TIDMECEL
RNS Number : 4105W
Eurocell plc
17 April 2019
PUBLICATION OF 2018 ANNUAL REPORT
AND NOTICE OF 2019 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:
-- 2018 Annual Report
-- Notice of 2019 Annual General Meeting
-- Form of Proxy for 2019 Annual General Meeting
The documents will shortly be available for inspection at
www.morningstar.co.uk/uk/NSM.
On 15 April 2019, 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 10 May 2019
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 2018 and their impact on the financial
statements were included in Eurocell plc's Preliminary Results
Announcement on 15 March 2019. That information together with the
information set out below, which is extracted from the Annual
Report for the year ended 31 December 2018, 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. Macroeconomic Conditions
Principal Risk and Impact:
Our 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.
Our private RMI business is strongly correlated to the level of
household disposable incomes. Our new build business is
particularly influenced by the level of activity in the house
building industry.
As such, our 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, investment in our
specifications team (targeting new build, commercial and public
sector work) and expanding the branch network.
-- We operate comfortably within the terms of our newly
refinanced bank facility and related financial covenants.
-- Reducing the pace of branch network expansion in 2018/19
should improve short-term profit and cash flows.
Risk Change in Reporting Period:
-- Increased political and economic uncertainty as a result of Brexit.
-- Construction output and general RMI market were broadly flat
in 2018. CPA now forecast a marginal pick up in both for 2019.
-- New home registrations continue to increase.
-- UK base rate was increased in 2017 and 2018, partly as a
result of increasing inflationary pressure.
2. Brexit
Principal Risk and Impact:
There remains significant uncertainty over the impact of
Brexit.
Risks related to the potential impact on macroeconomic
conditions are described above.
Almost all of our sales are to UK-based businesses.
In addition, the vast majority of our workforce will have the
right to remain and work in the UK post-Brexit.
However, some of our key raw materials originate in Europe, so
any disruption in supplies could impact on our ability to
manufacture our products and meet customer demand.
Mitigation:
Actions taken include:
-- 6-month resin supply agreement for H1 2019, to support
continuity of supply for our most critical raw material.
-- Some suppliers for other raw materials have agreed to hold
extra stocks (very limited capacity at our manufacturing
sites).
-- Finished goods stock build programme in progress for key lines where possible.
-- Selective credit insurance now in place.
Risk Change in Reporting Period:
-- Increased uncertainty over how/when/if Brexit will be implemented.
3. 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.
As described above (see Brexit risk), 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.
-- Spot market for resin often 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:
-- Brexit related supply risks increasing as described above.
-- Potential remains for increased resin supply originating from
the US to come on line and deliver into Europe.
4. Raw Material Prices
Principal Risk and Impact:
Our 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 raw material or traded goods
price increases to our customers.
-- Increasing the use of recycled material in our manufacturing
partially mitigates exposure to resin prices.
-- Resin supply contracts contain mechanisms to help mitigate some variations in price.
-- Use of more than one supplier to provide competitive pricing
for many raw materials and traded goods.
Risk Change in Reporting Period:
-- Raw material pricing pressures continued into 2018, largely
as a result of currency fluctuations and the impact of other
uncertainties surrounding Brexit.
5. Manufacturing Capacity Constraints
Principal Risk and Impact:
A requirement to run manufacturing facilities at high levels of
utilisation in peak periods (e.g. to meet customer demand) can
drive down Overall Equipment Effectiveness ('OEE') and result in
other operational inefficiencies.
Attempting to satisfy unexpectedly high demand without the
requisite infrastructure in place may lead to a failure of people,
systems and processes to perform.
Together these factors can result in adverse financial
consequences.
Mitigation:
-- Co-extrusion capacity increased by around 40% in 2018 (5 new
lines). Foam capacity increased by around 9% in 2018 (2 new
lines).
-- A further 5 co-extrusion and 3 foam lines to be added in 2019.
-- Recruitment of additional trained labour in our foiling plant.
-- Strengthened management team in critical areas of production planning and logistics.
-- End-to-end review of critical order fulfillment processes in progress.
Risk Change in Reporting Period:
-- Some of these risks crystalised in 2018, with aspects of the
mitigation (e.g. planned capital investment) currently in
progress.
6. Unplanned Plant Downtime
Principal Risk and Impact:
The business is dependent on the continued and uninterrupted
performance of our 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 (e.g. 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:
-- 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.
-- Group-wide disaster recovery plans in place.
