10th Dec 2009 07:00
Premier Farnell plc 10
December 2009
Results for the Third Quarter and Nine Months ended 1 November 2009 of the Financial Year ending 31 January 2010
Key Financials m Q3 09/10 Q3 08/9 Q3 9M 09/10 9M 08/9 9M
growth(a) growth(a)Continuing operations (Unaudited) GBPm GBPm GBPm GBPmRevenue 199.8 209.1 -11% 587.8 604.2 -14%Underlying operating 18.4 22.1 -24% 51.0 68.3 -35%profit (b)Total operating profit 15.6 22.1 -36% 49.7 68.3 -37%Underlying profit before 13.9 17.6 -21% 37.6 56.1 -33%tax (c)Total profit before 11.1 17.7 -37% 36.3 59.8 -39%taxationUnderlying earnings per 2.6p 3.4p -24% 7.3p 10.8p -32%share (c)Basic earnings per share 2.1p 3.4p -38% 6.9p 11.8p -42%Free cash flow (e) 20.3 10.6 92% 59.9 35.5 69%Financial Highlights
- Third quarter sales saw further improvement with the rate of year on year sales decline abating in all MDD regions.
- APAC returned to year on year sales growth and sales in MDD Americas and Europe grew sequentially on the second quarter. MDD Americas absolute sales per day have improved for five consecutive months.
- Another quarter of gross margin stability, up incrementally at 39.7%, achieved despite the challenging economic environment and highlighting the value that our customers' attribute to our proposition in which we have invested and will continue to invest in.
- Our improving sales, gross margin stability and the benefit of cost actions taken delivered a 9.2% return on sales, a one percentage point increase on the second quarter.
- Our cash performance remains strong with third quarter operating cash flow conversion of 158%, excluding restructuring costs, reflecting effective working capital management despite inventory investment of 3.4 million. Net financial liabilities reduced by 31 million year to date, including an 18 million benefit from exchange rates.
Strategic Highlights
- We have again outperformed our markets and taken market share in APAC, Europe and the UK, clearly demonstrating the success of our strategic focus.
- EDE sales through the quarter significantly outpaced the improvement in MRO sales in all regions, particularly in North America.
- Final phase of branch restructuring actions in North America completed. Our industry leading website and 9 branches located in the US and Canada ensure we have a strong presence in 45 geographical markets across North America to support the needs of all our customers.
- Sales via eCommerce channels in Europe and APAC now account for 57.1% and 44.4% of total sales, respectively, as the web continues to be our customers' channel of choice. In North America web sales grew 20.1% on the second quarter and eCommerce sales now represent 25.4% of total sales.
- Year on year sales in India grew 94.6% and in Eastern Europe 49.8%. In Greater China sales grew 22.4% year on year as we received recognition from the electronics industry as the engineer's high service distributor of choice in China.
- element14 is at the core of our deepening relationship with EDEsacross the globe and up to 19,000 customers' each week are visiting, workingand collaborating within the community. Our element14 iPhone application hasbeen approved by Apple and is available for download from the iTunes AppStore.
- Acquired CadSoft Computer GmbH, a German-based CAD software developer, as we leverage new services and provide our customers not only with product but information, software and technology solutions.
Commenting on the results, Harriet Green, Group Chief Executive, said:
"Sales in all of our MDD businesses grew sequentially on the secondquarter. We are particularly encouraged with the return to strong year on yearsales growth in APAC and by the significant sequential sales growth achievedin MDD Americas. The EDE segment saw a significant sales improvement throughthe quarter, again outperforming sales to the MRO segment in all regions. Theexecution of our strategy remains at the core of our market share gains inEurope, the UK and APAC and the significant year on year improvement inoperating profit in MDD Europe and Asia Pacific."We have continued to invest throughout the global economicdownturn, as we develop and leverage new services that build on the strongfoundations of our proven global strategy. These investments ensure we remainaligned to our customers' needs, which they continue to recognise, as wedelivered our sixteenth consecutive quarter of gross margin stability, a cleardifferentiator in our industry.
"Both the strength of our strategy and the resilience of our business are clear, as the improving sales trends seen in the third quarter accelerated in November, where Group sales achieved positive year on year growth of 1.3%. With the continued execution of our strategy, the board remains confident that we are well positioned to lead a recovery in our industry and capitalise on the growth opportunities within our markets."
For further information, contact:
Harriet Green, Chief Executive Premier Farnell plc +44 (0) 20 7851 4100 Officer
Mark Whiteling, Chief FinancialOfficerAndrew Lorenz Financial Dynamics +44 (0) 20 7269 7291 (UK)
Premier Farnell's announcements and presentations are published at www.premierfarnell.com together with business information, the 2009 Annual Report and Accounts, and links to all other Group web sites, including element14 our new community website for electronic design engineers.
The results for the fourth quarter and for year end of the financial year to 31 January 2010 will be announced on 18 March 2010.
Notes:
(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, unless otherwise stated.
(b) Underlying operating profit excludes restructuring costs of 7.6 million incurred in the first nine months (Q1: 4.0 million, Q2: 0.8million, Q3: 2.8 million) (2008/9: nil) and the one-off non cash gainarising in the second quarter of 6.3 million from the reorganisation of theGroup's North American pension plans (2008/9: nil).(c) Underlying profit before taxation and earnings per shareexcludes restructuring costs of 7.6 million incurred in the first nine months(2008/9: nil), the one-off non-cash gain arising in the second quarter of 6.3 million from the reorganisation of the Group's North American pensionplans (2008/9: nil), and excludes gains on the purchase and cancellation ofpreference shares in the first nine months of nil (2008/9 Q1: 3.6 million,Q3: 0.1 million).(d) With effect from 2 February 2009, the Group has adopted IFRS 8,Operating Segments. This has not affected the financial results of the Group,but has resulted in a change to the Group's segmental disclosures. Theprevious two divisions within the Marketing and Distribution Division havebeen split into three distribution divisions within MDD with CPC (previouslyin MDD Europe and Asia Pacific) and MCM (previously in MDD Americas) now bothcategorised in the Other Distribution Division. Comparatives have beenre-presented accordingly.
(e) Free cash flow comprises total cash generated from operations, excluding cash flows related to restructuring, less net capital expenditure, interest, preference dividends and tax payments.
(f) All results relate to continuing operations.
Premier Farnell plc
THIRD QUARTER STATEMENT
Results for the Third Quarter and Nine Months ended 1 November 2009
of the Financial Year ending 31 January 2010
Premier Farnell, the leading multi-channel, high service distributor supporting millions of engineers and purchasing professionals globally, announces its results for the third quarter and nine months ended 1 November 2009.
