Notice of AGM

RNS Number : 3913L

Eurocell plc

19 April 2018

 

PUBLICATION OF 2017 ANNUAL REPORT

AND NOTICE OF 2018 ANNUAL GENERAL MEETING

Eurocell plc announces that, in accordance with LR 9.6.1R of the Listing Rules, it has submitted to the Financial Conduct Authority's National Storage Mechanism copies of the following:

·    2017 Annual Report

·    Notice of 2018 Annual General Meeting

·    Form of Proxy for 2018 Annual General Meeting

The documents will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.

On 18 April 2018, the Annual Report, Notice of Annual General Meeting and Form of Proxy were mailed to the registered shareholders of Eurocell plc. The documents are also available on the Eurocell plc website at investors.eurocell.co.uk.

The Annual General Meeting will be held at noon on 18 May 2018 at: Fairbrook House, Clover Nook Road, Alfreton, Derbyshire, DE55 4RF.

A condensed set of the Group's financial statements and information on important events that occurred during the financial year ended 31 December 2017 and their impact on the financial statements were included in Eurocell plc's Preliminary Results Announcement on 9 March 2018. That information together with the information set out below, which is extracted from the Annual Report for the year ended 31 December 2017, constitute the material required by DTR 6.3.5 of the Disclosure Guidance and Transparency Rules which is required to be communicated to the media in full unedited text through a Regulatory Information Service.

This announcement is not a substitute for reading the full Annual Report. To view the Annual Report, the Preliminary Results Announcement and the associated investor presentation, please visit investors.eurocell.co.uk

PRINCIPAL RISKS

1.   Macro-Economic Conditions

Principal Risk and Impact: The Group's products are used in the residential and commercial building and construction markets, both within the RMI sector, for new residential housing developments and for new construction projects.

The Group's private RMI business is strongly correlated to the level of household disposable incomes. The Group's new build business is particularly influenced by the level of activity in the house building industry.

As such, the Group's business and ability to fund ongoing operations is dependent on the level of activity and market demand in these sectors, itself often a function of general economic conditions (including interest rates and inflation) in the UK.

Mitigation:

·    Notwithstanding macro conditions, we expect our strategic priorities and self-help initiatives to support sales and market share growth.

·    Initiatives include: growing market share to exploit spare manufacturing capacity, investment in our specifications team (targeting new build, commercial and public sector work) and expanding the branch network.

·    We currently operate comfortably within the terms of our existing bank facility and related financial covenants.

Risk Change in Reporting Period:

·    Perception of increased political and economic uncertainty following UK 2017 General Election.

·    The general RMI market is currently subdued.

·    Specific markets for our products are broadly flat at present.

·    The UK base rate was increased in November 2017, the first increase in ten years, partly as a result of increasing inflationary pressures.

·    Reducing the pace of branch network expansion can improve short-term profit and cash flows.

2.   EU Referendum

Principal Risk and Impact: There remains significant uncertainty over how the economic landscape will be affected by the Referendum result.

This in turn could impact on our ability to grow the business (e.g. due to economic uncertainty) and/or the cost of our raw materials (see Raw Material Prices).

Mitigation:

·    Strategic priorities and self-help initiatives noted above.

·    Flexible plans with the ability to adapt if circumstances change (e.g. curtail investment in the short term to protect the business).

Risk Change in Reporting Period:

·    Brexit negotiations on-going, but perception of increasing uncertainty as to the terms under which the UK will leave the EU.

3.   Raw Material Prices

Principal Risk and Impact: The Group's manufacturing operations depend on the supply of PVC resin, a material derivative of ethylene which in turn is a derivative of crude oil.

The price of PVC resin can therefore be subject to fluctuations based on the markets for crude oil and ethylene, as well as the market for resin itself. In addition, although we pay for resin in sterling, crude oil and ethylene are priced in US Dollars and Euros respectively. As such, the price of resin in sterling is also impacted by international currency markets.

Our ability to pass on resin and other raw material or traded goods price increases to our customers will depend on market conditions at the time.

Mitigation:

·    Where possible we pass through resin price increases to our customers.

·    Increased use of recycled material in our manufacturing.

·    Use of more than one supplier to provide competitive pricing.

·    Resin supply contracts contain mechanisms to help mitigate some variations in price.

Risk Change in Reporting Period:

·    Resin and other raw material prices increased significantly in 2017, primarily due to the weakness in Sterling.

·    Partially mitigated with selling price uplifts, increased use of recycled material and manufacturing efficiencies.

·    There may be further raw material pricing pressure in 2018.

