11th Sep 2008 07:00
Premier Farnell plc 11 September 2008 Results for the Second Quarter and Half Year ended 3 August 2008 of the Financial Year ending 1 February 2009Key Financials ‚£m Q2 08/9 Q2 07/8 Q2 growth H1 08/9 H1 07/8 H1 growth Continuingoperations ‚£m ‚£m ‚£m ‚£m(Unaudited)Revenue 195.8 178.9 5% (a) 395.1 362.5 5% (a)Operating profit 22.0 20.5 2% (a) 46.2 42.7 4% (a)Profit before tax 18.1 16.3 11% 42.1 33.8 25%Adjusted profit 18.1 16.1 12% 38.5 33.6 15%before tax(b)Earnings per share - total 3.5p 3.0p 17% 8.4p 2.6p 223% - continuing 3.5p 3.0p 17% 8.4p 6.3p 33%operationsAdjusted earningsper share(b) 3.5p 3.0p 17% 7.4p 2.5p 196%- total 3.5p 3.0p 17% 7.4p 6.2p 19%- continuingoperationsInterim ordinary 4.2p 4.0p 5% 4.2p 4.0p 5%dividend per shareNotes:
(a) Throughout this statement, in order to reflect underlying business performance, sales growth is based on sales per day for continuing businesses at constant exchange rates and for like periods, and growth in operating profit is calculated at constant exchange rates.
(b) Adjusted profit before tax and adjusted earnings per share exclude the gain on the purchase and cancellation of preference shares in the first quarter of ‚£3.6m (2007/8 Q2: ‚£0.2m).
Strategic Highlights
- Another quarter of outperforming the markets as we continue to invest in and deliver on our strategy which differentiates us.
- Continued robust performance in MDD North America, with sales growth of 5.5% in the second quarter and 5.8% in the first half as we further embed the strategy and strengthen our EDE and web propositions.
- MDD Europe and Asia Pacific sales growth at 5.5% in the second quarter despite challenging markets. Farnell UK growth continues to outperform the market.
- Internationalisation plans continue to deliver significant growth, with second quarter sales in China up 67% and in Eastern Europe up 82%. Our Indian business grew 50% on its first quarter performance.
- Second quarter web sales up 42% at Newark and web penetration in China now over 30% as we continue to make progress in all regions. MDD eCommerce sales are now more than 30% of total.
Financial Highlights
- Second quarter gross margin at 39.9% (2007/8: 39.6%), representing the eleventh consecutive quarter of gross margin stability.
- Stable operating margin in the first half, despite continued investment in our strategy.
- Profit before tax from continuing operations up 11.0% in the second quarter and 24.6% in the first half. Adjusted profit before tax (excluding the gain on the purchase and cancellation of preference shares) up 12.4% and 14.6%, respectively.
- Earnings per share from continuing operations up 16.7% in the second quarter and 33.3% in the first half. Adjusted earnings per share up 16.7% and 19.4%, respectively.
- Continued strong cash performance with cash generated from continuing operations in the first half representing 103% (2007/8: 101%) of operating profit.
- The Board's continued confidence in the delivery of our strategy is being demonstrated through a 5% increase to our interim dividend, which will now pay 4.2 pence per share.
Commenting on the results, Harriet Green, Group Chief Executive, said:
"We have seen progress in the quarter as the execution of our strategy - focused on the electronic design engineering segment, the web and internationalisation - continues to differentiate us in the industry. Premier Farnell is evolving as all elements of our strategy become more embedded in our businesses. The success we have seen in higher growth markets and in providing customers with the value they demand encourages us to invest further. This, combined with our operational execution leads the Board to anticipate further progress in the second half in line with its expectations."
For further information, contact:
Harriet Green, Chief Executive Premier Farnell +44 (0) 20 7851 4100 Officer
plc Mark Whiteling, Chief FinancialOfficerRichard Mountain Financial +44 (0) 20 7269 7121 Dynamics
Premier Farnell's announcements and presentations are published at www.premierfarnell.com, together with business information, the 2008 Annual Report and Accounts, and links to all other Group web sites.
The results for the third quarter of the financial year to 1 February 2009 will be announced on 11 December 2008.
Premier Farnell plc
SECOND QUARTER STATEMENT
Results for the Second Quarter and Half Year ended 3 August 2008
of the Financial Year ending 1 February 2009
Premier Farnell, the leading multi-channel, high service distributor supporting millions of engineers and purchasing professionals globally, announces its results for the second quarter and half year ended 3 August 2008.
Note:
Throughout this statement, in order to reflect underlying business performance, sales growth is based on sales per day for continuing businesses at constant exchange rates and for like periods, and growth in operating profit is calculated at constant exchange rates.
Chief Executive's Operational Overview
The first half of the year for Premier Farnellsaw the continued execution of, and investment in, our strategy for profitablegrowth. As a result, we have achieved good results and once again outperformedour core markets. We are further differentiating ourselves through ourstrategy, which continues to focus on the higher growth opportunities -Electronic Design Engineering, the web and internationalisation. Ongoinginvestment in products and tools for our Electronic Design Engineer (EDE)customers, whilst providing them with our high service proposition, remainsfundamental to our proposition. We are embedding and accelerating the strategyacross the business to ensure Premier Farnell solidifies its position as amarket leader.For our MDD Division the second quarter saw continued robustperformance in all major markets where, despite the more challenging economicconditions, we have outperformed for the sixth successive quarter.Particularly worthy of note is the year on year growth of 5.5% in NorthAmerica, whilst the UK outperformed the market to deliver 2.2% growth year onyear. MDD Europe and Asia Pacific grew 5.5% against the prior year, with ournew international markets delivering continued strong performances; sales inChina were up 67%, Eastern Europe grew by 82% in the quarter, while India, nowin its second quarter with Premier Farnell, traded up more than 50% on thefirst quarter. Gross margin for the Group has now remained stable for nearlythree years. First half operating margin is stable despite increasedinvestment in the strategy reflecting the accelerated pace of growth andtransformation. Cash performance has also been strong with cash generated fromcontinuing operations at 103% of operating profit.In our constant quest to delight our customers, exceed expectationsand drive higher performance across our business we continue to raise the barby which we measure our own standards. This remains at the very heart of ourhigh service business model. Currently 99.6% of our orders are shipped thesame day or next day to meet our customers requirements - new internalmeasures will provide fuller information to enable us to improve further.
