11 Nov 2008 07:00
Embargoed to 7.00am
Tuesday 11 November 2008
HALF-YEARLY FINANCIAL REPORT
Electrocomponents plc, the leading high service distributor to engineers worldwide, today announces its results for the half year ended 30 September 2008.
SUMMARY RESULTS
| H1 2008/09 | H1 2007/08 (restated) | Change (reported foreign exchange) | Change (constant foreign exchange) | |
| Revenue | £488.1m | £443.8m | 10.0% | 0.8%(1) |
| Profit before tax - headline | £42.2m | £37.3m | 13.1% | 6.8% |
| Profit before tax - reported | £59.2m | £36.3m | 63.1% | 54.2% |
| Earnings per share - headline | 6.6p | 5.7p | 15.8% | |
| Earnings per share - reported | 9.4p | 5.5p | 70.9% | |
| Interim dividend per share | 5.0p | 5.8p | ||
| (1): Day adjusted growth |
Financial Highlights
Headline profit before tax growth of 13% (7% at constant foreign exchange); headline EPS up 16%.
International sales growth of 3%: strong North American and Asia Pacific growth, 1% decline in Europe.
Strong growth in emerging markets including 40% growth in China.
UK profit growth despite 3% sales decline.
Headline operating costs reduced by 0.9% points of sales.
Reported profit before tax benefited from changes to the UK defined benefit pension scheme.
Robust financial position with strong cash flow of £38.5m and interest cover of 14 times.
£256m committed bank facility completed in September 2008 with four year maturity.
Interim dividend of 5p per share, as previously announced.
Operational Highlights
Successful launch of electronics production packaging capability across the UK and Europe.
Above market growth of the high margin own brand portfolio.
e-Commerce revenue share at 34% with strong growth in North America of 35%.
Actions taken to reduce costs in the UK and Europe.
IAN MASON, GROUP CHIEF EXECUTIVE, COMMENTED:
"In the first half of the year the Group achieved profit growth across all regions against a backdrop of worsening economic conditions. We are focused on the effective implementation of our strategy which we updated in May this year. During the first half of the year customers reacted positively to our newly introduced electronics production packaging capability across the UK and European markets. We are exploiting our e-Commerce channel with further improvements to our website functionality including new search capabilities and access to the RS offer through mobile technology. We continue to closely control our costs with costs as a percentage of sales reducing in the first half of the year."
CURRENT TRADING AND OUTLOOK
In the first quarter of the financial year Group sales increased by 1%, while in the second quarter they were flat as sales declined in both the UK and Continental Europe. This sales performance was driven by the deterioration in general economic conditions. In September, the Purchasing Managers' Indices ('PMI') in the Group's five largest markets (UK, France, Germany, Italy and North America), representing more than 80% of the Group's sales, all reported a significant decline.
During the month of October the Group has experienced a further downturn in trading as the recent deterioration in the outlook for the global economy has affected the confidence of our customers. In October, Group revenue declined by around 3.0%; our International business revenue declined by around 2.5% and our UK business by around 4.5%.
Whilst the worsening global economic environment is having an adverse impact on our business, we are taking measures to reduce costs and underpin sales. The Group has a strong financial position and wide geographic spread. We are confident that the Group has the right strategy and operational focus to allow us to weather this economic turbulence and achieve longer term growth.
Enquiries:
| Helmut Mamsch, Chairman | Electrocomponents plc | 020 7567 8000* |
| Ian Mason, Group Chief Executive | Electrocomponents plc | 020 7567 8000* |
| Simon Boddie, Group Finance Director | Electrocomponents plc | 020 7567 8000* |
| John Sunnucks/David Allchurch | Tulchan Communications Group | 020 7353 4200 |
* Available to 14:00 on 11 November, thereafter 01865 204000.
The results and presentation to analysts are published on the corporate website at www.electrocomponents.com.
Definition of terms:
Unless otherwise stated, in order to reflect underlying business performance, comparisons of revenue between periods have been adjusted for exchange rates and the number of trading days ('day adjusted growth'). Unless otherwise stated, changes in profit, cash flow, debt and share related measures such as earnings per share are at reported exchange rates.
Headline profit: Net income of £17.0m (H1 2007/08: £1.0m charge) was reflected in the half year for items excluded from headline profit. Details of the items are given below the Income Statement and in note 2. References to headline operating costs are those costs excluding the effect of these items. Key performance measures such as return on sales and EBITDA use headline profit figures.
H1 2007/08 (restated): In light of proposed amendments to IAS 38, Intangible Assets, the Group's Directors decided, during the year ended 31 March 2008, to make a voluntary change to the policy to write off catalogue production and print costs as they are incurred. Therefore, and as previously reported, the H1 2007/08 profit before tax was reduced by £3.1m (there was no profit impact on the full year 2008 results). Further detail is provided in note 7.
Safe Harbour: This half-yearly financial report contains certain statements, statistics and projections that are or may be forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial position, strategy, projected costs, plans and objectives for the management of future operations of Electrocomponents plc and its subsidiaries is not warranted or guaranteed. These statements typically contain words such as "intends", "expects", "anticipates", "estimates" and words of similar import. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Although Electrocomponents plc believes that the expectations reflected in such statements are reasonable, no assurance can be given that such expectations will prove to be correct. There are a number of factors, which may be beyond the control of Electrocomponents plc, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. Other than as required by applicable law or the applicable rules of any exchange on which our securities may be listed, Electrocomponents plc has no intention or obligation to update forward-looking statements contained herein.
