Managing the business

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 objective in creating 'stakeholder value'.

The Board and the Operational Management teams regularly monitor and develop a range of financial and non-financial performance indicators to allow them to measure performance against expected targets – these can be analysed under various categories; the following represents a selection of these indicators.

Risk management
RiskDescription and potential impactMitigation
PersonnelWithout 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
Quality and manufacturingWe 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 required
Foreign exchange volatilityA 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 finance
MacroeconomicsTraditionally 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 market
Inventories obsolescenceThe 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 possible
Customer failure and debtor exposureIncreased 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 cover
Interruption of supplyThe 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 supply
Cyber securityUnauthorised 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 personnel

Read more about Risk management from page 66 of our latest Strategic report