Annual Financial Report
A description of the principal risks and uncertainties that the Company faces is extracted from pages 28 to 30 of the 2013 Annual Report.
As in any business, there may be unforeseen issues which could impact the Group's ability to achieve its objectives in the future. However, we believe the Group's risk management framework makes this less likely. The principal risks set out below are those which we believe to have the greatest potential to impact our ability to achieve the Group's strategic priorities.
| Risk | Why we think this is important | How we are mitigating the risk |
| Global and economic conditions | ||
| Changes in key markets, including mining and upstream oil and gas, and/or political conditions have an adverse impact on customers' expenditure plans. This may include delaying existing expenditure commitments. | We need to remain sufficiently flexible to allow us to meet growth in demand when our customers' markets are buoyant and therefore capital investment is high, and equally foresee downturns and/or instability in territories, to allow us to adjust our operations accordingly. Otherwise, we are at risk of not maximising our potential for growth in buoyant markets, and incurring unnecessary costs during downturns. | · We maintain regular engagement with our customers to understand their needs and challenges, and ensure our business is appropriately aligned. · Our strategic planning utilises extensive market intelligence to assist in forecasting opportunities and dips in markets, as well as potential political and social instability in regions. · We maintain contingency plans for downturns and exits from unstable regions. |
| Technology and innovation | ||
| We fail to drive innovation to ensure that the business continues to deliver sustainable and attractive solutions for our customers. | The strength of our business is built upon a history of delivering innovative and sustainable solutions for our customers. If we fail to keep abreast of market needs or to innovate solutions we are at risk of losing market share to our competitors and lowering margins as demand will reduce. | · Continual investment in research and development, including the Weir Advanced Research Centre in conjunction with the University of Strathclyde. · We have a dedicated governance team (Engineering Excellence Committee) focussed on the delivery of our strategic objectives for technological advances and innovation in manufacturing practices to meet the needs of our customers. |
| Environment, health and safety (EHS) | ||
| Failure to adequately protect our people and other stakeholders from harm associated with a breach in EHS standards. | 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 business; · legal action from regulators including fines and penalties; and · exclusion from markets important for our future growth. | · The Weir EHS Management 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 EHS standards are continually reviewed. · The EHS Excellence Committee is responsible for monitoring performance and compliance with Group objectives, policies and standards relating to EHS. · There is a formal EHS assurance programme with issues escalated as required through the reporting structures. |
| Ethics and governance | ||
| Interactions with our people, customers, suppliers and other stakeholders are not conducted with the highest standards of integrity which devalues our reputation. | 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; and · exclusion from markets important for our future growth. | · 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. · A Group-wide crisis management plan has been developed and rolled out across the organisation and is subject to periodic testing and regular review. |
| Supply chain | ||
| We fail to adequately manage the supply chain thereby reducing our ability to meet customer demand in an economic and efficient manner. | Our supply chain is dependent upon a number of factors including having sufficient manufacturing capacity, access to raw materials and key components, integrated sales and production planning, and skilled people. If we fail to meet the delivery targets agreed with customers as a result of a failure in the supply chain we risk: · damaging our reputation and as a consequence losing customers and market share; · incurring penalties as a result of late delivery contractual clauses; and · reducing margins by incurring unnecessary additional costs associated with late remedial actions taken to avoid missing delivery targets. | · There is an established engagement framework with key suppliers. · Regular KPI monitoring of the supply chain throughout the organisation. · The Value Chain Excellence Committee monitors performance and compliance with Group objectives, policies and standards relating to procurement. · Centres of Excellence have been established to drive efficiencies and enhance delivery standards whilst maintaining quality. · There is a developing Group-wide approach to inventory control, sales and operational planning. |
| Political and social risk | ||
| 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. | 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, property and to maintain our competitiveness. Expansions into new territories are only undertaken after rigorous assessment of the risks, including the social and political situation within the territory. | · Regular review of market attractiveness. · Monitoring travel by Weir employees to higher risk locations. · External expert risk assessments and regular monitoring in higher risk locations. · Contingency plans and exit strategy planning. |
| Acquisitions and expansion into new territories | ||
| Inadequate planning and management of the integration and expansion processes impacts the ability to generate growth opportunities, synergies and cost savings within expected timescales. | Acquisitions and expansions into new territories are only undertaken after rigorous review and identification of expected synergies, cost savings and growth opportunities. However, there is a risk that these benefits may not be achieved, or may not be achieved within the anticipated timescales, thereby tying up the Group's funds in investments with insufficient returns. There is also a risk that we could be left liable for past acts or omissions of the acquired businesses without adequate right of redress. | · The strategic planning process includes market and competitive position assessments to drive the acquisition agenda. · Comprehensive due diligence is performed on all potential acquisitions. · We have a formal 100 day integration plan with dedicated integration directors and managers appointed to oversee and manage the full integration programme. · We seek to secure appropriate legal protection against potential liabilities and to secure rights of redress against sellers where such liability arises. |
