AGM Statement

RNS Number : 0819W

Hill & Smith Hldgs PLC

21 April 2021

 

Hill & Smith Holdings PLC (the 'Company')

2020 Annual Report and Notice of 2021 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 2021 AGM. The 2020 Annual Report was posted to shareholders, or otherwise notified as being made available on its website  www.hsholdings.com   on 21 April 2021.

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 2020 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 2020 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 2020 Annual Report

The information below, headed as Appendix A, B and C, and which is extracted from the 2020 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 2021 (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 2020 Annual Report. All page numbers and cross-references in the extracted information below refer to page numbers in the 2020 Annual Report.

Appendix A - Principal Risks and Uncertainties

Economic
Risk: Reduction in Government spending plans
Trend Slightly lower Link to strategy · Portfolio management · Enhancing organic growth · Agile decision making	Description and potential impact The Group generates the majority of its revenues from its operations located in the UK and the USA and whilst it is possible that Government spending plans will be under increasing scrutiny, it is likely that infrastructure investment will continue to be a key part of national spending plans, particularly in the short to medium term. In March 2020, the UK government confirmed its commitment to the next phase of road investment spend (RIS2) at £27.4bn. In the US, there is optimism for a Federal-funded road investment bill under the Biden administration. The Group is well placed to benefit from these investments and possible short term "shovel ready" schemes to stimulate economic growth, although a reduction in UK or US Government infrastructure spending, could reduce demand for our products and services.		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. Monitoring of UK businesses and the effects of Brexit. Exposure to longer term infrastructure investment programmes.
Risk: Changes in global outlook and geopolitical environment
Trend Slightly higher Link to strategy · Portfolio management · Enhancing organic growth · Agile decision making	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. Whilst Brexit has not had a material direct effect on the Group, it creates the potential for market disruption in the short term. 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.		Mitigation The Group has a diverse portfolio of businesses 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. The Group is closely monitoring on a business-by-business basis, the identified operational and financial risks arising from the UK's exit from the EU
Commercial & Financial
Risk: Increase in competitive pressure
Trend No change Link to strategy · Operational Excellence · Enhancing organic growth · Agile decision making	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 subsidiary Board meetings that review market and customer activity. Our subsidiary businesses 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 Link to strategy · Operational Excellence · Sustainability	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 serious. 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 Link to strategy · Strong financial controls · High cash conversion	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 contracts managers embedded in subsidiary management structures to control projects. 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 which mitigate exposure.
Operational
Risk: Supply chain failure
Trend Slightly higher Link to strategy · Enhancing organic growth · Agile decision making	Description and potential impact The Group's businesses depend on the availability and timely delivery of raw materials and purchased components, which could be affected by disruption in its supply chain. Supply chain failures as a result of performance, 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 2020 the supply of key raw materials and components was not impacted by the COVID-19 pandemic, helped in part by local contingency planning around buffer stock levels and supplier sourcing arrangements as first developed in response to Brexit. The Group is currently experiencing challenges relating to the global increases in steel costs and whilst we are managing availability issues and are well placed to pass price increases to customers, we do recognise an increase in the exposure from the risk.		Mitigation Group procurement standards in place, including robust due diligence of supply chain partners and requiring dual sourcing where available. Maintenance of relationships with key suppliers through regular interaction and assessment of performance/ financial status. Oversight of material procurement contracts ensuring robust contractual protections. Goods inwards and stock management processes in place to reduce the likelihood of defects in or shortage of raw materials. Contingency plans are in place within the relevant businesses and throughout the supply chain to mitigate these risks, such as purchasing additional stock of key raw materials and securing additional supply chain capacity.
Risk: IT systems failure
Trend No change Link to strategy · Agile decision making · Operational excellence · Strong financial controls	Description and potential impact The Group relies on the information technology systems used in the daily operations of its subsidiaries. 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 businesses being susceptible to cyber-attack, potentially resulting in significant IT failure and associated disruption.		Mitigation Business Continuity and Disaster Recovery plans documented, tested and monitored by Group businesses. The Group's Policy Manual incorporates IT policies in respect of system back-up procedures and hardware/software protection. The Board maintains a watching brief on IT risks, particularly cyber risk which is a focus area for improvement. Ongoing project for the enhancement of IT security controls and maturity across the Group. Separate IT systems within each subsidiary means that any illegal external activity is unlikely to jeopardise the Group as a whole. IT Director recruited to the Group in 2020, responsible for IT strategy and cyber security risk. Periodic guidance issued to subsidiaries on current and prevalent cyber-attack threats.
Risk: Acquisition strategy failure
Trend No change Link to strategy · Targeted M&A · Portfolio Management · Sustainability	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.		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, legal and others where appropriate. Contractual protections and assurances sought from sellers to mitigate subsequent identification of risks. Post-acquisition integration plans established for all material acquisitions with regular performance monitoring and reporting to the Board.
Risk: Lack of investment in product development and innovation
Trend No change Link to strategy · Enhancing organic growth · Operational excellence and innovation · Strong financial controls	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 Entrepreneurial culture established through a decentralised management structure, ensuring that Group businesses are agile and responsive to changes in their competitive environments. The Group actively encourages and supports research and development programmes at subsidiary level where knowledge of the market and needs of our customers is greatest. Executive Board approval of product development proposals within the Group's capital spend approval policies. Active Intellectual Property management, by individual business units overseen by Group. Dedicated quality compliance resources in place across Group businesses, 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.
Human Resources
Risk: Talent, development, diversity, recruitment and retention of key employees
Trend Slightly higher Link to strategy · Management incentives aligned · Talent development · Agile decision making	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 subsidiaries have found it challenging to attract and retain unskilled labour due to competitive labour local markets and hence a slight increase in the risk has been recognised.		Mitigation Implementation of 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.
Legal & Regulatory
Risk: Prevention of harm or injury to people
Trend No change Link to strategy · Operational excellence · Sustainability · Agile decision making	Description and potential impact 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, with a consequential impact on operations and the increased risk of regulatory or legal action being taken against the Group. Any such action could result in both financial damages and damage to reputation. During the year the Group has followed all local guidelines to ensure that our facilities are COVID secure and our employees are safe. Actions taken include introducing enhanced cleaning and hygiene procedures, implementing social distancing and 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 Monthly health & safety reporting for all subsidiaries 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 as a priority area of focus for new acquisitions. Monitoring of LTI rates 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 in 2021.
Risk: Violation of applicable laws and regulations
Trend No change Link to strategy · Operational excellence · Sustainability · Strong financial controls	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. There is no significant concern regarding legislative changes post Brexit, however the Group will continue to keep a watching brief in this area and seek external advice if necessary.		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 subsidiary 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 2020. Toolkits issued to all UK subsidiaries to aid compliance with local GDPR.

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

The following statement is extracted from page 103 of the 2020 Annual Report and is repeated here for the purposes of compliance with DTR 6.3.5. This statement relates solely to the 2020 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

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 83 to 93, and in the related party details on page 178 (note 13) of the 2020 Annual Report.

Alex Henderson

Company Secretary

Hill & Smith Holdings PLC

Tel: [phone]

 

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