Annual Financial Report

RNS Number : 2933A

Burberry Group PLC

06 June 2016

6 June 2016

Pursuant to Listing Rule 9.6.1, Burberry Group plc (the "Group") has submitted the following documents to the National Storage Mechanism and they will shortly be available for inspection at: www.hemscott.com/nsm.do:

1. Annual Report and Accounts for the year ended 31 March 2016;

2. Notice of Annual General Meeting; and

3. Form of Proxy.

The Annual Report and Notice of Annual General Meeting are also available on the Burberry Group plc website at www.burberryplc.com. The Annual Report will be delivered to the Registrar of Companies in due course.

The Annual General Meeting ("AGM") will take place on Thursday, 14 July 2016 at the InterContinental Hotel, One Hamilton Place, Park Lane, London W1J 7QY. The total of the votes cast by shareholders for or against or withheld on each resolution to be put to the meeting will be published on www.burberryplc.com as soon as possible after the meeting.

In compliance with The Disclosure and Transparency Rules (DTR) 6.3.5, the information in the Appendix below is extracted from Burberry Group plc's Annual Report and Accounts for the financial year ended 31 March 2016 (the "2015/16 Annual Report and Accounts") and should be read in conjunction with Burberry Group plc's Preliminary Announcement issued on 18 May 2016, both of which can be viewed at www.burberryplc.com. Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the 2015/16 Annual Report and Accounts in full and page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2015/16 Annual Report and Accounts.

Enquiries

Burberry

Fay Dodds	VP, Investor Relations	020 3367 3524
Julian Payne	VP, PR and Corporate Relations	020 3428 8795

Brunswick		020 7404 5959
Nick Claydon
Laura Buchanan

APPENDIX: ADDITIONAL INFORMATION REQUIRED BY DTR 6.3.5

AUDIT REPORTS

The Preliminary Announcement includes a condensed set of financial statements. Audited financial statements for the financial year ended 31 March 2016 are contained in the 2015/16 Annual Report and Accounts. The Independent Auditor's Report on the Group financial statements is set out in full on pages 115 to 120 of the 2015/16 Annual Report and Accounts and the Independent Auditor's Report on the parent company financial statements is set out in full on pages 172 to 173 of the 2015/16 Annual Report and Accounts. Both audit reports are unqualified and do not contain any statements under section 498(2) or section 498(3) of the Companies Act 2006.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The following information is extracted from page 114 of the 2015/16 Annual Report and Accounts.

The directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance and performance, business model and strategy.

Each of the directors, whose names and functions are listed on pages 64 to 65 confirm that, to the best of their knowledge:

· the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

· the Strategic Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

PRINCIPAL RISKS

The following information is extracted from pages 56 to 61 of the 2015/16 Annual Report and Accounts.

The Board is responsible for the Group's risk management and internal controls system and reviewing its effectiveness. The system is designed to identify and manage, rather than eliminate, the risk of failure to achieve the Group's strategic objectives and to provide reasonable but not absolute assurance against material misstatement or loss. More information on the Group's internal control and risk management systems can be found in the Corporate Governance Report on pages 74 to 76.

The Board has overall responsibility for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives (its risk appetite), and for ensuring that risks are managed effectively. The Board has delegated to the Audit Committee the responsibility for reviewing the effectiveness of the Group's systems of internal control and risk management methodology.

As part of this review, the Audit Committee considers the principal risks facing the Group and the nature and extent of these risks. The Vice President - Group Risk Officer facilitates a risk assessment process in each key business area and global support function to review the significant risks facing Group operations and to record the relevant controls and actions in place to mitigate these. The detailed assessments are then consolidated to provide input into the overall Group risk assessment.

The Board and the executive management team use a combination of different and complementary skills to assess the risks facing the business. In determining its risk appetite the Board considers a variety of information when reviewing the Group operations and in approving key matters reserved for its decision. This information includes:

· updates provided by senior management on key strategic and operational matters;

· discussion and approval by the Board of the Group's three-year strategic plan, budget and viability statement (see page 57);

· information provided for the purposes of deciding whether to approve those significant matters which have been reserved for the Board;

· Group risk assessments facilitated by the Group's Risk Function and the reports of the internal and external auditors; and

· Risk appetite guidelines relating to the Group's principal risks.

