REG - Hill & Smith PLC - 2022 Annual Report and Notice of 2023 AGM
12/04/2023 11:15
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RNS Number : 9858V Hill & Smith PLC 12 April 2023
Hill & Smith PLC (the 'Company')
2022 Annual Report and Notice of 2023 Annual General Meeting ('AGM')
Hill & Smith PLC has posted, or otherwise notified as being available on
its website (www.hsgroup.com), the Notice of its 2023 AGM. The 2022 Annual
Report was posted to shareholders, or otherwise notified as being made
available on its website on 11 April 2023.
In accordance with Listing Rule 9.6.1 a copy of each of these documents has
been uploaded to the National Storage Mechanism and will be available for
viewing shortly.
A hard copy of the 2022 Annual Report can be obtained upon request to the
Group Company Secretary, Hill & Smith PLC, Westhaven House, Arleston Way,
Shirley, Solihull B90 4LH.
The statutory accounts for the year ended 31 December 2022 have been approved
by the Board and will be delivered to the Registrar of Companies following the
Company's AGM.
Compliance with Disclosure and Transparency Rule 6.3.5 ('DTR 6.3.5') -
Extracts from the 2022 Annual Report
The information below, headed as Appendix A, B and C, and which is extracted
from the 2022 Annual Report, is included solely for the purpose of complying
with DTR 6.3.5 and the requirements it imposes on how to make public Annual
Financial Reports. It should be read in conjunction with the Company's
Preliminary Announcement issued on 8 March 2023 (available at
www.hsgroup.com). Together these constitute the material required by DTR 6.3.5
to be communicated to the media in unedited full text through a Regulatory
Information Service. This material is not a substitute for reading the full
2022 Annual Report. All page numbers and cross-references in the extracted
information below refer to page numbers in the 2022 Annual Report.
Appendix A - Principal Risks and Uncertainties
Risk: Reduction in public infrastructure spending
Trend Description and potential impact Mitigation
No change Demand for sustainable infrastructure and transport is underpinned by · Our existing entity portfolio contains diverse products, markets
Government spending plans. Changes to these plans could have a detrimental and territories and we will continue with this approach.
impact on Group revenues.
· Market and product development initiatives.
· Co-operation between Group businesses, leveraging the Group's
The Infrastructure Investment and Jobs Act (‛IIJA'), enacted into law in size/international footprint and exploiting synergies.
November 2021, confirmed a substantial increase in US federal government
spending across a range of infrastructure areas and is likely to benefit · Exposure to the benefits from longer term infrastructure
demand for the Group's products and services in the US. Despite the current investment programmes.
macro-economic uncertainty and recent delays in strategic road network
projects, we are confident the UK Government are committed to the Road
Investment Strategy, presenting future opportunity for our UK roads
businesses.
Risk: Changes in global outlook and geopolitical environment
Trend Description and potential impact Mitigation
Slightly higher The Group operates in a range of end-user markets around the world and may be · The Group has a diverse portfolio of operating companies with
affected by political, economic or regulatory developments in any of these exposure to a range of markets and geographies, limiting exposure to any one
countries. country or market sector.
· Current and future financial performance is continuously monitored,
facilitating rapid response to changes in market conditions.
Material adverse changes in the political and economic environments in the
countries in which we operate, have the potential to put at risk our ability · In line with our entrepreneurial model, our decisions are made close
to execute our strategy. to our markets and our businesses are agile and responsive to changes in their
competitive landscape.
· Co-operation between Group businesses, leveraging the Group's
As a result of continued global macro-economic uncertainty and the threat of size/international footprint and exploiting synergies.
recession, an increase in the risk has been recognised.
Risk: Increase in competitive pressure
Trend Description and potential impact Mitigation
No change Increased volatility, uncertainty and slowdown in our markets could result in · Holding leading positions in niche markets of sustainable
increased prices and the emergence of new technologies, leading to a loss of infrastructure and transport safety with high barriers to entry.
customers and/or pricing pressure and consequently a loss of sales and reduced
profits. · In line with our entrepreneurial model, our decisions are made close
to our markets and our businesses are agile and responsive to changes in their
competitive landscape.
