16th Mar 2006 07:00
Premier Farnell plc 16 March 2006Results for the Fourth Quarter and Financial Year ended 29 January 2006Key Financials ‚£m Q4 05/ Q4 04/ Q4 04/ FY 05/ FY 04/ FY 04/ 6 5 5 6 5 5 ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m at CER at CER * * Sales 208.4 185.0 192.5 814.0 776.7 787.2 Operating profit 9.1 16.7 17.6 60.3 72.5 74.0 Underlying 19.6 16.7 17.6 72.2 72.5 74.0operating profit ** Earnings per share 1.2p 3.0p 3.1p 8.6p 10.6p 10.8p Underlying earnings 3.2p 3.0p 3.1p 11.1p 10.6p 10.8pper share*** Sales growth¢â‚¬ 7.9% 3.3% * Constant Exchange Rates** Before RoHS inventory provision and reorganisation costs*** Before RoHS inventory provision, reorganisation costs and impliedredemption premium on preference sharesHighlightsMarketing and Distribution Division (MDD) sales per day in fourth quarter up8.8% in the Americas, up 2.8% in the UK, up 12.4% in mainland Europe¢â‚¬ Industrial Products Division (IPD) sales per day in fourth quarter up 15.1%¢â‚¬ Underlying operating profit of ‚£19.6million in fourth quarter 17.4% ahead ofprior year, with underlying return on sales up to 9.4% (2004/5: 9.0%)Fourth quarter operating profit impacted by:‚£3.9million reorganisation costs related to restructuring of BuckHickman InOne,as announced on 27 January, and‚£6.6million provision for obsolete and slow moving non-compliant inventoryresulting from RoHS legislation, in line with estimates published in theInterim StatementStrong cash flow with net cash generated from operations being 117% ofunderlying operating profit in the fourth quarter, and 110% in the full yearRecommended final dividend of 5.0p, to give a full year dividend of 9.0p (2004/5: 9.0p)Sir Peter Gershon, Executive Chairman commented:"The Group had an encouraging close to the year, delivering solid growth inboth sales and underlying operating profit in the fourth quarter. Results inthe quarter benefited from the full effect of the cost reduction programmeduring the third quarter."Growth in the North American electronics market helped MDD Americas record itsbest quarterly sales increase of the year. Importantly, this was achievedwhilst exercising tighter control over the quality of its business and stemmingthe gross margin erosion seen earlier in the year. The electronics market inthe UK began to stabilise after three very difficult quarters and Farnell InOnecontinued to perform well. In mainland Europe it substantially out-performedthe underlying markets, growing sales by 12.4%."Actions taken in the second half of the year to improve the Group'sperformance have started to be rewarded as underlying return on sales increasedsequentially in both the third and fourth quarters. They create a strongerfoundation from which Harriet Green, who joins the Board on 3 April as ChiefExecutive, can pursue the opportunities available to the Group. As previouslyannounced, on this date I will revert to the position of non-executiveChairman."Our electronics distribution businesses have continued to make good progressin preparing for the implementation of the EU RoHS Directive on 1 July.Nevertheless, in order to manage a successful migration to compliance, aconsiderable amount of work remains to be done. The leadership position thatthey are establishing in this area is winning the support of suppliers and isbeing used as part of a wider drive to grow sales."The trading performance of the Group in the first few weeks of 2006/7 has beensatisfactory. We continue to plan on the basis of modest growth in our markets.Whilst maintaining tight control of cost, we are reinvesting selectively tosupport business development and growth opportunities."¢â‚¬ sales GROWTH percentageSComparison of sales for specific periods is affected by three variables:Changes in exchange rates used to translate the overseas sales in differentcurrencies into sterling;Differences in the number of working days;Disposal or acquisition of businesses.Throughout this statement, in order to reflect underlying business performance,percentage changes in sales are based on sales per day for continuingbusinesses at constant exchange rates and for like periods, unless otherwisestated.For further information, contact:Sir Peter Gershon, Premier Farnell +44 (0) 20 7851Executive Chairman plc 4100 Andrew Fisher, Group Finance Director James Garthwaite, Group Director, Communications Richard Mountain / Andrew Financial +44 (0) 20 7269Lorenz Dynamics (UK) 7291 Brian Rafferty / John Taylor Rafferty + 1 212 889Sutton (NA) 4350The Company's announcements are published on the Internet atwww.premierfarnell.com,together with business information, the 2005 Annual Reportand Accounts and links to all other Group websites.The Company's results for the First Quarter of the year ending 28 January 2007are expected to be published in the week beginning 29 May 2006.Premier Farnell plcCHAIRMAN'S STATEMENT ON FOURTH QUARTER AND FINANCIAL YEAR ENDED29 January 2006Premier Farnell, the leading global marketer and distributor of electronic,maintenance, repair and operations (MRO) and specialist products and services,today announces its results for the fourth quarter and financial year ended 29January 2006.These results are reported by the Company in accordance with InternationalFinancial Reporting Standards (IFRS). The impact of IFRS on the Group'saccounting policies and comparative financial results, which have been restatedin accordance with IFRS, is given in note 1 to the financial information andalso in the IFRS announcement made on 4 May 2005, a copy of which can be foundon the Company's website.sales GROWTH percentageSComparison of sales for specific periods is affected by three variables:Changes in exchange rates used to translate the overseas sales in differentcurrencies into sterling;Differences in the number of working days;Disposal or acquisition of businesses.Throughout this statement, in order to reflect underlying business performance,percentage changes in sales are based on sales per day for continuingbusinesses at constant exchange rates and for like periods, unless otherwisestated.Financial ResultsSalesGroup sales in the year were ‚£814.0million (2004/5: ‚£776.7million), up 3.3% or2.4% before acquisitions.In the fourth quarter, sales were ‚£208.4million (2003/4: ‚£185.0million) up 7.9%year on year, or 6.3% before acquisitions.Margins and Operating ProfitFull Year resultsThe gross margin for the Group was 38.9% (2004/5: 40.5%). The gross margin forthe Group before the RoHS inventory provision of ‚£6.6million was 39.7% (2004/5:40.5%). Operating profit was ‚£60.3million (2004/5: ‚£72.5million), producing anoperating margin of 7.4% (2004/5: 9.3%). Underlying operating profit for theyear was ‚£72.2million (2004/5: ‚£72.5million) giving an operating margin of 8.9%(2004/5: 9.3%). Underlying operating profit is stated before the RoHS inventoryprovision of ‚£6.6million and reorganisation costs of ‚£5.3million, of which ‚£3.9million related to the restructuring of BuckHickman InOne announced in thefourth quarter and ‚£1.4million related to the cost reduction programme in thethird quarter.Fourth Quarter resultsThe gross margin for the Group was 36.3% (2004/5: 40.7%). The underlying grossmargin for the Group before the RoHS inventory provision of ‚£6.6million was39.5% (2004/5: 40.7%). This was slightly higher than the 39.4% achieved in thethird quarter following the stabilisation of gross margin in Marketing andDistribution Division (MDD) Americas. Year on year, the underlying gross marginin MDD Americas was down by 2.0% in the fourth quarter compared to the verystrong performance in the prior year. This was the primary reason for the yearon year reduction for the Group as a whole.Operating profit in the quarter was ‚£9.1million (2004/5: ‚£16.7million) aftercharging the RoHS inventory provision of ‚£6.6million and ‚£3.9million ofreorganisation costs relating to the restructuring of BuckHickman InOne. Thisproduced an operating margin of 4.4% (2004/5: 9.0%). Excluding the RoHSinventory provision and reorganisation costs, operating profit for the quarterwas ‚£19.6million (2004/5: ‚£16.7million) giving an operating margin of 9.4%(2004/5: 9.0%).Finance CostsNet interest payable in the year was ‚£14.0million (2004/5: ‚£13.5million) andwas covered 5.2 times by operating profit before the RoHS inventory provisionand reorganisation costs.Included in finance costs for the year is a charge of ‚£8.2million (2004/5: nil)in respect of the Company's convertible preference shares. Under IFRS, witheffect from 31 January 2005, the preference dividend for the year of ‚£6.7million, together with a ‚£1.5million charge for the amortisation of theimplied redemption premium on the preference shares, is included as a financecost with no restatement of prior year comparatives. This is purely anaccounting change as a result of IFRS and has no impact on the Group'sfinancing arrangements.Profit Before TaxationReported profit before taxation in the year was ‚£38.1million and, excluding thefinance charge of ‚£8.2million for the Company's convertible preference shares,profit