Abacus profits up, Deltron integration 'ahead of schedule' - Embedded.com

Abacus profits up, Deltron integration ‘ahead of schedule’

LONDON — The Abacus Group has increased its profits 21% in the six months to March 31, 2006, as its acquisition of the Deltron Electronics in January started to have an impact.

Abacus Group sales in the six months to March 31 2006 were £105.3 million with profit before tax, intangible amortization and exceptional items of £4.1 million with the in tangible amortization and exceptionals being £4.3 million. This compares with £87.3 million and £3.6 million respectively for the same period last year.

The revenues of £105.3 million included £19.6 million from Deltron since it was acquired in January 2006, compared to £87.3 million in the first half of last year. Gross profit of £26.0 million in the period compared to £21.1 million last year, the improvement in margin to 24.7% from 24.2% reflecting the higher margins in Deltron. Operating expenses were £20.9 million compared to £16.9 million in 2005, are net of integration savings of £0.3 million in the period.

Operating profit, before intangible amortization and exceptional items, increased 21% to £5.1 million compared to £4.2 million in 2005. Profit, before tax, intangibles and exceptionals, increased from £3.6 million in 2005 to £4.1 million in 2006 (profit of £2.4 million to loss of £0.5 million for the same periods but after tax, intangibles and exceptionals), reflecting the increase in interest costs to £1.0 million (£0.6 million in 2005) as a result of taking on £12.1 million of Deltron borrowings.

According to Chairman, Harry Westropp, the management team is ahead of schedule with the integration of Deltron Electronics plc which was acquired in January. “There are further steps to be taken in the second half and we are confident that the operational savings planned at the time of the transaction will be achieved. The Group will see the main benefits of these coming through next year and beyond.” The company's board remains confident that £5 million annual savings will be achieved from the integration of Deltron.

In April, Abacus purchased the Axess Technology Group, a French based Group consisting of two distributors; Axess specializes in display and wireless communication products and RDI in passive components. RDI will be merged with Deltron France to create a business with significant critical mass. Deltron and Axess combined had 5.6% of the French market in 2004 according to market research from Europartners.

The acquisition of Deltron has led to £3.3 million of restructuring and transaction costs expensed in the three months to 31 March 2006. At the time of the Deltron acquisition, the board estimated that the integration costs would be £6.0 million. Combined with transaction fees of £1.1 million, it is expected that total restructuring and transaction costs expensed in connection with the Deltron acquisition will be £7.1 million, predominantly incurred this financial year. It is expected that Axess/RDI integration costs will be an additional £1.2 million and transaction costs expensed at £0.2 million.

The acquisition of Deltron has had a significant impact on the balance sheet of the Group, adding £40.0 million of goodwill and intangible assets at March 31. Debtors, stock and creditors have all increased materially as a result of the acquisition. The Group borrowings at March 31 have also increased to £44.8 million reflecting in particular the absorption of £12.1 million Deltron debt by the Group.

“The calendar year of 2005 was characterized by a sluggish market for our core distribution business. In recent months there have been signs of improvement and our daily bookings are now showing an upward trend. This is particularly encouraging for the Group in the second half of this year while we are undergoing the reorganisation programmes following the two acquisitions,” said Westropp.

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