11th Dec 2008 07:00
Premier Farnell plc 11 December 2008
Results for the Third Quarter and Nine Months ended 2 November 2008
of the Financial Year ending 1 February 2009Key Financials ‚£m Q3 08/9 Q3 07/8 Q3 growth 9M 08/9 9M 07/8 9M growth Continuingoperations ‚£m ‚£m ‚£m ‚£m(Unaudited)Revenue 209.1 184.5 2%(a) 604.2 547.0 4%(a)Operating profit 22.1 21.5 (9%)(a) 68.3 64.2 0%(a)Profit before tax 17.7 17.1 4% 59.8 50.9 17%Adjusted profit 17.6 17.1 3% 56.1 50.7 11%before tax(b)Earnings per share - total 3.4p 3.2p 6% 11.8p 5.8p 103% - continuing 3.4p 3.2p 6% 11.8p 9.5p 24%operationsAdjusted earnings per share(b)- total 3.4p 3.2p 6% 10.8p 5.7p 89%
- continuing operations 3.4p 3.2p 6% 10.8p 9.4p 15%
Notes:
(a) Throughout this statement, in order to reflect underlying business performance, sales growth is based on sales per day for continuing businesses at constant exchange rates and for like periods, and growth in operating profit is calculated at constant exchange rates.
(b) Adjusted profit before tax and adjusted earnings per share exclude gains on the purchase and cancellation of preference shares in the first nine months of ‚£3.7 million (Q1: ‚£3.6 million, Q3: ‚£0.1 million) (2007/8 Q2: ‚£0.2m).
Strategic Highlights
- Our continued strategic investment in EDE, the web and internationalisation has delivered our market outperformance again this quarter, despite challenging conditions.
- MDD sales growth of 2.2% in the quarter with the Americas up 1.0%, mainland Europe at 5.6% and Farnell UK also delivering positive growth.
- Web sales grew another 25% in the quarter and eCommerce now represents 32% of total MDD sales, supported by the success of our ongoing investments to improve functionality, meet customer needs and introduce tools that will result in cost savings for the business.
- Internationalisation continues at pace. Eastern Europe and China delivered year on year growth of 81% and 29%, respectively, while India's performance remained strong, up 21% on the prior quarter.
- In response to the success of our strategy, we are accelerating ourtransition to the web and are taking actions to reduce our operating expensesas a percentage of sales by 2% in our MDD businesses. The annualised benefitof the actions already taken will be a savings of approximately ‚£12 million inFY10.
- Upgrading our longer term return on sales target from 10% to 12%, reflecting our commitment to reduce operating expenses as a percentage of sales as we accelerate our transition to the web.
Financial Highlights
- Gross margin for the nine month period was 39.8% (2007/8: 39.7%) demonstrating a proven track record for gross margin stability for the last three years.
- Continued strong cash performance with cash generated from continuing operations in the first nine months representing 102% (2007/8: 105%) of operating profit and strong interest cover.
- Reported operating profit up 2.8% in the third quarter. At constantexchange rates the decline of 9.1% reflects the incremental strategic revenueinvestments we made of ‚£2.3 million, improving our offering for EDE customers,web users and customers in our international markets, and slower top linegrowth.
- Profit before tax from continuing operations up 3.5% in the third quarter and 17.5% in the first nine months. Adjusted profit before tax (excluding the gain on the purchase and cancellation of preference shares) up 2.9% and 10.7%, respectively.
- Earnings per share from continuing operations up 6.3% in the third quarter and 24.2% in the first nine months. Adjusted earnings per share up 6.3% and 14.9%, respectively.
Commenting on the results, Harriet Green, Group Chief Executive, said:
"We were encouraged by the revenue performance in the third quarterdriven by our strategic focus on EDE, the web and internationalisation. Recenttrading conditions have been variable, but the Board believes that it hastaken the actions necessary to position the Company well in the challengingand unpredictable global economy. Our strategy enables us to remove cost andimprove our operating efficiency as we accelerate our transition to the web."
For further information, contact:
Harriet Green, Chief Executive Premier Farnell +44 (0) 20 7851 4100 Officer
plcMark Whiteling, Chief FinancialOfficerRichard Mountain Financial +44 (0) 20 7269 7121 Dynamics
Premier Farnell's announcements and presentations are published at www.premierfarnell.com, together with business information, the 2008 Annual Report and Accounts, and links to all other Group web sites.
The results for the fourth quarter and year end of the financial year to 1 February 2009 will be announced on 19 March 2009.
Premier Farnell plc
THIRD QUARTER STATEMENT
Results for the Third Quarter and Nine Months ended 2 November 2008
of the Financial Year ending 1 February 2009
Premier Farnell, the leading multi-channel, high service distributor supporting millions of engineers and purchasing professionals globally, announces its results for the third quarter and nine months ended 2 November 2008.
Note:
Throughout this statement, in order to reflect underlying business performance, sales growth is based on sales per day for continuing businesses at constant exchange rates and for like periods, and growth in operating profit is calculated at constant exchange rates.
Chief Executive's Operational Overview
Our results for the first nine months reflect the focused executionof our strategy for profitable growth in rapidly changing markets. Ourstrategy is intended to position this organisation for growth throughout theindustry cycle, with a focus on the faster growing areas of the market -Electronic Design Engineer (EDE) customers, the web and internationalisation -whilst maintaining our focus on profitable Maintenance, Repair and Operations(MRO).During the third quarter, the Marketing and Distribution Division(MDD) delivered sales growth of 2.2%, and exited the quarter with growth of2.5% in the month of October, demonstrating the benefit of targeting thehigher growth market segments, which offsets the slowdown in some of our moretraditional segments. In MDD Europe and Asia Pacific where our transformationis most advanced, we saw third quarter sales growth of 3.5%, including 1.9%growth in the UK. In mainland Europe where approximately 65% of sales are toEDE customers and 44% are via the web, we saw growth of 5.6%. In MDD Americas,where our EDE sales represent 30% of the business, growth was 1.0%, despitethe challenging market conditions.Gross margin during the first nine months was in line with theprior year, representing gross margin stability for three consecutive years.The impact of exchange rates in the third quarter negatively impacted grossmargin by 0.2 percentage points. We continue to actively manage our margin todeliver on our commitment of stability. Despite the challenges of the globaleconomy, we have continued to make strategic investments. Incremental revenueinvestment in the third quarter of ‚£2.3 million supported moderate headcountadditions to better meet the technical needs of our EDE customer segment, aswell as investing to ensure the robustness of our product offering for globalEDE customers and our continued expansion in international markets. During thequarter we also continued investing in eCommerce tools that will be essentialas we accelerate our strategy. Despite this investment, our operating marginfor the third quarter of 10.6% remains above our strategic target of 10%.Strong cash performance has continued with cash generated from continuingoperations at 101% of operating profit.
