8th Dec 2005 07:00
Premier Farnell plc 8 December 2005 Results for the Third Quarter and Nine Months to 30 October 2005 Key Financials ‚£m Q3 05/6 Q3 04/5 Q3 04/5 9M 05/6 9M 04/5 9M 04/5 (Unaudited) ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m at CER* at CER* Sales 208.6 196.7 198.4 605.6 591.7 594.7 Operating profit 17.2 18.5 18.8 51.2 55.8 56.4 Operating profit 18.6 18.5 18.8 52.6 55.8 56.4 before reorganisation costs Earnings per share 2.8p 2.7p 2.8p 7.4p 7.6p 7.7p Sales growth¢â‚¬ 5.2% 1.9% * Constant Exchange Rates Highlights * Marketing and Distribution Division (MDD) sales per day in third quarter up 6.0% in the Americas, up 1.2% in the UK, up 5.3% in mainland Europe and up 17.0% in Asia * Operating profit in third quarter, before ‚£1.4million reorganisation costs, marginally ahead of that reported in the prior year * BuckHickman InOne's third quarter contribution level with prior year, after ‚£2.2million reduction in the first half * Strong return to growth at CPC with sales up 6.1% in third quarter following management changes * Industrial Products Division (IPD) sales per day in third quarter up 13.8% * Strong cash flow with net cash generated from operations being 110% of operating profit in the nine months * De-registration from the SEC completed Sir Peter Gershon, Executive Chairman commented:"I am pleased to announce that operating profits in the third quarter, beforereorganisation costs, were marginally ahead of those reported in the prioryear, having been ‚£3.3million behind in the first half. This was assisted by astable performance at BuckHickman InOne and tight control of costs across theGroup. The redundancy programme, announced at the Interim Results, is nowcomplete."Sales rose by 5.2% in the third quarter after a relatively flat first half.Sales growth improved in MDD Americas and, whilst profit performance was heldback by a reduction in gross margin, continuing attention by management saw themargin stabilise as the quarter progressed. Our performance in the UK washelped by a return to growth in sales at CPC and a resilient performance byFarnell InOne in a market that continues to be very difficult. In mainlandEurope, Farnell InOne continued to grow well, recording a 5.3% increase insales year-on-year. Sales growth in Asia accelerated to 17.0% in the quarter."The North American electronic component market is showing some growth, asevidenced in the recent improvement in our sales performance. In Europe, the UKmarket remains depressed after the sharp decline seen so far this year,although our performance has been relatively strong in recent months. Inmainland Europe we are continuing our record of growth and are outperformingthe market. Against this backdrop, we remain focussed on improving theeffectiveness of marketing programmes and, in planning for next year, the drivefor efficiency improvement remains a priority."¢â‚¬ sales growth percentagesComparison of sales for specific periods is affected by three variables: 1. Changes in exchange rates used to translate the overseas sales in different currencies into sterling; 2. Differences in the number of working days; 3. Disposal or acquisition of businesses. Throughout this statement, in order to reflect underlying business performance,percentage changes in sales are based on sales per day for continuingbusinesses at constant exchange rates and for like periods, unless otherwisestated.For further information, contact:Sir Peter Gershon, Executive Premier Farnell plc +44 (0) 20 7851 Chairman 4100 Andrew Fisher, Group Finance Director James Garthwaite, Group Director, Communications Richard Mountain / Andrew Lorenz Financial Dynamics (UK) +44 (0) 20 7269 7291 Brian Rafferty / John Sutton Taylor Rafferty (NA) + 1 212 889 4350 A conference call with Sir Peter Gershon and Andrew Fisher will take place on 8December at 8:30am; To obtain dial-in details please call Claire Bott atFinancial Dynamics on +44 (0)20 7269 7291. The conference call will be recordedand be available on the Group web site later that day.The Company's announcements are published on the Internet atwww.premierfarnell.com, together with business information, the 2005 Annual Reportand Accounts and links to all other Group websites.The Company's Preliminary Results for the year ending 29 January 2006 areexpected to be published in the week beginning 13 March 2006.Premier Farnell plc CHAIRMAN'S STATEMENT ON THIRD QUARTER AND NINE MONTHS RESULTS FOR THE PERIOD ENDED 30 October 2005 Premier Farnell, the leading global marketer and distributor of electronic,maintenance, repair and operations (MRO) and specialist products and services,today announces its results for the third quarter and nine months ended 30October 2005.These results are reported by the Company in accordance with InternationalFinancial Reporting Standards (IFRS). The impact of IFRS on the Group'saccounting policies and comparative financial results, which have been restatedin accordance with IFRS, is given in note 1 to the financial information andalso in the IFRS announcement made on 4 May 2005, a copy of which can be foundon the Company's website.sales growth percentagesComparison of sales for specific periods is affected by three variables: 1. Changes in exchange rates used to translate the overseas sales in different currencies into sterling; 2. Differences in the number of working days; 3. Disposal or acquisition of businesses. Throughout this statement, in order to reflect underlying business performance,percentage changes in sales are based on sales per day for continuingbusinesses at constant exchange rates and for like periods, unless otherwisestated.Financial Results * Sales Group sales in the first nine months of the year were ‚£605.6million (2004/5: ‚£591.7million). At constant exchange rates, the sales increase was ‚£10.9million. * Margins and Operating Profit Nine Months resultsThe gross margin for the Group was 39.8% (2004/5: 40.4%). Operating profit was‚£51.2million (2004/5: ‚£55.8million), producing