before tax was ‚£46.3million (2004/5: ‚£59.0million). Reported profitbefore taxation in the fourth quarter was ‚£3.3million and, excluding thefinance charge of ‚£2.1million for the Company's convertible preference shares,profit before tax was ‚£5.4million (2004/5: ‚£13.3million).Taxation ChargeThe current year taxation charge was at an effective rate of 18.5% of profitbefore tax and preference dividends (2004/5: 28.1%). The total tax charge inthe year was at an effective rate of 15.6% (2004/5: 23.7%). The low effectiverate of tax reflected significant benefits realised from the Group's efficientfinancing structure.Return on Net Operating AssetsReturn on net operating assets for the year was 18.6% (2004/5: 21.7%).Excluding exceptional items, return on net operating assets was 22.2% (2004/5:21.7%).Earnings per ShareEarnings per share in the full year were 8.6pence (2004/5: 10.6pence) and inthe fourth quarter were 1.2pence (2004/5: 3.0pence). Earnings per share beforethe impact of the RoHS inventory provision, reorganisation costs, and theimplied redemption premium on the preference shares, were 11.1p (2004/5: 10.6p)in the full year, and 3.2p (2004/5: 3.0p) in the fourth quarter.DividendThe Board is recommending a final dividend of 5.0p (2004/5: 5.0p) making atotal for the year of 9.0p (2004/5: 9.0p). The final dividend is payable on 21June 2006 to shareholders on the register on 26 May 2006.Balance Sheet and Cash FlowNet cash generated from operations of ‚£79.3million in the year was 110% ofunderlying operating profit (2004/5: ‚£72.5million, 100% of operating profit).Excluding the impact of the RoHS provision, total inventory remained broadlyflat in the quarter despite further investment as part of the transition toRoHS compliant products.The net cash in-flow during the year, before the cost of businesses acquired,was ‚£1.2million (2004/5: out-flow of ‚£4.4million). Net financial liabilities atthe end of the year were ‚£330.1million, including ‚£110.2million attributable tothe reclassification of the Company's preference shares as required under IFRS.Net financial liabilities excluding preference shares were ‚£219.9million,compared with ‚£200.7million at 30 January 2005, with ‚£12.6million of thisincrease resulting from movements in exchange rates.AcquisitionsIn June, Weldon Technologies Inc., was acquired for ‚£5.9million and the assetsof R&R Instrumentation were acquired for ‚£1.7million.Defined Benefit Pensions PlansThe results for the year include a net credit of ‚£2.5m (2004/5: ‚£2.7m) relatingto the Group's defined benefit pension plans, comprising a credit of ‚£2.9m inrespect of the surplus in the North American plan and a charge of ‚£0.4m inrespect of the UK plan. The Group's balance sheet includes a pension asset of ‚£52.0m (2004/5: ‚£44.3m) in respect of the US plan and a pension liability of ‚£29.6m (2004/5: ‚£20.9m) in respect of the UK plan. The increase in the USpension surplus arises principally from the income in the year and the benefitof exchange rates. The increase in the UK liability arises from themarket-related reduction in the bond rate used to discount the scheme'sliabilities at the year end.OperationsMarketing and Distribution Division (MDD) - OverviewThe Marketing and Distribution Division comprises Newark InOne, Farnell InOne,BuckHickman InOne, MCM, an InOne Company, and CPC. Q4 05/6 Q4 04/5 FY 05/6 FY 04/5 ‚£m ‚£m ‚£m ‚£m Sales 179.4 161.1 706.4 680.0 Operating profit 7.5 15.9 56.9 69.3 Underlying operating 18.0 15.9 68.6 69.3 profit* Return on sales 4.2% 9.9% 8.1% 10.2% Underlying return on 10.0% 9.9% 9.7% 10.2% sales* Sales growth 6.8% 2.5% * Before RoHS inventory provision and reorganisation costsUnderlying operating profit in the fourth quarter was up ‚£2.1million year onyear, and in the full year was down ‚£0.7million. The primary reason for thelower operating profit in the full year was the reduction in contribution fromBuckHickman InOne, as indicated in the Interim Statement.RoHS Legislation (Restriction of the use of certain Hazardous Substances)The division made further progress in its preparation for the European Union'sRoHS Directive, which takes effect on 1 July 2006. Inventories of compliantstock were increased and, by the year end, some 57,000 RoHS-compliant productsin Europe, and 57,000 in North America, were being actively marketed on theweb. In aggregate, these numbers have since risen to over 130,000.The division is running a tightly controlled programme to minimize the cost ofthe migration to a compliant product range. Good early progress was made inmanaging out non-compliant and potentially obsolete inventory in the fourthquarter. A provision of ‚£6.6million, being an estimate of the likely totalwrite-off of obsolete and slow moving non-compliant product required once themigration is complete, has been made at the year end. This representsapproximately 5% of the division's total inventory, in line with estimatesprovided in the Interim Statement.During the quarter, active marketing programmes at Farnell InOne and NewarkInOne were used to promote the differentiated RoHS-related services that theyoffer. These include Bill-of-Materials conversions, early availability ofcompliant stock, certificates of compliance, and obsolescence notificationservices. Both businesses are segregating RoHS-compliant and non-compliantversions of products held in stock and have received strong endorsements frommajor suppliers for this industry-leading practice. In January, Farnell InOne'sUK operations were awarded the BSI "RoHS trusted" kitemark in recognition ofthe quality of their processes to provide customers with assurance about thecompliant status of products supplied.Interest in these services has helped contribute to a rapid increase in thenumber of visits to Farnell InOne's websites across Europe and Asia Pacific andsales of RoHS-compliant products by Farnell InOne are also increasing.Supplier relationshipsDuring the quarter, the division successfully extended two existing regionaldistribution relationships, with Freescale and Deltron, to global status. Thisconcluded a year in which a number of agreements have been secured for leadingglobal electronics brands, significantly developing the Group's proposition forelectronic design engineers and reflecting the closer relationships that theGroup now has with suppliers.eCommerce salesIn the quarter, eCommerce sales were up 27% on the prior year. eCommerce salesin the fourth quarter accounted for 21% of the division's sales.The Americas Q4 05/6 Q4 04/5 FY 05/6 FY 04/5 ‚£m ‚£m ‚£m ‚£m Sales 80.5 67.2 310.0 289.8 Operating profit 3.0 5.7 22.2 25.5 Underlying operating 7.2 5.7 27.1 25.5 profit* Return on sales 3.7% 8.5% 7.2% 8.8% Underlying return on 8.9% 8.5% 8.7% 8.8% sales* Sales growth 8.8% 4.1% * Before RoHS inventory provision and reorganisation costsSales growth in the quarter was 8.8% ahead of that in the prior year, whilstgross margin remained stable compared to the third quarter as Newark InOneexercised tight controls over the quality of its business, rejecting some lowmargin sales opportunities. An increase in the proportion of sales to smallercustomers and promotion of higher margin products also helped to sustain grossmargin.Regular customer surveys indicate that Newark InOne achieved highersatisfaction ratings as the year progressed. The division is also well placedto respond to the growing awareness of RoHS legislation in the North Americanmarket.Sales in the quarter over the web and through eProcurement partnerships in MDDAmerica increased by 15% and 16% respectively year on year.Sales from operations in Brazil and Mexico both grew strongly in the quarterand, in aggregate, increased 20% in the year.Europe and Asia Pacific Q4 05/6 Q4 04/5 FY 05/6 FY 04/5 ‚£m ‚£m ‚£m ‚£m Sales 98.9 93.9 396.4 390.2 Operating profit 4.5 10.2 34.7 43.8 Underlying operating 10.8 10.2 41.5 43.8 profit* Return on sales 4.6% 10.9% 8.8% 11.2% Underlying return on 10.9% 10.9% 10.5% 11.2% sales* Sales growth 5.4% 1.3% * Before RoHS inventory provision and reorganisation costsUnderlying operating profit for the quarter was ‚£0.6million higher than in thesame period in the prior year, driven by strong sales growth from Farnell InOnein mainland Europe and from CPC.Sales by region Q4 05/ Q4 04/ Sales FY 05/ FY 04/ Sales 6 5 growth 6 5 growth ‚£m ‚£m ‚£m ‚£m UK (including 64.6 62.8 2.8% 262.6 265.6 -1.1%exports) Mainland Europe 27.4 24.7 12.4% 104.7 97.0 7.7% Asia Pacific 6.9 6.4 4.3% 29.1 27.6 2.1%The division's UK sales (including exports) in the quarter increased 2.8% yearon year, helped by improving sales at Farnell InOne and strong growth in CPC'ssales.UK sales through the Farnell InOne and BuckHickman InOne brands were up 0.8% inthe fourth quarter, and down 1.9% for the year overall, including exports.Farnell InOne UK continued to perform well, achieving year on year sales growtheach month of the quarter, in a market that began to stabilise from the lowlevels of activity earlier in the year. Average order values also increased.Trading at BuckHickman InOne remained