6th Dec 2007 07:00
Premier Farnell plc 6 December
2007
Results for the Third Quarter and Nine Months ended 28 October 2007 of the Financial Year ending 3 February 2008Key Financials ‚£m Q3 07/8 Q3 06/7 Q3 growth 9M 07/8 9M 06/7 9M growth (restated) (restated)Continuing at CER(b) at CER(b)operations (a) ‚£m ‚£m ‚£m ‚£mRevenue 184.5 182.9 4%+ 547.0 552.5 4%+Operating profit 21.5 20.6 8% 64.2 63.1 7%Profit before 17.1 15.5 13% 50.9 46.9 14%taxationEarnings per share - total 3.2p 5.7p -43% 5.8p 11.6p -48% - continuing 3.2p 2.9p 14% 9.5p 8.8p 14% operationsNotes:(a) Continuing operations exclude BuckHickman, part of the MDDEurope and Asia Pacific Division, which was sold on 10 April 2007. The resultsof this discontinued operation are shown as a single number on the face of theincome statement below profit after tax and are thus excluded from the tradingresults discussed in this statement, including comparative information whichhas been restated accordingly. Further details are given in note 4 to thefinancial information.
(b) CER - constant exchange rates
Strategic Highlights
- Sales growing faster than the market as the strategy drives more
profitable growth.
- Increasing North American business momentum with significant
acceleration in sales growth.
- Two years of continued gross margin stability underpins our strategy
and is differentiating in the industry.
- Internationalisation plans on track - Letter of Intent signed to
acquire the business of Hynetic and develop platform for growth in India;
Polish, Hungarian and Czech Republic websites launched as part of the East
European expansion; and Chinese revenues up 11% year on year.
- Third quarter web sales in the Americas up 43% year on year as we
continue to make progress in all regions, with total eCommerce sales now
accounting for 28% of total MDD sales.
- Operating expenses as a percentage of sales continues to reduce even
after the ongoing investment in our strategy.
Financial Highlights
- Third quarter year on year sales growth of 4%; up on the second
quarter with MDD Americas accelerating to report the highest quarterly year on
year growth in the year to date at 4.9%.
- Improvement in operating margin to 11.7% in the third quarter
compared to 11.3% in the prior year. Operational gearing* for the first nine
months at 21%.
- Profit before tax up 10% in the third quarter and earnings per share
from continuing operations up 10%, despite the impact of exchange rates.
- Continued strong cash performance with cash generated from
continuing operations in the third quarter representing 113% of operating
profit.
Commenting on the results, Harriet Green, Chief Executive Officer, said:
"The third quarter saw continued year on year progress in bothsales and operating profit across all segments at constant exchange rates. Wehave clearly demonstrated that we are growing faster than the market as therigorous implementation of our strategy drives more profitable growth. Thisperformance reflects increasing North American business momentum, withsignificant acceleration in sales growth seen in the third quarter. We areencouraged by the growing proportion of our business conducted via the web,reflecting the investments we are making to support our increasing number ofEDE customers. We have also made good progress to further internationalise theGroup. The positive financial impact of our strategy is reflected in thecontinued gross margin stability and improved operating margin demonstrated inthese results.
"Building on our current momentum and the further improvements seen since the end of the quarter, we anticipate delivering continued progress in the fourth quarter and expect to deliver results in line with our expectations."
* Operational gearing represents the year on year increase in operating profit as a percentage of the increase in sales, both at constant exchange rates.
+ percentage changes in sales
Comparison 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 continuing businesses at constant exchange rates and for like periods, unless otherwise stated.
For further information, contact:
Harriet Green, Chief Executive Premier Farnell +44 (0) 20 7851 4100 Officer
plc Mark Whiteling, Chief FinancialOfficerRichard Mountain Financial +44 (0) 20 7269 7186 Dynamics (UK)
A conference call with Harriet Green and Mark Whiteling will take place on 6 December at 8:30am UK time. To obtain dial-in details please call Elaine Ryman at Financial Dynamics on +44 (0) 20 7269 7121. The conference call will be recorded and made available on the Group web site later that day.
Premier Farnell's announcements and presentations are published at www.premierfarnell.com, together with business information, the 2007 Annual Report and Accounts, and links to all other Group web sites.
The results for the fourth quarter of the financial year to 3 February 2008 will be announced on Wednesday, 19 March 2008.
Premier Farnell plcTHIRD QUARTER STATEMENT Results for the Third Quarter and Nine Months ended 28 October 2007 of the Financial Year ending 3 February 2008
Premier Farnell plc, 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 28 October 2007.
Note: percentage changes in sales
Comparison 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 continuing businesses at constant exchange rates and for like periods, unless otherwise stated.
