TIDMMGAM
RNS Number : 0046V
Morgan Advanced Materials PLC
03 April 2019
Morgan Advanced Materials plc
3 April 2019
Publication of 2018 Annual Report and Notice of 2019 Annual
General Meeting
The following documents have today been posted or otherwise made
available to shareholders:
a. Annual Report and Financial Statements for the year ended 31
December 2018 (2018 Annual Report);
b. Notice of the 2019 Annual General Meeting (AGM) to be held at
the offices of Addleshaw Goddard LLP, Milton Gate, 60 Chiswell
Street, London EC1Y 4AG on Friday 10 May 2019 at 10.30 am; and
c. Form of Proxy for the 2019 AGM.
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 at:
www.morningstar.co.uk/uk/NSM
The documents are also available in the 'Investors' section of
the Company's website at: www.morganadvancedmaterials.com.
The Company's preliminary results announcement of 26 February
2019 contained a management report as well as audited financial
statements which were prepared in accordance with the applicable
accounting standards. The financial information set out in the
Company's preliminary results announcement of 26 February 2019 does
not constitute the Company's statutory accounts for the year ended
31 December 2018. Statutory accounts for 2018 are included in the
2018 Annual Report, which will be delivered to the registrar of
companies following the Company's 2019 AGM. The auditors have
reported on those accounts; their report was (i) unqualified, (ii)
did not include a reference to any matters to which the auditors
drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under section 498(2) or (3)
of the Companies Act 2006 in respect of the accounts for 2018.
The information below, which is extracted from the 2018 Annual
Report, is included solely for the purpose of complying with DTR
6.3.5. This information should be read in conjunction with the
Company's preliminary results announcement issued on 26 February
2019 (available at www.morganadvancedmaterials.com). This
announcement is not a substitute for reading the full 2018 Annual
Report. All page numbers and cross-references in the extracted
information below refer to page numbers in the 2018 Annual
Report.
Related party transactions
There are no related party transactions requiring
disclosure.
Risk management
Morgan has an established risk management methodology which
seeks to identify, prioritise and mitigate risks, underpinned by a
'three lines of defence' model comprising an internal control
framework, internal monitoring, and independent assurance
processes.
The Board considers that risk management and internal control
are fundamental to achieving the Group aim of delivering long-term
sustainable growth in shareholder value.
Risks are identified both 'top down' by the Board and the
Executive Committee, and 'bottom up' through the Group's global
business units (GBUs) and Divisions, and are quantified by
assessing their inherent impact and mitigated probability to ensure
that residual risk exposures are understood and prioritised for
control throughout the Group.
Senior executives are responsible for the strategic management
of the Group's principal risks, including related policy,
guidelines and process, subject to Board oversight.
Throughout 2018, the Board reviewed the status of all principal
risks with a significant potential impact at Group level.
Additionally, the Audit Committee carried out focused risk reviews
of each Division/GBU. These reviews included an analysis of the
principal risks, and the controls, monitoring and assurance
processes established to mitigate those risks to acceptable levels.
As a result of these reviews, a number of actions were identified
to continue to improve internal controls and the management of
risk.
High-level guidance on the Board's appetite for different risks
is included again this year. The Group is willing to take
considered risks to develop new technologies, applications,
partnerships and markets for its products, and to meet customer
needs. The Group strives to eliminate risks to product quality and
health and safety, which are essential to the success of our
products and the safety of our people and contractors.
The appetite for risk in the areas of legal and regulatory
compliance is extremely low and the Group expects its businesses to
comply with all laws and regulations in the countries where they
operate. The Group has a low appetite for financial risk. Certain
risks, such as pension funding, are likely to take a longer period
of time to be mitigated. During the year the Board monitored the
Group's current risk exposure relative to the Board's appetite for
different risks. There were no risks where the current risk
exposure exceeded the Board's risk appetite.
As in 2017, an indication of the Board's assessment of the trend
of each risk - whether the potential impact has increased,
decreased or is broadly unchanged over the past year - is included.
