Last checked at 22 Mar 2011 14:08
Elementis plc - Annual Financial Report 2010 and Notice of 2011 AGM
Copies of the above documents have been submitted to the National Storage Mechanism and will be available shortly for inspection at: www.Hemscott.com/nsm.do
Printed copies of the above documents, together with forms of proxy, will be posted to shareholders today. PDF and interactive PDF versions of the Annual Report and Accounts and Notice of Meeting can also be viewed on the Company's website from 24 March 2011 at: http://www.elementisplc.com/investors/agm-information/ and
http://www.elementisplc.com/financial-information/latest-financial-results/
Annual Financial Report
In accordance with Disclosure and Transparency Rule 6.3.5, Elementis plc ("the Company") sets out below the following additional information required to be made through a Regulatory Information Service ("RIS"): Principal risks and uncertainties; Related party transactions and Directors' responsibility statement. The information below, which is extracted from the 2010 Annual report and accounts, is included solely for the purpose of complying with DTR 6.3.5(2) and the requirements it imposes on issuers as to how to make public annual financial reports.
The information below should be read in conjunction with the Company's Preliminary results announcement for the year ended 31 December 2010, which was published through a RIS on 1 March 2011. Together these announcements constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a RIS.
ADDITIONAL INFORMATION REQUIRED BY DISCLOSURE AND TRANSPARENCY RULE 6.3.5
All references to 'Annual report', page references and cross-references to 'notes to the financial statements' below relate to the 2010 Annual report and accounts, a copy of which is available as described above.
"Principal risks and uncertainties
Risk management framework and review
The Board is ultimately responsible for the management of risk in the Group. With guidance from management and advisers, where appropriate, it sets the tone for the Group's policies on risk, appetite for risk and levels of risk tolerance and specifically approves: the Group's insurance programme and risk management policies and plans; significant insurance and/or legal claims and/or settlements; major acquisitions, disposals and capital expenditures; and the Group's Annual Operating and Three Year Plans. The day to day management of risk is delegated to the executive directors and the management team, who have specific responsibility for ensuring compliance with and implementing policies at corporate, divisional and business unit level. The Board retains an oversight role and has a schedule of matters specifically reserved to it for decision, with strict delegation of authority limits that have been communicated throughout the businesses and are well understood by the management team and business leaders.
[An illustration in the printed copy of the annual report is removed here]
The above illustration shows the key components of the Elementis risk management framework. It shows that the management of risk is embedded at every level throughout the Group, and involves a continuous and active process of risk evaluation and review of policies, processes and compliance. In addition, our holistic approach to risk management is supported by specific roles and activities that are undertaken during the year, and these are summarised below.
Principal features of the Elementis risk management system
The Group's risk management arrangements and processes are integrated with the management of the businesses and comprise the following elements:
o Regular review at Board level (as a formal agenda item in at least four meetings each year plus on an ad hoc basis);
o Monthly review at management team level, including of policies, organisation, resources and business and corporate risks;
o Schedule of matters reserved for Board decision only together with specific delegation of authorities;
o Group risk management policy and associated guidance and procedures;
o Insurance and risk transference strategy;
o Group compliance audit and employee training programmes;
o Presentations and reports from business units to management team and Board;
o Risk mapping and assessment exercises, with a comprehensive Group risk register identifying risk mitigation actions;
o Business continuity planning including testing and simulation exercises;
o Review of litigation by the Board in conjunction with the Group General Counsel;
o Internal audit programme; and
o Role of Audit Committee in monitoring financial controls and the reporting of performance.
A key aspect of our risk management system is the Company's system of internal control and the processes that have been put in place to manage the associated financial, operational and compliance risks and keep them under review. An important part of the internal control framework is the internal audit service and the role of the Audit Committee. The internal audit programme is managed by PricewaterhouseCoopers, under the direction of the Finance Director, reports to the Audit Committee and involves a series of planned and surprise audits at Group and tolling sites during the year. These have a strong emphasis on financial controls but often include other aspects of business risks and controls, such as health, safety and environment reporting, and compliance with anti-corruption policies. The report of the Audit Committee, including a description of its role, and the statement on internal control are set out in the Corporate governance report on pages 34 to 39.
Principal risks and uncertainties
A list of the principal risks to the business that were discussed by the Board during the year is shown in the table below, together with the context of the discussions relative to the Group's strategy and operating plans, business model and performance. The Board also discussed other risks and risk mitigation action, as part of its review of the Group's risk register, that are not disclosed below. These more general discussions included anti-corruption policies and procedures, our business continuity and emergency response plans (for example to a major site incident), and site operational matters (such as plant security, safety and key role succession plans).