Chief Executive's Operational Overview
The third quarter has seen our strategic implementation continue togain momentum, helping deliver another quarter of sales progression and grossmargin stability. We have made progress in all parts of our strategy forprofitable growth - EDE, the web and internationalisation - and it is clearthat the rigorous implementation of our strategy is now also driving marketshare gains. The Marketing and Distribution Division (MDD) in North Americahas made particularly strong headway and focus on the core strategicimperatives of driving Electronic Design Engineer (EDE) and web sales havedelivered a marked acceleration of quarter on quarter sales growth, up 4.9%year on year. We continue to differentiate ourselves in the industry throughour ongoing gross margin stability - now consistent for two years.We have continued to achieve positive sales growth in all segmentsand maintained an unerring focus on our strategy for profitable growth,achieving progress in all key areas and building confidence in the long termstrength of our plans. Costs as a percentage of sales are once again reduced,even after the ongoing investment in our strategy. As a result, operatingmargins have improved again year on year. We have delivered operationalgearing in the first nine months of 21%, and remain targeted on delivering ourkey metrics as we transform the organisation.Our multi-channel approach remains critical and we continue toenhance it in direct response to customer feedback, with the web playing anincreasingly significant role as we invest further to improve our offering tocustomers globally. Momentum from the investments made in the new web frontend over the last year continue to yield benefits, with third quarter websales up 31% year on year and total eCommerce sales now accounting for 28% oftotal MDD sales in the quarter. Speed of response, so critical to customers,has improved further and investments made in eCommerce tools during thequarter will give the business access to more timely and accurate data,invaluable in shaping future developments. As North America continued itstransition to a more EDE focused business, growth in web sales saw asignificant acceleration, up 43% year on year. The ongoing benefits of our webinvestments also continued to have an impact in Europe and Asia. Majormarketing campaigns were evident throughout the quarter with the launch of anew catalogue for Newark in September, further reinforcing our multi-channelcapability.Internationalising our business model, a key strategic driver, hasalso advanced significantly during the quarter as we continue to focus onbuilding a high service level proposition to differentiate us across Asia. Wehave gained further customer recognition as we strengthen the business andlaunch innovative programmes with leading suppliers such as Molex and Bourns,positioning us as one of the broadest distributors in the region. Thetransition of our Chinese business, Premier Electronics, to focus more on thefast growing EDE market segment and move away from its traditional, lowermargin Maintenance, Repair and Operations (MRO) customer base began todemonstrate real benefits this quarter, with sales growth of 11% year on year.Expansion plans continued with the addition of two new branches in Chengdu andShenzhen and our ability to deliver next day to over 95 major Chinese citiescontinues to set us apart. Similar transition plans are now taking placeacross our other businesses in South East Asia.During the quarter we signed a Letter of Intent to acquire thebusiness of Hynetic as a distributor of Farnell product. Hynetic, a leadinghigh service distributor in India, has operated as Farnell's authoriseddistributor in India for the last 7 years and, with sales offices establishedin 8 major Indian cities, has already built a strong reputation for theFarnell brand. Due diligence work is well underway and our plans to build aplatform for future growth in the rapidly expanding Indian EDE market are ontrack. We have recently launched our Polish, Hungarian and Czech Republiclocal language websites and other channels to market, targeting the expandingbase of indigenous electronics companies alongside the existing multi-nationalcorporations. We continue to invest in the region with people and resourcesand will expand further into Slovakia during the fourth quarter.The benefits of our EDE strategy continue to fuel the growth andmarket share gains we are seeing as we drive investment in people, tools,products and services to ensure we continue to offer innovative solutionsfocused on customer needs. We have added a further 60,000 product linesglobally during the quarter, selected to continue to meet the technology anddesign needs of our EDE customers worldwide. Technology marketing campaignsare invaluable to our EDE customer acquisition activities as we continue totarget and grow our business with the electronic design engineering communityglobally. Sales from the small customer segment in North America alone grew33% year on year in the third quarter, compared with growth in the secondquarter of 19%. This quarter has also seen further significant franchisesignings, as well as the launch of the important Linear Technology franchiseacross the Americas. With 50 significant franchise additions to underpin ourstrategy and a world class line card of suppliers our product offeringcontinues to be a differentiator. These new franchises and territorialexpansions include high technology `greenhouse' suppliers so compelling todesign engineers. We have recently secured a number of significant supplierawards, confirming our strengthening position in the market.Engineers are looking for suppliers to offer innovative, leadingedge solutions such as our exciting new packaging innovation launched in thequarter across Europe initially, with plans to roll-out on a worldwide basisin the near future. This exciting product was developed to address thechallenges of shipping small quantities of semi-conductors to avoid damage intransit and improve ease of use for customers and has received very positivereaction across the market from engineers and purchasing professionals alike.
Registrations for Live Edge, our electronic design challenge for the global environment closed this quarter, with over 3,500 entries having been received from engineers in 102 countries. The expert panel of judges is chaired by Sir Peter Gershon and includes Professor Sir David King, UK Government Chief Scientific Adviser and Head of the Government Office for Science and leading climate change expert. They are joined by high profile academics and industry professionals from around the world. The judges now have the difficult task of selecting a winner and 5 runners-up, who will be announced at a "virtual" award ceremony in January 2008.
Our IPD businesses, Akron Brass and TPC Wire & Cable, also continued to make good progress, with a strong sales performance, reflecting the continued drive into new markets, and improving operating margins
The Group has again seen excellent progress of our strategy in thethird quarter as we continue to meet our commitments, grow share and buildmomentum for future growth. All major elements of the strategy are on trackwith investment, innovation and customer acquisition continuing as priorities.We will continue to focus on those areas where we are not yet satisfied withperformance and develop initiatives to address the issues. Our strategicprogress was underpinned by a strong financial performance which saw sales inthe quarter grow 4.2% on the prior year, compared with sales growth in thefirst half of 3.5% and gross margin stability continuing for the eighthconsecutive quarter.
Financial Results
Note: Continuing operations exclude BuckHickman, part of the MDDEurope and Asia Pacific Division, which was sold on 10 April 2007. The resultsof this discontinued operation are shown as a single number on the face of theincome statement below profit after tax and are thus excluded from the tradingresults discussed in this statement, including comparative information whichhas been restated accordingly. Further details are given in note 4 to thefinancial information.RevenueThird QuarterSales for the third quarter from continuing operations were ‚£184.5million (2006/7: ‚£182.9 million or ‚£177.3 million at constant exchange rates).Sales per day from continuing operations increased 4.2% on the prior year withall segments continuing to report positive sales growth.
