Directorate Changes and Annual Financial Report

1 April 2021

 

Marshalls plc

(the "Company")

 

Directorate changes

Annual Report 2020 and Notice of 2021 Annual General Meeting

 

Board changes

 

Further to the announcement on 11 March 2021 of Jack Clarke's agreement with the Board to retire as Group Finance Director and as an Executive Director, Jack has agreed to step down from the Board and as Group Finance Director with effect from today. As previously announced, a transition plan is well advanced and Jack will remain with the Group until 31 March 2022 to ensure a smooth and orderly handover.

 

Janet Ashdown has informed the Board that, after six years with the Company, she wishes to retire from the Board with effect from the end of the Company's 2021 AGM in May. The Board would like to thank Janet for her significant contribution to the success of the Company, particularly in her capacity as Senior Independent Non-Executive Director, Chair of the Remuneration Committee and designated Non-Executive Director for workforce engagement. Janet has provided invaluable knowledge and expertise in helping the Board navigate a number of changes over recent years to the governance landscape for listed companies.

 

With effect from the end of this year's AGM, Graham Prothero has agreed, in addition to his duties as Chair of the Audit Committee, to assume the role of Senior Independent Director. Graham has been with the Company nearly four years and is an experienced listed company director.

 

Angela Bromfield will take over as Chair of the Remuneration Committee and designated Non-Executive Director for workforce engagement. Angela has served more than 12 months on our Remuneration Committee and is the serving Chair of the Remuneration Committee for both Churchill China PLC and Harworth Group PLC.  

 

The Nomination Committee has factored these changes into its succession planning which continues to focus on ensuring that the knowledge, skills and experience on the Board are aligned with the Company's strategic priorities and enable it to comply with the requirements of the UK Corporate Governance Code.

 

Annual Report and 2021 AGM

 

The Company has published its full Annual Report for the year ended 31 December 2020 and Notice of 2021 AGM which is to be held at 11.00am on Wednesday 12 May 2021 at the Company's offices at Landscape House, Premier Way, Lowfields Business Park, Elland, HX5 9HT.

 

As Government measures restricting public gatherings and non-essential travel are likely to remain in place until after the 2021 AGM, we have made arrangements, as we did last year, for the Meeting to be a "hybrid" meeting, allowing shareholders to participate electronically. We are making arrangements for the quorum (which is any two shareholders or their proxies/corporate representatives) to be satisfied by the presence of two employee shareholders present in person, by proxy or as corporate representatives.

 

We do not currently intend to admit any other shareholders in person to the Meeting venue and encourage shareholders to participate in the meeting electronically. Shareholders are also strongly encouraged to vote by proxy in advance of the Meeting. Any updates to the position will be included on our website at www.marshalls.co.uk/investor/agm-details.

 

Copies of the documents listed below have been posted to shareholders today:

 

1.  Annual Report 2020

2.  Notice convening the 2021 AGM

3.  Form of Proxy for the 2021 AGM

 

A copy of each of the above documents has been submitted to the UK Listing Authority via the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism 

 

These documents are also accessible via the Company's website at www.marshalls.co.uk.

 

Reference is made to RNS announcement number 8638R published on 11 March 2021 (Annual Financial Report).  In addition to the information in that announcement, in accordance with DTR 6.3.5(2)(b), we also set out below the following extracts from the Annual Report 2020 in full text form:

 

·              Statement of Directors' Responsibilities; and

·              Principal Risks.

 

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Statement of Directors' Responsibilities in respect of the Annual Report 2020 and the Financial Statements

 

The Directors who held office at the date of approval of this Directors' Report confirm that, to the best of each of their 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 of the Company and the undertakings included in the consolidation taken as a whole;

·      the Strategic Report contained in this Annual Report includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face; and

·      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 position and performance, business model and strategy.

 

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Principal Risks

 

Process

 

Risk management is the responsibility of the Board and is a key factor in the delivery of the Group's strategic objectives. The Board establishes the culture of effective risk management and is responsible for maintaining appropriate systems and controls. The Board sets the risk appetite and determines the policies and procedures that are put in place to mitigate exposure to risks. The Board plays a central role in the Group's risk review process, which covers emerging risks and incorporates scenario planning and detailed stress testing.

