2015 Annual Report and Notice of 2016 AGM

RNS Number : 3359V

Hill & Smith Hldgs PLC

15 April 2016

 

Hill & Smith Holdings PLC (the 'Company')

2015 Annual Report and Notice of 2016 Annual General Meeting ('AGM')

Hill & Smith Holdings PLC has today posted, or otherwise notified as being available on its website www.hsholdings.com, the following documents:

1.     2015 Annual Report

2.     Notice of 2016 AGM

In accordance with Listing Rule 9.6.1 a copy of each of these documents has been uploaded to the National Storage Mechanism and will be available for viewing shortly.

A hard copy of the 2015 Annual Report can be obtained upon request to the Company Secretary, Hill & Smith Holdings PLC, Westhaven House, Arleston Way, Shirley, Solihull, B90 4LH.

The statutory accounts for the year ended 31 December 2015 have been approved by the Board and will be delivered to the Registrar of Companies following the Company's AGM.

Compliance with Disclosure and Transparency Rule 6.3.5 ('DTR 6.3.5') - Extracts from the 2015 Annual Report.

The information below, headed as Appendix A, B and C, and which is extracted from the 2015 Annual Report, is included solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on how to make public Annual Financial Reports. It should be read in conjunction with the Company's Preliminary Announcement issued on 9 March 2016 (available at www.hsholdings.com). Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full 2015 Annual Report. All page numbers and cross-references in the extracted information below refer to page numbers in the 2015 Annual Report.

