Last checked at 4 Apr 2019 15:50
4 April 2019 | LEI: 213800S21IFC367J5V62 |
Marshalls plc
Annual Report 2018 and Notice of 2019 Annual General Meeting
The Company announces that it has published its full Annual Report for the year ended 31 December 2018 and Notice of 2019 Annual General Meeting which is to be held at 11.00am on Wednesday 15 May 2019 at The Holiday Inn, Clifton Village, Brighouse, HD6 4DW.
Copies of the documents listed below have been posted to shareholders:
1. Annual Report 2018
2. Notice of 2019 Annual General Meeting
3. Form of Proxy for the 2019 Annual General Meeting
A copy of each of the above documents has been submitted to the UK Listing Authority via the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM.
These documents are also accessible via the Company's website at www.marshalls.co.uk.
Reference is made to RNS announcement number 8055S published on 14 March 2019 (Annual Financial Report). In addition to the information in that announcement, in accordance with DTR 6.3.5(2)(b), we also set out below the following extracts from the Annual Report 2018 in full text form:-
· Statement of Directors' Responsibilities;
· Principal Risks
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Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements
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 European Union and Article 4 of the IAS Regulation, and have elected to prepare the Parent Company Financial Statements in accordance with UK Accounting Standards, including FRS 101 "Reduced Disclosure Framework".
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 judgements and accounting 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.
In preparing the Group Financial Statements, IAS 1 requires that Directors:
· properly select and apply accounting policies;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
· make an assessment of the Company's ability to continue as a going concern.
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 Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply 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 who held office at the date of approval of this Directors' Report and whose names and functions are listed on pages 40 and 41 of the Annual Report 2018 confirm that, to the best of each 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 of the Company and the undertakings included in the consolidation taken as a whole;
· the Strategic Report contained in this Annual 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; and
· the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.
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Principal Risks
Process
There is a formal ongoing process to identify, assess and analyse risks and those of a potentially significant nature are included in the Group Risk Register.
The Group Risk Register is reviewed and updated by the full Executive management team at least every 6 months and the overall process is the subject of regular review. Risks are recorded with a full analysis and risk owners are nominated who have authority and responsibility for assessing and managing the risk. KPMG, as the Group's internal auditor, attended the most recent risk review meeting. The conclusion of the Group's internal auditor, KPMG, is that the process continues to be a robust mechanism for monitoring and controlling the Group's principal risks. All risks are aligned with the Group's strategic objectives and each risk is analysed for impact and probability to determine exposure and impact to the business and the determination of a "gross risk score" enables risk exposure to be prioritised.
The Group seeks to mitigate exposure to all forms of strategic, financial and operational risk, both external and internal. The effectiveness of key mitigating controls is continually monitored and such controls are subjected to internal audit and periodic testing in order to provide independent verification where this is deemed appropriate. The effectiveness and impact of key controls are evaluated and this is used to determine a "net risk score" for each risk. The process is used to develop action plans that are used to manage, or respond to the risks and these are monitored and reviewed on a regular basis by the Group's Audit Committee.
In addition, the Group has established a formal framework for the ongoing assessment of operational, financial and IT-based controls. The overriding objective is to gain assurance that the control framework is complete and that the individual controls are operating effectively. Additional independent verification checking of key controls and reconciliations are undertaken on a rolling basis. Such testing includes key controls over access to, and change permissions on, base data and metadata.
The Group is prepared to accept a certain level of risk to remain competitive but continues to adopt a conservative approach to risk management. The risk framework is robust and provides clarity in determining the risks faced and the level of risk that we are prepared to accept. Marshalls continue to put in place detailed plans to manage all risks through strategies that are designed to either treat, transfer or terminate the source of the identified risk.
Principal risks and uncertainties
The Directors have undertaken a robust, systematic assessment of the Group's principal risks. These have been considered within the timeframe of 3 years, which aligns with our Viability Statement.
Macro-economic and political
Nature of risk The Group is dependent on the level of activity in its end markets. Accordingly, it is susceptible to economic downturn, the impact of Government policy, interest rates and any political economic uncertainty in relation to Brexit.
Potential impact The potential impact of Brexit and wider global macro-economic uncertainty could lead to lower activity levels which could reduce sales and production volumes. This could have an adverse effect on the Group's financial results. The impact of exchange rate fluctuations and increased interest rates could also have an adverse impact on material costs.
| Key risk indicators · Delays in the awarding of and completion of contracts. · Reductions in consumer confidence and order pipeline.
