30th May 2007 07:01
Electrocomponents PLC30 May 2007 Embargoed to 7:00am, Wednesday 30 May 2007 PRELIMINARY STATEMENT Electrocomponents plc, the leading international high service distributor ofelectronic, electrical and industrial supplies, today announces its results forthe year ended 31 March 2007. SUMMARY RESULTS 2007 2006Revenue £877.5m £828.5mProfit before tax - headline £84.4m £72.8mProfit before tax - reported £85.2m £65.1mEarnings per share - headline 12.8p 11.2pEarnings per share - reported 12.9p 10.0pDividend per share 18.4p 18.4p HIGHLIGHTS OF THE YEAR• Continued strong revenue growth in our International Business of 15% with all regions showing higher growth year on year.• The UK growing revenue by 2% with the new strategy delivering results.• e-Commerce growing by 23% and now accounting for 28% of Group revenue.• The implementation of our EEM strategy is contributing to sales growth.• Gross margin stabilising during the year with strong gross profit growth across the regions.• Significant operating cost leverage in the International business and Processes.• Annualised cost reductions of £7.6m now achieved.• The roll out of EBS is now complete.• Headline profit before tax growth of 16%.• Dividend maintained at 18.4p. THE PLAN FOR THE COMING YEAR• Continued implementation of our strategy to drive sales growth.• Supporting the recent EBS roll outs and realising the benefits of an integrated system.• Continuing to develop our e-Commerce channel.• Completing the Allied warehouse move successfully.• Further action to reduce the Group's cost base. HELMUT MAMSCH, CHAIRMAN, COMMENTED:"This has been a year of good progress with increased sales and profits. Allthree pillars of the strategy are delivering: EEM is contributing to salesgrowth, the rollout of EBS in Europe is now complete and 75% of the targetedcost reductions have been delivered." Enquiries:Helmut Mamsch, Chairman Electrocomponents plc 0207 567 8000*Ian Mason, Group Chief Executive Electrocomponents plc 0207 567 8000*Simon Boddie, Group Finance Director Electrocomponents plc 0207 567 8000*Diana Soltmann Flagship Consulting Ltd 0207 886 8440 * Available to 15:00 on 30 May 2007, thereafter 01865 204000 The results and presentation to analysts are published on the corporate websiteat www.electrocomponents.com Definitions of terms:In order to reflect underlying business performance, comparisons of revenuebetween periods have been adjusted for exchange rates and the number of tradingdays. Changes in profit, cash flow, debt and share related measures such asearnings per share are at reported exchange rates. Enterprise Business System (EBS): In order to make clear the costs of the EBSproject and the underlying performance of the business, EBS costs have beendisclosed separately. Therefore, unless explicitly stated, measures based onoperating costs, contribution and process costs exclude EBS. Headline profit: A profit of £0.8m (2006: charge £7.7m) was incurred in the yearfor items excluded from headline profit. Details of the items are given belowthe Income Statement. Key performance measures such as return on sales, EBITDAand ROCE use headline profit figures. Safe Harbour:Our preliminary statement contains certain statements, statistics andprojections that are or may be forward-looking. The accuracy and completeness ofall such statements, including, without limitation, statements regarding thefuture financial position, strategy, projected costs, plans and objectives forthe management of future operations of Electrocomponents plc and itssubsidiaries is not warranted or guaranteed. These statements typically containwords such as "intends", "expects", "anticipates", "estimates" and words ofsimilar import. By their nature, forward-looking statements involve risk anduncertainty because they relate to events and depend on circumstances that willoccur in the future. Although Electrocomponents plc believes that theexpectations reflected in such statements are reasonable, no assurance can begiven that such expectations will prove to be correct. There are a number offactors, which may be beyond the control of Electrocomponents plc, which couldcause actual results and developments to differ materially from those expressedor implied by such forward-looking statements. Other than as required byapplicable law or the applicable rules of any exchange on which our securitiesmay be listed, Electrocomponents plc has no intention or obligation to updateforward-looking statements contained herein. CHAIRMAN'S STATEMENT ON THE PRELIMINARY RESULTS INTRODUCTIONThis has been a year of good progress. The implementation of the strategycontinues with good signs of success in both our Electronic andElectromechanical (EEM) and Maintenance, Repair and Operations (MRO) businessesand resultant strong sales growth. The Enterprise Business System (EBS) wasimplemented successfully during the financial year in Austria, Italy and Germanyand since the year end in Benelux, Ireland, Scandinavia and Spain. It nowsupports all the UK and European businesses. The work to create a lower costinfrastructure has progressed well, including the move to a new head office, andhas achieved £7.6m of annualised cost savings. Overall, headline profit increased by 16% to £84m supported by sustained salesgrowth across the Group, gross margin stabilisation and tight control of costs. STRATEGIC DEVELOPMENTThe strategy development is now delivering tangible benefits with the launch ofextended ranges and leading edge products, a more flexible service offer andmore competitive pricing to meet customer requirements. This has been supportedby more customer-specific selling and marketing activities. DIVIDENDThe Board announced in 2005 that it would maintain the dividend for thefollowing three years, assuming no substantial deterioration in economicconditions. Accordingly, the dividend will be maintained at 18.4p per share forthe full year, being year two of this three year period. OUR