Annual Report and Accounts 2014

 

Report of the Independent Auditors

For the year ended 31 March 2014

Report on the financial statements+-

Our opinion

In our opinion:

  • the Group financial statements give a true and fair view, in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, of the state of the Group’s affairs as at 31 March 2014 and of its profit and cash flows for the year then ended;
  • the Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Acts 1963 to 2013, of the state of the Company’s affairs as at 31 March 2014 and of its cash flows for the year then ended; and
  • the Group and Company financial statements have been properly prepared in accordance with the requirements of the Companies Acts 1963 to 2013 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

This opinion is to be read in the context of what we say in the remainder of this report.

What we have audited

The Group financial statements and Company financial statements (the ‘financial statements’), which are prepared by DCC plc, comprise:

  • the Group and Company Balance Sheets as at 31 March 2014;
  • the Group Income Statement and the Group and Company Statements of Comprehensive Income for the year then ended;
  • the Group and Company Statements of Changes in Equity and Cash Flow Statements for the year then ended; and
  • the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in their preparation comprises Irish law and IFRSs as adopted by the European Union and, as regards the Company, as applied in accordance with the provisions of the Companies Acts 1963 to 2013.

Certain disclosures required by the financial reporting framework have been presented elsewhere in the Annual Report rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.

What an audit of financial statements involves

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (ISAs (UK & Ireland)). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

  • whether the accounting policies are appropriate to the Group’s and Company’s circumstances and have been consistently applied and adequately disclosed;
  • the reasonableness of significant accounting estimates made by the directors; and
  • the overall presentation of the financial statements.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Overview of our audit approach+-

Materiality

We set certain thresholds for materiality. These helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the Group financial statements as a whole to be £8.5 million. This represents approximately 5% of profit before tax and exceptional items. This benchmark in our professional judgement is the best measure of recurring performance.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.45 million as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Overview of the scope of our audit

The Group is structured across five divisions; Energy, Technology, Healthcare, Environmental and Food & Beverage. The five divisions and ultimately the Group financial statements are a consolidation of 55 reporting units, comprising the Group’s operating businesses and centralised functions.

In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at the reporting units by us, as the Group engagement team, or component auditors within PwC ROI, from other PwC network firms and other firms operating under our instruction. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole. Audits of the full financial information were undertaken for Group reporting purposes at 53 components of the Group and were performed to materiality levels set by the Group audit team. These reporting components represent in excess of 99% of turnover and profit before tax. Agreed upon procedures were performed based on risk assessment in respect of the remaining two reporting components. The structure of the Group’s finance function is such that certain transactions and balances are accounted for by the central Group finance team. The work performed at Group level included our procedures in respect of the Group’s treasury activities, aggregation of the Group’s operating or reporting units, assessment of goodwill and intangible assets for impairment and evaluation of key assumptions in respect of the Group’s retirement benefit obligations.

Areas of particular audit focus

In preparing the financial statements, the Directors made a number of subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We primarily focussed our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.

In our audit, we tested and examined information, using sampling and other auditing techniques, to the extent we considered necessary to provide a reasonable basis for us to draw conclusions. We obtained audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

We considered the following areas to be those that required particular focus in the current year. This is not a complete list of all risks or areas of focus identified by our audit. We discussed these areas of focus with the Audit Committee. Their report on those matters that they considered to be significant issues in relation to the financial statements is set out on this page.

Area of focus

How the scope of our audit addressed the area of focus

Goodwill impairment assessment

The Group has goodwill of £0.69 billion at 31 March 2014 (see note 20). There are 30 individual Cash Generating Units (‘CGUs’), the most significant of which is the Group’s Certas Energy UK business (£252 million) and the Group’s DCC Vital business (£107 million). We focussed on this area given the scale of the assets and the judgement involved in determining key assumptions which form the basis for the assessment for impairment.

We evaluated the Directors’ determination of recoverable amount in respect of each CGU. We evaluated the adequacy and appropriateness of the impairment charges of £13.9 million recorded in the year. Our evaluation included understanding and challenging cash flow forecasts, and the process by which they were prepared, including testing the extraction of the forecast cash flows from the Board approved three year plans. Our assessment of management’s forecast future cash flows for the CGUs included our independent consideration of (i) past performance against plan and (ii) challenge of management’s expectations of industry developments.

