TIDMMRO
RNS Number : 1760U
Melrose Industries PLC
31 March 2021
The 2020 Annual Report and Notice of Annual General Meeting
Melrose Industries PLC (the "Company") announces that its Annual
Report and financial statements for the year ended 31 December 2020
(the "Annual Report"), Notice of Annual General Meeting (the
"AGM"), and Form of Proxy for the AGM have each been sent to or
otherwise made available to shareholders and are available to view
or download from the Company's website at
https://www.melroseplc.net/investors/ .
The Company's AGM will be held at 11.00 a.m. on 6 May 2021 at
Leconfield House, Curzon Street, London W1J 5JA.
PLEASE NOTE OUR GUIDANCE SET OUT IN THE NOTICE OF AGM REGARDING
SHAREHOLDER ATTANCE AT THE AGM, IN LINE WITH UK GOVERNMENT GUIDANCE
AT THE TIME OF PUBLICATION, WHICH DOES NOT ALLOW US TO ALLOW
SHAREHOLDERS TO ATT THE AGM IN PERSON. WE RECOMM THAT ALL
SHAREHOLDERS COMPLETE AND RETURN A FORM OF PROXY, APPOINTING THE
CHAIRMAN OF THE AGM AS THEIR PROXY, AND TO SUBMIT ANY QUESTIONS
PRIOR TO THE MEETING USING THE SERVICE WE HAVE SET UP FOR THESE
PURPOSES.
The Company's preliminary results announcement on 4 March 2021
included, in addition to the preliminary financial results, the
text of the Chairman's statement, Chief Executive's review
(including the Divisional review) and Finance Director's review, in
each case as contained in the Annual Report.
The appendix to this announcement sets out the required
disclosures with regard to the Directors' responsibility statement,
the principal risks and uncertainties and related party
transactions, in each case as contained in the Annual Report.
Together, this information is provided in accordance with
Disclosure & Transparency Rule 6.3.5(2). This information is
not a substitute for reading the full Annual Report for the year
ended 31 December 2020.
The Company confirms that, in compliance with Listing Rule
9.6.1, an electronic copy of each of the Company's Annual Report
for the year ended 31 December 2020, Notice of AGM and Form of
Proxy for the AGM have been submitted to the National Storage
Mechanism, appointed by the Financial Conduct Authority, and will
be available shortly for inspection at www.morningstar.co.uk/uk/NSM
.
Enquiries:
Montfort Communications:
Nick Miles, +44 (0) 20 3514 0897
Charlotte McMullen, +44 (0) 7973 130 669 / +44 (0) 7921 881
800
APPIX
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
relevant financial reporting framework, 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 Company's performance,
business model and strategy.
Principal Risks and Uncertainties
This section outlines the principal risks and uncertainties that
may affect the Group and highlights the mitigating actions that are
being taken. This section is not intended to be an exhaustive list
of all the risks and uncertainties that may arise, nor is the order
of the content intended to be any indication of priority.
A risk management and internal controls framework is in place
within the Group, which is continually reviewed and adapted where
necessary to reflect the risk profile of the Group and to continue
to ensure that such risks and uncertainties can be identified and,
where possible, managed suitably. Each Group business unit
maintains a risk register which is aggregated into an interactive
data-driven dashboard reporting tool, to facilitate review by the
Melrose senior management team, the Audit Committee and the
Board.
Key risk Description Mitigation Responsibility Risk Trend commentary Strategic
and impact trend priorities
Strategic risks
Acquisition The success Structured Executive Following Buy
of new of the Group's and appropriate management the acquisition Improve
businesses acquisition due diligence of GKN in
and strategy depends undertaken 2018, the
improvement on identifying on potential Group remains
strategies available new targets focused
and suitable where permitted principally
targets, obtaining and practicable. on improvement.
any consents Focus on The impact
or authorisations acquisition of COVID-19
required to targets that has interrupted
carry out have strong the timing
an acquisition, headline of some
and procuring fundamentals, improvement
the necessary high-quality plans, but
financing, products, these are
be this from and leading continuing
equity, debt market share at pace.
