TIDMSXS
RNS Number : 3267U
Spectris PLC
28 March 2019
Spectris plc: Annual Report and Accounts 2018
The Company's Annual Report and Accounts for the year ended 31
December 2018 (the "Annual Report") and the Notice of Annual
General Meeting to be held on 24 May 2019 (the "Notice of Meeting")
have been published on the Company's website at www.spectris.com
and have been posted to shareholders who have elected to receive
hard copy communications.
Pursuant to UK Listing Rule 9.6.1, the following documents have
also been submitted to the National Storage Mechanism and will
shortly be available for inspection at
www.morningstar.co.uk/uk/NSM:
- The Annual Report.
- The Notice of Meeting.
- Form of Proxy.
- Notice of Availability for documents on the Company's website.
The final results for the year ended 31 December 2018, released
by the Company on 19 February 2019, include the information
required pursuant to Rules 4.1 and 6.3.5 of the UK Disclosure
Guidance and Transparency Rules, excepting publication of the
responsibility statement of the Directors in respect of the 2018
Accounts, and a description of the principal risks and
uncertainties facing the Company, which are detailed below:
Directors Responsibility Statement
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;
-- the Strategic Report on pages 1 to 43 and the Directors'
Report on pages 44 to 83 include a fair review of the development
and performance of the business and the position of the Group and
the undertakings included in the consolidation, taken as a whole,
together with a description of the principal risks and
uncertainties that they face; and
-- 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 performance, business model
and strategy.
Andrew Heath - Chief Executive
Clive Watson - Group Finance Director
Principal Risks and Uncertainties
Fluctuations in exchange rates
We have operations which sell and purchase goods in foreign
currencies and whose results we record in a variety of different
currencies. We are therefore exposed to any significant changes
in exchange rates.
Link to Strategy: Innovative solutions, Market presence
------------------------------------------------------------
Risk Appetite: Balanced
------------------------------------------------------------
Assessment: Moderate
------------------------------------------------------------
Change in Risk Same
Level:
------------------------------------------------------------
Impact - Unexpected variations in the Company's results.
- Reduced profitability and cash flow.
------------------------------------------------------------
Mitigation - Natural hedging strategy, matching invoicing
and purchasing currencies where practical.
- Forward foreign exchange contracts cover up
to 75% of forecast transactional exposures up
to 18 months ahead.
- Foreign currency investments hedged with borrowings
in the same currency wherever possible.
- Regular monitoring, including sensitivity analyses
to understand the impact of exchange rate movements
on the Group's reporting.
------------------------------------------------------------
2018 update
* Implementation of new treasury management system in
2019 will improve monitoring and compliance with the
Group's transactional hedging policy.
------------------------------------------------------------
Compliance with laws and regulations
We operate in a large number of jurisdictions and, consequently,
are subject to wide-ranging laws and regulations.
Any failure by the Group or its representatives to comply with
relevant laws and regulations could result in civil or criminal
liabilities, leading to significant fines and penalties or the
disqualification of the Group from participation in government-related
contracts for a period of time. In the event of a failure to
comply with export control regulations, the Group could also
be exposed to restrictions being placed upon its ability to
trade.
Link to Strategy: Expanding globally, Operational excellence
----------------------------------------------------------
Risk Appetite: Highly Cautious
----------------------------------------------------------
Assessment: High
----------------------------------------------------------
Change in Risk Higher
Level:
----------------------------------------------------------
Impact - Reduced sales, profitability and cash flow.
- Reputational damage.
- Diversion of management resources resulting
in lost opportunities.
- Penalties arising from breach of laws and regulations.
- Inability to attract and retain talent.
----------------------------------------------------------
Mitigation - Strong cultural alignment to the Spectris value
of 'Absolute Integrity'.
- Internal control framework and policies.
- Ethics training provided to all employees.
- Formal export controls compliance procedures
in place, including strict product classification
and transaction screening protocols.
