8th Sep 2005 06:00
Premier Farnell plc 8 September 2005Results for the Second Quarter and Half Year to 31 July 2005 for the financial year ending on 29 January 2006 Key Financials ‚£m Q2 05/6 Q2 04/5 Q2 04/5 H1 05/6 H1 04/5 H1 04/5 (Unaudited) ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m at CER* at CER* Sales 200.6 194.7 198.8 397.0 395.0 396.3 Operating profit 16.5 18.5 19.1 34.0 37.3 37.6 Earnings per share 2.3p 2.5p 2.6p 4.6p 5.0p 5.1p Sales growth¢â‚¬ 0.9% 0.2% * Constant Exchange Rates Key points * Marketing and Distribution Division sales per day in first half in line with prior year; sales per day in second quarter up 2% in North America, down 3.1% in the UK and up 6.5% in Mainland Europe * Operating profit in first half impacted by ‚£2.2million compared with prior year as a result of the reduced contribution from BuckHickman InOne; BuckHickman InOne's contribution expected to be ahead of prior year in second half * Cash flow neutral after finance costs and dividends (before acquisitions) * Interim dividend of 4.0p (2004/5: 4.0p) * Good progress made in preparing for impact of RoHS (Restriction of the use of certain Hazardous Substances) legislation * Cost reduction programme underway which is expected to have neutral impact (after severance costs) this year and result in an estimated ‚£2.7million net savings in the next financial year * Voluntary termination of Premier Farnell's registration with the SEC expected to take effect on 29 September 2005 Sir Peter Gershon, Executive Chairman commented:"Overall, Premier Farnell's performance in the first half of this year has beenlacklustre, although year-on-year sales growth in the second quarter wasmarginally ahead of that in the first quarter."The business has maintained sales levels in North America, but continues tosee some pressure on gross margins as a result of increased competition. In theUK, whilst the market has deteriorated further, our sales slowed less as CPC'srecovery began to gather momentum. In Mainland Europe, the business continuedto perform well throughout the half, growing sales by 6.5% and maintaininghealthy margins, in spite of patchy market conditions."Operating profits in the half were affected by ‚£2.2million due to the reducedlevel of contribution from BuckHickman InOne, the majority of which occurred inthe first quarter. Group-wide S,G&A increased at a rate below inflation."Having assumed executive responsibilities for the Group on 4 July, I now leadthe executive team and am confident that the Group has sound management inplace. In this role, my priorities are threefold: to find a new ChiefExecutive, to maximise the Group's performance in this financial year, and toput in place a robust budget for the next financial year."Whilst I expect the new CEO will review the Group's strategic priorities, Ibelieve that there is a considerable amount that can be done in the meantime toimprove the medium-term performance of the Group. We are therefore takingaction to reduce costs primarily through a redundancy programme across theGroup that will be substantially completed by the end of the third quarter. Thecost savings achieved will assist in supporting future profitability and alsoafford us the opportunity to increase investment in eCommerce and develop theGroup's proposition to electronic design engineers. In addition, we areundertaking a review of BuckHickman InOne to identify opportunities to improveits contribution to the Group's performance. This review will be concluded bythe time of the announcement of the Company's Preliminary Results next March."I am also putting in place stronger disciplines to encourage the allocation ofcapital and resources to support the key initiatives that are currentlyunderway within the businesses, namely to prepare for the RoHS legislation, toachieve continuous improvement in service levels, and to increase theproportion of the Group's sales transacted through eCommerce."Over the last quarter, there has been no significant change in the conditionsprevailing in our markets, with the exception of some further deterioration inthe UK. We continue to plan on the basis that our markets, in aggregate, willshow little change in activity levels through the second half."¢â‚¬ sales GROWTH percentageSComparison of sales for specific periods is affected by three variables: 1. Changes in exchange rates used to translate the overseas sales in different currencies into sterling; 2. Differences in the number of working days; 3. Disposal or acquisition of businesses. Throughout this statement, in order to reflect underlying business performance,percentage changes in sales are based on sales per day for continuingbusinesses at constant exchange rates and for like periods, unless otherwisestated.For further information, contact:Sir Peter Gershon, Executive Premier Farnell plc +44 (0) 20 7851 4100Chairman Andrew Fisher, Group Finance Director James Garthwaite, Group Director, Communications Richard Mountain / Andrew Lorenz Financial Dynamics (UK) +44 (0) 20 7269 7291 Brian Rafferty / John Sutton Taylor Rafferty (NA) + 1 212 889 4350 The Company's announcements are published on the Internet atwww.premierfarnell.com, together with business information, the 2005 Annual Reportand Accounts and links to all other Group websites.Group third quarter results are expected to be published in the week beginning5th December 2005.Premier Farnell plc CHAIRMAN'S STATEMENT ON SECOND QUARTER AND HALF YEAR RESULTS FOR THE PERIOD ENDED 31 JULY 2005 Premier Farnell, the leading global marketer and distributor of electronic,maintenance, repair and operations (MRO) and specialist products and services,today announces its results for the second quarter and half year ended 31 July2005.These results are reported by the Company in accordance with InternationalFinancial Reporting Standards (IFRS). The impact of IFRS on the Group'saccounting policies and comparative financial results, which have been restatedin accordance with IFRS, is given in note 1 to the financial information andalso in the IFRS announcement made on 4 May 2005, a copy of which can be foundon the Company's website.sales GROWTH percentageSComparison of sales for specific periods is affected by three