Final Results

Electrocomponents PLC 29 May 2002 Embargoed to 7:00am, Wednesday 29 May 2002 PRELIMINARY STATEMENT Electrocomponents plc, the major electronic, electrical and industrial supplies high service distribution Group, today announces its results for the year ended 31 March 2002. The highlights are as follows: Sales of continuing operations Â£759.6m Down 7.8% Operating profit of continuing operations* Â£108.7m Down 17.0% Profit before tax* Â£105.5m Down 15.0% Earnings per share* 17.3p Down 14.4% Dividend per share 15.9p Up 15.2% Net debt Â£53.0m Better by Â£22.5m * Before amortisation of goodwill. Mr Bob Lawson, the Chairman, commented: I report against a background of exceptionally tough conditions in all geographic markets, particularly in the electronic and telecommunications manufacturing sectors. In spite of the tough conditions, it is important to emphasise that management has continued the strategic development of the Group. 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. Since the end of March, the sales per day of the Group have been similar to that of the preceding three months. 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 note worthy that our sales over the internet amounted to over Â£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. Net debt reduced from Â£75.5m to Â£53.0m, even after the 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 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. 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 29 May 2002 Enquiries: Bob Lawson, Chairman Electrocomponents plc 0207 567 8000* Ian Mason, Chief Executive Electrocomponents plc 0207 567 8000* Jeff Hewitt, Deputy Chairman / Finance Director Electrocomponents plc 0207 567 8000* Diana Soltmann / Andy Berry Flagship Consulting Ltd 0207 886 8440 * Available to 17:00 on 29 May, thereafter 01865 204000. The results and analyst presentation are published on the Corporate website at www.electrocomponents.com CHAIRMAN'S STATEMENT ON THE PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2002 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 Â£759.6m and profit before tax and amortisation of goodwill by 15.0% to Â£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. 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 Â£75.5m to Â£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. MANAGEMENT The year under review has seen significant change in the management of the Group with the senior management structure beneath Board level, which manages and controls the day-to-day operations of the business, being realigned to reflect the increasingly global nature of the business. The Group Executive Management Team (GEMT) was formed, whose membership consists of the Executive Directors and the Regional and Process heads. This team meets regularly to develop strategy and drive the sharing and implementation of best practice around the Group. 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. These executive teams under Ian Mason's leadership have settled well. The Group has a clear direction and is in good hands for its future. Accompanying the Report & Accounts there will be a Circular containing a proposal for a new and more effective Long Term Incentive Share Option Scheme for the Group's Executive Directors and senior management. It is designed to link success in delivering the strategy to rewards for management. The Scheme ensures that shareholders benefit ahead of management but also rewards management for superior performance. The Board will recommend the scheme for approval at the Annual General Meeting. OPERATIONS Economic conditions in almost all the markets in which we operate have been depressed, making for a difficult year as a whole, with the second half being more difficult than the first. The reasons for this global downturn are well known, however, a specific impact in our case has been the very dramatic fall in the electronics sector which particularly affects our US business. Our businesses are resilient but not immune to the prevailing economic conditions. Sales growth rates in all of our markets have been impacted. On a full year basis: reasonable growth was achieved in Europe and Japan; Asia was relatively flat; the UK experienced a moderate, and the US a significant, decline in sales. e-Commerce sales increased strongly in all our markets. These external trends are cyclical, economic conditions will improve, and our views on the long-term growth potential of our business model worldwide remain unchanged. I will now summarise the performance of our businesses by geographic region. UK RS UK 2002 2001 Sales (in UK) Â£379.7m Â£412.4m Adjusted sales (decline) growth (7.6)% 2.7% Sales (by origin) Â£393.0m Â£426.0m Adjusted sales (decline) growth (7.4)% 3.3% Contribution Â£126.2m Â£136.2m Contribution % 32.1% 32.0% The growth demonstrated by the RS UK business in 2001 was short lived in the face of general economic difficulties and the continued pressure on the manufacturing sector. In 2002 overall sales declined by 7.4% (adjusted for trading days) to Â£393.0m. Growth among customers in some sectors of the economy (transport, services etc) was insufficient to offset declines particularly in manufacturing and telecommunications. Due to these factors and the impact of rationalisation within our customer base, the total active customer numbers also declined by 7%. UK sales in the second half declined by 10.7% (adjusted), but exited the financial year at a slightly lower rate of decline. Despite lower sales, the UK contribution margin improved to 32.1% from 32.0% through good control of gross margin and local costs, which demonstrates effective management in difficult times. RS UK remains a highly profitable business and extremely cash generative. We strongly believe in the growth still available to our UK business. All types of business value our services and we have customers in all Standard Industry Classification codes. Many businesses, however, have not yet become our customers. Even within the manufacturing sector, we estimate that our penetration is only 6% of our relevant market, and this declines to 1.5% in non-manufacturing. Although half our customers by number are now in non-manufacturing businesses, they generate only approximately 40% of our sales. There are also many other potential users within our current customer accounts who do not yet buy from RS. Our task is to reach more businesses and more individuals within them and convince them of the value of the RS service. Currently we are generating one thousand new customers each month. We also aim to increase the frequency and breadth of purchase (the number of different products purchased) of our customers. Many of our customers currently purchase within a narrow range of products: they can be encouraged to broaden their use of our very wide product offer and come to rely on RS for more of their small order needs. At the end of the year the catalogue contained 132,000 products, but many customers bought only a small number of these products compared to their potential requirements from our range. To realise our customer potential, the UK business invested during the year in increasing its field sales force and undertook a major sales force development programme. Our telesales activities were increased and we have successfully introduced a new customer acquisition programme. This