Risk management

Tate & Lyle could be affected by a number of risks, which might have a material adverse effect on our reputation, operations and financial performance.

The Board of directors has overall responsibility for the Group’s system of risk management and internal control. The schedule of matters reserved to the Board ensures that the directors control, among other matters, all significant strategic, financial and organisational issues.

Approach

The Group’s enterprise-wide risk management and reporting process helps management to identify, assess, prioritise and mitigate risk. The process involves an ongoing programme of workshops, facilitated by the risk management function, held around the Group. The risks identified are collated and reported through functional and divisional levels to the Group Executive Committee. This culminates in the identification of the Group’s key business, financial, operational and compliance risks with associated action plans and controls to mitigate them where possible (and to the extent deemed appropriate taking account of costs and benefits). The output is then reviewed by the Board. Responsibility for managing each key risk and the associated mitigating controls is allocated to an individual executive within each division. As part of the process, senior executive management formally confirms that these key risks are being managed appropriately within their operations and that controls have been examined and are effective. The confirmations and any exceptions are discussed at the Audit Committee and Corporate Responsibility Committee once a year.

During the year ended 31 March 2011, the risk management process was enhanced further through an exercise undertaken by the Board of directors and the Group Executive Committee to consider the nature and extent of the Group’s risk appetite. The results of this exercise are being used as part of the Group’s strategic planning activities, and in considering ongoing mitigating actions.

The Group’s risk management process continues to follow the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk framework. The COSO framework provides a process to manage the risk of failure to achieve business objectives and assurance against material loss or misstatement.

Key risks

Key risks and uncertainties identified as part of the risk management process undertaken during the year, together with some of the mitigating actions that we are taking, are set out below. It is not possible to identify or anticipate every risk that may affect the Group. Our overall success as a global business depends, in part, upon our ability to succeed in different economic, social and political environments and to manage and to mitigate these risks.

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Risk

Impact and description

 

Examples of mitigating actions

Failure to act safely and to maintain the safe and continuous operation of our facilities

The safety of our employees, contractors, suppliers, and the communities in which we operate is paramount. We must operate within local laws, regulations, rules and ordinances relating to health, safety and the environment, including emissions. The operation of plants involves many risks, including failure or sub-standard performance of critical equipment; improper installation or operation of equipment; failure of critical supplier; and natural disasters. If these risks cause a temporary or permanent stoppage in production, this could have a material adverse effect on the Group.

















Corporate Responsibility Committee in place
Board annual review of Group safety/environmental performance/policies
Separate central global function established, Group Operational Efficiency and Sustainability, outside business unit control, to set and monitor standards
Health and safety policies and procedures at all facilities with dedicated staff to ensure policies are embedded and measured
Environmental management systems at production facilities
Business continuity plans in place to enable supply, as quickly as practicable, of product to customers from alternative sources in the event of a natural disaster or major equipment or plant failure backed by appropriate insurance coverage against business interruption
Periodic review of critical supply or supplier dependencies in principal manufacturing operations.

Failure to maintain the quality of our products and high standards of customer service

The safety of consumers of our products is critical. Poor quality or sub-standard products or poor customer service could have a negative impact on our reputation and relationships with customers.









Central global function, Group Operational Efficiency and Sustainability, manages Group-wide quality process and procedures
Product safety and quality policies and procedures in place to prevent contamination
Dedicated staff at all locations to ensure policies are embedded and measured
Third-party audits completed
Recall simulation exercises undertaken.

Failure to attract, develop and retain key personnel

Performance, knowledge and skills of employees are central to success. We must attract, integrate and retain the talent required to fulfil our ambitions and deliver the Group’s strategy. Inability to retain key knowledge and adequately plan for succession could have a negative impact on Company performance.







Remuneration policies designed to attract, retain and reward employees with ability and experience to execute Group strategy
Talent strategy to provide opportunities for employees to develop careers
Single global performance appraisal system in place
New Commercial and Food Innovation Centre in Chicago, USA to help attract and retain new talent to the Group.

Non-compliance with legislation and regulation

The Group operates in diverse markets and therefore is exposed to a wide range of legal and regulatory frameworks. We must understand and comply with all applicable legislation. Any breach could have a financial impact and damage our reputation.






Regulatory managers monitor changes in legislation and develop action plans
Legal teams maintain compliance policies in areas such as antitrust, money laundering and anti-corruption laws; and provide ongoing training to employees
External consultants provide quarterly reports on regulatory change.