Nine Months
Sales for the first nine months from continuing operations were‚£547.0 million (2006/7: ‚£552.5 million or ‚£526.6 million at constant exchangerates). Sales per day from continuing businesses increased 3.7% on the prioryear. The average exchange rate for the US dollar against sterling was $2.00(2006/7: $1.83).Margins and Operating ProfitThird QuarterThe gross margin from continuing operations in the third quarterwas 39.7%, an increase of 0.2 percentage points on the prior year. Operatingprofit from continuing operations was ‚£21.5 million (2006/7: ‚£20.6 million),producing an operating margin of 11.7% (2006/7: 11.3%). This reflects theimproved gross margin and is after continued investment in our strategy. Therewas an adverse impact on operating profit of ‚£0.6 million from the translationof overseas results compared with the prior year, reflecting the continuedweakness of the US dollar, partly offset by the strength of the Euro. Atconstant exchange rates, the increase in operating profit compared with theprior year was 7.5%.
Nine Months
The gross margin from continuing operations in the first ninemonths was 39.7%, an increase of 0.3 percentage points on the prior year, withthe Group having now maintained gross margin stability for the last two years.Operating profit from continuing operations was ‚£64.2 million (2006/7: ‚£63.1million) producing an operating margin of 11.7% (2006/7: 11.4%). At constantexchange rates, the increase in operating profit compared with the prior yearwas 7.0%. Operational gearing in the first nine months was at 21%, with allsegments achieving 20% or above.There was an adverse impact on operating profit of ‚£3.1 millionfrom the translation of overseas results compared with the prior year,reflecting the continued weakness of the US dollar. A one cent movement in theexchange rate between the US dollar and sterling impacts the Group's operatingprofit by approximately ‚£250,000 per annum.
It is anticipated that the fourth quarter of the current year will also be impacted by the weakness of the US dollar, with the average exchange rate for the US dollar against sterling in the fourth quarter of the prior year being 1.95.
Finance Costs
Net finance costs in the first nine months were ‚£13.3 million(2006/7: ‚£16.2 million). This comprises net interest payable of ‚£8.0 million(2006/7: ‚£10.1 million), which was covered 8.0 times by operating profit, anda net charge of ‚£5.3 million (2006/7: ‚£6.1 million) in respect of theCompany's convertible preference shares.
Subsequent to the quarter end, the Company has purchased and cancelled 966,500 preference shares for a total cash consideration of ‚£13.8 million.
The reduction in net finance costs reflects the benefit of the improved net borrowing position, with the underlying level of net financial liabilities at 28 October 2007 (after adjusting for exchange rates) being ‚£25 million lower than a year ago.
Profit Before Tax and Taxation Charge
Reported profit before tax from continuing operations in the thirdquarter was ‚£17.1 million (2006/7: ‚£15.5 million). Reported profit before taxfrom continuing operations in the first nine months was ‚£50.9 million (2006/7:‚£46.9 million). At constant exchange rates, profit before tax in the firstnine months increased 14.4% year-on-year, significantly ahead of the rate ofsales growth achieved.
The taxation charge from continuing operations for the first nine months was at an effective rate of 29.5% of profit before tax and preference dividends (2006/7: 28.8%).
Disposal of BuckHickmanOn 10 April 2007, the Group disposed of its BuckHickman business, part of theMarketing and Distribution Division, Europe and Asia Pacific, to BSS Groupplc. The provisional pre-tax loss on disposal, which was incurred in the firstquarter, was ‚£13.6 million, after the write-off of goodwill allocated to thisbusiness of ‚£19.3 million, and the net cash consideration received during thefirst nine months was ‚£24.4 million. BuckHickman is a leading UK distributorof industrial tools and supplies: in 2006/7, it generated sales of ‚£99.8million and an operating loss of ‚£0.8 million.
Return on Net Operating Assets
Return on net operating assets for the first nine months, based on continuing operations, was 29.6% (2006/7: 29.0%).
Earnings per Share
Earnings per share from continuing operations for the nine months were 9.5pence, up from 8.8 pence in the prior year, reflecting the improved operatingprofit and the reduction in net finance costs. At constant exchange rates,earnings per share from continuing operations increased 14.4% in the firstnine months. Total earnings per share in the first nine months were 5.8 pence(2006/7: 11.6 pence) reflecting the impact of discontinued operations.
Balance Sheet and Cash Flow
Net cash generated from continuing operations in the third quarterwas ‚£24.2 million (2006/7: ‚£21.0 million), representing 113% of operatingprofit. Working capital levels increased only slightly in the third quarter.The net cash inflow during the first nine months was ‚£13.8 million (2006/7:‚£20.8 million), reflecting the net proceeds from the disposal of theBuckHickman business of ‚£24.4 million (2006/7: net proceeds from the disposalof the Kent business of ‚£20.8 million), the cost of purchasing the Company'spreference shares of ‚£3.6 million and the cost of purchasing ordinary sharesby the Premier Farnell Executive Trust of ‚£2.5 million. Net financialliabilities at the end of the quarter were ‚£260.3 million (29 October 2006:‚£296.5 million), including ‚£100.3 million (29 October 2006: ‚£111.2 million)attributable to the Company's preference shares.
Operations
Marketing and Distribution Division (MDD)
MDD comprises: Newark, Farnell, MCM and CPC.