variables: 1. Changes in exchange rates used to translate the overseas sales in different currencies into sterling; 2. Differences in the number of working days; 3. Disposal or acquisition of businesses. Throughout this statement, in order to reflect underlying business performance,percentage changes in sales are based on sales per day for continuingbusinesses at constant exchange rates and for like periods, unless otherwisestated.Financial Results * Sales Group sales in the first half of the year were ‚£397.0million (2004/5: ‚£395.0million). At constant exchange rates, the sales increase was ‚£0.7million. * Margins and Operating Profit Half Year resultsThe gross margin for the Group was 40.0% (2004/5: 40.3%) in the first half.Operating profit in the first half was ‚£34.0million (2004/5: ‚£37.3million),producing an operating margin of 8.6% (2004/5: 9.4%). Operating profit for thehalf year was adversely affected by a reduction in contribution fromBuckHickman InOne of ‚£2.2million compared with the prior year.Second Quarter resultsThe gross margin for the Group was 39.8% (2004/5: 40.4%) in the second quarter.This decline was primarily a result of changes in business mix at Newark InOneand BuckHickman InOne. Operating profit in the quarter was ‚£16.5million (2004/5: ‚£18.5million), producing an operating margin of 8.2% (2004/5: 9.5%). * Interest Net interest payable in the first half was ‚£6.7million (2004/5: ‚£6.7million)and was covered 5.1 times by operating profit.Included in finance costs for the half is a charge of ‚£4.1million (2004/5: nil)in respect of the Company's convertible preference shares. Under IFRS, witheffect from 31 January 2005, the preference dividend for the first half of ‚£3.4million, together with a ‚£0.7million charge for the amortisation of theimplied redemption premium on the preference shares, is included as a financecost with no restatement of prior year comparatives. This is purely anaccounting change as a result of IFRS and has no impact on the Group'sfinancing arrangements. * Profit Before Taxation and Taxation Charge Reported profit before taxation in the first half was ‚£23.2million and,excluding the finance charge of ‚£4.1million for the Company's convertiblepreference shares, profit before tax was ‚£27.3million (2004/5: ‚£30.6million).The taxation charge in the first half was at an effective rate of 24% of profitbefore tax and preference dividends, being the estimated effective rate oftaxation for the year ending 29 January 2006. This compares to the effectivetax rate in the year to 30 January 2005 of 23.7% of profit before tax. * Return on Net Assets Return on net operating assets in the first half was 24.8% compared to 27.5%for the year ended 30 January 2005, the decline being due mainly to thedecrease in operating profit. * Earnings per Share and Dividend Earnings per share in the first half were 4.6pence (2004/5: 5.0pence).The Board is declaring an interim dividend of 4.0pence per share (2004/5:4.0pence) to be paid on 19 October 2005 to shareholders on the register on 23September 2005. * Balance Sheet and Cash Flow Net cash generated from operations of ‚£39.5million in the half was 116% ofoperating profit (2004/5: ‚£25.5million, 68% of operating profit). Workingcapital decreased by ‚£5.0million during the second quarter as a result ofseasonal trends and tight control of inventory and receivables.Net cash out-flow during the first half, before the cost of businessesacquired, was ‚£0.8million (2004/5: out-flow of ‚£16.1million). Net debt at theend of the quarter was ‚£331.7million, including ‚£109.5million attributable tothe reclassification of the Company's preference shares as required under IFRS.Net debt excluding preference shares was ‚£222.2million, compared with ‚£200.7million at 30 January 2005, with ‚£13.0million of this increase resultingfrom movements in exchange rates. * Acquisitions In June, Weldon Technologies Inc., was acquired for ‚£5.9million ($10.4million)to broaden Akron Brass' product portfolio and to extend its reach into newmarkets. Weldon is a US-based supplier of lighting and electrical controlsolutions to a number of specialty vehicle markets and produced sales of$14.4million in the year to 31 March 2005.In June, the assets of R&R Instrumentation, a US-based specialist distributorof test equipment and provider of calibration services, were acquired for ‚£1.7million ($2.9million) and the business and its employees were transferred toNewark InOne. The business had sales of $6.6million in the year to 30 April2005. * De-registration from the US Securities and Exchange Commission (SEC) On 1 July, the Group announced that it had filed a notification with the SEC oftermination of the registration of its ordinary and preference shares under theUS Securities Exchange Act of 1934 (Exchange Act). On filing of the form,Premier Farnell's obligations to file certain forms and reports with the SECunder the Exchange Act, including Forms 20-F and 6-K, were suspended.Termination of Premier Farnell's registration with the SEC is expected to takeeffect on 29 September 2005.OperationsMarketing and Distribution Division (MDD) - OverviewThe Marketing and Distribution Division comprises Newark InOne, Farnell InOne,BuckHickman InOne, MCM, an InOne Company, and CPC. Q2 05/6 Q2 04/5 Q2 04/5 H1 05/6 H1 04/5 H1 04/5 ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m at CER* at CER* Sales 174.5 170.3 173.7 346.8 347.0 348.0 Operating profit 16.3 17.6 18.1 33.5 36.1 36.4 Return on sales 9.3% 10.3% 10.4% 9.7% 10.4% 10.5% Sales growth 0.5% -0.3% * Constant Exchange RatesThe primary reason for the lower operating profit in the first half was thereduction in contribution from BuckHickman InOne when compared with the prioryear, most of which occurred in the first quarter.The division's gross margin in the first half decreased 0.2% year on year. Inthe Americas, gross margin was level with the prior year, but showed areduction of 0.8% compared with the second half of last year. This resultedfrom a shift in mix towards corporate account sales which are typically moreresilient in a soft market, but which generate a lower margin. Within Europeand Asia Pacific, gross margin during the half was down 0.3% on the prior