ECM.L Regulatory News (ECM)

PRELIMINARY STATEMENT

Electrocomponents plc, the world's leading high service distributor of electronics and maintenance products, today announces its results for the year ended 31 March 2013.

SUMMARY OF RESULTS

(1) Sales growth, unless otherwise stated, is adjusted for trading days and currency movements ("underlying sales growth/decline"). Fewer trading days and currency movements reduced Group reported sales in 2013 by around £38m

(2) Headline measures of profitability and cash flow are defined as the relevant reported profit/cash flow measure before reorganisation costs/cash flows

(3) 2013: includes 5p interim and 6.75p proposed final dividend

Financial highlights

·; 1% Group underlying sales growth, with 3% maintenance growth and 2% electronics decline

·; UK sales grew by 4%, benefitting from Raspberry Pi** sales, International sales declined by 1%

·; Headline profit before tax (2)declined by 19%, with 8% due to fewer trading days and currency

·; Gross margin declined by 0.8% points, operating costs (2) grew by 2% at constant currency

·; Second-half performance improved versus the first half, due to gross margin and cost actions

·; Headline free cash flow grew by 6% to £56.1m, with improved working capital and lower capex

·; Maintained full-year proposed dividend of 11.75 pence per share

Operational highlights

·; Continued investment in breadth and depth of offer, with over 70,000 new product introductions

·; Group eCommerce sales growth of 4%, with Group eCommerce sales share of 56%

·; Commenced installation of common IT system across Asia Pacific, successful go-live in Australia

Strategy update

·; New global organisation structure implemented, delivered £7m of annualised cost efficiencies

·; Evolved to common global strategy, comprising seven strategic priorities

·; New performance framework, targeting improved financial performance over the medium term

·; Driven by faster International share gains, UK growth and further operating leverage

CURRENT TRADING AND OUTLOOK

In the first seven weeks of the new financial year, the Group has delivered sales growth of 1%. The International business grew by 1% and the UK was flat. Within International, Continental Europe grew by 2%, North America grew by 1% and Asia Pacific declined by 1%.

Whilst mindful of challenging economic conditions, we are implementing our common global strategy and expect to make progress towards our medium-term performance goals. The Group is well placed to capture market share in its international markets and we are therefore increasing investment in our strategic initiatives.

IAN MASON, GROUP CHIEF EXECUTIVE, COMMENTED:

"The Group has reported results for the year in line with expectations. Underlying sales grew by 1% whilst headline profit before tax declined in challenging markets. However our initiatives to increase operating margins led to a significant improvement in financial performance in the second half.

This has been a year of significant change for the Group. We have successfully implemented a new global operating model and set a common global strategy. These developments, supported by additional investment, will enable us to increase the rate at which we gain market share and improve profitability over the medium term."

Enquiries:

* Available to 15:00 on 23 May 2013, thereafter 01865 204000

The results and presentation to analysts are published on the corporate web site at www.electrocomponents.com.

Footnotes:

** Sales of Raspberry Pi globally are principally recorded in the UK. Raspberry Pi is a low-cost, credit card-sized single-board computer designed and developed by the Raspberry Pi Foundation, a charity established to promote computer development skills in education across the world.

Notes on financial terms:

In order to reflect underlying business performance, comparisons of sales between periods (including by region, product group and channel) have been adjusted for currency and trading days (underlying sales growth).

Changes in profit, cash flow, debt and share related measures such as earnings per share are, unless otherwise stated, at reported exchange rates.

Sign conventions: % changes in sales and costs are disclosed as positive if improving profit and negative if reducing profit.

Key performance measures such as return on sales and EBITDA use headline profit figures.

Notes to editors:

Electrocomponents is the world's leading high service distributor of electronics and maintenance products. With operations in 32 countries, we offer more than 550,000 products through the internet, catalogues and at trade counters to over one million customers, shipping around 44,000 parcels a day. Our products, sourced from 2,500 leading suppliers, include electronics, automation and control, test and measurement, electrical and support.

The business satisfies the small quantity needs of its customers who are typically electronics or maintenance engineers in business. A large number of high quality goods are stocked, which are dispatched the same day that the order is received. The average customer order value is around £140 although the range of order values is wide. The Group's large number of customers comes from a wide range of industry sectors with diverse product demands.

Market overview and market environment

Market overview

The high service distribution market caters to the small quantity needs of electronics and maintenance engineers and machine and panel builders. Our average customer order value is around £140, and this order is typically for three to four individual product lines. A customer will usually order different product lines each time rather than make repeat orders of the same products. Demand is similar across the world - customers want a broad range of high quality stocked products in small quantities with reliable delivery. The internet has become the dominant channel for customers to do business with us, though providing a multi-channel service remains important as many customers still prefer to use a catalogue and phone or fax to place orders, often in conjunction with the internet.