Continuing Q3 07/8 Q3 06/7 Q3 growth 9M 07/8 9M 06/7 9M growthbusinesses (restated) at CER* (restated) at CER* ‚£m ‚£m ‚£m ‚£mRevenue 166.0 164.3 3.9% 491.9 496.6 3.3%Operating profit 20.5 19.8 5.1% 61.6 60.5 5.7%Operating margin 12.3% 12.1% 12.5% 12.2% %*Constant exchange ratesThird quarter sales grew 3.9% on the prior year, compared to salesgrowth in the first half of 3.0%, with monthly year on year sales growthincreasing through the quarter. Operating margins continue to show year onyear improvements as costs remain under tight control. Operational gearing inthe first nine months was 20%. The adverse impact on operating profit in thethird quarter and first nine months from the translation of overseas resultswas ‚£0.3 million and ‚£2.2 million, respectively, due principally to therelative weakness of the US dollar, although in the third quarter this waspartly offset by the relative strength of the Euro.Momentum from the implementation of the new web front end acrossthe Americas at the end of last year and the successful roll out to Europe andAsia Pacific in April 2007, continues to build, with third quarter web salesup 31% and total eCommerce sales accounting for 28% of total sales in thequarter. Investment in eCommerce tools during the third quarter will provideus with quality and timely data, enabling the businesses to increase the paceand accuracy of our eCommerce development.The AmericasNewark and MCM. Q3 07/8 Q3 06/7 Q3 growth 9M 07/8 9M 06/7 9M growth at CER* at CER* ‚£m ‚£m ‚£m ‚£mRevenue 82.4 84.0 4.9% 241.8 255.5 2.5%Operating profit 7.9 7.9 6.8% 22.7 23.4 6.6%Operating margin 9.6% 9.4% 9.4% 9.2%%*Constant exchange ratesThe Americas saw a significant acceleration in sales growth in thethird quarter, up to 4.9% year on year compared with first half growth of1.4%, with the implementation of the strategy driving momentum. This comparedwith statistics from the Semiconductor Industry Association (SIA) which showeda year on year decline in billings in the Americas of 3.1% in the thirdquarter. At constant exchange rates, MDD Americas' sales increase in the thirdquarter and nine months was ‚£3.8 million and ‚£7.1 million, respectively.Operating margin improved on the prior year by 0.2 percentage points andoperational gearing in the first nine months was 20%.During the quarter, Newark continued its focus on the EDE segmentwith the business benefiting from its targeted marketing, sales process andcustomer database improvements, together with the quality leadership recruitedin the first half to support this focus. Sales from the small customer segmentgrew 33% year on year in the third quarter compared with growth in the secondquarter of 19%. Newark's annual catalogue was delivered in September asplanned, promoting over 128,000 products including 24,000 new products many ofwhich target the EDE segment. Newark has recently received major awardrecognition by NEDA (National Electronics Distribution Association) for theirwork in all marketing channels, underpinning our multi-channel capability, anddemonstrating how the web and effective channel marketing is driving EDEcustomer acquisition.
Web sales in the Americas in the third quarter grew strongly, up 43% on the prior year reflecting the strategy drive to this higher margin channel and the continuing enhancements being made to the new web platform.
Newark's third quarter sales grew 5.1% compared to a flat year on year growth in the second quarter.
MCM's third quarter sales were up 2.9% despite issues surrounding the North American housing market having a negative impact on the home security and home entertainment segment of the business. Under new leadership, MCM has continued to benefit from its marketing campaigns including flyers, e-mail and catalogues. eCommerce sales continue to account for over 40% of MCM's total sales.
Europe and Asia PacificFarnell and CPC.Continuing Q3 07/8 Q3 06/7 Q3 growth 9M 07/8 9M 06/7 9M growthbusinesses (restated) (restated) at CER* at CER* ‚£m ‚£m ‚£m ‚£mRevenue 83.6 80.3 3.0% 250.1 241.1 4.1%Operating profit 12.6 11.9 4.1% 38.9 37.1 5.1%Operating margin 15.1% 14.8% 15.6% 15.4%%* Constant Exchange Rates
Sales from continuing operations were up 3.0% in the third quarter with the operating margin of 15.1% ahead of last year, reflecting continued cost control. Operational gearing in the first nine months was 20%.
Revenue by region Q3 07/8 Q3 06/7 Revenue 9M 07/8 9M 06/7 RevenueContinuing (restated) growth at (restated) growth atbusinesses CER CER ‚£m ‚£m ‚£m ‚£mUK (including 43.7 43.8 - 131.4 129.3 1.7%exports)Mainland Europe 32.0 28.9 8.1% 96.1 88.2 9.8%Asia Pacific 7.9 7.6 0.6% 22.6 23.6 -3.9%The Division's UK sales (including exports) were flat on the prioryear in the third quarter. CPC continued to perform well with sales growth of3.7% supported by the launch of its 2008 catalogue in August to over 80,000customers, direct mail initiatives and web activity. CPC's web sales grew 27%year on year in the quarter and the business continues to break its ownrecords for the number of unique visitors to its website. The Farnell brand inthe UK has retained its market share gains achieved in the prior year throughits leadership position on RoHS. Although the business reported a salesdecline of 2.4% in the quarter, this was better than the trends reported bythe Association of Franchised Distributors of Electronic Components (AFDEC)which reported a sales decline in the UK for the equivalent period of 7.0%excluding Farnell. However, this is still not the performance that PremierFarnell expects and definitive steps will be taken to improve the situation inline with our commitments.In mainland Europe, Farnell continued its strong performance, withsales up 8.1% against tougher comparators. This reflects ongoing benefits fromweb performance and marketing initiatives as we continue to develop ourdifferentiated EDE service proposition. In October the business launched "peelpack" packaging for semi conductors, an innovative, packing method for smallquantities of semi conductors aimed at providing ease of use to our customers.A patent has been applied for to protect the product.The new web front end launched in April 2007 has continued tobenefit the business, with third quarter web sales growing 27%. In addition,we have recently launched our Polish, Hungarian and Czech Republic web sitesas part of our expansion plans in Eastern Europe. Total eCommerce sales in thequarter accounted for 37% of total sales for the division.Sales in the Asia Pacific region moved into positive growth in thequarter as the region continues to strengthen its operation and engagementwith customers, suppliers and its people. The transition of the China businessfrom its mainly MRO, lower margin, customer base to become more focused on thegrowing, higher margin EDE segment started to realise benefits during thequarter with the business reporting sales growth of 11%. In addition, two newbranches were established in Chengdu and Shenzen as we continue to increaseour presence in the region. This transition from a traditional MRO customerbase to the more profitable EDE customers, which is proving so successful inChina, is now taking place across all of our South East Asian businesses. Inour Australian and New Zealand markets, although we continue to be impacted bythe exposure to global competition, sales per day in the third quarter saw animprovement over the second quarter.
