Principal risks

The Group has a clear framework in place to continuously identify and review its principal risks.

Key risks are plotted on risk maps with descriptions, owners, and mitigating actions, reporting against a level of materiality consistent with its size. These risk maps are reviewed and challenged by the Executive Leadership Team and Audit Committee. Additional risk management support is provided by external experts in areas of technical complexity to complete our bottom-up and top-down exercises.

The table below summarises the principal business risks. Further details on these, including potential impact, mitigating actions and assurance, can be found in the Group’s Annual report.

  • Deterioration of the macro-economic environment

    Therisk of volatility and/or prolongedeconomic downturn causesa decline in demand for ourservices including the uncertaintyassociated with EU Exit, impactscurrent and/or projected businessperformance above that includedin the business planning andreview process and the abilityof the Group to access thedebt capital market to refinanceits existing levels of debt atcommercially prudent levelsor at all.

    Potential impact

    Reductions in discretionaryspending may impact sales ofnewspapers or magazines and/or see a reduction in parcelvolumes. Uncertainty from EUExit may affect the businessin both the short and medium-term on trade arrangements,future capital investmentstrategies, debt refinancingand resourcing costs.

    Mitigating actions and assurance

    Annual budgets and forecasts take into account the currentmacro-economic environment to set expectations internallyand externally, allowing for or changing objectives to meetshort and medium-term financial targets.

    A thorough EU Exit planning exercise has been undertakenand accountability for the associated actions and risks hasbeen assigned to the relevant Executive Team members.• The Group continues to be significantly cash generating whichsupports opportunities for refinancing and investment.

    The Group will continue to explore Sale & Leasebackopportunities for the Tuffnells property portfolio as a meansof reducing net debt, and will separately look at refinancingopportunities and timing in the market.

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  • Failure to refine, execute and/or monitor the Group’s strategy and direction

    The risk of notestablishing business plans and aclear vision for the Group impactsemployee engagement, financialreturns, external confidence andstakeholders’ perception.

    Potential impact

    Sales and/or profit expectations may not be met and/or the Company’s reputation and stakeholders’ support for a recovery plan may be challenged.

    The change management culture required in the short-term for restructuring may result in reduced performanceand financial returns.

    Mitigating actions and assurance

    The strategy and direction is being defined and will be supported by a clear plan for execution and budget. Accountability at leadership level is clearly defined.

    Performance to the business plan and budget is reviewed regularly using a balanced framework. This ensures effective and timely monitoring of performance with action to be taken in the event of shortfalls to expectations.

    Financial and operational metrics are considered along with risk assessments and management impact before remedial action is taken.

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  • Capacity and capability to deliver the scale of change

    The risk that lack of capacity and bandwidth to manage numerous change projects may hinder the transformational change or lead to the breakdown of key controls required across the Group to improve financial performance.

    Potential impact

    Impact on the ability to address the strategic priorities and to deliver the forecast performance for the Group.

    Mitigating actions and assurance

    Through the establishment of The Connect Way (the Group’s lean process management and continuous improvement programme), six sigma black belt expertise and the introduction of core project management skills are in place to lead and project manage the numerous change programmes underway across the Group, with all projects now being managed through PMO.

    Each project has its own risk register with progress showing as a RAG status. A PMO Steering Committee meets weekly as the oversight body to monitor progress, resource adequacy and other constraints. This Committee also considers new projects and reprioritises the project portfolio as needed.

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  • Failing to attract, engage and retain talent within a high performance and values-based culture

    The risk that we do not attract or retain the people and the skills we need to take the Group forward and that colleagues are not motivated towards, or are disengaged from, the task in hand.

    Risk that the level of change affects staff and retention levels.

    Potential impact

    Impact on the ability to address the strategic priorities and to deliver the forecast performance for the Group.

    Mitigating actions and assurance

    We seek to offer market competitive terms to ensure talent remains engaged.

    We undertake workforce planning; performance, talent and succession initiatives; learning and development programmes; and promote the Group’s culture and core values.

    Retention plans are being reviewed to address key risk areas, and attrition across each business is regularly monitored.

    Regular surveys are undertaken to monitor the engagement of employees.

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  • Increased labour market constraints and costs

    The risk of legislative changes or interpretation, coupled withthe EU Exit and political uncertainty, drives demographic or legislative changes or interpretation, impacting the ability to recruit and retain warehouse and delivery contractors, resulting in higher attrition risk in warehousing and distribution and/or increasing liabilities and costs.

    Potential impact

    In the event of any legal claim as to worker status by consultants, subcontractors or agency workers, the business could be liable for increased costs (PAYE and undeclared National Insurance contributions) and liabilities (such as employee rights). The inability to pass on such statutory increases to our customers could impact profitability, and affect the cost of future efficiency programmes. The implications of EU Exit include a decreasing pool of available, suitably qualified employees and subcontractors.

    Mitigating actions and assurance

    The Group regularly reviews its legal terms of engagement with contractors and consultants and has appropriate contractual and operational arrangements in place. Self-employed delivery contractors have clearly articulated agreements which define tasks they are contracted to provide, whether personally or by a substitute.

    Known increases to employment cost associated with National Living Wage/Apprenticeship Levy/Auto Enrolment have been factored into latest budgets. Future changes in this area as a result of political changes/decisions and the full impact of EU Exit on employment risks are unknown at the current time but are being tracked.

    Commercial contracts across Smiths News permit the renegotiation of long-term supply agreements in the event of changes in law which impact the status of the Group’s self-employed delivery contractors.

    Legal developments are monitored to ensure that the business maintains compliance with legislation and best practice.

    Contractor processes, including monitoring compliance, are well established in Smiths News.
     

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  • Failing to meet high Health & Safety standards

    The risk of an inadequate Health & Safety framework and insufficiently enforcing a Health & Safety culture results in serious injury to colleagues and/or the public, and/or a breach of relevant Health & Safety legislation.

    The risk of failing to adhere to external laws and regulations by colleagues, sub-contractors and third parties resulting in a breach of our Transport Operator Licence conditions.

    Potential impact

    In addition to the danger to colleagues or the public, the impact of a Health & Safety failure negatively impacts operations, profitability and/or corporate reputation, together with the risk of possible enforcement action.

    The risk of transport compliance failures may impact consistent service standards and/or the ability to deliver the forecast performance for the Group.

    Mitigating actions and assurance

    Safety is a key priority of the Group. Health & Safety performance is reviewed by the Board, Audit Committee and Executive Team.

    A dedicated Health & Safety team executes improvement programmes, undertakes audits and promotes a safety culture.

    The Group continues to invest in Health & Safety improvements, including the role of Health & Safety director and better management reporting.

    Within Smiths News the risk is considered to be well managed and the ambition continues to promote consistency in standards and culture.

    Dedicated Transport Compliance teams exist specifically focused on transport-related compliance. Improvement programmes have been underway to ensure continued legal compliance, operational efficiencies and to minimise mistakes. Management information is in place to monitor compliance on an ongoing basis.

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