Annual Report and Accounts and Notice of AGM 2017

12 April 2017

Ibstock plc ("the Company")

2016 Annual Report and Accounts and Notice of Annual General Meeting 2017

Further to the release of the Company's preliminary results announcement on 7 March 2016, the Company announces that it has today published its full Annual Report and Accounts for the year ended 31 December 2016.

The Company also announces that it has today posted copies of the documents listed below to shareholders:

1. 2016 Annual Report and Accounts

2. Notice of Annual General Meeting 2017

3. Form of Proxy for the Annual General Meeting 2017

 

The Annual General Meeting 2017, will be held at 2:00 p.m. on Wednesday 24 May 2017 at Citigate Dewe Rogerson, 3 London Wall Buildings, London Wall, London EC2M 5SY.

A copy of each of these documents has also been submitted to the UK Listing Authority via the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm 

The 2016 Annual Report and Accounts and Notice of Annual General Meeting 2017 will also be accessible later today via the Company's website at www.ibstockplc.com/investors

This information should be read in conjunction with the Company's preliminary results announcement. A condensed set of the Company's financial statements and information on important events that have occurred during the financial year and their impact on the financial statements, were included in the preliminary results announcement released on 7 March 2017. That information, together with the information set out below, which is extracted from the 2016 Annual Report and Accounts, is provided in accordance with the Disclosure and Transparency Rule 6.3.5, which requires it to be communicated to the media through a Regulatory Information Service. This announcement is not a substitute for reading the full 2016 Annual Report and Accounts. Page and note references in the text below refer to page numbers and note numbers in the 2016 Annual Report and Accounts.

Risk management

Risk arises from the operations of, and strategic decisions taken by, every business and our approach to risk management is not to eliminate risk entirely, but rather provide the structural means to identify, prioritise and manage the risks involved in our activities. The Board of Directors is ultimately responsible for the Group's risk management processes and internal control systems.

The Board has considered the nature and extent of risks it is willing to take in pursuit of the Group's strategic objectives. It has assessed the Group's risk appetite, which is set to balance opportunities for business development and growth in areas of potentially higher risk, whilst maintaining our reputation and high levels of customer satisfaction.

In considering the Group's appetite for risk, this is set depending upon the particular risk associated to our Group strategy:

·	Safety - there is a zero tolerance for health and safety related risks or non-compliance with related legislation and statutory requirements;
·	Invest - the criteria for investment allocates the Group's resources in a manner consistent with the Group's strategy and planned internal rates of return; and
·	Innovate - whilst delivering activity aimed at introducing innovative products, the Group accepts short-term margin dilution, but aims for market-leading operating margins and returns on capital.

The Group's risk management process includes both top-down and bottom-up elements to the identification, evaluation and management of risks.

As noted in our 2015 Annual Report & Accounts, the Audit Committee had commissioned a third party review of the Group's internal control processes. This independent "health-check" of the Group's risk management was completed during the first half of 2016 and concluded that the Group's internal control framework was fit for purpose. The exercise helped establish a base line of internal controls and subsequently RSM LLP were appointed as the Group's outsourced Internal Audit provider to deliver a programme of internal audits to continue to monitor the processes and controls in operation.

The outsourced provider designed an independent programme of audits, which was approved by the Audit Committee, and commenced these audits in the second half of the year, supplementing the Group's own operational audit activities.

Risk matrices are maintained and reviewed by each subsidiary entity within the Group. These matrices are the result of input and challenge undertaken by the senior managers within the entity and the Group's Executive Directors, and are refreshed at least once per annum. At a Group level, the Board reviews these matrices and the analysis of potential exposures which exist within them. Risks are continually evaluated using consistent measurement criteria.

During the year, the Audit Committee approved a Group Risk Committee comprising senior managers from across the Group. The Committee participated in a risk workshop facilitated by the Group's outsourced Internal Auditor, and considered the risk matrices prepared; ranked the identified risks at a Group level; and determined the extent of Group-wide mitigating actions currently being undertaken.

Following the Risk Committee's meeting, a Group risk assessment was formulated and validated by the Executive Directors prior to approval by the Board. This formed a key component of the Directors' robust assessment of the principal risks facing the Group - including those that would threaten its business model, future performance, solvency or liquidity, set out below.

The Audit Committee supports the Board in monitoring the risk exposures and is responsible for reviewing the effectiveness of our risk management and internal control systems. During 2016, no significant failings or weaknesses in the Group's internal controls were found.

