Electrocomponents announces major performance improvement plan
H1 2015/16 financial performance continued to be disappointing, with past investment not delivering the expected step-up in revenue growth, and the continued impact of the step-down in gross margin we saw in Q3 2014/5. These results demonstrate why it is important we make changes to the way we operate. We have initiated a major performance improvement plan that will lead to significant cost savings in the current financial year and beyond. The plan is focused on three key business priorities:
Customer focus - excel at the basics
- Focus the organisation to drive an improved customer and supplier experience
- Reprioritise digital development and online user experience to drive faster change
- Introduce a differentiated, more focused service offer for industrial and electronics customers
Drive accountability throughout the organisation
- Local profit and loss accountability
- Drive a higher proportion of private label sales, to improve gross margin mix
- Realign KPIs and review incentive structures to increase variable component
Simplify - operate for less
- Targeted annualised cost savings of £25m, with £6m in Q4 of the current financial year
- Asia Pacific rescaled to provide a profitable base for future growth
- A more disciplined approach to future capital investment
- Work continues to identify additional savings by further simplification of the way we operate
SUMMARY OF H1 RESULTS
|| H1 2015/16
|| H1 2014/15(3)
|Headline profit before tax(2)
|Reported profit before tax
|Headline earnings per share(2)
|Headline free cash flow(2)
|Interim dividend per share
(1) Sales growth, unless otherwise stated, is adjusted for
trading days and currency movements ("underlying sales
growth/decline"). Currency movements decreased Group reported sales by around £13m
(2) Headline measures of profitability and cash flow are defined
as the relevant reported profit/cash flow measure before intangible asset write downs, pension changes and reorganisation costs/cash flows
(3) Restated for changes to vendor rebate accounting
- Group underlying sales growth of 4%, with 6% International growth and 1% UK decline
- International sales: 13% growth in Continental Europe, flat trends in North America and Asia Pacific
- Group eCommerce sales growth of 8%, with share of Group sales rising to 60%
- Gross margin declined 1.7% points on the comparable period, with 1% of the decline due to currency
- Headline profit before tax(2) decreased by 20%, with 8% (£3m) due to currency
- Reported profits impacted by non-cash asset write-down of £11.4m (H1 2015: net credit of £18.1m)
- Strong balance sheet with net debt:EBITDA of 1.6 times
CURRENT TRADING AND OUTLOOK
In October, Group underlying sales growth was 3%, International grew by 5% and the UK declined by 2%. Within International, Continental Europe grew by 10%, North America declined by 3% and Asia Pacific grew by 5%.
Our work to create a leaner organisation means we are targeting annualised savings of £25m. We expect to see a saving of £6m in the final quarter of this financial year, subject to the relevant workforce consultation process. This should result in a higher than normal weighting of 2016 full-year profits towards the second half of the financial year. The bulk of the balance of the savings will impact the year to March 2017. This action on costs means we are well positioned to make progress in profits in 2017, despite a weaker outlook for North American industrial markets, global macro headwinds and some likely near-term disruption to the business particularly in Asia Pacific, from executing a restructuring of this scale. Work continues to identify additional savings by further simplification of the way we operate.
LINDSLEY RUTH, CHIEF EXECUTIVE OFFICER,
"We have initiated a plan to make Electrocomponents a more efficient and responsive organisation. The reorganisation of the Group is based on three core principles that lie at the heart of successful distribution businesses: customer focus, accountability and simplicity.
"We have taken firm action on costs, appointed new management and made some tough decisions on IT. We have a clear plan, strong financial position and an energised leadership team that are determined to deliver a sustained improvement in financial performance and the opportunity is huge."
|Lindsley Ruth, Chief Executive Officer
||0207 567 8000*
|Sally Adams, Acting Chief Financial Officer
||0207 567 8000*
|Polly Elvin, VP of Investor Relations & Corporate PR
|0207 567 8000*
|David Allchurch / Martin Robinson
||020 7353 4200
*Available until 12 noon on 19 November 2015, thereafter 01865 204000
There will be an analysts meeting at UBS Offices, 1 Finsbury Avenue at 9am GMT. The analyst presentation will cover the half-year results and full details of the Group’s performance improvement plan, which has been announced this morning. A webcast, half-year results statement and presentation will be available via the corporate website www.electrocomponents.com.
Notes on financial terms:
In order to reflect underlying business performance, comparisons of sales between periods (including by region, product group and channel) have been adjusted for currency and trading days (“underlying sales growth/decline”).
Changes in profit, cash flow, debt and share related measures such as earnings per share are, unless otherwise stated, at reported exchange rates.
Sign conventions: % changes in revenues and costs are disclosed as positive if improving profit and negative if reducing profit.
Key performance measures such as return on sales and EBITDA use headline profit figures.
Notes to editors:
Electrocomponents, the global distributor for engineers, has operations in 32 countries. We offer over 500,000 products through the internet, catalogues and at trade counters to over one million customers, shipping around 44,000 parcels a day. Our product categories, sourced from 2,500 leading suppliers, include semiconductors, interconnect, passives and electromechanical, automation and control, electrical, test and measurement, tools and consumables.
The business satisfies the small quantity needs of its customers who are typically electronics design engineers, machine and panel builders or maintenance engineers in business. A large number of high quality goods are stocked, which are despatched the same day that the order is received. The average customer order value is around £150 although the range of order values is wide. The Group’s customers come from a wide range of industry sectors with diverse product demands.