Last checked at 31 Mar 2011 07:00
The Morgan Crucible Company plc
Annual Financial Report 2010
In accordance with Listing Rule 9.6.1, a copy of each of the following documents has been submitted to the National Storage Mechanism and they will shortly be available for inspection at www.Hemscott.com/nsm.do:
a. Annual Report and Financial Statements for the year ended 2nd January 2011;
b. Shareholder Circular incorporating the Notice of the Annual General Meeting to be held on 10th May 2011;
c. Form of proxy for the 2011 Annual General Meeting
The documents were posted or otherwise made available to shareholders on 30th March 2011.
The Annual Report and Financial Statements and the Notice of Annual General Meeting are available on the Company's website at www.morgancrucible.com in the 'Investors' section.
On 16th February 2011, the Company issued its preliminary financial results for the year ended 2nd January 2011. The results included a management report which contained an indication of important events which had occurred during the year and their impact on the financial results. In compliance with Rule 6.3.5 of the Disclosure and Transparency Rules, the responsibility statement contained in the Annual Report and Financial Statements signed by Paul Boulton, Company Secretary, for and on behalf of the Board on 16th February 2011, is set out below in unedited full text, together with an extract from the Company's Business Review detailing principal risks and uncertainties, also in unedited full text. Page references and references to notes below refer to page numbers and notes in the Annual Report and Financial Statements.
Directors' Responsibility Statement
'Each of the Directors, the names and roles of whom are set out on pages 62 and 63, confirms to the best of his knowledge:
·; The Group financial statements in this Report, which have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ('adopted IFRSs'), including interpretations issued by the International Accounting Standards Board (IASB) and those sections of the Companies Act 2006 applicable to companies reporting under IFRSs as adopted in the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group taken as a whole.
·; The parent Company financial statements in this Report, which have been prepared in accordance with UK Accounting Standards (UK Generally Accepted Accounting Practice) and applicable law, give a true and fair view of the assets, liabilities, financial position and profit of the Company.
·; The Business review contained in this 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.'
Principal Risks and Uncertainties
'Introduction
The 2009 Annual Report described the ongoing process of evolving the Group's Risk Management Policy and processes. During 2010, we trained 30 risk officers around the world and ran risk workshops in most of the key businesses. Additionally we reviewed and updated the role and function of the Risk Management Committee. We will continue to train additional risk officers and management in the use of the risk management methodology in 2011.
The risk management processes are designed to be forward-looking in the identification, management and mitigation of business risks that could impact the Group's short- and long-term performance and value. The processes will not eliminate risks but rather mitigate them to an acceptable level within the context of the business environment in which we operate. The process covers both risks and opportunities.
Management of business risk is an integral part of delivering performance and is the responsibility of all managers. Our risk management decision-making and reporting procedures are integrated into our formal business reporting up to the Board.
Assurance of the effectiveness of risk management processes, procedures and internal control continues to be monitored by the Audit Committee. Divisional management attend the Audit Committee at least annually to report on internal control and compliance with Group policies. Key risks and issues are reported to the Board via the Risk Management Committee and the Executive Committee. The Risk Management Committee is chaired by the Chief Financial Officer with representation from each Division.
The risks described below include the main areas of risk that could impact Morgan Crucible. These cover most areas of known and emerging business risk. They include internal risks where we have a greater degree of control and influence as well as external risks where our ability to completely control them may be more limited. They are nevertheless assessed and managed down to an acceptable level. The relative importance of some of these risks has changed during 2010 as business conditions change. As a consequence the controls to manage risk have been adjusted to ensure that the risks continue to be managed within acceptable limits. The Group reviews its processes and controls to ensure that they are effective and cost-efficient. Linked to continuous improvement and operational excellence, controls are re-evaluated and improved where needed. Within the context of managing risk at Morgan Crucible, controls include policies, processes, design of equipment and facilities, business continuity planning and multiple sourcing.
Strategic planning risks
These risks relate to the appropriateness of strategy, business model or product portfolio, acquisitions, disposals and planning and delivery of the strategy. A recent example of good practice is the Divisional streamlining in July 2010. Our programme management has identified and managed the risks alongside delivery of the benefits.
External risks
Political, economical and social
We are exposed to these risks in a number of countries in which we operate as part of realising business opportunities. We operate within the local conditions while monitoring the political, economic and social changes in these countries and adjusting our business plan, operations and controls accordingly. The culture and accepted practices in some countries represent an important risk of doing business in those countries and sometimes requires specific training and education of staff.
