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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Electrocomponents Plc | LSE:ECM | London | Ordinary Share | GB0003096442 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1,047.00 | 1,043.00 | 1,045.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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RNS Number:6576L
Electrocomponents PLC
29 May 2003
Embargoed to 7:00am, Thursday 29 May 2003
PRELIMINARY STATEMENT
Electrocomponents plc, the major international high service distributor of
electronic, electrical and industrial supplies, today announces its results for
the year ended 31 March 2003.
The highlights are as follows:
Sales #743.7m Down 2.6% (adjusted)
Operating profit * #102.1m Down 6.1%
Profit before tax* #100.9m Down 4.4%
Earnings per share* 16.5p Down 4.6%
Dividend per share 17.0p Up 6.9%
Net debt #46.9m Better by #6.1m
* Before amortisation of goodwill.
Mr Bob Lawson, Chairman, commented:
Difficult trading conditions persisted throughout the year in all our major
markets, particularly in the electronics, telecommunications and general
manufacturing sectors. We have, however, had some notable successes, for
example the 55% growth in our e-Commerce sales during the year. Our results
reflect a solid overall performance with maintained operating margins (before
the impact of one-off costs) on slightly lower sales. Cash flow was again
strong. The increase in the dividend of 6.9% reflects this performance and
underlines our confidence in the future prospects for the Group.
Since the year end, our markets have continued to display weakness. Recent
leading indicators such as Purchasing Managers Indices suggest no improvement in
the trading environment in the short term. Our monthly sales are currently
running broadly level with the same period last year.
Bob Lawson
29 May 2003
Enquiries:
Bob Lawson, Chairman Electrocomponents plc 0207 567 8000*
Ian Mason, Chief Executive Electrocomponents plc 0207 567 8000*
Jeff Hewitt, Deputy Chairman / Finance Director Electrocomponents plc 0207 567 8000*
Diana Soltmann / Andy Berry Flagship Consulting Ltd 0207 886 8440
* Available to 17:00 on 29 May, thereafter 01865 204000.
The results and analyst presentation with accompanying audiocast are published
on the Corporate website at www.electrocomponents.com.
CHAIRMAN'S STATEMENT ON THE PRELIMINARY RESULTS
FOR THE YEAR ENDED 31 MARCH 2003
Difficult trading conditions persisted throughout the year in all our major
markets, with the electronics, telecommunications and general manufacturing
sectors continuing to be weak.
Against this backcloth, Group sales declined by 2.6% (adjusted for trading days
and exchange rates) to #743.7m from #759.6m and profit before tax and
amortisation of goodwill declined by 4.4% to #100.9m from #105.5m. The return on
sales declined slightly to 13.6% from 13.9%.
Profit is stated after #3.9m of one-off costs: #1.5m relating to the costs of
relocating to our new warehouse in Germany and #2.4m relating to the withdrawal
from specialised activities in the United Kingdom directed at the
telecommunications and related sectors; this withdrawal also lowered sales by
#3.8m. Additionally, the major systems investment project in Europe and Asia
incurred costs #2.7m higher than last year. Sales and marketing costs critical
to the Group's growth also increased.
We take some encouragement from our performance in the second half of the year
which showed improvement on the first half without any significant change in the
trading backdrop. Whilst the full year sales and profits declined from the
prior year, I believe the Group's overall performance was robust in the
circumstances.
In spite of the tough conditions, management has continued to make investments
designed to achieve the strategic potential of the Group. Our firmly held belief
is that there are significant growth opportunities for our business model around
the world. This belief was powerfully reinforced through the year by the sales
performance of our businesses in Japan and China, the resilience in continental
Europe and the United States and our international success with e-Commerce.
Also, important pilots have been carried out in the United Kingdom in service
sectors where RS has traditionally been less strong. These demonstrate that the
United Kingdom is far from being a mature market and have led to an increase in
our sales and marketing efforts in these areas. Our continued ability to improve
gross margins (up to 52.7% versus 51.0% last year) underlines the value that
customers place on our services.
Cash flow was again strong. Working capital was tightly controlled and showed a
further reduction on last year. Capital expenditure declined from its peak of
#47.2m last year to #31.3m and will continue to fall as major spends on
warehouses and systems are completed. As a result, and benefiting from
significant exchange rate movements, net debt reduced #6.1m during the year to
#46.9m.
DIVIDEND
The Board recommends that the final dividend be increased by 6.8% to 11.75p to
give a full year dividend increase of 6.9% to 17.0p. Though the reported
earnings for the year of 16.5p do not fully cover the recommended dividend, the
Board recognises that the earnings have continued to be depressed both by
trading conditions and by our investment programmes. The dividend growth is
underpinned by the ability of our businesses to generate cash. The Board's
dividend decisions continue to be based on these considerations together with
its assessment of the Group's medium term growth opportunities.
MANAGEMENT
The leadership team has remained stable through the year, and the regional
structure introduced last year has now become fully operational. This structure
is important to ensure that, as the operating companies within each region grow,
the core elements of our business model are maintained and strengthened through
consistency of the offer to customers, sharing best practices and keeping tight
controls. Supporting the Executive Director Committee are the General Managers
of each Region and of each Process who together form the Group Executive
Management Team. This team executes our strategy.
OPERATIONS
Despite the continuation of tough economic conditions throughout the year, the
second half of the year saw an improvement in trading.
We believe firmly in the growth potential of all our businesses, and have
continued to invest in them, particularly in sales and marketing, e-Commerce,
Japan, warehouse facilities and information systems. We have continued to
improve our gross margins, and have managed the cost base effectively, although
there is a limit to the pressure we can place on costs without adversely
impacting future growth. Stock has been reduced while maintaining our excellent
service levels, and our cash generation has remained very positive.
I will now summarise the performance of our businesses by region.