Notes to editors:
Electrocomponents Group plc is the leading high service distributor to engineers worldwide. The company which was founded in 1937 is listed on the London Stock Exchange, employs around 5,700 people and has operations in 27 countries, serving another 38 countries through distributors. The Group satisfies the small quantity needs of its customers who are typically research and development ('R&D') or maintenance engineers in business. Electrocomponents sells around half a million products to 1.6m customers, through catalogues, over the internet and through trade counters. Some of the products the Group sells include electronic, electrical, mechanical, automation and health and safety components. The offer to engineers is valuable to many of our 2,500 suppliers, who would otherwise find the small order and immediate dispatch requirements of such customers difficult and costly to satisfy.
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 £100 although the range of order values is wide. The Group has a large number of customers from a wide range of industry sectors with diverse product demands.
OPERATING REVIEW
Progress on the strategic plan
In May 2008 the Group announced the outcome of the Board's review of its strategy. This review identified four key areas to drive future performance:
Focus on 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.
The activities undertaken during the first half of this year to progress each of these areas are explained below.
Focus on International markets
Our International business has significant growth potential across its three regions: Asia Pacific, Continental Europe and North America.
During the half year our North American and Asia Pacific businesses both continued to grow. Our North American business, Allied, is now into its sixth consecutive year of growth driven by its local branch network and focus on key suppliers. In our Asia Pacific business, we are investing in our local marketing and sales resource, with particular focus on China where sales growth has been around 40%.
Sales in our Continental Europe business have declined during the first half of the financial year due to deteriorating economic conditions. Nonetheless, the Group has an unrivalled presence across the continent with regional warehouses positioned to provide the required product offer quickly and efficiently. Further, all the businesses in Europe and the UK operate from the same EBS platform offering many efficiency and best practice sharing benefits. Therefore, we strongly believe that there is significant potential in this region. As recently announced, we have changed the leadership of our Continental Europe business to exploit this potential.
Accelerate the development of the Group's R&D and Maintenance offers
During the half year we launched the Group's electronics production packaging capability across the UK and Europe. This new capability is aimed at customers with small batch production needs, allowing them to order the quantity that they need in tubes, trays and continuous strips. Customer reaction to this new offer has been positive.
Aligned to the new production packaging capability, from 1 October 2008 some 60,000 individual electronics product prices have been reduced and made available on the website. Globally some 35,000 electronic products were introduced during the first half of the year.
We continue to drive improved performance from our Maintenance offer. Activities in support of this include the increasing focus on leveraging our global sourcing capability and our global own brand offer. Emerging technologies are performing well, including low energy lighting. Our successful initiatives with suppliers, which were first implemented in our North American business, are now an integral part of our activities which are valued by both customers and suppliers alike.
Exploit the full potential of e-Commerce
Our e-Commerce channel continued to perform well, growing revenue at 14% and e-Commerce sales now represent some 34% of the Group's sales, up from 30% last half year.
e-Commerce sales in our North American business performed particularly strongly, growing by 35% in the first half and by 50% in the second quarter. Much of this accelerating growth was due to the business's focus on promoting the e-Commerce offer to customers and introducing a new online procurement tool.
We have further enhanced the Group's e-Commerce channel through the roll out of further supplier brand shops, improved search functionality, and the RS offer made available through mobile technology.
Future activities are planned to provide more R&D customer functionality.
Leverage the Group's global infrastructure and increase operating margins
Costs have reduced by 0.9% points of sales as the Group has focused on managing its cost base.
We have taken actions in all regions to control costs. These cost reductions have arisen from a variety of initiatives including: reduced catalogue costs (increased efficiencies and lower circulation), reduced system implementation costs, benefits from more focused non-stock purchasing and targeted headcount reductions in the UK and Europe.
FINANCIAL PERFORMANCE
| Group | H1 2008/09 | H1 2007/08 (restated)(3) | Change (reported foreign exchange) | Change (constant foreign exchange) | |
| Revenue | £488.1m | £443.8m | 10.0%(4) | 0.8% | |
| Gross margin | 49.3% | 50.1% | (0.8)% | (0.9)% | |
| Contribution | £99.5m | £91.1m | 9.2% | 2.8% | |
| Headline operating profit | £45.4m | £41.0m | 10.7% | 5.1% | |
| Headline profit before tax | £42.2m | £37.3m | 13.1% | 6.8% | |
| Headline earnings per share | 6.6p | 5.7p | |||
| Interim dividend per share | 5.0p | 5.8p |
| Key performance indicators | |||
| Group | H1 2008/09 | H1 2007/08 (restated)(3) | |
| Group revenue growth | 0.8% | 7.3% | |
| International | 3.1% | 11.1% | |
| UK | (3.2%) | 2.0% | |
| e-Commerce revenue share | 34% | 30% | |
| Headline Group return on sales(1) | 9.3% | 9.2% | |
| Headline EBITDA (2) | £58.7m | £54.1m | |
| Free cash flow | £38.5m | £36.4m | |
| Stock turn (per year) | 2.8x | 2.8x | |
(1) Operating profit
(2) Earnings before interest, tax, depreciation and amortisation (inc. govt. grants)
(3) H1 2007/08 (restated) In light of proposed amendments to IAS 38, Intangible Assets,
the Group's Directors decided, during the year ended 31 March 2008, to make a voluntary
change to the policy to write off catalogue production and print costs as they are incurred.
