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Managing risk to deliver strategic objectives
Approach to risk management
Risk management is the responsibility of the Board and is a key factor in the delivery of the Group’s strategic objectives. The Board establishes the culture of effective risk management and is responsible for maintaining appropriate systems and controls.
The Board sets the risk appetite and determines the policies and procedures that are put in place to mitigate exposure to risks. The Board plays a central role in the Group’s risk review process, which covers emerging risks and incorporates scenario planning and detailed stress testing.
Process
There is a formal ongoing process to identify, assess and analyse risks, and those of a potentially significant nature are included in the Group Risk Register.
The Group Risk Register is updated by the Executive Team at least every six months and the overall process is the subject of regular review by the Board. Risks are recorded with a full analysis, and risk owners are nominated that have authority and responsibility for assessing and managing the risk. KPMG LLP, as the Group’s internal auditor, attends the risk review meetings alongside Deloitte LLP, the Group’s external auditor.
The process continues to be a robust mechanism for monitoring and controlling the Group’s principal risks, and for challenging the impact of new emerging risks. All risks are aligned with the Group’s strategic objectives, each risk is analysed in terms of likelihood and impact to the business and the determination of a “gross risk score” enables
risk exposure to be prioritised.
The Group seeks to mitigate exposure to all forms of strategic, financial and operational risk, both external and internal. The effectiveness and impact of key controls are evaluated, and this is used to determine a “net risk score” for each risk. The process is used to develop detailed action plans that are used to manage, or respond to, the risks, and these are monitored and reviewed on a regular basis by the Group’s Audit Committee and the Board.
The Group has a formal framework for the ongoing assessment of operational, financial and IT‑based controls. The overriding objective is to gain assurance that the control framework is complete and that the individual controls are operating effectively. This assurance will be enhanced in response to the FRC’s change to the Corporate Governance Code that becomes effective from January 2026.
Framework
Expand groups involved in the framework below to read more about the responsibilities of each.
The Board
The Audit Committee
Executive Directors
Internal audit
Operational managers
Viability Statement
After considering the principal risks listed below, the Directors have assessed the prospects of the Group over a longer period than the period of at least twelve months required by the “going concern“ basis of accounting. The Directors consider that the Group’s risk management process satisfies the requirements of Provision 31 of the UK Corporate Governance Code.
The Board considers annually, and on a rolling basis, a strategic plan, which is assessed with reference to the Group’s current position and prospects, the strategic objectives and the operation of the procedures and policies to manage the principal risks that might threaten the business model, future performance and target capital structure. In making this assessment, the Board considers emerging risks and longer-term risks and opportunities.
The aim is to ensure that the business model is continually reviewed to ensure it is sustainable over the long term. Security, flexibility and efficiency continue to be the guiding principles that underpin the Group’s capital structure objectives. The Group’s funding strategy is to ensure that headroom remains at comfortable levels under all reasonable planning scenarios.
For the purposes of the Viability Statement, the Board continues to believe that three years is an appropriate period of assessment as this aligns with the current planning horizon. Although our central forecasting models cover a five-year period, it remains the case that there is less visibility beyond three years. The Construction Products Association’s (“CPA”) forecasts currently go out to 2026. This remains compatible with the five-year strategy and the longer-term objectives for our strategic growth pillars over a five-year period. The Group’s financial forecast includes an integrated model that incorporates the income statement, balance sheet and cash flow projections.
The detailed stress testing reflects the principal risks that could impact the Group and could conceivably threaten the Group’s ability to continue operating as a going concern. The assessment concluded that the deteriorating macro-economic environment is the key risk for this purpose and, in response to this, two scenarios have been run, namely a “reasonable worst-case scenario” and a “reverse stress test”.
The reasonable worst-case scenario comprises a significant stress test sensitivity run against the base case model. This sensitivity reflects a scenario that is worse than the assumptions in the CPA’s lower scenario from the 2024/2025 winter forecast. This scenario results in a cumulative revenue reduction of 5 per cent during 2025 and 2026 against the base case forecast. An operating ‘drop-through’ rate has been applied based on the operational gearing of each business unit. Under the downside model, pre-IFRS 16 is forecast to be c.£136 million at the end of 2025, and bank covenants are still comfortably met. The net effect of reduced operating profit and increased interest is mitigated by reduced tax and dividend cash flows. There remains comfortable headroom against bank facilities and bank covenants are still comfortably met with the pre-IFRS 16 net debt to adjusted EBITDA covenant peaking at around 1.7 times in June 2025.
In practice, under such a downside scenario the Group could instigate certain mitigation measures to reduce costs and capacity and to manage cash throughout the viability period, to December 2027.
For the purpose of the going concern assessment, we have applied a reverse stress test scenario to identify a deeper downside trading position that would give rise to a covenant breach. Against the base budget revenue, a reduction of 21 per cent alongside an operating profit “drop through” of around 40 per cent would be required during 2025 to breach a covenant at 31 December 2025. This is after assuming a reduction in capital expenditure and pausing dividends. This reverse stress test scenario reduces revenue by approximately £145 million during 2025. In this scenario, there remains reasonable headroom against bank facilities, but EBITA: finance costs would breach the covenant maximum of three times at December 2025.
In undertaking its review, the Board has considered the appropriateness of any key assumptions, considering the external environment and the Group’s strategy and risks. Based on this assessment, and taking account of the Group’s
principal risks and uncertainties, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due for the next three years.
The reverse stress test scenario provides an indication of the scale of downturn that could be absorbed by the Group. The analysis provides the required evidence that the Directors’ assessment of the going concern assumption remains appropriate and supports a positive conclusion for the longer-term Viability Statement.
Principal risks and uncertainties
The Directors have undertaken a robust, systematic assessment of the Group’s emerging and principal risks. These have been considered within the timeframe of three years, which aligns with our Viability Statement. The risk process has increasingly allocated greater focus on emerging risks and risk outlook. The reporting includes more detailed assessments of proximity (how far away in time the risk will occur) and velocity (the time that elapses between an event occurring and the point at which the effects are felt).
Strategic Objectives
Obtain and deliver specification
Easy to work with
Innovate and optimise products and solutions
Improve our cost effectiveness, our efficiency and our flexibility