an operating margin of 8.5%(2004/5: 9.4%). Operating profit for the nine months, before reorganisationcosts, was ‚£52.6million (2004/5: ‚£55.8million) giving an operating margin of8.7% (2004/5: 9.4%). Operating profit was adversely affected by a reduction incontribution from BuckHickman InOne of ‚£2.2m compared to the prior year, all ofwhich occurred in the first six months.Third Quarter resultsThe gross margin for the Group was 39.4% (2004/5: 40.7%). This was 0.4% lowerthan the 39.8% achieved in the second quarter, primarily due to a 0.7%reduction in gross margin in MDD Americas in response to more competitivemarket conditions. Continuing attention by management saw the margin stabiliseas the quarter progressed. Year on year, the gross margin in MDD Americas wasdown by 1.1%. The gross margin in MDD Europe and Asia Pacific remained stablefrom the previous quarter, although it was down by 0.7% on the particularlystrong third quarter in the prior year. Gross margin in IPD was also downyear-on-year because of a temporary change in production patterns at AkronBrass and increased raw material costs. Operating profit in the quarter was ‚£17.2million (2004/5: ‚£18.5million) after charging ‚£1.4million of reorganisationcosts relating to the redundancy programme announced at the Interim Results.This produced an operating margin of 8.2% (2004/5: 9.4%). Excluding thesereorganisation costs, operating profit for the quarter was ‚£18.6million (2004/5: ‚£18.5million) giving an operating margin of 8.9% (2004/5: 9.4%). * Finance Costs Net interest payable in the first nine months was ‚£10.3million (2004/5: ‚£10.1million) and was covered 5.1 times by operating profit beforereorganisation costs.Included in finance costs for the nine months is a charge of ‚£6.1million (2004/5: nil) in respect of the Company's convertible preference shares. Under IFRS,with effect from 31 January 2005, the preference dividend for the nine monthsof ‚£5.0million, together with a ‚£1.1million charge for the amortisation of theimplied redemption premium on the preference shares, is included as a financecost with no restatement of prior year comparatives. This is purely anaccounting change as a result of IFRS and has no impact on the Group'sfinancing arrangements. * Profit Before Taxation and Taxation Charge Reported profit before taxation in the nine months was ‚£34.8million and,excluding the finance charge of ‚£6.1million for the Company's convertiblepreference shares, profit before tax was ‚£40.9million (2004/5: ‚£45.7million).Reported profit before taxation in the third quarter was ‚£11.6million and,excluding the finance charge of ‚£2.0million for the Company's convertiblepreference shares, profit before tax was ‚£13.6million (2004/5: ‚£15.1million).The taxation charge in the nine months was at an effective rate of 20% ofprofit before tax and preference dividends, being the estimated effective rateof taxation for the year ending 29 January 2006. This compares to the effectivetax rate in the year to 30 January 2005 of 23.7% of profit before tax. The taxrate continues to reflect the Group's efficient financing structure and otherrealised benefits from effective planning. * Return on Net Operating Assets Return on net operating assets in the nine months was 21.2% compared to 22.0%for the same period last year, reflecting the fall in the Group's profitabilityin the first half of this year. * Earnings per Share Earnings per share in the nine months were 7.4pence (2004/5: 7.6pence). * Balance Sheet and Cash Flow Net cash generated from operations of ‚£56.4million in the nine months was 110%of operating profit (2004/5: ‚£42.7million, 77% of operating profit). Workingcapital increased by ‚£6.2million in the quarter as a result of the normalseasonal increase in receivables. Inventories remained broadly flat in thequarter, despite the introduction of ‚£4.4million of RoHS compliant products.The net cash out-flow during the nine months, before the cost of businessesacquired, was ‚£4.7million (2004/5: out-flow of ‚£19.5million). Net debt at theend of the quarter was ‚£332.9million, including ‚£109.8million attributable tothe reclassification of the Company's preference shares as required under IFRS.Net debt excluding preference shares was ‚£223.1million, compared with ‚£200.7million at 30 January 2005, with ‚£10.0million of this increase resultingfrom movements in exchange rates.In June, Weldon Technologies Inc., was acquired for ‚£5.9million and the assetsof R&R Instrumentation were acquired for ‚£1.7million. * De-registration from the US Securities and Exchange Commission (SEC) Termination of Premier Farnell's registration with the SEC took effect on 29September 2005.OperationsMarketing and Distribution Division (MDD) - OverviewThe Marketing and Distribution Division comprises Newark InOne, Farnell InOne,BuckHickman InOne, MCM, an InOne Company, and CPC. Q3 05/6 Q3 04/5 9M 05/6 9M 04/5 ‚£m ‚£m ‚£m ‚£m Sales 180.2 171.9 527.0 518.9 Operating profit 15.9 17.3 49.4 53.4 Adjusted operating profit* 17.1 17.3 50.6 53.4 Return on sales 8.8% 10.1% 9.4% 10.3% Adjusted return on sales* 9.5% 10.1% 9.6% 10.3% Sales growth 4.0% 1.1% * Before reorganisation costsAdjusted operating profit in the third quarter was down ‚£0.2million on theprior year and in the nine months was down ‚£2.8million on the prior year. Theprimary reason for the lower operating profit in the nine months was the ‚£2.2million reduction in contribution from BuckHickman InOne in the first halfcompared with the prior year.The division's gross margin in the quarter declined relative to that achievedin the second quarter as a result of a 0.7% reduction in gross margin in theAmericas, in response to more competitive market conditions. Continuingattention by management saw the margin stabilise as the quarter progressed.Year on year, the gross margin in the Americas was down by 1.1%. The grossmargin in Europe and Asia Pacific remained stable from the previous quarter,although it was down by 