The Audit Committee is assisted in evaluating the design and operating effectiveness of our risk strategies and the internal controls implemented by management by the Group's outsourced Internal Audit function.

Principal Risks

Risk	Description	Mitigation
1 - Economic conditions	The Group's business could be materially impacted by changes in the macroeconomic environment in the UK and the US.   Specifically, demand for the Group's products is strongly correlated with residential construction and renovation activities and non-residential construction, together with the supply chain's attitude to stock levels, which are cyclical.	The Group analyses construction statistics for the past five years and, using independent forecasts of construction statistics, forecasts future demand with the aim of anticipating market movements.   The Group has historically flexed capacity and its cost base where possible during economic downturns to allow more of the Group's manufacturing plants to remain open and viable, maintaining skills, development and training. The Group believes that this maintained employee morale and high levels of customer service through the last economic downturn. It also allows the Group to respond more rapidly to increases in demand and keep customers satisfied.   The Group's RMI and specification product ranges diversify end-use exposure and provide greater resilience in light of changing market demand in any of its end-use markets.
2 - Government action and policy	The Group has an exposure to both UK or US political developments. Material reductions in Government spending, or changes in Government policy, could have a material effect on demand for the Group's products - reducing sales and affecting the Group's financial results.	The Group analyses construction statistics for the past five years and, using independent forecasts of construction statistics, forecasts demand for the next five years with the aim of anticipating market movements.   The change in climate post 2015's UK General Election and Autumn Budget are favourable to housing, as well as recent changes to developing brownfield land and the 200,000 affordable homes the Government is targeting to be built by 2020. These measures, in addition to the National Planning Policy Framework ("NPPF") and Help to Buy scheme, show the Government's current commitment to house building. The UK Government's white paper "Fixing our broken housing market" of February 2017 is also supportive of housing. However, the Group recognises the risk which can result from political changes or economic uncertainty.   RMI and new housing demands are, to a certain extent, counter-cyclical to each other, providing some balance to the portfolio of offerings for the Group.
3 - Government regulation and standards relating to the manufacture and use of building products	The Group's production, manufacturing and distribution activities are subject to health and safety risks.   The Group is subject to environmental, health and safety laws and regulations and these may change. These laws and regulations could cause the Group to make modifications to how it manufactures and prices its products. They could also require that the Group make significant capital investments or otherwise increase its costs or could result in liabilities.   Failure of the Group to comply with the relevant regulations could result in the Group being liable to fines or a suspension of operations, which would impact the Group's financial results.	The health and wellbeing of our employees is fundamental to our business. We have stringent Health and Safety policies and monitor compliance regularly.   We have also invested considerable resources in employee training across our manufacturing processes. We have invested heavily in safe systems and facilities to protect our employees.   The Group actively monitors for any legislative changes which it may need to comply with.
4 - Customer relationships and reputation	The Group receives a significant portion of its revenue from key customers and the loss of any such customer could result in a significant loss of revenue and cash flow. Further, the Group does not have long-term contracts with its customers and the Group's revenue could be reduced if its customers switch some or all of their business with the Group to other suppliers.	The Group has a service-led ethos with many top customer relationships lasting over 40 years. The Group's customer focus is supported by a commitment to quality, service and consistency.   The Group's sales and production teams are highly integrated to ensure that production aligns with customers' needs. Sales teams receive in-depth technical training and are assisted by a design support service team as well as targeted marketing materials to assist with specification and selection.   All four of the Group's primary businesses have their own sales teams aligned by customer group and region in order to focus on key decision makers and customers. Key account management is supervised at a senior level where long-term relationships benefit from the continuity of senior management who have the ability to liaise across the Group's businesses.   The Group has a broad spread of customers and no single customer comprises more than 10% of the total Group revenue.
5 - Business disruption	A material disruption at one of the Group's manufacturing facilities or quarries, or at one of the Group's suppliers' facilities, could prevent the Group from meeting customer demand.   The Group depends on efficient and uninterrupted operations of its information and communication technology, and any disruption to or interruptions in these operations could have a material adverse effect on the Group's operations and financial performance.   Additionally, the Group is exposed to the impact of unexpected or prolonged periods of bad weather, which could adversely affect construction activity and, as a result, demand for the Group's products.	The Group has the ability to transfer some of its production across its network of plants and is able to engage subcontractors to reduce the impact of certain production disruptions.   In relation to supplier disruption or failure, further third party suppliers have been identified who can maintain service in the event of a disruption.   In relation to IT, a major incident action plan has been developed and the Group maintains data backups and a comprehensive disaster recovery plan (see also Risk 11, overleaf).   Although weather conditions are completely beyond the Group's control, in both the UK and US in 2016 adverse weather did not impact on trading in the context of the full year. Management do not underestimate the potential impact that future prolonged periods of bad weather could have. The Group's wide geographical spread allows it to manage its production facilities to mitigate the impact of such disruption.