We estimate that the available market is worth around £30 billion globally, split evenly between electronics and maintenance products. The electronics market has, on average, grown at around twice the rate of GDP. The electronics cycle is more volatile than the economic cycle because spending on new technology innovation can be quickly halted and then re-started, as occurred during the last year. The maintenance market grows at around GDP but is less volatile than the electronics market.

The marketplace serving this demand is highly fragmented, being populated by a large number of small local and regional distributors. Electrocomponents, through its brands RS Components (RS) and Allied Electronics (Allied), is the world's leading high service distributor. RS is the leading distributor in the UK, Continental Europe and Asia Pacific, while Allied is in the top three in North America.

There are five large international high service distributors, including Electrocomponents, and together this group has around 15% of the available global market; as the leading player, our market share is around 4%. This group has been gaining market share from smaller distributors. Over the last seven years we have grown our International sales by an average of 6% per annum. We estimate that the markets in which we operate have grown on average at 3% per annum. The remaining 3% per annum of sales growth represents market share gains, principally from smaller competitors.

We believe that our customer proposition and global scale and reach give us an advantage over the numerous small local and regional distributors against whom we primarily compete, allowing us to take market share from them. Moreover, many of our smaller competitors find it difficult to obtain credit in tough economic times and therefore cannot develop their product range or eCommerce capabilities, creating an opportunity for large global competitors such as ourselves to gain share.

Market environment

The market environment during the past year was challenging, reflecting the uncertain economic conditions in many of our larger markets across Europe, North America and Asia Pacific.

The manufacturing Purchasing Managers Indices (PMIs) in all of our major markets except the US were at readings at or below 50 for much of the year. This is indicative of a flat or contracting manufacturing sector in these countries and led to a challenging environment in which to sell maintenance products. Despite this our maintenance sales grew by 3% in the year, which we believe outperformed the maintenance market as a whole.

Trade associations from the electronics distribution industry, such as the Association of Franchised Distributors of Electronic Components (AFDEC) and the National Electronic Distributors Association (NEDA), reported declining activity levels from their members during the year. The volume electronics distributors have also reported significant declines in sales during 2012. Within that context, we believe our electronics sales decline of 2% indicates that we have outperformed the electronics distribution market as a whole.

Whilst we believe that we have taken market share during the year, the difficult trading environment at this point in the economic cycle resulted in a greater use of discounting in order to retain and attract customers, particularly in the first half of the year when our gross margin reduced by over 1% point. As expected, our gross margin improved during the second half of the year, with the rate of decline reducing to 0.3% points, reflecting the actions we took to improve our discount effectiveness and the initial rollout of a targeted price differentiation strategy.

Strategy update

Our vision to be the World's Distributor of Choice has been consistent for many years. Given the evolving structural trends in our industry we have revisited our strategic initiatives to ensure we are focused on the right priorities to turn our vision into reality.

Building on our proven 2006 strategy

In 2006 we established a strategy focused on five key initiatives. Since then we have invested behind this strategy and transformed the Group, increasing sales by over £400 million. We have now identified clear opportunities to build on these initiatives to deliver further progress and improve our financial performance.

International growth: Our International business has delivered 6% per annum sales growth since 2006 and taken market share. We have identified opportunities to gain market share faster by adopting a single global approach to serving our core customer groups.

Develop two strong offers: We have built a strong electronics offer through investment in over 100,000 new products since 2006. We also delivered good growth from our maintenance offer, particularly automation & control. We have an opportunity to grow faster and more efficiently by creating a single global offer.

Exploit eCommerce: eCommerce is at the heart of our multi-channel marketing approach. It has grown four times as fast as the Group over the past seven years, growing its share of our business from 25% to 56%. We have identified opportunities to grow faster by creating a global eCommerce 'machine' to acquire and develop new customers and deploying our highly skilled sales force to better manage the customer lifecycle.

Deliver operating leverage: Operating leverage has been delivered through economies of scale and improved cost efficiency, offset by lower gross margin due to price repositioning and mix. We have identified an opportunity to continue to deliver operating leverage and partially mitigate gross margin pressure through a global pricing strategy.

Maintain UK profitability: Our UK business has delivered 1% sales and contribution growth since 2006. We have identified an opportunity to grow sales in line with the market whilst maintaining high profitability by adopting a single global approach to serving our core customer groups.

Evolving to a common global strategy

Since 2006 it has become increasingly evident that there are clear benefits to being a large, global competitor in this marketplace. Customer needs are similar everywhere, leading suppliers in our industry are global and the internet enables global marketing. We have the global footprint, relationships with suppliers and eCommerce capabilities to take advantage of these trends. Moreover, our experience since 2010 of managing our European business as a single region has demonstrated the effectiveness of a common strategy, as Europe has delivered an average of 10% per annum underlying sales growth since then, significantly ahead of the underlying market growth.

