
Financial Risk Management
Group financial risk management is
governed by policies and guidelines
which are reviewed and approved
annually by the Board of Directors, most
recently in April 2023. These policies and
guidelines primarily cover credit risk,
liquidity risk, foreign exchange risk,
interest rate risk and commodity price
risk. The principal objective of these
policies and guidelines is the
minimisation of financial risk at
reasonable cost. The Group does not
trade in financial instruments, nor does
it enter into any leveraged derivative
transactions. DCC’s Group Treasury
function centrally manages the Group’s
funding and liquidity requirements.
Divisional and subsidiary management,
in conjunction with Group Treasury,
manage foreign exchange, and, in
conjunction with Group Commodity Risk
Management, manage commodity
price exposures, within approved
policies and guidelines. Compliance
with the policies and guidelines is
subject to review by the Group Internal
Audit function.
Further detail in relation to the Group’s
financial risk management and its
derivative financial instrument position
is provided in note 5.7 to the financial
statements.
Foreign Exchange Risk Management
DCC’s presentation currency is sterling.
Exposures to other currencies,
principally euro and US dollar, arise in
the course of ordinary trading.
A significant proportion of the Group’s
profits is denominated in currencies
other than sterling. Approximately 73%
of the Group’s adjusted operating profit
for the year ended 31 March 2023 was
denominated in currencies other than
sterling, primarily euro, US dollar and
Scandinavian currencies. DCC does not
hedge the translation exposure on the
profits of non-sterling subsidiaries. The
weakening of the average translation
rate of sterling against most currencies,
in particular the euro and the US dollar,
resulted in a positive impact of
approximately £24.2 million on the
Group’s adjusted operating profit in the
year ended 31 March 2023.
The Group has investments in
non-sterling, primarily euro and US
dollar denominated, operations which
are cash-generative, and a significant
proportion of the cash generated from
these operations is reinvested in
development activities rather than
being repatriated into sterling. The
Group seeks to manage the resultant
foreign currency translation risk through
borrowings denominated in (or
swapped utilising cross currency
interest rate swaps into) the relevant
currency or through currency swaps
related to intercompany funding,
although these hedges are oset by the
strong ongoing cash flow generated
from the Group’s non-sterling
operations, leaving DCC with a net
investment in non-sterling assets. The
gain of £43.3 million arising on the
translation of DCC’s non-sterling
denominated net asset position at
31 March 2023 as set out in the Group
Statement of Comprehensive Income
mainly reflects the weakening in the
value of sterling against the US dollar,
with the impact of movements against
other currencies largely osetting
against each other.
Where sales or purchases are invoiced
in currencies other than the local
currency and there is not a natural
hedge with other activities within the
Group, DCC generally hedges between
50% and 90% of those transactions for
the subsequent two months.
Credit Risk Management
DCC transacts with a variety of high
credit-rated financial institutions for the
purpose of placing deposits and
entering into derivative contracts. The
Group actively monitors its credit
exposure to each counterparty to
ensure compliance with limits approved
by the Board.
Interest Rate Risk and Debt/ Liquidity
Management
DCC maintains a strong balance sheet
with long-term debt funding and cash
balances with deposit maturities up to
three months. In addition, the Group
maintains both committed and
uncommitted credit lines with our
relationship banks and borrows at both
fixed and floating rates of interest. At
31 March 2023, 49% of the Group’s term
debt, including drawn committed credit
lines, was at or swapped to floating
interest rates, using interest rate and
cross currency interest rate swaps which
qualify for fair value hedge accounting
under IAS 39. The Group mitigates
interest rate risk on its borrowings by
matching, to the extent possible, the
maturity of its cash balances with the
interest rate reset periods on the swaps
related to its borrowings.
Commodity Price Risk Management
DCC, through its activities in the energy
sector, procures, markets and sells LPG,
natural gas, electricity and oil products
and, as such, is exposed to changes in
commodity cost prices.
In general, market dynamics are such
that commodity cost price movements
are promptly reflected in sales prices.
In certain markets, short-term or
seasonal price stability is preferred by
certain customer segments which
requires hedging a proportion of
forecasted transactions, with such
transactions qualifying as ‘highly
probable’ for IAS 39 hedge accounting
purposes. DCC uses both forward
purchase contracts and derivative
commodity instruments to support its
pricing strategy for a portion of
expected future sales, typically for
periods of less than 12 months.
Fixed price supply contracts may be
provided to certain customers for
periods typically less than 12 months in
duration. DCC fixes its cost of sales on
contracted future volumes where the
customer contract contains a
take-or-pay arrangement that permits
the customer to purchase a fixed
amount of product for a fixed price
during a specified period and requires
payment even if the customer does not
take delivery of the product.
Where a take-or-pay clause is not
included in the customer contract, DCC
hedges a portion of forecasted sales
volume recognising that certain sales,
such as natural gas and electricity in
particular, are exposed to volumetric
risk in the form of an uncertain
consumption profile arising from a
range of factors, including supply
dynamics and the weather.
DCC does not hold significant amounts
of commodity inventory relative to
purchases and sales; however, for
certain inventory, such as fuel oil and
natural gas, DCC may enter hedge
contracts to manage price exposures.
Across its energy activities, DCC enters
into commodity hedges to fix a portion
of own fuel costs.
The net debt balance at 31 March 2023
includes a mark-to-market liability
relating to the fair value of the
derivative financial instruments used by
the Group to hedge commodity price
risk exposures.
Certain activities of individual
businesses are centralised under the
supervision of the DCC Group
Commodity Risk Management function.
Divisional and subsidiary management,
in conjunction with the Group’s
Commodity Risk Management function,
manage commodity price exposures
within approved policies and guidelines.
All commodity hedging counterparties
are approved by the Chief Executive
and the Chief Financial Ocer and are
reviewed by the Board.
51DCC plc \ Annual Report and Accounts 2023
STRATEGIC REPORT \ GOVERNANCE \ FINANCIAL STATEMENTS \ SUPPLEMENTARY INFORMATION