UK
RS UK 2003 2002
Sales (by destination) #353.7m #379.7m
Adjusted sales decline (7.2)% (7.6)%
Sales (by origin) #366.9m #393.0m
Adjusted sales decline (7.0)% (7.4)%
Contribution #119.1m #126.2m
Contribution % 32.5% 32.1%
RS UK had a sales decline of 7.0% (adjusted for trading days) to #366.9m,
reflecting the continuing weakness of the manufacturing sector. UK sales in the
second half declined by 4.7% (adjusted), and exited the year at a lower rate of
decline. The UK business is firmly focused on returning to growth by broadening
its customer base. Record numbers of new customers have been acquired in the
more buoyant service sectors, offsetting losses in manufacturing through
customers losing their jobs. Over the year, the UK thereby maintained overall
customer numbers. Sales to customers in the manufacturing sectors consequently
declined most, but still accounted for over half of our total sales.
During the year we closed a specialised activity serving the troubled
telecommunications and related sectors. The one-off costs of this withdrawal
amounted to about #2.4m, of which #0.9m has been charged against RS UK
contribution and #1.5m, related to stock, property and systems, against Process
costs.
There are many initiatives in place to regain sales growth. We have increased
the size of the sales force and the number of catalogues distributed to
customers in the second half. Part of this additional investment is being
directed to sectors where RS has traditionally been under-represented. These
include the publicly funded sectors, including health. Currently, due to our
historic sales and marketing focus, RS sells to only a fifth of all hospitals,
but where we do have customers we have observed similar purchasing dynamics to
customers in manufacturing. Also, a six month pilot demonstrated that hospitals
buy across our entire product range, which reflects our experience in other
service sectors.
Customer contact is ever more important and so the size of each sales territory
has been reduced, and more sales people recruited, which allows more time for
customer acquisition and development activities. Although we have contracts in
place with large organisations which have many end-users, our experience
indicates that the key to obtaining value from such contracts is in accessing
and serving the end-users themselves. In addition, we opened two new trade
counters in South Wales and Aberdeen, and rolled out our successful Managed
Stock Replenishment programme, run from the trade counters, which manages
customers' inventory requirements.
Increased targeting and distribution of the catalogue among potential customers
has enhanced the visibility of our offer and of the value we bring. This should
increase the pace of growth in the business as maintenance and development
engineers across all sectors of the economy see and understand the relevance of
our services. Our "nursery" programme is designed to ensure that once new
customers have bought from us they increase their order frequency more quickly,
and purchase more broadly across our product range. Our product range increased
2% over the year to 135,000.
e-Commerce continued its very strong performance, growing year on year at 45%,
and now accounts for around 15% of sales, up from 10%. This success is driven by
innovative improvements in functionality that focus on reducing our customers'
costs. Success has been achieved across all sectors of the economy.
Despite lower sales and the investments made in the year, the UK contribution
margin improved to 32.5% from 32.1% through continued active management of gross
margin and control over local costs. Our RS UK business remains highly cash
generative.
Exports from the UK to third party distributors and direct to overseas customers
were flat against last year.
REST OF EUROPE
RS Rest of Europe 2003 2002
Sales #224.3m #210.7m
Adjusted sales growth 1.5% 4.1%
Contribution #44.1m #40.4m
Contribution % 19.7% 19.2%
Sales in Europe grew by 1.5% (adjusted for trading days and at constant exchange
rates) to #224.3m, which is 30.2% of Group sales. Trading conditions in both
halves were similar, though growth was slightly better in the second half.
During the year we invested heavily in the region with capital expenditure on
warehouses and systems. The contribution is stated after disruption costs of
about #1.5m resulting from the relocation of our German warehouse. Excluding
these one-off costs, the contribution margin would have been higher at 20.3%.
These results demonstrate our strategy in action (sales growth with improving
contribution margins), even in difficult economic conditions. This improvement
in contribution margin has again come through a combination of higher gross
margin and tight management of costs. The higher gross margin reflects close
attention to all elements of gross margin, not just our cost prices and selling
prices: for example, we have reduced sales credits by reducing errors in
customer product selection and order fulfilment. Through such actions we are
also improving customer service.
Europe, excluding the United Kingdom, is managed on a regional basis to ensure
greater cohesion between the businesses and to transfer best practice, in
particular in selling and marketing activities.
This year was the first full year of trading in Rest of Europe from our higher
functionality websites, and this has delivered excellent results. e-Commerce
sales have more than doubled in the year to about 10% of total sales, and exited
the year at over 12% of sales.
RS Rest of Europe - sales, customers Adjusted Sales % Increase in Number of products
and products Growth customers
France 0.0% 1% 93,000
Germany 1.6% 0% 84,000
Italy (0.2)% 2% 75,000
Smaller businesses 5.6% 2% 55,000
The performance of the larger businesses reflected the depressed economic
conditions. Each of the businesses is pursuing initiatives to grow sales,
without assuming any improvement in the economic backdrop.
In France, Germany and Italy there was also a lot of internal activity during
the year:
The European systems project will be implemented first in June 2003 in France.
During the year considerable time and effort has been spent by the French
management team on ensuring that the implementation goes according to plan.
Equally, attention is being focused on making sure that the substantial
efficiency benefits and rewards from better customer service will be realised.
The relocation to the new warehouse in Germany was completed over the Christmas
2002 break. In the coming year, our customers will experience enhanced service
from this purpose-built facility. It is situated close to all major carrier hubs
and will give us the ability to provide higher service levels (including later
order cut-off) to support our growth in Germany and also in nearby countries.
RS Italy moved to a larger warehouse and offices last year and can now
accommodate significant growth. Following extensive customer research, Italy
changed the frequency of its catalogue from semi-annual to annual, in September
2002 and at the same time increased the number of catalogues circulated by 40%.
Though overall catalogue costs have been reduced, further investment was made in
more responsive, shorter term marketing initiatives.
The smaller businesses had differing results. Spain continued to grow at a high
rate throughout the year and moved to a larger warehouse facility. Elsewhere,
Austria grew well, Scandinavia and Benelux grew, but more slowly than last year,
whilst our business in Ireland returned to growth.
Despite the economic difficulties, we have continued to invest in the future
growth potential of our European businesses. These businesses are in an
excellent position to return to strong sales growth when the upturn comes, with
higher levels of contribution.