The Board has also identified new risks to the delivery of the
Group's strategy and these are indicated in the table below.
The following are the Group's principal risks and uncertainties,
representing those risks that the Board feels could have the most
significant impact on achieving the Group's strategy of building a
sustainable business for the long-term and delivering strong
returns to the Group's shareholders.
Risk description, assessment Mitigation
and trend from 2017
STRATEGIC AND EXTERNAL RISKS
------------------------------------------
1. Technical leadership The Group has a dedicated
The Group's strategic success technology team within each
depends on maintaining and Global Business Unit which
developing its technical leadership monitors relevant technology
in materials science over and business
its competitors. developments using technology
roadmaps linked to 20 major
Unforeseen/unmitigated technology technology families to ensure
obsolescence, the emergence it remains at the leading
of competing technologies, edge of
the loss of control of proprietary development. Three global
technology or the loss of intellectual Centres of Excellence were
property/know-how would impact previously established, with
the Group's business and its a fourth Centre opened at
ability to deliver on its strategic Penn State University, Pennsylvania,
goals. US, in 2018. These Centres
focus Morgan's expertise and
The advanced technological research resources on core
nature of the Group requires technologies. They are supported
people with highly differentiated by a Technical Advisory Board
skillsets. Any inability to comprising some of the world's
recruit, retain and develop leading academics in relevant
the right people would negatively fields, who provide continuing
impact the Group's ability insight, advice and challenge
to achieve its strategic goals. to inform the Group's technology
plans.
Trend The technology team proactively
Unchanged manages the Group's technology
pipeline and R&D investment
in existing technologies,
as well as actively managing
the technology lifecycle.
The technology pipeline and
key R&D projects are regularly
reviewed by the Executive
Committee and the Board.
Where Group products are designed
for a specific customer, they
are developed in partnership
with the customer in order
to
maintain leading-edge differentiation.
The Group seeks to secure
intellectual property protection,
where appropriate, for its
existing and emerging portfolio
of products; external advisers
manage this protection globally.
The Group continued its global
leadership programme adding
an advanced programme to develop
more high-potential commercial,
functional and technical leaders.
The graduate leadership programme
continued to run in 2018.
------------------------------------------
2. Operational execution / Changes to operational processes
organisational change / sales are carefully considered by
effectiveness site, GBU and Divisional management
As part of the Group's strategy before implementation. Operational
to improve the efficiency of improvements and savings are
its operations and organisation, monitored against budget by
various changes have been made the Executive Committee to
to operational processes at ensure that changes deliver
individual sites, to the Group's the savings promised without
structure, and the structure disruption to business operations.
of and incentives for our sales New capital investments are
force. Further improvements approved at appropriate levels
and changes are planned for of the Group and delivery
future years. Failure to adequately of these overseen by GBU and
manage these changes could Group management.
result in interruption to operations
or customer service, or a failure Organisational changes are
to maximise the Group's opportunities. assessed by the CEO, the Executive
Committee and sometimes the
Trend Board before being implemented
Unchanged in line with local employment
regulations.
Changes to our sales structures
and incentives are reviewed
at various levels of the organisation
before being launched. Further
activities to improve sales
effectiveness are being rolled
out in 2019, including sales
force training, more targeted
incentives and pricing initiatives.
------------------------------------------
3. Portfolio management The Board performs regular
The Group operates across a reviews of the Group's portfolio.
range of product and technology During 2018 the Group disposed
families. These are subject of the Composites and Defence
to long-term market trends Systems business and exited
which may lead to either obsolescence its Thermal Ceramics site
or opportunities to further in Brazil, and announced the
expand the Group. Failure to closure of its China ceramics
proactively manage the Group's cores business and Venezuelan
portfolio of businesses in Thermal Ceramics business.
line with this technology profile
could lead to the value of Opportunities to acquire businesses
the Group's businesses being are reviewed on a continuing
eroded over time or to a failure basis.
to exploit opportunities to
acquire businesses with the
capability to add further value
to the Group.