6 - Recruitment and retention of key personnel	The Group is dependent on qualified personnel in key positions and employees having special technical knowledge and skills. Any loss of such personnel without timely replacement could significantly disrupt business operations.	We ensure that we recognise the changing labour markets, and packages for key and senior staff remain competitive.   The Group believes that it is essential to protect and develop the management team, where appropriate ensuring that the team is structured in a way which best takes advantage of the available skills and robustly identifies the team and structure for the future. Extensive succession plans are in place, which is key to ensuring a managed transfer of roles and responsibilities.   Apprenticeship schemes are in operation with a yearly intake across the business (engineering and technical based). High potential individuals are identified with development plans formulated. External recruits are brought in where any skill gaps are identified and to enhance the talent pool.
7 - Input prices	The Group's business may be affected by volatility in extraction expenses and raw material costs. Risks exist around our ability to pass on increased costs through price increases to our customers.   The Group's business may also be affected by volatility in energy costs or disruptions in energy supplies.   Significant changes in the cost or availability of transportation could affect the Group's results.	Significant input costs are under constant review, with continuous monitoring of raw material costs, energy prices and haulage expenses, with the aim of achieving the best possible prices and assuring stability of supply.   As competitors of the Group are likely to experience similar levels of input price increases, we aim to have appropriate pricing policies to remain competitive within our markets and pass on significant increases in input costs to our customers wherever possible.
8 - Product quality	The nature of the Group's business may expose it to warranty claims and to claims for product liability, construction defects, project delay, property damage, personal injury and other damages. Any damage to the Group's brands, including through actual or alleged issues with its products, could harm our business, reputation and the Group's financial results.	The Group operates comprehensive quality control procedures across its sites.   The Group's Technical teams carry out regular testing of all of our products to provide full technical data on our product range.
9 - Financial risk management	In addition to the input cost risks outlined above, the Group is subject to the following other financial risks: ·      Foreign exchange risk - As the Group has operations in the UK and the US, exchange rate fluctuations may adversely impact the Group's results. ·      Credit risk - Through its customers, the Group is exposed to a counterparty risk that accounts receivable will not be settled leading to a financial loss to the Group. ·      Liquidity risk - Insufficient funds could result in the Group being unable to fund its operations. ·      Interest rate risk - Movements in interest rates could adversely impact the Group and result in higher financing payments to service debt.	·      Foreign exchange risk - The Group undertakes limited foreign exchange transactions, with the UK and US businesses selling domestically with largely local input costs. Some capex requires foreign exchange purchases and management considers foreign exchange hedging strategies where significant exposures may arise. ·      Credit risk - Customer credit risk is managed by each subsidiary subject to the Group's policy relating to customer credit risk management. The Group principally manages credit risk through management of customer credit limits. The credit limits are set for each customer based on the creditworthiness of the customer and the anticipated levels of business activity. These limits are initially determined when the customer account is first set up and are regularly monitored thereafter. ·      Liquidity risk - The Group's policy is to ensure that it has sufficient funding and facilities in place to meet any foreseeable peak in borrowing requirements and liabilities when they become due. In March 2017, the Group entered into new facilities of £250 million. ·      Interest rate risk - The Group finances its operations through a mixture of retained profits and bank borrowings. The Group's bank borrowings, other facilities and deposits are in Sterling and at floating rates. No interest rate derivative contracts have been entered into at the period end.
10 - Pension obligations	The Group has obligations to its employees relating to retirement and other obligations and any changes in assumptions or in interest rate levels could have adverse effects on its financial position.	The Company plays an active role in the pension scheme - nominating up to half of the Trustees and the Group Chief Financial Officer attends and chairs Trustee meetings. The defined benefit scheme was closed to future accrual following consultation with members. The Pension Trustees and their external advisers, as well as the internal pensions team, have significant expertise in the area and provide oversight. Following the closure, our agreed Statement of Investment Principles, operated to provide appropriate security and achieve an appropriate balance between risk and return, is under review.
11 - Cyber security	Recent high-profile attacks on companies across a number of industry sectors have highlighted the damage that can now be caused by hackers and cyber terrorists. As a result, and as the Group continues to evolve, operational risks such as cyber security risk have increased in focus. Such IT security risks have the ability to significantly disrupt the Group's business, resulting in financial loss.	The Group does not operate in a high risk sector, yet the Group is committed to ensure that its network, applications and data are protected. During the year, the Group has completed a review using an external cyber security programme framework, which provides coverage across the key areas of cyber security and aligns with industry standards.
12 - Brexit	The UK Referendum on EU membership in June 2016 introduced a degree of uncertainty and may give rise to longer-term macroeconomic changes, which as outlined in Risk 1, could reduce demand for the Group's products.	The Group established a Brexit Committee shortly after the Referendum result was announced. As part of this, management has developed contingency plans to mitigate risks arising from macroeconomic changes which may result. The Group has limited exposure to foreign currency risk and as a result the recent devaluation of Sterling has had minimal impact.