NORTH AMERICA
Allied North America 2003 2002
Sales #103.4m #110.5m
Adjusted sales decline (0.4)% (27.6)%
Contribution #14.4m #15.9m
Contribution % 13.9% 14.4%
Sales of our Allied business in North America declined slightly (adjusted) to
#103.4m. Allied returned to growth in the second half of the year at 4.3% growth
year on year, and exited the year at a slightly higher rate. We believe that we
have taken sales from the many small, local businesses that face increasing
service and supply difficulties during the electronics cycle. Allied's customer
base was flat over the year.
Gross margins of about 40% were similar to last year. The national sales-office
branch network was maintained, while further front end investments resulted in a
planned increase in costs. For example, the catalogue underwent a number of
improvements in May 2002 with the launch of the first colour edition, featuring
a new buyers' guide and enhancements in layout and indexing. Customer service in
the local sales branches is being improved by better staff training and will be
further enhanced by the implementation of a new quote system, which in the pilot
led to a substantial increase in bookings. An initiative to extend the product
portfolio with maintenance-related products new to the Allied offer is underway.
As a result, Allied's contribution on sales declined by 0.5 percentage points to
13.9%.
Sales over the internet improved again, to 7% of total sales.
Allied celebrates its 75th anniversary in 2003 and is in a strong position to
continue its historical sales and profit successes in the future.
JAPAN
RS Japan 2003 2002
Sales #11.3m #9.0m
Adjusted sales growth 31.6% 15.3%
Contribution (#3.3m) (#4.7m)
Sales growth in Japan accelerated to 31.6% (adjusted), giving sales of #11.3m.
The second half growth rate was 35.6%. This strong performance came in spite of
the weak Japanese economy. The growth in the year was driven by the new
e-Commerce functionality introduced in April 2002. The website is entirely in
Japanese and is supported by dedicated local staff. Several major customers,
particularly in the public sector, have been using the advanced buy-side
functionality of the site and have found it a valuable tool in retaining control
over purchasing while saving administrative costs. Since the launch of the new
functionality, sales through e-Commerce have run at about one third of total
sales, almost double the level of a year ago.
The product offer has been broadened, with the number of products increasing by
6% to 46,000. Health and safety, mechanical and electrical products are now
offered in addition to electronics, as we build to the usual broad-range RS
offer. This has also helped broaden the customer base, which grew by 12%, and
the breadth of purchase of existing customers, so increasing average order
frequency.
Customer-facing activities have been further strengthened with additional
resource in sales and customer service. The success of RS in Japan and the value
that Japanese engineers place on the RS service demonstrate the transferability
and fundamental high value of the RS business model. Our view that the market
potential is huge is reinforced by this year's results.
Losses of #3.3m were down from #4.7m last year despite the costs of moving the
warehouse in August 2002 and launching the new Internet capability in April
2002. We anticipate that the business will reach break-even on a month-by-month
basis during the coming year.
REST OF WORLD
RS Rest of World 2003 2002
Sales #37.8m #36.4m
Adjusted sales growth 5.7% 1.0%
Contribution #2.4m #0.2m
Contribution % 6.3% 0.5%
Sales in Rest of World grew by 5.7% (adjusted) to #37.8m. The second half grew
slightly faster at 6.5%, and the businesses exited the year at a similar rate.
Asia accounts for most of the sales in this segment.
Asia
Asia sales grew by 2.7% (adjusted), returning to growth in the second half of
the year.
Sales in North Asia were down 0.7%, reflecting growth in China, but declines in
Hong Kong and Taiwan.
Sales in China grew by 5.2% (adjusted), despite sales in the first half being
adversely affected by the Chinese government putting in place new product safety
compliance requirements on many categories of imports. Close co-operation with
the authorities and our suppliers enabled us to mitigate the impact in the
second half, though many products remained unavailable for sale. Second half
growth was 11.5%. The April 2003 Chinese catalogue of 26,500 products is 100%
compliant with the new requirements.
Hong Kong and Taiwan faced continuing difficult markets because of their
dependence on world trade and electronics.
Sales in South Asia increased by 4.1% (adjusted), a sharp reversal of last
year's 7.1% decline, as customers were acquired in the more buoyant sectors of
the economies. The new enterprise business system being developed for Asia was
implemented first in South Asia in March 2003 and is operating well.
Sales in Australasia increased by 4.7% (adjusted), so recovering from last
year's small decline. The trade counter network in Australia was particularly
effective, with improved promotions and layouts.
Other Markets
Sales in our other markets grew by 30.4% (adjusted), driven once more by
impressively strong growth in South Africa.
E-COMMERCE
Sales over the internet were about 11% of total Group sales for the year and
exited the year at about 13%. Sales were #79.3m, a growth of 55%. After
extensive analysis, we now believe that a significant proportion of these sales
is incremental, ranging from around 20% to 50% depending on the market.
The development costs of e-Commerce expensed in the year were just over #5m,
similar to last year, and included the further development of the European
Internet Trading Channel, its extension to Japan and the finalisation of
PurchasingManagerTM.
The PurchasingManagerTM programme was launched last year. This effective and
adaptable e-Procurement package has been well received by customers and is in
active use in 150 organisations across six countries. Our sales through this
programme now match those through third party e-Procurement packages, which we
continue to support through our punch-out capability.
Importantly, we are also now in a position to launch new products on our
websites before they appear in our catalogues, so that our customers always have
access to the latest products.
Further developments continue to be worked on, including e-Invoicing and
additional roll-outs.
GROUPWIDE PROCESSES
The Group Processes support our global network of operating companies. They have
the infrastructure expertise that enables them to provide the consistent
customer service which is the key strength of the Group.
The total cost of Processes in the year was #74.6m, up 7.6% from last year, but
after adjusting for one-off withdrawal costs and increased systems project costs
the increase was 1.6% as described on page 13.
Product Management
The total number of products on sale through RS and Allied worldwide is
approximately 300,000. From this total Product Management has to ensure that the
right product selection is offered by each business to meet local customer
requirements. There is continual focus to improve the effectiveness of the
product range.