Trend
Decreased
------------------------------------------
4. Macro-economic and political The Group's broad market and
environment geographic spread helps to
The Group operates in a range mitigate the effects of political
of markets and geographies and economic changes.
around the world and could
be affected by political, economic, Budgets and forecasts for
social or regulatory developments Morgan's different businesses
or instability, for example are used to monitor delivery
an economic slowdown or issues against expectations and anticipate
stemming from oil and natural potential external risks to
resources price shocks. performance. These are subject
to regular review by the Executive
The UK's exit from the EU may Committee and the Board.
have an impact on the Group
if subsequent tariff changes, The overall macro-economic
or border effects, negatively environment has improved during
impact the profitability of the course of the year as
the Group's products. The current shown by the Group's strong
value of Group UK exports to organic sales growth. However
the EU is approximately GBP25 some longer-term metrics are
million, and imports into the showing signs of potential
UK from the EU are approximately weakness.
GBP15 million.
Global issues considered by
Trend the Board this year include
Increased the impact of the UK's exit
from the EU and US / China
trade relations. The impact
of the UK's exit from the
EU could be mitigated in the
medium term by moving production
to alternative sites where
tariffs are not applied to
products.
------------------------------------------
OPERATIONAL RISKS
------------------------------------------
5. Environment, health and Managing its operations safely
safety (EHS) is the Group's number one
The Group operates a number priority. The Group has a
of manufacturing facilities comprehensive EHS programme
around the world. A failure managed by the Group EHS Director,
in the Group's EHS procedures with clear EHS standards and
could lead to environmental a refreshed programme of audits
damage or to injury or death to assess compliance.
of employees or third parties,
with a consequential impact The Group EHS Director sets
on operations and increased annual priorities for EHS
risk of regulatory or legal which are approved by the
action being taken against EHS Steering Group (comprising
the Group. Any such action the Executive Committee and
could result in both financial global business unit leads)
damages and damage to reputation. These form the basis for individual
Given the long history of many sites' own EHS priorities
of the operations of the Group, and plans, and complement
there is also a risk that historical the Group's 'thinkSAFE' behavioural
operating and environmental safety programme.
standards may not have met
today's environmental regulations. EHS performance is monitored
In addition, the Group may by the EHS Steering Group
have obligations relating to and the Board.
prior asset
sales or closed facilities. As at 31 December 2018, the
Group was managing projects
Trend to remediate legacy contamination
Unchanged at a number of former
operational sites in conjunction
with external specialists
and relevant authorities.
------------------------------------------
6. Product quality, safety Many of the Group's products
and liability are designed to customer specifications.
Products used in applications Our businesses' quality management
for which they were not intended systems and training help
or inadequate quality control/over ensure that all of Morgan's
commitment on customer specifications products meet or exceed customer
could result in products not requirements and national/international
meeting customer requirements, standards.
which could in turn lead to
significant liabilities and The Group Legal Policy requires
reputational damage. that contracts relating to
products used in potential
Some of our products are used high-risk applications are
in potentially higher risk subject to legal review to
applications, for example in ensure that appropriate protections
the aerospace, automotive, are in place for product quality
medical and power industries. risks.
Trend The Group insurance programme
Unchanged includes product liability
insurance; this Group-level
insurance is reviewed annually
by the Board.
------------------------------------------
7. IT and cyber security The Group has an IT Policy
Information security/cyber and guidelines in place as
risks are dynamic and ever-present well as Group and business
in the external environment. IT teams to manage the Group's
If the Group were to lose critical infrastructure, IT systems
data or information, including and information security risks.
proprietary technology information, A new Chief Information Officer
through inadequate data management was appointed in 2018 to further
or compromised information develop the Group's IT strategy.
security, the business would
be impacted and could suffer In 2018 the Group was required
reputational damage. to comply with the National
Institute of Standards and
The effective management of Technology (NIST) cybersecurity
the Group's Information Technology framework in the US and the
(IT) infrastructure is important EU's General Data Protection
in enabling our businesses Regulations. The Group has
to reliably deliver customer successfully implemented programmes
requirements. If a key business to deliver compliance with
system were to fail or core these requirements.
systems implementation were
to be ineffective, the ability The Group continues to deploy
of the business to deliver and upgrade enhanced enterprise
on its strategic goals might resource planning (ERP) systems
be impacted. in those businesses where
a need for improvement is
Trend identified. These deployments
Unchanged are managed in line with IT
project management standards.
