TIDMECEL
RNS Number : 3913L
Eurocell plc
19 April 2018
PUBLICATION OF 2017 ANNUAL REPORT
AND NOTICE OF 2018 ANNUAL GENERAL MEETING
Eurocell plc announces that, in accordance with LR 9.6.1R of the
Listing Rules, it has submitted to the Financial Conduct
Authority's National Storage Mechanism copies of the following:
-- 2017 Annual Report
-- Notice of 2018 Annual General Meeting
-- Form of Proxy for 2018 Annual General Meeting
The documents will shortly be available for inspection at
www.morningstar.co.uk/uk/NSM.
On 18 April 2018, the Annual Report, Notice of Annual General
Meeting and Form of Proxy were mailed to the registered
shareholders of Eurocell plc. The documents are also available on
the Eurocell plc website at investors.eurocell.co.uk.
The Annual General Meeting will be held at noon on 18 May 2018
at: Fairbrook House, Clover Nook Road, Alfreton, Derbyshire, DE55
4RF.
A condensed set of the Group's financial statements and
information on important events that occurred during the financial
year ended 31 December 2017 and their impact on the financial
statements were included in Eurocell plc's Preliminary Results
Announcement on 9 March 2018. That information together with the
information set out below, which is extracted from the Annual
Report for the year ended 31 December 2017, constitute the material
required by DTR 6.3.5 of the Disclosure Guidance and Transparency
Rules which is required to be communicated to the media in full
unedited text through a Regulatory Information Service.
This announcement is not a substitute for reading the full
Annual Report. To view the Annual Report, the Preliminary Results
Announcement and the associated investor presentation, please visit
investors.eurocell.co.uk
PRINCIPAL RISKS
1. Macro-Economic Conditions
Principal Risk and Impact: The Group's products are used in the
residential and commercial building and construction markets, both
within the RMI sector, for new residential housing developments and
for new construction projects.
The Group's private RMI business is strongly correlated to the
level of household disposable incomes. The Group's new build
business is particularly influenced by the level of activity in the
house building industry.
As such, the Group's business and ability to fund ongoing
operations is dependent on the level of activity and market demand
in these sectors, itself often a function of general economic
conditions (including interest rates and inflation) in the UK.
Mitigation:
-- Notwithstanding macro conditions, we expect our strategic
priorities and self-help initiatives to support sales and market
share growth.
-- Initiatives include: growing market share to exploit spare
manufacturing capacity, investment in our specifications team
(targeting new build, commercial and public sector work) and
expanding the branch network.
-- We currently operate comfortably within the terms of our
existing bank facility and related financial covenants.
Risk Change in Reporting Period:
-- Perception of increased political and economic uncertainty
following UK 2017 General Election.
-- The general RMI market is currently subdued.
-- Specific markets for our products are broadly flat at present.
-- The UK base rate was increased in November 2017, the first
increase in ten years, partly as a result of increasing
inflationary pressures.
-- Reducing the pace of branch network expansion can improve short-term profit and cash flows.
2. EU Referendum
Principal Risk and Impact: There remains significant uncertainty
over how the economic landscape will be affected by the Referendum
result.
This in turn could impact on our ability to grow the business
(e.g. due to economic uncertainty) and/or the cost of our raw
materials (see Raw Material Prices).
Mitigation:
-- Strategic priorities and self-help initiatives noted above.
-- Flexible plans with the ability to adapt if circumstances
change (e.g. curtail investment in the short term to protect the
business).
Risk Change in Reporting Period:
-- Brexit negotiations on-going, but perception of increasing
uncertainty as to the terms under which the UK will leave the
EU.
3. Raw Material Prices
Principal Risk and Impact: The Group's manufacturing operations
depend on the supply of PVC resin, a material derivative of
ethylene which in turn is a derivative of crude oil.
The price of PVC resin can therefore be subject to fluctuations
based on the markets for crude oil and ethylene, as well as the
market for resin itself. In addition, although we pay for resin in
sterling, crude oil and ethylene are priced in US Dollars and Euros
respectively. As such, the price of resin in sterling is also
impacted by international currency markets.
Our ability to pass on resin and other raw material or traded
goods price increases to our customers will depend on market
conditions at the time.
Mitigation:
-- Where possible we pass through resin price increases to our customers.
-- Increased use of recycled material in our manufacturing.
-- Use of more than one supplier to provide competitive pricing.
-- Resin supply contracts contain mechanisms to help mitigate some variations in price.
Risk Change in Reporting Period:
-- Resin and other raw material prices increased significantly
in 2017, primarily due to the weakness in Sterling.
