ECM.L Regulatory News (ECM)

18 Jul 2008 07:00

ELECTROCOMPONENTS PLC 

Interim Management Statement 

Electrocomponents plc, the leading high service distributor to engineers worldwide, has today issued its first interim management statement for the year ending 31 March 2009.

Performance Highlights

The key performance highlights for the first quarter of the financial year (the three months ended 30 June 2008) are:

Group sales up 1%, International sales up 4% and UK sales down 2%. 

Within International (60% of Group revenues), Asia Pacific up 9%, Continental Europe sales up 1%; North America up 6%. 

Sales in China up 40%. 

e-Commerce sales up 13%, representing 34% of Group sales. 

Gross margin stable at around 50%.

Group operating costs reduced as a % of sales by 0.3% points.

Strong cash flow maintained with net debt reduced by around £20m since the 2008 year end to around £130m.

Comment

Commenting on the first quarter, Ian Mason, Chief Executive said:

"Electros has set out a strategy to drive future performance and we are implementing this strategy with pace.

Organic growth rates have slowed from the levels seen in the first half of the previous year.  We are not

immune to the slowdown in the economies where we operate. However, a number of actions are being

delivered which should help offset the current economic challenges.

In the first quarter, we extended our leadership position in the vital Asia Pacific and China markets and launched a new production packaging offer. A number of initiatives are being implemented to improve the competitiveness of our electronics offer, better serve small and medium customers, step up growth in e-Commerce and reduce the cost base.

Rapid implementation of the strategy and our strong international market positions give a good platform to deliver sustained medium term growth."

Group Strategy

As explained at the full year results in May, the Group's strategy is to: 

Focus on our fast growing international markets.

Accelerate the development of the Group's R&D and Maintenance offers.

Exploit the full potential of e-Commerce.

Leverage the Group's global infrastructure and increase operating margins.

Focus on fast growing international markets

Asia Pacific sales were up 9% in the quarter and now represent around 10% of Group sales. Sales in   

China were up by 40% and exited the quarter up around 50% driven by sales and marketing initiatives. South Asia achieved strong growth across the region, including our new business in Thailand, which continues to perform well. Australasia has continued to grow albeit at a slower rate than the consistently high levels of the past few years.

Allied, our North American business achieved 6% growth in much tougher market conditions on top of the 16% growth in the same quarter last year. Now the warehouse move is complete, management is focussed on customers, sales and marketing and targeted e-Commerce customer programmes which are already

delivering strong web sales growth.

Many of our smaller businesses are performing well; for example in Benelux and South Africa.

UK and Continental Europe performance has been disappointing due to tougher economic conditions, particularly impacting the maintenance sector. We are targeting higher growth sectors.

Accelerating the development of the Group's R&D and Maintenance offers

We are implementing a plan to improve the competitiveness of our electronics offer to R&D engineers.

We have expanded our product range, packaging and pricing options and changed our sales and marketing

approach to better serve new and existing customers.

Production packaging

We launched a new production packaging offer across the UK, France, Germany and Italy in April.

This addresses a competitive gap that is key to both serving customers who require larger volumes and enabling the expansion of our electronics product range. Some 30,000 products from our existing

electronics range are now available in industry standard packaging options at competitive prices. The

offer is supported by technical sales resource, a specialist catalogue and an intensive marketing campaign.

The production packaging offer will be expanded to over 50,000 globally managed products leveraging our

strong Japanese electronics product range, and rolled out across our European and Asia Pacific

markets by the end of the calendar year.

Serving new customers

Customer reaction has been very positive with many placing new business that we were previously unable to

serve in the large prototyping and small batch manufacturing market. Traditional volume distributors are

increasingly under pressure in serving this market as their customer base fragments.

Expanding electronics products range

The electronics product range is being expanded significantly, particularly in semiconductors. In the

period, around 12,000 new stocked products from leading suppliers such as National Semiconductor,

Microchip, Molex and Tyco have been added through continuous product introduction on the web and a

further 15,000 stocked new electronics products will be available in the October catalogues.

We expect the sales from our new production packaging offer and the expanded product range to drive sales growth over the next couple of years.

Developing existing customers

Growth within our larger, sales force managed, customer accounts has generally remained more robust across the Group. Our UK and European businesses have continued to grow large customer business and made a number of large account wins.  In the UK, during the quarter, newly acquired large customers grew at double digit rates and 13 large customer accounts were won.

Our small and medium (SME) customers have been impacted more by the tougher economic conditions. We have increased our marketing activity to SME customers through a more centralised approach to ensure faster implementation.

Own brand products provide both good value for money to customers and a higher gross margin to the Group.

These products, which account for around 20% of sales in the UK and Europe, have grown ahead of the market average in the first quarter as customers are increasingly value conscious. The marketing of own brand products is being stepped up and a global roll out plan is being implemented.

Exploiting the full potential of e-Commerce

e-Commerce sales during the quarter were up 13% representing 34% of Group sales. The new website, which was launched in the UK and Europe in January, was rolled out across all our operations in Asia Pacific in April. The new site provides our customers with much improved functionality and product search capabilities.  

Customer insight software is being used to better understand and react to customer buying patterns whilst e-Commerce marketing is being increased significantly with 70,000 merchandising links in place acrossthe Group's web sites and a four fold increase in search engine marketing on the comparative quarter.

The new site is an excellent platform on which to develop the next phase of e-Commerce growth with centralisation of e-Commerce marketing increasing the pace of implementation.

Accelerating cost reduction activities

Group operating costs have reduced as a percentage of sales by 0.3% points; this is equivalent to around £0.7m savings in the quarter. Cost reductions have been targeted in all areas outside sales and marketing with significant savings made in logistics, paper and print. Further savings will be sought through more radical approaches to cost management.  

Following a detailed review the implementation of EBS in our North American business has been deferred until after 2010. Our evaluation confirms that our current systems can support the business's growth in the intervening period.

The changes to put the UK defined benefit pension scheme (previously closed to new entrants) on a more sustainable financial basis were implemented in June. The deficit of the UK defined benefit pension scheme as at 31 March 2008 was £22m; based on the previous year end assumptions these changes

would reduce this to a small deficit. We are now reviewing similar actions to apply to two smaller defined benefit pension schemes outside the UK.

Note: all growth rates are adjusted for trading days and foreign exchange rate movements.

Enquiries: 

Ian Mason Group Chief Executive 01865 204000 

Simon Boddie Group Finance Director 01865 204000 

John Sunnucks/ David Allchurch Tulchan Communications 020 73534200 

There will be a telephone conference call today at 08.00 for analysts and investors with replay access to 31 July. Dial in instructions are set out below.