Chief Executive's ReviewPrincipal Risks and Uncertainties
RISK
Economic Development
MITIGATING STRATEGY
The Group has exposure to the risks of deterioration or downturn in the UK economy but continues to grow share of the R & M market. The Group does not, however, have a direct exposure to consumer spending and a high proportion of Group revenue is generated from non discretionary purchasing.
RISK
Health and Safety
MITIGATING STRATEGY
Ensure awareness and understanding of the risks within our trading and distribution operations. The emphasis is on prevention: training all our employees, making people aware how to approach daily tasks, monitoring, recording incidents that do occur and learning from our experiences.
RISK
Customer Risk
MITIGATING STRATEGY
The Group has a broad customer base that is spread throughout the UK and Ireland. The largest single customer represents around 4% of Group sales and is covered by a three year contract. Credit insurance is in place to minimise the exposure to bad debts, and credit vetting and control procedures are applied to minimise risk.
RISK
Supplier Risk
MITIGATING STRATEGY
The Group has a number of major suppliers who work in partnership with BSS to deliver value to our customers. The Commercial teams within our Divisions monitor supplier performance and are aware of the financial position of our suppliers. This understanding forms part of the negotiations process in setting commercial terms. To ensure that best value is achieved, alternative sourcing strategies are considered and pursued where appropriate.
RISK
Technology and Systems
MITIGATING STRATEGY
The Group is reliant on its trading and operating systems. Considerable investment has been made in upgrading the hardware, network and infrastructure that hosts the Group’s systems. The systems platform that underpins the Group is reliable and robust. The systems are run from the Group’s head office and full disaster recovery procedures are in place and have been tested to ensure that they provide a reliable fall back position. The Group will continue to invest in modernising its systems.
RISK
Employees
MITIGATING STRATEGY
Retention and development of our employees is a key feature in ensuring the continued success of the Group. Staff turnover of 17% is low relative to the industry and the Group places emphasis on identifying the individuals developing in the Company that have the aptitude and ability to grow within the Group. A number of senior executives, within the Group, commenced their employment with the Company serving on trade counters, and their understanding of our customers’ needs is of great benefit to the management of the business.
RISK
Acquisitions
MITIGATING STRATEGY
Acquisitions are formally assessed prior to the Company committing funds. This involves a process that includes setting out the financial criteria against which the acquisition is targeted and judged, plus a due diligence process that covers commercial, financial and legal aspects of the target company. The Group uses external advisers to support the Company through the due diligence process. Return on capital employed represents a key measure against which investment decisions are assessed.
RISK
Defined Benefit Pension Scheme and Funding
MITIGATING STRATEGY
The Group is required by law to maintain a minimum funding level in relation to its ongoing obligation to provide current and future pensions for members of its pension schemes who are entitled to defined benefits. If any scheme of the Group is wound-up the Group could become statutorily liable to make an immediate payment to the trustees to bring the funding of these defined benefits to a level which is higher than this minimum. Some of the issues which could adversely affect the funding of these defined benefits include poor investment performance of pension fund investments, which is substantially weighted towards equity markets, and longer life expectancy of members. The three Group defined benefit schemes have been closed to new members since 2002. Assumptions in respect of expected costs are set after consultation with qualified actuaries.
RISK
Litigation Risk
MITIGATING STRATEGY
During the past year there has been no significant litigation against the Group and the Directors are not aware of any pending action.