2nd Jun 2005 06:00
Premier Farnell plc2 June 2005 Results for the first quarter of the financial year ending 29 January 2006 Reported under International Financial Reporting Standards (IFRS). Q1 2005/6 Q1 2004/5 Q1 2004/5 ‚£m ‚£m ‚£m at CER* Revenue 196.4 200.3 197.5 Operating profit 17.5 18.8 18.5 Earnings per share 2.3p 2.5p 2.4p *Constant exchange rates Key points * Year on year sales down 0.4%¢â‚¬ in the first quarter * Sales in MDD North America flat in subdued markets; Mainland Europe up 6.5% showing further market share gains; UK down 5.1% due to weakening market conditions * Profit shortfall in first quarter attributable to BuckHickman InOne * performance across the rest of the Group slightly ahead of the prior year * Contribution from BuckHickman InOne through the rest of the year is expected to be broadly similar to that in the prior year * Operating margin of 8.9% (2004/5: 9.4%); gross margin of 40.2% (2004/5: 40.1%) * MDD eCommerce sales up 38% over prior year, accounting for 18% of MDD's sales with steady growth in both eProcurement and through web sites Commenting on the results, John Hirst, Group Chief Executive said:"In the first quarter, sales in MDD North America were flat in a subduedmarket. In the UK, the market slowed during the period and sales at FarnellInOne were disappointing despite maintaining its active customer base andincreasing the number of orders shipped. We achieved encouraging growth insales in mainland Europe despite market activity becoming increasingly patchy."Although BuckHickman InOne represented a drag on the first quarter profits,this is not expected to repeat in future periods. Against a difficult marketbackdrop, the recovery has made headway and it now has a promising pipeline ofbusiness opportunities. Despite more difficult conditions, the rest of theGroup has, in aggregate, achieved a profit performance slightly ahead of thefirst quarter last year when markets were much more buoyant."Across MDD, sales via eCommerce channels and to corporate accounts have grownsteadily and our preparation for the impending RoHS legislation has alsoprogressed well. Helped by the flexibility that our systems now give us, we aredelivering solutions to customers increasingly tailored to their specificneeds. This capability is helping us increase our active customer base andsecure a steady stream of marketing agreements with major electronicssuppliers. Our proposition to electronic design engineers worldwide, a segmentthat has been a particular focus for the Group over the last three years, isdeveloping well as a result."The completion of our major infrastructure investment programme leaves us wellplaced to trade through difficult market conditions. Our focus throughout theGroup is to drive the pace and increase the effectiveness of our marketing,whilst continuing to keep a tight control on costs."¢â‚¬ percentage changes in salesComparison of sales for specific periods is affected by three variables: 1. Changes in exchange rates used to translate the overseas sales in different currencies into sterling; 2. Differences in the number of working days; 3. Disposal or acquisition of businesses. Throughout this statement, in order to reflect underlying business performance,percentage changes in sales are based on sales per day for continuingbusinesses at constant exchange rates and for like periods, unless otherwisestated.For further information, contact:John Hirst, Group CEO Premier Farnell plc +44 (0) 20 7851 Andrew Fisher, Group Finance 4100 Director James Garthwaite, Group Director, Communications Richard Mountain Financial Dynamics (UK) +44 (0) 20 7269 7291 Andrew Saunders Taylor Rafferty (NA) + 1 212 889 4350 Two conference calls with John Hirst and Andrew Fisher will take place on 2ndJune: the first at 8:30am; the second at 4pm UK time (for US investors andfollowers). To obtain dial-in details please call Richard Mountain (UK ormainland Europe) at Financial Dynamics or Andrew Saunders (US) at TaylorRafferty on the above numbers. The first call will be recorded and be availableon the Group web site later that day.Premier Farnell's announcements and presentations are published on the Internetat www.premierfarnell.com, together with business information, the 2005 AnnualReport and Accounts, and links to all other Group web sites.The results for the second quarter of the financial year to 29 January 2006will be announced on 8 September 2005.Premier Farnell plc CHAIRMAN'S STATEMENT ON RESULTS FOR FIRST QUARTER OF THE YEAR ENDING29 January 2006. Premier Farnell, the leading global marketer