reduces the time it takes for new customers to increase their frequency of purchase. Sales coverage has been intensified around each of our 13 trade counters, to increase our penetration of customers in each area. We continue to see considerable success with our Managed Stock Replenishment service from our trade counters to large customers: in this service we monitor our customers' stores for them and ensure that they have what they need when they need it. We have seen increases of around 40% in sales to participating companies. We have made the task of running their businesses easier and saved them substantial amounts of money, proving the value of using RS. We have increased the focus of our marketing programmes on growing sectors, such as health, defence and transport. Direct mailing programmes have been very successful in stimulating customer activity, and we continue to use specialogues (small catalogues) to improve the relevance of our offer to customers. The overall e-Commerce activities for the Group are reviewed below, but within the UK trading over the internet at the end of the year represented over 10% of sales, up from 7% at the end of last year. Exports from the UK to distributors and direct to overseas customers declined by 4.8% as the global economy suffered and Sterling remained strong. Rest of Europe RS Rest of Europe 2002 2001 Sales Â£210.7m Â£203.6m Adjusted sales growth 4.1% 21.8% Contribution Â£40.4m Â£38.5m Contribution % 19.2% 18.9% Sales in Europe grew by 4.1% (adjusted for trading days and at constant exchange rates) from Â£203.6m to Â£210.7m, which is now 28% of Group sales. Trading in the second half was more difficult than the first half and there was a small sales decline (adjusted) which persisted at the year end. Even at these more modest growth levels the success of the RS strategy (sales growth with improving contribution margins) was demonstrated and contribution margins improved by 0.3 percentage points to 19.2%. Managing the scale curve, tight cost management and improving gross margins all led to the improved contribution margin. 'The Prize' potential in the Rest of Europe remains enormous when compared in relative size terms to the UK and we are following our well established strategy towards achieving this 'Prize'. We are managing these markets on a more common basis and during the year a Regional General Manager was appointed for the Rest of Europe, covering businesses in France, Germany, Italy, Austria, Scandinavia, Ireland, Spain and Benelux. The transfer of best practice between these businesses has continued with encouraging results. For example, RS Italy successfully piloted a scheme which promotes relevant or interesting products to customers as they order other products. This was successful and we were able to roll it out swiftly and efficiently to other markets. Similarly, another Italian initiative increased orderfill (the percentage of orders we can fulfil immediately from stock) by ensuring that good alternative products are offered if a product being sought is temporarily unavailable: consequently orderfill increased by about one percentage point. Again this experience has been rolled out. We continue to exploit our very strong position in continental Europe. Our approach combines local nationals managing each business to drive growth through implementing the RS Core Business Model, together with Processes providing world-class support to drive effectiveness. Through the year service levels in all markets improved, even though the level of stock was reduced. Our more advanced e-Commerce capabilities developed in the UK have now been rolled-out across the Rest of Europe at a cost of over Â£5m. RS Rest of Europe - sales, Adjusted Sales Growth % Increase in Number of customers and products active customers products France 3.3% 3% 95,000 Germany 6.7% 1% 82,000 Italy 1.1% 4% 80,000 Smaller businesses 4.7% 1% 55,000 The modest increases in customers reflected the more difficult economic conditions within these markets as the year progressed. The product offer reflects the different stages of development in each of our markets. For much of the year Radiospares in France has been preparing for the first implementation of our significant systems development which should go live in the second half of this year. This will subsequently be extended to all companies in Europe (including the UK). Radiospares should be the first business to generate the substantial efficiency benefits and rewards from better customer service that the improved processes and systems will support. Growth of our businesses in Italy and Germany has driven investment in new warehouse facilities in these countries. The move to the Italian warehouse has been completed without problem, and the fit-out of the new German facility is progressing to plan. This is a major new investment situated in Bad Hersfeld, about 140km north of Frankfurt, where our current facility is located. The new building and systems in this more central location will enable us to increase our service levels and to take orders for same day despatch until later in the day than we can in our current facility. The smaller businesses in Europe had differing results. Radionics in Ireland was significantly affected by a steep decline in the technology sector while Spain showed good growth throughout the year. Austria and Benelux were broadly flat for the year. Scandinavia showed growth in the year, even without the contribution of our distributor in Norway since its acquisition in September 2001. This Norwegian business has now been integrated into our Scandinavian operations. With the creation of a regional management structure for continental Europe, we will increasingly see the smaller businesses leveraging off their larger neighbours. North America Allied North America 2002 2001 Sales Â£110.5m Â£148.7m Adjusted sales (decline) growth (27.6)% 24.6% Contribution Â£15.9m Â£26.4m Contribution % 14.4% 17.8% Sales of our Allied business in the US declined by 27.6% (adjusted) to Â£110.5m. Allied experienced the combined effects of sharp economic slowdown and what was the worst slowdown in electronics demand since 1959 according to the Semiconductor Industry Association. The National Electronic Distributors Association reported that US distributors suffered an average year on year sales decline of 40% in the fourth quarter of calendar year 2001. Allied is an electronics rather than a broad range industrial distributor like the RS businesses and so was particularly impacted. Allied's customer base was much more stable, however, declining only 3%. The downturn is cyclical, as was the previous year's upturn, and we are confident that as market conditions improve Allied will return to its long term trend growth. Allied's decline in sales was steepest around the half year. Since then the rate of decline has more than halved. Allied's profit contribution on sales declined by 3.4 percentage points to 14.4%, despite actions on gross margins and costs. The decline in sales was almost entirely due to a fall in average order value, which also resulted in lower discounts. This, together with selective pricing adjustments, increased gross margin by over 2 percentage points. Cost management has resulted in labour headcount being reduced by 16%, substantially all of which was part-time and contract labour. However, the extensive sales