signatories to the abstraction and management, waste management of noise, particle and odour Courtauld Commitment 2025 as well as the management and packaging. pollution and community engagement. UK Plastics PACT, a collaborative initiative In our assessment of climate-related Where possible, our businesses implement delivered by WRAP, that will create a circular business risks, we recognise that the circular economy principles to use more economy for plastics. cumulative impacts of changes in weather from less and continuously seek ways to We report our approach to climate change, and water availability could affect our recycle or reuse all waste materials. water and deforestation risk on an annual operations at a group level. The diversified AB Sugar and AB Agri have set basis via CDP at www.cdp.net. nature of Associated British Foods means commitments for their own operations This year 84% of the waste materials that mitigation or adaptation strategies are and supply chain to improve sustainability generated by our businesses’ operations considered and implemented by individual performance. was sent for recycling, recovery or other businesses and divisions. Primark is committed to the Sustainable beneficial uses. Our operations generate a range of Clothing Action Plan (SCAP), an industry- Primark announced the rollout of its emissions such as dust, waste water and wide commitment made by brands, nation-wide recycling programme, inviting waste which, if not controlled, could pose a retailers, charities and recycling customers to donate their pre-loved clothes, risk to the environment, local communities organisations to collectively reduce the textiles, footwear and bags from any brand and result in additional costs. carbon, water and waste impacts of the to be ‘re-loved’ via the Primark In-Store Mitigation clothing industry. Recycling Scheme. We continuously seek ways to improve Through Primark’s Sustainable Cotton In August, Primark introduced a brand-new the efficiency of our operations, use Programme it has committed to train fleet of 15 Longer Semi Trailers (LSTs) which technologies and techniques to reduce our 160,000 farmers in more sustainable will help to significantly reduce the use of natural resources. farming methods by 2022. This environmental impact of Primark’s logistics Our businesses are considering the most commitment goes some way towards operations in the UK. helping Primark fulfil its long-term ambition effective ways of mitigating the impacts of In September, British Sugar’s logistics of ensuring all the cotton used in its supply physical and transitional risks associated partner, Abbey Logistics, took delivery of 11 chain is sustainably sourced. with climate change, such as changes in new latest generation trucks that will go into extreme weather conditions, and the Changes since 2019 Abbey’s core British Sugar fleet, providing introduction of carbon price schemes. The environmental performance of the bulk sugar transport movements throughout We recognise the importance of integrating group is reported in the 2020 Responsibility the UK and Ireland. The vehicles will climate related risks and opportunities into Update at www.abf.co.uk/responsibility. produce up to 20% less nitrogen oxide and our business decisions to help with the fewer particulates than previous generation This year we are reporting our Scope 2 transition to a low carbon economy. vehicles being replaced in the fleet, as market-based emissions for the first time. British Sugar maximises the environmental We consider climate related risks and Scope 2 covers indirect emissions from the benefits of homegrown sugar. opportunities in our business decisions and generation of purchased electricity, heat and recognise the importance of adopting the steam. This is a key consideration when recommendations of the Task Force on making energy purchasing decisions. Climate-related Financial Disclosures to We continued to focus on improving help with the zero-carbon transition/to our energy efficiency and optimising the help with the smooth transition to a low use of renewable energy sources with carbon economy. 55% of energy used this year coming from renewables, mainly from a biomass- based fuel.
Annual Report and Accounts 2020 Associated British Foods plc 89 Principal risks and uncertainties continued
Operational risks continued OUR SUPPLY CHAIN Unchanged AND ETHICAL BUSINESS PRACTICES
Context and potential impact and standards. The full Code is available at Changes since 2019 As an international business with suppliers www.abf.co.uk/supplier_code_of_conduct. Our Modern Slavery and Human Trafficking and representatives the world over, people Suppliers are expected to sign and abide by Statement 2020, together with the steps we with whom we deal and in particular our this Code. take to try to ensure that any forms of suppliers and our representatives must live modern slavery are not present within our up to our values and standards and share Adherence to the Code is verified through own operations or supply chain, are reported that responsibility. our supplier audit system with our in detail in the 2020 Responsibility Update at procurement and operational teams We therefore work with them to ensure www.abf.co.uk/responsibility. establishing strong working relationships reliability and to help them meet our with suppliers to help them meet In April, we endorsed the International standards of product quality and safety, our standards. Labour Organisation led COVID-19 Action in acceptable working conditions, financial the Global Garment Industry, working stability, ethics and technical competence. All businesses are required to comply with towards a coordinated global response to Potential supply chain and ethical business the group’s Business Principles including its ongoing industry-wide issues. We continue practice risks include: Anti-Bribery and Corruption Policy. to play our part in this initiative. Whilst Primark stores were closed, we paid for in • supply chain weaknesses such as poor We have developed a Company-wide online full, and took delivery of, very large amounts conditions for the workforce; training module about modern slavery to of completed stock. We established a • unacceptable and unethical behaviour help accelerate awareness-raising and give wages fund to ensure workers in vulnerable including bribery, corruption and slavery businesses the tools to train people. countries were paid as soon as possible for risk; and Primark has been working to strengthen its work on products in production for Primark • impact on reliability of supply and policies relating to human rights and modern when orders were cancelled in March. We business continuity due to unforeseen slavery and has published a revised supplier also committed to pay our suppliers in full incidents e.g. natural disasters. code of conduct. for all garments both finished and in Mitigation Primark, Twinings and AB Sugar have production as well as any fabric costs for Our Supplier Code of Conduct is designed all produced interactive sourcing maps. Primark prior to the stores closing. to ensure suppliers, representatives and all AB Sugar’s map outlines where it with whom we deal, adhere to our values grows, sources and exports sugar: www.absugar.com/sourcing-map.