EDE
Focusing on the EDE segment globally continues to create newopportunities for customer acquisition and this remains a key area ofinvestment. We continue to add technical support resources, including theexpansion of our Global Technology Centres that provide round the clocksupport to design engineers worldwide. EDEs face a constant challenge tosource the latest technologies and products in a timely manner to ensure theirproducts remain at the forefront of their market, delivering new products whenrequired. In Q2 alone we have added a further 15,000 lines of new product toour portfolio and continue to partner with more of the world's leadingsuppliers. New product sales in Europe are at record levels, reflecting ourstrong position as the distributor of choice for the EDE segment. During thequarter we signed five new greenhouse niche suppliers, an important globalagreement with Solid State Inc, and subsequent to quarter end we signed aglobal contract with Cree, the market leader in Power LED's, an emergingtechnology - all combining to ensure our customers can access the widest rangeof products from us to meet the ongoing demands of the electronics consumer inthis fast paced, constantly changing environment. The NXP (formerly PhilipsSemiconductor) franchise signed last quarter is now fully launched with asignificant investment in new products and personnel to support it, whilstplans to bring Altera's leading edge product range to our customers continue,another significant addition. Multi-channel, multi-vendor technology marketingcampaigns continue to be successful as we target specific, relevant marketingactivity to the different customer segments. Our technology marketing remainsa key driver for customer acquisition.
Web
Our web business continues to grow year on year as part of ourmulti-channel sales approach, ensuring that customers can reach us however,and whenever, they choose. We continue to implement new functionality on ourtransactional websites and the additions made in Q2 have been well received,with more being piloted ready for imminent launch. All parts of the Group areconstantly pulsing our customers for feedback, testing new enhancements andunderstanding how we can further add value to our customers' experience. Eachday we invite customers to give us feedback on every aspect of our performanceand their feedback is carefully considered, providing invaluable insight as weinvest, develop and grow further. Our latest eProcurement tool `i-Buy' waslaunched in Europe and Asia Pacific during Q2 to very positive response.eCommerce business now accounts for over 30% of total MDD sales globally andcontinues to grow as we recruit and strengthen our eCommerce teams to keeppace with the rate of change and ensure our web offering remains well suitedto customer need. Web sales growth is evident across the business - withNewark up 42% on the prior year, and 30% of China's sales now coming via thewebsite, which is fully translated into Mandarin.During the quarter we officially launched the new Indian websiteand implemented a multi-language search facility in Poland. We will shortlylaunch a new website in Slovenia with more East European developments planned.Our online community offering, targeted at EDEs and providing an area wherethey can collaborate, network and share is now in the final preparation stagesand customers will begin testing it during the current quarter. Our communityoffering will further improve the support we provide to global EDEs. As westrengthen our supplier partnerships we have been working closely with anumber of them on some commercially innovative initiatives, now at pilot stageand poised to continue to differentiate us.
Internationalisation
Our internationalisation plans continue at pace as we now work todrive the success of our new businesses and capitalise on the opportunitiesthey afford us to support the growing number of EDEs with a localised,multi-channel approach. EDE centric product sales in Asia are up by over 17%year on year as the region transitions and EDE now accounts for 50% of China'stotal sales - a key metric of our business transformation plans reachedeighteen months early. Asia Pacific remains a region of unparalleled growthopportunity and as the business expands rapidly our constant search fortalented performers to join the business continues.
We have made a number of significant appointments across the business as we develop the talent within our teams, share best practice and learnings across the group and attract industry specialists to join our growing operation.
IPD
Combined second quarter sales for our two main IPD businesses wereflat year on year reflecting the slowdown in certain key elements of the localUS market, particularly the automotive segment. However, here as elsewhereacross the business, a rigorous focus on developing new products and newinternational markets, as well as diversifying into new segments continues todeliver opportunities for growth. Akron Brass saw its international businessgrow 20% year on year, with a 100% increase in China, where product has beenused in industrial applications, and even for fire support at the BeijingOlympics. TPC has seen strong progress in the non-automotive markets and, likeAkron, continues to control costs very effectively and deliver a strongoperating margin.
Dividend
The second quarter and first half year has shown profitable growth. The Board's continued confidence in the execution of our strategy and our ability to accelerate our pace of change has resulted in an increased interim dividend of 5% to 4.2 pence per share.
Financial ResultsRevenueHalf YearSales for the first half from continuing operations were ‚£395.1million (2007/8: ‚£362.5 million or ‚£373.7 million at constant exchange rates).Sales per day from continuing businesses increased 5.4% on the prior year withthe MDD Division achieving sales growth of 6.2%, in line with our strategictarget. The average exchange rate for the US dollar against sterling was $1.98(H1 2007/8: $1.99) and the average exchange rate for the Euro against sterlingwas Euro 1.28 (H1 2007/8: Euro 1.48).
Second Quarter
Sales for the second quarter from continuing operations were ‚£195.8million (2007/8: ‚£178.9 million or ‚£185.7 million at constant exchange rates).Sales per day from continuing operations increased 4.7% on the prior year withMDD growth at 5.5%. The average exchange rate for the US dollar againststerling was $1.98 (Q2 2007/8: $2.01) and the average exchange rate for theEuro against sterling was Euro 1.27 (Q2 2007/8: Euro 1.48).
Margins and Operating Profit
Half Year
The gross margin from continuing operations in the first half was40.0%, an increase of 0.3 percentage points on the prior year, continuing ourtrack record of maintaining margin stability. Operating profit from continuingoperations was ‚£46.2 million (2007/8: ‚£42.7 million) producing an operatingmargin of 11.7% (2007/8: 11.8%). There was a beneficial impact on operatingprofit of ‚£1.6 million from the translation of overseas results compared withthe prior year, primarily as a result of the relative strength of the Euro. Atconstant exchange rates, the increase in operating profit compared with theprior year was 4.3%.