or a combination but which Although
of the two. are no large
In making underperforming acquisitions
acquisitions, their potential were made
there is a and ability in 2020, the
risk of unforeseen to generate Group
liabilities sustainable remains open
being later cash flows to potential
discovered and profit new
which were growth. opportunities.
not uncovered Hands-on role
or known at taken by
the time of executive
the due diligence Directors
process, particularly and other
in the context senior
of limited employees
access in of the Group.
public bids. Development
Further, as of strategic
per the Group's plans,
strategy to restructuring
buy and improve opportunities,
good but capital
underperforming expenditure,
manufacturing procurement
businesses, and working
once an acquisition capital
is completed, management.
there are Proper
risks that incentivisation
the Group of operational
will not succeed management
in driving teams to align
strategic with Melrose
operational strategy.
improvements
to achieve
the expected
post acquisition
trading results
or value which
were originally
anticipated,
that the acquired
products and
technologies
may not be
successful,
or that the
business may
require significantly
greater resources
and investment
than anticipated.
If anticipated
benefits are
not realised
or trading
by acquired
businesses
falls below
expectations,
it may be
necessary
to impair
the carrying
value of these
assets. The
Group's return
on shareholder
investment
may fall if
acquisition
hurdle rates
are not met.
The Group's
financial
performance
may suffer
from goodwill
or other
acquisition-related
impairment
charges, or
from the identification
of additional
liabilities
not known
at the time
of the acquisition.
------------------------ ----------------- --------------- -------- ----------------- -----------
Timing of In line with Directors Executive Although global Sell
disposals our strategy are experienced management M&A markets
and depending in judging continue to
where the and regularly experience
Group is within reviewing uncertainty,
the "Buy, the appropriate there remain
Improve, Sell" time in a opportunities
cycle, the business cycle for value
expected timing for a disposal realisation,
of any disposal to realise and a formal
of businesses maximum value sale process
is considered for has recently
as a principal shareholders. been commenced
risk which Each disposal for the Nortek
could have is assessed Air Management
a material on its merits, division.
impact on with a key The process
the Group focus on a remains highly
strategy and clean disposal. uncertain,
performance. but the
Further, due division's
to the Group's outstanding
global operations, recent
there may performance
be a significant will translate
impact on into a good
the timings outcome for
of disposals the businesses
due to political and our
and macro-economic shareholders.
factors. Some non-core
Depending businesses
on the timings were sold
of disposals or placed
and the nature under strategic
of the businesses' review during
operations, 2020. However,
there may management
be long-term continues
liabilities to remain
which could disciplined
be retained and there
by the Group is no obligation
following to sell before
a disposal. it is
Insufficient appropriate
allowance to do so.
for
such retained
liabilities
may affect
the Group's
financial
position.
------------------------ ----------------- --------------- -------- ----------------- -----------
Operational risks
Economic and The Group Regular Board Executive There were Buy
political operates, meetings and management unprecedented Improve
through manufacturing business review levels of Sell
and/or sales meetings were volatility
facilities, supplemented and uncertainty
in numerous by weekly during 2020
countries meetings of primarily
and is affected the Board as a result
by global and weekly of COVID-19.
economic conditions. cash management The Melrose
Businesses meetings during senior
are also affected the initial management
by government height of team continues
actions and the COVID-19 to actively
the willingness pandemic during engage with
of governments the second the business
to commit and third unit executive
substantial quarters of teams to track
resources. 2020. As the the potential
Current global initial impacts of
economic and disruption further
financial subsided in lockdowns
market conditions the third or tiered
have recently quarter, these restrictions
been characterised additional aimed at curbing
by high levels meetings moved the impact
of volatility to fortnightly, of COVID-19,
and uncertainty. whilst the as well as
There has Board continued the potential
been widespread to receive impacts of
disruption key financial Brexit and
to production information the possibility
and trading on a weekly of future
environments basis. The tariffs. The
caused by increased Melrose senior
the COVID-19 frequency management
pandemic, of meetings team engages
in particular at Board level actively with
a sharp market enabled the those who
decline in Board to discuss are working
the aerospace and increase on the relevant
sector due their monitoring impact
to global and oversight assessments
travel restrictions. of the impact and mitigation
Fluctuation of actions, and
in commodity macro-political reports the
prices, the events on material
potential the Group findings
for a significant on a regular to the Board.
