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24 June 2013

Trifast plc
Trifast House,
Bellbrook Park, Uckfield,
East Sussex, TN22 1QW
Tel: +44 (0)1825 747366
Fax: +44 (0)1825 747368

email: corporate.enquiries@trifast.com

Website: www.trifast.com

Dear Shareholder

As Chairman of the Trifast Remuneration Committee, I am pleased to introduce our Remuneration Report for 2013. This has been a busy year for the Company during which we have continued to generate increased profits through:

  • delivering high quality service which is rewarded through increased market penetration
  • winning new business at enhanced margins
  • extending our product ranges
  • successful integration of recent acquisitions

Our remuneration policy at Trifast is to have in place a structure that can incentivise and retain those key executives who are critical to execute the business strategy. Cognisant of the difficult position your Company found itself in when the 'new' management team was put in place, salary levels for our Executive Directors have historically been set at highly conservative levels. To somewhat compensate for this, options were granted in 2009 to sit alongside the three year recovery plan. These have now vested given the successful completion of the plan and the Company needs to consider how to align the interests of executives with shareholders over the coming years as we go forward with Trifast's next stage of development to consolidate our position as a leader in the global fastener business.

We do not believe that the historic policy of highly conservative levels of fixed remuneration underpinned by a grant of options which supported the recovery plan is any longer appropriate to retain, attract and motivate executives of a calibre required to execute the business strategy over our next stage of development. We are also mindful of the changing attitude of shareholders to executive reward and want to take these factors into account in any new structure.

As a result, the Committee is conducting a review of the current remuneration structure in light of Trifast's overall remuneration policy and business strategy. The objective of this review is to develop a holistic structure which strengthens the link between reward and performance – both financial and strategic – and which acts as a clear incentive to our senior executives over both the short and long term.

Further, any incentive structure will aim to deliver an appropriate mix of fixed and variable compensation subject to the achievement of short and longer term financial and strategic performance metrics. This approach ensures that strong year on year corporate performance is sustained and the interests of executives are aligned with the interests of shareholders over the long term.

The outcome of this review and our proposals are, at the time of signing this Report still to be finalised. We have provided some thoughts as to our current thinking in the remainder of this Report but full details of our proposals will be provided and shareholder approval to the arrangements sought in due course.

We have an excellent management team, we want to keep them and reward and incentivise them appropriately for performance. I believe that the changes we will be making to our remuneration structure will enable us to do this and look forward to your support.

Jonathan Shearman
Chairman, Remuneration Committee

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Introduction

The Directors present the Remuneration Report for the year ended 31 March 2013. This Report has been prepared in accordance with Schedule 8 of the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 ('the regulations'). The Auditors are required to report on the 'auditable' part of this Report and to state whether, in their opinion, that part of the Report has been properly prepared in accordance with the Companies Act 2006 (as amended by the regulations). The Report is therefore divided into separate sections for audited and unaudited information. In accordance with schedule 18 of the Companies Act, this Report has been approved by the Board for approval by shareholders at the forthcoming Annual General Meeting.

Statement of compliance

The Board has reviewed the Group's compliance with the Corporate Governance Code and it is their opinion that throughout the year, the Company complied with the Principles and Provisions on remuneration specified in the Corporate Governance Code.

Remuneration Committee

The objective of the Remuneration Committee ('the Committee') is to develop a remuneration strategy (for the Executive Directors and other key Executives) that drives both short and long term performance and provides levels of reward which reflect such performance. More specifically, the Committee has and will attempt to reward exceptional performance (based of Profit Before Tax) and share any out-performance (over and above the 'city forecast') between our shareholders and the Executive team. This strategy is reviewed on an annual basis.

We remain mindful of the ongoing challenges surrounding levels of Executive pay as well as the forthcoming BIS regulations. Work has already commenced to ensure compliance with the latter at the appropriate time.

The Committee is composed entirely of Independent Non-Executive Directors. Members have no day-to-day involvement in the running of the business and no personal financial interest in the Company other than that of shareholders. No Executive Director sits on the Committee. The Remuneration Committee is formally constituted with written Terms of Reference. A copy of the Terms of Reference is available to shareholders by writing to the Company Secretary whose details are set out on IBC of the Report and Accounts.

