Risk management

A robust risk management process

Effective risk management aids decision making, underpins the delivery of the Group’s strategy and objectives and helps to ensure that the risks the Group takes are adequately assessed and actively managed.

The Board is ultimately responsible for the Group’s risk management framework. The risk management process involves the identification and prioritisation of key risks and the development of appropriate controls and plans for mitigation, together with a comprehensive system of review. There are a number of ways in which risks are identified and assessed across the Group.

At a divisional level, the management teams are responsible for identifying and assessing new risks, as well as monitoring existing risks. Risks are assessed using consistent measurements of impact andlikelihood. Changes to existing risks, the emergence of new risks and plans for mitigation are discussed at monthly management meetings held with the Executive Directors, and recorded in the respective divisional risk register, as appropriate. The divisional management teams are responsible for the maintenance of their risk register. Each divisional risk register is reviewed twice a year by the Executive Directors.

At a Group level, there is a continuous process of considering risk. New and emerging risks are identified through the reviews conducted at a divisional
level and the experience brought by the Executive and Non-Executive Directors and as a result of the engagement of certain external specialists in areas including IT security, health and safety, pensions and taxation. As at divisional level, each risk is assessed based upon its impact and likelihood. The Group maintains a consolidated risk register whereby each recorded risk has a designated owner who is responsible for ensuring that effective controls are in place to mitigate the risk. The consolidated Group risk register is reviewed at least twice a year by the Audit Committee.

Covid-19 pandemic

The global pandemic, Covid-19, presents a number of different risks to the business. This is particularly the case if there are continued waves of Covid-19 which result in further nationwide lockdowns. Firstly, the pandemic poses a risk to the health and safety of employees. Secondly, the impact of the pandemic related restrictions on the UK economy and therefore demand for the Group’s products and services, particularly in the Fuels division, is uncertain and can lead to volatility. In addition, the response of the UK Government to the pandemic may create restrictions on the Group’s ability to operate.

The health and safety of employees is the Group’s first priority and the Group has taken actions to ensure it complies with Government guidance in respect of safe working. The Group will continue to adapt its operations as new Government guidance is issued. The Group operates in key industries and has continued to operate profitably through the Covid-19 lockdowns and restrictions to date. Overall demand and volatility of demand in all three of the Group’s divisions can be impacted depending on the specific Government restrictions in place at any time; however, all three divisions have traded profitably through the pandemic period to date.

The availability of funding is closely monitored by the Group through short and long-term cash flow forecasting. The Group has significant headroom in its funding facilities.

We monitor the Covid-19 situation closely so that we are able to respond to changes in health and safety guidance or changes in customer demand.

Labour shortages following Brexit

In the aftermath of Brexit, there is an increasing shortage of HGV drivers in the UK. This could lead to significant wage inflation which all three divisions will need to respond to and it may not be possible to pass these additional costs on to customers. The shortage of drivers will also reduce the availability of agency drivers and subcontractors, making it more difficult to respond to fluctuations in demand. Lastly a chronic shortage of drivers could hinder the ability of the Group to operate at full capacity.

The Group has reduced reliance on agency drivers to ensure it is less exposed to short-term fluctuations in driver availability. The Group is keeping driver pay and terms and conditions under review and where necessary has made changes to retain drivers with the increased cost reflected in the charges to customers where possible.

Whilst the nature of the risk posed by Brexit is now more specifically related to driver shortages, the risk rating has not changed.

Commodity prices and volatility in raw material prices

The Group’s Feeds and Fuels divisions operate in sectors which are vulnerable to volatile commodity prices both for fuel and for raw materials.

The Group maintains close relationships with key suppliers, enabling optimal negotiated prices, and where appropriate implements purchasing framework agreements. The Feeds business utilises forward contracts for key raw materials to ensure that impact of volatility can be partially mitigated through committed prices and volumes.

Increases in commodity prices have been successfully managed through the year in Fuels, but unprecedented increases in commodities have impacted the performance of Feeds.