PEOPLEThe business has had another very busy year. Revenue and profit growth has beenachieved at the same time as the further roll out of EBS. This has been madepossible as a result of the commitment and skill of all our people. On behalf ofthe Board, I thank everyone for their hard work. As previously announced, Bob Lawson retired as Chairman in October 2006. Bobmade an enormous contribution to Electrocomponents over his 26 years with theGroup. In many ways Bob has been the architect of the Group as it now stands. Inparticular, he rolled out the RS concept internationally and this now comprisesmore than £500m (nearly 60%) of the Group's total revenue. I have appreciatedenormously Bob's support in his handover to me and we all wish him well in thefuture. Nick Temple will be retiring at the Annual General Meeting after ten years onthe Board. We thank Nick for his valuable contribution, particularly in thefield of technology and e-Commerce, which has become a major channel for ourbusiness. We wish him well for the future. Tim Barker, who has been a non-executive director of the Company for sevenyears, will replace Nick Temple as Senior Independent Director at the AnnualGeneral Meeting. Rupert Soames has been appointed to the Board as a non-executive director.Rupert is currently CEO of Aggreko plc, the global leader in the rental ofpower, temperature control and oil-free compressed air systems. He hassignificant relevant international, high service and information systemsexperience and we welcome him to the Group. CURRENT TRADINGSince the year end the Group has successfully completed the EBS roll out acrossEurope. Group revenue has grown at around 6% with an improving performance during May.The International business has grown revenue at around 10% and the UK businesshas grown at around 2%. Helmut Mamsch, Chairman30 May 2007 OPERATING REVIEW OVERVIEWIn May 2005, we committed to a plan to improve the financial performance of theGroup significantly. The plan had three main elements: • Focus separately on two distinct customer groups: Electronic and Electromechanical (EEM) and Maintenance, Repair and Operations (MRO)• Implement the Enterprise Business System (EBS)• Create a lower cost infrastructure This year has seen a step change in the delivery of each element of the planwhich has consequently resulted in strong sales and profit growth. The twoinfrastructure elements of our plan are largely done. The roll out of EBS inEurope is now complete and three quarters of the targeted cost savings have beenachieved, with the remainder well in hand. Our focus is on our customers andcontinuing to build on the enthusiastic response we have had to our improved EEMand MRO offers. ELECTRONIC AND ELECTROMECHANICAL (EEM)Our EEM customers are primarily involved in electronics design and pre and lowvolume electronics production. Strong electronics market growth, technologyproliferation and R&D investment make this an attractive and growing segment toserve, and catalogue based distribution is the customers' preferred channel.Their primary need is access to as broad, deep and innovative a product range aspossible. During the year, we have updated our EEM product range: 100,000 extended rangeproducts have been made available over the web from our North American andJapanese offers; complete ranges of leading edge technologies have been launched(wireless and displays, solid state lighting, power supplies, embeddedcomputing) and the current product ranges have been refreshed and increased indepth. We have improved our EEM offer promotion to make it more targeted andrelevant to design engineers and done much more joint supplier promotion toleverage our relationships with strong brands. All of these initiatives aregenerating significant incremental revenue and re-establishing the Group as theleading EEM distributor. As well as continuing to develop our product range, newtools and flexible packaging options are being developed to better serve thesecustomers' needs. MAINTENANCE, REPAIR & OPERATIONS (MRO)Within MRO there is an important customer segment involved in factory automationthat primarily uses process control and automation (PCA) products. Both the MROand PCA segments have been buoyant due to the improved outlook for manufacturingand increased use of automation in the workplace. Within Europe, an extended range of products from four leading PCA suppliers hasbeen offered over the web and sales and marketing resources, includingtechnology specific discounts, have been more targeted at factory automationcustomers. As a result, PCA is growing strongly across Europe. The profitabilityof the MRO product ranges has been improved through range rationalisation,increasing use of own brand and better buying with contribution growing at twicethe rate of sales. These successful initiatives will be scaled up in the comingyear to further improve profitability. CUSTOMER RESEARCHCustomer research in the UK (soon to be completed in Europe) has demonstratedconsiderable improvements in customer perceptions across all service measuresand value for money relative to competition. The actions we have taken on priceand customer discounts have been recognised by the customer. Our businesses haveclearly become more competitive in meeting customers' needs and will continue todo so. SUMMARYThe Group's strategy is clear and its implementation is leading to strong salesand profit growth. The necessary infrastructure projects are largely behind usand much preparatory work has been done to enable delivery of the strategy. Wewill focus on further improving our customer offers to drive growth as well asmaintaining our control of costs. While there is much hard work still to do,clear plans are in place and the forthcoming year will be another of furtherprogress. OPERATING PERFORMANCE AND KEY PERFORMANCE INDICATORS Operating Performance 2007 2006 Revenue £877.5m £828.5mGross margin 50.5% 51.5%Contribution £192.2m £183.2mGroup Process costs (£82.9m) (£81.9m)EBS costs (£19.0m) (£25.1m)Headline operating profit £90.3m £76.2mInterest (net) (£5.9m) (£3.4m)Headline profit before tax £84.4m £72.8mHeadline earnings per share 12.8p 11.2pDividend per share 18.4p 18.4p Key Performance Indicators 2007 2006 Group revenue growth 9.0% 5.0%International 14.5% 11.8%UK 1.9% (3.0%)e-Commerce proportion of revenue 28% 25%Headline Group return on sales 9.6% 8.8%Headline EBITDA (1) £118.2m £100.3mFree cash flow £45.3m £26.9mHeadline ROCE (2) 20.5% 16.7%Stock turn (per year) 2.7x 2.5xRevenue per head (£'000)(3) 161 155Number of customers (millions) 1.5 1.4 (1) Headline earnings before interest, tax, depreciation and amortisation(2) Return on capital employed is defined as headline operating profit expressed as a percentage of net assets plus net debt(3) Revenue on a like for like basis (2006 and 2007) adjusting for trading days and foreign exchange Headline profit before tax has increased by £11.6m (15.9%). The main areas ofimprovement were an increase in the contribution of our International business of £10.0m, and a reduction in EBS costs by £6.1m. Against this, the UKcontribution declined by £1.0m and Process costs and interest costs increasedby £1.0m and £2.5m respectively. Profit before tax was adversely affected by the strengthening of Sterling byaround £0.8m year on year. Adjusting for this effect headline profit before taxwould have grown by 17.2%. The contribution of our International business has again increased due to acombination of high revenue growth and improved cost leverage. The UKcontribution fell slightly despite the revenue growth as operating costsincreased principally as a result of additional costs to support the new EBSmarkets. EBS costs were reduced following higher costs associated with the UKimplementation in the last financial year. Interest costs increased due to thehigher level of debt and rising interest rates. e-Commerce is a key enabler of the strategy. It allows the Group to make a verywide range of products available globally at lower cost. It also allows rapidnew product introductions and price changes. In addition, supplier relationshipshave been leveraged through brand shops on the web. e-Commerce revenue growthremains strong at 23% and it now represents 28% of Group revenue, including 57%in Japan and 32% across Europe and the UK. In several operating companies we nowtake more orders through our e-Commerce channels than by telephone. Gross profit increased by £17.1m in 2007 with growth in all regions. The Groupgross margin reduced by 1% point year on year with different patterns by region. The UK gross margin was stable throughout the year. The selling pricerealignment, undertaken over the last few years to improve competitiveness, waslargely complete and the gross margin has benefited from reduced product costs,through better buying and rationalisation of the MRO range, as well as greateruse of the higher margin RS own brand products. The International gross margin declined year on year by 1.6% points but with therate of decline slowing during the year with a decline of 0.3% points first halfto second half. The strong growth of our lower, but stable gross margin businessin North America, was responsible for a proportion of the full year decline. Theunderlying gross margin decline was in the European and Asia Pacific regions. InEurope, selling price realignments and the growth of profitable larger orderbusiness have impacted gross margins while in Asia Pacific foreign exchangemovements have been significant. In the future the European region, the largestregion in the International business, will benefit from the completion of theselling price realignment and the full year impact of product cost savingscoming through. Both operating and Process costs have been reduced as a percentage of revenuedue to tight management control and the beneficial scale effect of higherrevenue. Actions in the year have realised a further £3.2m of annualised costreductions comprising headcount savings, catalogue paper savings and the sale ofthe head office in Oxford, combined with a move to smaller accommodation. Thetotal of annualised cost reductions achieved so far is £7.6m and further actionsare planned to deliver the annualised £10m targeted for 2008. Net debt was £136.2m at 31 March 2007, £15.4m higher than last year withinterest cover remaining high. The pension deficit (net of deferred tax) fell by£0.6m to £29.1m. The reorganisation income of £0.8m comprised costs, relating to the creation ofa lower cost infrastructure (£1.1m), and a one-off profit on sale of the headoffice (£1.9m). Free cash flow at £45.3m was up £18.4m on last year principally due to higherprofits, and the sale of the head office. These improvements were offset, inpart, by increased gross capital expenditure associated with the build of thenew office and warehouse facilities in our North American business. International 2007 2006 Revenue £521.3m £474.9mRevenue growth 14.5% 11.8%Gross margin 48.7% 50.3%Operating costs % of revenue (30.2%) (32.1%)Contribution £96.3m £86.3m% of revenue 18.5% 18.2% The International business comprises Continental Europe (55% of revenue of theInternational business), North America (30%) and Asia Pacific (15%). During theyear, the International business continued to grow and now accounts for 59% ofGroup revenue and 50% of Group contribution. After adjusting for the £1.9madverse impact of the strengthening of Sterling, contribution from theInternational business increased by £11.9m year on year. Revenue growth increased during the year with all regions growing faster than in2006. Operating costs reduced as a percentage of revenue by 1.9% points demonstratingthe ongoing operational gearing benefits of higher sales in the region. Continental Europe 2007 2006 Revenue £287.5m £267.9mRevenue growth 10.1% 8.3%Contribution £64.5m £59.9m% of revenue 22.4% 22.4% During the year, the European region maintained strong revenue growth