Overview
Strategy and performance
Marketplace and sustainable operations
Finance
Governance
Accounts
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2. Financial risks Financial strength and access to funding Risk
Mitigation
Our financial strength makes us an attractive partner to our clients and stakeholders, including our funding partners. Should our financial performance deteriorate, our ability to access funding on competitive terms could be impacted, causing a restriction in our ability to grow organically and through acquisition and an increase in the cost of borrowing which could affect our financial performance. Our most significant area of expenditure is staff costs, which have to be paid regularly and at specific times. Our ability to do this is reliant up on the continued availability of funding and on our ability to manage our cash flow. It is critical to the success and continuity of our business.
We continue to monitor our financial performance very closely via our mature financial governance arrangements, with daily monitoring of bank balances, weekly cash flow forecasting and regular financial performance and balance sheet reviews. We continue to maintain our strong banking, debt finance and equity relationships, with a diverse portfolio in place to minimise risk. During the year we increased the diversity of our funding sources and have extended the term of our US private placement loan note borrowings, whilst fixing interest rates into the medium and longer term. This has given certainty to aspects of our longer term costs of finance and has further reduced our exposure to changes in the UK banking market.
Reliance on material counterparties Risk
Mitigation
Our business activities are dependent on a number of significant counterparties such as insurers, banks, clients and suppliers. Effective and on-going relationships with our material counterparties will underpin the group’s ability to meet its strategic objectives. The failure of a key subcontractor, supplier, financing or other partner could have a detrimental impact on the operational and financial effectiveness of our business.
We have strategically developed a diverse and robust counterparty base, limiting the dependency of any one counterparty and hence the impact of any potential failure. A formal review of material counterparty risk is undertaken by the Board and at divisional and business level.
3. Operational risks Significant health, safety or environmental incident Risk
Mitigation
The scale and scope of our business activities, if not appropriately managed, have the potential to cause harm to employees, third parties and the environment. Managing this area of risk and the protection of our people and the environment is a major priority for the group. Failure to do so could result in a significant incident including death, leading to regulatory action, financial impact and damage to our reputation.
The Board has formal oversight of the group’s health, safety and environmental performance, it being the first item on every Board agenda. We continue to operate formal quality, health, safety and environmental management systems, certified to the ISO 9001, 14001 and OHSAS 18001 standards. Our employee engagement programme – Work Safe Home Safe! – continues to focus on promoting core values and safe working behaviours. Our training programmes in core competency areas continue to address specific workplace hazards and environmental management. Our incident, accident and insurance experience is utilised to inform our operating practices, risk mitigation strategies and levels of insurance cover to minimise the incidence and impact of this risk.
System, process or control failure may impact our operational performance Risk
Mitigation
Our business uses increasingly sophisticated systems, with interdependencies, to support our operational activities, performance management and business support functions. The success of these systems, along with our programmes of internal control and our policies and procedures is critical for the operation, governance and control of our business and will play a major role in driving future operational efficiency and business performance. Our control systems are designed to identify changes to legislation and regulation, and to ensure our operational and financial procedures, including areas such as employee vetting and right to work legislative requirements that affect all our people, remain relevant and up to date. In particular, our failure to comply with legislative or regulatory changes or to maintain controls that affect high transaction volumes could expose the group to material penalties, financial misstatements or errors.
Our internal control effectiveness is reviewed formally and we operate regular audits and self-certification on the operation of key controls and procedures. Our policies and procedures are regularly reviewed to ensure they remain compliant with the law and with our requirements for sound governance practices. We formally test our business critical systems to ensure effective recovery following a potential disaster scenario and have in place an assurance programme to test the adequacy of our mitigation activity. Our IT steering group oversees all IT-related governance arrangements, implemented via our IT policy and procedure framework, and we continue to implement an information security management system aligned with recognised international standards.
MITIE Group PLC Annual Report and Accounts 2013