Managing our Shape
We are excited that we have now reached the next stage in ourtransition and as a result of our investments over the past seven quarters, wehave the systems and infrastructure in place to accelerate our strategictransformation to the web. We have said in the past that the web would allowus to remove cost and as such we are making the necessary changes toaccelerate our transition to the web, whilst also considering the potentialimpacts of the slowing global economy. The web improves our agility,operational effectiveness and provides a permanent shift in our cost base.To ensure that we are appropriately structured for the future, wehave begun to reduce our global employee base by approximately 300 positions.The one-off cost related to these headcount reductions will be ‚£3 million andwill be recognised during the fourth quarter. The expected annualised benefitof these actions is approximately ‚£12 million.The web gives us the ability to continue growing our sales, whilstalso delivering further operational cost savings. As customers continue totransition to this content rich channel we will remove some of our fixedcosts, as well as realign our structure to support the areas where we continueto grow. The web gives us the opportunity to achieve operational efficiencies,such as automation of our processes. In Europe, eCommerce now accounts for 44%of total sales and in the Americas, where we have been investing sinceDecember 2006 when we launched the Newark website, we are already seeing thebenefit of automated transactions. Orders placed through the Newark websiteare sent directly to the Gaffney warehouse. The fully automated process hasremoved the need for any back end transactional processing, reducing our needfor fixed costs spent on administrative and sales support.
We anticipate that the benefit of integrated programmes for cost reduction and operational efficiency will enable us to rebase our net operating expenses as a percentage of sales. Accordingly, we are raising our longer term target for return on sales from 10% to 12%.
Along with accelerating our web transition, we will also beaccelerating our drive for EDE customers. In order to do so, we will refocuscertain sales and marketing efforts solely on this high growth segment. EDEcustomers are early adopters of new technology and have a natural propensityfor the web and as we benefit from serving these customers through our web, wewill accelerate certain activities in portfolio, sales and supplier managementfunctions to ensure that when a customer comes to our website, we have theproduct they need, when they need it.
Web
During the quarter our web business was up another 25% on the prioryear. As part of the programme to accelerate our web transition, we launched anew web tool in MDD Americas, eQuotes. eQuotes now provides customers withcustom quotes over the web, providing a richer environment and faster, morepersonalised service than in the past. We have also seen a strong take up byour small and medium customer segment of the iBuy eProcurement tool that waslaunched in the second quarter across our European business. iBuy allowscustomers to allocate their R&D budgets across their business, giving them theability to improve their purchasing efficiencies.
We are well advanced with our eCommunity and are very excited about the opportunities that this community offers. Our developers are working closely with engineers who are already using the technology in a live environment to ensure we create a unique platform for idea sharing, creative collaboration and expert advice and support.
EDE
Our outperformance of the market in the third quarter was supportedby our global EDE customer segment. We expected at the time of our strategicreview that MRO, overall, would not grow in a market downturn, whilst EDEwould continue to outperform. In the first nine months, EDE delivered growthof 4.9% on the prior year. We are continuing to see growth from this sectorand during the quarter, in support of our proposition, we continued to investthrough the addition of more than 20,000 EDE centric products, development ofour eCommunity and improvements to our technical capabilities, including theaddition of a number of technical employees to support and advise our globalEDE customers. We also signed agreements with 15 suppliers, includingagreements with lighting suppliers Cree and LEDEngin whose products supporthigh growth customer segments. We continued to add the latest technology toour portfolio and during the quarter we added 75 new to market products everyweek, including colour control sensing, biometrics and graphic supportinterface products. Following the successful launch of the prestigious Alterafranchise in Asia last quarter, this world class technology supplier has nowextended the agreement to cover Europe in recognition of our work with EDEs.All of these `new to market' products are in very high demand by our EDEcustomers, as they are essential in cutting edge, time sensitive designs.
Internationalisation
Our growth in international markets continues. During the quarterEastern Europe and China delivered growth of 81% and 29%, respectively, on theprior year, and India grew 21% sequentially. In Eastern Europe, where we havemany opportunities, we have just signed a letter of intent to acquire part ofthe assets and business of Microdis, our current distributor in Poland, theCzech Republic and Hungary. Microdis has a strong reputation in EasternEurope, and as the barriers to entry have continued to grow for smallerdistributors, this mutually beneficial deal will support customers andsuppliers to an even heightened level in the region. We are excited about theopportunities this increased reach into Eastern Europe gives us.
In each of our high growth international markets, Eastern Europe, China and India, we are acquiring new customers every day and we will continue to evaluate and invest in appropriate opportunities for growth.
IPD
Combined third quarter sales for our two main IPD businesses declined 0.7% year on year, reflecting the broad based slowdown in the US economy, and in particular the significant slowdown in the automotive industry, offset by the continuing focus on new products and international markets. Akron Brass has seen its international revenue increase by 27%, whilst TPC has grown its revenue from the energy sector by 35%. Both of these businesses continue to effectively control their costs and deliver healthy operating margins.
