PRINCIPAL RISKS AND UNCERTAINTIES


The Board of DCC is responsible for the Group's risk management systems and the approval of the Risk Management Policy, Risk Appetite and the Group Risk Register which are designed to identify, manage and mitigate potential material risks to the achievement of the Group's strategic and business objectives. The Group's risk management process was subject to a comprehensive review during the current financial year, including a benchmark review by Ernst & Young. Details of the Group's risk management systems and internal controls are set out under 'Risk Management and Internal Control' in the Corporate Governance statement. The top 10 risks facing the Group in the short to medium term are set out below. Longer term risks, such as climate change, are discussed in the Sustainability Report.

Risk and Impact Change in likelihood Risk mitigation
 

Strategic risks and uncertainties

 
Economic downturn

Economic recovery remains fragile and the effect on customer demand can be difficult to predict. Prolonged economic downturn, particularly in Britain, could impact on:

  • Demand for the Group's goods and services;
  • Counterparty failure; and
  • The Group's ability to access capital markets.

Sensitivity analysis is applied to our planning and budgeting models to prepare for further economic changes. There is a continued focus on working capital management, cash generation and ROCE.

The Group transacts with a variety of high credit rated functional institutions for the purpose of placing deposits and entering into derivative contracts. The credit exposure to counterparties is actively monitored to ensure compliance with limits approved by the Board.

The Group's financial position remains strong with significant cash resources and relatively long term debt maturities.

Acquisitions

Growth through acquisition is an integral part of DCC's strategy. A failure to identify, execute and properly integrate acquisitions could lead to operational and financial issues.

Acquisitions are subject to an assessment of their ability to generate ROCE in excess of the cost of capital and their strategic fit within the Group. The Group conducts a stringent internal evaluation process and external due diligence prior to completing an acquisition. Group and subsidiary management have significant expertise in and experience of integrating acquisitions.

 

Operational risks and uncertainties

 
Extreme weather impacts on trading

Significant variations in temperatures have been experienced in the UK over the last two winters significantly impacting demand for energy products.

The Group continues to expand into new geographical regions with attractive market characteristics and continues to focus on the retail petrol station, marine, aviation and other value added product sectors.

Managing talent

The Group's devolved management structure has been fundamental to the Group's success. A failure to attract, retain or develop high quality entrepreneurial management throughout the Group will impede its strategic objectives.

The Group maintains a constant focus on succession planning, remuneration programmes, including long and short term incentive initiatives, and management development. This is implemented through a structured review process in which Group Human Resources supports the Board, the Chief Executive and divisional management. A graduate recruitment programme is in place.

Key supplier

The loss of a key supplier could have a serious operational and financial impact on the Group's business.

The Group trades with a broad supplier base. Excellent commercial relationships exist with suppliers and there is a constant focus on providing a value added service.

Major health & safety or environmental incident

A major fire, explosion, multiple vehicle accident or environmental incident could result in multiple fatalities, breach of regulatory compliance and significant disruption to operations. Failure to react appropriately to an incident or the publicity generated by such incidents may negatively impact on the Group's reputation.

All Group subsidiaries operate EHS management systems appropriate to the nature and scale of their EHS risk profile. Internal and external monitoring, measurement and review of the control measures ensure a continuous improvement cycle is maintained. Insurance cover is in place for all significant insurable risks and major catastrophes. Business Continuity Plans are in place to reduce the potential impact of any significant incidents.

 

Compliance risks and uncertainties

 
Regulation and compliance

DCC has operations in 15 countries. Failure to comply with statutory obligations or react appropriately where non-compliance is identified could result in regulatory action, legal liability and damage to the Group's reputation.

The Group compliance function has recently been enhanced following a Group wide review of compliance structures and resources. Compliance with all legal and statutory requirements is primarily managed by subsidiary management and is subject to formal review by the Head of Group Compliance.

Product quality

The Group has certain subsidiaries which operate manufacturing or processing facilities. Poor product quality could have significant consequences for customer or public safety and lead to financial, operational and reputational difficulties for the Group.

All manufacturing and processing facilities operate quality management systems, which are subject to regulatory review and licence requirements. Quality assurance processes are in place to ensure finished products are produced in accordance with specifications.

Fraud

Technological advances and austerity measures have increased the risk of cybercrime fraud in particular.

IT and banking system security measures are subject to both external and internal review and are continuously updated and improved.

 

Financial risks and uncertainties

 
Commodity price fluctuations

The Group is exposed to commodity cost price risk in its oil distribution and LPG business.

Commodity cost price movements are immediately reflected in oil commodity sales prices and within a short period in LPG commodity sales prices. Approved matching forward contracts and hedges are used where price movement exposures exist.


Details of the internal controls in place for the financial risks facing the Group are addressed
in detail under 'Financial Risk Management' in the Financial Review on pages 40 to 46.

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