Therefore and as previously reported, the H1 2007/08 profit before tax was reduced
by £3.1m (there was no profit impact on the full year 2008 results). Further detail is provided in note 7.
(4) Absolute growth
Business performance
The Group's headline profit before tax was £42.2m, up £4.9m from the first half of last year. This increase represents 6.8% growth on the first half last year at constant foreign exchange or 13.1% growth at reported foreign exchange.
The Group's revenue grew by 0.8% (10.0% at reported foreign exchange) to £488.1m. The International business grew by 3.1% with the main drivers of growth being North America at 8.0% and Asia Pacific at 9.5% whilst Continental Europe declined by 1.0%. UK sales declined by 3.2%.
e-Commerce revenue grew by 13.5% and now accounts for 34% of Group revenue, up from 30% in the first half last year.
Group gross profit increased by £17.9m whilst gross margin declined by 0.8% points compared to the first half of last year. The reduction was most notable within the UK and European businesses where increasing promotional activities and higher customer discounts had an adverse effect. During the second half of the year gross margin is expected to stabilise at the first half level as promotional and customer discount initiatives become even more targeted and selling price changes are made in the October catalogue.
Headline operating costs reduced by 0.9% points of sales due to cost control with International, UK and the Processes all contributing to this reduction.
Net income excluded from headline profit was £17.0m comprising the accounting benefits of the changes made to the UK defined benefit pension scheme in June 2008 and the costs associated with reorganisations across the Group's operating companies in the UK, South Asia and Scandinavia. The annualised savings of these actions is around £4m.
Reported profit before tax was £59.2m up by £22.9m on the comparative half year. The principal reasons for this favourable movement were the increase in headline profit before tax of £4.9m and the favourable net movement in income/costs excluded from headline profit of £18.0m.
Headline earnings per share increased by 16% year on year to 6.6p.
Financial Position
The Group had robust financial metrics in the first half year with strong free cash flow of £38.5m, interest cover of 14 times and a net debt to EBITDA ratio (based upon the proforma year ended 30 September 2008 financials) of 1.3 times. In addition, in September 2008 the Group completed a bank refinancing when a £256m committed bank facility was obtained from a group of 10 banks to replace most of the existing bank facilities. The new financing has a term of four years with comparable covenants to those within the former facilities. The total committed facilities available to the Group at 30 September 2008 were £263m.
The Group's net interest charge in the first half year reduced by £0.5m due to lower interest rates. Closing net debt has increased by £29.7m from the beginning of the financial year to £180.8m. This is principally due to the payment of the previous year's final dividend of £54.8m together with other movements of £13.4m (including foreign exchange and new finance leases) which were partly offset by the free cash flow of £38.5m.
Free cash flow increased year on year by £2.1m to £38.5m principally due to the increase in headline profit and lower capital expenditure. Stock turn was maintained on the first half last year, at 2.8 times, despite the investment in production packaging stock.
Dividend
In May 2008 the Board announced that for the 2009 financial year the ordinary dividend would be rebased to 11p per share, comprising an interim dividend of 5p per share and a final dividend of 6p per share. The interim dividend at 5p per share for the year ending 31 March 2009 will be paid in January next year.
International
| H1 2008/09 | H1 2007/08 (restated) | |
| Revenue | £312.5m | £266.6m |
| Revenue growth % | 3.1% | 11.1% |
| Gross margin | 47.8% | 48.2% |
| Operating costs % of revenue | (31.3%) | (31.6%) |
| Contribution | £51.6m | £44.3m |
| Contribution growth - reported foreign exchange | 16.5% | 8.3% |
| Contribution growth - constant foreign exchange | 3.2% | 11.3% |
| % of revenue | 16.5% | 16.6% |
The International business comprises Continental Europe (54% of the International business's revenue), North America (29%) and Asia Pacific (17%). The business as a whole represents an increasing proportion of the Group's revenue: 64% for the half year compared to 60% in the first half last year.
During the half year, the International business sales grew by 3.1% (17.2% at reported foreign exchange). Gross margin is 0.4% points lower than the first half of last year principally due to local promotional initiatives within Europe. Operating costs as a percentage of revenue were reduced by 0.3% points. Both Continental Europe and North America contributed to this improving performance, partially offset by the increased investment in the faster growing Asia Pacific region.
International contribution grew by 3.2% at constant foreign exchange. At reported foreign exchange, contribution grew by 16.5% including the benefit of weaker Sterling in the first half of the year.
Continental Europe
| H1 2008/09 | H1 2007/08 (restated) | |
| Revenue | £169.9m | £144.4m |
| Revenue growth % | (1.0%) | 9.2% |
| Contribution | £32.9m | £27.7m |
| Contribution growth - reported foreign exchange | 18.8% | 9.9% |
| Contribution growth - constant foreign exchange | 1.5% | 10.8% |
| % of revenue | 19.4% | 19.2% |
Continental Europe includes eight businesses. The largest are France, Germany and Italy which represent around 75% of the region's revenue. The remaining, and smaller, businesses are Austria, Benelux, Ireland, Scandinavia and Spain.
A number of activities have been undertaken locally across Europe to drive and support sales performance. These include strategic supplier promotions and larger customer initiatives. In addition, the production packaging capability was launched across Europe to positive customer reaction. Nonetheless, during the half year the European business sales have slowed as a result of the deteriorating economic conditions.
Further actions have been taken, notably cost control initiatives which reduced costs as a percentage of sales. Management changes have also been made to strengthen the leadership and exploit the region's potential.
