7th Sep 2006 07:00
Premier Farnell plc 7 September 2006 Results for the Second Quarter and Half Year to 30th July 2006Key Financials ‚£m Q2 06/7 Q2 05/6 Q2 05/6 H1 06/7 H1 05/6 H1 05/6 (restated) (restated) (restated) (restated)Continuingoperations ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m(Unaudited) at CER* at CER*Revenue 206.4 190.8 187.8 421.3 377.5 382.9Operating profit 20.2 16.1 15.8 41.8 33.5 34.2Profit before 14.8 10.5 10.3 30.7 22.7 23.2taxationEarnings per share - total 2.8p 2.3p 2.3p 5.9p 4.6p 4.7p - continuing 2.8p 2.2p 2.2p 5.7p 4.5p 4.6poperationsSales growth¢â‚¬ 10.8% 10.5%* Constant exchange ratesNote: The Group's results have been restated to exclude the Kentbusiness, part of the Industrial Products Division, which was sold on 31stJuly 2006. The results of this discontinued operation are shown as a singlenumber on the face of the income statement below profit after tax and are thusexcluded from the trading results discussed in this statement, includingcomparative information. Further details are given in note 5 to the financialinformation.Highlights- Strong second quarter sales growth performance, with sales perday from continuing operations up 10.8% on the prior year and slightly aheadof the seasonally strong first quarter. Fourth consecutive quarter for whichthe Group has seen positive sequential sales per day growth.- Gross margin remaining stable with third consecutive quarter ofincremental improvement in underlying gross margin percentage.**- Growth in operating profit of 24.8% in the first half, (22.2% atconstant exchange rates), significantly ahead of sales growth.- Improvement in operating margin, 9.9% in the first half comparedwith 8.9% in the prior year, reflecting continued, robust cost control andstrong operational gearing.- Total earnings per share in the first half up 28.3% year-on-year,to 5.9 pence in the first half.- Cash generated from continuing operations (before exceptionalitems) up 11.5% to ‚£43.8 million in the first half.- Return on net operating assets up to 26.2% (H1 2005/6: 24.8%).- Interim dividend of 4.0 pence (2005/6: 4.0 pence).- Building on established market leadership position on RoHS in UKand rest of Europe - important as the US market transitions and the Chinesedeadline of 1st March 2007 approaches.Commenting on the results, Harriet Green, Group Chief Executive,said:"Premier Farnell's strong second quarter performance follows theadvances made in the first quarter and positions the Group well at the end ofthe first half. The year-on-year and sequential quarter-on-quarter growth insales, and the stable gross margin, are encouraging and based primarily onsolid execution of our service fundamentals and the benefit of our RoHSleadership position."The strategic business review, commenced in May, is making goodprogress as we continue to focus on what we do well - as evidenced by ourlatest results - and consider what we can improve upon and develop further inthe future. The outcome of the review will drive our future business agendaand I expect to announce this during the autumn."I believe that, with a vigorous focus on what we are good at, wewill continue to differentiate ourselves; measurable by the actions of ourcustomers, suppliers and improving results for our shareholders."I am optimistic that the operational progress we have made so farin 2006 will continue. Despite the second half having more challengingcomparators and the uncertainty over whether the market will remain asbuoyant, we still anticipate making progress in the second half against thecomparable period last year."** Underlying gross margin is stated before the impact of the RoHSinventory provision taken in the fourth quarter of 2005/6¢â‚¬ percentage changes in sales Comparison of sales for specific periods is affected by three variables: 1. Changes in exchange rates used to translate the overseas sales in differentcurrencies into sterling; 2. Differences in the number of working days; 3. Disposals or acquisition of businesses. Throughout this statement, in order to reflect underlying businessperformance, percentage changes in sales are based on sales per day forcontinuing businesses at constant exchange rates and for like periods, unlessotherwise stated.For further information, contact:Harriet Green, Group Chief Premier Farnell plc +44 (0) 20 7851 4100Executive Mark Whiteling, Group FinanceDirector Andrew Lewis, Group FinancialControllerRichard Mountain Financial Dynamics +44 (0) 20 7269 7291 (UK)Brian Rafferty / Jessica Taylor Rafferty (NA) + 1 212 889 4350McCormickPremier Farnell's announcements and presentations are published atwww.premierfarnell.com, together with business information, the 2006 AnnualReport and Accounts, and links to all other Group web sites.The results for the third quarter of the financial year to 28thJanuary 2007 will be announced on 7th December 2006.Premier Farnell plcSTATEMENT ON SECOND QUARTER AND HALF YEAR RESULTSfor the period ended 30th July 2006Premier Farnell, the leading global marketer and distributor ofelectronic, maintenance, repair and operations (MRO) and specialist productsand services, today announces its results for the second quarter and half yearended 30th July 2006. These are reported in accordance with InternationalFinancial Reporting Standards (IFRS).Note: percentage changes in salesComparison of sales for specific periods is affected by threevariables:1. Changes in exchange rates used