Appendix A - Principal Risks and Uncertainties

	Risk and potential impact	Mitigation	Link to Strategy
Economic Managing the impact of those risks which we cannot eliminate or mitigate at source; e.g. global market conditions.	Competitive pressure puts downward force on revenue growth, market positioning and profitability.	›› Implementation of procurement standards to help manage cost creep. ›› Ongoing subsidiary quality assurance improvement initiatives. ›› Product differentiation through product quality, delivery performance, reliability and professional customer service. ›› Product development and geographical expansion initiatives are used to surpass present competitor reach.	·    Portfolio management ·    Geographic diversification ·    Target returns and leverage ·          Entrepreneurial culture
	Overall market or selective geographical conditions deteriorate or there is a reduction in demand leading to a decline in Government and private sector confidence and spending, affecting Group financial performance.	›› Diversification into new markets and territories. ›› New product development. ›› Close relationship between Group and subsidiary management. ›› Expansion into new export markets. ›› Intra-Group co-operation, leveraging the Group global footprint. ›› Contracts negotiated with customers on a Group wide basis leveraging Group size and synergies between Group companies.
	Volatility in raw materials markets reduce availability and increase cost of raw materials putting Group margins under pressure and impacting Group financial performance.	›› Use of Group procurement standards requiring dual sourcing and robust due diligence of supply chain partners. ›› Hedging against raw material price volatility where appropriate. ›› Contractual protections sought against raw material fluctuation impacts.
	Foreign exchange rates could impact Group financial performance by potentially eroding commercial margins	›› At the inception of contracts involving foreign currency cash flows, the Group uses derivative instruments including forward currency contracts to mitigate the risk of subsequent movements in foreign exchange rates.
	**Global economic events, profound social instability or failure of national governance in any of the territories in which we operate impacting our ability to manufacture and ultimately our financial performance.	›› Diversification into new markets and territories. ›› Pursuing opportunities in the private sector. ›› Maintaining close relationships with Government agencies
Human Resources Recognising the importance of recruitment, talent management, employee engagement and employee management to our Group.	A loss of key staff and a failure to implement effective succession planning could lead to a loss of expertise, impacting technical and financial performance.	›› Development and implementation of a Group succession planning model, driven by the Group Chief Executive. ›› Implementation of contractual protections and retentions in employment contracts. ›› Group policy supporting the training and development of its employees.	·    Geographic diversification ·          Entrepreneurial culture
	A failure to recruit employees who have the relevant skills, experience and attributes could impact the Group's ability to achieve its optimum growth potential.	›› Competitive remuneration, benefits and incentive plans offered to employees and regularly benchmarked. ›› Development of a recruitment process including competency requirements and skills gap analysis. ›› Value based culture.
	The geographical spread of management and the appointment of new management teams could compromise effective communication and responsiveness impacting the Group's strategic goals.	›› Use of internal communications systems, e.g. Group intranet. ›› Regular international conferences held at the subsidiary level. ›› A formal delegation of authorities structure has enhanced ownership and control, whilst encouraging entrepreneurial drive and spirit. ›› Entrepreneurship is encouraged as a key tenet of the Group's business strategy and the adoption of a singular business culture is, therefore, not always possible and flexibility in the Group's management style is favoured instead. ›› The Group Code of Business Conduct establishes core behaviours expected of all staff.
Operational Ensuring that we take all necessary steps to manage risk in our manufacturing plants and our installation activity both in our facilities and in the field.	A failure to manage our property portfolio effectively, could lead to production downtime and reduce our potential for increased income generation. Production capability and capacity restrictions could reduce our ability to meet demand. Downtime caused by plant failure, loss of utilities or natural catastrophe could suppress performance on an extended basis.	›› Ongoing subsidiary site assessment of future space and efficiency requirements and related investment in additional capacity or equipment. ›› Subsidiary businesses are strengthening business continuity plans to ensure that they are equipped to handle business continuity events, including leveraging their proximity to other Group subsidiaries and working with the IT Steering Committee to mitigate systems downtime risks. ›› Subsidiary businesses implement local health, safety and environmental controls which are monitored by health and safety committee meetings and an external specialist.	·    Portfolio management ·    Geographic diversification ·    Target returns and leverage ·          Entrepreneurial culture
	Insufficient investment in research and development and/or a failure to innovate restricting organic growth and geographical diversification ultimately resulting in the longer term financial goals being compromised. Regulatory and customer approvals can delay the introduction of products which are developed by the Group, ultimately resulting in the short to medium term financial goals being compromised.	›› Subsidiary discretion to engage in research and development activities, subject to budgetary constraints. ›› Robust quality controls in place. ›› Dedicated quality compliance resources in most affected subsidiaries who have conducted research and implemented controls to ensure responsiveness to regulator and customer approvals information requests and audits. ›› Board consideration of emerging risks including seeking external specialist support and internal identification of emerging risks at both the subsidiary and Group level. Both the onset of the risk and the potential opportunities it may generate for the Group are being considered. ›› Acquisition of new subsidiary businesses which have advanced IT solutions and could be applied Group-wide.
	Active portfolio management is a key tenet of the Group's strategy and as such, if the management of our merger and acquisitions activity, integrations and business restructuring is ineffective, the Group may not meet its strategic and business goals and financial performance targets.	›› Comprehensive and structured due diligence protocols are deployed in respect of investigating target businesses and contractual assurances are sought from sellers to mitigate any identified issues or risks. ›› Employment contract terms and conditions are aligned post integration between Group employees and new employees, facilitating smooth integration. ›› Formal Board level approvals are required in accordance with the Group's delegation of authority structure for any acquisitive activity. ›› A standardised and proven 100 Day Integration Plan is followed post-acquisition to streamline the integration process
	Inadequate and weak IT systems can affect the Group's financial performance and its ability to be responsive to its customers.	›› The Group's IT Steering Committee reviews IT systems capability, suitability and integrity on a regular basis. ›› The capital expenditure approval process is used to test the suitability of proposed IT system enhancements. ›› IT Policies are included in the Group policy manual.
	Supply chain failures through performance, cost and/or solvency issues could destabilise production capability and ultimately lead to a reduction in sales performance.	›› Implementation of Group procurement standards requiring dual sourcing and robust due diligence of supply chain partners. ›› Robust contractual protections sought. ›› Dedicated procurement functions at subsidiary level. ›› Regular interaction with key suppliers helps maintain relationships and understand supplier capacity, performance and financial status.
	**Project delay or cancellation (internal or external factors) including a reduction in government spending, inclement weather or a delay in the new product approvals process.	›› Diversification into new markets and territories. ›› Pursuing opportunities in the private sector. ›› Maintaining close relationships with customers.
Commercial & Financial Mitigating internal and external commercial and financial trading risks in our day to day business activities.	The cost of remediating product failures or defects caused by production or quality issues can lead to claims for loss and damage, adverse customer perceptions, reputational and financial consequences for the Group.	›› Regulatory approvals, testing and accreditations obtained. ›› Rigorous quality control protocols are fully implemented and enhanced whenever possible. ›› Policies in respect of handling product failures have been strengthened. ›› Contractual controls help mitigate the economic impacts. ›› Insurance cover is provided globally by insurers of repute. ›› Litigation is managed by external legal specialists from reputable firms.	·    Portfolio management ·    Geographic diversification ·    Target returns and leverage ·          Entrepreneurial culture
