8 Jun 2012 11:43
ELECTROCOMPONENTS PLC
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2012
NOTICE OF 2012 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: www.hemscott.com/nsm.do.
·; Annual Report and Accounts for the year ended 31 March 2012 ("2012 Annual Report and Accounts")
·; Circular and Notice of Annual General Meeting ("AGM") to be held on 13 July 2012
·; Form of proxy for the AGM to be held on 13 July 2012
The Annual Report and Accounts and Notice of Annual General Meeting, which includes explanatory notes on proposed resolutions, are also available from today on the Electrocomponents plc website at http://www.electrocomponents.com/annualreport2012 .
IMPORTANT: EXPLANATORY NOTE AND WARNING
The primary purpose of this announcement is to inform the market about the publication of Electrocomponents plc's 2012 Annual Report and Accounts.
The information below, which is extracted from the 2012 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 24 May 2012. 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 2012 Annual Report and Accounts.
Page and note references in the text below relate to pages and notes in the 2012 Annual Report and Accounts.
Related parties
"The Company has a related party relationship with its subsidiaries as disclosed in note 14 to the Group accounts and with its key management personnel. The key management personnel of the Group are the Directors. Compensation of key management personnel was:
2012£m | 2011£m | |
Remuneration | 1.7 | 2.0 |
Social security costs | 0.2 | 0.2 |
Equity-settled transactions | 0.4 | 0.6 |
Pension costs | 0.4 | 0.1 |
2.7 | 2.9 |
Details of transactions with the jointly controlled entity are given in note 14 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 INR20m, of which INR18m is issued and owned in equal shares by Electrocomponents UK Limited and its partner. RS Components Limited supplies product and catalogues to RSCC, while office space and distribution network are provided by Controls & Switchgear. During the year ended 31 March 2012 the Group made sales of £0.9m (2011 £0.9m) to RSCC. RSCC is treated in the accounts as an associated undertaking."
Principal risks and uncertainties
"Governance
The Group has well-established risk management and internal control processes for the identification, assessment and management of the strategic, operational, financial and compliance risks likely to affect the achievement of the Group's corporate and strategic objectives.
The risk management process
The Board has overall responsibility for the Group's risk management process. The
effectiveness of the process is reviewed annually through the Audit Committee. Day to day management of risk is delegated to the Group Executive Committee (GEC) which is accountable for the risk mitigation activities.
The GEC conducts a formal review and assessment of the potential risks to the Group's strategy at the start of each financial year, and prioritises the agreed risks according to an assessment of the Group's risk tolerance limits and allocates responsibility to management. The output of this process is reported to the Board,
via the GEC, for review.
All operational businesses complete an annual combined risk and controls profile, which feeds into the overall risk assessment process that is reviewed by the GEC, and by the Audit Committee in the annual Risk Review. The results of the risk assessment are factored into the internal audit plan to focus audit testing on key controls within the business.
Principal risks and uncertainties
The following two tables present the principal risks to the achievement of the Group's strategic objectives as identified through the risk management process described above.
The first table is a list of risks assessed as 'High'. Any risk given a high assessment is monitored by the risk owner using an agreed set of risk indicators, which are reported through to the Board. These indicators are described in the table
below.
The second table is a list of risks identified as 'significant'. Owners of all significant risks report the impacts and mitigating actions through to the GEC at least quarterly. If the risk increases, or if requested, the owner may be called upon to present the risk mitigation plans to the Board.
The following risks have been assessed as 'High' risks. These are subject to regular Board review and monitoring by the senior executive risk owner. Key metrics are regularly reviewed to ensure the risk does not exceed agreed tolerance levels.
Macroeonomic conditions | ||||
The global economic conditions remain unstable and are 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. | Opportunity - Focus on markets served by smaller competitors - Customers reduce stock holding and use RS to source and supply components | Mitigating actions - Cash generative business - Strong balance sheet - Significant headroom to the Group's banking covenants and facilities - Manage costs - Increasing global penetration - Stock management | ||
Threat - Reduced sales - Lowering of operational leverage - Excess stock - Bad debt increase - Funding shortfall
| Key risk measures - Free cash flow - Available headroom in banking covenants and facilities - Working capital metrics - Interest cover - Net debt to EBITDA - Costs as a percentage of sales
|
Customer acquisition, retention and frequency of spend is insufficient to meet strategic objectives | ||||
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.
| Opportunity - Increased sales and profitability - Sustained growth in market share
| Mitigating actions - Customer acquisition campaign - Brand awareness programmes in new markets - Development programme to influence new customer purchasing behaviours | ||
Threat - Insufficient numbers of new customers - Development of new customers behind target - Average order frequency / value does not improve - Unable to achieve sustainable sales growth | Key risk measures - New customer acquisition - Average order frequency / average order value - Metrics on new customers purchasing behaviours - Customer retention metrics - Customer satisfaction measures | - Improvements to the eCommerce customer journey - Targeted and relevant mass marketing programmes - Continuing high levels of new product introductions
| ||
Pricing | ||||
Customers value the high service model less in a price sensitive market.
