24th Oct 2006 07:00
Premier Farnell plc24 October 2006 Premier Farnell announces the results of its strategic business review and provides a trading update for the 3rd Quarter ending 29th October 2006 BOOSTING SHAREHOLDER VALUEThe board of Premier Farnell announces the outcome of its strategic businessreview, conducted over the last four months. Building on the improving resultsof the Group, the plans resulting from the review cover the next three yearsand aim to deliver sustainable profit growth by focusing on Premier Farnell'score strengths and new and existing growth opportunities.Key conclusions of the review * Develop market leading positions in the fast growing global Electronic Design Engineer (EDE) market, building initially on a new, state-of-the-art web platform and 70,000 product additions; * Increase investment in the large and rapidly growing Chinese market, including the launch of a Mandarin catalogue and website and RoHS compliant product range by March 2007; * Implement initiatives to drive operational and cash efficiencies, enabling the plans as a whole to be self-financing over the three-year period; * Dividend to be maintained at least at current level; * Continued focus on profitability of BuckHickman InOne (BHIO), but long-term future unlikely to be in the Group; * Enhance regional focus on the important electronic and automation maintenance, repair and operations (MRO) segment. We believe that over the next three years these plans, combined with increasedoperational focus, will deliver shareholder value from: * Accelerated sales growth from focus on the higher growth EDE sector in existing and new geographic markets; * Gross margin stability and a return on sales in excess of 10%; * Reduced SG&A costs as a % of sales through a multi-channel approach that optimises `cost to serve' of different market segments; * Improved operational gearing across all business regions, with operating profit growth greater than sales growth and growth over the economic and industry cycles; * Return on net assets in excess of 30%; * Initiatives will be earnings enhancing in year two after first year investments. Trading Update for 3rd Quarter ending 29th October 2006Trading in the third quarter has seen continued progress against the thirdquarter of last year, with growth in sales per day and gross marginimprovement, and is in line with management's expectations. This tradingperformance will result in strong operational gearing across all regions, withsignificant improvement in North America compared with the prior quarter andthe prior year.Harriet Green, Chief Executive, commenting on the strategic business review,said:"We believe that enhancing our market proposition in the fast growing globalElectronic Design Engineering sector is fundamental to our strategy to become amarket leader in this segment. We will continue to focus on the coredistribution fundamentals of customer service, product range and reliability aswe drive sales growth and operational efficiency. The strategic business reviewprocess has demonstrated the quality of our people at all levels of theorganisation and we will continue to invest in talent and skills development."This is a very exciting time for Premier Farnell as we drive the businessforward on a focused agenda to grow profit and deliver shareholder value."For further information, contact:Harriet Green, Group Chief Premier Farnell plc +44 (0) 20 7851 4100 Executive Mark Whiteling, Group Finance Director Richard Mountain Financial Dynamics +44 (0) 20 7269 7291 (UK) Brian Rafferty / Jessica Taylor Rafferty (NA) + 1 212 889 4350 McCormick A conference call with Harriet Green and Mark Whiteling will take place on 24thOctober at 8:30am UK time. Telephone : 0207 154 2638. The call will be recordedand be available on the Group web site, www.premierfarnell.com later that day.The results for the third quarter of the financial year to 28th January 2007will be announced on 7th December 2006.STRATEGIC BUSINESS REVIEWThe objective of the plans arising from the strategic business review is todeliver enhanced shareholder value by improving the mix of business(geographic, channel to serve and customer) and utilising the existing businessmodel more efficiently so that Premier Farnell can deliver sustainable growth.This will be achieved through increased emphasis on higher growth geographiesand customer segments, whilst maintaining margins, to deliver operationalgearing and resilience across the business cycles.Develop market leading positions in fast growing global Electronic Design Engineer (EDE) marketThe global EDE market consists of customers involved in the design ofelectronic products and components and is part of the catalogue addressablemarket estimated at ‚£13 billion worldwide. EDE customers have similar servicerequirements wherever they are located and these include a broad productoffering, technical support and reliable and prompt delivery. These are thecustomers who have benefited most from the RoHS leadership position establishedby Premier Farnell in Europe and North America and with whom we have a good andgrowing reputation. Our data indicates that, over the next three years, demandfor products purchased by design engineers will grow approximately twice asfast (in the range of 6% to 8%) as the demand for our overall product range.Focus on this sector will therefore enhance sales growth rates.Available research points to the design work of these engineers remainingpredominantly in established territories, rather than migrating to emergingeconomies. Our existing infrastructure is therefore a suitable foundation onwhich to grow this sector. The key initiatives to enhance our proposition todesign engineers will also improve our offer to other customer groups.As part of our plans to improve our proposition to EDEs, we expect to addapproximately 70,000 products to our current stocked range of approximately300,000 over the three-year period. The increase in the stocked range will bepart of a much larger increase in products available to our customers via othersupply channels. By the end of the three-year period we expect to be offeringcustomers access to close to 1,000,000 products.The improvements to our web platform that we have already implemented, togetherwith the further enhancements planned, will provide design engineers with afast and efficient channel to access our comprehensive range of products andassociated technical information.Enhance our successful operational e-commerce platform.The desire of our customers to interact with us seamlessly either via the web,through call centres or in person is a key component of our service offering.Our multi-channel offering allows us to target a much greater number ofexisting and potential customers to generate incremental sales. Utilisation ofthe various channels differs by geography