Second Quarter
The gross margin from continuing operations in the second quarterwas 39.9%, an increase of 0.3 percentage points on the prior year. Thisrepresents the eleventh consecutive quarter of gross margin stability, whichcontinues to differentiate us in the industry. Operating profit fromcontinuing operations was ‚£22.0 million (2007/8: ‚£20.5 million), producing anoperating margin of 11.2% (2007/8: 11.5%), reflecting the continued investmentin our strategy to drive further growth from EDE, international markets andvia the web. There was a beneficial impact on operating profit of ‚£1.0 millionfrom the translation of overseas results compared with the prior year,principally as a result of the strength of the Euro. At constant exchangerates, the increase in operating profit compared with the prior year was 2.3%.
Foreign Currency Impact
A one cent movement in the exchange rate between the US dollar andsterling impacts the Group's operating profit by approximately ‚£250,000 perannum and one cent movement in the exchange rate between the Euro and sterlingcurrently impacts the Group's operating profit by approximately ‚£100,000 perannum.Finance CostsNet finance costs in the first half were ‚£4.1 million (2007/8: ‚£8.9million). This comprises net interest payable of ‚£5.5 million (2007/8: ‚£5.4million), which was covered 8.4 times by operating profit, and a net credit of‚£1.4 million (2007/8: net charge of ‚£3.5 million) in respect of the Company'sconvertible preference shares.During the first quarter, the Company purchased and cancelled1,784,302 of its preference shares for a total cash consideration of ‚£23.1million. This resulted in a one-time benefit to finance costs in the half of‚£3.6 million, being the difference between the book value and fair value ofthe debt element of the preference shares at the date of purchase. In thesecond quarter of the prior year, a gain of ‚£0.2 million was recognised fromthe purchase and cancellation of preference shares. Excluding these gains, thecharge in respect of preference shares in the first half was ‚£2.2 million(2007/8: ‚£3.7 million), reflecting the benefit of lower preference dividendsand a lower redemption premium as a result of the reduction in the number ofpreference shares in issue over the last year.
Profit Before Tax and Taxation Charge
Reported profit before tax from continuing operations in the firsthalf was ‚£42.1 million (2007/8: ‚£33.8 million) an increase of 24.6% on theprior year. Excluding the gain arising from the purchase and cancellation ofpreference shares, profit before tax in the first half was ‚£38.5 million(2007/8: ‚£33.6 million) an increase of 14.6% on the prior year.
Reported profit before tax from continuing operations in the second quarter was ‚£18.1 million (2007/8: ‚£16.3 million) an increase of 11.0% on the prior year, or 12.4% excluding gains on the purchase and cancellation of preference shares.
The taxation charge from continuing operations for the first half was at an effective rate of 29.0% of profit before tax, preference dividends and the gain on purchase of preference shares (2007/8: 29.7%).
Return on Net Operating Assets
Return on net operating assets for the first half, based on continuing operations, was 30.6% (2007/8: 29.0%), remaining above our strategic target.
Earnings per Share
Total earnings per share for the first half were 8.4 pence (2007/8: 2.6 pence). Earnings per share from continuing operations for the first half were 8.4 pence (2007/8: 6.3 pence), an increase of 33.3% on the prior year. Excluding gains on the purchase and cancellation of preference shares, earnings per share from continuing operations were 7.4 pence (2007/8: 6.2 pence), an increase of 19.4% on the prior year.
Interim Dividend
The Board is declaring an interim dividend of 4.2 pence per share (2007/8: 4.0 pence per share), an increase of 5%, to be paid on 15 October 2008 to shareholders on the register on 19 September 2008.
Cash Flow and Net Financial Liabilities
Net cash generated from continuing operations in the second quarter was ‚£25.4 million (2007/8: ‚£23.6 million), representing 115% (2007/8: 115%) of operating profit. Working capital increased only slightly in the quarter.
Net cash generated from continuing operations in the first half was‚£47.5 million (2007/8: ‚£43.0 million) representing 103% (2007/8: 101%) ofoperating profit. Free cash flow in the first half, being cash generated fromcontinuing operations less net capital expenditure, interest, preferencedividends and tax payments, was ‚£24.9 million (2007/8: ‚£13.5 million)including proceeds from the sale of surplus property of ‚£3.3 million (2007/8:‚£0.1 million). During the first half, ‚£23.1 million (2007/8: ‚£3.6 million) wasspent on purchasing and cancelling the Company's preference shares, and ‚£2.8million (2007/8: ‚£2.5 million) was spent on purchasing ordinary shares for thePremier Farnell Executive Trust. Proceeds received from prior year businessdisposals amounted to ‚£0.7 million (2007/8: ‚£24.5 million).
Net financial liabilities at the end of the first half were ‚£244.8 million (29 July 2007: ‚£258.5 million), including ‚£59.5 million (29 July 2007: ‚£100.0 million) attributable to the Company's preference shares.
Operations
Marketing and Distribution Division (MDD)
MDD comprises: Newark, Farnell, MCM and CPC.
Continuing Q2 08/9 Q2 07/8 Q2 growth H1 08/9 H1 07/8 H1 growthbusinesses ‚£m ‚£m ‚£m ‚£mRevenue 177.7 160.8 5.5% 359.1 325.9 6.2%Operating profit 21.5 19.7 4.4% 45.1 41.1 5.9%Operating margin 12.1% 12.3% 12.6% 12.6%%Second quarter sales grew 5.5% on the prior year as we continued tooutperform the market through focus on our strategic initiatives. First halfsales growth was 6.2%, in line with our target of 6-8%. Operating margin forthe second quarter was slightly below the prior year, reflecting our revenueinvestment in the strategy. First half operating margin was 12.6%, in linewith the prior year. There was a beneficial impact on operating profit in thefirst half from the translation of overseas results of ‚£1.5 million, dueprimarily to the relative strength of the Euro.
Investment in high performance eCommerce tools continues to help us drive the online customer experience and improve functionality, with web sales in the second quarter up 28.5% and total eCommerce sales now accounting for 31.3% of total MDD sales.