of 10.1%which was consistent throughout both halves of the year. This performance was achieved against the backdrop of the preparation for andimplementation of EBS in seven out of the eight European businesses: Austria,Benelux, Germany, Ireland, Italy, Scandinavia and Spain. Our French businessimplemented an upgrade to EBS in September 2006. The European business continues to implement the strategy. This has includedrefocusing local sales forces towards the EEM offer with dedicated EEM salesforces being established in France and Germany. The EEM offer has improved withthe North American extended range being made available to the majority of theEuropean markets. Our quotations and larger order business, which delivers goodmargins, has continued to grow in response to the more flexible approach we havetaken with our customers. The level of best practice sharing and focus on key supplier initiatives acrossbusinesses has been increased. North America 2007 2006 Revenue £157.2m £137.5mRevenue growth 21.8% 18.0%Contribution £23.4m £19.2m% of revenue 14.9% 14.0% Allied, our North American business, increased its revenue growth during theyear. This is the third consecutive year of growth at around 20%. Contributiongrew to 14.9% of revenue, due to strong revenue growth, limited cost increasesand a stable gross margin. The business has continued to pursue its proven sales growth strategy. This hasinvolved the strengthening of the field sales team throughout the business's 55local branches. Allied's close relationship with its suppliers is another keystrength, with joint promotion programmes and suppliers often accompanyingAllied staff on customer visits. In addition, customer service and stock turnhave improved during the year. The development of the new warehouse and office in Fort Worth is proceedingaccording to plan. The new office move is now complete and the warehouse move isplanned in the middle of the next financial year. Move costs of around £1m areexpected to be incurred in the next financial year. Asia Pacific 2007 2006 Revenue £76.6m £69.5mRevenue growth 17.3% 14.5%Contribution £8.4m £7.2m% of revenue 11.0% 10.4% Asia Pacific also accelerated its revenue growth from 2006. All regions grewsignificantly including North Asia (19%), South Asia (38%), Australasia (8%) andJapan (15%). We have strengthened the senior management across the region. In China, the business started implementing its plan to accelerate revenuegrowth. The business recently launched its fifth Chinese language catalogue with50,000 locally stocked products and another 100,000 extended range products fromJapan and North America available via the web. The sales force and number oflocal sales offices have been increased and there are now nearly 300 employeesinvolved in sales and marketing in China. The revenue investment by the Group onthis initiative in the financial year was around £1.3m. South Asia's strong growth was due to the successful customer acquisitionprogramme and the contribution from the new Thailand sales office, which startedtrading during the year. Both Australasia and Japan continued to grow strongly during the year.e-Commerce now represents some 57% of Japan's revenue. UK 2007 2006 Revenue £356.2m £353.6mRevenue growth 1.9% (3.0%)Gross margin 53.3% 53.0%Operating cost % of revenue (26.4%) (25.6%)Contribution £95.9m £96.9m% of revenue 26.9% 27.4% The UK returned to revenue growth with the strategy delivering results. The fullyear growth of 1.9% was 4.9% points higher than last year. Growth improvedduring the year from around 1% in the first half to nearly 3% in the secondhalf. The business benefited from the improvement in the UK manufacturing economy andthe implementation of the strategy. There has been increased sales focus withthe sales force realignment to the two customer offers of EEM and MRO, thegrowth in larger order business at good margins and continued large accountwins. e-Commerce grew significantly and accounted for 32% of the UK business'srevenue. The internet trading channel has continued to be upgraded withadditional functionality being created to support our EEM customers. This was the first full year for the UK on the EBS platform and while certainoperational costs have increased post go live, there has been a focus onrealising the benefits of the system. The system facilitates the use of targetedtechnology-based discounts which have increased revenue. In addition, anongoing continuous improvement culture is being used to drive enhanced customerservice and greater efficiency in the business. EBS 2007 2006 Depreciation and amortisation £10.7m £6.8mProject and local business costs £8.3m £18.3m ______ ______Total £19.0m £25.1m ______ ______Cash outflow £16.0m £38.0m The roll out of EBS in Europe is now complete. By the year end, a singleintegrated regional system supported our businesses in Austria, France, Germany,Italy and the UK. The final element of the European roll out was completed inMay 2007, with the businesses in Benelux, Ireland, Scandinavia and Spainmigrating to the EBS platform. During their first few months post implementationthese businesses are being supported by teams from the rest of the Group withprevious EBS expertise. The benefits of an integrated system are starting to be realised. While thereare some higher operating costs initially after the implementation of the newsystem, the costs are expected to be lower in the medium term. This was thepattern experienced in France after its implementation in June 2003. In 2007,the UK benefited from the additional flexibility of technology-based customerdiscounts, which have helped drive its sales growth. In the future, we expectincreased stock turn in Europe due to the improved stock visibility and regionaldemand planning. The EBS implementation in our Asian operations was virtually completed duringthe year, with the Chinese sales offices being brought onto the system. Thetiming of the roll out of EBS into our North American