Viability Statement

Background

The Directors, have undertaken a comprehensive assessment of the Group's viability as a business - rigorously assessing its markets, the strength of its business model and the potential risks that could impact its ongoing success. This process involved carefully reviewing and assessing extensive evidence, from both internal and external sources, to evaluate the prospects for the Group over a long-term horizon.

Assessment

The Directors' assessment of the longer term viability of the business, as part of the year-end review for the preparation of the 2016 Annual Report & Accounts, has assessed the business model, strategy, market conditions,  business planning, risks and the liquidity and solvency of the Group.

The Group has a strong position in the markets in which it operates, as noted on pages 6 and 7 of the 2016 Annual Report & Accounts, and its strategy (see pages 11 to 17 of the 2016 Annual Report & Accounts) is aimed at continuing to strengthen its position in those markets and create value for its shareholders. The Group's global operations (see pages 26 and 27 of the 2016 Annual Report & Accounts) exposes it to a number of risks and the Group's principal risks and uncertainties are noted on pages 34 to 36 of the 2016 Annual Report & Accounts. The Directors continually review those risks and determine the appropriate controls and further actions. They have further reviewed the impact within the context of the Group's viability. The Group has limited exposure to interest rate risk and foreign exchange rate risk as described on page 36.

Lookout period

In determining the lookout period to assess the prospects of the Group, the Directors decided that three years was the appropriate period over which to assess longer-term viability. The nature of the building products industry is that it is particularly sensitive to the level of economic activity, which is influenced by factors outside of the Group's control, such as demographic trends, the state of the housing market, mortgage availability, mortgage interest rates and changes in household income, inflation and Government policy. Based on the evidence available, the Directors believe that it is reasonable to expect continued growth, and consider that a three-year period provides the most appropriate horizon over which to assess viability. The Directors have also considered the financing the Group has in place, which is agreed for a period in excess of the lookout period used. Following the facilities' refinancing subsequent to the year-end, described in Note 34 to the Group consolidated financial statements, refinancing is therefore not considered a significant factor in this current assessment, but is monitored on a continuous basis.

Stress testing

During the challenging market conditions of the recent past, the Group performed well, remaining cash positive and implementing a number of mitigating actions that allowed it to remain viable. These mitigating actions remain available to the Directors today.

The budget has been stress tested against a severe and prolonged reduction in demand for its products, on the basis of reduced house building activity and therefore reduced volume of product sold, as well as a benign environment of prolonged price stagnation on sales. These scenarios reflect the previous challenging market conditions of the 2008/09 downturn, a period over which UK construction output fell 13% (Source: Office of National Statistics, Construction Products Association) with sharp reductions also in the US market. These scenarios have been modelled alongside input cost inflation outside of the Group's control, notably for energy costs.

Assumptions

In determining the viability of the Group, the Board made the following assumptions:

·	The economic climate in the geographies in which the Group operates remains in line with a broad consensus of external forecasts;
·	There is no material change in the legal and regulatory frameworks with which the Group complies;
·	There are no material changes in construction methods used in the markets in which the Group operates;
·	The Group's risk mitigation strategies continue to be effective; and
·	The Group's past record of successfully mitigating significant construction industry declines can be replicated.