The AmericasNewark and MCM. Q2 08/9 Q2 07/8 Q2 growth H1 08/9 H1 07/8 H1 growth ‚£m ‚£m ‚£m ‚£mRevenue 84.8 78.5 5.5% 171.0 159.4 5.8%Operating profit 7.4 6.9 5.7% 15.9 14.8 6.0%Operating margin 8.7% 8.8% 9.3% 9.3%%Statistics from the Semiconductor Industry Association (SIA) show ayear on year decline in billings in the Americas for the three months endedJuly 2008 of -3.8%. Despite the challenging market conditions, sales in MDDAmericas in the second quarter increased 5.5% on the prior year supported bythe benefits from our strategic investments. First half sales growth was 5.8%and first half operating margin was in line with the prior year.Newark's sales grew 5.8% during the quarter as the business continued to embedthe strategy in all areas of its operations. Newark's sales and marketingmodel, particularly the effectiveness of our inbound and outbound call centresand the delivery of technology solutions for high growth sectors, includingAutomation and Motion Control were well received by the design engineercommunity. Specifically, in the quarter Newark delivered over 7,100 newproducts, new technical support services and a "Technology First Journal", amagazine written for design engineers. These strategic initiatives helpedsupport the 36% second quarter sales growth in our small and emerging customersegment.Web sales in the Americas continued to show significant growth, up37.0% on the prior year, with Newark up 42.0%, reflecting further improvementsto our web functionality including multi-channel order history, the pilot ofan eProcurement tool `i-Buy', which has already been launched in the UK andEurope, and other products, tools and solutions to support design engineers.`I-Buy' will be officially rolled out in the Americas during the third andfourth quarters.MCM's second quarter sales grew 1.6%, an improvement on the firstquarter's growth rate. This performance is despite the continuing decline inthe North American housing market, which impacts the home security and homeentertainment segments of the business, as MCM continues to actively targetcustomers outside of these segments through improvements to online and offlinemarketing campaigns and increased prospecting for new customers. The businesshas improved its operating margin through successfully controlling its costsand optimising its pricing and inventory positions. eCommerce sales nowaccount for 45.3% of total sales in this business.
Europe and Asia Pacific
Farnell and CPC.
Continuing Q2 08/9 Q2 07/8 Q2 growth H1 08/9 H1 07/8 H1 growthbusinesses ‚£m ‚£m ‚£m ‚£mRevenue 92.9 82.3 5.5% 188.1 166.5 6.6%
Operating profit 14.1 12.8 3.7% 29.2 26.3 5.8% Operating margin 15.2% 15.6%
15.5% 15.8%%
Sales were up 5.5% in the quarter and operating profit increased 3.7% on last year as we continue our revenue investment in the strategy, particularly our internationalisation plans in Eastern Europe and the Asia Pacific region as we continue to pursue the many opportunities in these regions.
Revenue by region Q2 08/9 Q2 07/8 Revenue H1 08/9 H1 07/8 RevenueContinuing growth growthbusinesses ‚£m ‚£m ‚£m ‚£mUK (including 44.3 43.4 2.2% 90.6 87.7 3.3%exports)Mainland Europe 39.1 31.4 7.8% 79.1 64.1 9.4%Asia Pacific 9.5 7.5 14.1% 18.4 14.7 13.6%In mainland Europe, Farnell's sales grew 7.8% in the quarter as wecontinued to outperform the market and benefit from our strategic investmentsand web enhancements. We have now deployed feedback management systems acrossEurope which will enable us to capture customer feedback, and adapt and investin the areas that they value. Our investments in Eastern Europe continue todeliver strongly, with sales growth in the quarter of 82%. CPC's sales were inline with last year, with improved marketing effectiveness, driving growth inboth traditional product areas and private label, offseting a decline indemand for high value consumer goods, reflecting the current economic climate.CPC has seen a 40% increase in online visitors in the quarter driving a 20%increase in the number of new accounts opened. Sales of the Farnell brand inthe UK grew 1.2% in the quarter and continue to outperform the market, withthe Association of Franchised Distributors of Electronic Components (AFDEC)reporting a sales decline in the UK of -3.0%, in the same period, excludingFarnell.
Web sales for the division grew 26.1% in the second quarter, aided by our high performance tools and reporting software, enabling us to continually improve our eCommerce offering to meet customer needs. Total eCommerce sales in the quarter accounted for 41.7% of total sales for the division.
Our Asia Pacific region continues to accelerate, with secondquarter sales growth of 14.1%. The China business grew sales by 66.8%, withEDE products now accounting for over 50% of total sales. Expansion of thecustomer base continues, reflecting the value that Chinese design engineersassociate with our high service proposition, including next day delivery toover 110 Chinese cities and our Mandarin and English websites. More than 30%of our business in China is now transacted via the web. Our Indian business,which was acquired at the end of last year, is now fully integrated in thedivision and had another successful quarter, with its official openingattracting many potential customers who were impressed by our strategicproposition. With eight fully operational offices and recruitment underway fora ninth office in Calcutta, we are well placed to benefit from the investmentswe have made in the fast growing Indian market. Sales in India grew by morethan 50% on the first quarter. Sales in Australia and New Zealand declined2.6% in the first half as this market continues to be challenging. We are inthe process of taking definitive steps to improve this performance.
Industrial Products Division (IPD)
Q2 08/9 Q2 07/8 Q2 growth H1 08/9 H1 07/8 H1 growth at ‚£m ‚£m ‚£m ‚£mRevenue 18.1 18.1 -1.9% 36.0 36.6 -2.4%Operating profit 3.4 3.5 -5.6% 6.9 7.0 -2.8%Operating margin 18.8% 19.3% 19.2% 19.1%%
Combined second quarter sales for Akron Brass and TPC Wire & Cable, which together represent 93% of the IPD Division, were flat year on year. Cadillac Electric sales, which represent 7% of total IPD sales and 0.6% of Group sales, declined 16% in the quarter reflecting the planned wind down of specific trading activity.
Akron BrassSales at Akron Brass grew 0.7% during the second quarter, comparedto the first quarter year on year decline of 0.8%, despite last yearbenefiting from the tail end of an acceleration of orders from North Americanfire equipment manufacturers, driven by changes in regulatory requirements.Sales in international markets, which increased 20%, and new productdevelopments continued to offset lower order levels in the fire and school busmarkets which are being affected by the rising cost of fuel.
New product development continues, with a focus on industrial markets, and lighting products for international ambulance and bus markets. Operating margins remained strong reflecting manufacturing efficiencies and tight material cost controls.