 

There is a formal ongoing process to identify, assess and analyse risks and those of a potentially significant nature are included in the Group Risk Register. The Group Risk Register is reviewed and updated by the Board and the full Executive Management team at least every six months and the overall process is the subject of regular review. Risks are recorded with a full analysis and risk owners are nominated who have authority and responsibility for assessing and managing the risk. KPMG, as the Group's internal auditor, regularly attends the risk review meetings. The conclusion of KPMG is that the process continues to be a robust mechanism for monitoring and controlling the Group's principal risks and for challenging the potential impact of new emerging risks. All risks are aligned

with the Group's strategic objectives and each risk is analysed in terms of likelihood and impact to the business and the determination of a "gross risk score" enables risk exposure to be prioritised.

 

The Group seeks to mitigate exposure to all forms of strategic, financial and operational risk, both external and internal. The effectiveness of key mitigating controls is continually monitored

and such controls are subjected to internal audit and periodic testing in order to provide independent verification where this is deemed appropriate. The effectiveness and impact of key controls are evaluated and this is used to determine a net risk score for each risk. The process is used to develop detailed action plans that are used to manage, or respond to, the risks and these are monitored and reviewed on a regular basis by the Group's Audit Committee.

 

The Group has a formal framework for the ongoing assessment of operational, financial and IT-based controls. The overriding objective is to gain assurance that the control framework is complete and that the individual controls are operating effectively. Additional independent verification checking of key controls and reconciliations is undertaken on a rolling basis. Such testing includes key controls over access to, and changing permissions on, base data and metadata.

 

The Group is prepared to accept a certain level of risk to remain competitive but continues to adopt a conservative approach to risk management. The risk framework is robust and provides clarity in determining the risks faced and the level of risk that we are prepared to accept. Marshalls' strategies are designed to either treat, transfer or terminate the source of the identified risk. There are well-established procedures to identify, monitor and manage risk and, within the internal control framework, policies and procedures are reviewed on an ongoing basis.

 

Principal risks and uncertainties

 

The Directors have undertaken a robust, systematic assessment of the Group's emerging and principal risks. These have been considered within the timeframe of three years, which aligns with our Viability Statement.

 

Macro-economic and political

Nature of risk The Group is dependent on the level of activity in its end markets. Accordingly, it is susceptible to economic downturn, the impact of Government policy, interest rates, volatility in world markets and any continuing issues following the UK's departure from the EU.   Potential impact The potential longer-term impact of Brexit or wider global macro-economic tension and uncertainty could lead to lower activity levels which could reduce sales and production volumes. This could have an adverse effect on the Group's financial results. The impact of supply chain issues, exchange rate fluctuations and increased interest rates could also have an adverse impact on material costs.

Key risk indicators ·  Delays in the awarding of and completion of contracts. ·  Reductions in consumer confidence and order pipeline.   Mitigating factors ·  The Group closely monitors trends and lead indicators, invests in market research and is an active member of the CPA. ·  The Group benefits from the diversity of its business and end markets. The proactive development of the product range continues to offer protection. ·  The Group has developed detailed plans to support its supply chain following the UK's departure from the EU and to mitigate the risk of raw material shortages. ·  The Group undertakes scenario planning to support improved business resilience. ·  The Group continues to target those market areas where growth prospects are greatest, e.g. New Build Housing, Road, Rail and Water Management. ·  The Group focuses on its supplier relationships, flexible contracts and the use of hedging instruments.

Change in risk in the year The sharp reduction in sales due to COVID-19 in the second quarter of 2020 was reversed from quarter three and the second half of the year saw significant sales growth and increase in activity levels throughout the sector. The UK Government's stated objective is to support construction and manufacturing to fuel economic growth and significant investment support for infrastructure and housing has been announced. There continues to be volatility in world markets and global economic uncertainty continues to be a risk.

 

Pro-longed impact at further waves of the COVID-19 virus

Nature of risk Continued disruption caused by further longer-term effects of COVID-19 giving rise to further lockdowns and Government restrictions. Potential for further waves caused by new virus variants.   Potential impact Longer than expected disruption could lead to prolonged uncertainty and lower activity levels which could reduce sales and production volumes. This could have an adverse effect on the Group's financial results.   The requirement for longer-term home working could give rise to increased wellbeing or mental health issues.