Industrial Products Division (IPD)
Q3 07/8 Q3 06/7 Q3 growth 9M 07/8 9M 06/7 9M at CER* growth at CER* ‚£m ‚£m ‚£m ‚£mRevenue 18.5 18.6 6.2% 55.1 55.9 7.5%Operating profit 3.8 3.3 26.7% 10.8 9.9 20.0%Operating margin 20.5% 17.7% 19.6% 17.7%%*Constant exchange rates
Sales grew 6.2% in the third quarter reflecting the continuing strong performance from Akron Brass and TPC. At constant exchange rates, operating profit was 26.7% ahead of last year, with an improvement in operating margin to 20.5%.
Akron BrassAkron Brass sales grew 9.3% in the third quarter. The businessbenefited from the remaining shipments relating to the strong order intakefrom North American fire equipment manufacturers in the fourth quarter of lastyear, driven by change in regulatory requirements. In addition, Akroncontinued to develop its international and industrial markets, with emphasison system solutions. The development of new lighting products in the quarterhas received very positive feedback from end users and vehicle builders.Operating margins continue to show improvement as a result of efficiencies
inmanufacturing operations.TPC Wire & Cable
TPC's third quarter sales were up 9.7% year on year compared with 6.5% in the first half, driven by strong order levels in the utilities, connectors and North American automotive original equipment markets and supported by new product offerings. Margins continue to be maintained despite material cost pressures.
OutlookThe third quarter saw continued year on year progress in both salesand operating profit across all segments at constant exchange rates. We haveclearly demonstrated that we are growing faster than the market as therigorous implementation of our strategy drives more profitable growth. Thisperformance reflects increasing North American business momentum, withsignificant acceleration in sales growth seen in the third quarter. We areencouraged by the growing proportion of our business conducted via the web,reflecting the investments we are making to support our increasing number ofEDE customers. We have also made good progress to further internationalise theGroup. The positive financial impact of our strategy is reflected in thecontinued gross margin stability and improved operating margin demonstrated inthese results.
Building on our current momentum and the further improvements seen since the end of the quarter, we anticipate delivering continued progress in the fourth quarter and expect to deliver results in line with our expectations.
This press release contains certain forward-looking statementsrelating to the business of the Group and certain of its plans and objectives,including, but not limited to, future capital expenditures, future ordinaryexpenditures and future actions to be taken by the Group in connection withsuch capital and ordinary expenditures, the expected benefits and futureactions to be taken by the Group in respect of certain sales and marketinginitiatives, operating efficiencies and economies of scale. By their natureforward-looking statements involve risk and uncertainty because they relate toevents and depend on circumstances that will occur in the future. Actualexpenditures made and actions taken may differ materially from the Group'sexpectations contained in the forward-looking statements as a result ofvarious factors, many of which are beyond the control of the Group. Thesefactors include, but are not limited to, the implementation of initiativessupporting the Group's strategy, recruitment and integration of new personnel,the implementation of cost-saving initiatives to offset current marketconditions, continued use and acceptance of e-commerce programs and systems,the ability to expand into new markets and territories, the implementation ofnew sales and marketing initiatives, changes in demand for electronic,electrical, electromagnetic and industrial products, rapid changes indistribution of products and customer expectations, the ability to introduceand customers' acceptance of new services, products and product lines, productavailability, the impact of competitive pricing, fluctuations in foreigncurrencies, and changes in interest rates and overall market conditions,particularly the impact of changes in world-wide and national economies. TheGroup does not intend to update the forward-looking statements made herein.
Condensed Consolidated Income Statement
For the third quarter and nine months ended 28th October 2007
2007/8 2006/7 2007/8 2006/7 2006/7 Third Third Nine Nine Full quarter quarter months months year unaudited unaudited unaudited unaudited unaudited (restated) (restated) (restated) Notes ‚£m ‚£m ‚£m ‚£m ‚£m Continuing operationsRevenue 2 184.5 182.9 547.0 552.5 723.3Cost of sales (111.3) (110.7) (329.9) (334.6) (437.8)Gross profit 73.2 72.2 217.1 217.9 285.5Net operating expenses (51.7) (51.6) (152.9) (154.8) (202.4)Operating profit 2 21.5 20.6 64.2 63.1 83.1
Finance income (interest receivable) 0.1 0.1 0.4 0.4 0.6Finance costs- interest payable (2.7) (3.1) (8.4) (10.5) (13.6)- preference dividends (1.5) (1.7) (4.6) (5.1) (6.7)- premium on redemption of preferenceshares (0.3) (0.4) (0.9) (1.0) (1.4)- gain on purchase of preference shares 7 - -
0.2 - 0.3Total finance costs (4.5) (5.2) (13.7) (16.6) (21.4)Profit before taxation 17.1 15.5 50.9 46.9 62.3Taxation 3 (5.5) (4.9) (16.4) (15.0) (20.0)Profit after taxation from continuingoperations 11.6 10.6 34.5 31.9 42.3Profit/(loss) after taxation fromdiscontinued operations 4 - 10.0 (13.5) 10.1 10.1Profit for the period (attributable toordinary shareholders) 11.6 20.6 21.0 42.0 52.4 Earnings per share 5Basic 3.2p 5.7p 5.8p 11.6p 14.4pDiluted 3.2p 5.7p 5.7p 11.5p 14.4p Earnings per share from continuingoperations 5Basic 3.2p 2.9p 9.5p 8.8p 11.6pDiluted 3.2p 2.9p 9.4p 8.7p 11.6p Ordinary dividendsInterim - proposed 4.0p 4.0p 4.0pFinal - proposed 5.0pPaid 9.0p 9.0p 9.0p
Impact on shareholders' funds (‚£m)
32.7 32.6 32.6
Prior year figures have been restated to reflect the reclassification of the BuckHickman business as a discontinued operation following its disposal on 10th April 2007. Further details are given in note 4.
