Annual Report and Accounts 2014

 

Corporate Governance Statement

This statement describes DCC’s governance principles and practices.

It also describes how DCC has applied the principles set out in the UK Corporate Governance Code (‘the Code’), the current edition of which was issued by the Financial Reporting Council (‘FRC’) in September 2012 and applied to DCC for the year ended 31 March 2014.

A copy of the Code can be obtained from the FRC’s website, www.frc.org.uk.

DCC plc - Corporate Governance Framework

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The Board of Directors+-

Role

The Board of DCC comprises the non-executive Chairman, seven other non-executive Directors and three executive Directors, including the Chief Executive. It is collectively responsible for the long term success of the Group. Its role is to provide leadership, to oversee management and to ensure that the Company provides its stakeholders with a balanced and understandable assessment of the Group’s current position and prospects.

The Board’s leadership responsibilities, in the interest of delivering long term value to shareholders, involve working with management to set corporate values and to develop strategy, including deciding which risks it is prepared to take in pursuing its strategic objectives. Its oversight responsibilities involve it in constructively challenging the management team in relation to operational aspects of the business, including approval of budgets, and probing whether risk management and internal controls are sound. It also is responsible for ensuring that accurate, timely and understandable information is provided about the Group to shareholders, debt providers and regulators.

The Board has delegated responsibility for management of the Group to the Chief Executive and his executive management team. The main areas where decisions remain with the Board are summarised in the table below.

The Board has delegated some of its responsibilities to Committees of the Board. The composition and activities of these Committees are detailed in their individual reports on this page and this page. The Board receives reports at its meetings from the Chairmen of each of the Committees on their current activities.

A clear division of responsibility exists between the Chairman, who is non-executive, and the Chief Executive. Each of their responsibilities have been set out in writing and have been approved by the Board.

There is an established procedure for Directors to take independent professional advice in the furtherance of their duties, if they consider this necessary.

Schedule of Matters Reserved for the Board

The approval of the following matters is reserved for the Board:

  • Group Strategy.
  • The annual Budget, including capital expenditure plans.
  • The Interim and the Annual Accounts.
  • Dividend Policy.
  • Treasury Policy.
  • Acquisitions, with an enterprise value in excess of €20 million, after deducting net cash or adding net debt, and any acquisition under this threshold in a totally new and unrelated business area or in a geographic area that is considered high risk.
  • Disposals of assets/businesses for a consideration (inclusive of net debt) in excess of €20 million.
  • Capital expenditure proposals in excess of €20 million over approved budgeted levels.
  • Planned capital and working capital expenditure by a Group company in a totally new and unrelated business area in aggregate in excess of €20 million.
  • The settlements of matters in legal disputes with third parties in excess of €5 million.

Chairman

The Chairman’s primary responsibility is to lead the Board, to ensure that it has a common purpose, is effective as a group and at individual Director level and that it upholds and promotes high standards of integrity, probity and corporate governance.

The Chairman is the link between the Board and the Company. He is specifically responsible for establishing and maintaining an effective working relationship with the Chief Executive, for ensuring effective and appropriate communications with shareholders and for ensuring that members of the Board develop and maintain an understanding of the views of shareholders.

Before the beginning of the financial year, having consulted with the other Directors and the Company Secretary, the Chairman sets a schedule of Board and Committee meetings to be held in the following twelve months, which includes the key agenda items for each meeting. Further details on these agenda items are outlined under ‘Board Meetings’ on this page.

Deputy Chairman and Senior Independent Director

The duties of the Deputy Chairman (who is also the Senior Independent Director) are set out in writing and formally approved by the Board. The Deputy Chairman chairs meetings of the Board if the Chairman is unavailable or is conflicted in relation to any agenda item. He also leads the annual Board evaluation of the performance of the Chairman.

The Senior Independent Director is available to shareholders who may have concerns that cannot be addressed through the Chairman or Chief Executive.

Company Secretary

The Directors have access to the advice and services of the Company Secretary, whose responsibilities include ensuring that Board procedures are followed, assisting the Chairman in relation to corporate governance matters and ensuring compliance by the Company with its legal and regulatory requirements.

Appointment of Directors

The Nomination and Governance Committee formally agrees criteria for new non-executive Director appointments, including experience of the industry sectors and geographies in which the Group operates and professional background, and has regard to the need for a balance in relation to diversity, including gender. The detailed appointment process is set out in the Nomination and Governance Committee Report on this page.

Following appointment by the Board, all Directors are, in accordance with the Articles of Association, subject to re-election at the following Annual General Meeting (‘AGM’). In accordance with our practice since 2008 and the provisions of the Code, all Directors submit to re-election at each AGM.