TPC Wire & Cable
TPC's second quarter sales declined 5.4% reflecting the tough automotive and automotive related OEM (original equipment manufacturers) markets as businesses delay projects. However, TPC continues to make strong progress in its non-automotive markets including steel, electrical connectors, energy and food. The business continues to manage costs effectively and maintain margins.
Cadillac Electric
Cadillac Electric's sales in the quarter were ‚£1.2 million (0.6% ofGroup sales), a decline on the prior year of 16.4% reflecting the continued,planned wind down of specific trading activity. We have now taken thenecessary actions on the remaining business to stabilise operations and alignits cost base to the lower level of revenue. However, the future of thisbusiness is unlikely to be in the Group.
Risk and uncertainties
The principal risks and uncertainties facing the Group for the remaining six months of the year and the ways in which they are mitigated are largely unchanged since they were described in the Company's 2008 Annual Report and Accounts on pages 39 to 41and are:
RoHS legislation
This relates to the potential risk of stock write-offs greater than those for which provision has been made. The Group's internal targets to reduce any stock write-off in Europe have been met and the Group considers that it is well placed to minimise its exposure in North America.
Market migration
The Group continues to mitigate the risk of its core EDE and MRO markets migrating to lower cost economies by increasing growth in the EDE segment of the Group's customer base, together with increasing presence in developing markets such as China and Eastern Europe.
Systems and infrastructure
A significant proportion of customer orders are despatched from theGroup's distribution facilities in South Carolina (US), Leeds (England) andLeige (Belgium). The Group minimises the potential impact of damage to, ordestruction of, these facilities through physical measures to restrict loss,business continuity planning and, in the case of the Group's UK and Europeanbusinesses, the ability to switch order fulfilment between Leeds and Leige.
The Group continues to review its IT infrastructure and develop plans to address and, where relevant, test and rectify areas of potential weakness.
Competitive pressures
The Group's MDD Division faces numerous competitors in a fragmentedmarket. It is therefore fundamental that the Division's proposition to itscustomers remains attractive and at the forefront of it's chosen markets. TheGroup responds to the risk that it fails to do so by seeking to ensure that itis continually aware of market developments and that its customer propositionis attractive, appropriately focused, and differentiated from that of itscompetitors.
Foreign currency
As a result of the proportion of the Group's trade which takesplace in North America, the Group's reported results could be adverselyaffected by a major weakening of the US dollar against sterling. The Group hasdenominated a significant proportion of its external borrowings in US dollarsin order to provide a hedge against dollar denominated operating cash flowsand the Group's US investments.
Human resources
As a service business, Premier Farnell relies heavily on its employees and mitigates the risk implicit in this reliance by seeking to attract and retain personnel at key management levels. The Group invests in training and career development and has adopted processes to ensure that employees have structured input on their past and expected performance.
Legal risks
The Group's risk of non-compliance with its legal obligations isincreased by the number of countries in which it operates and the large numberof customers and suppliers with whom it deals. The Group addresses this riskthrough a variety of controls.
Web resilience
This is an additional risk that has been identified since theAnnual Report. As the amount of the Group's business that is transacted viathe web grows, it is increasingly important to ensure that the Group'swebsites are available to customers. In common with many other organisations,the Group's websites are occasionally subject to denial of service attacks bythird parties and to attempts to extract large volumes of data. This risk isaddressed by regular testing of the security of the websites using bothinternal and external security scans and vulnerability tests. IP addressesidentified as the source of attacks are blocked so that they cease to haveaccess to the websites. In addition, all sites have redundant servers that canbe used in the event that the operating server is not available for anyreason.
Credit Risks
Premier Farnell supplies a variety of industries in a variety ofgeographic markets. Not only does no customer account for more than 2% ofsales, no supplier accounts for more than 5% of product. We support customersin over 156 different industry types. This diversification of geography,customers segments and suppliers limits the Company's exposure to regionalisedeconomic cycles. Additionally in the MDD Division, which accounts for 91% ofGroup sales, personal credit is rarely extended to customers as orders arerelatively low average value and customers frequently pay at the time oforder.
Outlook
We have seen progress in the quarter as the execution of our strategy - focused on the electronic design engineering segment, the web and internationalisation - continues to differentiate us in the industry. Premier Farnell is evolving as all elements of our strategy become more embedded in our businesses. The success we have seen in higher growth markets and in providing customers with the value they demand encourages us to invest further. This, combined with our operational execution leads the Board to anticipate further progress in the second half in line with its expectations.
This press release contains certain forward-looking statementsrelating to the business of the Group and certain of its plans and objectives,including, but not limited to, future capital expenditures, future ordinaryexpenditures and future actions to be taken by the Group in connection withsuch capital and ordinary expenditures, the expected benefits and futureactions to be taken by the Group in respect of certain sales and marketinginitiatives, operating efficiencies and economies of scale. By their natureforward-looking statements involve risk and uncertainty because they relate toevents and depend on circumstances that will occur in the future. Actualexpenditures made and actions taken may differ materially from the Group'sexpectations 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 implementation of initiativessupporting the Group's strategy, the effect of RoHS and similar legislationand regulatory enactments, recruitment and integration of new personnel, theimplementation of cost-saving initiatives to offset current market conditions,continued use and acceptance of e-commerce programs and systems, the abilityto expand into new markets and territories, the implementation of new salesand marketing initiatives, changes in demand for electronic, electrical,electromagnetic and industrial products, rapid changes in distribution ofproducts and customer expectations, the ability to introduce and customers'acceptance of new services, products and product lines, product availability,the impact of competitive pricing, fluctuations in foreign currencies, andchanges in interest rates and overall market conditions, particularly theimpact of changes in world-wide and national economies. The Group does notintend to update the forward-looking statements made herein.
