Last checked at 29 Mar 2019 11:51
29 March 2019
Annual Financial Report of IMI plc (LEI: 2138002W9Q21PF751R30)
IMI plc (the "Company") announces that copies of the Annual Report and Accounts for the year ended 31 December 2018 and the Notice of Annual General Meeting for 2019 are available from today on the Company's website www.imiplc.com and may be viewed and downloaded online at www.imiplc.com/investors (click on Annual Reports).
Hard copy documents are being posted to shareholders who have elected to receive them and are also available from the Company Secretary at the Company's registered office at Lakeside, Solihull Parkway, Birmingham Business Park, Birmingham, B37 7XZ.
Copies of the above documents, together with the form of proxy for the 2019 Annual General Meeting have been submitted to the National Storage Mechanism and will shortly be available for inspection at:http://www.morningstar.co.uk/uk/nsm
The Company's 2019 Annual General Meeting will be held at the Crowne Plaza Hotel, Pendigo Way, Marston Green, Birmingham on Thursday 9 May 2019, commencing at 10am.
The Company's preliminary results announcement of 1 March 2019 contained a management report as well as the audited financial statements which were prepared in accordance with the applicable accounting standards. The Annual Report and Accounts submitted to the National Storage Mechanism today also contains information regarding the Company's principal risks and uncertainties and a responsibility statement relating to the content of the Annual Report and Accounts (from the Directors in office as at 28 February 2019); an extract of this information is provided below as required under paragraph 6.3.5 of the DTR, however this material should be read in conjunction with and is not a substitute for reading the preliminary results announcement of 1 March 2019.
This announcement should be read in conjunction with and is not a substitute for reading the full Annual Report and Accounts.
There are no related party transactions requiring disclosure.
Page and note references in the text below refer to page numbers and notes in the Annual Report and Accounts.
Statement of Directors' Responsibilities
The following statement is repeated here solely for the purpose of complying with DTR 6.3.5. This statement relates to and is extracted from page 143 of the Annual Report and Accounts and is signed by order of the Board by John O'Shea, Company Secretary. Responsibility is for the full Annual Report and Accounts and not the extracted information presented in this announcement or the preliminary results announcement.
Directors' responsibility statement under the Disclosure and Transparency Rules
Each of the directors, as at the date of this report, confirms that:
· the Group and parent company financial statements in this Annual Report, which have been prepared in accordance with applicable UK law and with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
· the Annual Report (which includes the Directors' Report and the Strategic Report) includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face.
Our risk management framework
The Board has overall responsibility for ensuring that we manage our risk exposure appropriately to achieve our strategic objectives and build sustainable shareholder value.
The Board determines our risk appetite and monitors and reviews the risk management processes we operate. The Board delegates responsibility for implementing and monitoring internal controls and other elements of risk management to the Chief Executive and the Executive Committee. The Board has also tasked its committees with responsibility for key areas of risk, as follows:
» oversight of financial reporting, internal financial controls and assurance processes - the Audit Committee;
» succession risk - the Nominations Committee; and
» remuneration and incentive structure risk - the Remuneration Committee
Our risk appetite
In determining our risk appetite, the Board considers a number of factors including our strategic opportunities, the risks that could affect our business and our ability to mitigate their impact. Our risk appetite, the nature and level of risk we are prepared to accept to achieve our strategic objectives, is divided into three categories: prudent, balanced and receptive.
How we approach risk management
Across the Group we operate a "top-down, bottom-up approach" to risk management which is illustrated below. This approach allows the Board and the senior leadership team to actively assess strategic risks and monitor the measures used to mitigate, transfer or avoid such risks. It also ensures that operational risks are identified and managed at multiple levels and that key risk information is communicated effectively across the Group.
Our risk management process is embedded in all our businesses. It provides guidance on how to identify, evaluate and manage risks which could impact our performance and our ability to implement our strategy.
