Morgan Advanced Materials plc
31 March 2015
Publication of 2014 Annual Report and Notice of 2015 Annual General Meeting
The following documents have today been posted or otherwise made available to shareholders:
a. Annual Report and Financial Statements for the year ended 31 December 2014 (2014 Annual Report); and
b. Notice of the 2015 Annual General Meeting to be held at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED on Friday 8 May 2015; and
c. Form of Proxy for the 2015 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 www.hemscott.com/nsm.do.
The documents are also available on the Company's website at www.morganadvancedmaterials.com in the 'Investors' section.
The Company's preliminary results announcement of 12 February 2015 contained a management report as well as audited financial statements which were prepared in accordance with the applicable accounting standards. The financial information set out in the Company's preliminary results announcement of 12 February 2015 does not constitute the Company's statutory accounts for the year ended 31 December 2014. Statutory accounts for 2014 are included in the 2014 Annual Report, which will be delivered to the registrar of companies following the Company's 2015 Annual General Meeting. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006 in respect of the accounts for 2014.
The information below, which is extracted from the 2014 Annual Report, is included solely for the purpose of complying with DTR 6.3.5. This information should be read in conjunction with the Company's preliminary results announcement issued on 12 February 2015 (available at www.morganadvancedmaterials.com). This announcement 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.
Related party transactions
There are no related party transactions requiring disclosure.
Principal Risks and Uncertainties
The Group has an established risk management methodology in place which seeks to identify, quantify, manage and mitigate both existing and emerging risks, together with a comprehensive internal control framework and appropriate monitoring and assurance processes, details of which are set out in the Corporate Governance Report on pages 49 to 57. The Board considers that this is fundamental to achieving the Group aim of creating long-term sustainable shareholder value.
Risks are identified 'top down' by the Board and 'site up' though the Group's businesses and are quantified by assessing their inherent impact and mitigated probability to ensure that the true potential impact of any risk and its likelihood of materialising are appreciated throughout the Group. The day-to-day management of risk sits within the Group's internal control framework at the level of the Group where the impact would materialise, with the effectiveness of the controls and mitigating actions being monitored and assessed through a Group-wide review process which considers the controls, monitoring and assurance framework around these risks. Senior members of the management team are responsible for the strategic management of the respective key risks, including related policy, guidelines and process.
During 2014, the Board/Audit Committee reviewed all risks with an inherent potential EBITA impact of above £5 million within a 12-month period and the controls, monitoring and assurance processes that are in place to mitigate those risks. As a result of this review, a number of actions were identified to improve controls and the mitigation of risk. For example, the review of both the 'top down' and 'site up' technology obsolescence risks identified the need for further proactive management of the technology tail, ie those older technologies which are now becoming obsolete. The Board/Audit Committee annual review of key risks will continue into 2015 and beyond with a focus on developing a means of further leveraging the significant volume of information gathered as part of the Risk Management process. Also in 2015, the Group's risk management methodology and related processes will be reviewed to ensure that they align with the requirements under the revised UK Corporate Governance Code.
The following risks feature in the Group's key risk register and are those that the Board feels could have the most serious effect on achieving the Group's strategy of building a sustainable business for the long term and delivering strong returns to the Group's stakeholders.
