Pressure on margins hits Electrocomponents but e-commerce booms - Embedded.com

Pressure on margins hits Electrocomponents but e-commerce booms

LONDON — The board of Electrocomponents, the RS Components parent company, expects that group profit before tax and goodwill amortisation for the year ending 31 March 2005 will be slightly below last year.

The company says that while businesses have shown good profit progression in this year, this progress has been offset by continued pressure on gross margins, higher planned costs on systems projects, further investment in selling activities and higher pension contributions.

Since it announced first half results in November, the economic backdrop in the UK and its other major European markets has weakened. Group sales in the second half have grown by about 3% (at constant exchange rates and day adjusted) compared with 5.8% in the first half. February was a poor sales month in both the UK and Continental Europe, with sales falling below its internal forecasts. In March, the incidence of Easter in the last week of its financial year is likely to have a detrimental effect on sales, but the extent is difficult to predict.

In the U.K. sales in the second half have declined by about 1.5% on last year. Allied, in the U.S., has continued to achieve strong double digit sales growth with stable gross margins. The businesses in Japan, China and the rest of Asia, including Australasia, have grown strongly. In Continental Europe, sales in France were slightly ahead of the second half of last year, recovering from a 2.6% decline in the first half, whilst growth elsewhere has been about 4%.

E-commerce sales have again grown rapidly during this half-year, up about 35% on the second half of last year, and currently running at over 22% of the Group’s sales.

Free cash flow for the current year will be lower than for the prior year. This mainly reflects the cash expenditures on the systems and other projects and higher stock levels to support sales growth and improved service levels. The build up of stock to support the systems implementation in the U. K. is now planned for the next financial year as current plans indicate that the systems upgrade should take place towards the end of the next financial year. In Asia the implementation in Hong Kong should be in the first quarter of the next financial year.

Jeff Hewitt, deputy chairman and group finance director, is to seek early retirement from Electrocomponents in order to extend his range of non-executive directorships.

During his 9 years with the company Hewitt played a major role, sharpening the financial disciplines and then leading the group through both Y2K and the launch of the Euro. In recent years he has been leading the change in information systems whilst playing his usual active role in the strategic development, financial management and investor relations of the Group.

Hewitt will continue in his role until a successful transition to the new financial leadership has been completed.

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