Outlook
We were encouraged by the revenue performance in the third quarterdriven by our strategic focus on EDE, the web and internationalisation. Recenttrading conditions have been variable, but the Board believes that it hastaken the actions necessary to position the Company well in the challengingand unpredictable global economy. Our strategy enables us to remove cost andimprove our operating efficiency as we accelerate our transition to the web.Financial ResultsRevenueNine MonthsSales for the first nine months from continuing operations were‚£604.2 million (2007/8: ‚£547.0 million or ‚£579.2 million at constant exchangerates). Sales per day from continuing businesses increased 4.1% on the prioryear, driven by the success of our strategy for profitable growth through afocus on the EDE customer segment, the web and internationalisation. Theaverage exchange rate for the US dollar against sterling was $1.90 (2007/8:$2.00) and the average exchange rate for the Euro against sterling was Euro1.27 (2007/8: Euro 1.47).
Third Quarter
Sales for the third quarter from continuing operations were ‚£209.1million (2007/8: ‚£184.5 million or ‚£205.5 million at constant exchange rates).Sales per day from continuing operations increased 1.7% on the prior year,reflecting the robustness of our strategy in challenging market conditions,particularly in mainland Europe and the UK where sales grew 5.6% and 1.9%,respectively. The average exchange rate for the US dollar against sterling was$1.74 (2007/8: $2.03) and the average exchange rate for the Euro againststerling was Euro 1.27 (2007/8: Euro 1.44).
Margins and Operating Profit
Nine Months
The gross margin from continuing operations in the first ninemonths was 39.8% (2007/8: 39.7%), demonstrating our commitment to maintainingstability, which has now been achieved for the last three years. Operatingprofit from continuing operations was ‚£68.3 million (2007/8: ‚£64.2 million)producing an operating margin of 11.3% (2007/8: 11.7%) as we continue toinvest in our strategic initiatives. There was a beneficial impact onoperating profit of ‚£4.4 million from the translation of overseas resultscompared with the prior year, primarily as a result of the relative strengthof both the US dollar and the Euro. At constant exchange rates, operatingprofit was flat on the prior year.
Third Quarter
The gross margin from continuing operations in the third quarterwas 39.2%. This compares to 39.7% in the prior year or 39.5% at constantexchange rates. Operating profit from continuing operations was ‚£22.1 million(2007/8: ‚£21.5 million), producing an operating margin of 10.6% (2007/8:11.7%) that reflects our continued investment in our strategy to drive furthergrowth from EDE, international markets and via the web, whilst staying aboveour current target of 10%. Our strategic revenue investments increased by ‚£2.3million on the prior year in order to support our EDE and web propositions,together with our international expansion. There was a beneficial impact onoperating profit of ‚£2.8 million from the translation of overseas resultscompared with the prior year, principally as a result of the strength of boththe US dollar and the Euro.Foreign Currency ImpactA one cent movement in the exchange rate between the US dollar andsterling impacts the Group's operating profit by approximately ‚£250,000 perannum and one cent movement in the exchange rate between the Euro and sterlingcurrently impacts the Group's operating profit by approximately ‚£100,000 perannum.Finance CostsNet finance costs in the first nine months were ‚£8.5 million (2007/8: ‚£13.3million). This comprises net interest payable of ‚£8.9 million (2007/8: ‚£8.0million), which was covered 7.7 times by operating profit, and a net credit of‚£0.4 million (2007/8: net charge of ‚£5.3 million) in respect of the Company'sconvertible preference shares. Net interest payable in the third quarterincreased ‚£0.8m on the prior year reflecting the impact of exchange rates withthe benefit of lower interest rates on the Group's bilateral bankingfacilities, which carry a LIBOR based floating rate of interest, of ‚£0.2moffsetting the interest cost of additional borrowings to fund the Group'spurchase and cancellation of preference shares.During the first nine months, the Company purchased and cancelled1,824,302 of its preference shares for a total cash consideration of ‚£23.6million. This resulted in a one-time benefit to finance costs in the ninemonths of ‚£3.7 million (Q1: ‚£3.6 million, Q3: ‚£0.1 million), being thedifference between the book value and fair value of the debt element of thepreference shares at the date of purchase. In the second quarter of the prioryear, a gain of ‚£0.2 million was recognised from the purchase and cancellationof preference shares. Excluding these gains, the charge in respect ofpreference shares in the first nine months was ‚£3.3 million (2007/8: ‚£5.5million), reflecting the benefit of lower preference dividends and a lowerredemption premium as a result of the reduction in the number of preferenceshares in issue over the last year.
Profit Before Tax and Taxation Charge
Reported profit before tax from continuing operations in the firstnine months was ‚£59.8 million (2007/8: ‚£50.9 million) an increase of 17.5% onthe prior year. Excluding the gain arising from the purchase and cancellationof preference shares, profit before tax in the first nine months was ‚£56.1million (2007/8: ‚£50.7 million) an increase of 10.7% on the prior year.
Reported profit before tax from continuing operations in the third quarter was ‚£17.7 million (2007/8: ‚£17.1 million) an increase of 3.5% on the prior year, or 2.9% excluding gains on the purchase and cancellation of preference shares.
The taxation charge from continuing operations for the first nine months was at an effective rate of 29.0% of profit before tax, preference dividends and the gain on purchase of preference shares (2007/8: 29.7%).
Return on Net Operating Assets
Return on net operating assets for the first nine months, based on continuing operations, was 30.4% (2007/8: 29.2%), remaining above our strategic target.
Earnings per Share
Total earnings per share for the first nine months were 11.8 pence (2007/8:5.8 pence). Earnings per share from continuing operations for the first ninemonths were 11.8 pence (2007/8: 9.5 pence), an increase of 24.2% on the prioryear. Excluding gains on the purchase and cancellation of preference shares,earnings per share from continuing operations were 10.8 pence (2007/8: 9.4pence), an increase of 14.9% on the prior year.
Total earnings per share for the third quarter were 3.4 pence (2007/8: 3.2 pence), an increase of 6.3% on the prior year.