business will bedetermined after the completion of the local warehouse move. The EBS costs have reduced by £6m year on year to £19m. This is as a result ofthe lower implementation costs (£10m) following the high prior year costs as aresult of the UK implementation, offset in part by the higher depreciation (£4m)as the asset has now been in use for a full year. The cash outflow has reducedby £22m year on year principally due to the lower implementation costs (£10m)and the prior year safety stock, associated with the UK implementation, comingout in this financial year (£14m). In the next financial year the total EBS costs, including depreciation,implementation costs, and system development costs incurred post implementation,are expected to be slightly lower than in 2007. As there have beenimplementation costs incurred in early 2008, the depreciation and implementationcosts will continue to be disclosed as EBS costs. The costs of developing thesystem post implementation to drive the strategy and benefits, will be includedwith the other Information Systems costs and disclosed within Process costs.From 2009 it is anticipated that EBS costs will not be separately disclosed andthe ongoing EBS depreciation costs will be included within Process costs. Processes 2007 2006 Process costs £82.9m £81.9mProcess costs % of revenue 9.4% 9.9% The Processes support our operating companies by ensuring that they have theproducts, infrastructure and expertise to provide consistently high servicelevels around the World. The costs have reduced year on year as a percentage ofrevenue even after allowing for the £3.1m one off Information Systems costsincurred last year. Information SystemsThe role of Information Systems is to support and develop the enterprise systemapplications that are required by the business. The recent focus has been on consolidating the operations of the businesses onthe EBS platform. Other activities have included completing the globaltechnology refresh of desktop hardware, software and email infrastructure. Theongoing move of core applications to our data centres has also strengthened ourdisaster recovery capabilities. Supply ChainThe Supply Chain Process is responsible for all the logistics surroundingproduct supply and the management of stock levels. The dual objectives have been to maintain high levels of customer service whilstalso starting to exploit the regional planning capabilities provided by EBS.This has now started, evidenced by the improvement in stock turn from 2.5 to 2.7times. Product ManagementThe role of Product Management is to manage the selection and purchase of some350,000 distinct products around the World. During the year, Product Management strengthened relationships with key EEM andPCA suppliers. This has led to more joint initiatives, focusing on product rangedevelopment, marketing and web promotions across all geographies. Examplesextend to suppliers where their European customers, who wish to buy smallvolumes of certain products, are directed to our local operating companies forfulfilment. Media PublishingThe Media Publishing Process is responsible for the design and production of theGroup's publications and associated content for e-Commerce. Further strides have been made by Media Publishing to reduce costs, particularlyin the print and paper costs of our catalogues, whilst maintaining theirquality. Capital structureNet debt of £136.2m comprised gross borrowings of £155.3m (currency split:£52.6m in US Dollars, £40.5m in Euros, £31.9m in Japanese Yen, £10.3m inSterling and the balance of £20.0m in other currencies), and financial assets of£19.1m (currency split: £1.9m in Sterling, £13.3m in Euros and the balance of£3.9m in other currencies). This currency mix is due to the hedging oftranslation exposure, interest differentials and tax efficiency. The peak netborrowing during the year was £179m. In addition the pension deficit (net ofassociated deferred tax) was £29.1m at 31 March 2007. The Group's main sources of debt are a syndicated facility for $120m and £110mfrom nine banks and a syndicated facility for £63.5m from three banks bothmaturing in February 2010. At 31 March 2007, the Group also had a bilateralfacility for $100m in place, which was terminated in early April 2007. TaxationThe Group's effective tax rate is 34% of profit before tax which represents a 1%point increase from the prior year due to the increasing proportion of Groupprofits realised in higher tax countries outside the UK. This rate includes theeffect of a significant, and ongoing, increase in the deferred tax liability dueto the tax amortisation of overseas goodwill. The deferred tax liability is notexpected to crystallise in the foreseeable future. This, together with thediffering timing of payments, causes a discrepancy between the effective taxrate of 34% and the cash tax rate of 26% of profit before tax. PensionThe Group has defined benefit schemes in the UK, Ireland and Germany. All theseschemes are now closed to new entrants. Elsewhere (including the replacementschemes in the UK and Ireland), the schemes are defined contribution. Under IAS 19, the combined deficit of the defined benefit schemes was £38.7m at31 March 2007. The most recent valuation of the UK defined benefit scheme was carried out as at31 March 2007. This disclosed a gross deficit of £31.9m. To eliminate thedeficit, based on the assumptions used in the valuation as at 31 March 2004, theGroup will make additional annual payments to the scheme for the next 12 years(2007: £4.5m and increasing at 3% per year). Ian Mason, Group Chief ExecutiveSimon Boddie, Group Finance Director 30 May 2007 Group Income StatementFor the year ended 31 March 2007 2007 2006 Note £m £m ------ -------- --------Revenue 2 877.5 828.5Cost of sales (434.0) (402.1) -------- -------- Gross profit 443.5 426.4Distribution and marketing expenses (346.2) (348.9)Administrative expenses (6.2) (9.0) -------- -------- Operating profit 91.1 68.5Financial