RNS Number : 0862W
Polypipe Group PLC
25 April 2016
 

25 April 2016



Polypipe Group plc



Annual Financial Report for the year ended 31 December 2015 and


Notice of 2016 Annual General Meeting



Polypipe Group plc ("Polypipe" or the "Group"), a leading manufacturer of plastic piping systems for the residential, commercial, civil and infrastructure sectors, today published its Annual Report and Accounts for the year ended 31 December 2015 and Notice of its 2016 Annual General Meeting.  The Company will hold its Annual General Meeting at 10.30 am on 25 May 2016 at Holiday Inn, High Road, Doncaster, DN4 9UX.

Copies of the 2015 Annual Report and Accounts and the Notice of the 2016 Annual General Meeting are available to view on the Company's website at http://ir.polypipe.com and, in accordance with Listing Rule 9.6.1, will also shortly be submitted to the National Storage Mechanism and will be available for inspection at http://www.morningstar.co.uk/uk/NSM.

Copies of those documents, together with a form of proxy for use in connection with the 2016 Annual General Meeting, are being posted or made available to the Company's shareholders today.


In compliance with DTR 6.3.5, the information shown below is extracted from the 2015 Annual Report and Accounts and should be read together with the Company's preliminary results announcement issued on 31 March 2016 (the "Preliminary Results Announcement") under RNS Number 6011T which can be viewed on the Company's website at http://ir.polypipe.com. Together these constitute the information required to be communicated in unedited full text through a Regulatory Information Service. This information is not a substitute for reading the full 2015 Annual Report and Accounts.  All page numbers and cross references in the extracted information below refer to the page numbers in the 2015 Annual Report and accounts.


DIRECTORS' RESPONSIBILITY STATEMENT


We confirm that to the best of our knowledge:


the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, 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 includes a fair review of the development and performance of the business and the position of the Company 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 financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.


By order of the Board:


D G Hall

Chief Executive Officer

 

P D Shepherd

Chief Finance Officer

 



Related Party Transactions


The following description of related party transactions involving the Company and its subsidiaries during the financial year ended 31 December 2015 is extracted from page 108 of the Annual Report and Accounts 2015 and is repeated in this announcement solely for the purpose of complying with DTR 6.3.5:


Compensation of key management personnel (including Directors)



2015

£m

2014

£m

Short-term employee benefits

2.4

2.4

Post-employee benefits

0.1

-


2.5

2.4


Key management personnel comprise the Executive Directors and key divisional managers.



Principal Risks & Uncertainties


FRAMEWORK FOR MANAGING RISK

The Board is responsible for ensuring that the Group maintains an effective risk management system. It determines the Group's approach to risk, its policies and the procedures that are implemented to mitigate exposure to risk.


PROCESS

The Board continually assesses and monitors the key risks in the business and Polypipe has developed a risk management framework to identify, report, and manage its principal risks and uncertainties. This includes the recording of all principal risks and uncertainties on a Group Risk Register and a Group Risk Profile which are both updated at least every 6 months. Risks are fully analysed, allocated owners, scored for both impact and probability to determine the exposure to the business, which should be prioritised, and what mitigation is required.


External risks include economic conditions, the weather, government action, policies and regulation, raw material prices and Information Systems disruption. Internal risks include dependencies on key customers and retention of key personnel.


The Board seeks to mitigate the businesses exposure to strategic, financial and operational risk, both external and internal. The effectiveness of key mitigating controls are continually monitored and subjected to periodic testing by the Group Financial Controller.


The table below highlights the principal risks and uncertainties that could have a material impact on the Group's performance and prospects and the mitigating activities which are aimed at reducing the impact or likelihood of a major risk materialising. These risks have all been considered by the Board when developing the Group's Viability Statement. The Board does recognise however that it will not always be possible to eliminate these risks entirely.



  Risk

Potential Impact

Mitigations

Raw material prices

The Group is exposed to volatile raw material prices, particularly polymers, due to fluctuations in the market price of crude oil and other petroleum feedstocks, exchange rate movements, and changes to suppliers' manufacturing capacity.

 

Any increase in the market price of crude oil and other

petroleum feedstocks, exchange rate movements, and changes to suppliers' manufacturing capacity could have a direct impact on the prices the Group pays for raw materials which could adversely affect its operating margins and cash flow.

The Group seeks to pass on raw material price increases to its customers wherever possible.  There is usually at least a three month time period from notification of the raw material price increase before selling prices can be actioned in the market.  Competitors of the Group are likely to experience similar levels of polymer cost increases.

