TIDMECEL
RNS Number : 0687K
Eurocell plc
17 April 2020
17 April 2020
EUROCELL plc
(the 'Company')
PUBLICATION OF 2019 ANNUAL REPORT
AND NOTICE OF 2020 ANNUAL GENERAL MEETING
The Company announces that it has published its full Annual
Report for the year ended 31 December 2019 and Notice of the 2020
Annual General Meeting, which is to be held at 3pm on Thursday 14
May 2020 at Fairbrook House, Clover Nook Road, Alfreton,
Derbyshire, DE55 4RF.
(Please note:
Under the Stay at Home Measures published by the Government on
23 March 2020, and made law on 26 March 2020, shareholders, proxies
and other attendees will not be permitted to attend the AGM in
person. Anyone seeking to attend the AGM will be refused entry and
therefore shareholders are strongly recommended to vote by proxy.
In the event that the AGM arrangements change, the Company will
issue a further communication.)
Copies of the documents listed below have been posted to
registered shareholders today:
1. Annual Report 2019
2. Notice of 2020 Annual General Meeting
3. Form of Proxy for the 2020 Annual General Meeting
The above documents are also available on the Eurocell plc
website at investors.eurocell.co.uk.
In accordance with LR 9.6.1R of the Listing Rules , a copy of
each of the above documents has been submitted to the UK Listing
Authority via the National Storage Mechanism and are/will be
available for inspection at
data.fca.org.uk/#/nsm/nationalstoragemechanism.
Further to the Company's Preliminary Results announcement on 13
March 2020 (RNS number: 0158G), and in accordance with DTR
6.3.5(2)(b), set out below are the following extracts from the
Annual Report 2019 in full unedited text form:
-- Principal Risks
-- Statement of Directors' Responsibilities.
COVID-19 further update
We continue to take steps to protect our business, employees and
cash flow from the impact of COVID-19, in order to ensure we are
well placed to recommence operations and trading when it is
appropriate to do so.
With effect from 1 May 2020 until further notice, the Board has
unanimously agreed to take a 20% reduction in its remuneration. The
effect of this will be to reduce the annual fees of the Chair and
Non-Executive Directors by 20%, and to reduce the salary of the
Executive Directors by 20%, including pension contributions and
bonus payments which are calculated as a percentage of salary.
Other members of senior management have also voluntarily agreed
similar reductions.
As announced on 24 March 2020, the recommendation for a final
dividend, in respect of the year ended 31 December 2020, has been
withdrawn.
The Principal Risks summarised below are those identified in our
2019 Annual Report, which was approved by the Board on 12 March
2020, and was therefore prepared before the full impact of COVID-19
emerged. The Company's internal control systems have adapted
effectively to support our response to the pandemic.
PRINCIPAL RISKS
MACROECONOMIC CONDITIONS
Principal risk and
impact Mitigation Risk change in reporting period
Our products are
used in the * Notwithstanding macro conditions, we expect our * Political and economic uncertainty as a result of
residential and strategic priorities and self-help initiatives to Brexit is slightly reduced.
commercial building support sales and market share growth.
and construction
markets, * Construction output and general RMI market contracted
both within the RMI * Initiatives include: growing market share, investment in 2019. CPA now forecast a broadly flat market for
sector, for new in our specifications team (targeting new-build, 2020.
residential housing commercial and public sector work), expanding the
developments and branch network and increasing recycling.
for new * New home registrations reduced in 2019 but modest
construction growth is expected in 2020.
projects. * We operate comfortably within the terms of our bank
Our private RMI facility and related financial covenants.
business is * UK base rate remains unchanged since 2018.
strongly correlated
to the level of * Reducing the pace of branch network expansion should
household improve short-term profit and cash flows. * Some expectation of a post-election recovery.
disposable incomes.
Our new-build
business is
particularly
influenced by the
level of activity
in the
house-building
industry.
As such, our
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.
Government economic
and social policy
can also have a
significant impact
on our business.