and distributor of electronic,maintenance, repair and operations (MRO) and specialist products and services,today announces its results for the first quarter ended 1 May 2005.These are the first results to be reported by the Company in accordance withInternational Financial Reporting Standards (IFRS). The impact of IFRS on theGroup's accounting policies and comparative financial results, which have beenrestated in accordance with IFRS, is given in note 1 to these financialstatements and also in the IFRS announcement made on 4 May 2005, a copy ofwhich can be found on the Company's website.Note: percentage changes in salesComparison of sales for specific periods is affected by three variables: 1. Changes in exchange rates used to translate the overseas sales in different currencies into sterling; 2. Differences in the number of working days; 3. Disposal or acquisition of businesses. Throughout this statement, in order to reflect underlying business performance,percentage changes in sales are based on sales per day for continuingbusinesses at constant exchange rates and for like periods, unless otherwisestated.Financial Results * Revenue Group sales for the quarter were ‚£196.4million (2004/5: ‚£200.3million). Salesper day decreased 0.4% on the prior year.The continued weakness of the US dollar against sterling again impacted theGroup's financial results. At constant exchange rates, the sales decrease inthe first quarter was ‚£1.1million. * Margins and Operating Profit The Group's gross margin for the quarter was 40.2% (2004/5: 40.1%). Operatingprofit was ‚£17.5million (2004/5: ‚£18.8million), producing an operating marginof 8.9% (2004/5: 9.4%). The primary reason for the lower operating profit was areduction in contribution from BuckHickman InOne of approximately ‚£1.7million.The contribution from BuckHickman InOne through the rest of the year isexpected to be broadly similar to that in the prior year.At constant exchange rates, the decrease in operating profit compared to theprior year was ‚£1.0million. * Interest The net interest payable for the quarter of ‚£3.2million (2004/5: ‚£3.4million)was covered 5.5 times by operating profit.Included in finance costs for the quarter is a charge of ‚£2.0million (2004/5:nil) in respect of the Company's convertible preference shares. Under IFRS,with effect from 31 January 2005, the preference dividend of ‚£1.7million,together with a ‚£0.3million charge for the amortisation of the impliedredemption premium on the preference shares, is included as a finance cost forthe first time with no restatement of prior year comparatives. This is purelyan accounting change as a result of IFRS. * Profit Before Tax Reported profit before tax for the quarter was ‚£12.3million and, excluding thefinance charge of ‚£2.0million for the Company's convertible preference shares,profit before tax was ‚£14.3million (2004/5: ‚£15.4million). * Earnings per Share Earnings per share for the first quarter were 2.3p (2004/5: 2.5p). * Balance Sheet and Cash Flow Net cash generated from operations of ‚£13.0million in the quarter was 74% ofoperating profit (2004/5: ‚£11.5million, 61% of operating profit). Workingcapital increased by ‚£9.9million during the quarter. This included a seasonalincrease in receivables of ‚£5.0million and an investment in inventory of ‚£2.4million. Net cash flow during the quarter was ‚£8.5million (2004/5: ‚£2.8million). Net debt at the end of the quarter was ‚£297.0million, including ‚£107.0million attributable to the reclassification of the Company's preferenceshares as required under IFRS. Net debt excluding preference shares was ‚£190.0million, compared with ‚£200.7million at 30 January 2005.Since the period-end, the Group has secured new committed five year bankfacilities totalling ‚£200million, replacing existing bank facilities of ‚£120million which were due to mature in mid-2006. These new facilities alsoprovide sufficient headroom to accommodate the repayment of US$155millionSenior Notes, also maturing in mid-2006. The new facilities carry a lowermargin over LIBOR than the facilities being replaced.Under IFRS, the Group's consolidated balance sheet shows net assets of ‚£1.0million (30 January 2005: ‚£102.5million) as a result of the requirement toreclassify the convertible preference shares from equity to debt with effectfrom 31 January 2005. This is purely an accounting change as a result of IFRSand has no impact on the Group's ability to pay ordinary dividends or upon itsfinancing arrangements.OperationsMarketing and Distribution Division (MDD)MDD comprises: Newark