Source - RNS
RNS Number : 0558H
Electrocomponents PLC
02 June 2017
 

ELECTROCOMPONENTS PLC

 

 

ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017

NOTICE OF 2017 ANNUAL GENERAL MEETING

 

Pursuant to Listing Rule 9.6.1R copies of the documents listed below have been submitted to the Financial Services Authority National Storage Mechanism and will shortly be available for viewing at: http://www.morningstar.co.uk/uk/NSM

 

·    Annual Report and Accounts for the year ended 31 March 2017 (2017 Annual Report and Accounts)

·    Circular and Notice of Annual General Meeting (Notice of AGM) to be held on 20 July 2017

·    Form of proxy for the Annual General Meeting (AGM) to be held on 20 July 2017

 

The 2017 Annual Report and Accounts and Notice of AGM, which includes explanatory notes on proposed resolutions, are also available in the Investor Relations section of the Electrocomponents plc website at: www.electrocomponents.com

 

 

IMPORTANT: EXPLANATORY NOTE AND WARNING

 

The primary purpose of this announcement is to inform the market about the publication of Electrocomponents plc's 2017 Annual Report and Accounts and Notice of Meeting.

 

The information below, which is extracted from the 2017 Annual Report and Accounts, is included solely for the purpose of complying with DTR 6.3.5R and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with Electrocomponents' Preliminary Results announcement issued on 23 May 2017. Together these constitute the material required by DTR 6.3.5R to be communicated in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full 2017 Annual Report and Accounts. Statutory accounts for 2017 are included in the 2017 Annual Report and Accounts, which will be delivered to the Registrar of Companies in due course. Page and note references in the text below relate to pages and notes in the 2017 Annual Report and Accounts. The preliminary announcement can be viewed or downloaded from the Investor Relation section of the Company's website www.electrocomponents.com.

 

 

LEI: 549300KVXDURRKVW7R37

 

 

Enquiries:

Ian Haslegrave, Company Secretary

 

Electrocomponents plc

01865 207491

Polly Elvin, Head of Investor Relations

& Corporate PR

 

Electrocomponents plc

07973 812481

David Allchurch / Martin Robinson

Tulchan Communications

020 7353 4200

 

 

 

 

 

APPENDIX

 

Pages and note references in the text below relate to pages and notes in the 2017 Annual Report and accounts.

 

 

MANAGING OUR RISKS (pages 25 to 27)

 

The Group has risk management and internal control processes to identify, assess and manage the risks likely to affect the achievement of its corporate objectives and business performance.

 

The risk management process

The risk management process is co-ordinated by the Group's risk team. The principal elements of the process are:

 

·     Identification: risks are identified through a variety of sources within the Group, including senior, regional and country management teams. The focus of the risk identification is on those risks which, if they occurred, would have a material quantitative or reputation impact on the Group.

·     Assessment: management identifies the controls for each risk and assesses (using consistent measures) the impact and likelihood of the risk occurring taking into account the effects of the existing controls (the net risk). This assessment is compared with the Group's risk appetite to determine whether further mitigating actions are required. This process is supplemented by an annual risk and controls assessment, which all operating locations and functions are required to complete.

·     Ownership: the Group's principal risks are owned by the Group's Executive Management Team (EMT) with specific mitigating actions/controls owned by individual members of the team.  The EMT collectively reviews the risk register, the controls and mitigating actions.

·     The Board: undertakes a robust review of the Group's Principal Risks (including those that could threaten its business model, future performance, solvency or liquidity) and assesses them against the Group's risk appetite. For a number of the principal risks, the Board requires management to present its analysis to the Board, including the gross risk, the mitigating controls and the assessment of the net risk after controls. This allows the Board to determine whether the actions taken by management are sufficient.

 

Going concern

The Directors, having made appropriate enquiries, have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future. These enquiries included a review of going concern assumptions half yearly through the Audit Committee. For this reason, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Group's accounts.

 

Viability statement

The Directors confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities, as they fall due, for the next three years to 31 March 2020.

 

The assessment period of three years has been chosen in line with the Group's strategic plan, which has a three-year horizon and is updated annually. The Group has few contracts with either customers or suppliers extending beyond three years and, in the main, contracts are within one year. The business operates with a minimal forward order book, generally taking orders and shipping them on the same day.

 

The assessment considered the Group operating profit, revenue, cash flows, net debt and key operating measures over the three-year period. These metrics were subject to material but plausible downside stress analysis, taking account of the principal risks set out on pages 26 and 27, with a focus on the possible effects on the Group as the UK government negotiates the UK's exit from the EU, how the Group responds to market shifts such as changes in customer demands and/or competitor activity, and the potential impact of volatility in foreign currency earnings. These risks could lead to a downturn in revenue or weakened margins or a combination of revenue decline and weaker margins. In assessing the potential impact of these scenarios, we considered our current robust capital position and ability to flex our cost base and working capital position and other actions to protect viability in adverse economic conditions.

 

In considering the likely effectiveness of such actions, the conclusions of the Board's regular monitoring and review of risk management internal control systems, as described on page 47, were taken into account. In addition to the risk mitigation plans, our business model is structured so that the Group is not reliant on one particular group of customers or geography, and has a very diverse customer base across our several geographies.

