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Corporate governance

Corporate Governance

Duties and composition of the Board of Directors

With the exception of matters reserved for the Annual General Shareholders’ Meeting, the Board of Directors is Logista’s highest decision-making body. Its role is to represent the Company by carrying out all of the duties included in its corporate purpose, as set out in the Articles of Association.

It is the Board’s policy to delegate the everyday management of Logista to the executive bodies and senior management team, focusing its own efforts on its overarching role in determining Company strategy and overseeing the work of the senior management team. At the same time, the Board must duly attend to those matters which, pursuant to the law or to the Company’s Articles of Association or Regulations, cannot be delegated to other bodies.

Logista’s Board of Directors includes an Audit and Control Committee and an Appointments and Remuneration Committee, tasked with carrying out the duties required by law. The majority of these committees comprise Independent Directors.

Key actions taken by the Board of Directors in 2021

Logista Holdings’ Board of Directors has been extremely active over the course of the year across its varied remit.

Throughout the year the Board of Directors has carried out its regular duties to establish the Company’s general policies and strategies, boost operations, and monitor the performance of the business areas and their economic and financial situation. In this regard the Board is delighted to report that the Company has achieved excellent results in the context of a financial year that is still influenced by the effects of the pandemic.

Having established Logista’s resilient business model and the strong performance of its businesses, the Company has monitored the impact of COVID-19 from two other key perspectives:

  • Firstly, the Board has focused its attention on the operations of the Group’s pharmaceutical distribution business. In this regard, it is important to mention that the Board is extremely proud of the important role played by the Company in the fight against COVID-19 by distributing vaccines, in conjunction with several public authorities.
  • Secondly, the Board has monitored the health crisis to ensure all employees are adequately protected.

Based on its firm commitment to transparency and good governance, the Board of Directors has embarked on a comprehensive review of the Company’s internal rules and regulations, with a view to simplifying them and improving best practices in corporate governance. The process was completed when the new Articles of Association and the new Annual General Shareholders’ Meeting Regulation were presented at the Annual General Shareholders’ Meeting and unanimously approved by the shareholders. The Board of Directors Regulations were also amended in line with these documents to strengthen the Company’s commitment to gender diversity, based on its objective to ensure at least 40% of the Board members are women. Therefore, it is envisaged that Logista will be compliant with the CNMV’s good governance recommendations in approximately two years. A number of corporate policies (the Sustainability Policy, Corporate Governance Policy, etc.) have also been revised to adapt to the CNMV’s new recommendations.

Firstly, with regard to compliance, the instruments setting out the Group’s ethical commitment have been reinforced. As part of the same exercise, the Company’s Code of Conduct has also been updated this year and adapted to reflect its current circumstances. A new Anti-Corruption Policy has been approved and the Manual on the Prevention of Money Laundering and the Financing of Terrorism has been updated.

The Board has also pressed ahead with developing a Group compliance model. This has been managed primarily by the Audit and Control Committee. In this regard, in addition to its regular reporting duties, the Board has updated and expanded the Criminal Risk Map and controls matrix.

The Board believes that engaging in strategic reflection is one of its most important roles. Accordingly, it has been particularly attentive to these aspects this year, focusing on procedures for reappointing Board members and Board discussion, including a day specifically for strategic reflection.

The Board of Directors has continued with its commitment to maintaining an effective risk control system, therefore it systematically reviews the Company’s risk management model. The Board has made improvements to the risk management governance model, included in the recently approved Risk Management Policy.

In line with its commitment to transparency, the Board of Directors has simplified the long-term remuneration model for executive Board Members and has consolidated the previous share award plans into a single instrument. The maximum remuneration amount has not been increased. The respective Remuneration Policy proposal was tabled at the Annual General Shareholders’ Meeting. This Policy, which included other technical amendments, was approved at the 2021 Annual General Shareholders’ Meeting.

Evaluation of the Board of Directors

In accordance with the recommendations contained in the Good Governance Code for Listed Companies, the Board and its Committees are evaluated on an annual basis to assess the quality and efficacy of their performance. The Chairman of the Board, CEO and Board Secretary are also evaluated as part of this exercise. Every three years, this evaluation is reviewed by an external advisor.

In 2021, the results of the internal evaluation were highly satisfactory. However, areas for improvement have been detected, basically aimed at strengthening the strategic debate and deepening the monitoring of risks. The Board of Directors has now produced an Action Plan to support progress in these areas.

Diversity in Board appointments and reappointments

Following approval of the Board skills matrix in the last financial year, the Board has been particularly careful to ensure it upholds its commitment to diversity when considering procedures for board member reappointment this year. In particular, when reappointing members, it has ensured female representation on the Board remains at 42% and has strengthened the strategic profile of its members.

