Annual Report and Notice of AGM

RNS Number : 7871J

Hill & Smith Hldgs PLC

10 April 2015

 



Hill & Smith Holdings PLC (the 'Company')

2014 Annual Report and Notice of 2015 Annual General Meeting ('AGM')

Hill & Smith Holdings PLC has today posted, or otherwise notified as being available on its website www.hsholdings.com, the following documents:

1.     2014 Annual Report

2.     Notice of 2015 AGM

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 2014 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 2014 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 2014 Annual Report

The information below, headed as Appendix A, B and C, and which is extracted from the 2014 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 2015 (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 2014 Annual Report. All page numbers and cross-references in the extracted information below refer to page numbers in the 2014 Annual Report.

Appendix A - Principal Risks and Uncertainties

■	Organic revenue growth	►	Target returns and leverage
●	Active portfolio management	u	Entrepreneurial culture
▲	Geographic diversification	ª	Sustainable business

	Risk and potential Impact	Mitigation	Link to strategy
Economic Managing the impact of those risks which we cannot eliminate or mitigate at source; e.g. global market conditions.	Overall market or selective geographical conditions deteriorate or there is a reduction in demand leading to a decline in Government and private sector confidence and spending, affecting Group financial performance.	-    Diversification into new markets and territories. -    Close relationship between Group and subsidiary management. -    Expansion into new export markets. -    Intra-Group co-operation, leveraging the Group global footprint. -    Contracts negotiated with customers on a Group wide basis leveraging Group size and synergies between Group companies.	■ ▲ ► ª
	Volatility in raw materials markets pressurise Group margins and impact Group financial performance.	-   Implementation of Group procurement standards requiring dual sourcing and robust due diligence of supply chain partners. -   Hedging against raw material price volatility where appropriate. -   Contractual protections sought against raw material fluctuation impacts.
	Competitive pressure puts downward force on revenue growth, market positioning and profitability.	-   Implementation of procurement standards to help manage cost creep. -   Ongoing subsidiary quality assurance improvement initiatives. -   Product differentiation through product quality, delivery performance, reliability and professional customer service. -   Product development and geographical expansion initiatives used to surpass present competitor reach.

	Risk and potential Impact	Mitigation	Link to strategy
Human Resources Recognising the importance of recruitment, talent management, employee engagement and employee management to our Group.	A loss of key staff and a failure to implement effective succession planning could lead to a loss of expertise, impacting technical and financial performance.	-    Development and implementation of a Group succession planning model, driven by the Group Chief Executive. -    Implementation of contractual protections and retentions in employment contracts. -    Group policy supporting the training and development of its employees.	▲ u ª
	A failure to recruit employees who have the relevant skills, experience and attributes could impact the Group's ability to achieve its optimum growth potential.	-    Competitive remuneration, benefits and incentive plans offered to employees and regularly benchmarked. -    Development of a recruitment process including competency requirements and skills gap analysis. -    Value based culture.
	The geographical spread of management and the appointment of new management teams could compromise effective communication and responsiveness impacting the Group's strategic goals.	-    Use of internal communications systems, e.g. Group intranet. -    Regular international conferences held at the subsidiary level. -    A formal delegation of authorities structure has enhanced ownership and control, whilst encouraging entrepreneurial drive and spirit.
Operational Ensuring that we take all necessary steps to manage risk in our manufacturing plants and our installation activity both in our facilities and in the field.	Active portfolio management is a key tenet of the Group's strategy and as such, if the management of our merger and acquisitions activity, integrations and business restructuring is ineffective, the Group may not meet its strategic and business goals and financial performance targets.	-   Comprehensive and structured due diligence protocols are deployed in respect of investigating target businesses and contractual assurances are sought from sellers to mitigate any identified issues or risks. -   Employment contract terms and conditions are aligned post-integration between Group employees and new employees, facilitating smooth integration. -   Formal Board level approvals are required in accordance with the Group's delegation of authority structure for any acquisitive activity. -   A standardised and proven 100 Day Integration Plan is followed post-acquisition to streamline the integration process.	■ ● ▲ ► u ª
	A failure to manage our property portfolio effectively, in the context of site planning regulations and controls which could lead to production downtime and reduce our potential for increased income generation. Downtime caused by plant failure or natural catastrophe could suppress performance on an extended basis.	-   Ongoing subsidiary site assessment of future space and efficiency requirements and related investment in additional capacity or equipment. -   Subsidiary businesses are strengthening business continuity plans to ensure that they are equipped to handle business continuity events, including leveraging their proximity to other Group subsidiaries and working with the IT steering committee to mitigate systems downtime risks. -   Subsidiary businesses implement local health, safety and environmental controls which are monitored by health and safety committee meetings and an external specialist.

