ECM.L Regulatory News (ECM)

ELECTROCOMPONENTS PLC 

ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2014

NOTICE OF 2014 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 2014 (2014 Annual Report and Accounts)

· Circular and Notice of Annual General Meeting (Notice of AGM) to be held on 24 July 2014

· Form of proxy for the Annual General Meeting (AGM) to be held on 24 July 2014

The 2014 Annual Report and Accounts and Notice of AGM, which includes explanatory notes on proposed resolutions, are also available from today on the Electrocomponents plc website at: http://electrocomponents.annualreport2014.com

IMPORTANT: EXPLANATORY NOTE AND WARNING

The primary purpose of this announcement is to inform the market about the publication of Electrocomponents plc's 2014 Annual Report and Accounts.

The information below, which is extracted from the 2014 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 22 May 2014. 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 2014 Annual Report and Accounts. Statutory accounts for 2014 are included in the 2014 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 2014 Annual Report and Accounts. The preliminary announcement can be viewed or downloaded from the Company's website www.electrocomponents.com.

Enquiries:

RELATED PARTIES

The Company has a related party relationship with its subsidiaries as disclosed in note 16 on page 120 to the Group accounts and with its key management personnel. The key management personnel of the Group are the Directors and the Group Executive Committee. Compensation of key management personnel was:

Details of transactions with the jointly controlled entity are given in note 16 on page 120 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 ended31 March 2014 the Group made sales of £0.7m (2013: £0.7m) 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 strategic, operational, financial and compliance risks likely to affect the achievement of the Group's corporate objectives and business performance.

The risk management process

The Board has overall responsibility for the risk management process, with its effectiveness being reviewed annually through the Audit Committee. The Group Executive Committee (GEC) is accountable for the identification and management of risks and their mitigation to the achievement of corporate objectives.

To support the evaluation of the Group's risk management processes, the Board determines a list of material risks to the business for ongoing review. These risks are prioritised on their capacity to materially impact the achievement of strategic objectives, to disrupt business activities or their capacity for significant damage to value.

The Board's review of the material risks requires the responsible management to present its analysis of the risk to the Board, including the mitigating controls and the assessment of the residual risk relative to the inherent risk exposure. The Board will then determine whether it is reassured by the analysis.

The GEC conducts a formal review and assessment of the potential risks to the Group's strategic objectives and operational functions at the start of the financial year. This review prioritises the risks relative to the Group's risk tolerance limits, and allocates responsibility for their management.

The Group applies a common risk assessment approach to the identification, assessment and management of risks. This includes common measures of impact and likelihood, and the requirement to determine whether the residual risks are acceptable given mitigating actions or whether additional actions are required. This approach provides for consistent analysis and reporting of new or developing risks throughout the management line.

All operational businesses complete an annual risk and controls self-assessment. This feeds into the Group's risk profile that is reviewed by the GEC and the Audit Committee as part of the annual risk review. The outputs from the process are factored into the audit plan to focus audit testing on the key controls in the business.

Principal risks and uncertainties

The following pages present the principal risks to the achievement of the Group's strategic objectives identified through the process described above.

The risks are presented as residual risks as reviewed by the GEC, with a description of each risk and the principal mitigating activities in place. Each of these risks is allocated to a GEC level risk owner, who, as described earlier, can be required to present the risk to the Board.

Delivery of the Group strategy (A) (key risk)

Impact

The Group's strategic objectives require close management and co-ordination to be delivered effectively. The risk is that the Group's resources and capabilities may be challenged by the scale and complexity of what is required.

Particular risks include insufficient internal expertise, competition for key resources and unanticipated interdependencies or events disrupting programmedelivery.

Mitigation

· Clearly defined business objectives and strategic priorities

· Global organisation structure in place to leverage internal business capacity and expertise

· Functional ownership of projects with dedicated project management

· Resourced programme management and project governance function

Macroeconomic conditions (B) (key risk - decreased in significance)

Impact

Global economic conditions continue to be uncertain and vulnerable to major shocks such as a further banking crisis or sovereign debt defaults. A worsening of global economic conditions could result in a loss of business confidence exposing the Group's sales and profits. 

Mitigation

· Strongly cash generative business

· Strong balance sheet

· Significant headroom maintained on banking covenants and facilities

· Tight cost management and control of stock

Long-term strategic market shifts (C) (key risk - new risk)

Impact

Fundamental shifts in the external environment challenge key assumptions upon which the Group strategy is based. The risk relates to the forward looking analysis of the future environment and the implications of market or structural shifts for the strategy and its delivery.

Mitigation

· Strategy function in place to monitor and review challenges to strategic assumptions, e.g. applying scenario analysis to review risks

· Close monitoring of market and technical developments

· Strategic reviews with Board and GEC

· Development of strategic performance measurement metrics to support the review of strategy formulation and delivery

Increasing competition (D) (key risk)

Impact

New and existing competitors close the service gap, offering improved service standards and value propositions. Changes to the competitive landscape challenge the growth assumptions made in the Group's strategy.

The risk is an increase in supply-side options for the customer, with declining barriers to entry and reduced switching costs for customers.

