AGM Statement

RNS Number : 3254K

Melrose Industries PLC

10 April 2018

 

LEI: 213800RGNXXZY2M7TR85

MELROSE INDUSTRIES PLC

PUBLICATION OF THE 2017 ANNUAL REPORT AND NOTICE OF ANNUAL GENERAL MEETING

Melrose Industries PLC (the "Company") announces that its Annual Report for the year ended 31 December 2017, which contains the Notice of Annual General Meeting (the "AGM") and Form of Proxy for the AGM have been sent to shareholders. The Annual Report and Notice are also available to view or download from the Company's website at www.melroseplc.net/investors/reports.

The Company's AGM will be held at 11.00 a.m. on 10 May 2018 at Saddlers' Hall, 40 Gutter Lane, London EC2V 6BR.

The Company's preliminary results announcement on 20 February 2018 included, in addition to the preliminary financial results, the text of the Chairman's statement, Chief Executive's review and Finance Director's review, in each case as contained in the Annual Report. The appendix to this announcement sets out the required disclosures with regard to the Directors' responsibility statement, the principal risks and uncertainties and related party transactions, in each case as contained in the Annual Report. Together, this information is provided in accordance with Disclosure & Transparency Rule 6.3.5(2). This information is not a substitute for reading the full Annual Report and Accounts for the year ended 31 December 2017.

The Company confirms that, in compliance with Listing Rule 9.6.1, an electronic copy of each of the Company's Annual Report for the year ended 31 December 2017, Notice of AGM and Form of Proxy for the AGM have been submitted to the National Storage Mechanism, appointed by the Financial Conduct Authority, and will be available shortly for inspection at www.morningstar.co.uk/uk/NSM.

Enquiries:

Montfort Communications: Nick Miles, Charlotte McMullen

[phone] [phone] / [phone]

APPENDIX

Directors' Responsibility Statement

We confirm that to the best of our knowledge:

·     the financial statements, prepared in accordance with the relevant financial reporting framework, 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;

·     the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation 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, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

Principal Risks and Uncertainties

The table below lists the principal risks and uncertainties that may affect the Group and highlights the mitigating actions that are being taken. The content of the table, however, is not intended to be an exhaustive list of all the risks and uncertainties that may arise and nor is the order of the list intended to be any indication of priority.

A risk management and internal controls framework is in place within the Group to ensure that such risks and uncertainties can be identified and, where possible, managed suitably. Each Group business maintains a risk register which is reviewed regularly by both the management of the business and the Melrose Board.