Condensed Consolidated Income Statement
For the second quarter and half year ended 3rd August 2008
2008/9 2007/8 2008/9 2007/8 2007/8 Second Second First First Full quarter quarter half half year (13 weeks) (13 weeks) (26 weeks) (26 weeks) (53 weeks) unaudited unaudited unaudited unaudited audited Notes ‚£m ‚£m ‚£m ‚£m ‚£m Continuing operationsRevenue 4 195.8 178.9 395.1 362.5 744.7Cost of sales (117.6) (108.1) (236.9) (218.6) (449.2)Gross profit 78.2 70.8 158.2 143.9 295.5Net operating expenses (56.2) (50.3) (112.0) (101.2) (207.5)Operating profit 4 22.0 20.5 46.2 42.7 88.0
Finance income (interest receivable) 0.2 0.2 0.4 0.3 0.9Finance costs- interest payable (3.0) (2.8) (5.9) (5.7) (11.7)- preference dividends (0.9) (1.5) (1.8) (3.1) (5.6)- premium on redemption of preference shares (0.2) (0.3) (0.4) (0.6) (1.3)- gain on purchase of preference shares - 0.2
3.6 0.2 0.9Total finance costs (4.1) (4.4) (4.5) (9.2) (17.7)Profit before taxation 18.1 16.3 42.1 33.8 71.2Taxation 5 (5.5) (5.3) (11.7) (10.9) (21.4)
Profit after taxation from continuing operations 12.6 11.0
30.4 22.9 49.8Loss after taxation from discontinued operations - - - (13.5) (13.5)Profit for the period (attributable to ordinary shareholders) 12.6 11.0 30.4 9.4 36.3 Earnings per share 6Basic 3.5p 3.0p 8.4p 2.6p 10.0pDiluted 3.4p 3.0p 8.3p 2.6p 9.9p Earnings per share from continuing operations 6Basic 3.5p 3.0p 8.4p 6.3p 13.7pDiluted 3.4p 3.0p 8.3p 6.3p 13.6p Ordinary dividendsInterim - proposed 4.2p 4.0p 4.0pFinal - proposed 5.2pPaid 5.2p 5.0p 9.0p
Impact on shareholders' funds (‚£m)
18.8 18.2 32.7
Condensed Consolidated Statement of Recognised Income and Expense
For the second quarter and half year ended 3rd August 2008
2008/9 2007/8 2008/9 2007/8 2007/8 Second Second First First Full quarter quarter half half year (13 weeks) (13 weeks) (26 weeks) (26 weeks) (53 weeks) unaudited unaudited unaudited unaudited audited Notes ‚£m ‚£m
‚£m ‚£m ‚£m
Profit for the period 12.6 11.0
30.4 9.4 36.3
Net exchange adjustments 0.1 (0.3) 1.7 - 6.6Actuarial gains on pensions and other post-retirement obligations - - - - (1.8)Deferred tax credit on actuarial losses - 0.1 - 0.1 0.8Net gains/(losses) not recognised in the income statement 8 0.1 (0.2)
1.7 0.1 5.6
Total recognised income for the period 12.7 10.8
32.1 9.5 41.9
Condensed Consolidated Balance Sheet
As at 3rd August 2008 3rd August 29th July 3rd February 2008 2007 2008 unaudited unaudited audited Notes ‚£m ‚£m ‚£mASSETSNon-current assetsGoodwill 31.1 30.2 31.1Other intangible assets 20.5 18.6 20.1
Property, plant and equipment 50.8 54.9
55.2Retirement benefit asset 54.6 56.3 53.4Deferred tax assets 0.2 0.5 0.2Total non-current assets 157.2 160.5 160.0 Current assetsInventories 164.4 155.3 154.5Financial assets - 0.4 -Trade and other receivables 122.0 114.4 121.2Cash and cash equivalents 7 48.5 30.2 37.6Total current assets 334.9 300.3 313.3 LIABILITIESCurrent liabilitiesFinancial liabilities 7 (3.5) (0.6) (3.0)Trade and other payables (87.9) (82.4) (84.3)Current tax payable (22.6) (27.3) (22.2)Total current liabilities (114.0) (110.3) (109.5) Net current assets 220.9 190.0 203.8 Non-current liabilitiesFinancial liabilities 7 (289.8) (288.5) (288.7)
Retirement and other post-employment benefits (20.6) (28.1)
(22.0)Deferred tax liabilities (32.1) (29.7) (33.0)Total non-current liabilities (342.5) (346.3) (343.7) NET ASSETS 35.6 4.2 20.1 EQUITYOrdinary shares 18.2 18.2 18.2
Equity element of preference shares 10.5 17.7
15.2Share premium 23.4 23.0 23.0Capital redemption reserve 4.4 1.7 2.6Hedging reserve (0.7) 0.4 (2.9)
Cumulative translation reserve 5.4 (3.0)
3.7Retained earnings (25.6) (53.8) (39.7)SHAREHOLDERS' FUNDS 8 35.6 4.2 20.1
Condensed Consolidated Cash Flow Statement
For the second quarter and half year ended 3rd August 2008
2008/9 2007/8 2008/9 2007/8 2007/8 Second Second First First Full quarter quarter half half year (13 weeks) (13 weeks)
(26 weeks) (26 weeks) (53 weeks)
unaudited unaudited
unaudited unaudited audited
Notes ‚£m ‚£m
‚£m ‚£m ‚£m
Cash flows from operating activitiesOperating profit from continuing operations 22.0 20.5 46.2 42.7 88.0Depreciation and amortisation 4.4 5.0 8.6 9.8 19.1Changes in working capital (0.4) (1.2) (6.2) (8.4) (4.7)Additional pension scheme funding (UK defined benefit plan) (0.8) (0.8) (1.5) (1.5) (3.1)Other non-cash movements 0.2 0.1 0.4 0.4 (1.5)Cash generated from continuing operations 25.4 23.6 47.5 43.0 97.8Cash generated from discontinued operations - (0.7) - (1.0) (1.2)Total cash generated from operations 25.4 22.9
47.5 42.0 96.6Interest received 0.2 0.1 0.4 0.3 0.9Interest paid (4.5) (4.3) (5.9) (5.9) (11.8)
Dividends paid on preference shares (1.8) (3.1) (1.8) (3.1) (5.6)Taxation paid (8.4) (9.1) (11.0) (12.4) (23.1)Net cash generated from operating activities 10.9 6.5
29.2 20.9 57.0
Cash flows from investing activitiesAcquisition of business - - - - (0.6)Disposal of business 0.7 (1.3) 0.7 24.5 24.4Proceeds from sale of property, plant and equipment 3.3 0.1 3.3 0.1 1.9Purchase of property, plant and equipment (1.7) (0.9) (2.9) (3.3) (7.1)Purchase of intangible assets (computer software) (2.4) (2.0) (4.7) (4.2) (10.4)Net cash (used in)/generated from investing activities (0.1) (4.1)
(3.6) 17.1 8.2
Cash flows from financing activitiesIssue of ordinary shares 0.4 0.8 0.4 1.4 1.4Purchase of ordinary shares (0.1) (2.5) (2.8) (2.5) (2.5)Purchase of preference shares - (3.6)
(23.1) (3.6) (17.7)New bank loans 14.4 21.4 26.7 21.4 32.1Repayment of bank loans - - - (27.8) (29.3)