Mitigation

· Ongoing review of the competitive environment and developing threats

· Dynamic pricing strategy

· Range globalisation

· Maintaining high service level globally

Customer acquisition (E) (key risk - increased in significance)

Impact

The business does not attract sufficient numbers of new customers and is unable to develop new and existing customer behaviour to deliver the sustainable sales growth objectives.

The risk is that order frequency and value does not change as new customers are attracted.

Mitigation

· Global customer service campaigns including 'Voice of the customer', and 'Standing in the shoes of the customer' to enhance the customer experience

· Development programmes to influence customer behaviours

· Investment in web and social media to enhance online experience

· Continuing investment in range globalisation and development

· Dynamic pricing strategy

People risks (F) (decreased in significance)

Impact

The business is unable to attract and retain high performing employees.

The risk is that employees are not fully engaged and supportive of the business strategy, which could undermine productivity and the quality of work done.

Mitigation

· Development of existing employee competencies and the introduction of external expertise where appropriate

· Employee appraisal processes to align personal objectives with the Group strategy

· Annual survey of employee engagement

· Employee engagement programmes built around global behaviours to support high performance

Product data integrity (G)

Impact

The risk is that current information and data structures inhibit the implementation of the globalisation objective and the effectiveness of the wider customer offer.

The risk anticipates increasing market demands for more product related data, faster rates of new product introductions, price changes and provision of comprehensive product information.

Mitigation

· Range globalisation and compliance programmes to enhance governance and data management structures

· Strategic content programmes to deliver improvements in product data and content quality

· Enterprise architecture enhancements to address constraints in the processes to manage product data and content

Pension cost increases (H) (increased in significance)

Impact

There is an increase in scheme liabilities and a reduction in the value of assets of the UK defined benefit pension scheme.

The risk is that the Company is required to contribute increased cash sums to address the scheme deficit, which increases the costs on the Income Statement.

Mitigation

· Quarterly reviews of pension scheme funding position

· Regular interaction with the pension scheme trustees

· Joint Trustee / Company working group to review investment strategy

· Consultation with scheme members of the UK defined benefits scheme involving changes to their benefits. These changes involve lowering the cap on the level of salary which is pensionable and increasing member contributions for the majority of members.

Effective range management (I)

Impact

The 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.

The risk is that as the Group progressively implements range globalisation, it will lack the required capabilities to quickly action new product opportunities or address poor product performance in particular markets.

Mitigation

· Range globalisation project to drive availability of key vendor ranges across Group markets

· Monitoring and analysis of new product developments to identify high potential products

· Product life cycle performance monitoring

· Continuous improvement programmes to improve operational effectiveness and service efficiencies

· Contractual arrangements with key suppliers on stock purchasing and product buy-back

Key infrastructure dependencies (J)

Impact

There is a heavy operational dependence on the resilience of warehousing and IT infrastructure to support business operations in a high service environment.

The risk is present that unplanned events could disrupt the functioning of key elements of the operational infrastructure damaging customer service and business reputation.

Mitigation

· Highly resilient IT systems infrastructure featuring operational redundancies and off-site disaster recovery provision

· Strict control over upgrades to core systems and other applications

· Largest five warehouse locations all assessed as 'Highly Protected Risk' status

· Business continuity plans in place at operational locations with annual test schedule in place

Foreign exchange rate volatility (K) (decreased significance)

Impact

Foreign exchange rate volatility increases uncertainty in business planning, product procurement costs and profit and loss exposures. 

Mitigation

· Forward contracts used against planned expenditure

· Increased purchasing of stock in Euros and US Dollars to mitigate transaction and translation risks

· Treasury Committee sets agreed risk tolerance levels

· Compliance against foreign exchange exposure targets reported to Treasury Committee monthly

Cyber risk threat (L) (new risk)

Impact

Risks relating to the integrity, safeguarding and availability of information and IT systems.

The main exposures to the Group include the risk of a targeted direct attack on Group systems and data with the potential for loss of confidential information, and an undetected attack using advanced techniques to disrupt the website.

Mitigation

· 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

· 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

Pace of web innovation and development (M)

Impact

The risk is that the business is unable to maintain the pace of innovation in web and digital capabilities relative to the competition. A failure to maintain innovation could erode competitive advantage. 

Mitigation

· Implementation of a new web platform with capabilities for faster speed of change

· Improved search engine visibility

· Greater web functionality with improved search capability and web presentation across multiple devices

· 'Agile' ways of working to

Breach of regulations leading to prosecution (N)

Impact

Inadvertent breach of regulations leads to prosecution and significant fines, e.g. by contravention of product compliance regulations, environmental regulations, bribery and corruption, corporate governance.

Mitigation

· Employment of internal specialist expertise, supplemented by external partners as required

· Ongoing review of relevant national and international compliance requirements

· Group legal procedures for Group-wide compliance training for senior management leadership team in bribery and corruption and competition law requirements

· Operational audit reviews of local governance requirements and compliance arrangements

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 financial statements

We confirm that to the best of our knowledge:

· the financial statements, 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 Strategic Report and the Directors' Report include a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

· the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

By order of the Board

Ian Mason Simon Boddie

Group Chief Executive Group Finance Director

22 May 2014

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.