ECM.L Regulatory News (ECM)

1 Jun 2006 07:01

Electrocomponents PLC01 June 2006 Embargoed to 7:00am, Thursday 1 June 2006 PRELIMINARY STATEMENT Electrocomponents plc, the leading international high service distributor ofelectronic, electrical and industrial supplies, today announces its results forthe year ended 31 March 2006. SUMMARY RESULTS 2006 2005 ---------- ----------Revenue £828.5m £773.9mProfit before tax - headline £72.8m £99.9mProfit before tax - basic £65.1m £99.9mEarnings per share - headline 11.2p 15.5pEarnings per share - basic 10.0p 15.5pDividend per share 18.4p 18.4p HIGHLIGHTS OF THE YEAR• Strong and accelerating revenue growth in the International business. This is now 57% of Group revenue, with annual growth of 12% and all regions growing. Good operating cost leverage achieved and contribution increased by £9m.• Successful launch of our Enterprise Business System (EBS) in the UK, which also provides support to the International business.• Significant progress on Electronic and Electromechanical (EEM) strategy with 90,000 additional products launched in the main European markets.• The headline profit fell by £27m with the growth in International contribution being offset by declining UK contribution (down by £10m), increased EBS costs (up by £16m) and additional Process costs (up by £8m).• Action taken to reduce the cost base by £4m annualised.• A charge of £8m was incurred during the year of which £4m related to actions to reduce the cost base and £4m to a provision for the RoHS Directive.• Dividend maintained at 18.4p. PLAN FOR THE COMING YEAR• Roll out EBS across Europe and drive planned benefits from the system investment.• Continue to develop the EEM offer: May 2006 has seen the launches of the extended range in Asia Pacific and new leading edge wireless and display technologies in Europe.• Implement changes in UK to generate sustainable profit and enable future growth.• Further actions to reduce the cost base.• Increase investment in China to develop the opportunities in this high potential market. BOB LAWSON, CHAIRMAN, COMMENTED:"Profitability in this year has been heavily impacted by the costs of theEnterprise Business System implementation and the decline in UK sales caused bythe huge demands of EBS and the continuing pressure on manufacturing customers.Over the Christmas period EBS was launched successfully and has supported the UKand our International supply activities effectively since then. UK management isnow free to make the necessary changes to deliver a sustainable profit andenable future growth. The International business, which now represents 57% of total revenue, hascontinued to strengthen with sales up 15% in the second half, giving overallgrowth of 12% for the full year and generating good operating cost leverage. Since the year end, Group revenue growth has remained strong at around 9%. TheInternational business has grown by around 15% and the UK business has beenflat. As planned, gross margins are lower than the equivalent period last year,largely due to actions taken to improve competitiveness. The successful implementation of EBS in the UK has been a great achievement andwe are now rolling out EBS into the rest of Europe with added confidence. Earlysuccess of the new strategy makes us well placed to develop the opportunitiesgenerated by our strategy implementation in the year ahead." Enquiries:Bob Lawson, Chairman Electrocomponents plc 0207 567 8000*Ian Mason, Chief Executive Electrocomponents plc 0207 567 8000*Simon Boddie, Group Finance Director Electrocomponents plc 0207 567 8000*Diana Soltmann Flagship Consulting Ltd 0207 886 8440 * Available to 15:00 on 1 June 2006, thereafter 01865 204000 The results and presentation to analysts are published on the corporate websiteat www.electrocomponents.com Definitions of terms:In order to reflect underlying business performance, comparisons of revenuebetween periods have been adjusted for exchange rates and the number of tradingdays. Changes in profit, cash flow, debt and share related measures such asearnings per share are at reported exchange rates. Enterprise Business System (EBS): In order to make clear the costs of the EBSproject and the underlying performance of the business, EBS costs have beendisclosed separately. Therefore, unless explicitly stated, measures based onoperating costs, contribution and process costs exclude EBS. Headline profit: A charge of £7.7m (2005: £nil) was incurred in the year foritems excluded from headline profit. Details of the items are given below theIncome Statement. Key performance measures such as return on sales, EBITDA andROCE use headline profit figures. Safe Harbour:Our preliminary statement contains certain statements, statistics andprojections that are or may be forward-looking. The accuracy and completeness ofall such statements, including, without limitation, statements regarding thefuture financial position, strategy, projected costs, plans and objectives forthe management of future operations of Electrocomponents plc and itssubsidiaries is not warranted or guaranteed. These statements typically containwords such as "intends", "expects", "anticipates", "estimates" and words ofsimilar import. By their nature, forward-looking statements involve risk anduncertainty because they relate to events and depend on circumstances that willoccur in the future. Although Electrocomponents plc believes that theexpectations reflected in such statements are reasonable, no assurance can begiven that such expectations will prove to be correct. There are a number offactors, which may be beyond the control of Electrocomponents plc, which couldcause actual results and developments to differ materially from those expressedor implied by such forward-looking statements. Other than as required byapplicable law or the applicable rules of any exchange on which our securitiesmay be listed, Electrocomponents plc has no intention or obligation to updateforward-looking statements contained herein. CHAIRMAN'S STATEMENT ON THE PRELIMINARY RESULTS INTRODUCTIONProfitability in this year has been heavily impacted by the costs of theEnterprise Business System implementation and the decline in UK sales caused bythe huge demands of EBS and the continuing pressure on manufacturing customers. Over the Christmas period EBS was launched successfully and has supported the UKand our International supply activities effectively since then. UK management isnow free to make the necessary changes to deliver a sustainable profit andenable future growth. The International business, which now represents 57% of total revenue, hascontinued to strengthen with sales up 15% in the second half, giving overallgrowth of 12% for the full year and generating good operating cost leverage. STRATEGIC DEVELOPMENTThis is the first year of our 3 year strategic development plan and goodprogress has been achieved in implementing the strategy. As well as EBS, ourproduct offer has been considerably enhanced for our EEM customers, which hascontributed to accelerating International growth, and the first tranche of costsavings have been delivered. The successful implementation of EBS in the UK has been a great achievement andwe are now rolling out EBS into the rest of Europe with added confidence. Earlysuccess of the new strategy makes us well placed to develop the opportunitiesgenerated by our strategy implementation in the year ahead. DIVIDENDThese strategic developments are critical and should ensure that future growthis sustainable over time. It is for these reasons that the Board announced lastyear that assuming no substantial deterioration in economic conditions, itshould maintain the dividend for this 3 year period, and hence the dividend willbe 18.4p per share for the full year. OUR PEOPLEMany people both in the UK and internationally worked extremely hard at greatpersonal cost to install EBS, which supports both the UK business andInternational supply activities. In addition, all our people have driven theperformance of their markets as evidenced by the sales progress. On behalf ofthe Board I do thank everyone. As announced, Jeff Hewitt retired as Group Finance Director and Simon Boddietook