yearlevel as a result of the changing customer mix at BuckHickman InOne. The grossmargin at Farnell InOne was in line with that achieved in the prior year,notwithstanding more aggressive competition and difficult market conditions.RoHS Legislation (Restriction of the use of certain Hazardous Substances)The division has continued to make good progress in preparing for the EuropeanUnion's RoHS Directive, which is due to take effect on 1 July 2006. From thisdate, producers of certain categories of electronic and electrical equipmentwill be prohibited from selling products within the European Union that containsix restricted substances, unless specific exemptions apply. Similarlegislation is pending in a number of US States and in China.Newark InOne and Farnell InOne have, together, been working closely withsuppliers to assist customers prepare for the legislation. Up-to-dateinformation on the RoHS compliant status of products is available on thedivision's websites. The complexity and rapidly changing nature of thisinformation makes it particularly valuable to electronic design engineers.It will be necessary to migrate approximately 60,000-70,000 electroniccomponents and products stocked by the Group, in both European and NorthAmerican inventories, to compliant versions. A temporary increase ininventories will therefore be required to service demand for compliant andnon-compliant product during the transition period. The Group's inventory isexpected to increase by up to ‚£15million by the end of the current year. It isexpected to peak, at up to ‚£20million higher than current levels, during thefirst half of next year. This inventory position is expected to unwind throughthe remainder of 2006/7 and 2007/8, leaving a broadly cash-neutral impact overthis period.It is likely that the Group will have some excess and obsolete inventoryfollowing the migration of customer demand over the next two years. At thisearly stage, it is estimated that this could amount to approximately 5% of thedivision's inventory. An appropriate provision will be made in the year-endaccounts, by which time the migration and readiness of customers and supplierswill be at a more advanced stage. A dedicated team has been established withinthe division to minimize this financial exposure through active management ofthe supply chain and disposal of potentially obsolete stock.Capital expenditure of approximately ‚£2.4million is being made during thecourse of the next 12 months to increase the capacity of existing systems andwarehouses to handle the migration. In addition, approximately ‚£1.3million ofexpense will be incurred for cataloguing, product management and increasedwarehouse activity. This will predominantly fall into the second half of theyear and is accommodated within existing plans. A similar amount is forecastfor next year.Supplier relationshipsDuring the half year, the Group secured global franchise agreements with twosuppliers, KEMET and Sipex, and a third in Europe and the Asia Pacific regionwith Linear Technology. These agreements, together with the addition of deeperproduct ranges from some key suppliers, are expected to increase theattractiveness of Farnell InOne's and Newark InOne's proposition to electronicdesign engineers.During the first half, the division won awards from seven suppliers for itssales and marketing activities.eCommerce salesIn the first half, eCommerce sales were up 32% on the prior year. eCommercesales accounted for 18% of sales in the Americas and 19% of those in the Europeand Asia Pacific region. * The Americas Q2 05/6 Q2 04/5 Q2 04/5 H1 05/6 H1 04/5 H1 04/5 ‚£m ‚£m ‚£m at CER ‚£m ‚£m ‚£m at CER* Sales 75.8 72.1 74.4 148.5 147.7 147.1 Operating profit 6.6 6.3 6.5 13.2 13.1 13.0 Return on sales 8.7% 8.7% 8.7% 8.9% 8.9% 8.8% Sales growth 2.0% 1.0% * Constant Exchange RatesThroughout the second quarter, Newark InOne continued to encounter gross marginpressure that was evident in the first quarter. However, through tight controlof overheads and staff costs, first half operating profits were ahead of theprior year.Sales over the web and through eProcurement partnerships in MDD Americaincreased 22% and 30% respectively in the half year. Amongst others, newpartnerships have been secured in the period with three customers in highereducation: Yale University, Massachusetts Institute of Technology (MIT) andCalifornia Institute of Technology.On 12 July, Newark InOne announced the acquisition of R&R Instrumentation, aspecialist distributor of test equipment and panel instruments and provider ofcalibration services. The business had sales of $6.6million in the year to 30April 2005. The acquisition enables Newark InOne, a leading distributor of testand measurement equipment in the North American electronics market, to offercalibration services to its extensive customer base.Sales from operations in Brazil continued to grow strongly in the half year. * Europe and Asia Pacific Q2 05/6 Q2 04/5 Q2 04/5 H1 05/6 H1 04/5 H1 04/5 ‚£m ‚£m ‚£m at CER ‚£m ‚£m ‚£m at CER* Sales 98.7 98.2 99.3 198.3 199.3 200.9 Operating profit 9.7 11.3 11.6 20.3 23.0 23.4 Return on sales 9.8% 11.5% 11.7% 10.2% 11.5% 11.6% Sales growth -0.6% -1.1% * Constant Exchange RatesSales were down 1.1% in the first half against the backdrop of tougher marketconditions in the UK and Mainland Europe compared to the first half of lastyear. Operating profit for the half year was adversely affected by a reductionin contribution from BuckHickman InOne of ‚£2.2million.Sales by region Q2 05/6 Q2 04/5 Sales H1 05/6 H1 04/5 Sales growth growth ‚£m ‚£m ‚£m ‚£m UK (including exports) 65.4 67.5 -3.1% 131.4 137.0 -4.1% Mainland Europe 25.7 23.5 6.5% 52.3 48.0 6.5% Asia Pacific 7.6 7.2 -1.9% 14.6 14.3 0.1% The overall market in the UK continued to deteriorate through the first halfand sales through the Farnell InOne and BuckHickman InOne brands declined by4.5% in the period. This decline narrowed from 5.1% down in the first quarterto 4.0% down in the second quarter.Farnell InOne UK maintained its active customer base year-on-year and theaverage number of orders per day increased during the first half. However theaverage order value has fallen, indicative of more cautious customer behaviour.Sales via the web