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IMI PLC (IMI)

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Thursday 29 March, 2012

IMI PLC

Annual Financial Report

RNS Number : 3989A
IMI PLC
29 March 2012
 

29 March 2012

 

Annual Financial Report

 

IMI plc (the "Company") announces that copies of the Annual Report and Accounts for the year ended 31 December 2011 and the Notice of Annual General Meeting for 2012 are available from today on the Company's website www.imiplc.com and may be viewed and downloaded online at www.imi.plc.uk/investors (click on Annual Reports).

 

Hard copy documents are being posted to shareholders who have elected to receive them and are also available from the Company Secretary at the Company's registered office at Lakeside, Solihull Parkway, Birmingham Business Park, B37 7XZ.

 

Copies of the above documents, together with the notice of availability to shareholders receiving web-communications and the form of proxy for the 2012 Annual General Meeting have been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.hemscott.com/nsm.do

 

The Company's 2012 Annual General Meeting will be held at the Hilton Birmingham Metropole Hotel, National Exhibition Centre, Birmingham on Friday 4 May 2012, commencing at noon.

 

The Company's preliminary results announcement of 2 March 2012 contained a management report as well as the audited financial statements which were prepared in accordance with the applicable accounting standards.  The Annual Report and Accounts submitted to the National Storage Mechanism today also contains information regarding the Company's principal risks and uncertainties and a responsibility statement relating to the content of the Annual Report and Accounts (from the Directors in office as at 1 March 2012); an extract of this information is provided below as required under paragraph 6.3.5 of the DTR, however this material should be read in conjunction with and is not a substitute for reading the full Annual Report and Accounts.  There are no related party transactions requiring disclosure.  Page and note references in the text below refer to page numbers and notes in the Annual Report and Accounts.

 

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement is repeated here solely for the purpose of complying with DTR 6.3.5.  This statement relates to and is extracted from page 68 of the Annual Report and Accounts and is signed by order of the Board by John O'Shea, Company Secretary.  Responsibility is for the full Annual Report and Accounts and not the extracted information presented in this announcement or the preliminary results announcement.

 

Directors' responsibility statement under the Disclosure and Transparency Rules

 

Each of the directors listed on pages 36 and 37 confirms that:

 

•          the Group and parent company financial statements in this annual report, which have been prepared in accordance with applicable UK law and with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

 

•          the management report (which comprises the Directors' Report and the business review) 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. 

 

PRINCIPAL RISKS AND UNCERTAINTIES

In common with all businesses, there are a number of risks and uncertainties which could have a material impact on the Group's long-term performance. The Group has in place an established risk management structure and internal controls framework which together are designed to identify, manage and mitigate business risk. A summary of the Group's risk management processes is given on page 46 and the Group's approach to corporate social responsibility and associated risks is described on pages 28 to 33. In addition to the risks described here, the Group is also exposed to a number of financial market risks including credit risk, liquidity risk, counterparty risk, fluctuations in foreign exchange rates, interest rates and commodity prices. A description of these risks and the Group's centralised approach to managing them is described in note 18 to the financial statements. Further information about pension liabilities is given in note 19 to the financial statements.

 

KEY RISKS

 

Risk

Description of risk and potential impact

Examples of mitigating actions

Economic and market environment

The Group's European revenues are principally derived from Northern and Central Europe, however, the status of the global economy and in particular the uncertainties in the Eurozone could adversely affect the Group's revenues. The Group's cost base includes many costs that cannot be reduced in the short-term in line with reductions in profitability. The Group may also be required to reassess the carrying value of acquired goodwill and other assets if certain end-markets deteriorate further or for longer, which may result in impairment charges.

·    Diverse business portfolio serving different customers and markets

·    Accelerate growth agenda: investment in new product development and emerging markets

·    Monitoring of customer and supplier financial security

·    Cost base reduction initiatives

·    Regular updating of contingency plans

·    Effective cash management

·    Allocation of resource to more resilient customers, markets and geographies and focus on global growth trends (climate change, resource scarcity, urbanisation and ageing population)

Legal and regulatory risks

The Group's worldwide operations and expansion in emerging markets expose it to different legal and regulatory requirements and standards in each of the jurisdictions in which it operates including those for financial reporting, taxation, environmental, operational, anti-corruption, fraud and competition matters. The Group is also exposed to the potential for litigation from third parties which may arise in the ordinary course of business. The Company operates various corporate governance, compliance and internal control frameworks which are essential for the effective management of such geographically diverse businesses. Failures in these controls might have a material impact on the Group.

·    Commitment to good governance practices which are embodied in The IMI Way providing a guiding set of values that exemplify how IMI employees should behave

·    IMI Way days held in all businesses which includes face-to-face training for all employees

·    Policies, manuals, training, business processes and monitoring of key compliance and legal risks

·    Increase in resources dedicated to legal and regulatory compliance

·    Training of employees on The IMI Way and key risk areas such as competition law and anti-corruption

·    Enhanced version of The IMI Way to be published in 2012

·    Availability and promotion of the IMI Hotline to report concerns anonymously

·    Internal financial control audits by IMI Group Assurance

·    Anti-bribery, corruption and fraud workshops carried out

Health, safety and environ-mental

The Group recognises that it has a duty of care to all of its employees and to others with whom the Group interacts through its products and operations. In the event of any failure in the Group's health, safety and environmental procedures, there is a potential risk of injury or death to IMI's employees or others; or environmental damage, with the consequential impact on the operations and the risk of regulatory action against the Group.