Risk & Impact | Context | Mitigation |
1) Double-dip recession
Poor trading conditions or slower than forecast GDP growth rates mean lower volumes, which can lead to lower output and capacity utilisation levels; erosion of operating margins; reduced productivity and profitability; lower earnings and cash flow can lead to bank covenant breach | Board review of monthly and year-to-date business and financial performance against management and market forecasts | Financial performance (including monthly sales, profit and cash flows) is closely monitored with full year forecasts updated three times a year and variances explained and investigated; contingency and cost reduction plans can be implemented in the event of an economic downturn to reduce operating costs, including freezing salaries and non-essential capital expenditure items; appropriate headroom maintained to minimise risk of bank facility covenants being breached |
2) Disruption to raw material supplies
Shortage of key raw materials owing to supply difficulties, transportation strikes or increased prices, would disrupt operations, leading to lower output and capacity utilisation levels, erosion of operating margins, and reduced productivity and profitability | Board review of monthly and year-to-date business and financial performance against management and market forecasts
| Source from a broad and diverse supplier base; strategic holding of chrome ore inventory; transport and carrier mitigation plans and insurance; energy and raw material costs are hedged where possible and flexible fuel project in Chromium to allow use of either gas or fuel oil
|
3) Availability of financing
Availability of financing (on acceptable terms) to the Company to ensure funding for growth plans and, if available, acquisitions. Failure would compromise growth and acquisition plans, and place a strain on cash flows
| Board review of monthly and year-to-date business and financial performance against management and market forecasts; contingency planning review; and the Board's review of growth priorities and objectives | Company's bank facilities were renewed in July 2010 for four years; alternative private placement opportunities have been considered and remain available; management maintains a good relationship with a syndicate of global banks and monitors cash flows to ensure sufficient headroom is maintained to ensure bank facility covenants are not breached |
4) Litigation and other claims from products and historical and ongoing operations
Costs of defending claims or regulatory actions, or obligations to pay damages or fines could reduce profitability; negative press coverage could damage business reputation and value
| Internal audit and risk management systems in relation to controls concerning legal and regulatory compliance; Board review of monthly and year-to-date business and financial performance; periodic litigation reviews; and insurance renewal programme
| Active compliance and risk management programme in place (including policies, procedures and training) managed by experienced General Counsel who is supported by in-house and external legal teams; additional role of the Audit Committee, as well as the internal audit programme |
5) UK pension fund
Changes to assumptions used in valuing UK pension fund deficit can lead to an increase in funding costs; size of pension deficit can impact the Company's share price and value
| Board's review of the Company's short and longer term priorities, including organic and acquisitive growth | Pension investment strategy includes significant element of liability matching; options for pension de-risking periodically reviewed; long term funding plan agreed with pension trustees |
6) Loss of strategic direction
Either through not identifying and making acquisitions or not diverting enough resources to developing new products/markets, leading to loss of competitive advantage
| Board review of monthly and year-to-date business and financial performance against management and market forecasts ; Board's review of the Company's short and longer term priorities, including organic and acquisitive growth; and Board's review of annual operating and three year plans. | Key Board priorities: to grow the Specialty Products business through a mix of selective acquisitions and the development of new products and technologies for use in existing and new territories and sectors; deliver stable earnings and cash flow from the Chromium business.
The Board receives regular reports throughout the year on progress against these priorities |
Treasury policies and objectives
Treasury activities are governed by policies and procedures approved and monitored by the Board. The Group operates a central treasury function which manages and monitors external
and internal funding requirements and the following treasury risks:
- Credit risk,
- Liquidity risk,
- Market risk.
These risks and the Group's policies to manage them are set out in note 22 to the Financial Statements.
Related Party transactions
The Company is a guarantor to the UK pension scheme under which it guarantees all current and future obligations of UK subsidiaries currently participating in the pension scheme to make payments to the scheme, up to a specified maximum amount. The maximum amount of the guarantee is that which is needed (at the time the guarantee is called on) to bring the scheme's funding level up to 105 per cent of its liabilities, calculated in accordance with section 179 of the Pensions Act 2004. This is also sometimes known as a Pension Protection Fund ("PPF") guarantee, as having such a guarantee in place reduces the annual PPF levy on the scheme.
Directors' responsibility statement
The directors are responsible for preparing the Annual Report and the group and parent company financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they are required to prepare the group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The directors, all of whom are shown on page 25, confirm that to the best of their knowledge:
• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
• the Directors' report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board
Brian Taylorson
Finance Director
1 March 2011"
Wai Wong
Company Secretary
020 7408 9303
22 March 2011