branch network and sales force have been sustained, as we believe that these provide competitive advantage. The branches give customers the personal contacts they value and ensure that we meet their service requirements better than less capable competitors. Management has not reacted to the downturn in any way which will prejudice the future long-term growth potential of the business. Different parts of the US economy had different experiences and resources have been targeted on growing segments, for example defence, health and utilities. Over a million new potential customers have been identified who are now being targeted using various tools including direct mail and personal follow-up from the local sales offices. A number of incentive programmes were introduced to increase our penetration of growing customers, and these campaigns have produced good returns. Allied's stock was reduced by 27.5% whilst maintaining superior customer service levels. Allied was rated number one in product availability in North America in customer surveys conducted by Electronic Buyers News, a major US trade magazine. The product offer was 125,000 at the end of the year. e-Commerce sales have increased by 45.0% and are now 6% of total sales. ' Punch-out' technology, which enables customers to build orders by 'punching' through their own firewall to our website before returning to have their purchases authorised, is being used with several large national accounts who have e-procurement software for order processing. Japan RS Japan 2002 2001 Sales Â£9.0m Â£8.6m Adjusted sales growth 15.3% 184.8% Contribution (Â£4.7m) (Â£6.3m) Sales in Japan have grown by 15.3% (adjusted) to Â£9.0m. Losses of Â£4.7m were down from Â£6.3m last year. The low growth compared to the previous year is attributable to a rapid downturn in the Japanese economy, particularly in the electronics and manufacturing sectors. We have seen sales to some of our more established electronics customers decline because they have made a number of their engineers redundant, some of whom were our customers. However the total number of customers served by RS Japan has grown by 15% and the average order frequency of these customers has also grown. This demonstrates that the Japanese engineer continues to value the RS service. This experience reinforces our view that the market potential remains huge. The second half growth of 8.1% was lower than the first half, and this rate persisted to the year end. Marketing activities have been implemented to accelerate the rate of customer acquisition and to increase the breadth of purchase of existing customers. The sales force has successfully targeted 'recession proof' customers, for example universities and government institutes. We continue to follow our well-proven strategy of implementing the RS Core Business Model in Japan: increasing the product range through adding new technologies and increasing the number of customers and the breadth of purchase of those customers. The number of products has grown to 43,000, which is an increase of 70% since launch. The range of products has started to widen to cover electrical and mechanical products in addition to electronics, as we build up to our typical broad range industrial offer which can satisfy our customers' needs. e-Commerce business in Japan has grown to 19% of total sales. Our more advanced internet capability, entirely in the Japanese language, was successfully launched in April 2002. A dedicated team has been created to drive sales through this exciting new e-Commerce opportunity. To meet the potential in this market we have decided to relocate the business to a larger warehouse in a better location for serving customers. This will happen in the summer of 2002. Given the trading backdrop and additional investments, the business is now planned to break even at the end of the 2004 financial year. Rest of World RS Rest of World 2002 2001 Sales Â£36.4m Â£37.0m Adjusted sales growth 1.0% 17.1% Contribution Â£0.2m Â£1.8m Contribution % 0.5% 4.9% Sales in the rest of the world grew by 1.0% (adjusted) to Â£36.4m. The second half declined by 1.2%, but the businesses were growing again by the end of the year. Asia accounts for most of this segment. Asia Asia sales declined by 2.3% (adjusted) as these markets are closely linked to the US and have therefore seen very difficult economic conditions. The Asia region is being managed on an integrated basis by a Regional General Manager. The primary focus has been to improve the sales effectiveness across the region and to transfer best practice. Sales for the whole of North Asia were level (on an adjusted basis) with last year. This reflects growth in China and declines elsewhere. Sales in China grew by 10.8% (adjusted). China held up longer in the global economic downturn, with the first signs of this downturn seen during the second half in the manufacturing centres of Southern China. Strategic investment in catalogues and fulfilment during the year amounted to Â£1.4m (2001: Â£2.5m). Over 5,000 new customers were acquired in the year. Our Shanghai warehouse gained approval for same day despatch from the warehouse with retrospective customs clearance, so allowing us to improve considerably the service level offered in the Shanghai region. Following its entry into the World Trade Organisation, however, China has begun to place more controls on imports. Although these restrictions are not fully operational, they have caused us some disruption that we expect to continue until the new procedures are implemented consistently. In some months up to 30% of Chinese sales came via the internet. This was driven by particular incentive programmes, and shows the relevance of e-Commerce to all of our markets. Hong Kong and Taiwan suffered difficult trading because of the dependence of their markets on world trade levels and electronics. Our sales declined in the year. Sales in South Asia declined by 7.1% (adjusted) with Singapore being particularly badly affected because of its strong links to the US economy, and the importance of electronics. In spite of this, our marketing and sales actions grew the customer base by 9% to provide a sound platform for recovery. During the year significant investment was made in systems to support future growth. Sales in Australasia declined by 1.2% (adjusted). The Australian economy grew in the year, but not in the sectors where our customers are concentrated. Our efforts have been to broaden the customer base. Our smaller business in New Zealand continued to grow. The Australasian business again generated good profits. Other Markets Sales in our other smaller markets grew by 38.5% (adjusted), driven by particularly strong growth in South Africa. e-Commerce e-Commerce is a powerful way to market for the Group where we have developed clear leadership. This channel builds on our existing strengths in fulfilment, content management and our relationship with customers. As well as serving existing customers we are attracting new ones and providing services not possible through other channels. Sales over the internet represented over 8% of total Group sales at the year end. They amounted to Â£51.1m for the year as a whole and grew by over 50%. The roll-out of the European Internet Trading Channel (EITC) was completed during the year. Capital expenditure was Â£1.5m (2001: Â£3.6m) with development and launch