Principal risks and uncertainties
Risk is an inherent part of doing business. The Group has a process for identifying, evaluating and managing the risks faced by the business as described in the Statement of corporate governance. The Board has identified the following factors as principal potential risks to the successful operation of the business.
Economic and market risks
The economic environment and competitor pricing position can affect the performance of the Group’s businesses in terms of both sales and costs. Household disposable income is a driver of sales growth. Through development of our product ranges and investment in price and quality, the Group works to ensure that we deliver value for all our customers. As has been widely reported, external cost pressures on oil-related costs and business rates have impacted our business although the Group has worked hard to mitigate the impact of these cost pressures on our customers and the Group’s overall profitability through the delivery of cost savings.
Regulatory risk
The Group’s operations are subject to a broad spectrum of regulatory requirements particularly in relation to planning, competition and environmental issues, employment, pensions and tax laws and in terms of regulations over the Group’s products and services. The Group monitors regulatory developments and has a strong compliance regime. Regular reviews and audits are carried out in stores and depots to ensure compliance and training needs are regularly reviewed and addressed as required.
Business continuity and acts of terrorism
A major incident or terrorist event could impact on the Group’s ability to trade. The Group has plans to maintain business continuity in the event of potentially disruptive events, which are regularly updated and tested.
IT systems and infrastructure
The Group is reliant on its IT infrastructure in order to trade. A failure in these systems could have a significant impact on our business. The Group has controls in place to maintain the integrity and efficiency of its systems which are regularly updated and tested.
Colleague engagement and retention
The Group employs around 150,000 colleagues who are key to the success of the business. Good relations with colleagues and investing in their training and development are essential to the efficiency and sustainability of the Group’s operations. The Group’s employment policies, remuneration and benefits packages are designed to be competitive with other companies, as well as providing colleagues with fulfilling career opportunities.
Products
The quality and safety of our products is of the highest importance and there is an associated risk if they are below standard. The Group has stringent product controls in place and regularly reviews health and safety policies. All suppliers are expected to conform to the Group’s code of conduct for Socially Responsible Sourcing which was launched in 1998 and covers fair terms of trading, protection of children, worker health and safety, equal opportunities, freedom of association, freedom of employment, hours of work and wages.
Supply chain
Our stores are part of a complex supply chain and the Group works in partnership with our suppliers to manage the risk of any delays or interruptions in this supply, which may affect trade.
Pension risk
The Group operates a number of pension schemes which includes two defined benefit schemes. These schemes are subject to risks regarding the amount of the liabilities as a result of changes in life expectancy, inflation and future salary increases, risks regarding the value of investments and the returns derived from such investments. The pension trustees, in consultation with the Company, have commenced changes to the scheme’s investment strategy to mitigate the volatility of liabilities and to diversify investment risk.
Treasury risks
The central treasury function is responsible for managing the Group’s liquid resources, funding requirements and interest rate and currency exposures and the associated risks as set out in note 29.