The regions contribution as a percentage of sales has improved in the half year.
North America
| H1 2008/09 | H1 2007/08 (restated) | |
| Revenue | £90.9m | £80.1m |
| Revenue growth % | 8.0% | 12.1% |
| Contribution | £13.2m | £11.3m |
| Contribution growth - reported foreign exchange | 16.8% | 0.9% |
| Contribution growth - constant foreign exchange | 12.8% | 9.7% |
| % of revenue | 14.5% | 14.1% |
Allied, our North American business, continues to employ its successful growth strategy and exploit its national network of sales branches. Evidence of this success is the 8% sales growth during the first half in a toughening market and measured against a first half performance last year of more than 12% growth.
During the first half of the year the business has significantly improved its overall e-Commerce offer and this has been received enthusiastically by its customers with e-Commerce sales growing by 35%. The second quarter e-Commerce sales growth was 50%.
The business's contribution as a percentage of sales has improved in the half year and is flat after adjusting for the costs associated with the business's new warehouse.
Asia Pacific
| H1 2008/09 | H1 2007/08 (restated) | |
| Revenue | £51.7m | £42.1m |
| Revenue growth % | 9.5% | 15.8% |
| Contribution | £5.5m | £5.3m |
| Contribution growth - reported foreign exchange | 3.8% | 17.8% |
| Contribution growth - constant foreign exchange | (6.8)% | 17.8% |
| % of revenue | 10.6% | 12.6% |
The Asia Pacific region grew at 9.5% with particularly strong sales growth in China (40%), South Asia (15%) and India (23%).
During the first half sales declined in our Japanese business due to weaker macro economic conditions and temporary issues with the local website's search functionality. Sales growth for the first half in Asia Pacific, excluding Japan, was around 14%.
Contribution as a percentage of revenue has declined principally as a result of the ongoing investment in the business. This includes creating a central marketing team to provide cross regional support, sales training across all operating companies, reorganising the local China sales team to meet customer demands better and improving employee engagement through better performance management. Cost control is an important activity for this business which recently consolidated two warehouses in South Asia whilst improving local service delivery.
United Kingdom
| H1 2008/09 | H1 2007/08 (restated) | |
| Revenue | £175.6m | £177.2m |
| Revenue growth % | (3.2%) | 2.0% |
| Gross margin | 51.8% | 53.0% |
| Operating costs % of revenue | (24.5%) | (26.6%) |
| Contribution | £47.9m | £46.8m |
| Contribution growth | 2.4% | 2.6% |
| % of revenue | 27.3% | 26.4% |
UK sales slowed during the half year to an overall decline of 3.2% compared to the 2.0% growth in the first half last year, as the deteriorating economic conditions impacted the business. Nonetheless there are a number of areas of growth including large customer accounts and RS's own brand portfolio which provides customers with exceptional value.
A number of actions were undertaken to drive sales with further resources being applied to promotions and customer discounts resulting in a gross margin decline of 1.2% points from the comparative first half year. Second half gross margin is expected to stabilise at the first half level as selling price changes made in the October catalogue take effect and promotions are even more targeted.
Through strong management action and the business's use of continuous improvement to identify efficiencies across all areas, operating costs as a percentage of revenue were reduced by around 2% points. These actions contributed to the 2% increase in contribution on the first half last year, which was achieved despite the sales decline and gross margin reduction.
Pensions
The Group consulted with UK based employees over changes designed to improve the sustainability of the UK defined benefit pension scheme. These included changes in the Group's future approach to early retirement, a restriction on the amount of base pay that can be considered pensionable for defined benefit purposes, and a life expectancy risk sharing mechanism which will share the uncertain future costs of improving life expectancy between the Group and the active members. These changes have resulted in a non-cash accounting credit of £17.5m that has been recognised in the income statement and excluded from headline profit. Despite these changes, during the first half of the financial year the UK defined benefit pension scheme deficit has increased by £7.7m from £21.8m to £29.5m mainly due to falls in equity markets.
CURRENT TRADING AND OUTLOOK
In the first quarter of the financial year, Group sales increased by 1%, while in the second quarter they were flat as sales declined in both the UK and Continental Europe. This sales performance was driven by the deterioration in general economic conditions. In September, the Purchasing Managers' Indices ('PMI') in the Group's five largest markets (UK, France, Germany, Italy and North America), representing more than 80% of the Group's sales, all reported a significant decline.
During the month of October the Group has experienced a further downturn in trading as the recent deterioration in the outlook for the global economy has affected the confidence of our customers. In October, Group revenue declined by around 3.0%; our International business revenue declined by around 2.5% and our UK business by around 4.5%.
Whilst the worsening global economic environment is having an adverse impact on our business, we are taking measures to reduce costs and underpin sales. The Group has a strong financial position and wide geographic spread. We are confident that the Group has the right strategy and operational focus to allow us to weather this economic turbulence and achieve longer term growth.
RISKS AND UNCERTAINTIES STATEMENT
In line with the requirements of DTR 4.2.7R of the Disclosure and Transparency Rules, the following section provides a description of the principal risks and uncertainties for the remaining six months of the Group's financial year.
Group Strategy Implementation
Whilst we continue to make good progress on the implementation of the Group's strategy, the risk remains that it may not deliver the expected results. To mitigate this risk, our focus is on improving the effectiveness and consistency of our customer communications, supported by robust customer research and dedicated sales teams in the larger European markets. The development of the R&D and Maintenance ranges, supported by innovative developments such as our production packaging capability launched during 2008, further strengthen the implementation process.
