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Risk Management


Our approach

As with any business we face risks and uncertainties. We believe that effective risk management supports the successful delivery of our strategic objectives. We have an established risk management framework to identify, evaluate, mitigate and monitor the risks we face as a business. Our risk management framework incorporates both a top-down approach to identify our principal risks and a bottom-up approach to identify our operational risks. The Executive Leadership Team ('ELT') perform a robust risk assessment on a periodic basis and the output is reviewed with the Audit Committee at least twice a year. This review includes an assessment of the movement in the risks, the strength of the controls relied on and the status of mitigating actions. The principles of risk management have also been embedded into the day-to-day operations of the business units and corporate functions. The long-term viability statement (see below) provides a broader assessment of the longer-term prospects of the Group after consideration of the principal risks and availability of funding.

Risk appetite

Our approach is to minimise exposure to reputational, financial and operational risk, while accepting and recognising a risk/reward trade-off in pursuit of our strategic and commercial objectives. As a food manufacturing company, with many well-known brands, the integrity of our business is crucial and cannot be put at risk. Consequently we have a zero tolerance for risks relating to Occupational Health and Safety and food safety. We operate in a challenging and highly competitive marketplace and as a result we recognise that strategic, commercial and investment risks will be required to seize opportunities and deliver results at pace. We are therefore prepared to make certain financial and operational investments in pursuit of growth objectives, accepting the risks that the anticipated benefits from these investments may not always be fully realised. Our acceptance of risk is subject to ensuring that potential benefits and risks are fully understood and sensible measures to mitigate those risks are established.

Principal risks and uncertainties

The Board has carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. We are exposed to a variety of other risks but we report those we believe are likely to have the greatest current or near-term impact on our strategic and operational plans and reputation. These risks (gross) and uncertainties are identified in the heatmap below (in no particular order), followed by a more detailed description including key mitigating activities in place to address them. The ‘Changes since 2017/18’ highlight changes in the profile of our principal risks or describe our experience and activity over the last year.

Click an image below to see a detail explanation.

Risk and potential impact

The prolonged uncertainty and the prospect of a no-deal Brexit presents a significant risk to our business which will affect our supply chain and exposes us to the risk of further devaluation of sterling against the euro, thereby increasing the Group’s cost base. Any deterioration in the strength of the UK economy will have an impact on demand for our products.
The Group is also exposed to cyclical inflation in soft commodities and other inputs to our business. A more detailed Brexit assessment is set out on page 31 of the Annual Report.

How we manage it
  • We manage the impact of commodity price inflation and foreign exchange volatility through hedging activity and ongoing supplier risk management.
  • A cross-functional committee headed by the Group CFO and Group Procurement Director has been put in place to manage the Group’s readiness for Brexit. See page 31 of the Annual Report for more details.

Changes since 2017/18
  • The date of the UK’s departure from the EU has been delayed to 31 October 2019 and there is no majority in the UK Parliament for a no-deal Brexit.
  • However, the possibility of a no-deal Brexit still exists should the UK fail to reach an agreement on a revised Withdrawal Bill by 31 October 2019.

Risk and potential impact

As a primarily UK based company, our sales are concentrated with a relatively small number of major customers who operate in a highly competitive market. Actions taken by these retailers (for example changes in pricing and promotion strategies), may negatively impact our financial performance and can also have an impact on the overall market for our products.

How we manage it
  • We have strong relationships with the major retailers built on the strength of our brands, our expertise in our categories and shopper insight.
  • We have a programme of continuous innovation rooted in customer insight and designed to build category growth for our customers and brands.
  • We continue to develop our International business which reduces dependence on the UK market.

Changes since 2017/18
  • The Competition & Markets Authority ('CMA') have blocked the proposed merger of two of our largest customers.

Risk and potential impact

Delivery of our strategy depends on our ability to minimise operational disruption from issues with facilities, factory infrastructure as well as procurement and logistics functions. Supply chain weaknesses, e.g. disruption due to unforeseen events and single supplier risks, may impact negatively on our reputation, financial performance and key customer relationships.

How we manage it
  • We have a crisis management process in place and business continuity plans are reviewed and refreshed on an ongoing basis.
  • Insurance coverage is in place to mitigate against the financial impact of material site issues.
  • We consolidated our third party warehousing and distribution capability to increase our operational efficiency. There are close relationships at all levels of the business with our outsourced logistics provider.
  • Procurement category plans are in place to mitigate against single supplier risk.
  • We have robust quality management standards applied and rigorously monitored across our supply chain.

Changes since 2017/18
  • We experienced operational issues with our warehouse and distribution centre in Tamworth which had a negative impact on our results.
  • Operations at Tamworth have returned to a stable state and management is now working to ensure it operates in an efficient and cost-effective manner.
  • A new Logistics Director was appointed to work with our outsourced logistics provider to oversee and drive continuous improvement.

Risk and potential impact

A successful cyber-attack or other systems failure could result in us not being able to manufacture or deliver products, plan our supply chain, pay and receive money, or maintain proper financial control. This could have a major customer, financial, reputational and regulatory impact on our business.

