12 Jun 2013 16:37
ELECTROCOMPONENTS PLC
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2013
NOTICE OF 2013 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 2013 ("2013 Annual Report and Accounts")
·; Circular and Notice of Annual General Meeting ("AGM") to be held on 17 July 2013
·; Form of proxy for the AGM to be held on 17 July 2013
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://annualreport.electrocomponents.com/2013
IMPORTANT: EXPLANATORY NOTE AND WARNING
The primary purpose of this announcement is to inform the market about the publication of Electrocomponents plc's 2013 Annual Report and Accounts.
The information below, which is extracted from the 2013 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 23 May 2013. 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 2013 Annual Report and Accounts. Statutory accounts for 2013 are included in the Annual Report and Accounts 2013, 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 2013 Annual Report and Accounts.
RELATED PARTIES
The Company has a related party relationship with its subsidiaries as disclosed in note 15 to the Group accounts and with its key management personnel. The key management personnel of the Group are the Directors and, following the reorganisation activity, the Group Executive Committee. Compensation of key management personnel was:
2013 £m | 2012 £m | |
Remuneration | 3.2 | 1.7 |
Equity-settled transactions | 0.7 | 0.4 |
Pension costs | 0.4 | 0.4 |
Social security costs | 0.5 | 0.2 |
4.9 | 2.7 |
Details of transactions with the jointly controlled entity are given in note 15 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 products to RSCC, while office space and distribution network are provided by Controls & Switchgear. During the year ended 31 March 2013 the Group made sales of £0.7m (2012: £0.9m) to RSCC. RSCC is accounted for using the equity accounting method.
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) who are 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, 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 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 then by the Audit Committee in the annual risk review. The results of the risk assessment are factored into the audit plan to focus audit testing on key controls within the business.
The risk management process is subject to ongoing review which aims to ensure the process is effective and promotes management ownership of risk.
Principal risks and uncertainties
The following tables present the principal risks to the achievement of the Group's strategic objectives as identified through the risk management process described above.
In light of the significant changes undertaken by the Group this year, including the transition to a global operating model and the evolution of a new common global strategy, an additional risk has been identified - 'Risk to the delivery of the Group's strategy'.
The first table, on this page and opposite, 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.
The second table, on pages 26 to 27, is a list of risks classified as 'Significant'. Owners of all significant risks regularly report the impacts and mitigating actions to the GEC. If the risk increases, or if requested, the owner may be called upon to present the risk mitigation plans to the Board.
RISK | IMPACT | KEY RISK MEASURES | MITIGATING ACTIONS | |||
Macroeconomic 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 confi dence. . | Threat • Reduced sales • Lowering of operational leverage • Excess stock • Bad debt increase • Funding shortfall
Opportunity • Focus on markets served by smaller competitors • Customers reduce stock holding and use Electrocomponents to source components | • 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 | • Cash generative business • Strong balance sheet • Significant headroom to the Group's banking covenants and facilities • Manage costs • Increasing global penetration • Stock management | |||
Increasing competition in high service distribution New and existing competitors close the service gap, offering improved service standards and value propositions.
Changes to global competitive markets potentially challenge the growth assumptions made in the Group's strategy.
| Threat • Declining barriers to entry for new market entrants • Customer switching costs reduce • Increase in supply side options increases competition
Opportunity • Incumbency advantages in key markets • Capabilities in place to adapt quickly to market changes and new opportunities
| • Gross margin • Customer loyalty/propensity to substitute • Relative price performance to competitors | • Extensive and growing range in key technologies • Dynamic pricing strategy • Maintain high service level globally • Enhance online experience • Ongoing review of competitive forces and environment • Access to distribution channels | |||
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.
| 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
Opportunity • Increased sales and profi tability • Sustained growth in market share | • New customer acquisition • Average order frequency/average order value • Metrics on new customer purchasing behaviours • Customer retention metrics • Customer satisfaction measures | • Customer acquisition campaign • Brand awareness programmes in new markets • Development programme to influence new customer purchasing behaviours • Improvements to the online customer journey • Targeted and relevant mass marketing programmes • Continuing high levels of new product introductions
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Risks to the delivery of the Group's strategy The Group's strategic objectives will require close management and co-ordination to be delivered effectively.