and prolonged basis, including The Melrose
global downturn national and senior
and uncertainty regional management
in the political lockdowns, team monitors
environment, material working key issues
may materially pattern changes, with the
and adversely PPE supplies divisional
affect the and management
Group's operational distribution, teams including
performance and the business the impact
and financial units' ongoing of geopolitical
condition, assessment uncertainty
and could of and/or on order books,
have a significant use of and cash generation,
impact on paying back legal and
the timing of national regulatory
of acquisitions support schemes threats and
and disposals. where deemed other key
These factors appropriate. operational
may also materially Regular and commercial
affect customers, monitoring indicators,
suppliers of order books, to ensure
and other cash the Group
parties with performance, and each of
which the cost control its businesses
Group does and other can respond
business. leading appropriately
Adverse economic indicators, to adverse
and financial to ensure trading
market conditions the Group conditions.
may cause and each of Tactics for
customers its businesses mitigating
to terminate could respond the potential
existing orders, quickly to impact of
to reduce adverse trading geopolitical
their purchases conditions. uncertainty
from the Group, This included include
or to be unable the identifying
to meet their identification cost reduction
obligations of cost and operational
to pay outstanding reduction efficiency
debts to the and efficiency measures.
Group. These measures. The Board
market conditions Bank financing notes that
may also cause is readily economic
our suppliers available uncertainty
to be unable to the Group can depress
to meet their from its business
commitments supportive valuations
to the Group banking and this may
or to change syndicate. increase the
the credit This support number of
terms they has proven potential
extend to to be available acquisition
the Group's to the Group opportunities
businesses. even during for Melrose.
Since the periods of
UK left the unprecedented
EU on 31 January turmoil that
2020, uncertainty was experienced
has continued in 2020 due
in the UK to the global
regarding pandemic.
the nature Assessment
and impact of and/or
of the UK's use of national
future trading support schemes
relationship where deemed
with the EU appropriate
and other in the context
international of COVID-19
trading partners disruption.
with which Short-term
the UK intends inventory
to establish buffers are
new terms regularly
on which to reviewed and
trade, and assessed to
what this minimise the
will mean impact of
for business further lockdown
and the UK restrictions
economy. The due to COVID-19,
impact of and the initial
the COVID-19 impact of
pandemic is Brexit on
a significant import costs
risk to the and tariffs
global economy. and border
Each of the disruption.
Group's businesses Sales from
and their the EU to
respective the UK within
production the GKN
and market Aerospace
geographies and GKN
are impacted Automotive
by the COVID-19 divisions
pandemic to are frequently
various extents, on ex-works
with the most terms and
common impacts therefore
across the a cost to
Group during customers.
2020 being This continued
the temporary to be reviewed
reduction during 2020
of manufacturing in light of
capacity and the then ongoing
reduced requirements Brexit
due to lockdown negotiations
measures and and the
international subsequent
travel restrictions. ongoing trading
The Board terms between
and the Melrose the UK and
senior management the EU.
team continue Strong customer
to regularly relationships
monitor the built on
impact of long-term
the pandemic partnerships
on the Group often with
with particular plants in
focus on the close proximity,
potential technical
for staff excellence
shortages, and quality.
production Planning for
delays and potential
supply chain discussions
disruption. in respect
A significant of increased
amount of tariff costs
the Group's that materialise
revenue is following
generated the final
from operations Brexit deal
located in between the
North America, UK and the
which during EU.
2020 continued The Group
to experience remains agile,
challenging diversified
tariffs relating and well
to the US/China positioned
trade war to deal with
and uncertainty any short-term
related to uncertainty
the US presidential in the UK.
election.
The US has
also required
close monitoring
related to
the expected
short to medium-term
impact of
potential
changes to
international
trading relationships
following
the conclusion
of a definitive
future trade
deal between
the UK and
the EU. The
Group's exposure
to such US
trade risk
factors is
inherently
mitigated
by its manufacturing
footprint
across the
UK and European-based
GKN Aerospace
and GKN Automotive
divisions.