over after a very successful career at Diageo. Simon has brought muchrelevant international and performance management skills to the Board and welook forward to him continuing to make a significant impact on the Group'sactivities. Richard Butler resigned from the Board and the Company after 18 years' service.Richard influenced much of our organisational and Asian development activities,and we wish him well. Dieter Lennertz will be retiring at the AGM after 10 years on the Board. Dieterbrought to the Board very extensive Continental European experience and has beena tremendous support during this decade of international development. We willmiss his considered inputs to our Board debates and wish him and his wife manyhappy years in retirement. CURRENT TRADINGSince the year end, Group revenue growth has remained strong at around 9%. TheInternational business has grown by around 15% and the UK business has beenflat. As planned, gross margins are lower than the equivalent period last year,largely due to actions taken to improve competitiveness. Bob Lawson, Chairman1 June 2006 OPERATING REVIEW PROGRESS ON 3 YEAR PLANThe 3 year plan announced in May 2005 comprised three key elements whichtogether will substantially improve the financial performance of the Group.These were • Focus separately on two distinct customer groups (EEM and MRO)• Implement the Enterprise Business System• Create a lower cost infrastructure During the year, good progress has been made on the implementation of this plan,with the EBS 'go-live' in the UK being a major milestone. In addition, we haveseen an improvement in sales within our International businesses. Electronic and Electromechanical (EEM)To improve our competitiveness in this sector, we have increased our stockedproduct range across Europe, extended our range by an additional 90,000 productsfrom our US company (Allied Electronics) and our existing suppliers for sale inour larger European markets, and have reorganised our Product Management processto align more closely to the EEM strategy. We have also increased the proportionof our overall marketing expenditure on EEM marketing. The initial results showa substantial increase in sales growth rate for these products which providesconfidence in the strategy. The next steps will include further increasing thesize of the EEM range, with the inclusion of new technologies e.g. wireless anddisplays, and additional customer driven packaging options, making all EEMproducts available to every business around the world and further improving EEMcustomer service through enhanced web based search and information facilities. Maintenance, Repair & Operations (MRO)The primary focus of the strategy in the MRO sector is to simplify the offer tomeet customer needs more effectively. This will involve better management ofcost through product and supplier rationalisation and increased own brandedproducts. Where we have particular strength in a range, we will promote thatrange in a similar way to the EEM strategy. The first of these has been thesuccessful trial of an improved Process Control and Automation (PCA) offer inGermany aimed specifically at maintenance engineers in all industries. Followingthe positive response from our customers, we plan to roll out this offer to therest of the Group. Enterprise Business System (EBS)The Enterprise Business System went live in the UK in December and hassuccessfully supported the UK business and the International supply activitiessince then with more than one million customer orders processed to date. TheGroup now plans to roll out EBS to the remainder of its European subsidiarieswith the roll out being largely completed by the end of 2006/07. In Asia, theEBS system will be rolled out to China during 2006/07. This system will thenprovide the platform for growth for our UK, European and Asian operations. InfrastructureSignificant steps have been taken towards creating a lower cost infrastructure.Reorganisations within the Group Processes and the businesses have led to theremoval of around 110 roles including the closure of the telemarketingdepartment in the UK. Reorganisation costs of £3.7m have been incurred this yearleading to annualised benefits of £4.4m. Further cost reductions will beannounced in the next financial year. OPERATING PERFORMANCE AND KEY PERFORMANCE INDICATORSOperating performance Group 2006 2005 -------- ---------Revenue £828.5m £773.9mGross margin 51.5% 53.2%Contribution £183.2m £184.1mGroup Process costs (£81.9m) (£74.1m)EBS costs (£25.1m) (£9.2m)Headline operating profit £76.2m £100.8mInterest (net) (£3.4m) (£0.9m)Headline profit before tax £72.8m £99.9mHeadline earnings per share 11.2p 15.5pDividend per share 18.4p 18.4p Key performance indicators 2006 2005 -------- --------- Group sales growth 5.0% 4.5%International 11.8% 8.1%UK (3.0)% 0.6% Headline Group return on sales 8.8% 12.9% Headline EBITDA (1) £100.3m £123.0m Free cash flow £26.9m £61.1m Headline ROCE (2) 16.7% 24.5% (1) Earnings before interest, tax, depreciation and amortisation(2) Return on capital employed is defined as headline operating profit expressed as a percentage of net assets excluding net debt The headline profit has fallen by £27.1m due to five main factors. TheInternational business contribution has increased by £8.8m. Against this, the UKcontribution has declined by £9.7m. EBS costs have increased by £15.9m, processcosts by £7.8m and interest by £2.5m. The International contribution has increased due to higher sales and operatingcost leverage. EBS costs have risen as planned due to the UK implementationduring the year. The increase in Process costs of £7.8m includes £3.1m ofone-off costs associated with the groupwide technology upgrade and therestructuring of the information systems department following the EBSimplementation. Excluding these one-off costs, the Process costs are a similarpercentage of sales to last year. Interest has increased due to the higher netdebt. e-Commerce revenue continued to grow quickly (up 29%) across all markets ande-Commerce channels, and now represents 25% of Group sales. This has been drivenby measures taken during the year to enhance the Group's e-Commerce channelsincluding the redesigned and improved website in the UK with improved internetvisibility. In addition, the Group's single e-Commerce capability has been usedto enable a quick and consistent roll out of the extended EEM ranges. Over 50%of sales in Japan and nearly 40% in Germany are now accounted for by e-Commerce. The gross margin was down 1.7% points from last year and down 1.0% point in thesecond half compared to the first half of the year. This reduction was spreadacross all regions and is due to a combination of factors. To improvecompetitiveness, we have adjusted selling prices by product category andincreased customer discounts, which has reduced gross margin. In addition therewere changes in product mix with higher growth in lower margin technologies andchanges in geographic mix (with the lower gross margin US business growing morequickly than the rest of the Group which adversely impacted Group gross marginby 0.3% points). Significant net cost price decreases have been achieved throughrange rationalisation, particularly in MRO, and greater use of own-brand. We will continue to manage the trade-off between gross margin, sales and grossprofit, but with a greater focus on increasing gross profit. We expect the rateof gross margin decline to reduce as our competitive position is adjusted. The profit before tax is net of a charge of £2.7m relating to share basedpayment plans for employees. This is a non-cash item and the majority of optionsin issue have exercise prices significantly above the share price at 31 March2006. Closing net debt was £120.8m, £65.4m higher than last year end. Financial ratiosremained strong with high interest cover. The pension deficit (net of deferredtax) at 31 March 2006 was £29.7m. In addition, there were reorganisation costs of £3.7m incurred in the year and aone-off provision of £4.0m for the forthcoming Restriction of HazardousSubstances (RoHS) Directive. RoHS is becoming increasingly important for ourcustomers in the run up to its implementation