Strategic risk management process |
| Operational risk management process |
» Determines risk appetite. » Reviews principal risks. » Monitors and reviews risk management processes. | Board | » Reviews bi-annually a detailed analysis of the Group's risk profile including supporting divisional data and the actions undertaken to ensure compliance with the UK Corporate Governance Code. » Reviews annually the effectiveness of the Group's internal controls. |
» Responsible for ensuring risk management culture is integrated across their division and aligned to the Group's objectives. » Determines principal risks and mitigation strategies. » Monitors changes in the risk profile. » Monitors quality and effectiveness of business level risk management processes. | Divisional and Executive Committee | » Develops bi-annually a detailed Group and divisional risk profile which is based on information uploaded to the Group intranet by each manufacturing operation. This profile analyses each division's most significant risks and outlines mitigation strategies. |
» Operates and monitors an active and effective risk management process. » Updates operating companies on principal risks and mitigation strategies. » Operates reporting systems that increase management ownership and accountability. | Operating companies | » Maintains an up-to-date risk profile which identifies the key risks facing the business, assesses mitigating processes and controls, operates key performance indicators to validate the effectiveness of those controls and identifies areas for improvement. » Publishes risk profiles for each manufacturing operation to the Group intranet twice a year. » Provides monthly updates on key risks, mitigation and controls through incorporation of risk profile data in monthly management reporting process. |
Our principal risks
The principal risks facing the Group are shown in order of priority in the table below. This analysis covers how each risk could impact our strategy and explains what we are doing to monitor and mitigate each risk area.
The Group is also exposed to broader financial market risks, in particular, currency exchange rate volatility following the Brexit referendum. A description of these risks and our centralised approach to managing them is described in Section 4.4 of the financial statements.
Principal Risks | Why we think this is important | How we are managing risk |
GLOBAL ECONOMIC OR POLITICAL INSTABILITY » The possibility that the UK leaves the EU with neither a transition period nor a free trade agreement in place continues to pose a risk to the supply chains, ongoing operations and profitability of the Group. » IMI Critical Engineering continued to face highly competitive markets and an ongoing slow-down in the New Construction Fossil Power sector. The impact has been managed through ongoing restructuring actions including expanding the division's Value Engineering activities and entering new less severe market areas. » Whilst remaining in a strong competitive position, IMI Precision Engineering has also experienced volatility in some geographies and sectors. » IMI Hydronic Engineering markets remained stable with steady growth in most markets, and right-sizing actions were undertaken to ensure the business could respond to market changes. | » The threat of a 'no-deal' Brexit is the risk of both EU and UK ports not coping with the additional volume of customs work which could impact our supply chain and sales delivery. » The Group operates in diverse global markets and demand for our products is dependent on economic and sector-specific environments. » A downturn in a global or regional economy or political instability could impact end market demand, negatively impacting revenue and our ability to deliver our strategy and achieve market expectations. | » Build flexibility to respond to market conditions and the potential impact associated with Brexit. » Divisional project teams formed to identify 'no-deal' Brexit risks and build mitigation contingency plans. EU-UK cross-border transaction flows have been mapped, and critical supply chain risks identified by customer and part, with specific action plans put in place. Our main objective and the focus of our contingency planning is to minimise interruptions to our supply chain and ensure our customer delivery commitments are met. » Maintain a balanced portfolio operating across a range of markets, sectors and geographies with no single dependency. » Monitor key customers and respond quickly to changes in their demands. » Utilise core forecasting processes that ensure operational output can be right-sized to market demand. » Undertake enhanced stress testing and sensitivity analysis of business plans and regularly review key market and sector metrics. » Focus on enhancing competitiveness by increasing investment in New Product Development and Value Engineering and improving operational performance. » Develop robust contingency plans to ensure agility to realign the cost base as required. |
FAILURE TO DELIVER MAJOR TRANSFORMATIONAL PROJECTS ON TIME AND ON BUDGET » Successful ERP implementations across the Group in 2018 continued to demonstrate the proficiency of our system implementation teams and proven effective control. » IMI Critical Engineering has successfully managed a number of significant restructuring projects over the course of 2018 - including several plant closures - on time and to budget. | » The Group is continually evolving, both in response to external market pressures and to achieve our strategic goals. » Change projects include business reorganisations and implementations of complex new IT systems. » Failure to deliver these change projects on time and on budget, and failure to respond to changing market conditions, could adversely impact our financial performance. | » Operate robust systems and procedures to manage and monitor business projects, including clear and measurable milestones, which are reviewed regularly by Divisional Managing Directors. » Review major project progress at monthly Executive Committee meetings. » Continue to enhance risk assessment processes and mitigation action plans. » Undertake specialist IT and Group Assurance reviews of major IT projects. » Develop detailed contingency plans. » Hold monthly operational and ERP steering committee meetings which rigorously review project progress. » Post go-live audits to review progress on implementation plans. |
