Principal risks and uncertainties
Set out below are the principal business risks that could impact the Group’s business model, future performance, solvency or liquidity and information on how we mitigate them. We have reassessed our principal risks during the year and have identified ‘cyber security’ as a principal risk in place of ‘business continuity’.
Our risk profile evolves as we move through the economic cycle.
Change in risk in 2018/19
In the longer term, there is a link between demand for our services and levels of economic activity. The construction industry, which affects our business, is cyclical and typically lags the general economic cycle by between 12 and 24 months. The impact of Brexit on the UK economy is considered part of this risk.
- Prudent management through the different phases of the cycle.
- Flexibility in the business model.
- Capital structure and debt facilities arranged in recognition of the cyclical nature of our market and able to withstand market shocks.
Our performance is benefitting from the economic cycle and we expect to see further upside as economic growth continues. However, our longer-term planning is focused on the next downturn to ensure we have the financial firepower at the bottom of the cycle to achieve the next ‘step-change’ in business performance. As we move further into this cycle, the risk of an economic downturn increases.
The already competitive market could become even more competitive and we could suffer increased competition from large national competitors or small companies operating at a local level resulting in reduced market share and lower revenue.
- Create commercial advantage by providing the highest level of service, consistently and at a price which offers value.
- Differentiation of service.
- Enhance the barriers to entry to newcomers provided by our platform: industry-leading IT, experienced personnel and a broad network and equipment fleet.
- Regularly estimate and monitor our market share and track the performance of our competitors.
Our competitive position continues to improve. We are growing faster than our larger competitors and the market, and continue to take market share from our smaller, less well financed competitors. We have a 9% market share in the US, a 4% market share in Canada and 8% in the UK.
Debt facilities are only ever committed for a finite period of time and we need to plan to renew our facilities before they mature and guard against default. Our loan agreements also contain conditions (known as covenants) with which we must comply.
- Maintain conservative (1.5 to 2 times excluding the impact of IFRS 16), net debt to EBITDA leverage which helps minimise our refinancing risk.
- Maintain long debt maturities.
- Use of an asset-based senior facility means none of our debt contains quarterly financial covenants when availability under the facility exceeds $410m.
At 30 April 2019, our facilities were committed for an average of six years, leverage was at 1.8 times and availability under the senior debt facility was $1,622m.
A cyber-attack or serious uncured failure in our systems could result in us being unable to deliver service to our customers and/or the loss of data. In particular, we are heavily dependent on technology for the smooth running of our business given the large number of both units of equipment we rent and our customers. As a result, we could suffer reputational loss, revenue loss and financial penalties. This is the most significant factor in our business continuity planning.
- Stringent policies surrounding security, user access,
change control and the ability to download and
- Testing of cyber security including system
penetration testing and internal phishing training
- Use of antivirus and malware software, firewalls,
email scanning and internet monitoring as an
integral part of our security plan.
- Use of firewalls and encryption to protect systems
and any connections to third parties.
- Use of multi-factor authentication.
- Continued focus on development of IT strategy
taking advantage of cloud technology available.
- Separate near-live back-up data centres which
are designed to be able to provide the necessary
services in the event of a failure at a primary site.
Risk separately identified in current year having previously been considered as part of business continuity risk. We continue to enhance our response to cyber-security threats. Our business continuity plans were reviewed and updated during the year and our disaster recovery plans are tested regularly.
Health and safety
We need to comply with laws and regulations governing occupational health and safety matters. Furthermore, accidents could happen which might result in injury to an individual, claims against the Group and damage to our reputation.
- Maintain appropriate health and safety policies and procedures regarding the need to comply with laws and regulations and to reasonably guard our employees against the risk of injury.
- Induction and training programmes reinforce health and safety policies.
- Programmes to support our customers exercising their responsibility to their own workforces when using our equipment.
- Maintain appropriate insurance coverage.
In terms of reportable incidents, the RIDDOR reportable rate was 0.34 (2018: 0.33) in Sunbelt US, 0.28 (2018: 0.08) in Sunbelt Canada and 0.22 (2018: 0.22) in A-Plant.
Retaining and attracting good people is key to delivering superior performance and customer service. Excessive staff turnover is likely to impact on our ability to maintain the appropriate quality of service to our customers and would ultimately impact our financial performance adversely. At a leadership level, succession planning is required to ensure the Group can continue to inspire the right culture, leadership and behaviours and meet its strategic objectives.
- Provide well-structured and competitive reward and benefit packages that ensure our ability to attract and retain the employees we need.
- Ensure that our staff have the right working environment and equipment to enable them to do the best job possible and maximise their satisfaction at work.
- Invest in training and career development opportunities for our people to support them in their careers.
- Ensure succession plans are in place and reviewed regularly which meet the ongoing needs of the Group.
Our compensation and incentive programmes have continued to evolve to reflect market conditions and the economic environment.
Staff turnover has remained relatively constant with the prior year as our welltrained, knowledgeable staff have become targets for our competitors.
Increased focus on recruitment and induction training programmes as our highest level of turnover is within the first two years of employment.
We continue to invest in training and career development with over 250 courses offered across both businesses.
We need to comply with environmental laws. These laws regulate such issues as wastewater, stormwater, solid and hazardous wastes and materials, and air quality. Breaches potentially create hazards to our employees, damage to our reputation and expose the Group to, amongst other things, the cost of investigating and remediating contamination and also fines and penalties for non-compliance.
- Policies and procedures in place at all our stores regarding the need to adhere to local laws and regulations.
- Procurement policies reflect the need for the latest available emissions management and fuel efficiency tools in our fleet.
- Monitoring and reporting of carbon emissions.
We continue to seek to reduce the environmental impact of our business and invest in technology to reduce the environmental impact on our customers’ businesses. In 2018/19 our carbon emission intensity ratio reduced to 67 (2018: 72) in Sunbelt US and 56 (2018: 67) in Sunbelt Canada. A-Plant’s carbon emission intensity ratio was 75 (2018: 74).
Laws and regulations
Failure to comply with the frequently changing regulatory environment could result in reputational damage or financial penalty.
- Maintaining a legal function to oversee management of these risks and to achieve compliance with relevant legislation.
- Group-wide ethics policy and whistleblowing arrangements.
- Evolving policies and practices to take account of changes in legal obligations.
- Training and induction programmes ensure our staff receive appropriate training and briefing on the relevant policies.
We monitor regulatory and legislative changes to ensure our policies and practices reflect them and we comply with relevant legislation. Our whistle-blowing arrangements are well established and the Company Secretary reports matters arising to the Audit Committee during the course of the year. During the year over 2,300 people in Sunbelt US, 125 people in Canada and 525 people in A-Plant underwent induction training and additional training programmes were undertaken in safety.