and by customer segment, but we haveseen a growth in web traffic as we launch our new, state-of-the-art webplatform, including an enhanced search engine and web front-end. The currentyear investment will benefit all of our existing and potential markets as it isrolled out over the rest of the year.Invest in emerging markets with immediate focus on China and Eastern EuropeChinaThe Chinese market for small volume electronics is estimated at over ‚£1 billionannually and growing rapidly. Large numbers of electronic design engineersgraduate every year from Chinese universities and engage in design activity intheir local industries. This market is highly fragmented, offering asignificant growth opportunity and potential for us to achieve marketleadership. Our plans for China are aimed at achieving this leadershipposition.By March 2007 we will have launched our Mandarin language catalogue containingover 30,000 products, 20,000 of which will be stocked in China, with the restavailable on short lead times. Chinese customers already have access, via theweb, to the full range of Farnell InOne products. This access will be enhancedwhen our transactional web site, with Mandarin content, goes live, also inearly 2007.March 2007 is the deadline for the introduction of the Chinese equivalent ofthe EU RoHS legislation and all of the products included in the Mandarincatalogue will be compliant with the first wave of legislative requirements.To support the anticipated increase in sales that these initiatives willgenerate, we are implementing a Chinese language transaction system andimproved logistics capability.Mainland and Eastern EuropeThe expansion of the European Union and the highly fragmented nature of thesenew markets also offer growth opportunities. We believe that we will be able toservice these markets from our existing distribution infrastructure and, otherthan the development of local language web sites, we do not believe that thiswill require significant incremental investment. We anticipate that revenuefrom mainland European markets will grow as a proportion of total Group revenuereflecting the higher growth rates in Eastern Europe and the relatively lowmarket share that we currently have in all mainland European markets.Develop our global supplier portfolioDuring the last 18 months we have strengthened our Electronic DesignEngineering supplier/product portfolio. Recent successes include extending ouroffering to customers with 3,000 new products, following global franchiseengagements with AVX, Cypress Semiconductor, Lumileds, STMicroelectonics andZMD. Our product range now includes the majority of the world's leadingsemiconductor, passive and electromechanical brands, offering a compellingproposition to design engineers globally.We are pleased to announce today that our product offering to customers will befurther enhanced in the near future following the commitment of Analog DevicesInc. to re-engage with Newark InOne in the US, to continue to strengthen theexcellent trading relationship in Europe with Farnell InOne and to start toformulate longer term plans for working together to support customers in otherregions around the world. Analog Devices is a world leading manufacturer ofanalogue and digital signal processing products. Their technology solutions arehighly attractive to engineers designing virtually every type of electronicequipment.Enhance regional focus on important electronic and automation MRO segmentThe electronics and automation maintenance, repair and operations (MRO)customer base will continue to be significant for Premier Farnell. In the firsthalf of 2007, this segment represented approximately 40% of our marketing anddistribution division revenue. Whilst we recognise the lower growth rates inthis segment, we believe that we can continue to drive sales growth andoperational leverage based on our multi-channel service offering, the breadthof our product range and our continued commitment to high service levels.Initiatives to drive operational and cash efficienciesAs part of the strategic business review, we have completed a thorough reviewof our business processes. This review has identified areas where we canimprove our current operating performance and processes. The benefits of theseactions will be reflected in our net operating expenses to sales ratio whichwas reduced in the first half of the current year and which we expect to reducefurther over the three-year period after an increase in the first yearreflecting investment in the initiatives during 2008.We have also identified actions to manage the working capital in the businessmore effectively. We will improve inventory turns over the period, whilstmaintaining current levels of service and are targeting a reduction in ourworking capital to sales ratio over the three-year period (including theunwinding of the RoHS investment). We will achieve this through working withcustomers and suppliers to enhance our processes and to eliminate waste anderrors. The working capital improvements will be used to fund the investment inthe other strategic business review initiatives.Portfolio reviewWe believe that, with the exception of BuckHickman InOne (BHIO), we have astrong group of businesses that are delivering shareholder value. Thesebusinesses continue to show good growth and profit performance in line with theGroup's expectations and provide a valuable contribution to the Group in excessof its weighted cost of capital.BHIO is undergoing a substantial restructuring that is the critical focus ofsenior management. Although we have made significant progress with therestructuring programme, we have decided, after reviewing BHIO's markets andtheir potential overlap with Premier Farnell's core markets, that its long termfuture is unlikely to be within the Group. Our continuing current focus andeffort is firmly directed towards improving the profitability and operationalefficiency of BHIO.Financial impact of the strategic business reviewWe estimate that the incremental profit and loss costs in the first year of ourplans will be approximately ‚£3m. We anticipate that the plans will becomeearnings enhancing in year two.We expect the plans to be cash neutral over the three years, with the increasein profit and improved working capital efficiency supporting the growth andinvestment. We anticipate that the peak net incremental borrowing requirementwill be met from existing bank facilities.DividendThe planned operational and cash efficiencies and the self-financing nature ofthe strategic business review plans mean that the board is able to confirm itsintention that the dividend will be maintained at a minimum of 9 pence per yearover the three-year planning period. This will enable us to build dividendcover over the period.ENDPREMIER FARNELL PLCRelated Shares:
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