costs expensed of Â£7.7m (2001: Â£4.0m). The roll-out has taken our most advanced and proven functionality (developed in the UK) to 11 European countries and all on a single platform. Each country site is in its own local language and is integrated into the local business systems so that all existing customer information remains available. This roll-out has resulted in record levels of internet sales being achieved in all markets in which the EITC has been launched. Sales have grown by over 100% in some markets compared to the previous internet trading site, which demonstrates the value that our customers place on this new functionality. Our understanding of customer purchasing patterns is being enhanced, which will be the foundation for future marketing programmes. The power of this platform is that as new techniques are trialled and proven in one of the markets, they can then be deployed quickly to all the others. The launch of our new PurchasingManagerTM functionality in February 2002 has also been enthusiastically welcomed by customers. This is a simple to use but powerful e-procurement package which manages customers' transactions with RS. The benefits are demonstrable control of purchasing by the purchasing professional (through setting limits for spend, approval, etc) combined with empowerment of the end-users to purchase what they need without a cumbersome paper-based approval process. The net result is a significant reduction in transaction costs and happier end-users and purchasing professionals. We expect PurchasingManagerTM to be a significant revenue driver in the future. As mentioned previously, we successfully launched the equivalent functionality of the EITC in Japan in April 2002. e-Commerce revenues in Japan were already 19% of sales in the year and so we are particularly excited about the likely impact of the new functionality. Early results are encouraging. GROUPWIDE PROCESSES The Group Processes provide the global platforms that enable all our businesses to provide our customers with outstanding service. This structure allows the Group to benefit from shared best practice and cost effectiveness through economies of scale. It is the investment that we have made in these platforms and, critically, the knowledge of how to make them really work that creates many of the significant barriers to entry. The total cost of the Processes in the year was Â£69.3m, up 5.5% from Â£65.7m last year. Most of the increase is due to increased investment in Information Systems and internet development. Supply Chain Supply Chain has delivered improved customer service and greater stock holding efficiency. The ability to satisfy every customer order, in full and immediately, is the key measure of Supply Chain performance - we call it 'orderfill'. Throughout the year there has been a consistent improvement in performance. It is this remarkable level of service, significantly over 90% in our major RS markets, that differentiates us from our competition. This level of orderfill requires approaching 98% availability for each product ordered. Nine of our businesses achieved monthly orderfill records in the year, and the overwhelming majority of RS customers are now served by businesses with over 90% orderfill levels. Supply Chain is responsible for delivering orderfill whilst managing the Group's total stock. As a consequence of further investment in stock management systems, and leveraging expertise across the whole Group, stocks have been managed tightly. This has resulted in an increase in stock turn from 2.5 times to 2.7 times and a 18.0% reduction in stock from Â£164.8m (in continuing operations) at the start of the year to Â£135.1m. Facilities This central team takes responsibility for maximising the efficiency of our Distribution Centres and project managing new developments. In Italy, the move into larger leasehold premises was successfully completed in December 2001, and the move to new offices took place in April 2002. In Germany, development of an 82,000 square metre greenfield site at Bad Hersfeld is well advanced and the facility will be ready for occupation in December 2002. In the year, capital expenditure on these projects was approximately Â£17m. Product Management Our total product offer is approximately 300,000 products. Product Management works closely with customers and suppliers to ensure that key new products are introduced to appropriate markets and that the range is refreshed as existing products are further developed. Because of our unique global presence, large number of customers and detailed customer knowledge, our suppliers are very keen to work closely with us. They recognise our wide customer reach in, for example, the important research and development arena, and value highly the opportunity to enhance their market understanding by selling through us. Another good example of this is the strategic alliance with Avnet, now entering its third year. Both revenue and logistics benefits have been delivered, and pilots are currently underway testing how we can work more closely together, by leveraging RS's ability to service some elements of the small order requirements of Avnet's customer base. Media Publishing Last year's catalogue production led to the printing of over 5.5 billion pages, with all the paper sourced from renewable forests. Each catalogue, and supporting CD and website, is published by the Media Publishing process in local language, including Japanese and Chinese versions. Further rationalisation of paper and print contracts have delivered lower unit costs for media production. Investment in the latest desktop publishing technology has also enabled the internal production of more marketing material, such as the 'RS@Work' specialogue, reducing both costs and production time. This year has seen the establishment of a Content Management organisation specifically focused upon the creation, maintenance and control of all product related data including technical support data. Demand for technical data is as strong as ever, and during the last year our technical data on the Internet was accessed 1.3 million times world-wide. Human Resources Across the Group the recruitment, development and retention of our management teams is a top priority. The Group team facilitates the detailed management resource planning that takes place. This gives us a view of the management needs of the future, thereby enabling effective and focused development and recruitment activity. Subject to shareholder approval at the Annual General Meeting in July, the new Long Term Incentive Share Option Scheme will then be launched. Plans are well advanced for an effective communication programme to ensure the scheme is well understood and to maximise its impact, as both an incentive for the key management population and to aid their retention. Information Systems Information Systems accounted for some 40% of total Process costs or Â£28.3m, an 18.9% increase on last year. Included in this cost are all the labour and depreciation expenses of the development activities and support infrastructure for the Group's operations, including e-Commerce. During the year capital expenditure in information systems increased substantially to Â£26.7m with the development of the major enterprise systems programmes in Europe and Asia that we have previously indicated. These will amount in total to c.