in July 2006. We continue toincrease our RoHS compliant product offer, which is now 70,000 products inEurope, and provide the technical information that customers require to meettheir needs. Free cash flow was down 56% from last year, due to lower profits and higherworking capital caused by the planned increase in stock to support the EBSimplementation and the higher sales in the final two months which were impactedby the timing of Easter, being in March in 2005 but April in 2006. The change in the timing of Easter will adversely impact the profit for thefirst half of 2006/07 by around £4m. International 2006 2005 --------- ----------Revenue £474.9m £415.1mRevenue growth 11.8% 8.1%Gross margin 50.3% 52.1%Operating costs % of revenue (32.1)% (33.4)%Contribution £86.3m £77.5m% of revenue 18.2% 18.7% The International business accounted for 57% of Group sales and 47% of Groupcontribution. It is comprised of Continental Europe (56% of revenue in theInternational business), North America (29%) and Asia Pacific including Japan(15%). Revenue growth accelerated to 14.8% in the second half, with an overallgrowth for the year of 11.8%. Gross margin in the region reduced by 1.8% pointsin the period, in part due to the adverse impact of 0.4% points due to thehigher than average growth in North America (which has a gross margin of around36%). Operating costs fell as a percentage of revenue by 1.3% points, showingthe gearing benefit of the higher sales. Continental Europe 2006 2005 --------- ----------Revenue £267.9m £243.5mRevenue growth 8.3% 2.5%Contribution £59.9m £56.3m% of revenue 22.4% 23.1% 2005/06 has seen accelerated sales growth across Europe, particularly in themajor European markets of France, Germany and Italy, with the strongestimprovement in France (a 7% point improvement). Across all markets growth wasstronger in the second half of the year (11.1%) than the first half (5.1%). TheEEM strategy has resulted in a significant expansion of the product offer in themajor European markets leading to additional revenue. Sales via e-Commerce have grown to over 28% of total revenue, up from 22% lastyear. e-Procurement continues to perform well, notably in Germany and Austria,with strong growth amongst large customers who appreciate our broad productrange, high service levels and e-Commerce capabilities, combined withcompetitive terms and conditions. We have further intensified our marketing and sales activities across theregion, with more marketing material going out more often to more customers,shared across markets wherever possible. Examples include our RoHS activitiesand recently developed 'Electronics' marketing material to support the EEMstrategy. We have focused on securing larger orders and quotation business andhave also secured several large customer contracts. These have adverselyimpacted gross margin but driven gross profit and increased the contribution. We have also sought further opportunities to shift resource to the customerfacing roles in order to increase coverage and develop sales to existingcustomers. In Spain we successfully completed the office relocation and warehouse expansionresulting in improved service levels to our customers. The focus for management in the next year will be to continue the momentum ofgrowth whilst rolling out EBS. North America 2006 2005 --------- ----------Revenue £137.5m £112.8mRevenue growth 18.0% 19.4%Contribution £19.2m £15.7m% of revenue 14.0% 13.9% Allied's sales growth improved to 22% in the second half from 14% in the firsthalf. Allied has continued its proven growth strategy. The field salesforce wasexpanded further and sales management strengthened within our network of 55branches. The product range was again expanded in the October 2005 cataloguewith the addition of around 16,000 new products. Allied has increased itsmarketing programmes developed jointly with suppliers and the descriptions andimages of the products have been enhanced to aid customer choice. In addition,service levels have been improved and the Group's stock management system hasnow operated satisfactorily for a full year. Gross margin declined in the first half of the year and the rate stabilised inthe second half at around 36%. The Group has approved the investment in a new warehouse and office in FortWorth to replace the existing one. The investment is on track and expected to beopened in mid 2007 at a capital cost of around £22m, which will be incurredmainly in 2006/07. Asia Pacific (including Japan) 2006 2005 --------- ----------Revenue £69.5m £58.8mRevenue growth 14.5% 13.1%Contribution £7.2m £5.5m% of revenue 10.4% 9.4% The region enjoyed strong growth in both sales and contribution. Revenue grewstrongly in all the markets: North Asia 21%, South Asia 19%, Australasia 12% andJapan 11%. In the Asia Pacific region as a whole, revenue growth accelerated inthe second half to 16% from 13% in the first half. Japan recovered from the slowdown in growth experienced in the first half, withgrowth of 12.9% in the second half, in part due to the improvement in thegeneral electronics and related manufacturing sectors and by refocusing ongrowing new customers in the more buoyant sectors. During the year China grew by 28%. RS has a leading position in China and adecision has been taken to increase the level of investment. Extensive researchconcluded that customers in China value suppliers who offer a wide range ofproducts with assured delivery and knowledgeable local sellers. Therefore, afour point plan to accelerate growth further in China has been approved and willbe implemented in 2006/07. We plan to:• increase product range, combining an increase in stocked products with access to the EEM extended offer;• increase levels of stock to improve delivery service;• increase sales agents and sales offices to enhance face to face selling; and• increase marketing investment to drive customer acquisition. To support the implementation of the plan, a further investment of £1.5m will bemade by the Group in the coming year. A sales office is to be opened in mid 2006 in Thailand to exploit theopportunities in this developing market. UK 2006 2005 --------- ----------Revenue £353.6m £358.8mRevenue growth (3.0)% 0.6%Gross margin 53.0% 54.5%Operating costs % of revenue (25.6)% (24.8)%Contribution £96.9m £106.6m% of revenue 27.4% 29.7% Revenue in the UK declined by 2% in the second half, compared with a decline of4% in the first half. Revenue continued to be affected by the long term declinein manufacturing and slower economic growth in the wider economy. Increasedprice flexibility helped drive strong large order growth and win or retainseveral large contracts. In December, we successfully implemented EBS in the UK. We are now focusing onexploiting the new platform to drive additional benefits for our customers aswell as financial and qualitative benefits for the UK business. e-Commerce continued to grow throughout the year and accounted for 28% of UKbusiness. An upgrade to our Internet trading channel will improve search andbrowse capabilities for our products, while further web enhancements are plannedto support the implementation of the EEM strategy. Two new 'Call & Collect' points were opened in Leicester and Coventry enablingsame day collection of 135,000 products to customers in those areas. Both newlocations showed significant growth. The sales and profitability of the UK business has declined over several yearsdriven by the decline in UK manufacturing. Investment in sales and marketing andsignificant cost reduction actions through the period have only partially offsetthe effects of negative operating leverage. A fundamental review of the role andstrategy of the UK business has been undertaken following the implementation ofEBS. The objective is to generate a sustainable profit and enable future growth. A clear strategy has been defined. The UK business will focus on two separatecustomer offers: EEM and MRO. The different offers are based on an understandingof customer needs defined from extensive customer research and based upon ourrecognised core strengths of range, availability, order facilitation andreliable delivery. The UK will implement the Group EEM