16 Jun 2016 09:44
ELECTROCOMPONENTS PLC
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2016
NOTICE OF 2016 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 2016 (2016 Annual Report and Accounts)
· Circular and Notice of Annual General Meeting (Notice of AGM) to be held on 20 July 2016
· Form of proxy for the Annual General Meeting (AGM) to be held on 20 July 2016
The 2016 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 2016 Annual Report and Accounts.
The information below, which is extracted from the 2016 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 19 May 2016. 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 2016 Annual Report and Accounts. Statutory accounts for 2016 are included in the 2016 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 2016 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.
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 |
MANAGING OUR RISKS EFFECTIVELY
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 reputational 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 Executive Management Team (EMT) with specific mitigating actions/controls owned by individual members of the team. Every six months 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) every six months 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.
Risk appetite
In accordance with the UK Corporate Governance Code, the Board has evaluated its risk appetite across three defined risk categories: strategic, operating and regulatory/compliance. These risk appetites have both quantitative and qualitative criteria.
Principal risks and uncertainties
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
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Strategic risks
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Consequences of UK exit from the EU
This includes the risk to the Group's supply chain activities across the UK and the EU including possible changes to customs duties and tariffs | ↑
Uncertainty increasing in the period up to the UK referendum | · A Group risk assessment has been undertaken · This has led to reviews across business areas which would be affected by a UK exit and any subsequent changes to the UK/EU and UK/ worldwide trading agreements · Across Electrocomponents these review areas include understanding the potential impacts on the Group's global supply chain infrastructure, including the transport of products between the UK and EU; and Group purchasing arrangements both within and outside the EU. |
Failure to respond to strategic market shifts e.g. changes in customer demands and/or competitor activity
This risk could affect the customer and market assumptions that the Group performance plans are based upon
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Increasing speed of change in competitor behaviours | · Monitoring of market developments · Strategic reviews by the Board and EMT · Annual strategic planning process including the assessment of external market changes · Ongoing review of the competitive environment. |
Performance Improvement Plan does not deliver anticipated revenue growth and cost savings
This risk could lead to lower than forecast financial performance with changes required to Group plans | ↔
Plan to deliver service improvements and reduce costs | · Prioritised set of projects in place focused on 'getting the basics right' for our customers · Governance structure with clear accountabilities designed to support delivery on time and budget, within our resources and capabilities. · KPIs to monitor monthly performance |
Compliance risks
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Failure to comply with international and local legal/regulatory requirements
Failure to manage these collective risks adequately could lead to: · death or serious injury of an employee or third party and/or · penalties for non-compliance in health and safety or other compliance areas · fines for anti-competitive activities or for delivering product to a denied third party | ↔
No significant changes to new or existing legislation | · Employment of internal specialist expertise, supported, where needed, by suitably qualified/ experienced external partners · Ongoing reviews of relevant national and international compliance requirements. · Training and awareness programmes in place focussing on anti-bribery, competition and data protection legislation · Global whilstleblowing hotline managed by an independent third party providing employees a process to raise non-compliance issues · Operational Audit reviews of capabilities to ensure compliance with local requirements. · Global Health & Safety policy, Target Zero accidents initiative with regular reviews undertaken by the EMT and Board · Local health and safety forums in place with head of Global Health and Safety · Live monitoring of customer orders to ensure compliance with international trade control regulations. |
Operating risks
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Macroeconomic environment deteriorates
The Group's sales and hence profits are adversely affected by any decline in the global macroeconomic environment
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Global macroeconomic environment not expected to shift significantly | · Strong cash-generative business · Strong balance sheet · Significant headroom maintained on banking covenants and facilities · Tight cost management and control of stock |
Cyber security breach
An attack on the business's systems/data could lead to a potential loss of confidential information and disrupt the business's transactions with customers (including the transactional website) and transactions with vendors | ↑
Increasing frequency and sophistication of cyber-attacks on businesses | · Anti-virus software to protect business PCs and laptops · Procedures to update vendor security patches to servers and clients · Software scanning of incoming emails for known viruses · Firewalls to protect against malicious attempts to penetrate the business IT environment · 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 relevant to the Group's systems
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UK defined benefit pension scheme cash requirements are in excess of cash available
The risk that the company is required to contribute increased cash sums to the UK defined benefit pension scheme | ↔
Stable discount rates and asset values anticipated | · Quarterly reviews of the pension scheme funding position · Regular interaction with the pension scheme trustees · Joint trustee/Company working group to review investment strategy · Consultation with scheme members on future individual funding options for defined benefits scheme · Memorandum of understanding agreed with pension trustees regarding contributions to aid de-risking
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People resources unable to support the existing and future growth of the business
The business is not able to attract and retain the necessary high-performing employees to ensure that the business achieves its targeted performance | ↔
Supply of quality talent needed to drive business performance | · Development of existing employee competencies and the introduction of external expertise where appropriate · Annual employee appraisal processes to align personal objectives with the Group's Performance Improvement Plan · New LTIP introduced to retain and motivate key management
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Failure in core systems and supply chain infrastructure
This risk relates to an unplanned event causing the businesses' transactional processes to fail, adversely affecting customer service | ↔
Stability of key infrastructure expected to continue | · Resilient IT systems' infrastructure featuring operating redundancies and off-site disaster recovery · Strict control over upgrades to core systems and other applications · Business continuity plans in place at operating locations with annual tests at more significant sites |
RELATED PARTIES
The Company has a related party relationship with its subsidiaries as disclosed in note 16 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 2015
£m £m
Remuneration 4.1 3.2
Termination payments 0.6 0.9
Social security costs 0.5 0.6
Equity-settled transactions 1.7 0.7
Pension costs 0.5 0.6
7.4 6.0
Details of transactions with the jointly controlled entity are given in note 16 to the Group accounts.
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 2016 the Group made sales of £1.0 million (2015: £0.8 million) to RSCC. RSCC is accounted for using the equity accounting method.
DIRECTORS' RESPONSBILITIES
The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and Parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU). 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 the Company and of the profit or loss of the Group and Company for that period. In preparing these financial statements, the directors are required to:
· Select suitable accounting policies and then apply them consistently;
· Make judgements and accounting estimates that are reasonable and prudent;
· State whether applicable IFRSs as adopted by the EU have been followed, subject to any material departures disclosed and explained in the financial statements; 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 and Company financial statements, Article 4 of the IAS Regulation. They 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 Group's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Having taken advice from the Audit Committee, the Directors consider that the Annual Report, 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 currently serving Directors, whose names and functions are listed on pages 32 to 34 confirm that, to the best of their knowledge:
· The Group and Company 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 of the Group and Company; and
· The Directors' Report contained in this Annual 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 they face.
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.