to translate the overseas salesin different currencies into sterling;2. Differences in the number of working days;3. Disposal or acquisition of businesses.Throughout this statement, in order to reflect underlying businessperformance, percentage changes in sales are based on sales per day forcontinuing businesses at constant exchange rates and for like periods, unlessotherwise stated.Financial ResultsNote: The Group's results have been restated to exclude the Kentbusiness, part of the Industrial Products Division, which was sold on 31stJuly 2006. The results of this discontinued operation are shown as a singlenumber on the face of the income statement below profit after tax and are thusexcluded from the trading results discussed in this statement, includingcomparative information. Further details are given in note 5 to the financialinformation.RevenueHalf YearSales in the first half from continuing operations were ‚£421.3million (2005/6: ‚£377.5 million). Sales per day from continuing businessesincreased 10.5% on the prior year, or 9.4% before acquisitions made in theprior year.Second quarterSales in the second quarter from continuing operations were ‚£206.4million (2005/6: ‚£190.8 million). Sales per day from continuing businessesincreased 10.8% on the prior year, or 10.1% before acquisitions made in theprior year.In the second quarter, the average exchange rate for the US dollaragainst sterling was $1.85 (Q2 2005/6: $1.78) compared with the first quarterof $1.76 (Q1 2005/6: $1.91). At constant exchange rates, the sales increase inthe second quarter over the prior year was ‚£18.6 million.Margins and Operating ProfitHalf yearGross margin from continuing operations in the first half was 38.2%(2005/6: 38.4%), above that achieved in the second half of last year of 37.9%.Operating profit in the first half from continuing businesses was ‚£41.8million (2005/6: ‚£33.5 million), producing an operating margin of 9.9%(2005/6: 8.9%).Second quarterThe gross margin from continuing operations in the second quarterwas 38.3% (2005/6: 38.3%), the third consecutive quarter of underlying grossmargin improvement. Operating profit from continuing operations was ‚£20.2million (2005/6: ‚£16.1 million), producing an operating margin of 9.8%(2005/6: 8.4%). At constant exchange rates, the increase in operating profitcompared to the prior year was ‚£4.4 million.Finance CostsThe net interest payable in the first half of ‚£7.1 million (2005/6:‚£6.7 million) was covered 5.9 times by operating profit. Included in financecosts for the first half is a charge of ‚£4.0 million (2005/6: ‚£4.1 million) inrespect of the Company's convertible preference shares.Profit Before Tax and Taxation ChargeReported profit before tax from continuing operations in the firsthalf was ‚£30.7 million (2005/6: ‚£22.7 million). At constant exchange rates,profit before tax increased 32.3% year-on-year, significantly ahead of therate of sales growth achieved.The taxation charge for the first half was at an effective rate of29.0% of profit before tax and preference dividends (2005/6: 23.8%).Return on Net Operating AssetsReturn on net operating assets for the first half was 26.2%(2005/6: 24.8%).Earnings per ShareTotal earnings per share in the first half were 5.9 pence (2005/6:4.6p). Earnings per share from continuing operations in the first half were5.7 pence (2005/6: 4.5 pence).The Board is declaring an interim dividend of 4.0 pence per share(2005/6: 4.0 pence) to be paid on 18th October 2006 to shareholders on theregister on 22nd September 2006.Balance Sheet and Cash FlowNet cash generated from continuing operations before exceptionalitems was ‚£43.8 million, 11.5% up on the prior year. Working capital levelsremained stable in the second quarter. Net cash inflow during the first halfwas ‚£2.8 million (2005/6: net cash outflow of ‚£0.8 million before the cost ofbusinesses acquired). Net financial liabilities at the end of the quarter were‚£317.4 million (29th January 2006: ‚£330.1 million), including ‚£110.8 millionattributable to the Company's preference shares. During the quarter the Grouprepaid $155 million of 7.2% senior notes by drawing on existing committed bankfacilities.Disposal of KentOn 31st July 2006, the Group completed the disposal of its Kentbusiness, part of the Industrial Products Division, to Barnes Group Inc. forcash consideration, before associated costs, of approximately ‚£22 million (ona cash and debt free basis). Kent is a specialist automotive consumablesbusiness with sales in 2005/6 of ‚£40.5 million and an operating profit of ‚£2.1million. The profit on this disposal will be reflected in the third quarterresults.Chief Executive's Operational OverviewSales continued to grow well across the Group. In Europe sales perday for our Farnell InOne business increased significantly and our customerbase is continuing to strengthen. In the second quarter, sales growth in MDDAmericas was 14.5%. Newark InOne saw an increase in business from smallercustomers and extensive market surveying has shown that the business furtherstrengthened its reputation, not least because of our RoHS leadership positionin the USA.It is encouraging that the gross margin has remained stable withincremental improvements in underlying margin consistently over the last threequarters.Strong cost control, combined with good business disciplines andfour quarters of positive sales momentum, drove an increase of 1.0 percentagepoint