continued to grow well and the business ran an increasingnumber of online marketing campaigns focused on both assisting customers handlethe RoHS legislation, and on supplier-specific promotions. These campaigns werecomplemented by the launch, in the first quarter, of `Electronics DesignWorld', a multi-lingual community web site for design engineers.The year-on-year reduction in contribution from BuckHickman InOne was ‚£2.2million for the first half, ‚£1.7million of which occurred in the firstquarter. Whilst this contribution is now running close to that of last year,the absolute level of contribution is unacceptably low. In recent years, thebusiness has failed to maintain its base of profitable smaller customers,partly because of the service issues that occurred two years ago. Whilst saleshave been supported by the winning of larger accounts, these carry loweraverage margins and the overall business is now out of balance. Consequently, abroadly based review is being undertaken to explore how the performance ofBuckHickman InOne can be improved. This review will be concluded by the time ofthe announcement of the Company's Preliminary Results next March.BuckHickman InOne launched a new catalogue in May, and a website in June. Inaddition, the business consistently achieved very high levels of service duringthe first half.CPC's sales in the first half declined 4.1%. However, the year-on-year declinereduced from 6.7% in the first quarter to 1.4% in the second quarter as CPC'srecovery from a nine-month period of under-performance gathered momentum. Itsmanagement team has been strengthened and the sourcing of moreprice-competitive products, combined with increasingly active marketing, ishelping to restore sales.In mainland Europe, Farnell InOne continued the strong performance evident inthe first quarter as sales rose 6.5% in the first half, despite patchy markets.This performance, driven by particularly strong growth in Italy, Germany andSpain, was assisted by continued high service levels from the Liƒ¨gedistribution centre.Across Europe sales via the web grew strongly and, in aggregate, MDD Europe andAsia Pacific's sales via eProcurement agreements and over the web were up by63% and 41%, respectively in the first half.Sales growth in Asia was 5.9% in the first half and 7.0% in the second quarter.A focus on achieving faster delivery is helping to improve the business'service proposition across Asia. In addition, recent marketing initiatives inJapan, Korea and Thailand also helped to stimulate sales growth.In Australia, sales for the first half declined 3.3% as the market andcompetitive pricing environment became more difficult.Industrial Products Division Q2 05/6 Q2 04/5 Q2 04/5 H1 05/6 H1 04/5 H1 04/5 ‚£m ‚£m ‚£m at CER ‚£m ‚£m ‚£m at CER * Sales 26.1 24.4 25.1 50.2 48.0 48.3 Operating profit 3.1 3.4 3.5 5.8 6.2 6.2 Return on sales 11.9% 13.9% 13.9% 11.6% 12.9% 12.8% Sales growth 3.9% 3.8% * Constant Exchange RatesThe results in the Industrial Products Division were adversely affected by aweak performance from the Kent business which saw operating profit decline by ‚£0.6million in the first half compared with the prior year. * Akron Brass Akron Brass increased sales per day in the first half of the year by 11.0%compared with the same period last year, mainly due to the acquisition ofWeldon Technologies in June. Weldon is a supplier of lighting and electricalcontrol solutions to a number of specialty vehicle markets, including those forambulances, school buses and fire-trucks. Weldon extends Akron Brass' productportfolio and opens up access into new markets. Weldon produced sales of$14.4million in the year to 31 March 2005 and its integration is progressingrapidly. Excluding the acquisition, sales were up 4.8% in a flat market. * TPC Wire and Cable Sales per day increased 7.5% in the first half against the same period lastyear. The business continued to generate strong growth from diversificationinto new, non-automotive markets and an active programme of new productintroductions. * Kent Sales per day were down 1.5% in the first half compared to last year againstthe backdrop of a weak market for automotive consumables. Sales in the secondquarter were 1.8% ahead of those in the first quarter assisted by the launch ofa new range of automotive tools in June.New Chief ExecutiveFollowing the resignation of John Hirst on 4 July, the search is underway for anew Chief Executive with the leadership skills to generate enhanced service forPremier Farnell's customers and improved returns for shareholders.Cost reduction programmeThe Group is taking action to improve its profitability in the next financialyear. A redundancy programme is underway that is expected to reduce the Group'sheadcount by approximately 130 and that will be substantially completed by theend of the third quarter. After anticipated severance costs of ‚£1.4million,which will be reflected in the third quarter, there will be no net benefit inthe current financial year. The programme is, however, expected to result ingross savings of approximately ‚£4.7million next year, of which ‚£2.0million willbe reinvested to support business development, particularly eCommerce.OutlookOver the last quarter there has been no significant change in the conditionsprevailing in our markets, with the exception of some further deterioration inthe UK. We continue to plan on the basis that our markets, in aggregate, willshow little change in activity levels through the second half.The measures that we are taking to focus on more profitable business, to reducecosts and to invest further in eCommerce, are intended to give the businessgreater resilience in the current market conditions. These steps should helpimprove the performance of Premier Farnell over the medium term and give it afirm foundation from which to expand in future.Sir Peter GershonExecutive Chairman8 September 2005Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the UnitedStates Private Securities Litigation Reform Act of 1995: The U.S. PrivateSecurities Litigation Reform Act of 1995 provides a "safe harbor" forforward-looking statements. This press release contains certain forward-lookingstatements relating to the business of the Group and