strategy (see separate description).Existing sales resources will be redeployed to a dedicated EEM salesforce.Marketing, catalogue and e-Commerce resources will be realigned. Significant changes to the operational approach of the UK business will be madeto deliver the strategy. The number of MRO products and suppliers on offer willbe radically rationalised and the proportion of RS own-brand product increased.There will be greater price and discount flexibility. Customer, large order andtechnology based discounts (enabled by EBS) will be increased followingsuccessful trials where they have been shown to be effective in increasing grossprofit and improving the price perception of the offer. Range rationalisationand continued action on cost prices will be used to offset pressure on grossmargins. More business will be migrated to the web and the cost of otherchannels reduced. The role of the salesforce will change with a revisedincentive scheme. The cost base will be reduced through a combination of targeted cost reductions,reducing complexity in the offer and EBS benefits delivery. EBS 2006 2005 --------- ----------Depreciation and amortisation £6.8m £5.6mProject and support costs £12.4m £1.9mLocal business costs £5.9m £1.7m --------- ---------- Total £25.1m £9.2m --------- ----------Cash outflow £38.0m £16.6m --------- ---------- In December 2005 the Enterprise Business System went live successfully in theUK, the largest operating company, including all central processes and supportto the International business. The focus of the team is now on delivering thebenefits and continuing the roll out across Europe. EBS replaces existing standalone systems with a common regional system that willbe able to support the Group for many years. Significant incremental benefitsare expected to be driven from this level of integration, including improvedstock management and visibility, enhanced customer and product informationfacilitating more targeted marketing and reduced finance and administrationoverheads. As in prior years, the Group reviewed the value of the EBS asset onthe balance sheet at 31 March 2006 (£58m) and the estimated additional costs tocomplete the European roll out and has concluded that the cash flows of thebusiness fully support the value of the EBS asset. Costs for the full year were in line with expectations at £25.1m, the total costhaving increased by £15.9m since last year. The additional costs relate to thebusiness readiness and testing costs incurred in the UK prior to 'go-live' andwere incurred mainly in the second half of the year. Additional stock of £7m wasalso brought in to protect service during the implementation period. Our disaster recovery and support capabilities have also been strengthenedduring this year to ensure the Group hub can support the growth of the businessgoing forward. Our main systems now operate from two data centres in London andour applications are supported through a strategic partnership with an externalprovider. Activity is already underway in several of our main European markets to roll outthe common template across Europe with the roll out being largely completed bythe end of the next financial year. EBS costs for next year are expected to bein the low £20m's with the cash flow impact expected to be around £20m. Our Asian EBS programme is nearly complete and the Chinese sales offices will bebrought onto the system in 2006/07. This will put the final piece ofinfrastructure in place to drive our plans for accelerated business growth inAsia. The roll out of EBS in North America will follow the warehouse move. In addition to providing a robust foundation to support the future growth of theGroup, EBS will provide substantial benefits in working capital management,reduction of cost and increased sales. Restriction of Hazardous Substances Directive (RoHS)The Group has prepared for the Restriction of Hazardous Substances Directive(RoHS) which will take effect in July 2006. This European Directive requireschanges to be made to products that are to be used in production, although notin maintenance. The Group has worked closely with suppliers to understand howthey plan to effect this change. There may be limited examples where we dualstock, where customer demand for compliant stock is particularly strong. The non-compliant products will be replaced by compliant products when Groupstocks are exhausted and compliant products are available from suppliers. Theemphasis has been on informing customers of the relevant RoHS requirements andminimising the financial exposure to the Group. Although little decline indemand for non-compliant product has been seen to date, it is likely that demandfor non-compliant products, while not ceasing, will decline as the Directivelaunch date is reached (July 2006). Therefore we have provided £4.0m to coverthis risk. The Group currently has around 70,000 RoHS compliant products available inEurope. In addition, RS has been among the first to be awarded the BSI RoHStrusted kitemark in the UK and Benelux. Processes 2006 2005 --------- ----------Process costs £81.9m £74.1m The Processes support our operating companies by ensuring that they have theproducts, infrastructure and expertise to provide consistently high servicelevels around the world. The main area of cost increase has been in InformationSystems, as explained below. Information SystemsIS costs increased during the year, due to one-off project costs and higherongoing running costs (including the new data centres). The one-off coststotalled £3.1m and related to the IS department restructuring and groupwidetechnology upgrade. The groupwide technology upgrade is the upgrade of thedesktop hardware, software, file, print and email infrastructure. This isexpected to lower ongoing operational expenditure through common global systemsand increase productivity through the use of a common set of world classtechnologies. Following the implementation of EBS in the UK, the IS Process underwent a majorrestructuring to support better the new system. This Process also supported the delivery of the extended range capabilitythrough e-Commerce channels and created two new data centres in the UK tosupport the implementation of EBS and provide appropriate disaster recovery. Supply ChainSupply Chain is responsible for the logistics of product supply, includingmanagement of all stocks. The main priority during the year has been to support the implementation of EBSin the UK and to plan for the roll out of the system to Europe. In particular,the Process has ensured that the business has been able to sustain high levelsof customer service during the UK implementation and that this will continueduring the roll out phase. Supply Chain also supported the implementation of the EEM extended range, withthe Allied team responding effectively to the urgent challenge to supply around75,000 of their products to customers in Europe. Product ManagementProduct Management manages the selection and purchase of around 350,000 distinctproducts sold by the Group. During the year, Product Management has focused on supporting the EEM extendedrange implementation and the roll out of the MRO strategy, while reducing thecost of product through a programme of product rationalisation and negotiationswith suppliers. Product Management also underwent a reorganisation to align itbetter with the Group strategy. Media Publishing ProcessThe media publishing process (MPP) is responsible for the design and productionof the Group's publications and the content for e-Commerce. MPP has beensuccessful in driving down the cost of catalogues particularly through a revisedpaper contract. These media remain key to Group sales, despite the increasinguse of e-Commerce channels. Capital StructureNet debt of £120.8m at the year end was made up of gross borrowings of £160.2m(denominated £61.3m in US Dollars, £38.7m in Euros, £34.9m in Yen, and £25.3m inother currencies) and financial assets of £39.4m (denominated £20.3m inSterling, £16.8m in Euro and £2.3m in other currencies). This mix is driven bytranslation exposure hedging, interest rate differentials and tax efficiency.Borrowing requirements through the year are