The expectation is that non-executive Directors would serve for a term of six years and may also be invited to serve an additional period thereafter, generally not extending beyond nine years in total. After three years’ service, and again after six years’ service, each non-executive Director’s performance is reviewed by the Nomination and Governance Committee, with a view to recommending to the Board whether a further period of service is appropriate, subject to the usual annual approval by shareholders at the AGM.

The terms and conditions of appointment of non-executive Directors are set out in their letters of appointment, which are available for inspection at the Company’s registered office during normal office hours and at the AGM of the Company.

Details of the length of tenure of each Director on the Board is set out in the Nomination and Governance Committee Report on this page.

Induction and Development of Directors

New non-executive Directors undertake a rigorous induction process which includes a series of meetings with Group and divisional management, detailed divisional presentations, visits to key subsidiary locations and a briefing with the external auditor.

The Chairman invites external experts to attend certain Board meetings to address the Board on developments in corporate governance, risk management and executive remuneration and on relevant industry and sectoral matters.

The Chairman and Company Secretary review Directors’ training needs, in conjunction with individual Directors, and match those needs with appropriate external seminars and speakers. The Chairman also discusses individual training and development requirements for each Director as part of the annual evaluation process and Directors are encouraged to undertake appropriate training on relevant matters. In addition, a non-executive director electronic library is available which is regularly updated with relevant publications and changes in legislation.

Non-executive Directors are expected to meet individually during the year, outside of Board meetings, with members of senior management throughout the Group and to visit a number of subsidiaries to familiarise themselves with the business in more detail than is possible during Board meetings.

All Directors are encouraged to avail of opportunities to hear the views of and meet with the Group’s shareholders and analysts. The section on ‘Relations with Shareholders’ on this page gives further information on opportunities for Directors to meet with the Group’s shareholders.

Independence

The Board has carried out its annual evaluation of the independence of each of its non-executive Directors, taking account of the relevant provisions of the Code, namely whether the Directors are independent in character and judgment and free from relationships or circumstances which are likely to affect, or could appear to affect, the Directors’ judgment. Each of the current non-executive Directors fulfilled the independence requirements of the Code.

Michael Buckley has been Chairman of the Company since May 2008. On his appointment as Chairman, Mr Buckley met the independence criteria as set out in the Code. Thereafter, as noted in the Code, the test of independence is not appropriate in relation to the Chairman.

While Mr Buckley holds several other directorships outside of the DCC Group, the Board considers that these do not interfere with the discharge of his duties to DCC.

Board Meetings

During the year ended 31 March 2014, the Board held eight meetings. Individual attendance at these meetings and attendance at Committee meetings is set out in the table opposite. There is regular contact as required between meetings in order to progress the Group’s business. A schedule of Board and Committee meetings is circulated to the Board in advance of the calendar year, which includes the key agenda items for each meeting. Board papers are circulated electronically in the week preceding the meeting.

The key recurrent Board agenda themes are divided into normal business (which includes budgets, financial statements, investor relations, human resources and governance, risk and compliance) and developmental issues, (which include strategy, acquisitions, sectoral and divisional reviews, succession planning, management talent development and Directors’ education).

One and a half days of a two day Board meeting each December are devoted exclusively to strategy and three year plans. During the year under review, the Board devoted substantial time outside its December meeting to strategic development issues, including an Energy strategy update, an operational and development review of its Technology business, pharmaceutical strategy development, several specific acquisition proposals and a review of post-acquisition business performance.

The Board schedule includes a significant agenda item on succession planning and management talent development. Against a template agreed by the Chief Executive and the Nomination and Governance Committee, the Chief Executive brings a detailed plan for review by that Committee. At an immediately subsequent Board meeting the plan is presented to the Board, discussed and approved.

The non-executive Directors meet a number of times each year without executives being present.

Board of Directors: Attendance at meetings during the year ended 31 March 2014:

Director

Board

Audit

Committee

Remuneration

Committee

Nomination and

Governance

Committee

A

B

A

B

A

B

A

B

Michael Buckley

8

8

-

-

6

6

5

5

Tommy Breen

8

8

-

-

-

-

-

-

Róisín Brennan

8

8

-

-

6

6

5

5

David Byrne

8

8

-

-

6

6

5

5

Jane Lodge

8

8

4

4

-

-

-

-

Pamela Kirby1

5

5

-

-

-

-

-

-

Kevin Melia

8

8

4

4

-

-

-

-

John Moloney

8

8

4

4

-

-

-

-

Donal Murphy

8

8

-

-

-

-

-

-

Fergal O’Dwyer

8

8

-

-

-

-

-

-

Leslie Van De Walle

8

8

4

4

6

6

5

5

Column A indicates the number of meetings held during the period the Director was a member of the Board and/or Committee.

