Annual report and accounts 2023 - Flipbook - Page 71
Strategic Report
Viability statement
In accordance with provision 31 of the UK Corporate
Governance Code 2018, the directors have assessed the
viability of the Company over a three year period to
January 2026, taking account of the Group’s current
financial and market position, future prospects and the
Group’s principal risks, as detailed in the Strategic Report.
The directors have determined that a three-year period is
an appropriate time frame given the dynamic nature of
the FMCG sector and given that this is in line with the
Group’s strategic planning period. The starting point for
the viability assessment is the strategic and financial plan
which makes assumptions relating to the economic
climate, market growth, input cost inflation and growth
from the Group’s performance drivers. The prospects of
the Group have been taken into account, including the
size of the current market, the strength of the Group’s
brands and past production capacity investment. The
model was then subject to a series of theoretical “stress
test” scenarios based on the materialisation of principal
risks, with input from the business functions.
The directors have considered the impact of a number
of severe but plausible scenarios associated with the
principal risks, including those set out in the table below.
The directors also measured the impact of a number of
scenarios occurring together. Finally, a reverse “stress test”
was performed allowing the Board to assess circumstances
that would render its business model unviable.
As part of our Task Force on Climate-related Financial
Disclosures (“TCFD”) the Group has assessed potential
financial impacts from climate change to the business.
The financial plan for the Group includes the best
estimate of the impacts of climate change on financial
performance, including material cost inflation, an
increase in climate-related regulatory costs, and a change
to consumer behaviour. None of the physical and
transition risks which are considered material to our
business would present a risk to viability over the planning
period. These risks are detailed on pages 47 and 48.
Scenario
Estimated impact
Disruption as a result of cyber attack, resulting in
factories ceasing production.
No sales for the month following attack, followed by a
gradual return to normalised levels from month 5 onwards.
Significant incremental one-off costs as a direct result.
Corporate Governance
Accounts
Credit facilities
The outputs of these scenario tests were reviewed
against the Group’s current and projected future net
cash/debt and liquidity position. The Group closed the
financial year with net cash at bank* of £52.9m. In
addition, the Group had £20m of committed and
unutilised debt facilities, consisting of one revolving
credit facility with one bank. The revolving credit facility
has two financial covenants, relating to interest cover
and leverage, and a material adverse change clause.
Result of stress tests
Under the most severe but plausible combined scenarios
above, and with no cost mitigation, the Group’s liquidity
requirements would be satisfied within existing credit
facilities. Should the financial loss be worse than this
scenario assumes, sizeable cost mitigation opportunities,
such as a reduction in brand investment, a reduction in
capital investment, a reduction in discretionary overhead
spend, reduced dividend payments, and a business
reorganisation, would be available to the Group to
further preserve viability.
The reverse stress test showed that a volume drop
significantly beyond our severe but plausible scenarios,
both in depth and duration, would be required in order
to render the business model unviable. These
circumstances are therefore considered implausible.
Significant adverse damage to one of the Group’s
principal brands (e.g. IRN-BRU).
A sizeable reduction (in the region of 40%) in brand
revenue, sustained over the duration of the viability period.
Significant changes in consumer preferences and
governmental impact in relation to sugar, plastics and
the introduction of a Deposit Return Scheme (“DRS”),
specifically in Scotland.
A reduction in volumes sold (