How we manage it
  • We use a range of techniques including firewalls, anti-virus software, and duplicated systems that are comparable to those used in peer companies.
  • A cyber insurance policy has been purchased to insure the Group against potential losses arising from a cybersecurity breach.

Changes since 2017/18
  • We continue to see an increasing frequency in cyber-attacks (including phishing and ransomware) in the marketplace which are increasingly sophisticated.
  • We have increased investment to improve information and cyber-security controls and cyber-risk awareness.

Risk and potential impact

Our business is subject to a number of legal and regulatory requirements and must continuously monitor new and emerging legislation (domestic and international) in areas such as Health and Safety, Listing Rules, competition law, food safety, labelling regulations and environmental standards. Failure to comply with such requirements may have a significant negative impact on our reputation and incur financial penalties.

How we manage it
  • We have leading food industry processes in place to manage Health and Safety and food safety issues (including an ongoing programme of internal and external audits).
  • We have dedicated Legal and Regulatory teams in place to monitor the laws and regulations to ensure compliance and defend against litigation where necessary.

Changes since 2017/18
  • A programme was put in place to achieve readiness for the introduction of General Data Protection Regulation ('GDPR') in the EU on 25 May 2018. Ongoing data protection processes and compliance will be overseen by the Legal team.

Risk and potential impact

Demand for our products is subject to changes in consumer trends and government legislation. Furthermore, sales of many of the Company’s products can be adversely affected by warm seasonal weather conditions.

How we manage it
  • We have a programme of innovation, based on deep-rooted consumer insights, to continuously modernise our portfolio of distinctly British brands to ensure they remain relevant to today’s shoppers.
  • We continue to review the impact of weather on sales during our monthly product performance reviews.

Changes since 2017/18
  • The Department of Health & Social Care ('DHSC') issued proposals in January 2019 to curb multi-buy promotions for HFSS (High Fat Salt Sugar) products by late 2020. We will review the potential impact on sales and promotional activity, and engage with the DHSC during the consultation process.

Risk and potential impact

We may be unable to attract and retain the critical capabilities and skills needed in our business to deliver our strategy, business plan and projects.

How we manage it
  • We continue to invest in colleague development and engagement initiatives on a focused basis.
  • We have processes in place to attract talent into the business with the right capabilities and behaviours.
  • We have succession plans in place to retain our internal talent pipeline.

Changes since 2017/18
  • There were no significant changes to this risk.
  • During the year the management bonus scheme (which covers approximately 400 colleagues) has been strengthened to aid with retention and recruitment.

Risk and potential impact

Our balanced strategy seeks to deliver revenue growth, cash generation and cost efficiency. The strategy focuses marketing investment behind key brands. Our strategy may take longer than expected to deliver results which may impact on the speed at which we can deliver shareholder value.

How we manage it
  • Given the seasonal nature of many of our brands, media investment is targeted in the periods of peak consumer demand and through the most cost-effective channels.
  • Our new and existing product development programmes are based on deep consumer insight and continue to make our product ranges more relevant to the ever-changing lives of our consumers.
  • Our strong strategic relationships with our key customers facilitate the creation and joint ownership of plans for mutual growth.

Changes since 2017/18
  • Our financial results for 2018/19 demonstrate that we are delivering against our strategy and this is supported by our internal plans for the coming financial year which incorporates an increase in consumer marketing and capital expenditure.
  • We embarked on a corporate exercise to sell the Ambrosia brand to accelerate debt repayment and allow accelerated investment in the business. The process did not result in a satisfactory financial outcome but we continue to explore strategic options to enhance shareholder value.

Risk and potential impact

Our ambitious plans to expand our international business are subject to global market forces, fluctuations in national economies and currency movements, societal and political changes, a range of consumer trends and evolving legislation. Failure to recognise and respond to any of these factors could directly impact on our future profitability and rate of growth.

How we manage it
  • We carry out careful due diligence prior to entering a new market.
  • We closely monitor current and forecast performance of our business and, where required, adapt our marketing approach.

Changes since 2017/18
  • Growth of our International business was impacted principally by over-supply of cake in the Australian market and price rises to export wholesalers which resulted in lower sales within this group of customers.

Risk and potential impact

We are the sponsoring employer of a number of large historical pension schemes and also have significant amounts of long-term debt. These taken together, are a substantial liability on the balance sheet. Tri-annual pension fund valuations, and hence requests for deficit recovery contributions ('DRCs'), are heavily impacted by financial market conditions over which the Group has no control. Trustees could potentially request DRCs which are not compatible with the Group’s ability to pay. Furthermore, our ability to manage our debt capital structure may be impacted by market trends which are outside of our control e.g. interest rate movements or volatility in the high yield debt markets. Our revolving credit facility expires in December 2022.

How we manage it
  • Our executive director is actively engaged with the pension trustees on scheme funding and investment matters.
  • The RHM pension scheme has a high degree of hedging.
  • We have a strong relationship with our banking group and continue to review our debt capital structure and revolving credit facilities.