	The size of the Group's available customer base, together with the risk of losing key customers, changes in customer buying behaviours or significant worsening of contractual terms could result in Group financial under performance.	›› Products and geographical markets diversification. ›› Ongoing monitoring of the timing and trends in government funding for road and infrastructure spending. ›› Generation of contractual guidance and precedent documentation to preserve contractual terms. ›› Contracts reviewed under the delegation of authorities structure.
	An inability to collect cash in accordance with customer payment terms, obtain credit insurance or an increase in anticipated bad debts would result in an inability to plan financially with any certainty and achieve the Group's financial ambitions.	›› Subsidiary cash management is monitored by the Group finance function. ›› Standardisation of payment terms. ›› The delegation of authorities process results in contractual payment terms being centrally reviewed and approved. ›› Credit ratings agencies continue to be used as a source of risk assessment and credit insurance is effectively deployed.
	The Group's ability to ensure it does not accept unduly onerous contractual commitments is central to its commercial risk management and to mitigate the risks of poor performance due to factors within or outside of its control. This, together with ineffective contracts management post award, could pressurise margins and increase liabilities ultimately impacting the Group's financial performance and reputation.	›› Contract precedents and guidance have been produced and new standard terms produced for certain subsidiary businesses. Further work ongoing in this sphere during 2016. ›› Advice in respect to contractual risk is available to the Group, together with legal, commercial and financial support from the central team. ›› The operation of the delegation of authorities process requires Group senior management and/or Executive Director approval for the execution of material contracts. ›› Roll out of contracts training in the UK and US during 2015, further training to be held during 2016. ›› Certain of the Group's subsidiaries have appointed dedicated quantity surveyors and contracts managers to control their projects.
	Future investment projects and the growth in foreign earnings for the Group are adversely affected. The Group is affected by the short term risk that its earnings may be impacted by certain financial risks e.g. credit and liquidity risks and foreign exchange volatility. The Group operates in a range of different jurisdictions, political and fiscal regimes, which present operating and cultural risks	›› From a transactional perspective, Group companies operate a common set of reporting policies and procedures. An internal audit programme underpins compliance and further requirements are communicated via the Group intranet and directly to the financial professionals around the Group. ›› The Group benefits from centralised cash and banking controls and the Group Financial Controller acts to govern and monitor all financial controls applicable across the Group. ›› Regular monitoring of tax developments in relevant jurisdictions assists to ensure that the Group utilises the most appropriate tax structures. ›› Specialist and/or local independent tax advice is sought as appropriate from reputable accounting practices.
Legal & Regulatory Ensuring compliance with the laws and regulations which govern the operations in the territories in which we operate.	The impact of regulatory changes such as green initiatives (including carbon footprint results) acts to create additional process steps, enhanced procurement requirements and increases costs and administrative effort, ultimately impacting margins. This could also result in the non achievement of Group environmental aspirations.	›› These requirements are managed by specialists through agreed	·    Target returns and leverage ·          Entrepreneurial culture
	Group initiatives including: economies of bulk purchasing, site usage monitoring and reporting, energy market intelligence and carbon commitment management. The dilution of the Group's valuable intellectual property can result in lost earnings, particularly via the copying of product in the Asia-Pacific region. Insufficient Intellectual Property Rights ('IPR') monitoring could lead to a loss of brand protection, patent protection and increase competitive pressures.	›› Use of patent attorneys with global remit. ›› Use of in-region IPR specialist legal advice. ›› Central IPR register and management of renewals, authorised uses and assignments. ›› Contractual protections obtained to protect Group IPR where possible. ›› Monitoring of IP registrations to ensure consistent protection.
	A violation of competition/anti-trust laws could result in downtime, fines, penalties and adverse reputational consequences for the Group by both customers and investors. There may also be personal consequences for the Group's Directors.	›› The Group Code of Business Conduct ('CBC') requires that the Group conducts its business in an open, vigorous and competitive fashion. ›› Competition compliance manual implemented by each Group subsidiary. ›› Online competition training and testing undertaken globally by all key employees, including the Board. ›› Simulated dawn raids are undertaken each year to audit subsidiary compliance. ›› Competition assessments are included in material contract reviews. ›› The Group has a whistleblowing hotline and email to allow employees to raise concerns in confidence, or anonymously if preferred. ›› A direct reporting relationship between the Group Risk & Compliance Counsel and the Chief Executive and Audit Committee emphasises the commitment to further strengthening the Group's compliance culture.
	A violation of international import and export non-compliance (including trading, restricted parties and sanctioned countries compliance) can result in the denial of export privileges, the imposition of fines and penalties, diverted management time and personal implications for the violators together with adverse implications for Group financial performance, facilities and reputation.	›› The Group CBC requires that the Group must trade in accordance with all valid international economic sanctions and legal requirements for the import and export of goods, technology and services. ›› Restricted party screening software and procedures have been globally implemented by the Group. ›› An International Trade Compliance Policy was issued in response to the changing legislative and financing landscape surrounding sanctions. ›› Central analysis and advice is provided in respect to the administration of trade with both routine and less routine countries and territories.
	A violation of health, safety and environmental laws and regulations or the impact of health, safety and environmental accidents and incidents affects employees, communities and operations and impacts Group reputation and financial performance.	›› Robust health and safety policies and procedures are deployed. ›› Use of the health and safety cloud monitoring and reporting framework - see page 42. ›› Retention of an external health, safety and environmental consultant. ›› Open relationship with regulatory bodies. ›› Health and safety committee monitoring. ›› A culture of zero tolerance in respect of health and safety violations is promoted by the Board.
	Were any member of the Group to commit a violation of Anti-Bribery & Corruption laws, (including breach by a commercial intermediary appointed by the Group, such as an agent or distributor), the resultant consequences could include fines, adverse publicity, claims from customers, loss of management time and personal consequences for those found to be in violation of the same, ultimately impacting Group financial performance and conformance with its strategic plans.	›› A direct reporting relationship between the Group Risk & Compliance Counsel and the Chief Executive and Audit Committee emphasises the commitment to further strengthening the Group's compliance culture.
	Non-compliance with employment laws. .	›› Group policies on employees' rights in the workplace. ›› The Group CBC requires that the Group comply with local laws including employment laws and regulations. ›› All subsidiary businesses have access to local, dedicated employment law expertise. ›› Whistleblowing hotline allows for reporting of potential noncompliance with local employment laws.
	** Fraudulent conduct by employees or external parties.	›› The Group CBC requires that the Group apply the Group's Anti- Bribery & Corruption Policy and expressly prohibits improper payments in all business dealings, in every country around the world. ›› The Group Gifts & Entertainment policy tightly controls how we give or receive business gifts, entertainment and hospitality. ›› A rolling programme of online anti-bribery and corruption training and testing is undertaken by new employees. ›› A commercial intermediaries protocol operates in the context of the appointment of third party representatives e.g. agents and distributors. ›› The Group has a whistleblowing hotline and email to allow employees to raise concerns in confidence, or anonymously if preferred. ›› The Group CBC continues to be the central focus for setting out ethical behaviours. ›› Close monitoring by the Group finance team of monthly financial information. ›› Whistleblowing hotline allows for reporting of potential fraudulent conduct by employees.