in the first half operating margin over the prior year.We continue to focus on the needs of our customers and suppliersand to leverage successfully the effective leadership position established forRoHS compliant products throughout UK and mainland Europe, and this willbecome increasingly important as the US market transitions. The knowledge andexpertise that exists within Premier Farnell in this area will be significantas we work with our Chinese customers to meet their government's deadline forthe China RoHS law which comes in to force on 1 March 2007. We expect this tohave a positive influence on Asian sales as we continue to invest in theregion.The multi-channel approach to ensure each and every customer cantransact their business with us in their preferred way continues to gain inimportance. We continue to differentiate ourselves by driving customer trafficthrough the various channels and our eCommerce sales grew again this quarter,up 31% over last year.Meeting customer requirements remains a core strength of the Groupfor both our Electronic Design Engineer (EDE) and Maintenance, Repair andOperations (MRO) customers. With new customer acquisitions up across the Groupwe believe our focus on solid distribution fundamentals is a key contributorto this. We also continue to invest in our global product and supplierportfolio and have added two more key suppliers during the quarter - Omron andAgilent - whilst successfully rolling out the new franchises signed during thefirst quarter. This represents valuable and necessary investment in meetingthe needs of our growing customer base.The restructuring programme at BuckHickman InOne is continuing,with the execution of the business plan remaining a challenging focus for themanagement team.The strategic business review, commenced in May, is making goodprogress as we continue to focus on what we do well - as evidenced by ourlatest results - and consider what we can improve upon and develop further inthe future. The outcome of the review will drive our future business agendaand I expect to announce this during the autumn.I believe that, with a vigorous focus on what we are good at, wewill continue to differentiate ourselves; measurable by the actions of ourcustomers, suppliers and improving results for our shareholders.Marketing and Distribution Division (MDD)MDD comprises: Newark InOne; Farnell InOne; BuckHickman InOne; MCM, an InOneCompany and CPC. Q2 06/7 Q2 05/6 Q2 05/6 H1 06/7 H1 05/6 H1 05/6 ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m at CER* at CER*Revenue 188.0 174.5 172.1 384.0 346.8 351.6Operating profit 19.3 16.3 16.1 40.0 33.5 34.1Operating margin 10.3% 9.3% 9.4% 10.4% 9.7% 9.7%%Sales growth ¢â‚¬ 10.4% 9.8%*Constant exchange ratesIn the second quarter, sales grew 10.4% and, at constant exchangerates, operating profit increased by 19.9% on the prior year.eCommerce sales grew during the quarter, up 31% on the prior year,and accounted for 17% of sales in the Americas and 28% in the Europe and AsiaPacific region.RoHS Legislation (Restriction of the use of certain HazardousSubstances)During the quarter, the division maintained its market leadershipposition in RoHS, and saw continued market share gains in our Farnell InOnebusiness in the UK. We continue to see a rise in web visitor traffic, ongoingbills-of-materials submitted by customers for conversion to compliant productsand, ultimately, sales growth.The division's RoHS proposition has been strengthened further tomaintain competitive advantage. Over 160,000 compliant parts are now availableacross Europe and over 100,000 in North America, with the two regionssuccessfully leveraging a global approach to compliance data and theassociated audit trail. Additionally, Farnell InOne became the firstdistributor in the industry to gain the BSI "RoHS Trusted" Kitemark across allof its European offices, extending the UK accreditation achieved earlier thisyear.The market transition to RoHS compliant products is less uniformedand regulated in the US than it was through Europe. Newark InOne is wellpositioned to support the multifaceted transition needs of customers; whetherit be compliant or non-compliant products, design support or equipment repair.Customer feedback on the overall service proposition has been verypositive, and has formed part of a marketing focus that has conveyed a clear,differentiated message around the reassurance that the Farnell InOne andNewark InOne proposition provides. Over the period, as well as paid-for printand online activity, press coverage has been particularly strong, as interestincreased around the 1st July 2006 deadline for implementation of the EUlegislation. Our preparation for RoHS and the support we provided ensured thatthere was a smooth transition for many of our customers. While that deadlinehas now passed, interest remains very high as `late adopters' and regions notdirectly affected by the legislation continue to work towards compliance.During the quarter, good progress was made in managing outnon-compliant inventory arising as a result of the migration to compliantstock, and this remains in line with plan.Strengthening the product and supplier portfolioWe have continued to review and enhance the Group's electronic product andsupplier portfolio to ensure that we have the very best supplier brands andlatest technologies that are essential for design engineers and othercustomers. We believe that the Group's broad portfolio