InOne; Farnell InOne; BuckHickman InOne; MCM, an InOneCompany and CPC. Q1 2005/6 Q1 2004/5 Q1 2004/5 ‚£m ‚£m ‚£m at CER* Revenue 172.3 176.7 174.3 Gross margin % 38.0% 37.9% 37.9% Operating profit 17.2 18.5 18.3 Return on sales% 10.0% 10.5% 10.5% *Constant exchange ratesIn the quarter, sales were down 1.0% on the prior year. The primary reason forthe lower operating profit was the reduction in contribution from BuckHickmanInOne, referred to below.Gross margin increased year-on-year, but was 0.3% below the level achieved inthe second half of 2004/5. In the Americas, gross margin was 0.7% ahead of thecomparative period, due to the wide range of margin improvement measures takenlast year, although it showed a reduction of 0.4% compared with the second halfof the prior year because of a shift in mix towards corporate account saleswhich are typically more resilient in a soft market. Within Europe and AsiaPacific, gross margin was down 0.4% on the prior year level because of thechanging customer mix at BuckHickman InOne. The gross margin at Farnell InOnewas similar to that achieved in the prior year, in spite of more aggressivecompetition in the market place.eCommerce sales grew strongly during the quarter, up 38% on the prior year.eCommerce sales accounted for 18% of sales in the Americas and 19% of those inthe Europe and Asia Pacific region. There are now 409 live eProcurementpartnerships across the division, up from 378 at the start of the financialyear.The AmericasNewark InOne and MCM, an InOne Company. Q1 2005/6 Q1 2004/5 Q1 2004/5 ‚£m ‚£m ‚£m at CER* Revenue 72.7 75.6 72.7 Operating profit 6.6 6.8 6.5 Return on sales% 9.1% 9.0% 8.9% *Constant exchange ratesIn the quarter, whilst sales were flat on the prior year, profits improved (atconstant exchange rates) as costs were tightly controlled. Operating marginsrose to 9.1%.Newark InOne secured a further six eProcurement partnerships with customersduring the quarter, including Caterpillar and GE Consumer and Industrial. Salesthrough eProcurement partnerships increased 38% as sales to national and globalaccounts continued to grow in line with expectations, despite the slowermarket.Sales over the web grew 21% in the quarter. The product range available on theweb site has been extended by giving customers access to some 17,000 newproducts introduced through a new strategic partnership with PEI-Genesis, asupplier of military-specification electronic connectors. Orders are shippeddirect from PEI-Genesis' own inventories.As a number of States in the US move towards adopting legislation similar tothe European RoHS (Restriction of the use of certain Hazardous Substances)legislation, Newark InOne and Farnell InOne have combined expertise in thisfield. As a result, Newark InOne launched `RoHS Express', an online informationsource to help electronic design engineers prepare for the significant industrychanges that will occur.Sales from operations in Brazil continued to grow strongly.Europe and Asia PacificFarnell InOne, BuckHickman InOne and CPC. Q1 2005/6 Q1 2004/5 Q1 2004/5 ‚£m ‚£m ‚£m at CER* Revenue 99.6 101.1 101.6 Operating profit 10.6 11.7 11.8 Return on sales% 10.6% 11.6% 11.6% *Constant exchange ratesSales were down 1.7% in the quarter against the backdrop of tougher marketconditions in the UK and Mainland Europe compared to the first quarter of lastyear. Operating profit was adversely affected by a reduction in contributionfrom BuckHickman InOne of approximately ‚£1.7million. The contribution fromBuckHickman InOne through the rest of the year is expected to be broadlysimilar to that in the prior year.Revenue by region Q1 2005/6 Q1 2004/5 SPD Growth ‚£m ‚£m % UK (including exports) 66.0 69.5 -5.1% Mainland Europe 26.6 24.5 +6.5% Asia Pacific 7.0 7.1 +2.2% In the UK, a single management team is now in place across Farnell InOne andBuckHickman InOne. Both businesses share system infrastructure and back officeservices including catalogue production, eCommerce support and procurement. UKsales through the brands and shared channels of these businesses suffered adecline of 5.1% in the quarter as a result of difficult market conditions.Early weeks of the second quarter indicate underlying sales runningapproximately 3% below the comparable period last year.Whilst Farnell InOne UK maintained its active customer base year-on-year andthe average number of orders per day increased during the quarter, the averageorder value fell, indicative of more cautious customer behaviour. During thequarter there has been a strong focus on reducing costs and building morefocused online