TIDMECM
RNS Number : 0558H
Electrocomponents PLC
02 June 2017
ELECTROCOMPONENTS PLC
ANNUAL REPORT AND ACCOUNTS FOR THE YEARED 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 Electrocomponents
Secretary plc 01865 207491
Polly Elvin, Head of
Investor Relations Electrocomponents
& Corporate PR plc 07973 812481
David Allchurch / Martin 020 7353
Robinson Tulchan Communications 4200
APPIX
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
The Group has identified ten principal risks, which are similar
to those disclosed last year, with the only changes being the
developing of some already identified risks, e.g. the risk
associated with the UK exit from the EU following the UK referendum
result on 23 June 2016. The Group's principal risks are categorised
under one of three headings: strategic (see the Group's Strategy on
page 8), compliance and operating risks (see the Business Model on
page 6). These categories mirror those used by the Group to assess
its risk appetite.
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
------ ------------------------------------------------------------ -------------- -----------------------------------------------------------
Consequences
A on the organisation * A Group risk assessment was undertaken in advance of
of the UK exit the UK referendum, which led to reviews across
from the EU Possible business areas that would be affected by a UK exit
This includes implications and any subsequent changes to the UK/ EU and
the risk to the not fully UK/worldwide trading agreements.
Group's supply defined
chain activities and
across the UK dependent * Across Electrocomponents these reviews include:
and the EU including on national understanding the potential impacts on the Group's
possible changes negotiations global supply chain infrastructure, including the
to customs duties with effects transport of products between the UK and EU; and
and tariffs (around from 2019 group purchasing arrangements both within and outside
80% of our purchases onwards the EU. Other areas that are being, and will be,
for the global considered in the future include: employee mobility,
RS brand are treasury management and indirect taxation.
routed through
the UK to serve
our global customer * A specific team, headed by the Group Finance Director
base). Other ,
related risks will continue to monitor the possible effects on, and
include migration mitigating actions open to, the Group as the UK
of employees government negotiates the UK's exit from the EU.
and potential
impact with changes
to existing legislation.
====== ============================================================ ============== ===========================================================
Fail to respond
B to strategic * Monitoring of market developments.
market shifts
e.g. changes No
in customer demands significant * Ongoing strategic and market reviews by the Board and
and/or competitor high- EMT.
activity service
Unforeseen changes level
in customer and competitor * Annual strategic planning process including the
market assumptions changes assessment of external market changes.
that the Group anticipated
performance plans
are based upon. * Ongoing review of the competitive environment.
====== ============================================================ ============== ===========================================================
Performance Improvement
C Plan (PIP) does * Prioritised set of proposals and projects, including
not deliver anticipated sales growth initiatives and supporting activities
revenue growth Current across shared business services and our supply chain
and cost savings plans and infrastructure, focussed on 'getting the basics
This risk could actions right' for our customers.
lead to lower delivering
than forecast sales and
financial performance reduced * Governance structure with accountabilities designed
both in terms costs to support delivery on time and budget, within our
of revenue growth resources and capabilities.
and cost savings
with changes
required to Group
plans.
------ ------------------------------------------------------------ -------------- -----------------------------------------------------------
Compliance risks
------ -----------------------------------------------------------------------------------------------------------------------------------------
D Failure to comply
with international * Employment of internal specialist expertise,
and local legal/regulatory supported, where needed, by suitably
requirements No qualified/experienced external partners.
Failure to manage significant
these collective changes
risks adequately to new * Ongoing reviews of relevant national and
could lead to: or existing international compliance requirements.
* death or serious injury of an employee or third party, legislation
and/or
* Training and awareness programmes in place focussing
on anti-bribery, competition and data protection
* penalties for non-compliance in health and safety or legislation.
other compliance areas
* 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 * Business continuity plans in place at operating
An unplanned locations.
event disrupting No changes
the business's to the
supply chain, Group's * Annual tests undertaken at key warehouse, sales and
impacting the supply back office locations.
Group's ability chain infrastructure
to maintain customer
service.
---- ------------------------- ---------------------- ------------------------------------------------------------
F Prolonged system
outage * Resilient IT systems infrastructure featuring
The loss of a operating redundancies and off-site disaster
core transactional No significant recovery.
system resulting changes
in the business to the
being unable Group's * Strict control over upgrades to core transaction
to serve customers. IT infrastructure systems and other applications.
* Recent migration of core transaction systems to an
upgraded data centre.
---- ------------------------- ---------------------- ------------------------------------------------------------
G Information loss/cyber
breach * Anti-virus software to protect business PCs and
An attack on laptops.
the business's Increasing
systems/data frequency
could lead to and sophistication * Procedures to update supplier security patches to
potential loss of cyberattacks servers and clients.
of confidential on businesses
information and
disrupt the business's * Software scanning of incoming emails for known
transactions viruses.
with customers
(including the
transactional * Firewalls to protect against malicious attempts to
website) and penetrate the business IT environment.
transactions
with suppliers.
* 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 * Quarterly reviews of the pension scheme funding
cash requirements position.
are in excess No significant
of cash available changes
The company is to related * Regular interaction with the pension scheme trustees.
required to contribute financial
increased cash and other
sums to the UK assumptions * Joint trustee/company working group to review
Defined Benefit anticipated investment strategy.
pension scheme.
* Consultation with scheme members on future individual
funding options for defined benefit scheme.
---- ------------------------- ---------------------- ------------------------------------------------------------
I People resources
unable to support * Development of existing employee competencies, and
the existing the introduction of external expertise where
and future growth No significant appropriate.
of the business changes
The business to the
is not able to supply * Annual employee appraisal processes to align personal
attract and retain and retention objectives with the Group's PIP.
the necessary of quality
high-performing employees
employees to
ensure that the
business achieves
its targeted
performance.
---- ------------------------- ---------------------- ------------------------------------------------------------
J Macroeconomic
environment deteriorates * Strong cash generative business.
The Group's sales
and hence profits Economic
are adversely indicators * Strong balance sheet.
affected by any currently
decline in the showing
global macroeconomic no significant * Significant headroom maintained on banking covenants
environment with change and facilities.
other associated in the
effects such global
as foreign exchange outlook * Relevant cash flow foreign exchange hedging for
volatility. 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
GBPm
---------------------------- --- -----
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.
This information is provided by RNS
The company news service from the London Stock Exchange
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