Chief Executive's Operational Overview
The third quarter saw further improvement as the rate of year onyear sales decline in our business continued to abate. Sales in our Marketingand Distribution Division (MDD) grew 5.8% on the second quarter, led by AsiaPacific (APAC) which reported positive year on year sales growth of 10.2%.Sales in MDD Americas grew 9.8% sequentially on the second quarter and inFarnell Europe sales grew 0.4% sequentially on the second quarter. We havedelivered another quarter of gross margin stability as our customers continueto recognise our ability to provide a high level of service that is wellaligned to their needs. Sales growth through the quarter in the ElectronicDesign Engineering (EDE) segment significantly outpaced the improvement seenin the Maintenance Repair and Operations (MRO) segment, in all regions. ThisEDE sales performance was particularly strong in North America and Octobermarked the fifth consecutive month that EDE sales have grown sequentiallymonth on month. MDD Americas web sales have also increased for fiveconsecutive months and were up 20.1% on the second quarter, as our customerscontinue to transition to the channel of choice. Both of these positive trendsare key drivers in our North American sales performance, demonstrating thesuccess of our accelerated strategic focus. The value that our customersattribute to our differentiating proposition has led to us again taking marketshare in Europe, APAC and the UK. This is a significant performance,particularly in the UK, where the challenges faced by our industry competitorsremain evident. We are committed to building on the strong foundations of ourproven global strategy and we look forward to future leadership within thehigh service distribution space.We have continued with our dynamic inventory and product portfolioinvestment programs, investing 3.4 million during the third quarter, as theelectronics supply chain starts to show signs of a recalibration. Our enhancedEDE and web propositions have continued to attract new customers and ourcontent rich web channel remains the channel of choice, with sales viaeCommerce channels now accounting for 39.9% of total MDD sales. Sales in ourdeveloping international markets - China, India and Eastern Europe - againdelivered strong growth and in China we recently received recognition from theelectronics industry as the high service distributor of choice for designengineers. element14, our innovative design engineering community, continuesto deepen our relationship with EDEs globally and since its launch EDEs haveresearched, conversed and collaborated on their designs on over 820,000 pages,spending over 29,700 hours working within the site. With the vibrancy of thisindustry leading eCommunity continuing to grow we are now seeing up to 19,000customers each week visit element14. As the community expands it allows us toincrease our understanding and support the needs of EDEs, while also providinga burgeoning collaborative environment where engineers can work, makedecisions on and purchase all the necessary products, information, softwareand technology solutions they need to complete a design from concept.Group sales saw the momentum in August continue through the thirdquarter, with revenue growing 5.0% sequentially on the second quarter.Compared to last year, sales declined 11.0% against a third quarter which hadseen year on year sales growth of 1.7%. This performance reflects the positiveyear on year sales growth recognised in APAC and CPC and the sequential salesgrowth seen in Newark, Farnell Europe including the UK, MCM and TPC. Theaverage number of lines per order in Newark increased throughout the quarterwhich had a positive impact on the business' third quarter average ordervalue, building on the sustained positive trends we have seen since June.This, combined with an improvement in third quarter transactional volumes inall regions, provides the first indication of increased activity levels withinthe electronics supply chain. Our improving sales performance and gross marginstability combined with the benefit of the cost reduction actions that we havetaken meant that our return on sales in the third quarter improved to 9.2%,compared with 8.2% in the second quarter. This was led by the 14.8% year onyear growth in operating profit seen in MDD Europe and APAC. Our overallunderlying operating profit saw a third quarter year on year decline of 24.0%at constant exchange rates, compared with the decline seen in the secondquarter of 40.1%, as we begin to see the early benefits of the operationalgearing inherent in our business.Sales per day in our MDD Division grew 5.8% sequentially on thesecond quarter, declining 10.5% year on year. In North America absolute salesper day increased throughout the quarter, marking five consecutive months ofimprovement. Momentum from the second quarter also saw Newark continue toincrease its sales mix towards EDE through the quarter however, the business'exposure to the fragmented US MRO markets remains evident in its overall yearon year revenue decline. During the quarter we executed the last phase ofbranch restructuring actions in North America, closing a further eightbranches and delivering the balance of the permanent 16m reduction in ourcost base. We now have 7 branches in the United States and 2 in Canada, downfrom the 42 North American branches we had at the start of our strategicjourney three years ago. Our industry leading website is at the forefront ofour multi-channel sales strategy in North America, supported by our new branchstructure, our new contact centre as well as work at home teams and designsegment managers. This truly multi-channel approach ensures we have the rightproposition and strong presence in 45 geographical markets across NorthAmerica to support the needs of all our customers. Indeed, as we have closedbranches and transitioned our customers to other transactional channels, wehave seen sales levels increase, further demonstrating how well aligned ourmulti-channel sales strategy is in meeting our customers' evolving needs.The growth opportunities inherent in our strategy continue tounderpin our market outperformance in Farnell Europe, the UK and APAC. Salesin Farnell Europe, including the UK declined 4.7% year on year, a markedimprovement on the second quarter decline of 10.7%. This represents asignificant outperformance of the European markets which declined 23.4% forthe calendar third quarter according to the Distributors and ManufacturersAssociation of Semiconductors (DMASS). Farnell UK's third quarter revenuedeclined 5.8% year on year, a significant improvement on the second quarterdecline of 10.0% and achieved despite the difficult trading conditions thatremain evident in our broader industry. This performance is significantlyabove both our industry competitors and the broader UK market which saw adecline of 8.4% for the equivalent period, as reported by the Association ofFranchised Distributors of Electronic Components (AFDEC), excluding Farnell.Third quarter sales in APAC grew 10.2% year on year, a marked improvement whencompared with the second quarter decline of 3.8%. This represents anoutperformance of the market which saw a decline of 1.3% for the equivalentperiod, as reported by the Semiconductor Industry Association (SIA). Newark'soverall sales grew 9.8% sequentially on the second quarter, declining 19.2%year on year, a significant improvement on the 26.5% decline seen in thesecond quarter. The fragmented broad-based US MRO sector saw a wide range ofsales declines reported during the quarter. The percentage declines rangedfrom the high twenties seen in the heavy manufacturing market through to highteens in contracting, with the commercial market reported to have declined inthe low single digits. Newark's overall revenue performance was at themid-point of this range, reflecting the business' sales mix across all endmarkets. In contrast to the MRO segment the SIA, which is indicative of theEDE segment, reported third quarter sales growth of 14.1% in North America.This return to positive growth, while encouraging, was seen by the SIA to bein part driven by increased demand for personal computers and cell phones -the two largest demand drivers for semiconductors. This is supported by theperformance seen in the volume electronic component distribution sector thatis contained within these SIA statistics, which reported third quarter year onyear sales declines of between 16% and 20% in North America.As the needs of our EDE customers grow, we continue to leverageunique new services that build on the strong foundations of our proven globalstrategy. During the quarter we announced that we had acquired CadSoftComputer GmbH, a German based developer of Computer Aided Design (CAD)software used to develop Printed Circuit Board (PCB) layouts, a fundamentalpart of the design cycle for all EDEs. CadSoft's CAD software, EAGLE, iscurrently marketed towards the more mature European and US markets, providingus with the opportunity to further develop the software for the emergingAsian, Eastern European and Brazilian markets. Investing in innovativesolutions, new products and services ensures we are able to support theevolving needs of EDEs, helping them to design and grow. Strategic revenueinvestments totalled 3.3m in the third quarter as we continue to strengthenthe depth and relevance of our customer relationships. We have developed inexcess of 200 technical training modules focused on addressing the increasingcomplexity of electronic solutions. We expanded our reach in China by afurther six cities increasing our ability to ship orders to 130 cities acrossChina. Recently our element14 iPhone application was approved by Apple, as wecontinue to recognise how innovation influences the environment in which ourcustomers live and work. The application, which is available to download fromthe iTunes App Store, provides EDEs with immediate and remote access toelement14 and the information valued by our engineering customers. Ourstrategy and commitment to investing in our future continues to afford us theopportunity to attract talent from within our industry and also specialists intheir own field. It is our ability to create opportunities like these that hasallowed us to develop a high performance culture that underpins our industryleadership.EDEWith new innovations creating a leapfrog in electronic technologieswe added over 14,000 new esoteric EDE products to our portfolio during thequarter. In excess of 7,600 of these new products were added in North Americawhere our ability to offer new-to-market technologies continues to deepen ourrelationship within the EDE community, with the number of new EDE customersgrowing 5.2% on the second quarter. During the quarter we extended ourfranchise agreement with Altera into North America, and together with ourfranchises in Europe and APAC we are able to distribute Altera's innovativeproduct portfolio to our customers across the world. Seeding innovativedevices, such as Altera's, together with the collaborative nature of element14allows us to provide EDEs not only with esoteric products but also theknowledge and design resources they need to incorporate new-to-markettechnologies into the concept stage of new designs. DesignLink, our CADcoupling interface, saw over 31,500 product requests come directly from EDEsworking within their CAD environments, solidifying our position as the partnerof choice for EDEs around the world.