Further, the
Group's businesses
operating
in North America
continue to
take regular
specific actions
to mitigate
the impact
of new relevant
North American
tariffs and
changes to
international
trading regulations
by engaging
with the relevant
authorities
prior to and
after any
such changes
are implemented.
Whilst the
long-term
impact of
Brexit, COVID-19,
and tariff
wars are not
isolated as
principal
risks to the
Group as a
whole, they
present potential
risks that
the business
units continue
to monitor
and assess
closely, particularly
in the context
of potential
changes to
travel and
working restrictions,
and the cross-border
trade and
regulatory
environments
in which the
business units
operate. The
Board continues
to assess
and review
the potential
impact of
these evolving
risks.
------------------------ ----------------- --------------- -------- ----------------- -----------
Commercial The Group The Group Executive The Melrose Improve
operates in continued management senior
competitive to actively management
markets throughout invest in team actively
the world research and engages with
and is diversified development the divisional
across a variety activities executive
of industries in 2020 to management
and production augment its teams to track,
and sales platforms monitor and
geographies. for future support
This provides product strategic
a degree of expansion, planning
Group-level quality activities
impact mitigation improvements, and impact
from the potential customer mitigation
commercial alignment assessments
challenges and achieving in respect
and market further of ongoing
disruptions production commercial
that face efficiencies. risks.
each of the Details about Particular
divisions. some of the focus is placed
However, the Group's research on certain
widespread and development GKN Aerospace
disruption activities and GKN
caused by are provided Automotive
COVID-19 has in the end markets
heightened Sustainability where
the Group's report on customer and/or
exposure to pages 58 to competitor
supply chain 87 of the concentration
and end-market 2020 Annual is high and
commercial Report. heavier reliance
risk. Health and is placed
Each division safety awareness on supply
is exposed initiatives chain efficiency
to particular and performance and programme
commercial enhancements partner
and market continued management.
risks, which to be The divisional
are primarily implemented CEOs report
accentuated in alignment material updates
where with directly to
customer/competitor regulation, members of
concentration market practice the Melrose
is high within and site-based senior
their respective risk assessments management
market segments. and team which
Melrose operates requirements. maintains
a decentralised In addition, a
control and in light of number of
management the COVID-19 contact points
structure pandemic, throughout
which empowers the the Group
divisional Group has to increase
management followed awareness.
teams to take government
full responsibility guidance on
for planning, hygiene and
mitigating, social
navigating distancing
and responding protocols,
to the specific and coordinated
commercial the sourcing
risks and of PPE globally
challenges to ensure
facing their no disruptions.
respective Since acquiring
businesses. GKN, the Melrose
The Melrose senior
senior management management
team monitors team has
the aggregated actively
impact of engaged with
such risks and supported
and provides the GKN
active support businesses'
and challenge divisional
to the divisional management
management executive
teams in fulfilling teams in
their responsibilities. identifying
Common commercial embedded
risk areas contractual
that potentially and business
affect a large conduct risks
proportion relating to
of the Group's key supply
businesses chain and
include those production
related to programme
production partners.
quality assurance, Those management
health and teams have
safety performance, continued
customer concentration to implement
and uncertainties and direct
related to a series of
future customer operational
demand, onerous change
customer and management
supplier contracts, programmes
the impact to mitigate
of increased the risks
competitive they have
pressures identified.
on the The Melrose
maintenance/improvement senior
of market management
share, potential team, in
disruptions collaboration
to supply with Ernst
chains and & Young,
increases continues
to the price to enhance
of raw materials, the Board
technological and Audit
innovation Committee's
and market visibility
disruption, of the Group's
and the performance Common
and management Commercial
of programme Risks through
partners ("Common the use of
Commercial the Group
Risks"). reporting
In 2020, Common dashboard
Commercial to aggregate
Risks increased and report
due to the numerous Common
impact of Commercial
the global Risks across
pandemic, each of the
which affected Group's
a number of divisions.
areas including Throughout
supply chains, the COVID-19
production pandemic,
scheduling, the rate and
factory closures, intensity
customer demand of business
rates, and unit reporting
freight. was
substantially
increased.