RISK |
MITIGATION |
Strategy and strategic planning risks |
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Technology obsolescence One of the Group's strategic priorities is that it aims to 'be innovative, differentiated and high value-added'. This is fundamental to achieving the goal of continuing to be one of the world's very best advanced materials companies. Unforeseen/unmitigated technology obsolescence, the loss of control of proprietary technology or the loss of intellectual property/know-how would impact the Group's business and its ability to deliver on its strategic goals. |
The Group has a Chief Technical Officer and a dedicated technology team which monitors technology and business developments. Specifically, the team has developed technology roadmaps for its major technology families to ensure it is at the leading edge of technology development, but also to understand emerging and competing technologies. The technology team proactively manages the Group's technology pipeline and R&D investment in new/improving technologies and is also focusing on productive management of the technology tail. This technology pipeline is regularly reviewed by the Group Executive and the Board. Where Group products are designed for a specific customer, they are developed in tandem with the customer to maintain leading-edge differentiated solutions. The Group seeks to secure IP protection, where appropriate, for its existing and emerging portfolio of products; external advisers manage this protection globally. |
Recruiting, maintaining and motivating high-quality staff Another of the Group's strategic priorities is to 'find, keep and develop the right people'. The advanced technological nature of the Group requires people with highly differentiated skillsets. Any inability to recruit, retain and develop the right people would impact the Group achieving its strategic goals. |
Making Morgan a safe, fulfilling and rewarding Group to work for is the primary means of engaging the workforce and managing this risk. The Group has an HR Director and a network of HR professionals within the business who, along with policies and processes, support Morgan's managers to mitigate the risks relating to its people. The HR function covers areas including reward and recognition, health and safety, talent management, skills assessment and development, performance management and employee consultation. A global employee survey was carried out in 2014, the results of which will inform further actions going forward. In 2012 the Group launched a Graduate Leadership Programme which continued to run in 2014. The Group also launched in 2014 a global leadership programme in conjunction with Cranfield University to develop Morgan's high potential commercial leaders. |
Operational risks |
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Treasury risks The Group's global nature means that it is exposed to uncertainties in the financial markets and the banking sector which heighten the Group's foreign exchange, interest rate, credit and liquidity risks as well as the risk of bank failure impacting the Group's cash. |
The Group's Treasury function, Treasury Policy and guidelines provide strict controls on the selection of banks and cash management. The Treasury team proactively manages and is ultimately responsible for all of the Group's funding, liquidity, cash management, interest rate risk, foreign exchange risk and other treasury business. |
Quality of contracts As a global advanced materials business supplying into critical applications, our quality of contracts must match our quality of products. Ineffective contract risk management could result in significant liabilities for the Group and damage customer relationships. |
The Group has an in-house legal function supplemented by external lawyers. The Group Legal Policy requires in-house legal review of high-value or high-risk contracts to ensure that the contracts contain the appropriate protection for the Group. CEO approval is required before any part of the business can enter into an unlimited liability contract or one where the liability cap exceeds £5 million. In 2014, the CEO approved 10 contracts or tenders with this liability profile, where the underlying risks were considered to be within the Group's risk appetite. Contract risk management training remains part of the Responsible Business Programme (RBP) and will continue to mitigate the risk of ineffective contract management. To the extent that risk has not been managed out of the contractual process, the Group has insurance cover approved by the Board, including product liability insurance. |
IT risks and cyber risks In order to meet the Group's strategic objectives the viability of its underlying IT infrastructure is essential. If a critical business system was to fail or the Group lost critical data or information through inadequate data management or security of IT systems, the business would be impacted. |
The Group has an IT policy and guidelines in place as well as Group and business IT teams to manage the Group's infrastructure technology roadmap and IT risks. During the course of 2014 there has been continued focus on testing the global infrastructure, including elements of IT auditing in the internal audit process, reviewing data management and developing the Group's business continuity plans in relation to IT risk. A number of infrastructure improvements have been made in 2014 to mitigate the likelihood of a successful cyber-attack. |
Product quality, safety and liability Products used in applications for which they were not intended or inadequate quality control systems/overcommitting on specifications could result in products not meeting specifications, which could lead to significant liabilities and reputational damage. |