The risks set out in the table on the following pages represent the principal risks and uncertainties which may adversely impact the performance of the Group and the execution of its core strategies. The Group's core strategies are set out on pages 29 to 46.

Within the table is a summary of how each risk is defined, its context, potential impact and mitigating activities and the Group's assessment of the change in risk during 2015/16. This assessment is based on the external environment in which the Group operates, its business operations and the impact of the Group's internal controls on the severity of the risk in the period. The Group's risk exposure is continually reviewed by senior management and is therefore subject to change as a result of internal and external factors, future events or otherwise. It is not possible for the Group to implement controls to respond to all the risks it may face, and the steps the Group has taken to address certain risks (including those listed) may not manage these risks effectively.

The principal risks are not listed in order of significance and each of the risks should be considered independently. If more than one of the events contemplated by the risks set out occur, it is possible that the combined overall impact of such events may be compounded. Other factors could also adversely affect Group performance and so the risks set out should not be considered to be a complete set of all potential risks and uncertainties the Group may face.

The key changes in the principal risks during the year include the following:

· The outlook for the luxury sector remains uncertain.

· The risk of a successful cyber security breach is reflected as a separate risk.

· The implementation of the Group's productivity and efficiency agenda.

· As the Japan licence has expired during the year and the Group is directly operating in Japan, the previous risk relating to the termination of the Japan licence has been removed.