Cash Flow and Net Financial Liabilities
Net cash generated from continuing operations in the nine months was ‚£69.9 million (2007/8: ‚£67.2 million), representing 102% (2007/8: 105%) of operating profit. Working capital continues to be tightly managed.
Free cash flow in the first nine months, being cash generated fromcontinuing operations less net capital expenditure, interest, preferencedividends and tax payments, was ‚£35.5 million (2007/8: ‚£27.9 million)including proceeds from the sale of surplus property of ‚£3.3 million (2007/8:‚£0.1 million). During the first nine months, ‚£23.6 million (2007/8: ‚£3.6million) was spent on purchasing and cancelling the Company's preferenceshares, and ‚£2.9 million (2007/8: ‚£2.5 million) was spent on purchasingordinary shares for the Premier Farnell Executive Trust. Proceeds receivedfrom prior year business disposals amounted to ‚£0.7 million (2007/8: ‚£24.4million).
Net financial liabilities at the end of the first nine months were ‚£286.4 million (3 February 2008: ‚£254.1 million), with the impact from exchange rates being ‚£39.2 million.
Included in net financial liabilities at 2 November 2008 was ‚£59.1 million (3 February 2008: ‚£85.9 million) in respect of the Group's preference shares.
Financial PositionPremier Farnell's financial position remains strong. We have goodliquidity, free cash flow and committed corporate bank facilities of ‚£207million, of which ‚£99 million were unutilised at quarter end. Net interestpayable is covered 7.7 times by operating profit. Although these facilities donot expire until May 2010 discussions with our facilities providers to securefinancing ahead of this date are progressing well.
Pensions
An actuarial loss of ‚£37.7 million (‚£23.3 million net of associated deferred tax) has been recognised in the quarter through the Statement of Recognised Income and Expense relating primarily to the decline in the market value of investments of the US Pension Plan. This plan remains over funded with a pension asset at 2 November 2008 of ‚£28.5 million (3 February 2008: ‚£53.4 million). The decrease in the pension asset recorded in the balance sheet reflects the actuarial loss, partly offset by the translation benefit from the movement in the US$ exchange rate. A full valuation of the Group's defined benefit pension plans will be performed at the financial year end.
Operations
Marketing and Distribution Division (MDD)
MDD comprises: Newark, Farnell, MCM and CPC.
Continuing Q3 08/9 Q3 07/8 Q3 growth 9M 08/9 9M 07/8 9M growthbusinesses ‚£m ‚£m ‚£m ‚£mRevenue 188.2 166.0 2.2% 547.3 491.9 4.9%Operating profit 20.9 20.5 (7.5%) 66.0 61.6 1.2%Operating margin % 11.1% 12.3% 12.1% 12.5%Third quarter sales grew 2.2% in the quarter (2.5% in October) asthe division stayed focused on its strategic initiatives despite thechallenging markets. Our strategy was created to deliver growth throughout themarket cycle and our MDD division's growth, in particular in Europe and AsiaPacific, in the third quarter is evidence of its continued success. As themarket changes rapidly, we are now accelerating our strategy to ensure that wehave the appropriate levels of resource committed to the initiatives which aredelivering growth. MDD sales growth for the first nine months was 4.9%.Operating margin for the third quarter was below the prior year, reflectingour revenue investment to accelerate our strategic transformation. There was abeneficial impact on operating profit in the first nine months from thetranslation of overseas results of ‚£3.6 million, due to the relative strengthof both the US dollar and the Euro.During the third quarter we invested in: our EDE proposition through theaddition of more than 20,000 EDE centric products and a further five technicalspecialists who are essential in serving this high growth customer segment;the web to improve our functionality and high performance tools; andinternationalisation to ensure that we have the product and support to meetthe needs of customers in the high growth regions of China, India and EasternEurope.High performance eCommerce tools, such as iBuy and eQuotes continueto help us drive the online customer experience and improve our conversion ofexisting customers to this lower cost to serve channel. Web sales in the thirdquarter increased another 24.5% and total eCommerce sales now account for32.4% of total MDD sales.The AmericasNewark and MCM. Q3 08/9 Q3 07/8 Q3 growth 9M 08/9 9M 07/8 9M growth ‚£m ‚£m ‚£m ‚£mRevenue 97.0 82.4 1.0% 268.0 241.8 4.1%Operating profit 9.7 7.9 3.2% 25.6 22.7 4.9%Operating margin % 10.0% 9.6% 9.6% 9.4%The latest available statistics from the Semiconductor IndustryAssociation (SIA) show a year on year decline in billings in the Americas forthe three months ended 31 October of 16.8%. Despite the challenging marketconditions, sales in MDD Americas in the third quarter increased 1.0% on theprior year driven by the acceleration of certain elements of the strategy.Going forward we will continue to accelerate the transformation of ourAmericas business - focusing on the EDE customer segment, the web andinternationalisation. Operating margin in the quarter reached 10.0% as grossmargin and costs continue to be managed effectively. Sales growth andoperating margin for the first nine months were 4.1% and 9.6%, respectively.Newark's sales grew 1.3% during the quarter reflecting the challenging marketconditions in North America. Newark's sales and marketing model, particularlythe effectiveness of our inbound and outbound call centres, and the deliveryof technology solutions for high growth sectors and new tools for ourwebsites, continue to be well received by EDE customers. During the quarter,the business identified areas of key priority and focus as we push for anacceleration of this business' transformation. The transformation gained paceduring the quarter as Newark invested further in its EDE proposition to ensureit has the right products and services for this higher growth customersegment. This was supported by the distribution of a new Technology Firstjournal and a microsite specifically focusing on instrumentation technologies,a high growth market segment for EDE customers. During the third quarterNewark also launched its annual catalogue with more than 27,000 new productsranging from board level components to new private brand lines. Thesestrategic initiatives helped support the 24% third quarter sales growth in oursmall and emerging customer segment.Web sales in the Americas continued to show significant growth, up27.3% on the prior year, with Newark up 31%, reflecting the enhancements madeto its web functionality. This is a significant step change for the Americaswhere our eCommerce sales accounted for 21.2% of total sales in the quarter.Newark introduced its eQuotes tool during the quarter, a web tool that allowscustomers to transact custom quoted products over the web reducing theirreliance on our sales force. Combined with the multi-channel order historylaunched in the second quarter which continues to attract customers who havepreviously used other higher cost to serve channels to the web, and thetargeted SEM (Search Engine Marketing) and eMarketing campaigns, the webcontinues to demonstrate the benefits of our ongoing investment.MCM's third quarter sales declined 3.0%, reflecting the softeningof consumer spending in North America during the quarter. Despite thesechallenges, MCM is actively targeting new customers in a diverse number ofsegments. A continued focus on online and offline marketing campaigns and arenewed effort on customer reactivation and prospecting during the quarterhelped the business attract 15,000 new customers. MCM continues to improve itsmargin through optimising its pricing models and inventory positions, whilesimultaneously controlling costs. Web traffic increased by 37% in the quarterwith eCommerce sales now accounting for 44% of total sales.