Mitigating factors · The Group closely monitors trends and lead indicators, invests in market research and is an active member of the CPA. · The Group benefits from the diversity of its business and end markets. The proactive development of the product range continues to offer protection. · The Group has developed a detailed Brexit plan to mitigate the risk of raw material shortages. · The Group continues to target those market areas where growth prospects are greatest, e.g. New Build Housing, Road, Rail and Water Management. · The Group focuses on its supplier relationships, flexible contracts and the use of hedging instruments. | Change in risk in the year The continued uncertainty and volatility in World Markets has increase global economic uncertainty. The CPA forecasts have continued to soften in the shorter term in the wake of continued Brexit uncertainty and the increased likelihood of a "no deal" outcome. Political divisions in the UK Parliament continue to increase uncertainty with implications for Sterling and business confidence.
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Cyber security risks
Nature of risk Inadequate controls and procedures over the protection of intellectual property, sensitive employee information and market influencing data.
The failure to improve controls against cyber security risk quickly enough, given the rapid pace of change and the continuing introduction of new threats.
Potential impact Risk of data loss causing financial and reputational risk.
| Key risk indicators · Emergence of new cyber security risks · Increased examples of data loss in the wider market
Mitigating factors · Use of IT security policies. · The undertaking of regular cyber security risk audits by specialists and the quick introduction of mitigation controls and other recommended procedure updates. · Sensitive data is currently restricted to selected senior and experienced employees who are used to handling such data. · Where sensitive data is made available to third parties, it is done using encryption under confidentiality agreements with reputable suppliers. · A continuous programme of awareness training for staff. | Change in risk in the year This remains a high profile area and considerable focus is being given to promoting awareness of IT security policies. The risk is increasing despite the continued extension of mitigation controls. There is a perception that the risk of data loss through new (or as yet unseen) security threats has increased. Appropriate tools and training procedures are in place to protect sensitive data when stored and transmitted between parties (e.g. encryption of hard drives, restricted USB devices, secure data transmission mechanisms and third party security audits). |
Security of raw materials
Nature of risk In view of the continued Brexit uncertainty there is a risk to the security of raw material supply and the risk of shortages in some areas.
The Group is susceptible to significant increases in the price of raw materials, utilities, fuel oil and haulage costs and decreases in vehicle availability.
Potential impact The increased costs could reduce margins and may be further impacted in the event of imbalances in the mix of regional activity.
The risk of market demand exceeding raw material supply could lead to inefficient production, which could reduce margins. | Key risk indicators · Temporary shortages and exchange rate cost inflation · Decreases in vehicle availability and labour/driver shortages
Mitigating factors · The Group benefits from the diversity of its business and end markets. · We are collaborating with all EU based Tier 1 and Tier 2 suppliers to ensure any supply risks from a Hard Brexit are minimised. · The Group focuses on its supplier relationships, flexible contracts and the use of hedging instruments. · The Group utilises sales pricing and purchasing policies designed to mitigate the risks. · The Group uses specialist delivery vehicles. | Change in risk in the year The risk of temporary shortages is mitigated by proactive supply chain management and the use of alternative suppliers.
Cost inflation remains a risk as demand for raw materials increases against a backdrop of increased economic uncertainty. All importers are faced with the same issues.
In 2019 we will be digitising our supply chain through the implementation of a best in class Supply Relationship Management System.
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Weather
Nature of risk The Group is exposed to the impact of prolonged periods of bad weather.
Potential impact Adverse working conditions could give rise to disruption and delays that might reduce short-term activity levels. This could reduce sales and production volumes and therefore have an adverse effect on the Group's financial results.
| Key risk indicators · Prolonged periods of bad weather (e.g. snow, ice, floods) which makes groundworking difficult or impossible. An example of this was the extensive period of snow and ice in Q1 2018 when the Group's plants had to be closed for several days.
Mitigating factors · The Group has a continuing focus on new product development, including landscape water management. · The Group is developing its internal flooring offer and International strategy in order to diversify its activities. · The development of the Group's Water Management business is a significant opportunity. The acquisition of CPM has significantly moved the Group forward in this area and the successful integration of CPM has been a significant step in the stated strategy of providing a full water management capability. | Change in risk in the year Weather conditions continue to be closely monitored but are beyond the Group's control.
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Integration of acquisitions
Nature of risk The successful integration of acquisitions (e.g Edenhall and CPM) into the Marshalls Group is a significant business issue.
Potential impact There is a risk that business integration could take longer than expected. This could impact the expected financial performance and reduce the positive impact of potential synergy benefits.
| Key risk indicators · The acquisitions of CPM and Edenhall could potentially put increased pressure on the Group's resources.
Mitigating factors · Any legal or regulatory matters identified during due diligence are addressed in the sale and purchase agreement. For example, risk mitigation for CPM required £12 million to be paid into an escrow account pending the resolution of these issues. The Group has a right of reimbursement of amounts held in the escrow account to the extent that any liability crystallises. · The Group has a detailed integration plan which covers all business areas and is focused on risk reduction and maximising opportunity. The plan also focuses on ethical training and a detailed health and safety plan. · The integration plans have Executive level focus and is being administered by a dedicated Integration Manager. · Post integration reviews are undertaken by KPMG (e.g. CPM integration review in Q3 2018). | Change in risk in the year The successful integration of CPM has provided a proven template for the Group's integration model and planning. The integration projects continue to receive significant management and Board focus.
