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.
Background
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.
Tariffs
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.
Regulatory
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.