· Our operating companies aim to provide superior products and high
service levels to customers, whilst aiming to ensure there is no dependency on
any one customer.
Risk: Product failure
Trend Description and potential impact Mitigation
No change The Group operates in infrastructure markets where it is critical that its · Products tested, approved and accredited by regulatory bodies.
products meet customer and legislative requirements and where the consequences
of product failure are potentially significant. · Quality control protocols fully implemented and continuously
monitored.
· Contractual controls in place to minimise economic impacts.
Product failure arising from component defects or warranty issues may require
remediation including the replacement of defective components or complete · Insurance cover maintained globally with insurance partners.
products, resulting in direct financial costs to the Group and/or wider
reputational risk. · Litigation supported/managed by external legal specialists.
Risk: Contractual failure
Trend Description and potential impact Mitigation
No change The Group delivers its commitments to its customers through a variety of · Thematic Internal Audit review completed across the Group during
contractual arrangements of both a short and medium term nature. 2021 with recommendations implemented during 2022.
· Group material contract review process ensures specialist central
oversight of key contractual arrangements.
Weaknesses in the contract tendering process, inappropriate pricing,
misalignment of contract terms, ineffective contract management or failure to · Contracts training for key staff.
comply with contractual conditions could result in loss of revenues, pressure
on operating margins and wider reputational damage to the Group. · Dedicated quantity surveyors and contract managers in operating
companies to control contracts and mitigate risk.
· Litigation supported/managed by external legal specialists.
· Insurance cover maintained globally with insurance partners.
Risk: Supply chain failure
Trend Description and potential impact Mitigation
No change The Group's businesses depend on the availability and timely delivery of raw · Supply chain resilience has been a focus of the Risk Committee
materials and components, which could be affected by disruption in its supply during 2022 with ongoing monitoring of operating companies' ability to respond
chain. Supply chain failures because of performance, cost inflation, quality to the continued challenges.
and/or insolvency may have an adverse impact on the Group's production
capacity and lead to an inability to meet customer requirements, resulting in · Group wide thematic Internal Audit review of Supply Chain
a reduction in revenues, potential loss of market share and possible completed during 2022 with recommendations to be implemented during 2023.
reputational damage.
· Group procurement standards, including robust due diligence of
supply chain partners and the requirement for dual sourcing where available.
Global warming could place further stress on our supply chain, with extreme · Regular interaction and assessment of performance/ financial
weather events impacting supply becoming more likely and chronic changes to status of key suppliers.
heat/ rainfall averages potentially impacting where we source certain
materials. Climate change transition costs could also inflate the price of the · Group oversight of material procurement contracts ensuring robust
goods we purchase. contractual protections.
· Goods inwards and stock management processes in place to reduce
the likelihood of defects or a shortage of raw materials.
During the year, our operating companies continued to take appropriate action
to manage supply chain headwinds. Actions taken included implementing price · Contingency plans in place throughout the supply chain, such as
increases to offset significant input cost inflation, securing supply of raw purchasing additional stock of key raw materials and securing additional
materials and ensuring the continuity of operations with a backdrop of labour supply chain capacity.
shortages in certain businesses.
Risk: IT systems failure
Trend Description and potential impact Mitigation
Slightly higher The Group relies on the information technology systems used in the daily · The Board maintains a watching brief on IT and cyber risk, and has
operations of its operating companies. A failure or impairment of those overseen significant investment across the Group to enhance IT security
systems or any inability to effectively implement new systems could cause a controls and maturity covering areas such as identity management, IT asset
loss of business and/or damage to the reputation of the Group, together with management, backup, endpoint protection, incident response and vulnerability
significant remedial costs. management.
· Wholesale network security improvements planned for 2023.
Poor security controls and procedures could lead to our operating companies · IT controls manual setting out a robust set of information security
being susceptible to cyberattack, potentially resulting in significant IT controls covering basic cyber hygiene, system back-up procedures and hardware/
failure and associated disruption. software protection. Reviews of IT controls compliance were completed by
Internal Audit during 2022, with action plans agreed and monitored.