- Comprehensive insurance covers all standard
categories of insurable risk.
- Contract review and approval processes mitigate
exposure to contractual liability.
----------------------------------------------------------
2018 update The compliance burden on the Group has heightened
given our geographical concentration in areas
that have seen an increase in regulatory risk
during 2018. An ethics and compliance enhancement
programme was endorsed by the Audit and Risk Committee
in October 2018 and is expected to deliver further
mitigation strengthening over the next 24 months.
We continue to be responsive to issues raised
through the Spectris hotline. For details of our
ethics programme see page 39.
----------------------------------------------------------
Information security
As with most organisations of a similar size and complexity,
our businesses face both internal and external information security
risks, the nature and complexity of which are constantly changing,
becoming more sophisticated and unpredictable. In addition,
the introduction of regulatory requirements, such as the General
Data Protection Regulation ('GDPR', which came into force in
May 2018), requires that we continue to develop our processes
and mitigations so that they remain effective and compliant.
Link to Strategy: Innovative solutions, Market presence, Expanding
globally, Capital deployment
------------------------------------------------------------
Risk Appetite: Cautious
------------------------------------------------------------
Assessment: Moderate
------------------------------------------------------------
Change in Risk Same
Level:
------------------------------------------------------------
Impact - Delay or impact on decision-making through lack
of available reliable data or disruption of service.
- Loss of commercially sensitive or personal information.
- Reduced service to customers due to poor information
handling or interruption of business.
------------------------------------------------------------
Mitigation - Our businesses employ a number of physical and
logical control measures designed to reduce the
risk of a breach in information security arising.
- Our systems are monitored against unauthorised
access.
- A programme of continuous improvement focusing
on information security risks evaluates whether
the Group's existing controls in this area would
benefit from additional strengthening.
- Employees receive online and face-to-face awareness
training of information security risks and controls.
- Cyber risk and security is reviewed regularly
by the Board to address the evolving landscape.
------------------------------------------------------------
2018 update The Group IT function continues to increase the
maturity at our operating companies in respect
of data classification, patch management and vulnerability
management. A new Chief Information Officer joined
Spectris in November 2018, who will continue to
refine and drive both the ongoing risk assessment
and the existing and planned mitigation activity.
During 2018, the Group Head of Information Risk
Governance filled three new positions in the Information
Risk Governance team to add further strength.
A Group IT Assurance Manager has also joined the
Internal Audit function and will be a key third
line of defence in 2019, delivering a plan of
in-house assurance against the IT general controls
in place across the Group and other risks associated
with business systems and information security.
------------------------------------------------------------
Acquisitions
Integration of the operations and personnel of acquired businesses
can be a complex process. Potential risks therefore exist that
the planned benefits from the acquisition may not be achieved
as a result of problems encountered during integration of the
acquired business, incorrect assumptions made in the business
case, changing market conditions, or issues which were not identified
during the due diligence process. Further, the Company could
be exposed to past acts or omissions of the acquired business.
Link to Strategy: Market presence, Expanding globally, Capital deployment
---------------------------------------------------------
Risk Appetite: Balanced
---------------------------------------------------------
Assessment: Moderate
---------------------------------------------------------
Change in Risk Same
Level:
---------------------------------------------------------
Impact - Failure to successfully deliver the business
plan.
- Reduced profitability and cash flow.
- Unforeseen liabilities.
---------------------------------------------------------
Mitigation - Rigorous financial, commercial and legal assessment
of target businesses involving external consultants
and advisers as appropriate.
- Strict authority levels which, subject to size,
involve review by the Board for such transactions.
- Comprehensive representations and warranties
in purchase agreements.
- Integration planning.
- Regular review of the acquired businesses against
the business case.
- Post-acquisition control reviews.