Board of Directors’ remuneration model

When determining its Remuneration Policy, the Company has regard to both the relevant regulations (particularly those applicable to listed companies) and to the objectives set out in its Business Plan, which in turn conforms to the principles and recommendations of Good Corporate Governance, best market practices and the guidelines issued by institutional investors and proxy advisors.

Every year, the Company publishes information on Board Member remuneration in its Integrated Annual Report, Annual Accounts and Annual Report on Board Remuneration.

Board Members receive a fixed monthly salary plus an attendance allowance paid at a flat rate. They also receive an additional attendance allowance for any Committees on which they sit. Only executive Board Members receive performance-related pay.

The current Remuneration Policy, which was drafted with external advice, was approved at the Annual General Shareholders’ Meeting on 4 February 2021. The results of the vote were as follows:


Number of shares

Percentage of share capital in attendance

In favour: 80,722,799

74.7288%

Against: 26,360,727

24.4034%

Blank ballots: 184

0.0002%

Abstentions: 937,172

0.8676%

Agenda for the Annual General Shareholders’ Meeting on 4 February 2021

  • Approval of the Annual Accounts (Balance Sheet, Income Statement, Statement of Changes in Equity, Cash Flow Statement and Notes to the Accounts) and Management Report of Compañía de Distribución Integral Logista Holdings, S.A. and the consolidated Group, for the financial year ending 30 September 2020.
  • Approval of the consolidated statement on non-financial information for the financial year ending 30 September 2020.
  • Approval of the Board of Directors’ management performance during the financial year ending 30 September 2020.
  • Approval of the application of the result for the financial year ending 30 September 2020 of Compañía de Distribución Integral Logista Holdings, S.A.
  • Board member ratification and appointment.
  • Amendments to Articles of Association, General Shareholders’ Meeting Regulation and information about amendments to the Board of Directors Regulations.
  • Approval of the Board Remuneration Policy 2021–2023.
  • Examination and approval of the Long-Term Incentive Plan 2021-2023.
  • Delegation of powers to the Board of Directors
  • Advisory vote on the Annual Report on Company Directors’ Remuneration for the financial year ending 30 September 2020.

Tackling corruption and bribery

Logista has put in place a number of corporate policies and an internal control system aimed at preventing any conduct falling into the “criminal risks” category, whether on the part of managers, directors or any other employee of the Group. Examples of such criminal conduct include corruption, bribery and money laundering.

The Company takes issues relating to ethics and the fight against corruption seriously. The Board of Directors is committed to fulfilling its social responsibilities by adopting all necessary measures to coordinate, oversee and monitor action in response to potential crimes or criminal risks, including those listed below.

  • All directors and employees must adhere to the Company’s Code of Conduct, which is available on the Group’s Intranet and corporate website (www.logista.com). Among other provisions, the Code sets out the procedures to be followed when working with civil servants or government representatives. This document expressly forbids offering, giving or receiving payments, gifts or preferential treatment contrary to the law, which may have an influence on the normal course of business, governance or professional relationships or secure an undue advantage for Logista.
  • The Company’s Criminal Risk Prevention Manual, which was updated in 2020, and adapted to the applicable laws of the countries where the Group operates, this Manual sets out principles and objectives of all Logista’s Companies in Spain concerning criminal risk prevention, and the main internal processes established to prevent and mitigate any action that could bring a risk of criminal liability.
  • There is a Compliance Committee that reports to the Audit and Control Committee, to oversee the operation of and compliance with the Regulatory Compliance System. The Committee is built around three fundamental pillars: Code of Conduct, Criminal Risk Prevention Manual and Whistleblower Channel. The Committee is formed of representatives from the following corporate areas: Legal Department, Internal Control, Resources and Human Resources.
    Group employees at all levels are informed of the importance of following the Criminal Risk Prevention Manual, adopting the principles set out in the Code of Conduct and carrying out their professional tasks in an ethical and diligent manner.
    In the event of a breach of Logista’s Code of Conduct, the relevant employee(s) will be subject to a disciplinary process and possible sanctions. Any incident involving the bribery of a public or private body or the failure to comply with the established Collection and Payments Management Policy will be treated as grave misconduct.
  • There is a Whistleblower Channel that all directors, employees and authorised third parties (suppliers, clients, subcontractors, etc.) can use to submit an anonymous, confidential complaint, to the extent permitted by applicable national legislation, about any form of irregular practice, breach or behaviour whatsoever that is contrary to Logista’s ethical values or internal policies, the Code of Conduct or the law.
    The Compliance Committee reports any complaints received, and any investigative action taken or procedures conducted by Logista, to the Audit and Control Committee on a regular basis.
    No reports in relation to crimes of bribery, corruption or money laundering were received during the 2021 financial year.