Pricing
To be successful in the market, we must ensure customers are provided with "value for money" by effective market pricing, high service levels and proactive customer communications. The risk is that the service differential or price positioning with competitors is not maintained, and our customer communications are ineffective. To address the risk, robust market pricing frameworks are in place across our markets, together with targeted discounting, on-going monitoring of market developments and competitor pricing and launch of the common brand identity.
People
The skills, expertise and commitment of our employees underpin the successful implementation of our strategy. A major risk to our strategy implementation is that we are unable to attract or retain high performing employees or that staff are not supportive of the strategy. The risk is managed by developing internal competencies, supplemented with new expertise through external appointments. Employee personal objectives are being progressively aligned in support of the strategy, whilst our continuous improvement initiative encourages employee involvement to identify and implement changes to improve the customer experience and deliver greater efficiency.
IT and communications systems
We are dependent on our data processing and communications systems to support our worldwide distribution businesses. A major failure affecting these systems would cause significant disruption to our operations. The recent upgrades to our systems in Europe and Asia, and investments in resilient systems infrastructure, systems knowledge and region-wide disaster recovery provision and on-going testing have significantly reduced our risk in these areas.
Macro economic environment
The volatility in the wider business environment creates challenges for the Group's financial performance through general macro economic changes. By closely monitoring trading environments, driving growth opportunities across international markets and tightly controlling costs through efficiencies and cost reductions, the Group aims to mitigate and manage these effects.
Foreign exchange rates
The geographic spread of the Group means that its financial results can be affected by movements in foreign exchange rates. The Group has significant operations both in Europe and North America and has a significant proportion of its borrowing denominated in Euros and US Dollars, which provide a hedge against the Group's European and North American investments.
Ian Mason, Group Chief Executive
Simon Boddie, Group Finance Director
11 November 2008
Responsibility Statement of the Directors in respect of the half-yearly financial report
We confirm that to the best of our knowledge:
The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;
The interim management report includes a fair review of the information required by:
DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
Ian Mason, Group Chief Executive
Simon Boddie, Group Finance Director
11 November 2008
Group Income Statement
| Note | 6 months to 30.9.2008 (unaudited) | 6 months to 30.9.2007 (restated) (unaudited) | Year to 31.3.2008 (audited) | |
|
| £m | £m | £m | |
| Revenue | 1 | 488.1 | 443.8 | 924.8 |
| Cost of sales | (247.7) | (221.3) | (460.1) | |
| Gross profit | 240.4 | 222.5 | 464.7 | |
| Distribution and marketing expenses | (174.5) | (179.0) | (354.6) | |
| Administrative expenses | (3.5) | (3.5) | (7.4) | |
| Operating profit | 62.4 | 40.0 | 102.7 | |
| Financial income | 3.0 | 5.5 | 9.5 | |
| Financial expenses | (6.2) | (9.2) | (16.8) | |
| Profit before tax | 1 | 59.2 | 36.3 | 95.4 |
| Income tax expense | 3 | (18.4) | (12.3) | (31.5) |
| Profit for the period attributable to equity shareholders | 40.8 | 24.0 | 63.9 | |
| Earnings per share - Basic | 4 | 9.4p | 5.5p | 14.7p |
| Earnings per share - Diluted | 4 | 9.4p | 5.5p | 14.6p |
| Dividends | ||||
| Amounts recognised in the period: | ||||
| Final dividend for the year ended 31 March 2008 | 5 | 12.6p | 12.6p | 12.6p |
| Interim dividend for the year ended 31 March 2008 | 5 | - | - | 5.8p |
An interim dividend of 5.0p per share has been recognised since the period end.
Headline profit
| Headline operating profit | |||
| Operating profit | 62.4 | 40.0 | 102.7 |
| Pension changes/reorganisation (income) costs | (17.0) | 1.0 | 1.0 |
| 45.4 | 41.0 | 103.7 | |
| Headline profit before tax | |||
| Profit before tax | 59.2 | 36.3 | 95.4 |
| Pension changes/reorganisation (income) costs | (17.0) | 1.0 | 1.0 |
| 42.2 | 37.3 | 96.4 |
Group Statement of Recognised Income and Expense
| Note | 6 months to 30.9.2008 (unaudited) | 6 months to 30.9.2007 (restated) (unaudited) | Year to 31.3.2008 (audited) | |
| £m | £m | £m | ||
| Foreign exchange translation differences | 6 | 9.7 | (3.4) | 2.1 |
| Actuarial (loss) gain on defined benefit pension schemes | 6 | (26.9) | 17.9 | 5.2 |
| Gain (loss) on cash flow hedges | 6 | 7.9 | (2.0) | (11.8) |
| Tax on items taken directly to equity | 6 | 5.3 | (5.8) | 2.0 |