Business Disruption

The Group's manufacturing and distribution operations could be subjected to disruption due to factors including incidents such as fire, failure of equipment, power outages, strikes, or unexpected or prolonged periods of severe weather.

 

 

Incidents such as fires, failure of equipment, power outages, strikes or unexpected severe weather (due to flooding, snow or high winds) could result in the temporary cessation in activity or disruption at one of the production facilities impeding the Group's ability to deliver its products to its customers, adversely affecting its financial results. 

In addition, prolonged periods of severe weather could result in a slowdown in site construction activity reducing the demand for the Group's products and adversely affecting its financial results.

The Group has developed business continuity, crisis response, and disaster recovery plans.

The Group has the ability to transfer some of its production to alternative sites and could also subcontract out some of its tooling to reduce any potential loss in production capacity.

The Group maintains a significant amount of insurance to cover business interruption and damage to property from such events.

Independent insurer inspections take place across all sites to assess potential hazards and business interruption risks.

The Group carries out regular maintenance to minimise the risk of equipment failure.

Reliance on key customers

Some of the Group's businesses are dependent on key customers in highly competitive markets.

 

Failure to manage relationships with key customers, whilst continuing to provide high quality products delivered on time in full, and developing new innovate products could lead to a loss of business affecting the financial results of the Group.

The Group's strategic objective is to broaden its customer base wherever possible.

The Group focuses on delivering exceptional customer service and maintains strong relationships with major customers through direct engagement at all levels.

The Group maintains customer service matrices which are continually tracked and monitored and intervention made where required.

The Group closely manages its pricing, rebates, and commercial terms with its customers to ensure that they remain competitive.

The Group continually seeks to innovate and develop its product lines to ensure its products are to the standard our customers expect.

Recruitment and Retention of Key Personnel

The Group is dependent on the continued employment and performance of our Executive Management Team and other key skilled personnel.

 

Loss of any key personnel without adequate and timely replacement could disrupt business operations and the Group's ability to implement and deliver its growth strategy.

The Group has a formal succession plan in place ensuring progression through the Group. 

The Group aims to provide competitive remuneration packages and incentive schemes to retain and motivate key personnel.

Economic Conditions

The Group is dependent on the level of activity in the construction industry and is therefore susceptible to any changes in its cyclical economic conditions.

 

Lower levels of activity within the construction industry could reduce sales and production volumes adversely affecting the Group's financial results.

 

The Group closely monitors trends in the industry, invests in market research and is an active member of the Construction Products Association.  The Group uses Construction Products Association and Euroconstruct forecasts in its budgeting process.

The Group closely manages its demand forecasts and costs through weekly operational review meetings.

Government Action and Policy

The Group is in part dependent on Government action and policies relating to public and private investment and is therefore susceptible to changes in Government spending priorities.

 

 

Significant downward trends in Government spending on public and private investment arising from economic uncertainty and ongoing austerity policies could have an adverse impact on the construction industry which could impact on sales and production volumes affecting the Group's financial results.

 

The Group's strategy is to have its operations structured so that it has a balanced exposure to the residential, commercial and infrastructure construction sectors so as to reduce the impact of any adverse government action or policy on any one of the construction sectors.

The Group closely monitors trends in the industry, invests in market research and is an active member of the Construction Products Association.

The Group closely manages its demand forecasts and costs through weekly operational review meetings.

Government regulations and standards relating to the manufacture and use of building materials

The Group is subject to the requirements of UK and European environmental and occupational safety and health laws and regulations, including obligations to investigate and clean up environmental contamination on or from properties.

 

Failure of the Group to comply with changes to environmental regulations and other obligations relating to environmental matters could result in the Group being liable for fines, require modification to operations, increase manufacturing and delivery costs, and could result in the suspension or termination of necessary operational permits, thereby impacting the Group's financial results.

The Group has a formal Health, Safety & Environmental policy, and procedures are in place to monitor compliance with the policy.

The Group performs internal environmental audits and is subjected to external environmental audits on a periodic basis.

The Group performs weekly and monthly reporting on key Health, Safety & Environmental matters which require the attention of the Polypipe Board.

Product Liability

The Group manufactures products that are potentially vital to the safe operation of its customers' products or processes.  These are often incorporated into the fabric of a building or dwelling, or buried in the ground as part of an infrastructure system and in each case, it would be difficult to access, repair, recall or replace such products.