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BREXIT
------------------- ----------------------------------------------------------- -----------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
Although the UK has Actions taken include:
agreed withdrawal * Some suppliers for other raw materials have agreed to * Withdrawal agreement with the EU now in place.
terms with the EU, hold extra stocks (very limited capacity at our
there remains manufacturing sites).
significant * New Government has a clear mandate to agree a Trade
uncertainty Deal with the EU.
over the nature of * Finished goods stock build executed for key lines
future trading where possible.
arrangements.
The UK leaving the
EU without agreeing * Selective credit insurance now in place.
a Trade Deal
remains a realistic
scenario, and such
an outcome could
lead to delays and
disruption at the
UK borders.
Almost all of our
sales are to
UK-based
businesses.
However, some of
our key raw
materials
originate in
Europe, so any
disruption in
supplies could
impact on our
ability to
manufacture
our products and
meet customer
demand.
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CYBER SECURITY
------------------- ----------------------------------------------------------- -----------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
A breach of IT
security * Physical security of servers at third-party off-site * This remains a high-profile area and is receiving
(externally or data centre, with full disaster recovery capability. considerable management focus.
internally) could
result in an
inability to * Password and safe-use policies in place, internet
operate usage monitored and anti-malware used.
systems effectively
(e.g. viruses) or
the release of * External cyber review and internal audit reviews
inappropriate conducted in 2019, resulting in significant
information (e.g. enhancements in defence.
hackers).
* Cyber awareness/IT security campaign active for all
employees.
* Financial crime protection and cyber liability
insurance in place.
----------------------------------------------------------- -----------------------------------------------------------
RAW MATERIAL PRICES
------------------- ----------------------------------------------------------- -----------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
Our manufacturing
operations depend * Where possible we pass through raw material or traded * Raw material prices continued to fluctuate in 2019,
on the supply of goods price increases to our customers. largely as a result of currency changes and the
PVC resin, a impact of other uncertainties surrounding Brexit.
material derivative
of ethylene * Increasing the use of recycled material in our
which in turn is a manufacturing partially mitigates exposure to resin * We have elected not to enter into a fixed price
derivative of crude prices. contract for PVC resin in 2020 as the premium
oil. required by suppliers was prohibitive.
The price of PVC
resin can therefore * We consider fixed price supply arrangements with
be subject to suppliers where it is economic to do so.
fluctuations based
on the markets for
crude * Use of more than one supplier to provide competitive
oil and ethylene, pricing for many raw materials and traded goods.
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.
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OPERATING CAPACITY CONSTRAINTS
---------------------------------------------------------------------------------------------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
A requirement to
run manufacturing * Co-extrusion and foam capacity increased by 30% and * Warehousing capacity identified as the key remaining
facilities at high 15% respectively in 2019 to resolve manufacturing constraint to efficient operations and future growth.
levels of capacity constraint.
utilisation in peak
periods * New warehouse facility secured for 2020.
(e.g. to meet * Recruitment of additional trained labour in our
customer demand) foiling plant for 2019 to resolve manufacturing
can drive down capacity constraint. * Risks associated with project to transition. Plan to
Overall Equipment be operational with new warehouse in Q4.
Effectiveness
('OEE') and * Strengthened management team in critical areas of
result in other Chief Operating Officer, production planning and
operational logistics.
inefficiencies.
Attempting to
satisfy
unexpectedly high
demand without the
requisite
infrastructure in
place
may lead to a
failure of people,
systems and
processes to
perform.
Together these
factors can result
in adverse
financial
consequences.
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UNPLANNED PLANT DOWNTIME
---------------------------------------------------------------------------------------------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
The business is * No material change
dependent on the * Regular planned maintenance to reduce the risk of
continued and plant failure.
uninterrupted
performance of our
production * Maintenance capital investment of approximately GBP5
facilities. million per annum across the Group.