 

Our current robust capital position is supported by a review of the Group's funding facilities and banking covenants' headroom, through the Board's Treasury Committee. The Group's financial position, in particular cash flow, is also reviewed through monthly

management accounts and regular updates from the Group Finance Director and CEO to the Board. Details of the Group's sources of finance are outlined on page 118 with the earliest date of our facilities expiring being June 2017 in respect of $85 million of the Group's Private Placement loan notes. In making this statement regarding viability, the Directors have also made the key assumption that the remaining sources of funding will continue to be available throughout the three-year period to 31 March 2020.

 

Risk appetite

In accordance with the UK Corporate Governance Code, the Board defined its risk appetite across three risk categories: strategic, operating and regulatory/compliance. These three categories use both quantitative and qualitative criteria. During the year ended 31 March 2017, the Board reviewed again its risk appetite across the three categories with no significant changes being made.

 

Principal risks and uncertainties

 

Risk direction definition

           The risk is likely to increase within the next 12 months

          The risk is likely to remain stable within the next 12 months

           The risk is likely to reduce within the next 12 months

 

 


Risk description

Risk direction

Mitigating activities


Strategic risks



 

A

Consequences on the organisation of the UK exit from the EU

This includes the risk to the Group's supply chain activities across the UK and the EU including possible changes to customs duties and tariffs (around 80% of our purchases for the global RS brand are routed through the UK to serve our global customer base). Other related risks include migration of employees and potential impact with changes to existing legislation.

 

 

Possible implications not fully defined and dependent on national negotiations with effects from 2019 onwards

·      A Group risk assessment was undertaken in advance of the UK referendum, which led to reviews across business areas that would be affected by a UK exit and any subsequent changes to the UK/ EU and UK/worldwide trading agreements.

·      Across Electrocomponents these reviews include: understanding the potential impacts on the Group's global supply chain infrastructure, including the transport of products between the UK and EU; and group purchasing arrangements both within and outside the EU. Other areas that are being, and will be, considered in the future include: employee mobility, treasury management and indirect taxation.

·      A specific team, headed by the Group Finance Director, will continue to monitor the possible effects on, and mitigating actions open to, the Group as the UK government negotiates the UK's exit from the EU.

 

B

Fail to respond to strategic market shifts e.g. changes in customer demands and/or competitor activity

Unforeseen changes in customer and market assumptions that the Group performance plans are based upon.

 

 

No significant high- service level competitor changes anticipated

·      Monitoring of market developments.

·      Ongoing strategic and market reviews by the Board and EMT.

·      Annual strategic planning process including the assessment of external market changes.

·      Ongoing review of the competitive environment.

 

C

Performance Improvement Plan (PIP) does not deliver anticipated revenue growth and cost savings

This risk could lead to lower than forecast financial performance both in terms of revenue growth and cost savings with changes required to Group plans.

 

 

Current plans and actions delivering sales and reduced costs

·      Prioritised set of proposals and projects, including sales growth initiatives and supporting activities across shared business services and our supply chain infrastructure, focussed on 'getting the basics right' for our customers.

·      Governance structure with accountabilities designed to support delivery on time and budget, within our resources and capabilities.


Compliance  risks

D

Failure to comply with international and local legal/regulatory requirements

Failure to manage these collective risks adequately could lead to:

·      death or serious injury of an employee or third party, and/or

·      penalties for non-compliance in health and safety or other compliance areas

 

 

No significant changes to new or existing legislation

·      Employment of internal specialist expertise, supported, where needed, by suitably qualified/experienced external partners.

·      Ongoing reviews of relevant national and international compliance requirements.

·      Training and awareness programmes in place focussing on anti-bribery, competition and data protection legislation.

·      Global whilstleblowing hotline managed by an independent third party providing employees with a process to raise non-compliance issues.

·      Operational Audit reviews of capabilities to ensure compliance with local requirements.

·      Global Health and Safety policy, Target Zero accidents initiative with regular reviews undertaken by the EMT and Board.

·      Local health and safety forums in place with the Head of Global Health and Safety and Environment.

·      Real-time monitoring of customer orders to ensure compliance with international trade control regulations.

 


Risk description

Risk direction

Mitigating activities


Operational risks



E

Failure in supply chain infrastructure

An unplanned event disrupting the business's supply chain, impacting the Group's ability to maintain customer service.

 

  ↔

 

No changes to the Group's supply chain infrastructure

·      Business continuity plans in place at operating locations.

·      Annual tests undertaken at key warehouse, sales and back office locations.

F

Prolonged system outage

The loss of a core transactional system resulting in the business being unable to serve customers.

 

  ↔

 

No significant changes to the Group's IT infrastructure

·      Resilient IT systems infrastructure featuring operating redundancies and off-site disaster recovery.

·      Strict control over upgrades to core transaction systems and other applications.

·      Recent migration of core transaction systems to an upgraded data centre.