During the 2021 financial year, Logista’s Board of Directors approved the following:

  • A new Code of Conduct for the Group, replacing the previous one, which sets out the standards and ethical principles governing the Group’s activities, sets the conduct requirements that all members of the Group must comply with in their day-to-day work and serves as the key basis for the Group’s Policies and Procedures. It also expressly recognizes a business culture and philosophy based on the principles of compliance with laws, honesty, integrity in management and transparency in the Group’s actions and relations with its shareholders, workers, suppliers, customers, communities and other “stakeholders” or interested parties.
  • The anti-corruption policy which establishes general principles for preventing corruption, guidelines on behaviour with third parties, whether public or private officials, and the set of rules concerning gifts, hospitality, promotional events and donations.
  • Updating the Manual for the Prevention of Money Laundering and Terrorist Financing including last regulatory modifications, which complements and expands on obligations that apply to all Group Companies in Spain.

Logista’s supervisory bodies also carry out periodic checks on any process or activity that could potentially be affected by any of the criminal risks listed above, and the model is revised as necessary and checked to ensure it complies with the established regulatory compliance system.

During the financial year, no risks arising from circumstances of corruption and / or bribery have materialized that should be taken into account in order to establish contingency plans or other measures.

No reports in relation to crimes of bribery, corruption or money laundering were received during the 2021 financial year.

Human Rights

Logista conducts its business based on ethical values, transparency and active communication. These core values are at the heart of its Corporate Governance Model. Its commitments include:

  • Promoting best corporate governance practices through ethical, responsible and honest management of the business.
  • Encouraging transparency and communication with its different stakeholders.
  • Implementing the principles of the United Nations Global Compact into its business activities. This model also upholds the provisions of the International Labour Organisation (ILO)’s fundamental conventions regarding freedom of association and the right to collective bargaining, in addition to the principles and guidance contained within the United Nations Guiding Principles (UNGP) on Business and Human Rights and the European Social Charter.

Logista complies with the applicable labour laws, rules and regulations, with full respect to the fundamental right of trade-union freedom, and, managing the relations with the workers’ representatives and Trade Unions in a fluent and transparent manner. All employees have the right to decide to join or not a trade union, or to have recognized employee representation in accordance with applicable law.

In addition to monitoring activities carried out by the Compliance Committee, employees can report any act, conduct or omission that could amount to a human rights violation to the Whistleblower Channel. All complaints received are also reported to the Audit and Control Committee. However, given the nature and geographical range of our activities and the robust regulatory framework in place, the Group does not tend to encounter any relevant risk exposure such as those potentially associated with forced and/or child labour.

During the 2021 financial year, the Company did not receive any reports of incidents relating to respect for freedom of association and the right to collective bargaining, job discrimination, forced or child labour or any other Human Rights violation or concern in any country in which Logista operates.

Logista’s commitment to complying with the provisions of fundamental ILO conventions and the United Nations Global Compact is reflected in the following procedures and the monitoring activities carried out by the Compliance Committee and the other supervisory bodies:

Code of Conduct: The Code requires the Group’s employees to promote and uphold Human Rights such that:

  • They are obliged to respect the dignity and human rights of all other members and third parties they come into contact with in the development of their activities.
  • They will never use, or permit to be used, forced or trafficked labour, neither employ any person under 16 years old, or less than the local minimum employment age or mandatory school age (whichever is higher) nor to employ any person under 18 years old to undertake any work which is considered hazardous or likely to harm the health or safety.
  • We require our suppliers to comply with their labour obligations to their workers, to respect workers’ labour and union rights and to pay wages that comply with the statutory minimum or the collective agreements in force, whichever is higher. Human trafficking or forced labour are strictly forbidden. Likewise, our suppliers are required to promote integrity, teamwork, diversity and trust, ensuring a fair and respectful workplace free from any type of harassment, discrimination or any other form of degrading behaviour, and to promote a positive health and safety culture, prohibiting unacceptable or potentially hazardous behaviour at work.
  • Logista members must conduct their business activities in a manner that promotes and respects human rights, and must not fail to speak up if they see a human rights violation.
  • All members of the Group have the right to work in an environment that is free from intimidation, harassment and abuse, expressly prohibiting this type of conducts.
  • Members of the Group must create a work environment where colleagues can contribute, develop and fully utilize their talents, demonstrating respect for others keeping an open mind to new ideas, various cultures and customs and different points of view.
  • It is expressly forbidden to discriminate based on race, colour, gender expression, gender identity, ethnic, religion, social class, politics, citizenship, sexual orientation, marital status, disability or any other protected ground as established by law.