Â£50m over three years (and over Â£40m in Europe). Within the programmes: the infrastructure investment to enable more effective and secure communications and data sharing across Europe and Asia has already been completed; common approaches to our customer, product and supplier databases are increasingly in place; robust networks for our e-Commerce expansion have been established; and work on implementing more standardised operating procedures and system environments is in progress. Initial implementation of these new procedures is planned for this year in France and Singapore, and full roll-out across Europe and Asia should be completed by the middle of 2004. Within the Asia programme the upgrading of systems in China represents an important further investment in that market. The impact on our costs of the enterprise system projects was Â£1.8m in the year. This impact will increase significantly in future years through higher depreciation resulting from the capital expenditure. Meanwhile the costs of our existing systems are being reduced. Though the changes required in our businesses by this investment programme will incur cost, we believe that substantial efficiency benefits and rewards from enhanced customer service will be achieved. The internal and customer facing platforms now being established are critical enablers to meeting our strategic goals. The Euro conversion programmes were also completed during the year to enable full Euro trading and to convert the accounting bases of relevant companies to Euros. These transitions required considerable management effort and cost about Â£0.8m. FINANCIAL PERFORMANCE Turnover, profits and earnings of continuing operations Key figures 2002 2001 Turnover Â£759.6m Â£823.9m Operating profit * Â£108.7m Â£130.9m Interest (Â£3.2m) (Â£6.8m) Profit before tax*â€¢ Â£105.5m Â£124.1m Earnings per share*â€¢@ 17.3p 20.2p Dividend per share 15.9p 13.8p Key statistics Gross margin % 51.0% 49.1% Operating margin %* 14.3% 15.9% Return on sales % 13.9% 15.1% Effective tax rate %*â€¢@ 29.0% 29.3% PBT on net assetsâ€¢@ 22.7% 27.1% Growth % Turnover (7.8%) 15.8% Turnover - adjusted (7.7%) 12.3% Operating profit * (17.0%) 10.7% Profit before tax*â€¢ (15.0%) 7.6% Earnings per share*â€¢@ (14.4%) 6.3% Dividend per share 15.2% 15.0% * Before amortisation of goodwill â€¢ 2001: before exceptional loss on closure of Pact @ 2001: restated for the implementation of FRS19. Group turnover of continuing operations declined by 7.8% to Â£759.6m. Before goodwill amortisation (and exceptional charges last year) operating profit fell 17.0% to Â£108.7m, profit before tax fell 15.0% to Â£105.5m and earnings per share fell 14.4% to 17.3p. The prior year also included the Pact business for nine months before it was discontinued on 1 January 2001 and subsequently closed at an exceptional cost of Â£6.9m. Exchange rate movements had a positive translation effect on our reported operating profit. At constant exchange rates, sales would have been Â£1.7m lower and operating profit would have been Â£1.0m lower, a decline of 17.7% over the prior year compared with the reported 17.0%. Adjusting sales for the number of trading days in the year and to constant exchange rates gives an underlying sales decline of the continuing operations of 7.7%. For the continuing operations, the gross margin was 51.0%, which was up on last year. This partly reflects the lower contribution of Allied to the overall sales mix, as Allied has a lower gross margin than the RS businesses, and partly more positive management across the whole Group of all the factors that determine the gross margin. Operating margins (before amortisation of goodwill) declined from 15.9% to 14.3% for a number of reasons. A significant factor was the lower gross profit resulting from the lower sales notwithstanding the higher gross margin percentage. The lower gross profit was not then fully offset by reductions in the cost base of the Group. Though costs have been managed down in light of the difficult trading of the past year, care has been taken not to prejudice the growth potential of the businesses when trading recovers and so costs were not driven down to the same degree as the fall in sales. The second factor, as last year, is that our higher growth businesses are our smaller businesses which have higher costs relative to sales than our larger businesses, due to scale effects. Hence, the margin decline partly reflects this change in mix of cost bases within the Group. Thirdly, our strategic investments are higher at Â£13.8m versus Â£12.8m last year: e-Commerce costs were up to Â£7.7m from Â£4.0m whilst Japan losses declined to Â£4.7m from Â£6.3m and China investment to Â£1.4m from Â£2.5m. Overall Process costs were Â£69.3m or 9.1% of sales, compared to 8.0% of sales of continuing operations last year. Before the impact of any particular project activities, these costs are anticipated to flatten and then decline as a percentage of sales over time. The largest component of these costs remained information systems, accounting for about 40% of the total, and this component is likely to increase over the next few years as the project to upgrade the Group's systems infrastructure, communications and databases incurs depreciation and costs ahead of benefits. The enterprise business systems projects cost Â£1.8m in the year, up from Â£0.1m. The development costs of e-Commerce within Processes were Â£5.0m, up from Â£1.7m last year. Conversely, given our share price development relative to the peer group, the funding of the Long Term Incentive Plan required a charge of Â£0.1m in the year compared to Â£2.5m last year and this has benefited the Process costs. After adjusting for the project costs and the LTIP, the Process costs grew by 1.6%. The interest charge was Â£3.2m compared to Â£6.8m last year, mainly due to lower interest rates and the reduction in net debt over the year. The tax rate of 29.0%, based on profit before tax and goodwill amortisation, was marginally lower than the (restated) prior year rate of 29.3%. FRS19 (Deferred Tax) has been applied in arriving at this rate. In accordance with FRS10, the Â£214.8m of goodwill that arose on the acquisition of Allied is being written off over 20 years and the amortisation in the year was Â£11.9m. The acquisition of the business activities in Norway also led to an increase in goodwill amortisation of Â£0.1m during the year. Profit before tax and after goodwill amortisation was Â£93.5m and the effective tax rate on this profit was 32.7%. After tax, the profit for the year amounted to Â£62.9m, down 11.4%. Earnings per share before goodwill amortisation (and before exceptional items in the prior year) declined 14.4% to 17.3p from 20.2p. After goodwill amortisation (but before exceptional items in the prior year), the decline was 17.6% to 14.5p. Including the exceptional charge in the prior year the decline was 11.6%. With the recommended final dividend of 11.0p per share, dividends rose 15.2% to 15.9p, which were covered 1.1 times by earnings before goodwill amortisation. Cash generation and the impact of strategic investments that have been expensed are also factors in considering cover. Taking the cash earnings per share (earnings per share plus depreciation) as adjusted for the after tax cost (at a rate of 29%) of the strategic investments gives a dividend cover of 1.5 times. Cash flow and balance sheet - continuing operations Cash flow 2002 2001 Stocks Â£29.0m (Â£8.6m) Debtors Â£18.5m (Â£4.5m) Creditors (Â£19.0m) (Â£1.2m) Working capital Â£28.5m (Â£14.3m) Capital expenditure on fixed asset additions (Â£47.2m) (Â£25.6m) Free cash flow Â£76.3m Â£74.4m Net debt (Â£53.0m) (Â£75.5m) Key statistics Stock turn 2.7 2.5 Debtors days 50.8 53.8 Creditors days 33.7 40.1 Operating cash flow of continuing operations was again healthy at Â£156.7m up from Â£138.0m last year and representing 144.2% of operating profit (before amortisation of goodwill). Free cash flow of continuing operations for the year was Â£76.3m (Â£74.4m last year) and total free cashflow was Â£81.6m (Â£78.6m) including the cashflows from Pact. Working capital cash inflows amounted to Â£28.5m compared to a Â£14.3m outflow last year. Cash inflow on stocks was Â£29.0m compared to an outflow of Â£8.6m last year. Whilst maintaining high service levels for customers, stock levels were tightly and effectively managed throughout the year and stock turn improved to 2.7 times from 2.5 times. Debtors recorded an inflow of Â£18.5m, compared with an outflow of Â£4.5m last year. Debtor days were 50.8, down from 53.8 last year. There was a cash outflow on creditors of Â£19.0m, compared to an outflow of Â£1.2m last year. Creditor days were 33.7, a decrease from 40.1 last year. The incidence of the Easter holidays at the year end benefited the debtors and creditors cashflows. Capital expenditure on fixed assets additions was Â£47.2m, significantly higher than last year (Â£25.6m for continuing operations) though slightly lower than we expected earlier in the year due to re-phasing. The largest expenditure in this year has been Â£25.2m on systems, of which Â£20.2m was part of the Â£50m enterprise business systems. This three year investment programme will substantially improve the systems structure, data management and process design across Europe and Asia. Â£1.5m was also spent on e-Commerce infrastructure. Other major investments have been in the new warehouse facilities in Germany (Â£13.7m) and Italy (Â£2.8m). The combination of expenditures in the year represents a peak and the overall level is expected to be significantly lower in this year. The closure of Pact provided a Â£5.3m inflow of cash during the year (2001: Â£4.2m). The freehold property previously occupied by Pact is subject to an offer. The relevant assets of our distributor in Norway were acquired on 28 September 2001 and our wholly owned business commenced trade from 1 October 2001. The acquisition cost Â£0.8m all of which represented goodwill. The trading results of the new business were immaterial to the Group as a whole. After higher tax and dividend payments of Â£32.9m (including Pact) and Â£62.7m respectively, the decrease in net debt was Â£22.5m or 30%, giving year end net debt of Â£53.0m. Pensions Note 5 to this Preliminary Statement indicates the effect FRS17 would have had if it had been adopted. Full adoption is required for the year ended 31 March 2004. The Group has a well-funded defined benefit scheme in the UK with much smaller defined benefit schemes in Ireland and Germany. Elsewhere the schemes are defined contribution. Under the FRS 17 rules we are pleased that the defined benefit schemes showed a combined surplus of Â£17.6m. The last full valuation of the UK scheme was carried out as at 31 March 2001 and showed a surplus of Â£22.1m. The Group has been evaluating its long term pension arrangements in the UK and is considering the introduction of a new defined contribution scheme for new employees. Financial and shareholder returns Profit before tax (and after goodwill amortisation) on net assets was 22.7%, down from 27.1% (before exceptional loss on Pact) last year. These returns remain substantially higher than the Group's cost of capital. Trading performance and the investments made to implement the Group's strategy have depressed the reported returns. Our reduction in total shareholder return over the year was 10.3%, reflecting the share price decrease between the year ends, which compared to the negative 3.2% in the Allshare index. On 1 January 2002 Electrocomponents was reclassified from Distributors into the Business Support Services sector of the stock market, a move that we regard as beneficial to shareholders. All shareholders should benefit from the increased coverage of the Group by analysts and others that focus on this much larger sector. Financial summary Providing attractive returns for our shareholders relative to the market over the long term remains the primary goal of our strategy. In our selected markets the growth potential for our businesses is large and we believe that superior returns are available to the Group over the long term. The sales and profit performance of our main European businesses are important pointers, as is our progress in Japan and in the major Asian markets. Though Allied has had a very difficult year as a result of the electronics cycle, our experience of this business gives us confidence in its quality and in the opportunities for the Group in the North American market. The global economic backdrop influences the timing of the realisation of the Group's potential, but does not alter our belief in its ultimate attainability. We are convinced that as our businesses realise the considerable sales potential of their markets over time, and consequently achieve the economies of scale, their profitability, absolute profits and cash generation will increase. In the larger economies our opportunities are substantially larger than those reflected by our UK business. OVERVIEW Since the end of March, the sales per day of the Group have been similar to that of the preceding three months. 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 note worthy that our sales over the internet amounted to over Â£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 Chairman 29 May 2002 Consolidated Profit and loss account For the year ended 31 March 2002 2002 2001 2001 2001 Note Â£m Â£m Â£m Â£m Continuing Continuing Discontinued Total Operations Operations Operations (As restated) Turnover 1 759.6 823.9 31.2 855.1 Cost of sales (372.4) (419.5) (24.7) (444.2) Gross profit 387.2 404.4 6.5 410.9 Distribution and marketing expenses (265.9) (260.3) (6.5) (266.8) Administration expenses - before amortisation of goodwill (12.6) (13.2) - (13.2) - amortisation of goodwill (12.0) (11.6) - (11.6) (24.6) (24.8) - (24.8) 1 Operating profit - before amortisation of goodwill 108.7 130.9 - 130.9 - amortisation of goodwill (12.0) (11.6) - (11.6) 96.7 119.3 - 119.3 Exceptional loss on closure - - (6.9) (6.9) Net interest payable (3.2) (6.8) - (6.8) Profit on ordinary activities before 93.5 112.5 (6.9) 105.6 taxation Profit before taxation, amortisation of 105.5 124.1 goodwill and exceptional loss Taxation on profit on ordinary activities 2 (30.6) (34.6) Profit on ordinary activities after 62.9 71.0 taxation Dividend (69.2) (59.8) Retained (loss) profit for the financial (6.3) 11.2 year Earnings per share Basic 3 Before amortisation of goodwill and exceptional loss 17.3p 20.2p After amortisation of goodwill and exceptional loss 14.5p 16.4p Dividend per share Interim (paid) 4.9p 4.25p Final (proposed) 4 11.0p 9.55p 15.9p 13.8p Consolidated Statement of Total Recognised Gains and Losses Profit for the financial year 62.9 71.0 Translation differences 0.5 24.4 Total