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Our confidence
in taking the opportunities available
to the Group is undiminished >>>
Bob Lawson, Non-Executive Chairman |
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This report is prepared against a background of exceptionally
tough conditions in all geographic markets, particularly
in the electronic and telecommunications manufacturing
sectors.
Group sales declined by 7.8% to £759.6m and profit
before tax and amortisation of goodwill by 15.0% to £105.5m.
The return on sales declined to 13.9% from 15.1% as costs
important to the Group’s future growth were sustained,
and strategic investments, particularly in e-Commerce,
were increased. Sales were reduced as rationalisation
programmes that constrained our customers’ buying were
actioned across many sectors of industry. Whilst the absolute
performance is a significant decline on prior year, the
Group’s overall performance has been robust and this provides
confidence for our future prospects.
In spite of the tough conditions, it is important to emphasise
that management has continued the strategic development
of the Group, the detail of which is contained in Ian
Mason’s report. This continued strengthening and enhancement
of the Group’s capability is critical to creating the
platform to generate a superior and sustainable earnings
stream. This enduring characteristic of Electrocomponents
is the foundation block upon which future value is built.
The growth potential of our businesses remains unchanged
and will continue to be realised as economic conditions
improve.
The Board recommends that the final dividend is increased
by 15.2% to 11.0p to give a full year dividend increase
of 15.2% to 15.9p. The dividend growth is underpinned
by the exceptional ability of the business model to generate
cash. The net debt reduced from £75.5m to £53.0m,
even after a considerable increase in capital expenditure
including: investment in systems; e-Commerce development
for all European markets and Japan; and the new warehouses
for the Italian and German operations.
The year under review has seen significant change in the
management of the Group. Roy Cotterill retired after six
years as Chairman. Roy led the business during a period
of great change as the major strategic thrust to create
the required global infrastructure was delivered. He retired
having witnessed Electrocomponents establish a position
in every major economy of the world. We do wish Roy a
very happy and well-earned retirement.
The executive teams under Ian Mason’s leadership have
settled well. This team, which was instrumental in developing
the Electrocomponents strategy, provides continuity of
direction combined with the knowledge and experience to
drive development aggressively. An example of the continued
evolution of the Group has been the establishment of regional
management structures in the UK, Continental Europe, Asia,
USA and Japan. This provides the local focus to drive
market development whilst creating the infrastructure
to share best practice on a regional and global basis.
The Group has a clear direction and is in good hands for
its future.
Our staff have experienced a tough year with customer
demand weakening. In addition, they have had to cope with
the frustrations and complexities of major customers undertaking
restructuring or major reorganisation. In such circumstances,
it has been very difficult for them to develop relationships
and to maintain previous revenue levels. Faced with these
conditions and uncertainties, they have worked diligently
to maintain and enhance our service to customers, and
it is this standard of service that creates the differentiation
for the Group in all our markets. On behalf of the Board
and the shareholders, I am delighted to offer them a sincere
vote of thanks.
Accompanying this Report and Accounts there is a Circular
containing a proposal for a new and more effective Long
Term Incentive Share Option Plan for the Group’s Executive
Directors and senior management. It is designed to link
success in delivering the strategy to rewards for management.
The Plan does ensure that shareholders benefit ahead of
management but also rewards management for superior performance.
The Board will recommend the Plan for approval at the
Annual General Meeting.
Since the year end, the sales per day of the Group
have been similar to that of the preceding quarter. This
is a welcome sign of improving month-on-month stability,
though trading remains volatile. Since January, sales
per day have increased modestly in Allied and our Asian
businesses, have been stable in continental Europe and
have declined slightly in the United Kingdom.
Leading indicators, such as the Purchasing Managers Indices,
are now more positive on the prospects for recovery in
our major markets, however current manufacturing activity
remains low. Based on our experience of previous cycles
we anticipate that it will take some months before the
positive moves in the indicators are reflected in our
customers’ buying. We are focusing our sales and marketing
activities on those customers best placed to benefit from
recovery, including making full use of our newly extended
internet capabilities. It is noteworthy that our sales
over the internet amounted to over £51m as a whole
and grew by over 50%.
We are continuing to manage our gross margin, cost base
and working capital effectively and consistent with a
difficult trading environment. Our investments in initiatives
critical to the longer term strategy of the Group have
been sustained and a major systems programme developed.
We anticipate such investments continuing in the current
year. Our financial robustness has been demonstrated by
our ability to fund major investments and increase dividends
whilst reducing net debt significantly.
We have managed our businesses through this challenging
year so that they remain well positioned to benefit from
an upturn in our markets. Our confidence in being able
to capitalise on the opportunities available to the Group
is undiminished.
Bob Lawson, Non-Executive
Chairman
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