| Net (loss) income recognised directly in equity | (4.0) | 6.7 | (2.5) | |
| Profit for the period | 40.8 | 24.0 | 63.9 | |
| Total recognised income and expense for the period attributable to equity shareholders | 36.8 | 30.7 | 61.4 | |
| Impact of voluntary change in accounting policy on retained earnings as at 1 April 2007 | 7 | (5.3) | (5.3) |
Group Balance Sheet
| Note | 30.9.2008 (unaudited) | 30.9.2007 (restated) (unaudited) | 31.3.2008 (audited) | |
| £m | £m | £m | ||
| Non-current assets | ||||
| Intangible assets | 200.6 | 188.7 | 188.6 | |
| Property, plant and equipment | 112.9 | 109.6 | 114.9 | |
| Investments | 0.5 | 0.4 | 0.4 | |
| Other receivables | 3.5 | 2.5 | 2.9 | |
| Deferred tax assets | 14.6 | 8.7 | 14.7 | |
| 332.1 | 309.9 | 321.5 | ||
| Current assets | ||||
| Inventories | 177.2 | 161.1 | 161.1 | |
| Trade and other receivables | 169.8 | 153.9 | 173.0 | |
| Income tax receivables | 2.2 | 0.8 | 1.3 | |
| Cash and cash equivalents | 8 | 24.9 | 38.4 | 28.4 |
| 374.1 | 354.2 | 363.8 | ||
| Current liabilities | ||||
| Trade and other payables | (144.8) | (134.3) | (143.7) | |
| Loans and borrowings | (11.5) | (7.3) | (7.1) | |
| Tax liabilities | (16.7) | (14.9) | (17.5) | |
| (173.0) | (156.5) | (168.3) | ||
| Net current assets | 201.1 | 197.7 | 195.5 | |
| Total assets less current liabilities | 533.2 | 507.6 | 517.0 | |
| Non-current liabilities | ||||
| Other payables | (8.0) | (5.4) | (8.4) | |
| Retirement benefit obligations | (38.0) | (18.8) | (30.0) | |
| Loans and borrowings | (194.2) | (185.3) | (172.4) | |
| Deferred tax liabilities | (28.2) | (21.6) | (24.4) | |
| (268.4) | (231.1) | (235.2) | ||
| Net assets | 264.8 | 276.5 | 281.8 | |
| Equity | ||||
| Called-up share capital | 43.5 | 43.5 | 43.5 | |
| Share premium account | 38.7 | 38.7 | 38.7 | |
| Retained earnings | 172.6 | 198.7 | 205.0 | |
| Cumulative translation reserve | 13.6 | (1.6) | 3.9 | |
| Other reserves | (3.6) | (2.8) | (9.3) | |
| Total equity attributable to the shareholders of the parent | 6 | 264.8 | 276.5 | 281.8 |
Group Cash Flow Statement
| Note | 6 months to 30.9.2008 (unaudited) | 6 months to 30.9.2007 (restated) (unaudited) | Year to 31.3.2008 (audited) | |
| £m | £m | £m | ||
| Cash flows from operating activities | ||||
| Profit before tax | 59.2 | 36.3 | 95.4 | |
| Depreciation and other amortisation | 13.1 | 13.0 | 26.7 | |
| Equity settled transactions | 1.0 | 1.3 | 1.1 | |
| Finance income and expense (net) Non-recurring non cash pension changes | 3.2 (17.5) | 3.7 - | 7.3 - | |
| Non cash movement on investment in associate | (0.1) | - | - | |
| Operating cash flow before changes in working capital, interest and taxes | 58.9 | 54.3 | 130.5 | |
| (Increase) decrease in inventories | (12.2) | (0.4) | 7.4 | |
| Decrease in trade and other receivables | 5.6 | 9.0 | 0.5 | |
| Increase (decrease) in trade and other payables | 5.7 | (6.3) | (15.3) | |
| Cash generated from operations | 58.0 | 56.6 | 123.1 | |
| Interest received | 3.0 | 5.5 | 9.5 | |
| Interest paid | (7.7) | (7.9) | (15.4) | |
| Income tax paid | (12.0) | (10.4) | (22.8) | |
| Net cash from operating activities | 41.3 | 43.8 | 94.4 | |
| Cash flows from investing activities | ||||
| Capital expenditure and financial investment | (2.8) | (7.4) | (19.4) | |
| Net cash used in investing activities | (2.8) | (7.4) | (19.4) | |
| Free cash flow | 38.5 | 36.4 | 75.0 | |
| Cash flows from financing activities | ||||
| New bank loans | 179.3 | 64.6 | 92.0 | |
| Loans repaid | (170.6) | (25.6) | (77.1) | |
| Equity dividends paid | (54.8) | (54.8) | (80.0) | |
| Net cash used in financing activities | (46.1) | (15.8) | (65.1) | |
| Net (decrease) increase in cash and cash equivalents | (7.6) | 20.6 | 9.9 | |
| Cash and cash equivalents at the beginning of the period | 27.2 | 17.2 | 17.2 | |
| Effects of exchange rates on cash | (0.2) | (0.3) | 0.1 | |
| Cash and cash equivalents at the end of the period | 8 | 19.4 | 37.5 | 27.2 |
BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
Electrocomponents plc (the "Company") is a company domiciled in the UK. The condensed set of financial statements as at, and for, the six months ended 30 September 2008 comprises the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in a jointly controlled entity.
The Group financial statements as at, and for, the year ended 31 March 2008 are available upon request from the Company's registered office at International Management Centre, 8050 Oxford Business Park North, Oxford, OX4 2HW.
The comparative figures for the financial year ended 31 March 2008 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985.
Statement of compliance
The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. The condensed set of financial statements do not include all of the information required for full annual financial statements, and should be read in conjunction with the Group financial statements as at, and for, the year ended 31 March 2008.
This condensed set of financial statements was approved by the Board of Directors on 11 November 2008.