Risk Change in Reporting Period:
-- Acquisition of Ecoplas has increased our recycling capacity
and reduced our reliance on a single recycling plant.
7. Unsuccessful Branch Network Expansion
Principal Risk and Impact:
We have invested significantly to expand the branch network over
the last 3 years.
The network, including new branches, may fail to reach the
required scale and profitability within an acceptable
timeframe.
Looking further forward, good new sites may become more
difficult to find.
Mitigation:
New Building Plastics management team progressing initiatives to
improve profitability:
-- More rigid pricing architecture.
-- Revised field sales and account management structure.
-- Drive to better stock availability and trials of new front-of-house and product displays.
-- Enhanced training to ensure all staff have the ability to sell the full range of products.
-- Profit improvement plan template for lowest performing branches.
-- Improved new site selection using location analysis tools.
Risk Change in Reporting Period:
-- Pace of expansion slowed in 2018 to allow focus on
consolidating existing estate, with more work to do in this area in
2019.
8. Ability to Attract and Retain Key Personnel and Highly Skilled Individuals
Principal Risk and Impact:
Our success depends inter alia, on the efforts and abilities of
certain key personnel and our ability to attract and retain such
people.
The senior team have significant experience in the relevant
sectors and markets and are expected to make an important
contribution to our growth and success.
Mitigation:
-- Clear strategic direction provides an attractive backdrop to working at Eurocell.
-- Market rate compensation for all personnel, including leadership team.
-- Equity-based long-term incentive plans in place for senior team.
Risk Change in Reporting Period:
-- Continued focus on improving employee engagement and
communication (e.g. new Group-wide Vision and Values launched in
2018.)
9. Shortages or Increased Cost of Appropriately Skilled Labour
Principal Risk and Impact:
We are subject to supply risks related to the availability and
cost of labour, both in our manufacturing operations and in our
branch business. Our headquarters are located in an area of
generally full employment.
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.
-- First SAYE share-save scheme launched for all personnel in
2017, with a second scheme introduced in 2018.
-- Progressing strategy to improve retention and recruitment,
leadership and development, employee engagement and
communication.
Risk Change in Reporting Period:
-- Third SAYE scheme planned for 2019
10. Customer Credit Risk
Principal Risk and Impact:
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.
-- Credit insurance implemented for large Profiles accounts from January 2019.
Risk Change in Reporting Period:
-- Increased economic uncertainty and falling consumer
confidence may lead to more business failures.
-- No material bad debts in 2018, but inherent risk remains.
11. Competitor Activity
Principal Risk and Impact:
We have 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:
-- We continued to gain market share in both divisions in 2018.
-- The more uncertain market environment may have weakened some of our competitors.
12. Corporate and Regulatory Risks
Principal Risk and Impact:
We may be adversely affected by the crystalisation of unexpected
corporate or regulatory risks. These could include health and
safety, data, reputational and environmental events, or other
legal, taxation and compliance matters.
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:
Recent developments widen the scope and increase the penalty
regime for breaches in these areas. For example:
-- Corporate Criminal Offence of Failure to Prevent the
Facilitation of Tax Evasion ('CCO') legislation came into force on
30 September 2017.
-- General Data Protection Regulations ('GDPR') came into effect in May 2018.
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).
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 and anti-malware used.
-- Network defences enhanced and wi-fi access controls improved in 2018.
-- Cyber awareness/IT security campaign introduced for all employees in 2018.
-- Financial crime protection and cyber liability insurance in place from January 2019.
Risk Change in Reporting Period:
-- This remains a high profile area and is receiving considerable management focus.
14. Failure to Develop New Products
Principal Risk and Impact:
Failure to innovate could reduce our growth potential or render
existing products obsolete.
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 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.
-- We have a strong product pipeline with more than 25 projects in development.
Risk Change in Reporting Period:
-- Recent successes include: Coastline (a lightweight composite
cladding for use on coastal properties), and extensions to the
Skypod range.
15. 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 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, system
risks 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.
-- Ecoplas and Kent Building Plastics acquired in 2018.
-- Tried and tested procedure for the integration of new
acquisitions and a good track record of recent success.
Risk Change in Reporting Period:
-- Significant value at stake with integration of and investment in Ecoplas.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
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.
Each of the Directors, whose names and functions are listed in
the Corporate Governance section on pages 42 and 43 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 14 March 2019.
Mark Kelly Michael Scott
Chief Executive Officer Chief Financial Officer
Enquiries:
Gerald Copley
Company Secretary
01773 842100
This information is provided by RNS, the news service of the
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END
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