Over the past year we have deepened our relationships with suppliers based on
the advantages we offer them: the Group's unique global presence; our large
number of end-user customers; and our detailed customer knowledge. Suppliers
recognise our ability to create demand for their products, for example in the
important research and development arena, and value highly the opportunity to
enhance their market understanding by selling through us. A close relationship
with our suppliers is critical to ensuring that our product offer is
comprehensive and up to date.
Product compliance is an area of increasing importance around the world, and
adds to the complexity of managing the offer. For example, last summer, changes
in legislation in China meant that to ensure strict compliance almost half of
the products in the local catalogue had to be taken off sale. Whilst this
depressed sales during the year close co-operation with our suppliers limited
the impact. We continue to invest heavily in compliance, for the reassurance of
our customers throughout the world.
Supply Chain
Our Supply Chain management continued to manage stock efficiently, whilst
maintaining excellent service levels. We measure service levels by orderfill,
the percentage of orders despatched complete on the day the order was received,
and this was maintained at high levels throughout the year. The ability to
satisfy a customer order in full and immediately is the foundation upon which we
differentiate our service against competitors.
Continued tight stock control was reflected in our stock turn of 2.6 times. This
was down from 2.7 times primarily because of the German warehouse move and some
stock build ahead of systems implementation.
There have been important initiatives in each region: in Europe the new German
warehouse provides more efficient logistics and adds to our overall capacity to
support growth; in Asia we have reshaped the way we serve the smaller markets to
provide better service; and in Allied we have introduced the stock management
techniques used by RS, with improvements in efficiency and service. The UK
remains our main product intake and replenishment centre for the RS businesses,
though this role will increasingly be shared by Germany, France and Singapore,
given their enhanced warehouse and system capabilities. By understanding our
suppliers' own supply chains, we have been able greatly to enhance the
effectiveness of our inbound logistics, both in terms of shorter lead times and
shared cost benefits.
Group Facilities
Group facilities managed a number of important projects in the year,
particularly relating to warehouses, which incurred capital expenditure of
#4.5m. In Germany the move to the new freehold 21,000 square metre warehouse in
Bad Hersfeld was completed in December 2002. This larger and more efficient
facility will support enhanced customer service, though there will be higher
operating costs in the short term.
Significant growth in Japan and Spain necessitated further leasehold warehouse
investments during the year. In Japan, the relocation to a more efficient
warehouse took place in August 2002, giving more capacity to support this
rapidly growing business, and a much better location next to the couriers' hub.
In Spain, the move to larger premises was successfully achieved in March 2003,
allowing improvements in service levels to our customers and a reduction in
inbound freight costs.
Media Publishing
The Media Publishing Process manages and delivers all the media for the Group.
Thirty-five catalogue versions in eight languages are produced, with about 5
billion pages. The product content is also presented on CD-Rom and on Internet
sites.
A specialist Content Management team was formed during the year to provide a
focus on product data management and media presentation. Already this team has
improved the quality and completeness of our product data. Another major
initiative has focused upon the improvement of the catalogue index, with good
customer reaction. This significantly improves our customers' ability to find
the product they need from the tens of thousands available. The Content
Management team has also developed the means of offering products on the
Internet as soon as the product is available. This capability has been
operational since last autumn, bringing products to market quicker than before.
Further investments in automatic pagination software and desk top publishing
systems have resulted in significant reductions in catalogue lead time. We now
manage the production of over 75% of our direct mail promotional material in
house. In Asia, new publishing systems have updated our flexibility in handling
complex character sets, allowing future enhancements to our media in Japan and
China.
Group Human Resources
The approval by shareholders at the last AGM of the new Long Term Incentive
Share Option Plan and the introduction of a new performance-related annual
reward scheme have had a positive response during the year: in particular, a
more integrated approach to rewards across all management levels has been
welcomed. These developments will help the Group recruit and retain key
employees and further encourage the high performance culture.
Increasing attention has also been given to planning for our future leadership
requirements, based on a more structured comparison of the management needs to
support our strategy and our existing capabilities.
Information Systems
The large number of transactions and our absolute requirements for accuracy and
timeliness to support customer service make Information Systems a vital area of
the Group. Information Systems, including the costs of the enterprise business
systems project, accounted for some 44% of total Process costs, or #32.5m. The
14% increase on last year largely reflects the higher project costs.
During the year capital expenditure on information systems was #22.9m, a 14%
decrease from last year. This reflects the phasing of our enterprise systems
projects in Europe and Asia which have now largely completed their blueprinting
template design, application build and hardware acquisition phases, and are now
commencing roll-out. During the year, the first implementation took place in
South Asia, and the implementation in France will take place in June 2003. There
is a programme of further roll-outs across Europe (including the UK) and Asia
over the next three years.
The cost impact of the enterprise system projects was #4.5m in the year, up from
#1.8m last year as a result of increased depreciation and other costs.
Depreciation will increase further during the roll-out phase and in the coming
year by about #5m.
The enterprise systems investments will provide a range of benefits. A direct
benefit is the elimination of the high costs of supporting the legacy systems.
There will also be substantial benefits in stock management and operating
efficiencies, whilst the new systems will allow additional services to
customers. The improved infrastructure will also support the growth of
e-Commerce. As a consequence of the project, systems services will be provided
on a regional rather than on a country basis, and this will provide further
benefits. The European regional service centre has been set up during the year
and is now starting to operate, whilst the Asian service centre will be
established during the coming year. We anticipate that the overall benefits will
provide an attractive payback on this #50m plus investment. The success of the
project is a key requirement for the execution of the Group's strategy.