The risk is that the Group's resources and capabilities will be challenged by the scale and complexity of what is required.
| Threat • Insufficient internal expertise • Risk of implementation delays and cost overrun • Unexpected events disrupt delivery timeframes
Opportunity • Clearly defined strategic direction and opportunity • Develop market-leading capabilities and service | • Programme management review and reporting processes • Monitoring of benefits and costs • Monitoring against defined programme delivery methodology • Operational excellence and continuous improvement challenge | • Clearly defined business objectives and implementation planning • Global organisational structure in place • RS/Allied 'The Way We Work' behaviours and global change programme in place • Functional ownership of projects with resourced programme management process in place
| |||
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 | Threat • Pressure on gross margin from lower prices and increased customer discounts • Lower sales if we do not act quickly
Opportunity • Differentiated by industry-leading service levels • Sales opportunity for RS-branded value products | • Gross margin • Value for money performance • Competitor price matching coverage • Frequency of price reviews • RS brand sales growth • Service level performance indicators | • Dynamic pricing strategy • Adapt sale prices in response to and in anticipation of external factors • Increase price matches with competitor products • Continue focus on customer service • Monitor and maintain customer order fill and line fill
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The following have been assessed as 'Significant risks'. 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.
RISK | IMPACT | MITIGATING ACTIONS | ||
Product data integrity The risk is that current information and data structures inhibit the future effectiveness of eCommerce and the wider customer offer.
The risk anticipates increasing market demands for faster rates of new product introductions, price changes and provision of comprehensive product information.
| • Customers find the website difficult to use, resulting in lost sales | • Strategic content programme delivering improvements in product data and content quality • Customer surveys to monitor customer expectations • Strong governance structures in place for new product introductions | ||
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. | • A prolonged disruption to our key infrastructure would impact order taking and order fulfilment, resulting in lost sales | • Contingency plans in place for our IT systems infrastructure • Strict controls over upgrades to core systems and other applications • Rigorous test processes prior to any new system release • Business continuity plans at warehouses, regularly tested
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Risks to the effective management of the range 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. | • Reducing stock turns • Increase in stock provision costs • Deteriorating operational efficiency due to limitations on product induction and warehousing capacity | • Monitoring and analysis of new product developments to identify high-potential products and ranges • Monitoring of products through their lifecycle • Contractual arrangements with key suppliers on stock purchasing and product buy-back • Continuous improvement programmes to improve operational effectiveness and capacity to support range growth
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People risk The business is unable to attract or retain high-performing employees.
Staff are not fully engaged and supportive of the business strategy. | • We do not deliver the Group strategy | • Training to develop existing employee competencies, new external expertise introduced where appropriate • Employee appraisal process seeks to align personal objectives with the Group's strategic objectives • Employee involvement in identifying and implementing changes to improve customer experience and deliver efficiencies • Annual employee survey, with initiatives targeted to address issues identified in the survey
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Foreign exchange rate volatility Currency exchange rate volatility. | • Increased uncertainty in business planning, product procurement costs and income statement exposures | • Forward contracts used against planned expenditure, increased purchasing of stock in Euros and US Dollars • Treasury Committee sets agreed risk tolerance levels • Compliance against foreign exchange exposure targets reported to Treasury Committee monthly
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Pension cost increases Worsening economic conditions and weakening assumptions could lead to an increase in the liabilities and a reduction in the assets of the UK defined benefit pension scheme. | • Increase in costs in the Income Statement • Increasing cash contributions to the scheme | • Regular quarterly reviews of pension scheme funding position • Regular interaction with the pension scheme Trustee • Joint Trustee/company working party meets at least quarterly to review investments
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STATEMENT OF DIRECTORS' RESPONSBILITIES
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 pages 34 to 35 of this document, confirms that to the best of their 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, Group Chief Executive
Simon Boddie, Group Finance Director
23 May 2013
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.