Web
The web remains our customers' channel of choice with third quarterMDD web sales growing 11.0% year on year. In North America web sales grew 7.0%year on year, with sales from eCommerce channels now accounting for 25.4% oftotal sales as the business leverages the benefits associated with SearchEngine Optimisation (SEO) and Search Engine Merchandising (SEM). Indeed,Newark's innovative approach to eMarketing was recognised by the NationalElectronic Distributors Association (NEDA) during the quarter as the businesswas presented with 10 channel marketing awards. During the quarter dailyvisits to our websites in Europe and APAC reached new highs and in Europe wereceived industry recognition for our innovative web environment, as we wereawarded the distributor of the year award by Elektra. Sales via eCommercechannels in APAC and Europe now account 44.4% and 57.1% of total sales,respectively. In August we launched our new Russian local language website andsince its launch this site has attracted over 43,000 customer visitstransacting from as far afield as Eastern Siberia. We continue to expand oursuite of eTools with the addition of eQuotes in APAC and Europe. This simpleand unique electronic quoting solution has received high adoption levels inNorth America with sales from eQuotes growing 48.9% on the second quarter.Sales from iBuy, our innovative eProcurement solution, grew 91.5% year on yearin Europe and in APAC sales grew 49.4% on the second quarter. We recentlylaunched iBuy in North America where customers have already begun to embracethe unique advantages that this solution offers.
As the design cycle quickens and legislative and time to market constraints grow, EDEs are increasingly using the web not just to purchase product, but to also access design information, services and tools. With an estimated 2.2 billion people using the web worldwide by 2013 the availability and immediacy of access to such resources will grow and with it so will the importance of our web channel in meeting our customers' needs.
Internationalisation
The growth inherent in our developing international marketscontinues to be demonstrated as they again delivered strong growth, withcombined sales from these markets accounting for 19.9% of the MDD division'sthird quarter revenue. Sales in Eastern Europe were up 49.8% year on year,driven by ongoing investments in our EDE and web propositions that continue toexpand customer reach in the region. Our strategic assumptions in Asia'semerging markets continue to be validated, underpinning our strong performancein this region. Sales in India grew 94.6% during the third quarter and inGreater China sales grew 22.4%.
Other Distribution Businesses
CPC has continued to take market share as momentum from the firsthalf of the year continued into the third quarter. Sales grew 3.5% year onyear, surpassing the expectations imposed by difficult market conditions. CPCeCommerce sales now account for 36.6% of total sales with sales growth of15.8% being delivered via the web, as CPC's unique proposition continues toprovide a competitive edge. MCM's sales grew 10.9% sequentially on the secondquarter, declining 8.4% year on year with sales per day improving month onmonth through the quarter.
Industrial Products Division (IPD)
Revenue at Akron Brass declined 5.2% year on year, outperformingits industry, which showed a decline of 12.5% for the same period. Akroncontinued to internationalise its proposition and despite a softening in theUS fire OEM industry, ongoing investments in its product portfolio led toAkron securing its single largest ever project, located in Poland. Sales atTPC improved 16.4% on the second quarter a year on year decline of 22.3%. TPCcontinued to focus on its multi-channel proposition and developing marketsegments, with the addition of three new product categories during thequarter.
Gross Margin, Operating Expenses and Cash Performance
We delivered another quarter of gross margin stability, upsequentially on the second quarter to 39.7%, despite the difficult tradingconditions that remain evident in the wider economy. The continuance of ourgross margin stability is a reflection of the value that customers attributeto our high service proposition where our strategic investments ensure weremain aligned to the changing needs of our customers. Compared with the thirdquarter of last year, net operating expenses were down 2.7 million, atconstant exchange rates, reflecting the benefit of cost actions taken anddespite our continued strategic investments. Cash generated from operations,excluding restructuring costs, represented 158% of underlying operating profitin the third quarter. This strong cash performance provides us with theopportunity to expand our inventory and product portfolio as well as theongoing investments that will continue to drive our strategic progression.
Outlook
Sales in all of our MDD businesses grew sequentially on the secondquarter. We are particularly encouraged with the return to strong year on yearsales growth in APAC and by the significant sequential sales growth achievedin MDD Americas. The EDE segment saw a significant sales improvement throughthe quarter, again outperforming sales to the MRO segment in all regions. Theexecution of our strategy remains at the core of our market share gains inEurope, the UK and APAC and the significant year on year improvement inoperating profit in MDD Europe and Asia Pacific.We have continued to invest throughout the global economicdownturn, as we develop and leverage new services that build on the strongfoundations of our proven global strategy. These investments ensure we remainaligned to our customers' needs, which they continue to recognise, as wedelivered our sixteenth consecutive quarter of gross margin stability, a cleardifferentiator in our industry.
Both the strength of our strategy and the resilience of our business are clear, as the improving sales trends seen in the third quarter accelerated in November, where Group sales achieved positive year on year growth of 1.3%. With the continued execution of our strategy, the board remains confident that we are well positioned to lead a recovery in our industry and capitalise on the growth opportunities within our markets.
Financial ResultsRevenueNine MonthsSales for the first nine months were 587.8 million (2008/9: 604.2million or 684.9 million at constant exchange rates). Sales per day decreased14.2% on the prior year, although the decline in group sales continued toabate throughout the third quarter. Our strategy continued to be validated asEDE sales outperformed MRO sales in every region, web sales continued to grow,and we continued to see strong growth in our international markets. Theaverage exchange rate for the US dollar against sterling was $1.58 (2008/9:$1.90) and the average exchange rate for the Euro against sterling was Euro1.13 (2008/9: Euro 1.27).
Third Quarter
Sales for the third quarter were 199.8 million (2008/9: 209.1million or 223.7 million at constant exchange rates). Sales per day decreasedby 11.0% on the prior year, compared with the second quarter year on yeardecline of 16.7%, with sales in APAC reporting positive growth of 10.2%. On asequential basis third quarter sales increased 5.0% over the second quarterwith MDD increasing 5.8%, supported by the strong performance of our EDE salestrend. The average exchange rate for the US dollar against sterling was $1.62(2008/9: $1.74) and the average exchange rate for the Euro against sterlingwas Euro 1.11 (2008/9: Euro 1.27).
Margins and Operating Profit
Nine Months
The gross margin in the first nine months was 39.6% compared with 39.8% in the first nine months of the prior year or 39.6% at constant exchange rates, continuing our record of maintaining margin stability which differentiates us in the industry.
Throughout the first nine months we continued to invest in ourstrategic direction and transformation despite the economic challenges. In thefirst nine months our total revenue investment to support our EDE and webpropositions and the internationalisation of our high service model, increasedby 2.0 million on the prior year. Our cost reduction plans also remain ontrack to achieve a permanent two percentage point reduction in operatingexpenses as a percentage of sales. Underlying net operating expenses in thefirst nine months were 10.6 million lower than the first nine months of lastyear at constant exchange rates, despite the impact of increased pension costsand our continuing investments.Underlying operating profit was 51.0 million (2008/9: 68.3million) producing an operating margin of 8.7% (2008/9: 11.3%) which reflectsthe impact of the sales decline and our continued investments. Total operatingprofit for the nine months was 49.7 million (2008/9: 68.3 million),reflecting restructuring costs of 7.6 million and the second quarter one-offnon cash gain from the restructuring of the US pension plans of 6.3 million.There was a beneficial impact on operating profit of 10.7 million from thetranslation of overseas results compared with the prior year, primarily as aresult of the relative strengths of both the US dollar and the Euro. Atconstant exchange rates the decrease in underlying operating profit comparedwith the prior year was 35.4%.
Third Quarter
The gross margin in the third quarter was 39.7% compared with 39.2% in the third quarter last year, or 39.3% at constant exchange rates, and 39.6% in the second quarter. This represents the sixteenth consecutive quarter of gross margin stability as we continue to effectively manage throughout the downturn.
Underlying net operating expenses in the third quarter were 2.7million lower than the third quarter last year at constant exchange rates,despite the impact of increased pension costs and our continuing investments,as the benefits from our cost reduction programmes and transition to the webcontinue to be realised.Underlying operating profit was 18.4 million (2008/9: 22.1million) producing an operating margin of 9.2% (2008/9: 10.6%), a onepercentage point increase over the second quarter. Total operating profit forthe quarter was 15.6 million (2008/9: 22.1 million), reflecting the thirdphase of the North American branch restructuring with one-off costs of 2.8million. There was a beneficial impact on operating profit of 2.1 millionfrom the translation of overseas results compared with the prior year,primarily as a result of the relative strengths of both the US dollar and theEuro. At constant exchange rates the decrease in operating profit comparedwith the prior year was 24.0% compared with the year on year decrease in thesecond quarter of 40.1%.Foreign Currency ImpactA one cent movement in the exchange rate between the US dollar andsterling impacts the Group's operating profit by approximately 200,000 perannum and a one cent movement in the exchange rate between the Euro andsterling impacts the Group's operating profit by approximately 200,000 perannum.Finance CostsNet finance costs in the first nine months were 13.4 million(2008/9: 8.5 million). This comprises net interest payable of 10.1 million(2008/9: 8.9 million), which was covered 5.0 times by underlying operatingprofit, and a charge of 3.3 million (2008/9: charge of 3.3 million excludinggains on the purchase and cancellation of preference shares) in respect of theCompany's convertible preference shares.The increase in interest payable reflects the negative impact of exchangerates from our US borrowings and the interest cost of additional borrowings tofund the Group's purchase and cancellation of preference shares in the prioryear, partially offset by the benefit of lower interest rates on the Group'sbilateral banking facilities which carry a LIBOR based floating rate ofinterest.