Following an extensive review of how to maximise our ability to capture the benefits of being a large, global company we have, during the last year, transitioned from a country-based structure to a global operating model that is functionally-based but which retains the value of a local sales presence. This comprises three operational functions - Sales, Marketing and Offer (comprising the Group's product and stock management, pricing and supply chain activities), and four support functions - Strategy, IT, Finance and HR. Each function is being run by an existing member of our highly-experienced management team. This move to a global operating model involved the removal of some duplication within the business and has delivered annualised efficiencies of £7 million.

The new global operating model has enabled us to evolve to a common global strategy. We believe that this will allow us to capture the significant opportunities identified above to build on our 2006 strategy. This global strategy comprises seven strategic priorities, with four key growth initiatives supported by three enablers. These seven strategic priorities, described below, are supported by additional investment that will be funded from our existing cash flows. We will be investing an additional £15 million per annum in capital expenditure over the next five years, over and above our historical run-rate of £25 million per annum, with this incremental investment focused on our growth initiatives. We believe that the global organisation and strategy will enable us to extend our advantages over our numerous smaller competitors and accelerate the rate at which we gain market share in fragmented markets over the medium term.

Strategic initiatives

1. Grow target customers

We will increase customer numbers and our sales to existing customers by focusing on our four core customer groups: Electronic Design Engineers, Machine and Panel Builders, Maintainers and Buyers. Our offer will be based on the needs of these groups, underpinned by our global approach.

During the next year we will design and implement business plans for each of our customer groups, aligning their needs with the appropriate channel and service levels in an integrated contact strategy. We will share and level up best practice across the Group to improve our sales effectiveness.

2. One global offer

We will use our industry-leading footprint to get more products to more customers by making 75% to 85% of our range available to all our customers across the world without compromising our reliable, high level of service. We will be famous for electronics and automation & control and will focus on driving a higher return on stock.

During the year ahead we will begin to level up the global range across RS and Allied and develop the global supply routes necessary for a reliable, high service level worldwide.

3. eCommerce with a human touch

We will significantly develop eCommerce to acquire customers at a faster rate than before, and our medium-term target remains for 70% of our business to be transacted online (2013: 56%). For high-value customers we will deploy our sales people to nurture these opportunities. By allocating digital and human resources more effectively we will manage our customer base more profitably.

Next year we will invest in brand awareness and customer nursery programmes focused on our growth markets. We will increase our investment in digital marketing to drive more traffic to our websites, and increase the conversion of visitors to customers through behavioural marketing.

4. Value for money

We will transform our customers' perceptions of the value we offer them, through the consistent, global execution of our strategy. There will be a step change in how we communicate our value and why this sets us apart from the competition, supported by dynamic pricing.

Next year we will roll out our price differentiation strategy globally, building on the successful piloting of this strategy in Europe, and make targeted margin investment to develop high-value customers. There will be automated online price messaging to improve our service to customers and their price perception.

Strategic enablers

1. High performance team

Our people will ensure the successful delivery of our strategy. Our focus will be on driving a high performance culture that equips our people with the skills and capabilities that they need to achieve our growth ambitions.

Over the next year we are focused on building the change and programme management capabilities and identifying the future skills requirements to equip the Group to deliver our strategy. We will act upon our first global employee engagement survey.

2. World class systems and supply chain

We will create a world class infrastructure and our systems will be built on a single platform to give us pace and agility. A globally-connected freight network will deliver a fast, reliable service for customers.

Next year we will continue to roll out a SAP-based system across Asia Pacific, the last region in the Group to move to a SAP-based platform. Having completed the system implementation in Australia, we will deliver it to South East Asia and begin the planning for implementation in Greater China.

3. Business insight

We will increase our capability to turn data into insight and understanding, through consistent global data, improved data tools and a culture where we actively seek new insights.

In the next year we will invest in a business intelligence system and establish the governance structures that will make our product data readily available to users in one place, supporting quicker and more effective insight.

Medium-term performance framework

Following the evolution of our strategy we have reviewed our medium-term performance framework. The new global strategy is expected to deliver improved medium-term financial performance as highlighted in the table below.

(1) Performance between 2006 and 2013

(2) Underlying sales growth, adjusting for trading days and currency movements

(3) These are headline measures of profitability and cash flow which are defined as the relevant reported profit/cash flow before reorganisation costs/cash flow

(4) Reported Group return on sales adjusted to reflect a 75:25 International:UK sales mix

(5) Headline operating profit expressed as a percentage of net assets plus net debt

Higher sales growth

We are targeting an average Group sales growth rate of 5% to 8% per annum through the cycle. This represents a significant improvement over our historical average Group sales growth performance of 4% per annum.

