PUBLICATION OF 2016 ANNUAL REPORT
AND NOTICE OF 2017 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:
· 2016 Annual Report
· Notice of 2017 Annual General Meeting
· Form of Proxy for 2017 Annual General Meeting
The documents will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.
On 18 April 2017, 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 19 May 2017 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 2016 and their impact on the financial statements were included in Eurocell plc's Preliminary Results Announcement on 8 March 2016. That information together with the information set out below, which is extracted from the Annual Report for the year ended 31 December 2016, 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 most 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: expanding the branch network, investment in our specifications team, and targeting new build, commercial and public sector work.
· We currently operate comfortably within the terms of our existing bank facility and related financial covenants.
Risk Change in Reporting Period:
· The general RMI market is currently broadly flat.
· Specific markets for our products are also forecast to be flat.
· Our self-help initiatives are progressing well.
2. EU Referendum
Principal Risk and Impact: We saw no significant impact on our markets or business from the EU Referendum in 2016. However, there remains significant uncertainty over how the economic landscape will be affected by the result in 2017 and beyond. This is turn could impact on the ability to grow our business.
Mitigation:
· Strategic priorities and self-help initiatives noted above.
· Constant review and monitoring of the economic landscape.
· Flexible plans with the ability to adapt if circumstances change significantly (e.g. curtail investment to protect the business).
Risk Change in Reporting Period:
· New risk for 2017.
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. In addition, although we pay for PVC in sterling, crude oil and ethylene are priced in US dollars and euros respectively. As such, the price of PVC resin in sterling is also impacted by international currency markets.
Our ability to pass on PVC price increases will depend on market conditions at the time.
Mitigation:
· Resin supply contracts contain mechanisms to help deal with significant variations in price.
· Where possible we pass through resin price increases (and decreases) to our customers.
· Increased use of recycled material in our manufacturing.
· Use of more than one supplier to provide competitive pricing.
Risk Change in Reporting Period:
· Resin prices increased in 2016, primarily due to weakness in sterling.
· We mitigated in 2016 with selling price uplift, increased recycling and manufacturing efficiencies.
· Further raw material pricing pressure potential in 2017.
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 only limited material storage.
Failure to receive raw materials on a timely basis could impact on our ability to manufacture product and meet customer demand.
Mitigation:
· Raw material tests to identify potential alternative suppliers completed in 2016.
· Competitive resin sourcing introduced for 2017.
· Spot market for resin available to access.
· Regular reviews to test financial stability of our suppliers.
Risk Change in Reporting Period:
· Material tests and competitive sourcing are new for 2017.
5. Unplanned Downtime
Principal Risk and Impact: The business is dependent on the continued and uninterrupted performance of its production facilities, including the operation of the recycling plant.
Each of the facilities is subject to operating risks, such as shortages in raw materials, 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:
· The Group currently has spare manufacturing capacity.
· Regular planned maintenance to reduce the risk of plant failure.
· Extrusion facilities spread over 3 manufacturing sites.
· Capital investment in the recycling plant to increase capacity and eliminate bottlenecks.
Risk Change in Reporting Period:
· Capital investment in the recycling plant and increased sources of supply are new for 2017, but we are also driving to increase our use of recycled material.
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 matters.
For example, significant increases in the penalty regime have increased the potential financial, reputational and operating impact of health and safety incidents.
Mitigation:
· We employ procedures, policies and audits to ensure regulatory compliance.
· Senior managers are responsible for health and safety matters in each division.
· Health, Safety and Environment policies are widely communicated and regular training is provided.
· Site audits and monitoring procedures are in place, including near miss and potential hazard reporting.
Risk Change in Reporting Period:
· Health and safety and the potential impact of the Bribery Act continue to be high-profile risk areas
7. Unsuccessful Branch Openings
Principal Risk and Impact: 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 progressing to plan.
Risk Change in Reporting Period:
· Increasing risk as a result of accelerating the new branch roll out programme.
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 (15 years with the Group) and strong credit control team.
Risk Change in Reporting Period:
· No significant bad debts in 2016, but inherent risk remains.
9. 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 of 10 staff.
· The team is highly focused on new ways to develop existing products and to be innovative with new ones.
· Recent successes include multi-chamber Eurologik profiles, Modus S, PAS24 Patio Door System, 125mm and 225mm cill and Roomline range extension.
Risk Change in Reporting Period:
· We have a strong product pipeline with more than 25 projects in development.
10. Ability to Attract and Retain Key Personnel and Highly Skilled Individuals
Principal Risk and Impact: The Group's success depends substantially on the efforts and abilities of 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.
· Recent IPO and clear strategic direction provide 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.
11. Cyber Security
Principal Risk and Impact: A breach of IT security (externally or internally) could result in inability to operate systems effectively (e.g. viruses) or the release of inappropriate information (e.g. hackers).
Mitigation:
· Password and safe use policies.
· Internet usage monitored.
· Anti-malware regularly used.
· Physical security of servers.
Risk Change in Reporting Period:
· No change.
12. Failure to Identify, Complete and Integrate Bolt-on Acquisitions
Principal Risk and Impact: 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, e.g. diversion of management attention, failure to retain personnel, failure to maintain customer service levels, disruption to relationships with customers and other third parties, unanticipated liabilities and difficulties in the assimilation of the operations, technologies, systems, services and products of the acquired companies.
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:
· Integration of Vista proceeding to plan with performance in line with expectations.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
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 Group and Company Financial Statements for each financial year. Under that law, the Directors are required to prepare the Group Financial Statements in accordance with applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), and have elected to prepare the Company Financial Statements in accordance with applicable law and UK Generally Accepted Accounting Practice (UK Accounting Standards, comprising FRS101 'Reduced Disclosure Framework').
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 for that period. In preparing these Financial Statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· state whether IFRS as adopted by the European Union and applicable UK Accounting Standards comprising FRS101 have been followed, subject to any material departures disclosed and explained in the Group and Company Financial Statements respectively;
· make judgements and accounting estimates that are reasonable and prudent; and
· prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
In preparing the Group Financial Statements, IAS 1 requires that Directors:
· properly select and apply accounting policies;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
· make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that its 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. They are also responsible for safeguarding the assets of the Company and the Group 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 corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
RESPONSIBILITY STATEMENT OF THE DIRECTORS OF THE ANNUAL FINANCIAL REPORT
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 UK Generally Accepted Account Practice (UK Accounting Standards, comprising FRS101 'Reduced Disclosure Framework', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company;
· the Group Financial Statements, which have been prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
· the Strategic Report contained in this Annual Report includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face.
The Directors consider the Annual Report and Financial Statements, taken as a whole, to be fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.
DISCLOSURE OF INFORMATION TO THE AUDITOR
The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware, and each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
The Directors' Responsibility Statement was approved by the Board on 7 March 2017.
Enquiries:
Gerald Copley
Company Secretary
01773 842100