and offline marketing campaigns. Preparation for the impact ofthe European Union's RoHS Directive in July 2006 is also progressing well.BuckHickman InOne now has a solid pipeline of business opportunities. Marketingactivities are being helped by the launch of a new catalogue in May and thelaunch of BuckHickman InOne's website in June.Sales to corporate account customers in the UK continued to grow, up 4.4%.Following designation of Honeywell as a global customer, Premier Farnell hasextended its existing North American agreement with the group for the supply ofelectronic components to cover all Honeywell's European locations. In addition,the BuckHickman InOne industrial product range is now being supplied toHoneywell in mainland Europe.CPC's operating margin was maintained at last year's level, despite a declinein sales of 6.7%. The management team has been strengthened and a number ofactions are underway to revitalize CPC's proposition in response to the softmarket conditions amongst its small business customer base. These include thesourcing of products that can be sold at more aggressive price points and moreactive direct mail campaigns.In mainland Europe, Farnell InOne continued to gain market share as sales rose6.5% despite increasingly patchy markets. Monthly growth rates in the periodwere consistently between 6% and 8% ahead of the prior year. Performance wasflat, or up, in all territories during the quarter, with the strongest growthevident in Italy, Germany and Spain. This was helped by high levels of servicefrom the Liƒ¨ge distribution centre, a broadened range of stocked product andcontinued growth amongst corporate accounts.Across Europe sales via the web grew strongly and in some regions were runningat over 40% of total sales by the end of the quarter. In the quarter, FarnellInOne launched `Electronics Design World', a web site for design engineers inEnglish, French and German. The objective of the site is to create an onlinecommunity and the initial reception, from both customers and suppliers, hasbeen encouraging. A further 25 eProcurement agreements were signed during thequarter and sales via eProcurement agreements and over the web were up 68% and47%, respectively.Sales growth in Asia slowed to 4.8% in the quarter. Global accounts helpeddeliver strong growth in China, albeit from a low base, whilst softer sales inSingapore and Malaysia held back the region's overall performance. During thequarter, a transactional Farnell InOne web site was launched in Japan,following a recent launch in Korea, and the business launched its firstcatalogue in Thailand.In Australia, sales were just ahead of those in the prior year in a flatmarket.Supplier relationshipsAs the Group increases its ability to offer marketing services, good progresshas been made developing relationships with suppliers. During the quarter, theGroup secured new exclusive global franchise agreements with two suppliers,KEMET and Sipex. These types of agreements are expected to increase theattractiveness of Farnell InOne's and Newark InOne's proposition to electronicdesign engineers.In addition, the latest Farnell InOne catalogue includes some 15,800 newproducts, including significantly deeper product ranges from two key suppliers,National Semiconductor and Texas Instruments. Products from both suppliers arenow being added weekly to Farnell InOne's online catalogues across Europe.The marketing services programme is being extended to more suppliers and, inthe quarter, included a European product launch of amplifiers for AnalogDevices.Industrial Products Division (IPD) Q1 2005/6 Q1 2004/5 Q1 2004/5 ‚£m ‚£m ‚£m at CER* Revenue 24.1 23.6 23.2 Operating profit 2.7 2.8 2.7 Return on sales % 11.2% 11.9% 11.6% *Constant exchange ratesAkron BrassSales at Akron Brass were up 6.7%. Whilst the fire truck market was flat, thebusiness continued to grow sales, helped by several new product introductions.Akron Brass also made progress expanding its presence in the industrial market,securing a $600,000 order for a fire suppression system from the NationalCooperative Refining Association (NCRA) in Kansas.TPC Wire & CableTPC achieved sales growth of 10.0%, despite weaker sales in its traditionalNorth American automotive markets. Sales to new, non-automotive markets were up50%, illustrating the success of TPC's diversification plans and strong growthin sales to the Federal Government.KentSales at Kent declined 1.9% in the first quarter, a better performance than theunderlying market. This was assisted by an agreement to supply Kent's newabrasive range to