Whilst we expect the global economic outlook to remain challenging, our global strategy is expected to enable us to accelerate the rate at which we gain share in our international markets. During the past seven years share gains have contributed around half of the 6% per annum International sales growth. Going forward we expect share gains to be a greater contributor to sales growth, enabling us to reach the upper end of our 7% to 10% per annum International sales growth target. With an extensive footprint of 17 distribution centres around the world we have the capacity to achieve this sales growth from our existing distribution network.

We are raising our ambitions for the UK business, targeting an average of 1% to 2% per annum sales and contribution growth rather than seeking to maintain contribution. This improved outlook is based on our experience of the last seven years, when the UK has delivered sales growth of 1% per annum, combined with our belief that the UK manufacturing sector now provides a more stable trading environment than it did a decade ago.

Improved profitability and returns on capital employed

Sales growth will remain the key driver of operating leverage, augmented by process cost leverage and efficiencies from our move to a global operating model. Over the medium term we expect that gross margins will reduce by around 2% points as we grow faster in lower-margin technologies and countries. Our global pricing strategy will enable us to capture more value and partially mitigate the investment in margin we will make to improve our value for money proposition to customers.

These cost and gross margin actions are expected to result in a medium-term Group operating margin range of between 9% and 11%. This is an improvement on our historical performance of 7% to 10%, adjusted to reflect a 75:25 International:UK sales mix.

Over the past seven years the Group's return on capital employed (including goodwill) has ranged between 15% and 25%, significantly above the Group's weighted average cost of capital. We are targeting to raise this range to between 20% and 30% as the benefits of faster sales growth and continued strong cash flow generation are realised.

Strong free cash flow enabling dividend growth

Our global strategy is being supported by additional investment. Combined with a slight improvement in stock turns and improved profitability we are targeting medium-term Group headline free cash flow to sales to range between 4% and 6%.

The Group's free cash flow should enable the Board to maintain and grow the dividend over the medium term. As previously indicated, over time and as earnings increase, the Board intends to pursue a progressive dividend policy whilst increasing headline earnings dividend cover towards two times.

BUSINESS FINANCIAL PERFORMANCE AND POSITION

(1) Headline measures of profitability and cash flow are defined as the relevant reported profit/cash flow measure before reorganisation costs/cash flows

(2) 2013: comprises 5p interim and 6.75p proposed final dividend

(3) EBITDA: Earnings before interest, tax, depreciation and amortisation (inc. government grants)

Sales

The Group delivered annual sales of £1,235.6 million, representing underlying full-year sales growth of 0.5% despite a challenging economic environment throughout the year. The sales of our maintenance products (59% of Group sales) grew by 3%, outperforming those of our electronics products (41% of Group sales), which declined by 2%. The continued development of the Group's eCommerce channel resulted in eCommerce sales growth of 4% and eCommerce averaged 56% of Group sales during the year. Around three fewer trading days and adverse currency movements reduced Group reported sales by around £38 million.

Gross margin

Gross margin at 46.0% was 0.8% points below the prior year. The rate of decline was greatest in the first half, when gross margin was 1.2% points below the prior year, impacted particularly by increased use of customer discounts, stronger performance from lower-margin technologies and adverse currency movements. Both UK and International gross margins were impacted by a similar amount.

At the end of the first half we set out a number of actions to improve gross margin during the second half, including a targeted price differentiation strategy and improved customer discount effectiveness. As a result of these actions the decline in gross margin was reduced significantly in the second half to 0.3% points.

Costs

Headline operating costs at constant currency increased by 1.7% over the previous year (versus a 0.1% decline as reported) and increased by 0.9% points of sales to 37.6%. This increase was greatest in the first half, when headline operating costs at constant currency increased by 3.1%.

At the end of the first half we set out a number of actions to reduce headline operating costs as a percentage of sales in the second half as compared to the first half. These included control of discretionary costs and efficiencies from the implementation of our global organisation structure. These organisational cost efficiencies amounted to £4 million in the second half, with the annualised run-rate being £7 million. The costs of achieving these efficiencies were £7.4 million, and are recorded as non-recurring reorganisation costs below headline profit before tax.

As a result of these actions, and after allowing for continued investment in search engine marketing to drive future sales growth, headline operating costs as a percentage of sales reduced by over 1% point in the second half and headline operating costs at constant currency were broadly flat year-on-year.

Headline profit before tax

Headline profit before tax was £98.7 million, a decrease of £23.6 million (or 19.3%) on the prior year. Around £10 million of this decrease was due to fewer trading days and adverse currency movements (principally due to the weakening of the Euro against Sterling) compared to the prior year. The remainder of the decrease reflected the lower gross margin and increase in headline operating costs at constant currency noted above.

