Ibstock Regulatory News (IBST)

1.

2020 Annual Report and Accounts

2.

Notice of Annual General Meeting ("AGM") 2021

DESCRIPTION

MITIGATION

 Climate change

The Group may not deliver upon its

sustainability commitments and those targets set out in the Sustainability Roadmap.

An inability to manage energy demand needs within our sustainability targets or changes in consumer demand may reduce our competitive advantage.

Failure to respond to climate change risks may also result in reductions in investor interest and support.

As a business engaged in the extraction of

natural resources and the manufacture of

concrete products, there is a risk that the

Group's operations are targeted by

environmental activists. This could result in disruption at one or more of the Group's

manufacturing facilities inhibiting the ability to manufacture or despatch product or receive supplies.

The impact of climate change and

Government's response to this could also lead to changes to laws and regulations that could

require that the Group make significant

capital investments or otherwise increase its

costs or could result in material liabilities.

The global increase in focus on corporate

social responsibility following the pandemic

has greatly raised the profile of the Group's

approach and success with its sustainability

programme. The approach taken by the

Group when dealing with all its stakeholders

will be placed under increased scrutiny in the

wake of the current crisis and beyond.

We recognise the importance of being a sustainable business and that climate change affects natural and economic systems, and recognise their implications in all we do. 

As a business, there are a number of International and British standards operated throughout our businesses which include environmental, energy, responsible sourcing and quality. These provide a consistent set ofprocedures which are regularly reviewed and updated to identify ways in which they can be made more effective.

The Group aims to provide visibility and assurance to our stakeholders through our disclosure in relation to sustainability (see pages 36 to 45), which is supported by continued investment to improve the sustainability of our operations and internal sustainability KPIs to track measures. A new KPI centred on carbon reduction has been introduced for the FY 2020 and is an additional measure for our LTIP.

The Group has a proven record of investment in the latest systems, plant, machinery and technology and we continue to address the need for enabling conditions to address climate change concerns through the development of our Sustainability Roadmap 2025.

The Group Technical team and Group Engineering function are investing in longer-term strategic supplier partnerships in order to deliver longer-term sustainable products to our customers.

We operate proactive management of the sustainability descriptions associated with the Group's products. Physical security measures are in place at the Group's production facilities, together with real-time monitoring of social media to identify threats of environmental activism.

The introduction of a new ESG Committee will provide clear and strategic oversight of the Group's sustainability strategy. It will provide the basis to ensure that all existingand emerging issues are covered appropriately so that the Group will be able to continue to meet both its legal obligations and further develop its Sustainability Roadmap.

The Group will continually keep under review the level of resourcing and structure in place to manage sustainability within the business.

Operational disruption

A material disruption, including those causedby extreme weather, power outages or aglobal pandemic, at one of the Group'smanufacturing facilities or quarries, or atone of the Group's suppliers' facilities,could prevent the Group from meetingcustomer demand. 

The Group depends on efficient anduninterrupted operations of its informationand communication technology, and anydisruption to these operations could have amaterial adverse effect on the Group'soperations and financial performance.Failure to deliver capital enhancements on atimely basis could similarly extend plannedclosures and adversely impact the Group'sproduction capabilities. 

Additionally, the Group is exposed to theimpact of unexpected or prolonged periods ofbad weather, which could adversely affectconstruction activity and, as a result,demand for the Group's products 

The Group has the ability to transfer some of its production across its network of plants and is able to engage subcontractors to reduce the impact of certain production disruptions. Groupwide business continuity plans are being refreshed and improved to take account of those learnings coming from the COVID-19 pandemic.

In relation to supplier disruption or failure, further third party suppliers have been identified who can maintain service inthe event of a disruption. In relation to IT, a major incident action plan has been developed and the Group maintains data backups and a comprehensive disaster recovery plan covering Group and individual factory locations.

The Group maintains a capital expenditure development plan, which is focused on integrating the latest technology and replacing end-of-life assets to ensurecontinued operational capability. The ongoingmaintenance programme ensures a disciplined approach to plant outages, whilst ensuring greater investment inmaintenance on an ongoing basis. This is supported by qualified project management resource to ensure disruption is minimised. 