-- Partially mitigated with selling price uplifts, increased use
of recycled material and manufacturing efficiencies.
-- There may be further raw material pricing pressure in 2018.
4. Raw Material Supply
Principal Risk and Impact: There are only a limited number of
PVC resin and certain other raw material suppliers and we operate
with limited material storage capacity.
Failure to receive raw materials on a timely basis could impact
on our ability to manufacture products and meet customer
demand.
Mitigation:
-- Raw material tests to identify potential alternative suppliers are on-going.
-- Spot market for resin available to access.
-- Contractual arrangements for certain key suppliers include
liquidated damages for failure to supply.
-- Regular reviews to test financial stability of key suppliers.
Risk Change in Reporting Period:
-- Lower global production and supply into Europe of PVC resin
contributed to increasing prices in 2017.
-- New US capacity expected to come on line in 2018 and beyond,
potentially increasing supplies into Europe.
-- Competitive resin sourcing introduced for 2017.
5. Unplanned Plant Downtime
Principal Risk and Impact: The business is dependent on the
continued and uninterrupted performance of its production
facilities.
Each of the facilities is subject to operating risks, such as
industrial accidents (including fire); extended power outages;
withdrawal of permits and licences (particularly in the context of
the regulated operation of the recycling facility); breakdowns in
machinery; equipment or information systems; prolonged maintenance
activity; strikes; natural disasters and other unforeseen
events.
Mitigation:
-- We have meaningful spare manufacturing capacity.
-- Regular planned maintenance to reduce the risk of plant failure.
-- Maintenance capital investment of approximately GBP5 million per annum across the Group.
-- Extrusion facilities spread over 3 manufacturing sites.
Risk Change in Reporting Period:
-- Group-wide disaster recovery plans reviewed and updated in 2017.
-- Capital investment in the recycling plant of GBP1.8 million
in 2016/17 to increase capacity and eliminate bottlenecks.
-- Successful project in 2017 to increase raw material feedstock for the recycling plant.
6. Corporate and Regulatory Risks
Principal Risk and Impact: We may be adversely affected by
unexpected corporate or regulatory risks. This could include health
and safety, reputational and environmental events, or other legal
and compliance matters.
Enacted or soon to be enacted increases in the penalty regime
have increased the potential financial impact of breaches or
incidents in many cases.
These areas are receiving additional management focus, but the
impact of the underlying risk has been increasing of late.
Mitigation:
-- We have procedures and policies in place to support compliance with regulations.
-- Regular communication and training on policy compliance.
-- Monitoring procedures in place, including near miss and
potential hazard reporting for health and safety matters.
-- Internal and third-party site audits to test compliance with our policies.
Risk Change in Reporting Period:
-- Health and safety continues to be high-profile risk area.
-- New position of Group Quality Manager in post mid-2017, with
specific focus on driving improvements in health and safety
behaviours.
-- General Data Protection Regulations ('GDPR') come into force
in May 2018, with increased compliance requirements and higher
penalties for breaches.
7. Unsuccessful Branch Openings
Principal Risk and Impact: The Group has invested in expanding
the branch network over the last two years.
Good new sites may become more difficult to find.
New branches may fail to reach the required scale and therefore
deliver the required sales and profitability within an acceptable
timeframe.
Mitigation:
-- Large portfolio of potential new sites, prioritised based on
detailed research into areas most likely to be successful.
-- Trials of reduced start-up costs in new branches in progress.
Risk Change in Reporting Period:
-- Significant acceleration of the network expansion, with 18
new sites in 2016 and 31 opened in 2017.
-- More to do on consolidating the existing estate, completing
the work to reduce break-even times and maximise sales of
high-value products.
8. Customer Credit Risk
Principal Risk and Impact: We do not insure our receivables, so
there is an inherent risk that default by a large customer could
result in a material bad debt.
Mitigation:
-- In-depth credit review for new and ongoing customer accounts.
-- Experienced Credit Manager (over 15 years with the Group) and strong credit control team.
Risk Change in Reporting Period:
-- Increased economic uncertainty and falling consumer
confidence may lead to more business failures.
-- No material bad debts in 2017, but inherent risk remains.
9. Competitor Activity
Principal Risk and Impact: The Group has a number of existing
competitors who compete on range, price, quality and service.
Increased competition could reduce volumes and margins on
manufactured and traded products.
Mitigation:
-- Strong market and customer awareness, with good intelligence around competitor activity.
-- Focus on customer proposition and points of differentiation in product and service offering.