stable during the quarter and underlyingmargins improved slightly. Plans to improve the business, including acomprehensive restructuring of its sales and logistics operations, wereannounced at the end of January. Under the proposals, BuckHickman InOne'sbranches will focus solely on delivering sales and customer service. Inventoryand logistics will be streamlined through the creation of a number of regionaldistribution centres. Product sourcing is being improved through thecentralisation of procurement. Tighter commercial disciplines have already beenimplemented and the profitability of customer contracts has been improved inseveral cases. These plans are anticipated to be substantially complete byJanuary 2007. An exceptional charge of ‚£3.9million has been made in the fourthquarter to cover redundancies and other restructuring costs.CPC continued its strong recovery as sales rose 10.3% in the quarter. Sales forthe twelve months were up 1.9% over the prior year, having started the yeardown substantially. Marketing activities have been extended through thecreation of several regular direct mail publications aimed at new customersegments and low spending accounts. Asian product sourcing is also being usedto extend the business' own brand product range.In mainland Europe, Farnell InOne's sales rose 12.4% in the quarter, once againacting as the major source of sales growth for the division. Performance wasmore consistent across the region than earlier in the year, with strong growthcontinuing in Germany and particular improvement evident in the Nordics. Growthin sales was helped by the introduction of several customer loyalty campaignsand the closer coordination of marketing across all territories. The businessalso experienced a pronounced increase in sales of RoHS compliant products.Across Europe sales via the web continued to grow strongly. In aggregate, MDDEurope and Asia Pacific's sales over the web and via eProcurement agreementswere up by 60% and 21%, respectively in the quarter.Sales in Asia were up 26.2% in the fourth quarter and 13.3% in the year. Duringthe quarter, operations in Singapore, Malaysia and Hong Kong were brought ontothe division's common back office system. In addition, certain warehouseoperations in this region were rationalized to drive efficiency and service. Anew office was also opened in Puxi, Shanghai.In Australia, sales for the quarter continued to decline as total imports ofelectronic components into Australia fell markedly and the competitiveenvironment became increasingly difficult.Industrial Products Division Q4 05/6 Q4 04/5 FY 05/6 FY 04/5 ‚£m ‚£m ‚£m ‚£m Sales 29.0 23.9 107.6 96.7 Operating profit 4.4 3.0 14.1 12.9 Return on sales 15.2% 12.6% 13.1% 13.3% Sales growth 15.1% 9.2% The increase in the division's operating profits in the fourth quarterreflected the strong sales performance at both Akron Brass and TPC Wire &Cable.Akron BrassAkron Brass increased sales in the quarter by 37.8% compared with the sameperiod last year, following the acquisition of Weldon Technologies in June. Theintegration of Weldon is now complete, with sales of its products benefitingfrom active marketing through Akron Brass' sales team. Excluding theacquisition, sales were up 12.6% in the quarter and 7.5% in the year, withperformance in the quarter helped by a return to growth in the North Americanmunicipal fire-fighting market. International markets remained strong with agood order flow from both industrial and municipal applications. Operatingmargins were improved through advances in manufacturing efficiency, despite therising cost of brass ingot.TPC Wire & CableSales increased 13.9% in the quarter and 9.8% for the year when compared withthe equivalent periods last year. Despite continued raw material costpressures, margins improved as a result of selective price increases andchanging business mix. The success of the business' diversification strategycontinues as sales into new, non-automotive markets accelerated, up 45% onthose in the same quarter last year.KentKent's sales were up 3.1% in the fourth quarter, the business' strongestperformance in a year in which sales overall were flat on those of the prioryear. Whilst its markets remained weak, the business benefited from theintroduction during the quarter of new technology to assist its field salesteams operate more effectively.BoardThe Company announces that Michael Lester will be retiring from the Board witheffect from the end of Premier Farnell's Annual General Meeting on 13 June2006. Michael has been a non-executive director of the Company since 1998.During this period his counsel has been greatly valued by his colleagues on theBoard.As announced on 25 January 2006, Harriet Green will be joining the Board on 3April as Group Chief Executive and Andrew Fisher, Group Finance Director, willbe leaving the Board on 16 May after eleven years with the Company. On behalfof the Board, I thank Andrew for his distinguished service and wish him thebest in his future career. A search for Andrew's successor is underway.OutlookActions taken in the second half of the year to improve the Group's performancehave started to be rewarded as underlying return on sales advanced sequentiallyin both the third and fourth quarters. They create a stronger foundation fromwhich Harriet Green can pursue the opportunities available to the Group.Our electronics distribution businesses have continued to make good progress inpreparing for the implementation of the EU RoHS Directive on 1 July.Nevertheless, in order to manage a successful migration to compliance, aconsiderable amount of work remains to be done. The leadership position thatthey are establishing in this area is winning the support of suppliers and isbeing used as part of a wider drive to grow sales.The trading performance of the Group in the first few weeks of 2006/7 has beensatisfactory. We continue to plan on the basis of modest growth in our markets.Whilst maintaining tight control of cost, we are reinvesting selectively tosupport business development and growth opportunities.Sir Peter GershonExecutive Chairman16 March 2006This press release contains certain forward-looking statements relating to thebusiness of the Group and certain of its plans and objectives, including, butnot limited to, future capital expenditures, future ordinary expenditures andfuture actions to be taken by the Group in connection with such capital andordinary expenditures, the expected benefits and future actions to be taken bythe Group in respect of certain sales and marketing initiatives, operatingefficiencies and economies of scale. By their nature forward-looking statementsinvolve risk and uncertainty because they relate to events and depend oncircumstances that will occur in the future. Actual expenditures made andactions taken may differ materially from the Group's expectations contained inthe forward-looking statements as a result of various factors, many of whichare beyond the control of the Group. These factors include, but are not limitedto, actions taken in response to enactment of RoHS legislation, theimplementation of cost-saving initiatives to offset current market conditions,continued use and acceptance of e-commerce programs and systems and the impacton other distribution systems, the ability to expand into new markets andterritories, the implementation of new sales and marketing initiatives, changesin demand for electronic, electrical, electromagnetic and industrial products,rapid changes in distribution of products and customer expectations, theability to introduce and customers' acceptance of new services, products andproduct lines, product availability, the impact of competitive pricing,fluctuations in foreign currencies, and changes in interest rates and overallmarket conditions, particularly the impact of changes in world-wide andnational economies.CONSOLIDATED INCOME STATEMENTFor the fourth quarter and financial year ended 29th January 2006 2005/6 2004/5 2005/6 2004/5 Fourth Fourth Full full quarter quarter year year unaudited unaudited audited audited Notes ‚£m ‚£m ‚£m ‚£m Revenue 2 208.4 185.0 814.0 776.7 Cost of sales - before RoHS inventory (126.1) (109.7) (490.9) (462.2)provision - RoHS inventory provision 4 (6.6) - (6.6) - Total cost of sales (132.7) (109.7) (497.5) (462.2) Gross profit 75.7 75.3 316.5 314.5 Net operating expenses - before reorganisation costs (62.7) (58.6) (250.9) (242.0) - reorganisation costs 4 (3.9) - (5.3) - Total net operating expenses (66.6) (58.6) (256.2) (242.0) Operating profit - before RoHS inventory 19.6 16.7 72.2 72.5provision and reorganisation costs - RoHS inventory provision 4 (6.6) - (6.6) - - reorganisation costs 4 (3.9) - (5.3) - Total operating profit 2 9.1 16.7 60.3 72.5 Finance income (interest 0.2 0.1 0.4 0.3receivable) Finance costs - interest payable (3.9) (3.5) (14.4) (13.8) - preference dividends (1.7) - (6.7) - - premium on redemption of (0.4) - (1.5) -preference shares Total finance costs (6.0) (3.5) (22.6) (13.8) Profit before taxation 4 3.3 13.3 38.1 59.0 Taxation credit/(charge) 5 1.0 (0.9) (7.0) (14.0) Profit after taxation 4.3 12.4 31.1 45.0 Preference dividend - (1.7) - (6.6) Profit attributable to 4.3 10.7 31.1 38.4ordinary shareholders Earnings per share 6 Basic 1.2p 3.0p 8.6p 10.6p Diluted 1.2p 3.0p 8.6p 10.6p Ordinary dividends 12 Interim - proposed 4.0p 4.0p Final - proposed 5.0p 5.0p Paid 9.0p 9.0p Impact on shareholders' funds 32.6 32.6(‚£m) All activities in both the current and previous year relate to continuingoperationsCONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the fourth quarter and financial year ended 29th January 2006 2005/6 2004/5 2005/6 2004/5 Fourth Fourth Full full quarter quarter year year unaudited unaudited audited audited Notes ‚£m ‚£m ‚£m ‚£m Profit after taxation 4.3 12.4 31.1 45.0 Net exchange adjustments net 0.6 0.9 (4.5) 2.2of tax of ‚£3.1m (2004/5: ‚£ 1.6m) Actuarial losses on pensions (8.2) (15.0) (8.2) (15.0)and other post-retirement obligations Deferred tax on actuarial 2.4 5.2 2.4 5.2losses Net losses not recognised in 10 (5.2) (8.9) (10.3) (7.6)the income statement Total recognised (expense)/ (0.9) 3.5 20.8 37.4income for the period Effect of change in accounting 10 (111.0) -for preference shares (including deferred tax of ‚£ 4.7m) Total recognised (expense)/ (90.2) 37.4income since prior year CONSOLIDATED BALANCE SHEET As at 29th January 2006 29th 30th January January 2006 2005 audited audited Notes ‚£m ‚£m ASSETS Non-current assets Goodwill 50.0 47.5 Other intangible assets 27.5 28.8 Property, plant and equipment 67.3 69.5 Retirement benefit asset 52.0 44.3 Deferred tax assets 0.3 5.0 Total non-current assets 197.1 195.1 Current assets Inventories 163.2 158.1 Trade and other receivables 142.8 131.4 Cash and cash equivalents 8 40.5 27.9 Total current assets 346.5 317.4 LIABILITIES Current liabilities Financial liabilities 8 (92.8) (0.8) Trade and other payables (93.9) (89.3) Current tax payable (29.5) (40.6) Short-term provisions 9 (3.2) (0.1) Total current liabilities (219.4) (130.8) Net current assets 127.1 186.6 Non-current liabilities Financial liabilities 8 (277.8) (227.8) Retirement and other (38.5) (28.1)post-employment benefits Deferred tax liabilities (25.2) (22.4) Other provisions 9 (1.1) (0.9) Total non-current liabilities (342.6) (279.2) NET (LIABILITIES)/ASSETS (18.4) 102.5 EQUITY Ordinary shares 18.1 18.1 Equity element/nominal value of 19.9 7.6preference shares Share premium 20.5 20.2 Capital redemption reserve 0.8 0.8 Hedging reserve (0.2) - Cumulative translation reserve (2.3) 2.2 Retained earnings (75.2) 53.6 TOTAL EQUITY 10 (18.4) 102.5SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWSFor the fourth quarter and financial year ended 29th January 2006 2005/6 2004/5 2005/6 2004/5 Fourth Fourth Full full quarter quarter year year unaudited unaudited audited audited Notes ‚£m ‚£m ‚£m ‚£m Cash flows from operating activities Operating profit 9.1 16.7 60.3 72.5 Exceptional items: - income statement impact 10.5 - 11.9 - - cash impact (0.6) - (2.0) - Non-cash impact of exceptional 9.9 - 9.9 -items Depreciation and amortisation 5.1 5.0 21.0 19.7 Changes in working capital 0.2 7.5 (10.9) (19.9)(before exceptional items) Other non-cash movements (1.4) 0.6 (1.0) 0.2(before exceptional items) Cash generated from operations 7 22.9 29.8 79.3 72.5 Interest received 0.2 0.1 0.4 0.3 Interest paid (7.0) (6.7) (14.3) (13.7) Dividends paid on preference (3.3) (3.3) (6.7) (6.6)shares Taxation paid (3.0) (2.2) (14.3) (12.1) Net cash from operating 9.8 17.7 44.4 40.4activities Cash flows from investing activities Purchase of businesses 3 - - (7.6) (2.6) Proceeds from sale of - 0.8 1.1 1.0property, plant and equipment Purchase of property, plant (1.7) (1.0) (5.8) (6.5)and equipment Purchase of intangible assets (2.2) (2.4) (5.7) (6.8)(computer software) Net cash used in investing (3.9) (2.6) (18.0) (14.9)activities Cash flows from financing activities SEC de-registration costs - - (0.3) - Issue of ordinary shares - - 0.1 0.1 New bank loans - - 22.7 23.0 Repayment of bank loans (8.3) (17.7) (8.3) (17.7) Dividends paid to shareholders - - (32.6) (32.6) Net cash used in financing (8.3) (17.7) (18.4) (27.2)activities Net (decrease)/increase in (2.4) (2.6) 8.0 (1.7)cash, cash equivalents and bank overdrafts Cash, cash equivalents and 27.2 28.9bank overdrafts at beginning of year Exchange gains 0.4 - Cash, cash equivalents and 35.6 27.2bank overdrafts at end of year Reconciliation of net financial liabilities Net financial liabilities at (200.7) (201.9)beginning of year, as previously reported Implementation of accounting for financial instruments in accordance with IAS 39: - reclassification of 1 (106.3) -preference shares Net financial liabilities at (307.0) (201.9)beginning of year, as restated Net increase/(decrease) in 8.0 (1.7)cash, cash equivalents and bank overdrafts Increase in debt (14.4) (5.3) Premium on redemption of (1.5) -preference shares Derivative financial (0.2) -instruments Exchange movement (15.0) 8.2 Net financial liabilities at 8 (330.1) (200.7)end of year NOTES1 Adoption of International Financial Reporting Standards (IFRS)Basis of preparationPremier Farnell adopted IFRS with effect from 31st January 2005. Consequently,the financial information in this report has been prepared on the basis of theapplication of IFRS standards and interpretations in issue that have beenendorsed by the European Commission and are effective (or available for earlyadoption) at 29th January 2006, the Group's first annual reporting date underIFRS. In particular, the Group has, as permitted, early adopted the amendmentto IAS 19, Employee Benefits - Actuarial Gains and Losses, that was publishedby the International Accounting Standards Board in December 2004, and which wasadopted by the European Commission on 8th November 2005.The Group's principal accounting policies adopted in the preparation of thefinancial information in this report are included on pages 21 to 26.Comparative informationIFRS 1, First Time Adoption of IFRS, requires that most IFRS are appliedretrospectively, subject to certain exemptions that can be taken. Hence, thecomparative information included in these financial statements has beenrestated in accordance with IFRS. Reconciliations from UK GAAP to IFRS of theincome statement for the fourth quarter and financial year ended 30th January2005, and of the balance sheet as at 30th January 2005, are included on pages18 to 20. A reconciliation from UK GAAP to IFRS of the balance sheet as at 2ndFebruary 2004, the date of transition to IFRS, together with a more detailedexplanation of the changes made to the UK GAAP accounting policies disclosed inthe Group's 2005 Annual Report and Accounts, are given in the IFRS announcementmade by the Company on 4th May 2005, a copy of which is available on theCompany's web site at www.premierfarnell.com.IAS 32 and IAS 39From 31st January 2005, Premier Farnell implemented the following additionalchange in accounting policy as a result of adopting IAS 32 and IAS 39,accounting for financial instruments. This change is applied prospectively from31st January 2005, and therefore does not affect the comparative information.Prior to 31st January 2005, convertible, redeemable preference shares wereincluded within shareholders' funds and the preference dividend shown as adeduction from profit after tax. From 31st January 2005, IFRS requires suchpreference shares to be split into debt and equity components with thepreference dividend being reclassified as a finance cost. The fair value of thedebt element is established on issue of the shares, based on the discountedcash flows of the instrument to the date of maturity, and is then increasedeach year on a straight line basis through the income statement in order toarrive at the redemption amount payable on maturity of the shares. The equitycomponent is ‚£19.9 million and will only change as and when shares areredeemed.At 29th January 2006, the debt element of the preference shares was ‚£110.2million (31st January 2005: ‚£106.3 million). The amortisation charge relatingto the implied redemption premium for the year ended 29th January 2006 was ‚£1.5million.Cash flowsThe transition from UK GAAP to IFRS does not change the reported cash flows ofthe Group. An IFRS cash flow statement is similar to UK GAAP but presentsvarious cash flows in different categories and in a different order from UKGAAP. All of the IFRS adjustments noted on pages 18 to 20 net out within cashgenerated from operations except for the intangible assets reclassificationwhere the cash used to purchase computer software has been reclassified frompurchase of property, plant and equipment to purchase of intangible assets.Segment reportingIAS 14, Segment Reporting, does not change the Group's reportable segments fromthose reported under UK GAAP. The Group's business segments under UK GAAP willbe the primary reporting segments under IAS 14.2 Segment Information 2005/6 2004/5 2005/6 2004/5 Fourth Fourth Full Full quarter quarter year year unaudited unaudited audited audited ‚£m ‚£m ‚£m ‚£m Revenue Marketing and Distribution