Management does not underestimate the potential impact that future prolonged periods of bad weather could have. Weather conditions are beyond the Group'scontrol, although historically adverse weather has not impacted trading in the context of any full year. 

The Group maintains appropriate business interruption insurance, whilst its wide geographical spread mitigates thisrisk to some extent and allows it to manage its production facilities to mitigate the impact of such disruption.

Economic conditions

The Group's business could be materiallyimpacted by changes in the macroeconomicenvironment in the UK. Specifically, demandfor the Group's products is strongly correlatedwith residential construction and renovationactivities and non-residential construction,together with the supply chain's attitude tostock levels, which are cyclical. 

Continued uncertainty around the progress ofthe COVID-19 pandemic and the introductionof further lockdowns and restrictions couldfurther damage the economy with theresulting impacts on the Group's business. 

In addition, should negative impacts oneconomic conditions arise as a result of thechange in the relationship with the EU, thiscould include a reduction in housing demand,or reduced mortgage availability oraffordability. Such consequences would likelyreduce demand for the Group's products

 Wider macroeconomic conditions are largely beyond the control of the Group. However, the Group seeks to analyse construction data using independent forecasts of construction statistics and forecasts of future demand based on stated customer requirements withthe aim of anticipating market movements. 

The Group has historically flexed capacity and its cost base where possible during economic downturns to allow more of the Group's manufacturing plants to remain open and viable, maintaining skills, development and training. Actions taken during the year in order to reduce the ongoing fixed cost footprint of the Group through an organisational review and restructuring will provide flexibility for the business so that it can meet future demand levels in a cost-effective way.

Ibstock ensures that its fulfilment and customer service capabilities to support and serve customers are maintained and actively engage with industry bodies to ensure the promotion of housebuilding and construction, whilst seeking to promote the differentiating qualities of our business in the coremarkets in which we compete. 

The Group's RMI and specification product ranges diversify end-use exposure and provide greater resilience in light of changing market demand in any of its end-use markets

Anticipating the market and new product development

There is a risk that the business is not able toidentify opportunities in the housing marketor construction sector and miss chances tomaximise or exploit opportunities ahead ofour competitors. As result, our productoffering and the customer journey may notmeet changing customer requirements.

If the business is not able to respond to changes or opportunities in the market this could result in a direct financial cost whereby revenue numbers stagnate or decline. In addition, there is the risk that the business may not be perceived as market leader and this will directly impact their reputation and ability to expand market share.

Failure to be at the forefront of innovation as the Group's markets evolve may lead to a loss in market position or customers resulting in declining revenue or margins. 

A lack of new product development and failure to optimise our supply chain to support our customers may also be detrimental to thelong-term achievement of the Group's strategy

Consideration of relevant market data and trends in the divisions highlights emerging risks as soon as they are identified, providing the leadership teams with the information required to make considered and fact based decisions.

The Group has a culture of innovation through its organisational structure, including suitably qualified and experienced people such as product managers in each of the operating divisions.

The Group's Growth Engine to secure sales opportunities enables more effective new and sustainable product development.

Financial risk management

 In addition to the input cost risks outlined, theGroup is subject to the following otherfinancial risks: 

Foreign exchange risk: As the Group transacts in currencies other than Sterling, exchange rate fluctuations may adversely impact the Group's results.

Credit risk: Through its customers, the Group is exposed to a counterparty risk that accounts receivable will not be settled leading to a financial loss to the Group.

Liquidity risk: Insufficient funds could result inthe Group being unable to fund its operations. 

Interest rate risk: Movements in interest ratescould adversely impact the Group and result in higher financing payments to service debt. 

The impacts of COVID-19 and the adoptionof home working, changes to volumes andpatterns of transactional activity all served toincrease the financial control risks, through aheightened potential for fraud and compromising the integrity of data within the organisation

Foreign exchange risk: The Group undertakes limited foreign exchange transactions selling domestically with largely local input costs. Some capital expenditure requires foreign exchange purchases and managementconsiders foreign exchange hedging strategies where significant exposures arise. 

Credit risk: Customer credit risk is managed by each subsidiary subject to the Group's policy relating to customer credit risk management. The Group principally manages credit risk through management of customer credit limits. The credit limits are set for each customer based on the creditworthiness of the customer and the anticipated levels of business activity.These limits are initially determined when the customer account is first set up and are regularly monitored thereafter. 

