DESCRIPTION |
MITIGATION |
Economic conditions The Group's business could be materially impacted by changes in the macroeconomic environment in the UK. 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. Should negative impacts on economic conditions arise as a result of the UK's decision to leave the EU, this could include a reduction in housing demand, or reduced mortgage availability or affordability. Such consequences would likely reduce demand for the Group's products. |
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. Our responses to possible Brexit implications are noted within the "Principal risks and Brexit" summary. |
Government action and policy The Group has an exposure to UK political developments. Material reductions in Government spending, or changes in Government policy relating to housebuilding, 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 major political parties each included favourable housing policies within their most recent Election manifestos. This positive policy environment has been further supported by announcements following the election - including: the announcement of new financial support for house building; the new Help to Buy Equity loan scheme which will run from April 2021; the abolition of stamp duty on homes under £300,000 for first time buyers; and government investment in teaching construction skills such as bricklaying - all announced in the Autumn Statement 2017 or Budget 2018. These measures, in addition to the existing National Planning Policy Framework ("NPPF") and Help to Buy scheme, show the Government's ongoing commitment to house building. 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. |
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. The impact of climate change and Government's response to this could also lead to changes to laws and regulations that could 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, together with any associated negative reputational damage. |
The health and wellbeing of our employees is fundamental to our business. We have stringent Health and Safety policies and monitor compliance regularly through internal and external auditing activity. 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. We recognise the importance of being a sustainable business and that climate change affects natural and economic systems, and recognise their implications in all we do. The Group has a proven record of investment in the latest systems, plant, machinery and technology and we continue to address the need for enabling conditions to address climate change concerns through the development of our Sustainability Roadmap 2025. The Group currently complies with existing legislative requirements and actively monitors for any legislative changes with which it may need to comply. |
Customer relationships and reputation The Group receives a significant portion of its revenue from key customers and the loss of any such customer through our failure to evolve effectively and meet the changing needs of our customers 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 or if we are unable to leverage our customer relationships effectively. |
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. The Group's businesses each 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. |
Operational 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 covering Group and individual factory locations. Management do not underestimate the potential impact that future prolonged periods of bad weather could have. Weather conditions are beyond the Group's control, although historically adverse weather has not impacted trading in the context of any full year. The Group's wide geographical spread mitigates this risk to some extent and allows it to manage its production facilities to mitigate the impact of such disruption. |
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. |
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. With regards to possible energy shortages, the Group operates a hedging strategy to mitigate the impact of sudden price increases. 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. |
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 with both internal and external audit reviews of product quality completed to ensure conformance with internationally recognised standards. All accredited staff undergo rigorous training programmes on quality and the Group's Technical teams carry out regular testing of all of our products to provide full technical data on our product range. |
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 transacts in currencies other than Sterling, 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 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. At 31 December 2018, the Group holds banking facilities of £213 million, as set out in Note 19 of the Group financial statements. - 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 during the year or at the year end. |
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 Ibstock defined benefit scheme was closed to future accrual in February 2017 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, which is operated to provide appropriate security and achieve an appropriate balance between risk and return, was subject to review and an updated policy has been developed to ensure that investments follow a reducing risk profile in light of the scheme changes. |
Cyber security High-profile attacks on companies across a number of industry sectors (including one of our own major customers) 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 past two years, 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. This has culminated in the Group's achievement of the UK Government's Cyber Essentials accreditation. |
