Annual Financial Report 2009 and Notice of 2010...
Copies of the Elementis plc Annual Report and Accounts 2009 and Notice of Annual
General Meeting 2010 have been submitted to the UK Listing Authority, and will
be available shortly for inspection at the UK Listing Authority's Document
Viewing Facility, which is situated at:
Financial Services Authority
25 The North Colonnade
Canary Wharf
LONDON
E14 5HS
Tel: (0) 20 7066 8224.
Printed copies of the above documents, together with forms of proxy, will be
posted to shareholders tomorrow. PDF and interactive PDF versions of the Annual
Report and Accounts and Notice of Meeting can also be viewed on the Company's
website from 19 March 2010 at:
http://www.elementis.com/investors/shareholdercomm.html.
Annual Financial Report
In accordance with Disclosure and Transparency Rule 6.3.5, Elementis plc ("the
Company") sets out below the following additional information required to be
made through a Regulatory Information Service ("RIS"): Principal risks and
uncertainties; and Directors' responsibility statement. The information below,
which is extracted from the 2009 Annual report and accounts, is included solely
for the purpose of complying with DTR 6.3.5(2) and the requirements it imposes
on issuers as to how to make public annual financial reports.
The information below should be read in conjunction with the Company's
Preliminary results announcement for the year ended 31 December 2009, which was
published through a RIS on 23 February 2010. Together these announcements
constitute the material required by DTR 6.3.5 to be communicated to the media in
unedited full text through a RIS.
ADDITIONAL INFORMATION REQUIRED BY DISCLOSURE AND TRANSPARENCY RULE 6.3.5
All references to 'Annual report', page references and cross-references to
'notes to the financial statements' below relate to the 2009 Annual report and
accounts, a copy of which is available as described above.
"Principal risks and uncertainties
Risk management framework and review
The Board is ultimately responsible for the management of risk in the Group.
With guidance from management and advisers, where appropriate, it sets the tone
for the Group's policies on risk, appetite for risk and levels of risk tolerance
and specifically approves: the Group's insurance programme and risk management
policies and plans; significant insurance and/or legal claims and/or
settlements; major acquisitions, disposals and capital expenditures; and the
Group's Annual Operating and Three Year Plans. Â The day to day management of
risk is delegated to the executive directors and the management team, who have
specific responsibility for ensuring compliance with and implementing policies
at corporate, divisional and business unit level. The Board retains an oversight
role and has a schedule of matters specifically reserved to it for decision,
with strict delegation of authority limits that have been communicated
throughout the businesses and are well understood by the management team and
business leaders.
During 2009, the Chief Executive, Finance Director and the rest of the senior
management team (comprising the business managing directors and other functional
heads) met formally eleven times to review business strategy and performance,
including matters concerning risk management, where appropriate. Management
reports key risk management activities to the Board at least four times a year,
with further reports on an ad hoc basis as appropriate. Â The first report was in
June to present the Group's insurance renewal proposals and highlight any
significant change in insurance underwriters' perception of the organisation
from a risk transference standpoint. The second briefing in October involved
presentations from the businesses on health, safety, environmental and legal
risks. In December, a summary of the Group's risk management processes,
including a summary of the key risks identified by management during its formal
annual review of risk and risk management activities, was presented to the Board
for approval. At the December Board review, business and corporate risk maps
prepared by management were discussed and approved. These risk maps summarise
key risks from a list of risks identified by the businesses and are categorised
and ranked according to severity and likelihood, along with actions recommended
or implemented to reduce or eliminate the risk. The Board then reviewed and
approved the disclosures on principal risks and uncertainties and the
description of risk management activities in the Annual Report, as well as the
statement on internal control, at its meeting in February.
At its other meetings during 2009, the Board discussed other risks related to
the triennial valuation of the UK pension fund, the economic downturn and the
Group's borrowing facility and associated covenants. In addition to the
presentation of legal risks at its meeting in October, the Board receives legal
reports at its February and July meetings, as part of the general review and
approval of the respective preliminary results announcement and Annual Report
and the interim management report and half year results. The Board is kept
appropriately advised throughout the year of any material legal issues or
developments that may arise.
Another important part of the Board's approach to risk management concerns the
Company's system of internal control and the processes that have been put in
place to manage the associated financial, operational and compliance risks and
keep them under review. A key aspect of the internal control framework is the
internal audit service and the role of the Audit Committee. The report of the
Audit Committee, including a description of its role, and the statement on
internal control are set out in the Corporate governance report on pages 27 and
28.
The Group carried out a benchmarking exercise of its risk management processes
last year, comparing its processes and standards with the UK Risk Management
Standard ("Standard"), issued by the Association of Insurance and Risk Managers
and the Institute of Risk Management. Â One or two areas of improvement were
identified, which have since been addressed, but otherwise the Group is
considered to have met most of the requirements of the Standard which are that
the Group is aware of the need for sound risk management procedures and
demonstrates strong risk awareness and a culture built around mitigation
wherever possible. Â In 2009 the Group continued to invest time and resource
across a range of risk management strategies. These included actions to reduce
the severity and likelihood of some risks, and working closely with the Group's
insurance broker and major insurer to transfer other risks. However, despite
best efforts, it is recognised that there remains the possibility that an
identified risk may turn into a reality, or that a previously unidentified risk
manifests itself, causing loss to the Company. Â Elementis has an established
Business Continuity Plan ("BCP") to help ensure that the business can continue
to operate in the event of a major incident or crisis. The BCP is embedded
throughout the organisation and is periodically tested, audited and subject to
continual improvement.