Condensed Consolidated Statement ofRecognised Income and Expense For the third quarter and nine monthsended 28th October 2007 2007/8 2006/7 2007/8 2006/7 2006/7 Third Third Nine Nine Full quarter quarter months months year unaudited unaudited
unaudited unaudited audited
Notes ‚£m ‚£m ‚£m ‚£m ‚£m Profit for the period 11.6 20.6 21.0 42.0 52.4
Net exchange adjustments 1.4 (1.1) 1.4 (1.8) (0.6)Actuarial gains on pensions and other post-retirement obligations - - - - 12.2Deferred tax on actuarial gains - - - - (4.4)Deferred tax arising on purchase of preferenceshares - - 0.1 - 0.3Net gains/(losses) not recognised in theincome statement 7 1.4 (1.1)
1.5 (1.8) 7.5
Total recognised income for the period 13.0 19.5 22.5 40.2 59.9The notes on pages 14 and 15 form an integral part of this unaudited condensedconsolidated financial information.Condensed Consolidated Balance SheetAs at 28th October 2007 28th October 29th October 28th January 2007 2006 2007 unaudited unaudited audited Notes ‚£m ‚£m ‚£mASSETSNon-current assetsGoodwill 30.2 49.7 49.6Other intangible assets 18.0 21.1 22.2
Property, plant and equipment 54.8 61.2
58.8Retirement benefit asset 56.5 50.5 56.8Deferred tax assets 0.6 0.6 0.2Total non-current assets 160.1 183.1 187.6 Current assetsInventories 154.9 168.3 162.7Trade and other receivables 119.1 138.2 127.9Cash and cash equivalents 6 28.4 31.8 32.2Total current assets 302.4 338.3 322.8 LIABILITIESCurrent liabilitiesFinancial liabilities 6 (2.4) (3.0) (11.1)Trade and other payables (87.2) (103.1) (94.9)Current tax payable (27.1) (36.6) (28.0)Short-term provisions - (1.4) (0.8)Total current liabilities (116.7) (144.1) (134.8) Net current assets 185.7 194.2 188.0 Non-current liabilitiesFinancial liabilities 6 (286.3) (325.3) (302.4)Retirement and other post-employmentbenefits (27.5) (36.1) (29.6)Deferred tax liabilities (29.4) (22.6) (30.7)Other provisions - (1.0) (0.9)Total non-current liabilities (343.2) (385.0) (363.6) NET ASSETS/(LIABILITIES) 2.6 (7.7) 12.0 EQUITYOrdinary shares 18.2 18.2 18.2
Equity element of preference shares 17.7 19.9
18.4Share premium 23.0 21.4 21.6Capital redemption reserve 1.7 0.8 1.4Hedging reserve (0.4) - (0.1)
Cumulative translation reserve (1.5) (4.1)
(2.9)
Retained earnings (56.1) (63.9)
(44.6)
SHAREHOLDERS' FUNDS/(DEFICIT) 7 2.6 (7.7)
12.0
The notes on pages 14 and 15 form an integral part of this unaudited condensed consolidated financial information.
Condensed Consolidated CashFlow Statement For the third quarter and nine monthsended 28th October 2007 2007/8 2006/7 2007/8 2006/7 2006/7 Third Third Nine Nine Full quarter quarter months months year unaudited unaudited
unaudited unaudited unaudited
(restated) (restated) (restated) Notes ‚£m ‚£m ‚£m ‚£m ‚£m Cash flows from operating activitiesOperating profit from continuing operations 21.5 20.6 64.2 63.1 83.1Depreciation and amortisation 4.8 4.7 14.6 14.1 18.7Changes in working capital (1.5) (3.7) (9.9) (12.4) (5.8)Additional pension scheme funding (UKdefined benefit plan) (0.8) (0.7) (2.3) (1.6) (2.4)Other non-cash movements 0.2 0.1 0.6 0.7 (1.8)Cash generated from continuing operations 24.2 21.0 67.2 63.9 91.8Cash generated from discontinued operations (0.1) 0.4 (1.1) - (1.2)Total cash generated from operations 24.1 21.4
66.1 63.9 90.6Interest received 0.1 0.1 0.4 0.5 0.6Interest paid (1.0) (1.5) (6.9) (9.4) (14.1)
Dividends paid on preference shares - - (3.1) (3.4) (6.7)Taxation paid (6.0) (5.1) (18.4) (13.3) (18.7)Net cash generated from operating activities 17.2 14.9
38.1 38.3 51.7
Cash flows from investing activitiesDisposal of business 4 (0.1) 20.8 24.4 20.8 20.4Proceeds from sale of property, plant andequipment - - 0.1 2.1 5.1Purchase of property, plant and equipment (1.7) (1.8) (5.0) (4.8) (7.4)Purchase of intangible assets (computersoftware) (2.2) (1.5) (6.4) (4.2) (7.0)Net cash (used in)/generated frominvesting activities (4.0) 17.5
13.1 13.9 11.1
Cash flows from financing activitiesIssue of ordinary shares - 0.1 1.4 1.2 1.3Purchase of ordinary shares 7 - - (2.5) - -Purchase of preference shares 7 - -
(3.6) - (8.4)New bank loans - - 21.4 78.9 78.9Repayment of bank loans (1.5) (19.8) (29.3) (105.6) (115.1)
Dividends paid to ordinary shareholders (14.5) (14.5) (32.7) (32.6) (32.6)Net cash used in financing activities (16.0) (34.2)
(45.3) (58.1) (75.9)
Net (decrease)/increase in cash, cashequivalents and bank overdrafts (2.8) (1.8) 5.9 (5.9) (13.1)Cash, cash equivalents and bank overdraftsat beginning of period 29.7 31.6 21.3 35.6 35.6Exchange losses (0.4) (0.9) (0.7) (0.8) (1.2)Cash, cash equivalents and bank overdraftsat end of period 26.5 28.9
26.5 28.9 21.3
