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.

Risk management framework

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 and likelihood. 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, taxation and climate. 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.

The Board obtains assurance that the risk management and related control systems in place are effective through a rolling programme of risk and controls testing across the Group and internal control updates to the Audit Committee at each meeting. Further details can be found on page 61 of the Annual Report and Accounts 2023.

Whilst we consider the transitional risks of climate change a principal risk, this year we report for the first time our TCFD disclosures, in which we expand upon this to include the physical and transitional risks and opportunities associated with climate change in further detail. For further information please see pages 48 to 51 of the Annual Report and Accounts 2023.

As with all businesses, the Group is affected by a number of risks and uncertainties, some of which are beyond our control. The table below shows the principal risks and uncertainties which could have a material adverse impact on the Group. This is not an exhaustive list and there may be risks and uncertainties of which the Board is not aware, or which are believed to be immaterial, which could have an adverse effect on the Group.

Identify risk

  • Divisional reviews
  • Executive and Non-Executive Directors
  • External specialists

Respond

  • Avoid
  • Mitigate
  • Transfer

Assess risk

  • Impact
  • Likelihood

Implement mitigation

  • Controls
  • Designated owner

Review performance

  • Risk and controls testing
  • Updates to Audit Committee

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

Mitigating actions
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 the impact of volatility can be partially mitigated through committed prices and volumes.

Multiple sources of supply are maintained for all key raw materials.

No change
Increases in commodity prices have been successfully managed through the year in Fuels. Increases in commodities impacted the performance of Feeds during the first half of the year but were successfully managed in the second half.

Key risk indicators

  • Brent Crude oil prices
  • Raw material commodity prices

Governance oversight
The Executive team meets with the senior management teams in each division each month to review and discuss performance, including consideration of the impact of input price volatility.

Risk description and impact
The long-term profitability of our current businesses is more likely to be impacted by Government strategy and policy in relation to the decarbonisation of the economy, rather than as a direct impact of climate change. The view of the Board is that the main risk to the Group is a transitional risk as the Government introduces policies which could negatively impact the Group.

There are also potential additional costs to the Group, arising from the need to redesign and replace infrastructure as a result of ambitions towards decarbonisation.

Mitigating actions
The Directors monitor the regulatory environment on an ongoing basis to identify and anticipate changes in requirements which may impact the Group and also consider the impact on the financial statements.

For consideration of the longer-term impacts of climate-related risks on the demand for oil, see the CEO’s Q&A on page 8.

No change

Changes in the regulatory environment and a focus on decarbonisation of the economy may result in a long-term risk to Group profitability.

Key risk indicator

  • Government consultations and ambitions towards decarbonisation

Governance oversight
The Board is responsible for managing the long-term transitional risks to the Group.

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

Mitigating actions
The defined benefit pension scheme has been closed to new entrants since 2002 and closed to future accrual from April 2016. 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.

No change
Remains a principal risk.

Key risk indicators

  • RPI/CPI inflation rates
  • Mortality rate assumptions
  • Scheme asset performance

Governance oversight
The Executive team provides the Board with regular updates from meetings with the scheme trustees and advice taken from professional advisors.

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

Furthermore, the Group is entering a stage of transition at the Board and senior executive level as a consequence of planned retirements. There is a risk around a limited number of key executives across the Group.

Mitigating actions
Remuneration policies are regularly reviewed to ensure employees are appropriately incentivised. A succession planning exercise has been undertaken, with a Group succession plan developed which identifies and seeks to address any gaps. Key appointments are approved by the Nomination Committee. 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.

No change
Remains a principal risk.

Key risk indicators

  • Key executive remuneration
  • Executive retention rate
  • Executive objective achievement

Governance oversight
The Remuneration Committee meets three times a year and is responsible for reviewing and approving executive level recruitment and remuneration policies.

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

Mitigating actions
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 following the cyber incident in the prior year. During the year, the Group appointed a Chief Information and Digital Officer (‘CIDO’) to further strengthen IT leadership at a senior level and has continued its relationship with its external Chief Information and Security Officer (‘CISO’).

No change
Remains a principal risk.

Key risk indicator

  • IT investment as a proportion of Group operating profit

Governance oversight
The Group Chief Information and Digital Officer (‘CIDO’) and Chief Information and Security Officer (‘CISO’) provide regular updates to the Executive team and the Board.

Risk description and impact
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.

Mitigating actions
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.

No change
Remains a principal risk.

Key risk indicators

  • Number of LTIs/RIDDORs
  • Employee training hours
  • Number of HMRC inspections

Governance oversight
Divisional Managing Directors are responsible for compliance with laws and regulations and provide regular updates to the Board via the Company Secretary.

Risk description and impact
The demand for both the Feeds and Fuels divisions is impacted by weather conditions and the severity of winter conditions, which directly affect the short-term demand for heating oil and animal feeds. The inherent uncertainty regarding weather conditions represents a risk of volatility in the profitability of the Fuels and Feeds divisions.

Mitigating actions
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.

No change
Remains a principal risk in Fuels and Feeds.

Key risk indicators

  • Volatility of earnings
  • Number and severity of weather events

Governance oversight
The Executive team meets with the senior management teams each month to review and discuss performance, including consideration of the impact of weather events on earnings volatility.

Risk description and impact

Significant development of the Group is only achievable via a significant acquisition or several smaller transactions. The current strategic plan is focused on Fuels acquisitions, which tend to be smaller and therefore do not represent a significant risk on an individual basis.

 

Mitigating actions

The Board maintains oversight of Group strategy development. The Group management team is engaged in ongoing review of competitor activity, development, acquisition and market 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.

No change
Remains a principal risk.

Key risk indicator

  • Performance of acquisitions against business case

Governance oversight
The Executive team performs periodic strategic reviews of the Group and presents these to the Board for discussion and debate.

Capital risk

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns to shareholders and benefits to other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group monitors capital risk on the basis of the net debt/EBITDA ratio. This ratio is calculated as net cash (excluding lease liabilities) divided by headline operating profit before interest, depreciation and amortisation as shown below:

The Group has set an internal covenant limit of 2.0x net debt/EBITDA.
  2023 2022 2021
Borrowings (£m) (note 20) 9.5
Obligations under hire purchase agreements now recognised in lease liabilities (£m) 0.1 0.2
Less: cash at bank and in hand (£m) (16.3) (9.1) (4.0)
Net debt (£m) (excluding lease liabilities) (16.3) (9.0) 5.7
Headline EBITDA (£m) 25.8 26.6 17.8
Net debt/EBITDA ratio (0.6x) (0.3x) 0.3x