Profit Before Tax
Underlying profit before tax in the first nine months was 37.6 million (2008/9: 56.1 million) and total profit before tax in the first nine months was 36.3 million (2008/9: 59.8 million).
Underlying profit before tax in the third quarter was 13.9 million(2008/9: 17.6 million), a 21.0% decrease compared with the decline seen inthe second quarter of 40.9%, and total profit before tax in the third quarterwas 11.1 million (2008/9: 17.7 million).
Taxation Charge
The taxation charge for the first nine months was at an effective rate of 29.0% (2008/9: 29.0%) of profit before tax, preference dividends and gains on the purchase and cancellation of preference shares.
Return on Net Operating Assets
Return on net operating assets for the first nine months was 27.3% (2008/9: 30.4%).
Earnings per Share
Underlying earnings per share for the first nine months were 7.3 pence (2008/9: 10.8 pence). Total earnings per share for the first nine months were 6.9 pence (2008/9: 11.8 pence).
Cash Flow and Net Financial Liabilities
Total cash generated from operations in the third quarter was 27.0million or 29.1 million excluding the impact of restructuring costs (2008/9: 22.4 million), representing 173.1% of operating profit, or 158.2% excludingthe impact of restructuring costs (2008/9: 101.4%). Working capital reduced by 5.0 million in the quarter despite the inventory investments we are making tosupport our Electronic Design Engineers needs.Total cash generated from operations in the first nine months was 78.0 million or 83.7 million excluding the impact of restructuring costs(2008/9: 69.9 million), representing 156.9% of operating profit or 164.1%excluding the impact of restructuring costs (2008/9: 102.3%). Free cash flowin the first nine months, being total cash generated from continuingoperations less net capital expenditure, interest, preference dividends andtax payments, was 54.2 million, or 59.9 million excluding restructuringcosts, (2008/9: 35.5 million including the proceeds from the sale of surplusproperty of 3.3 million).Net financial liabilities at the end of the first nine months were 264.7 million (1 February 2009: 295.9 million), including 60.0 million (1February 2009: 59.4 million) attributable to the Company's preference shares.The reduction during the first nine months of 31.2 million reflects thestrong cash flow performance and includes 18.3 million from the benefit ofexchange rate movements.Financial PositionPremier Farnell's financial position remains robust with goodliquidity and strong free cash flow. At 1 November 2009 our headroom on bankborrowings was 72 million under facilities in place until May 2012 ( 20million) and January 2013 ( 150 million). This headroom, combined with our netcash position of 31.7 million, gives us a secure funding position.
The Group expects that the combination of free cash flow, existing cash resources and available bank facilities will enable it to meet the repayment of the US$66 million Senior Notes which become due in May 2010.
Pensions
The impact of the prior year end valuations on our defined benefitpension plans resulted in a net charge to operating profit in the first ninemonths of 2.9 million, compared with net income of 1.6 million in the firstnine months of 2008/9. This primarily reflects the decline in the market valueof investments of the US Pension Plan during 2008/9.As noted in the interim statement, in common with many businesses,on 31 July 2009 the Group's North American Pension Plans were closed tofurther accrual of defined benefit obligations, with members being transferredto a money purchase plan. This resulted in a non cash net accounting gain inthe second quarter of 6.3 million which has been recognised through theincome statement. These actions reduce the risk associated with the Group'spension schemes. Actuarial losses of 21.5 million ( 13.8 million net ofassociated deferred tax) were recognised in the first half of the financialyear through the Condensed Consolidated Statement of Comprehensive Incomerelating to the Group's defined benefit pension plans, primarily from thechanges in the market related bond rate used to discount plan liabilities atthe period end. No actuarial losses have arisen in the third quarter.
Operations
With effect from 2 February 2009, the Group has adopted IFRS 8,Operating Segments. This has not affected the financial results of the Group,but has resulted in a change to the Group's segmental disclosures. Theprevious two divisions within the Marketing and Distribution Division havebeen split into three distribution divisions within MDD with CPC (previouslyin MDD Europe and Asia Pacific) and MCM (previously in MDD Americas) now bothcategorised in the Other Distribution Division. Comparatives have beenre-presented accordingly.
Marketing and Distribution Division (MDD)
(Newark and Farnell businesses including Premier Electronics, CPC and MCM)
Q3 09/10 Q3 08/9 Q3 growth 9M 09/10 9M 08/9 9M growth GBPm GBPm GBPm GBPmRevenue 180.8 188.2 -10.5% 529.3 547.3 -14.2%Underlying operating 17.9 20.9 -21.1% 48.4 66.0 -34.9%profit*Underlying operating 9.9% 11.1% 9.1% 12.1%margin %
*excluding restructuring costs of 7.6 million (Q1: 4.0 million, Q2 0.8 million, Q3: 2.8 million) (2008/9: nil) and the one-off non cash gain from re-organisation of North American pension plans in Q2 of 5.3 million.
As the MDD Division builds on the strong foundations of our provenglobal strategy, third quarter sales improved 5.8% over the second quarter,declining 10.5% year on year. This compares with the second quarter decline of17.0% as the momentum seen in August continued with all regions showing yearon year improvement compared with the second quarter. In MDD Europe and AsiaPacific where our strategy is more embedded, third quarter sales declined 2.9%compared with the second quarter sales decline of 9.9%, with our Asia Pacificregion reporting double digit year on year growth of 10.2%. MDD Americas alsosaw significant progress with third quarter sales declining 19.2% comparedwith the 26.5% reported in the second quarter, and sequential sales per dayhaving now shown improvement for five consecutive months.The MDD Division remains focused on driving its transition to aweb-centric, EDE focused organisation. Sales to the EDE segment saw asignificant sales growth improvement through the quarter, again outperformingsales to the MRO segment in all regions. In North America this trend has beenparticularly strong, with EDE sales improving significantly month on month forfive consecutive months. Our rich web environment continued to grow,reflecting our customers' increasing channel of choice, and our internationalmarkets delivered further strong positive growth.
The recent acquisition of CadSoft is an important and differentiating addition to our portfolio offering of product, data and services to design engineers globally and aligns well with our focus on the EDE market, driving business to the web and growth in emerging markets.
Actions taken in the first half to accelerate our transition to theweb continued in the third quarter to ensure that our structure, resources andtalent are in place to support profitable growth. In the first nine monthsthis resulted in one-off restructuring costs of 7.6 million which willprovide annualised savings of 12 million. In addition, as reported at thehalf year, the restructuring of our North American pension plans has resultedin a net one-off accounting credit in the second quarter of 6.3 million ofwhich 5.3 million relates to the MDD Americas business.The underlying operating margin of 9.9% in the third quarterreflects a 1.5 percentage point increase over the second quarter with allthree segments showing operating margin improvement. The sequential salesimprovement, gross margin performance and effective cost control, resulted inthe year on year underlying operating profit decline improving from 42.5% inthe second quarter to 21.1% in the third quarter. This is despite ongoingrevenue investment to support our EDE and web propositions, together with ourinternational expansion, which, for the first nine months was 9.8 million, anincrease of 2.0 million on the prior year.
As we accelerate our transition to the web, our content-rich web environment continues to be our customers' channel of choice. Web sales for the MDD division grew 11.0% in the third quarter, and total eCommerce sales reached 39.9% of total sales with Farnell Europe at 57.1%, demonstrating our progress towards achieving between 50% and 70% of sales via eCommerce channels.