Key risk indicators ·  Government policy and delays in the full implementation of the vaccine programme. ·  Delays in the awarding and completion of contracts.   Mitigating factors ·  The Group closely monitors trends and lead indicators. ·  The Group has detailed business continuity plans to maintain flexibility and appropriate working practices and procedures. ·  The Group undertakes ongoing scenario planning to assess business resilience and risks that could lead to business disruption. ·  The Group focuses on communication with employees and other stakeholders, and maintains strong customer and supplier relationships.

Change in risk in the year Trading recovered strongly in the second half of 2020 and this has continued into the first quarter of 2021. Construction and manufacturing have been designated as essential industries and the Group has already demonstrated strong business resilience. However, further delays could generate renewed uncertainty.

 

Cyber security risks

Nature of risk Inadequate controls and procedures over the protection of intellectual property, sensitive employee information and market influencing data. The failure to improve controls against cyber security risk quickly enough, given the rapid pace of change and the continuing introduction of new threats. Increasingly, all business is becoming more IT dependent.   Potential impact Risk of data loss causing financial and reputational risk.

Key risk indicators ·  Emergence of new cyber security risks. ·  Increased examples of data loss in the wider market.   Mitigating factors ·  Use of IT security policies. ·  The undertaking of regular cyber security risk audits by specialists and the quick introduction of mitigation controls and other recommended procedure updates. ·  Sensitive data is currently restricted to selected senior and experienced employees who are used to handling such data. ·  Appropriate tools and training procedures are in place to protect sensitive data when stored and transmitted between parties (e.g. encryption of hard drives, restricted USB devices, secure data transmission mechanisms and third party security audits). ·  A continuous programme of awareness training for staff.

Change in risk in the year This remains a high profile area and considerable focus is being given to promoting awareness of IT security policies. The net risk is being maintained due to the continued extension of mitigation controls. The risk is fast growing and indiscriminate and the perception is that the gross risk of data loss through new (or as yet unseen) security threats continues to increase.

 

Security of raw material supply / raw material shortages

Nature of risk Although the UK has now left the EU, there remains a risk to the security of raw material supply and the risk of shortages in some areas. Changes in the market for certain raw materials have created an increased reliance on imports.   The Group is susceptible to tariffs for certain commodities and significant increases in the price of raw materials, utilities, fuel oil and haulage costs and decreases in vehicle availability. Longer-term risk of "carbon taxation".   Potential impact The increased costs could reduce margins and may be further impacted in the event of imbalances in the mix of regional activity. The risk of market demand exceeding raw material supply could lead to inefficient production, which could reduce margins.

Key risk indicators ·  Temporary shortages and exchange rate cost inflation. ·  Decreases in vehicle availability and labour/driver shortages.   Mitigating factors ·  The Group benefits from the diversity of its business and end markets. ·  We are collaborating with all EU-based Tier 1 and Tier 2 suppliers to ensure any supply risks from the Brexit transition process are minimised. ·  A focus on governance and financial controls including a rolling "material risk" review process. ·  The digitisation of the supply chain through the implementation of a best-in-class Supply Relationship Management System. ·  The Group focuses on its supplier relationships, flexible contracts and the use of hedging instruments. Use of flexible freight forwarding options. ·  The Group utilises sales pricing and purchasing policies designed to mitigate the risks. ·  The Group uses specialist delivery vehicles.

Change in risk in the year The risk of temporary shortages is mitigated by proactive supply chain management and the use of alternative suppliers.   Cost inflation remains a risk as demand for raw materials increases against a backdrop of continuing economic uncertainty. All importers are faced with the same issues.

 

ESG focus and increasing requirements

Nature of risk Increasing focus on ESG and the heightened awareness of environmental challenge which is translating into politics and consumer behaviour.   Risk of allocating insufficient resource and investment to support the science-based targets and other environmental protocols.   Mandatory human rights disclosure from 2022 and increased focus on modern slavery and diversity reporting.   Potential impact Hardening targets and greater consideration amongst investor and stakeholder groups. Risk that investors and customers could reduce support if the Group failed to improve performance against targets or did not report appropriately. Risk of customers switching products away from those with a higher carbon footprint.

·  Negative feedback from stakeholders - loss of business and investment due to lack of preparedness. ·  Failure to meet internal targets.   Mitigating factors ·  The Group utilises experienced, specialist staff to support the Group's focus in this area. ·  Agreed carbon reduction plan and a set of KPIs established. ·  The Group is committed to the Science Based Targets initiative. ·  Working groups established in all focus areas and controls being progressively embedded across the business.