QUALITY ISSUES LEADING TO PRODUCT FAILURE, RECALL, WARRANTY ISSUES, INJURY, DAMAGE OR DISRUPTION TO CUSTOMERS' BUSINESS » Our operational performance continued to improve over the course of 2018. Details of key developments can be found on page 22. » During the year, we successfully launched a range of new products, maintaining our high standards for quality and customer satisfaction. The level of risk has remained the same year-on-year due to the strength of the procedures and controls in the New Product Development process. | » Developing safe, innovative and technically advanced products is at the heart of what we do. » Failure to deliver the quality required could result in negative financial and reputational damage. | » Established Group-wide standard for Advanced Product Quality Planning process (APQP) which every business reports on weekly and monthly. This identifies improvements in the early phases of the development process. » Continued focus on Quality Management Systems and audits. » Test finished products and secure customer sign-off on the most critical products. » Deploy targeted Lean events to improve quality, including implementation of Obeya reviews. Reviewed every 6-months with Group-wide Lean assessment programme. » Continue to upgrade talent with a focus on quality and product development expertise and experience. |
FAILURE TO INTEGRATE ACQUISITIONS SUCCESSFULLY AND DELIVER THE REQUIRED SYNERGIES » Our post acquisition integration process, which deploys a mix of divisional and Group resources, ensures that the right people across all disciplines are available to successfully project manage acquisition integration. » Successfully deployed the integration process to monitor and manage Bimba Manufacturing post acquisition. Progress has been tracked using a structured integration plan with key milestones and responsibilities. | » An integral part of our strategic plan is to make value enhancing acquisitions. » Failure to deliver the post-acquisition strategy could reduce the value of acquired businesses. | » Undertake annual review to identify potential target acquisitions that align with our strategy. » Identify hard and soft synergies within targeted acquisition opportunities. » Adhere to formal acquisition approval, due diligence and post-acquisition integration processes. » Deploy a rigorous 100-day process to effectively monitor and manage post acquisition integration. |
FAILURE TO COMPLY WITH LEGISLATION OR A BREACH OF OUR OWN HIGH STANDARDS OF ETHICAL BEHAVIOUR » We do not engage with customers, suppliers or any other third parties who are not aligned with our own code of conduct and strong ethical standards. » During the year we introduced internal controls and procedures to ensure compliance with the EU General Data Protection Regulation. » Prior to the November 2018 deadline, we closed down all trading activities with Iran following the re-imposition of US sanctions. » The challenging territories in which we operate make the risk of regulatory breach a continued area of focus. As such, our risk profile remains unchanged. | » The global markets and regulatory environment demand the highest standards of conduct and adherence to compliance rules and procedures. » Failure to comply with legislative requirements or a breach of our Code of Conduct could result in significant financial and reputational damage. » As we expand our operations to achieve growth it is essential that we maintain our high standards of conduct and compliance procedures. » Legislative requirements in relation to tax, anti-bribery, fraud and competition law include rigorous monitoring and training of new and existing employees. | » Committed to fostering a positive culture underpinned by core values and behaviours that promote fair and ethical working practices. » Continue a robust internal controls declaration process. » Established dedicated compliance resources at Group, divisional and local levels. Each division have specific compliance plans in place which are executed over the course of the year. » All employees are provided with easy access to policies, manuals, guidelines and standard operating procedures via our global intranet. » Undertake regular employee training focused on key risk areas such as fraud, antibribery and corruption and how to apply the IMI Way in everyday situations. » Operate a confidential independent hotline to report concerns. » Undertake rigorous due diligence and approval procedures on third party agents. Terminate all non-compliant agents. » Operate stringent procedures and processes for dealings with higher risk territories, including formal training for relevant employees. » Actively monitor and manage trade sanctions. |