significantly determined by dividendand tax payments. The peak net borrowing in the year was £146m. In addition, thepension deficit (net of deferred tax) was £29.7m. The Group's two main sources of debt are a bilateral facility for US$100mmaturing in February 2008 and a syndicated facility for US$120m and £110m fromnine banks maturing in February 2010. The syndicated facility was augmented byUS$45m in January 2006 with the inclusion of a new US relationship bank. PensionThe Group has defined benefit schemes in the UK, Ireland and Germany. All theseschemes are now closed to new entrants. Elsewhere (including the replacementschemes in the UK and Ireland) the schemes are defined contribution. Under IAS 19, the combined deficit of the defined benefit schemes was £41.8m at31 March 2006. A valuation of the UK defined benefit scheme was carried out as at 31 March2006, which showed a gross deficit of £35.0m. This was lower than last year asa result of higher equity returns tempered by higher life expectancy assumptions. In order to eliminate the deficit, based on the assumptions usedin the valuation at 31 March 2004, the Group is continuing to make additional annual payments to the scheme for the next 13 years (2005/06: £4.4m and increasing at 3% per year). The total pension charge was £12.9m, a decreaseof £0.8m from last year. Group Income StatementFor the year ended 31 March 2006 2006 2005 Note £m £m ------ -------- --------Revenue 2 828.5 773.9Cost of sales (402.1) (361.8) -------- -------- Gross profit 426.4 412.1Distribution and marketing expenses (348.9) (303.3)Administrative expenses (9.0) (8.0) -------- -------- Operating profit 68.5 100.8Financial income 6.9 3.6Financial expenses (10.3) (4.5) -------- -------- Profit before tax 1,2 65.1 99.9 Income tax expense 3 (21.5) (32.3) -------- --------Profit for the yearattributable to equity shareholders 43.6 67.6 ======== ======== Earnings per share - Basic 4 10.0p 15.5pEarnings per share - Headline 4 11.2p 15.5p DividendsAmounts recognised in the period:Final dividend for the yearended 31 March 2005 12.6p 12.6pInterim dividend for theyear ended 31 March 2006 5.8p 5.8p -------- -------- 18.4p 18.4p -------- --------A final dividend of 12.6p per share, relating to the period, has been proposedsince the period end. Headline profit Headline operating profitOperating profit 68.5 100.8Provision for RoHS 4.0 -Reorganisation costs 3.7 - -------- -------- 76.2 100.8 -------- -------- Headline profit before taxProfit before tax 65.1 99.9Provision for RoHS 4.0 -Reorganisation costs 3.7 - -------- -------- 72.8 99.9 Group Statement of Recognised Income and ExpenseFor the year ended 31 March 2006 2006 2005 £m £m -------- --------Foreign exchange translation differences 11.6 1.5Actuarial gain on definedbenefit pension schemes 4.2 0.5Loss on net investment hedges (1.0) -Tax on items taken directly to equity (1.3) (0.2) -------- --------Net income recognised directly in equity 13.5 1.8Profit for the year 43.6 67.6 -------- --------Total recognised income and expense for the periodattributable to equity shareholders before openingbalance sheet adjustment 57.1 69.4Opening balance sheet adjustment: adoptionof IAS32 and IAS39 0.9 - -------- --------Total recognised income and expense for the periodattributable to equity shareholders 58.0 69.4 Group Balance SheetAs at 31 March 2006 2006 2005 Note £m £m ------ -------- --------Non-current assetsIntangible assets 7 208.2 191.9Property, plant and equipment 8 112.8 110.9Investments 0.3 0.2Trade and other receivables 3.2 2.8Deferred tax assets 17.5 17.4 -------- -------- 342.0 323.2 -------- -------- Current assetsInventories 158.6 142.3Trade and other receivables 162.3 145.1Income tax receivables 1.0 2.2Cash and cash equivalents 10 39.4 64.8 -------- -------- 361.3 354.4 -------- -------- Current liabilitiesTrade and other payables (123.5) (109.5)Loans and borrowings (23.0) (27.7)Tax liabilities (13.3) (18.7) -------- -------- (159.8) (155.9) -------- -------- -------- --------Net current assets 201.5 198.5 -------- --------Total assets less current liabilities 543.5 521.7 -------- -------- Non-current liabilitiesTrade and other payables (7.8) (7.6)Retirement benefit obligations 6 (41.8) (47.0)Loans and borrowings (137.2) (92.5)Deferred tax liability (20.3) (18.9) -------- --------Net assets 336.4 355.7 ======== ======== EquityCalled-up share capital 43.5 43.5Share premium account 38.4 38.4Retained earnings 254.5 273.8 -------- --------Equity attributable to theshareholders of the parent 9 336.4 355.7 Group Cash Flow StatementFor the year ended 31 March 2006 2006 2005 Note £m £m ------ -------- --------Cash flows from operating activitiesProfit before tax 65.1 99.9Depreciation and other amortisation 24.1 22.2Equity settled transactions 2.7 2.4Finance income and expense 3.4 0.9 -------- --------Operating cash flow before changesin working capital, interest and taxes 95.3 125.4Increase in inventories (12.8) (13.6)(Increase) decrease in trade and other receivables (14.6) 9.3Increase (decrease) in trade and other payables 13.2 (3.7) -------- --------Cash generated from operations 81.1 117.4Interest received 6.8 3.5Interest paid (10.1) (4.8)Income tax paid (25.8) (31.2) -------- --------Operating cash flow 52.0 84.9 -------- --------Cash flows from investing activitiesCapital expenditure and financial investment (26.3) (24.6)Proceeds from sale of non-current assets 1.2 0.8 -------- --------Net cash used in investing activities (25.1) (23.8) -------- -------- -------- --------Free cash flow 26.9 61.1 -------- --------Cash flows from financing activitiesNew bank loans 54.3 35.0Repayment of bank loans (25.6) (20.8)Equity dividends paid (80.0) (80.0) -------- --------Net cash used in financing activities (51.3) (65.8) -------- -------- -------- --------Net decrease in cash and cash equivalents (24.4) (4.7) -------- --------Cash and cash equivalents at the beginning of the 62.6 72.6yearEffect of exchange rates on cash (0.2) (5.3) -------- --------Cash and cash equivalents at the end of the year 38.0 62.6 ======== ======== Notes to the Preliminary StatementFor the year ended 31 March 2006 1. Analysis of income and expenditure 2006 2005 (as restated) £m £m ---------- ---------Revenue 828.5 773.9Cost of sales (402.1) (361.8)Distribution and marketing expenses (243.2) (228.0) ---------- ---------Contribution 183.2 184.1 ---------- ---------Distribution and marketing expenses within (74.0) (66.1)Process costsAdministrative expenses (7.9) (8.0) ---------- ---------Group Process costs (81.9) (74.1)Distribution and marketing expenses:Enterprise Business System costs (25.1) (9.2) ---------- ---------Headline operating profit 76.2 100.8Net financial expense (3.4) (0.9) ---------- ---------Headline profit before tax 72.8 99.9Distribution and marketing expenses: provision for (4.0) -RoHSDistribution and marketing expenses: reorganisation (2.6) -costsAdministrative expenses: reorganisation costs (1.1) - ---------- ---------Profit before tax 65.1 99.9 ========== ========= Prior year results have been restated to show the costs of the EnterpriseBusiness System separately. 2. Segmental analysis 2006 2005 (as restated)a. By geographical destination £m £m ---------- ---------Revenue: United Kingdom 339.9 345.2 Continental Europe 272.5 247.6 North America 135.9 111.8 Asia Pacific 80.2 69.3 ---------- --------- 828.5 773.9 ========== ========= 2006 2005 (as restated)b. By geographical origin £m £m ---------- ---------Revenue: United Kingdom 353.6 358.8 Continental Europe 267.9 243.5 North America 137.5 112.8 Asia Pacific 69.5 58.8 ---------- --------- 828.5 773.9 ========== ========= 2006 2005 (as restated) £m £m ---------- ---------Profit before tax: United Kingdom 96.9 106.6 Continental Europe 59.9 56.3 North America 19.2 15.7 Asia Pacific 7.2 5.5 ---------- --------- Contribution 183.2 184.1 Groupwide Process costs (81.9) (74.1) Enterprise Business System costs (25.1) (9.2) Net financial expense (3.4) (0.9) ---------- --------- Headline profit before tax 72.8 99.9 Provision for RoHS (4.0) - Reorganisation costs (3.7) - ---------- --------- Profit before tax 65.1 99.9 ========== ========= Prior year results have been restated to include Japan within Asia Pacificrather than reporting it as a separate segment as this reflects the increasingalignment of the Group's management of these businesses. Profit before taxhas also been restated to show the Enterprise Business System costs separately. 