Europe and Asia Pacific
Farnell and CPC.
Continuing Q3 08/9 Q3 07/8 Q3 growth 9M 08/9 9M 07/8 9M growthbusinesses ‚£m ‚£m ‚£m ‚£mRevenue 91.2 83.6 3.5% 279.3 250.1 5.6%Operating profit 11.2 12.6 (15.2%) 40.4 38.9 (1.0%)Operating margin % 12.3% 15.1% 14.5% 15.6%
Sales were up 3.5% in the quarter as we continue to outperform the market and make strong progress in our new international regions. The third quarter results reflect the ongoing investment in the strategy to drive the benefits from the many opportunities available to us, particularly in our Asia Pacific and Eastern European regions.
Revenue by region Q3 08/9 Q3 07/8 Revenue 9M 08/9 9M 07/8 RevenueContinuing growth growthbusinesses ‚£m ‚£m ‚£m ‚£mUK (including 44.6 43.7 1.9% 135.2 131.4 2.8%exports)Mainland Europe 37.6 32.0 5.6% 116.7 96.1 8.1%Asia Pacific 9.0 7.9 4.1% 27.4 22.6 10.3%Mainland Europe is our region in the most advanced stage of ourstrategic transformation and the benefits of the strategy are clearly visiblethrough growth of 5.6% during the quarter despite slowing across the region.The business continues to make good progress in relation to EDE, the web andinternationalisation. During the quarter, the region added more than 11,000new products to its portfolio for EDE customers, ensuring that we have theright products to continue attracting EDEs to our high service proposition.Eastern Europe continues to deliver strongly, with sales growth in the quarterof 81%. Sales of the Farnell brand in the UK grew 0.6% in the quarter and 1.7%in the first nine months, continuing to outperform the market, with theAssociation of Franchised Distributors of Electronic Components (AFDEC)reporting a sales decline in the UK for the equivalent third quarter period of3.9%, excluding Farnell. CPC's sales were in line with last year, despite atough comparator and challenging conditions in both the wholesale and retailmarkets. An increased demand for private label products and energy efficientalternatives to traditional products has offset a decline in high valueconsumer goods. CPC has seen a 34% increase in online visitors in the quarterdriving a 5.3% increase in the number of new accounts opened.Our Asia Pacific region reported third quarter sales growth of 4.1%driven through strong growth in India and China, offsetting a decline of ourAustralia and New Zealand (ANZ) business. The China business grew sales by 29%with EDE product sales now accounting for more than 50% of total Chinese salesand sales from our website in China are now more than 40% of our sales.Expansion of the customer base continues, reflecting the value that Chinesedesign engineers associate with our high service proposition, including nextday delivery to over 110 Chinese cities. Our Indian business, which wasacquired at the end of last year, demonstrated strong sequential sales growthof 21% in the quarter and continues to attract new customers who are drawn toour strategic proposition. Sales in ANZ declined 5.1% in the first nine monthsas this market continues to be challenging. Subsequent to the quarter end, andas part of the group wide programme, we restructured our ANZ business tobetter align with opportunities in the local market and our strategy.
Web sales for the division grew 23.7% in the third quarter, assisted by the strong uptake of our iBuy e Procurement tool, improved web functionality and reporting software that enables us to continually improve our eCommerce offering, and two new Eastern European websites. Total eCommerce sales now account for 43.2% of total sales for the division.
Industrial Products Division (IPD)
Q3 08/9 Q3 07/8 Q3 growth 9M 08/9 9M 07/8 9M growth at ‚£m ‚£m ‚£m ‚£mRevenue 20.9 18.5 (3.1%) 56.9 55.1 (2.6%)Operating profit 4.2 3.8 (6.7%) 11.1 10.8 (4.3%)Operating margin % 20.1% 20.5% 19.5% 19.6%
Combined third quarter sales for Akron Brass and TPC Wire & Cable, which together represent 93% of the IPD Division, declined 0.7% year on year. Cadillac Electric sales, which represent 7% of total IPD sales and 0.6% of Group sales, declined 26.8% in the quarter to ‚£1.4 million, reflecting the planned wind down of specific trading activity.
Akron Brass
Third quarter sales at Akron Brass were in line with the prioryear, reflecting slowing demand for fire trucks and school buses in NorthAmerica. The business continues to benefit from its diversification intointernational markets, where sales grew by 27%, and in industrial markets. Newproduct development for industrial markets has been instrumental in AkronBrass being awarded several large contracts during the quarter, including anagreement to supply Northrop Grumman with safety systems for new US NavyShips. During the quarter a new business president joined the team who has astrong track record of delivering growth in international and industrialmarkets, and will drive opportunities in these segments going forward.
Operating margins remained stable reflecting manufacturing efficiencies and tight material cost controls.