now includes themajority of the world's leading semiconductor, passive and electromechanicalbrands, offering a compelling proposition to electronic design engineersglobally.During the period, we signed three major franchise agreements: AgilentTechnologies for the promotion of its extensive suite of electronic,bio-analytical measurement and test equipment tools in our Europeancatalogues; Omron IAV, extending the territory for our promotion of itsautomation and sensors products from the UK to pan-European; and AEMCInstruments for the promotion of its electrical test and measurementinstruments in the US. Shortly after the period end, we significantly extendedour portfolio of Cypress Semiconductor products by signing a global franchiseagreement.We have continued to extend our programme of actively marketingelectronic components in partnership with many of our suppliers, who areattracted by our large customer base of engineers and purchasingprofessionals. Multi-channel promotions and product campaigns were completedin the first half in Europe, the US and Asia in relation to Lumileds productsand, following the launch of franchise agreements with global coverage, AVXCorporation, a recognised world leader in passive components, Coto Technology,Deltron, STMicroelectronics, world ranked number six semiconductor supplierand finally world ranked number three, Texas Instruments.The AmericasNewark InOne and MCM, an InOne Company. Q2 06/7 Q2 05/6 Q2 05/6 H1 06/7 H1 05/6 H1 05/6 ‚£m ‚£m ‚£m at CER* ‚£m ‚£m ‚£m at CER*Revenue 82.9 75.8 73.5 171.5 148.5 152.8Operating profit 7.2 6.6 6.4 15.5 13.2 13.7Operating margin 8.7% 8.7% 8.7% 9.0% 8.9% 9.0%%Sales growth ¢â‚¬ 14.5% 13.1%*Constant exchange ratesIn the second quarter, sales grew 14.5% on the prior year. Despitethe competitive market, gross margin was sustained at the level achieved inthe first quarter, and above that in the second half of last year, throughcontinued promotion of higher margin products and the focus on core marketsand accounts. The division continues to see an increase in the proportion oftotal sales to new and smaller customers. The first half operating margin of9.0% was slightly ahead of the prior year despite a decline in gross margin of0.6 percentage points compared to the first half of last year, and an increasein targeted marketing expenditure.Sales through eProcurement partnerships were up 15% in the quarteron the prior year with sales to national and global accounts growing by 2%.This resulted from the businesses continued focus on margin disciplines.During the period, a number of new eProcurement implementations went live,including those for Merck and Southwest Airlines. Web sales in the quarterwere up 17% on the prior year.Feedback during the quarter from customers and suppliers suggeststhat Newark InOne's reputation in the North American market continues toimprove, partly as a result of the leadership position it has achievedrelating to RoHS. Following the April launch of a comprehensive catalogue ofRoHS compliant products, sales of these products have more than doubledcompared with the first quarter.MCM grew sales by 9.7% in the second quarter, through continuedemphasis on core customers and channels, as well as growth in the eCommercechannel following the launch of its new website towards the end of last year.Web sales increased 30% in the quarter compared with the same period lastyear.Sales from operations in Mexico grew substantially in the secondquarter with all sales support activities being transferred into the expandedfacility in Guadalajara.Europe and Asia PacificFarnell InOne, BuckHickman InOne and CPC. Q2 06/7 Q2 05/6 Q2 05/6 H1 06/7 H1 05/6 H1 05/6 ‚£m ‚£m ‚£m at CER* ‚£m ‚£m ‚£m at CER*Revenue 105.1 98.7 98.6 212.5 198.3 198.8Operating profit 12.1 9.7 9.7 24.5 20.3 20.4Operating margin 11.5% 9.8% 9.8% 11.5% 10.2% 10.3%%Sales growth ¢â‚¬ 7.3% 7.2%* Constant Exchange RatesSales were up 7.3% in the quarter, with the improved marketconditions seen in the first quarter continuing and further market share gainsevident in the UK. Operating margin of 11.5% was well above last year and inline with the first quarter as gross margin improved and costs remainedtightly controlled.Revenue by region Q2 06/7 Q2 05/6 Sales H1 06/7 H1 05/6 Sales growth growth ‚£m ‚£m ‚£m ‚£mUK (including 68.1 65.4 4.4% 137.2 131.4 4.5%exports)Mainland Europe 28.9 25.7 13.9% 59.3 52.3 13.8%Asia Pacific 8.1 7.6 9.2% 16.0 14.6 8.2%The division's UK sales (including exports) increased 4.4% in thesecond quarter, reflecting strong sales at Farnell InOne and CPC, offset bythe anticipated decline in sales at BuckHickman InOne.The strong performance seen in the first quarter from sales throughthe Farnell InOne brand in the UK continued in the second quarter with salesincreasing 8.6% in the second quarter. We have witnessed strong demand for ourRoHS compliant product range, leveraging our leadership position on RoHSthrough powerful marketing and sales initiatives culminating in average ordervalue increasing for the third quarter in a row.The implementation of the restructuring programme for BuckHickmanInOne continued on plan during the quarter. The programme, which puts in placea new service and logistics model for the business, commenced in April and bythe end of July approximately 75% of the network had been converted. Sales perday through the BuckHickman InOne brand were down 3.7% during the quarter. Thekey objectives