There was a beneficial impact on operating profit in the first ninemonths from the translation of overseas results of 8.4 million reflecting therelative strength of the US dollar ( 4.7 million) and the Euro ( 3.7 million).MDD Americas(Newark) Q3 09/10 Q3 08/9 Q3 9M 09/10 9M 08/9 9M growth growth GBPm GBPm GBPm GBPmRevenue 78.1 90.5 -19.2% 231.2 250.7 -22.4%
Underlying operating profit* 3.1 9.1 -67.7% 7.4 23.8 -73.8% Underlying operating margin 4.0% 10.1%
3.2% 9.5%%
*excluding restructuring costs of 4.7 million (Q1: 1.1 million, Q2 0.8 million, Q3: 2.8 million) (2008/9: nil) and the one-off non cash gain from re-organisation of North American pension plans in Q2 of 5.0 million.
Newark's overall sales during the quarter grew 9.8% sequentially onthe second quarter, declining 19.2% year on year, with sales per day havingnow shown sequential improvement for five consecutive months. Sales to our EDEcustomers saw significant sales growth improvement through the quarter. MROsales have also improved on the second quarter, compared to the fragmentedbroad-based US MRO sector which saw a wide range of sales declines reportedduring the quarter. The percentage declines ranged from the high twenties seenin the heavy manufacturing market through to high teens in contracting, withthe commercial market reported to have declined in the low single digits. Incontrast to the MRO segment the SIA, which is indicative of the EDE segment,reported third quarter sales growth of 14.1% in North America. Whileencouraging, the SIA cited this improvement to be in part driven by increaseddemand for personal computers and cell phones. This is further demonstrated bythe sales performance of the volume electronic component distribution sectorwhich continued to report year on year sales declines of between 16% and 20%in North America and are included in the SIA statistics.Strategic investments are continuing to realise benefits andincrease our capabilities in the region. Newark's average number of lines perorder and average order values have seen the upwards momentum from the secondquarter continue through the third quarter, driven by customer engagementprogrammes that are aligned to an enhanced product offering and increasinglyinnovative web experience. In the third quarter a further eight branches wereclosed, at a one-off cost of 2.8 million, as we continue to support thecustomer switch to our rich web environments. We now have 9 branches in NorthAmerica down from the 42 branches we had at the start of our strategy. Weremain committed to offering customers one-to-one relationships through ourcontact centre, work at home teams and design segment managers. This combinedwith our industry leading website and new branch structure ensures thatcustomers right across North America continue to benefit from a value addedexperience.Underlying operating margin improved from 2.0% in the secondquarter to 4.0% in the third quarter as the business started to benefit fromits strategic actions and restructuring, although it continued to be affectedby the year on year sales decline, the highly competitive nature of the NorthAmerican MRO market, and our continued investment to restructure the businessfor the future. In addition, incremental costs of 3.4 million relating to theUS defined benefit pension plan were incurred in the nine months.
Newark continued to realise benefits from its investments in its content-rich web channel and various eMarketing initiatives, including the success of eQuotes which all contributed to web sales significantly outperforming the division's total sales growth performance. This has led to Newark increasing its proportion of sales via eCommerce channels to 25.4%.
MDD Europe and Asia Pacific
(Farnell and Premier Electronics)
Q3 09/10 Q3 08/9 Q3 9M 09/10 9M 08/9 9M growth growth GBPm GBPm GBPm GBPmRevenue 79.3 74.7 -2.9% 230.7 232.0 -8.0%
Underlying operating profit* 12.4 9.5 14.8% 34.2 34.9 -11.4% Underlying operating margin 15.6% 12.7%
14.8% 15.0%%
*excluding restructuring costs of 2.9 million in the first quarter (2008/9: nil).
Sales in the third quarter declined 2.9% reflecting an improvement on the 9.9% reduction in the second quarter and the extent to which we have embedded our strategy in these regions. Despite the year on year sales decline, underlying operating margin improved to 15.6%, with underlying operating profit increasing 14.8% year on year at constant exchange rates, reflecting the cost benefits of our transition to the web and the actions taken to restructure our European business, which resulted in a one-off cost of 2.9 million in the first quarter.
Revenue by region Q3 09/10 Q3 08/9 Q3 growth 9M 09/10 9M 08/9 9M growth GBPm GBPm GBPm GBPmUK (including 27.8 28.1 -1.1% 82.9 87.9 -5.5%exports)Mainland Europe 40.2 37.6 -6.9% 116.7 116.7 -11.2%Asia Pacific 11.3 9.0 10.2% 31.1 27.4 -0.9%Farnell Europe continues to demonstrate its advanced stage of ourtransition to EDE and the web. The Division's ongoing EDE initiativesincluding its targeted approach to customer acquisition have resulted in EDEsales significantly outperforming MRO sales. Third quarter sales in EasternEurope grew 49.8% year on year as the significant opportunities for growth inthe region continue to be exploited. Sales for Farnell Europe, including theUK, declined 4.7% in the quarter, a marked improvement on the second quarterdecline of 10.7%. This compared with the European market declining 23.4% inthe calendar third quarter, as reported by DMASS.Farnell UK continued to increase its market share. The salesdecline of 5.8% in the third quarter represents an improvement on the secondquarter decline of 10.0% and an outperformance of our industry competitors andthe UK markets which according to the most recent data from AFDEC declined by8.4%, excluding Farnell, for the equivalent period.
Sales in APAC grew strongly in the third quarter, up 10.2% year on year as we continued to take market share and outperform our markets which declined 1.3% for the equivalent period, as reported by the SIA. Sales in China and India are continuing to drive growth with strategic investments and a focused approach delivering a strong EDE and web offering. During the quarter we saw sales growth of 22.4% and 94.6% in Greater China and India, respectively, further demonstrating that our strategic decision to enter Asia's emerging markets was the right one.
Our broad product offering and the richness of our web environment continued to attract new customers and following the introduction of eQuotes and new website enhancements, web sales grew 12.0% during the quarter. eCommerce sales in Farnell Europe now account for 57.1% of total sales.
Other Distribution Businesses
(CPC and MCM) Q3 09/10 Q3 08/9 Q3 growth 9M 09/10 9M 08/9 9M growth GBPm GBPm GBPm GBPmRevenue 23.4 23.0 -0.1% 67.4 64.6 -1.0%Underlying operating 2.4 2.3 4.3% 6.8 7.3 -10.5%profit*Underlying operating 10.3% 10.0% 10.1% 11.3%margin %
*excluding the one-off non cash gain from re-organisation of North American pension plans in Q2 of 0.3 million.
CPC achieved positive sales growth throughout the year and sales were up 3.5% in the third quarter, reflecting the success of its innovative marketing activities and TV advertising campaigns, in what is a highly competitive and difficult UK market. CPC continued to drive its focused approach to the web, with third quarter web sales growing 15.8% year on year.
Whilst MCM's third quarter sales declined 8.4% on the prior year,reflecting the highly challenging market conditions in North America and theimpact of the economic environment on the business' larger National Accountcustomers, the business saw sales growth of 10.9% over the second quarter.This was supported by the success of both online and offline marketingcampaigns, which resulted in active customers increasing by 48% over the prioryear. Web sales, driven by focused marketing activities, continued to increasewith over 50% of sales from mailings now being transacted via the web, andtotal eCommerce sales now represent 42.1% of total sales.
Industrial Products Division
(Akron Brass and TPC Wire and Cable)
Q3 09/10 Q3 08/9 Q3 growth 9M 09/10 9M 08/9 9M growth GBPm GBPm GBPm GBPmRevenue 19.0 20.9 -15.3% 58.5 56.9 -14.4%Underlying operating 3.4 4.2 -24.4% 10.4 11.1 -22.4%profit*Underlying operating 17.9% 20.1% 17.8% 19.5%margin
*excluding the one-off non cash gain from re-organisation of North American pension plans in Q2 of 1.0 million.
Third quarter sales declined 15.3%, or 9.0% excluding Cadillac Electric whichwas closed at the end of the prior year. Both Akron Brass and TPC Wire & Cableremain focused on their successful targeting of international opportunitiesand new products and markets in order to mitigate the impact of the difficultconditions in their domestic markets. Despite these conditions operatingmargins have remained strong.