Each of the
facilities is
subject to * Extrusion facilities spread over 3 manufacturing
operating risks, sites.
such as: industrial
accidents
(including * Group-wide disaster recovery plans in place.
fire); extended
power outages;
withdrawal of * Acquisition of Ecoplas has increased our recycling
permits and capacity and reduced our reliance on a single
licences (e.g. the recycling plant.
regulated operation
of the recycling
facility);
breakdowns in
machinery;
equipment or
information
systems; prolonged
maintenance
activity; strikes;
natural disasters;
and other
unforeseen events.
----------------------------------------------------------- -----------------------------------------------------------
RAW MATERIAL SUPPLY
------------------- ----------------------------------------------------------- -----------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
There are only a
limited number of * Raw material tests to identify potential alternative * Brexit related supply risks decreasing as described
PVC resin and suppliers. above.
certain other raw
material suppliers
and * Spot market for resin often available to access. * Potential remains for increased resin supply
we operate with originating from the US to come on line and deliver
limited material into Europe.
storage capacity. * Contractual arrangements for certain key suppliers
As described above include liquidated damages for failure to supply.
(see Brexit risk),
failure to receive
raw materials on a * Regular reviews to test financial stability of key
timely basis could suppliers.
impact on our
ability to
manufacture
products and meet
customer demand.
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UNSUCCESSFUL BRANCH NETWORK EXPANSION
---------------------------------------------------------------------------------------------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
We have invested New Building Plastics' management team progressing
significantly to initiatives to improve profitability: * Pace of expansion slowed in 2018-20 to allow focus on
expand the branch * More rigid pricing architecture. consolidating existing estate.
network over the
last 3 years.
The network, * Revised field sales and account management structure.
including new
branches, may fail
to reach the * Drive to better stock availability and trials of new
required scale and front-of-house and product displays.
profitability
within an
acceptable * Enhanced training to ensure all staff have the
timeframe. ability to sell the full range of products.
Looking further
forward, good new
sites may become * Profit improvement plan template for lowest
more difficult to performing branches.
find.
* Improved new site selection using location analysis
tools.
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ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL AND HIGHLY SKILLED INDIVIDUALS
---------------------------------------------------------------------------------------------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
Our success depends
inter alia, on the * Clear strategic direction provides an attractive * Continued focus on improving employee engagement and
efforts and backdrop to working at Eurocell. communication (e.g. new Group-wide Vision and Values
abilities of launched in 2018.)
certain key
personnel and * Market rate compensation for all personnel, including
our ability to leadership team.
attract and retain
such people.
The senior team * Equity-based long-term incentive plans in place for
have significant senior team.
experience in the
relevant sectors
and markets and are
expected
to make an
important
contribution to our
growth and success.
----------------------------------------------------------- -----------------------------------------------------------
SHORTAGES OR INCREASED COSTS OF APPROPRIATELY SKILLED LABOUR
---------------------------------------------------------------------------------------------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
We are subject to * Fourth SAYE scheme planned for 2020.
supply risks * Market level or better salaries and good benefits
related to the package.
availability and
cost of labour,
both in our * Induction and training programme.
manufacturing
operations and in
our branch * Annual SAYE share-save scheme available to all
business. Our personnel.
headquarters are
located in an area
of generally full * Progressing strategy to improve retention and
employment. recruitment, leadership and development, employee
We may also engagement and communication.
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.
----------------------------------------------------------- -----------------------------------------------------------
CUSTOMER CREDIT
RISK
------------------- ----------------------------------------------------------- -----------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
There is an
inherent risk that * In-depth credit review for new and ongoing customer * Increased economic uncertainty and falling consumer
default by a large accounts. confidence may lead to more business failures.
customer could
result in a
material bad * Experienced Credit Manager (over 15 years with the * No individually material bad debts in 2019, but some
debt. Group) and strong credit control team. extension of credit terms and overdues on large
accounts. Inherent risk remains.
* Credit insurance implemented for large Profiles
accounts.