4.   Raw Material Supply

Principal Risk and Impact: There are only a limited number of PVC resin and certain other raw material suppliers and we operate with limited material storage capacity.

Failure to receive raw materials on a timely basis could impact on our ability to manufacture products and meet customer demand.

Mitigation:

·    Raw material tests to identify potential alternative suppliers are on-going.

·    Spot market for resin available to access.

·    Contractual arrangements for certain key suppliers include liquidated damages for failure to supply.

·    Regular reviews to test financial stability of key suppliers.

Risk Change in Reporting Period:

·    Lower global production and supply into Europe of PVC resin contributed to increasing prices in 2017.

·    New US capacity expected to come on line in 2018 and beyond, potentially increasing supplies into Europe.

·    Competitive resin sourcing introduced for 2017.

5.   Unplanned Plant Downtime

Principal Risk and Impact: The business is dependent on the continued and uninterrupted performance of its production facilities.

Each of the facilities is subject to operating risks, such as  industrial accidents (including fire); extended power outages; withdrawal of permits and licences (particularly in the context of the regulated operation of the recycling facility); breakdowns in machinery; equipment or information systems; prolonged maintenance activity; strikes; natural disasters and other unforeseen events.

Mitigation:

·    We have meaningful spare manufacturing capacity.

·    Regular planned maintenance to reduce the risk of plant failure.

·    Maintenance capital investment of approximately £5 million per annum across the Group.

·    Extrusion facilities spread over 3 manufacturing sites.

Risk Change in Reporting Period:

·    Group-wide disaster recovery plans reviewed and updated in 2017.

·    Capital investment in the recycling plant of £1.8 million in 2016/17 to increase capacity and eliminate bottlenecks.

·    Successful project in 2017 to increase raw material feedstock for the recycling plant.

6.   Corporate and Regulatory Risks

Principal Risk and Impact: We may be adversely affected by unexpected corporate or regulatory risks. This could include health and safety, reputational and environmental events, or other legal and compliance matters.

Enacted or soon to be enacted increases in the penalty regime have increased the potential financial impact of breaches or incidents in many cases.

These areas are receiving additional management focus, but the impact of the underlying risk has been increasing of late.

Mitigation:

·    We have procedures and policies in place to support compliance with regulations.

·    Regular communication and training on policy compliance.

·    Monitoring procedures in place, including near miss and potential hazard reporting for health and safety matters.

·    Internal and third-party site audits to test compliance with our policies.

Risk Change in Reporting Period:

·    Health and safety continues to be high-profile risk area.

·    New position of Group Quality Manager in post mid-2017, with specific focus on driving improvements in health and safety behaviours.

·    General Data Protection Regulations ('GDPR') come into force in May 2018, with increased compliance requirements and higher penalties for breaches.

7.   Unsuccessful Branch Openings

Principal Risk and Impact: The Group has invested in expanding the branch network over the last two years.

Good new sites may become more difficult to find.

New branches may fail to reach the required scale and therefore deliver the required sales and profitability within an acceptable timeframe.

Mitigation:

·    Large portfolio of potential new sites, prioritised based on detailed research into areas most likely to be successful.

·    Trials of reduced start-up costs in new branches in progress.

Risk Change in Reporting Period:

·    Significant acceleration of the network expansion, with 18 new sites in 2016 and 31 opened in 2017.

·    More to do on consolidating the existing estate, completing the work to reduce break-even times and maximise sales of high-value products. 

8.   Customer Credit Risk

Principal Risk and Impact: We do not insure our receivables, so there is an inherent risk that default by a large customer could result in a material bad debt.

Mitigation:

·    In-depth credit review for new and ongoing customer accounts.

·    Experienced Credit Manager (over 15 years with the Group) and strong credit control team.

Risk Change in Reporting Period:

·    Increased economic uncertainty and falling consumer confidence may lead to more business failures.

·    No material bad debts in 2017, but inherent risk remains.

9.   Competitor Activity

Principal Risk and Impact: The Group has a number of existing competitors who compete on range, price, quality and service. Increased competition could reduce volumes and margins on manufactured and traded products.

Mitigation:

·    Strong market and customer awareness, with good intelligence around competitor activity.

·    Focus on customer proposition and points of differentiation in product and service offering.

Risk Change in Reporting Period:

·    The Group has continued to gain market share in both divisions.

·    The more uncertain market environment has potentially weakened some of our key competitors.

10. Failure to Develop New Products

Principal Risk and Impact: Failure to innovate could reduce our growth potential, render existing products obsolete and cause a reduction in market share.

