ECM.L Regulatory News (ECM)

ELECTROCOMPONENTS PLC

ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019

NOTICE OF 2019 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 2019 (2019 Annual Report and Accounts)

· Circular and Notice of Annual General Meeting (Notice of AGM) to be held on 17 July 2019

· Form of proxy for the Annual General Meeting (AGM) to be held on 17 July 2019

The 2019 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 2019 Annual Report and Accounts and Notice of AGM.

The information below, which is extracted from the 2019 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 2019. 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 2019 Annual Report and Accounts. Statutory accounts for 2019 are included in the 2019 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 2019 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:

APPENDIX

Pages and note references in the text below relate to pages and notes in the 2019 Annual Report and Accounts.

Managing our risks effectively (pages 38 to 43)

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 both external, to ensure that developing risk themes are considered, and from within the Group, including senior, regional and country management teams. The focus of the risk identification is on those risks which, if they occurred and became issues, 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 resulting net or residual 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 the Group-wide functions are required to complete.

· Ownership

The Group's principal risks are owned by the Group's Senior Management Team (SMT) with specific mitigating actions / controls owned by individual members of the team. The SMT collectively reviews the risk register, the controls and mitigating actions at specific Group risk review meetings held periodically throughout the year.

· The Board

The Board confirms it has undertaken a robust review of the Group's principal risks (including those that could threaten its business model, future performance, solvency or liquidity) and assessed them against the Group's risk appetite. For a number of the principal risks management will, as part of ongoing activities, update the Board on these risks and their management. This allows the Board to determine whether the actions taken by management are sufficient.

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 2019, the Board again reviewed its risk appetite across the three categories with some minor measurement changes reflecting the Group's increased size.

Principal risks and uncertainties

The Group has identified 10 principal risks, which are the same as those disclosed last year, with the only changes being the development of some already identified risks. These principal risks are:

Strategic risk category

1. Consequences on the organisation of the UK exit from the EU

2. Fail to respond to strategic market shifts e.g. changes in customer demands and / or competitor activity

3. The Group's revenue and profit growth initiatives are not successfully implemented

Regulatory / compliance risk category

4. Failure to comply with international and local legal / regulatory requirements

Operating risk category

5. Failure in supply chain infrastructure

6. Prolonged system outage

7. Information loss / cyber breach

8. UK defined benefit pension scheme cash requirements are in excess of cash available

9. People resources unable to support the existing and future growth of the business

10. Macroeconomic environment deteriorates

The UK exit from the EU

The principal risk which has been subject to most focus and activity in the Group during the financial year has been that associated with the UK's exit from the EU. The Group has undertaken a number of significant activities across many business areas to mitigate, insofar as is possible, any potential and negative, future effects of the UK leaving the EU. The planning and actions have involved considering various scenarios for the UK's exit. These scenarios include an agreed transition period to a different trading relationship between the UK and the EU or a more significant, and immediate, UK exit from the EU without a withdrawal agreement and to a World Trade Organisation (WTO) trading relationship (termed hard Brexit).

We judge the key risk to our business from the UK exiting the EU without a withdrawal agreement to be across four key areas. In each of these four areas we have undertaken mitigating actions to attempt to reduce the impact of these risks on the business.

1. Reduced free movement of products, goods and services across the UK / EU border

A restriction on the smooth passage of goods across the UK / EU border leading to disruption to customer service is a key risk.

· We have invested in £26 million of additional fast moving inventory across our European network to lessen any customer service impact from any potential delays at the UK / EU border.

· Measures are in place with our freight forwarders on our combined contingency plans in the event of a hard Brexit.

2. Increased tariff and duty costs on goods moving between the UK and EU

Following the UK's exit from the EU, goods moving between the UK and EU member states and potentially other areas of the world may be subject to additional tariff and duty costs. At this stage, before we know the detail of any exit deal and any reciprocal agreements, the exact impact of tariffs is difficult to assess. However, we believe the more notable area of risk is for goods sourced from the EU into the UK or where products are shipped from the UK to the EU.

· We have reviewed our current transport routes against individual product demand and will use our international distribution network to mitigate this risk, as best we can, to continue to offer our customers the market leading service they expect.

· We have reviewed the potential tariff impacts on our top selling product lines to optimise product sourcing to mitigate any incremental duty impact. Where this is not possible we will look to pass on tariffs and duties in the form of price increases.

3. Increased administration to process the required cross border data flows

We anticipate increased requirements for data collection as shipments move across the UK / EU border. More information may be required for customs declarations and import / export forms for each consignment shipped into the EU. We could also be required to make additional payments for customs clearance charges for goods moving across the UK / EU border.

· We have invested in IT systems to automate the customs declaration process.

· We have reviewed our current people resources to support our existing skilled export teams as required.

4. Material movement in the value of sterling impacting the price of goods

Sterling could depreciate materially in the event of the UK leaving the EU on 31 October 2019 with no transition deal in place.

· To hedge against transactional foreign exchange risk we currently maintain three to seven months of cover against freely tradeable currencies to smooth the impact of fluctuations in currency. We will maintain our existing hedging strategy to mitigate against any immediate devaluation in sterling.

· Our global trading mix and product sourcing arrangements mean that historically we have had a natural gross margin hedge against a depreciation in sterling at a Group level.