·    Established systems in place under the IMI Safety First, Safety Always slogan, to ensure that health, safety and environmental matters are appropriately addressed and any such risks are minimised including monthly reporting to, and review at, the Executive and quarterly review at the IMI Board

·    Increase of full-time health, safety and environmental officers across the Group to ensure policies are embedded and measured

·    Introduction of a new travel risk management programme providing appropriate advice and support to all of the Group's international travellers

·    Regular review of Group safety performance

·    Group Environment, Health and Safety function with experienced specialist employees to provide support and guidance to businesses - including the conduct of regular risk control and health and safety audits

·    Maintenance of insurance for costs associated with any employers' liability, workers' compensation or equivalent claims and also certain environmental incidents

Pension funding

The Group's defined benefit pension arrangements are exposed to the risk of changes in interest rates and the market values of investments as well as inflation, increased longevity of members and statutory requirements. This may result in the cost of funding defined benefit pension arrangements becoming an increasingly significant burden on the Group's financial resources.

·    Deficit reduction plans implemented where appropriate

·    Liability management exercises implemented to remove risk from the IMI Pension Fund

·    Closure of overseas defined benefit plans to new members and future accrual where permissible

·    Active management of pension scheme assets and long-term view of liability assumptions

Products and technology

The Group is exposed to risks associated with the commercial failure of products, projects and technologies such as product liability and warranty claims. The quality and safety of our products is of the highest importance and there is an associated risk if they are below standard. For product claims not covered by insurance, the costs that cannot otherwise be recovered may be material to the Group.

·    Continued focus on quality and safety, including audits to appropriate quality standards

·    Processes to mitigate the reputational and legal implications of any failure

·    Maintenance of insurance cover for product liability claims

·    Upgrade of talent and focus on functional excellence in quality and product development

·    Contract management resources for both sales and purchases

Key customers

Certain of the Group's businesses benefit from close commercial relationships with key customers. The loss of certain of these key relationships whether through competition, consolidation or insolvency could have a material impact on the Group's results. The Group's top ten customers represent approximately 15% of total Group revenues. Onerous contract conditions with key customers could impact the Group's financial performance.

·    Collaborative development of bespoke new products

·    Development of strong relationships with new accounts to maintain a diverse portfolio across business sectors and geographic regions

·    Monitoring of markets for advance warning of negative commercial developments

·    Further investment in and development of Key Account Management and Engineering Advantage

·    Increase in resources dedicated to legal contract review and enhanced contract sign off procedures

Supply chain

The Group has a significant number of contracts with a broad base of suppliers. In the current economic environment there is a risk that their access to credit or adverse trading conditions could lead to an inability to meet their contractual commitments to the Group. In addition, upward price pressure from the supply chain could erode profits. The increasing use of suppliers in low cost economies could introduce risks related to quality or responsible business practices. All this could have a material impact on the Group's results.

·    Monitoring of risk and development of contingency plans to mitigate the impact of any supplier failure or increased prices

·    Review of supply base to reduce over-reliance on key suppliers

·    Moves to new lower cost manufacturing facilities, ongoing review of alternative low cost economy based suppliers and, where appropriate, supplier consolidation

·    Training and audit programme to validate suppliers' business processes, quality and standards

Competitive markets

The Group operates in highly competitive markets. Significant product innovations, technical advances or the intensification of price competition could all adversely affect the Group's results. The Group's continued success depends upon its ability to continue to develop and produce new and enhanced products and services on a cost-effective and timely basis in accordance with customer demands.

·    Initiatives and investment in research and development targeted to sustain the Group's Engineering Advantage

·    Monitoring of competing markets and products, including adjacent technologies, to facilitate early identification of potential threats and development of contingency plans

·    Cost base reduction initiatives, including supplier rationalization and value engineering

·    Processes for managing investment in research and development including appropriate stage gates for reviewing progress against clearly-defined, often customer-driven, technical and commercial objectives

M&A activity

IMI's growth strategy is in part dependent on acquisitions. The execution and integration of acquisitions involves a number of risks, including diversion of management's attention, failure to retain key personnel of the acquired business and risks associated with unanticipated events or liabilities. The Group may also be subject to liabilities as a result of past or future disposals.

·    Rigorous due diligence process with clear financial targets

·    Formal internal approval requirements

·    Appropriate business integration processes to ensure that the Group's policies, values, compliance and control framework are adopted and embedded

·    Investment in M&A skills and resources to support the growth strategy

Talent acquisition and retention

A loss of key personnel or the inability of the Group to recruit and retain high calibre managers and engineering talent may lead to the Group not being able to implement its business plans and strategy effectively and experiencing delays, or increased difficulty, in the strategic development of the Group, including in developing and selling its products and services.

·    Succession plans in place and regularly reviewed

·    Group-wide training and development programmes

·    Increased resources in emerging markets

·    Regular employee-wide surveys and action plans targeted by company or geography

Major change projects

The achievement of IMI's strategic objectives will require a number of major change projects in areas of manufacturing realignment, information technology improvements and business reorganisations. Failure to deliver successful major change projects in a timely manner could impact the Group's financial performance.

·    Upgrade of resources and talent in project management

·    Regular review of project progression by Executive

·    Enhanced risk assessment process including full mitigation action plans for all major change projects

 

Risk Appetite

 

The Board has considered the Group's risk appetite and it is considered appropriate to achieve the Group's strategic objectives. The level of risk appetite varies according to the rewards associated with each of the above risk categories. Risk appetite is higher for new product development, emerging market growth and bolt-on acquisitions, in keeping with our objective for further strategic convergence and is lower for employee safety and compliance with regulatory and business ethics. The degree of risk to be accepted on an operational basis is managed through delegation of authority levels and ensuring consistency with The IMI Way.

Enquiries to:

 

Helen Afford                  Corporate Counsel                  Tel:            0121 717 3700

 

Will Shaw                      Investor Relations                     Tel:            0121 717 3700

 

 

End.

 


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