Annual Financial Report

RNS Number : 3258Q

Electrocomponents PLC

16 June 2015

 

ELECTROCOMPONENTS PLC 

ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2015

NOTICE OF 2015 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 2015 (2015 Annual Report and Accounts)

·    Circular and Notice of Annual General Meeting (Notice of AGM) to be held on 23 July 2015

·    Form of proxy for the Annual General Meeting (AGM) to be held on 23 July 2015

The 2015 Annual Report and Accounts and Notice of AGM, which includes explanatory notes on proposed resolutions, are also available from today on the Electrocomponents plc website at: http://electrocomponents.annualreport2015.com

IMPORTANT: EXPLANATORY NOTE AND WARNING

The primary purpose of this announcement is to inform the market about the publication of Electrocomponents plc's 2015 Annual Report and Accounts.

The information below, which is extracted from the 2015 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 21 May 2015. 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 2015 Annual Report and Accounts. Statutory accounts for 2015 are included in the 2015 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 2015 Annual Report and Accounts. The preliminary announcement can be viewed or downloaded from the Company's website www.electrocomponents.com.

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

RELATED PARTIES

The Company has a related party relationship with its subsidiaries as disclosed in note 16 on page 122 to the Group accounts and with its key management personnel. The key management personnel of the Group are the Directors and the Group Executive Committee. Compensation of key management personnel was:

	2015 £m	2014 £m
Remuneration	3.2	2.8
Termination payments	0.9	-
Social security costs	0.6	0.3
Equity-settled transactions	0.7	0.9
Pension costs	0.6	0.6
	6.0	4.6

Details of transactions with the jointly controlled entity are given in note 16 on page 122 to the Group accounts.

RS Components & Controls (India) Limited (RSCC) is a joint arrangement with Controls & Switchgear Company Limited, a company registered in India. The authorised share capital of this company is INR20m, of which INR18m 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 2015 the Group made sales of £0.8m (2014: £0.7m) to RSCC. RSCC is accounted for using the equity accounting method.

PRINCIPAL RISKS AND UNCERTAINTIES

The Group has well-established risk management and internal control processes for the identification, assessment and management of strategic, operational, and financial and compliance risks likely to affect the achievement of the Group's corporate objectives and business performance.

The risk management process

The Board has overall responsibility for the risk management process, with the effectiveness of the process being reviewed annually through the Audit Committee. The Group Executive Committee (GEC) is accountable for the identification and management of risks and their mitigation to the achievement of corporate objectives.

The GEC conducts a formal review of the potential risks to the Group's strategic objectives and operational functions at the start of the financial year. This review prioritises the risks relative to the Group's risk tolerance limits, and allocates responsibility for their management.

The Board's review of the principal risks requires the responsible management to present its analysis of the risk to the Board, including the mitigating controls and the assessment of the residual risk relative to the inherent risk exposure. This mechanism allows the Board to determine whether the analysis provides assurance that the actions taken by management are sufficient to mitigate the risk.

The Group applies a common risk assessment approach to the identification, assessment and management of risks. This includes common measures of impact and likelihood, and the requirement to determine whether the residual risks are acceptable given mitigating actions or whether additional actions are required. This consistency of approach provides for consistent analysis and reporting of new or developing risks throughout the management line.

The major markets of the UK, USA, France, Germany and China undertake biannual risk reviews which include the review of Group principal risks and additional country-specific risks. All other operational businesses complete an annual risk and controls self-assessment. Both approaches feed into the Group's risk profile that is reviewed by the GEC and the Audit Committee as part of the annual risk review. The outputs from the process are factored into the audit plan to focus audit testing on the key controls in the business.

Principal risks and uncertainties

The following tables present the principal risks to the achievement of the Group's strategic objectives through the process described above.

Each principal risk is presented with an assessment of their residual risk which is reviewed by the Board and GEC, with a description of the risk and the principal mitigating activities in place. Each of these risks is allocated to a GEC level risk owner, who, as described above, can be required to present the risk to the Board if required.

Delivery of the Group strategy (A) (Risk Increasing)

Impact

The Group's strategic objectives require close management and co-ordination to be delivered effectively.

The risk is that the Group's resources and capabilities may be challenged by the scale and complexity of what is required.  Particular risks include insufficient internal expertise, competition for key resources and unanticipated interdependencies or events disrupting programmedelivery.

Key mitigations

·     Clearly defined business objectives and strategic priorities

·     Timely recruitment of a successor to the Group Chief Executive with strong international and sector experience

·     Annual strategic planning process assessing how projects are delivered and prioritising resource allocation to ensure successful delivery

Macroeconomic conditions (B) (Risk stable)

Impact

Global economic conditions remain unstable and vulnerable to major shocks such as a further banking crisis or sovereign debt defaults. The Group's sales and profits could be exposed by a worsening of global economic conditions and a loss of business confidence.

Key mitigations

·     Strongly cash generative business

·     Significant headroom maintained on banking covenants and facilities

·     Strong balance sheet

·     Tight cost management and control of stock

Long-term strategic market shifts (C) (Risk stable)

Impact

Fundamental shifts in the external environment challenge key assumptions upon which the Group strategy is based. The risk relates to the forward looking analysis of the future environment and the implications of market or structural shifts for the strategy and its delivery.