The launch of new products and new variants of existing products is an inherently uncertain process. We cannot guarantee that we will continuously develop successful new products or new variants of existing products.

Nor can we predict how customers and end-users will react to such new products or how successful our competitors will be in developing products which are more attractive than ours.

Mitigation:

·    We invest continuously in research and development through our in-house team.

·    The team is highly focused on new ways to develop existing products and to be innovative with new ones.

Risk Change in Reporting Period:

·    Recent successes include new products to support off-site home construction, an improved PVC bi-fold door alongside the introduction of an aluminium bi-fold door offering, a new sheet-tile roof system and improvements to the Modus and Skypod ranges.

·    We also have a strong product pipeline with more than 25 projects in development.

11. Ability to Attract and Retain Key Personnel and Highly Skilled Individuals

Principal Risk and Impact: The Group's success depends inter alia, on the efforts and abilities of certain key personnel and its ability to attract and retain such personnel.

The Executive Directors and senior managers have significant experience in the relevant sectors and capital markets and are expected to make an important contribution to the Group's growth and success.

Mitigation:

·    Market rate compensation for all personnel, including leadership team.

·    Clear strategic direction provides attractive backdrop to working at Eurocell.

Risk Change in Reporting Period:

·    Recent introduction for senior team of long-term incentive plans and adjustments to fixed/variable compensation to support high retention rate.

12. Shortages or Increased Costs of Appropriately Skilled Labour

Principal Risk and Impact: The Group is subject to supply risks related to the availability and cost of labour, particularly in our branch business. We may also experience labour cost increases (including those related to the Minimum Wage) or disruptions in circumstances where we have to compete for employees with the necessary skills and experience in tight labour markets.

Mitigation:

·    Market level or better salaries and good benefits package.

·    Induction and training programme.

Risk Change in Reporting Period:

·    New Group HR Director (appointed in 2017) designing strategy to improve retention and recruitment, leadership and development, employee engagement and communication.

·    Reducing churn rate in our branch business is a primary objective of the new strategy.

·    SAYE scheme launched for all personnel in 2017.

13. Cyber Security

Principal Risk and Impact: A breach of IT security (externally or internally) could result in an inability to operate systems effectively (e.g. viruses) or the release of inappropriate information (e.g. hackers).

This remains a high profile area and is receiving considerable management focus.

Mitigation:

·    Physical security of servers at third-party off-site data centre with full disaster recovery capability.

·    Password and safe use policies in place.

·    Internet usage monitored.

·    Anti-malware regularly used.

Risk Change in Reporting Period:

·    Network defences enhanced and Wi-Fi access controls improved in 2017.  

·    Cyber awareness campaign and promotion of IT security policies introduced for all employees early in 2018.

14. Failure to Identify, Complete and Integrate Bolt-on Acquisitions

Principal Risk and Impact: Exploring potential bolt-on acquisitions is one of our strategic priorities.

We may not be able to identify appropriate bolt-on acquisitions.

Any future acquisition we do make poses integration and other risks which may significantly affect our results or operations.

The acquisition and integration of companies is a complex, costly and time-consuming process involving a number of possible risks. These include diversion of management attention, failure to retain personnel, failure to maintain customer service levels, disruption to relationships with various third parties and unanticipated liabilities.

Mitigation:

·    Public communication of bolt-on acquisitions being a strategic priority.

·    Good knowledge of companies operating in our sector and related sectors.

·    We have a tried and tested procedure for the integration of new acquisitions and a good track record of recent success.

Risk Change in Reporting Period:

·    Acquisition and integration of Security Hardware now substantially complete.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have prepared the Group Financial Statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union and Company Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law). 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 Company and of the profit or loss of the Group and Company for that period. In preparing the Financial Statements, the Directors are required to:

·    Select suitable accounting policies and then apply them consistently.

·    State whether applicable IFRSs as adopted by the European Union have been followed for the Group Financial Statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the Company Financial Statements, subject to any material departures disclosed and explained in the Financial Statements.

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

·    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 Financial Statements, 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 Financial Statements may differ from legislation in other jurisdictions.

The Directors consider that the Annual Report and Accounts, 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.

The Directors who held office at the date of approval of this Directors' Report confirm that, to the best of their knowledge:

·    The Company Financial Statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law), give a true and fair view of the assets, liabilities, financial position and loss of the Company.

·    The Group Financial Statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group.

·    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.

The Directors' Responsibility Statement was approved by the Board on 8 March 2018.

Enquiries:

Gerald Copley

Company Secretary

01773 842100

 

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