Dividends paid to ordinary shareholders (18.8) (18.2) (18.8) (18.2) (32.7)Net cash used in financing activities (4.1) (2.1)
(17.6) (29.3) (48.7)
Net increase in cash, cash equivalents and bank overdrafts 6.7 0.3
8.0 8.7 16.5 Cash, cash equivalents and bank overdrafts at beginning of period
38.9 29.5 37.6 21.3 21.3Exchange gains/(losses) 0.2 (0.1)
0.2 (0.3) (0.2) Cash, cash equivalents and bank overdrafts at end of period
45.8 29.7
45.8 29.7 37.6
Reconciliation of net financial liabilitiesNet financial liabilities at beginning of period (254.1) (281.3) (281.3)Net increase in cash, cash equivalents and bank overdrafts 8.0 8.7 16.5(Increase)/decrease in debt (26.7) 6.4 (2.8)Decrease in preference shares 26.8 3.6 18.5Premium on redemption of preference shares (0.4) (0.6) (1.3)Derivative financial instruments 2.2 0.5 (2.8)Exchange movement (0.6) 4.2 (0.9)Net financial liabilities at end of period 7
(244.8) (258.5) (254.1)Notes1 General information
Premier Farnell plc (the "Company") is a company incorporated and domiciled in the UK and is listed on the London Stock Exchange. The address of the Company's registered office is Farnell House, Forge Lane, Leeds, LS12 2NE, England. The Company's registered number is 876412.
This condensed consolidated financial information was approved for issue on 11th September 2008.
This condensed consolidated financial information does not comprise statutoryaccounts within the meaning of Section 240 of the Companies Act 1985.Statutory accounts for the financial year ended 3rd February 2008, wereapproved by the Board of Directors on 22nd April 2008, and delivered to theRegistrar of Companies. The report of the auditors on those accounts wasunqualified and did not contain any statement under Section 237 of theCompanies Act 1985. Copies of the Company's Annual Report and Accounts areavailable from Premier Farnell plc, 150 Armley Road, Leeds, LS12 2QQ, England,or from the Company's website at www.premierfarnell.com.
2 Basis of preparation
This condensed consolidated financial information for the second quarter andhalf year ended 3rd August 2008, has been prepared in accordance with theDisclosure and Transparency Rules of the Financial Services Authority and withIAS 34, Interim Financial Reporting, as adopted by the European Union. Thiscondensed consolidated financial information should be read in conjunctionwith the consolidated financial statements included in the Company's AnnualReport and Accounts for the financial year ended 3rd February 2008, which havebeen prepared in accordance with International Financial Reporting Standards(IFRSs) as adopted by the European Union. The interim financial informationhas not been audited or reviewed by auditors pursuant to the AuditingPractices Board's guidance on Review of Interim Financial Information.
3 Accounting policies
Except as described below, the accounting policies adopted are consistent withthose of the consolidated financial statements for the year ended 3rd February2008, as described in those annual financial statements in the basis ofpreparation.
The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 4th February 2008 and have been adopted by the Group:
- IFRIC 11, 'IFRS 2 - Group and Treasury Share transactions'. This has not had a material impact on the Group's financial results.
- IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction'. This has not had a material impact on the Group's financial results.
Taxes on income in the interim periods are accrued using the estimatedeffective tax rate that would be applicable to expected total annual earnings.4 Segment information 2008/9 2007/8 2008/9 2007/8 2007/8 Second Second First First Full quarter quarter half half year (13 weeks) (13 weeks) (26 weeks) (26 weeks) (53 weeks) unaudited unaudited unaudited unaudited audited ‚£m ‚£m ‚£m ‚£m ‚£m
Revenue
Marketing and Distribution Division
Americas 84.8 78.5
171.0 159.4 326.7
Europe and Asia Pacific 92.9 82.3
188.1 166.5 344.2
Total Marketing and Distribution Division 177.7 160.8
359.1 325.9 670.9
Industrial Products Division 18.1 18.1 36.0 36.6 73.8 195.8 178.9 395.1 362.5 744.7 Operating profit
Marketing and Distribution Division
Americas 7.4 6.9
15.9 14.8 31.0
Europe and Asia Pacific 14.1 12.8
29.2 26.3 53.4
Total Marketing and Distribution Division 21.5 19.7
45.1 41.1 84.4
Industrial Products Division 3.4 3.5 6.9 7.0 14.8 Head Office costs (2.9) (2.7) (5.8) (5.4) (11.2) 22.0 20.5 46.2 42.7 88.05 TaxationThe taxation charge represents an effective tax rate for the period on profitbefore tax, preference dividends and gain on purchase of preference shares of29.0% (2007/8: 29.7%), being the estimated effective rate of taxation for thefinancial year ending 1st February 2009.
6 Earnings per share
Basic earnings per share is calculated by dividing the profit attributable toordinary shareholders for the period by the weighted average number ofordinary shares in issue during the period, excluding those shares held by thePremier Farnell Executive Trust. For diluted earnings per share, the weightedaverage number of ordinary shares in issue is adjusted to assume issue of alldilutive potential ordinary shares, being those share options granted toemployees where the exercise price is less than the average market price ofthe Company's ordinary shares during the period.
Reconciliations of earnings and the weighted average number of ordinary shares used in the calculations are set out below.