Impact of weather on earnings volatility

The demand for both the Feeds and Fuels divisions is impacted by climatic conditions and the severity of winter conditions in particular, which directly affect the demand for heating oil and animal feeds. The inherent uncertainty regarding climatic conditions represents a risk of volatility in the profitability of the Fuels and Feeds divisions. Whilst the Fuels division seeks to mitigate this risk through the provision of a range of fuels including commercial fuels, there will always be volatility in the profitability of the Fuels division related to climate. The Feeds division seeks to mitigate the extent of climatic conditions on the profitability of the business through its concentration on the key dairy sector where there is a strong underlying demand.

Whilst the Fuels division seeks to mitigate this risk through the provision of a range of fuels including commercial fuels, there will always be volatility in the profitability of the Fuels division related to weather. The Feeds division seeks to mitigate the extent of weather conditions on the profitability of the business through its concentration on the key dairy sector where there is a strong underlying demand.

For consideration of the longer-term impacts of climate -related risks on the demand for oil, see CEO Q&A on page 6 of our Annual Report 2020.

Remains a principal risk in Fuels and Feeds.

Pension scheme volatility

Increases in the ongoing deficit associated with the Group’s defined benefit pension scheme would adversely impact on the strength of the Group’s balance sheet and could lead to an increase in cash contributions payable by the Group.

The defined benefit pension scheme has been closed to new entrants since 2002 and, from April 2016, closed to future accrual. Regular meetings are held with both the scheme’s trustees and professional advisors to monitor and review the investment policy, the Group’s funding requirements and any other available opportunities to mitigate this risk.

Remains a principal risk.

Recruitment, retention and development of our key people

Recruiting and retaining the right people is crucial for the success of the Group and its development.

Remuneration policies are regularly reviewed to ensure employees are appropriately incentivised. Succession planning and development of key employees are also considered by the Board. The Remuneration Committee also ensures that it receives appropriate benchmark data which is used in the monitoring and formulation of remuneration policy for key employees and Executives.

Remains a principal risk.

Infrastructure and IT systems

IT system failures or business interruption events (such as cyber incidents) could have a material impact on the Group’s ability to operate effectively.

The Group has internal IT support teams together with close relationships with key software vendors and consultants. Significant investment has been made by the Group in upgrading and maintaining its core IT systems in each of the three operating divisions. The Group experienced a cyber incident in the year which impacted on the Fuels, Feeds and Head Office functions. The Group was able to maintain operations and working closely with its cyber insurer was able to rebuild and restore affected systems. New measures have been put in place to prevent a recurrence.

Remains a principal risk.

Non-compliance with legislation and regulations

The Group operates in diverse markets and each sector has its own regulatory and compliance frameworks which require ongoing monitoring to ensure that the Group maintains full compliance with all legislative and regulatory requirements. Any incident of major injury or fatality or which results in significant environmental damage could result in reputational or financial damage to the Group.

Expertise within the operating divisions is supplemented by ongoing advice from professional advisors and the involvement of the Head Office function, which closely monitors existing business practices and any anticipated changes in regulatory practices or requirements.

The Group employs appropriately qualified and experienced health and safety personnel and retains health and safety specialists to ensure compliance.

Remains a principal risk.

Strategic growth and change management

A failure to identify, execute or integrate acquisitions, change management programmes or other growth opportunities could impact on the profitability and strategic development of the Group.

The Group management team is engaged in ongoing review of competitor activity, development and acquisition opportunities. All potential acquisitions are subject to a review of their ability to generate a return on capital employed and their strategic fit with the Group. The Group conducts appropriate internal and external due diligence prior to completing any acquisition.

Remains a principal risk.

2021 2020 2019
Borrowings (£m) (note 19)
Obligations under hire purchase agreements now recognised in lease liabilities (£m)
Less: cash at bank and in hand (£m)
Net debt (£m) (excluding lease liabilities)
Headline EBITDA (£m)
Net debt/EBITDA ratio

The Group has set an internal covenant limit of 2.0x net debt/EBITDA.