Key mitigations

·     Annual strategic planning process to assess external market changes

·     Strategy functions in place to monitor and review challenges to strategic assumptions, e.g. applying scenario analysis to review risks

·     Strategic reviews with Board and GEC

Increasing competition (D) (Risk increasing)

Impact

New and existing competitors have a negative impact on our growth strategy by closing the service gap and offering improved service standards and value propositions.

Key mitigations

·     Ongoing review of the competitive environment and developing threats

·     Dynamic pricing strategy

·     Range globalisation

·     Maintaining high service level globally through the use of customer surveys

Customer acquisition (E) (Risk decreasing)

Impact

The business does not attract sufficient numbers of new customers, and is unable to develop new and existing customer behaviour to increase order frequency at a sustained level to meet strategic objectives.

Key mitigations

·     Multi-channel marketing acquisition and development campaigns to increase customer spend

·     Joint sales and marketing programmes to reduce customer lapse rates and increase Average Order Frequency (AOF)

·     Investment in web and social media to build brand awareness

Recruitment and retention (F) (Risk stable)

Impact

The business is unable to attract and retain high performing employees which could impact the capability to deliver the Group strategy as well as maintaining day-to-day operations.

Key mitigations

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

·     Employee appraisal processes to align personal objectives with the Group strategy

·     Employee engagement programmes built around global behaviours to support high performance

Health and safety compliance (G) (Risk stable)

Impact

Failure to comply with local health and safety regulations leads to the death or serious injury of an employee or third party. There is a risk of significant financial penalty and/or imprisonment of Directors and senior managers.

Key mitigations

·     Global health and safety performance targets set with regular reviews undertaken by the GEC and Board

·     Head of Global Health and Safety leading the development and implementation of Group health and safety strategy

Pension cost increases (H) (Risk increasing)

Impact

There is an increase in scheme liabilities and a reduction in the value of assets of the UK defined benefit pension scheme.

The risk is that the Company is required to contribute increased cash sums to address the scheme deficit, which increases the costs on the income statement.

Key mitigations

·     Quarterly reviews of the pension scheme funding position

·     Joint Trustee/Company working group to review investment strategy

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

Effective management of the range (I) (Risk stable)

Impact

The ongoing development of the range with shortening product life cycles potentially increases the exposure of the business to higher levels of stock obsolescence as well as operational capacity constraints.

Key mitigations

·     Range globalisation project to drive availability of key vendor ranges across Group markets

·     Monitoring and analysis of new product developments to identify high potential products

·     Product life cycle performance monitoring

·     Contractual arrangements with key suppliers on stock purchasing and product buy-back

Supply chain dependencies (J) (Risk stable)

Impact

An unplanned event impacts one or more elements of the end to end transactional process resulting in a significant impact to customer service.

Key mitigations

·     Highly resilient IT systems infrastructure featuring operational redundancies and off-site disaster recovery provision

·     Largest five warehouse locations all protected to 'Highly Protected Risk' category

·     Business continuity plans in place at operational locations with tests scheduled annually

Foreign exchange rate volatility (K) (Risk stable)

Impact

Foreign exchange rate volatility increases uncertainty in business planning, product procurement costs and profit and loss exposures. 

Key mitigations

·     Forward contracts used against planned expenditure

·     Increased purchasing of stock in Euros and US Dollars to mitigate transaction and translation risks

·     Treasury Committee sets agreed risk tolerance levels

Cyber risk threat (L) (Risk stable)

Impact

There is a direct targeted attack on Group systems and data with the potential for loss of confidential information, and an undetected attack using advanced techniques to disrupt the website.

Key mitigations

·     Anti-virus software to protect business PCs and laptops

·     Procedures to update vendor security patches to servers and clients

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

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

Digital transformation (M) (Risk increasing)

Impact

As customer behaviour continues to change and becomes more digital in the multi-channel world, the Group fails to accelerate its rate of digital transformation on every aspect of the operating model.

Key mitigations

·     Implementation of a new web platform with capabilities for faster speed of change

·     Accelerated onsite search tuning activities

·     Improved search engine visibility

·     Agile ways of working to support faster development of our web platform

Breach of regulations leading to prosecution (N) (Risk stable)

Impact

Failure to comply with international, regional and local legislation leads to prosecution and financial penalties e.g. by contravention of product compliance regulations, environmental regulations, bribery and corruption, competition law and corporate governance regulations.

Key mitigations

·     Ongoing review of relevant national and international compliance requirements

·     Group-wide training for senior leadership team in bribery and corruption and competition law requirements

·     Operational audit reviews of local governance requirements and compliance arrangements

Management change (O) (New risk)

Impact

Changes in senior management do not deliver a significant improvement in the performance of the business.

Key mitigations

·     The Board was clear on the skills, qualities and experience required for the new Group Chief Executive

·     Significant due diligence on candidates' previous experience and performance undertaken as part of the candidate selection process

·     Use of external specialist search consultants

·     Well-structured interview process

STATEMENT OF DIRECTORS' RESPONSBILITIES

Each of the currently serving Directors, whose names and functions are listed on pages 44 to 46, confirms that, to the best of each person's knowledge and belief:

·     the financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit/loss of the Group and Company; and

·     the Directors' report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company and Group, together with a description of the principal risks and uncertainties that they face.

The Directors are responsible for the maintenance and integrity of the Group website, www.electrocomponents.com. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

By order of the Board

Simon Boddie
Group Finance Director
21 May 2015

Safe Harbour:

The report and accounts contain 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.

 

END

 

 

ACSFFMJTMBABBBA