Notice of AGM & Publication of 2015 Annual Report

RNS Number : 4088U

Melrose Industries PLC

06 April 2016

 

6 April 2016

MELROSE INDUSTRIES PLC

PUBLICATION OF THE 2015 ANNUAL REPORT AND NOTICE OF ANNUAL GENERAL MEETING

Melrose Industries PLC (the "Company") announces that its Annual Report for the year ended 31 December 2015, 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 11.30 a.m. on 11 May 2016 at Barber-Surgeons' Hall, Monkwell Square, Wood Street, London, EC2Y 5BL.

The Company's preliminary results announcement on 3 March 2016 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 2015.

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 2015, 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, Financial PR
Charlotte McMullen	[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

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.	á	Following the disposal of Elster, the Group is currently on the lookout for its next acquisition.
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.	â	Following the disposal of the Elster business with minimal retained liabilities, the Group's focus is on the 'buy' and 'improve' stages of its strategy.
Diversity of operations	Following the sale of Elster, the Melrose Group's operations are less diversified, both commercially and geographically, and comprise only Brush. Weak performance in Brush, or in any particular part of Brush's businesses, would have an adverse impact on the financial condition of the Group.	á	Whilst the Elster disposal has resulted in less diversity within the Group, the Melrose Board and management are actively reviewing acquisition opportunities which will mitigate the risks of over-concentration.
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. 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.	à	The fall in oil prices has resulted in a challenging year for Brush sales, with difficult end-market conditions expected to continue in 2016. However, the Board notes that economic uncertainty, lower levels of investment and a downturn in corporate earnings 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. The loss of key employees, the Group's inability to attract new and adequately-trained employees or a delay in hiring key personnel could seriously harm the Group's business. Over time, the Group's competitive advantage is defined by the quality of its people; should the Group fail to attract, develop and retain key talent, the competitive advantage will erode, leading to weaker growth potential or returns.	à	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 2016.
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.	â	Among other initiatives, during 2015, the Group implemented a revised compliance framework across its businesses, complemented by an online compliance training platform and a best-practice whistleblowing line. As part of the Elster disposal, a number of legal and regulatory provisions were transferred, together with their corresponding actual or contingent liabilities.
Information security and cyber threat	Information security and cyber threats are currently a 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.	à	In response to the increased sophistication of information security and cyber threats, the Group has worked, and continues to work, with external consultants to implement a 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.	â	Consideration for the Elster disposal was provided in Sterling. For repayments of the Group's Euro and US Dollar denominated facilities, which were predominantly used to finance Elster operations, exchange rate risk was mitigated by entering into a contingent foreign exchange trade upon the signing of the disposal agreement, which matured only upon completion. Potential acquisition targets are analysed for their transactional and translational exposures.
Pensions	Any shortfall in the Group's pension schemes may require additional funding. Following the disposal of the Elster business, through which the Group also disposed of the FKI UK and McKechnie UK defined benefit pension plans, the Group has retained the Brush UK and US plans. As at 31 December 2015, these Brush plans had a net liability of £17.2 million on an accounting basis. 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, 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.	â	As part of the Elster disposal, Melrose divested its responsibility for the FKI UK and McKechnie UK defined benefit pension plans, as well as all Elster-related pension obligations. As at the date of the Elster disposal, such plans had a net deficit of £112 million and gross liabilities of £849 million.
Liquidity	The Group had no external debt as at 31 December 2015. 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. 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.	â	Following the sale of Elster, Melrose is debt free, with access to a £200 million multi-currency revolving credit facility, maturing in July 2019. Should circumstances change and, in line with the Group's strategy, the Group requires access to further funding, it is anticipated that funding shall remain accessible from financial institutions or from the market by means of a rights issue.

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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