Division Americas 80.5 67.2 310.0 289.8 Europe and Asia 98.9 93.9 396.4 390.2 Pacific Total Marketing and 179.4 161.1 706.4 680.0 Distribution Division Industrial Products 29.0 23.9 107.6 96.7 Division 208.4 185.0 814.0 776.7 Operating profit Marketing and Distribution Division Americas - before RoHS inventory 7.2 5.7 27.1 25.5 provision and reorganisation costs - RoHS inventory (4.2) - (4.2) - provision (note 4) - reorganisation costs - - (0.7) - (note 4) 3.0 5.7 22.2 25.5 Europe and Asia Pacific - before RoHS inventory 10.8 10.2 41.5 43.8 provision and reorganisation costs - RoHS inventory (2.4) - (2.4) - provision (note 4) - reorganisation costs (3.9) - (4.4) - (note 4) 4.5 10.2 34.7 43.8 Total Marketing and 7.5 15.9 56.9 69.3 Distribution Division Industrial Products 4.4 3.0 14.1 12.9 Division Head Office costs - before (2.8) (2.2) (10.5) (9.7) reorganisation costs - reorganisation costs - - (0.2) - (note 4) (2.8) (2.2) (10.7) (9.7) 9.1 16.7 60.3 72.5 3 AcquisitionsOn 20th June 2005, the Group acquired Weldon Technologies Inc. (Weldon), a USbased company that produces lighting devices and electrical control solutionsfor speciality vehicle markets.On 28th June 2005, the Group acquired the business and assets of R&RInstrumentation (R&R), a US based distributor of test equipment and panelinstruments.The consideration and fair values of the net assets acquired are as follows: Weldon R&R Total ‚£m ‚£m ‚£m Intangible assets 3.5 - 3.5 Property, plant and 0.8 1.1 1.9 equipment Deferred taxation (1.3) - (1.3) Other assets (net) 1.0 0.2 1.2 Fair values of net 4.0 1.3 5.3 assets acquired Goodwill 1.9 0.4 2.3 Cash consideration 5.9 1.7 7.6 (including costs) Weldon contributed ‚£5.6 million of sales and ‚£0.8 million of operating profitto the Industrial Products Division in the financial year. R&R contributed ‚£2.3million of sales to the MDD Americas Division in the financial year. Theoperating result of R&R in the financial year was not significant.4 Profit before taxationProfit before taxation is stated after charging/(crediting): 2005/6 2004/5 2005/6 2004/5 Fourth Fourth Full Full quarter quarter year year unaudited unaudited audited audited ‚£m ‚£m ‚£m ‚£m Share-based payments 0.5 0.7 2.1 2.8 Defined benefit (1.5) (0.6) (2.5) (2.7) pension schemes (net) Severance costs - - 0.5 - (Group Chief Executive) RoHS inventory 6.6 - 6.6 - provision Reorganisation costs 3.9 - 5.3 - Provision has been made of ‚£6.6 million for obsolete and slow movingnon-compliant inventory as a result of the European Union's Directive relatingto the Restriction of the use of certain Hazardous Substances (RoHS).Reorganisation costs comprise ‚£1.4 million charged in the third quarter forseverance costs relating to the Group's redundancy programme, and ‚£3.9 millioncharged in the fourth quarter relating to the restructuring of the BuckHickmanInOne business.5 TaxationThe taxation charge comprises a current year tax charge of ‚£8.3 million (2004/5: ‚£16.6 million), which represents an effective rate of 18.5% (2004/5: 28.1%)based on profit before tax and preference dividends. A credit arose in respectof prior years of ‚£1.3 million (2004/5: ‚£2.6 million).6 Earnings per shareBasic earnings per share is calculated by dividing the profit attributable toordinary shareholders for the period by the weighted average number of ordinaryshares in issue during the period, excluding those shares held by the PremierFarnell Executive Trust. For diluted earnings per share, the weighted averagenumber of ordinary shares in issue is adjusted to assume issue of all dilutivepotential ordinary shares, being those share options granted to employees wherethe exercise price is less than the average market price of the Company'sordinary shares during the period. At 29th January 2006 and 30th January 2005,the performance criteria for the vesting of the awards under the Company's LongTerm Incentive Scheme had not been met and, consequently, the shares inquestion are excluded from the diluted earnings per share calculation.Reconciliations of earnings and the weighted average number of ordinary sharesused in the calculations are set out below. Earnings Basic Diluted per Earnings Basic Diluted per 2005/6 per share 2004/5 per share audited share amount audited share amount amount 2005/6 amount 2004/5 2005/6 audited 2004/5 audited audited audited ‚£m pence pence ‚£m pence pence Profit attributable 31.1 8.6 8.6 38.4 10.6 10.6to ordinary shareholders RoHS inventory 6.6 1.8 1.8 - - -provision Tax attributable to (2.2) (0.6) (0.6) - - -RoHS inventory provision Reorganisation costs 5.3 1.5 1.5 - - - Tax attributable to (1.6) (0.5) (0.5) - - -reorganisation costs Premium on 1.5 0.4 0.4 - - -redemption of preference shares Tax attributable to premium on redemption of preference shares (0.4) (0.1) (0.1) - - - Profit attributable 40.3 11.1 11.1 38.4 10.6 10.6to ordinary shareholders before RoHS inventory provision, reorganisation costs and premium on redemption of preference shares 2005/6 2004/5 Number Number Weighted average 362,729,711 362,664,115number of shares Dilutive effect of 376,557 1,042,844share options Diluted weighted 363,106,268 363,706,959average number of shares Earnings per share before RoHS inventory provision, reorganisation costs andpremium on redemption of preference shares have been provided in order tofacilitate year on year comparison.7 Cash generated from operations 2005/6 2004/5 Full Full year year audited audited ‚£m ‚£m Profit attributable to 31.1 38.4ordinary shareholders Adjustment for: - tax 7.0 14.0 - depreciation 9.7 8.4 - amortisation of 11.3 11.3intangible assets - profit on sale of (0.1) (0.1)property, plant and equipment - preference dividends 6.7 6.6 - interest income (0.4) (0.3) - interest expense 14.4 13.8 - premium on redemption 1.5 -of preference shares - decrease in net (3.1) (3.4)pension asset - increase in other 0.1 0.9post-retirement obligations - increase in 3.3 -reorganisation provision - share-based payments 2.1 2.8 Changes in working capital (excluding the effect of acquisitions): - decrease/(increase) in inventories - before RoHS inventory (5.4) (8.8)provision - RoHS inventory 6.6 -provision - total decrease/ 1.2 (8.8)(increase) in inventories - increase in trade and (6.0) (9.0)other receivables - increase/(decrease) in 0.5 (2.1)trade and other payables Cash generated from 79.3 72.5operations 8 Net financial liabilities 29th 30th January January 2006 2005 audited audited ‚£m ‚£m Cash and cash 40.5 27.9equivalents Unsecured loans and (260.2) (228.6)overdrafts Net financial (219.7) (200.7)liabilities before preference shares and derivatives Preference shares (note (110.2) -1) Derivative financial (0.2) -instruments Net financial (330.1) (200.7)liabilities Net financial liabilities are analysed in the balance sheet as follows Current assets Cash and cash 40.5 27.9equivalents Current liabilities Bank overdrafts (4.9) (0.7) 7.2% US dollar (87.6) -Guaranteed Senior Notes payable 2006 Other loans (0.1) (0.1) Derivative financial (0.2) -instruments (92.8) (0.8) Non-current liabilities Bank loans (37.9) (23.6) 7.2% US dollar - (82.4)Guaranteed Senior Notes payable 2006 5.3% US dollar (37.3) (35.1)Guaranteed Senior Notes payable 2010 5.9% US dollar (89.8) (84.6)Guaranteed Senior Notes payable 2013 Other loans (2.6) (2.1) Preference shares (110.2) - (277.8) (227.8) At 29th January 2006, the Group had unutilised committed five year bank facilities of ‚£164.5 million which expire in 2010 9 Provisions 29th 30th January January 2006 2005 audited audited ‚£m ‚£m Current: - reorganisation costs 3.1 - - dilapidation costs 0.1 0.1 Non-current: - reorganisation costs 0.2 - - dilapidation costs 0.9 0.9 4.3 1.0 10 Consolidated statement of changes in shareholders' equity 2005/6 2004/5 Full Full year year audited audited ‚£m ‚£m Total equity at 102.5 101.4beginning of year, as previously reported Implementation of accounting for financial instruments in accordance with IAS 32 and IAS 39: - reclassification of (106.3) -preference shares as debt (note 1) - associated deferred (4.7) -tax Total equity at (8.5) 101.4beginning of year, as restated Profit after taxation 31.1 45.0 Net gains and losses (10.3) (7.6)recognised directly in equity Ordinary dividends (32.6) (32.6)declared Preference dividends - (6.6) Ordinary shares issued 0.3 0.1 Share-based payments 2.1 2.8 Derivative financial (0.2) -instruments SEC de-registration (0.3) -costs Total equity at end of (18.4) 102.5year 11 Exchange rates The principal average exchange rates used to translate the Group's overseas profits were as follows: 2005/6 2004/5 2005/6 2004/5 Fourth Fourth Full Full quarter quarter year year US dollar 1.74 1.90 1.80 1.84 Euro 1.46 1.43 1.46 1.47 12 Ordinary dividendThe directors are proposing a final dividend in respect of the year ended 29thJanuary 2006, of 5.0p per share which will absorb ‚£18.1 million ofshareholders' funds. As this final dividend is subject to approval at theAnnual General Meeting of the Company, to be held on 13th June 2006, it has notbeen provided for at 29th January 2006. Once approved, the