FINANCIAL PERFORMANCE
Results
Turnover, profits and earnings
Key figures 2003 2002
Turnover #743.7m #759.6m
Operating profit* #102.1m #108.7m
Interest (#1.2m) (#3.2m)
Profit before tax* #100.9m #105.5m
Profit before tax #89.6m #93.5m
Earnings per share* 16.5p 17.3p
Earnings per share 13.9p 14.5p
Dividend per share 17.0p 15.9p
Key statistics 2003 2002
Gross margin % 52.7% 51.0%
Operating margin %* 13.7% 14.3%
Return on sales %* 13.6% 13.9%
Effective tax rate %* 29.0% 29.0%
PBT on net assets 23.1% 22.7%
Growth % 2003 2002
Turnover (2.1%) (7.8%)
Turnover - adjusted (2.6%) (7.7%)
Operating profit* (6.1%) (17.0%)
Profit before tax* (4.4%) (15.0%)
Earnings per share* (4.6%) (14.4%)
Dividend per share 6.9% 15.2%
*Before amortisation of goodwill
Group turnover declined by 2.1% (reported) to #743.7m. Before goodwill
amortisation, operating profit fell 6.1% to #102.1m, profit before tax fell 4.4%
to #100.9m and earnings per share fell 4.6% to 16.5p. After goodwill
amortisation, earnings per share fell 4.1% to 13.9p.
The withdrawal from the specialist telecommunications supply activity in the
United Kingdom announced at the half year depressed the year's sales and
profits: this year sales were #4.1m compared to #7.9m last year, whilst the
one-time withdrawal costs within operating profit were #2.4m, #0.4m less than
anticipated.
Exchange rate movements had no material effect on our reported sales, but a
positive effect on our reported operating profit. At constant (last year)
exchange rates, sales would have been #0.1m higher and operating profit would
have been #0.7m lower, a decline of 6.8% compared with the reported 6.1%.
Adjusting sales for the number of trading days in the year as well as exchange
rates gives an underlying sales decline of 2.6%.
The gross margin was 52.7%, which was up 1.7 percentage points on last year. In
the first half the increase against the first half of last year was 2.5
percentage points to 52.6%, in the second half the increase was 0.9 percentage
points to 52.8%. The substantial improvement reflects more active management of
all the factors that determine the gross margin: selling prices and cost prices,
product mix, column and customer discounts, sales credits and delivery charges.
Small movements in each area have contributed to the overall increase. We
believe that more progress is possible on each of the factors to increase gross
margins further whilst improving customer service and supporting sales growth.
Operating margins (before amortisation of goodwill) declined to 13.7% from 14.3%
for a number of reasons. First, the withdrawal costs of #2.4m noted above
accounted for half the decline. Second, the warehouse relocation costs of #1.5m
in Germany. Adjusting for these 'one-off' costs, the operating margin would
have been flat. Additionally, there were the increased costs of the European /
Asian enterprise systems project of #2.7m. The increase in gross margin was
largely offset by the profit impact of the lower sales and by increased selling
and marketing costs.
Process costs were #74.6m or 10.0% of sales, compared to #69.3m and 9.1%
respectively last year. Before the impact of projects, these costs are
anticipated to flatten and then decline as a percentage of sales over time. In
the year the European / Asian enterprise business systems project cost included
in Process costs was #4.5m, up from #1.8m. We estimate that about 80% of the
required capital expenditures for these projects have now been incurred. In the
coming year the first implementation of the European project will take place and
this will trigger higher depreciation charges. As the project rolls out, we
anticipate that these charges will peak at #10m per year during the next 2 to 3
years, with approximately #5m arising next year. The development costs of
e-Commerce within Processes were #5.1m, similar to last year. Within Processes,
the withdrawal costs noted above were #1.5m. After adjusting for projects and
withdrawal costs, Process costs grew by 1.6%.
"Strategic investments" have previously been identified where costs have been
substantial and have been incurred ahead of sales. Investments in Japan,
e-Commerce and China have in past years been so categorised. Japan losses are
now much reduced, whilst the profits on incremental sales from e-Commerce are
now significant and China is close to break-even. Hence "strategic investment"
costs now just reflect Japan losses of #3.3m.
The interest charge of #1.2m was #2.0m lower than last year, mainly due to lower
interest rates over the year. The tax rate of 29%, based on profit before tax
and goodwill amortisation was the same as last year. In accordance with FRS10,
the #214.8m of goodwill that arose on the acquisition of Allied is being written
off over 20 years. Taken together with the goodwill amortisation on another
small prior year acquisition, the total goodwill amortisation in the year was
#11.3m.
Profit before tax and after goodwill amortisation was #89.6m and the effective
tax rate on this profit was 32.7%. After tax, the profit for the year amounted
to #60.3m, down 4.1%. Earnings per share before goodwill amortisation declined
4.6% to 16.5p from 17.3p; after goodwill amortisation the decline was 4.1% to
13.9p.
With the recommended final dividend of 11.75p per share, dividends rose 6.9% to
17.0p, which were not fully covered by earnings as discussed earlier.
Cash flow and balance sheet
Cash flow 2003 2002*
Decrease in stocks #2.7m #29.0m
(Increase) / decrease in debtors (#0.2m) #18.5m
Increase / (decrease) in creditors #9.9m (#19.0m)
Working capital #12.4m #28.5m
Capital expenditure on fixed asset additions, including fixed asset (#31.3m) (#47.2m)
accruals
Free cash flow #68.2m #76.3m
Net debt (#46.9m) (#53.0m)
Key statistics 2003 2002
Stock turn 2.6 2.7
Trade debtors days 49.4 50.8
Trade creditors days 38.7 33.7
* excluding cash flows from Discontinued Operations
Operating cash flow remained very strong at #133.6m though down from #156.7m
last year as stock levels though lower did not reduce as much as in last year.
The operating cash flow was 131% of operating profit (before amortisation of
goodwill).
Working capital cash inflows amounted to #12.4m compared to #28.5m last year.
The main difference was the inflow on stocks of #2.7m compared to #29.0m last
year. Whilst maintaining high service levels for customers, stock levels were
again tightly and effectively managed throughout the year with the stock turn
slightly down to 2.6x from 2.7x. Debtors recorded an outflow of #0.2m, compared
to an inflow of #18.5m last year: trade debtor days were 49.4, down from 50.8
last year, reflecting tight credit management. The cash inflow on creditors of
#9.9m reversed an outflow of #19.0m last year: trade creditor days were 38.7,
five days higher than last year.
Capital expenditure on fixed assets additions (including accruals) was #31.3m,
significantly lower than the #47.2m spent last year as the spending peak on
information systems and warehouses has passed and this trend is expected to
continue: capital expenditures in the coming year are estimated to be about
#20m. The largest expenditure in this year has been #22.9m on information
systems, of which #12.5m was part of the multi-year spend of over #50m on
enterprise business systems.