for the remainder of this year are to complete the deploymentof the new business model and to exploit the opportunities the new platformcreates to enhance the range of services offered to our customers.CPC's sales rose 8.9% in the second quarter with new initiatives inmarketing continuing to deliver success, supported by improved service levels.In mainland Europe, Farnell InOne continued to post record salesper day, with second quarter year-on-year growth of 13.9%. Sales in allsignificant mainland European markets displayed double digit growth over theprior year, helped by a continued acceleration in sales of RoHS compliantproducts and new product sales from the enhanced catalogue ranges launched inthe first quarter.During the quarter, the Europe and Asia Pacific region generatedrecord levels of traffic over its web sites and sales through these sites wereup 67% year-on-year. Sales via eProcurement agreements were up 18%.Sales growth in Asia was 19.5% in the second quarter, driven bycontinued strong growth in Singapore, particularly in the Contract EquipmentManufacturer (CEM) sector. Further improvements to the service proposition inMalaysia have been well received by the market and China has benefited fromthe strengthening of the management team and improved business processes. Wehave continued to see a significant increase in the number of active customersin the Asia region.In Australia, the performance of the business improved with salesin the quarter showing positive year-on-year growth compared to the declineseen in the first quarter.Industrial Products Division (IPD)Continuing Q2 06/7 Q2 05/6 Q2 05/6 H1 06/7 H1 05/6 H1 05/6businesses (restated) (restated) (restated) (restated) ‚£m ‚£m ‚£m at CER* ‚£m ‚£m ‚£m at CER*Revenue 18.4 16.3 15.7 37.3 30.7 31.3Operating profit 3.3 2.7 2.6 6.6 5.3 5.4Return on sales 17.9% 16.6% 16.6% 17.7% 17.3% 17.3%Sales growth ¢â‚¬ 15.5% 18.5%*Constant exchange ratesSales rose 18.5% in the first half, or 5.9% excluding the effect ofthe acquisition of Weldon in June 2005, and 15.5% in the second quarter (6.9%excluding the acquisition). At constant exchange rates, operating profit was‚£1.2 million ahead of last year, helped by the contribution from Weldon.Akron BrassAkron Brass grew sales by 20.9% in the second quarter, or 7.7%excluding the effect of the acquisition of Weldon in June 2005. Sales werepositively impacted by increased orders from fire apparatus manufacturers,municipal fire departments and the expansion of international business.TPC Wire & CableTPC achieved sales growth of 17.2% in the second quarter with thebusiness continuing to benefit from its successful diversification intonon-domestic automotive markets. The business continues to increase sales toforeign automotive manufacturers located in North America, however conditionsamongst indigenous North American automotive manufacturers (which now onlyaccount for approximately a quarter of TPC's sales) remain difficult. Despitethe continuing raw material cost pressures, the business continues tosuccessfully maintain margin through effective management of the supply chain.Board AdditionsAs announced on 15th June 2006, Mark Whiteling joined the Board on1st September 2006 as Group Finance Director. Mark was previously GroupFinance Director of Communisis plc, a pan-European print management/directmail group. Prior to joining Communisis in November 2004, Mark was GroupFinance Director of Tibbett & Britten plc, a FTSE250 company and the seventhlargest logistic company in the world.We also announced on 24th August the appointment of Andrew Dougalas a non-executive director and Chairman of the Remuneration Committee witheffect from 1st September 2006. Mr Dougal was Chief Executive of Hanson plc,the international building materials company, from 1995-97 and since 2002 hasbeen a non-executive director of Taylor Woodrow plc. He has also heldnon-executive director positions with BPB plc from 2003 to 2005 and CeltelInternational BV during 2004/5.OutlookThe Board is optimistic that the progress the Group has made so farin 2006 will continue. Despite the second half having more challengingcomparators and the uncertainty over whether the market will remain asbuoyant, the Board still anticipate making progress in the second half againstthe comparable period last year.This press release contains certain forward-looking statementsrelating to the business of the Group and certain of its plans and objectives,including, but not limited to, future capital expenditures, future ordinaryexpenditures and future actions to be taken by the Group in connection withsuch capital and ordinary expenditures, the expected benefits and futureactions to be taken by the Group in respect of certain sales and marketinginitiatives, operating efficiencies and economies of scale. By their natureforward-looking statements involve risk and uncertainty because they relate toevents and depend on circumstances that will occur in the future. Actualexpenditures made and actions taken may differ materially from the Group'sexpectations contained in the forward-looking statements as a result ofvarious factors, many of which are beyond the control of the Group. Thesefactors include, but are not limited to, actions taken in response toenactment of RoHS and similar legislation, the results of, and implementationof initiatives arising from, the Group's strategic business review, 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,changes