Electrocomponents sees UK hit but bright spots elsewhere - Embedded.com

Electrocomponents sees UK hit but bright spots elsewhere

LONDON — Sales at catalogue distribution group Electrocomponents for the year ended 31 March were up 4.5% with good growth in North America, Japan and Asia offset by lower growth in the UK and Europe.

Operating return on sales was 13.6% despite pressure on gross margin and increased selling and marketing costs and the company's board is intending to maintain the dividend, 18.4p for the full year and an increase of 1.1%, at this level for next three years.

Bob Lawson, Electrocomponents Chairman, said, “Since the year end, trading has remained strong in North America, Asia, Japan and the smaller European markets but it has continued to be depressed in the UK and our main European markets. The leading indicators suggest a difficult trading environment in most of our markets and so we remain cautious on the outlook for the coming year.”

Group sales increased by 1.9% to £773.9million with sales improving in all regions in the first half but the trading environment deteriorated as the second half progressed and the sales growth rate reduced.

Operating profit before tax and goodwill was £105.3million for the full year but profit contribution from the UK declined by £10.3million and offset contribution increases elsewhere.

RS UK sales by origin grew by 0.6% to £358.8million. Its network of 15 trade counters continued to perform strongly and had double-digit sales growth during the year. e-Commerce continues to perform strongly and sales through this channel increased by 28.7% in the year. At the year end sales via e-Commerce were 26% of sales, up from 20% at the end of last year. During the year, the company says its strategy has evolved in response to comprehensive customer research and a complete review of our infrastructure costs. Its objective remains to grow all its businesses around the world and it believes it will do this faster by focusing on two customer groups where it believes its has particular strengths. F

The two sectors that are to be concentrated on are Electronic and Electromechanical (EEM) and Convenient and Urgent (C&U) and the company believes that this refocussing should generate £20million of additional profits annually within three years. Annual cost savings of £10million will be sought within the same time period from simplifying the business structure and there will be one-off costs to make these changes, probably over the next two years.

The EEM market is designed to meet the needs of R&D and maintenance engineers around the world. RS is recognised by customers as a leader in this market, however, the company says its competitiveness has declined as it has focused on developing other technologies and competition has improved. The company says that refocusing on this core strength will drive faster sales growth, through protecting existing business and its ability to exploit an improved offer through all its businesses.

The group also generates significant revenue from customers who value convenience (one-stop-shop) or have an urgent product need (“can't find it”). It intends to optimised its product range to meet the needs of these customers and the cost to serve reduced. Actions planned to improve competitiveness include improving its price perception, increasing flexibility in meeting customers' needs, greater leverage of e-Commerce and improving our sales and marketing effectiveness.

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