Risk	Business impact	Mitigation
A major breach in cyber, systems or information security could adversely impact the Group's business operations and/or result in a major data loss adversely impacting the Group's reputation.	The Group's customer and employee data, Burberry.com business, digital strategy and operations mean that it is critical that the Group's technology is robust, its systems are secure and data protected. Sensitive data faces the threat of misappropriation and a breach of cyber security on key business systems could also affect business operations.	Information systems and cyber security received substantial Audit Committee focus during the year to ensure that the Group's response to this developing risk is appropriate. Investment in the ongoing cyber security programme including the recruitment of a Group Information Security Officer and strengthening of the IT security team. Ongoing activities to detect and investigate threats and incidents including with the support of key technology partners and suppliers. Increased focus on employee awareness and training in relation to sensitive data and digital information. Evaluation and testing of cyber security using specialist third parties and of the crisis management and wider business continuity plans.
Change in level of risk New separate risk	Strategic link All core strategies
The outlook for the luxury sector remains uncertain.	Changes and events in the external market or environment could impact the Group's performance and the delivery of its strategies. These changes or events could include: (i) a sustained economic slowdown which adversely impacts the Group's customers, suppliers and operations; (ii) a change in consumer behaviour or other events which adversely impact consumer demand particularly in relation to key consumer groups who make a significant contribution to Group revenues; and (iii) increasing global economic uncertainty including matters such as Brexit (the potential withdrawal of Britain from the European Union) which could have an impact on economic growth and adversely impact the Group or give rise to additional costs relating to movements of inventory within the supply chain.	With the outlook for demand in the luxury sector remaining uncertain and underlying cost pressures persisting for the sector, the Group is accelerating its work on its productivity and efficiency agenda particularly its ways of working, and how to optimise future organic revenue growth opportunities. The global reach of the Group helps to mitigate local economic and geopolitical risks. The Group focuses on inspiring consumers through the Brand and realising its opportunities among key consumer groups and geographic markets. The Group's financial reporting and review processes are designed to highlight any change in ongoing sales performance to enable action planning to address underperformance. Counterparty credit checks are in place for all key customers and suppliers, and flexible payment terms are used to assist suppliers as required. Group Treasury monitors the credit ratings of financial institutions which hold Group deposits to enable the Group to take appropriate action should there be a downgrade in their credit ratings. The Group would seek to mitigate any adverse cost impacts, arising as a result of Brexit, through optimisation of operations within the supply chain.
Change in level of risk Increased risk	Strategic link Optimise Channels, Unlock Market Opportunity
Inability of the organisation to successfully deliver the productivity and efficiency agenda without compromising business as usual.	The productivity and efficiency agenda is being implemented to optimise future organic revenue growth opportunities and to deliver productivity and efficiencies particularly through ways of working. The failure to effectively manage this programme could adversely impact the delivery of the Group's strategies, the anticipated productivity and efficiency improvements, its operations and return on investments. The Group's systems of internal control will need to be maintained.	Experienced management leaders are accountable for the conduct of this agenda and the delivery of the outcomes in accordance with the plan approved by the Board. Dedicated resources will be put in place to manage change. Regular Senior Leadership Team review of the programme implementation to allow for open discussion of emerging risks and control requirements. Progress of the delivery of the programme will be subject to regular review by the Board. The Board also approves the Group's strategies, its three-year plan and annual budget.
Change in level of risk Increased risk	Strategic link All core strategies
Failure to realign the organisational resource capability to deliver the productivity and efficiency agenda.	The implementation of the productivity and efficiency agenda means that attracting and retaining the right skills to meet evolving priorities is critical. Insufficient capability and capacity in senior management and insufficient employees with the right skills will limit the Group's ability to execute the Group's strategies and other changes as planned. The period of change may result in a loss of key individuals or the inability to recruit and retain individuals with the relevant talent and experience could disrupt the operation of the business and adversely impact the Group's ability to deliver its strategies.	There will be a particular focus on people throughout the programme, recognising the need for appropriate capability to be built across the organisation. Clearly defined people strategy, based on organisational capability requirements, culture and engagement, equality and wellbeing, talent development, training and reward and recognition. The Nomination Committee and the Senior Leadership Team regularly review key talent and resource risks. Clear and open engagement with employees to promote an environment of trust and honesty. Competitive incentive arrangements currently exist, with specific initiatives in place designed to retain key individuals. Recruitment is ongoing and talent review and succession planning programmes are in place and are regularly reviewed and updated.
Change in level of risk Increased risk	Strategic link All Core Strategies
Sustained breaches of the Group's intellectual property rights and unauthorised sale of Burberry products.	Trade marks and other intellectual property ('IP') rights are fundamentally important to the Group's reputation, success and competitive position. Unauthorised use of these, as well as the unauthorised sale of Burberry products and distribution of counterfeit products, damages the Burberry brand image and profits.	The Group's global Brand Protection team is responsible for the Group's brand protection efforts globally, including in the digital environment. Given the Group's emphasis on digital innovation the team places a particular focus on this area. Where infringements are identified these are addressed through a mixture of criminal and civil legal action and negotiated settlement. IP rights are driven largely by national laws which afford varying degrees of protection and enforcement priorities depending on the country.
Change in level of risk No material change	Strategic link Inspire with the Brand, Realise Product Potential, Optimise Channels, Unlock Market Opportunity