Conclusion

In summary, the Directors reasonably expect, based on the evidence available, that the Group will continue in operation and meet its liabilities as they fall due over the three-year period of their assessment.

Statement of Directors' responsibilities

Director' responsibilities

The Directors are responsible for preparing the Annual Report & Accounts 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 are required to prepare the Group consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards), including FRS 102, The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland, and applicable law. Under company law the Directors must not approve the Annual Report & Accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period.

In preparing the Parent Company financial statements, the Directors are required to:

·	select suitable accounting policies and then apply them consistently;
·	make judgements and accounting estimates that are reasonable and prudent;
·	state whether applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
·	prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

In preparing the Group consolidated financial statements, International Accounting Standard No.1 requires Directors to:

·	properly select and apply accounting policies
·	present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
·	provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
·	make an assessment of the Group's ability to continue as a going concern and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and to disclose with reasonable accuracy at any time the financial position of the Group and Company and to enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company 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 corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors are of the opinion that the Annual Report & Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.

Directors' Responsibility Statement

The Directors who were in office as at 31 December 2016 and whose names and functions are given on pages 38 and 39 of the 2016 Annual Report and Accounts confirm that to the best of their 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 Group and Company and the undertakings included in the consolidation taken as a whole; and
·	the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Group and 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.

 

Related party transactions

	Transaction amount
	Year ended 31 December 2016 £'000	Period ended December 2015 £'000
Purchase of services:
Bain Capital Investors LLC		8,995

In the year ended 31 December 2016:

On 2 September 2016, Diamond (BC) S.à r.l., (a wholly-owned subsidiary of Bain Capital Investors LLC) announced the sale of 40,500,000 ordinary shares in the capital of the Group. Following the sales, Bain Capital Investors LLC holds 150,200,435 Ordinary Shares representing approximately 37.0% of the entire issued share capital. As at 31 December 2016 the Board of Directors of the Company, consider, based on the facts and circumstances, that Bain Capital Investors LLC continues to have significant influence over, but does not control, the Group.

In the period ended 31 December 2015:

Diamond (BC) S.à r.l., owned a majority shareholding of the Group prior to completion of the IPO transaction. Diamond (BC) S.à r.l., a wholly-owned subsidiary of Bain Capital Investors LLC, was therefore the immediate parent of the Group and Bain Capital Investors LLC was the ultimate parent and ultimate controlling party of the Group prior to the IPO transaction. On 27 October 2015, its shareholding reduced to 53.03% and on 4 November 2015, its shareholding reduced to 47.03% following the exercise of an over-allotment option in respect of 24,330,000 ordinary shares.

Subsequent to 4 November 2015 and as at 31 December 2015 the Board of Directors of the Company, consider, based on the facts and circumstances, that Diamond (BC) S.à r.l., had significant influence over but does not control the Group.

The shareholder loan notes and preference shares held by the Group during the prior period (Note 8) were owed to Diamond (BC) S.à r.l., a subsidiary to Bain Capital Investors LLC and were converted to ordinary shares. The preference shares held by Diamond (BC) S.à r.l., and converted to ordinary shares are disclosed in Note 24 of the 2016 Annual Report & Accounts. There are no balances with Bain Capital Investors LLC at the period end date.

During the period, Figgs Topco Limited issued 10,000,000 A shares to Diamond (BC) S.à r.l., (wholly-owned by Bain Capital Investors LLC). Additionally, on Ibstock plc issued 50,000 ordinary shares on incorporation to Diamond (BC) S.à r.l., (wholly-owned by Bain Capital Investors LLC). A shares were converted as part of the Group reorganisation during the period. See Note 24 of the Group consolidated financial statements.

Transactions with related parties during the period also include management subscriptions for shares of £0.6 million, see Note 27 of the Group consolidated financial statements and the Directors' Remuneration Report on pages 58 to 73 of the 2016 Annual Report & Accounts.

See Note 7 of the Group consolidated financial statements for details of key management personnel remuneration.

During the prior period an interest-free loan totalling £346,000 was outstanding from a UK director of a UK subsidiary company that was provided for relocation purposes. This was paid back before the prior year-end

For further information contact:

Ibstock plc
Robert Douglas, Company Secretary	+ 44 (0)1530 257 211
Citigate Dewe Rogerson	+ 44 (0)20 7638 9571
Kevin Smith
Nick Hayns