Change in risk in the year Significantly heightened focus from stakeholders, Government, customers and investors and increased operational and reporting requirements.

 

Climate change (including the impact of weather events)

Nature of risk The increase in frequency and impact of extreme weather events such as flooding, drought and coastal erosion.   The longer-term implications of climate change give rise to the transition risk to address the challenges quickly enough.   Potential impact Adverse working conditions could give rise to disruption and delays that might reduce short-term activity levels. This could reduce sales and production volumes and therefore have an adverse effect on the Group's financial results.   The cost impact of the "Environmental Protocol" and mitigation programmes could lead to increasingly expensive processes.   Financial risk caused by adverse impact on margins and cash flows as well as sales and production volumes.

Key risk indicators ·  Prolonged periods of bad weather (e.g. snow, ice and floods) which makes ground working difficult or impossible. ·  Changing public perceptions of the longer-term implications of climate change.   Mitigating factors ·  The Group utilises centralised specialist functions to support mitigation plans and the management of relationships on commercial contracts. ·  Climate change risk analysis in place. ·  We are committed to water harvesting and recycling schemes and have an environmental target of not using any mains schemes. ·  The development of resilience strategies for climate change is a key element of the Group's Climate Change Policy. ·  The development of the Group's Water Management business and the continuing focus on new product development.

Change in risk in the year Weather conditions continue to be closely monitored but are beyond the Group's control. Significant increase in public awareness of climate change.

 

Threat from new technologies and business models, and the increased pace of digital change in the market

Nature of risk Reduction in demand for traditional products. Risk of new competitors and new substitute products appearing.   Failure to react to market developments, including digital and technological advances.   Potential impact The increased competition could reduce volumes and margins on traditional products. Despite significant additional focus made by the Group in this area in recent years, there remains a risk that a new third party could use emerging digital technology to enter the market and transition more quickly and effectively.

Key risk indicators · Less demand for traditional products and routes to market. · Emergence of new competitors and new digital business models. · More widespread availability of artificial intelligence technology.   Mitigating factors · Good market intelligence. · Flexible business strategy able to embrace new technologies. · Significant focus on research and development and new products. · Development of the Group's E-platform and developing digital strategy.

Change in risk in the year The ongoing diversification of the business, the continued development of the Marshalls brand and the focus on new products and greater manufacturing efficiency continue to mitigate the risk.   The pace of digital change in the market continues to increase and the risk is increasing. This is now seen as a major risk by the market.

 

Corporate, legal and regulatory

Nature of risk Inadvertent failure to comply with elements of a significantly increased governance, legislative and regulatory business environment. The Group may be adversely affected by an unexpected reputational event, e.g. an issue in its ethical supply chain or due to a health and safety incident.   Potential impact Significant increases in the penalty regime across all areas of business (e.g. health and safety, competition law, the Bribery Act and GDPR) could lead to significant fines in the event of a breach.   A health and safety or environmental incident could lead to a disruption to production and the supply of products for customers. Such incidents could lead to prosecutions and increased costs and have a negative impact on the Group's reputation.

Key risk indicators · Increased regulatory and compliance requirements. · Integration requirements for new acquisitions. · Significant increases in the penalty regime for health and safety and environmental incidents.   Mitigating factors · Centralised legal and other specialist functions, the use of specialist advisers and ongoing monitoring and training. · The Group has a formal Group sustainability strategy focusing on impact reduction. · The Group employs compliance procedures, policies, ISO standards and independent audit processes which seek to ensure that local, national and international regulatory and compliance procedures are fully complied with. · The Group uses professional specialists covering carbon reduction, water management and biodiversity.

Change in risk in the year The significant increase in governance and regulation continues to require additional management focus and robust compliance procedures within all areas of the business.

 

Competitor activity

Nature of risk The Group has a number of existing competitors which compete on range, price, quality and service. Potential new low cost competitors may be attracted into the market through increased demand for imported natural stone products.   Potential impact The increased competition could reduce volumes and margins on manufactured and traded products.

Key risk indicators · Threat from new competitors and new technologies. · Less demand for traditional products and the increased emergence of new digital business models and product solutions.   Mitigating factors · The Group has unique selling points that differentiate the Marshalls branded offer. · The Group focuses on quality, service, reliability and ethical standards that differentiate Marshalls from competitor products. · The Group has a continuing focus on new product development. · The continued development of the Group's digital strategy and its focus for customers and all stakeholders.

