This section highlights some of the key risks and uncertainties which affect Greene King, but it is not intended to be an exhaustive analysis of all risks facing the business. Formal risk management processes are in place to identify and evaluate risks, taking into account the likelihood of their occurrence, the scale of potential impact on the business and the impact of planned risk mitigation actions, so that risks can be ranked and actions suitably prioritised. Given that some risks are external and not fully within our control, the risk management processes are designed to manage risks which may have a material impact on our business, rather than to fully mitigate all risks.
Using a group-wide consistent approach, each business unit or functional area reviews its risks and mitigation plans on a regular basis, and draws up plans to manage new risks or gaps in mitigation plans. Progress of these risk implementation plans is monitored by senior management on a regular basis. In addition, a company-wide risk committee reviews in detail and monitors those risk mitigation plans, ensuring that plans work across the group as well as the sharing of best practice. Particular emphasis has been placed during the year on reviewing plans to deal with those risks which might arise from catastrophic events, and on emerging strategic risks. There has also been an increased focus on ensuring that risk mitigation plans are subject to independent review and audit.
At executive level, each of the risks has an identified owner to ensure senior management accountability for risk mitigation measures. Each business unit managing director or functional head presents a report to the audit committee once a year on the risk management processes for which they are responsible. The audit committee also reviews the company's top risks, as set out on the group's risk register, on an annual basis, prior to their submission to the board, which retains ultimate responsibility for the company's risk management framework.
The group's business operations are sensitive to economic conditions and in particular to levels of consumer spending. Any delay in economic recovery could affect consumer expenditure and therefore our revenue. There is an on-going risk to our business of increases in the cost of key products, including food, drink, Sky and utilities.
Our licensees are also affected by the economic climate, leading to the risk of more tenant defaults and business failures. Property values are also impacted by the economic uncertainty, and with it our ability to continue to make disposals at appropriate values.
We have a diversified business encompassing brewing and drinks distribution, pubs and restaurants, with a wide range of offers targeted at different consumer groups, as well as a broad geographic spread. The board and the senior management team regularly review the impact of the economic conditions on the group's budget and strategic plans. By emphasising excellent quality, service, value for money and up-to-date product offers, we aim to broaden our appeal to customers.
All parts of our business are constantly reminded of the need to keep costs, including labour costs, down. Our purchasing team has successfully negotiated various contracts to protect us against significant increases in major cost items and a range of other techniques are also employed to keep costs down and protect us from price volatility.
The vital signs of our licensee health are constantly monitored and additional operational and financial support is provided to licensees where necessary and appropriate. The introduction and roll out of our new franchise agreement is designed to ensure that more of our tenants are able to run profitable businesses.
The long term value of each of our sites is regularly assessed. Decisions are made on a site by site basis around further improvements, operational focus for poorer performing sites, appropriate impairments where necessary and the active marketing of sites that no longer have long-term value for Greene King.
The last few years have seen an increased governmental focus on alcohol consumption, in regard to both its impact on the health of drinkers and law and order issues. There is a risk of further legislation in these areas, including additional taxation, which may adversely impact our business.
A failure to comply with health and safety legislation, including in relation to food safety or fire safety, could lead to an incident which causes serious illness, injury or even loss of life to one of our customers, employees or tenants, in turn leading to a significant impact on our reputation.
The tied model in the UK has faced continuous scrutiny by various governmental bodies over the years and despite the EU block exemption and clean bills of health by the OFT, it could remain so in the future. Any changes to the model could impact our strategy and relations with our licensees.
We are committed to acting as a responsible retailer and engage actively with government to ensure that it recognises our belief that the safest and most responsible place to consume alcohol is in well-managed licensed on-trade premises. Internally we ensure that our training covers all aspects of licensing requirements and have due diligence in place to ensure that all our pubs comply with all relevant licensing legislation.