Column B indicates the number of meetings attended during the period the Director was a member of the Board and/or Committee.

Note 1 Pamela Kirby was appointed to the Board on 3 September 2013. She did not serve on any Committees during the year ended 31 March 2014.

Audit Committee

The primary function of the Audit Committee is to assist the Board in fulfilling its financial and risk oversight responsibilities. Further details of the activities of the Audit Committee are set out in their Report on this page.

Remuneration Committee

The Remuneration Committee is responsible for determining the Remuneration Policy and conditions of employment for Executive Directors and senior management. Further details of the activities of the Remuneration Committee are set out in their Report on this page.

Nomination and Governance Committee

The Nomination and Governance Committee is responsible for considering the size, composition and structure of the Board and succession planning requirements and for monitoring the Company’s compliance with corporate governance, legal and best practice requirements. Further details of the activities of the Nomination and Governance Committee are set out in their Report on this page.

Chief Executive

The Chief Executive has day to day management responsibility for the running of the Group’s operations and for the implementation of Group strategy and policies agreed by the Board. The Chief Executive also has a key role in the process for the setting and review of strategy. The Chief Executive instils the Company’s culture and standards, which include appropriate corporate governance throughout the Group. In executing his responsibilities, the Chief Executive is supported by the Chief Financial Officer and the Company Secretary, who, together with the Chief Executive, are responsible for ensuring that high quality information is provided to the Board on the Group’s financial and strategic performance.

Executive Directors

The executive Directors support the Chief Executive in devising and executing strategy and in overseeing the operational performance of the whole business.

Executive Risk Committee

The responsibilities of the Executive Risk Committee are set out in the Risk Report on this page.

Senior Management Group

The Senior Management Group reports to the Chief Executive at weekly management meetings.

Sustainability Committee

The responsibilities of the Sustainability Committee are set out in the Sustainability Report on this page.

Remuneration

It has been the Company’s practice since 2009 to put the Remuneration Report to an advisory, non-binding shareholder vote at the AGM. At the 2014 AGM, we will propose two advisory non-binding votes in respect of approval of the Remuneration Policy Report and approval of the Annual Report on Remuneration.

Share Ownership and Dealing

Details of the Directors’ interests in DCC shares are set out in the Remuneration Report on this page.

The Board has adopted the DCC Share Dealing Policy which applies to dealings in DCC shares by the Directors and Company Secretary of DCC, directors of all Group companies and all DCC Head Office employees. The Policy is based on the Model Code, as set out in the Listing Rules of the UK Listing Authority. Under the Policy, Directors and relevant executives are required to obtain clearance from the Chairman or Chief Executive before dealing in DCC shares and are prohibited from dealing in the shares during prohibited periods as defined by the Listing Rules.

The Policy specifies preferred periods’ for share dealing by Directors and relevant executives, being the four 21 day periods following the updating of the market on the Group’s trading position through the preliminary results announcement in May, the Interim Management Statement in July (at the AGM), the interim results announcement in November and the Interim Management Statement in January/February.

Risk Management and Internal Control +-

The Board is responsible for the Group’s system of risk management and internal control. It is designed to manage rather than eliminate the risk of failure to achieve business objectives and provides reasonable but not absolute assurance against material misstatement or loss. Details in relation to the Group’s risk management structures are set out in the Risk Report on this page.

The Board has delegated responsibility for the ongoing monitoring of the effectiveness of this system to the Audit Committee. Details in relation to the Audit Committee’s work in this regard are set out in the Audit Committee Report on this page.

In accordance with the revised FRC guidance for directors on internal control published in October 2005, ‘Internal Control: Revised Guidance for Directors on the Combined Code’, the Board confirms that there is an ongoing process for identifying, evaluating and managing any significant risks faced by the Group, that it has been in place for the year under review and up to the date of approval of the financial statements and that this process is regularly reviewed by the Board.

The Board receives regular reports from the Chairman of the Audit Committee on its activities during the year and in addition has considered a report from the Audit Committee on the conduct of and the findings and agreed actions from the annual assessment of risk management and internal control.

The consolidated financial statements are prepared subject to the oversight and control of the Group Chief Financial Officer, ensuring correct data is captured from Group locations and all required information for disclosure in the consolidated financial statements is provided. A control framework has been put in place around the recording of appropriate eliminations and other adjustments. The consolidated financial statements are reviewed by the Audit Committee and approved by the Board.