certain of its plans andobjectives, including, but not limited to, future capital expenditures, futureordinary expenditures and future actions to be taken by the Group in connectionwith such 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 of variousfactors, many of which are beyond the control of the Group. These factorsinclude, but are not limited to, actions taken in response to enactment of RoHSlegislation, the implementation of cost-saving initiatives to offset currentmarket conditions, continued use and acceptance of e-commerce programs andsystems and the impact on other distribution systems, the ability to expandinto new markets and territories, the implementation of new sales and marketinginitiatives, changes in demand for electronic, electrical, electromagnetic andindustrial products, rapid changes in distribution of products and customerexpectations, the ability to introduce and customers' acceptance of newservices, products and product lines, product availability, the impact ofcompetitive pricing, fluctuations in foreign currencies, and changes ininterest rates and overall market conditions, particularly the impact ofchanges in world-wide and national economies.CONSOLIDATED INCOME STATEMENT For the second quarter and half year ended 31st July 2005 2005/6 2004/5 2005/6 2004/5 2004/5 Second Second First First Full year quarter quarter half half unaudited unaudited unaudited unaudited unaudited Notes ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 2 200.6 194.7 397.0 395.0 776.7 Cost of sales (120.8) (116.0) (238.3) (235.9) (462.2) Gross profit 79.8 78.7 158.7 159.1 314.5 Total operating (63.3) (60.2) (124.7) (121.8) (242.0)expenses Operating profit 2 16.5 18.5 34.0 37.3 72.5 Finance income - 0.1 0.1 0.2 0.3(interest receivable) Finance costs - interest payable (3.5) (3.4) (6.8) (6.9) (13.8) - preference dividend (1.7) - (3.4) - - - premium on redemption (0.4) - (0.7) - -of preference shares Total finance costs (5.6) (3.4) (10.9) (6.9) (13.8) Profit before taxation 4 10.9 15.2 23.2 30.6 59.0 Taxation 5 (2.6) (4.5) (6.4) (9.3) (14.0) Profit after taxation 8.3 10.7 16.8 21.3 45.0from continuing operations Preference dividend - (1.6) - (3.3) (6.6) Profit attributable to 8.3 9.1 16.8 18.0 38.4ordinary shareholders Earnings per share 6 Basic 2.3p 2.5p 4.6p 5.0p 10.6p Diluted 2.3p 2.5p 4.6p 5.0p 10.6p Ordinary dividends Interim - proposed 4.0p 4.0p 4.0p Final - proposed 5.0p Paid 5.0p 5.0p 9.0p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the second quarter and half year ended 31st July 2005 2005/6 2004/5 2005/6 2004/5 2004/5 Second Second First First Full year quarter quarter half half unaudited unaudited unaudited unaudited unaudited ‚£m ‚£m ‚£m ‚£m ‚£m Profit after taxation 8.3 10.7 16.8 21.3 45.0from continuing operations Foreign exchange (4.8) (0.2) (4.6) (2.0) 2.2translation differences Actuarial losses on - - - - (15.0)defined benefit pension schemes Deferred tax on actuarial - - - - 5.2losses on defined benefit pension schemes Net gains and losses (4.8) (0.2) (4.6) (2.0) (7.6)not recognised in the income statement Total recognised income 3.5 10.5 12.2 19.3 37.4and expense for the period CONSOLIDATED BALANCE SHEET As at 31st July 2005 31st July 1st 30th 2005 August January unaudited 2004 2005 unaudited unaudited Notes ‚£m ‚£m ‚£m ASSETS Non-current assets Property, plant and 69.3 72.2 69.5equipment Intangible assets 79.2 78.5 76.3 Retirement benefit asset 48.6 54.5 44.3 Deferred tax assets 0.4 4.4 5.0 Total non-current assets 197.5 209.6 195.1 Current assets Inventories 168.9 166.6 158.1 Trade and other receivables 137.2 133.6 131.4 Cash and cash equivalents 7 32.3 29.2 27.9 Total current assets 338.4 329.4 317.4 LIABILITIES Current liabilities Financial liabilities 7 (88.6) (1.3) (0.8) Trade and other payables (95.0) (96.7) (89.3) Current tax payable (35.9) (43.1) (40.6) Short-term provisions (0.1) (0.1) (0.1) Total current liabilities (219.6) (141.2) (130.8) Net current assets 118.8 188.2 186.6 Non-current liabilities Financial liabilities 7 (275.4) (247.9) (227.8) Deferred tax liabilities (25.0) (25.4) (22.4) Retirement and other (28.7) (22.5) (28.1)post-employment benefits Other provisions (0.9) (1.2) (0.9) Total non-current (330.0) (297.0) (279.2)liabilities NET (LIABILITIES)/ASSETS (13.7) 100.8 102.5 EQUITY Share capital 18.1 25.7 25.7 Equity element of 19.9 - -preference shares Share premium 20.3 20.2 20.2 Capital redemption reserve 0.8 0.8 0.8 Hedging reserve (0.1) - - Cumulative translation (2.4) (2.0) 2.2reserve Retained earnings (70.3) 56.1 53.6 TOTAL EQUITY (13.7) 100.8 102.5 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For the half year ended 31st July 2005 2005/6 2004/5 2004/5 First First Full year half half unaudited unaudited unaudited Notes ‚£m ‚£m ‚£m Total equity at beginning 102.5 101.4 101.4of period, as previously reported Implementation of accounting for financial instruments in accordance with IAS 32 and IAS 39: - reclassification of 1 (106.3) - -preference shares as debt - associated deferred tax (4.7) - - Total equity at beginning (8.5) 101.4 101.4of period, as restated Profit after taxation 16.8 21.3 45.0 Net gains and losses (4.6) (2.0) (7.6)recognised directly in equity Ordinary dividends declared (18.1) (18.1) (32.6) Preference dividends - (3.3) (6.6) Ordinary shares issued 0.1 0.1 0.1 Share-based payments 1.0 1.4 2.8 Derivative financial (0.1) - -instruments SEC de-registration costs (0.3) - - Total equity at end of (13.7) 100.8 102.5period SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS For the second quarter and half year ended 31st July 2005 2005/6 2004/5 2005/6 2004/5 2004/5 Second Second First First Full year quarter quarter half half unaudited unaudited unaudited unaudited unaudited Notes ‚£m ‚£m ‚£m ‚£m ‚£m Cash flows from operating activities Operating profit 16.5 18.5 34.0 37.3 72.5 Depreciation and 5.1 4.6 10.2 9.9 19.7amortisation Changes in working 5.0 (9.4) (4.9) (21.7) (19.9)capital Other non-cash movements (0.1) 0.3 0.2 - 0.2 Cash generated from 26.5 14.0 39.5 25.5 72.5operations Net interest paid (6.8) (6.6) (6.9) (6.7) (13.4) Dividends paid on (3.4) (3.3) (3.4) (3.3) (6.6)preference shares Taxation paid (5.9) (4.6) (8.2) (6.8) (12.1) Net cash from