Commercial risk
The main risk and uncertainty currently facing the Group's businesses is the
extent to which the economy can recover from the recent economic recession and
the threat of a double-dip recession in 2010. Â However, the actions taken by
management in 2009 have lowered the business' cost base, thereby making it more
resilient against the effects of a further deterioration in economic conditions.
The geographical spread of customers and the breadth of product applications
help to reduce the Group's exposure to local economic downturns. The closure of
the UK chromium facility in 2009 has reduced the exposure of the Chromium
business to economic downturn as the remaining US business' manufacturing base
is better able to maintain margins because of its more flexible production
facilities and more differentiated products.
Regulatory risk
Regulations such as REACh (the EU's regulations on the Registration, Evaluation,
Authorisation and Restrictions of Chemicals) could affect sales of some
chemicals. The Group mitigates this risk by ensuring that all of its products
are fully compliant with the REACh regulations. There is also a risk that new
regulations could restrict the Group's sales of some of its products or cause
customers to look for alternative products. Â The Group mitigates this risk by
continually seeking to diversify its product range and to develop products that
meet or anticipate its customers' needs, including any regulatory concerns.
Raw materials and energy risks
A significant part of the Specialty Products business depends on hectorite clay
from the Group's own open pit mine in California. While this provides a secure
source of clay, there remains a risk from the exposure to flash flooding and
earthquake, which is known to have occurred in the past in that region and so
may recur in the future. Â Sufficient inventory of mined ore is held at the
surface level to minimise the impact and disruption that such an event might
cause.
The Chromium business is particularly sensitive to energy pricing. Climate
change regulations designed to reduce carbon dioxide emissions from fossil fuels
as well as global supply/demand trends for energy could make energy more
expensive in the future. Â To mitigate this, the Group works continually on
improving energy efficiency and to secure stable energy supplies through hedging
contracts and by investing in a capability to use multiple sources of fuel.
IT risk
The Group is highly dependent on IT systems for managing its businesses. There
is the ever present threat of a security breach and disruption to voice and data
infrastructure, which is a risk common to many organisations. The Group has an
ongoing review programme in place to ensure that systems are updated and
maintained adequately and in a timely manner. Overall Elementis is confident
that it has a high level of resilience in its IT systems and infrastructure, and
that IT management has adopted good industry practices for protecting against
malicious attacks and operational downtime from other non malicious problems
including fire, natural perils and staff unavailability.
Legal, governance, compliance and insurance risk
Other risks faced by the Company include governance and compliance risk. Lack of
Board oversight and processes or ineffective management teams can lead to
significant financial loss or loss of strategic direction. These risks are
mitigated by regular Board meetings with a comprehensive agenda, regular
evaluations of Board and management team members and regular Board reviews of
strategy, business plans and compliance programmes. Like many companies, the
Company's UK pension fund has seen the size of its deficit increase over the
past few years, largely as a result of changes in assumptions that are used in
the valuation of pension liabilities, such as the rate of mortality, as well as
depressed equity prices and bond yields. Changes to these assumptions or to
pensions legislation could have a material impact on the size of the pension
fund deficit and the Company's ongoing funding liability.
Breach of anti-trust, HSE or other laws or regulations from historical or
ongoing operations can lead to a major financial loss, public censure or both,
thereby damaging the creditworthiness and or reputation of the Company; either
of which can damage the Company's long and short term market value. These risks
are mitigated by our risk management programmes, including: web-based compliance
training for employees; regular HSE compliance audits, supported by external
advisers and the internal audit service; and insurance.
In terms of the key legal risks, there is a risk of material toxic tort,
environmental and other claims from historical and ongoing operations. Some of
these risks, in the case of previously owned operations, may be mitigated or
reduced as a result of continuing warranties or indemnity provisions negotiated
when such operations were disposed of. Â Despite having insurance in place there
is always the possibility of an under-insured or uninsured claim and, in the
extreme, an insured limit might be exceeded. However, Elementis has a robust
programme in place to actively manage and defend against legal action or claims
relating to its operations, products and manufacturing facilities. The programme
is led by the Group General Counsel, who is supported by an in-house team and
professional advisers. Litigation reports are reviewed regularly by the Board.
In connection with the EU Commission investigation into competition issues
relating to heat stabilisers, the outcome of that investigation and the
Company's response to it is described in the Chairman's statement.
Treasury policies and objectives
Treasury activities are governed by policies and procedures approved and
monitored by the Board. Â The Group operates a central treasury function which
manages and monitors external and internal funding requirements and the
following treasury risks:
- Â Credit risk,
- Â Liquidity risk,
- Â Market risk.
These risks and the Group's policies to manage them are set out in note 22 to
the Financial Statements."
Directors' responsibility statement
The 2009 Annual report and accounts contain a responsibility statement in the
form set out below on page 25.
"The directors, all of whom are shown on page 20, confirm that to the best of
their knowledge:
* the financial statements, prepared in accordance with applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
* the Directors' report includes a fair review of the development and
performance of the business and position of the issuer and the undertakings
included in the consolidation taken as a whole, together with a description
of the principal risks and uncertainties they face.
The Directors' responsibility statement has been approved by the Board and
signed on its behalf by:
Brian Taylorson
Finance Director
23 February 2010"
Wai Wong
Company Secretary
020 7408 9303
18 March 2010
[HUG#1394882]
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