From a regional perspective the decrease in headline profit before tax was primarily the result of the International business's contribution reducing by £23.0 million, with all regions within International impacted by gross margin pressure and negative operating leverage. Continental Europe's contribution declined by £8.9 million, North America contribution fell by £8.4 million, whilst Asia Pacific's contribution fell by £5.7 million.

There was a significant improvement in headline profit before tax in the second half (£57.2 million) as compared to the first half (£41.5 million), primarily reflecting the impact of our actions to improve gross margin and control operating costs described above, together with normal seasonality.

Reported profit before tax

Reported profit before tax comprises headline profit before tax after reorganisation costs. During the year non-recurring reorganisation costs of £7.4 million were recorded. These costs primarily related to redundancy charges arising from the implementation of the new global operating model.

Taxation

The Group's effective tax rate was 30% of headline profit before tax, a reduction of 1% point from the prior year. The effective tax rate on reported profit before tax was 31%, the same rate as in the prior year. The Group's current effective tax rate includes the effect of a significant and continuing increase in the deferred tax liability due to the tax amortisation of overseas goodwill. This deferred tax liability is not expected to crystallise in the foreseeable future. The effective tax rate was higher than the cash tax rate of 28% of headline profit before tax, which is expected to increase going forward as prior-year tax losses are utilised.

Headline earnings per share

Headline earnings per share of 15.7p decreased by 19% year-on-year, broadly in line with the decrease in headline profit before tax.

Dividend

The Board is proposing a maintained final dividend of 6.75p per share. This will be paid on 22 July 2013 to shareholders on the register on 21 June 2013. As a result, the total dividend for the financial year will be maintained at 11.75p per share, resulting in headline earnings dividend cover of 1.3 times.

Cash flow

Headline free cash flow for the year of £56.1 million was 6% above the prior-year level. The reduction in headline profit before tax was more than offset by lower working capital and lower capital expenditure. Reported free cash flow for the year was £49.3 million. This was £6.8 million lower than the headline free cash flow, reflecting the cash out flows associated with the reorganisation of the business.

As planned, stock turn reduced slightly from 2.6 times to 2.5 times, reflecting additional investment in our electronics range. Following the major investment in systems in North America, UK and Continental Europe in the previous year, net capital expenditure reduced by £10.4 million as the Group's systems investment moved to Asia Pacific.

In the next year we are planning to invest around £40 million in capital expenditure to support our medium-term growth ambitions (2013: £27 million). This increase in capital expenditure is consistent with the planned step-up in investment over the next five years to drive faster sales growth, as outlined in the strategy update. We will continue the phased implementation of a new system in Asia Pacific. Additional investment will be targeted at our new strategic priorities, including further enhancements to the Group's eCommerce functionality, a business intelligence system to improve our insight capabilities, and systems to enable the levelling up of the RS and Allied product ranges as we move towards a single global offer.

Financial position

At 31 March 2013 net debt was £159.7 million. This was £5.5 million higher than last year. Dividend payments of £51.3 million exceeded reported free cash flow of £49.3 million. The balance of the movement was largely due to finance leases and currency movements.

The Group's committed debt finance comprises a syndicated multicurrency facility (currency split: US Dollars $75 million, Sterling £120 million, Euros €50 million) from seven banks maturing in November 2015, together with $150 million of US Private Placement ("PP") notes, comprising $65 million with a June 2015 maturity and $85 million with a June 2017 maturity. Taken together, the Group's committed debt facilities and loans amount to £305.3 million, of which £149.2 million was undrawn as at 31 March 2013.

Year end net debt comprised gross borrowings of £169.0 million (currency split: £61.3 million US Dollars, £70.6 million Sterling, £32.0 million Euros and the balance in other currencies) and financial assets of £9.3 million. The currency mix is designed to partially hedge the Group's translation exposures. The peak month-end net borrowing during the year (using monthly exchange rates) was £202.2 million.

The Group's financial metrics remain strong with Net Debt to EBITDA of 1.2 times and EBITA interest cover of 21.1 times, with significant headroom to the Group's banking covenants.

Pension

The Group has defined benefit pension schemes in the UK, Ireland and Germany. All these schemes are closed to new entrants and in Germany the pension scheme is closed to accruals for future service. Under IAS 19, the combined gross deficit of the Group's defined benefit schemes was £19.0 million at 31 March 2013. This balance comprised a £5.7 million deficit in Germany, £0.9 million deficit in the Republic of Ireland and £12.4 million deficit in the UK.

The largest defined benefit scheme is in the UK where the accounting valuation as at 31 March 2013 disclosed a deficit of £12.4 million compared to a surplus of £10.6 million last year (before the application of IFRIC14). This movement was principally caused by higher liabilities, due to a lower discount rate assumption, partially offset by actuarial gains caused by returns on assets being higher than expected. As a result of changing financial assumptions, principally around discount and inflation rates, we expect the defined benefit non-cash pension cost to increase in the year ending 31 March 2014 by an additional £1 million.