We have a range of policies and procedures in place, including training and e-learning, the carrying out of risk assessments, reporting and regular monitoring, to ensure compliance with existing regulatory requirements in relation to health & safety, including food safety. Audits of all managed houses are carried out every year by an independent company to measure their performance against strict standards, and scores continue to improve year on year. All of our Retail sites have had an independent fire risk assessment completed during the year, whilst in Pub Partners we have continued to improve the systems in place to protect our assets, our brand and our tenants.
We remain committed to the tied pub model and firmly believe that material changes to the tie, including its abolition, would lead to accelerated pub closures due to the higher costs of entry and ongoing overheads for licensees. Our new Code of Practice is designed to ensure that we continue to have a transparent and mutually beneficial relationship with our tenants.
Alongside the production and distribution of our own beers, we work with a number of key suppliers (particularly in relation to food, lager and wines, spirits and minerals) and third party distributors to supply our pubs and restaurants.
Our business could be at risk of both interruption of supply and of failure of such key suppliers or distributors.
We have detailed risk mitigation and risk management plans in our internal production and distribution activities, including an on-going programme of testing the relevant disaster-recovery systems. We are always looking to improve and learn from other best-in-class operators in this area.
With regard to third-party suppliers, producers and supply chain partners, we review the disaster recovery plans of key suppliers regularly as well as our own back-up plans which are designed to ensure that we can cope in the event of the failure by or loss of a key supplier.
We also regularly review the financial position of our major suppliers to assess the risk of them ceasing to be able to trade and, with the help of external consultants, we monitor the financial stability of those we regard as of highest risk.
We are a consumer facing business with some well known national brands. Poor service standards and non-compliance with brand standards could lead to a loss of trade and a reduction in our perceived valuation by key stakeholders.
We are reliant on information systems and technology for many aspects of our business, which could be damaging if they were to fail for any length of time.
We endeavour to maintain tight controls to protect and enhance our reputation and brand values. We focus constantly on consistency and quality, with staff training, targeted investment programmes and mystery guest visits all designed to help maintain standards, and have systems in place to escalate and respond to relevant incidents.
The introduction of PDAs for our Retail business development managers has helped improve the effective monitoring of brand standards.
A business continuity plan is in place to regularly review our critical business processes and ensure that we can continue to operate in the event of a major incident affecting our systems or technology. We have access to an off-site disaster recovery facility, which is regularly tested, in the event of a major issue with our head office or its systems.
It is vital to the business that we continue to meet our financial covenants and to ensure that there is sufficient short term financing to meet our business needs. We are exposed to interest rate risk on the variable and floating rate components of our financing.
We are also reliant on maintaining sound systems of internal control to protect us from risk of financial fraud or material error in our financial statements.
Our performance against our financial covenants is regularly monitored. We also undertake detailed and regular stress-testing of our performance against those covenants. Working capital is carefully forecast and closely managed. At the year end 98% of our floating rate debt was hedged through the use of derivative financial instruments, more details of which can be found in note 24 to the financial statements. During the year we successfully negotiated a new £400m 5 year bank facility.
We continue to move towards a single platform financial accounting system to unify the systems, processes and organisation of our finance teams.
Our systems of internal control, which include segregation of duties and authority levels for expenditure and payments, are reviewed on a regular basis to ensure that they remain suitable.
A failure to attract, retain, develop and motivate the best employees and tenants across all our managed and tenanted pubs, our brewing operations and our head office may impact our ability to deliver our operational and strategic objectives.
We aim to recruit the best people with the right skills and offer training and development programmes to ensure that we retain them. Remuneration packages are benchmarked to ensure that they remain competitive, including incentive arrangements where appropriate. There has been an increasing emphasis on succession planning across the group.
We carry out an annual employee engagement survey to obtain direct feedback from our employees, and make sure that our businesses act on the results thereof to improve employee engagement.
Our licensee recruitment and training programmes, and the variety of rental agreements and support available, are designed to attract and retain the best quality licensees.