General Motor's French dealer network. New product launchesplanned for June are expected to bolster sales performance.OutlookIn North America, sales at Newark InOne since the end of the quarter have showngrowth against a strong performance in the prior year. The recovery atBuckHickman InOne is making headway and the business now has a solid pipelineof business opportunities. Swift action has been taken to address the difficultmarket at CPC. Our growing marketing capabilities are helping us secure asteady stream of agreements with major electronics suppliers, in turn enhancingour proposition to electronic design engineers. This is further evidence thatthe systems and service capabilities that we have in place are now assisting usto pursue our strategy and to unlock opportunities in our markets.The completion of our major investment programme leaves us well placed to tradethrough difficult market conditions. Our focus throughout the Group is to drivethe pace and increase the effectiveness of our marketing, whilst alsocontrolling costs.Sir Peter GershonChairman2 June 2005Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the UnitedStates Private Securities Litigation Reform Act of 1995: The U.S. PrivateSecurities Litigation Reform Act of 1995 provides a "safe harbor" forforward-looking statements. This press release contains certain forward-lookingstatements relating to the business of the Group and certain of its plans andobjectives, including, but not limited to, future capital expenditures, futureordinary expenditures and future actions to be taken by the Group in connectionwith such capital and ordinary expenditures, the introduction of newinformation technology and e-commerce platforms, the expected benefits andfuture actions to be taken by the Group in respect of certain sales andmarketing initiatives, operating efficiencies and economies of scale. By theirnature forward-looking statements involve risk and uncertainty because theyrelate to events and depend on circumstances that will occur in the future.Actual expenditures made and actions taken may differ materially from theGroup's expectations contained in the forward-looking statements as a result ofvarious factors, many of which are beyond the control of the Group. Thesefactors include, but are not limited to, the effect of legislative andregulatory enactments, the implementation of cost-saving initiatives to offsetcurrent market conditions, integration of new personnel and new informationsystems, continued use and acceptance of e-commerce programs and systes and theimpact on other distribution systems, the ability to expand into new marketsand territories, the implementation of new sales and marketing initiatives,changes in demand for electronic, electrical, electromagnetic and industrialproducts, rapid changes in distribution of products and customer expectations,the ability to introduce and customers' acceptance of new services, productsand product lines, product availability, the impact of competitive pricing,fluctuations in foreign currencies, and changes in interest rates and overallmarket conditions, particularly the impact of changes in world-wide andnational economies.Consolidated Profit and Loss Account For the 13 weeks ended 1st May 2005 2005/6 2004/5 2004/5 First First Full quarter quarter year unaudited unaudited unaudited Notes ‚£m ‚£m ‚£m Revenue 2 196.4 200.3 776.7 Cost of sales (117.5) (119.9) (462.2) Gross profit 78.9 80.4 314.5 Total operating expenses (61.4) (61.6) (242.0) Operating profit 2 17.5 18.8 72.5 Finance income (interest receivable) 0.1 0.1 0.3 Finance costs - interest payable (3.3) (3.5) (13.8) - preference dividend (1.7) - - - premium on redemption of preference (0.3) - -shares Total finance costs (5.3) (3.5) (13.8) Profit before taxation 3 12.3 15.4 59.0 Taxation 4 (3.8) (4.8) (14.0) Profit after taxation 8.5 10.6 45.0 Preference dividend - (1.7) (6.6) Profit attributable to ordinary 8.5 8.9 38.4shareholders Earnings per share 5 Basic 2.3p 2.5p 10.6p Diluted 2.3p 2.5p 10.6p Consolidated Statement of Recognised Income and Expense For the 13 weeks ended 1st May 2005 2005/6 2004/5 2004/5 First First Full quarter quarter year unaudited unaudited unaudited ‚£m ‚£m ‚£m Profit after taxation 8.5 10.6 45.0 Foreign exchange translation 0.2 (1.8) 2.2differences Actuarial losses on defined benefit - - (15.0)pension schemes Deferred tax on actuarial losses on - - 5.2defined benefit pension schemes Net gains and losses not recognised in 0.2 (1.8) (7.6)the profit and loss account Total recognised income and expense for 8.7 8.8 