Annual Financial Report

RNS Number : 2116I

Weir Group PLC

31 March 2020

 

The Weir Group PLC     

31 March 2020

2019 Annual Report and 2020 Annual General Meeting

The following documents have today been posted or otherwise made available to shareholders:

1. Annual Report and Financial Statements for the period ended 31 December 2019 (the "2019 Annual Report");

2. Notice of 2020 Annual General Meeting; and

3. Form of Proxy for the 2020 Annual General Meeting.

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 at http://www.morningstar.co.uk/uk/NSM.

The documents (except the Form of Proxy) are also available on the Company's website at www.global.weir and in hard copy to shareholders upon request to Investor Relations, The Weir Group PLC, 1 West Regent Street, Glasgow, G2 1RW.

The Company currently intends to hold its 2020 Annual General Meeting (the "AGM") at the Company's Head Office, 1 West Regent Street, Glasgow, G2 1RW, on Tuesday 28 April 2020 at 2.30pm. As set out in the Notice of AGM, the Company fully supports the Government restrictions on mass gatherings, non-essential travel and social contact currently in place. On this basis, the Board has concluded that it is appropriate to strongly urge shareholders not to attend the AGM in person this year. The Company may be required to further revise its arrangements for the AGM if attending the meeting in person is not lawful at the time the AGM is due to be held. The Company will be closely monitoring the impact of COVID-19 and how this may affect the arrangements for the AGM. Shareholders should therefore continue to monitor the Company's website and announcements for any updates in relation to the AGM.

The Company's full year results announcement of 26 February 2020 contained a management report as well as the audited financial statements which were prepared in accordance with the applicable accounting standards.

The 2019 Annual Report submitted to the National Storage Mechanism today also contains information regarding the Company's principal risks and uncertainties as at 26 February 2020 (being the date of the 2019 Annual Report) and a responsibility statement relating to the content of the 2019 Annual Report; an extract of this information is provided below as required under paragraph 6.3.5 of the DTR, however this material should be read in conjunction with and is not a substitute for reading the full 2019 Annual Report. Page numbers and cross-references in the following appendices refer to page numbers and cross-references in the 2019 Annual Report.

APPENDICES

Appendix A: Principal risks and uncertainties as at 26 February 2020 (the date of the 2019 Annual Report)

A description of the principal risks and uncertainties that the Company faces is extracted in full and unedited form pages 54 to 59 of the 2019 Annual Report.

As in any business, there are risks and uncertainties which could impact the Group's ability to achieve its objectives in the future. The Group's risk management and assurance framework is designed to make this less likely by clearly identifying and seeking to mitigate these key risks.

The Board has conducted a robust assessment of the principal risks, alongside the Risk Appetite Statement set out on page 52 meeting the Board's responsibilities in connection with Risk Management and Internal Control details in the UK Corporate Governance Code. Each of the principal risks is assigned an owner from amongst the Board or Group Senior Management team and a detailed review of each principal risk has been completed in the year.

The Group's risk registers were reviewed and validity of the existing prior year principal risks were reassessed and consideration was given as to whether any new principal risks have emerged, or certain risks are no longer considered to be a principal risk. This review resulted in changes being made to the principal risks in 2019.

The identified principal risks were subjected to a detailed assessment based on the following considerations:

· Severity of each risk relative to the Group's stated risk appetite;

· Existence and effectiveness of actions and internal controls which serve to mitigate the risk;

· The overall effectiveness of the Group's control environment, including assurance and any identified control weakness; and

· The extent to which each of the principal risks could impact the Group's viability in financial or operational terms, due to their potential effects on the business plan, solvency or liquidity.

The principal risks set out on pages 54 to 59 are those which we believe to have the greatest potential to impact our ability to achieve the Group's strategic objectives or which have the greatest potential impact on the Group's solvency or liquidity.