TPC Wire & Cable
TPC's third quarter sales declined 3.1% reflecting the dramaticslowdown of North America's automobile manufacturing segment. However, TPCcontinues to make strong progress in its non-automotive markets. During thequarter the business saw a 35% increase in revenue from the energy segmentyear over year and a 100% increase sequentially of custom wire assemblies forindustrial applications. Margins remained strong, reflecting a change in thebusiness mix and effective inventory management.
Cadillac Electric
Cadillac Electric's sales in the quarter were ‚£1.4 million (0.6% ofGroup sales), a decline on the prior year of 26.8%, reflecting the continuedplanned wind down of specific trading activity. We are in advanced discussionsto dispose of the assets of Cadillac.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 2nd November 2008
2008/9 2007/8 2008/9 2007/8 2007/8 Third Third Nine Nine Full quarter quarter months months year (13 weeks) (13 weeks) (39 weeks) (39 weeks) (53 weeks) unaudited unaudited unaudited unaudited audited Notes ‚£m ‚£m ‚£m ‚£m ‚£m Continuing operationsRevenue 2 209.1 184.5 604.2 547.0 744.7Cost of sales (127.1) (111.3) (364.0) (329.9) (449.2)Gross profit 82.0 73.2 240.2 217.1 295.5Net operating expenses (59.9) (51.7) (171.9) (152.9) (207.5)Operating profit 2 22.1 21.5 68.3 64.2 88.0Finance income(interest receivable) 0.1 0.1 0.5 0.4 0.9Finance costs- interest payable (3.5) (2.7) (9.4) (8.4) (11.7)- preference dividends (0.9) (1.5) (2.7) (4.6) (5.6)- premium on redemptionof preference shares (0.2) (0.3) (0.6) (0.9) (1.3)
- gain on purchase of preference shares 0.1 -
3.7 0.2 0.9Total finance costs (4.5) (4.5) (9.0) (13.7) (17.7)Profit before taxation 17.7 17.1 59.8 50.9 71.2Taxation 3 (5.4) (5.5) (17.1) (16.4) (21.4)Profit after taxationfrom continuing operations 12.3 11.6 42.7 34.5 49.8Loss after taxation fromdiscontinued operations - - - (13.5) (13.5)Profit for the period(attributable to ordinaryshareholders) 12.3 11.6 42.7 21.0 36.3 Earnings per share 4Basic 3.4p 3.2p 11.8p 5.8p 10.0pDiluted 3.3p 3.2p 11.6p 5.7p 9.9p Earnings per sharefrom continuing operations 4Basic 3.4p 3.2p 11.8p 9.5p 13.7pDiluted 3.3p 3.2p 11.6p 9.4p 13.6p Ordinary dividendsInterim - proposed 4.2p 4.0p 4.0pFinal - proposed 5.2pPaid 9.4p 9.0p 9.0pImpact on shareholders'funds (‚£m) 34.0 32.7 32.7
Condensed Consolidated Statement of Recognised Income and Expense
For the third quarter and nine months ended 2nd November 2008
2008/9 2007/8 2008/9 2007/8 2007/8 Third Third Nine Nine Full quarter quarter months months year (13 weeks) (13 weeks) (39 weeks) (39 weeks) (53 weeks) unaudited unaudited unaudited unaudited audited Notes ‚£m ‚£m ‚£m ‚£m ‚£m Profit for the period 12.3 11.6 42.7 21.0 36.3 Net exchange adjustments (6.3) 1.4 (4.6) 1.4 6.6Actuarial losses on pensions andother post-retirement obligations 8 (37.7) - (37.7) - (1.8)Deferred tax credit on actuarial losses 14.4 - 14.4 - 0.8Net (losses)/gains not recognisedin the income statement 6 (29.6) 1.4
(27.9) 1.4 5.6
Total recognised (loss)/incomefor the period (17.3) 13.0
14.8 22.4 41.9
Condensed Consolidated Balance Sheet
As at 2nd November 2008 2nd November 28th October 3rd February 2008 2007 2008 unaudited unaudited audited Notes ‚£m ‚£m ‚£mASSETSNon-current assetsGoodwill 32.0 30.2 31.1Other intangible assets 22.7 18.0 20.1
Property, plant and equipment 53.9 54.8 55.2
Retirement benefit asset 28.5 56.5 53.4Deferred tax assets 0.2 0.6 0.2Total non-current assets 137.3 160.1 160.0 Current assetsInventories 183.3 154.9 154.5Financial assets 0.6 - -Trade and other receivables 137.9 119.1 121.2Cash and cash equivalents 5 34.6 28.4 37.6Total current assets 356.4 302.4 313.3 LIABILITIESCurrent liabilitiesFinancial liabilities 5 (11.1) (2.4) (3.0)Trade and other payables (100.2) (87.2) (84.3)Current tax payable (23.1) (27.1) (22.2)Total current liabilities (134.4) (116.7) (109.5) Net current assets 222.0 185.7 203.8 Non-current liabilitiesFinancial liabilities 5 (310.5) (286.3) (288.7)Retirement and otherpost-employment benefits (20.3) (27.5) (22.0)Deferred tax liabilities (23.0) (29.4) (33.0)
Total non-current liabilities (353.8) (343.2) (343.7)
NET ASSETS 5.5 2.6 20.1 EQUITYOrdinary shares 18.3 18.2 18.2Equity element of preferenceshares 10.4 17.7 15.2Share premium 23.8 23.0 23.0Capital redemption reserve 4.4 1.7 2.6
Hedging reserve 0.6 (0.4) (2.9)Cumulative translationreserve (0.9) (1.5) 3.7Retained earnings (51.1) (56.1) (39.7)SHAREHOLDERS' FUNDS 6 5.5 2.6 20.1
Condensed Consolidated Cash Flow Statement
For the third quarter and nine months ended 2nd November 2008