------------------------------------------
8. Supply chain / business The Group has a diversified
continuity manufacturing, customer and
The Group has a number of potential geographic base which provides
single-point exposure risks, a level of resilience against
which include: single-point exposures. Were
any site to be unavailable,
>> Single-point supplier - production in many cases could
a significant interruption be switched to other sites.
of a key internal or external
supply could impact business Management of these risks
continuity. also involves monitoring and
reviewing supply chains (internal
>> Single-point customer - and external), dual/multiple
the unmitigated loss of a major sourcing of materials or strategic
customer could have an impact stock, site security and safety
on Group profit. The Group's mechanisms, business continuity
largest customer represents plans, maintenance of product
circa 2% of Group revenue. quality and strong customer
relationships.
>> Single-point site - a key
site exposed to a strike, a The Group insurance programme
natural catastrophe or serious includes business interruption
incident, such as fire, could cover and specific cover in
impact relation to the impact of
business continuity. One Group an earthquake in California,
site, Hayward, is situated US; this Group-level insurance
in the California earthquake is reviewed annually by the
zone, (US). Certain of the Board.
Group's businesses are important
for intercompany supply purposes.
Trend
Unchanged
------------------------------------------
FINANCIAL RISKS
------------------------------------------
9. Treasury The Group's treasury function
The Group's global reach means operates on a risk-averse
that it is exposed to uncertainties basis. Required controls over
in the financial markets, the selection of banks, cash management
fiscal jurisdictions where and other treasury practices
it operates, and the banking and payments globally are
sector. These heighten the documented in Morgan's Treasury
Group's funding, foreign exchange, Policy and related procedures.
tax, interest rate, credit The Group treasury team manages
and liquidity risks as well the Group's funding, liquidity,
as the risk that a bank cash management, interest
failure could impact the Group's rate, foreign exchange, counterparty
cash. credit and other treasury-related
risks. Treasury matters are
Trend regularly reviewed by the
Decreased Board and Audit Committee.
In 2018 the Group successfully
refinanced its GBP200 million
Revolving Credit Facility
for a five-year term. Additionally
the Group concluded a US Private
Placement transaction, utilising
shelf agreements already held
with Private Placement lenders,
raising $25 million and EUR25
million. The initial EUR25
million was funded on 27 December
2018, with the funding of
the $25 million completed
in January 2019.
------------------------------------------
10. Tax The Group's tax function,
The Group operates in many working in conjunction with
jurisdictions around the world external specialists as required,
and could be affected by changes closely monitors fiscal developments
in tax laws and regulations and changes such as BEPS,
within the complex international to ensure that the Group's
tax environment. tax arrangements and practices
continue to comply with the
The OECD's Base Erosion and requirements of all relevant
Profit Shifting (BEPS) framework jurisdictions whilst also
provides additional obligations enabling efficient management
and filing requirements for of the tax liability. The
the Group as countries implement Group's Head of Tax reports
the actions in the framework. twice-yearly to the Audit
These could have an impact Committee on key tax issues
on the tax paid by the Group. and initiatives.
Tax reform in the US could The Group has published its
also impact the Group's tax tax strategy on its website
rate. in line with UK corporate
governance requirements.