Viability statement and going concern
Viability statement Uncertainties set out on pages 84 to fluctuations in commodity markets and The directors have determined that the 90 could have on future performance, the possible implications of a no-deal most appropriate period over which to solvency or liquidity of the group and its Brexit, and climate-related business assess the Company’s viability, in resilience to threats to its viability posed risks. Specific consideration has been accordance with the UK Corporate by severe but plausible scenarios. given to the potential ongoing risks Governance Code, is three years. This Sensitivity analysis was applied to these associated with COVID-19. These risks is consistent with the group’s business metrics and the projected cash flows include its impact on Primark’s trading model which devolves operational were stress tested against a range performance and to a lesser extent our decision making to the businesses, each of scenarios. ability to run our factories efficiently with of which sets a strategic planning time the potential for disruption through The directors considered the level of horizon appropriate to its activities which shortage of labour or logistical issues performance that would cause the are typically of three years duration. The caused by port constraints. group to exhaust its available liquidity; to directors also considered the diverse breach its debt covenants; the financial At the year end the group had gross nature of the group’s activities and the implications of making any strategic cash of £2,030m and £1,088m of degree to which the businesses change acquisitions and a variety of factors that undrawn committed Revolving Credit and evolve in the relatively short term. have the potential to reduce profit Facilities (RCF) which together provide The directors considered the group’s substantially. We considered actions some £3,118m of liquidity. In August, a profitability, cash flows and key financial which could damage the group’s two-year extension to the group’s RCF ratios over this period and the potential reputation for the long term, macro- was agreed with its relationship banks impact that the Principal Risks and economic influences such as extending the maturity of the facility to
90 Associated British Foods plc Annual Report and Accounts 2020 Strategic report Viability statement and going concern continued
July 2023. During the course of this Going concern There is substantial financial headroom assessment £261m of the £336m of After making enquiries, the directors between this cash flow forecast and the outstanding private placement notes have a reasonable expectation that the cash on hand and facilities available to will mature and the RCF will require group has adequate resources to the group over the period. A number of refinancing. Based on discussions with continue in operational existence for the extreme, adverse assumptions were our relationship banks and our private foreseeable future. For this reason they considered and the likelihood of the placement investors, it is the opinion continue to adopt the going concern headroom being exhausted was of the Board that these facilities can be basis in preparing the consolidated considered to be extremely remote. renewed and that substantial further financial statements. We have operations in 53 countries funding could be secured should the The forecast for the period to the end and sales into more than 100. The need arise. of February 2022 has been updated for diversity of our businesses, in different We have operations in 53 countries and our trading to October and is our best sectors with different customers, sales into more than 100. The diversity estimate of future cash flow. Having products and markets removes the of our businesses, in different sectors reviewed this forecast, and having possibility of any single adverse event with different customers, products and applied reverse stress tests, the having a material impact on headroom. markets removes the possibility of any possibility that the financial headroom The importance of food production has single adverse event having a material could be exhausted is considered to be been highlighted by recent events and impact on headroom. The importance of extremely remote. our employees continue to work food production has been highlighted by successfully to ensure the continuity and As stated at the half year, as a recent events and the resilience of the resilience of the food supply chain. It precaution against illiquidity in the group has been demonstrated by our would require a large number of adverse banking market, the Revolving Credit ability to ensure the continuity of the events for there to be a collective material Facility (RCF) was drawn down. In food supply chain. While the principal impact on headroom and sales for the August the facility was repaid in full. risks considered all have the potential to whole of the period would need to A two-year extension has now been affect future performance, none of them decline substantially, in every business, agreed with our relationship banks which are considered individually or collectively and with no cost mitigation. For Primark extends the maturity of the RCF to to give rise to a deterioration in trading we considered the more extreme, July 2023. In April we received to a level that is likely to threaten the adverse scenarios in which all the Primark confirmation from the Bank of England viability of the Company for the period stores were closed for three months over that we had access to the COVID of the assessment. the Christmas trading period, without Corporate Financing Facility (CCFF). taking any of the available cost mitigation The group has a track record of Since then, we have not needed to draw actions that are within our control, and delivering strong cash flows, with in upon this facility and do not expect to the cash flow consequences did not excess of £1bn of operating cash being draw upon it in the coming months exhaust the financial headroom. generated in each of the last nine years. and as a result will allow our eligibility This has been more than sufficient to to lapse. Accordingly, the CCFF has not The Strategic report was approved by the meet not only our ongoing financing been taken into account in making our Board and signed on its behalf by obligations but also to fund the group’s assessment of financial headroom. Michael McLintock expansionary capital investment. At the year end, the group had gross Chairman Even in a worst-case scenario, with risks cash of £2,030m and the undrawn RCF George Weston modelled to materialise simultaneously of £1,088m. The directors have satisfied Chief Executive and for a sustained period, the possibility themselves that the RCF will be of the group having insufficient available for at least the period to the John Bason resources to meet its financial end of February 2022, having assessed Finance Director obligations is considered extremely the group’s projected compliance with remote. Based on this assessment, the the terms and covenants of this facility. directors confirm that they have a In reviewing the cash flow forecast reasonable expectation that the for the period, the directors reviewed Company will be able to continue in the trading for both Primark and the operation and meet its liabilities as they food businesses in light of the fall due over the three-year period to experience gained from the last six 16 September 2023. months of trading and emerging trading patterns. The directors understand the risks, sensitivities and judgements included in the cash flow forecast and have a high degree of confidence in these cash flows.
Annual Report and Accounts 2020 Associated British Foods plc 91