The Committee had two meetings during the year. Both members of the Committee at the time, being the Chairman (JPD Shearman) and Senior Independent Non-Executive Director (NS Chapman) attended these meetings. Each of these meetings were routine in, initially confirming the remuneration policy for the year just commenced and then considering an appropriate approach for the year to March 2014. The Executive Chairman and CEO were both invited to attend to ensure the Committee was in possession of all the relevant facts. Alongside this, the Committee had several informal meetings with their external Advisers.

The Committee consults with the Company Secretary regarding issues on areas of remuneration and Corporate Governance. With regard to senior Executives in the Company (excluding Board Directors), the Committee also takes advice from the Executive Board.

The Committee is advised on matters relating to Directors as required. It uses independent external Advisers as and when, to advise on remuneration matters.

Current remuneration policy

In deciding on the levels of remuneration for Directors and senior managers, the comparative pay and employment conditions of employees across the Group are taken into account. In particular, the Committee takes into account the level of salary increases across the wider workforce when deciding upon any increases in remuneration for the Directors and senior management.

Actual remuneration to the Directors is shown in the table under Notes to the Directors' Remuneration Report.

In order to achieve the objectives of the Committee's policy on remuneration, the individual components of an Executive Director's remuneration package are determined as follows:-

1) Base salary

The policy of the Committee during the year ended 31 March 2013 was to set base salaries around the lower quartile of an appropriate comparator group. Salaries are reviewed annually in April.

Factors taken into account by the Committee when determining base salary levels are:

  • Objective research based on a review of the remuneration in UK quoted companies with similar corporate attributes
  • Experience and responsibilities of each Executive Director
  • Pay and conditions throughout the Group

The salary levels for the year under review as seen under Director's remuneration were largely unchanged from the previous year with the exception of Mark Belton. It was the view of the Committee that the existing level of salary was not commensurate with either the role of Group Finance Director, nor the contribution Mark makes to the Group's performance.

2) Annual bonus payment

The 2013 bonus scheme is based on the premise of rewarding exceptional performance measured by reference to Profit Before Tax (PBT). Payments commence only once the 'city forecast' is achieved and increased thereafter with a cap of 100% of base salary.

In arriving at a bonus scheme the Committee is mindful of the following considerations:

  • The link between the fixed and variable element
  • The desire to reward team performance
  • The desire to link maximum payouts to exceptional performance
  • The financial performance of the Group
  • The need to align the rewards with the interests of shareholders

The Committee assessed that performance in 2013 justified a payout of 30% for each of the Executive Directors. This is against a backdrop of stretching targets.

3) Long term incentives (LTI's)

a) At the beginning of the year to March 2013, the options (see Number of options) that were agreed with shareholders and granted on the change of management in 2009 were still 'in play'. Indeed, given a three-month average share price greater than 51p, combined with a ROCE in excess of 10% during the final quarter of the financial year, these options have now vested.

b) Following approval at the 2005 Annual General Meeting, the Company introduced a long term incentive arrangement known as the Trifast plc 2005 Long Term Incentive Plan ('LTIP'). Awards under the LTIP were delivered in the form of conditional share awards which were to be released in three years dependent on continued employment and the satisfaction of demanding performance targets.

Full details of the awards held by Executive Directors under the LTIP at the start of the year are contained in the audited section of this Report.

All Company Directors who held LTIP's waived their right to these rewards during 2011.

c) The Executive Directors may also participate in the Trifast Savings Related Share Option Scheme that is open to all UK employees and is HMRC approved. The Scheme offers three, five and seven year savings contracts which provide an option to purchase shares after maturity at a discount to the share price on the date the contract is taken out (the maximum discount is 20% of mid-market price).

4) Benefits

In line with other companies, potential benefits are provided in the form of a Company car (or car allowance), private medical insurance, permanent health insurance, critical illness cover and life cover up to a maximum 13.33 times earnings at date of death. This life cover provides a benefit in the form of a four times salary lump sum and a balance to buy a spouse's annuity. The provision of these benefits is in line with market practice.

5) Pension

Geoff Budd, Mark Belton, Glenda Roberts and Seamus Murphy (resigned 31 January 2013) are members of the Company's non-contributory pension plan. This is an HMRC approved defined contribution scheme. The rate of Company contribution to this scheme is 20% of basic salary.