Chinese consumer spending patterns significantly change adversely impacting the Group's revenues.	A significant proportion of the Group's sales are to Chinese consumers globally. Consequently, any change to Chinese consumer tastes or the economic, regulatory, social and/or political environment in China could adversely impact this consumer's disposable income, confidence and travel, which could impact the Group's revenue and profits.	The global reach of the Group helps to mitigate reliance on particular consumers. In addition, the Group continues to focus on engaging with the Chinese luxury consumer, both in China and while travelling abroad. The Group has commenced its transition of its global business in Japan.
Change in level of risk No material change	Strategic link Inspire with the Brand, Optimise Channels, Unlock Market Opportunity, Pursue Operational Excellence
Volatility in foreign exchange rates could have a significant impact on the Group's reported results.	The Group operates on a global basis and earns revenues, incurs costs and makes investments in a number of currencies. The Group's financial results are reported in Sterling. The majority of reported revenues are earned in non-Sterling currencies, with a significant proportion of costs in Sterling. Therefore, changes in exchange rates can impact the Group's revenues, margins, profits and cash flows.	The Group seeks to hedge anticipated foreign currency transactional cash flows using financial instruments. These are mainly in the Group's centralised supply chain and wholesale and Beauty businesses. The Group does not hedge intra-group foreign currency transactions at present. The Group monitors the desirability of hedging the net assets of non-Sterling subsidiaries when translated into Sterling for reporting purposes, but the Group has not entered into any material transactions for this purpose in the current or previous year.
Change in level of risk Increased risk	Strategic link All Core Strategies
Major incidents such as natural catastrophes, global pandemics or terrorist attacks affecting one or more of the Group's key locations could significantly impact its operations.	A major incident at a key location could significantly impact business operations, with the impact clearly varying depending on the location and its nature. The impact of the loss of a distribution hub would clearly differ from a global pandemic, but both would impact revenue and profits.	Business continuity plans are in place to mitigate operational risks, but cannot ensure the uninterrupted operation of the business, particularly in the short term. The regional spread of the Group's key distribution hubs also helps to mitigate risk. There is a Group incident management framework in place that addresses the reporting and management of major incidents, and this is tested each year using third-party specialists in this field. Tailored plans have also been produced for a number of high-impact events. These plans are regularly reviewed and updated.
Change in level of risk No material change	Strategic link All Core Strategies
The Group's operations are subject to a broad spectrum of regulatory requirements in the various jurisdictions in which the Group operates. The pace of change and the consistency of application of legislation can vary significantly across these jurisdictions, particularly in an environment where public sector debt is often high and tax revenues are falling.	Failure to comply with these requirements could leave the Group open to civil and/or criminal legal challenge, significant penalties and reputational damage.	The Group monitors and seeks to continuously improve its processes to gain assurance that its licensees, suppliers, franchisees, distributors and agents comply with the Group's contractual terms and conditions, its ethical and business policies and relevant legislation. Specialist teams at corporate and regional level, supported by third-party specialists where required, are responsible for ensuring employees are aware of regulations relevant to their roles. Assurance processes are in place to monitor compliance in a number of key risk areas, with results being reported to the management Risk Committee and Board Audit Committee.
Change in level of risk No material change	Strategic link All Core Strategies
Failure by the Group or associated third parties to act in accordance with ethical and environmental standards.	A failure to act appropriately could result in penalties, adverse press coverage and reputational damage with a resulting drop in sales and profit.	A number of initiatives are in place, led by the Corporate Responsibility function. These include the continuing activities set out in the Build our Culture section on pages 44 to 46.
Change in level of risk No material change	Strategic link Inspire with the Brand
Over-reliance on key vendors.	The Group relies on a number of vendors in key product categories. Failure of these businesses to deliver products or services would have a significant impact on business operations.	The Group continues to evolve its supply chain organisational design to develop its manufacturing base to reduce dependence on key vendors.
Change in level of risk No material change	Strategic link Inspire with the Brand, Realise Product Potential
The Group's IT systems and operational infrastructure are critical to its operation and the delivery of products and services to its consumers. Increasingly, technology is evolving to stream major events and to communicate through social media.	A failure in these systems or a denial of service could have a significant impact on the Group's operations and reputation. The Group also relies on a small number of vendors of specialist digital and IT services.	The Group's IT systems and infrastructure received substantial Audit Committee focus during the year. A number of controls to maintain the integrity and efficiency of the Group's IT systems are in place, including recovery plans which would be implemented in the event of a major failure. The IT disaster recovery plans are tested on a regular basis. IT security is continually reviewed and updated and third-party IT security specialists are used to regularly test these controls. The Group has continued to strengthen its internal digital and IT teams and continues to facilitate knowledge transfer to internal resources.
Change in level of risk No material change	Strategic link All Core Strategies
The Group operates in a number of emerging markets which are typically more volatile than developed markets, and are subject to changing economic, regulatory, social and political developments that are beyond the Group's control. Infrastructure and services also tend to be less developed.	Seizure of assets or staff. Business associate practice that is inconsistent with the Group's ethical standards and the UK regulatory environment. Increased operational costs due to country-specific processes driven by the operating or regulatory environment.	The Group uses the services of professional consultants to advise on legal and regulatory issues when entering new markets, to undertake due diligence and to monitor ongoing developments. Where appropriate, the Group seeks to work with franchisees or partners who compensate for its relative lack of experience in a number of these markets.
Change in level of risk No material change	Strategic link Inspire with the Brand, Optimise Channels, Unlock Market Opportunity, Pursue Operational Excellence