---------------------------------------------------------
2018 update Our acquisition activity during 2018 has included
the expansion of test service capabilities for
Materials Analysis and accessing new markets via
the acquisition of Concept Life Sciences. We have
been careful to maintain our financial, commercial
and legal due diligence and disciplines, which
has meant that we have also excluded ourselves
from a number of potential acquisitions. We have
recently recruited an Integration Manager to strengthen
our capabilities with regard to integrating new
acquisitions and merging operating companies within
our Materials Analysis and Test and Measurement
segments.
---------------------------------------------------------
Strategy execution
The Group is currently undertaking a strategic review. Progress
and initial conclusions from the review are set out on page
10. The Group considers that there is inherent risk associated
with the successful execution and delivery of the Group's strategic
priorities, and that managing this risk is of increased importance
during a period of strategic review and transition.
Some of the specific risks and mitigations associated with the
Group's strategic priorities are managed via their own principal
risk, for example competitive activity, how we develop new products
and how we acquire other businesses. Nevertheless, the Group
recognises the importance and value of managing strategic execution
risk in its own right.
Link to Strategy: Innovative solutions, Market presence, Expanding
globally, Operational excellence, Capital deployment
----------------------------------------------------------
Risk Appetite: Balanced
----------------------------------------------------------
Assessment: Moderate
----------------------------------------------------------
Change in Risk Higher
Level:
----------------------------------------------------------
Impact - Failure to realise the Group's growth plans.
- Failure to realise the Group's plans for enhanced
profitability.
- Reduced capital returns and cash flow.
----------------------------------------------------------
Mitigation - Greater focus on performance management, capital
allocation and shareholder value creation.
- Simplifying the business to focus on scalable
platform businesses, strongly aligned to attractive
high growth end markets with the strongest capabilities.
- Independent support and assurance in the development
of the strategy.
- Drive profitability through the cycle via a
strong focus on margin expansion:
- Profit improvement programme initiated.
- Operating leverage from organic revenue growth.
- Lean operating model and system.
- Developing a clear strategy activation programme
- aligning the organisation and culture with the
new strategy programme.
- Enabling the capabilities of our leaders and
future leaders to drive successful execution.
----------------------------------------------------------
2018 update
* Strategic review initiated in the fourth quarter.
* New profit improvement programme initiated in the
fourth quarter.
----------------------------------------------------------
Competitive activity
The nature of the markets in which we operate means that all
of our businesses are exposed to risk from competitor activity.
Link to Strategy: Innovative solutions, Market presence
---------------------------------------------------------
Risk Appetite: Balanced
---------------------------------------------------------
Assessment: Moderate
---------------------------------------------------------
Change in Risk Higher
Level:
---------------------------------------------------------
Impact - Loss of market share.
- Reduced financial performance.
- Price and/or volume erosion as a result of competitor
activities.
---------------------------------------------------------
Mitigation - Ongoing monitoring of competitor activity and
trends in the markets in which we compete.
- Maintain market-leading positions through strong
customer relationships and significant investment
in R&D.
- We have a diversified portfolio of products
and markets that limits the overall risk from
any single competitor.
---------------------------------------------------------
2018 update We maintained high levels of investment in R&D
(typically 6-7% of sales), with our operating
companies bringing new products and solutions
to market during the year to sustain and strengthen
our strong customer relationships and competitive
advantages.
While our assessment of this risk for 2018 has
slightly increased, planned enhancements to activities
in new product development, specifically in product
management and the management of speed and agility
of innovation, will further contribute to the
mitigation of this risk.
---------------------------------------------------------
People
The Group needs to attract, develop, motivate and retain the
right people to achieve our operational and strategic targets.
Effective talent management is essential to successfully delivering
our current business requirements and strategic goals, and to
realising the full potential of our businesses. Therefore, failure
to attract, retain or deploy talent could significantly impact
the successful execution of our strategy.