Trend
Unchanged
--------------------------------------------
11. Pension funding Morgan's primary means of
The Group sponsors several mitigating pensions funding
defined benefit pension arrangements, risk is proactive management
(the Schemes), whose liabilities of the pension scheme assets
are subject to fluctuating and liabilities through an
interest rates, investment integrated pension strategy
values and inflation. This focusing on funding, investment
coupled with the increased and benefit risk. This involves
longevity of members will result both internal management within
in increased funding burdens the Group and also externally
on the Group in the future. through the Scheme Trustees,
corporate actuaries and professional
The deficit in Morgan's global advisers.
defined benefit pension schemes
calculated on the basis required In the UK, the Morgan Senior
for IAS 19 accounting disclosures Executive Pension and Life
decreased from GBP218 million Assurance Scheme closed to
at 31 December 2017 to GBP190.4 future accrual in April 2016
million as at December 2018. and the Morgan Pension Scheme
closed to future accrual in
Trend April 2018. In consultation
Unchanged with the Company, the Trustees
have also adopted a pro-active
approach to the management
of risk in the Schemes' investment
portfolios, significantly
reducing their unhedged interest
and inflation rate exposure.
In the US, in June 2016 one
Defined Benefit Pension Plan
completed a full legal termination,
and for the other remaining
Scheme, a formal offer of
a present-value-equivalent,
lump-sum cash payment was
made to members. In December
2017, the Company made an
additional contribution of
$36 million to this Scheme.
--------------------------------------------
12. Contract management The Group has an in-house
As a global advanced materials legal function supplemented
business supplying components by specialist external lawyers.
into critical applications,
the Group may be exposed to The Group Legal Policy requires
liabilities arising from the in-house legal review of high-value
use of its products. Ineffective or high-risk contracts to
contract risk management could ensure they contain appropriate
result in significant liabilities protections for the Group.
for the Group and could damage The Policy requires CEO approval
customer relationships. before a business can enter
into an unlimited liability
Trend contract or one where the
Unchanged liability cap exceeds GBP5
million.
To the extent that risk cannot
be mitigated through contractual
arrangements, the Group has
insurance cover in place,
including
product liability insurance.
--------------------------------------------
13. Compliance The Group is committed to
The Group's global operations the highest standards of corporate
must comply with a range of and individual behaviour.
national and international To support this, in 2018 the
laws and regulations including Group issued the Morgan Code.
those related to bribery and The Morgan Code defines the
corruption, human rights, trade/export Group's approach to doing
compliance and competition/anti-trust business ethically and confirms
activities. Morgan's commitments to high
standards of ethical behaviour.
A failure to comply with any The Morgan Code is supported
applicable laws/regulations by a range of policies, standards
could result in civil or criminal and guidance; training materials;
liabilities and/or individual the provision of an ethics
or corporate fines and could hotline for employees; and
also result in debarment from systems to support effective
government-related contracts screening of and due diligence
or rejection by financial market on third parties.
counterparties and reputational
damage. Further improvements to the
programme are planned in 2019,
Trend including enhanced training,
Unchanged a refresh of the ethics hotline
and further reviews of businesses
operating in higher risk locations.
The Group also has an Export
Compliance Director in the
US whose role is dedicated
to ensuring compliance with
export controls.
In addition to Group-level
compliance specialists, our
businesses are required to
establish compliance officer
roles, which are responsible
for supporting local training
and monitoring. Morgan also
employs country-specific trade
and export compliance specialists
in higher risk businesses
and jurisdictions.
--------------------------------------------
Directors' Responsibility Statement
The 2018 Annual Report contains the following statements
regarding responsibility for the financial statements in compliance
with DTR 4.1.12. Responsibility is for the 2018 Annual Report and
Financial Statements and not the condensed statements required to
be set out in the Annual Financial Report announcement.
Each of the Directors in post as at 26 February 2019, the names
and roles of whom are set out on pages 44 and 45 of the 2018 Annual
Report, confirms to the best of their knowledge:
-- the Group's Financial statements, which have been prepared in
accordance with IFRS as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of
the Group; and
-- the management report (comprising the Directors' Report and
the Strategic Report) includes a fair review of the development and
performance of the business and the position of the Group, together
with a description of the principal risks and uncertainties that it
faces.
Enquiries: Stephanie Mackie, Company Secretary
Telephone: 01753 837000
Notes:
Legal Entity Identifier: I4K14LL95N2PHDL7EG85
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END
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