FAILURE TO MANAGE THE SUPPLY CHAIN » The possibility that the UK leaves the EU with neither a transition period nor a free trade agreement in place continues to pose a risk to the supply chains, ongoing operations and profitability of the Group. » Growth in our IMI Precision Engineering markets has placed pressure on our suppliers, in some cases impacting on our delivery performance in 2018. In response, the division upgraded its supplier management processes and is executing specific improvement plans for critical suppliers. | » We depend on a significant number of suppliers who provide essential products and services. » Failure to manage our supply chain, especially in respect of quality or on-time delivery to our customers, could have a material impact on our financial performance and reputation | » Authorise the purchase and manufacture of long lead-time components to and from our UK/EU supply base. » Execute our contingency plans in the case of a 'no-deal' Brexit and continue to monitor the situation and react accordingly. » Monitor risks on a regular basis and develop contingency plans to mitigate the impact of supplier failure, increased pricing or any other supplier associated risk. » Assess specific Supplier Code of Conduct risks across divisional supply chains and audit high-risk suppliers for all aspects of supply chain risk including Modern Slavery. » Operate preferred supplier lists for all major materials and components. Where appropriate, certain suppliers are operating under a framework agreement. » Regular review meetings with key suppliers and, as required, deploy escalation meetings. » Monitor key supplier performance using supplier scorecards. » Carry adequate safety stock and/or maintain dual supply sources for critical components. |
UNAUTHORISED ACCESS TO OUR IT SYSTEMS » The digital and security threat environment in relation to our IT systems and infrastructure is constantly and quickly evolving. We continued to invest in strengthening our IT systems and protecting our data, alongside raising awareness of cyber security across all parts of our business. » During 2018 the Group significantly upgraded our anti-malware, intruder detection, USB device control and internet filtering capabilities. In addition, we have deployed laptop encryption and completed a significant number of firewall replacements to reinforce our infrastructure against new and emerging threats. » A security awareness campaign, 'Be Cyber Safe' commenced roll out during 2018 and will continue to run throughout 2019. | » While we have a well-developed strategy to keep abreast of new threats and continually improve the Group's IT infrastructure, we cannot guarantee that our actions are keeping pace with the constantly evolving threat environment. » Unapproved access to our IT systems could result in loss of intellectual property, fraudulent activity, theft and business interruption. | » Continue our IT Security Improvement programme across the Group. This includes 24/7 network monitoring via a security operations centre. » Centralised security software in place. Continued emphasis on upgrading and strengthening our existing hardware and software against new and emerging threats. » Monthly reviews with Divisional Managing Directors to assess progress and monitor future actions and priorities. » Continue to raise awareness of cyber security through regular employee communications. » Instigated disaster recovery plans on all essential IT assets, including stringent system back up procedures at all of our businesses |
INCREASINGLY COMPETITIVE MARKETS » Market dynamics continues to be a significant consideration for the Group and impacts all three divisions. We have experienced increases in material, labour and other costs which impacted our business over the course of 2018. » Value Engineering processes enabled IMI Critical Engineering to win £180m of new orders in 2018. » Divisional restructuring activities continue to efficiently manage our fixed cost base and will remain an ongoing focus over the course of 2019. | » Increased competition could lead to loss of customers and/or pricing pressures resulting in lost sales, reduced profits and margin deterioration. | » Continue to embed effective New Product Development processes including competitor tear down testing, benchmarking competitor products and Value Engineering. » Active participation in international trade fairs and shows. » Utilise our metrics to track performance and identify areas for improvement. » Continue to review site capacity to ensure best utilisation and improve productivity. » Developed standard costings to ensure thorough understanding of product cost and internal processes to track and manage cost increase appropriately. » Continue to enhance operational performance, quality delivery and service standards through Lean implementation. » Undertake regular customer feedback performance surveys and implement action plans where improvements are required. » Continue Value Engineering activities in all three divisions to deliver better, more cost-effective products to the customer. » Operate market specific pricing strategies to maintain margins and continually review supply chain performance to mitigate or defer input cost inflation. |
NEW PRODUCT DEVELOPMENT » Our end to end Advanced Product Quality Planning (APQP) and New Product Development processes have successfully delivered competitively priced new products to market. » During 2018, processes covering design, prototyping, testing, costing and launch to markets, were embedded across all three divisions. » A New Product Development and Future Innovation strategy was put in place for each division in 2018. » Further information about our New Product Development activities are detailed on page 24. | » Our sustainable long-term growth is reliant on delivering a pipeline of innovative new products. » Failure to deliver market leading products on time and on budget will impact our ability to grow. | » Embed New Product Development into strategic planning process with technology and product roadmaps included in each division's five-year plan. » Continue to invest in research and development to ensure we target the most profitable opportunities. » Established centres of design and technological excellence. » Track new product introduction plans and actions on both a weekly and monthly basis. » Track key performance metrics including sales from new products and research and development spend against sales. » Continue competitor product tear down and testing. |
Enquiries to:
James Segal Corporate General Counsel Tel: 0121 717 3700
John Dean Investor Relations Tel: 0121 717 3700
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