General Recruitment Protocol, Internal Selection Guide and Employee Competence Guidelines: these documents establish a set of general principles for line managers, to be applied in recruitment and candidate selection. They also provide clear guidance on the correct approach, tools and allocation of responsibilities for recruitment, selection, onboarding and performance evaluation. They establish guidelines to ensure each position is held by qualified staff.

Logista promotes gender equality in candidate selection. For example, it is standard practice across the Group that the shortlist of candidates for any post should include at least as many women as men.

General Principles of Conduct for Suppliers: this document stipulates the minimum standards and requirements for everyday conduct that the Group’s suppliers must observe at all times, both in their dealings with Logista and with respect to their own employees and any third parties involved in their operations.

All suppliers must understand and accept these Behavioural Standards, which are contractually binding on all suppliers who enter into an agreement with a Group Company. Logista may terminate its contractual or business relationship with any supplier that fails to either comply with the Behavioural Standards or, in the event of an accidental breach, take the necessary measures to resolve the situation.

Group Procurement Guidelines: This document establishes that all suppliers must be duly authorised and have demonstrable financial and technical capacity. Furthermore, all contractual relationships are governed by the Principles of Ethical and Professional Conduct (among others), which states that employees must behave ethically and professionally at all times.

Respect for human rights is a material concern for the Company.

During the 2021 financial year, the Company did not receive any reports of incidents relating to respect for freedom of association and the right to collective bargaining, job discrimination, forced or child labour or any other Human Rights violation or concern in any country in which Logista operates.

Risk and opportunity management

An integrated risk management system to support the achievement of the Company’s objectives and to further advance its strategy

Logista’s Corporate Risk Management system is outlined in its General Risk Management Policy, approved by the Board of Directors on 28 June 2020, and updated on 22 September 2021, as well its procedure, in accordance with the 2017 COSO ERM Framework.

They set out the Company’s general protocols for controlling and managing all forms of external or internal risk to which Logista may be exposed, at any point in time, in the pursuit of its objectives:

The Policy’s overarching objective is to support the Board of Directors and management teams in their efforts to optimise the Group’s results and ultimately enhance its capacity to create, sustain and realise value.

It applies to every business area, department and country of operation (Spain, France, Italy, Portugal and Poland), thus providing a global overview of all risks that Logista may encounter.

In particular:

  • Identifying and managing risk across the Group.
  • Obtaining reasonable assurance that the Group’s objectives can be met.
  • Participating in and supporting decision-making processes.
  • Determining risk profile and appetite.
  • Establishing a common language and methodology with respect to risks.
  • Facilitating efficient resource allocation.
  • Ensuring the reliability of financial and non-financial information.
  • Setting guidelines for transparency and Good Corporate Governance.
  • Assigning responsibilities to participants.
  • Expanding the range of available opportunities.

General protocols for controlling and managing all forms of external or internal risk


Governing risk management

The corporate bodies responsible for devising and implementing the Risk Control and Management System are as follows:

  • Board of Directors
    – Determining the risk control and management policy, including fiscal risks.
    – Supervising the internal reporting and control systems.
    – Determining the level of risk to be assumed by Logista.
  • Audit and Control Committe
    – Supervising and evaluating control and financial and non-financial risk management systems.
    – Directly overseeing the Risk Control and Management Unit.
  • Management Committee
    – Defining a risk strategy and ensuring the efficacy of the Company’s risk management systems.
    – Communicating to the Risk Owners the guidelines that may be determine.
    – Supervising the most relevant risks and making decisions about major risks.
    – Promoting and disseminating a risk and control culture among all its employees.
    – Advising the Risk Control and Management Unit on any relevant matters.
    – Making, when required, a proposal for risk appetite and tolerances for approval.
  • Risk Control and Management Unit (through the Corporate Internal Audit Directorate)
    – Coordinating Logista’s risk identification and evaluation process, supporting the Risks Managers in this process, supervising that the main risks are identified, evaluated and managed in such a way that they are at the risk levels that are considered acceptable. Ensuring the proper functioning of the Risk Management system.
    – Keeping the Logista Risk Map update
    – Cooperating with the Management Committee in the definition of Logista’s risk strategy and providing support in the relevant decisions that said Committee must adopt in terms of Risk management.
    – Ensuring that the risk management system offers risk mitigating measures in line with Logista’s Risk strategy.
    – Periodically reporting the status and evolution of the main risks, as well as the result of the process of updating and evaluating them to the Management Committee, as well as prior to their reporting to the Audit and Control Committee and, where appropriate, when applicable, to the Logista Board of Directors.
  • Risk and Processes Owners
    – Executing the Risk strategy established by the Management Committee and any guidelines determined by Logista’s organizational units in terms of Risks, at all times in relation to Risk Management.
    – Detecting situations of risks and opportunities that affect the achievement of Logista’s objectives within its area of responsibility.
    – Reporting their risks, through their participation in the risk reporting process established for this purpose and through the tools made available to them, and communicating to the Corporate Internal Audit Directorate how many risks arise, the plans and mitigating actions proposed, as well as the degree of advancement or implementation thereof.
    – Analysing and evaluating the identified risks they face in achieving their objectives, according to the available methodology.
    – Defining the most appropriate response for each of its risks, identifying and / or where appropriate, designing and defining the control activities and internal standards necessary for managing its risk.
    – Ensuring and promoting that the control activities designed for each of the identified risks are carried out in a timely manner.
    – Supervising the implementation of the different action plans and corrective actions defined for mitigation.