Our work also included challenge of:

  • the discount rate by assessing the cost of capital for the individual businesses and comparable organisations in those sectors; and
  • the Directors’ key assumptions included in the forecast future cash flows by comparing them to historical results, economic and industry forecasts.

We also performed sensitivity analysis of the key assumptions and of the key drivers of the cash flow forecasts for the individual CGUs. Having ascertained the extent of change in those assumptions that either individually or collectively would be required for the goodwill to be impaired, we considered the likelihood of such a movement in those key assumptions arising.

Fraud in revenue recognition

ISAs (UK & Ireland) presume there is a risk of fraud in revenue recognition because of the pressure management may feel to achieve the planned results. We focussed on the terms of sale arrangements with customers including the nature of discount and rebate arrangements.

We evaluated the relevant IT systems and tested the internal controls over the completeness, accuracy and timing of revenue recognised in the financial statements.

We read the relevant customer terms of sale and agreements and tested the accounting for consistency with those terms of sale for the Group’s businesses. Our work included consideration of the accounting for, and presentation of, rebate and discount arrangements.

We also tested journal entries posted to revenue accounts focussing on unusual or irregular items.

Risk of management override of internal controls

ISAs (UK & Ireland) require that we consider this.

We assessed the overall control environment of the Group, including the arrangements for staff to ‘whistle-blow’ inappropriate actions, and interviewed senior management and the Group’s internal audit function. We considered the incentive for management bias. We examined the significant accounting estimates and judgements relevant to the financial statements for evidence of bias by the Directors that may represent a risk of material misstatement due to fraud.

In particular, we challenged and evaluated key assumptions which formed the basis for the critical estimates and judgements in the financial statements. We also tested journal entries at each reporting component and at Group.

 

Going concern+-

As noted in the Statement of Directors’ Responsibilities, the Directors have concluded that it is appropriate to prepare the Group’s and Company’s financial statements using the going concern basis of accounting. The going concern basis presumes that the Group and Company have adequate resources to remain in operation, and that the Directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the Directors’ use of the going concern basis is appropriate.

However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s and the Company’s ability to continue as a going concern.

Matters on which we are required to report by the Companies Acts 1963 to 2013+-

  • We have obtained all the information and explanations which we consider necessary for the purposes of our audit.
  • In our opinion proper books of account have been kept by the Company.
  • The Company Balance Sheet is in agreement with the books of account.
  • In our opinion the information given in the Report of the Directors is consistent with the financial statements and the description in the Corporate Governance Statement of the main features of the internal control and risk management systems in relation to the process for preparing the Group financial statements is consistent with the Group financial statements.
  • The net assets of the Company, as stated in the Company Balance Sheet, are more than half of the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 31 March 2014 a financial situation which under Section 40 (1) of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the Parent Company.

Matters on which we are required to report by exception+-

Directors’ remuneration and transactions

Under the Companies Acts 1963 to 2013 we are required to report to you if, in our opinion, the disclosure of Directors’ remuneration and transactions specified by law have not been made. We have nothing to report arising from these responsibilities.

Corporate Governance Statement

Under the United Kingdom Listing Authority Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Parent Company’s compliance with nine provisions of the UK Corporate Governance Code (‘the Code’). We have nothing to report having performed our review.

On this page of the Annual Report, as required by the Code Provision C.1.1, the Directors state that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group’s performance, business model and strategy. On this page, as required by C.3.8 of the Code, the Audit Committee has set out the significant issues that it considered in relation to the financial statements, and how they were addressed. Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:

  • the statement given by the directors is materially inconsistent with our knowledge of the Group acquired in the course of performing our audit; or
  • the section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.

We have no exceptions to report arising from this responsibility.

Other information in the Annual Report

Under ISAs (UK & Ireland), we are required to report to you if, in our opinion, information in the Annual Report is:

  • materially inconsistent with the information in the audited financial statements; or
  • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and Company acquired in the course of performing our audit; or
  • otherwise misleading.

We have no exceptions to report arising from this responsibility.

Responsibilities for the financial statements and the audit+-

Our responsibilities and those of the Directors

As explained more fully in the Statement of Directors’ Responsibilities set out on this page the Directors are responsible for the preparation of the Group and Company financial statements giving a true and fair view.

Our responsibility is to audit and express an opinion on the Group and Company financial statements in accordance with Irish law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Section 193 of the Companies Act, 1990 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Paul Hennessy

for and on behalf of
PricewaterhouseCoopers
Chartered Accountants and Statutory
Audit Firm
Dublin

20 May 2014