Principal Risks and Uncertainties
Market volatility (Risk trend: Increasing) Changes in key markets, including commodity prices affecting mining and oil and gas, have an adverse impact on customers' expenditure plans. Fundamental market structure changes could alter the long-term economics of the business.
Why we think this is important We need to remain sufficiently flexible to allow us to anticipate downturns, to allow us to adjust our operations accordingly, and equally to meet growth in demand when our customers' markets are buoyant and therefore capital investment is high. Otherwise, we are at risk of incurring unnecessary costs during downturns, and not maximising our potential for growth in buoyant markets.	How we are mitigating the risk We maintain regular engagement with our customers to understand their needs and challenges, and ensure our business is appropriately aligned. Improved demand planning and forecasting including Sales and Operations Planning within VCE. Our strategic planning utilises extensive market intelligence to assist in forecasting opportunities and dips in markets. We maintain contingency plans for downturns.	Changes during 2019 We continue to focus on customer relationships, technology development and Value Chain Excellence to manage this risk. The risk trend is increased to reflect the shorter cycle nature of our North American oil and gas markets and the associated challenging market conditions. We have responded to this with a £35m cost saving programme and our intention to seek to maximise value from our Oil & Gas Division at the right time.
Technology (Risk trend: No change) Failure of the Group to embrace technology and innovate and continue to develop and invest in both our core product offering and technologically advanced next generation, sustainable solutions and services for our customers, leaves the Group exposed in the defence of its market leading positions and ability to deliver on its growth ambitions.
Why we think this is important We need to continue to drive innovation across the Group and collaborate with research partners to ensure there is a sustainable and evolving product offering leveraging new and adjacent technologies. This can result in failure to achieve and maximise the expected sales opportunities from new product launches and technological advances. Failure to adapt our business model to capture economic value from technological advances or prevent economic loss from other technological advances. Failure to develop products meeting the sustainable needs of our customers and other stakeholders.	How we are mitigating the risk The Technology Vision & Strategy is in place defining the strategic technology innovation arenas and Weir Innovation Network strategic approach. External partnering to provide horizon technology scanning service. Advanced Manufacturing Centres established at key manufacturing site to develop new intellectual property.	Changes during 2019 This risk was updated and expanded to reflect the risk of failure to embrace technology.
Digital Transformation (Risk trend: Increasing) Failure to adapt to the digital transformation & changing business models in our end markets and adopt established digital foundations across the Group, results in an uncompetitive, underperforming or an incompatible digital product offering which negatively affect the Weir brand and loses connection with our customers.
Why we think this is important The rapidly changing digital landscape, rate of technological advances and ever increasing levels of automation will impact the business, if we fail to anticipate these changes and keep pace with market and customer expectations. Failure to manage this risk can result in loss of market share due to disruptive technologies and advances in technology offerings from competitors.	How are we mitigating the risk Our existing research and development initiatives within the business, at Weir Advanced Research Centre, are enhanced through partnerships with certain leading universities around the world. These partnerships are designed to help the Group develop game-changing solutions to our customers' challenges and respond to their changing needs. We devote skilled resource to reviewing and responding to developing technologies, with our agreements with specialist external parties to develop Internet of Things (IoT) technology. Engineering strategies are in place at Group and divisional levels with strategic innovation areas defined as part of the innovation strategy	Changes during 2019 Technological innovation continues to be at the forefront of the business due to the increasingly competitive market and the pressure to provide customers solutions to improve the efficiency of their operations. Further information on progress made in this area is set out on page 21. Continued execution of the Technology Vision and Strategy through the year. The Innovation Strategy process has been defined, organisational structures established, and Group and divisional engineering strategies are in place.
Competition (Risk trend: Increasing) Increasing presence of low cost competitors with improving quality in our end markets leads to significant pricing pressure and margin deterioration. Disruptive technologies or new entrants with alternative business models could also reduce our ability to sustainably win future business, achieve operating results and realise future growth opportunities. Continuing threat from third-party replicators.
Why we think this is important Increasing presence of low cost competitors with improving quality in our end markets can lead to significant pricing pressures and market deterioration. Increased competition forces a continual release of longer wear life products resulting in reducing our sales volumes with difficulty in realising commercial benefits. Disruptive technologies or new entrants with alternative business models could also reduce our ability to sustainably win future business, achieve operating results and realise future growth opportunities.	How are we mitigating the risk Horizon scanning for competitor threats including patent searches and applications. Continued development of operational efficiency and improvement plans. Technology solutions with differentiation on engineering expertise, aftermarket service and price.	Changes during 2019 This risk is new in the current year.
Value Chain Excellence (Risk trend: No change) Failure to achieve Value Chain Excellence improvements and the associated reduction in costs and enhanced capital efficiency.
