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Eurocell plc (ECEL)

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Wednesday 17 April, 2019

Eurocell plc

Notice of AGM

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 £5 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 London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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