· Quarterly updates established to brief operating company leadership
During the year the global cyber threat has continued to evolve, with teams on their responsibilities relating to IT management and information
increasing numbers of organised criminal groups undertaking increasingly security.
sophisticated ransomware and other cyber attacks. As a result of the conflict
in Ukraine the UK's National Cyber Security Centre (‛NCSC') has warned of · Segregated business processing systems within each operating company
heightened cyber risk across UK, US and European businesses. means that any disruption due to illegal external activity is unlikely to
jeopardise the Group as a whole.
While there has been a marked enhancement of the Group's IT security controls
during 2022, the Board consider the risk to be heightened due to the
increasing sophistication and frequency of cyber threats across the world.
Risk: Portfolio management
Trend Description and potential impact Mitigation
No change The Group's growth strategies include the acquisition of businesses around the · All potential acquisitions are tightly evaluated to ensure they
world that complement or supplement its existing activities. Failure to fit within our purpose and core strategic goals.
execute an effective acquisition and integration programme would have a
significant impact on the Group's ability to generate sustainable profitable · Due diligence protocols deployed in relation to assessment of
growth for shareholders. target businesses, including financial, commercial, and legal etc.
· Board approval required for Group acquisitions, in line with the
Group Board's Schedule of Matters Reserved.
· Contractual protections and assurances sought from sellers to
mitigate subsequent identification of risks.
· Post-acquisition integration plans established for all
acquisitions with regular performance monitoring and reporting to the Board.
Risk: Lack of investment in product development and innovation
Trend Description and potential impact Mitigation
No change The Group operates in global infrastructure markets where continuous · Group wide Innovation Framework launched during 2021 to encourage
innovation is integral to the Group's product offering and where a failure to and stimulate more innovation across the Group. Workshops were run during 2022
innovate could result in product obsolescence, the entry of new competitors to foster innovation and share best practice and these will continue into
and/or loss of market share. The development of new products and technologies 2023.
carries risk including the failure to develop a commercially viable offering
within an acceptable timeframe. · Entrepreneurial culture fostered through a decentralised
management structure, ensuring that Group businesses are agile and responsive
to changes in their competitive environments.
· Acquisitions add innovate products and technology to our
portfolio.
· Executive Board approval of product development proposals within
the Group's capital spend approval policies.
· Active Intellectual Property management within individual
operating companies overseen by Group.
· Dedicated quality compliance resources in place across operating
companies, ensuring responsiveness to regulator and/or customer approval
requirements.
· Board monitoring of emerging risks alongside external specialist
support, where both the risks identified and the potential opportunities
arising are considered.
Risk: Talent, development, diversity, recruitment and retention of key
employees
Trend Description and potential impact Mitigation
Slightly lower The changing nature of the demographics from which we source our employees and · Two of our ESG focus areas (Talent development and engagement
the ways in which they like to work can make it difficult to attract and & Diversity, and inclusion) directly address the risk, with improvement
retain both skilled and unskilled labour. We need to ensure effective initiatives and metrics overseen by the ESG Committee.
recruitment channels and make the necessary investment to develop and retain
high quality individuals in key positions to guarantee the long term success · Refreshed People Strategy with a greater focus on internal
of the business. We need to ensure the diversity of our workforce reflects the talent.
communities in which we work. Without talented employees we will be unable to
deliver our strategic aims. · Group Head of Reward and Group Head of Talent roles recruited
during 2022.
· Contractual protections and retentions in employment contracts of
Competitive labour local markets and the aftermath of COVID-19 led to senior management and other key employees.
challenging recruitment conditions for our operating companies in the first
half of the year. In the second half of the year these pressures eased due to · Training and development of employees, which includes a programme
rising unemployment and a more difficult economic climate, subsequently time of IOD and ILM courses for senior management and identified potential
to recruit and the number of vacancies across the Group have both reduced. The successors, and apprenticeship and other vocational courses for specialist and
issue does remain though for certain skillsets that are more challenging to technical roles.
find and retain, e.g., Welders.
· Appropriate remuneration and benefits, together with bonus
opportunities and incentive plans offered to employees.