0.7% on the particularly strong third quarter in theprior year.RoHS Legislation (Restriction of the use of certain Hazardous Substances)In preparation for the European Union's RoHS Directive, which takes effect on 1July 2006, inventories of compliant stock were increased during the quarter asFarnell InOne and Newark InOne accelerated RoHS-related marketing programmes.These businesses have already increased the number of RoHS-compliant electronicproducts that they actively market by 40,000 and 26,000 respectively. Furtherlines are being added weekly and made available through the division'seCommerce channels as they are brought to market by suppliers.The capacity to handle the increase in stock lines this year is now in place.This includes the use of an auxiliary warehouse in the UK (Darwen, Lancashire),installation of new carousels in Farnell InOne's Maybrook distribution centre(Leeds, UK), and significant internal expansion in Newark InOne's Gaffneydistribution centre (South Carolina, US). In addition, Farnell InOne'sDistribution Centre in Liƒ¨ge (Belgium) brought additional capacity on stream.In September Farnell InOne launched the industry's most comprehensive catalogueof RoHS compliant products. It contained testimonials from several keysuppliers about Farnell InOne's approach to achieving RoHS compliance. Duringthe quarter, the demand for RoHS-related information, products and servicesthat are being made available by Farnell InOne helped drive a significantincrease in the number of visits to the division's websites across Europe andAsia Pacific. Farnell InOne has recently experienced an acceleration of growthin sales of RoHS-compliant products.As stated at the time of Interim Results, it is likely that the division willhave some excess and obsolete inventory, as a result of the RoHS legislation,which the Company continues to estimate could amount to approximately 5% of thedivision's total inventory. An appropriate provision will be made in theyear-end accounts, by which time the migration and readiness of customers andsuppliers will be at a more advanced stage.Supplier relationshipsDuring the quarter, the division continued to build its proposition toelectronic design engineers by securing two further distribution agreements: aEuropean agreement with Cirrus Logic, effectively extending its existingdistribution relationship with Newark InOne in North America; and a Europeandistribution agreement with Sharp Microelectronics Europe.eCommerce salesIn the nine months, eCommerce sales were up 28% on the prior year. eCommercesales in the nine months accounted for 18% of sales in the Americas and 22% ofthose in the Europe and Asia Pacific region. * The Americas Q3 05/6 Q3 04/5 9M 05/6 9M 04/5 ‚£m ‚£m ‚£m ‚£m Sales 81.0 74.9 229.5 222.6 Operating profit 6.0 6.7 19.2 19.8 Adjusted operating profit* 6.7 6.7 19.9 19.8 Return on sales 7.4% 8.9% 8.4% 8.9% Adjusted return on sales* 8.3% 8.9% 8.7% 8.9% Sales growth 6.0% 2.6% * Before reorganisation costsSales growth in the quarter increased to 6.0%. However, gross margin in thequarter was 0.7% below the second quarter, in response to more competitivemarket conditions. During the quarter, the gross margin was stabilised throughcontinued management attention.The addition of RoHS compliant products has significantly increased the numberof products actively marketed by Newark InOne on the web. Its new cataloguereleased in September also reflects this, containing some 20,000 new products.The catalogue's print run was increased by a third this year to support themarketing programmes that have steadily grown Newark InOne's active customerbase since the start of the year.Sales through eProcurement partnerships in MDD America increased by 25% in thenine months and a number of new partnerships were secured in the quarter,including Schindler Elevators and Continental Tire. The business' eProcurementplatform was enhanced with a more advanced search engine and access to aproduct range extended from 850,000 lines to some 2million. Sales over the webincreased 22% in the nine months.Sales from operations in Brazil continued to grow strongly in the quarter. * Europe and Asia Pacific Q3 05/6 Q3 04/5 9M 05/6 9M 04/5 ‚£m ‚£m ‚£m ‚£m Sales 99.2 97.0 297.5 296.3 Operating profit 9.9 10.6 30.2 33.6 Adjusted operating profit* 10.4 10.6 30.7 33.6 Return on sales 10.0% 10.9% 10.2% 11.3% Adjusted return on sales* 10.5% 10.9% 10.3% 11.3% Sales growth 2.4% 0.0% * Before reorganisation costsSales were up 2.4% in the quarter with difficult market conditions in the UKbeing offset by a good performance in mainland Europe and stronger growth inAsia, which was up 17.0%. Operating profit for the nine months was adverselyaffected by a reduction in contribution from BuckHickman InOne of ‚£2.2millionin the first half.Sales by region Q3 05/6 Q3 04/5 Sales 9M 05/6 9M 04/5 Sales growth growth ‚£m ‚£m ‚£m ‚£m UK (including exports) 66.6 65.8 1.2% 198.0 202.8 -2.4% Mainland Europe 25.0 24.3 5.3% 77.3 72.3 6.2% Asia Pacific 7.6 6.9 4.2% 22.2 21.2 1.4% Despite the further deterioration in the UK market in the third quarter, thedivision's UK sales in the quarter increased 1.2% year-on-year, helped by astable performance at BuckHickman InOne and a return to growth at CPC.The decline in UK sales in Farnell InOne and BuckHickman InOne reduced to 0.4%in the period, from 4.5% down in the first half. Farnell InOne's performancewas resilient in a particularly difficult market.BuckHickman InOne's contribution in the third quarter was level with that ofthe same period last year. A number of steps have been taken to drive salesperformance, underpinned by consistently high service levels from the NationalDistribution Centre in Coventry. A more focused sales incentive programme hasbeen introduced within the branch network. The frequency of telemarketingcampaigns has been increased and registrations and sales via the new website,launched in June, are in line with expectations.The broad-based review to improve BuckHickman