Financial
Operating in a number of countries, we are exposed to events in the financial environment including the changing banking and economic issues of 2010, commodity and energy prices, currency exchange and other financial market incidents, market volatility, interest rates, liquidity, pension funding and tax planning. These risks are managed through proactive assessment, contingency planning and the use of appropriate mitigation.
Examples of mitigation include:
• Flexible contingency plans to respond to changes in the global markets during 2010.
• Minimising the impact on the Group of a major currency devaluation.
• Fixing long-term pricing for the purchase of energy and other materials.
• Entering into certain hedging arrangements to help manage the impact of currency fluctuations (the Group's relevant Treasury Policies are summarised in the Financial review on pages 56 and 57).
• Managing pension funds using independent, competent Trustee Boards and external advisers.
Further details of the Group's pension plans and employee benefits are included in note 20 on pages 130 to 137.
Market dynamics and competition
Our products tend to be technologically advanced and use complex and high-added-value manufacturing techniques. We operate in a business environment where we need to be proactive with respect to market dynamics including customer preference, new technology and new competition.
We monitor our current areas of business, working with our customers to ensure that we continue to satisfy their evolving needs. We adjust our strategies and business plans to reflect changing conditions, thereby helping to ensure that risks are managed within acceptable limits.
Compliance and ethics risks
Legal, regulatory and litigation
We are subject to varying laws and regulations around the world. Changes in these could affect the long- and short-term value of the Group. As a listed company we are also exposed to the risks of ensuring compliance with listing requirements. We cannot always predict whether future developments in laws and regulations concerning our businesses will have an adverse or a positive effect.
To manage these risks, we monitor potential changes in regulation as well as having appropriate training and compliance processes in place.
From time-to-time, and in the normal course of business, we are subject to certain litigation. Provisions for the expected costs and liabilities are set out in note 21 to the accounts. If the liabilities arising were significantly to exceed the amounts provided for, there could be a material financial effect on the value of the Group.
Health, safety and environmental
Our operations involve the normal environmental, health and safety risks associated with manufacturing operations in the countries in which we operate. Although we believe that our operations are in compliance with current regulations, we cannot eliminate the risk of all accidents or non-compliance.
Further detail of the programmes in place to manage these risks are included on pages 49 to 51.
Business conduct risks
Risks such as a potential breach in the area of ethical behaviour could impact the Group's reputation or image.
Our reputation with our stakeholders is fundamental to the continued success of the Group and we mitigate reputational risks through various means, including:
• Our Responsible Business Programme and our Core Values Statement.
• Our Ethics Policy, ethics hotline and related procedures.
• Our systems of internal control and risk management.
The 2010 UK Bribery Act necessitates having 'adequate procedures' in place to help minimise the risk of being liable under the Act. While Morgan Crucible already has procedures in place, this has been an opportunity to benchmark against best practices and implement a number of improvements to ensure that we have the necessary procedures in place for 2011.
The Group's Ethics Policy and Anti-Trust Compliance Programme are further described in the Corporate responsibility section. These programmes address the risk of unethical business behaviour and are supported by mandatory training and by the Group's ethics hotline and related procedures.
Operational risks
Financial, physical property, intellectual property and information
The Group's financial, physical and intellectual property assets are exposed to risks such as theft, loss, natural catastrophe and accidental disclosure. Such incidents can also impact the continuity of the business. Some sites or external suppliers are part of an internal supply chain where their inability to provide materials, goods or services could impact several businesses.
These risks are managed through internal controls, proactive design and protection of facilities and business continuity measures to minimise the impact of an incident. Audits by experts in their fields (including financial auditors) review and assess the effectiveness of such measures.
In some cases, risks are partially transferred through insurance programmes.
Human resources risks
The Group maintains human resource policies and processes to manage the risks relating to our people. These cover areas including reward and recognition, health and safety, talent management including succession planning, skills assessment and development, performance management and employee consultation.
Product development, performance and safety risks
Our products are used in many industrial sectors including medical, aerospace and defence. These sectors require high- quality and conformance to specification as well as consideration of the health and safety of the end users.
Robust research and development processes, both in-house and where undertaken in co-operation with our customers, minimise product development risks. Our design, testing and quality assurance processes, including ISO 9001 accreditations, help to control manufacturing risks while contractual risks are mitigated through our legal contracts.'
Enquiries: Tracey Bigmore
Telephone: 01753 837000
31st March 2011