operating 10.4 (0.5) 21.0 8.7 40.4activities Cash flows from investing activities Purchase of businesses 3 (7.6) - (7.6) (2.6) (2.6) Proceeds from sale of 1.0 0.1 1.0 0.2 1.0property, plant and equipment Purchase of property, (0.8) (1.6) (2.2) (4.1) (6.5)plant and equipment Purchase of intangible (1.5) (1.5) (2.3) (2.9) (6.8)assets (computer software) Net cash used in (8.9) (3.0) (11.1) (9.4) (14.9)investing activities Cash flows from financing activities SEC de-registration (0.3) - (0.3) - -costs Issue of ordinary shares - 0.1 0.1 0.1 0.1 New bank loans 12.1 17.0 12.1 17.0 23.0 Repayment of bank loans - - - - (17.7) Dividends paid to (18.1) (18.1) (18.1) (18.1) (32.6)shareholders Net cash used in (6.3) (1.0) (6.2) (1.0) (27.2)financing activities Net (decrease)/increase (4.8) (4.5) 3.7 (1.7) (1.7)in cash and bank overdrafts Reconciliation of net debt Net debt at beginning of (200.7) (201.9) (201.9)period, as previously reported Implementation of accounting for financial instruments in accordance with IAS 39: - reclassification of 1 (106.3) - -preference shares as debt Net debt at beginning of (307.0) (201.9) (201.9)period, as restated Net (decrease)/increase 3.7 (1.7) (1.7)in cash and bank overdrafts Increase in debt (12.1) (17.0) (5.3) Premium on redemption of (0.7) - -preference shares Derivative financial (0.1) - -instruments Exchange movement (15.5) 0.6 8.2 Net debt at end of 7 (331.7) (220.0) (200.7)period NOTES 1 Adoption of International Financial Reporting Standards (IFRS) Basis of preparation Premier Farnell adopted IFRS with effect from 31st January 2005. Consequently, the financial information in this report has been prepared on the basis of the application of IFRS standards and interpretations in issue that have either been endorsed by the European Commission and are effective (or available for early adoption) or are expected to be endorsed and effective (or available for early adoption) at 29th January 2006, the Group's first annual reporting date under IFRS. In particular, the Group has, as permitted, early adopted the amendment to IAS 19, Employee Benefits - Actuarial Gains and Losses, that was published by the International Accounting Standards Board in December 2004. The directors expect that this amendment will be fully adopted by the European Commission and will therefore be available for use in the IFRS financial statements for the year ending 29th January 2006. During the year ending 29th January 2006, further IFRS standards and interpretations may be issued that will be applicable to the Group's current financial year or that are applicable to later accounting periods but may be adopted early. The Group's first IFRS financial statements may, therefore, be prepared in accordance with some different accounting policies from the financial information presented here. In addition, there is not yet a significant body of established practice on which to draw in forming opinions regarding the interpretation and application of IFRS. Accordingly, practice is continuing to evolve. At this stage, therefore, the full financial effect of reporting under IFRS as it will be applied to the Group's first IFRS financial statements cannot be determined with certainty and may be subject to change. Comparative information IFRS 1, First Time Adoption of IFRS, requires that most IFRS are applied retrospectively, subject to certain exemptions that can be taken. Hence, the comparative information included in these financial statements has been restated in accordance with IFRS. Reconciliations from UK GAAP to IFRS of the income statement for the second quarter and half year ended 1st August 2004, and of the balance sheet as at 1st August 2004, are included on pages 17 to 19. Reconciliations from UK GAAP to IFRS of the income statement for the year ended 30th January 2005, and of the balance sheets as at 2nd February 2004 and 30th January 2005, together with a more detailed explanation of the changes made to the UK GAAP accounting policies disclosed in the Group's 2005 Annual Report and Accounts, are given in the IFRS announcement made by the Company on 4th May 2005, a copy of which is available on the Company's website at www.premierfarnell.com. IAS 32 and IAS 39 From 31st January 2005, Premier Farnell implemented the following additional change in accounting policy as a result of adopting IAS 32 and IAS 39, accounting for financial instruments. This change is applied prospectively from 31st January 2005, and therefore does not affect the comparative information. Prior to 31st January 2005, convertible, redeemable preference shares were included within shareholders' funds and the preference dividend shown as a deduction from profit after tax. From 31st January 2005, IFRS requires such preference shares to be split into debt and equity components with the preference dividend being reclassified as a finance cost. The fair value of the debt element is established on issue of the shares, based on the discounted cash flows of the instrument to the date of maturity, and is then increased each year on a straight line basis through the income statement in order to arrive at the redemption amount payable on maturity of the shares. The equity component is ‚£19.9 million and will only change as and when shares are redeemed. At 31st July 2005, the debt element of the preference shares was ‚£109.5 million (31st January 2005: ‚£106.3 million). The amortisation charge relating to the implied redemption premium for the half year ended 31st July 2005 was ‚£0.7 million. Cash flows The transition from UK GAAP to IFRS does not change the reported cash flows of the Group. An IFRS cash flow statement is similar to UK GAAP but presents various cash flows in different categories and in a different order from UK GAAP. All of the IFRS adjustments noted on pages 17 to 19 net out within cash generated from operations except for the intangible assets reclassification where the cash used to purchase computer software has been reclassified from purchase of plant and equipment to purchase of intangible assets. Segment reporting IAS 14, Segment Reporting, does not change the Group's reportable segments from those reported under UK GAAP. The Group's business segments under UK GAAP will be the primary reporting segments under IAS 14. 