2021 Annual Report and Notice of 2022 AGM

RNS Number : 5738I

Hill & Smith Holdings PLC

19 April 2022

 

Hill & Smith Holdings PLC (the 'Company')

2021 Annual Report and Notice of 2022 Annual General Meeting ('AGM')

Hill & Smith Holdings PLC has posted, or otherwise notified as being available on its website  www.hsholdings.com , the Notice of its 2022 AGM. The 2021 Annual Report was posted to shareholders, or otherwise notified as being made available on its website  www.hsholdings.com   on 19 April 2022.

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 2021 Annual Report can be obtained upon request to the Group Company Secretary, Hill & Smith Holdings PLC, Westhaven House, Arleston Way, Shirley, Solihull B90 4LH.

The statutory accounts for the year ended 31 December 2021 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 2021 Annual Report

The information below, headed as Appendix A, B and C, and which is extracted from the 2021 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 10 March 2022 (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 2021 Annual Report. All page numbers and cross-references in the extracted information below refer to page numbers in the 2021 Annual Report.

Appendix A - Principal Risks and Uncertainties

Risk: Reduction in Government spending plans
Trend No change	Description and potential impact Demand for sustainable infrastructure and transport is underpinned by Government spending plans. Changes to these plans could have a detrimental impact on Group revenues. In November 2021, the Infrastructures  Investment and Jobs Act was agreed, confirming substantial US Government infrastructure spending with the associated demand for our products and services in the US. Despite the announced delay to some SMART motorway schemes, the UK Government's confirmed commitment to the next phase of road investment spend (RIS2) remains, presenting great opportunity for our UK businesses.	Mitigation Our existing entity portfolio contains diverse products, markets and territories and we will continue with this approach. Market and product development initiatives. Co-operation between Group businesses, leveraging the Group's size/international footprint and exploiting synergies. Exposure to the benefits from longer term infrastructure investment programmes.
Risk: Changes in global outlook and geopolitical environment
Trend Slightly higher	Description and potential impact The Group operates in a range of end-user markets around the world and may be affected by political, economic or regulatory developments in any of these countries. Material adverse changes in the political and economic environments in the countries in which we operate, have the potential to put at risk our ability to execute our strategy. The COVID-19 pandemic continues to create uncertainty in the global economic outlook. The diverse portfolio of Group businesses with exposure to a range of markets and geographies, continues to help mitigate this exposure. The conflict in Ukraine has created significant uncertainty. The direct exposure from international sanctions for the Group is limited, due to no current direct Russian customers or suppliers. There could however be consequences on the global economic outlook as well as supply chains and utility prices. As a result, an increase in the risk has been recognised.	Mitigation The Group has a diverse portfolio of operating companies with exposure to a range of markets and geographies, limiting exposure to any one country or market sector. Current and future financial performance is continuously monitored, facilitating rapid response to changes in market conditions.
Risk: Increase in competitive pressure
Trend No change	Description and potential impact Increased volatility, uncertainty and slowdown in our markets could result in increased prices and the emergence of new technologies, leading to a loss of customers and/or pricing pressure and as a consequence a loss of sales and reduced profits.	Mitigation The holding of leading positions in niche markets of sustainable infrastructure and transport safety with high barriers to entry. In line with our entrepreneurial model, our decisions are made close to our markets and our businesses are agile and responsive to changes in their competitive landscape. Regular operating company Board meetings that review market and customer activity. Our operating companies aim to provide superior products and high service levels to customers, whilst aiming to ensure there is no dependency on any one particular customer.
Risk: Product failure
Trend No change	Description and potential impact The Group operates in infrastructure markets where it is critical that its products meet customer and legislative requirements and where the consequences of product failure are potentially significant. Product failure arising from component defects or warranty issues may require remediation including the replacement of defective components or complete products, resulting in direct financial costs to the Group and/or wider reputational risk.	Mitigation Products tested, approved and accredited by regulatory bodies. Quality control protocols fully implemented and continuously monitored. Contractual controls in place to minimise economic impacts. Insurance cover maintained globally with insurance partners. Litigation supported/managed by external legal specialists. Thematic Internal Audit review completed across the Group during 2019 with recommendations implemented in 2019 and 2020.
Risk:  Contractual failure
Trend No change	Description and potential impact The Group delivers its commitments to its customers through a variety of contractual arrangements of both a short and medium term nature. Weaknesses in the contract tendering process, inappropriate pricing, misalignment of contract terms, ineffective contract management or failure to comply with contractual conditions could result in loss of revenues, pressure on operating margins and wider reputational damage to the Group. The potential for credit default risk due to the ongoing COVID-19 pandemic has been identified, although this has not yet materialised. The Group continues to closely monitor the position.	Mitigation Group material contract review process ensures specialist central oversight of key contractual arrangements. Contracts training for key staff. Dedicated quantity surveyors and contract managers in operating companies to control contracts and mitigate risk. Litigation supported/managed by external legal specialists. Insurance cover maintained globally with insurance partners. Trade credit insurance policies in place in the UK, France and India to mitigate exposure. Thematic Internal Audit review completed across the Group during 2021 with further recommendations to be implemented during 2022.