Significant accounting policies
The accounting policies applied by the Group in these condensed consolidated financial statements are the same as those that applied to the consolidated financial statements of the Group for the year ended 31 March 2008.
Estimates and judgements
The preparation of a condensed set of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
The significant judgements made by management in applying the Group's accounting policies and the key sources of uncertainty were the same as those that applied to the Group financial statements as at 31 March 2008.
Notes to the condensed set of financial statements
| 6 months to 30.9.2008 (unaudited) | 6 months to 30.9.2007 (restated) (unaudited) | Year to 31.3.2008 (audited) | ||
| 1 Segmental Reporting | £m | £m | £m | |
| By geographical destination | ||||
| Revenue: | United Kingdom | 167.7 | 169.6 | 342.6 |
| Continental Europe | 171.9 | 147.8 | 320.6 | |
| North America | 90.0 | 78.2 | 161.7 | |
| Asia Pacific | 58.5 | 48.2 | 99.9 | |
| 488.1 | 443.8 | 924.8 | ||
| By geographical origin | ||||
| Revenue: | United Kingdom | 175.6 | 177.2 | 358.0 |
| Continental Europe | 169.9 | 144.4 | 316.2 | |
| North America | 90.9 | 80.1 | 163.3 | |
| Asia Pacific | 51.7 | 42.1 | 87.3 | |
| 488.1 | 443.8 | 924.8 | ||
| Profit before tax: | United Kingdom | 47.9 | 46.8 | 100.9 |
| Continental Europe | 32.9 | 27.7 | 71.0 | |
| North America | 13.2 | 11.3 | 22.0 | |
| Asia Pacific | 5.5 | 5.3 | 9.3 | |
| Headline contribution | 99.5 | 91.1 | 203.2 | |
| Group Process costs | (54.1) | (50.1) | (99.5) | |
| Headline operating profit | 45.4 | 41.0 | 103.7 | |
| Net financial expense | (3.2) | (3.7) | (7.3) | |
| Headline profit before tax | 42.2 | 37.3 | 96.4 | |
| Pension changes/reorganisation income (costs) | 17.0 | (1.0) | (1.0) | |
| 59.2 | 36.3 | 95.4 | ||
2 Pension changes/reorganisation (income) costs
(Income) costs arising during the period are as follows:
| 6 months to 30.9.2008 (unaudited) | 6 months to 30.9.2007 (unaudited) | Year to 31.3.2008 (audited) | |
| £m | £m | £m | |
| Redundancy costs | 0.2 | 0.7 | 0.9 |
| Pension scheme changes | (17.5) | - | - |
| Other initiatives | 0.3 | 0.3 | 0.1 |
| (17.0) | 1.0 | 1.0 |
During the period, the Group incurred £0.2m of redundancy costs as a result of reorganisations in Europe and the UK, a non-cash accounting credit of £17.5m due to changes to the UK defined benefit pension scheme (more information is provided in the Operating Review) and £0.3m of costs due to other initiatives in Asia Pacific.
The (income) costs are disclosed within the income statement as follows:
| 6 months to 30.9.2008 (unaudited) | 6 months to 30.9.2007 (unaudited) | Year to 31.3.2008 (audited) | |
| £m | £m | £m | |
| Distribution and marketing expenses | (15.8) | 1.0 | 1.0 |
| Administrative expenses | (1.2) | - | - |
| (17.0) | 1.0 | 1.0 |
| 6 months to 30.9.2008 (unaudited) | 6 months to 30.9.2007 (restated) (unaudited) | Year to 31.3.2008 (audited) | |
| 3 Taxation on the profit of the Group | £m | £m | £m |
| United Kingdom taxation | 11.3 | 5.9 | 13.4 |
| Overseas taxation | 7.1 | 6.4 | 18.1 |
| 18.4 | 12.3 | 31.5 |
| 6 months to 30.9.2008 (unaudited) | 6 months to 30.9.2007 (restated) (unaudited) | Year to 31.3.2008 (audited) | |
| 4 Earnings per share | £m | £m | £m |
| Profit for the period attributable to equity shareholders | 40.8 | 24.0 | 63.9 |
| Pension changes/reorganisation (income) costs | (17.0) | 1.0 | 1.0 |
| Tax impact of pension changes/reorganisation (income) costs | 4.8 | (0.3) | (0.3) |
| Headline profit on ordinary activities after taxation | 28.6 | 24.7 | 64.6 |
| Weighted average number of shares (millions) | 435.0 | 435.0 | 435.0 |
| Diluted weighted average number of shares (millions) | 435.4 | 437.1 | 436.3 |
| Headline basic earnings per share | 6.6p | 5.7p | 14.8p |
| Basic earnings per share | 9.4p | 5.5p | 14.7p |
| Headline diluted earnings per share | 6.6p | 5.7p | 14.8p |
| Diluted earnings per share | 9.4p | 5.5p | 14.6p |
| 6 months to 30.9.2008 (unaudited) | 6 months to 30.9.2007 (unaudited) | Year to 31.3.2008 (audited) | ||
| 5 Interim dividend | £m | £m | £m | |
| Amounts recognised and paid in the period: | ||||
| Final dividend for the year ended 31 March 2008 - 12.6p (2007: 12.6p) | 54.8 | 54.8 | 54.8 | |
| Interim dividend for the year ended 31 March 2008 - 5.8p | - | - | 25.2 | |
| 54.8 | 54.8 | 80.0 | ||
| Amounts determined after the balance sheet date: | ||||
| Interim dividend for the year ending 31 March 2009 - 5.0p | 21.8 | |||
| The timetable for the payment of the interim dividend is: | ||||
| Ex-dividend date | 10 December 2008 | |||
| Dividend record date | 12 December 2008 | |||
| Dividend payment date | 16 January 2009 | |||
| 6 months to 30.9.2008 (unaudited) | 6 months to 30.9.2007 (restated) (unaudited) | Year to 31.3.2008 (audited) | |