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Our customers
Nature of risk The UK business has a number of key customers, in particular the national merchants. This is partly as a result of the consolidated nature of this market.
Potential impact The loss of a significant customer may give rise to a significant adverse effect on the Group's financial results.
| Key risk indicators · Changes to market structure or trading relationships. · New customer strategies
Mitigating factors · The Group focuses on brand and new product development, quality and customer service improvement. · The Group maintains a national network of manufacturing and distribution sites. · The Group undertakes ongoing reviews of trading policies and relationships and maintains constant communication with customers. | Change in risk in the year Although the underlying risk continues, the effective management of key relationships and the ongoing diversification of the business continue to mitigate the risk.
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Competitor activity
Nature of risk The Group has a number of existing competitors who compete on range, price, quality and service.
Potential new low cost competitors may be attracted into the market through increased demand for imported natural stone products.
Potential impact The increased competition could reduce volumes and margins on manufactured and traded products.
| Key risk indicators · Threat from new competitors and new technologies. · Less demand for traditional products and the increased emergence of new digital business models and product solutions
Mitigating factors · The Group has unique selling points that differentiate the Marshalls branded offer. · The Group focuses on quality, service, reliability and ethical standards that differentiate Marshalls from competitor products. · The Group continues to have the lowest cost to market. · The continued development of the Group's digital strategy and its focus for customers and all stakeholders. · The Group has a continuing focus on new product development. | Change in risk in the year The more uncertain market environment has not led to any significant changes in competitive pressure.
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Threat from new technologies and new business models
Nature of risk Reduction in demand for traditional products. Risk of new competitors and new substitute products appearing. Failure to react to market developments including digital and technological advances.
Potential impact The increased competition could reduce volumes and margins on traditional products. | Key risk indicators · Less demand for traditional products · Emergence of new competitors and new digital business models
Mitigating factors · Good market intelligence. · Flexible business strategy able to embrace new technologies. · Significant focus on research and development and new products. · Development of the Group's E-platform and developing digital strategy. | Change in risk in the year The ongoing diversification of the business, the continued development of the Marshalls brand and the focus on new products and greater manufacturing efficiency continue to mitigate the risk.
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Corporate, legal and regulatory
Nature of risk The Group may be adversely affected by an unexpected reputational event, e.g. an issue in its ethical supply chain or due to a health and safety incident.
The impact of the "Environmental Protocol" leads to the need for increasingly expensive processes.
Potential impact An incident could lead to a disruption to production and the supply of products for customers. This could increase costs and have a potential negative impact on the Group's reputation.
Significant increases in the penalty regime have increased the potential financial impact of health and safety as well as environmental incidents.
An environmental contamination event may lead to a prosecution and to reputational loss. | Key risk indicators · Increased regulatory and compliance requirements. · Integration requirements for new acquisitions · Significant increases in the penalty regime for health and safety and environmental incidents.
Mitigating factors · The Group has a formal Group sustainability strategy focusing on impact reduction. · The Group employs compliance procedures, policies, ISO standards and independent audit processes which seek to ensure that local, national and international regulatory and compliance procedures are fully complied with. · The Group uses professional specialists covering carbon reduction, water management and biodiversity.
| Change in risk in the year The Group continues to improve compliance procedures within the supply chain.
Health and safety and the potential impact of the Bribery Act continue to be high profile risk areas. These areas are receiving additional management focus.
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Cautionary statement and Directors' liability
The Annual Report 2018 has been prepared for, and only for, the members of the Company, as a body, and no other persons. Neither the Company nor the Directors accept or assume any liability to any person to whom this Annual Report is shown or into whose hands it may come except to the extent that such liability arises and may not be excluded under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with Section 90A of the Financial Services and Markets Act 2000.
This Annual Report contains certain forward-looking statements with respect to the Group's financial condition, results, strategy, plans and objectives. These statements are not forecasts or guarantees of future performance and involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future.
There are a number of factors that could cause actual results or developments to differ materially from those expressed, implied or forecast by these forward-looking statements. All forward-looking statements in this Annual Report are based on information known to the Group as at the date of this Annual Report and the Group has no obligation publicly to update or revise any forward-looking statements, whether as a result of new information or future events. Nothing in this Annual Report should be construed as a profit forecast.
Annual General Meeting
The Notice convening the Annual General Meeting to be held at The Holiday Inn, Clifton Village, Brighouse, HD6 4HW at 11.00 am on Wednesday 15 May 2019 together with explanatory notes on the resolutions to be proposed is contained in a circular to be sent to shareholders on 4 April 2019.
Enquiries:
C E Baxandall, Group Company Secretary, Marshalls plc
Tel: 01422 314777