Risk: Supply chain failure
Trend Slightly higher	Description and potential impact The Group's businesses depend on the availability and timely delivery of raw materials and components, which could be affected by disruption in its supply chain. Supply chain failures as a result of performance, inflation cost, quality and/or insolvency may have an adverse impact on the Group's production capacity and lead to an inability to meet customer requirements, resulting in a reduction in revenues, potential loss of market share and possible reputational damage. During the year, our operating companies took swift and appropriate action to manage supply chain headwinds. Actions taken included implementing price increases to offset significant input cost inflation, securing supply of raw materials and ensuring the continuity of operations with a backdrop of labour shortages in certain businesses. Whilst we continue to closely monitor and manage these headwinds as we enter 2022, we do recognise a net increase in the risk due to current inflation pressures. The conflict in Ukraine and potential impact on global supply chains and utilities prices is likely to add further inflationary pressure.	Mitigation Group procurement standards in place, including robust due diligence of supply chain partners and the requirement for dual sourcing where available. Maintenance of relationships with key suppliers through regular interaction and assessment of performance/financial status. Group oversight of material procurement contracts ensuring robust contractual protections. Goods inwards and stock management processes in place to reduce the likelihood of defects or a shortage of raw materials. Contingency plans in place throughout the supply chain to mitigate these risks, such as purchasing additional stock of key raw materials and securing additional supply chain capacity. Supply chain resilience has been a focus of the Risk Committee during 2021 with ongoing monitoring of operating companies' ability to respond to the continued challenges. Internal Audit to complete a thematic review on Supply Chain Resilience during 2022.
Risk: IT systems failure
Trend Slightly higher	Description and potential impact The Group relies on the information technology systems used in the daily operations of its operating companies. A failure or impairment of those systems or any inability to effectively implement new systems could cause a loss of business and/or damage to the reputation of the Group, together with significant remedial costs. Poor security controls and procedures could lead to our operating companies being susceptible to cyberattack, potentially resulting in significant IT failure and associated disruption. During the year, the global cyber threat has continued to evolve, with increasing numbers of organised criminal groups carrying out sophisticated ransomware attacks, for example. As a result of the conflict in Ukraine, the UK's National Cyber Security Centre (NCSC) has warned of heightened cyber risk across UK, US and European businesses. Whilst there has been enhancement of the Group's IT security controls during the year to improve mitigation against cyber-attacks, we recognise at a net level there has been an increase in the risk.	Mitigation Group CISO recruited in 2021. Revised IT controls manual launched during the year setting out a robust set of IT/information security controls covering basic cyber hygiene, system backup procedures and hardware /software protection. The Group CISO and Internal Audit monitor compliance against the controls and work with the operating companies on remediation plans. Ongoing project for significant investment in the enhancement of IT security controls and maturity across the Group covering areas such as IT asset management, backup, endpoint protection, incident response and vulnerability management. The Board maintains a watching brief on IT risks, particularly cyber risk which is a focus area for improvement. Group wide monthly IT Operations meeting established to communicate issues and initiatives to operating companies. Quarterly updates established to brief operating company leadership teams on their responsibilities relating to IT management and information security. Group IT Steering established to set and approve IT strategy and improvement plans. Segregated business processing systems within each operating company means that any disruption due to illegal external activity is unlikely to jeopardise the Group as a whole.
Risk: Portfolio management
Trend No change	Description and potential impact The Group's growth strategies include the acquisition of businesses around the world that complement or supplement its existing activities. Failure to execute an effective acquisition and integration programme would have a significant impact on the Group's ability to generate sustainable profitable growth for shareholders. Targeted disposals are also required to ensure the strategic objectives of the Group can be achieved.	Mitigation Board approval required for Group acquisitions, in line with the Group Board's Schedule of Matters Reserved. Due diligence protocols deployed in relation to assessment of target businesses, including financial, commercial and legal etc. Contractual protections and assurances sought from sellers to mitigate subsequent identification of risks. Post-acquisition integration plans established for all acquisitions with regular performance monitoring and reporting to the Board. Successful integration of Prolectric Services during 2021. Targeted disposals of operating companies that fail to meet our financial criteria.
Risk: Lack of investment in product development and innovation
Trend No change	Description and potential impact The Group operates in global infrastructure markets where continuous innovation is integral to the Group's product offering and where a failure to innovate could result in product obsolescence, the entry of new competitors and/or loss of market share. The development of new products and technologies carries risk including the failure to develop a commercially viable offering within an acceptable timeframe.	Mitigation Group wide Innovation Framework launched during 2021 to: encourage and stimulate more innovation across the Group, integrate innovation into Strategic Plans, improve the tax efficiency of innovation investment and monitor "innovation health" across the Group. Entrepreneurial culture established through a decentralised management structure, ensuring that Group businesses are agile and responsive to changes in their competitive environments. Executive Board approval of product development proposals within the Group's capital spend approval policies. Active Intellectual Property management within individual operating companies overseen by Group. Dedicated quality compliance resources in place across operating companies, ensuring responsiveness to regulator and/or customer approval requirements. Board monitoring of emerging risks alongside external specialist support, where both the risks identified and the potential opportunities arising are considered.