Summary of the Group's principal risks

The Group's principal risks are categorised under one of three categories: strategic (see the Group's strategic priorities on page 18), regulatory / compliance and operating risks (see the business model on pages 8 and 9). 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

Viability statement

Assessment of prospects

The Group's long-term prospects are assessed primarily through its strategic and financial planning process. This includes the preparation of a five-year strategic plan and a detailed annual target setting process involving both Group and regional management. These are updated annually and are reviewed and approved by the Board. Progress against targets, together with regular forecast updates, is reviewed monthly by both our SMT and the Board. The Group's strategic priorities are focused on delivering sustainable growth and superior returns for all our stakeholders and includes a number of initiatives. They are discussed in more detail on pages 18 to 23.

Our business model, as described on pages 8 and 9, 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. It is also structured so that the Group has a broad range of products and high inventory availability with products sourced from a large number of suppliers.

Our capital position is supported by regular reviews 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 to the Board from the CFO and Chief Executive Officer. Details of the Group's sources of finance are outlined on page 136 with the earliest facilities expiring being the Group's term loan of £75 million in May 2020 and the private placement loan notes of US$100 million in June 2020.

The Board also considers the long-term prospects of the Group as part of its regular monitoring and review of risk management and internal control system, as described on page 66.

Viability assessment period

In their assessment of viability, the Directors have reviewed the assessment period and have determined that a three-year period to 31 March 2022 continues to be most appropriate. The robustness of the strategic plan is significantly higher in the first three years with the final two years being a high level extrapolation. The Group has few contracts with either customers or suppliers extending beyond three years and, in the main, contracts are for one year or less. The business operates with a minimal forward order book, generally taking orders and shipping them on the same day. In addition as more business moves online and we become more agile, speed of change increases and so visibility is relatively short term. Of our long-term obligations, the UK pension plan is the largest and its triennial funding valuation forms the basis of our agreeing its funding with the trustee.

Assessment of viability

Each of the Group's principal risks and uncertainties on pages 40 and 41 has a potential impact on the Group's viability and so the Directors determined an appropriately severe but plausible stress test for each. They decided which stress tests would have the most impact on the viability of the Group and developed appropriate scenarios to model for these.

The strategic plan reflects the Directors' best estimate of the future prospects of the Group. Therefore, in order to assess the viability of the Group, the scenarios were modelled by overlaying them onto the plan to quantify the potential impact of one or more of them crystallising over the assessment period.

The scenarios modelled and how they link to the principal risks and uncertainties are summarised on the next page.

Principal risks and uncertainties which have the most impact on the viability of the Group and scenarios modelled

The severe and plausible stress tests for the principal risks and uncertainties 8 'UK defined benefit pension scheme cash requirements are in excess of cash available' and 9 'People resources unable to support the existing and future growth of the business' were assessed to have less impact on the Group's viability.

In performing the above tests it was assumed that no major reorganisations or significant working capital initiatives occur in mitigation, the stated dividend policy is not changed, capital expenditure is unchanged from that in the strategic plan and debt facilities are refinanced as they mature.

The results of the above stress tests showed the Group would be able to withstand the impact of these scenarios occurring. A reverse stress test was also undertaken to assess the circumstances that would threaten the Group's current financing arrangements and the Directors consider the risk of these circumstances occurring to be remote.

The above scenarios are hypothetical and extremely severe for the purpose of creating outcomes that have the ability to threaten the viability of the Group; however, multiple control measures are in place to prevent and mitigate any such occurrences from taking place. If any of these scenarios actually happened, various options are available to the Group to maintain liquidity so as to continue in operation.

Confirmation of viability

Based on the assessment outlined above, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three years to 31 March 2022.

Going concern

The Directors also believe that it is appropriate to continue to adopt the going concern basis in preparing the Group's accounts.

RELATED PARTIES (Note 27 - page 141)

The Group's joint venture (Note 16) is a related party and during the year, the Group made sales of £2.2 million (2018: £2.1 million) to the joint venture, and a balance of £0.7 million (2018: £1.8 million) was outstanding at the year end.

The Group's pension schemes are related parties and the Group's transactions with them are disclosed in Note 10.

The key management personnel of the Group are the Directors and the Senior Management Team, whose compensation was:

Transactions and balances between the Company and its subsidiaries have been eliminated on consolidation.

STATEMENT OF DIRECTORS' RESPONSIBILITIES (page 100)

The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulation.

Company law requires the Directors to prepare accounts for each financial year. Under that law the Directors have prepared the Group accounts in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and Company accounts 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 accounts 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 accounts, the Directors are required to:

· Select suitable accounting policies and then apply them consistently

· State whether applicable IFRS as adopted by the European Union have been followed for the Group accounts and United Kingdom Accounting Standards, comprising FRS 102, have been followed for the Company accounts, subject to any material departures disclosed and explained in the accounts

· Make judgements and accounting estimates that are reasonable and prudent and

· Prepare the accounts 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 accounts and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group accounts, 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 accounts may differ from legislation in other jurisdictions.

The Directors consider that the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group and Company's position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed on pages 56 and 57 confirm that, to the best of their knowledge:

· The Company accounts, 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 / loss of the Company;

· The Group accounts, which have been prepared in accordance with IFRS 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 Chief Financial Officer

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.