Key risk	Description and impact	Risk trend	Trend commentary
Strategic risk
Acquisition of new businesses and improvement strategies	The success of the Group's acquisition strategy depends on identifying available and suitable targets, obtaining any consents or authorisations required to carry out an acquisition and procuring the necessary financing, be this from equity, debt or a combination of the two. In making acquisitions, there is a risk of unforeseen liabilities being later discovered which were not uncovered or known at the time of the due diligence process. Further, as per the Group's strategy to buy and improve good but under-performing manufacturing businesses, once an acquisition is completed, there are risks that the Group will not succeed in driving strategic operational improvements to achieve the expected post-acquisition trading results or value which were originally anticipated, that the acquired products and technologies may not be successful or that the business may require significantly greater resources and investment than anticipated. If anticipated benefits are not realised or trading by acquired businesses falls below expectations, it may be necessary to impair the carrying value of these assets. The Group's return on shareholder investment may fall if acquisition hurdle rates are not met. The Group's financial performance may suffer from goodwill or other acquisition-related impairment charges, or from the identification of additional liabilities not known at the time of the acquisition.	↓	As the bid for GKN plc indicates, the Group is currently actively looking to secure its next acquisition and is confident that opportunities will be available.
Timing of disposals	In line with our strategy and depending where the Group is within the "buy, improve, sell" cycle, the expected timing of any disposal of businesses is considered as a principal risk which could have a material impact on the Group strategy. Further, due to the Group's global operations, there may be a significant impact on timing of disposal due to political and macroeconomic factors. Depending on the timings of disposals and nature of businesses' operations there may be long-term liabilities which could be retained by the Group following a disposal. Insufficient allowance for such retained liabilities may affect the Group's financial position.	→	The responsiveness of the Nortek business to the Melrose methods have meant that disposal may be considered earlier than expected. However, management will remain disciplined and there is no obligation to sell before it is appropriate to do so.
Operational risk
Economic and political	The Group operates, through manufacturing and/or sales facilities, in numerous countries and is affected by global economic conditions. Businesses are also affected by government spending priorities and the willingness of governments to commit substantial resources. Current global economic and financial market conditions, including any fluctuation in commodity prices (in particular, the prices of oil and gas), the potential for a significant and prolonged global recession and any uncertainty in the political environment may materially and adversely affect the Group's operational performance, financial condition and could have significant impact on timing of acquisitions and disposals. Following the EU referendum on 23 June 2016, there continues to be some uncertainty in the UK regarding the nature of Brexit and what this will mean for business and the economy. However, the majority of the Group's revenue is generated in North America, where any effects are expected to be minimal, and the Group remains agile and well positioned to deal with any short-term uncertainty in the UK. A recession may also materially affect customers, suppliers and other parties with which the Group does business. Adverse economic and financial market conditions may cause customers to terminate existing orders, to reduce their purchases from the Group, or to be unable to meet their obligations to pay outstanding debts to the Group. These market conditions may also cause our suppliers to be unable to meet their commitments to the Group or to change the credit terms they extend to the Group's businesses.	→	There continues to be a degree of geopolitical uncertainty in 2018. However, the Board notes that economic uncertainty can depress business valuations and this may increase the number of potential acquisition opportunities for Melrose.
Loss of key management	The success of the Group is built upon strong management teams. As a result, the loss of key personnel could have a significant impact on performance, at least for a time. The loss of key personnel or the failure to plan adequately for succession or develop new talent may impact the reputation of the Group or lead to a disruption in the leadership of the business. Competition for personnel is intense and the Group may not be successful in attracting or retaining qualified personnel, particularly engineering professionals.	→	Succession planning remains a core focus for the Nomination Committee and the Board. Succession planning of executive Directors and senior management, together with visibility of potential successors within the Group, has been selected as an area for targeted management focus during 2018.
Compliance and ethical risk
Legal, regulatory and environmental	There is a risk that the Group may not always be in complete compliance with laws, regulations or permits, for example concerning environmental requirements. The Group could be held responsible for liabilities and consequences arising from past or future environmental damage, including potentially significant remedial costs. There can also be no assurance that any provisions for expected environmental liabilities and remediation costs will adequately cover these liabilities or costs. The Group operates in highly regulated sectors. In addition, new legislation, regulations or certification requirements may require additional expense, restrict commercial flexibility and business strategies or introduce additional liabilities for the Group or Directors. For example, the Group's operations are subject to anti-bribery and anti-corruption, anti-money laundering, competition, anti-trust and trade compliance laws and regulations. Failure to comply with certain regulations may result in significant financial penalties, debarment from government contracts and/or reputational damage and impact our business strategy.	→	The Group undertakes annual reviews to ensure it has a robust legal and compliance framework and considers the risk to be consistent with prior years.
Information security and cyber threat	Information security and cyber threats are an increasing priority across all industries and remain a key UK government agenda item. Like many businesses, Melrose recognises that the Group may have a potential exposure in this area. Potential exposure to such risks remains a constant threat to the Group due to the size and complexity of the Group's operations and the nature of the product portfolio.	↑	Information security and cyber threats are an increasing priority across all industries. Cyber security breaches of the Group's IT systems could result in the misappropriation of confidential information belonging to it or its customers, suppliers or employees. In response to the increased sophistication of information security and cyber threats, the Group has worked, and continues to work, with external consultants to monitor and refine it's Group-wide strategy to aid the prevention, identification and mitigation of any threats.
Financial risk
Foreign exchange	Due to the global nature of operations and volatility in the foreign exchange market, exchange rate fluctuations have and could continue to have a material impact on the reported results of the Group. The Group is exposed to three types of currency risk: transaction risk, translation risk and risk that when a business that is predominantly based in a foreign currency is sold, it is sold in that foreign currency. The Group's reported results will fluctuate as average exchange rates change. The Group's reported net assets will fluctuate as the year-end exchange rate changes.	→	Group results are reported in Sterling but a large proportion of its revenues are denominated in currencies other than Sterling. Following the Nortek acquisition, movements between the US Dollar and Sterling and Renminbi and the US Dollar could have a material adverse effect on Group results, whilst exposure remains in Brush against the Czech Koruna and the Euro.
Pensions	Any shortfall in the Group's defined benefit pension schemes may require additional funding. As at 31 December 2017, the Group's pension schemes had an aggregate deficit, on an accounting basis, of £17.6 million. Changes in discount rates, inflation, asset values or mortality assumptions could lead to a materially higher deficit. For example, the cost of a buyout on a discontinued basis uses more conservative assumptions and is likely to be significantly higher than the accounting deficit. Alternatively, if the plans are managed on an ongoing basis, there is a risk that the plans' assets, such as investments in equity and debt securities, will not be sufficient to cover the value of the retirement benefits to be provided under the plans. The implications of a higher pension deficit include a direct impact on valuation, implied credit rating and potential additional funding requirements at subsequent triennial reviews. In the event of a major disposal that generates significant cash proceeds which are returned to the shareholders, the Group may be required to make additional cash payments to the plans or provide additional security.	→	No structured changes occurred during 2017. The Group is satisfied that pension liability risks are well mitigated. The net deficit is relatively small for a group of this size.
Liquidity	The ability to raise debt or to refinance existing borrowings in the bank or capital markets is dependent on market conditions and the proper functioning of financial markets. As set out in more detail in the Finance Director's review on page 38, the Group has a US $1.25 billion term bank loan and revolving credit facility, which is partially utilised. In January 2018, in connection with the Company's proposed acquisition of GKN plc, the Group entered into a term loan and a revolving credit facility which comprised a £2.6 billion facility, a $2 billion facility and a €0.5 billion facility. The new facilities will only become available if the proposed acquisition of GKN plc completes and if this occurs the debt drawn under the existing US $1.25 billion facility will be repaid and the facility cancelled. Furthermore, in line with the Group's strategy, investment is made in the businesses (capital expenditure in excess of depreciation) and there is a requirement to assess liquidity and headroom when new businesses are acquired. In addition, the Group may be unable to refinance its debt when it falls due.	→	The Group is satisfied that it has adequate resources available to meet its liabilities.

Related Party Transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.

The Group did not enter into any significant transactions in the ordinary course of business with joint ventures during the current or prior year.

Sales to and purchases from Group companies are priced on an arm's length basis and generally are settled on 30 day terms.

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