Amendments to IAS 19 became effective for periods beginning on and after 1 January 2013. We have not adopted these amendments in the Group's 2013 accounts but will adopt them for the first time in the Group's 2014 accounts. If these amendments had been applied to the Group's accounts for the financial year ended 31 March 2013, they would have increased the defined benefit non-cash pension expense in the income statement by approximately £5 million. When we publish the Group's accounts for the financial year ending 31 March 2014 we will restate the prior-year pension charge to reflect these amendments.

INTERNATIONAL

(1) Adjusted for currency; sales also adjusted for trading days

The International business represents 70% of Group revenue and comprises three regions: Continental Europe (50% of the International business), North America (31%) and Asia Pacific (19%).

During the year, underlying sales declined by 1%, primarily due to a 3% decline in North America sales. Our Continental Europe business grew sales by 1%, whilst Asia Pacific sales were flat.

International eCommerce sales grew by 1%, driven by a strong performance in Continental Europe which offset declines in eCommerce sales in North America and Asia Pacific. The two latter regions delivered a significant improvement in eCommerce sales growth rates in the second half as compared to the first half.

International gross margin declined by 0.8% points over the year, with all regions within International reporting a similar decline. The decline eased in the second half to 0.5% points as compared to 1.2% points in the first half. This reflected the action we took to improve customer discount effectiveness and implement a targeted price differentiation strategy. Throughout the year there has been a negative product mix impact on gross margin due to a stronger sales performance from lower-margin technologies, such as test & measurement.

International operating costs at constant currency grew by 1.4%. As with the gross margin, there was a significant improvement in this measure in the second half as compared to the first half, when operating costs at constant currency grew by 4.4%. Whilst there continued to be fixed cost inflation in the second half, efficiencies were realised following the implementation of the new global operating model and discretionary costs were tightly controlled. As a result, operating costs at constant currency declined by 1.6% in the second half.

As a result of the above-mentioned movements, underlying contribution at constant currency decreased by 11%. Contribution as a percentage of sales reduced by 1.8% points to 16.0%.

CONTINENTAL EUROPE

(1) Adjusted for currency; sales also adjusted for trading days

Our business in Continental Europe operates in fifteen markets. The largest of these are France, Germany and Italy, which together comprise around 70% of sales in the region. The remaining markets are Austria, Belgium, Czech Republic, Denmark, Hungary, Ireland, Netherlands, Norway, Poland, Spain, Sweden and Switzerland.

Following a flat underlying sales performance in the first half there was a slight improvement in underlying sales growth across the region during the second half, resulting in 1% growth for the full year. During the year the manufacturing Purchasing Managers Indices were below 50 in our major European markets, indicative of a contracting manufacturing sector, so we believe that our sales performance reflects positively on our initiatives to improve the customer proposition.

The region continued to make good progress expanding its online business, generating 10% eCommerce sales growth during the year. eCommerce sales share was 66% over the period compared to 61% in the prior year, approaching our Group target of 70%. Increased search engine marketing and the significant enhancements to our websites, which have made the process of buying products clearer, faster and easier, have supported this performance.

During the year the European business strengthened its leading automation & control offer, expanding its Siemens stocked range to more than 20,000 products and launching the complete Omron industrial safety product range across Europe.

Having taken the decision to defer the European catalogue in the previous financial year, we reintroduced it this year (for the first time it covers the entire Europe, Middle East and Africa region in one catalogue). Whilst the catalogue has been received positively by our customers, this means that the year-on-year comparison of contribution has been adversely impacted by around £1 million, being the costs associated with producing and marketing the catalogue. The 3% decline in contribution at constant currency reflected a lower gross margin and these catalogue costs, together with fixed cost inflation in an environment of low sales growth.

NORTH AMERICA

(1) Adjusted for currency; sales also adjusted for trading days

Allied, our North American business, reported an underlying sales decline of 3.3% during the year. Following a decline of 5.1% in the first half, there was an improvement in sales performance during the second half.

The second-half improvement did not reflect a change in trading conditions - the majority of Allied's sales relate to electronics which remained a difficult market during both the first half and second half. Instead, the improvement in sales performance reflected a combination of easier comparators as the year progressed and enhanced sales force productivity following the temporary decline in this during the first half, when the sales force were adapting to the new IT system implemented in January 2012.

System enhancements during the second half also improved Allied's website functionality and our online sales performance. eCommerce sales declined by 26% in the first half following a temporary reduction in online functionality but, after the online functionality was restored in the second half, strong eCommerce sales growth returned and the full-year eCommerce sales decline reduced to 16%. eCommerce sales share improved from 32% in the first half to 36% in the second half, and is on track to return to the 40% level it reached during the prior financial year.