in demand for electronic, electrical, electromagnetic and industrialproducts, rapid changes in distribution of products and customer expectations,the ability to introduce and customers' acceptance of new services, productsand product 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 second quarter and half year ended 30th July 2006 2005/6 2006/7 Second 2005/6 2005/6 Full Second quarter 2006/7 First half year quarter unaudited First half unaudited audited unaudited (restated) unaudited (restated) (restated) Notes ‚£m ‚£m ‚£m ‚£m ‚£m Continuing operationsRevenue 2 206.4 190.8 421.3 377.5 773.5Cost of sales- before RoHSinventory provision (127.4) (117.8) (260.2) (232.4) (478.2)- RoHS inventory provision - - - - (6.6)Total cost of sales (127.4) (117.8) (260.2) (232.4) (484.8)Gross profit 79.0 73.0 161.1 145.1 288.7Net operating expenses- before reorganisation costs (58.8) (56.9) (119.3) (111.6) (225.2)- reorganisation costs - - - - (5.3)Total net operating expenses (58.8) (56.9) (119.3) (111.6) (230.5)Operating profit- before RoHSinventory provisionand reorganisation costs 20.2 16.1 41.8 33.5 70.1- RoHS inventory provision - - - - (6.6)- reorganisation costs - - - - (5.3)Total operating profit 2 20.2 16.1 41.8 33.5 58.2Finance income(interest receivable) 0.2 - 0.3 0.1 0.4Finance costs- interest payable (3.6) (3.5) (7.4) (6.8) (14.4)- preference dividends (1.7) (1.7) (3.4) (3.4) (6.7)- premium on redemptionof preference shares (0.3) (0.4) (0.6) (0.7) (1.5)Total finance costs (5.6) (5.6) (11.4) (10.9) (22.6)Profit before taxation 3 14.8 10.5 30.7 22.7 36.0Taxation 4 (4.8) (2.4) (9.9) (6.2) (6.0)Profit aftertaxation fromcontinuing operations 10.0 8.1 20.8 16.5 30.0Profit aftertaxation fromdiscontinued operation 5 0.3 0.2 0.6 0.3 1.1Profit for theperiod (attributableto ordinary shareholders) 10.3 8.3 21.4 16.8 31.1 Earnings per share 6Basic 2.8p 2.3p 5.9p 4.6p 8.6pDiluted 2.8p 2.3p 5.9p 4.6p 8.6p Earnings pershare fromcontinuing operations 6Basic 2.8p 2.2p 5.7p 4.5p 8.3pDiluted 2.7p 2.2p 5.7p 4.5p 8.3p Ordinary dividendsInterim - proposed 4.0p 4.0p 4.0pFinal - proposed 5.0pPaid 5.0p 5.0p 9.0pImpact onshareholders' funds (‚£m) 18.1 18.1 32.6 Prior year figures have been restated to reflect the reclassification of the Kent business as a discontinuedoperation following its disposal on 31st July 2006. Further details are given in note 5. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the second quarter and half year ended 30th July 2006 2006/7 2005/6 2006/7 2005/6 2005/6 Second Second First First Full quarter quarter half half year unaudited unaudited unaudited unaudited audited Notes ‚£m ‚£m ‚£m ‚£m ‚£m Profit for the period 10.3 8.3 21.4 16.8 31.1 Net exchange adjustments (0.7) (4.8) (0.7) (4.6) (4.5)Actuarial losseson pensions andother post-retirement obligations - - - - (8.2)Deferred taxon actuarial losses - - - - 2.4Net lossesnot recognised inthe income statement 9 (0.7) (4.8) (0.7) (4.6) (10.3)Total recognisedincome for the period 9.6 3.5 20.7 12.2 20.8Effect ofchange in accountingfor preference shares(including deferredtax of ‚£4.7m) 9 (111.0) (111.0)Total recognisedexpense sinceprior year (98.8) (90.2)CONSOLIDATED BALANCE SHEETAs at 30th July 2006 30th July 31st July 2006 2005 29th January unaudited unaudited 2006 audited Notes ‚£m ‚£m ‚£mASSETSNon-current assetsGoodwill 49.8 49.7 50.0Otherintangibleassets 22.6 29.5 27.5Property,plant andequipment 62.3 69.3 67.3Retirementbenefitasset 50.8 48.6 52.0Deferred taxassets 0.5 0.4 0.3Total non-current assets 186.0 197.5 197.1 Current assetsInventories 169.8 168.9 163.2Trade andother receivables 134.1 137.2 142.8Cash andcash equivalents 7 32.8 32.3 40.5 336.7 338.4 346.5Assets relatingto discontinuedoperation 5 14.9 - -Total currentassets 351.6 338.4 346.5 LIABILITIESCurrent liabilitiesFinancial liabilities 7 (1.4) (88.6) (92.8)Trade andother payables (96.0) (95.0) (93.9)Current taxpayable (35.5) (35.9) (29.5)Short-termprovisions 8 (2.2) (0.1) (3.2) (135.1) (219.6) (219.4)Liabilities relatingto discontinuedoperation 5 (6.4) - -Total currentliabilities (141.5) (219.6) (219.4) Net currentassets 210.1 118.8 127.1 Non-currentliabilitiesFinancial liabilities 7 (348.8) (275.4) (277.8)Retirementand other post-employment benefits (36.8) (25.0) (38.5)Deferred taxliabilities (23.0) (28.7) (25.2)Other provisions 8 (0.9) (0.9) (1.1)Total non-current liabilities (409.5) (330.0) (342.6) NET LIABILITIES (13.4) (13.7) (18.4) EQUITYOrdinary shares 18.2 18.1 18.1Equity elementof preferenceshares 19.9 19.9 19.9Share premium 21.4 20.3 20.5Capital redemptionreserve 0.8 0.8 0.8Hedging reserve (0.1) (0.1) (0.2)Cumulative translationreserve (3.0) (2.4) (2.3)Retained earnings (70.6) (70.3) (75.2)TOTAL EQUITY 9 (13.4) (13.7) (18.4)SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWSFor the second quarter and half year ended 30th July 2006 2005/6 2006/7 Second 2006/7 2005/6 2005/6 Second quarter First First half Full year quarter unaudited half unaudited audited unaudited (restated) unaudited (restated) (restated) Notes ‚£m ‚£m ‚£m ‚£m ‚£m Cash flowsfrom operatingactivitiesOperating profitfrom continuingoperations 20.2 16.1 41.8 33.5 58.2Exceptional items:- income statementimpact - - - - 11.9- cash impact (0.9) - (1.2) - (2.0)Net impact ofexceptional items (0.9) - (1.2) - 9.9Depreciationand amortisation 4.9 5.0 10.0 10.1 20.8Changes in workingcapital (beforeexceptional items) 0.3 5.2 (7.7) (4.5) (11.1)Other