Change in risk in the year The more uncertain market environment has not led to any significant changes in competitive pressure.

 

Customers

Nature of risk The UK business has a number of key customers, in particular the national merchants. This is partly as a result of the consolidated nature of this market.   Potential impact The loss of a significant customer may give rise to a significant adverse effect on the Group's financial results.

Key risk indicators ·  Changes to market structure or trading relationships. ·  New customer strategies. ·  Customer feedback and changing expectations.   Mitigating factors ·  The Group focuses on brand and new product development, quality and customer service improvement. ·  The Group maintains a national network of manufacturing and distribution sites. ·  The Group undertakes ongoing reviews of trading policies and relationships and maintains constant communication with customers. ·  We invest in market research to ensure that we have a strong understanding of end user requirements and the quality of our distribution network.

Change in risk in the year Although the underlying risk continues, the effective management of key relationships and the ongoing diversification of the business continue to mitigate the risk.

 

Health and safety

Nature of risk Unexpected health and safety incident, possibly caused by human error or the actions of a subcontractor.   Ongoing risks in relation to COVID-19 and the need to maintain safe working environments.   Ongoing welfare and mental health of employees.   Potential impact Risk of harm to all stakeholders, including on-site employees and subcontractors.   Negative impact of working from home for certain employees.   Significant increases in penalty regime could lead to significant fines and prosecution.   A major incident could lead to a disruption to production and a negative impact on the Group's reputation.

Key risk indicators · Integration requirements for new acquisitions. · Significant increases in the penalty regime.   Mitigating factors · Centralised specialist functions. · Regular communication and support for employees, including those working from home. Mental health first aiders. "Return to work" strategy and policies in place. · Comprehensive five-year health and safety strategy. · Ongoing monitoring, training and health and safety audits. · All senior managers receive the Marshalls Health and Safety and Environmental stage three training.

Change in risk in the year Health and safety continues to be a high profile risk area.   Increased risks arising from COVID-19, including mental health and employee welfare.

 

People risks

Nature of risk Ongoing risks and requirements concerned with training, development and succession planning. Implications of technological change and automation. Welfare and mental health related risks associated with the COVID-19 pandemic.   Potential impact · Risk of reduced skills and inadequate training potentially leading to reduced productivity and efficiency. · Implications for employee health and wellbeing and overall workforce morale. · Potential risk to the Marshalls brand.

Key risk indicators · Skill shortages and lack of diversity within the workforce. · Increased stress levels within workforce leading to employee absenteeism. · Increased levels of staff turnover.   Mitigating factors · Focused Human Resources department with experienced staff and specialist skills. · Strong employee and trade union relationships. · Strong communication channels and employee feedback through the Employee Voice Group. · Regular feedback questionnaires supported by a third party provider. · Independent "Safecall" employee helpline. · Focus on training, apprenticeships and ongoing staff development and leadership potential.

Change in risk in the year The impact of COVID-19 has created new challenges for employees with changed working requirements, health and safety regulations and operational working practices. These include issues that could give rise to heightened employee wellbeing issues and risks to mental health.

 

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Cautionary statement and Directors' liability

 

The Annual Report 2020 has been prepared for, and only for, the members of the Company, as a body, and no other persons. Neither the Company nor the Directors accept or assume any liability to any person to whom the Annual Report is shown or into whose hands it may come except to the extent that such liability arises and may not be excluded under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with Section 90A of the Financial Services and Markets Act 2000.

 

The Annual Report contains certain forward-looking statements with respect to the Group's financial condition, results, strategy, plans and objectives. These statements are not forecasts or guarantees of future performance and involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future.

 

There are a number of factors that could cause actual results or developments to differ materially from those expressed, implied or forecast by these forward-looking statements. All forward-looking statements in the Annual Report 2020 are based on information known to the Group as at the date of the Annual Report and the Group has no obligation publicly to update or revise any forward-looking statements, whether as a result of new information or future events. Nothing in the Annual Report should be construed as a profit forecast.

 

The information communicated in this announcement regarding changes to our Board is inside information.

 

 

Enquiries:

 

Martyn Coffey, Chief Executive	Marshalls plc	+44 (0)1422 314777
Shiv Sibal, Company Secretary	Marshalls plc	+44 (0)1422 314767
Andrew Jaques	MHP Communications	+44 (0)20 3128 8540
Charlie Barker