Malcolm Diamond and Jim Barker do not participate in the Company pension plan.

Future remuneration policy

The Remuneration Committee is mindful that now is an appropriate time to undertake a wider review of Board Remuneration – including base salary, on target annual bonus (total cash) and a new Long Term Incentive Plan. As part of this exercise, the Committee has commissioned a report on executive remuneration by independent accountants PwC, with the aim of creating a policy that allows each of the executives to feel valued and motivated by means of being fairly rewarded through both cash and share payments.

Below are our initial findings for the three core components:

1) Base salary

A benchmarking exercise undertaken by PwC has confirmed that in the case of all of the executives, both base salary and total cash remuneration are below even the lower quartile for appropriate comparator companies. We believe this is not in the best interests of the Group and the Committee is therefore looking to adjust executive salaries to reflect the median quartile of this comparator group.

The Committee of course recognises that it is essential to continue to control costs and therefore is minded, where appropriate, to make these adjustments over the next two years without substantially increasing overall Board costs. This will however, necessitate increases above the current rate of inflation and indeed above that of the rest of the Group.

2) Annual bonus payment

The Committee's policy with regard to an annual bonus scheme will remain broadly unchanged with the overriding aim to ensure that we can still reward out-performance (vs the 'city forecast') up to a maximum of 100% of base salary.

Alongside this, the Committee is considering whether it is appropriate to introduce a proportion of bonus which is not entirely dependent upon financial performance figures, but rather based on personal targets. We are also mindful that the proportion of cash and share payments to Executives be balanced, with the potential that this is reflected in the payment method of the bonus scheme.

It was felt inappropriate to make any meaningful changes to the scheme for the year ending 31 March 2014. Hence, the Committee intends to use the existing framework and for the maximum amount payable to remain at 100% of base salary.

3) Long term incentives (LTI's)

It is the desire of the Committee to utilise LTI's as part of longer term remuneration and retention planning. Given that, the Committee is currently working on a plan with our independent Advisers (PWC) and intends to fully engage with shareholders once any proposal is formulated. Any future plan will need to motivate long term performance and loyalty but will no longer be required to supplement the historically lower quartile salaries.

In concluding, Neil and I would firstly like to welcome Scott to the Committee from April 2013 onwards. We are also delighted to unanimously recommend that shareholders vote to approve the Remuneration Report at the 2013 Annual General Meeting.

Contracts

a) Executive Directors

During the year all Executive Directors had rolling service contracts as follows:

MM Diamond6 months*#
JC Barker6 months*#
MR Belton6 months*
GP Budd6 months*
SV Murphy (resigned 31 January 2013)6 months*
GC Roberts6 months*

*12 months in the event of a change in control

#Subsequent to the year end March 2013, this was changed to 12 months

The Board is confident that these rolling contracts with the respective contractual termination payments were appropriate for the business and in accordance with 'Best Practice' Corporate Governance.

The dates of the Executive Directors' contracts are:

MM Diamond26 July 2012
JC Barker26 July 2012
MR Belton26 July 2012
GP Budd26 July 2012
SV Murphy (resigned 31 January 2013)26 July 2012
GC Roberts26 July 2012

b) Independent Non-Executive Directors

All Non-Executive Directors are paid fees for their services which are determined by the Board as a whole and reviewed against market levels on an annual basis. They are all on annual contracts which are reviewed each year; their signing dates were as follows:

NS Chapman26 July 2012
JPD Shearman26 July 2012

All Independent Non-Executive Directors have three-month notice periods (12 months in the event of a change in control) and no contractual termination payments.

Their remuneration is not performance related and is not pensionable. The only other payments made to them are mileage allowances at HMRC rates and expenses for items incurred during the fulfilment of their roles.

c) Performance graph

In accordance with the Directors' Remuneration Report Regulations 2002, the graph below shows Trifast's total shareholder return compared with the FTSE Fledgling Index and the FTSE All-Share Industrial Engineering Index for the last five years. The Board considers these Indices to be a fair measure of the Company's performance against its competitors.

Total shareholder return since 31 March 2008

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The Remuneration Report (including accompanying notes) was approved by the Board of Directors on 24 June 2013 and was signed on its behalf by:

Jonathan Shearman
Chairman, Remuneration Committee