recognised gains and losses 63.4 95.4 relating to the year Prior year adjustment: implementation of 10 (1.6) FRS19 Total recognised gains and losses since 61.8 the last annual report All profits and losses shown are stated at historical cost. The statement of movements on Group reserves is at note 7. Consolidated Balance Sheet As at 31 March 2002 Note 2002 2001 (As restated) Â£m Â£m Fixed assets Intangible fixed assets 208.5 219.7 Tangible fixed assets 6 155.9 133.3 Investments 1.3 0.3 365.7 353.3 Current assets Stocks 135.1 165.3 Debtors 145.4 168.9 Investments 16.3 6.7 Cash at bank and in hand 5.1 10.6 301.9 351.5 Creditors: amounts falling due within one year (184.5) (202.1) Net current assets 117.4 149.4 Total assets less current liabilities 483.1 502.7 Creditors: amounts falling due after more than one year (60.8) (76.6) Provisions for liabilities and charges (10.2) (11.2) 412.1 414.9 Capital and reserves Called-up share capital 43.5 43.4 Share premium account 37.8 34.9 Profit and loss account 330.8 336.6 Equity shareholders' funds 412.1 414.9 Consolidated Cash flow statement 2002 2002 2002 2001 2001 2001 For the year ended 31 March 2002 Â£m Â£m Â£m Â£m Â£m Â£m Continuing Discontinued Continuing Discontinued Note Operations Operations Total Operations Operations Total Reconciliation of operating profit to net cash inflow from operating activities Operating profit 96.7 - 96.7 119.3 - 119.3 Amortisation of goodwill 12.0 - 12.0 11.6 - 11.6 Depreciation and other amortisation 19.5 - 19.5 21.4 0.4 21.8 Decrease (increase) in stocks 29.0 0.5 29.5 (8.6) 9.2 0.6 Decrease (increase) in debtors 18.5 4.4 22.9 (4.5) 3.1 (1.4) Decrease in creditors (19.0) (2.3) (21.3) (1.2) (7.8) (9.0) 156.7 2.6 159.3 138.0 4.9 142.9 Cashflow in respect of prior year - - (0.7) (0.7) closures Net cash inflow from operating 156.7 2.6 159.3 138.0 4.2 142.2 activities CASH FLOW STATEMENT Net cash inflow from operating 156.7 2.6 159.3 138.0 4.2 142.2 activities Returns on investments and (3.7) - (3.7) (6.7) - (6.7) servicing of finance Taxation (35.2) 2.3 (32.9) (32.6) - (32.6) Capital expenditure and financial 9 (41.5) 0.4 (41.1) (24.3) - (24.3) investment Free cash flow 76.3 5.3 81.6 74.4 4.2 78.6 Acquisitions (0.8) - Equity dividends paid (62.7) (54.3) Cash inflow before use of liquid resources and 18.1 24.3 financing Management of liquid resources (9.6) 18.2 Financing Shares 3.0 3.8 Loans (18.4) (46.6) Decrease in cash in the year (6.9) (0.3) Reconciliation of net cash flow to movement in net debt Decrease in cash (6.9) (0.3) Management of liquid resources 9.6 (18.2) Financing - loans 18.4 46.6 Change in net debt relating to cash 21.1 28.1 flows Translation differences 1.4 (7.8) Decrease in net debt for the year 22.5 20.3 Net debt at the beginning of the (75.5) (95.8) year Net debt at the end of the year 8 (53.0) (75.5) Notes to the Preliminary Statement For the year ended 31 March 2002 2002 2001 1. Segmental analysis (As restated) Â£m Â£m a. By class of business Turnover: RS / Allied - continuing operations 759.6 823.9 Pact - discontinued - 31.2 759.6 855.1 Operating profit: RS / Allied - continuing operations 178.0 196.6 Pact - discontinued - - Contribution - before amortisation of goodwill 178.0 196.6 Groupwide process costs (69.3) (65.7) Amortisation of goodwill - Allied (11.9) (11.6) (North America) Amortisation of goodwill - RS Norway (Rest of (0.1) - Europe) 96.7 119.3 Net assets: RS / Allied - continuing operations 337.7 341.5 Pact - discontinued - 5.9 Net operating assets (excluding 337.7 347.4 goodwill) Net debt (53.0) (75.5) Unallocated net assets 127.4 143.0 412.1 414.9 Unallocated net assets comprise: Intangible fixed assets goodwill - Allied (North America) 207.7 219.7 goodwill - RS Norway (Rest of Europe) 0.8 - Corporate tax (23.0) (24.1) Proposed dividend (47.9) (41.4) Provisions for liabilities and (10.2) (11.2) charges 127.4 143.0 b. By geographical destination Turnover: United Kingdom - continuing 379.7 412.4 operations United Kingdom - discontinued - 31.2 operations Rest of Europe 214.4 209.8 North America 110.0 147.9 Japan 9.0 8.6 Rest of World 46.5 45.2 759.6 855.1 c. By geographical origin 2002 2001 (As restated) Â£m Â£m Turnover: United Kingdom - continuing 393.0 426.0 operations United Kingdom - discontinued - 31.2 operations Rest of Europe 210.7 203.6 North America 110.5 148.7 Japan 9.0 8.6 Rest of World 36.4 37.0 759.6 855.1 Operating profit: United Kingdom - continuing 126.2 136.2 operations United Kingdom - discontinued - - operations Rest of Europe 40.4 38.5 North America 15.9 26.4 Japan (4.7) (6.3) Rest of World 0.2 1.8 Contribution - before amortisation of goodwill 178.0 196.6 Groupwide process costs (69.3) (65.7) Amortisation of goodwill - Allied (North (11.9) (11.6) America) Amortisation of goodwill - RS Norway (Rest of (0.1) - Europe) 96.7 119.3 d. By geographical location Net assets: United Kingdom - continuing 210.6 220.1 operations United Kingdom - discontinued - 5.9 operations Rest of Europe 67.0 54.4 North America 29.5 38.1 Japan 3.5 3.1 Rest of World 27.1 25.8 Net operating assets (excluding 337.7 347.4 goodwill) Net debt (53.0) (75.5) Unallocated net assets 127.4 143.0 412.1 414.9 The United Kingdom segment includes the discontinued operations of Pact. All other segments relate entirely to continuing operations. 2. Taxation on the profit of the Group 2002 2001 (As restated) Â£m Â£m United Kingdom taxation 23.8 25.7 Overseas taxation 6.8 8.9 Tax charge 30.6 34.6 Taxation on exceptional loss - 1.8 Tax charge before tax effect of exceptional loss 30.6 36.4 Profit before taxation, amortisation of goodwill and exceptional loss 105.5 124.1 Tax rate 29.0% 29.3% 3. Earnings per share Profit on ordinary activities after taxation 62.9 71.0 Exceptional loss on closure of Pact - 6.9 Tax on exceptional loss on closure of Pact - (1.8) Amortisation of goodwill (excluding tax effect) 12.0 11.6 Profit on ordinary activities after taxation and before goodwill and exceptional 74.9 87.7 loss Weighted average number of shares 434.1m 433.1m Basic earnings per share Before amortisation of goodwill and exceptional loss 17.3p 20.2p After amortisation of goodwill and exceptional loss 14.5p 16.4p 4. 2002 final dividend The timetable for the payment of any final dividend is: Ex-dividend date 19 June 2002 Record date 21 June 2002 Annual General Meeting 19 July 2002 Dividend Payment date 24 July 2002 5. Pension Schemes The funding of the United Kingdom defined benefit scheme is assessed in accordance with the advice of independent actuaries. The pension costs for the year ended 31 March 2002 amounted to Â£3.6m (2001: Â£3.2m). The most recent valuation (carried out in 2001) adopted a market related approach to funding and the projected unit credit method. The assumptions underlying the calculation of the liabilities were derived by reference to the gross redemption yield on long-term gilts in conjunction with a pre-retirement equity enhancement, consistent with market conditions at the time of the valuation. The principal assumptions applied in the 2001 valuation were therefore as follows: Past Future service service Investment return: before retirement 6.25% 6.5% after retirement 5% 5.25% Rate of future earnings inflation 4.25% 4.25% Rate of increase in pensions payment 2.5% 2.5% At the date of the 2001 valuation, the market value of the assets of the scheme was Â£169.8m, and the actuarial valuation of the