3. Income tax expense 2006 2005 £m £m ---------- ---------United Kingdom taxation 8.8 18.9Overseas taxation 12.7 13.4 ---------- ---------Total income tax expense in income statement 21.5 32.3 ========== ========= Profit before tax 65.1 99.9 ========== ========= Effective tax rate 33.0% 32.3% 4. Earnings per share 2006 2005 £m £m --------- --------- Profit for the year attributable to equity shareholders 43.6 67.6Provision for RoHS 4.0 -Reorganisation costs 3.7 -Tax impact of provision for RoHS and reorganisation costs (2.4) - --------- ---------Headline profit for the year attributable to equityshareholders 48.9 67.6 --------- --------- Weighted average number of shares (million) 434.9 434.9 Earnings per share - basic 10.0p 15.5pEarnings per share - headline 11.2p 15.5p --------- --------- 5. 2006 final dividend The timetable for the payment of the proposed final dividend is:Ex-dividend date 28 June 2006Record date 30 June 2006Annual General Meeting 14 July 2006Dividend payment date 28 July 2006 6. Pension The funding of the United Kingdom defined benefit scheme is assessed inaccordance with the advice of independent actuaries. The pension costs for theyear ended 31 March 2006 amounted to £7.6m (2005: £9.8m). The contributionspaid by the Group to the defined contribution section of the scheme amounted to£1.2m (2005: £0.4m). In addition to the UK scheme outlined above there are certain pension benefitsprovided on a defined benefit basis in Germany and Ireland amounting to £1.0m(2005: £0.8m), defined contribution basis in Australia and North Americaamounting to £0.8m (2005: £0.7m), and via government schemes in France, Italy,Scandinavia and North Asia amounting to £2.0m (2005: £1.6m). The Group expects to pay a total of £9.9m to its UK defined benefit pensionscheme in 2007. The principal assumptions used in the valuations of the liabilities of theGroup's schemes were: 2006 2005 Republic Republic United of United of Kingdom Germany Ireland Kingdom Germany Ireland -------- -------- -------- -------- -------- --------Discount Rate 4.90% 4.50% 4.50% 5.40% 4.50% 4.50%Rate of increasein salaries 3.90% 3.00% 4.00% 3.90% 3.00% 4.00%Rate of increase ofpensions inpayment 2.90% 2.00% 2.00% 2.90% 2.00% 2.00%Inflationassumption 2.90% 2.00% 2.00% 2.90% 2.00% 2.00% -------- -------- -------- -------- -------- -------- The expected long term rates of return on the schemes' assets as at 31 Marchwere: Republic Republic United of United of Kingdom Germany Ireland Kingdom Germany Ireland -------- -------- -------- -------- -------- --------Equities 7.05% n/a 7.00% 6.95% n/a 6.70%Corporate bonds 4.15% n/a n/a 4.65% n/a n/aGovernment bonds 3.55% n/a 4.00% 3.95% n/a 3.70%Cash 3.75% n/a n/a 4.00% n/a n/aOther n/a n/a 5.00% n/a n/a 4.70% -------- -------- -------- -------- -------- -------- Based upon the demographics of scheme members, the weighted average lifeexpectancy assumptions used to determine benefit obligations were: 2006 Republic United of Kingdom Germany Ireland Years Years Years -------- -------- --------Member aged 65 (current life expectancy) - male 17.4 18.1 21.4Member aged 65 (current life expectancy) -female 20.3 22.1 26.4Member aged 45 (life expectancy at aged 65) -male 19.9 21.5 21.4Member aged 45 (life expectancy at aged 65) -female 22.9 25.5 26.4 -------- -------- -------- The amounts recognised in the income statement were: 2006 Republic 2005 Republic of of UK Germany Ireland Total UK Germany Ireland Total £m £m £m £m £m £m £m £m ------ ------- ------- ------- ------ ------- ------- ------Currentservice 7.1 0.7 0.1 7.9 8.9 0.5 0.1 9.5costPastservice - - - - - - - -costInterest 13.1 0.2 0.1 13.4 12.0 0.2 0.1 12.3costExpectedreturnon assets (12.6) - (0.1) (12.7) (11.1) - (0.1) (11.2) ------ ------- ------- ------- ------ ------- ------- ------Totalincomestatementcharge 7.6 0.9 0.1 8.6 9.8 0.7 0.1 10.6 ====== ======= ======= ======= ====== ======= ======= ====== Of the charge for the year, £0.4m (2005: £0.6m) has been included inadministrative expenses and the remainder in distribution and marketingexpenses. The actual return on scheme assets was: UK £48.7m (2005: £15.3m), Germany £nil(2005: £nil), and Republic of Ireland £0.4m (2005: £0.1m). The valuations of the assets of the schemes as at 31 March were: 2006 Republic 2005 Republic United of United of Kingdom Germany Ireland Kingdom Germany Ireland £m £m £m £m £m £m -------- -------- -------- -------- ------- -------Equities 189.9 n/a 1.4 143.5 n/a 1.1Corporate bonds 22.6 n/a - 18.4 n/a -Government bonds 39.7 n/a 0.2 32.7 n/a 0.2Cash 1.5 n/a - 3.4 n/a -Other - n/a 0.2 - n/a - -------- -------- -------- -------- ------- -------Total market valueof assets 253.7 n/a 1.8 198.0 n/a 1.3 ======== ======== ======== ======== ======= ======= No amount is included in the market value of assets relating to either financialinstruments or property occupied by the Group. The amount included in the balance sheet arising from the Group's obligationsin respect of its defined benefit pension schemes is: 2006 Republic 2005 Republic of Total of Total UK Germany Ireland Valuation UK Germany Ireland Valuation £m £m £m £m £m £m £m £m ------- ------- -------- ------- ------- ------- ------- -------Totalmarketvalueof assets 253.7 - 1.8 255.5 198.0 - 1.3 199.3Presentvalueof schemeliabilities (288.7) (6.3) (2.3) (297.3) (239.3) (5.3) (1.7) (246.3) ------- ------- ------- ------- ------- ------- ------- -------Deficit inthe scheme (35.0) (6.3) (0.5) (41.8) (41.3) (5.3) (0.4) (47.0) ------- ------- ------- ------- ------- ------- ------- ------- The rules of the UK Electrocomponents Group Pension Scheme give the Trusteepowers to wind up the Scheme, which it may exercise if the Trustee is aware that the assets of the scheme are insufficient to meet its liabilities. Although the Scheme is currently in deficit, the Trustee and the Company haveagreed a plan to eliminate the deficit over time and the Trustee has confirmedthat it has no current intention of exercising its power to wind up the Scheme. The German scheme is unfunded, in line with local practice, and the deficit of£6.3m in the German scheme is financed through accruals established within theGerman accounts. In addition, the value of the assets and liabilities held in respect of AVCsamounted to £1.0m as at 31 March 2006 (2005: £0.9m). The value of the assets andliabilities held in respect of the defined contribution section of the schemeamounted to £2.8m as at 31 March 2006 (2005: £1.0m). 7. Intangible assets Other Goodwill Software Intangibles TotalCost £m £m £m £m ------- -------- -------- -------At 1 April 2005 182.0 74.2 0.3 256.5External additions - 12.1 - 12.1Disposals - (1.8) - (1.8)Translation differences 15.6 0.6 - 16.2 ------- -------- -------- -------At 31 March 2006 197.6 85.1 0.3 283.0 ------- -------- -------- ------- AmortisationAt 1 April 2005 43.6 21.0 - 64.6Charged in the year - 6.7 - 6.7Disposals - (0.5) - (0.5)Translation differences 3.6 0.4 - 4.0 ------- -------- -------- -------At 31 March 2006 47.2 27.6 - 74.8 ------- -------- -------- ------- Net book valueAt 31 March 2006 150.4 57.5 0.3 208.2 ------- -------- -------- -------At 31 March 2005 138.4 53.2 0.3 191.9 ------- -------- -------- ------- 8. Property, Plant and Equipment Land Plant and and Computer buildings machinery Systems TotalCost £m £m £m £m ------- -------- -------- -------At 1 April 2005 92.6 100.4 50.9 243.9Additions 3.7 2.7 11.9 18.3Disposals (0.5) (1.4) (5.3) (7.2)Reclassification - (1.0) 1.0 -Translation differences 1.0 0.9 0.6 2.5 ------- -------- -------- -------At 31 March 2006 96.8 101.6 59.1 257.5 ------- -------- -------- -------DepreciationAt 1 April 2005 21.1 73.1 38.8 133.0Charged in the year 1.7 7.0 7.8 16.5Disposals (0.4) (1.3) (4.4) (6.1)Reclassification - - - -Translation differences 0.2 0.7 0.4 1.3 ------- -------- -------- -------At 31 March 2006 22.6 79.5 42.6 144.7 ------- -------- -------- -------Net book