This ensured
business unit
management
and the Melrose
senior
management
team had timely
access to
detailed and
accurate
information
on the trading
performance
of the Group,
which enabled
informed and
quick
decision-making.
------------------------ ----------------- --------------- -------- ----------------- -----------
Loss of key The success Succession Executive Succession Buy
management of the Group planning within management planning remains Improve
and is built upon the Group a core focus Sell
capabilities strong management is coordinated for the
teams. As via the Nomination
a result, Nomination Committee
the loss of Committee and the Board.
key personnel in conjunction Reviewing
could have with the Board the succession
a significant and includes planning
impact on all Directors arrangements
performance, and senior of the Board
at least for Melrose as a whole,
a time. The employees. together with
loss of key In line with a review of
personnel the Group's the Melrose
or the failure decentralised senior
to plan adequately structure, management
for succession each divisional team, will
or develop CEO, in remain an
new talent consultation area of
may impact with the Chief particular
the reputation Executive, focus in 2021,
of the Group is responsible as well as
or lead to for the maintaining
a disruption appointment oversight
in the leadership of their of business
of the business. respective unit succession
Competition executive planning.
for personnel team members,
is intense with
and the Group disclosure
may not be to the
successful Nomination
in attracting Committee
or retaining via the Melrose
qualified senior
personnel, management
particularly team.
engineering The Company
professionals. recognises
that, as with
most businesses,
particularly
those operating
within a
technical
field,
appointments
are dependent
on Directors
and employees
with particular
managerial,
engineering
or technical
skills.
Appropriate
remuneration
packages and
long-term
incentive
arrangements
are
offered in
an effort
to attract
and retain
such
individuals.
------------------------ ----------------- --------------- -------- ----------------- -----------
Compliance and ethical risks
Legal, Considering Regular Executive Each business Improve
regulatory the breadth, monitoring management has a fully
and scale and of legal and developed
environmental complexity regulatory legal function,
of the Group, matters at headed by
there is a both a Group their respective
risk that and business General Counsel
the Group unit level. reporting
may not always Consultation to their
be in complete with external executive
compliance advisors where management
with laws, necessary. team, and
regulations Group-wide are properly
or permits. standard and staffed and
The Group enhanced supported
could be held application by external
responsible to trade advisors where
for liabilities authorisation necessary
and consequences procedures or helpful
arising from are in place to ensure
(i) past or and regularly ongoing
future environmental reviewed against compliance
damage, including the in the
potentially ever-changing jurisdictions
significant global trade in which they
remedial costs; compliance operate across
(ii) employee landscape, the globe.
matters including supported This is
liability by access augmented
for employee to external by central
accidents trade compliance oversight
in the workplace legal and from the Melrose
or regulatory legal team
consequences specialists and robust
of environmental and electronic annual reviews.
liabilities, counterparty The Board
which may screening reviews its
be susceptible systems. assessment
to class action Our businesses of the Group's
law suits, are validated material
particularly and certified sustainability
but not exclusively in respect issues annually,
with respect of quality and is currently
to Group businesses management, establishing
operating environmental a Group internal
in North America; management sustainability
(iii) restrictions and health reporting
arising from and safety and performance
economic sanctions, with the function to
export controls appropriate support the
and customs, bodies including business units.
which can ISO and BS During the
result in OHSAS, where coming year,
fines, criminal relevant to the Board
penalties, their with the support
adverse publicity, operations. of the Melrose
payment of The Group's senior
back duties businesses management
and suspension are either team will
or revocation already publish an
of the Group's compliant assessment
import or with or working of how Melrose
export towards timely and its
privileges; compliance businesses
and (iv) product with new and are mitigating
liability upcoming climate change
claims, which standards. risks aligned
can result This includes with the
in significant Group businesses recommendations
total liability that are of the Task
or remedial currently Force on
costs, particularly certified Climate-related
for products to BS OHSAS Financial
supplied to 18001 and Disclosures
large are actively (TCFD), and
volume global driving towards setting targets
production full transition in line with
programmes to ISO the UN
spanning multiple 45001:2018. Sustainable
years, for With Melrose Development
example in support, each Goals.