Reconciliation of net financial liabilitiesNet financial liabilities at beginning of period (281.3) (330.1) (330.1)Net increase/(decrease) in cash, cashequivalents and bank overdrafts 5.9 (5.9) (13.1)Decrease in debt 7.9 26.7 36.2Decrease in preference shares 3.6 - 8.4Premium on redemption of preference shares (0.9) (1.0) (1.4)Derivative financial instruments (0.4) 0.2 0.1Exchange movement 4.9 13.6 18.6Net financial liabilities at end of period 6
(260.3) (296.5) (281.3)
Prior year figures have been restated to reflect the reclassification of the BuckHickman business as a discontinued operation following its disposal on 10th April 2007. Further details are given in note 4.
The notes on pages 14 and 15 form an integral part of this unaudited condensed consolidated financial information.
Notes1 Basis of preparation
The unaudited consolidated financial information in this report has been prepared in accordance with International Financial Reporting Standards (IFRS) and applying the accounting policies disclosed in the Group's 2007 Annual Report and Accounts on pages 53 to 55.
The Group's 2007 statutory accounts have been filed with the Registrar ofCompanies. The auditors report on these accounts was unqualified and did notinclude a statement under Section 237(2) or (3) of the Companies Act 1985.Copies of the Group's Annual Report and Accounts are available from PremierFarnell plc, 150 Armley Road, Leeds, LS12 2QQ, or on the Company's website atwww.premierfarnell.com.
2 Segment information (continuing operations)
2007/8 2006/7 2007/8 2006/7 2006/7 Third Third Nine Nine Full quarter quarter months months year unaudited unaudited unaudited unaudited unaudited (restated) (restated) (restated) ‚£m ‚£m ‚£m ‚£m ‚£m Revenue Marketing and Distribution Division Americas 82.4 84.0
241.8 255.5 329.3
Europe and Asia Pacific 83.6 80.3
250.1 241.1 320.6
Total Marketing and Distribution Division 166.0 164.3 491.9 496.6 649.9
Industrial Products Division 18.5 18.6
55.1 55.9 73.4 184.5 182.9 547.0 552.5 723.3 Operating profit
Marketing and Distribution Division
Americas 7.9 7.9
22.7 23.4 30.5
Europe and Asia Pacific 12.6 11.9
38.9 37.1 49.1
Total Marketing and Distribution Division 20.5 19.8 61.6 60.5 79.6
Industrial Products Division 3.8 3.3
10.8 9.9 13.7 Head Office costs (2.8) (2.5) (8.2) (7.3) (10.2) 21.5 20.6 64.2 63.1 83.1Prior year figures have been restated to reflect the reclassification of theBuckHickman business, part of the Marketing and Distribution Division, Europeand Asia Pacific, as a discontinued operation following its disposal on 10thApril 2007. Further details are given in note 4.3 TaxationThe taxation charge for continuing operations represents an effective tax ratefor the first nine months on profit before tax and preference dividends of29.5% (2006/7: 28.8%), being the estimated effective rate of taxation for thefinancial year ending 3rd February 2008.
4 Discontinued operations
Profit/(loss) after taxation from discontinued operations comprises:
2007/8 2006/7 2007/8 2006/7 2006/7 Third Third Nine Nine Full quarter quarter months months year unaudited unaudited unaudited unaudited unaudited ‚£m ‚£m ‚£m ‚£m ‚£m
Current year disposals (BuckHickman) - (0.1) (13.5)
(0.6) (0.6)
Prior year disposals (Kent) - 10.1 -
10.7 10.7 - 10.0 (13.5) 10.1 10.1 On 10th April 2007, the Group disposed of BuckHickman, part of the Marketingand Distribution Division, Europe and Asia Pacific. Consequently, theBuckHickman business has been reclassified as a discontinued operation and itstrading results are included in the income statement as a single line belowprofit after taxation from continuing operations, with comparatives restatedaccordingly. The impact of the disposal of BuckHickman on the income statementis as follows: 2007/8 2006/7 2007/8 2006/7 2006/7 Third Third Nine Nine Full quarter quarter months months year unaudited unaudited unaudited unaudited unaudited ‚£m ‚£m ‚£m ‚£m ‚£m Post tax result Revenue - 24.7 19.3 76.4 99.8 Gross margin - 7.6 6.0 23.0 30.2 Net operating expenses - (7.7) (5.8) (23.8) (31.0) Operating (loss)/profit - (0.1) 0.2 (0.8) (0.8) Taxation - - (0.1) 0.2 0.2 (Loss)/profit after taxation - (0.1) 0.1
(0.6) (0.6)
Provisional loss on disposal
Consideration (net of costs) - - 25.2
- -
Net assets disposed (see below) - - (38.8)
- -
Loss on disposal of net assets - - (13.6) - - Taxation - - - - - Net loss on disposal - - (13.6) - - Total income statement impact - (0.1) (13.5)
(0.6) (0.6)
Net assets disposed comprises:
Goodwill allocated to BuckHickman 19.3 Intangible assets (computer software) 1.2 Property, plant and equipment 2.2
Inventories 14.0 Receivables 16.8 Payables (14.7) 38.8
The net loss on disposal is subject to finalisation and agreement of the completion accounts.