2008/9 2007/8 2008/9 2007/8 2007/8 Third Third Nine Nine Full quarter quarter months months year (13 weeks) (13 weeks) (39 weeks) (39 weeks) (53 weeks) unaudited unaudited unaudited unaudited audited Notes ‚£m ‚£m ‚£m ‚£m ‚£m Cash flows fromoperating activitiesOperating profit fromcontinuing operations 22.1 21.5 68.3 64.2 88.0Depreciation andamortisation 4.4 4.8 13.0 14.6 19.1Changes in workingcapital (3.4) (1.5) (9.6) (9.9) (4.7)Additional pensionscheme funding (UKdefined benefit plan) (0.7) (0.8) (2.2) (2.3) (3.1)Other non-cash movements - 0.2 0.4 0.6 (1.5)Cash generated fromcontinuing operations 22.4 24.2 69.9 67.2 97.8Cash generated fromdiscontinued operations - (0.1) - (1.1) (1.2)Total cash generatedfrom operations 22.4 24.1 69.9 66.1 96.6Interest received 0.1 0.1 0.5 0.4 0.9Interest paid (1.5) (1.0) (7.4) (6.9) (11.8)Dividends paid onpreference shares - - (1.8) (3.1) (5.6)Taxation paid (7.0) (6.0) (18.0) (18.4) (23.1)Net cash generatedfrom operating activities 14.0 17.2 43.2 38.1 57.0 Cash flows frominvesting activitiesAcquisition of business - - - - (0.6)Disposal of business - (0.1) 0.7 24.4 24.4Proceeds from sale of
property, plant and equipment - - 3.3
0.1 1.9Purchase of property,plant and equipment (1.0) (1.7) (3.9) (5.0) (7.1)Purchase of intangibleassets (computer software) (2.4) (2.2) (7.1) (6.4) (10.4)Net cash(used in)/generated frominvesting activities (3.4) (4.0) (7.0) 13.1 8.2 Cash flows fromfinancing activitiesIssue of ordinary shares 0.5 - 0.9 1.4 1.4Purchase of ordinary shares (0.1) - (2.9) (2.5) (2.5)
Purchase of preference shares (0.5) - (23.6)
(3.6) (17.7)New bank loans - - 26.7 21.4 32.1Repayment of bank loans (7.3) (1.5) (7.3) (29.3) (29.3)Dividends paid toordinary shareholders (15.2) (14.5) (34.0) (32.7) (32.7)Net cash used infinancing activities (22.6) (16.0) (40.2) (45.3) (48.7) Net(decrease)/increase incash, cash equivalentsand bank overdrafts (12.0) (2.8) (4.0) 5.9 16.5Cash, cash equivalentsand bank overdrafts atbeginning of period 45.8 29.7 37.6 21.3 21.3Exchange gains/(losses) 0.8 (0.4) 1.0 (0.7) (0.2)Cash, cashequivalents and bank
overdrafts at end of period 34.6 26.5 34.6
26.5 37.6
Reconciliation of netfinancial liabilitiesNet financial liabilities atbeginning of period (254.1) (281.3) (281.3)Net(decrease)/increase incash, cash equivalentsand bank overdrafts (4.0) 5.9 16.5
(Increase)/decrease in debt (19.4) 7.9 (2.8)Decrease in preference shares 27.4 3.6 18.5Premium on redemptionof preference shares (0.6) (0.9) (1.3)Derivative financial instruments 3.5
(0.4) (2.8)Exchange movement (39.2) 4.9 (0.9)Net financial liabilitiesat end of period 5 (286.4) (260.3) (254.1) Notes1 Basis of preparationThe unaudited condensed consolidated financial information in this report hasbeen prepared in accordance with International Financial Reporting Standards(IFRSs) and applying the accounting policies disclosed in the Group's 2008Annual Report and Accounts on pages 74 to 77.The Group's 2008 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.
The financial year ending 1st February 2009 is a 52 week accounting period compared to the financial year ended 3rd February 2008 which was a 53 week accounting period.
2 Segment information 2008/9 2007/8 2008/9 2007/8 2007/8 Third Third Nine Nine Full quarter quarter months months year (13 weeks) (13 weeks) (39 weeks) (39 weeks) (53 weeks) unaudited unaudited unaudited unaudited audited ‚£m ‚£m ‚£m ‚£m ‚£m
Revenue
Marketing and Distribution DivisionAmericas 97.0 82.4 268.0 241.8 326.7Europe and Asia Pacific 91.2 83.6 279.3 250.1 344.2Total Marketing and Distribution Division 188.2 166.0 547.3 491.9 670.9Industrial Products Division 20.9 18.5 56.9 55.1 73.8 209.1 184.5 604.2 547.0 744.7 Operating profitMarketing and Distribution DivisionAmericas 9.7 7.9 25.6 22.7 31.0Europe and Asia Pacific 11.2 12.6 40.4 38.9 53.4Total Marketing and Distribution Division 20.9 20.5 66.0 61.6 84.4Industrial Products Division 4.2 3.8 11.1 10.8 14.8Head Office costs (3.0) (2.8) (8.8) (8.2) (11.2) 22.1 21.5 68.3 64.2 88.0 3 TaxationThe taxation charge represents an effective tax rate for the period on profitbefore tax, preference dividends and gain on purchase of preference shares of29.0% (2007/8: 29.7%), being the estimated effective rate of taxation for thefinancial year ending 1st February 2009.4 Earnings per shareBasic earnings per share is calculated by dividing the profit attributable toordinary shareholders for the period by the weighted average number ofordinary shares in issue during the period, excluding those shares held by thePremier Farnell Executive Trust. For diluted earnings per share, the weightedaverage number of ordinary shares in issue is adjusted to assume issue of alldilutive potential ordinary shares, being those share options granted toemployees where the exercise price is less than the average market price ofthe Company's ordinary shares during the period.
Reconciliations of earnings and the weighted average number of ordinary shares used in the calculations are set out below.
