Principal Risks & Uncertainties

Our performance and prospects may be affected by risks and uncertainties relating to our business and operating environment.

Our internal controls include risk management processes to identify key risks, and where possible to manage those risks through systems and processes, and by implementing specific mitigation strategies. The most significant risks identified through our progressive review of the risk register that could materially affect the Group's ability to achieve its financial and operating objectives are summarised in this section. Other risks are either unknown or deemed less material.

Key:

Risk increase

Risk decrease

Risk unchanged

RiskControls and Mitigating ActionsTrend
Product quality failure:
The Group operates in highly regulated markets with strict quality requirements. Any quality failure involving the Group's products could lead to loss of reputation, reduction in revenues, recall costs or sanction by the regulators.
The Group has rigorous quality assurance processes. Incoming raw materials are analysed, production processes are controlled, with automated checks by vision systems and metrology, and products are sampled for testing prior to release.
Reliance upon key customers/products:
Bespak has a degree of reliance on a relatively small number of key customers/products, and the loss of one such customer/product could lead to a significant reduction in revenues.
The Group has significant intellectual property and there are significant barriers to entry. Regulation often restricts customers' ability to transfer business elsewhere, and there is seldom loss of business once approved on a customer programme. We maintain a close dialogue with all of our customers. Our strategy of diversification has opened up a broader range of products and customers, and is progressively diluting this reliance through growth with other customers/products.
Regulatory risk:
The operations of the Group are subject to various regulatory requirements which confer a degree of protection as well as an element of compliance risk, in particular to delivering growth.
A strong compliance regime is in place and regular reviews and audits take place, not only by regulatory bodies such as the FDA but also by customers. Bespak is ISO13485 accredited and operates SAP in all its main processes, and has recently expanded its externally recognised regulatory competence in acquiring commercial and clinical trials licences for drug handling.
Development risk:
The Group is developing a range of products at any time, any of which may fail in clinical trials, be stopped by the customer or may not become commercially successful once launched.
The Group follows rigorous processes for the development of new products. Where possible, it is developing the technology as a platform for multiple programmes to reduce the exposure to any individual trial. Development and industrialisation of medical devices is considered a core competence of the Group.
Growth risk:
Bespak has been successful in acquiring an extensive product development portfolio, which places significantly increased demands for resources on the business.
The business has well-honed programme planning and management systems and processes. These provide good visibility of resource requirements, whether capital, space, equipment or people, and enable timely fulfilment on multiple parallel programmes.
Cyber risk:
Cyber crime is increasing in sophistication, consequences and incidence, with risks including virus 'infection', unauthorised access (hacking), and phishing email-based frauds.
The Group has conducted a cyber security risk assessment and identified mitigating actions and training to reduce the risks. Continual vigilance and training are required to mitigate risks, as perpetrators are creative and dynamic on a wide spectrum of strategies.
Credit riskThe Group has implemented policies and processes that require appropriate credit checks to be made on potential customers before sales over certain limits are agreed. Credit limits and outstanding receivables are reviewed monthly and action taken if a new risk is identified. The Group has an excellent record on collection of receivables. The Group monitors the levels of cash held with financial institutions and the credit rating of those institutions in order to manage the credit risk on cash balances.
Interest rate riskThe Group is not currently subject to interest rate risk on its revolving bank facility, as it is currently undrawn. The Group's policy is to convert a large portion of any floating rate debt into fixed rate debt using interest rate swaps, to mitigate the risk of adverse effects from a rise in interest rates.
Currency riskThe Group is a sterling denominated Group which has a minor element of its income and costs in US dollars and Euros. It has a hedging strategy to contract forward for known exposures to reduce the impact of currency fluctuation. Currency exposures are reviewed regularly on a monthly basis.
Liquidity riskThe Group has strong cash flows, and good earnings visibility ensures that its margins are sufficient to exceed normal operating costs. Its business is cash-generative, and there are well embedded cash and working capital management processes. Currently the Group has no borrowings, but has £74.3m of committed facilities in place until 2016.
Pension riskThe Group works closely with the Pension Trustees to ensure that the Defined Benefit Scheme is adequately funded and that the assets are invested appropriately to meet future liabilities as they fall due. The Scheme was closed to new members in 2002, and was in surplus at the last actuarial valuation in 2011, though this may change before the next triennial valuation in 2014.