Group risks and uncertainties
We have a clear method of managing key risks to the Company.
The Board, as well as the Whitbread Hotel and Restaurants and Costa management boards, regularly review key risks and the status of mitigation plans. The Audit Committee, on behalf of the Board, reviews this process on an annual basis with the internal and external auditors. This risk analysis is used to plan the operational audit's activity and to highlight new areas for focus.
The risks are categorised into the following areas:
Health, safety and security
With around nine million customers per month and 33,000 employees it is vital that the Company focuses on their well-being and safety. With this as a priority we have a well established Safety and Security team that works with our businesses to implement a rigorous health and safety programme. We commission CMi, an independent company, to carry out audits of all our outlets every year to measure their performance against set critical standards. All employees have health and safety on the WINcard and this influences the level of any bonus received in the year. Regular updates are given to the management boards and the Whitbread PLC Board.
During the year we were aware that the threat of a swine flu pandemic could severely affect our customers and employees. A task force was set up to update plans for this contingency, to monitor the issue within the Company and to set up communication channels. These plans remain in place in the event of any new threat of this kind.
Strategic business risks
All our businesses operate in a highly competitive environment which is significantly influenced by the UK economy.
As has been mentioned earlier in the report, the Company reacted to the recession by adopting a plan to outperform competitors, achieve cash neutrality and cut costs. The growth programme in the UK was slowed but advantage was taken of the fall in the property market to secure sites for future development.
The Company continued to review significant economic indicators as part of the business plan and budgeting process and to reflect them as appropriate.
In terms of competitive activity, each of the businesses measures its performance against the closest competitors and the market as a whole. Actions to outperform the competition are developed on a strategic and tactical basis with success being monitored regularly. Significant customer research is carried out with the Premier Inn guest feedback form eliciting 500,000 responses in the year. Each of the businesses carries out market research and analysis of consumer trends in the UK and overseas. This market information is reviewed by the Board and the management boards.
Financial loss
In a group the size of Whitbread there are a number of areas where there could be a significant financial loss if appropriate controls were not in place. Millions of pounds in cash are collected and transferred between bank accounts. The treasury policy sets the level of authority and segregation of duties which protect against such losses and PwC as operational auditor reviews these controls each year. The overseas businesses also have clear rules and policies over the operation of bank accounts and the transfer of funds.
Funding
The availability of funds from the Company's banking facilities is important for the day to day running of the businesses as well as its growth. There are regular reviews of the level of funds available to the Group. Such reviews also check that the terms of the loan agreements are being complied with. The Board approves a funding policy by which the level and service of borrowings for the Group is set.
Market expectations
It is important that the market receives regular and accurate information concerning the Company and that the external expectations for the year are accurate.
There are a number of management processes designed to keep track of progress against internal targets and market expectations. Each part of the Group has an agreed budget. Monthly management reports are produced which are reviewed by the management boards, and the main Board.
The market is kept informed through quarterly trading updates and the interim and full year financial statements.
Business continuity
It is crucial that we can continue to serve our customers with high quality products every day of the week. Our supply chain for food and drink along with key systems underlying the businesses are critical to that process.
To guard against the risk of failure in any of those suppliers or services we have developed contingency plans including sources of alternative supply and back up of information. Auditing and monitoring of suppliers also protects against this risk. There is a robust audit programme for our suppliers who have to pass exacting food safety and provenance pre-qualification. Training programmes for our employees endeavour to ensure that the food and drink served is of the appropriate quality.
Counterparty and third party contract
The Group is party to a number of contracts which are important to the businesses. There is a continued risk that a counterparty fails to be able to fulfil its part of a contract. A current risk is the failure of a tenant of a lease to which a group company was originally a party. This could mean that the Group becomes liable once more to meet the obligations under the lease. This risk is carried by all companies selling leasehold interests, but is highlighted in times of economic downturn.
Credit control checks are carried out on parties to significant contracts along with continued auditing and monitoring of such contracts. Regular reviews are carried out on the potential for privity of contract claims and, when they are received, all efforts are made to lessen the financial liability through negotiation with the landlord or sale of the lease.
Customers/key relationships
None of the Group's businesses are over-reliant on any particular customer or supplier. Key suppliers have been identified and mitigation plans have been put in place for the potential failure of those suppliers. Other key relationships include those with joint venture partners, franchise partners and the operators of restaurants on co-located sites.
Pensions
The Company has obligations in relation to the Whitbread defined benefit pensions scheme and any valuation deficit that arises. There is a clear risk that the deficit will increase and therefore involve the Company in having to make further contributions as part of the funding plan required by the Pensions Regulator. The scheme is now closed to new members and for future service to existing members. The Board receives regular reports from the pension trustee on its asset allocation and is consulted on changes to investment policy. The advisers to the Company work with those of the trustee to mitigate the risk.
International
As Costa operates in 24 overseas territories and Premier Inn is now establishing a presence in the Middle East and India there is a risk of a loss arising from a lack of controls. To counter this risk, a rigorous approval process and controls environment has been established and is reviewed by the operational audit team. Monthly updates are given to the management boards.
Reputational risk
A strong corporate reputation amongst our stakeholders is vital to the long term strength and resilience of our brands, our ability to attract and retain talent and investment, and our license to operate in new locations and markets. Effective risk management contributes to a positive reputation. However, we believe that this alone is no longer enough. It is important to understand and respond to the opportunities and risks presented by corporate responsibility and to engage our investors, our people and our customers on key sustainability issues. For this reason we launched our Good Together programme in 2009. To learn more about this initiative please read our Good Together Report.