InOne's performance, which wasannounced in the Interim Statement, is progressing well. As a result, theconclusions of this review and the associated implementation costs are likelyto be announced by the Company's financial year end.CPC's sales rose 6.1% in the quarter, marking a strong return to growth despitea difficult environment in the UK. A new, redesigned, catalogue containingapproximately 16,000 new products was launched in September and has beenaccompanied by sustained marketing activities. Increased sourcing of productsin Asia and a drive for internal efficiencies are now the focus to delivermargin improvement.In mainland Europe, Farnell InOne continued to achieve good growth as salesrose 5.3% in the quarter, with further strong performances in Italy, Germanyand Spain. The business' German, Austrian and Swiss operations began using thedivision's Customer Relationship Management (CRM) system after its successfulimplementation in these countries in July.Across Europe sales via the web continued to grow well. In aggregate, MDDEurope and Asia Pacific's sales via eProcurement agreements and over the webwere up by 52% and 45%, respectively in the nine months.Sales growth in Asia accelerated to 17.0% in the third quarter and was 9.4% inthe nine months. Whilst competition increased, Farnell-Newark InOne continuedto improve its service through faster delivery in the region.In Australia, sales for the quarter declined 2.7% as the electronics marketremained difficult and the competitive environment became more aggressive.Industrial Products Division Q3 05/6 Q3 04/5 9M 05/6 9M 04/5 ‚£m ‚£m ‚£m ‚£m Sales 28.4 24.8 78.6 72.8 Operating profit 3.9 3.7 9.7 9.9 Return on sales 13.7% 14.9% 12.3% 13.6% Sales growth 13.8% 7.2% The results in the Industrial Products Division in the nine months wereadversely affected by a weak performance from the Kent business that sawoperating profit decline by ‚£0.7million compared with the prior year. * Akron Brass Akron Brass increased sales per day in the quarter by 33.5% compared with thesame period last year, following the acquisition of Weldon Technologies inJune. Excluding Weldon, sales were up 8.0% despite the municipal fire-fightingmarket remaining relatively flat in North America. This growth was helped bystrong exports and sales of equipment into industrial markets. Gross margin wasdown because of a temporary change in production patterns and some increase inraw material costs. The integration of Weldon, a supplier of lighting andelectrical control systems for specialty vehicles, is largely complete. Thebusiness is developing new products for Weldon's portfolio and starting tomarket this portfolio to Akron Brass's traditional fire truck market. Duringthe quarter, Akron Brass secured its first major order in China. * TPC Wire & Cable Sales per day increased 10.2% in the quarter compared with the same period lastyear, though margins suffered as a result of raw material cost pressures. Salesinto new, non-automotive, markets such as utilities and mining, were up a thirdagainst those in the same quarter last year. * Kent Kent achieved its first quarter of growth this year with sales per day up 1.4%.This reduced the decline for the year-to-date to 0.5% against the backdrop of aweak market.OutlookThe North American electronic component market is showing some growth, asevidenced in the recent improvement in our sales performance. In Europe, the UKmarket remains depressed after the sharp decline seen so far this year,although our performance has been relatively strong in recent months. Inmainland Europe we are continuing our record of growth and are outperformingthe market. Against this backdrop, we remain focussed on improving theeffectiveness of marketing programmes and, in planning for next year, the drivefor efficiency improvement remains a priority.Sir Peter GershonExecutive Chairman8 December 2005This press release contains certain forward-looking statements relating to thebusiness of the Group and certain of its plans and objectives, including, butnot limited to, future capital expenditures, future ordinary expenditures andfuture actions to be taken by the Group in connection with such capital andordinary expenditures, the expected benefits and future actions to be taken bythe Group in respect of certain sales and marketing initiatives, operatingefficiencies and economies of scale. By their nature forward-looking statementsinvolve risk and uncertainty because they relate to events and depend oncircumstances that will occur in the future. Actual expenditures made andactions taken may differ materially from the Group's expectations contained inthe forward-looking statements as a result of various factors, many of whichare beyond the control of the Group. These factors include, but are not limitedto, actions taken in response to enactment of RoHS legislation, theimplementation of cost-saving initiatives to offset current market conditions,continued use and acceptance of e-commerce programs and systems and the impacton other distribution systems, the ability to expand into new markets andterritories, the implementation of new sales and marketing initiatives, changesin demand for electronic, electrical, electromagnetic and industrial products,rapid changes in distribution of products and customer expectations, theability to introduce and customers' acceptance of new services, products andproduct lines, product availability, the impact of competitive pricing,fluctuations in foreign currencies, and changes in interest rates and overallmarket conditions, particularly the impact of changes in world-wide andnational economies.CONSOLIDATED INCOME STATEMENT For the third quarter and nine months ended 30th October 2005 2005/6 2004/5 2005/6 2004/5 2004/5 Third Third Nine Nine Full year quarter quarter months months unaudited unaudited unaudited unaudited unaudited Notes ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 2 208.6 196.7 605.6 591.7 776.7 Cost of sales (126.5) (116.6) (364.8) (352.5) (462.2) Gross profit 82.1 80.1 240.8 239.2 314.5 Net operating expenses - before reorganisation (63.5) (61.6) (188.2) (183.4) (242.0)costs - reorganisation costs 4 (1.4) - (1.4) - - Total net operating (64.9) (61.6) (189.6) (183.4) (242.0)expenses Operating profit - before reorganisation 18.6 18.5 52.6 55.8 72.5costs - reorganisation costs 4 (1.4) - (1.4) - - Total operating profit 2 17.2 18.5 51.2 55.8 72.5 Finance income (interest 0.1 - 0.2 0.2 0.3receivable) Finance costs - interest payable (3.7) (3.4) (10.5) (10.3) (13.8) - preference dividend (1.6) - (5.0) - - - premium on redemption (0.4) - (1.1) - -of preference shares Total finance costs (5.7) (3.4) (16.6) (10.3) (13.8) Profit before taxation 4 11.6 15.1 34.8 45.7 59.0 Taxation 5 (1.6) (3.8) (8.0) (13.1) (14.0) Profit after taxation 10.0 11.3 26.8 32.6 45.0from continuing operations Preference dividend - (1.6) - (4.9) (6.6) Profit attributable to 10.0 9.7 26.8 27.7 38.4ordinary shareholders Earnings per share 6 Basic 2.8p 2.7p 7.4p 7.6p 10.6p Diluted 2.8p 2.7p 7.4p 7.6p 10.6p Ordinary dividends Interim - proposed 4.0p 4.0p 4.0p Final - proposed 5.0p Paid 9.0p 9.0p 9.0p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the third quarter and nine months ended 30th October 2005 2005/6 2004/5 2005/6 2004/5 2004/5 Third Third Nine Nine Full year quarter quarter months months unaudited unaudited unaudited unaudited unaudited ‚£m ‚£m ‚£m ‚£m ‚£m Profit after taxation 10.0 11.3 26.8 32.6 45.0from continuing operations Foreign exchange (0.5) 3.3 (5.1) 1.3 2.2translation differences Actuarial losses on - - - - (15.0)defined benefit pension schemes Deferred tax on - - - - 5.2actuarial losses on defined benefit pension schemes Net gains and losses not (0.5) 3.3 (5.1) 1.3 (7.6)recognised in the income statement Total recognised income 9.5 14.6 21.7 33.9 37.4and expense for the period CONSOLIDATED BALANCE SHEET As at 30th October 2005 30th 31st 30th October October January 2005 2004 2005 unaudited unaudited unaudited Notes ‚£m ‚£m ‚£m ASSETS Non-current assets Property, plant and equipment 67.0 72.3 69.5 Intangible assets 78.1 76.9 76.3 Retirement benefit asset 48.6 55.0 44.3 Deferred tax assets 0.5 4.4 5.0 Total non-current assets 194.2 208.6 195.1 Current assets Inventories 168.6 168.5 158.1 Trade and other receivables 146.5 141.1 131.4 Cash and cash equivalents 7 40.0 35.9 27.9 Total current assets 355.1 345.5 317.4 LIABILITIES Current liabilities Financial liabilities 7 (88.4) (5.4) (0.8) Trade and other payables (103.5) (103.0) (89.3) Current tax payable (35.7) (44.0) (40.6) Short-term provisions (0.1) (0.1) (0.1) Total current liabilities (227.7) (152.5) (130.8) Net current assets 127.4 193.0 186.6 Non-current liabilities Financial liabilities 7 (284.5) (252.8) (227.8) Deferred tax liabilities (25.3) (25.0) (22.4) Retirement and other post-employment (29.0) (22.6) (28.1)benefits Other provisions (0.9) (1.2) (0.9) Total non-current liabilities (339.7) (301.6) (279.2) NET (LIABILITIES)/ASSETS (18.1) 100.0 102.5 EQUITY Share capital 18.1 25.7 25.7 Equity element of preference shares 19.9 - - Share premium 20.3 20.2 20.2 Capital redemption reserve 0.8 0.8 0.8 Hedging reserve (0.1) - - Cumulative translation reserve (2.9) 1.3 2.2 Retained earnings (74.2) 52.0 53.6 TOTAL EQUITY (18.1) 100.0 102.5 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For the nine months ended 30th October 2005 2005/6 2004/5 2004/5 Nine Nine Full year months months unaudited unaudited unaudited Notes ‚£m ‚£m ‚£m Total equity at beginning of period, 102.5 101.4 101.4as previously reported Implementation of accounting for financial instruments in accordance with IAS 32 and IAS 39: - reclassification of preference 1 (106.3) - -shares as debt - associated deferred tax (4.7) - - Total equity at beginning of period, (8.5) 101.4 101.4as restated Profit after taxation 26.8 32.6 45.0 Net gains and losses recognised (5.1) 1.3 (7.6)directly in equity Ordinary dividends declared (32.6) (32.6) (32.6) Preference dividends - (4.9) (6.6) Ordinary shares issued 0.1 0.1 0.1 Share-based payments 1.6 2.1 2.8 Derivative financial instruments (0.1) - - SEC de-registration costs (0.3) - - Total equity at end of period (18.1) 100.0 102.5SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS For the third quarter and nine months ended 30th October 2005 2005/6 2004/5 2005/6 2004/5 2004/5 Third Third Nine Nine Full year quarter quarter months months unaudited unaudited unaudited unaudited unaudited Notes ‚£m ‚£m ‚£m ‚£m ‚£m Cash flows from operating activities Operating profit 17.2 18.5 51.2 55.8 72.5 Depreciation and 5.7 4.8 15.9 14.7 19.7amortisation Changes in working (6.2) (5.7) (11.1) (27.4) (19.9)capital Other non-cash movements 0.2 (0.4) 0.4 (0.4) 0.2 Cash generated from 16.9 17.2 56.4 42.7 72.5operations Net interest paid (0.2) (0.1) (7.1) (6.8) (13.4) Dividends paid on - - (3.4) (3.3) (6.6)preference shares Taxation paid (3.1) (3.1) (11.3) (9.9) (12.1) Net cash from operating 13.6 14.0 34.6 22.7 40.4activities Cash flows from investing activities Purchase of businesses 3 - - (7.6) (2.6) (2.6) Proceeds from sale of 0.1 - 1.1 0.2 1.0property, plant and equipment Purchase of property, (1.9) (1.4) (4.1) (5.5) (6.5)plant and equipment Purchase of intangible (1.2) (1.5) (3.5) (4.4) (6.8)assets (computer software) Net cash used in (3.0) (2.9) (14.1) (12.3) (14.9)investing activities Cash flows from financing activities SEC de-registration - - (0.3) - -costs Issue of ordinary shares - - 0.1 0.1 0.1 New bank loans 10.6 6.0 22.7 23.0 23.0 Repayment of bank loans - - - - (17.7) Dividends paid to (14.5) (14.5) (32.6) (32.6) (32.6)shareholders Net cash used in (3.9) (8.5) (10.1) (9.5) (27.2)financing activities Net increase/(decrease) 6.7 2.6 10.4 0.9 (1.7)in cash and bank overdrafts Reconciliation of net debt Net debt at beginning of (200.7) (201.9) (201.9)period, as previously reported Implementation of accounting for financial instruments in accordance with IAS 39: - reclassification of 