Why we think this is important If we fail to improve our value chain management, we risk: • Failing to meet our customer needs in terms of product volume, quality and delivery, through a failure in internal and external supply chains resulting in a loss of reputation and sales; • Failure to optimise our inventory thus inhibiting the Group investment strategy and creating slow moving and obsolete inventory ultimately impacting our results; • Failure to manage potential above inflationary increases in procurement costs as commodity prices increase thereby reducing our cost competitiveness and margins; and • Failure to develop organisational capability to sustain and improve operational performance results.	How are we mitigating the risk Regular KPI monitoring of the value chain throughout the organisation. Value Chain Excellence initiatives have been operating throughout the Group to drive value chain improvements including expanding production in best cost countries. The Group's forward purchase commitments are being closely monitored to manage inventories at levels appropriate to market conditions. Our credit risk management procedures are under continuous appraisal and review. We regularly monitor market activity to ensure we remain competitive.	Changes during 2019 Value Chain Excellence is a key area of strategic focus for the Group with Value Chain Excellence initiatives continually developing and the Group realising the benefits of these. Value Chain Excellence is embedded into the divisions allowing for Global and divisional supply chain communities to share best practice and leverage economies of scale.
Environmental Sustainability (Risk trend: Increasing) Adverse effect of climate change and environmental events including extreme weather impacting our business, our customers and our supply chain. Failure to adapt to changes in legal, technological, social or market dynamics could affect our competitiveness, reputation, and ability to attract and retain talent.
Why we think this is important Failure to manage this risk could have significant impacts on us, our customers and our supply chain. These impacts could be both physical and transitional. Furthermore, failure to manage these risks may have political and legal implications following increased governmental focus. There are also wider implications of this risk including loss of market share, negative impact on reputation and failure to attract talent into the organisation.	How are we mitigating the risk Our Technology Strategy in place has a significant environmental focus and our new sustainability roadmap further underpins our strategic priorities with clear and appropriately stretching goals. We are continuing strong engagement with stakeholders in this area. We evolve our environmental reporting processes and governance, including external rating submissions FTSE4Good, CDP, DJSI, etc to ensure robust foundations.	Changes during 2019 This is a new risk in 2019. A new Chief Strategy and Sustainability Officer position appointed to the Group Executive.
Information Security and Resilience (Risk trend: Increasing) Failure to maintain the critical business systems and IT infrastructure required to meet the operational needs of the business. Failure to minimise disruption to business operations because of changes to business systems, including during planned transformation activities. Failure to adequately protect core business and stakeholders from cyber crime and other information security risk.
Why we think this is important Failure to adequately protect and preserve the confidentiality, integrity and availability of information and systems from accidental, adversarial or environmental threats could lead to operational, reputational, regulatory or financial impact.	How are we mitigating the risk We have an IT Governance Framework with a focus on structured change management techniques, including setting project governance levels in line with risk. Policies, procedures and baseline standards in relation to cyber risk and IT security more generally are continuously updated and rolled out to operations. A programme of user training in relation to cyber risk is in place. All security related incidents are reported to the Group Executive. Security Incident Responder teams monitor our various security systems. There is also a continued focus on the area from Internal Audit.	Changes during 2019 IT security and continuity continues to be a matter of strategic priority for the Group in an environment of increasingly sophisticated cyber security threats. Progress to strengthen the Group's defences in this respect is being made through our IT transformational programme. A new Chief Information Officer position was appointed to the Group Executive. We continually review the effectiveness of our key IT security controls in consultation with external experts. We report upon any unplanned outages and potential security breaches, with lessons learned across the Group.
Safety, Health and Environmental (SHE) (Risk trend: No change) Failure to adequately protect our people and other stakeholders from harm associated with a breach in SHE standards.
Why we think this is important We operate in hazardous environments, and therefore have a fundamental duty to protect our people and other stakeholders from harm whilst conducting our business. As well as the personal impact on our people resulting from a failure to meet this obligation, we would also be at risk of: • Reputational damage leading to a loss of customers; • Legal action from regulators, including fines and penalties; and • Exclusion from markets important for our future growth.	How are we mitigating the risk The Weir Behavioural Safety system is in place to reduce the risk of safety incidents. In addition, there are initiatives to prevent the most common accident types. The Weir global SHE standards are continually reviewed. The SHE Excellence Committee is responsible for monitoring performance and compliance with Group objectives, policies and standards relating to SHE. The Chief Executive's Safety Committee meets monthly and is committed to achieving the highest of SHE standards. There is a formal SHE assurance programme with issues escalated as required through the reporting structures.	Changes during 2019 The Group continued to drive its safety agenda in 2019 which included the prioritisation of ESCO being fully integrated and aligned to the Weir global SHE standards. SHE also featured prominently in the Group's global employee engagement survey programme which was rolled out in 2019. The Group continues to monitor the potential impact of the Coronavirus (COVID -19), on its operations and people.
Staff Recruitment, Development and Retention (Risk trend: No change) Failure to recruit, develop or retain key management and staff may lead to disruption to the Group's operations, functions and processes.