assets covered 115% of the benefits that had accrued to the members after allowing for expected future increases in earnings giving a surplus of Â£22.1m. The excess assets above the value of the liabilities are being eliminated by means of a reduction in the level of employer contributions to the Scheme. The next valuation will be carried out no later than 31 March 2004. In addition to the UK scheme outlined above there are certain pension benefits provided on a defined contribution basis in Australia and North America amounting to Â£0.7m (2001: Â£0.7m), on a defined benefit basis in Germany and Ireland amounting to Â£0.4m (2001: Â£0.4m), and via government schemes in France, Italy, Denmark and North Asia amounting to Â£1.4m (2001: Â£1.1m). FRS17 Disclosure A new pension accounting standard, FRS17, was issued in November 2000. Full adoption will not be mandatory for the Group until the year ending 31 March 2004.The disclosures required by FRS17 in the first transitional year of adoption are set out below. These disclosures set out the difference between the market value of the pension scheme assets and the present value of the schemes' liabilities. The Electrocomponents Group operates defined benefit schemes in the UK, Germany and the Republic of Ireland. The German scheme is unfunded, in line with local practice. The last actuarial valuation of the UK scheme was carried out as at 31 March 2001 and has been updated to 31 March 2002 by a qualified independent actuary in accordance with FRS 17.The last actuarial valuations of the German and Irish schemes were carried out as at 31 March 2002 by the respective independent scheme actuaries in accordance with the requirements of FRS17. The principal assumptions used in the valuations of the United Republic liabilities of the Group's schemes under FRS17 are: Kingdom Germany of Ireland Discount rate 6% 6% 6% Rate of increase in salaries 4.5% 3% 3.75% Rate of increase of pensions in payment 2.75% 2% 2.5% Rate of increase of deferred pensions 2.75% n/a 2.5% Inflation assumption 2.75% 2% 2.5% The expected rates of return on the schemes' assets and the valuations of the schemes as at 31 March 2002 were: United Republic Kingdom Germany of Ireland Total Expected Valuation Expected Valuation Expected Valuation Valuation long term Â£m long term Â£m long term Â£m Â£m rate of rate of rate of return return return Equities 7.75% 127.3 n/a - 8.5% 0.7 128.0 Bonds 5.25% 35.1 n/a - 5.5% 0.2 35.3 Property 7.75% 1.4 n/a - n/a - 1.4 Other 4% 5.0 n/a - 6.5% 0.3 5.3 Total market value of assets 168.8 - 1.2 170.0 Present value of scheme (149.3) (2.0) (1.1) (152.4) liabilities Surplus (deficit) in the scheme 19.5 (2.0) 0.1 17.6 Related deferred tax (5.9) 0.8 - (5.1) (liability) asset Net pension asset (liability) 13.6 (1.2) 0.1 12.5 The deficit of Â£2.0m in the German scheme is financed through existing book reserves established within the German accounts. If the above pension asset was recognised in the financial statements, the Group's net assets and profit and loss reserve at 31 March 2002 would be as follows: Profit and loss Net reserve assets Â£m Â£m As stated excluding pension asset 330.8 412.1 Net pension asset 12.5 12.5 Including net pension asset 343.3 424.6 6. Tangible fixed assets Land and Plant and Computer buildings machinery systems Total Cost Â£m Â£m Â£m Â£m At 1 April 2001 85.3 92.0 55.6 232.9 Additions 12.3 8.2 26.7 47.2 Disposals - (11.0) (3.5) (14.5) Translation differences (0.3) (0.3) (0.1) (0.7) At 31 March 2002 97.3 88.9 78.7 264.9 Depreciation At 1 April 2001 15.5 53.4 30.7 99.6 Charged in the year 1.8 8.8 9.3 19.9 Disposals - (7.1) (3.2) (10.3) Translation differences - (0.2) - (0.2) At 31 March 2002 17.3 54.9 36.8 109.0 Net book value At 31 March 2002 80.0 34.0 41.9 155.9 At 31 March 2001 69.8 38.6 24.9 133.3 7. Reconciliation of movements in shareholders' funds 2002 2001 (As restated) Â£m Â£m Profit for the year 62.9 71.0 Dividend (69.2) (59.8) Retained (loss) profit for the year (6.3) 11.2 Write back of goodwill on closure - 1.0 Translation differences 0.5 24.4 New share capital subscribed 3.0 3.8 Net (reduction) addition to equity (2.8) 40.4 Equity shareholders' funds at 1 April 2001 as originally stated 416.5 374.5 Prior year adjustment: implementation of FRS19 (1.6) - Equity shareholders' funds at beginning of year 414.9 374.5 Equity shareholders' funds at end of year 412.1 414.9 8. Net debt at the end of the year comprises: Current asset investments 16.3 6.7 Cash at bank and in hand 5.1 10.6 Overdrafts (1.9) (0.4) Debts due within one year (19.7) (23.4) Debts due after more than one year (52.8) (69.0) (53.0) (75.5) 9. Gross cash flows Capital expenditure and financial investment Purchase of tangible fixed assets* (46.4) (22.6) Sales of tangible fixed assets 4.7 0.8 Receipt of capital grants 1.8 - Purchase of own shares (1.2) (2.5) Net cash outflow for capital expenditure and financial (41.1) (24.3) investment *Including capital accruals the purchase of fixed assets figure would be: 2002 Â£47.2m (2001: Â£26.0m) 10. Prior year adjustment - adoption of FRS19 The Group has adopted FRS 19 Deferred tax in the current year. This standard requires companies to change from a policy of partial provision for deferred tax to full provision. A prior year adjustment has been made to reflect this change in accounting policy and has been finalised from the original estimate included within the Interim Statement for the six months to 30 September 2001. The effect of the change in accounting policy has been to increase the taxation charge in the current and prior periods as set out below: 2002 2001 Â£m Â£m Taxation on profit on ordinary activities: overseas taxation (1.6) (1.6) Profit for the period (1.6) (1.6) The adjustments to the provisions for liabilities and charges at 31 March 2001 are as follows: Provision for deferred taxation (1.6) Equity shareholders' funds (1.6) 11. Principal exchange rates 2002 2001 Average Closing Average Closing United States Dollar 1.43 1.42 1.48 1.42 Euro 1.63 1.63 1.63 1.61 Japanese Yen 180 189 164 178 Basis of preparation The financial information has been prepared under the historical cost convention and in accordance with applicable accounting standards, using the accounting policies set out in the Annual Report for the year ended 31 March 2002. The financial information set out above does not constitute the Group's statutory accounts within the meaning of section 240 of the Companies Act 1985 for the years ended 31 March 2002 and 2001, but is derived from those accounts. Statutory accounts for 2001 have been delivered to the Registrar of Companies, and those for 2002 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. Copies of the Annual Report and Accounts for the year ended 31 March 2002 will be available from 18 June 2002 from the Company Secretary, Electrocomponents plc, International Management Centre, 5000 Oxford Business Park South, Oxford OX4 2BH, United Kingdom. Telephone +44 (0)1865 204000. The Report will also be published on the Corporate website at www.electrocomponents.com. The Annual General Meeting will be held at Electrocomponents plc, International Management Centre, 5000 Oxford Business Park South, Oxford OX4 2BH, United Kingdom on 19 July 2002 at 12 noon. This information is provided by RNS The company news service from the London Stock Exchange

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