Process for identifying, evaluating and mitigating risks

Logista’s risk management process is based on the following framework:

Objectives and Context

Logista determines its strategic objectives and operational scope, both internally and externally, with due regard to stakeholder interests. In turn, this perspective has an influence on its risk management approach. The Company also defines its risk appetite, i.e. the level of risk it is willing to accept in the course of its operations and its risk tolerance. Broadly speaking, risk appetite is categorised as follows:

  • Low risk tolerance profile
    Logista seeks to comply with all laws, regulations, standards and tax rules to which it is subject.
  • Moderate risk tolerance profile
    Towards risks that do not threaten the Group’s capacity to:
    – achieve its strategic objectives while limiting uncertainty;
    – maintain the strongest possible shareholder guarantee;
    – protect its results and reputation;
    – defend the interests of its shareholders, clients and manufacturers.
  • Higher risk tolerance profile
    Towards plausible technological risks, given that Logista’s strategic objectives include providing logistics services with high added value and, therefore, involving advanced technological solutions.
These baselines for risk appetite and tolerance are a tool for achieving the optimum balance between risk and opportunity.

Risk detection

Risk detection refers to the identification of future events that could potentially pose a threat to Logista’s objectives, whether through interviews or self-assessment questionnaires.

Risk analysis

All risks must be recorded in such a way that they can be readily understood and, especially, used to facilitate decision-making. Each risk should be defined by reference to its causes and contributing factors, as well as the consequences for Logista were it to materialise.

Risk assessment

During this stage, the severity of each risk is assessed in order to prioritise those of greatest concern. The criteria used to explore potential impacts on Logista are: regulatory compliance, economic/financial, health and safety, operations, reputation and strategic context.

A parallel assessment looks at the mitigation measures adopted by Logista in response to the identified risks, to derive what is referred to as the “residual risk”. This exercise also evaluates the speed with which the risk could potentially materialise, which determines its ranking in the overall risk appetite and risk tolerance framework.

Risk mitigation

Logista’s response to the risk is analysed and categorised according to the following response types:

  • Eliminate: take all possible measures to negate the likelihood of the risk occurring and/or its impact, so that the risk effectively disappears or is eliminated.
  • Mitigate: take any necessary action to lessen the potential consequences should the risk materialise.
  • Transfer: assign the consequences associated with the risk, should it materialise, to a third party.
  • Accept: take no action, absorbing the potential consequences should the risk materialise.
  • Pursue: accept a greater degree of risk where this is offset by a potential performance gain. When choosing to pursue a risk, managers must understand the nature and scope of any changes required to achieve the desired performance gain without exceeding the acceptable limits of tolerance.

Action plans should also be put in place.

Process control and review

The risk management process is continuously monitored and revised, with a particular focus on emerging risks, the ongoing development of known risks, obsolete risks and materialised risks.

Information and communication

All actors implicated in Logista’s Risk Management Model are required to store and manage relevant information through tools such as the Risk Register and the Risk Map.

Twice a year, the Audit and Control Committee carries out a review of material risks, response strategies and mitigation plans, including those relating to fiscal matters, before approving and distributing Logista’s Updated Risk Map. In the two quarters when this full review does not take place, the Audit and Control Committee is informed of the most significant developments in relation to material risks. This mechanism allows for the identification of new threats and for sufficient advance warning for effective Risk management. The Committee submits quarterly reports on its work in overseeing the Risk Control and Management System to the Board of Directors. In this way, the Group seeks to foster an appropriate setting and philosophy for risk management, through targeted communication with both the Audit and Control Committee and the Senior Management Team.

