TIDMHILS
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 Mitigation
No change impact * Our existing entity portfolio contains diverse
Demand for sustainable products, markets and territories and we will
infrastructure and transport is continue with this approach.
underpinned by Government
spending
plans. Changes to these plans * Market and product development initiatives.
could have a detrimental impact
on Group revenues.
* Co-operation between Group businesses, leveraging the
The Infrastructure Investment Group's size/international footprint and exploiting
and Jobs Act ('IIJA'), enacted synergies.
into law in November 2021,
confirmed
a substantial increase in US * Exposure to the benefits from longer term
federal government spending infrastructure investment programmes.
across a range of
infrastructure
areas and is likely to benefit
demand for the Group's products
and services in the US. Despite
the current 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 Mitigation
Slightly higher impact * The Group has a diverse portfolio of operating
The Group operates in a range companies with exposure to a range of markets and
of end-user markets around the geographies, limiting exposure to any one country or
world and may be affected by market sector.
political, economic or
regulatory developments in any
of these countries. * Current and future financial performance is
continuously monitored, facilitating rapid response
Material adverse changes in the to changes in market conditions.
political and economic
environments in the countries
in which * In line with our entrepreneurial model, our decisions
we operate, have the potential are made close to our markets and our businesses are
to put at risk our ability to agile and responsive to changes in their competitive
execute our strategy. landscape.
As a result of continued global
macro-economic uncertainty and * Co-operation between Group businesses, leveraging the
the threat of recession, an Group's size/international footprint and exploiting
increase in the risk has been synergies.
recognised.
-------------------------------- -----------------------------------------------------------------
Risk: Increase in competitive pressure
Trend Description and potential impact Mitigation
No change Increased volatility, * Holding leading positions in niche markets of
uncertainty and slowdown in our sustainable infrastructure and transport safety with
markets could result in high barriers to entry.
increased prices
and the emergence of new
technologies, leading to a loss * In line with our entrepreneurial model, our decision
of customers and/or pricing s
pressure are made close to our markets and our businesses are
and consequently a loss of sales agile and responsive to changes in their competitive
and reduced profits. landscape.
* Our operating companies aim to provide superior
products and high service levels to customers, whils
t
aiming to ensure there is no dependency on any one
customer.
-------------------------------- -----------------------------------------------------------------
Risk: Product failure
Trend Description and potential Mitigation
No change impact * Products tested, approved and accredited by
The Group operates in regulatory bodies.
infrastructure markets where it
is critical that its products
meet customer * Quality control protocols fully implemented and
and legislative requirements continuously monitored.
and where the consequences of
product failure are potentially
significant. * Contractual controls in place to minimise economic
impacts.
Product failure arising from
component defects or warranty
issues may require remediation * Insurance cover maintained globally with insurance
including the replacement of partners.
defective components or
complete products, resulting in
direct * Litigation supported/managed by external legal
financial costs to the Group specialists.
and/or wider reputational risk.
-------------------------------- -----------------------------------------------------------------
Risk: Contractual failure
Trend Description and potential Mitigation
No change impact * Thematic Internal Audit review completed across the
The Group delivers its Group during 2021 with recommendations implemented
commitments to its customers during 2022.
through a variety of
contractual arrangements
of both a short and medium term * Group material contract review process ensures
nature. specialist central oversight of key contractual
arrangements.
Weaknesses in the contract
tendering process,
inappropriate pricing, * Contracts training for key staff.
misalignment of contract
terms, ineffective contract
management or failure to comply * Dedicated quantity surveyors and contract managers in
with contractual conditions operating companies to control contracts and mitigate
could risk.
result in loss of revenues,
pressure on operating margins
and wider reputational damage * Litigation supported/managed by external legal
to specialists.
the Group.
* Insurance cover maintained globally with insurance
partners.