Risk

Business impact

Mitigation

A major breach in cyber, systems or information security could adversely impact the Group's business operations and/or result in a major data loss adversely impacting the
Group's reputation.

The Group's customer and employee data, Burberry.com business, digital strategy and operations mean that it is critical that the Group's technology is robust, its systems are secure and data protected. Sensitive data faces the threat of misappropriation and a breach of cyber security on key business systems could also affect business operations.

Information systems and cyber security received substantial Audit Committee focus during the year to ensure that the Group's response to this developing risk is appropriate.

Investment in the ongoing cyber security programme including the recruitment of a Group Information Security Officer and strengthening of the IT security team.

Ongoing activities to detect and investigate threats and incidents including with the support of key technology partners and suppliers.

Increased focus on employee awareness and training in relation to sensitive data and digital information.

Evaluation and testing of cyber security using specialist third parties and of the crisis management and wider business continuity plans.

Change in level of risk

New separate risk

Strategic link

All core strategies

The outlook for the luxury sector remains uncertain.

Changes and events in the external market
or environment could impact the Group's performance and the delivery of its strategies.
These changes or events could include: (i) a sustained economic slowdown which adversely impacts the Group's customers, suppliers and operations; (ii) a change in consumer behaviour or other events which adversely impact consumer demand particularly in relation to key consumer groups who make a significant contribution to Group revenues; and (iii) increasing global economic uncertainty including matters such as Brexit (the potential withdrawal of Britain from the European Union) which could have an impact on economic growth and adversely impact the Group or give rise to additional costs relating to movements of inventory within the supply chain.

With the outlook for demand in the luxury sector remaining uncertain and underlying cost pressures persisting for the sector, the Group is accelerating its work on its productivity and efficiency agenda particularly its ways of working, and how to optimise future organic revenue growth opportunities.

The global reach of the Group helps to mitigate local economic and geopolitical risks.

The Group focuses on inspiring consumers through the Brand and realising its opportunities among key consumer groups and geographic markets.

The Group's financial reporting and review processes are designed to highlight any change in ongoing sales performance to enable action planning to address underperformance.

Counterparty credit checks are in place for all key customers and suppliers, and flexible payment terms are used to assist suppliers as required. Group Treasury monitors the credit ratings of financial institutions which hold Group deposits to enable the Group to take appropriate action should there be a downgrade in their credit ratings.

The Group would seek to mitigate any adverse cost impacts, arising as a result of Brexit, through optimisation of operations within the supply chain.

Change in level of risk

Increased risk

Strategic link

Optimise Channels, Unlock Market Opportunity

Inability of the organisation
to successfully deliver the productivity and efficiency agenda without compromising business as usual.

The productivity and efficiency agenda is being implemented to optimise future organic revenue growth opportunities and to deliver productivity and efficiencies particularly through ways of working.

The failure to effectively manage this programme could adversely impact the delivery of the Group's strategies, the anticipated productivity and efficiency improvements, its operations and return on investments. The Group's systems of internal control will need to be maintained.

Experienced management leaders are accountable for the conduct of this agenda and the delivery of the outcomes in accordance with the plan approved by the Board.

Dedicated resources will be put in place to manage change.

Regular Senior Leadership Team review of the programme implementation to allow for open discussion of emerging
risks and control requirements.

