Electrocomponents has well established risk management procedures for the identification, assessment and management of risks to achieve the Group’s strategic objectives.
The Board and Group Executive Committee receive regular reports covering risks and mitigating actions arising from external factors, key dependencies, project delivery and corporate responsibility factors. Our key business risks, which the Group has identified, are as follows:
Macroeconomic environment
The uncertain economic outlook presents significant challenges to the Group’s financial performance going forward.
The Group aims to mitigate and manage these effects through the close monitoring of trading environments and driving growth opportunities across the Group’s markets through its electronics and maintenance offers and e‑Commerce channel. The business model remains broad based with 450,000 products being sold to 1.5m customers globally with an average order value of approximately £100. The business is geographically spread operating directly in 27 countries with the International business contributing 65% of Group revenue.
Costs continue to be tightly controlled, with actions taken during the year to deliver £18m of annualised cost savings. These include a net reduction of around 500 employees which represents around 8% of the total Group headcount. The cost actions were enabled by the increasing e‑Commerce channel share, strong control over discretionary spend, redistribution of activity between the Group’s two UK warehouses and exploiting the benefits of the Group’s systems infrastructure.
The business remains highly cash generative with significant headroom to the Group’s banking covenants. The vast majority of the Group’s committed facilities available at 31 March 2009 have a maturity date of September 2012.
Group strategy implementation
The implementation of the Group’s strategy was accelerated during the year. However the risk remains that it may not deliver the expected results. To address the risk, we have focused on developing our customer communications supported by robust customer research and dedicated sales and organisational resources.
Our priority will remain the development of the electronics and maintenance offers including accelerating new product introductions, strengthening partnerships with our key suppliers, developing our price competitiveness and exploiting the full potential of our e‑Commerce platform. The recent restructuring of the regional organisations in Continental Europe and Asia Pacific will support the delivery of the strategic objectives across those markets.
Information and communications systems
We are dependent on the quality and resilience of our information and communications infrastructure to support our worldwide distribution business. This infrastructure underpins the Group’s new product initiatives and development of the electronics strategy. A major failure affecting these systems would cause significant disruption to our operations.
The recent upgrades to business systems in Europe and Asia Pacific, including investments in resilient infrastructure, systems knowledge and regional disaster recovery provision, have significantly reduced the risks in these areas.
We will continue to improve our information and communications infrastructure with the targeted introduction of supplementary technologies to support the achievement of the Group’s strategic objectives, particularly in our e‑Commerce capabilities.
Pricing
To ensure our success in the market, customers must be provided with “value for money” by competitive market pricing, high service levels and effective customer communications. There is a risk that in an economic recession, the market becomes increasingly price driven with the high service business model becoming less valued by our customers.
To address this we have robust pricing frameworks in place to allow us to respond quickly to market and competitor pricing developments. During the year we reduced the prices on a significant number of electronics products to improve our competitiveness. Also the expansion of our own brand ranges further supports our ability to compete on price in the current business environment.
Our use of targeted discounting, application of the pricing model and product sourcing strategies have contributed to the gross margin increasing between the first half and second half of the year in tough market conditions. These actions aim to ensure that we will remain competitive in the current tough market conditions, whilst our service offer with products “in stock” provides us with an advantage over many of our competitors.
People
The skills, expertise and commitment of our employees are important to the success of the Group strategy. A significant risk to strategy implementation is that the business is unable to attract or retain high performing employees, or that staff are not fully engaged in the strategy.
This risk is progressively addressed through the development of our internal competencies, supplemented with new expertise through external appointments. Employee commitment is encouraged through our appraisal processes, with personal objectives being aligned in support of the strategic objectives.
Our continuous improvement initiatives encourage employee involvement in identifying and implementing changes to improve customer experience and deliver greater efficiency.
The Group Executive Committee regularly spends time considering personal development and career progression opportunities for employees in the business. The annual Group meetings also involve the wider senior management engaging further in the Group strategy.