valueAt 31 March 2006 74.2 22.1 16.5 112.8 ------- -------- -------- -------At 31 March 2005 71.5 27.3 12.1 110.9 ------- -------- -------- ------- 9. Reconciliation of movements in equity 2006 2005 £m £m -------- -------Profit for the year 43.6 67.6Dividend (80.0) (80.0) -------- -------Loss for the year (36.4) (12.4)Translation differences 11.6 1.5Loss on investment hedges (1.0) -Actuarial gain on defined benefit pension schemes 4.2 0.5Tax impact on adjustments taken directly to reserves (1.3) (0.2)Equity settled transactions 2.7 2.4New share capital subscribed - - -------- -------Net reduction to equity (20.2) (8.2)Equity shareholders' funds at the beginning of the year 355.7 363.9Opening balance sheet adjustment: adoption of IAS32 and IAS39 0.9 -Equity shareholders' funds at the beginning of the year asrestated 356.6 - -------- -------Equity shareholders' funds at the end of the year 336.4 355.7 ======== ======= 10. Cash and cash equivalents 2006 2005 £m £m -------- -------Bank balances 15.4 53.6Call deposits and investments 24.0 11.2 -------- -------Cash and cash equivalents in the balance sheet 39.4 64.8Bank overdrafts (1.4) (2.2) -------- -------Cash and cash equivalents in the statement of cash flows 38.0 62.6Current instalments of loans (21.6) (25.5)Loans repayable after more than one year (137.2) (92.5) -------- -------Net debt (120.8) (55.4) ======== ======= 11. Principal exchange rates 2006 2005 Average Closing Average Closing ------- ------- ------- -------United States Dollar 1.79 1.74 1.85 1.89Euro 1.46 1.43 1.47 1.46Japanese Yen 202 205 198 202 ------- ------- ------- ------- 12. Opening balance sheet adjustment: adoption of IAS 32 and IAS 39 The Group adopted IAS 32 Financial Instruments: Disclosure and Presentation andIAS 39 Financial Instruments: Recognition and Measurement from 1 April 2005 aspermitted by IFRS 1 First-time adoption of International Financial ReportingStandards. An adjustment has therefore been made to include these balances inthe opening equity balances for the year to 31 March 2006. In accordance withIFRS 1, comparative information has not been restated. The opening adjustment for the Group represents the difference between the bookvalue and the market value of its forward foreign exchange contracts as at 1April 2005. This has the effect of increasing opening equity by £0.9m and increasing tradeand other receivables by £0.9m. 13. Basis of preparation Electrocomponents plc (the "Company") is a company domiciled in England. TheGroup accounts for the year ended 31 March 2006 comprise the Company and itssubsidiaries (together referred to as the "Group") and the Group's interest in ajointly controlled entity. Subsidiaries are entities controlled by the Company.All subsidiary accounts are made up to 31 March and are included in the Groupaccounts. Further to the IAS Regulation (EC 1606/2002) the Group accounts havebeen prepared in accordance with International Financial Reporting Standards("IFRS") as adopted for use by the EU ("adopted IFRS"). The financial statements were authorised for issue by the directors on 1 June2006. The financial statements are presented in £ Sterling and rounded to £0.1m. Theyare prepared on the historical cost basis except certain financial instrumentsdetailed below. The preparation of financial statements in conformity with IFRS requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and reported amounts of assets and liabilities, incomeand expenses. The estimates are believed to be reasonable. Actual results maydiffer from these estimates. The Group accounts have been prepared in accordance with International FinancialReporting Standards (IFRS) as adopted for use by the EU. These are the Group'sfirst Group accounts under IFRS. The financial information set out above does not constitute the Group'sstatutory accounts for the years ended 31 March 2006 or 2005 but is derived fromthose accounts. Statutory accounts for 2005 have been delivered to theRegistrar of Companies, and those for 2006 will be delivered following theCompany's Annual General Meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under section 237(2) or 237(3) of the Companies Act 1985. Copies of the Annual Report and Accounts for the year ended 31 March 2006 willbe available from 15 June 2006 from the Company Secretary, Electrocomponentsplc, International Management Centre, 5000 Oxford Business Park South, OxfordOX4 2BH, United Kingdom. Telephone +44 (0)1865 204000. The Report will also bepublished on the Corporate website at www.electrocomponents.com. The Annual General Meeting will be held at Electrocomponents plc, InternationalManagement Centre, 5000 Oxford Business Park South, Oxford OX4 2BH, UnitedKingdom on 14 July 2006 at 12.30p.m. 14. Transition to International Financial Reporting Standards As stated in the Group Significant Accounting Policies, these are the Group'sfirst consolidated financial statements prepared in accordance with IFRS. The accounting policies have been applied in preparing the financial statementsfor the year ended 31 March 2006, the comparative information presented in thesefinancial statements for the year ended 31 March 2005 and in the preparation ofan opening IFRS balance sheet at 1 April 2004 (the Group's date of transition). In preparing its opening IFRS balance sheet, the Group has adjusted amountsreported previously in financial statements prepared in accordance with its oldbasis of accounting (UK GAAP). An explanation of how the transition from UK GAAPto IFRS has affected the Group's financial position, financial performance andcash flows is set out on the following tables and the notes that accompany thetables. Reconciliation of Equity 1 April 2004 31 March 2005 UK IFRS UK IFRS Note GAAP adjustment IFRS GAAP adjustment IFRS £m £m £m £m £m £m ------ ------- -------- ------ ------- -------- -------Non-currentassetsIntangibleassets a,b 141.8 44.6 186.4 129.6 62.3 191.9Property,plant andequipment b,c 163.3 (46.5) 116.8 165.8 (54.9) 110.9Investments 0.1 - 0.1 0.2 - 0.2Trade andotherreceivables c,d,e - 2.8 2.8 - 2.8 2.8Deferred taxasset k - 19.2 19.2 - 17.4 17.4 ------- -------- ------ ------- -------- ------- 305.2 20.1 325.3 295.6 27.6 323.2CurrentassetsInventories 128.7 - 128.7 142.3 - 142.3Trade andotherreceivables d,i 151.6 (4.1) 147.5 152.4 (7.3) 145.1Income taxreceivables i - 2.0 2.0 - 2.2 2.2Investments f 65.4 (65.4) - 53.6 (53.6) -Cash andcash f 7.9 65.4 73.3 11.2 53.6 64.8equivalents ------- -------- ------ ------- -------- ------- 353.6 (2.1) 351.5 359.5 (5.1) 354.4CurrentliabilitiesTrade andother g,h,i,j (210.0) 97.9 (112.1) (207.0) 97.5 (109.5)payablesLoans andborrowings j - (24.9) (24.9) - (27.7) (27.7)Tax i - (21.9) (21.9) - (18.7) (18.7)liabilities ------- -------- ------ ------- -------- ------- (210.0) 51.1 (158.9) (207.0) 51.1 (155.9) ------- -------- ------ ------- -------- -------Net currentassets 143.6 49.0 192.6 152.5 46.0 198.5 ------- -------- ------ ------- -------- -------Total assetslesscurrentliabilities 448.8 69.1 517.9 448.1 73.6 521.7 ------- -------- ------ ------- -------- ------- Non-currentliabilitiesTrade andother e,j (92.8) 85.7 (7.1) (103.1) 95.5 (7.6)payablesRetirementbenefitobligations e - (48.2) (48.2) - (47.0) (47.0)Loans andborrowings j - (82.9) (82.9) - (92.5) (92.5)Deferred taxliabilities k (11.6) (4.2) (15.8) (14.3) (4.6) (18.9) ------- -------- ------ ------- -------- -------Net assets 344.4 19.5 363.9 330.7 25.0 355.7 ======= ======== ====== ======= ======== ======= EquityCalled-upshare 43.5 - 43.5 43.5 - 43.5capitalSharepremium 38.4 - 38.4 38.4 - 38.4accountOwn shares (1.7) - (1.7) (1.7) - (1.7)heldProfit andloss account n 264.2 19.5 283.7 250.5 23.5 274.0Foreignexchangereserve m - - - - 1.5 1.5 ------- -------- ------ ------- -------- -------Total equityattributableto theshareholdersofthe parent 344.4 19.5 363.9 330.7 25.0 355.7 ======= ======== ====== ======= ======== ======= Notes to the reconciliation of equity a) From 1 April 2004, goodwill is no longer amortised under IFRS but is tested annually for impairment. Consequently, goodwill amortisation of £9.4m that was previously charged is now removed from the administrative costs within the income