Cash flows from BuckHickman included in the consolidated statement of cash flows are as follows:
Net cash flows from operating activities (0.1) 0.4 (1.1)
0.1 (1.1)
Net cash flows from investing activities
(including net proceeds on disposal) (0.1) - 24.4
(0.3) (0.7) 5 Earnings per share
Basic earnings per share is calculated by dividing the profit attributable toordinary shareholders for the period by the weighted average number ofordinary shares in issue during the period, excluding those shares held by thePremier Farnell Executive Trust. For diluted earnings per share, the weightedaverage number of ordinary shares in issue is adjusted to assume issue of alldilutive potential ordinary shares, being those share options granted toemployees where the exercise price is less than the average market price ofthe Company's ordinary shares during the period.
Reconciliations of earnings and the weighted average number of ordinary shares used in the calculations are set out below.
2007/8 2006/7 2006/7 Nine Nine Full months months year unaudited unaudited unaudited
(restated) (restated)
‚£m ‚£m ‚£m
Earnings per share
Profit attributable to ordinary shareholders
21.0 42.0 52.4
Earnings per share from continuing operations
Profit after taxation from continuing operations
34.5 31.9 42.3 Number Number Number Weighted average number of shares
363,552,897 363,258,777 363,328,421
Dilutive effect of share options
2,789,617 1,326,090 1,293,627
Diluted weighted average number of shares
366,342,514 364,584,867 364,622,048
6 Net financial liabilities
28th October 29th October 28th January 2007 2006 2007 unaudited unaudited audited ‚£m ‚£m ‚£m
Cash and cash equivalents
28.4 31.8 32.2
Unsecured loans and overdrafts
(188.0) (217.1) (210.3)
Net financial liabilities before preference
shares and derivatives
(159.6) (185.3) (178.1)
Preference shares
(100.3) (111.2) (103.1)
Derivative financial instruments (0.4) - (0.1) Net financial liabilities
(260.3) (296.5) (281.3)
Net financial liabilities are analysed in the balance sheet as follows: Current assets Cash and cash equivalents
28.4 31.8 32.2 Current liabilities Bank overdrafts (1.9) (2.9) (10.9) Other loans (0.1) (0.1) (0.1) Derivative financial instruments (0.4) - (0.1)
(2.4) (3.0) (11.1)
Non-current liabilities
Bank loans
(73.7) (93.1) (82.0)
5.3% US dollar Guaranteed Senior
Notes payable 2010
(32.2) (34.7) (33.7)
5.9% US dollar Guaranteed Senior
Notes payable 2013 (77.6) (83.7) (81.1) Other loans (2.5) (2.6) (2.5) Preference shares (100.3) (111.2) (103.1) (286.3) (325.3) (302.4)
7 Consolidated statement of changes in shareholders' equity
2007/8 2006/7 2006/7 Nine Nine Full months months year unaudited unaudited audited ‚£m ‚£m ‚£m
Shareholders' funds/(deficit) at beginning
of year
12.0 (18.4) (18.4)
Profit for the period
21.0 42.0 52.4
Net gains and losses recognised directly
in equity 1.5 (1.8) 7.5 Ordinary dividends paid (32.7) (32.6) (32.6) Ordinary shares issued 1.4 1.0 1.2 Purchase of ordinary shares (2.5) - -
Purchase of preference shares:
- reduction in equity element (0.7) - (1.5) - gain arising on equity element 0.6 - 1.2 Share-based payments 2.3 1.9 2.1 Derivative financial instruments (0.3) 0.2 0.1 Shareholders' funds/(deficit) at end of period
2.6 (7.7) 12.0
During the second quarter, the Premier Farnell Executive Trust acquired 1,153,693 of the Company's ordinary shares, through purchases on the London Stock Exchange for a total consideration of ‚£2.5 million, in order to meet future obligations under the Company's performance share plan. This amount has been deducted from shareholders' equity.
During the second quarter the Company purchased and cancelled 250,000 of itspreference shares at a total cash cost of ‚£3.6 million. Based on the bookvalue and fair value of the instrument at the date of purchase, the financialliability element of the preference shares was reduced by ‚£3.7 million and theequity element by ‚£0.7 million. A gain of ‚£0.2 million was recognised in theincome statement being the difference between the book value and fair value ofthe financial liability element at the date of purchase. The gain arising fromthe difference between the book value and fair value of the equity element of‚£0.6 million was recognised as a movement in retained earnings. A deferred taxcredit of ‚£0.1 million arose which is recognised through the ConsolidatedStatement of Recognised Income and Expense. A transfer from retained earningsof ‚£0.3 million to non-distributable reserves was made in order to maintainthe legal nominal value of share capital.
8 Exchange rates
The principal average exchange rates used to translate the Group's overseas profits were as follows: 2007/8 2006/7 2007/8 2006/7 2006/7 Third Third Nine Nine Full quarter quarter months months year US dollar 2.03 1.89 2.00 1.83 1.86 Euro 1.44 1.48 1.47 1.46 1.47
PREMIER FARNELL PLCRelated Shares:
PFL.L