During the year Allied added over 30,000 new products to its portfolio, including products from new suppliers such as Siemens, Keithley Instruments/Tektronix and Yokogawa. The business extended its product range with Panasonic to include passives and semiconductors, and signed a new distribution agreement with Orion Power Systems to add its power protection solutions for data and security applications to its product portfolio. Allied's strong automation & control offer was significantly enhanced during the year when the business signed an agreement with Siemens to become an authorised distributor of Siemens' low-voltage products.

The 20% reduction in contribution at constant exchange primarily reflected the negative operating leverage caused by fixed cost inflation against a backdrop of lower sales, together with a lower gross margin.

ASIA PACIFIC

(1) Adjusted for currency; sales also adjusted for trading days

The Group's business in Asia Pacific is the region's market leader, operating across thirteen markets. Sales across the region are split broadly equally between Japan, Australasia, Greater China and South East Asia. During the year the region reported flat underlying sales growth, reflecting growth in our emerging markets of Greater China and South East Asia and declines in Japan and Australasia.

Greater China and South East Asia delivered sales growth in both the first half and second half, benefitting from the investment in additional products that we have been making in recent years to improve our product range, notably in China.

Our Japanese business, which is primarily focused on electronics, faced particularly difficult trading conditions during the first nine months of the financial year. Tough comparators and deteriorating manufacturing Purchasing Managers Indices (PMIs) compounded a difficult environment for electronics globally. During the final quarter the manufacturing PMI improved to the neutral 50 level and the rate of sales decline eased.

Australasia had a strong first quarter, but this then gave way to a more challenging trading environment as the Australian natural resources sector slowed. Against this backdrop the business successfully went live with a new IT system.

The region's eCommerce performance was impacted by the weak Japan sales performance, as Japan has a high eCommerce sales share of around 70%. As a result, eCommerce sales in Asia Pacific declined by 3% during the year (growth of 3% excluding Japan). eCommerce sales share over the year was flat at around 50%.

Asia Pacific had considerable success winning large corporate accounts during the year, securing over 30 new contracts, and the region's product offer was enhanced via new agreements with Agilent Technologies and an extended partnership with SMC.

Asia Pacific's contribution as a percentage of sales reduced to 7.2% from 10.5%, primarily reflecting increased operating costs, due to inflation, higher stock costs and investment in marketing initiatives to raise our brand awareness, and a reduction in gross margin.

UK

(1) Sales adjusted for trading days

Our UK operation, which celebrated its 75th anniversary during the year, is the largest high service distributor in its market. The UK business reported underlying sales growth of 3.7%, of which 2.3% points comprised sales of Raspberry Pi both within the UK and internationally. Raspberry Pi is a low-cost, credit card-sized single-board computer designed and developed by the Raspberry Pi Foundation, a charity established to promote computer development skills in education across the world. As such, it is a lower-margin product.

Excluding the sales of Raspberry Pi products and accessories, the UK business generated 1.4% underlying sales growth. Maintenance comprises around 75% of the UK's sales, and the relatively low exposure to the electronics market benefitted the UK's performance. There was a good performance from our corporate accounts as we continued to attract new customers and expand our product range with existing accounts. We also began to sell value-added services to these accounts, such as insight into their procurement behaviour. Corporate accounts now contribute over a quarter of the UK's sales.

eCommerce revenue grew by 10% during the year, with eCommerce revenue share averaging 62% compared to 58% in the prior year. This strong performance was driven by continued investment in search engine marketing and search engine optimisation, the development of our online chat service, Live Chat, and the enhancements made to our websites to make it easier for customers to order and purchase products from us.

Following the 1.4% point reduction in gross margin in the first half, the UK's gross margin returned to 50% in the second half, as it benefitted from our actions to improve customer discount effectiveness and our price differentiation strategy versus the competition. This resulted in a full-year decline in gross margin of 0.7% points which, combined with 3% cost growth from increased sales volumes and inflation, led to an unchanged contribution year-on-year. Contribution as a percentage of sales was maintained at a strong level in excess of 28%. 

PROCESSES

(1) Adjusted for currency

The Processes principally comprise our teams that manage our Group-wide Marketing, Offer and IT activities, together with Group management and head office costs. Process costs rose by 1.5% at constant exchange, primarily reflecting the impact of fixed cost inflation offset by efficiencies following the move to a global operating model.

There has been ongoing investment in our initiatives to drive future sales growth. This includes enhancements to our websites to make it faster and easier to buy products from us. We have also made improvements to our leading suite of technical design tools for customers. Version 4.0 of DesignSpark PCB now features a new library manager, which integrates with ModelSource, a new online component library which is freely available as a standalone tool via the DesignSpark website. The libraries are aligned with our product offer and enable engineers to focus on innovation, research and development rather than spending time on creating the basic building blocks of the design.