2008/9 2007/8 2007/8 Nine months (39 weeks) Nine months (39 weeks) Full year (53 weeks) unaudited unaudited audited Basic per Basic per Basic per Earnings share amount Earnings share amount Earnings share amount ‚£m pence ‚£m pence ‚£m penceEarnings per shareProfit attributable toordinary shareholders 42.7 11.8 21.0 5.8 36.3 10.0Gain on purchase of (1.0)preference shares (3.7) (0.2) (0.1) (0.9) (0.3)Profit attributable toordinary shareholders beforegain on purchase ofpreference shares 39.0 10.8 20.8 5.7 35.4 9.7 Earnings per share fromcontinuing operationsProfit after taxation fromcontinuing operations 42.7 11.8 34.5 9.5 49.8 13.7Gain on purchase of (1.0)preference shares (3.7) (0.2) (0.1) (0.9) (0.3)Profit attributable toordinary shareholders beforegain on purchase ofpreference shares 39.0 10.8 34.3 9.4 48.9 13.4 Number Number Number Weighted averagenumber of shares 362,422,882 363,552,897 363,476,320
Dilutive effect of share options 4,526,866
2,789,617 1,913,997Diluted weightedaverage number of shares 366,949,748 366,342,514 365,390,317
Earnings per share before the gain on purchase of preference shares have been provided in order to facilitate year on year comparison.
5 Net financial liabilities 2nd November 28th October 3rd February 2008 2007 2008 unaudited unaudited audited ‚£m ‚£m ‚£m Cash and cash equivalents 34.6 28.4 37.6Unsecured loans and overdrafts (262.0) (188.0) (202.9)Net financial liabilities beforepreference shares and derivatives (227.4) (159.6) (165.3)Preference shares (59.1) (100.3) (85.9)Derivative financial instruments (net) 0.1 (0.4) (2.9)Net financial liabilities (286.4) (260.3) (254.1) Net financial liabilities areanalysed in the balance sheetas follows: Current assetsFinancial assets
(derivative financial instruments) 0.6
- -Cash and cash equivalents 34.6 28.4 37.6 35.2 28.4 37.6 Current liabilitiesBank overdrafts - (1.9) -Other loans (10.6) (0.1) (0.1)Derivative financial instruments (0.5) (0.4) (2.9) (11.1) (2.4) (3.0) Non-current liabilitiesBank loans (107.4) (73.7) (85.7)5.3% US dollar Guaranteed Senior Notespayable 2010 (41.0) (32.2) (33.5)5.9% US dollar Guaranteed Senior Notespayable 2013 (98.8) (77.6) (80.7)Other loans (4.2) (2.5) (2.9)Preference shares (59.1) (100.3) (85.9) (310.5) (286.3) (288.7)
6 Consolidated statement of changes in shareholders' equity
2008/9 2007/8 2007/8 Nine Nine Full months months year (39 weeks) (39 weeks) (53 weeks) unaudited unaudited audited ‚£m ‚£m ‚£m Shareholders' fundsat beginning of year 20.1 12.0 12.0Profit for the period 42.7 21.0 36.3Net gains and lossesrecognised directly in equity (27.9) 1.4 5.6Ordinary dividends paid (34.0) (32.7) (32.7)Ordinary shares issued 0.9 1.4 1.4Purchase of ordinary shares (2.9) (2.5) (2.5)Purchase of preference shares(note 7):- reduction in equity element (4.8) (0.7) (3.2)
- gain arising on equity element 4.8 0.6
3.1- deferred tax 0.8 0.1 0.6Share-based payments 2.3 2.3 2.3
Derivative financial instruments 3.5 (0.3)
(2.8)
Shareholders' funds at end of period 5.5 2.6
20.1
During the first nine months, the Premier Farnell Executive Trust acquired 1,532,806 of the Company's ordinary shares, through purchases on the London Stock Exchange for a total cash consideration of ‚£2.9 million, in order to meet future obligations under the Company's performance share plan. This amount has been deducted from shareholders' equity.
7 Purchase of preference shares
During the first nine months the Company purchased and cancelled 1,824,302 ofits preference shares at a total cash cost of ‚£23.6 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 ‚£27.4 million andthe equity element by ‚£4.8 million. A gain of ‚£3.7 million (Q1: ‚£3.6 million,Q3: ‚£0.1 million) was recognised in the income statement being the differencebetween the book value and fair value of the financial liability element atthe date of purchase. The gain arising from the difference between the bookvalue and fair value of the equity element of ‚£4.8 million was recognised as amovement in retained earnings. A deferred tax credit of ‚£0.8 million arosewhich is recognised as a movement in retained earnings. A transfer fromretained earnings of ‚£1.8 million to non-distributable reserves was made inorder to maintain the legal nominal value of share capital.In the prior year, the Company purchased and cancelled 1,236,500 of itspreference shares at a total cash cost of ‚£17.7 million, resulting in a gainof ‚£0.9 million (‚£0.2 million in the second quarter and ‚£0.7 million in thefourth quarter) being recognised in the income statement.
At 2nd November 2008, the Company had 3,949,419 preference shares in issue (3rd February 2008: 5,773,721).
8 Post-retirement benefits
An actuarial loss of ‚£37.7 million (‚£23.3 million net of associated deferredtax) has been recognised in the third quarter through the ConsolidatedStatement of Recognised Income and Expense relating primarily to the declinein the market value of investments of the US pension plan. This plan remainsoverfunded with a pension asset at 2nd November 2008 of ‚£28.5 million (3rdFebruary 2008: ‚£53.4 million). The decrease in the pension asset recorded inthe balance sheet reflects the actuarial loss, partly offset by thetranslation benefit from the movement in the US$ exchange rate. A fullvaluation of the Group's defined benefit pension plans will be carried out
atthe financial year end.9 Exchange rates
The principal average exchange rates used to translate the Group's overseas profits were as follows:
2008/9 2007/8 2008/9 2007/8 2007/8 Third Third Nine Nine Full quarter quarter months months year US dollar 1.74 2.03 1.90 2.00 2.00 Euro 1.27 1.44 1.27 1.47 1.44
vendorRelated Shares:
PFL.L