Why we think this is important Our people represent our biggest asset and failure to attract, develop and retain key management and staff would have a detrimental impact on the Group's ability to deliver our key strategic objectives.	How are we mitigating the risk Promotion of the Weir Group Values & Behaviours, Code of Conduct and HR Policies sets the standards and expectations for all of our staff, reinforcing our stated commitment to attracting and retaining the very best people. High performer assessments are undertaken to identify and develop our very best talent. Succession plans are in place and periodically reviewed for all of our key management. Personal Development Plans are set and reviewed for the effective development of all of our staff. We continue to offer competitive compensation and benefits packages. Personal development programmes including Weir University and the Weir Leadership Programme are open to participation by high potential staff members and these continue to attract high calibre individuals.	Changes during 2019 The Talent Development and Succession Planning process is being further developed. Global employee engagement surveys were completed. All-employee share ownership plan was launched globally. Global HR management system being deployed.
Political and Social (Risk trend: No change) Adverse political action, or political and social instability, in territories in which we operate may result in strategic, financial or personnel loss to the Group.
Why we think this is important We operate across the globe and therefore have to work within a wide range of political and social conditions. Adverse events may occur in the territories in which we operate that may require us to act swiftly to protect our people and our property, and regulatory changes could impact our competitiveness. We need to be flexible and able to anticipate such issues. Expansions into new territories are only undertaken after rigorous assessment of the risks, including the social and political situation within the territory.	How are we mitigating the risk Regular review of market attractiveness. Monitoring travel by Weir employees to higher risk locations in accordance with the Weir Group travel policy. External expert risk assessments and regular monitoring in higher risk locations. Contingency plans and exit strategy planning. Our strategic planning assists in fore- casting potential political and social instability in regions. Continued assessment of global tariffs. Proactive monitoring of evolving policy and development of contingency plans as situations materialise.	Changes during 2019 The geopolitical risk landscape remained unsettled throughout 2019 resulting in an increase in the frequency and rigour of the Group's monitoring over a range of exposures including the political situation in the Middle East and the potential business impact of Brexit.
Ethics and Governance (Risk trend: No change) Interactions with our people, customers, suppliers and other stakeholders are not conducted with the highest standards of integrity which devalues our reputation and/or introduces a level of contractual risk above our appetite.
Why we think this is important We are unwilling to accept dishonest or corrupt behaviour from our people, or external parties acting on our behalf, whilst conducting our business. If we fail to act with integrity, we are at risk of: • Reputational damage leading to a loss of customers; • Increased scrutiny from regulators; • Legal action from regulators including fines, penalties and imprisonment; • Exclusion from markets important for our future growth; • Failure to meet required social standards to maintain licence to operate in our communities; and • Failure to comply with Group's process may lead to businesses committing to onerous contract terms or conditions. We expect all areas of the business to do the right thing and conduct business in compliance with procedures, applicable laws, Weir Group operating policies and procedures, and the highest ethical standards.	How are we mitigating the risk The Code of Conduct, supplemented with Group policies on related topics, provides a clear benchmark for how we expect our business will be conducted. Regular training is provided using a range of mechanisms including Town Hall style sessions, online and induction training. The financial control framework is continually monitored for effectiveness. Internal Audit's remit includes regular review of the anti-bribery and corruption and financial controls across the Group. The Group Legal team is responsible for monitoring compliance with the Code of Conduct. The compliance 'sub- function' within Group Legal continues to enhance global focus on compliance. A whistleblower hotline is available to all members of staff. Reports are investigated on a timely basis and summary reports provided to Group Executive and Board.	Changes during 2019 The governance and legislative environment in which the Group operates continues to evolve and become more complex. We routinely review operations in geographies where ethical standards may not be as well established as in other countries. Policies continue to be updated and rolled out including Data Privacy and Anti-Corruption. Compliance risk assessments have been completed in several high risk locations.

Appendix B: Directors' statement of responsibilities

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and the Company financial statements in accordance with UK Accounting Standards and applicable law.

In preparing those financial statements, the Directors are required to:

• Select suitable accounting policies and then apply them consistently.

• Make judgements and estimates that are reasonable and prudent.

• State that the Group financial statements have complied with IFRS as adopted by the European Union, subject to any material departures being disclosed and explained.

• State for the Company financial statements whether the applicable UK Accounting Standards have been followed, subject to any material departures being disclosed and explained.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Group financial statements comply with the 2006 Act and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of accounts may differ from legislation in other jurisdictions.

The Directors consider that 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 Group's performance, business model and strategy.

Each of the Directors, as at the date of this report, confirms to the best of their knowledge that:

• 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 of the Group.

• The Strategic Report and the Directors' Report include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

 

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