statement for the year ending 31 March 2005 and intangible assets are increased by £9.4m at 31 March 2005 b) Under IFRS, computer software is treated as an intangible asset "when the software is not an integral part of the related hardware". This means application software costs that have been capitalised as tangible fixed assets must now be reclassified to intangible assets. The effect is to increase the intangible fixed assets and reduce tangible fixed assets by £44.6m at 1 April 2004 and £53.0m at 31 March 2005. c) Under IAS 17, land and buildings currently held on the balance sheet under finance leases are required to be split to determine how much relates to land and how much to buildings so that the land element can be reclassified to operating leases. The Group includes two such leases and therefore, £1.9m has been reclassified from tangible fixed assets to receivables at 1 April 2004 and £1.8m at 31 March 2005. d) Under IFRS, receivables due after more than one year are disclosed separately from receivables due within one year on the face of the balance sheet. The effect is to reclassify £0.9m at 1 April 2004 and £5.1m at 31 March 2005. e) Under UK GAAP, the cost of providing pension benefits was charged against the operating profit over the period during which the Group expected to benefit from the employees' services. The application of SSAP 24 resulted in prepayments of £1.2m at 1 April 2004 and £4.1m at 31 March 2005, and these are reversed as a result of the adoption of IAS 19. The change in the methodology of calculating the income statement charge reduced operating profit by £2.1m in the year ended 31 March 2005. Similarly, liabilities previously disclosed within creditors are now also disclosed within retirement benefits. The effect is to reduce payables and increase retirement benefit obligations by £2.5m at 1 April 2004 and £2.9m at 31 March 2005. IAS 19 requires that the Group's pension deficits be recorded as balance sheet liabilities. The impact is that total deficits of £48.2m at 1 April 2004 and £47.0m at 31 March 2005 are disclosed on the balance sheet. f) Under UK GAAP, for an investment to qualify as cash, it needed to have a maturity of less than one day. Under IAS 7 (Cash flow statements), for an investment to qualify as a cash equivalent, it qualifies when it has a maturity of 3 months or less from the date of acquisition. The Group has reclassified deposits with a maturity of less than 3 months but greater than one day from 'current asset investments' to 'cash and cash equivalents'. The overall impact is to reclassify £65.4m from investments to cash at 1 April 2004 and £53.6m at 31 March 2005. g) Under UK GAAP, the provisioning for short term employee benefits is covered under FRS 12 (Provisions, contingent liabilities and contingent assets). One of the requirements for a provision is that a transfer of economic benefits will be required to settle the obligation and the transfer of economic benefits has normally involved the payment of money. Thus, no provision has been made, in past years, for holiday pay as the amount of any outstanding holiday pay that is likely to be paid in cash is small. IAS 19 requires that when an employee has rendered service to an enterprise, the enterprise should recognise the undiscounted amount of the short term benefits expected to be paid in exchange for that service as either a liability or an expense. Under IFRS, an enterprise must accrue for that extra work done by an employee, for instance, where a holiday allowance is permitted but not taken. Consequently the Group has now included an accrual for accumulating holiday pay and sick pay where relevant. The accrual at both 1 April 2004 and 31 March 2005 is £3.7m and the income statement charge for the year ending 31 March 2005 is £nil. h) Under IFRS, dividends declared after the balance sheet date are to be treated as non-adjusting events and therefore disclosed in the year in which they are agreed rather than the year to which they relate. The effect is to reduce payables and increase reserves by £54.8m at both 1 April 2004 and 31 March 2005. i) Under IFRS, the tax payable must be disclosed separately on the balance sheet. Consequently, the payables have been reduced and the tax payable increased by £21.9m and £18.7m at 1 April 2004 and 31 March 2005 respectively. Also under IFRS, a tax receivable must also be shown separately. Therefore there are adjustments to increase the tax receivable and reduce trade receivables by £2.0m at 1 April 2004 and £2.2m at 31 March 2005. j) Under IFRS, financial liabilities must be disclosed separately on the balance sheet. Consequently, the payables due within one year have been reduced and the financial liabilities due within one year increased by £24.9m and £27.7m at 1 April 2004 and 31 March 2005 respectively. Similarly, the payables due after more than one year have been reduced and the financial liabilities due after more than one year increased by £82.9m and £92.5m at 1 April 2004 and 31 March 2005 respectively. k) The above changes (increased) decreased the deferred tax liability as follows: 1 April 2004 31 March 2005 Note £m £m ---- ---------- ----------Deferred tax liability (UK GAAP) (11.6) (14.3)IFRS adjustments:Deferred tax on pension deficit e 13.8 14.6Deferred tax on holiday pay accrual g 0.9 0.9Increase in deferred tax charge on goodwill a - (3.4)Deferred tax on share based payments l 0.5 1.3Gross up deferred tax assets and k (19.2) (17.4)liabilitiesOther (0.2) (0.6) ---------- ----------Deferred tax liability (IFRS) (15.8) (18.9) ========== ========== Under IFRS, a deferred tax asset must be shown separately from a deferred tax liability. Therefore there are adjustments to increase the deferred tax asset and deferred tax liability by £19.2m at 1 April 2004 and £17.4m at 31 March 2005. The effect on the income statement for the year ended 31 March 2005 was to increase the previously reported tax charge by £2.0m to £32.3m. l) IFRS 2 requires that the fair value of share options be charged to the income statement over the vesting period of the options. Fair values per share have been calculated for options granted since 7 November 2002. These have then been charged to the income statement over their respective vesting periods. The charge for these share-based payments was £2.4m for the year ended 31 March 2005. This charge includes the Long Term Incentive Option Plan options issued in July 2003 and July 2004. The charge for the year ended 31 March 2006 also includes the impact of the options issued in July 2005. m) IFRS requires translation differences on the revaluation of the assets and liabilities of overseas subsidiaries to be taken directly to reserves. In the year ended 31 March 2005, the value of translation differences is £1.5m. n) The effect of the above adjustments on the profit and loss account reserve is as follows: 1 April 2004 31 March 2005 Note £m £m ---- ---------- ----------Profit and loss account reserve (UK GAAP) 264.2 250.5IFRS adjustments:Goodwill a - 6.0Long term employee benefits e (33.1) (33.6)Short term employee benefits g (2.8) (2.8)Dividends h 54.8 54.8Share based payments l 0.5 1.3Foreign exchange m - (1.5)Other 0.1 (0.7) ---------- ----------Profit and loss account reserve (IFRS) 283.7 274.0 ========== ========== Reconciliation of profit for the year ended 31 March 2005 IFRS Note UK GAAP adjustments IFRS £m £m £m ------- -------- -------- -------Revenue 773.9 - 773.9Cost of sales (361.8) - (361.8) -------- -------- -------Gross profit 412.1 - 412.1Distribution and marketing expenses e,g, l (298.8) (4.5) (303.3)Administrative expenses a (17.4) 9.4 (8.0) -------- -------- -------Operating profit 95.9 4.9 100.8Financial income - 3.6 3.6Financial expenses (0.9) (3.6) (4.5) -------- -------- -------Profit before tax 95.0 4.9 99.9 -------- -------- -------Income tax expense k (30.3) (2.0) (32.3) -------- -------- -------Profit for the year attributableto equity shareholders 64.7 2.9 67.6 ======== ======== ======= Earnings per shareBasic 14.9p 15.5pDiluted 14.9p 15.5p None of the IFRS adjustments affect the cash flow of the Group. 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