final dividend willbe paid on 21st June 2006 to shareholders on the register of members on 26thMay 2006.13 Annual Report and AccountsThis financial information does not constitute the Group's 2006 statutoryaccounts within the meaning of the Companies Act 1985. The Group's 2006statutory accounts, prepared in accordance with IFRS and on which the Company'sauditors, PricewaterhouseCoopers LLP, have given an unqualified opinion inaccordance with Section 235 of the Companies Act 2005, are to be delivered tothe Registrar of Companies. The Group's 2005 statutory accounts, prepared inaccordance with UK GAAP, have been filed with the Registrar of Companies. Theauditors report on these accounts was unqualified and did not include astatement under Section 237(2) or (3) of the Companies Act 1985.Copies of the Group's Annual Report and Accounts will be posted to allshareholders no later than 8th May 2006. Additional copies will be availablefrom Premier Farnell plc, 150 Armley Road, Leeds, LS12 2QQ.CONSOLIDATED INCOME STATEMENT RECONCILIATIONS Fourth quarter ended UK GAAP IFRS adjustments IFRS30th January 2005 Unaudited (IFRS Goodwill Share-based Pensions format) payments ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 185.0 - - - 185.0 Cost of sales (109.7) - - - (109.7) Gross profit 75.3 - - - 75.3 Total operating (58.1) 0.6 (0.7) (0.4) (58.6)expenses Operating profit 17.2 0.6 (0.7) (0.4) 16.7 Net finance cost (3.4) - - - (3.4) Profit before 13.8 0.6 (0.7) (0.4) 13.3taxation Taxation (0.3) - (0.7) 0.1 (0.9) Profit after taxation 13.5 0.6 (1.4) (0.3) 12.4 Preference dividends (1.7) - - - (1.7) Profit attributable 11.8 0.6 (1.4) (0.3) 10.7to ordinary shareholders Earnings per share Basic 3.3p 0.2p (0.4)p (0.1)p 3.0p Diluted 3.3p 0.2p (0.4)p (0.1)p 3.0p Financial year ended UK GAAP IFRS adjustments IFRS30th January 2005 Audited (IFRS Goodwill Share-based Pensions format) payments ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 776.7 - - - 776.7 Cost of sales (462.2) - - - (462.2) Gross profit 314.5 - - - 314.5 Total operating (240.7) 2.7 (2.4) (1.6) (242.0)expenses Operating profit 73.8 2.7 (2.4) (1.6) 72.5 Net finance cost (13.5) - - - (13.5) Profit before 60.3 2.7 (2.4) (1.6) 59.0taxation Taxation (13.8) - (0.7) 0.5 (14.0) Profit after taxation 46.5 2.7 (3.1) (1.1) 45.0 Preference dividends (6.6) - - - (6.6) Profit attributable 39.9 2.7 (3.1) (1.1) 38.4to ordinary shareholders Earnings per share Basic 11.0p 0.8p (0.9)p (0.3)p 10.6p Diluted 11.0p 0.8p (0.9)p (0.3)p 10.6p A brief explanation of the significant changes in accounting policies toreflect IFRS is given below. Full details are included in the Company's IFRSannouncement made on 4th May 2005, a copy of which is available on theCompany's web site.GoodwillUK GAAP requires goodwill on acquisitions to be amortised over its estimateduseful life. Under IFRS, goodwill is considered to have an indefinite life andso is not amortised. Instead, goodwill is subject to an annual test forimpairment and is carried at cost less accumulated impairment losses.Share-based paymentsUnder UK GAAP, the expense in respect of share options, long-term incentiveplans and save as you earn schemes was based on the intrinsic value of theaward, being the difference between the exercise price and the market price ofthe instrument at the date of the award. Save as you earn schemes werespecifically exempt from such a charge.Under IFRS 2, an expense is recognised for all share-based payments, includingsave as you earn schemes, over the vesting period. The expense is based on thefair value of the benefit awarded using option pricing models appropriate forthe type of scheme concerned.PensionsUnder UK GAAP, Premier Farnell accounted for pensions in accordance with SSAP24 which adopted an income statement driven approach to valuing pensions. SSAP24 did not require any pension scheme surpluses or deficits to be included onthe balance sheet except when fair valuing pension schemes on acquisitions.IAS 19 is fundamentally different to SSAP 24 and adopts a balance sheet drivenapproach with market based measures. All pension scheme surpluses and deficitsare required to be recognised on the balance sheet. The asset/liabilityrecognised on the balance sheet represents the present value of the definedbenefit obligation at the balance sheet date less the fair value of planassets. Changes in actuarial assumptions are recognised in the statement ofrecognised income and expense.SEGMENTAL OPERATING PROFIT RECONCILIATIONS Fourth quarter ended 30th January 2005 Unaudited UK GAAP IFRS IFRS adjustments ‚£m ‚£m ‚£m Marketing and Distribution Division Americas 6.3 (0.6) 5.7 Europe and Asia Pacific before amortisation of goodwill 10.3 (0.1) 10.2 amortisation of goodwill (0.6) 0.6 - 9.7 0.5 10.2 Total Marketing and Distribution 16.0 (0.1) 15.9Division Industrial Products Division before amortisation of goodwill 3.2 (0.2) 3.0 amortisation of goodwill - - - 3.2 (0.2) 3.0 Head Office costs (2.0) (0.2) (2.2) 17.2 (0.5) 16.7 Financial year ended 30th IFRS January 2005 Audited UK GAAP adjustments IFRS ‚£m ‚£m ‚£m Marketing and Distribution Division Americas 27.7 (2.2) 25.5 Europe and Asia Pacific before amortisation of goodwill 44.1 (0.3) 43.8 amortisation of goodwill (2.6) 2.6 - 41.5 2.3 43.8 Total Marketing and Distribution 69.2 0.1 69.3Division Industrial Products Division before amortisation of goodwill 13.5 (0.6) 12.9 amortisation of goodwill (0.1) 0.1 - 13.4 (0.5) 12.9 Head Office costs (8.8) (0.9) (9.7) 73.8 (1.3) 72.5 CONSOLIDATED BALANCE SHEET RECONCILIATION AS AT 30TH JANUARY 2005 Audited UK GAAP IFRS adjustments (IFRS Goodwill Share-based Pensions Taxation Reclass- Ordinary IFRS format) payments ifications dividend ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ASSETS Non-current assets Goodwill 44.8 2.7 - - - - - 47.5 Other intangible - - - - - 28.8 - 28.8assets Property, plant and 98.3 - - - - (28.8) - 69.5equipment Retirement benefit 81.9 - - (37.6) - - - 44.3asset Deferred tax assets - - 0.1 6.5 - (1.6) - 5.0 Total non-current 225.0 2.7 0.1 (31.1) - (1.6) - 195.1assets Current assets Inventories 158.1 - - - - - - 158.1 Trade and other 131.4 - - - - - - 131.4receivables Cash and cash 27.9 - - - - - - 27.9equivalents Total current assets 317.4 - - - - - - 317.4 LIABILITIES Current liabilities Financial liabilities (0.8) - - - - - - (0.8) Trade and other (108.4) - - 1.0 - - 18.1 (89.3)payables Current tax payable (40.6) - - - - - - (40.6) Short-term provisions - - - - - (0.1) - (0.1) Total current (149.8) - - 1.0 - (0.1) 18.1 (130.8)liabilities Net current assets 167.6 - - 1.0 - (0.1) 18.1 186.6 Non-current liabilities Financial liabilities (227.8) - - - - - - (227.8) Retirement and other post-employment (5.5) - - (22.6) - - - (28.1)benefits Deferred tax (36.7) - 0.1 14.0 (1.4) 1.6 (22.4)liabilities Other provisions (1.0) - - - - 0.1 - (0.9) Total non-current (271.0) - 0.1 (8.6) (1.4) 1.7 - (279.2)liabilities NET ASSETS 121.6 2.7 0.2 (38.7) (1.4) - 18.1 102.5 EQUITY Ordinary shares 18.1 - - - - - - 18.1 Nominal value of 7.6 - - - - - - 7.6preference shares Share premium 20.2 - - - - - - 20.2 Capital redemption 0.8 - - - - - - 0.8reserve Cumulative - - - 0.5 - 1.7 - 2.2translation reserve Retained earnings 74.9 2.7 0.2 (39.2) (1.4) (1.7) 18.1 53.6 TOTAL EQUITY 121.6 2.7 0.2 (38.7) (1.4) - 18.1 102.5 A brief explanation of the significant changes in accounting policies toreflect IFRS is given on page 18 and below. Full details are included in theCompany's IFRS announcement made on 4th May 2005, a copy of which is availableon the Company's web site.TaxationUnder UK GAAP, deferred taxation is recognised on the basis of timingdifferences, being the difference between accounting profit and taxable profit.IFRS requires deferred taxation to be based on temporary differences, being thedifference between the carrying value of an asset or liability and its taxbase.ReclassificationsUnder UK GAAP, capitalised computer software is included within tangible fixedassets as plant and equipment. Under IFRS, capitalised computer software isrecorded as an intangible asset. There is no income statement impact as aresult of this reclassification since, under both UK GAAP and IFRS, computersoftware is written down over its estimated useful life.Ordinary dividendUK GAAP requires ordinary dividends to be accounted for in the period to whichthey relate. Under IFRS, proposed ordinary dividends do not meet the definitionof a liability until they are approved at the AGM or Board Meeting.ACCOUNTING POLICIESThe Group's principal accounting policies adopted in the preparation of thefinancial information in this report are noted below.First time adoption of IFRSIFRS 1, First Time Adoption of IFRS (revised 2004), has been applied. IFRS 1permits companies adopting IFRS for the first time to take exemptions fromapplying the full requirements of IFRS to certain items. In preparing thisfinancial information, the Group has taken the following exemptions:Business combinationsBusiness combinations prior to the Group's transition date to IFRS (2ndFebruary 