Progress of the delivery of the programme will be subject to regular review by the Board. The Board also approves the Group's strategies, its three-year plan and annual budget.

Change in level of risk

Increased risk

Strategic link

All core strategies

Failure to realign the organisational resource capability to deliver
the productivity and efficiency agenda.

The implementation of the productivity
and efficiency agenda means that attracting and retaining the right skills to meet evolving priorities is critical. Insufficient capability and capacity in senior management and insufficient employees with the right skills will limit the Group's ability to execute the Group's strategies and other changes as planned.

The period of change may result in a loss of
key individuals or the inability to recruit and retain individuals with the relevant talent and experience could disrupt the operation of the business and adversely impact the Group's ability to deliver its strategies.

There will be a particular focus on people throughout the programme, recognising the need for appropriate capability to be built across the organisation.

Clearly defined people strategy, based on organisational capability requirements, culture and engagement, equality and wellbeing, talent development, training and reward and recognition.

The Nomination Committee and the Senior Leadership Team regularly review key talent and resource risks.

Clear and open engagement with employees to promote
an environment of trust and honesty.

Competitive incentive arrangements currently exist, with specific initiatives in place designed to retain key individuals. Recruitment is ongoing and talent review and succession planning programmes are in place and are regularly reviewed and updated.

Change in level of risk

Increased risk

Strategic link

All Core Strategies

Sustained breaches of
the Group's intellectual property rights and unauthorised sale of Burberry products.

Trade marks and other intellectual property
('IP') rights are fundamentally important to the Group's reputation, success and competitive position. Unauthorised use of these, as
well as the unauthorised sale of Burberry
products and distribution of counterfeit products, damages the Burberry brand image and profits.

The Group's global Brand Protection team is responsible for
the Group's brand protection efforts globally, including in the digital environment. Given the Group's emphasis on digital innovation the team places a particular focus on this area. Where infringements are identified these are addressed through a mixture of criminal and civil legal action and negotiated settlement. IP rights are driven largely by national laws which afford varying degrees of protection and enforcement priorities depending on the country.

Change in level of risk

No material change

Strategic link

Inspire with the Brand, Realise Product Potential,

Optimise Channels, Unlock Market Opportunity

Chinese consumer spending patterns significantly change adversely impacting
the Group's revenues.

A significant proportion of the Group's
sales are to Chinese consumers globally. Consequently, any change to Chinese consumer tastes or the economic, regulatory, social and/or political environment in China could adversely impact this consumer's disposable income, confidence and travel, which could impact the Group's revenue and profits.

The global reach of the Group helps to mitigate reliance on particular consumers. In addition, the Group continues to focus on engaging with the Chinese luxury consumer, both in China and while travelling abroad. The Group has commenced its transition of its global business in Japan.

Change in level of risk

No material change

Strategic link

Inspire with the Brand, Optimise Channels, Unlock Market Opportunity, Pursue Operational Excellence

Volatility in foreign exchange rates could have a significant
impact on the Group's reported results.

The Group operates on a global basis and earns revenues, incurs costs and makes investments in a number of currencies. The Group's financial results are reported in Sterling. The majority of reported revenues are earned in non-Sterling currencies,
with a significant proportion of costs in Sterling. Therefore, changes in exchange rates can impact the Group's revenues, margins, profits and
cash flows.

The Group seeks to hedge anticipated foreign currency transactional cash flows using financial instruments. These are mainly in the Group's centralised supply chain and wholesale and Beauty businesses. The Group does not hedge intra-group foreign currency transactions at present. The Group monitors the desirability of hedging the net assets of non-Sterling subsidiaries when translated into Sterling for reporting purposes, but the Group has not entered into any material transactions for this purpose in the current or previous year.

Change in level of risk

Increased risk

Strategic link

All Core Strategies

Major incidents such
as natural catastrophes, global pandemics or terrorist attacks affecting one or more of the Group's key locations could significantly impact its operations.