income 11.2 6.9Financial expenses (17.1) (10.3) -------- -------- Profit before tax 1,2 85.2 65.1 Income tax expense 3 (29.0) (21.5) -------- --------Profit for the year attributable to equity 56.2 43.6shareholders -------- -------- Earnings per share - Basic 4 12.9p 10.0pEarnings per share - Headline 4 12.8p 11.2p DividendsAmounts recognised in the period:Final dividend for the year ended 31 March 2006 12.6p 12.6pInterim dividend for the year ended 31 March 2007 5.8p 5.8p -------- -------- 18.4p 18.4p -------- -------- A final dividend of 12.6p per share relating to the period has been proposedsince the period end. Headline profit Headline operating profitOperating profit 91.1 68.5Provision for RoHS - 4.0Reorganisation (income) costs (0.8) 3.7 -------- -------- 90.3 76.2 -------- --------Headline profit before taxProfit before tax 85.2 65.1Provision for RoHS - 4.0Reorganisation (income) costs (0.8) 3.7 -------- -------- 84.4 72.8 -------- -------- Group Statement of Recognised Income and ExpenseFor the year ended 31 March 2007 2007 2006 £m £m -------- --------Foreign exchange translation differences (11.6) 11.6Actuarial (loss) gain on defined benefit pensionschemes (0.4) 4.2Gain (loss) on cash flow hedges 1.0 (1.0)Tax on items taken directly to equity - (1.3) -------- --------Net income recognised directly in equity (11.0) 13.5Profit for the year 56.2 43.6 -------- --------Total recognised income and expense for theperiod attributable to equity shareholders 45.2 57.1 -------- -------- Group Balance SheetAs at 31 March 2007 2007 2006 Note £m £m -------- --------Non-current assetsIntangible assets 7 196.7 208.2Property, plant and equipment 8 111.1 112.8Investments 0.3 0.3Other receivables 2.7 3.2Deferred tax assets 14.2 17.5 -------- -------- 325.0 342.0 -------- --------Current assetsInventories 160.6 158.6Trade and other receivables 171.0 162.3Income tax receivables 1.1 1.0Cash and cash equivalents 10 19.1 39.4 -------- -------- 351.8 361.3 -------- --------Current liabilitiesTrade and other payables (132.9) (123.5)Loans and borrowings (79.0) (23.0)Tax liabilities (14.5) (13.3) Net current assets 125.4 201.5 -------- --------Total assets less current liabilities 450.4 543.5 -------- -------- Non-current liabilitiesOther payables (7.9) (7.8)Retirement benefit obligations 6 (38.7) (41.8)Loans and borrowings (76.3) (137.2)Deferred tax liability (22.9) (20.3) -------- --------Net assets 304.6 336.4 -------- -------- EquityCalled-up share capital 43.5 43.5Share premium account 38.7 38.4Other reserves 222.4 254.5 -------- --------Equity attributable to the shareholders of theof the parent 9 304.6 336.4 -------- -------- Group Cash Flow StatementFor the year ended 31 March 2007 2007 2006 £m £m -------- --------Cash flows from operating activitiesProfit before tax 85.2 65.1Depreciation and other amortisation 27.0 24.1Equity settled transactions 2.7 2.7Finance income and expense 5.9 3.4 -------- --------Operating cash flow before changes in workingcapital, interest and taxes 120.8 95.3Increase in inventories (7.7) (12.8)Increase in trade and other receivables (9.2) (14.6)Increase in trade and other payables - 13.2 -------- --------Cash generated from operations 103.9 81.1Interest received 11.2 6.8Interest paid (17.0) (10.1)Income tax paid (22.0) (25.8) -------- --------Operating cash flow 76.1 52.0 -------- --------Cash flows from investing activitiesCapital expenditure and financial investment (42.4) (26.3)Proceeds from sale of non-current assets 11.6 1.2 -------- --------Net cash used in investing activities (30.8) (25.1) Free cash flow 45.3 26.9 -------- --------Cash flows from financing activitiesProceeds from the issue of share capital 0.3 -New bank loans 30.3 54.3Repayment of bank loans (16.6) (25.6)Equity dividends paid (80.0) (80.0) -------- --------Net cash used in financing activities (66.0) (51.3) -------- -------- -------- --------Net decrease in cash and cash equivalents (20.7) (24.4) -------- --------Cash and cash equivalents at the beginning of the year 38.0 62.6Effect of exchange rates on cash (0.1) (0.2) -------- --------Cash and cash equivalents at the end of the year 17.2 38.0 -------- -------- Notes to the Preliminary StatementFor the year ended 31 March 2007 1. Analysis of income and expenditure 2007 2006 £m £m -------- --------Revenue 877.5 828.5Cost of sales (434.0) (402.1)Distribution and marketing expenses (251.3) (243.2) -------- --------Contribution before Enterprise Business System costs 192.2 183.2 -------- --------Distribution and marketing expenses within Process costs (74.8) (74.0)Administrative expenses (8.1) (7.9) -------- --------Group Process costs (82.9) (81.9)Distribution and marketing expenses: EnterpriseBusiness System costs (19.0) (25.1) -------- --------Headline operating profit 90.3 76.2Net financial expense (5.9) (3.4) -------- --------Headline profit before tax 84.4 72.8Distribution and marketing expenses: provision for RoHS - (4.0)Distribution and marketing expenses: reorganisation costs (1.1) (2.6)Administrative expenses: reorganisation income (costs) 1.9 (1.1) -------- --------Profit before tax 85.2 65.1 -------- -------- 2. Segmental analysis 2007 2006a. By geographical destination £m £m -------- --------Revenue: United Kingdom 341.5 339.9 Continental Europe 293.3 272.5 North America 155.6 135.9 Asia Pacific 87.1 80.2 -------- -------- 877.5 828.5 -------- -------- 2007 2006b. By geographical origin £m £m -------- --------Revenue: United Kingdom 356.2 353.6 Continental Europe 287.5 267.9 North America 157.2 137.5 Asia Pacific 76.6 69.5 -------- -------- 877.5 828.5 -------- -------- 2007 2006 £m £m -------- --------Profitbefore tax: United Kingdom 95.9 96.9 Continental Europe 64.5 59.9 North America 23.4 19.2 Asia Pacific 8.4 7.2 -------- -------- Contribution before Enterprise Business System costs 192.2 183.2 Groupwide Process costs (82.9) (81.9) Enterprise Business System costs (19.0) (25.1) Net financial expense (5.9) (3.4) -------- -------- Headline profit before tax 84.4 72.8 Provision for RoHS - (4.0) Reorganisation income (costs) 0.8 (3.7) -------- -------- Profit before tax 85.2 65.1 -------- -------- 3. Income tax expense 2007 2006 £m £m -------- -------- United Kingdom taxation 11.7 8.8Overseas taxation 17.3 12.7 -------- -------- Total income tax expense in income statement 29.0 21.5 -------- -------- Profit before tax 85.2 65.1 -------- -------- Effective tax rate 34.0% 33.0% 4. Earnings per share 2007 2006 £m £m -------- -------- Profit for the year attributable to equity shareholders 56.2 43.6Provision for RoHS - 4.0Reorganisation (income) costs (0.8) 3.7Tax impact of reorganisation income (costs) and provisionfor RoHS 0.2 (2.4) -------- --------Headline profit for the year attributable to equityshareholders 55.6 48.9 -------- -------- Weighted average number of shares (million) 434.9 434.9 Earnings per share - basic 12.9p 10.0pEarnings per share - headline 12.8p 11.2p -------- -------- 5. 2007 final dividend The timetable for the payment of the proposed final dividend is: Ex-dividend date 27 June 2007Record date 29 June 2007Annual General Meeting 13 July 2007Dividend payment date 27 July 2007 6. Pension Schemes The funding of the United Kingdom defined benefit scheme is assessed inaccordance with the advice of independent actuaries. The pension costs for theyear ended 31 March 2007 amounted to £5.2m (2006: £7.6m). The contributions paidby the Group to the defined contribution section of the scheme amounted to £2.2m(2006: £1.2m). In addition to the UK scheme outlined above there are certain pension benefitsprovided on a defined benefit basis in Germany and Ireland amounting to £1.1m(2006: £1.0m), defined contribution basis in Australia and North Americaamounting to £0.9m (2006: £0.8m), and via government schemes in France, Italy,Scandinavia and North Asia amounting to £2.4m (2006: £2.0m). The Group expects to pay a total of £9.4m to its UK defined benefit pensionscheme in 2008. The principal assumptions used in the valuations of the liabilities of theGroup's schemes were: 2007 2006 Republic Republic United of United of Kingdom Germany Ireland Kingdom Germany Ireland ------- ------- -------- ------- ------- --------Discount rate 5.25% 4.75% 4.75% 4.90% 4.50% 4.50%Rate of increasein salaries 3.85% 3.00% 4.00% 3.90% 3.00% 4.00%Rate of increaseof pensions inpayment 3.10% 2.00% 2.00% 2.90% 2.00% 2.00%Inflationassumption 3.10% 2.00% 2.00% 2.90% 2.00% 2.00% ------- ------- -------- ------- ------- -------- The expected long term rates of return on the schemes' assets as at 31 Marchwere: 2007 2006 Republic Republic United of United of Kingdom Germany Ireland Kingdom Germany Ireland ------- ------- -------- ------- ------- --------Equities 7.40% n/a 7.30% 7.05% n/a 7.00%Corporate bonds 4.50% n/a n/a 4.15% n/a n/aGovernment bonds 3.90% n/a 4.30% 3.55% n/a 4.00%Cash 4.50% n/a n/a 3.75% n/a n/aOther n/a n/a 5.30% n/a n/a 5.00% ------- ------- -------- ------- ------- -------- Based upon the demographics of scheme members, the weighted average lifeexpectancy assumptions used to determine benefit obligations were: 2007 Republic United of Kingdom Germany Ireland Years Years Years ------- ------- --------Member aged 65 (current life expectancy) - male 20.2 18.4 21.4Member aged 65 (current life expectancy) - female 23.1 22.5 26.4Member aged 45 (life expectancy at aged 65) - male 21.2 21.8 21.4Member aged 45 (life expectancy at aged 65) - female 24.0 25.7 26.4 ------- ------- --------The amounts recognised in the income statement were: 2007 2006 Republic Republic of of UK Germany Ireland Total UK Germany Ireland Total £m £m £m £m £m £m £m £m ---- ------- ------- ----- ---- ------- ------- -----Currentservice cost 6.9 0.7 0.1 7.7 7.1 0.7 0.1 7.9Past service cost - - - - - - - -Interestcost 14.2 0.3 0.1 14.6 13.1 0.2 0.1 13.4Expectedreturn onassets (15.9) - (0.1) (16.0) (12.6) - (0.1) (12.7) ---- ------- ------- ----- ---- ------- ------- -----Total incomestatementcharge 5.2 1.0 0.1 6.3 7.6 0.9 0.1 8.6 ---- ------- ------- ----- ---- ------- ------- ----- Of the charge for the year, £0.3m (2006: £0.4m) has been included inadministrative expenses and the remainder £6.0m (2006: £8.2m) in distributionand marketing expenses. The actual return on scheme assets was: UK £14.4m (2006: £48.7m), Germany £nil(2006: £nil), and Republic of Ireland £0.2m (2006: £0.4m). The valuations of the assets of the schemes as at 31 March were: 2007 2006 Republic Republic United of United of Kingdom Germany Ireland Kingdom Germany Ireland £m £m £m £m £m £m ------- ------- -------- ------- ------- --------Equities 203.7 n/a 1.6 189.9 n/a 1.4Corporate bonds 24.0 n/a - 22.6 n/a -Government bonds 41.6 n/a 0.2 39.7 n/a 0.2Cash 2.6 n/a - 1.5 n/a -Other - n/a 0.2 - n/a 0.2 ------- ------- -------- ------- ------- --------Total marketvalue of assets 271.9 n/a 2.0 253.7 n/a 1.8 ------- ------- -------- ------- ------- -------- No amount is included in the market value of assets relating to either financialinstruments or property occupied by the Group. The amount included in the balance sheet arising from the Group's obligations inrespect of its defined benefit pension schemes is: 2007 2006 Republic Total Republic Total of Valu- of Valu- UK Germany Ireland ation UK Germany Ireland ation £m £m £m £m £m £m £m £m ----- ------- ------- ----- ---- ------- ------- -----Total marketvalue ofassets 271.9 - 2.0 273.9 253.7 - 1.8 255.5Presentvalue ofschemeliabilities (303.8) (6.5) (2.3) (312.6)(288.7) (6.3) (2.3)(297.3) ------ ------- ------- ----- ---- ------- ------- -----Deficit inthe scheme (31.9) (6.5) (0.3) (38.7) (35.0) (6.3) (0.5) (41.8) ------ ------- ------- ----- ---- ------- ------- ----- The rules of the UK Electrocomponents Group Pension Scheme give the Trusteepowers to wind up the Scheme, which it may exercise if the Trustee is aware thatthe assets of the scheme are insufficient to meet its liabilities. Although theScheme is currently in deficit, the Trustee and the Company have agreed a planto eliminate the deficit over time and the Trustee has confirmed that it has nocurrent intention of exercising its power to wind up the Scheme. The German scheme is unfunded, in line with local practice, and the deficit of£6.5m in the German scheme is financed through accruals established within theGerman accounts. In addition, the value of the assets and liabilities held in respect of AVCsamounted to £1.0m as at 31 March 2007 (2006: £1.0m). The value of the assets andliabilities held in respect of the defined contribution section of the schemeamounted to £5.5m as at 31 March 2007 (2006: £2.8m). 