Akron Brass
Sales at Akron Brass declined 5.2% in the third quarter and 2.9% year to date, a relatively strong performance as the business continued to increase market share in what remain difficult market conditions. This was supported by targeted growth internationally, including a record order in Poland, and ongoing investments in new product developments and other market sectors including defence and petrochemical industries.
TPC Wire & Cable
Following the restructuring of TPC during the second quarter,designed to develop a multi-channel focus across specific market segments,including refineries, rig and marine fabrication, hoisting equipment,government, utility, mining, food and beverage, the business saw third quartersales increase 16.4% over the second quarter, a year on year decline of 22.3%.This restructuring ensures TPC is less reliant on its traditional markets,including automotive and the steel sector, and that the business is focused onopportunities for growth. The business has also made improvements to itswebsite during the quarter around usability and as a result has seen visitornumbers increase, supported by marketing initiatives.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 legislation and regulatoryenactments, recruitment and integration of new personnel, the implementationof cost-saving initiatives to offset current market conditions, continued useand acceptance of e-commerce programs and systems, the ability to expand intonew markets and territories, the implementation of new sales and marketinginitiatives, changes in demand for electronic, electrical, electromagnetic andindustrial products, rapid changes in distribution of products and customerexpectations, the ability to introduce and customers' acceptance of newservices, products and product lines, product availability, the impact ofcompetitive pricing, fluctuations in foreign currencies, and changes ininterest rates and overall market conditions, particularly the impact ofchanges in world-wide and national economies. The Group does not intend toupdate the forward-looking statements made herein.Condensed Consolidated Income StatementFor the third quarter and nine months ended 1st November 2009 2009/10 2008/9 2009/10 2008/9 2008/9 Third Third Nine Nine Full quarter quarter months months year unaudited unaudited unaudited unaudited audited Notes GBPm GBPm GBPm GBPm GBPm Continuing operationsRevenue 3 199.8 209.1 587.8 604.2 804.4Cost of sales (120.4) (127.1) (355.1) (364.0) (485.6)Gross profit 79.4 82.0 232.7 240.2 318.8Net operating expenses- before restructuring and pensionchanges (61.0) (59.9) (181.7) (171.9) (230.0)- restructuring costs 4 (2.8) - (7.6) - (3.4)- net one-off income from pensionchanges 4 - - 6.3 - -Total net operating expenses (63.8) (59.9) (183.0) (171.9) (233.4)Operating profit- before restructuring and pensionchanges 18.4 22.1 51.0 68.3 88.8- restructuring costs 4 (2.8) - (7.6) - (3.4)- net one-off income from pensionchanges 4 - - 6.3 - -Total operating profit 3 15.6 22.1 49.7 68.3 85.4Finance income(interest receivable) 0.1 0.1 0.3 0.5 0.7Finance costs- interest payable (3.5) (3.5) (10.4) (9.4) (12.6)- preference dividends (0.9) (0.9) (2.7) (2.7) (3.5)- premium on redemption ofpreference shares (0.2) (0.2) (0.6) (0.6) (0.9)- gain on purchase of preferenceshares - 0.1 - 3.7 3.7Total finance costs (4.6) (4.5) (13.7) (9.0) (13.3)Profit before taxation 4 11.1 17.7 36.3 59.8 72.8Taxation 5 (3.5) (5.4) (11.3) (17.1) (21.1)Profit for the period(attributable to ordinaryshareholders) 7.6 12.3 25.0 42.7 51.7 Earnings per share 6Basic 2.1p 3.4p 6.9p 11.8p 14.3pDiluted 2.1p 3.3p 6.9p 11.6p 14.2p Ordinary dividendsInterim - proposed 4.2p 4.2p 4.2pFinal - proposed 5.2pPaid 9.4p 9.4p 9.4p
Impact on shareholders' funds ( m) 34.0
34.0 34.0
Condensed Consolidated Statement of Comprehensive Income For the third quarter and nine months ended 1st November 2009
2009/10 2008/9 2009/10 2008/9 2008/9 Third Third Nine Nine Full quarter quarter months months year unaudited unaudited unaudited unaudited audited Notes GBPm GBPm GBPm GBPm GBPm Profit for the period 7.6 12.3 25.0 42.7 51.7 Net exchange adjustments 1.9 (6.3) (4.1) (4.6) 11.6Actuarial losses on pensions andother post-retirement obligations 8 - (37.7) (21.5) (37.7) (85.1)Deferred tax credit on actuariallosses 8 - 14.4 7.7 14.4 31.3Net gains/(losses) not recognisedin the income statement 1.9 (29.6) (17.9)
(27.9) (42.2)
Total comprehensiveincome/(expense) for the period(attributable to ordinaryshareholders) 9.5 (17.3) 7.1
14.8 9.5
The accompanying notes form an integral part of this unaudited condensed consolidated financial information.
Condensed Consolidated Balance SheetAs at 1st November 2009 1st November 2nd November 1st February 2009 2008 2009 unaudited unaudited audited Notes GBPm GBPm GBPmASSETSNon-current assetsGoodwill 34.4 32.0 32.5Other intangible assets 30.0 22.7 25.0
Property, plant and equipment 48.0
53.9 58.1Retirement benefit assets - 28.5 -Deferred tax assets 6.6 0.2 5.0Total non-current assets 119.0 137.3 120.6 Current assetsInventories 165.3 183.3 194.3Financial assets - 0.6 -Trade and other receivables 123.6 137.9 128.8Cash and cash equivalents 7 31.7 34.6 39.6Total current assets 320.6 356.4 362.7 LIABILITIESCurrent liabilitiesFinancial liabilities 7 (40.1) (11.1) (5.1)Trade and other payables (100.2) (100.2) (94.5)Current tax payable (25.4) (23.1) (17.4)Total current liabilities (165.7) (134.4) (117.0) Net current assets 154.9 222.0 245.7 Non-current liabilitiesFinancial liabilities 7 (256.3) (310.5) (330.4)Retirement and other post-employment benefits (48.5) (20.3) (35.3)Deferred tax liabilities (1.8) (23.0) (6.2)Total non-current liabilities (306.6) (353.8) (371.9) NET (LIABILITIES)/ASSETS (32.7) 5.5 (5.6) EQUITYOrdinary shares 18.3 18.3 18.3
Equity element of preference shares 10.4
10.4 10.4Share premium 23.8 23.8 23.8Capital redemption reserve 4.4 4.4 4.4Hedging reserve - 0.6 (3.7)Cumulative translation reserve 11.2 (0.9) 15.3Retained earnings (100.8) (51.1) (74.1)TOTAL EQUITY (32.7) 5.5 (5.6) Consolidated Statement of changes in EquityFor the third quarter and nine months ended 1st November 2009 2009/10 2008/9 2008/9 Nine Nine Full months months year unaudited unaudited audited GBPm GBPm GBPm
Total equity at beginning of period (5.6) 20.1
20.1
Profit for the period 25.0 42.7
51.7
Other comprehensive (expense)/income (17.9) (27.9)
(42.2)
Derivative financial instruments 3.7 3.5
(0.8) Transactions with owners:Ordinary dividends paid (34.0) (34.0) (34.0)Ordinary shares issued - 0.9 0.9Purchase of ordinary shares 9 (5.0) (2.9) (2.9)Purchase of preference shares:- reduction in equity element - (4.8)
(4.8)
- gain arising on equity element - 4.8
4.8- deferred tax - 0.8 0.8Share-based payments 1.1 2.3 0.8Total transactions with owners (37.9) (32.9)
(34.4)
Total equity at end of period (32.7) 5.5
(5.6)
The accompanying notes form an integral part of this unaudited condensed consolidated financial information.