Risk Change in Reporting Period:
-- The Group has continued to gain market share in both divisions.
-- The more uncertain market environment has potentially weakened some of our key competitors.
10. Failure to Develop New Products
Principal Risk and Impact: Failure to innovate could reduce our
growth potential, render existing products obsolete and cause a
reduction in market share.
The launch of new products and new variants of existing products
is an inherently uncertain process. We cannot guarantee that we
will continuously develop successful new products or new variants
of existing products.
Nor can we predict how customers and end-users will react to
such new products or how successful our competitors will be in
developing products which are more attractive than ours.
Mitigation:
-- We invest continuously in research and development through our in-house team.
-- The team is highly focused on new ways to develop existing
products and to be innovative with new ones.
Risk Change in Reporting Period:
-- Recent successes include new products to support off-site
home construction, an improved PVC bi-fold door alongside the
introduction of an aluminium bi-fold door offering, a new
sheet-tile roof system and improvements to the Modus and Skypod
ranges.
-- We also have a strong product pipeline with more than 25 projects in development.
11. Ability to Attract and Retain Key Personnel and Highly
Skilled Individuals
Principal Risk and Impact: The Group's success depends inter
alia, on the efforts and abilities of certain key personnel and its
ability to attract and retain such personnel.
The Executive Directors and senior managers have significant
experience in the relevant sectors and capital markets and are
expected to make an important contribution to the Group's growth
and success.
Mitigation:
-- Market rate compensation for all personnel, including leadership team.
-- Clear strategic direction provides attractive backdrop to working at Eurocell.
Risk Change in Reporting Period:
-- Recent introduction for senior team of long-term incentive
plans and adjustments to fixed/variable compensation to support
high retention rate.
12. Shortages or Increased Costs of Appropriately Skilled
Labour
Principal Risk and Impact: The Group is subject to supply risks
related to the availability and cost of labour, particularly in our
branch business. We may also experience labour cost increases
(including those related to the Minimum Wage) or disruptions in
circumstances where we have to compete for employees with the
necessary skills and experience in tight labour markets.
Mitigation:
-- Market level or better salaries and good benefits package.
-- Induction and training programme.
Risk Change in Reporting Period:
-- New Group HR Director (appointed in 2017) designing strategy
to improve retention and recruitment, leadership and development,
employee engagement and communication.
-- Reducing churn rate in our branch business is a primary objective of the new strategy.
-- SAYE scheme launched for all personnel in 2017.
13. Cyber Security
Principal Risk and Impact: A breach of IT security (externally
or internally) could result in an inability to operate systems
effectively (e.g. viruses) or the release of inappropriate
information (e.g. hackers).
This remains a high profile area and is receiving considerable
management focus.
Mitigation:
-- Physical security of servers at third-party off-site data
centre with full disaster recovery capability.
-- Password and safe use policies in place.
-- Internet usage monitored.
-- Anti-malware regularly used.
Risk Change in Reporting Period:
-- Network defences enhanced and Wi-Fi access controls improved in 2017.
-- Cyber awareness campaign and promotion of IT security
policies introduced for all employees early in 2018.
14. Failure to Identify, Complete and Integrate Bolt-on
Acquisitions
Principal Risk and Impact: Exploring potential bolt-on
acquisitions is one of our strategic priorities.
We may not be able to identify appropriate bolt-on
acquisitions.
Any future acquisition we do make poses integration and other
risks which may significantly affect our results or operations.
The acquisition and integration of companies is a complex,
costly and time-consuming process involving a number of possible
risks. These include diversion of management attention, failure to
retain personnel, failure to maintain customer service levels,
disruption to relationships with various third parties and
unanticipated liabilities.
Mitigation:
-- Public communication of bolt-on acquisitions being a strategic priority.
-- Good knowledge of companies operating in our sector and related sectors.
-- We have a tried and tested procedure for the integration of
new acquisitions and a good track record of recent success.
Risk Change in Reporting Period:
-- Acquisition and integration of Security Hardware now substantially complete.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
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 101 "Reduced
Disclosure Framework", 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 101, 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.
-- 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.
The Directors who held office at the date of approval of this
Directors' Report 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 101
"Reduced Disclosure Framework", and applicable law), give a true
and fair view of the assets, liabilities, financial position and
loss 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.
-- 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.
The Directors' Responsibility Statement was approved by the
Board on 8 March 2018.
Enquiries:
Gerald Copley
Company Secretary
01773 842100
This information is provided by RNS
The company news service from the London Stock Exchange
END
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