In this sense, the Management Committee has discussed the main risks and their response plans, as well as the most relevant risks by business (regardless of their position on the corporate risk map), which facilitates decision-making by lower level, and approving the Logista’s Risk Map.

Likewise, the Board of Directors and the Audit and Control Committee have received additional periodical information in accordance with their responsibilities, from the Risk Control and Management Unit about the main risks of Logista.

The Board also held a specific discussion session on determining Logista’s risk appetite and tolerance levels.


“Breakdown of material risks”

The Corporate Risk Map identifies the following most significant risks for Logista, which are categorised in accordance with the framework set out in the General Risk Management Policy.

Additionally, other risks are included which, although they are at an acceptable level, are also of interest.


Type of risk

Description

Response planning

Business environment and market risks

A

COVID-19 pandemic and its impacts

The current situation continues to be dominated by the coronavirus pandemic. There is still a degree of uncertainty about how the pandemic will evolve given infection rates and the prospect of new restrictions due to potential new variants of the virus and the impact this could have on the economy, employment and consequently, consumers.

Thanks to the plan implemented by Logista at the start of the Coronavirus pandemic, the Company has continued to adapt its operations to the new circumstances by introducing and readjusting corrective and contingency measures, together with various initiatives to protect employees and partners that have enabled it to continue operating. Further details on the measures implemented by Logista can be found in the Client Satisfaction section, which includes examples of new services developed in response to client needs during the pandemic.

B

Macro-economic, political and social environment and changing consumer habits

Logista’s various business operations around the world can be affected by changes in political, social and/or macroeconomic conditions, both at the global level and, in particular, in Spain, France, Italy, Portugal and Poland. The Group may become subject to new regulations or be affected by structural changes that affect clients’ purchasing power. Similarly, changes in consumer habits and patterns may have an impact on its business performance.

Logista continuously monitors the performance of its various businesses and any developments in the regulatory, social and political environment, adapting its strategy and objectives to changing conditions in the countries where it operates.

C

The illicit tobacco trade

As a result of the economic crisis and rising unemployment levels, there is a risk that illicit trade in tobacco and counterfeit tobacco products will become significantly more prevalent. This could have an adverse effect on the volume of tobacco products distributed by Logista.

Product traceability is now subject to more rigorous protocols, as required by Directive 2014/40/EU of the European Parliament and of the Council of 3 April 2014. This directive establishes stricter standards in relation to labelling, ingredients, traceability and cross-border sales, among other aspects, which could have a bearing on the volume of tobacco sold.

All EU member states in which the Group operates have already incorporated the Directive into their national legislation.

Logista cooperates with national law enforcement and security forces to tackle illicit trade.

 

D

Market liberalisation in countries where the Group operates

Market liberalisation of the main markets in which Logista acts as an authorised distributor of tobacco products within the context of a state retail monopoly could have an impact on the Group’s results if it fails to take certain measures, which have already been identified.

The consequences of market liberalisation in the main markets in which Logista acts as an authorised distributor for tobacco products within the context of a state retail monopoly, may adversely affect its profits. However, such effects would be mitigated by the Company’s capacity to distribute tobacco through an extensive network of outlets and an effective diversification strategy.

E

Development of other business areas

Risks inherent in the successful expansion of Logista’s different businesses to offset a possible faster rate of decline in the tobacco market together with a misalignment with the market with regard to sustainability policies.

Expansion plan, as established in Logista’s strategic plan

F

Digital disruption

Aside from benefits and opportunities, digitalisation brings risks associated with having an unsuitable strategy for defining and implementing technology, which could affect the viability of our business models, as well as our competitiveness, due to costs associated with lost opportunities. The rapid increase in the use of new technologies in our operations, together with the inherent risks associated with such a change, impacts on organisational models and our control framework.

Digital transformation forms an integral part of Logista’s strategy and is reflected in our new approach to client relationships, competition, data, innovation and values.

Operational and technological

G

Cybersecurity

Systems damage from deliberate third-party attacks. Logista is exposed to various threats and vulnerabilities due to its use of technology and information systems across all of its daily operations. This presents a risk to information security and to system continuity, and may lead to privacy breaches, information loss or the theft or fraudulent use of data.

The Company has developed a Cybersecurity Plan, which should be regularly updated. This document sets out specific measures to counter these risks, such as external and internal intrusion testing, preventative digital monitoring and checks on the level of service delivered by providers contracted to manage and administer Logista’s IT infrastructure.