Changes since 2017/18
  • On 26 October 2018, the High Court ruled that pension schemes need to equalise benefits for the inequality of Guaranteed Minimum Pensions ('GMP') between men and women. The impact of this ruling is an increase in our pension liabilities for the period ended 30 March 2019.

Brexit statement

As outlined in our initial update in November 2018, since the United Kingdom ('UK') referendum result on membership of the European Union ('EU') in June 2016 we have been working to assess and mitigate the likely impacts of Brexit on our customers and suppliers under a variety of potential outcomes. Given the continued uncertainty around the overall shape of Brexit and in line with most other food companies, we focused our efforts on preparing for a no-deal Brexit.
Our fundamental objective is to ensure that we offer continuity of service and supply to our customers, wherever they are, and the purpose of this statement is to provide further information on how we plan to achieve this objective.


Although we are a UK based business we purchase a meaningful amount of our commodities from the EU which leaves us exposed to movements in Sterling and Euro quoted commodities. Our supply chain is also primarily UK based although we do have a seasonal labour workforce from EU countries in our Sweet Treats business.

Brexit focus areas

Our initial risk assessment identified a number of key areas that may potentially be impacted by Brexit. In recent months we focused on those areas that could have the most direct impact on our ability to service customers, specifically maintaining effective customer service and supply chain, in the main related to efficient movement of goods, the impact of potential tariff and quota restrictions and ensuring compliance with regulatory frameworks.
Our established Brexit Committee has fully assessed each area and likely impacts have been evaluated. We are also represented on the Food and Drink Federation ('FDF'). In April 2019 the UK Parliament delayed the date of the UK’s departure from the EU to 31 October 2019, unless an agreement can be reached sooner. As we approach the new deadline, we will review the actions we need to take should there be an increased risk of a no-deal Brexit.

Trading model

We have made minor amendments to our internal trading model within Europe (principally the Republic of Ireland) to ensure that our ability to move UK manufactured product in to the EU and vice versa is not at risk. These amendments include reviewing which ports and airports are best placed to offer the appropriate service levels post-Brexit, as well as ensuring that we have the right legal entities (i.e. those with full EU recognition) looking after our imports and exports. We do not expect customers or suppliers to be significantly affected by our changes. Customer service and supply chain We worked with our customers and supply chain partners to prepare for a no-deal Brexit. We developed contingency plans to ensure supply continuity and the effective operation of our manufacturing sites and the likely resulting confusion and delays at borders. These included a programme of building our inventory of finished goods and critical raw materials for our key products. We expect to return stock levels back to usual levels in the first few months of the 2019/20 financial year and we will keep a watching brief as the timings and our new trading environment become clear. We also secured additional warehousing capacity in the Republic of Ireland ('ROI') to ensure continuity of supply.


The UK Government issued guidance on a temporary tariff regime in the event of a no-deal Brexit in March 2019. We have researched the implications of potential tariffs and considered the potential impact on our cost base and explored strategies to mitigate them. The actions we have undertaken include a review of our supply chain for components and raw materials, a plan to build stocks in-country i.e. ROI prior to the date the UK leaves the EU and changes to systems and processes to capture and report on the new tariffs.


The Brexit Committee has reviewed the potential regulatory impact of a no-deal Brexit on our products which are produced and packaged in the UK. We have put in place measures to ensure our products will be compliant so as to protect customer service levels after Brexit.

Viability statement

The Board has determined that the most appropriate period over which to assess the Company’s viability, in accordance with the UK Corporate Governance Code, is three years. This is consistent with the Group’s business model which devolves operational decision-making to the businesses, each of which sets a strategic planning time horizon appropriate to its activities which are typically of three years duration. The Board also considered the nature of the Group’s activities and the degree to which the business changes and evolves in the relatively short-term. The Board considered the Group’s profitability, cash flows and key financial ratios over this period and the potential impact that the principal risks and uncertainties (set out above) could have on the solvency or liquidity of the Group.
Sensitivity analysis was applied to these metrics and the projected cash flows were stress tested against a number of severe but plausible scenarios. As of 30 March 2019, £161.6m of committed borrowing facilities available to the Group were undrawn. The Board considered the level of performance that would cause the Group to breach its debt covenants (see Annual Report - note 17 of the financial statements) and a variety of factors that have the potential to reduce Trading profit substantially. These included the rate and success of the Group’s strategy, and macro-economic influences such as fluctuations in world currency, commodity markets and the implications of Brexit.
The Board has considered the principal risks or uncertainties and the potential impact of these on the Group’s profitability or available cash resources. In assessing the Group’s viability, the Board also considered all the severe but plausible scenarios simultaneously materialising for a sustained period, in conjunction with mitigating actions such as reducing discretionary costs. The likelihood of the Group having insufficient resources to meet its financial obligations and remain within its covenants is unlikely under this analysis.
Based on this assessment, the Board confirms that it has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the threeyear period to 2 April 2022.