7. Intangible assets Other Goodwill Software Intangibles TotalCost £m £m £m £m -------- -------- ----------- ------At 1 April 2006 150.4 85.1 0.3 235.8External additions - 20.0 - 20.0Disposals - (2.2) - (2.2)Translation differences (16.8) (1.0) - (17.8) -------- -------- ----------- ------At 31 March 2007 133.6 101.9 0.3 235.8 -------- -------- ----------- ------ AmortisationAt 1 April 2006 27.6 - 27.6Charged in the year 11.5 - 11.5Disposals - - -Translation differences - - - -------- -------- ----------- ------At 31 March 2007 39.1 - 39.1 -------- -------- ----------- ------ Net book value At 31 March 2007 133.6 62.8 0.3 196.7 -------- -------- ----------- ------At 31 March 2006 150.4 57.5 0.3 208.2 -------- -------- ----------- ------ 8. Property, Plant and Equipment Land and Plant and Computer buildings machinery Systems TotalCost £m £m £m £m -------- -------- -------- ------At 1 April 2006 96.8 101.6 59.1 257.5Additions 10.6 7.0 7.2 24.8Disposals (9.9) (1.6) (2.2) (13.7)Reclassification - 1.8 (1.8) -Translation differences (1.7) (1.4) (0.9) (4.0) -------- -------- -------- ------At 31 March 2007 95.8 107.4 61.4 264.6 -------- -------- -------- ------DepreciationAt 1 April 2006 22.6 79.5 42.6 144.7Charged in the year 1.5 6.5 7.5 15.5Disposals (1.2) (1.4) (2.2) (4.8)Reclassification - 1.6 (1.6) -Translation differences (0.2) (1.0) (0.7) (1.9) -------- -------- -------- ------At 31 March 2007 22.7 85.2 45.6 153.5 -------- -------- -------- ------Net book valueAt 31 March 2007 73.1 22.2 15.8 111.1 -------- -------- -------- ------At 31 March 2006 74.2 22.1 16.5 112.8 -------- -------- -------- ------ 9. Reconciliation of movements in equity 2007 2006 £m £m -------- -------Profit for the year 56.2 43.6Dividend (80.0) (80.0) -------- -------Retained loss (23.8) (36.4)Translation differences (11.6) 11.6Gain(loss) on cash flow hedges 1.0 (1.0)Actuarial (loss) gain on defined benefit pension schemes (0.4) 4.2Tax impact on adjustments taken directly to reserves - (1.3)Equity settled transactions 2.7 2.7New share capital subscribed 0.3 - -------- -------Net reduction to equity (31.8) (20.2)Equity shareholders' funds at the beginning of the year 336.4 356.6 -------- -------Equity shareholders' funds at the end of the year 304.6 336.4 -------- ------- 10. Cash and cash equivalents 2007 2006 £m £m -------- -------Bank balances 16.1 15.4Call deposits and investments 3.0 24.0 -------- -------Cash and cash equivalents in the balance sheet 19.1 39.4Bank overdrafts (1.9) (1.4) -------- -------Cash and cash equivalents in the statement of cash flows 17.2 38.0Current instalments of loans (77.1) (21.6)Loans repayable after more than one year (76.3) (137.2) -------- -------Net debt (136.2) (120.8) -------- ------- 11. Principal exchange rates 2007 2006 Average Closing Average Closing ------- ------- ------- -------United States Dollar 1.90 1.96 1.79 1.74Euro 1.47 1.47 1.46 1.43Japanese Yen 221 232 202 205 ------- ------- ------- ------- 12. Basis of preparation Electrocomponents plc (the "Company") is a company domiciled in England. TheGroup accounts for the year ended 31 March 2007 comprise the Company and itssubsidiaries (together referred to as the "Group") and the Group's interest in ajointly controlled entity. Subsidiaries are entities controlled by the Company.All subsidiary accounts are made up to 31 March and are included in the Groupaccounts. Further to the IAS Regulation (EC 1606/2002) the Group accounts havebeen prepared in accordance with International Financial Reporting Standards("IFRS") as adopted for use by the EU ("adopted IFRS"). The accounts were authorised for issue by the Directors on 30 May 2007. The accounts are presented in £ Sterling and rounded to £0.1m. They are preparedon the historical cost basis except certain financial instruments detailedbelow. The preparation of accounts in conformity with IFRS requires management to makejudgements, estimates and assumptions that affect the application of policiesand reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors believed to be reasonable, under the circumstances, theresults of which form the basis of making the judgements about carrying valuesand liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The financial information set out above does not constitute the Group'sstatutory accounts for the years ended 31 March 2007 or 2006 but is derived fromthose accounts . Statutory accounts for 2006 have been delivered to theRegistrar of Companies, and those for 2007 will be delivered following theCompany's Annual General Meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under section 237(2) or 237(3) of the Companies Act 1985. Copies of the Annual Report and Accounts for the year ended 31 March 2007 willbe available from 12 June 2007 from the Company Secretary, Electrocomponentsplc, International Management Centre, 8050 Oxford Business Park North, OxfordOX4 2HW, United Kingdom. Telephone +44 (0)1865 204000. The Report will also bepublished on the Corporate website at www.electrocomponents.com. The Annual General Meeting will be held at Electrocomponents plc, InternationalManagement Centre, 8050 Oxford Business Park North, Oxford OX4 2HW, UnitedKingdom on 13 July 2007 at 12.00pm. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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