H

Risk of theft

Theft of tobacco from the Company’s facilities or during transport may result in higher insurance premiums.

Adopting the most rigorous security standards possible and taking out Insurance Policies reduce both the likelihood of theft and the impact on tolerable risk levels.

I

Availability of information systems, safeguarding assets and business continuity

There is a risk that a shock event could bring the Company’s operations to a standstill, or that the business continuity plans designed to ensure a timely and appropriate disaster response fail to assure the continued availability of Information Systems, the level of service and safeguarding of assets they routinely provide.

Contingency plans should be in place and periodically tested to assess their effectiveness. The Group should continuously monitor the levels of service promised by Logista. This will allow us to assess the need to invest in essential assets for the Company and ensure its stocks, among other things, are protected.

Q

Commitment to the environment

There is growing client demand for services that meet certain environmental standards. Consequently, there is a risk Logista will not be able to fulfil its commitment to developing good practices with regard to quality and the environment. These practices are designed to reduce the impact our activities have on the environment, optimise the use of resources and prevent pollution in business processes, in accordance with regulations (reducing our carbon footprint, using renewable energy sources, waste management, collaborating with environmental bodies and institutions and complying with energy efficiency standards).

In this respect, Logista has developed a Quality and Environment Master Plan and a Quality, Environment and Energy Efficiency Policy that establish guidelines and good practices for optimising the use of resources and preventing pollution throughout its business processes. Pursuant to the ISO 14064 standard, the Group calculates its carbon footprint using the methodology set out in the GHG Protocol.

Logista’s efforts in this area have won recognition from several international bodies. CDP, for example, has included Logista in its prestigious “A List” as a global leader in the fight against climate change – the only European distribution Company to have achieved this recognition in the last four years.

Regulatory compliance

J

Regulatory risk

Logista’s business operations must be compliant with numerous laws and regulations, both general and sectoral. These may apply at the European, national, regional and local levels in any country of operation. This exposes Logista to risks arising from potential breaches and associated sanctions.

Logista continuously monitors the regulatory and legislative environment for changes that may affect its activities, aiming to anticipate such changes as early as possible to allow for effective management. The Group has also produced various specific standards and procedures to govern its framework for action, in addition to criminal risk prevention models. These measures reflect a “zero-tolerance” approach to fraud and corruption.

K

Legal action

In the normal course of its business, Logista may become involved in legal disputes, either as the claimant or as the defendant. These may arise from differences in the interpretation of laws, regulations or contracts or as the result of legal action brought against them, the outcomes of which are uncertain by nature.

Establishment of specific standards and procedures to govern the Group’s framework for action, in addition to criminal risk prevention models for each of Logista’s companies.

Legal defence and procedures for managing and monitoring legal actions, with external expert advice as appropriate.

The Corporate Legal Advice Department coordinates a review of the Group’s most significant contracts to ensure strict legal compliance.

Financial and tax

L

Changes to Logista’s payment cycles or to fiscal policy

Like any other wholesale business, Logista’s purchasing and revenue cycles are staggered. This means that outgoings to tobacco manufacturers and incomings from retail outlets may not always be in balance. Moreover, Logista’s tax obligations must be settled according to a different cycle again.

Changes to the tax payment cycle or significant increases in tax (primarily in excise duties) could have a negative impact on the business by weakening the financial outlook, thus affecting the Company’s operating profit and cash management.

Changes to Logista’s payment cycles could force it to seek external financing in order to meet its obligations.

The Group is developing more robust mechanisms for debt collection, with a view to shortening collection periods in business areas most exposed to client credit risk. In addition, it is lowering credit limits, monitoring credit lines more closely and seeking bank guarantees.

 

M

Annual accounts subject to audits and inspections

The Group’s primary activity is the distribution of tobacco, and as such it is subject to a specific fiscal model that can be complex due to its extensive geographical presence. In this respect, the Group has various tax disputes pending resolution requiring value judgements as to the probability of being obliged to settle certain liabilities. Logista has made provisions for these risks based on expert legal advice and the potential for transferring them to third parties. Currently, the Group’s returns from a number of financial years are subject to inspection with respect to certain taxes.

In discharging its fiscal obligations, the Company advocates strict compliance with all applicable tax requirements. It adopts a centralised approach to monitoring and verification, ensuring that all fiscal obligations across Logista are met. To this end, it draws on support from highly reputable tax advisors and law firms when preparing its tax reports and settling taxes owed. Such advice is also sought in the event of any special transactions and when mounting a legal defence of the Company’s position, should this be necessary.

