Trading statement and operational review results

PREMIER FARNELL PLC - Trading statement and operational review results

PR Newswire

London, December 16

Premier Farnell 17 December 2015

Premier Farnell plc – Trading statement and outcome of operational review

Premier Farnell plc (“the Group”), a global distributor of technology products and solutions, today issues its trading statement for the period 3 August to 1 November 2015. We also announce the conclusions of our operational review initiated in July.

Highlights 

Sales per day grew 0.5% in Q3

Operational Review completed identifying significant efficiency and margin improvement including annualised cost savings of £19m – full run rate benefit in FY18

Management strengthened – senior Sales and Marketing team announced

Two further upgrades to new web platform completed driving improved search experience and usability

Akron Brass disposal progressing well – contracts expected to be exchanged in Q1 2016

FY16 operating profit expected to be in line with previous guidance, albeit towards the lower end of the range

TRADING PERFORMANCE

Divisional sales per day growth rates

Note: Sales growth is based on sales per day for continuing businesses at constant exchange rates and for like periods. For reference, in the third quarter, the average exchange rates for sterling against the US dollar and the Euro were, respectively, £1 = US$1.53 (Q3 2014/15: £1 = US$1.63) and £1 = €1.37 (Q3 2014/15: £1 = €1.27).

Group sales per day grew 0.5% (-2.3% excluding Raspberry Pi) in the third quarter. We benefitted from an improved CPC and MCM performance, driven by strong demand for single board computers, in particular the Raspberry Pi2, as well as an improved Akron Brass performance.

element14 sales per day decreased -1.9% primarily due to a slowdown in the US and UK which was only partially offset by strong double digit growth in the APAC region.

European sales declined -0.5% as a result of the weak UK performance. Continental Europe grew 3.7% with the majority of markets growing.

Sales in the Americas (excluding Brazil), which represents 35% of Group revenue, contracted -6.7% due to a more challenging trading environment in the industrials space, as indicated by weaker PMI trends and economic data.

Sales in APAC grew 14.9% in Q3. The region continued to show good growth in most markets with China, our largest market, growing at 13.8%.

CPC and MCM combined grew 7.7% in the period, principally due to on-going strong sales of Raspberry Pi.

Akron Brass, our fire-fighting equipment business, returned to growth in Q3, with sales increasing 13.6% as we fulfilled projects which had been delayed earlier in the year.

Gross margin in Q3 was 33.6%, 2.5 ppts lower than Q3 of the prior year. This decline was driven by the continuing impact of foreign exchange (-1.0%), inventory provision movements including a write down relating to Raspberry Pi (-0.3%) and the balance being product, pricing and customer mix.

SG&A as a percentage of sales in the quarter was 27.3%, 0.5% ppts better than Q3 of the prior year as the changes in the global operating model are implemented. Overall, total headcount for the Group is some 6% lower than at the end of Q3 last year.

Leadership appointments

We are strengthening the leadership across the Group and have recently made a number of key senior appointments namely, Ralf Buehler as Chief Sales Officer, Peter Birks as Business President Sales and Marketing for Europe, and Dan Hill as a Business President Sales and Marketing for the Americas. This completes the senior leadership team for Sales and Marketing and they will be responsible for the delivery of the customer proposition in each region and for us realising the multi-channel experience benefits detailed below.

Outlook

FY16 operating profit is expected to be in line with previous guidance, albeit towards the lower end of the profit range. 

We are focused on executing the initiatives identified as part of the operational review in order to restore growth in profitability in FY17. However, we remain cautious about the ongoing challenging industrial backdrop in the US and we continue to expect margin pressure reflecting the current competitive environment. We will look to mitigate these effects as the benefit of the operational review actions start to feed through.

OPERATIONAL REVIEW

As announced in July, the Board initiated an operational review of the Group focused upon the global electronics distribution business (element14). This work has confirmed that there are significant opportunities to improve the operational and financial performance of the Group whilst recognising the continued margin pressure within the business.

We have identified cost savings of £19m on an annualised basis. These include £7m of benefits already identified as part of the global operating model announced previously. This represents savings of circa 9% of the element14 cost base. The work to capture these benefits has commenced and we anticipate achieving the full run-rate benefit in FY18. Accordingly, we expect an improvement versus current performance of £13m in FY17, with the balance of the savings achieved in FY18.