37.4the period Consolidated Balance Sheet As at 1st May 2005 1st May 2nd May 30th January 2005 2004 2005 unaudited unaudited unaudited Notes ‚£m ‚£m ‚£m ASSETS Non-current assets Property, plant and equipment 67.1 73.8 69.5 Intangible assets 74.6 80.1 76.3 Retirement benefit asset 44.1 55.2 44.3 Deferred tax assets 0.4 4.4 5.0 Total non-current assets 186.2 213.5 195.1 Current assets Inventories 158.9 163.7 158.1 Trade and other receivables 135.4 139.8 131.4 Cash and cash equivalents 6 34.8 33.4 27.9 Total current assets 329.1 336.9 317.4 LIABILITIES Current liabilities Financial liabilities 6 (0.5) (5.2) (0.8) Trade and other payables (89.7) (106.5) (89.3) Current tax payable (42.3) (42.6) (40.6) Short-term provisions (0.1) (0.1) (0.1) Total current liabilities (132.6) (154.4) (130.8) Net current assets 196.5 182.5 186.6 Non-current liabilities Financial liabilities 6 (331.3) (236.8) (227.8) Deferred tax liabilities (21.7) (26.1) (22.4) Retirement and other post-employment (27.8) (22.5) (28.1)benefits Other provisions (0.9) (1.4) (0.9) Total non-current liabilities (381.7) (286.8) (279.2) NET ASSETS 1.0 109.2 102.5 EQUITY Share capital 18.1 25.7 25.7 Equity element of preference shares 19.9 - - Share premium 20.3 20.1 20.2 Capital redemption reserve 0.8 0.8 0.8 Cumulative translation reserve 2.4 (1.8) 2.2 Retained earnings (60.5) 64.4 53.6 TOTAL EQUITY 1.0 109.2 102.5 Consolidated Reconciliation of Movements in Equity For the 13 weeks ended 1st May 2005 2005/6 2004/5 2004/5 First First Full quarter quarter year unaudited unaudited unaudited Notes ‚£m ‚£m ‚£m Total equity at beginning of period, 102.5 101.4 101.4as previously reported Implementation of accounting for financial instruments in accordance with IAS 32 and IAS 39: - reclassification of preference 1 (106.3) - -shares as debt - associated deferred tax (4.7) - - Total equity at beginning of period, (8.5) 101.4 101.4as adjusted Profit after taxation 8.5 10.6 45.0 Net income/(expense) recognised 0.2 (1.8) (7.6)directly in equity Ordinary dividends declared - - (32.6) Preference dividends - (1.7) (6.6) Ordinary shares issued 0.1 - 0.1 Share-based payments 0.7 0.7 2.8 Total equity at end of period 1.0 109.2 102.5Summarised Consolidated Statement of Cash Flows For the 13 weeks ended 1st May 2005 2005/6 2004/5 2004/5 First First Full quarter quarter year unaudited unaudited unaudited Notes ‚£m ‚£m ‚£m Cash flows from operating activities Operating profit 17.5 18.8 72.5 Depreciation and amortisation 5.1 5.3 19.7 Changes in working capital (9.9) (12.3) (19.9) Other non-cash movements 0.3 (0.3) 0.2 Cash generated from operations 13.0 11.5 72.5 Net interest paid (0.1) (0.1) (13.4) Dividends paid on preference shares - - (6.6) Taxation paid (2.3) (2.2) (12.1) Net cash from operating activities 10.6 9.2 40.4 Cash flows from investing activities Purchase of business - (2.6) (2.6) Proceeds from sale of property, - 0.1 1.0plant and equipment Purchase of property, plant and (1.4) (2.5) (6.5)equipment Purchase of intangible assets (0.8) (1.4) (6.8)(computer software) Net cash used in investing (2.2) (6.4) (14.9)activities Cash flows from financing activities Issue of ordinary shares 0.1 - 0.1 New bank loans - - 23.0 Repayment of bank loans - - (17.7) Dividends paid to shareholders - - (32.6) Net cash used in financing 0.1 - (27.2)activities Net increase/(decrease) in cash and 8.5 2.8 (1.7)bank overdrafts Reconciliation of net debt Net debt at beginning of period, as (200.7) (201.9) (201.9)previously reported Implementation of accounting for financial instruments in accordance with IAS 39: - reclassification of preference 1 (106.3) - -shares as debt Net debt at beginning of period, as (307.0) (201.9) (201.9)restated Net increase/(decrease) in cash and 8.5 2.8 (1.7)bank overdrafts Increase in debt - - (5.3) Premium on redemption of preference (0.3) - -shares Exchange movement 1.8 (9.5) 8.2 Net debt at end of period 6 (297.0) (208.6) (200.7) Notes 1 Adoption of International Financial Reporting Standards (IFRS) Premier Farnell adopted IFRS with effect from 31st January 2005. Consequently, these financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting. IFRS 1, First Time Adoption of IFRS, requires that most IFRS are applied retrospectively, subject to certain exemptions that can be taken. Hence, the comparative information included in these financial statements has been restated in accordance with IFRS. A reconciliation from UK GAAP to IFRS of the profit and loss account for the quarter ended 2nd May 2004, and of the balance sheet as at 2nd May 2004, is included