-------------------------------- -----------------------------------------------------------------
Risk: Supply chain failure
Trend Description and potential Mitigation
No change impact * Supply chain resilience has been a focus of the Risk
The Group's businesses depend Committee during 2022 with ongoing monitoring of
on the availability and timely operating companies' ability to respond to the
delivery of raw materials and continued challenges.
components, which could be
affected by disruption in its
supply chain. Supply chain * Group wide thematic Internal Audit review of Supply
failures Chain completed during 2022 with recommendations to
because of performance, cost be implemented during 2023.
inflation, quality and/or
insolvency may have an adverse
impact * Group procurement standards, including robust due
on the Group's production diligence of supply chain partners and the
capacity and lead to an requirement for dual sourcing where available.
inability to meet customer
requirements,
resulting in a reduction in * Regular interaction and assessment of performance/
revenues, potential loss of financial status of key suppliers.
market share and possible
reputational
damage. * Group oversight of material procurement contracts
ensuring robust contractual protections.
Global warming could place
further stress on our supply
chain, with extreme weather * Goods inwards and stock management processes in place
events to reduce the likelihood of defects or a shortage of
impacting supply becoming more raw materials.
likely and chronic changes to
heat/ rainfall averages
potentially * Contingency plans in place throughout the supply
impacting where we source chain, such as purchasing additional stock of key raw
certain materials. Climate materials and securing additional supply chain
change transition costs could capacity.
also inflate
the price of the goods we
purchase.
During the year, our operating
companies continued to take
appropriate action to manage
supply
chain headwinds. Actions taken
included implementing price
increases to offset significant
input cost inflation, securing
supply of raw materials and
ensuring the continuity of
operations
with a backdrop of labour
shortages in certain
businesses.
-------------------------------- -----------------------------------------------------------------
Risk: IT systems failure
Trend Description and potential Mitigation
Slightly higher impact * The Board maintains a watching brief on IT and cyber
The Group relies on the risk, and has overseen significant investment across
information technology systems the Group to enhance IT security controls and
used in the daily operations of maturity covering areas such as identity management,
its IT asset management, backup, endpoint protection,
operating companies. A failure incident response and vulnerability management.
or impairment of those systems
or any inability to effectively
implement new systems could * Wholesale network security improvements planned for
cause a loss of business and/or 2023.
damage to the reputation of the
Group, together with
significant remedial costs. * IT controls manual setting out a robust set of
information security controls covering basic cyber
Poor security controls and hygiene, system back-up procedures and hardware/
procedures could lead to our software protection. Reviews of IT controls
operating companies being compliance were completed by Internal Audit during
susceptible 2022, with action plans agreed and monitored.
to cyberattack, potentially
resulting in significant IT
failure and associated * Quarterly updates established to brief operating
disruption. company leadership teams on their responsibilities
relating to IT management and information security.
During the year the global
cyber threat has continued to
evolve, with increasing numbers * Segregated business processing systems within each
of operating company means that any disruption due to
organised criminal groups illegal external activity is unlikely to jeopardise
undertaking increasingly the Group as a whole.
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 heightened cyber
risk across UK, US and European
businesses.
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 Mitigation
No change impact * All potential acquisitions are tightly evaluated to
The Group's growth strategies ensure they fit within our purpose and core strategic
include the acquisition of goals.
businesses around the world
that
complement or supplement its * Due diligence protocols deployed in relation to
existing activities. Failure to assessment of target businesses, including financial,
execute an effective commercial, and legal etc.
acquisition
and integration programme would
have a significant impact on * Board approval required for Group acquisitions, in
the Group's ability to generate line with the Group Board's Schedule of Matters
sustainable profitable growth Reserved.
for shareholders.
* 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 Mitigation
No change impact * Group wide Innovation Framework launched during 2021
The Group operates in global to encourage and stimulate more innovation across the
infrastructure markets where Group. Workshops were run during 2022 to foster
continuous innovation is innovation and share best practice and these will
integral continue into 2023.
to the Group's product offering
and where a failure to innovate
could result in product * Entrepreneurial culture fostered through a
obsolescence, decentralised management structure, ensuring that
the entry of new competitors Group businesses are agile and responsive to changes
and/or loss of market share. in their competitive environments.
The development of new products
and technologies carries risk
including the failure to * Acquisitions add innovate products and technology to
develop a commercially viable our portfolio.
offering
within an acceptable timeframe.