Fluctuations in prices, offtake and availability of raw materials, energy, freight and other operating inputs

Margins may be affected by fluctuations in crop prices due to factors such as harvest and weather conditions, crop disease, crop yields, alternative crops and co-product values. In some cases, due to the basis for pricing in sales contracts, or due to competitive markets, we may not be able to pass on to customers the full amount of raw material price increases or higher energy, freight or other operating costs.











Strategic relationships with suppliers and trading companies
Multiple-source supply agreements for key ingredient supplies
Balanced portfolio of supply and tolling contracts in operation with customers to manage balance of raw material prices and product sales prices and volume risks
Raw material and energy purchasing policies to provide security of supply
Derivatives used where possible to hedge exposure to movements in future prices of commodities.

Failure to protect intellectual property

Our commercial success depends, in part, on obtaining and maintaining patent protection on certain products and technology. We must successfully defend patents against third-party challenges or infringements.






Group legal department, supported by expert patent lawyers, monitors all patents
Group Intellectual Property (IP) committee in place, chaired by the President of Innovation and Commercial Development, to oversee the Group’s IP management
Organised and secure process for identifying and recording innovations, trade secrets and potential patentable ideas.

Competitors may achieve significant advantage through technological step change or higher service levels

Competitors could introduce a major technological step change, such as significantly improving the efficiency of a production process and lowering costs (and thereby commoditising products); or introduce a new product with better functionality which in turn could lead to a decline in our sales and/or profitability. We must ensure we exceed or at least match competitors’ service and quality performance.








Innovation and Commercial Development team to produce innovations in product development, applications, manufacturing technology and customer services
Global key account managers in place for major customers
Improved customer relationship management capabilities as part of the programme to implement a common global IS/IT platform and global support services.

Failure to implement the Group’s programme to transform its operational capabilities

The Group has committed to a programme to transform its operational capabilities, primarily by implementing a common global IS/IT platform and global support services. If this programme is not implemented as planned, this would have an adverse impact on the Group’s ability to achieve its strategy.







Dedicated resources allocated to the project
Project scope set out in detailed legal contracts with external system integrator and other providers, with appropriate governance and remedy mechanisms
Detailed project implementation plan subject to both internal and external audit and review
Formal steering committee (executive management) and Board/Audit Committee review of project progress against agreed milestones and timelines.

Failure to counter negative perceptions of the Group’s products

We must be fully prepared to counter unexpected/ unfounded negative publicity about our products.



Innovation and Commercial Development and regulatory teams substantiate relevant product claims
Media relations department monitors Group press coverage and has action plans to deal with any negative publicity.

Failure to identify important consumer trends and innovate could impact the business’s ability to grow

Falling behind the curve on emerging dietary trends and/or an inability to innovate could impact the delivery of the Group’s strategy. This would impact its performance and reputation.












Innovation and Commercial Development team works closely with customers and advisors to identify emerging trends
Consumer-facing research to ensure we are aware of consumers’ needs and expectations
Global key account managers in place for major customers
New Commercial and Food Innovation Centre in Chicago, USA will enable scientists, marketing, sales and technical experts to collaborate more closely with customers
Recruitment and training policies in place to strengthen and upgrade staff skill sets.

Failure to manage capital expenditure and working capital, and deliver key projects

We must manage our finances within strictly controlled parameters, particularly when external financial conditions are uncertain and highly changeable. The change programme currently being undertaken by the Group consists of a number of projects which, if not delivered successfully, could impact the Group’s performance and reputation.








Significant projects approved and monitored by the Board
Debt and working capital levels monitored constantly and reported monthly to the Board
Capital expenditure procedures to control and monitor allocation and spend
Major or key projects have dedicated teams
External resources and expertise used where required or as appropriate.

Failure to maintain an effective system of internal financial controls

Without effective internal financial controls, we could be exposed to financial irregularities and losses from acts which could have a significant impact on the ability of the business to operate. We must safeguard business assets and ensure accuracy and reliability of records and financial reporting.









Authorisation policies ensure that key tasks are segregated to safeguard assets
Detailed internal finance and capital expenditure manuals set out procedure
Group financial performance monitored with monthly Board reports and regular forecasting
Chief Executive and Chief Financial Officer undertake detailed quarterly business and financial reviews
Internal audit function provides assurance.