Liquidity risk: The Group's policy is to ensure that it has sufficient funding and facilities in place to meet any foreseeable peak in borrowing requirements and liabilitieswhen they become due. At 31 December 2020, the Group has net debt1 of £69 million - well within the banking facilitiesof £215 million, as set out in Note 19 of the Group financial statements. During the year it negotiated a number of amendments to a number of covenants under the RCF andsecured access to the COVID Corporate Financing Facility.

Interest rate risk: The Group finances its operations through a mixture of retained profits and bank borrowings. The Group's bank borrowings, other facilitiesand deposits are in Sterling and at floating rates.

No interest rate derivative contracts have been entered into during the year or at the year end.

See mitigations under Cyber risk relative to the increased of financial control.

Government regulation and standards relating to the manufacture and use of building products

 The Group's production, manufacturing anddistribution activities are subject to healthand safety risks. The Group is subject toenvironmental, health and safety laws andregulations and these may change.These laws and regulations could cause theGroup to make modifications to how itmanufactures and prices its products. 

Greater regulation following the Grenfell tragedy has increased the risk that the Group's failure to comply with the relevant regulations would result in the Group being liable to fines or a suspension of operations, which would impact the Group's financial results, together with any associated negative reputational damage. 

Additional regulation and responsibilities asa result of continuing COVID-19 restrictionsincluding health and safety and wellbeing ofour workforce may also impact.

The Group monitors the law across its markets to ensure the effects of changes are minimised and the Group complies with all applicable laws. The Group aligns Company-wide policies and procedures accordingly with training on mandatory topics and compliance requirements undertaken.

The health and wellbeing of our employees is fundamental to our business. We have stringent health and safety policies and monitor compliance regularly through internal and external auditing activity. This has been particularly important in light of COVID-19.

We reorganised the management of the health and safety function to provide more coordinated, central oversight to ensure alignment and consistency throughout the business.

We have also invested considerable resources in employee training across our manufacturing processes. We have invested heavily in safe systems and facilities to protect our employees. These activities have continued virtually, where possible, as a result of COVID-19.

Customer relationships and reputation

The Group receives a significant portion of itsrevenue from key customers and the loss ofany such customer through our failure toevolve effectively and meet the changingneeds of our customers could result in asignificant loss of revenue and cash flow.Constriction in activity levels within theconstruction industry introduces a risk thatprice levels cannot be maintained, resulting indilution of margins or level of market shareand adversely impacting the Group'sfinancial results.

Further, the Group does not have long-term contracts with its customers and the Group's revenue could be reduced if its customers switch some or all of their business with the Group to other suppliers or if we are unable to leverage our customerrelationships effectively 

The Group has a service-led ethos with many top customer relationships lasting over 40 years. The Group differentiates itself through the continued quality of its products and service levels with Net Promoter Score (NPS)surveys completed to build customer relationships through proactive response to customer requirements.

The Group's sales and production teams are highly integrated to ensure that production aligns with customers' needs. Sales teams receive in-depth technical training and are assisted by a design support service team as well as targeted marketing materials to assist with specification and selection.

The Group's divisions each have their own sales teams aligned by customer group and region in order to focus on key decision-makers and customers. Key accountmanagement is supervised at a senior level where long-term relationships benefit from the Group's commitment to quality, service and consistency. During the 2020 year, we amended our organisational structure tomove marketing teams into the divisional commercial teams, enabling us to understand and respond more effectively to the evolving needs of our customers.

Access to 145 million tonnes of clay reserves, Ibstock Clay's primary raw material, ensures an ability to satisfy customer demand.

Recruitment and retention of key personnel

The Group is dependent on qualifiedpersonnel in key positions and employeeshaving special technical knowledge and skills.Any loss of such personnel without timelyreplacement could disrupt businessoperations, damage customer relationships orresult in the loss of corporate knowledge.

There is a risk that the Group faces difficulties in attracting and retaining staff in productionroles, which are labour-intensive and potentially less attractive to the younger population.

