Annual Report and Accounts 2013

Principal Risks and Uncertainties

Our Principal Risks and Uncertainies

Below is an overview of the principal risks that our Group faces that could have material adverse effects on our business, financial condition and reputation. While other risks exist outside those listed, a conscious effort has been made to disclose those of greatest importance to the business.

We employ various controls and mitigation strategies to reduce these inherent risks to an acceptable level. Our principal risks and uncertainties will evolve as these controls and mitigating activities succeed in reducing the residual risk over time, or new risks emerge. As such, this list is regularly reviewed and a number of risks were added and removed in 2013.

Many risk factors remain beyond the direct control of the Company and the risk management framework, however effective, can only provide reasonable but not absolute assurance that key risks are managed to an acceptable level.

Risk DESCRIPTION MITIGATING ACTIVITIES
macro and financial
Risk

MACRO RISK AND ECONOMIC INSTABILITY

DESCRIPTION

Economic uncertainty or a slowdown and the resulting impact on trade could impact our volume growth and profitability.

Uncertainty surrounding the resilience of the global economy and the ongoing effectiveness of fiscal stimulus and monetary measures continue to impact consumer confidence and present a difficult trading outlook across the supply chain sector. Some economic stagnation, including downgrading of Eurozone’s growth potential may result in declining consumer spending and industry confidence.

MITIGATING ACTIVITIES
  • Measures have been taken to minimise exposures and mitigate any downturn in the macroeconomic environment. Our business focus is on origin and destination cargo which is less susceptible to economic instability and we are predominantly focused on the faster growing emerging markets. We have a continuous focus on delivering high levels of service that meet our customers’ expectations and we proactively manage costs.
  • We also have a well-diversified global portfolio of investments across a number of jurisdictions which spreads our risk.
Risk

FINANCIAL RISKS

DESCRIPTION

Principal financial risks include liquidity needs, availability of capital to achieve our growth objectives, foreign currency and exchange rate volatility.

The outlook for the banking and capital markets, particularly in the context of emerging markets, remains uncertain. This is in large part due to differing albeit somewhat coordinated policy by the various Central Banks (including the Federal Reserve) on the quantitative easing policy and the tapering thereof.

MITIGATING ACTIVITIES
  • Our Balance Sheet remains strong with a net debt to adjusted EBITDA of 1.7 times in 2013 and the only major refinancing due in 2017.
  • With our tariffs being predominantly USD based, we have a natural hedge against FX risk and our internal policy is to mitigate all asset-liability mismatch risk where possible and hedge against interest rate risk.
Risk

PROJECT RISK – DEVELOPMENT AND PLANNING

DESCRIPTION

We are involved in large, long-term projects that can take months or years to complete which can expose the Group to the risk of reduced profitability and potential losses. These projects may be subject to delays and cost overruns due to delays in technology development, equipment deliveries, engineering problems, work stoppages, unanticipated cost increases, shortages of materials or skilled labour or other unforeseen problems.

MITIGATING ACTIVITIES
  • We have an established internal process with clear delegated authorities for the approval of major contracts, which includes a review for approval of bids submitted by vendors. Contracts with large monetary value require Board approval. Systems are in place to monitor risk metrics in the execution of such contracts.
  • Skilled technical teams are also assigned to oversee large projects and actively monitor risks throughout the process.
  • Additionally, where multilateral or bank finance is a source of funding, the projects are also required to meet internationally established project financing requirements. Where appropriate, financing packages are structured and covenants set to ensure sufficient headroom to accommodate non-material delays.
Risk

POLITICAL STABILITY RISK

DESCRIPTION

Political instability or direct/indirect interference in some of the emerging markets creates a risk to the Group’s operations in those countries in terms of operations, service, revenues and volumes.