the aerospace business invests
and automotive in and
industries, implements
or to consumer appropriate
end markets, systems and
for example processes
in the air to manage
management their impact
industry. on the
There can environment,
also be no and continually
assurance reviews these
that any provisions in line with
for expected evolving
environmental expected
liabilities practices.
and remediation The executive
costs will management
adequately team of each
cover these business
liabilities regularly
or costs. reviews any
The Group significant
operates in climate-related
highly regulated issues, risks
sectors, which and
has been accentuated opportunities
by the GKN related to
acquisition. the business.
In addition, These reviews
new legislation, consider the
regulations level of
or certification climate-related
requirements risk that
may require the business
additional is prepared
expense, restrict to take in
commercial pursuit of
flexibility its business
and business strategy and
strategies the
or effectiveness
introduce of management
additional controls in
liabilities place to
for the Group mitigate
or the Directors. climate-related
For example, risk. Any
the Group's identified
operations risks are
are subject discussed
to anti-bribery with the Melrose
and anti-corruption, senior
anti-money management
laundering, team and
competition, escalated
anti-trust to the Board
and where necessary.
trade compliance In line with
laws and regulations. our
Failure to decentralised
comply with model, our
certain regulations businesses
may result have frameworks
in significant in place for
financial identifying
penalties, principal
debarment risks and
from opportunities
government appropriate
contracts to their
and/or reputational business
damage, and and
may impact stakeholders,
our business which include
strategy. climate-related
We purchase risks. Each
businesses business takes
that are an appropriately
underperforming tailored
their potential approach
with respect to
to their financial, climate-related
operational initiatives
and sustainability that suits
performance. their
Inherent in requirements,
the nature and operational
of the manufacturing and market
businesses environments,
we acquire as well as
is that they reflecting
often operate their maturity
in industries in this area
that are the at the time
hardest to of becoming
decarbonise. part of the
Group sustainability Group.
performance The Board
and ratings sets a leading
will fluctuate example in
during our sustainability,
investment and holds
cycle as we each business
acquire new and their
businesses management
in need of teams
improvement, accountable
and sell businesses for their
that we have progress,
improved. and provides
them with
a platform
to absorb
the Group's
best practices,
to accelerate
their and
others'
progress.
The Melrose
senior
management
team works
with the
businesses'
executive
teams, to
set meaningful
sustainability
targets,
alongside
financial
metrics, and
Melrose provides
the investment
to achieve
them. The
businesses
subsequently
identify,
monitor, and
manage the
specific
environmental
risks that
affect their
operating
and market
environments.
The Board
with the support
of the Melrose
senior
management
team reviews
the annual
reports on
energy usage
and greenhouse
gas emissions
within each
business,
and provides
support and
investment
to drive
improvements
within their
operations
through more
efficient
use of
electricity,
fuel and heat,
including
by increasing
the proportion
of renewable
energy where
commercially
viable, and
by implementing
other
climate-positive
actions such
as sustainable
transport
initiatives
for employees.
The Board
with the support
of the Melrose
senior
management
team spends
time listening
to the Group's
key stakeholders
to enable
informed
strategic
decisions
and to deliver
on their needs.
A robust control
framework
is in place,
underpinned
by comprehensive
corporate
governance
and compliance
procedures
at both a
Group and
business unit
level, including
utilisation
of third party
verification
providers.
Where possible
and practicable,
due diligence
processes
during the
acquisition
stage seek
to identify
legal,
regulatory
and
environmental
risks. At
the business
unit level,
controls are
in place to
prevent such
risks from
crystallising.
Any
environmental
risks that
crystallise
are subject
to mitigation
by specialist
consultants
engaged for
this purpose.
External
consultants
assist the
Group in
complying
with new and
emerging
environmental
regulations.
Insurance
cover mitigates
certain levels
of risk and
the Group's
insurers are
instructed
to carry out
external audits
of specified
areas of legal
and compliance
risk including
health and
safety.