N

Fair value impairment losses on assets, investments, goodwill and asset provisions

One of Logista’s basic objectives is to preserve the value of its assets by analysing and preventing risks and optimising the management of the main claims. Nevertheless, there is a risk that the fair value of assets may deteriorate, particularly with respect to the carrying value of goodwill, which is high. This is because Logista has a significant volume of assets and investments that have a substantial impact on its income statement.

The Finance Department analyses potential accidental risks which Logista may be exposed to, both in terms of its assets and its business operations. Accordingly, it ensures that external insurance policies are in place as appropriate and commissions property valuations. With respect to the high carrying value of goodwill, Logista carries out impairment testing in accordance with International Accounting Standards.

O

Credit, liquidity and exchange rate risk

It is Logista’s general practice to use only institutions with a high credit rating when depositing cash reserves and equivalent liquid assets. Furthermore, Logista’s exposure to credit risk is shared with Imperial Brands through cash transfer agreements.

With regard to liquidity risk, Logista has sufficient reserves of cash and equivalent assets to cover payments arising in the normal course of its business operations.

Meanwhile, the exposure of Logista’s equity and income statement to future changes in prevailing interest rates is relatively slight, since so few of its transactions are carried out in currencies other than the Euro.

If necessary, Logista has a number of credit lines available to it.

With regard to the credit risk represented by Imperial Brands, loan agreements are in place with recovery safeguards. Imperial’s credit rating (investment grade), which has remained stable during the financial year, is monitored periodically.

 

P

Insolvency and default risk

When dealing with clients in the ordinary course of its operations, Logista is exposed to commercial credit risk.

Logista seeks to minimise insolvency and default risk by setting credit limits and imposing strict conditions with respect to collection periods. As Logista’s main clients are licensed tobacconists, this commercial risk is spread over a large number of clients with fairly short collection periods. Consequently, the Company’s exposure to third-party credit risk is not particularly significant. Where deemed necessary, Insurance Policies are in place to mitigate the impact of defaults on payments, although, historically, default rates in geographical regions where Logista operates have been consistently very low.


Opportunities within risk management

Logista’s risk management system supports a comprehensive analysis of the Group’s business environment (its relationships and other factors with a bearing on current or future strategy or on Company objectives). In turn, this has allowed the following opportunities to be identified:

1. Development of other business areas

Logista’s growth strategy depends, among other factors, on its ability to expand its business areas such as the transport, pharmaceuticals and convenience businesses. This strategy will allow Logista to address one of the risks to which it is exposed, namely, the decline in tobacco consumption in countries where it operates, in line with the market’s focus on sustainability.

Certain market trends observed in these sectors present opportunities for sustainable and profitable growth. These include the significant increase in the volume of pharmaceuticals dispensed by hospital pharmacies, the relative rise in demand for OTC and personal care products in pharmacies, the growing importance of local distribution networks for consumer goods, and the shift towards e-commerce, with the associated transportation needs.

2. Next-generation products

The pharmaceutical sector is developing a new generation of personalised medicines and direct-to-patient delivery services which are an excellent opportunity for Logista given the Company’s existing high quality distribution network.

New tobacco products are also emerging, with many more choices available to consumers than just a few years ago. Logista offers manufacturers the fastest and most effective route to consumers in southern Europe, thanks to its extensive presence in each of its national markets and its expert market knowledge.

Logista actively participates in and supports the strategic transformation of the sector by offering consumers alternatives to traditional tobacco products, potentially with fewer health impacts. In its capacity as the preferred distribution partner for these kinds of products, Logista also works to foster a responsible approach to how they are sold.

3. Competitive advantage in the regulatory environment

Due to the regulatory context in the pharmaceutical and tobacco sectors, there are increasingly exhaustive checks on the distribution of those products, and companies therefore need to be able to comply with those requirements if they wish to continue operating in the future. Logista not only acts in compliance with these requirements but anticipates them by offering new services in each of its distribution sectors. The Group also has the benefit of significant financial capacity and extensive market experience, which helps foster client loyalty and presents a barrier to entry for new competitors – due to, for example, the high investment costs involved in ensuring compliance with regulatory requirements.

4. Developing an economy with a low carbon footprint

Sustainability is a key element of Logista’s strategy. This is evidenced by the fact that Logista has been recognised as a global sustainability leader by CDP for the fifth consecutive year and is included on its “A-list”.

Logista includes opportunities arising from climate change among its risks and its environmental plan, for example, optimising routes, using sustainable vehicles and energy, and reusing packaging for its product distribution business.

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