A major incident at a key location could significantly impact business operations, with the impact clearly varying depending on the location and its nature. The impact of the loss of a distribution hub would clearly differ from a global pandemic, but both would impact revenue and profits.

Business continuity plans are in place to mitigate operational risks, but cannot ensure the uninterrupted operation of the business, particularly in the short term. The regional spread of the Group's key distribution hubs also helps to mitigate risk.

There is a Group incident management framework in place that addresses the reporting and management of major incidents,
and this is tested each year using third-party specialists in this field. Tailored plans have also been produced for a number of high-impact events. These plans are regularly reviewed and updated.

Change in level of risk

No material change

Strategic link

All Core Strategies

The Group's operations are subject to a broad spectrum
of regulatory requirements
in the various jurisdictions
in which the Group operates.
The pace of change and the consistency of application of legislation can vary significantly across these jurisdictions, particularly in an environment
where public sector debt is often high and tax revenues are falling.

Failure to comply with these requirements could leave the Group open to civil and/or criminal legal challenge, significant penalties and reputational damage.

The Group monitors and seeks to continuously improve its processes to gain assurance that its licensees, suppliers, franchisees, distributors and agents comply with the Group's contractual terms and conditions, its ethical and business policies and relevant legislation.

Specialist teams at corporate and regional level, supported by third-party specialists where required, are responsible for ensuring employees are aware of regulations relevant to their roles.

Assurance processes are in place to monitor compliance in
a number of key risk areas, with results being reported to the management Risk Committee and Board Audit Committee.

Change in level of risk

No material change

Strategic link

All Core Strategies

Failure by the Group or associated third parties
to act in accordance with ethical and environmental standards.

A failure to act appropriately could result
in penalties, adverse press coverage and reputational damage with a resulting drop
in sales and profit.

A number of initiatives are in place, led by the Corporate Responsibility function. These include the continuing activities set out in the Build our Culture section on pages 44 to 46.

Change in level of risk

No material change

Strategic link

Inspire with the Brand

Over-reliance
on key vendors.

The Group relies on a number of vendors
in key product categories. Failure of these businesses to deliver products or services would have a significant impact on business operations.

The Group continues to evolve its supply chain organisational design to develop its manufacturing base to reduce dependence on key vendors.

Change in level of risk

No material change

Strategic link

Inspire with the Brand, Realise Product Potential

The Group's IT systems and operational infrastructure are critical to its operation and the delivery of products and services to its consumers. Increasingly, technology is evolving to
stream major events and to communicate through social media.

A failure in these systems or a denial of
service could have a significant impact
on the Group's operations and reputation.
The Group also relies on a small number of
vendors of specialist digital and IT services.

The Group's IT systems and infrastructure received substantial Audit Committee focus during the year.

A number of controls to maintain the integrity and efficiency
of the Group's IT systems are in place, including recovery plans which would be implemented in the event of a major failure. The IT disaster recovery plans are tested on a regular basis. IT security is continually reviewed and updated and third-party IT security specialists are used to regularly test these controls.

The Group has continued to strengthen its internal digital and IT teams and continues to facilitate knowledge transfer to internal resources.

Change in level of risk

No material change

Strategic link

All Core Strategies

The Group operates in
a number of emerging markets which are typically more volatile than developed markets, and are subject to changing economic, regulatory, social and political developments that are beyond the Group's control. Infrastructure and services also tend to be less developed.

Seizure of assets or staff. Business associate practice that is inconsistent with the Group's ethical standards and the UK regulatory environment. Increased operational costs due to country-specific processes driven by the operating or regulatory environment.

The Group uses the services of professional consultants to advise on legal and regulatory issues when entering new markets, to undertake due diligence and to monitor ongoing developments. Where appropriate, the Group seeks to work with franchisees or partners who compensate for its relative lack of experience in a number of these markets.

Change in level of risk

No material change

Strategic link

Inspire with the Brand, Optimise Channels, Unlock Market Opportunity, Pursue Operational Excellence

This information is provided by RNS

The company news service from the London Stock Exchange

END

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