Last checked at 8 Apr 2020 16:47
8 April 2020 | LEI: 213800S21IFC367J5V62 |
Marshalls plc
Annual Report 2019 and Notice of 2020 Annual General Meeting
The Company announces that it has published its full Annual Report for the year ended
31 December 2019 and Notice of 2020 Annual General Meeting which is to be held at 11.00am on Wednesday 13 May 2020 Landscape House, Premier Way, Lowfields Business Park, Elland, HX5 9HT.
Copies of the documents listed below have been posted to shareholders:
1. Annual Report 2019
2. Notice of 2020 Annual General Meeting
3. Form of Proxy for the 2020 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 8399F published on 12 March 2020 (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 2019 in full text form:-
· Statement of Directors' Responsibilities;
· Principal Risks
COVID-19 further update
Marshalls continues to take steps during the current COVID-19 protective lockdown to protect its business, its employees and its cash flow so that it is in a strong position for eventual recovery.
Marshalls has committed to continue paying 100% of the salaries of its employees placed on furlough during March and April, while ensuring those employees who continue to work have access to appropriate advice and equipment. With effect from 1 April 2020 until further notice, the Board has unanimously agreed to take an immediate 20% reduction in its remuneration. The effect of this will be to reduce the annual fees of the Chair and Non-Executive Directors by 20%, and to reduce the salary of the Executive Directors by 20%, including pension contributions/salary supplement and bonus payments which are calculated as a percentage of salary. Other members of senior management have also voluntarily agreed similar reductions.
As previously announced on 27 March 2020, the recommendation for a final and supplementary dividend has been withdrawn.
The Principal Risks summarised below are those identified in our 2019 Annual Report, prepared before the impact of the coronavirus pandemic. The Group's control measures have adapted effectively to support our response to the pandemic.
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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 42 and 43 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 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 changing 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' strategies 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 emerging and 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 and economic uncertainty in relation to the ongoing Brexit transition process.
Potential impact The potential impact of further delays in the Brexit transition process or wider global macro-economic tension and 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 raw 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 detailed plans to mitigate the risk of raw material shortages. · The Group undertakes scenario planning to support improved business resilience. · 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 UK's exit from the EU on 31 January 2020 has removed key elements of uncertainty, although further delays in the transition process could generate renewed uncertainty. There continues to be volatility in world markets and global economic uncertainty continues to be a risk.
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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. Increasingly, all business are becoming more IT dependent.
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. · 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). · 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 net risk is being maintained due to the continued extension of mitigation controls. The risk is fast growing and indiscriminate and the perception is that the gross risk of data loss through new (or as yet unseen) security threats continues to increase.
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Security of raw material supply / raw material shortages
Nature of risk Brexit transition uncertainty continues to bring a risk to the security of raw material supply and the risk of shortages in some areas. Changes in the market for certain raw materials have created an increased reliance on imports. 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 the Brexit transition process are minimised. · A focus on governance and financial controls including a rolling "material risk" review process. · The digitisation of the supply chain through the implementation of a best-in-class Supply Relationship Management System. · 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. However, cost inflation remains a risk as demand for raw materials increases against a backdrop of continuing economic uncertainty. All importers are faced with the same issues.
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Climate change (including the impact of weather events)
Nature of risk The Group is exposed to the impact of climate change giving rise to unpredictable and extreme weather events.
The longer-term implications of climate change give rise to the transition risk to address the challenges quickly enough.
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.
The cost impact of the "Environmental Protocol", and mitigation programmes could lead to increasingly expensive processes.
Financial risk caused by adverse impact on margins and cash flows as well as sales and production volumes.
| Key risk indicators · Prolonged periods of bad weather (e.g. snow, ice and floods) which make ground working difficult or impossible. · Changing public perceptions of the longer-term implications of climate change.
Mitigating factors · The Group utilises centralised specialist functions to support mitigation plans and the management of relationships on commercial contracts. We are committed to water harvesting and recycling schemes and have an environmental target of not using any mains schemes. · The development of resilience strategies for climate change is a key element of the Group's Climate Change Policy. · The Group has a continuing focus on new product development, including landscape water management. · The development of the Group's Water Management business is a significant opportunity. The acquisition of CPM has been a significant step in 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. The Group is committed to the Science Based Targets initiative.
Significant increase in public awareness of climate change and media coverage.
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The increased pace of digital change in the market
Nature of risk The rapid pace of digital change in the market continues and there is an increasing risk that new emerging technology could lead to changes in the external marketplace.
Potential impact Despite significant additional focus made by the Group in this area in recent years, there remains a risk that a new third party could use emerging digital technology to enter the market and transition more quickly and effectively.
| Key risk indicators · The emergence of new digital third parties, possibly from outside the sector, and the more widespread availability of artificial intelligence technology.
Mitigating factors · The Group's digital strategy has been progressing well for several years. · The Group is committed to further investment in this area; the digital strategy is a key part of the Group's new 5 year Strategy. · The introduction of new trading websites covering both Public Sector and Commercial and UK Domestic. · The ongoing monitoring of competitive threats.
| Change in risk in the year The pace of digital change in the market continues to increase and the risk is increasing. This is now seen as a major risk by the market.
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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 which 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 has a continuing focus on new product development. · The continued development of the Group's digital strategy and its focus for customers and all stakeholders. | 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 and routes to market. · 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 Inadvertent failure to comply with elements of a significantly increased governance, legislative and regulatory business environment. The Group may be adversely affected by an unexpected reputational event, e.g. an issue in its ethical supply chain.
Potential impact Significant increases in the penalty regime across all areas of business (e.g. competition law, the Bribery Act and GDPR) could lead to significant fines in the event of a breach. An environmental incident could lead to a disruption to production and the supply of products for customers. Such incidents could lead to prosecutions and increased costs and have a negative impact on the Group's reputation.
| 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 · Centralised legal and other specialist functions, the use of specialist advisers and ongoing monitoring and training. · 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 significant increase in governance and regulation continues to increase risk in this area. The Group continues to improve compliance procedures within all areas of the business. The potential impact of the Bribery Act continues to be a high profile risk area. It is receiving additional management focus.
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Health and safety
Nature of risk Unexpected health and safety incident, possibly caused by human error or the actions of a subcontractor.
Potential impact Risk of harm to employee or subcontractor.
Significant increases in penalty regime could lead to significant fines and prosecution.
A major incident could lead to a disruption to production and a negative impact on the Group's reputation.
| Key risk indicators · Integration requirements for new acquisitions. · Significant increases in the penalty regime.
Mitigating factors · Centralised specialist functions. · Comprehensive 5-year health and safety strategy. · Ongoing monitoring, training and health and safety audits. · All senior managers receive the Marshalls Health and Safety and Environmental stage 3 training. · The integration of CPM and Edenhall into the Marshalls Health and Safety Management System.
| Change in risk in the year The significant increase in regulation.
Health and safety continues to be a high profile risk area at the heart of The Marshalls Way.
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Cautionary statement and Directors' liability
The Annual Report 2019 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 the 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.
The 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 the 2019 Annual Report are based on information known to the Group as at the date of the 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 the Annual Report should be construed as a profit forecast.
Annual General Meeting
The Notice convening the Annual General Meeting to be held at Landscape House, Premier Way, Lowfields Business Park, Elland, HX5 9HT at 11.00 am on Wednesday 13 May 2020 together with explanatory notes on the resolutions to be proposed is contained in a circular to be sent to shareholders on 8 April 2020.
Enquiries:
C E Baxandall, Group Company Secretary, Marshalls plc
Tel: 07824 473 867