MITIGATING ACTIVITIES
  • We have a well-diversified global portfolio of investments across a number of geographical jurisdictions which spreads our risk.
  • Our experienced business development team undertakes initial due diligence and we analyse current and emerging issues and maintain business continuity plans to respond to threats and safeguard our operations and assets.
  • Ongoing security assessments and continuous monitoring of geopolitical developments worldwide and engagement with governments, local authorities and joint venture partners ensures we are well positioned to respond to changes in the political environments in which we operate.
customer
Risk

CUSTOMER CONSOLIDATION

DESCRIPTION

Major customers and middle tier customers are reforming alliances and changing strategy on preferred ports and hubs which could lead to downward pressure on tariffs and profit margins.

MITIGATING ACTIVITIES
  • We focus on high levels of customer service and grow sustainable high value and trusted customer relationships throughout our portfolio.
  • We have a customer contract strategy in place. Senior executive sponsors are in constant dialogue with our customers and we maintain an internal watching brief on the markets.
  • We remain focused on origin and destination cargo which is less impacted by competition than transhipment cargo.
internal/operational
Risk

SAFETY, SECURITY AND ENVIRONMENTAL RISK

DESCRIPTION

The nature of our operations exposes us to various operational, safety and security risks that could impact on our business operations, financial results and our reputation.

MITIGATING ACTIVITIES
  • The Board and senior management are committed to creating a safe culture throughout the Group and regularly monitor the implementation of our safety and security strategy which includes employee training, regular audits and management objectives in relation to the safety of our people.
  • We have established a safety auditing program which is conducted across the entire portfolio.
  • These risks are decreasing through rigorous and continuous monitoring by management and by having review processes, policies, guidance documents and specific operational procedures in place.
Risk

DAMAGE TO IT SYSTEMS AND CYBER RISK

DESCRIPTION

The continued operation of our IT systems and infrastructure is threatened by natural risks including floods and hurricanes.

The increased pace of technological innovation and change heightens the risk of cyber terrorism including information and intelligence theft. This could result in liabilities, including claims, loss of revenue, litigation and harm to the Group’s reputation.

MITIGATING ACTIVITIES
  • We have quality information security processes and procedures in place to address IT security risks.
  • We analyse current and emerging issues and maintain business continuity plans to respond to threats and safeguard our operations and assets, including having developed and tested IT disaster recovery plans in place.
Risk

LEGAL AND REGULATORY

DESCRIPTION

Our businesses operate under increasingly stringent regulatory regimes around the world and are subject to various legal and regulatory obligations. New legislation and other evolving practices could impact our operations, increase the cost of compliance and limit or impose restrictions on our growth.

Employee diversity and gender quotas are taking on greater importance in the employment market.

MITIGATING ACTIVITIES
  • The Group monitors changes to regulations across its entire portfolio to ensure that the effect of changes are minimised and compliance is continually managed.
  • DP World has a zero tolerance approach to bribery and fraud and has developed training, policies and an anti-fraud framework for preventing, detecting and responding to frauds. This is particularly focused on higher risk regions to ensure that the Group policies are enforced and understood.
  • DP World has a Board diversity policy and has set up a diversity working group to consider the issues and how they apply to the industry and specifically our business.
Risk

LABOUR UNREST

DESCRIPTION

Labour disputes and unrest pose a risk to our operational continuity.

MITIGATING ACTIVITIES
  • We have an engagement strategy in place with unions and employees in those areas most affected by employee disputes.
Risk

EMPLOYEE DEVELOPMENT AND RETENTION

DESCRIPTION

Our people are fundamental to the long-term success and growth of our Company. Shortages in employees possessing specific skill sets is a risk in some regions that can have an impact on our business continuity and productivity levels.

MITIGATING ACTIVITIES
  • This risk is reducing as we invest further in our people and their performance.
  • The DP World Institute develops and delivers training programmes across all levels which are focused on improving operational and managerial competencies.
  • Career global mobility has also increased, providing our people with the opportunity to work in different areas of the Group and to share their expertise.
  • Effective personal performance management remains a high priority for us, and is monitored across the Group on a regular basis.
  • During 2013, future staffing needs were identified by each business unit and succession planning exercises were undertaken and mapped for senior, corporate, regional and key terminal staff.
  • Staff turnover rates are monitored and are currently stable.