After lower interest and tax payments of #1.2m and #31.5m respectively, free
cash flow for the year remained robust at #68.2m, though down from #76.3m (of
continuing operations) last year. The outflow on dividends was #70.6m, up from
#62.7m last year. Exchange rate movements benefited net debt by #8.0m to give an
overall decrease in net debt of #6.1m to #46.9m.
Gearing declined to 12.1% from 12.9% last year and interest cover (before
amortisation of goodwill) increased to 85x from 34x.
Pensions
SSAP 24 remains the accounting standard applied to pensions as described in Note
5 to the Preliminary Statement. The last full valuation of the UK defined
benefit scheme was carried out as at 31 March 2001 and showed a surplus of
#22.1m. The next triennial valuation is due as at 31 March 2004. However,
approximate funding updates are carried out each year and as at 31 March 2002
the surplus had reduced to #11.1m. The results of the review at 31 March 2003
are not yet finalised, but the position will have deteriorated further, with
the scheme now in deficit. Relative to many UK pension schemes, however, the
statutory minimum funding position of the scheme remains good with a Minimum
Funding Ratio estimated at between 120% and 125% as of 31 March 2003. The cost
of the scheme in the year was #3.9m up from #3.6m last year, reflecting an
increase in payroll. However, if current equity and bond values persist these
costs will increase significantly after the next valuation. The Company will
therefore consider during the year whether it might be appropriate to increase
contributions.
After an evaluation of its long term pension arrangements in the UK the defined
benefit scheme was closed to new entrants as of 1 April 2003 with a new defined
contribution scheme introduced for new employees.
Note 5 also indicates the effects FRS 17 (the proposed new UK pension accounting
standard whose introduction has now been deferred) would have had if it had been
adopted as our accounting standard. The relevant schemes in the Group are the UK
defined benefit scheme and the much smaller defined benefit schemes in Ireland
and Germany. Elsewhere the schemes are defined contribution. Under the FRS 17
rules the defined benefit schemes showed a combined deficit of #30.1m (net of
deferred tax) compared to a surplus of #12.5m at the end of last year. Under FRS
17 the charge to profits arising from these schemes would have been #5.4m.
Financial and shareholder returns
Profit before tax (and after goodwill amortisation) on net assets was 23.1%, up
from 22.7% last year. These returns remain substantially higher than the Group's
cost of capital.
Our total shareholder return over the year was down by 43.3%, driven by the
share price decrease between the year-ends, compared to the 29.8% reduction in
the Allshare index. Providing attractive returns for our shareholders relative
to the market over the long term remains the primary goal of our strategy.
CURRENT TRADING
Since the year end, our markets have continued to display weakness. Recent
leading indicators such as Purchasing Managers Indices suggest no improvement in
the trading environment in the short term.
In the UK, our actions have continued to reduce the rate of year-on-year sales
decline. Sales per day are approaching those of a year ago. Sales in our
Continental European businesses have been particularly affected by public
holidays compared to last year, but the underlying sales growth remains similar
to that of the second half. Allied in the United States has continued to grow,
maintaining the second half trend. Japan has enjoyed even higher sales growth,
reflecting further success in
e-Commerce. Elsewhere, sales in our Asian businesses have held up well despite
the SARS restrictions. Overall, monthly sales of the Group (adjusted for
exchange rates and trading days) are broadly level with the same period last
year.
Gross margin has shown a further small advance. We have also continued to manage
costs tightly, whilst sustaining our strategic investments. The first half of
this year will see the first implementation of our major European systems
project and some disruption costs are anticipated. Cash flow remains strong.
We remain firmly of the view that the Group is able to generate superior and
sustainable earnings growth. Our confidence is based on our strong market
position, the opportunities open to us in all our markets and the great choice,
service and value that we offer.
Bob Lawson
Chairman
29 May 2003
Consolidated Profit and Loss Account
For the year ended 31 March 2003
2003 2002
Note #m #m
Turnover 1 743.7 759.6
Cost of sales (351.6) (372.4)
Gross profit 392.1 387.2
Distribution and marketing expenses (279.8) (265.9)
Administration expenses
- Before amortisation of goodwill (10.2) (12.6)
- Amortisation of goodwill (11.3) (12.0)
(21.5) (24.6)
Operating profit 1
- Before amortisation of goodwill 102.1 108.7
- Amortisation of goodwill (11.3) (12.0)
90.8 96.7
Net interest payable (1.2) (3.2)
Profit on ordinary activities before taxation 89.6 93.5
Profit before taxation and amortisation of goodwill 100.9 105.5
Taxation on profit on ordinary activities 2 (29.3) (30.6)
Profit on ordinary activities after taxation 60.3 62.9
Dividend (73.9) (69.2)
Retained loss for the financial year (13.6) (6.3)
Earnings per share
Basic 3
- Before amortisation of goodwill 16.5p 17.3p
- After amortisation of goodwill 13.9p 14.5p
Dividend per share
- Interim (paid) 5.25p 4.9p
- Final (proposed) 4 11.75p 11.0p
17.0p 15.9p
Consolidated Statement of Total Recognised Gains and Losses
Profit for the financial year 60.3 62.9
Translation differences (10.8) 0.5
Total recognised gains and losses relating to the year 49.5 63.4
All profits and losses are stated at historical cost.
The statement of movements on Group reserves is at note 7.