1 (106.3) - -preference shares as debt Net debt at beginning of (307.0) (201.9) (201.9)period, as restated Net increase/(decrease) 10.4 0.9 (1.7)in cash and bank overdrafts Increase in debt (22.7) (23.0) (5.3) Premium on redemption of (1.1) - -preference shares Derivative financial (0.1) - -instruments Exchange movement (12.4) 1.7 8.2 Net debt at end of 7 (332.9) (222.3) (200.7)period NOTES1 Adoption of International Financial Reporting Standards (IFRS)Basis of preparationPremier Farnell adopted IFRS with effect from 31st January 2005. Consequently,the financial information in this report has been prepared on the basis of theapplication of IFRS standards and interpretations in issue that have eitherbeen endorsed by the European Commission and are effective (or available forearly adoption) or are expected to be endorsed and effective (or available forearly adoption) at 29th January 2006, the Group's first annual reporting dateunder IFRS. In particular, the Group has, as permitted, early adopted theamendment to IAS 19, Employee Benefits - Actuarial Gains and Losses, that waspublished by the International Accounting Standards Board in December 2004, andwhich was adopted by the European Commission on 8th November 2005.During the year ending 29th January 2006, further IFRS standards andinterpretations may be issued that will be applicable to the Group's currentfinancial year or that are applicable to later accounting periods but may beadopted early. The Group's first IFRS financial statements may, therefore, beprepared in accordance with some different accounting policies from thefinancial information presented here. In addition, there is not yet asignificant body of established practice on which to draw in forming opinionsregarding the interpretation and application of IFRS. Accordingly, practice iscontinuing to evolve. At this stage, therefore, the full financial effect ofreporting under IFRS as it will be applied to the Group's first IFRS financialstatements cannot be determined with certainty and may be subject to change.Comparative informationIFRS 1, First Time Adoption of IFRS, requires that most IFRS are appliedretrospectively, subject to certain exemptions that can be taken. Hence, thecomparative information included in these financial statements has beenrestated in accordance with IFRS. Reconciliations from UK GAAP to IFRS of theincome statement for the third quarter and nine months ended 31st October 2004,and of the balance sheet as at 31st October 2004, are included on pages 17 to19. Reconciliations from UK GAAP to IFRS of the income statement for the yearended 30th January 2005, and of the balance sheets as at 2nd February 2004 and30th January 2005, together with a more detailed explanation of the changesmade to the UK GAAP accounting policies disclosed in the Group's 2005 AnnualReport and Accounts, are given in the IFRS announcement made by the Company on4th May 2005, a copy of which is available on the Company's web site atwww.premierfarnell.com.IAS 32 and IAS 39From 31st January 2005, Premier Farnell implemented the following additionalchange in accounting policy as a result of adopting IAS 32 and IAS 39,accounting for financial instruments. This change is applied prospectively from31st January 2005, and therefore does not affect the comparative information.Prior to 31st January 2005, convertible, redeemable preference shares wereincluded within shareholders' funds and the preference dividend shown as adeduction from profit after tax. From 31st January 2005, IFRS requires suchpreference shares to be split into debt and equity components with thepreference dividend being reclassified as a finance cost. The fair value of thedebt element is established on issue of the shares, based on the discountedcash flows of the instrument to the date of maturity, and is then increasedeach year on a straight line basis through the income statement in order toarrive at the redemption amount payable on maturity of the shares. The equitycomponent is ‚£19.9 million and will only change as and when shares areredeemed.At 30th October 2005, the debt element of the preference shares was ‚£109.8million (31st January 2005: ‚£106.3 million). The amortisation charge relatingto the implied redemption premium for the nine months ended 30th October 2005was ‚£1.1 million.Cash flowsThe transition from UK GAAP to IFRS does not change the reported cash flows ofthe Group. An IFRS cash flow statement is similar to UK GAAP but presentsvarious cash flows in different categories and in a different order from UKGAAP. All of the IFRS adjustments noted on pages 17 to 19 net out within cashgenerated from operations except for the intangible assets reclassificationwhere the cash used to purchase computer software has been reclassified frompurchase of plant and equipment to purchase of intangible assets.Segment reportingIAS 14, Segment Reporting, does not change the Group's reportable segments fromthose reported under UK GAAP. The Group's business segments under UK GAAP willbe the primary reporting segments under IAS 14.2 Segment information 2005/6 2004/5 2005/6 2004/5 2004/5 Third Third Nine Nine Full year quarter quarter months months unaudited unaudited unaudited unaudited unaudited ‚£m ‚£m ‚£m ‚£m ‚£m Revenue Marketing and Distribution Division Americas 81.0 74.9 229.5 222.6 289.8 Europe and Asia 99.2 97.0 297.5 296.3 390.2 Pacific Total Marketing and 180.2 171.9 527.0 518.9 680.0 Distribution Division Industrial Products 28.4 24.8 78.6 72.8 96.7 Division 208.6 196.7 605.6 591.7 776.7 Operating profit Marketing and Distribution Division Americas - before 6.7 6.7 19.9 19.8 25.5 reorganisation costs - reorganisation (0.7) - (0.7) - - costs (note 4) 6.0 6.7 19.2 19.8 25.5 Europe and Asia Pacific - before 10.4 10.6 30.7 33.6 43.8 reorganisation costs - reorganisation (0.5) - (0.5) - - costs (note 4) 9.9 10.6 30.2 33.6 43.8 Total Marketing and 15.9 17.3 49.4 53.4 69.3 Distribution Division Industrial Products 3.9 3.7 9.7 9.9 12.9 Division