Recent experience of COVID-19 and the impact of restructuring and redundancies could negatively affect morale

Focused action plans are in place as a result of the 'Great place to work' employee engagement survey aimed at further building on employee satisfaction.

Improved methods of communication such as My Ibstock and a focus on employee well being will helpin developing our culture and following an extremely difficult year.

Investment in our people through training anddevelopment programmes is in place to upskill our existing workforce whilst we recognise the changing labour markets, and packages for key and senior staff remain competitive. We are proposing a new SeniorManagers Share Plan (SMSP) for 2021. 

The Group believes that it is essential to support and develop the management team, where appropriate, ensuring that the team is structured in a way which besttakes advantage of the available skills and robustly identifies the team and structure for the future. Succession plans are in place, which is key to ensuring a managed transfer of roles and responsibilities.

Apprenticeship schemes are in operation with a yearly intake across the business (engineering and technical based). High potential individuals are identified withdevelopment plans formulated. External recruits are brought in where any skill gaps are identified and to enhance the talent pool.

Input prices

The Group's business may be affected byvolatility in extraction expenses and rawmaterial costs. Risks exist around our abilityto pass on increased costs through priceincreases to our customers. 

The Group's business may also be affected byvolatility in energy costs or disruptions inenergy supplies. Significant changes in thecost or availability of transportation couldaffect the Group's results

Significant input costs are under constant review, with continuous monitoring of raw material costs, energy prices and haulage expenses, with the aim of achieving the best possible prices and assuring stability of supply. 

With regard to possible energy shortages, the Group operates forward purchasing to mitigate the impact of sudden price increases and monitors the carbon marketon an ongoing basis and has modelled the impact of such rises to assess the financial implications (see Viability Statement on page 64).

As competitors of the Group are likely to experience similar levels of input price increases, we aim to have appropriatepricing policies to remain competitive within our markets and pass on significant increases in input costs.

Product quality

The nature of the Group's business mayexpose it to warranty claims and to claims forproduct liability, construction defects, projectdelay, property damage, personal injury andother damages.

Ensuring accuracy of the Group's product datais important to the Group's continued successwith any inaccurate data potentially placingthe end user at risk.

Any damage to the Group's brands, includingthrough actual or alleged issues with itsproducts, could harm our business, reputationand the Group's financial results.

Focus on detailed product information has intensified, with the Group's customers demanding greater information regarding the product specifics.

The Group operates comprehensive quality control procedures across its sites with both internal and external audit reviews of product quality completed to ensure conformance with internationally recognised standards.

All accredited staff undergo rigorous trainingprogrammes on quality and the Group's Technical teams carry out regular testing of all of our products to providefull technical data on our product range.

The Group maintains appropriate insurance cover against product liability related claims.

Cyber security

High-profile attacks on companies across anumber of industry sectors (including one ofour own major customers) have highlightedthe damage that can now be caused byhackers and cyber terrorists. Unauthorised access to the Group's ITsystems, malware attacks or hacking incidents represent the greatest cyber security risks to the Group.

Such IT security risks have the ability to significantly disrupt the Group's business, resulting in financial loss. Potential penalties could arise from the loss of data as a result of breaches to the Group's IT security orreputational damage as a result of negativepublicity associated with control lapses inthis area.

Changes in employees' working patternsand use of technology as a direct result ofCOVID-19, along with the resulting risks toinformation security have materially increasedcyber risks. The continuing prevalence of many colleagues continuing to work from home in some capacity for the foreseeable future will compound the near term challenges.

The Group is committed to ensure that its network, applications and data are protected.

The Group has completed a review using an external cyber security programme framework, which provides coverage across the key areas of cyber security and aligns with industry standards. This has culminated in the Group's achievement of the UK Government's Cyber Essentials accreditation, which is subject to independent audit annually.

Despite the pace of the change introduced when lockdown commenced in March, all equipment deployed was built to be image compliant with Ibstock policies and standards. In addition, the fast track introduction of new industry leading VPN services to handle the extended homeworking user community, the use of new applications such as Microsoft Teams/OneDrive to enable virtual meetings and collaboration and the disablement of existing vulnerable applications and processes ensure the business could and is expected to continue to operate effectively in the 'new normal'.

Ibstock plc

Nick Giles, Group Company Secretary

01530 257438