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.