| IT security and continuity | ||
| Failure to maintain business systems or technical infrastructure that serves the business needs. Failure to adequately protect the business operations from cyber crime. | Up-to-date data allows us to make informed decisions about our business. Therefore we require reliable and efficient IT systems and infrastructure to provide our data requirements. Breaches of our IT security could have serious consequences for our business including: · interruption to business operations; and · loss of intellectual property and other valuable data. The Group is investing in a significant IT transformation programme. If this is not managed effectively the consequences could include: · the business becomes too internally focussed whilst the change is under way, and we fail to maintain our focus on delivering for our customers; and · interruption to business operations if data is unavailable due to unsuccessful execution of change. All of which could impact our ability to compete and our reputation in the market. | · We continually review the effectiveness of our key IT security controls in consultation with external experts. · There is regular reporting of IT incidents and potential security breaches, with lessons learned across the Group. · Significant and ongoing investment in the IT infrastructure and key systems. · We have an IT Governance Framework with a focus on structured change management techniques, including setting project governance levels in line with risk. · Full time programme and project team appointments, with adequate succession planning for internal appointments. · Regular programme and project monitoring. · External assurance being obtained on major IT transformation projects reporting through Internal Audit. · Close liaison with UK Government bodies in regard to cyber crime risk. |
| Cost competitiveness | ||
| Failure to deliver cost competitive products and services, or failure to deliver sufficiently differentiated products and services which justify a price premium through lowest total cost of ownership value propositions. | Customers are increasingly focussed on the price competitiveness of products and services as they seek to lower operating costs. If the Group fails to demonstrate the value of our products and services it risks losing market position. | · There is continual focus on maximising the efficiency of our products to ensure the solutions provided to customers deliver the best overall value, allowing our customers to meet their cost reduction strategies through lower energy costs and improved productivity. · Centres of Excellence are driving cost efficiencies, whilst maintaining quality. · Expansion of production in best cost locations, including foundry expansions in Malaysia and South Africa. · We regularly monitor market activity to ensure we remain competitive. |
Appendix B: Directors statement of responsibilities
The following statement is repeated here solely for the purpose of complying with DTR 6.3.5. This statement relates to and is extracted from page 116 of the 2013 Annual Report and is signed on behalf of the Board of Directors by Charles Berry, Chairman and Keith Cochrane, Chief Executive. Responsibility is for the full 2013 Annual Report and not the extracted information presented in this announcement or the full year results announcement.
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 confirm that they have complied with the above requirements in preparing the financial statements.
The Directors consider that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides 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 Director's 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.
Appendix C: Related Party Transactions
The following statements regarding related party transactions are set out on page 164 of the 2013 Annual Report. The following is extracted in full and unedited form from the 2013 Annual Report.
The following table provides the total amount of significant transactions which have been entered into with related parties for the relevant financial year and outstanding balances at the period end.
| Sales to related parties - goods | Sales to related parties - services | Purchases from related parties - goods | Purchases from related parties - services | Amounts owed to related parties | ||
| Related party | £m | £m | £m | £m | £m | |
| Joint ventures | 2013 | 5.6 | 0.5 | 2.7 | 1.7 | - |
| 2012 | 1.0 | 0.2 | 1.7 | 2.6 | - | |
| Group pension plans | 2013 | - | - | - | - | 2.3 |
| 2012 | - | - | - | - | 1.4 |
Contributions to the Group pension plans are disclosed in note 24.
Terms & conditions of transactions with related parties
Sales to and from related parties are made at normal market prices. Outstanding balances at the period end are unsecured and settlement occurs in cash. There have been no guarantees provided or received for any related party balances. For the 53 weeks ended 3 January 2014, the Group has not raised any provision for doubtful debts relating to amounts owed by related parties as the payment history has been excellent (2012: £nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
| Compensation of key management personnel | 2013 | 2012 |
| £m | £m | |
| Short-term employee benefits | 4.6 | 6.5 |
| Share-based payments | 3.2 | 2.7 |
| Post-employment benefits | - | 0.1 |
| 7.8 | 9.3 |
| Emoluments paid to the Directors of The Weir Group PLC for the 53 weeks ended 3 January 2014 | 2013 | 2012 |
| £m | £m | |
| Remuneration | 2.0 | 2.7 |
| Gains made on the exercise of Long Term Incentive Plan awards | 2.8 | 5.7 |
| 4.8 | 8.4 |
Key management comprises the Board and the Group Executive. Further details of the Directors' remuneration are disclosed in the Directors' remuneration report.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: The Weir Group PLC via Globenewswire
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