Risk: Talent, development, diversity, recruitment and retention of key employees
Trend Slightly higher	Description and potential impact The changing nature of the demographics from which we source our employees and the ways in which they like to work can make it difficult to attract and retain both skilled and unskilled labour. We need to ensure effective recruitment channels and make the necessary investment to develop and retain high-quality individuals in key positions to guarantee the long-term success of the business. We need to ensure the diversity of our workforce reflects the communities in which we work. Without talented employees we will be unable to deliver our strategic aims. During the year some of our operating companies have continued to find it challenging to attract and retain direct labour due to very competitive labour local markets impacted by COVID and hence an increase in the risk has been recognised.	Mitigation Two of our ESG focus areas (Talent development and engagement & Diversity, and inclusion) directly address the risk, with improvement initiatives and metrics overseen by the ESG Steering Team. Recruitment of Chief People Officer during 2021. Refreshed People Strategy with a greater focus on internal talent. Review of base hourly rates, which increased in many locations during 2021. Contractual protections and retentions in employment contracts of senior management and other key employees. Training and development of employees, which includes a programme of IOD and ILM courses for senior management and identified potential successors, and apprenticeship and other vocational courses for specialist and technical roles. Appropriate remuneration and benefits, together with bonus opportunities and incentive plans offered to employees. Recruitment process developed to include competency requirements and skills gap analysis.
Risk: Prevention of harm or injury to people
Trend No change	Description and potential impact The Group is committed to preventing all health and safety incidents and ensuring the health, safety and wellbeing of all employees and third parties. The Group operates a number of manufacturing facilities around the world, a failure in the Group's health & safety procedures could lead to injury or to the death of employees or third parties. During the year, the Group has followed all local guidelines to ensure that our facilities are COVID secure and our employees are safe. Measures first introduced during 2020 were continued, such as enhanced cleaning and hygiene procedures, social distancing, track and trace procedures, provision of face masks and taking all reasonable steps to help people work from home where appropriate to do so. In addition, we are mindful of the mental wellbeing of our employees during this difficult time and have offered appropriate support and assistance.	Mitigation Health and safety is one of our ESG focus areas, with improvement initiatives overseen by the ESG Steering Team. Group Head of Health & Safety recruited during 2021. Monthly health & safety reporting for all operating companies via online tools. Regular audits of UK, US, Sweden and India including assessment of our COVID secure arrangements. Local audits completed in France, periodically overseen by Group. Health & Safety Forums to monitor performance and share best practice. Culture of zero tolerance in respect of health & safety violations promoted by the Board and disseminated throughout Group businesses. External health & safety accreditations and relationships maintained with regulatory bodies. Health & Safety is a priority area of focus for new acquisitions. Monitoring and review of LTI rates by Group. Any LTI event is followed up and investigated thoroughly and improvement recommendations are implemented to minimise any reoccurrence. Reduction of the Group's LTI rates is a key focus for Management and the Board, with improvement metrics now established through the ESG Steering Team.
Risk: Violation of applicable laws and regulations
Trend No change	Description and potential impact The Group's global operations must comply with a range of national and international laws and regulations including those related to anti-bribery and corruption, human rights and employment, GDPR, trade/export compliance and competition/anti-trust. A failure to comply with any applicable laws and regulations could result in civil or criminal liabilities and/or individual or corporate fines and could also result in debarment from Government-related contracts, restrictions on ability to trade or rejection by financial counterparties as well as reputational damage. Our exposure to breaching sanctions placed on Russia is low due to no current direct Russian customers and suppliers. Our export compliance software performs daily screening of our customer and supplier databases against global sanctioned and denied party lists with any changes in status flagged.	Mitigation Group Code of Conduct sets out required approach for all staff. Staff training provided on Anti-Bribery and Corruption and Competition Compliance. Programme of audits undertaken on a cyclical basis to review operating companies' compliance with regulatory requirements, including for example, simulated "dawn raids". Software solutions implemented globally to ensure compliance with trade and export legislation. Externally hosted whistleblowing hotline available to all employees to allow them to raise concerns in confidence or anonymously, if preferred. Modern Slavery compliance programme continued through 2021. Toolkits issued to all UK operating companies to aid compliance with GDPR.

Appendix B - Responsibility Statement of the Directors pursuant to Disclosure and Transparency Rule 4

The following statement is extracted from page 112 of the 2021 Annual Report and is repeated here for the purposes of compliance with DTR 6.3.5. This statement relates solely to the 2021 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 that 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

As of 1 January 2021, key management personnel 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 94 to 104 and the   members of the Executive Board who are not also Directors of the Group, and in the related party details on page 182 (note 14) of the 2021 Annual Report.

Alex Henderson

Company Secretary

Hill & Smith Holdings PLC

Tel: [phone]

 

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