------------------------ ----------------- --------------- -------- ----------------- -----------
Information Information Management Executive Information Improve
security and security and work with management security and
cyber threats cyber threats the leaders cyber threats
to our systems of each business are an
are an and external increasing
increasing security priority across
priority across consultants all industries.
all industries to assess The COVID-19
and remain the Group's pandemic has
a key increased increased
UK Government exposure to online traffic,
agenda item. cyber security reduced physical
Like many risk and to contact, and
businesses, ensure created
Melrose recognises appropriate additional
that the Group mitigation new threats
may have a measures are to all of
potential in place for our businesses
exposure in the Group. requiring
this area. During 2020, increased
Potential Melrose attention.
exposure to continued Cyber security
such risks to monitor breaches of
remains high and enhance the Group's
due to the its IT systems
scale, complexity information could result
and public-facing security in the
nature of strategy misappropriation
the Group. and risk-based of confidential
In addition, governance information
Melrose recognises framework belonging
that the inherent with all to it or its
security threat businesses customers,
is considered within the suppliers
highest in Group. The or employees.
GKN Aerospace framework In response
where data follows the to the increased
is held in UK Government's sophistication
relation to recommended of information
civil aerospace steps on cyber security and
technology security. cyber threats,
and controlled This strategic the Group
military contracts. management has worked,
approach has and continues
delivered to work, with
risk profiling external
capabilities security
by business companies
and the to monitor,
enablement improve and
of mitigation refine its
plans to be Group-wide
developed strategy to
for each aid the
business prevention,
to reduce identification
their exposure and mitigation
to cyber risk. of any present
The progress and future
of each business threats.
is measured
against the
information
security
strategy
and is monitored
on a quarterly
basis.
Data is also
externally
reviewed
quarterly
by Ernst &
Young, who
will be
augmenting
their review
in 2021 with
a mix of virtual
and
onsite assurance
visits.
------------------------ ----------------- --------------- -------- ----------------- -----------
Financial risks
Foreign Due to the The Group Executive Group results Buy
exchange global nature policy is management are reported Improve
of operations to protect in Sterling Sell
and volatility against the but a large
in the foreign majority of proportion
exchange market, foreign of its revenues
exchange rate exchange risk are denominated
fluctuations which affects in currencies
have, and cash, by hedging other than
could continue such risks Sterling,
to have, a with primarily
material impact financial US Dollar
on the reported instruments. and Euro.
results of The businesses Sensitivity
the Group. are protected to the key
The Group against being currency pairs
is exposed over-hedged, is shown in
to three types due to short the Finance
of currency to medium-term Director's
risk: transaction reductions review on
risk; translation in forecasts, pages 36 to
risk; and as the 42 of the
the risk that percentage 2020 Annual
when a business of hedges Report.
that is predominantly compared to
based in a forecast foreign
foreign currency exchange
is sold, it exposures
is sold in tapers over
that foreign future periods.
currency. Protection
The Group's against specific
reported results transaction
will fluctuate risks is taken
as average by the Board
exchange rates on a
change. The case-by-case
Group's reported basis.
net assets
will fluctuate
as the year-end
exchange rate
changes.
------------------------ ----------------- --------------- -------- ----------------- -----------
Pensions Any shortfall The Group's Executive Although the Buy
in the Group's key funded management risks are Improve
defined benefit UK defined well understood, Sell
pension schemes benefit pension the deficit
may require plans are significantly
additional closed to reduced and
funding. As new entrants funding plans
at 31 December and future for the GKN
2020, the service accrual. Schemes having
Group's pension Long-term already been
schemes had funding agreed with
an aggregate arrangements the Trustees,
deficit, on are agreed the size of
an accounting with the the gross
basis, of Trustees liabilities
GBP838 million and reviewed as a proportion
(2019: GBP1,121 following of the Group's
million). completion net assets
Changes in of actuarial remains
discount rates, valuations. significant.
inflation, Active During the
asset values engagement period, gross
or mortality with the liabilities
assumptions Trustees increased
could lead on pension as a result
to a materially plan asset of changes
higher deficit. allocations in financial
For example, and strategies. conditions.