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COMPETITOR ACTIVITY
------------------- ----------------------------------------------------------- -----------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
We have a number of
existing * Strong market and customer awareness, with good * We continued to gain market share in both divisions
competitors who intelligence around competitor activity. in 2019.
compete on range,
price, quality and
service. * Focus on customer proposition and points of * The more uncertain market environment may have
Increased differentiation in product and service offering. weakened some of our competitors.
competition could
reduce volumes and
margins on
manufactured and
traded products.
----------------------------------------------------------- -----------------------------------------------------------
CORPORATE AND REGULATORY RISKS
---------------------------------------------------------------------------------------------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
We may be adversely Recent developments widen the scope and increase the
affected by the * We have procedures and policies in place to support penalty regime for breaches in these
crystalisation of compliance with regulations. areas. For example:
unexpected * Corporate Criminal Offence of Failure to Prevent the
corporate or Facilitation of Tax Evasion ('CCO') legislation came
regulatory risks. * Regular communication and training on policy into force on 30 September 2017.
These could include compliance.
health and safety,
data, reputational * General Data Protection Regulations ('GDPR') came
and environmental * Monitoring procedures in place, including near miss into effect in May 2018.
risks (including and potential hazard reporting for health and safety
regulations related matters.
to our recycling
operations), or
other legal, * Internal and third-party site audits to test
taxation and compliance with our policies.
compliance
matters.
----------------------------------------------------------- -----------------------------------------------------------
FAILURE TO DEVELOP NEW PRODUCTS
---------------------------------------------------------------------------------------------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
Failure to innovate
could reduce our * We invest continuously in research and development * Recent successes include: Coastline (a lightweight
growth potential or through our in-house team. composite cladding for use on coastal properties),
render existing and extensions to the Modus and Skypod ranges.
products obsolete.
The launch of new * The team is highly focused on new ways to develop
products and new existing products and to be innovative with new ones.
variants of
existing products
is an inherently * We have a strong product pipeline with more than 25
uncertain projects in development.
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 new
products or how
successful
our competitors
will be in
developing products
which are more
attractive than
ours.
----------------------------------------------------------- -----------------------------------------------------------
FAILURE TO IDENTIFY, COMPLETE AND INTEGRATE BOLT-ON ACQUISITIONS
---------------------------------------------------------------------------------------------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
Exploring potential
bolt-on * Public communication of bolt-on acquisitions being a * Some delays with project to expand Ecoplas.
acquisitions is one strategic priority. Performance is now improving, but significant value
of our strategic at stake until acceptable plant reliability achieved.
priorities.
We may not be able * Good knowledge of companies operating in our sector
to identify and related sectors.
appropriate bolt-on
acquisitions.
Any future * Ecoplas and Kent Building Plastics acquired in 2018
acquisition we do and Trimseal in 2019.
make poses
integration and
other risks which * Tried and tested procedure for the integration of new
may affect our acquisitions and a good track record of recent
results success.
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, system
risks and
unanticipated
liabilities
----------------------------------------------------------- -----------------------------------------------------------
CORONAVIRUS
------------------- ----------------------------------------------------------- -----------------------------------------------------------
Principal risk and Mitigation Risk change in reporting period
impact
----------------------------------------------------------- -----------------------------------------------------------
A significant * New risk in 2020
proportion of * We placed extra orders for window and door hardware
window and door in January 2020.
hardware is sourced
in China. We may be
adversely
affected by a
disruption to the
hardware supply
chain which impacts
our business (Vista
Panels
and Security
Hardware) or that
of our window
fabricator
customers.
We may also be
impacted if the
virus results in
the unavailability
of our workforce or
has
a significant
impact on the macro
economic
environment.
----------------------------------------------------------- -----------------------------------------------------------
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
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; and
-- 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 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 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 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.
Directors' confirmations
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 position and performance, business model and
strategy.
Each of the Directors, whose names and functions are listed in
the corporate governance section on pages 54 and 55 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
profit 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; and
-- the Directors' 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 12 March 2020.
Mark Kelly Michael Scott
Chief Executive Officer Chief Financial Officer
Enquiries:
Paul Walker
Group Company Secretary
01773 842100
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END
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