** Identified, by the enhanced risk assessment process, as a new risk in 2015.

Board confirmation of principal risks and uncertainties

The Board is satisfied that the Group operates an effective risk management process and confirms that it has conducted a robust assessment of the principal risks facing the Group. It considers that the risks identified in the above table correctly summarise the principal risks and uncertainties facing the Group together with the remediation and mitigation activities that are being used to address such risks.

The Board has overall responsibility for the Group's risk management programme including implementing and monitoring the following:

›› Operational, financial and compliance internal controls;

›› Ensuring that the current risk management process remains a suitable means of establishing the correct risk culture;

›› Ensuring that the Group's risk profile is managed and controlled; and

›› Ensuring that there is consideration as to how much risk the Group is willing to take in pursuit of the strategic objectives and ensuring that such risks are managed appropriately and within acceptable parameters.

The principal risks and uncertainties facing the Group, set out above, include detail as to how these risks are being effectively managed to accord with the Group's risk appetite, as established by the Board. This appetite being the amount of risk that the Board is willing to take in pursuit of its strategic objectives as outlined on pages 18 to 27.

Appendix B - Directors Responsibilities Statement pursuant to Disclosure and Transparency Rule 4

The following statement is extracted from page 84 of the 2015 Annual Report and is repeated here for the purposes of compliance with DTR 6.3.5. This statement relates solely to the 2015 Annual Report and is not connected to the extracted information set out in this announcement or the Preliminary Announcement.

We confirm that to the best of our 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 or loss of the Company and the undertakings included in the consolidation taken as a whole; and

-     The Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

We consider the Annual Report and Accounts, 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.

Appendix C - Related Party Transactions

The key management are considered to be the Board of Directors of Hill & Smith Holdings PLC, whose remuneration can be seen in the Directors' Remuneration Report on pages 66 to 80, and in the related party details on page 129 (note 25) of the 2015 Annual Report.

Alex Henderson

Company Secretary

Hill & Smith Holdings PLC

Tel: [phone]

 

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