	Risk and potential Impact	Mitigation	Link to strategy
	Insufficient investment in research and development, restricting organic growth and geographical diversification ultimately resulting in the longer term financial goals being compromised. Regulatory and customer approvals can delay the introduction of products which are developed by the Group, ultimately resulting in the short to medium term financial goals being compromised.	-   Subsidiary discretion to engage in research and development activities, subject to budgetary constraints. -   Robust quality controls in place. -   Dedicated quality compliance resources in most affected subsidiaries who have conducted research and implemented controls to ensure responsiveness to regulator and customer approvals information requests and audits.
	Product failures or defects caused by production or quality failures can lead to claims for loss and damage, adverse customer perceptions, reputational and financial consequences for the Group.	-    Regulatory approvals, testing and accreditations obtained. -    Rigorous quality control protocols are fully implemented and enhanced whenever possible. -    Policies in respect of handling product failures have been strengthened. -    Contractual controls help mitigate the economic impacts. -    Insurance cover is provided globally by insurers of repute. -    Litigation is managed by external legal specialists from reputable firms.
	Inadequate and weak IT systems can affect the Group's financial performance and its ability to be responsive to its customers.	-    The Group's IT steering committee reviews IT systems capability, suitability and integrity on a regular basis. -    The capital expenditure process is used to test the suitability of proposed IT system enhancements. -    IT Policies are included in the Group policy manual.
	The Group's property portfolio age, its management of its leasehold obligations and the requirement to meet all environmental controls could lead to enhanced, operational and strategic costs impacting Group financial performance.	-    External specialists are employed to periodically assess the use and state of repair of buildings at Group operating sites. -    Group liaison with specialists on individual property management matters and strategic management of the portfolio.
Commercial & Financial Mitigating internal and external commercial and financial trading risks in our day to day business activities.	The size of the Group's available customer base, together with the risk of losing key customers or significant worsening of contractual terms could result in Group financial under performance.	-    Products and geographical markets diversification. -    Ongoing monitoring of the timing and trends in government funding for road and infrastructure spending are undertaken. -    Generation of contractual guidance and precedent documentation to preserve contractual terms. -    Contracts reviewed under the delegation of authorities structure. -	■ ● ▲ ► u ª
	An inability to collect cash in accordance with customer payment terms, obtain credit insurance or an increase in anticipated bad debts would result in an inability to plan financially with any certainty and achieve the Group's financial ambitions.	-    Subsidiary cash management is monitored by the Group finance function. -    Standardisation of payment terms. -    The delegation of authorities process results in contractual payment terms being centrally reviewed and approved. -    Credit ratings agencies continue to be used as a source of risk assessment and credit insurance is effectively deployed.