* 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 Mitigation
Slightly lower impact * Two of our ESG focus areas (Talent development and
The changing nature of the engagement & Diversity, and inclusion) directly
demographics from which we address the risk, with improvement initiatives and
source our employees and the metrics overseen by the ESG Committee.
ways in
which they like to work can
make it difficult to attract * Refreshed People Strategy with a greater focus on
and retain both skilled and internal talent.
unskilled
labour. We need to ensure
effective recruitment channels * Group Head of Reward and Group Head of Talent roles
and make the necessary recruited during 2022.
investment
to develop and retain high
quality individuals in key * Contractual protections and retentions in employment
positions to guarantee the long contracts of senior management and other key
term employees.
success of the business. We
need to ensure the diversity of
our workforce reflects the * Training and development of employees, which includes
communities a programme of IOD and ILM courses for senior
in which we work. Without management and identified potential successors, and
talented employees we will be apprenticeship and other vocational courses for
unable to deliver our strategic specialist and technical roles.
aims.
Competitive labour local * Appropriate remuneration and benefits, together with
markets and the aftermath of bonus opportunities and incentive plans offered to
COVID-19 led to challenging employees.
recruitment
conditions for our operating
companies in the first half of * Recruitment process developed to include competency
the year. In the second half of requirements and skills gap analysis.
the year these pressures eased
due to rising unemployment and
a more difficult economic * Talent review process extended in scope to cover more
climate, employees, increasing our visibility of talent.
subsequently time to recruit
and the number of vacancies
across the Group have both
reduced.
The issue does remain though
for certain skillsets that are
more challenging to find and
retain,
e.g., Welders.
Our senior leadership gender
diversity has improved in 2022
to 20%, due to both internal
promotions
and external hires. An
increased focus on engagement
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 process to
find a permanent CEO is
underway.
Overall, a reduction in the
risk has been recognised for
the period.
-------------------------------- -----------------------------------------------------------------
Risk: Prevention of harm or injury to people
Trend Description and potential Mitigation
No change impact * Culture of zero tolerance in respect of health &
The Group is committed to safety violations promoted by the Board and
preventing all health and disseminated throughout Group businesses.
safety incidents and ensuring
the health,
safety and wellbeing of all * Reduction of the Group's LTI rates is a key focus for
employees and third parties. Management and the Board, with improvement metrics
The Group operates multiple now established through the ESG Committee.
manufacturing
facilities around the world, a
failure in the Group's health & * Monthly health & safety reporting for all operating
safety procedures could lead companies via online tools.
to injury or to the death of
employees or third parties.
* Monitoring and review of LTI rates by Group with all
LTIR has reduced from 1.7 in LTI events followed up and investigated thoroughly
2021 to 1.1 in 2022. Further using the 'five whys' root cause analysis and
improvement is required to presented to the Exec Board. Improvement
reach recommendations are implemented to minimise any
the 2030 Health & Safety target reoccurrence.
of 0.25 and health & safety
remains a key focus area for
the * Development and roll out (Jan 2023) of our 'nine
Group. 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 Mitigation
No change impact * Group Code of Conduct sets out required approach for
The Group's global operations all staff.
must comply with a range of
national and international laws
and regulations including those * Staff training provided on Modern Slavery red flags,
related to modern slavery, Anti-Bribery and Corruption and Competition
anti-bribery and corruption, compliance.
human
rights, and employment, GDPR,
trade/export compliance and * Programme of audits undertaken on a cyclical basis to
competition/anti-trust. review operating companies' compliance with
regulatory requirements, including for example
A failure to comply with any simulated 'dawn raids'.
applicable laws and regulations
could result in civil or
criminal * Software solutions implemented globally to ensure
liabilities and/ or individual compliance with trade and export legislation.
or corporate fines and could
also result in debarment from
Government-related contracts, * Externally hosted whistleblowing hotline available to
restrictions on ability to all employees to allow them to raise concerns in
trade or rejection by financial confidence or anonymously, if preferred.
counterparties
as well as reputational damage.
* Modern Slavery compliance programme continued through
Our exposure to breaching 2022.
sanctions placed on Russia is
low due to no current direct
Russian * Toolkits issued to all UK operating companies to aid
customers or suppliers. Our compliance with GDPR.
export compliance software
performs daily screening of our
customer
and supplier databases against
global sanctioned and denied
party lists with any changes in
status flagged.
-------------------------------- -----------------------------------------------------------------
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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