Condensed Consolidated Statement of Cash FlowsFor the third quarter and nine months ended 1st November 2009 2009/10 2008/9 2009/10 2008/9 2008/9 Third Third Nine Nine Full quarter quarter months months year unaudited
unaudited unaudited unaudited audited
Notes GBPm
GBPm GBPm GBPm GBPm
Cash flows from operating activitiesOperating profit from continuing operations 15.6 22.1 49.7 68.3 85.4Restructuring/pension changes:- net income statement impact 2.8 - 1.3 - 3.4- cash impact (2.1) - (5.7) - (2.0)Non-cash impact of restructuring/pension changes 0.7
- (4.4) - 1.4Depreciation and amortisation 5.1 4.4 14.8 13.0 18.0Changes in working capital 5.0 (3.4) 16.6 (9.6) 2.7
Additional pension scheme funding (UK defined benefit plan) (0.5) (0.7) (1.7) (2.2) (2.9)Other non-cash movements 1.1 - 3.0 0.4 (2.3)Total cash generated from operations 27.0
22.4 78.0 69.9 102.3Interest received 0.1 0.1 0.3 0.5 0.7Interest paid (1.3) (1.5) (7.8) (7.4) (12.4)
Dividends paid on preference shares - - (1.8) (1.8) (3.5)Taxation paid (5.1) (7.0) (6.4) (18.0) (21.9)Net cash generated from operating activities 20.7
14.0 62.3 43.2 65.2
Cash flows from investing activitiesAcquisition of business 2 (6.1) - (6.1) - (1.1)Disposal of business - - - 0.7 0.7Proceeds from sale of property, plant and equipment - - - 3.3 3.3Purchase of property, plant and equipment (0.8) (1.0) (2.7) (3.9) (7.0)Purchase of intangible assets (computer software) (1.7) (2.4) (5.4) (7.1) (9.1)Net cash used in investing activities (8.6)
(3.4) (14.2) (7.0) (13.2)
Cash flows from financing activitiesIssue of ordinary shares - 0.5 - 0.9 0.9Purchase of ordinary shares 9 - (0.1) (5.0) (2.9) (2.9)Purchase of preference shares -
(0.5) - (23.6) (23.6)New bank loans 7.2 - 144.1 26.7 29.5Repayment of bank loans - (7.3) (158.7) (7.3) (22.8)Dividends paid to ordinary shareholders (15.1) (15.2) (34.0) (34.0) (34.0)Net cash used in financing activities (7.9)
(22.6) (53.6) (40.2) (52.9)
Net increase/(decrease) in cash, cash equivalents and bank overdrafts
4.2 (12.0) (5.5) (4.0) (0.9)Cash, cash equivalents and bank overdrafts at beginning of period 27.3 45.8 39.0 37.6 37.6Exchange gains/(losses) 0.2
0.8 (1.8) 1.0 2.3 Cash, cash equivalents and bank overdrafts at end of period 31.7 34.6 31.7 34.6 39.0
Reconciliation of net financial liabilitiesNet financial liabilities at beginning of period (295.9) (254.1) (254.1)Net decrease in cash, cash equivalents and bank overdrafts (5.5) (4.0) (0.9)Decrease/(increase) in debt 14.6 (19.4) (6.7)Decrease in preference shares - 27.4 27.4Premium on redemption of preference shares (0.6) (0.6) (0.9)Derivative financial instruments 4.4 3.5 (1.5)Exchange movement 18.3 (39.2) (59.2)Net financial liabilities at end of period 7
(264.7) (286.4) (295.9)
The accompanying notes form an integral part of this unaudited condensed consolidated financial information.
Notes
1 Basis of preparationThe unaudited condensed consolidated financial information in this report hasbeen prepared in accordance with International Financial Reporting Standards(IFRSs) and applying the accounting policies disclosed in the Group's 2009Annual Report and Accounts on pages 81 to 85, except as described below.The following new standards and amendments to standards are mandatory for thefirst time for financial years beginning on or after 1 January 2009, and havebeen adopted by the Group effective from 2 February 2009.IAS 1 (revised), `Presentation of financial statements'. The revised standardbrings new disclosure requirements regarding `non-owner changes in equity' and'owner changes in equity', which are now required to be shown separately.Under this revised guidance the Group has elected to continue to present twoperformance statements: an income statement and a statement of comprehensiveincome (previously the 'Statement of Recognised Income and Expense'). Thesefinancial statements have been prepared under the revised disclosurerequirements. The requirements under the revised standard have not had asignificant impact on the Group's financial statements.IFRS 8, `Operating segments' (replacing IAS 14, `Segment reporting'): IFRS 8requires a `management approach' under which segment information is presentedon the same basis as that used for internal reporting purposes. This has notaffected the financial results of the Group, but has resulted in a change tothe Group's segmental disclosures. The previous two divisions within theMarketing and Distribution Division (MDD) have been split in to threedivisions with CPC (previously in MDD Europe and Asia Pacific) and MCM(previously in MDD Americas) now both categorised as "Other DistributionBusinesses". Comparatives have been re-presented accordingly.This condensed consolidated financial information does not comprise statutoryaccounts within the meaning of Section 434 of the Companies Act 2006.Statutory accounts for the financial year ended 1st February 2009, wereapproved by the Board of Directors on 17th April 2009, 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 Acquisition
On 23rd September 2009, the Group acquired the entire issued share capital ofCadSoft Computer GmbH, a leading German-based developer and supplier ofspecialist computer aided design (CAD) software for design engineers, togetherwith the business of Cadsoft Computer Inc., in the US.This transaction has been accounted for by the purchase method of accounting.The consideration and provisional fair values of the net assets acquired wereas follows: Fair value Book value adjustments Fair value GBPm GBPm GBPm Intangible assets - 5.3 5.3 Property, plant and equipment 0.1 - 0.1 Trade and other receivables 0.1 - 0.1 Trade and other payables (0.2) - (0.2) Cash and cash equivalents 0.2 - 0.2 0.2 5.3 5.5 Goodwill 2.8 Total cash consideration (including deferred consideration of 1.9m and costs of 0.2m) 8.3 Net cash outflow arising on acquisition comprises: Cash condsideration at date of acquisition (including costs) 6.3 Cash and cash equivalents acquired (0.2) 6.1
Intangible assets of 5.3m comprise the software licence, database and brand and are being amortised over periods of between 4 and 15 years. Goodwill is attributable to the future profitability of the acquired business.
Deferred consideration of 1.9m is dependent on the performance of the acquired business over the next three years. Both the trading results of CadSoft for the period since acquisition, and also for the period since the start of the financial year had the acquisition taken place on that date, are not material to the Group's results.
3 Segment information (unaudited) 2009/10 Third quarter 2008/9 Before Restructuring After Third restructuring (note 4) restructuring quarter (re-presented) GBPm GBPm GBPm GBPm Revenue Marketing and Distribution Division Americas 78.1 - 78.1 90.5 Europe and Asia Pacific 79.3 - 79.3 74.7 Other Distribution Businesses 23.4 - 23.4 23.0 Total Marketing and Distribution Division 180.8 - 180.8 188.2 Industrial Products Division 19.0 - 19.0 20.9 199.8 - 199.8 209.1 Operating profit Marketing and Distribution Division Americas 3.1 (2.8) 0.3 9.1 Europe and Asia Pacific 12.4 - 12.4 9.5 Other Distribution Businesses 2.4 - 2.4 2.3 Total Marketing and Distribution Division 17.9 (2.8) 15.1 20.9 Industrial Products Division 3.4 - 3.4 4.2 Head Office costs (2.9) - (2.9) (3.0) 18.4 (2.8) 15.6 22.1 2009/10 Nine months Before Restructuring/ After 2008/9 restructuring/ pension restructuring/ Nine pension changes pension months changes (note 4) changes (re-presented) GBPm GBPm GBPm GBPm Revenue Marketing and Distribution Division Americas 231.2 - 231.2 250.7 Europe and Asia Pacific 230.7 - 230.7 232.0 Other Distribution Businesses 67.4 - 67.4 64.6 Total Marketing and Distribution Division 529.3 - 529.3 547.3 Industrial Products Division 58.5 - 58.5 56.9 587.8 - 587.8 604.2 Operating profit Marketing and Distribution Division Americas 7.4 0.3 7.7 23.8 Europe and Asia Pacific 34.2 (2.9) 31.3 34.9 Other Distribution Businesses 6.8 0.3 7.1 7.3 Total Marketing and Distribution Division 48.4 (2.3) 46.1 66.0 Industrial Products Division 10.4 1.0 11.4 11.1 Head Office costs (7.8) - (7.8) (8.8) 51.0 (1.3) 49.7 68.3 2008/9 Full year Before After restructuring Restructuring restructuring costs costs - note 4 costs (re-presented) (re-presented) (re-presented) GBPm GBPm GBPm Revenue Marketing and Distribution Division Americas 335.5 - 335.5 Europe and Asia Pacific 303.8 - 303.8 Other Distribution Businesses 87.8 - 87.8 Total Marketing and Distribution Division 727.1 - 727.1 Industrial Products Division 77.3 - 77.3 804.4 - 804.4 Operating profit Marketing and Distribution Division Americas 31.2 (0.9) 30.3 Europe and Asia Pacific 44.8 (1.8) 43.0 Other Distribution Businesses 9.7 (0.2) 9.5 Total Marketing and Distribution Division 85.7 (2.9) 82.8 Industrial Products Division 14.3 (0.2) 14.1 Head Office costs (11.2) (0.3) (11.5) 88.8 (3.4) 85.4
Segmental information has been re-presented to reflect the adoption of IFRS 8 (note 1).