2 Segment information 2005/6 2004/5 2005/6 2004/5 2004/5 Full Second Second First half First half year quarter quarter unaudited unaudited unaudited unaudited unaudited ‚£m ‚£m ‚£m ‚£m ‚£m Revenue Marketing and Distribution Division Americas 75.8 72.1 148.5 147.7 289.8 Europe and Asia Pacific 98.7 98.2 198.3 199.3 390.2 Total Marketing and 174.5 170.3 346.8 347.0 680.0 Distribution Division Industrial Products 26.1 24.4 50.2 48.0 96.7 Division 200.6 194.7 397.0 395.0 776.7 Operating profit Marketing and Distribution Division Americas 6.6 6.3 13.2 13.1 25.5 Europe and Asia Pacific 9.7 11.3 20.3 23.0 43.8 Total Marketing and 16.3 17.6 33.5 36.1 69.3 Distribution Division Industrial Products 3.1 3.4 5.8 6.2 12.9 Division Head Office costs (2.9) (2.5) (5.3) (5.0) (9.7) 16.5 18.5 34.0 37.3 72.5 3 Acquisitions On 20th June 2005, the Group acquired Weldon Technologies Inc. (Weldon), a US based company that produces lighting devices and electrical control solutions for speciality vehicle markets. On 28th June 2005, the Group acquired the business and assets of R&R Instrumentation (R&R), a US based distributor of test equipment and panel instruments. The consideration and provisional fair values of the net assets acquired are as follows: Weldon R&R Total ‚£m ‚£m ‚£m Intangible fixed assets 3.4 - 3.4 Tangible fixed assets 0.8 1.1 1.9 Deferred taxation (1.3) - (1.3) Other assets (net) 1.1 0.3 1.4 Provisional fair values 4.0 1.4 5.4 of net assets acquired Goodwill 1.9 0.3 2.2 Cash consideration 5.9 1.7 7.6 (including costs) Weldon contributed ‚£1.1 million of sales and ‚£0.2 million of operating profit to the Industrial Products Division in the first half. R&R contributed ‚£0.4 million of sales to the MDD Americas Division in the first half. The operating profit from R&R in the first half was not significant. As the income statement impact of these acquisitions is not significant, they have not been disclosed on the face of the income statement. 4 Profit before taxation Profit before taxation is stated after charging/(crediting): 2005/6 2004/5 2005/6 2004/5 2004/5 Full Second Second First half First half year quarter quarter unaudited unaudited unaudited unaudited unaudited ‚£m ‚£m ‚£m ‚£m ‚£m Share-based payments 0.3 0.7 1.0 1.4 2.8 Defined benefit pension (0.4) (0.7) (0.7) (1.4) (2.7) schemes (net) Severance costs (Group 0.5 - 0.5 - - Chief Executive) 5 Taxation The taxation charge includes provision at an effective rate for the first half on profit before tax and preference dividend of 24.0% (2004/5: 30.4%), being the estimated effective rate of taxation for the year ending 29th January 2006. 6 Earnings per share Basic earnings per share are based on the profit attributable to ordinary shareholders and the weighted average number of ordinary shares in issue during the period, excluding those shares held by the Premier Farnell Executive Trust. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume issue of all dilutive potential ordinary shares, being those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period. Earnings and the weighted average number of shares used in the calculations are set out below. 2005/6 2004/5 2004/5 Full First half First half year unaudited unaudited unaudited ‚£m ‚£m ‚£m Profit attributable to 16.8 18.0 38.4 ordinary shareholders Number Number Number Weighted average number 362,717,219 362,646,999 362,664,115 of shares Dilutive effect of 232,986 1,322,124 1,042,844 share options Diluted weighted 362,950,205 363,969,123 363,706,959 average number of shares 7 Net debt 31st July 1st August 30th 2005 2004 January unaudited unaudited 2005 unaudited ‚£m ‚£m ‚£m Cash and cash 32.3 29.2 27.9 equivalents Unsecured loans and (254.4) (249.2) (228.6) overdrafts Net debt before (222.1) (220.0) (200.7) preference shares Preference shares (note (109.5) - - 1) Derivative financial (0.1) - - instruments Net debt (331.7) (220.0) (200.7) Unsecured loans and overdrafts comprise: Bank overdrafts 0.3 1.2 0.7 Bank loans 35.5 37.0 23.6 7.2% US dollar Guaranteed Senior 88.1 85.2 82.4 Notes payable 2006 5.3% US dollar Guaranteed Senior 37.5 36.3 35.1 Notes payable 2010 5.9% US dollar Guaranteed Senior 90.3 87.4 84.6 Notes payable 2013 Other loans 2.7 2.1 2.2 254.4 249.2 228.6 Unsecured loans and overdrafts are repayable as follows: Within one year 88.5 1.3 0.8 Between one and two 0.1 85.3 106.1 years Between two and five 73.2 37.3 0.2 years After five years 92.6 125.3 121.5 254.4 249.2 228.6 At 31st July 2005, the Group had unutilised committed five year bank facilities of ‚£167.6 million which expire in 2010. 8 Exchange rates The principal average exchange rates used to translate the Group's overseas profits were as follows: 2005/6 2004/5 2005/6 2004/5 2004/5 Full Second Second First half First half year quarter quarter US dollar 1.78 1.83 1.85 1.82 1.84 Euro 1.46 1.50 1.46 1.50 1.47 9 Dividend An interim ordinary dividend of 4.0 pence per share (2004/5: 4.0 pence per share) will be paid on 19th October 2005 to ordinary shareholders on the register at close of business on 23rd September 2005. CONSOLIDATED INCOME STATEMENT RECONCILIATIONS Unaudited Second quarter ended 1st UK GAAP IFRS ADJUSTMENTS IFRSAugust 2004 (IFRS Goodwill Share-based Pensions format) payments ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 194.7 - - - 194.7 Cost of sales (116.0) - - - (116.0) Gross profit 78.7 - - - 78.7 Total operating expenses (60.0) 0.7 (0.5) (0.4) (60.2) Operating profit 18.7 0.7 (0.5) (0.4) 18.5 Net finance cost (3.3) - - - (3.3) Profit before taxation 15.4 0.7 (0.5) (0.4) 15.2from continuing operations Taxation (4.6) - - 0.1 (4.5) Profit after taxation 10.8 0.7 (0.5) (0.3) 10.7 Preference dividends (1.6) - - - (1.6) Profit attributable to ordinary shareholders 9.2 0.7 (0.5) (0.3) 9.1 Earnings per share Basic 2.5p 0.2p (0.1)p (0.1)p 2.5p Diluted 2.5p 0.2p (0.1)p (0.1)p 2.5p Half year ended 1st UK GAAP IFRS ADJUSTMENTS IFRSAugust 2004 (IFRS Goodwill Share-based Pensions format) payments ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 395.0 - - - 395.0 Cost of sales (235.9) - - - (235.9) Gross profit 159.1 - - - 159.1 Total operating expenses (121.4) 1.4 (1.0) (0.8) (121.8) Operating