 

A product failure or recall could result in a liability claim for personal injury or other damage leading to substantial money settlements, damage to the Group's brand reputation, costs and expenses and diversion of key management's attention from the operation of the Group, which could all affect the Group's financial results.

 

The Group operates comprehensive quality assurance systems and procedures at each site. 

Wherever required, the Group obtains certifications over its products to the relevant national and European standards including Kitemarks, BBAs, WRCs and WRACs. 

The Group maintains product liability insurance to cover third party claims arising from potential product failures.

Information Systems

The Group is dependent on the continued efficient operation of its Information Systems and is therefore vulnerable to potential failures due to power losses, telecommunication failures, or from an external security breach due to the increasing levels of sophisticated cyber-crime now threatening businesses.

 

 

 

Disruption or failure of the Information Systems could affect the Group's ability to conduct its ongoing operations which could affect the Group's financial results.

 

The Group contracts with a third party to provide business continuity arrangements for wholesale or partial recovery of the key servers and applications which are used within the UK businesses.  These continuity plans are subject to periodic testing. 

Local back up processes are performed on a daily, weekly and monthly basis. 

Firewalls are in place to protect against potential viruses and any off site access to the Group's servers is through a secure Virtual Private Network.

The Group continually invests in its maintenance and upgrades of the Information Systems.  All upgrades are carefully planned and actively managed by senior personnel to minimise potential business disruption.

Acquisitions

The management of acquisitions activity and their integration play a part in delivering the Group's growth strategy and there is a risk that any acquisitions may not perform as expected.

Ineffective management of acquisitions could impact on the Group's ability to fully implement and deliver its growth strategy.

Full due diligence is carried out before any acquisition is made.

The Group seeks contractual assurances from the sellers to mitigate against any identified issues or risks.

Formal Board level approvals are required in accordance with the Group's delegation of authority structure for any acquisitive activity.

The progress of any integration is closely monitored at Board and executive team level.

Financial Risk Management

The Group's operations expose it to a variety of financial risks that include the effects of:

 


The Group has in place financial risk management procedures that seek to limit the adverse effects of the financial risks as follows:

Price Risk (considered in raw material prices above)



Foreign Exchange Risk - The risk that the fair value of a financial instrument or future cash flows will fluctuate because of changes in foreign exchange rates.  The Group's risk relates primarily to the its operating activities where the revenue or expense is denominated in a currency other than the functional currency of the entity undertaking the transaction.

Foreign Exchange Risk - Exchange rate fluctuations may adversely affect the Group's results.

Foreign exchange risk - The Group enters into forward currency contracts for the purchase and sale of foreign currencies in order to manage its exposure to fluctuations in currency rates primarily in respect of US Dollar and Euros.  It is not possible for the Group to mitigate exchange rate differences which impact the translation of its overseas subsidiaries' results and net assets as all of the Group's long term borrowings are Sterling denominated.

Credit Risk - The risk that a counterparty of the Group will not be able to meet its obligations under a financial instrument or customer contract.  The Group is exposed to credit risk from its trading activities (primarily from trade receivables) and from its financing activities, including deposits with bank.

Credit Risk - The failure of a counterparty to meet their financial obligations could lead to a financial loss for the Group.

 

Credit risk - Customer credit risk is managed by each subsidiary subject to the Group's established policy, procedures and control relating to customer credit risk management.  Credit quality of the customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored and any shipments to major export customers are generally covered by letters of credit or credit insurance.

Where the Group perceives there to be a significant credit exposure it will take out credit insurance or obtain an irrevocable letter of credit prior to any transaction.

Credit risk arising from cash deposits with banks are managed by the Group's finance department.  Investments of surplus funds are made only with banks that have as a minimum a single A credit rating.

Liquidity Risk - The risk that the Group will not be able to meets its financial obligations as they fall due.

 

Liquidity Risk - Insufficient funds could result in the Group not being able to fund its operations.

 

Liquidity risk - The Group's approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

Interest rate cash flow risk - The risk that interest rates could rise impacting on the Group's borrowings.

 

Interest rate cash flow risk - Increases to interest rates could result in significant additional interest rate payments being required on any borrowings.

 

Interest rate cash flow risk - To reduce the Group's exposure to future increases in interest rates, the Group has entered into interest rate swaps from variable to fixed interest rates.


Enquiries:

 

Polypipe

David Hall, Chief Executive Officer

Peter Shepherd, Chief Financial Officer

44 (0) 1709 770 000

 


 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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