Link to Strategy: Innovative solutions, Market presence, Expanding
globally
-----------------------------------------------------
Risk Appetite: Cautious
-----------------------------------------------------
Assessment: Moderate
-----------------------------------------------------
Change in Risk Higher
Level:
-----------------------------------------------------
Impact - Loss of knowledge / expertise.
- Business disruption.
- Lost investment in people.
-----------------------------------------------------
Mitigation - Structured recruitment process for senior and
Group talent.
- Organisational capability review processes in
effect.
- Group executive-level succession planning.
- Staff turnover reporting.
-----------------------------------------------------
2018 update We recognise the heightened importance of managing
people risk during a period of strategic review
and transformation. As a consequence, we have
raised our assessed risk level and the following
additional mitigations were planned and introduced
in 2018 with further rollout during 2019:
- Group HR information system.
- Enhancements to Group approval/governance process
covering all senior hires.
- Assurance over key implemented mitigations.
-----------------------------------------------------
Supply chain dependencies and disruption
We are exposed to the risk that some of the components we source,
particularly for custom-built items or ageing products, are
provided by a single supplier and are therefore vulnerable to
interruption of supply.
Our businesses also manufacture components using proprietary
technologies at a number of locations.
Our ability to supply products to customers could be adversely
impacted by a significant disruptive event at any of these sites.
Link to Strategy: Operational excellence
-------------------------------------------------------
Risk Appetite: Cautious
-------------------------------------------------------
Assessment: Low
-------------------------------------------------------
Change in Risk Same
Level:
-------------------------------------------------------
Impact - Inability to fulfil customer orders, resulting
in lost sales and reputational damage.
- Increased costs reduce profitability.
- Loss of market share.
-------------------------------------------------------
Mitigation - Strategic sourcing teams source cost-effective
suppliers across a range of markets whilst validating
suppliers' business processes, quality and standards.
- Alternative sources of supply actively sought
to reduce dependency upon single-source suppliers.
- Business interruption insurance.
- Strong contract review process.
-------------------------------------------------------
2018 update We continued to identify and qualify secondary
sources of supply where key dependencies have
been identified. During the year, a Group Vice
President Supply Chain (recruited in 2017) continues
to drive the following:
- Enhanced focus on the Group's critical suppliers
based on specialist independent spend analysis.
- Streamlining of previously fragmented vendor
relationships into fewer, global, agreements.
- Driving benefits out of the existing procurement
projects.
-------------------------------------------------------
Political and economic risks
We operate in a range of end-user markets around the world and
may be affected by political, economic or regulatory developments
in any of these countries. 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 to execute our
strategy.
Link to Strategy: Expanding globally, Market presence
---------------------------------------------------------------
Risk Appetite: Balanced
---------------------------------------------------------------
Assessment: Moderate
---------------------------------------------------------------
Change in Risk Increased
Level:
---------------------------------------------------------------
Impact - Reduced sales, profitability and cash flow.
---------------------------------------------------------------
Mitigation - Maintain a broad spread of markets, products
and customers to limit risks associated with any
given territory.
- Market monitoring so that we can respond quickly
to changing trading conditions.
- Ensure we maintain a strong balance sheet and
financial position.
---------------------------------------------------------------
2018 update While the Group's balanced geographical mix, with
similar exposure to North America, Europe and
Asia, enables it to benefit from an improvement
in trading conditions in each region, two particular
risk scenarios have increased in potential impact/likelihood:
- Uncertainty as to the outcome of Brexit and
the prospect of 'no-deal'. During 2018, the Group's
focus has shifted towards the 'no-deal' scenario.
The Group has identified an extensive list of
potential risks. Their associated mitigations
are being continuously monitored to ensure the
effective management of risk during this dynamic
period. Mitigations include amending provisions
within our commercial contracts and seeking approvals
from alternative regulatory authorities to continue
to operate in the EU/UK.