2008/9 2007/8 2007/8 First half (26 weeks)
First half (26 weeks)Full year (53 weeks)
unaudited unaudited audited Basic per Basic per Basic per Earnings share amount
Earnings share amount Earnings share amount
‚£m pence
‚£m pence ‚£m pence
Earnings per share
Profit attributable to ordinary shareholders 30.4 8.4 9.4
2.6 36.3 10.0 Gain on purchase of preference shares (3.6) (1.0)
(0.2) (0.1) (0.9) (0.3)
Profit attributable to ordinary shareholders before
gain on purchase of preference shares 26.8 7.4 9.2 2.5 35.4 9.7
Earnings per share from continuing operations
Profit after taxation from continuing operations 30.4 8.4 22.9
6.3 49.8 13.7 Gain on purchase of preference shares (3.6) (1.0)
(0.2) (0.1) (0.9) (0.3)
Profit attributable to ordinary shareholders before
gain on purchase of preference shares 26.8 7.4
22.7 6.2 48.9 13.4 Number Number Number
Weighted average number of shares 362,529,454 363,716,034 363,476,320 Dilutive effect of share options 4,110,506 1,653,381 1,913,997 Diluted weighted average number of shares 366,639,960 365,369,415 365,390,317
Earnings per share before the gain on purchase of preference shares have been provided in order to facilitate year on year comparison.
7 Net financial liabilities
3rd August 29th July 3rd February 2008 2007 2008 unaudited unaudited audited ‚£m ‚£m ‚£m Cash and cash equivalents
48.5 30.2 37.6
Unsecured loans and overdrafts
(233.1) (189.1) (202.9)
Net financial liabilities before preference shares
and derivatives
(184.6) (158.9) (165.3)
Preference shares
(59.5) (100.0) (85.9)
Derivative financial instruments
(0.7) 0.4 (2.9)
Net financial liabilities
(244.8) (258.5) (254.1)
Net financial liabilities are analysed in the
balance sheet as follows:
Current assets
Financial assets (derivative financial instruments) - 0.4 - Cash and cash equivalents 48.5 30.2 37.6 48.5 30.6 37.6 Current liabilities Bank overdrafts (2.7) (0.5) - Other loans (0.1) (0.1) (0.1) Derivative financial instruments (0.7) - (2.9)
(3.5) (0.6) (3.0)
Non-current liabilities
Bank loans
(112.9) (75.1) (85.7)
5.3% US dollar Guaranteed Senior Notes payable 2010
(33.5) (32.5) (33.5)
5.9% US dollar Guaranteed Senior Notes payable 2013 (80.7) (78.3) (80.7) Other loans (3.2) (2.6) (2.9) Preference shares (59.5) (100.0) (85.9) (289.8) (288.5) (288.7)
8 Consolidated statement of changes in shareholders' equity
2008/9 2007/8 2007/8 First First Full half half year (26 weeks) (26 weeks) (53 weeks) unaudited unaudited audited ‚£m ‚£m ‚£m Shareholders' funds at beginning of year
20.1 12.0 12.0
Profit for the period
30.4 9.4 36.3
Net gains and losses recognised directly in equity 1.7 0.1 5.6 Ordinary dividends paid
(18.8) (18.2) (32.7)
Ordinary shares issued 0.4 1.4 1.4 Purchase of ordinary shares
(2.8) (2.5) (2.5)
Purchase of preference shares (note 9):
- reduction in equity element
(4.7) (0.7) (3.2)
- gain arising on equity element
4.7 0.6 3.1 - deferred tax 0.8 - 0.6 Share-based payments 1.6 1.6 2.3
Derivative financial instruments
2.2 0.5 (2.8)
Shareholders' funds at end of period
35.6 4.2 20.1
During the first quarter, the Premier Farnell Executive Trust acquired 1,476,627 of the Company's ordinary shares, through purchases on the London Stock Exchange for a total cash consideration of ‚£2.8 million, in order to meet future obligations under the Company's performance share plan. This amount has been deducted from shareholders' equity.
9 Purchase of preference shares
During the first quarter the Company purchased and cancelled 1,784,302 of itspreference shares at a total cash cost of ‚£23.1 million. Based on the bookvalue and fair value of the instrument at the date of purchase, the financialliability element of the preference shares was reduced by ‚£26.8 million andthe equity element by ‚£4.7 million. A gain of ‚£3.6 million was recognised inthe income statement being the difference between the book value and fairvalue of the financial liability element at the date of purchase. The gainarising from the difference between the book value and fair value of theequity element of ‚£4.7 million was recognised as a movement in retainedearnings. A deferred tax credit of ‚£0.8 million arose which is recognised as amovement in retained earnings. A transfer from retained earnings of ‚£1.8million to non-distributable reserves was made in order to maintain the legalnominal value of share capital.In the prior year, the Company purchased and cancelled 1,236,500 of itspreference shares at a total cash cost of ‚£17.7 million, resulting in a gainof ‚£0.9 million (‚£0.2 million in the second quarter and ‚£0.7 million in thefourth quarter) being recognised in the income statement.
At 3rd August 2008, the Company had 3,989,419 preference shares in issue (3rd February 2008: 5,773,721).
10 Exchange rates
The principal average exchange rates used to translate the Group's overseas profits were as follows:
2008/9 2007/8 2008/9 2007/8 2007/8 Second Second First First Full quarter quarter half half year US dollar 1.98 2.01 1.98 1.99 2.00 Euro 1.27 1.48 1.28 1.48 1.4411 Ordinary dividendAn interim dividend of 4.2 pence per share (2007/8: 4.0 pence per share) willbe paid on 15th October 2008 to ordinary shareholders on the register at closeof business on 19th September 2008.
Statement of Directors' Responsibilities
The directors named below confirm that, to the best of their knowledge andbelief, this condensed set of financial statements has been prepared inaccordance with IAS 34 as adopted by the European Union, and that the interimmanagement report herein includes a fair review of the information required byDTR 4.2.7 and DTR 4.2.8.
The directors of Premier Farnell plc are listed in the Company's 2008 Annual Report and Accounts. John Roques and Cary Nolan both retired from the Board with effect from 17th June 2008.
By order of the Board Harriet Green Mark Whiteling Chief Executive Officer Chief Financial Officer 11th September 2008 11th September 2008
vendorRelated Shares:
PFL.L