Board Performance Evaluation +-

The Board conducts an annual evaluation of its own performance, that of each of its principal committees, the Audit, Nomination and Governance and Remuneration Committees, and that of Committee Chairmen and individual Directors.

In 2012, the entire performance evaluation process was externally defined and conducted in accordance with the requirement to have it externally facilitated every three years under Provision B.6.2 of the UK Corporate Governance Code. It is intended that the 2015 Board evaluation process will be externally facilitated.

In 2014, as in 2013, the process was internally facilitated and comprised the following steps:

  • A questionnaire covering key aspects of board effectiveness, including the composition of the Board, the content and running of Board and Committee meetings, corporate governance, risk, succession planning and the Directors’ continuing education process, was circulated to all Directors.
  • Completed questionnaires, including views on performance and recommendations for improvement, were returned directly to the Chairman or the Senior Independent Director.
  • Follow up discussions were held with each of the Directors individually to clarify any points raised in the questionnaire and the Chairman and Senior Independent Director then prepared summary reports on the Board and its Committees.
  • The Chairman, on behalf of the Board, conducted evaluations of performance individually with each of the non-executive and the executive Directors and also enquired if they had any views they wished to express on the performance of any other Director.
  • The Senior Independent Director conducted an evaluation of performance of the Chairman by firstly speaking with each of the Directors individually and then meeting with the non-executive Directors, without the Chairman present, to formally evaluate and conclude on the Chairman’s performance.
  • The non-executive Directors also evaluated the performance of each executive Director.
  • Each Board Committee considered the summary report as part of its annual review of its own performance and terms of reference and recommended any changes it considered necessary to the Board for approval.

The Board formally concluded that it and its principal Committees were operating effectively. A number of agreed actions, including the review of reports to the Board, discussions on gender diversity and Board composition, and external presentations to the Board on selected topics, will be implemented by the Chairman during the current year.

All action items arising from the 2013 evaluation were substantially completed during the year ended 31 March 2014.

Relations with Shareholders +-

DCC recognises the importance of communications with shareholders. Presentations are made to both existing and prospective institutional shareholders, principally after the release of the interim and annual results. DCC issues an Interim Management Statement twice yearly, typically in January/February and July. Major acquisitions are also notified to the market and the Company’s website www.dcc.ie provides the full text of all press releases. The website also contains annual and interim reports and incorporates audio and slide show investor presentations.

The Board is kept informed of the views of shareholders through the executive Directors’ attendance at investor presentations and results presentations. Furthermore, relevant feedback from such meetings, investor relations reports and brokers notes are provided to the entire Board on a regular basis.

In June 2013, an Investor Day took place in London which was attended by the Chairman and a number of the non-executive Directors. Most of DCC’s top shareholders as well as various brokers, analysts and fund managers were present at this Investor Day.

The Board Chairman and the Chairman of the Remuneration Committee also engaged in a consultation with major shareholders and shareholder representative bodies and proxy advisors on proposed changes to the Company's long term incentive plan, as described in the Remuneration Report on this page, which will be submitted for shareholder approval at the AGM.

The Company Secretary engages annually with proxy advisors in advance of the AGM and shareholder queries are welcomed by the Chairman at the AGM.

The Company’s AGM provides shareholders with the opportunity to question the Chairman and the Board. Further details on the Company’s AGM is set out in the Report of the Directors on this page.

Business Conduct Guidelines+-

DCC’s Business Conduct Guidelines set out the Group’s commitment to the highest standards of integrity and compliance. They have been circulated to employees across the Group and are also available on the Company’s website www.dcc.ie. Further detail on this is provided in the Sustainability Report on this page

Report of the Directors +-

For the purposes of the European Communities (Directive 2006/46/EC) Regulations 2009, details of substantial shareholdings in the Company and details in relation to the purchase of the Company’s own shares are set out in the Report of the Directors on this page.

Going Concern +-

The Company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive’s Review on this page. The financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on this page.

In addition, note 46 to the financial statements include the Company’s objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities and its exposures to credit risk and liquidity risk. The Company has considerable financial resources and a broad spread of businesses with a large number of customers and suppliers across different geographic areas and industries.

Having assessed the relevant business risks, the Directors believe that the Company is well placed to manage its business risks successfully. The Directors have a reasonable expectation that the Company, and the Group as a whole, have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Compliance Statement +-

DCC has complied, throughout the year ended 31 March 2014, with the provisions set out in the Code.

Michael Buckley, Tommy Breen

Directors
20 May 2014