The cost to achieve these benefits is anticipated to be in the order of £10m, principally related to severance costs (£4m) and additional one-off resource requirements (£6m). These will largely be incurred in FY17.

Our focus is on increasing gross margin contribution. The operational review has considered all aspects of the element14 business addressing the fundamentals of distribution. Set out below are the areas that have been identified as offering the greatest opportunity for simplification and improvement.

 Improved customer proposition and more effective multi-channel experience:- The visibility of our broad product range, priced appropriately is fundamental to our success. We also need to ensure that our customers’ multi-channel experience makes it easy for them to do business with us.

Understanding our customers’ needs both from a product and price expectation is vital if we are to increase our customer base and grow share with existing customers. We are starting to adjust our North American inventory as we realign our product proposition to our customer base in the region and we will refine this further as we increase our global inventory visibility.

Having completed the roll-out of the new web platform earlier this year, we have now completed two further global upgrades providing an improved search experience, richer product information and improved usability. We will continue to invest to improve the online performance.

Finally, to make certain that we are competitive in all markets, we are ensuring that our pricing and discounting policies reinforce our multi-channel approach and reflect the opportunities we have with customers and the cost to serve them.

Improved sales force effectiveness:– We have a differentiating capability through our strong regional sales organisations. There is significant resource in our field sales force and our sales contact centres and we need to utilise this resource more effectively to grow our share with customers. Leveraging this capability more effectively to sell the improved product proposition will enable us to regain market share in the larger customers that they support. Additionally, we will look to grow the capability of these regional sales organisations to sell finished products into their existing industrial customer base.

Improved direct procurement:- The implementation of a global product organisation with product category managers looking at global demand and procuring on this basis means that we can drive further product cost savings going forward. These savings will help us mitigate competitive pressures.

Efficiency and indirect procurement improvements within the business:- The simplification of our business and implementation of the global operating model whilst maintaining our regional sales and marketing capability is at the core of driving efficiency improvements within the business. We now anticipate savings from the implementation of our new organisation structure to be £11m in FY17 and an annualised £14m from FY18. This incorporates the £7m of savings which we had previously indicated to the market that we would realise in FY17.

Our global functional structure is also allowing us to consolidate spend on indirect cost categories such as IT maintenance, communications and travel costs. This delivers an estimated saving of £2m in FY17 and an annualised benefit of £5m in FY18.

Further opportunities

We have identified further opportunities to drive additional operational efficiencies in the business. These stem substantially from the implementation of our differentiated delivery proposition and global inventory visibility, supported by the evolution of our network design. These opportunities will deliver both efficiencies and release working capital although they will require some incremental IT and system improvements.

OTHER UPDATES

Akron Brass

In September, we announced our intention to dispose of Akron Brass. We have had considerable interest in the business and the process is progressing well. We are confident that we should be in a position to exchange contracts in Q1 2016.

CEO appointment

The global search to identify a permanent CEO is actively ongoing with both internal and external candidatesbeing considered.

Mark Whiteling, Interim Chief Executive Officer, commented:

“Our results in the quarter are a reflection of the challenging conditions in the UK and US, however we are encouraged by the strong growth we continue to see in the APAC region.

The outcome of the operational review, announced today, has identified a number of efficiency and margin improvement initiatives which will position the Group to deal with the margin pressures that it has experienced in recent times. The Board is confident that the combination of these initiatives will provide the platform for future growth. ”

A conference call for analysts and investors will be held at 8.30am, 17 December 2015, details for which are as follows:

Participant Access: Dial in 5-10 minutes prior to the start time using the number / Conference ID below:

For further information, please contact:

Mark Whiteling, Interim Chief Executive Officer Premier Farnell plc +44 (0) 20 7851 4107Helen Willis , Interim Chief Financial Officer

Nicole Nordwall, Investor Relations

Richard Mountain FTI Consulting +44 (0) 20 3727 1374

Premier Farnell’s announcements and presentations are published at www.premierfarnell.com together with business information and links to all other Group web sites.

The 2014/2015 Annual Report and Accounts is now available online at annualreport.premierfarnell.com

The results for the full year ending 31st January 2016 will be announced on 17 March 2016.