The risk is that our competitors close the service gap and become more competitive on price. | Opportunity - Differentiated by industry-leading service levels - Sales opportunity for value RS brand products | Mitigating actions - Dynamic pricing strategy - Adapt sale prices in response to and in anticipation of external factors - There are tight management controls in place for the approval and monitoring of discounting | ||
Threat - Pressure on gross margin from lower prices and increased customer discounts - Lower sales if we do not act quickly | Key risk measures - Gross margin - Value for money performance - Competitor price matching coverage - Frequency of price reviews - RS Brand sales growth - 'On Time in Full' performance indicators | - Increase price matches with competitor products - Continued focus on customer service - Monitor and maintain customer order fill and line fill |
The following have been assessed as 'Significant risks' to the achievement of our objectives. These are monitored regularly by the GEC and if there are any significant changes in the level of risk, the Board is updated by the risk owner.
Product data quality and content reduces our eCommerce effectiveness | ||||
The risk is that current information and data structures inhibit the future effectiveness of the eCommerce offer.
The risk anticipates increasing market demands for faster rates of new product introductions, price changes and provision of comprehensive product information. | Impact - Customers find the web content hierarchy or taxonomy difficult and complicated to use, resulting in lost sales - Poor consistency across product content data prevents customers finding products on the web and making value comparisons when looking to buy, resulting in lost sales
| Mitigation - Our strategic content programme continues to deliver mprovements in product data and content quality - Customer expectations and experiences are monitored through customer surveys, and appropriate action taken - There are strong governance structures in place for new product introductions to ensure continued improvements in our content | ||
Key infrastructure dependencies | ||||
As a high service distributor, there is a reliance on our warehousing and on our key IT infrastructure to support business operations.
| Mitigation - Our IT systems infrastructure is designed to provide considerable contingency against disruption | - Our warehouse facilities have Business Continuity Plans in place, which mitigate significant service disruptions | ||
Impact - A prolonged disruption to either our key strategic warehouse or our IT systems infrastructure would severely impact customer service operations including sales, order taking and order fulfilment
| - Upgrades to core systems and other applications are strictly controlled through tight project management processes and include vigorous test processes prior to any release
| - Business Continuity Plans are subject to regular testing with well practised incident management procedures in place | ||
Increasing competition in electronics markets from high service distributors | ||||
Competitors close the service gap and offer better services, value for money and a broader product range, threatening the Group's core markets.
| Mitigation - We have accelerated our market initiatives through developing web capabilities, service excellence, pricing competitiveness and range effectiveness | - We continually develop new product introductions including the addition of new range suppliers and driving benefits with existing suppliers
| ||
Impact - The Group's future relative competitive position declines, losing market share and margin
| - Successful launch of DesignSpark
| - Our multi-channel position is a market differentiator, serving the needs of all our customers | ||
Pension cost increases | ||||
Worsening economic conditions and weakening assumptions could lead to an increase in the liabilities and a reduction in assets of the UK defined benefit pension scheme. | Impact - Increase in costs in the income statement - Increasing contributions to the scheme | Mitigation - There are regular quarterly reviews of our funding position, and regular interaction with our pension scheme Trustees | ||
- Our company representative sits on a joint Trustee / Company working party which meets at least quarterly to review investments |
Foreign exchange rate volatility | ||||
Currency exchange rate volatility.
Impact - Increased uncertainty in business planning, product procurement costs and income statement exposures
| Mitigation - Placing of forward contracts against planned expenditure and increased purchasing of stock in Euros and US Dollars
| - Our Treasury Committee sets agreed risk tolerance levels - Compliance against our foreign exchange exposure targets are reported to the Treasury Committee monthly
| ||
Risks to the effective management of the growing electronics product range | ||||
The ongoing development of the electronics range, with its shorter product life cycles, potentially increases the exposure of the business to higher levels of stock obsolescence as well as operational capacity constraints | Mitigation - Comprehensive marketing analysis and monitoring of new product developments in electronics technologies, to identify high potential products and ranges | - Investment in continuous improvement in operational effectiveness and processing capacity to support range growth | ||
Impact - Reducing stock turns - Increase in stock provision costs - Deteriorating operational efficiency due to limitations on product induction and warehousing capacity | - Contractual arrangements in place with key suppliers on stock purchasing and product buy-back - Active monitoring of products through their life cycle
| |||
People risk | ||||
The business is unable to attract or retain high performing employees.
Staff are not fully engaged and supportive of the business strategy.
| Mitigation - We continually develop our internal competencies, and where appropriate introduce new expertise through external appointments | - Our Continuous Improvement initiatives encourage employee involvement in identifying and implementing changes to improve customer experience and deliver greater efficiency | ||
Impact – We do not have the right mix and depth of skills to deliver the strategy – Lack of engagement with the strategy impacts achievement of objectives
| - Employee commitment is encouraged through our appraisal processes, with personal objectives being aligned in support of the strategic objectives
| - Employee engagement remains a strategic priority and is monitored through the annual employee survey. Initiatives are targeted to address any issues that are identified through the survey
|
The Annual Report contains a responsibility statement in compliance with DTR 4.1.12 signed on behalf of the Board by Ian Mason, Group Chief Executive and Simon Boddie, Group Finance Director:
"Responsibility statement of the Directors in respect of the Annual Report and Accounts
Each of the Directors, whose names and functions are listed on page 37 of this document, confirms that to the best of his knowledge:
·; The accounts, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
·; The Directors' report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board
Ian Mason Simon Boddie
Group Chief Executive Group Finance Director
24 May 2012"
Safe Harbour:
This announcement 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.