Head Office costs - before (2.4) (2.5) (7.7) (7.5) (9.7) reorganisation costs - reorganisation (0.2) - (0.2) - - costs (note 4) (2.6) (2.5) (7.9) (7.5) (9.7) 17.2 18.5 51.2 55.8 72.5 3 AcquisitionsOn 20th June 2005, the Group acquired Weldon Technologies Inc. (Weldon), a USbased company that produces lighting devices and electrical control solutionsfor speciality vehicle markets.On 28th June 2005, the Group acquired the business and assets of R&RInstrumentation (R&R), a US based distributor of test equipment and panelinstruments.The consideration and provisional fair values of the net assets acquired are asfollows: Weldon R&R Total ‚£m ‚£m ‚£m Intangible fixed assets 3.4 - 3.4 Tangible fixed assets 0.8 1.1 1.9 Deferred taxation (1.3) - (1.3) Other assets (net) 1.1 0.3 1.4 Provisional fair values 4.0 1.4 5.4 of net assets acquired Goodwill 1.9 0.3 2.2 Cash consideration 5.9 1.7 7.6 (including costs) Weldon contributed ‚£3.4 million of sales and ‚£0.5 million of operating profitto the Industrial Products Division in the nine months. R&R contributed ‚£1.3million of sales to the MDD Americas Division in the nine months. The operatingprofit from R&R in the nine months was not significant. As the income statementimpact of these acquisitions is not significant, they have not been disclosedon the face of the income statement.4 Profit before taxation Profit before taxation is stated after charging/(crediting): 2005/6 2004/5 2005/6 2004/5 2004/5 Third Third Nine Nine Full year quarter quarter months months unaudited unaudited unaudited unaudited unaudited ‚£m ‚£m ‚£m ‚£m ‚£m Share-based payments 0.6 0.7 1.6 2.1 2.8 Defined benefit (0.3) (0.7) (1.0) (2.1) (2.7) pension schemes (net) Severance costs - - 0.5 - - (Group Chief Executive) Reorganisation costs 1.4 - 1.4 - - Reorganisation costs comprise severance relating to the redundancy programme referred to in the Group's interim statement. 5 Taxation The taxation charge includes provision at an effective rate for the nine months on profit before tax and preference dividend of 20.0% (2004/5: 28.7%), being the estimated effective rate of taxation for the year ending 29th January 2006. 6 Earnings per share Basic earnings per share are based on the profit attributable to ordinary shareholders and the weighted average number of ordinary shares in issue during the period, excluding those shares held by the Premier Farnell Executive Trust. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume issue of all dilutive potential ordinary shares, being those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period. Earnings and the weighted average number of shares used in the calculations are set out below. 2005/6 Nine 2004/5 Nine 2004/5 Full months months year unaudited unaudited unaudited ‚£m ‚£m ‚£m Profit attributable 26.8 27.7 38.4 to ordinary shareholders Number Number Number Weighted average 362,721,889 362,658,409 362,664,115 number of shares Dilutive effect of 174,179 1,139,438 1,042,844 share options Diluted weighted 362,896,068 363,797,847 363,706,959 average number of shares 7 Net debt 30th 31st 30th October October January 2005 2004 2005 unaudited unaudited unaudited ‚£m ‚£m ‚£m Cash and cash 40.0 35.9 27.9 equivalents Unsecured loans and (263.0) (258.2) (228.6) overdrafts Net debt before (223.0) (222.3) (200.7) preference shares Preference shares (109.8) - - (note 1) Derivative financial (0.1) - - instruments Net debt (332.9) (222.3) (200.7) Unsecured loans and overdrafts comprise: Bank overdrafts 1.1 5.3 0.7 Bank loans 45.7 43.0 23.6 7.2% US dollar Guaranteed 87.1 84.7 82.4 Senior Notes payable 2006 5.3% US dollar Guaranteed 37.1 36.1 35.1 Senior Notes payable 2010 5.9% US dollar Guaranteed 89.3 86.9 84.6 Senior Notes payable 2013 Other loans 2.7 2.2 2.2 263.0 258.2 228.6 Unsecured loans and overdrafts are repayable as follows: Within one year 88.3 5.4 0.8 Between one and two 0.1 127.8 106.1 years Between two and five 83.0 0.3 0.2 years After five years 91.6 124.7 121.5 263.0 258.2 228.6 At 30th October 2005, the Group had unutilised committed five year bank facilities of ‚£156.4 million which expire in 2010. 8 Exchange rates The principal average exchange rates used to translate the Group's overseas profits were as follows: 2005/6 2004/5 2005/6 Nine 2004/5 Nine 2004/5 Full Third Third months months year quarter quarter US dollar 1.79 1.81 1.83 1.82 1.84 Euro 1.47 1.46 1.46 1.48 1.479 DividendThe preference share dividend for the six months ending 26th January 2006 willbe paid on 26th January 2006 to preference shareholders on the register atclose of business on 30th December 2005.CONSOLIDATED INCOME STATEMENT RECONCILIATION Unaudited Third quarter ended 31st October UK GAAP IFRS adjustments IFRS2004 (IFRS Goodwill Share-based Pensions format) payments ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 196.7 - - - 196.7 Cost of sales (116.6) - - - (116.6) Gross profit 80.1 - - - 80.1 Total operating expenses (61.2) 0.7 (0.7) (0.4) (61.6) Operating profit 18.9 0.7 (0.7) (0.4) 18.5 Net finance cost (3.4) - - - (3.4) Profit before taxation from 15.5 0.7 (0.7) (0.4) 15.1continuing operations Taxation (4.0) - - 0.2 (3.8) Profit after taxation 11.5 0.7 (0.7) (0.2) 11.3 Preference dividends (1.6) - - - (1.6) Profit attributable to ordinary shareholders 9.9 0.7 (0.7) (0.2) 9.7 Earnings per share Basic 2.7p 0.2p (0.2)p (0.0)p 2.7p Diluted 2.7p 0.2p (0.2)p (0.0)p 2.7p Nine months ended 31st October 2004 UK GAAP IFRS adjustments IFRS (IFRS Goodwill Share-based Pensions format) payments ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 591.7 - - - 591.7 Cost of sales (352.5) - - - (352.5) Gross profit 239.2 - - - 239.2 Total operating expenses (182.6) 2.1 (1.7) (1.2) (183.4) Operating profit 56.6 2.1 (1.7) (1.2) 55.8 Net finance cost (10.1) - - - (10.1) Profit before taxation from 46.5 2.1 (1.7) (1.2) 45.7continuing operations Taxation (13.5) - - 0.4 (13.1) Profit after taxation 33.0 2.1 (1.7) (0.8) 32.6 Preference dividends (4.9) - - - (4.9) Profit attributable