- Risk associated with the escalation of tariff
measures between the USA and China has also required
focused monitoring and mitigation. Working with
each of the Group's businesses in China, an assessment
has been made as to the annualised impact of the
proposed tariffs. In addition, separate assessments
have been made with respect to the anticipated
impact of tariffs on US imports from China. Mitigations
in place include the use of alternatives for US-based
businesses with China-based suppliers, as well
as proactive filing for exemptions from US tariff
increases on imports.
---------------------------------------------------------------
Intellectual property
In support of the Group's business model to provide technologically-advanced
solutions to its customers, the Group has continued to take
a holistic approach towards intellectual property protection
and management. The Group owns and registers patents and trademarks
and maintains trade secrets, confidential information and copyright
as well as exploiting intellectual property through licensing.
The key risks are that the Group may inadvertently infringe
third-party rights and that the Group may not hold sufficient
rights to prevent competitors independently developing similar
products. There are also risks that intellectual property may
be lost through failure to implement controls to safeguard confidential
information or actively manage registered intellectual property
rights.
Link to Strategy: Innovative solutions, Market presence, Expanding
globally, Capital deployment
-----------------------------------------------------------
Risk Appetite: Cautious
-----------------------------------------------------------
Assessment: Very low
-----------------------------------------------------------
Change in Risk Same
Level:
-----------------------------------------------------------
Impact - Reduced profitability and cash flow.
- Loss of market share.
- Failure to recoup investment in innovation.
-----------------------------------------------------------
Mitigation - Policies and procedures in place requiring all
of our businesses to:
- maintain a watching brief on new third-party
patent applications and competitor activity;
- ensure adequate protection for key intellectual
property, including registration where appropriate;
- undertake specific freedom-to-operate technical
reviews prior to commencing new product development,
acquisitions or licences; and
- register intellectual property where appropriate.
-----------------------------------------------------------
2018 update The Group continues to undertake intellectual
property audits and facilitates operating company
self-assessments with a view to monitoring mitigation
and key risk indicators in governance, software,
internal and external information protection.
-----------------------------------------------------------
New product development
The development of new technologies and products necessarily
involves risk, including:
- the product being more expensive or taking longer to develop
than originally planned;
- the product failing to reach the commercialisation phase;
and
- not meeting market requirements or market requirements changing.
Link to Strategy: Innovative solutions
----------------------------------------------------------
Risk Appetite: Balanced
----------------------------------------------------------
Assessment: Moderate
----------------------------------------------------------
Change in Risk Same
Level:
----------------------------------------------------------
Impact - Reduced profitability and cash flow.
- Loss of market share.
- Failure to recoup investment in innovation.
----------------------------------------------------------
Mitigation - Regular strategic evaluations of product portfolios
and the markets in which we compete.
- Project management disciplines are in place
across our product development programmes and
audits provide assurance that these disciplines
are applied consistently.
- Regular monitoring of project progress and performance
against plan.
- Working closely with customers to ensure that
we develop solutions tailored to their specific
needs.
----------------------------------------------------------
2018 update During 2018, the Group has enhanced its focus
on value-driven product design, product portfolio
management and project management. The latter
has resulted in the establishment of a special
interest group comprised of operating company
and function representatives. The Group has already
made progress in driving consistent and good practices
in project management methodologies and tools.
In addition, the Group has put in place a dashboard
reporting process designed to monitor key performance
and risk indicators, such as return on innovation
and speed of innovation.
----------------------------------------------------------
Name of contact and telephone number for queries:
Rebecca Dunn
Deputy Company Secretary
01784 470 470
28 March 2019
LEI Number: 213800Z4CO2CZO3M3T10
For and on behalf of Spectris plc
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
ACSBVLFLKXFFBBZ
(END) Dow Jones Newswires
March 28, 2019 06:16 ET (10:16 GMT)
Spectris (LSE:SXS)
Historical Stock Chart
From Apr 2024 to May 2024
Spectris (LSE:SXS)
Historical Stock Chart
From May 2023 to May 2024