the cost of During the The increase
a buy-out year the GKN was offset
on a discontinued Schemes 1-4 by increases
basis uses appointed in scheme
more conservative a fiduciary assets arising
assumptions manager which from the return
and is likely will allow on investments
to be significantly more timely and group
higher than decisions contributions
the accounting to be made of GBP111
deficit. Alternatively, on million. As
if the plans changing a result of
are managed investments the deficit
on an ongoing as circumstances reduction
basis, there require. Also, during the
is a risk investments period, the
that the plans' can be spread Trustees took
assets, such across more action to
as investments asset classes better hedge
in equity which will risks associated
and debt securities, reduce risk. with movements
will not be in inflation
sufficient and interest
to cover the rates, and
value of the to reduce
retirement investment
benefits to risk.
be provided Accordingly,
under the the volatility
plans. The risk to the
implications Group is
of a higher reduced.
pension deficit
include a
direct impact
on valuation,
implied credit
rating and
potential
additional
funding requirements
at subsequent
triennial
reviews. In
the event
of a major
disposal that
generates
significant
cash proceeds
which are
returned to
the shareholders,
the Group
may be required
to make additional
cash payments
to the plans
or provide
additional
security.
------------------------ ----------------- --------------- -------- ----------------- -----------
Liquidity The ability To ensure Executive Whilst the Buy
to raise debt it has management Group maintains Improve
or to refinance comprehensive strong cash
existing borrowings and timely controls and
in the bank visibility forecasting
or capital of the liquidity processes,
markets is position, in light of
dependent the Group the COVID-19
on market conducts monthly pandemic,
conditions reviews of management
and the proper its cash have
functioning forecast, driven a
of financial which are redoubling
markets. As in turn revised of efforts
set out in quarterly. throughout
more detail The Group the Group
in the Finance operates cash to increase
Director's management visibility
review on mechanisms, and certainty
pages 36 to including of cash flow
42 of the cash pooling information,
2020 Annual across the robustness
Report, the Group and of cash
Group has maintenance controls,
term loans of revolving and cash-saving
of US$960 credit initiatives.
million and facilities These have
GBP100 million to mitigate been very
and revolving the risk of successful
credit facilities any liquidity and combined
comprising issues. with the
US$2.0 billion, The Group negotiation
EUR0.5 billion gained agreement of covenant
and GBP1.1 from its lenders waivers with
billion. to a three-year our supportive
In addition, extension, banking
the GKN net at the Group's syndicate,
debt at acquisition option to the Group
included capital be built into is satisfied
market borrowings its that it has
across three multi-currency adequate
unsecured term loan resources
bonds that denominated available
totalled GBP1.1 GBP100 million to meet its
billion. Two and US$960 liabilities.
of these bonds million,
- totalling exercisable
GBP750 million at any time
- remain outstanding prior to 1
as at 31 December April 2021
2020 and further that would
detail is extend the
provided in maturity date
the Finance of the loan
Director's to 30 April
review on 2024. Since
pages 36 to the end of
42 of the the
2020 Annual current
Report. reporting
The sudden period, this
and material option has
impact of been exercised.
COVID-19 in The Group
2020 has brought operates a
cash management conservative
into sharp level of
focus. In headroom
line with across its
the Group's financing
strategy, covenants
investment which is
is made in designed
the businesses to avoid the
(capital expenditure need for any
and restructuring unplanned
actions) and refinancing.
there is a As a result
requirement of COVID-19
to assess the Group's
liquidity banking
and headroom syndicate
when new businesses agreed to
are acquired. amend its
financial
covenants
during the
year, covering
the periods
up to and
including
31 December
2022, which
provides
significant
headroom over
the existing
covenants.
------------------------ ----------------- --------------- -------- ----------------- -----------
Related party transactions
Except for transactions with associates (see Note 29 to the 2020
Annual Report on page 191), no other related party had material
transactions or loans with the Company over the last two financial
years.
-- END --
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END
ACSUAASRARUOOAR
(END) Dow Jones Newswires
March 31, 2021 11:30 ET (15:30 GMT)
Melrose Industries (LSE:MRO)
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Melrose Industries (LSE:MRO)
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