Many of the Group's products are designed to customer specifications. Over 90% of the Group's manufacturing output is accredited to ISO 9001 and the Group's quality management systems and training help ensure that Morgan's products meet or exceed customer requirements and national/international standards. Contracts relating to products used in potential high-risk applications are subject to mandatory legal review. While there were a number of minor product quality issues identified in 2014, these had no material impact. The Group insurance programme includes product liability insurance; this Group-level insurance is reviewed annually by the Board. |
Single-point exposures The Group has a number of potential single- point exposure risks, these include: Ø Single-point supplier - a significant interruption of a key internal or external supply could impact business continuity. Ø Single-point customer - the unmitigated loss of a major customer could have an impact on Group profit. Ø Single-point profit - a key site exposed to a strike, a natural catastrophe or serious incident, such as fire, could impact business continuity. |
The Group Executive is responsible for monitoring and managing these single-point exposures. Local and Regional management of these risks involves monitoring and reviewing supply chains (internal and external), dual/multiple sourcing of materials or strategic stock, fire protection systems, creating and testing business continuity plans, and maintaining product quality and customer relationships. The Group insurance programme includes business interruption cover; this Group-level insurance is reviewed annually by the Board. The Composites and Defence Systems business has seen a reduction in business from the MoD during 2014; in response to this, the business has put increased emphasis on its product/customer diversification strategy. |
Environment, health and safety (EHS) risks The Group operates a number of manufacturing facilities around the globe. A failure in the Group's EHS procedures could lead to environmental damage or to injury or death of employees or third parties, with a consequential impact on operations and raising the risk of regulatory or legal action being taken against the Group. Any such action could result in both financial damages and damage to reputation. |
The Group has a well-developed EHS programme managed by the EHS Director, with site-based EHS officers to implement and monitor EHS adherence at site level. During 2014 the Group launched a global behavioural safety programme 'thinkSAFE'. |
Compliance and ethics risks |
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Changes to or non-compliance with laws and regulation The Group's global operations must comply with a range of national and international laws and regulations including those related to bribery and corruption, human rights, exports and competition/anti-trust. A failure to comply with any applicable laws/regulations could result in civil or criminal liabilities, individual or corporate fines and could also result in debarment from government-related contracts and reputational damage. |
The Group is committed to the highest standards of corporate and individual behaviour and this commitment is set out in the Group's Core Values Statement and Ethics Policy. Due to the potential magnitude of corporate fines, compliance risks are identified as some of the most significant risks for a number of reasons: Ø Morgan's historic breach of anti-trust laws creates a greater sensitivity to anti-trust risk and means that the Group could be subject to the greater potential liabilities which attach to repeat offenders. Ø The location of a number of Morgan businesses and customers means they are exposed to greater bribery risk. Ø Morgan exports from the US and is therefore subject to the stringent US export laws. The Group's Responsible Business Programme, and the US Export Director, address these areas of risk through policies, training/education and monitoring/assurance processes. |
External risks |
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Changing political, economic and social environment The Group operates in a range of markets and geographies around the world and can be affected by political, economic, social or regulatory developments or instability such as Chinese asset bubbles or the geopolitical issues in the Middle East, Russia and Ukraine. |
The Group's broad market/geographic spread helps to mitigate the effects of political and economic crises. Key risks and events are regularly tracked at a business and Group level, with contingency plans in place to manage changing situations. Financial and treasury controls limit exposure to foreign currency, interest rate, credit and liquidity risk. Also, the Group maintains a carefully managed debt facility to ensure that its debt ratio is within acceptable market tolerances. |
Pension funding |
|
The Group participates in defined benefit pension arrangements which are exposed to fluctuating interest rates, investment values and inflation. This, coupled with the increased longevity of members, could result in funding burdens on the Group in the future. |
Active management of the pension scheme assets is the primary means of mitigation. This comprises management both internally within the Group but also externally through corporate actuaries and professional advisers. |
Directors' Responsibility Statement
The 2014 Annual Report contains the following statements regarding responsibility for the financial statements in compliance with DTR 4.1.12. Responsibility is for the 2014 Annual Report and Financial Statements and not the condensed statements required to be set out in the Annual Financial Report announcement.
Each of the Directors, the names and roles of whom are set out on pages 46 and 47 of the 2014 Annual Report, confirms to the best of their knowledge:
· The Group's Financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
· The management report (comprising the Directors' Report and the Strategic Report) includes 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.
Enquiries: Stephanie Mackie, Deputy Company Secretary
Telephone: 01753 837000