	Risk and potential Impact	Mitigation	Link to strategy
	The Group's ability to ensure it does not accept unduly onerous contractual commitments is central to its commercial risk management and to mitigate the risks of poor performance due to factors within or outside of its control. This, together with ineffective contracts management post award, could pressurise margins and increase liabilities ultimately impacting the Group's financial performance and reputation.	-    Contract precedents and guidance have been produced. -    Advice in respect to contractual risk is available to the Group, together with legal, commercial and financial support from the central team. -    The operation of the delegation of authorities process requires Group senior management and/or executive approval for the execution of material contracts. -    Certain of the Group's subsidiaries have appointed dedicated quantity surveyors and contracts managers to control their projects.
	Poor management of a reducing pool of subcontractors could lead to quality and cost implications for the Group, increase Group risks and ultimately lead to a reduction in performance.	-    Implementation of Group procurement standards requiring dual sourcing and robust due diligence of supply chain partners. -    Robust contractual protections sought. -    Dedicated procurement functions at subsidiary level.
	Future investment projects and the growth in foreign earnings for the Group are adversely affected. The Group is affected by the short term risk that its earnings may be impacted by certain financial risks e.g. credit and liquidity risks and foreign exchange volatility. The Group operates in a range of different jurisdictions, political and fiscal regimes, which present operating and cultural risks.	-    From a transactional perspective, Group companies operate a common set of reporting policies and procedures. An internal audit programme underpins compliance and further requirements are communicated via the Group intranet and directly to the financial professionals around the Group. -    The Group benefits from centralised cash and banking controls and the Group Financial Controller acts to govern and monitor all financial controls applicable across the Group. -    Periodic reviews and assessments are undertaken in relation to foreign exchange risk from a translation perspective. -    Regular monitoring of tax developments in relevant jurisdictions assists to ensure that the Group utilises the most appropriate tax structures. -    Specialist and/or local independent tax advice is sought as appropriate from reputable accounting practices.
	Greater expectations for undertaking activities in the marketplace that are not our core areas of competence.	-     Enhanced third party due diligence, including requiring all third parties to obtain appropriate insurance cover. -     Recruitment of appropriate expertise.
Legal & Regulatory Ensuring compliance with the laws and regulations which govern the operations in the territories in which we operate.	The impact of regulatory changes such as green initiatives (including carbon footprint results) acts to create additional process steps, enhanced procurement requirements and increases costs and administrative effort, ultimately impacting margins. This could also result in the non-achievement of Group environmental aspirations.	-     These requirements are managed by specialists through agreed Group initiatives including: economies of bulk purchasing, site usage monitoring and reporting, energy market intelligence and carbon commitment management.	► u ª
	The dilution of the Group's valuable intellectual property can result in lost earnings, particularly via the copying of product in the Asia-Pacific region.	-     Use of patent attorneys with global remit. -     Use of in-region IPR specialist legal advice. -     Central IPR register and management of renewals, authorised uses and assignments. -     Contractual protections obtained to protect Group IPR where possible.
	Risk and potential Impact	Mitigation	Link to strategy
	A violation of competition/anti-trust laws could result in downtime, fines, penalties and adverse reputational consequences for the Group by both customers and investors. There may also be personal consequences for the Group's Directors.	-     The Group Code of Business Conduct requires that the Group conducts its business in an open, vigorous and competitive fashion. -     Competition compliance manual implemented by each Group subsidiary. -     Online competition training and testing undertaken globally by all key employees, including the Board. -     Simulated dawn raids are undertaken to audit subsidiary compliance. -     Competition assessments are included in material contract reviews. -     The Group has a whistleblowing hotline and email to allow employees to raise concerns in confidence, or anonymity if preferred. -     A direct reporting relationship between the Group Risk & Compliance Counsel and the Chief Executive and Audit Committee emphasises the commitment to further strengthening the Group's compliance culture.
	A violation of international import and export non-compliance (including trading, restricted parties and sanctioned countries compliance) can result in the denial of export privileges, the imposition of fines and penalties, diverted management time and personal implications for the violators together with adverse implications for Group financial performance, facilities and reputation.	-     The Group Code of Business Conduct requires that the Group must trade in accordance with all valid international economic sanctions and legal requirements for the import and export of goods, technology and services. -     Restricted party screening software and procedures have been globally implemented by the Group. -     An International Trade Compliance Policy was issued in response to the changing legislative and financing landscape surrounding sanctions. -     Central analysis and advice is provided in respect to the administration of trade with both routine and less routine countries and territories.
	A violation of health, safety and environmental laws and regulations or the impact of health, safety and environmental accidents and incidents affects employees, communities and operations and impacts Group reputation and financial performance.	-     Robust health and safety policies and procedures are deployed. -     Use of the health and safety cloud monitoring and reporting framework. -     Retention of an external health, safety and environmental consultant. -     Open relationship with regulatory bodies. -     Health and safety committee monitoring. -     A culture of zero tolerance in respect of health and safety violations is promoted by the Board.
	Were any member of the Group to commit a violation of Anti-Bribery & Corruption laws, (including breach by a commercial intermediary appointed by the Group, such as an agent or distributor), the resultant consequences could include fines, adverse publicity, claims from customers, loss of management time and personal consequences for those found to be in violation of the same, ultimately impacting Group financial performance and conformance with its strategic plans.	-     The Group Code of Business Conduct requires that the Group apply the Group's Anti-Bribery & Corruption Policy and expressly prohibits improper payments in all business dealings, in every country around the world. -     The Group Gifts and Entertainment policy was updated during the year. -     Rolling programme of online anti-bribery and corruption training and testing undertaken by new employees. -     A commercial intermediaries protocol was developed and deployed in the context of the appointment of third party representatives e.g. agents.
	Risk and potential Impact	Mitigation	Link to strategy
		-     The Group has a whistleblowing hotline and email to allow employees to raise concerns in confidence, or anonymity if preferred. -     A direct reporting relationship between the Group Risk & Compliance Counsel and the Chief Executive and Audit Committee emphasises the commitment to further strengthening the Group's compliance culture.

Board confirmation of principal risks and uncertainties

The Board has overall responsibility for the Group's risk management programme including implementing and monitoring:

-     Operational, financial and compliance internal controls;

-     Ensuring that the current management process remains a suitable means of establishing the correct risk culture; and

-     Ensuring that the Group's risk profile is managed and controlled.

The principal risks and uncertainties facing the Group are set out in the table on pages 17 to 21 and include detail as to how those risks are being effectively managed to accord with the Group's risk appetite, as established by the Board.

Appendix B - Directors Responsibilities Statement pursuant to Disclosure and Transparency Rule 4

The following statement is extracted from page 75 of the 2014 Annual Report and is repeated here for the purposes of compliance with DTR 6.3.5. This statement relates solely to the 2014 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 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 58 to 71, and in the related party details on page 120 (note 25) of the 2014 Annual Report.

Alex Henderson

Company Secretary

Hill & Smith Holdings PLC

Tel: [phone]

 

END

 

 

MSCEASLNEDKSEFF