2004) have not been restated on to an IFRS basis.Employee benefitsAll cumulative actuarial gains and losses relating to employee benefit schemeshave been recognised in equity at the date of transition to IFRS.Cumulative translation differenceIFRS requires amounts taken to reserves on the retranslation of foreignsubsidiaries to be recorded in a separate translation reserve. The Group hastaken the option to assume that cumulative translation differences are set tozero at the transition date.Financial instrumentsAs permitted, the implementation of IAS 32, Financial Instruments: Disclosureand Presentation, and IAS 39, Financial Instruments: Recognition andMeasurement, was adopted prospectively from 31st January 2005. As a result,financial instruments for the year ended 30th January 2005 have been accountedand presented in accordance with UK GAAP. The main impact of this exemption isthat the Group's cumulative, convertible, redeemable preference sharescontinued to be classified as shareholders' funds during the year ended 30thJanuary 2005. Effective 31st January 2005, these preference shares were splitinto debt and equity components in accordance with IAS 39, and the preferencedividend reclassified as a finance cost.Share-based paymentsThe Group has chosen not to adopt the exemption to apply IFRS 2, Share-BasedPayment, only to awards made after 7th November 2002. A full retrospectiveapproach has been followed on all awards granted but not vested at the date oftransition.Early adoption of standardsThe Group has early adopted IAS 19 (revised 2004), Employee Benefits, whichallows actuarial gains and losses to be accounted for through the Statement ofRecognised Income and Expense (see post-retirement benefits below).Basis of consolidationThe consolidated financial information incorporates the results of the Companyand each of its subsidiaries for the financial year ended 29th January 2006.Subsidiaries are entities controlled by the Group where control is deemed toexist when the Group has the power, directly or indirectly, to govern thefinancial and operating policies of an entity so as to obtain benefits from itsactivities. The results of subsidiaries are included in the consolidatedfinancial information from the date the control commences until the date thatcontrol ceases.Intra-group balances and transactions are eliminated on consolidation.Business combinations and goodwillAll business acquisitions are accounted for by applying the purchase method.Goodwill arises where the fair value of the consideration paid exceeds the fairvalue attributed to the net assets acquired. Goodwill arising on acquisitionsafter 1st February 1998 and prior to the transition date to IFRS wascapitalised and amortised over its estimated useful life. As a result of thetransition to IFRS, such amortisation ceased on the transition date to IFRS.Goodwill arising on acquisitions made prior to 1st February 1998 was writtenoff directly to reserves in the year of acquisition. Under IFRS 1 and IFRS 3such goodwill will remain eliminated against reserves and will not be writtenback to the income statement in the event of a disposal.Revenue recognitionRevenue comprises the fair value for the sale of goods to outside customers,excluding value added and sales taxes, and is recognised when the significantrisks and rewards of ownership have been transferred to a third party.Segment reportingA segment is a distinguishable component of the Group that is engaged inproviding products (business segment), or in providing products within aparticular economic environment (geographic segment), and where the risks andreturns are different between components.Catalogue and advertising costsCatalogue costs are expensed over the life of the catalogue up to a maximumperiod of one year. Advertising costs are expensed as incurred.Expense classificationCost of sales comprises the cost of goods delivered to customers including thecost of freight, packaging and inventory adjustments.Operating expenses represent all operating expenses including sales, marketing,product and purchasing, warehousing, information technology and eCommerce, andadministrative expenses.Foreign currency translationItems included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ("the functional currency"). The consolidated financialinformation is presented in sterling, which is the Company's functional andpresentation currency.Assets and liabilities are translated at the exchange rates ruling at the endof the financial period. Exchange profits or losses on trading transactions areincluded in the Group income statement except when deferred in equity asqualifying cash flow hedges or qualifying net investment hedges, which, alongwith other exchange differences arising from non-trading items are dealt withthrough reserves.The results and financial position of all the Group entities that have afunctional currency different from the presentation currency are translatedinto the presentation currency as follows:assets and liabilities for each balance sheet presented are translated at theclosing rate at the date of that balance sheet;income and expenses for each income statement are translated at the averageexchange rate for the period; andwith effect from the transition date to IFRS, all resulting exchangedifferences are recognised as a separate component of equity and included inthe Group's cumulative translation reserve. When a foreign entity is sold, suchtranslation differences are recognised in the income statement as part of thegain or loss on sale.Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate.Financial instrumentsThe Group uses derivative financial instruments to hedge its exposure toforeign exchange and interest rate risks arising from operational, financingand investment activities. In accordance with its treasury policy, the Groupdoes not have or issue speculative derivative arrangements. All transactions infinancial instruments are matched to an underlying business requirement.Derivative financial instruments are initially recognised at cost. Subsequentto initial recognition they are stated at fair value. The gain or loss onre-measurement to fair value is recognised in the income statement. However,where derivatives qualify for hedge accounting, recognition of any resultinggain or loss will depend upon the nature of the item being hedged (seeaccounting policy on hedging).The fair value of forward currency contracts has been determined based uponmarket forward exchange rates at the balance sheet date. The fair value ofshort-term deposits, loans and overdrafts with maturities of less than one yearare assumed to approximate to their book values.The fair value of the Group's US$ Guaranteed Senior Notes has been estimatedusing quoted market prices for similar instruments.The fair value of the Group's preference shares is based on the quoted marketprice.HedgingCashflow hedgesWhere a derivative financial instrument is designated as a hedge of thevariability in cash flows of a recognised asset or liability, or highlyprobable forecast transaction, the effective part of any gain or loss on thederivative financial instrument is recognised directly in equity. If a hedge ofa forecast transaction subsequently results in the recognition of a financialasset or liability, the associated gains or losses that were recogniseddirectly in equity are reclassified into profit or loss in the same period(s)during which the interest income/expense is recognised. For other cashflowhedges, the associated cumulative gain or loss is removed from equity andrecognised in the income statement in the same period(s) as which the hedgedforecast transaction affects profit or loss. The gain or loss on anyineffective part of the hedge is immediately recognised in the incomestatement.Hedge of net investment in foreign operationsThe portion of the gain or loss on an instrument used to hedge a net investmentin a foreign operation that is determined as an effective hedge is recogniseddirectly in equity. The gain or loss on any ineffective portion of the hedge isrecognised immediately in the income statement.LeasesThe costs of operating leases are charged to the income statement as they falldue.Dilapidation provisionsThe Group is required to perform dilapidation repairs on leased propertiesprior to the properties being vacated at the end of their lease term. Provisionfor such costs are made where a legal obligation is identified and theliability can be reasonably quantified.Property, plant and equipmentProperty, plant and equipment are stated at cost. Depreciation is calculated towrite off the cost of the individual assets, less the estimated residual value,from the time it becomes operational by equal annual instalments over theirestimated useful lives. Assets lives and residual values are reviewed annually.Depreciation rates are principally as follows:Freehold land: not depreciatedFreehold building: 50 yearsPlant and equipment: between 5 and 10 yearsProperty, plant and equipment is reviewed for impairment when there areindications that the carrying value