to ordinary shareholders 28.1 2.1 (1.7) (0.8) 27.7 Earnings per share Basic 7.7p 0.6p (0.5)p (0.2)p 7.6p Diluted 7.7p 0.6p (0.5)p (0.2)p 7.6pA brief explanation of the significant changes in accounting policies toreflect IFRS is given below. Full details are included in the Company's IFRSannouncement made on 4th May 2005, a copy of which is available on theCompany's web site.GoodwillUK GAAP requires goodwill on acquisitions to be amortised over its estimateduseful life. Under IFRS, goodwill is considered to have an indefinite life andso is not amortised. Instead, goodwill is subject to an annual test forimpairment and is carried at cost less accumulated impairment losses.Share-based paymentsUnder UK GAAP, the expense in respect of share options, long-term incentiveplans and save as you earn schemes was based on the intrinsic value of theaward, being the difference between the exercise price and the market price ofthe instrument at the date of the award. Save as you earn schemes werespecifically exempt from such a charge.Under IFRS 2, an expense is recognised for all share-based payments, includingsave as you earn schemes, over the vesting period. The expense is based on thefair value of the benefit awarded using option pricing models appropriate forthe type of scheme concerned.PensionsUnder UK GAAP, Premier Farnell accounted for pensions in accordance with SSAP24 which adopted an income statement driven approach to valuing pensions. SSAP24 did not require any pension scheme surpluses or deficits to be included onthe balance sheet except when fair valuing pension schemes on acquisitions.IAS 19 is fundamentally different to SSAP 24 and adopts a balance sheet drivenapproach with market based measures. All pension scheme surpluses and deficitsare required to be recognised on the balance sheet. The asset/liabilityrecognised on the balance sheet represents the present value of the definedbenefit obligation at the balance sheet date less the fair value of planassets. Changes in actuarial assumptions are recognised in the Statement ofRecognised Income and Expense.SEGMENTAL OPERATING PROFIT RECONCILIATIONS Unaudited Third quarter ended 31st October 2004 UK GAAP IFRS IFRS adjustments ‚£m ‚£m ‚£m Marketing and Distribution Division Americas 7.3 (0.6) 6.7 Europe and Asia Pacific before amortisation of goodwill 10.7 (0.1) 10.6 amortisation of goodwill (0.6) 0.6 - 10.1 0.5 10.6 Total Marketing and Distribution Division 17.4 (0.1) 17.3 Industrial Products Division before amortisation of goodwill 3.8 (0.1) 3.7 amortisation of goodwill (0.1) 0.1 - 3.7 - 3.7 Head Office costs (2.2) (0.3) (2.5) 18.9 (0.4) 18.5 Nine months ended 31st October 2004 UK GAAP IFRS IFRS adjustments ‚£m ‚£m ‚£m Marketing and Distribution Division Americas 21.4 (1.6) 19.8 Europe and Asia Pacific before amortisation of goodwill 33.8 (0.2) 33.6 amortisation of goodwill (2.0) 2.0 - 31.8 1.8 33.6 Total Marketing and Distribution Division 53.2 0.2 53.4 Industrial Products Division before amortisation of goodwill 10.3 (0.4) 9.9 amortisation of goodwill (0.1) 0.1 - 10.2 (0.3) 9.9 Head Office costs (6.8) (0.7) (7.5) 56.6 (0.8) 55.8CONSOLIDATED BALANCE SHEET RECONCILIATION AS AT 31ST OCTOBER 2004 Unaudited UK GAAP IFRS adjustments IFRS (IFRS Goodwill Share-based Pensions Taxation Reclassifications format) payments ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ASSETS Non-current assets Property, plant and 101.7 - - - - (29.4) 72.3equipment Intangible assets 45.5 2.0 - - - 29.4 76.9 Retirement benefit 82.9 - - (27.9) - - 55.0asset Deferred tax assets - - 0.6 5.0 - (1.2) 4.4 Total non-current 230.1 2.0 0.6 (22.9) - (1.2) 208.6assets Current assets Inventories 168.5 - - - - - 168.5 Trade and other 141.1 - - - - - 141.1receivables Cash and cash 35.9 - - - - - 35.9equivalents Total current assets 345.5 - - - - - 345.5 LIABILITIES Current liabilities Financial liabilities (5.4) - - - - - (5.4) Trade and other (103.9) - - 0.9 - - (103.0)payables Current tax payable (44.0) - - - - - (44.0) Short-term provisions - - - - - (0.1) (0.1) Total current (153.3) - - 0.9 - (0.1) (152.5)liabilities Net current assets 192.2 - - 0.9 - (0.1) 193.0 Non-current liabilities Financial liabilities (252.8) - - - - - (252.8) Deferred tax (35.7) - 0.3 10.6 (1.4) 1.2 (25.0)liabilities Retirement and other post-employment (5.0) - - (17.6) - - (22.6)benefits Other provisions (1.3) - - - - 0.1 (1.2) Total non-current (294.8) - 0.3 (7.0) (1.4) 1.3 (301.6)liabilities NET ASSETS 127.5 2.0 0.9 (29.0) (1.4) - 100.0 EQUITY Share capital 25.7 - - - - - 25.7 Share premium 20.2 - - - - - 20.2 Capital redemption 0.8 - - - - - 0.8reserve Cumulative translation - (0.1) - 0.1 - 1.3 1.3reserve Retained earnings 80.8 2.1 0.9 (29.1) (1.4) (1.3) 52.0 TOTAL EQUITY 127.5 2.0 0.9 (29.0) (1.4) - 100.0A brief explanation of the significant changes in accounting policies toreflect IFRS is given on page 17 and below. Full details are included in theCompany's IFRS announcement made on 4th May 2005, a copy of which is availableon the Company's web site.TaxationUnder UK GAAP, deferred taxation is recognised on the basis of timingdifferences, being the difference between accounting profit and taxable profit.IFRS requires deferred taxation to be based on temporary differences, being thedifference between the carrying value of an asset or liability and its taxbase.ReclassificationsUnder UK GAAP, capitalised computer software is included within tangible fixedassets as plant and equipment. Under IFRS, capitalised computer software isrecorded as an intangible asset. There is no income statement impact as aresult of this reclassification since, under both UK GAAP and IFRS, computersoftware is written down over its estimated useful life.Ordinary dividendUK GAAP requires ordinary dividends to be accounted for in the period to whichthey relate. Under IFRS, proposed ordinary dividends do not meet the definitionof a liability until they are approved at the AGM or Board Meeting.ENDPREMIER FARNELL PLCRelated Shares:
PFL.L