Consolidated Balance Sheet
As at 31 March 2003
2003 2002
Note #m #m
Fixed assets
Intangible fixed assets 176.6 208.5
Tangible fixed assets 6 170.1 155.9
Investments 1.6 1.3
348.3 365.7
Current assets
Stocks 134.1 135.1
Debtors 146.8 145.4
Investments 23.8 16.3
Cash at bank and in hand 2.9 5.1
307.6 301.9
Creditors: amounts falling due within one year (204.6) (184.5)
Net current assets 103.0 117.4
Total assets less current liabilities 451.3 483.1
Creditors: amounts falling due after more than one year (54.0) (60.8)
Provisions for liabilities and charges (9.1) (10.2)
388.2 412.1
Capital and reserves
Called-up share capital 43.5 43.5
Share premium account 38.3 37.8
Profit and loss account 306.4 330.8
Equity shareholders' funds 388.2 412.1
Consolidated Cash flow statement
For the year ended 31 March 2003
2003 2002
Continuing Discontinued
Total Operations Operations Total
Note #m #m #m #m
Reconciliation of operating profit to net cash
inflow from operating activities
Operating profit 90.8 96.7 - 96.7
Amortisation of goodwill 11.3 12.0 - 12.0
Depreciation and other amortisation 19.1 19.5 - 19.5
Decrease in stocks 2.7 29.0 0.5 29.5
(Increase) decrease in debtors (0.2) 18.5 4.4 22.9
Increase (decrease) in creditors 9.9 (19.0) (2.3) (21.3)
Net cash inflow from operating activities 133.6 156.7 2.6 159.3
CASH FLOW STATEMENT
Net cash inflow from operating activities 133.6 156.7 2.6 159.3
Returns on investments and servicing of finance (1.2) (3.7) - (3.7)
Taxation (31.5) (35.2) 2.3 (32.9)
Capital expenditure and financial investment 9 (32.7) (41.5) 0.4 (41.1)
Free cash flow 68.2 76.3 5.3 81.6
Acquisitions - (0.8)
Equity dividends paid (70.6) (62.7)
Cash flow before use of liquid resources and financing (2.4) 18.1
Management of liquid resources (5.1) (9.6)
Financing
Shares 0.5 3.0
Loans 3.9 (18.4)
Decrease in cash in the year (3.1) (6.9)
Reconciliation of net cash flow to movement in net debt
Decrease in cash (3.1) (6.9)
Management of liquid resources 5.1 9.6
Financing - loans (3.9) 18.4
Change in net debt relating to cash flows (1.9) 21.1
Translation differences 8.0 1.4
Decrease in net debt for the year 6.1 22.5
Net debt at the beginning of the year (53.0) (75.5)
Net debt at the end of the year 8 (46.9) (53.0)
Notes to the Preliminary Statement
For the year ended 31 March 2003
1 Segmental analysis
2003 2002
a. By geographical destination #m #m
Turnover: United Kingdom 353.7 379.7
Rest of Europe 227.0 214.4
North America 103.2 110.0
Japan 11.3 9.0
Rest of World 48.5 46.5
743.7 759.6
2003 2002
b. By geographical origin #m #m
Turnover: United Kingdom 366.9 393.0
Rest of Europe 224.3 210.7
North America 103.4 110.5
Japan 11.3 9.0
Rest of World 37.8 36.4
743.7 759.6
2003 2002
#m #m
Operating profit: United Kingdom 119.1 126.2
Rest of Europe 44.1 40.4
North America 14.4 15.9
Japan (3.3) (4.7)
Rest of World 2.4 0.2
Contribution - before amortisation of 176.7 178.0
goodwill
Groupwide process costs (74.6) (69.3)
Amortisation of goodwill - Allied (North (11.1) (11.9)
America)
Amortisation of goodwill - RS Norway (Rest of (0.2) (0.1)
Europe)
90.8 96.7
2003 2002
c. By geographical location #m #m
Net assets: United Kingdom 219.9 210.6
Rest of Europe 70.4 67.0
North America 26.5 29.5
Japan 1.7 3.5
Rest of World 22.0 27.1
Net operating assets (excluding goodwill) 340.5 337.7
Net debt (46.9) (53.0)
Unallocated net assets 94.6 127.4
388.2 412.1
2. Taxation on the profit of the Group 2003 2002
#m #m
United Kingdom Taxation 21.8 23.8
Overseas Taxation 7.5 6.8
Tax charge 29.3 30.6
Profit before tax and amortisation of goodwill 100.9 105.5
Tax rate 29.0% 29.0%
2003 2002
3. Earnings per share #m #m
Profit on ordinary activities after taxation 60.3 62.9
Amortisation of goodwill (excluding tax effect) 11.3 12.0
Profit on ordinary activities after taxation and before amortisation of goodwill 71.6 74.9
Weighted average number of shares 434.8 434.1
Basic earnings per share
Before amortisation of goodwill 16.5p 17.3p
After amortisation of goodwill 13.9p 14.5p
4. 2003 final dividend
The timetable for the payment of any final dividend is:
Ex-dividend date 18 June 2003
Record date 20 June 2003
Annual General Meeting 18 July 2003
Dividend Payment date 24 July 2003
5. Pension Schemes
The funding of the United Kingdom defined benefit scheme is assessed in
accordance with the advice of independent actuaries. The pension costs for the
year ended 31 March 2003 amounted to #3.9m (2002: #3.6m). The most recent
valuation (carried out in 2001) adopted a market related approach to funding
using the projected unit credit method. The assumptions underlying the
calculation of the liabilities were derived by reference to the gross redemption
yield on long-term gilts in conjunction with a pre-retirement equity
enhancement, consistent with market conditions at the time of the valuation.
The principal assumptions applied in the 2001 valuation were therefore as
follows:
Past Future
service service
Investment return:
before retirement 6.25% 6.5%
after retirement 5% 5.25%
Rate of future earnings inflation 4.25% 4.25%
Rate of increase in pensions payment 2.5% 2.5%
At the date of the 2001 valuation, the market value of the assets of the scheme
was #169.8m, and the actuarial valuation of the assets covered 115% of the
benefits that had accrued to the members after allowing for expected future
increases in earnings giving a surplus of #22.1m. The excess assets above the
value of the liabilities are being eliminated by means of a reduction in the
level of employer contributions to the Scheme. The next valuation will be
carried out no later than 31 March 2004. In addition to the UK scheme outlined
above there are certain pension benefits provided on a defined contribution
basis in Australia and North America amounting to #0.7m (2002: #0.7m), on a
defined benefit basis in Germany and Ireland amounting to #0.4m (2002: #0.4m),
and via government schemes in France, Italy, Denmark and North Asia amounting to
#1.6m (2002: #1.4m).