The segments shown above are the segments for which summary management accountinformation is presented to the Board which is deemed to be the Group's chiefoperating decision maker.
4 Profit before taxation
Profit before taxation is stated after the following:
2009/10 2008/9 2009/10 2008/9 2008/9 Third Third Nine Nine Full quarter quarter months months year unaudited unaudited unaudited unaudited audited GBPm GBPm GBPm GBPm GBPm One-off (charges)/credits: - restructuring costs (2.8) - (7.6) - (3.4) - net one-off income from pension changes - - 6.3 - - (2.8) - (1.3) - (3.4) Charge for share-based payments (0.6)
(0.7) (1.1) (2.3) (0.8)
(Charge)/income for defined benefit pension schemes (0.7) 0.6 (2.9) 1.6 2.2
As noted in its year end results announcement on 19th March 2009, the Group has taken further action during the first nine months to restructure its branch network in North America and to rationalise its structure in Europe. The one-off cost related to this restructuring in the first nine months was 7.6 million of which 2.8 million was incurred in the third quarter.
The impact of the prior year end valuations on the Group's defined benefitpension plans have resulted in a net charge to underlying operating profit inthe first nine months of 2.9 million, compared to net income of 1.6 millionin the first nine months of 2008/9. This reflects primarily the decline in themarket value of investments of the US Pension Plan during 2008/9. This yearthe Group has reduced further its exposure to the equity markets in its NorthAmerican plan. In addition, on 31st July 2009, the Group's North Americanpension plans were closed to further accrual of defined benefit obligations,with members being transferred to a money purchase plan. This resulted in anet one-off accounting gain in the second quarter of 6.3 million.
Due to their significance, restructuring costs and the net one-off income from pension changes have been disclosed separately on the face of the income statement.
5 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% (2008/9: 29.0%), being the estimated effective rate of taxation for thefinancial year ending 31 January 2010.6 Earnings per shareBasic 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 and awards witha non-market based performance condition granted to employees where theexercise price is less than the average market price of the Company's ordinaryshares during the period, and those shares with a market based performancecondition based on the current estimate of the number of shares that will vestunder the performance criteria.
Reconciliations of earnings and the weighted average number of ordinary shares used in the calculations are set out below.
2009/10 2008/9 Nine months (unaudited) Nine months (unaudited) Basic per Diluted per Basic per Diluted per Earnings share amount share amount Earnings share amount share amount GBPm pence pence GBPm pence pence Earnings per share Profit attributable to ordinary shareholders 25.0 6.9 6.9 42.7 11.8 11.6 Gain on purchase of preference shares - - - (3.7) (1.0) (1.0) Restructuring costs 7.6 2.1 2.1 - - - Tax attributable to restructuring costs (2.5) (0.7) (0.7) - - - Net one-off income from pension changes (6.3) (1.7) (1.7) - - -
Tax attributable to net one-off
income from pension changes 2.4 0.7 0.6 - - -
Profit attributable to ordinary
shareholders before
gain on purchase of
preference shares, restructuring
costs and one-off income from
pension changes 26.2 7.3 7.2 39.0 10.8 10.6 Number Number Weighted average number of shares 360,859,252 362,422,882 Dilutive effect of share options 2,735,739 4,526,866
Diluted weighted average number
of shares 363,594,991 366,949,748 2008/9 Full Year (audited) Basic per Diluted per Earnings share amount share amount GBPm pence pence Earnings per share Profit attributable to ordinary shareholders 51.7 14.3 14.2 Gain on purchase of preference shares (3.7) (1.0) (1.0) Restructuring costs 3.4 0.9 0.9 Tax attributable to restructuring costs (1.0) (0.3) (0.3)
Profit attributable to ordinary
shareholders before gain on purchase of
preference shares and excluding
restructuring costs 50.4 13.9 13.8 Number
Weighted average number of shares 362,412,369 Dilutive effect of share options 2,678,546 Diluted weighted average number of shares 365,090,915
Earnings per share before the gain on purchase of preference shares and excluding restructuring costs and one-off pension changes have been provided in order to facilitate year on year comparison.
7 Net financial liabilities
1st November 2nd November 1st February 2009 2008 2009 unaudited unaudited audited GBPm GBPm GBPm Cash and cash equivalents 31.7 34.6 39.6 Unsecured loans and overdrafts
(236.4) (262.0) (271.7)
Net financial liabilities before
preference shares and derivatives
(204.7) (227.4) (232.1)
Preference shares
(60.0) (59.1) (59.4)
Derivative financial instruments (net) - 0.1 (4.4) Net financial liabilities
(264.7) (286.4) (295.9)
Net financial liabilities are analysed in the balance sheet as follows: Current assets Cash and cash equivalents 31.7 34.6 39.6 Derivative financial instruments - 0.6 - 31.7 35.2 39.6 Current liabilities Bank overdrafts - - (0.6) 5.3% US dollar Guaranteed Senior Notes payable 2010 (40.0) - - Other loans
(0.1) (10.6) (0.1)
Derivative financial instruments - (0.5) (4.4) (40.1) (11.1) (5.1) Non-current liabilities Bank loans (95.6) (107.4) (109.8) 5.3% US dollar Guaranteed Senior Notes payable 2010 - (41.0) (45.8) 5.9% US dollar Guaranteed Senior Notes payable 2013 (96.4) (98.8) (110.4) Other loans (4.3) (4.2) (5.0) Preference shares (60.0) (59.1) (59.4) (256.3) (310.5) (330.4)
The Group has 150 million syndicate bank facilities agreed at the end of thelast quarter, which expire in January 2013, and a further 20 million bankfacility which expires in May 2012. Based on these new bank facilities of 170million, the Group's headroom on bank borrowings at the end of the nine monthsto 1st November was 72 million.8 Post-retirement benefitsAn actuarial loss of 21.5 million ( 13.8 million net of associated deferredtax) was recognised in the second quarter through the Condensed ConsolidatedStatement of Comprehensive Income relating to the Group's pension and postretirement obligations, the majority of which relates to the US pension plan( 16.1 million) and the UK pension plan ( 4.8 million). For both plans thisloss arose primarily from changes in the market-related bond rate used todiscount plan liabilities at the period end. As detailed in note 4, on 31stJuly 2009, the Group's North American pension plans were closed to furtheraccrual of defined benefit obligations, with members being transferred to amoney purchase plan. This resulted in net one-off income in the second quarterof 6.3 million.
9 Purchase or ordinary shares During the second quarter, the Premier Farnell Executive Trust acquired 3,829,933 of the Company's ordinary shares, through purchases on the London Stock Exchange, for a total cash consideration of 5.0 million in order to meet future obligations under the Company's performance share plan. This amount has been deducted from shareholders' equity.
10 Exchange ratesThe principal average exchange rates used to translate the Group's overseasprofits were as follows: 2009/10 2008/9 2009/10 2008/9 2008/9 Third Third Nine Nine Full quarter quarter months months year US dollar 1.62 1.74 1.58 1.90 1.79 Euro 1.11 1.27 1.13 1.27 1.24 END
vendorRelated Shares:
PFL.L