G

Information loss/cyber breach

An attack on the business's systems/data could lead to potential loss of confidential information and disrupt the business's transactions with customers (including the transactional website) and transactions with suppliers.

 

  ↑

 

Increasing frequency and sophistication of cyberattacks on businesses

·      Anti-virus software to protect business PCs and laptops.

·      Procedures to update supplier security patches to servers and clients.

·      Software scanning of incoming emails for known viruses.

·      Firewalls to protect against malicious attempts to penetrate the business IT environment.

·      IT control reviews to consider the security implications of IT changes.

·      Security reviews with selected third-party vendors.

·      Computer emergency readiness team (CERT) to track software vulnerabilities.

H

UK Defined Benefit pension scheme cash requirements are in excess of cash available

The company is required to contribute increased cash sums to the UK Defined Benefit pension scheme.

 

  ↔

 

No significant changes to related financial  and other assumptions anticipated

·      Quarterly reviews of the pension scheme funding position.

·      Regular interaction with the pension scheme trustees.

·      Joint trustee/company working group to review investment strategy.

·      Consultation with scheme members on future individual funding options for defined benefit scheme.

I

People resources unable to support the existing and future growth of the business

The business is not able to attract and retain the necessary high-performing employees to ensure that the business achieves its targeted performance.

 

  ↔

 

No significant changes to the supply and retention of quality employees

·      Development of existing employee competencies, and the introduction of external expertise where appropriate.

·      Annual employee appraisal processes to align personal objectives with the Group's PIP.

J

Macroeconomic environment deteriorates

The Group's sales and hence profits are adversely affected by any decline in the global macroeconomic environment with other associated effects such as foreign exchange volatility.

 

  ↔

 

Economic indicators currently showing no significant change in the global outlook

·      Strong cash generative business.

·      Strong balance sheet.

·      Significant headroom maintained on banking covenants and facilities.

·      Relevant cash flow foreign exchange hedging for business trading purposes.

·      Tight cost management and control of stock.

 

 

RELATED PARTIES (page 126)

 

The Company has a related party relationship with its subsidiaries as disclosed in note 17 to the Group accounts and with its key management personnel. The key management personnel of the Group are the Directors and the Executive Management Team. Compensation of key management personnel was:

2016

£m

Remuneration

5.4

4.1

Termination payments

0.3

0.6

Social security costs

0.7

0.5

Equity-settled transactions

2.6

1.7

Pension costs

0.4

0.5


9.4

7.4

 

Details of transactions with the jointly controlled entity are given in note 17 to the Group accounts [and set out below].

 

(† Footnote to Note 17 on page 110)

† RS Components & Controls (India) Limited (RSCC) is a jointly controlled entity with Controls & Switchgear Company Limited, a company registered in India. The authorised share capital of this company is INR20 million, of which INR18 million is issued and owned in equal shares by Electrocomponents UK Limited and its partner. RS Components Limited supplies products to RSCC, while office space and distribution network are provided by Controls & Switchgear. During the year ended 31 March 2017 the Group made sales of L1.4 million (2016: L1.0 million) to RSCC. RSCC is accounted for using the equity accounting method.

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES (page 72)

 

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

 

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group and company for that period. In preparing the financial statements, the directors are required to:

 

·     select suitable accounting policies and then apply them consistently;

·     state whether applicable IFRSs as adopted by the European Union have been followed for the group financial statements and United Kingdom Accounting Standards, comprising FRS 102, have been followed for the company financial statements, subject to any material departures disclosed and explained in the financial statements;

·     make judgements and accounting estimates that are reasonable and prudent; and

·     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue in business.

 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group and company's transactions and disclose with reasonable accuracy at any time the financial position of the group and company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

 

The directors are also responsible for safeguarding the assets of the group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The directors are responsible for the maintenance and integrity of the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

The directors consider that 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 and company's performance, business model and strategy.

 

Each of the directors, whose names and functions are listed on pages 34 to 36 confirm that, to the best of their knowledge:

 

·     the company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the company;

·     the group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the group; and

·     the Strategic Report includes a fair review of the development and performance of the business and the position of the group and company, together with a description of the principal risks and uncertainties that it faces.

 

In the case of each director in office at the date the Directors' Report is approved:

 

·     so far as the director is aware, there is no relevant audit information of which the group and company's auditors are unaware; and

·     they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the group and company's auditors are aware of that information.

 

 

By order of the Board

 

 

Lindsley Ruth                          David Egan

Chief Executive Officer           Group Finance Director

 

 

SAFE HARBOUR

This financial report contains certain statements, statistics and projections that are or may be forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial position, strategy, projected costs, plans and objectives for the management of future operations of Electrocomponents plc and its subsidiaries is not warranted or guaranteed. These statements typically contain words such as "intends", "expects", "anticipates", "estimates" and words of similar import. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Although Electrocomponents plc believes that the expectations reflected in such statements are reasonable, no assurance can be given that such expectations will prove to be correct. There are a number of factors, which may be beyond the control of Electrocomponents plc, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. Other than as required by applicable law or the applicable rules of any exchange on which our securities may be listed, Electrocomponents plc has no intention or obligation to update forward-looking statements contained herein.


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