non-cash movements(before exceptional items) (0.1) (0.1) (0.3) 0.2 (1.0)Cash generatedfrom continuingoperations 24.4 26.2 42.6 39.3 76.8Discontinued operations (0.1) 0.3 (0.1) 0.2 2.5Interest received 0.2 - 0.4 0.1 0.4Interest paid (7.4) (6.8) (7.9) (7.0) (14.3)Dividends paidon preferenceshares (3.4) (3.4) (3.4) (3.4) (6.7)Taxation paid (5.7) (5.9) (8.2) (8.2) (14.3)Net cashgenerated fromoperating activities 8.0 10.4 23.4 21.0 44.4 Cash flowsfrom investingactivitiesPurchase ofbusinesses - (7.6) - (7.6) (7.6)Proceeds fromsale of property, plant and equipment 1.8 1.0 2.1 1.0 1.1Purchase oproperty, plantand equipment (1.8) (0.8) (3.0) (2.2) (5.8)Purchase ofintangible assets(computer software) (1.6) (1.5) (2.7) (2.3) (5.7)Net cashused ininvestingactivities (1.6) (8.9) (3.6) (11.1) (18.0) Cash flowsfrom financingactivitiesSEC de-registrationcosts - (0.3) - (0.3) (0.3)Issue ofordinaryshares 0.4 - 1.1 0.1 0.1New bankloans 78.9 12.1 78.9 12.1 22.7Repaymentof bankloans (83.8) - (85.8) - (8.3)Dividendspaid toshareholders (18.1) (18.1) (18.1) (18.1) (32.6)Net cashused infinancingactivities (22.6) (6.3) (23.9) (6.2) (18.4) Net (decrease)/increase incash, cashequivalentsand bankoverdrafts (16.2) (4.8) (4.1) 3.7 8.0Cash, cashequivalentsand bank Overdraftsat beginningof period 47.1 34.4 35.6 27.2 27.2Exchangegains/(losses) 0.7 2.4 0.1 1.1 0.4Cash, cashequivalentsand bankoverdrafts atend of period 31.6 32.0 31.6 32.0 35.6 Reconciliationof netfinancialliabilitiesNet financialliabilities atbeginning ofperiod, aspreviouslyreported (330.1) (200.7) (200.7)Implementationof accountingfor financialinstrumentsin accordancewith IAS 39:- reclassificationof preferenceshares - (106.3) (106.3)Net financialliabilities atbeginning ofperiod, asrestated (330.1) (307.0) (307.0)Net (decrease)/increase in cash, cash equivalentsand bank overdrafts (4.1) 3.7 8.0Decrease/(increase)in debt 6.9 (12.1) (14.4)Premium onredemptionof preferenceshares (0.6) (0.7) (1.5)Derivativefinancialinstruments 0.1 (0.1) (0.2)Exchange movement 10.4 (15.5) (15.0)Net financialliabilities at endof period 7 (317.4) (331.7) (330.1) Prior year figures have been restated to reflect the reclassification of the Kent business as adiscontinued operation following its disposal on 31st July 2006. Further details are given in note 5.NOTES1 BASIS OF PREPARATIONThe unaudited consolidated financial information in this report has beenprepared applying the accounting policies disclosed in the Group's 2006 AnnualReport and Accounts on pages 33 to 36. The Group's 2006 Annual Report andAccounts, on which the Company's auditors, PricewaterhouseCoopers LLP, havegiven an unqualified opinion in accordance with Section 235 of the CompaniesAct 2005, is available on the Company's website at www.premierfarnell.com orfrom 150 Armley Road, Leeds, LS12 2QQ.2 SEGMENT INFORMATION (CONTINUING OPERATIONS) 2005/6 2006/7 Second 2006/7 2005/6 2005/6 Second quarter First First half Full year quarter unaudited half unaudited audited unaudited (restated) unaudited (restated) (restated) ‚£m ‚£m ‚£m ‚£m ‚£m Revenue Marketing and Distribution Division Americas 82.9 75.8 171.5 148.5 310.0 Europe and Asia Pacific 105.1 98.7 212.5 198.3 396.4 Total Marketing and Distribution Division 188.0 174.5 384.0 346.8 706.4 Industrial Products Division 18.4 16.3 37.3 30.7 67.1 206.4 190.8 421.3 377.5 773.5 Operating profit Marketing and Distribution Division Americas - before RoHS inventory provision and reorganisation costs 7.2 6.6 15.5 13.2 27.1 - RoHS inventory provision - - - - (4.2) - reorganisation costs - - - - (0.7) 7.2 6.6 15.5 13.2 22.2 Europe and Asia Pacific - before RoHS inventory provision and reorganisation costs 12.1 9.7 24.5 20.3 41.5 - RoHS inventory provision - - - - (2.4) - reorganisation costs - - - - (4.4) 12.1 9.7 24.5 20.3 34.7 Total Marketing and Distribution Division 19.3 16.3 40.0 33.5 56.9 Industrial Products Division 3.3 2.7 6.6 5.3 12.0 Head Office costs - before reorganisation costs (2.4) (2.9) (4.8) (5.3) (10.5) - reorganisation costs - - - - (0.2) (2.4) (2.9) (4.8) (5.3) (10.7) 20.2 16.1 41.8 33.5 58.2 Prior year figures have been restated to reflect the reclassification of theKent business, part of the Industrial Products Division, as a discontinuedoperation following its disposal on 31st July 2006. Further details are givenin note 5.3 PROFIT BEFORE TAXATION (CONTINUING OPERATIONS)Profit before taxation is stated after charging/(crediting): 2006/7 2005/6 Second Second 2006/7 2005/6 2005/6 quarter quarter First half First half Full year unaudited unaudited unaudited unaudited audited ‚£m ‚£m ‚£m ‚£m ‚£m Share-based payments 0.5 0.3 1.3 1.0 2.1 Defined benefit pension schemes (net) (0.3) (0.4) (0.8) (0.7) (2.4) Severance costs (former Group Chief Executive) - 0.5 - 0.5 0.5 RoHS inventory provision - - - - 6.6 Reorganisation costs - - - - 5.3The negotiations with regard to the former Group Chief Executive's pensionentitlement referred to in the 2006 Annual Report were concluded in thequarter and a payment of ‚£0.3 million was made.In the year ended 29th January 2006, a provision of ‚£6.6 million was made inthe fourth quarter for obsolete and slow moving non-compliant inventory as aresult of the European Union's Directive relating to the Restriction of theuse of certain Hazardous Substances (RoHS).Reorganisation costs in the year ended 29th January 2006, comprised ‚£1.4million charged in the third quarter for severance costs relating to theGroup's