| 6 Reconciliation of movements in equity | £m | £m | £m |
| Profit for the period | 40.8 | 24.0 | 63.9 |
| Dividend | (54.8) | (54.8) | (80.0) |
| Retained loss | (14.0) | (30.8) | (16.1) |
| Foreign exchange translation differences | 9.7 | (3.4) | 2.1 |
| Actuarial (loss) gain on defined benefit pension schemes | (26.9) | 17.9 | 5.2 |
| Gain (loss) on cash flow hedges | 7.9 | (2.0) | (11.8) |
| Tax impact on adjustments taken directly to equity | 5.3 | (5.8) | 2.0 |
| Equity settled transactions | 1.0 | 1.3 | 1.1 |
| Net reduction in equity | (17.0) | (22.8) | (17.5) |
| Total equity attributable to shareholders of the parent at the beginning of the period - as previously reported | 281.8 | 304.6 | 304.6 |
| Impact of voluntary accounting policy change | - | (5.3) | (5.3) |
| Total equity attributable to shareholders of the parent at the beginning of the period - as restated | 281.8 | 299.3 | 299.3 |
| Total equity attributable to shareholders of the parent at the end of the period | 264.8 | 276.5 | 281.8 |
7 Catalogue costs: voluntary accounting policy change
As previously announced in note 27 on page 61 of the Group's Annual Report and Accounts for the year ended 31 March 2008, the Directors decided to make a voluntary change to their current accounting policy to write off costs relating to the production and printing of catalogues to the income statement as they are incurred. In prior periods, the adopted policy was to recognise these costs as the catalogues were distributed to customers.
In applying the new policy retrospectively, the Directors reclassified unused paper stocks to be used for printing catalogues as inventory and recognised additional accruals in respect of certain catalogue costs that would have been prepaid under the previous accounting policy but are expensed as incurred under the new policy.
The impact of the change in accounting policy to distribution and marketing costs and profit before tax for the year ended 31 March 2008 was £nil, together with a £nil effect to the income tax expense and for the period ended 30 September 2007 an increase in distribution and marketing costs of £3.1m, together with a decrease in the tax expense of £1.1m.
The change had no effect on basic earnings per share in for the year ended 31 March 2008 and basic earnings per share for the period ended 30 September 2007 reduced by 0.5p.
The change has also reduced the foreign exchange translation income through the Statement of Recognised Income and Expense by £0.5m for the year ended 31 March 2008 (30 September 2007 impact was to increase the foreign exchange translation cost by £0.2m).
The change reduced trade and other receivables as at 1 April 2007 by £7.4m, 30 September 2007 by £10.7m and at 31 March 2008 by £8.5m. The current and net deferred tax liability decreased at 1 April 2007 by £2.1m, at 30 September 2007 by £3.2m and at 31 March 2008 by £2.3m. In addition, reclassifications increased inventories by £0.4m at 31 March 2008.
In aggregate, the change reduced net assets at 1 April 2007 by £5.3m, 30 September 2007 by £7.5m and 31 March 2008 by £5.8m.
The restatement has had no affect on the Group's operating or free cash flow in any of the reported periods.
| 30.9.2008 (unaudited) | 30.9.2007 (unaudited) | 31.3.2008 (audited) | |
| 8 Cash and cash equivalents | £m | £m | £m |
| Bank balances | 10.5 | 8.2 | 5.9 |
| Call deposits and investments | 14.4 | 30.2 | 22.5 |
| Cash and cash equivalents in the balance sheet | 24.9 | 38.4 | 28.4 |
| Bank overdrafts | (5.5) | (0.9) | (1.2) |
| Cash and cash equivalents in the cash flow statement | 19.4 | 37.5 | 27.2 |
| Current instalments of loans | (6.0) | (6.4) | (5.9) |
| Loans repayable after more than one year | (194.2) | (185.3) | (172.4) |
| Net debt | (180.8) | (154.2) | (151.1) |
| 9 Principal exchange rates | 6 months to 30.9.2008 (unaudited) | 6 months to 30.9.2007 (unaudited) | Year to 31.3.2008 (audited) |
| Average for the period | |||
| Euro | 1.26 | 1.47 | 1.41 |
| United States Dollar | 1.93 | 2.01 | 2.01 |
| Japanese Yen | 204 | 239 | 229 |
| 30.9.2008 (unaudited) | 30.9.2007 (unaudited) | 31.3.2008 (audited) | |
| Period end | |||
| Euro | 1.27 | 1.43 | 1.25 |
| United States Dollar | 1.78 | 2.04 | 1.99 |
| Japanese Yen | 189 | 234 | 198 |
INDEPENDENT REVIEW REPORT TO ELECTROCOMPONENTS PLC
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2008 which comprises the Group Income Statement, Balance Sheet, Cash Flow Statement, the Statement of Recognised Income and Expense and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.
As disclosed in the Basis of Preparation and Principal Accounting Policies, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2008 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.
KPMG Audit PlcChartered Accountants
8 Salisbury Square, London
11 November 2008