may not be recoverable.Interest is not capitalised.Intangible assetsComputer software is capitalised on the basis of the costs incurred to acquireand bring to use the specific software and includes capitalised internal labourwhere appropriate. These costs are amortised on a straight line basis overtheir estimated useful lives, between three and five years.Other intangible assets acquired through business combinations are recognisedat fair value on acquisition and amortised on a straight line basis over theirestimated useful lives. The estimated useful lives are as follows:Contractually-based customer relationships 20 yearsPatents 18 yearsTrade names acquired are not amortised as they are deemed to have an indefinitelife.ImpairmentThe carrying amounts of the Group's goodwill and indefinite lived intangibleassets are reviewed annually, or when there are indications that the carryingvalue may not be recoverable, to determine whether there is any indication ofimpairment. Goodwill is allocated to income generating units for the purpose ofimpairment testing. If any such indication exists, the assets recoverableamount is estimated and if the carrying value exceeds the recoverable amount, aloss is recognised in the income statement. The recoverable amount is thegreater of the assets' net selling price and value in use where value in use isbased on the present value of the estimated future cashflows arising from theasset.A financial asset or a group of financial assets is impaired and impairmentlosses are incurred if there is objective evidence of impairment as a result ofa past event subsequent to the asset's initial recognition. The Group assesseswhether objective evidence exists for each financial asset or group offinancial assets at the balance sheet date to determine whether any impairmenthas arisen.Post-retirement benefitsThe Group accounts for pensions and other post-retirement benefits inaccordance with IAS 19 (revised 2004), Employee Benefits. Calculations areperformed annually using a qualified actuary.PensionsThe Group operates both defined benefit and defined contribution pension plans.In respect of defined benefit plans (where the amount of pension is defined,usually based on factors such as age, years of service and compensation), thenet asset or obligation of each plan at the balance sheet date is calculated bya qualified actuary using the projected unit credit method. The obligation iscalculated by discounting the amount of future benefits that employees haveearned in return for their service in the current and prior periods. Anallowance is made for scheme expenses and non-service related benefits. Planassets are recorded at fair value. The net income statement credit/chargecomprises principally the service cost, which is spread systematically over thelives of the employees, and the finance income/costs, which are recognised inthe period in which they arise. The net income statement impact is credited/charged in arriving at operating profit.All actuarial gains and losses at the date of transition to IFRS have beenrecognised in equity at that date. Following the early adoption of IAS 19(revised 2004), actuarial gains and losses that arise subsequent to the date oftransition to IFRS in calculating the Group's obligation in respect of eachplan, are recognised in the Statement of Recognised Income and Expense.Payments to defined contribution pension plans (where the Group pays fixedcontributions into a separate entity) are charged as an expense as they falldue.Other post-retirement benefitsIn the US, the Group provides unfunded post-retirement medical benefits tocertain US employees. The expected costs of these benefits are accrued over theperiod of employment using an accounting methodology similar to that fordefined benefit pension plans. Actuarial gains and losses are recognised in theStatement of Recognised Income and Expense.Share-based paymentsThe Group operates three share-based incentive schemes: an executive shareoption scheme, a long-term incentive plan (LTIP) and a save as you earn (SAYE)scheme. These are accounted for in accordance with IFRS 2, Share-based payment,which requires an expense to be recognised in the income statement for allthree schemes over the vesting period. The expense is based on the fair valueof each instrument at the grant date, using option pricing models. The expenseis credited to retained earnings.For valuation of share options the Binominal Lattice model is used and, as theperformance measure is non-market based (earnings per share growth), the valueof the expense is adjusted to reflect expected and actual levels of vesting.For the LTIP, the Monte Carlo model is used and, as the performance conditionsare market-based (share price performance relative to the FTSE mid-250 Index),the expense is not adjusted except for forfeitures. The fair value of SAYEgrants are calculated using the Black Scholes model and the expense is onlyadjusted to reflect forfeitures.The Group has chosen not to adopt the exemption under IFRS 1 relating toshare-based payments. Consequently, in calculating the expense, a fullretrospective approach has been followed on all awards granted but not vestedat the date of transition to IFRS.Share capitalOrdinary share capital is classified as equity and dividends are recognised asa liability in the period in which they are approved.Prior to 31st January 2005 the Group's cumulative, convertible, redeemablepreference shares were classified as equity and the associated dividendrecognised on an accruals basis as a deduction to profit after tax. With effectfrom 31st January 2005, following the adoption of IAS 39, the Group'spreference shares are split into debt and equity components, with theassociated dividend being recognised on an accrual basis in the incomestatement as a finance cost. The fair value of the debt element is establishedon issue of the shares, based on the discounted cash flows of the instrument tothe date of maturity, and is then increased each year on a straight line basisthrough the income statement in order to arrive at the redemption amountpayable on maturity of the shares. The equity component will only change as andwhen shares are redeemed.InventoriesInventories are stated at the lower of cost and net realisable value on a firstin first out basis. Cost comprises all expenditure, including relatedproduction overheads where appropriate, incurred in the normal course ofbusiness in bringing the inventory to its present location and condition at thebalance sheet date. Net realisable value is the estimated selling price lessany selling costs. Provision is made against slow moving and obsolete inventorywhere appropriate.Taxation including deferred taxIncome tax on the profit or loss for the year comprises current and deferredtax. Income tax is recognised in the income statement except to the extent thatit relates to items recognised directly in equity, in which case it isrecognised in equity.Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantially enacted at the balance sheet date, andany adjustment to tax payable in respect of previous years.Deferred tax is provided using the balance sheet liability method, providingfor temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and the amounts used for taxationpurposes. The following temporary differences are not provided for: goodwillnot deductible for tax purposes, the initial recognition of assets orliabilities that affect neither accounting nor taxable profit, and differencesrelating to investments in subsidiaries to the extent that they will probablynot reverse in the foreseeable future. The amount of deferred tax provided isbased on the expected manner of realisation or settlement of the carryingamount of assets and liabilities, using tax rates enacted or substantiallyenacted at the balance sheet date.A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realised.Additional income taxes that arise from the distribution of dividends arerecognised at the same time as the liability to pay the related dividend.Investment in own sharesShares acquired by the Premier Farnell Performance Share Plan are shown as areduction in shareholders' funds. The cost of administering the trust are borneby the Company as incurred.Trade and other receivablesTrade and other receivables are stated at cost less any provision forimpairment.Trade and other payablesTrade and other payables are stated at cost.Cash and cash equivalentsCash and cash equivalents comprise cash balances and short term depositsrepayable on demand and available within one day without penalty. Bankoverdrafts that are repayable on demand and form an integral part of theGroup's cash management are included as a component of cash and cashequivalents for the purpose of the cash flow statement.Research and developmentExpenditure on research activities undertaken with the prospect of gaining newtechnical knowledge and understanding is expensed in the income statement asincurred.ENDPREMIER FARNELL PLCRelated Shares:
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