on pages 15 and 16, respectively. A more detailed explanation of the changes made to the UK GAAP accounting policies disclosed in the Group's 2005 Annual Report and Accounts are given in the IFRS announcement made by the Company on 4th May 2005. From 31st January 2005, Premier Farnell implemented the following additional change in accounting policy as a result of adopting IAS 32 and IAS 39, accounting for financial instruments. This change is applied prospectively from 31st January 2005, and therefore does not affect the comparative information. Prior to 31st January 2005, convertible, redeemable preference shares were included within shareholders' funds and the preference dividend shown as a deduction from profit after tax. From 31st January 2005, IFRS requires such preference shares to be split into debt and equity components with the preference dividend being reclassified as a finance cost. The fair value of the debt element is established on issue of the shares, based on the discounted cash flows of the instrument to the date of maturity, and is then increased each year on a straight line basis through the profit and loss account in order to arrive at the redemption amount payable on maturity of the shares. The equity component is ‚£19.9 million and will only change as and when shares are redeemed. At 1st May 2005, the debt element of the preference shares was ‚£107.0 million (31st January 2005: ‚£106.3 million). The amortisation charge relating to the implied redemption premium during the quarter ended 1st May 2005 was ‚£0.3 million. The transition from UK GAAP to IFRS does not change the reported cash flows of the Group. An IFRS cash flow statement is similar to UK GAAP but presents various cash flows in different categories and in a different order from UK GAAP. All of the IFRS adjustments noted on pages 15 and 16 net out within cash generated from operations except for the intangible assets reclassification where the cash used to purchase computer software has been reclassified from purchase of plant and equipment to purchase of intangible assets. IAS 14, Segment Reporting, does not change the Group's reportable segments from those reported under UK GAAP. The Group's business segments under UK GAAP will be the primary reporting segments under IAS 14. A copy of the Group's 2005 Annual Report and Accounts and the IFRS announcement are available on the Company's website at www.premierfarnell.com. 2 Segment information 2005/6 2004/5 2004/5 First First Full quarter quarter year unaudited unaudited unaudited ‚£m ‚£m ‚£m Revenue Marketing and Distribution Division Americas 72.7 75.6 289.8 Europe and Asia Pacific 99.6 101.1 390.2 Total Marketing and 172.3 176.7 680.0 Distribution Division Industrial Products 24.1 23.6 96.7 Division 196.4 200.3 776.7 Operating profit Marketing and Distribution Division Americas 6.6 6.8 25.5 Europe and Asia Pacific 10.6 11.7 43.8 Total Marketing and 17.2 18.5 69.3 Distribution Division Industrial Products 2.7 2.8 12.9 Division Head Office costs (2.4) (2.5) (9.7) 17.5 18.8 72.5 3 Profit before taxation Profit before taxation is stated after charging/(crediting): 2005/6 2004/5 2004/5 First First Full quarter quarter year unaudited unaudited unaudited ‚£m ‚£m ‚£m Share-based payments 0.7 0.7 2.8 Defined benefit pension (0.3) (0.7) (2.7) schemes (net) 4 Taxation The taxation charge includes provision at an effective rate for the period on profit before tax and preference dividend of 27.0% (2004/5: 31.2%), being the estimated effective rate of taxation for the year ending 29th January 2006. 5 Earnings per share Basic earnings per share are based on the profit attributable to ordinary shareholders and the weighted average number of ordinary shares in issue during the period, excluding those shares held by the Premier Farnell Executive Trust. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume issue of all dilutive potential ordinary shares, i.e. those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period. Earnings and the weighted average number of shares used in the calculations are set out below. 2005/6 2004/5 2004/5 First First Full quarter quarter year unaudited unaudited unaudited ‚£m ‚£m ‚£m Profit attributable to 8.5 8.9 38.4 ordinary shareholders Number Number Number Weighted average number 362,703,208 362,644,230 362,664,115 of shares Dilutive effect of 259,748 1,452,853 1,042,844 share options Diluted weighted average 362,962,956 364,097,083 363,706,959 number of shares 6 Net debt 1st May 2nd May 30th January 2005 2004 2005 unaudited unauRelated Shares:
PFL.L