In common with all businesses the Group faces risks which may affect its performance. The Board recognises that the management of risk is required to enable the business to meet its objective to create 'stakeholder value'.

Risk management
RiskLink to strategyDescription and potential impactMitigationHas the risk materialised?Trend
PersonnelGrowthPeople   Without appropriate investment in our people and succession planning across all levels of the business from the Board down, we may not be able to deliver our future plans and long term successOur succession planning processes identify key employees and are designed to broaden our specialist knowledge and skills base. Succession planning at Board level is discussed in more detail in the Nominations Committee Report

We invest heavily in our people via ongoing training and our Group wide Performance Development Programme. Rewards are reviewed annually to ensure they remain at levels that are competitive within the market place
The Group enjoys extremely high retention levels with over 50% of staff having been in the Group for more than 10 years. All key succession risks have been appropriately managed
Quality and manufacturingGrowthPeopleCor StrategyValue AddAcquisitionsWe recognise that the quality of our manufactured and externally sourced products is of critical importance. Any major failure will affect customer confidence and may lead to immediate financial penaltiesOur established global quality team maintains our Group wide quality compliance protocols. Quality inspection processes across our manufacturing and distribution sites are robust, allowing us to offer zero-defect supplies to customers where requiredThe Group has not experienced any substantial quality issues
Foreign exchange volatilityGrowth    A significant portion of the Group's revenue and profit is generated outside of the UK. Due to translation risk, the Group results could be adversely impacted by an increase in the value of sterling relative to foreign currencies. In addition, a transactional risk exists as the Group sources certain products from the Far East for sale across EuropeTransactional hedging is achieved via the commercial matching of transactions wherever possible. Non-functional currency balance sheet items are minimised and net investment hedging is used for any significant acquisition financeForeign exchange volatility has been much higher over the year in two of the Group's key currencies, € and US$

Information in respect of the Group's policies on financial risk management objectives including policies to manage credit and liquidity risk is given in note 26
MacroeconomicsGrowth  Cor Strategy  AcquisitionsTraditionally distribution/manufacturing sectors bear the effect of inventory reduction in challenging economic periods earlier than other industriesBy operating globally and across a number of sectors, the Group is better able to manage the risk of regional or industry contractions. As customers move, or expand, we have the capability to move with them, whilst our first class customer service works to protect us from rapid supplier changeover. We hold less than 1% of a £25bn target market meaning growth via market share remains credible even in a falling marketThe global economy remains in a period of growth
Inventories obsolescenceGrowthPeople  Value Add The Group holds substantial inventory balances across the world. As the business grows these levels will increase to meet both transactional needs and the requirements of our multinational OEM customers. Higher stock levels lead to an increased exposure to obsolete inventoryStock management processes are a key part of the Group's internal controls and stock days are a KPI, monitored locally and at Board level. We continue to invest in stock management processes and systems to ensure we keep optimum levels across the world. Our multi-locational set up, allows us to reduce lead times and therefore stock holding as far as possibleCustomers' requirements and our product mix are ever evolving. Our tight stock management and engineering know-how allow us to view these changes as an opportunity to develop and sell new lines, rather than as a risk to the business
Customer failure and debtor exposure PeopleCor Strategy  Increased trading levels lead to higher debtor balances, raising our exposure to customer failure and bad debt write downsWe maintain strong credit control procedures from new customer set up, through to regular monitoring as trade develops. Our multinational OEM focus means we build head office relationships, improving our supplier power and helping us to manage credit relationships with our larger customers. We also have global catastrophe credit insurance coverThe Group has not in recent years experienced any substantial credit issues
Interruption of supplyGrowthPeopleCor StrategyValue AddAcquisitionsThe Group sources products both internally and externally for customers around the world. If we were unable to supply a customer in line with their ongoing manufacturing requirements the risk both to our reputation and in terms of potential stoppage penalties would be substantialWe hold appropriate stock levels to service our customers' needs at all times. Our pan-global presence means we are able to operate along multiple transport routes, shielding us from localised issues. For all key products we maintain multiple sources to ensure adequacy of supplyIn recent times, political and climatic instability have increased in a number of areas within the world. Where we have encountered issues, our established and flexible logistics have allowed us to continue to offer timely and reliable supply to our customers
Cyber securityGrowth    Unauthorised access to, or a breach of, our systems, networks or premises, could immediately and materially affect our reputation with possible implications for revenue and growth over the short to medium term. Such a breach may also cause financial lossWe have undertaken a review of our cyber security controls worldwide. Additional investment has been made where required to manage our risk. Our IT policies are managed by a dedicated in-house team and access to systems is strictly limited to appropriate personnelThe Group has not to date experienced any significant cyber security threats