Our senior leadership gender diversity has improved in 2022 to 20%, due to · Recruitment process developed to include competency requirements
both internal promotions and external hires. An increased focus on engagement and skills gap analysis.
and corrective actions following the 2021 engagement survey has led to an
improved score for the 2022 engagement survey, increasing from 55% to 61%. The · Talent review process extended in scope to cover more employees,
process to find a permanent CEO is underway. increasing our visibility of talent.
Overall, a reduction in the risk has been recognised for the period.
Risk: Prevention of harm or injury to people
Trend Description and potential impact Mitigation
No change The Group is committed to preventing all health and safety incidents and · Culture of zero tolerance in respect of health & safety
ensuring the health, safety and wellbeing of all employees and third parties. violations promoted by the Board and disseminated throughout Group businesses.
The Group operates multiple manufacturing facilities around the world, a
failure in the Group's health & safety procedures could lead to injury or · Reduction of the Group's LTI rates is a key focus for Management
to the death of employees or third parties. and the Board, with improvement metrics now established through the ESG
Committee.
· Monthly health & safety reporting for all operating companies
LTIR has reduced from 1.7 in 2021 to 1.1 in 2022. Further improvement is via online tools.
required to reach the 2030 Health & Safety target of 0.25 and health &
safety remains a key focus area for the Group. · Monitoring and review of LTI rates by Group with all LTI events
followed up and investigated thoroughly using the 'five whys' root cause
analysis and presented to the Exec Board. Improvement recommendations are
implemented to minimise any reoccurrence.
· Development and roll out (Jan 2023) of our 'nine lifesaving
rules' and 'non-negotiable safety behaviours'
· Programme to add defibrillators to all sites commenced in 2022.
· Regular health & safety site audits.
· Health & safety forums to monitor performance and share best
practice.
· External health & safety accreditations and relationships
maintained with regulatory bodies.
· Health & safety is a priority area of focus for new
acquisitions.
Risk: Violation of applicable laws and regulations
Trend Description and potential impact Mitigation
No change The Group's global operations must comply with a range of national and · Group Code of Conduct sets out required approach for all staff.
international laws and regulations including those related to modern slavery,
anti-bribery and corruption, human rights, and employment, GDPR, trade/export · Staff training provided on Modern Slavery red flags, Anti-Bribery
compliance and competition/anti-trust. and Corruption and Competition compliance.
· Programme of audits undertaken on a cyclical basis to review
operating companies' compliance with regulatory requirements, including for
A failure to comply with any applicable laws and regulations could result in example simulated 'dawn raids'.
civil or criminal liabilities and/ or individual or corporate fines and could
also result in debarment from Government-related contracts, restrictions on · Software solutions implemented globally to ensure compliance with
ability to trade or rejection by financial counterparties as well as trade and export legislation.
reputational damage.
· Externally hosted whistleblowing hotline available to all
employees to allow them to raise concerns in confidence or anonymously, if
preferred.
Our exposure to breaching sanctions placed on Russia is low due to no current
direct Russian customers or suppliers. Our export compliance software performs · Modern Slavery compliance programme continued through 2022.
daily screening of our customer and supplier databases against global
sanctioned and denied party lists with any changes in status flagged. · Toolkits issued to all UK operating companies to aid compliance
with GDPR.
Appendix B - Responsibility Statement of the Directors pursuant to Disclosure
and Transparency Rule 4
The following statement is extracted from page 116 of the 2022 Annual Report
and is repeated here for the purposes of compliance with DTR 6.3.5. This
statement relates solely to the 2022 Annual Report and is not connected to the
extracted information set out in this announcement or the Preliminary
Announcement.
We confirm that to the best of our 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 or loss of the Company and
the undertakings included in the consolidation taken as a whole; and
- the Strategic Report includes a fair review of the development and
performance of the business and the 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 that they face.
We consider the Annual Report and Accounts, 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.
Appendix C - Related Party Transactions
The key management personnel are considered to be the Board of Directors of
Hill & Smith PLC, whose remuneration can be seen in the Remuneration
Committee Report on pages 92 to 104 and the members of the Executive Board who
are not also Directors of the Group, and in the related party details on page
190 (note 15) of the 2022 Annual Report.
Alex Henderson
Company Secretary
Hill & Smith PLC
Tel: +44 (0) 121 704 7430
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