FRS 17 Disclosure
A new pension accounting standard, FRS 17, was issued in November 2000. The
disclosures required by FRS 17 in the second transitional year of adoption are
set out below. The Electrocomponents Group operates defined benefit schemes in
the UK, Germany and the Republic of Ireland. The German scheme is unfunded, in
line with local practice. The last actuarial valuation of the UK scheme was
carried out as at 31 March 2001 and has been updated to 31 March 2003 by a
qualified independent actuary in accordance with FRS 17. The last actuarial
valuations of the German and Irish schemes were carried out as at 31 March 2003
by the respective independent scheme actuaries in accordance with the
requirements of FRS 17.
The valuations of the schemes as at 31 March were:
2003 2002
United Republic United Republic
Kingdom Germany of Ireland Total Kingdom Germany of Ireland Total
#m #m #m #m #m #m #m #m
Equities / Property 96.8 n/a 0.6 97.4 128.7 n/a 0.7 129.4
Corporate bonds 13.0 n/a - 13.0 - n/a - -
Gilts 23.1 n/a 0.2 23.3 35.1 n/a 0.2 35.3
Cash 1.6 n/a - 1.6 5.0 n/a - 5.0
Other - n/a 0.3 0.3 - n/a 0.3 0.3
Total market value of 134.5 - 1.1 135.6 168.8 - 1.2 170.0
assets
Present value of (174.7) (3.0) (1.3) (179.0) (149.3) (2.0) (1.1) (152.4)
scheme liabilities
(Deficit) surplus in (40.2) (3.0) (0.2) (43.4) 19.5 (2.0) 0.1 17.6
the scheme
Related deferred tax 12.1 1.2 - 13.3 (5.9) 0.8 - (5.1)
asset (liability)
Net pension (28.1) (1.8) (0.2) (30.1) 13.6 (1.2) 0.1 12.5
(liability) asset
The deficit of #1.8m in the German scheme is financed through existing book
reserves established within the German accounts.
If the above pension liability or asset was recognised in the financial
statements, the Group's net assets and profit and loss reserve as at 31 March
would be as follows:
2003 2002
Profit Profit
and loss Net and loss Net
reserve assets reserve assets
#m #m #m #m
As stated excluding pension (liability) asset 306.4 388.2 330.8 412.1
Net pension (liability) asset (30.1) (30.1) 12.5 12.5
Including net pension (liability) asset 276.3 358.1 343.3 424.6
For the year ended 31 March 2003:
The amounts charged to the profit and loss account under FRS 17 would have been:
#(5.4)m in total; of which #(8.0)m would have been in operating profit, and
#2.6m within other finance income.
The actuarial loss recognised in the Group Statement of Recognised Gains and
Losses would have been #(60.2)m.
6. Tangible fixed assets
Land and Plant and Computer
buildings machinery systems Total
#m #m #m #m
At 1 April 2002 97.3 88.9 78.7 264.9
Additions 0.4 8.0 22.9 31.3
Disposals (0.1) (2.2) (4.8) (7.1)
Translation differences 2.6 1.6 0.8 5.0
At 31 March 2003 100.2 96.3 97.6 294.1
Depreciation
At 1 April 2002 17.3 54.9 36.8 109.0
Charged in the year 2.1 8.1 9.4 19.6
Disposals (0.1) (1.8) (4.2) (6.1)
Translation differences 0.3 0.7 0.5 1.5
At 31 March 2003 19.6 61.9 42.5 124.0
Net book value
At 31 March 2003 80.6 34.4 55.1 170.1
At 31 March 2002 80.0 34.0 41.9 155.9
7. Reconciliation of movements in shareholders' funds 2003 2002
#m #m
Profit for the year 60.3 62.9
Dividend (73.9) (69.2)
Retained loss for the year (13.6) (6.3)
Translation differences (10.8) 0.5
New share capital subscribed 0.5 3.0
Net reduction to equity (23.9) (2.8)
Equity shareholders' funds at the beginning of the year 412.1 414.9
Equity shareholders' funds at the end of the year 388.2 412.1
8. Net debt at the end of the year comprises: 2003 2002
#m #m
Current asset investments 23.8 16.3
Cash at bank and in hand 2.9 5.1
Overdrafts (0.3) (1.9)
Debts due within one year (29.0) (19.7)
Debts due after more than one year (44.3) (52.8)
(46.9) (53.0)
9. Gross cash flows 2003 2002
#m #m
Capital expenditure and financial investment
Purchase of tangible fixed assets* (34.3) (46.4)
Sales of tangible fixed assets 0.9 4.7
Receipt of capital grants 0.7 1.8
Purchase of own shares - (1.2)
Net cash outflow for capital expenditure and financial investment (32.7) (41.1)
* Including capital accruals the purchase of fixed assets figure would be
#31.3m (2002: #47.2m)
10. Principal exchange rates
2003 2002
Average Closing Average Closing
United States Dollar 1.54 1.58 1.43 1.42
Euro 1.56 1.45 1.63 1.63
Japanese Yen 188 187 180 189
11. Basis of preparation
The financial information has been prepared under the historical cost convention
and in accordance with applicable accounting standards, using the accounting
policies set out in the Annual Report for the year ended 31 March 2003.
The financial information set out above does not constitute the Group's
statutory accounts for the years ended 31 March 2003 or 2002 but is derived from
those accounts. Statutory accounts for 2002 have been delivered to the
Registrar of Companies, and those for 2003 will be delivered following the
Company'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 (3) of the Companies Act 1985.
Copies of the Annual Report and Accounts for the year ended 31 March 2003 will
be available from 16 June 2003 from the Company Secretary, Electrocomponents
plc, International Management Centre, 5000 Oxford Business Park South, Oxford
OX4 2BH, United Kingdom. Telephone +44 (0)1865 204000. The Report will also be
published on the Corporate website at www.electrocomponents.com.
The Annual General Meeting will be held at Electrocomponents plc, International
Management Centre, 5000 Oxford Business Park South, Oxford OX4 2BH, United
Kingdom on 18 July 2003 at 12 noon.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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