profit 37.7 1.4 (1.0) (0.8) 37.3 Net finance cost (6.7) - - - (6.7) Profit before taxation 31.0 1.4 (1.0) (0.8) 30.6from continuing operations Taxation (9.5) - - 0.2 (9.3) Profit after taxation 21.5 1.4 (1.0) (0.6) 21.3 Preference dividends (3.3) - - - (3.3) Profit attributable to ordinary shareholders 18.2 1.4 (1.0) (0.6) 18.0 Earnings per share Basic 5.0p 0.4p (0.2)p (0.2)p 5.0p Diluted 5.0p 0.4p (0.2)p (0.2)p 5.0p A brief explanation of the significant changes in accounting policies to reflect IFRS is given below. Full details are included in the Company's IFRS announcement made on 4th May 2005, a copy of which is available on the Company's website. Goodwill UK GAAP requires goodwill on acquisitions to be amortised over its estimated useful life. Under IFRS, goodwill is considered to have an indefinite life and so is not amortised. Instead, goodwill is subject to an annual test for impairment and is carried at cost less accumulated impairment losses. Share-based payments Under UK GAAP, the expense in respect of share options, long-term incentive plans and save as you earn schemes was based on the intrinsicvalue of the award, being the difference between the exercise price andthe market price of the instrument at the date of the award. Save as you earn schemes were specifically exempt from such a charge. Under IFRS 2, an expense is recognised for all share-based payments, including save as you earn schemes, over the vesting period. The expense is based on the fair value of the benefit awarded using option pricing models appropriate for the type of scheme concerned. Pensions Under UK GAAP, Premier Farnell accounted for pensions in accordance with SSAP 24 which adopted an income statement driven approach to valuing pensions. SSAP 24 did not require any pension scheme surpluses or deficits to be included on the balance sheet except when fair valuing pension schemes on acquisitions. IAS 19 is fundamentally different to SSAP 24 and adopts a balance sheetdriven approach with market based measures. All pension scheme surpluses and deficits are required to be recognised on the balance sheet. The asset/liability recognised in the balance sheet represents the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. Changes in actuarial assumptions are recognised in the Statement of Recognised Income and Expense. SEGMENTAL OPERATING PROFIT RECONCILIATIONS Unaudited Second quarter ended 1st UK IFRS IFRSAugust 2004 GAAP adjustments ‚£m ‚£m ‚£m Marketing and Distribution Division Americas 6.8 (0.5) 6.3 Europe and Asia Pacific before amortisation of 11.4 (0.1) 11.3goodwill amortisation of goodwill (0.7) 0.7 - 10.7 0.6 11.3 Total Marketing and 17.5 0.1 17.6Distribution Division Industrial Products 3.5 (0.1) 3.4Division Head Office costs (2.3) (0.2) (2.5) 18.7 (0.2) 18.5 Half year ended 1st UK IFRS IFRSAugust 2004 GAAP adjustments ‚£m ‚£m ‚£m Marketing and Distribution Division Americas 14.1 (1.0) 13.1 Europe and Asia Pacific before amortisation of 23.1 (0.1) 23.0goodwill amortisation of goodwill (1.4) 1.4 - 21.7 1.3 23.0 Total Marketing and 35.8 0.3 36.1Distribution Division Industrial Products 6.5 (0.3) 6.2Division Head Office costs (4.6) (0.4) (5.0) 37.7 (0.4) 37.3CONSOLIDATED BALANCE SHEET RECONCILIATION AS AT 1ST AUGUST 2004 Unaudited UK GAAP IFRS ADJUSTMENTS IFRS (IFRS Goodwill Share-based Pensions Taxation Reclassifications Ordinary format) payments dividend ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ASSETS Non-current assets Property, plant and 103.2 - - - - (31.0) - 72.2equipment Intangible assets 46.2 1.3 - - - 31.0 - 78.5 Retirement benefit asset 81.9 - - (27.4) - - - 54.5 Deferred tax assets - - 0.6 5.0 - (1.2) - 4.4 Total non-current assets 231.3 1.3 0.6 (22.4) - (1.2) - 209.6 Current assets Inventories 166.6 - - - - - - 166.6 Trade and other 133.6 - - - - - - 133.6receivables Cash and cash 29.2 - - - - - - 29.2equivalents Total current assets 329.4 - - - - - - 329.4 LIABILITIES Current liabilities Financial liabilities (1.3) - - - - - - (1.3) Trade and other payables (112.1) - - 0.9 - - 14.5 (96.7) Current tax payable (43.1) - - - - - - (43.1) Short-term provisions - - - - - (0.1) - (0.1) Total current (156.5) - - 0.9 - (0.1) 14.5 (141.2)liabilities Net current assets 172.9 - - 0.9 - (0.1) 14.5 188.2 Non-current liabilities Financial liabilities (247.9) - - - - - - (247.9) Deferred tax liabilities (35.9) - 0.3 10.4 (1.4) 1.2 - (25.4) Retirement and other (4.9) - - (17.6) - - - (22.5)post-employment benefits Other provisions (1.3) - - - - 0.1 - (1.2) Total non-current (290.0) - 0.3 (7.2) (1.4) 1.3 - (297.0)liabilities NET ASSETS 114.2 1.3 0.9 (28.7) (1.4) - 14.5 100.8 EQUITY Share capital 25.7 - - - - - - 25.7 Share premium 20.2 - - - - - - 20.2 Capital redemption 0.8 - - - - - - 0.8reserve Cumulative translation - (0.1) - 0.2 - (2.1) - (2.0)reserve Retained earnings 67.5 1.4 0.9 (28.9) (1.4) 2.1 14.5 56.1 TOTAL EQUITY 114.2 1.3 0.9 (28.7) (1.4) - 14.5 100.8 A brief explanation of the significant changes in accounting policies to reflect IFRS is given on page 17 and below. Full details are included in the Company's IFRS announcement made on 4th May 2005, a copy of which is available on the Company's website. Taxation Under UK GAAP, deferred taxation is recognised on the basis of timing differences, being the difference between accounting profit and taxable profit. IFRS requires deferred taxation to be based on temporary differences, being the difference between the carrying value of an asset or liability and its tax base. Reclassifications Under UK GAAP, capitalised computer software is included within tangible fixed assets as plant and equipment. Under IFRS, capitalised computer software is recorded as an intangible asset. There is no income statement impact as a result of this reclassification since, under both UK GAAP and IFRS, computer software is written down over its estimated useful life. Ordinary dividend UK GAAP requires ordinary dividends to be accounted for in the period to which they relate. Under IFRS, proposed ordinary dividends do not meet the definition of a liability until they are approved at the AGM or Board Meeting. ENDPREMIER FARNELL PLCRelated Shares:
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