We have strengthened existing partnerships with leading global brands and added new suppliers to our product portfolio. RS added over 40,000 new products in the year, with Allied adding over 30,000. We have extended our relationship with Siemens to North America, added passives and semiconductors to our Panasonic range in North America, expanded our portfolio of Agilent Technologies test & measurement products in Asia Pacific and signed a new distribution agreement with Samtec, a leading supplier of connectors, covering Europe, Middle East, Africa and Asia Pacific.

Following the move to a global operating model we have also signed a number of new global freight contracts. These agreements will further improve the service provision to customers and provide support for driving sales growth while reducing the total cost of global freight services.

CURRENT TRADING AND OUTLOOK

In the first seven weeks of the new financial year, the Group has delivered sales growth of 1%. The International business grew by 1% and the UK was flat. Within International, Continental Europe grew by 2%, North America grew by 1% and Asia Pacific declined by 1%.

Whilst mindful of challenging economic conditions, we are implementing our common global strategy and expect to make progress towards our medium-term performance goals. The Group is well placed to capture market share in its international markets and we are therefore increasing investment in our strategic initiatives.

Ian Mason, Group Chief Executive

Simon Boddie, Group Finance Director

23 May 2013

Group Income Statement

For the year ended 31 March 2013

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2013

Group Balance Sheet

As at 31 March 2013

Group Cash Flow Statement

For the year ended 31 March 2013

Consolidated Statement of Changes in Equity

For the year ended 31 March 2013

Notes to the Preliminary Statement

For the year ended 31 March 2013

1. Analysis of income and expenditure

Distribution and marketing expenses within contribution comprise local costs incurred relating to the selling and distribution of the Group's products, and are attributable to the region to which they relate.

Distribution and marketing expenses within Groupwide Process costs comprise the identification, introduction and sourcing of the Group's Products, managing supplier relationships, developing the Group's eCommerce strategy and development, managing the Group's stock (both quantity and location) and the Group's worldwide IT infrastructure.

2. Reorganisation costs

During the year, the group undertook a significant restructuring of the business from a geographically-based operating model to a functionally-based global operating model. The costs incurred in relation to this restructuring activity included redundancy and associated consultancy costs. £6.8m of the costs were paid in the year ended 31 March 2013. The remaining £0.6m is held within provisions and other liabilities falling due within one year.

3. Segmental reporting

In accordance with IFRS 8 Operating Segments, Group management has identified its operating segments. The performance of these operating segments is reviewed on a monthly basis by the Group Chief Executive and the senior management team (the Group Executive Committee). There have been no changes to the segments as a result of the reorganisation.

These operating segments are: the United Kingdom, Continental Europe, North America and Asia Pacific. The United Kingdom comprises operations in the United Kingdom and exports to distributors where the Group does not have a local operating company. Continental Europe comprises operations in France, Germany, Italy, Austria, Denmark, Norway, Sweden, Republic of Ireland, Spain, Switzerland, the Netherlands, Belgium, Poland, Hungary and the Czech Republic. North America comprises operations in the United States of America and Canada. Asia Pacific comprises operations in Japan, Australia, New Zealand, Singapore, Malaysia, Philippines, Thailand, Hong Kong, Taiwan, People's Republic of China, South Korea, Chile and South Africa.

Each reporting segment derives its revenue from the high service level distribution of electronics and maintenance products.

Intersegment pricing is determined on an arm's length basis, comprising sales of product at cost and a handling charge included within Distribution and Marketing expenses.

The Group derives its revenue from two product types:

4. Income tax expense

5. Earnings per share

6. 2013 final dividend

The timetable for the payment of the proposed final dividend is:

A final dividend of 6.75p per share relating to the year has been proposed since the period end.

7. Pension schemes

The principal assumptions used in the valuations of the liabilities of the Group's schemes were:

The expected long term rates of return on the schemes' assets (net of administrative expenses) were:

Based upon the demographics of scheme members, the weighted average life expectancy assumptions used to determine benefit obligations were:

The net costs recognised in the Income Statement were:

The valuations of the assets of the schemes as at 31 March were:

No amount is included in the market value of assets relating to either financial instruments or property occupied by the Group.

The amount included in the balance sheet arising from the Group's obligations in respect of its defined benefit pension schemes was:

As at 31 March 2013 the UK defined benefit pension scheme reported a deficit of £12.4m (2012: surplus of £10.6m). As at 31 March 2012, in accordance with IAS19 Employee benefits and IFRIC 14, the Group did not recognise the pension surplus as it had neither an unconditional right to a refund nor the unconditional right to run the scheme off on a last survivor basis (due to the Trustees powers to wind up the scheme).

Sensitivity analysis of the impact of changes in key IAS 19 assumptions

8. Intangible assets

9. Property, plant and equipment

10. Inventories