redundancy programme, and ‚£3.9 million charged in the fourth quarterrelating to the restructuring of the BuckHickman InOne business.4 TAXATIONThe taxation charge includes provision at an effective rate for the period onprofit before tax from continuing operations and preference dividends of 29.0%(2005/6: 23.8%), being the estimated effective rate of taxation for the yearending 28th January 2007.5 DISCONTINUED OPERATIONOn 31st July 2006 , the Group disposed of Kent, a specialist automotiveconsumables business and part of the Industrial Products Division, for a cashconsideration, before associated costs, of ‚£22 million. Consequently, the Kentbusiness has been reclassified as a discontinued operation and its tradingresults are included in the income statement as a single line below profitafter taxation from continuing operations, with comparatives restatedaccordingly . The impact of this discontinued operation on the incomestatement is as follows: 2006/7 2005/6 Second Second 2006/7 2005/6 2005/6 quarter quarter First half First half Full year unaudited unaudited unaudited unaudited audited ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 10.8 9.8 21.3 19.5 40.5 Gross margin 7.3 6.8 14.5 13.6 27.8Net operatingexpenses (6.8) (6.4) (13.6) (13.1) (25.7)Operating profit 0.5 0.4 0.9 0.5 2.1Taxation (0.2) (0.2) (0.3) (0.2) (1.0)Profit after taxation 0.3 0.2 0.6 0.3 1.1At 30th July 2006, the aggregate assets and aggregate liabilities of thisbusiness have been included in the balance sheet as current assets or currentliabilities relating to discontinued operations, respectively. The gain ondisposal will be reflected in the third quarter results.6 EARNINGS PER SHAREBasic earnings per share is calculated by dividing the profit attributable toordinary shareholders for the period by the weighted average number ofordinary shares in issue during the period, excluding those shares held by thePremier Farnell Executive Trust. For diluted earnings per share, the weightedaverage number of ordinary shares in issue is adjusted to assume issue of alldilutive potential ordinary shares, being those share options granted toemployees where the exercise price is less than the average market price ofthe Company's ordinary shares during the period.Earnings and the weighted average number of ordinary shares used in thecalculations of earnings per share are set out below. 2006/7 2005/6 2005/6 Full First half First half year unaudited unaudited audited ‚£m ‚£m ‚£m Profit attributableto ordinaryshareholders 21.4 16.8 31.1 Number Number Number Weightedaverage numberof shares 363,315,125 362,717,219 362,729,711Dilutive effectof shareoptions 1,516,352 232,986 376,557Diluted weightedaverage numberof shares 364,831,477 362,950,205 363,106,268 7 NET FINANCIAL LIABILITIES 29th 30th July 31st July January 2006 2005 2006 unaudited unaudited audited ‚£m ‚£m ‚£m Cash andcash equivalents 32.8 32.3 40.5Unsecuredloans andoverdrafts (239.3) (254.4) (260.2)Net financialliabilities beforepreference sharesand derivatives (206.5) (222.1) (219.7)Preferenceshares (110.8) (109.5) (110.2)Derivativefinancialinstruments (0.1) (0.1) (0.2)Net financialliabilities (317.4) (331.7) (330.1)Net financial liabilities are analysed in the balance sheet as follows:Current assetsCash and cashequivalents 32.8 32.3 40.5 Current liabilitiesBank overdrafts (1.2) (0.3) (4.9)7.2% US dollarGuaranteed SeniorNotes payable2006 - (88.1) (87.6)Other loans (0.1) (0.1) (0.1)Derivativefinancial instruments (0.1) (0.1) (0.2) (1.4) (88.6) (92.8) Non-currentliabilitiesBank loans (114.4) (35.5) (37.9)5.3% US dollarGuaranteed SeniorNotes payable2010 (35.5) (37.5) (37.3)5.9% US dollarGuaranteed SeniorNotes payable 2013 (85.5) (90.3) (89.8)Other loans (2.6) (2.6) (2.6)Preference shares (110.8) (109.5) (110.2) (348.8) (275.4) (277.8) 8 PROVISIONS 29th 30th July 31st July January 2006 2005 2006 unaudited unaudited audited ‚£m ‚£m ‚£mCurrent:- reorganisationcosts 2.1 - 3.1- dilapidationcosts 0.1 0.1 0.1 Non-current:- reorganisationcosts - - 0.2- dilapidationcosts 0.9 0.9 0.9 3.1 1.0 4.3 9 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 2006/7 2005/6 2005/6 First half First half Full year unaudited unaudited audited ‚£m ‚£m ‚£m Total equityat beginningof year, aspreviouslyreported (18.4) 102.5 102.5Implementationof accountingfor financialinstrumentsin accordancewith IAS 32and IAS 39:- reclassificationof preferenceshares as debt - (106.3) (106.3)- associateddeferred tax - (4.7) (4.7)Total equityat beginningof year,as restated (18.4) (8.5) (8.5)Profit forthe period 21.4 16.8 31.1Net gainsand lossesrecogniseddirectly inequity (0.7) (4.6) (10.3)Ordinarydividendsdeclared (18.1) (18.1) (32.6)Ordinarysharesissued 1.0 0.1 0.3Share-basedpayments 1.3 1.0 2.1Derivativefinancialinstruments 0.1 (0.1) (0.2)SEC de-registrationcosts - (0.3) (0.3)Total equityat end of year (13.4) (13.7) (18.4) 10 EXCHANGE RATESThe principal average exchange rates used to translate the Group's overseasprofits were as follows: 2006/7 2005/6 Second Second 2006/7 2005/6 2005/6 quarter quarter First half First half Full year US dollar 1.85 1.78 1.81 1.85 1.80 Euro 1.46 1.46 1.45 1.46 1.46 11 DIVIDENDAn interim dividend of 4.0 pence per share (2005/6: 4.0 pence per share) willbe paid on 18th October 2006 to ordinary shareholders on the register at closeof business on 22nd September 2006.ENDPREMIER FARNELL PLCRelated Shares:
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