Preliminary Results

RNS Number : 7474H

Electrocomponents PLC

22 May 2014

 



PRELIMINARY STATEMENT

Electrocomponents plc, the global distributor for engineers, today announces its results for the year ended 31 March 2014.

'Good progress implementing global strategy, strong momentum in eCommerce and International'

	2014	2013 As restated (1)	Change
Sales	£1,273.1m	£1,235.6m	2.1% (2)
Headline profit before tax (3)	£101.1m	£94.1m	7.4%
Reported profit before tax	£101.1m	£86.7m	16.6%
Headline earnings per share (3)	16.3p	14.9p	9.4%
Headline free cash flow (3)	£58.3m	£56.1m	3.9%
Dividend per share	11.75p	11.75p	-

(1)   Restated for the changes in IAS19R Employee Benefits. For further details refer to Changes to accounting standards

(2)   Sales growth, unless otherwise stated, is adjusted for trading days and currency movements (underlying sales growth/decline). Additional trading days and currency movements increased Group reported sales by £12 million

(3)   Headline measures of profitability and cash flow are defined as the relevant reported profit/cash flow measure before reorganisation costs/cash flows. Additional trading days and currency movements increased headline profit before tax by £4 million

Financial highlights

·      2% Group underlying sales growth, with 4% International growth and 2% UK decline

·      International driven by 4% growth in both Europe and North America, 2% growth in Asia Pacific

·      UK sales excluding Raspberry Pi declined by 1% (flat Q4), with UK profits up 4%

·      Gross margin stable at 45.9%, benefitting from our value for money strategic initiatives

·      Group operating margin up 20 basis points to 8.3% with good cost control

·      Headline profit before tax⁽³⁾ increased by 7%, or 3% excluding extra trading days and currency

·      Continued strong cash generation with headline free cash flow up by 4%

Operational highlights

·      Group eCommerce sales growth of 6%, with Group eCommerce sales share up to 58%

·      Significant enhancements to our websites, particularly regarding search and browse functionality

·      Successful launch of DesignSpark Mechanical, our latest free-of-charge design tool for engineers

·      Sales growth of 4% in Famous For products, comprising electronics and automation and control

·      Strategy underway to build a consistent global offer across RS and Allied

·      Successfully rolled out existing SAP-based IT system to South East Asia and Greater China

CURRENT TRADING AND OUTLOOK

In the first seven weeks of the new financial year the Group has delivered sales growth of 2%. Sales trends in May to date have improved as compared to April, which was impacted by the timing of Easter holidays. The International business grew by 4% and the UK declined by 3% (UK sales decline excluding Raspberry Pi was 2%). Within International, Continental Europe grew by 1%, North America grew by 6% and Asia Pacific grew by 8%.

Whilst the global economic recovery is uneven and there are foreign exchange headwinds, we will continue to invest in our strategic initiatives. We expect to make further progress towards our medium-term performance goals during the coming year.

IAN MASON, GROUP CHIEF EXECUTIVE, COMMENTED:

"The Group has delivered a robust financial performance in the first year of our new business plan, with underlying sales growth and a stable gross margin contributing to 7% growth in headline profit before tax.

There has been good early progress against our strategic priorities. There was strong growth of 6% from our eCommerce channel and outperformance from our Famous For product categories. We remain confident that the Group is set on the right course to grow market share and continue to improve financial performance over the medium term."

Enquiries:

Ian Mason, Group Chief Executive	Electrocomponents plc	020 7567 8000*
Simon Boddie, Group Finance Director	Electrocomponents plc	020 7567 8000*
Matt Jones, Head of Investor Relations & Corporate PR	Electrocomponents plc	07717544124
David Allchurch / Martin Robinson	Tulchan Communications	020 7353 4200

* Available to 12:00 on 22 May 2014, thereafter 01865 204000

The results and presentation to analysts are published on the corporate website at www.electrocomponents.com.

Notes on financial terms:

In order to reflect underlying business performance, comparisons of sales between periods (including by region, product group and channel) have been adjusted for currency and trading days (underlying sales growth).

Changes in profit, cash flow, debt and share related measures such as earnings per share are, unless otherwise stated, at reported exchange rates.

Sign conventions: % changes in sales and costs are disclosed as positive if improving profit and negative if reducing profit.

Key performance measures such as return on sales and EBITDA use headline profit figures. 

Notes to editors:

Electrocomponents, the global distributor for engineers, has operations in 32 countries. We offer over 500,000 products through the internet, catalogues and at trade counters to over one million customers, shipping around 44,000 parcels a day. Our product categories, sourced from 2,500 leading suppliers, include semiconductors, interconnect, passives and electromechanical, automation and control, electrical, test and measurement, tools and consumables.

The business satisfies the small quantity needs of its customers who are typically electronics design engineers, machine and panel builders or maintenance engineers in business. A large number of high quality goods are stocked, which are dispatched the same day that the order is received.  The average customer order value is around £150 although the range of order values is wide.  The Group's customers come from a wide range of industry sectors with diverse product demands.

Market overview and market environment

Structural growth in growing and fragmented markets

We operate in the high-service distribution market, which caters to the small quantity needs of electronics and maintenance engineers and machine and panel builders. Our average customer order value is around £150, and this order is for two to three individual product lines on average. A customer will usually order different product lines each time rather than make repeat orders of the same products. Demand is similar across the world - customers want a broad range of high quality stocked products in small quantities with fast and reliable delivery. The internet has become the dominant channel for customers to do business with us, although providing a multi-channel service remains important as many customers still prefer to use a catalogue and phone or fax to place orders, often in conjunction with the internet.

We estimate that the available market is worth around £30 billion globally, split evenly between electronics and maintenance products. This market grows faster than GDP through the cycle, driven by electronics component demand which grows at twice the rate of GDP on average whilst maintenance components demand typically grows at the same rate as GDP. However, electronics component demand is typically more volatile than the economic cycle, as spending on new technological innovation can easily be halted and then re-started. Maintenance component demand, in contrast, is typically less volatile and more aligned to the economic cycle.

The supplier base serving this demand is highly fragmented, being mainly populated by a large number of small local and regional distributors. There are five large international distributors, of which Electrocomponents is the largest, who together have around 15% of the available global market and who have, over time, been consistently gaining share from the smaller distributors. This trend is expected to continue for the foreseeable future.

Market environment

The market environment improved as the year progressed. This was reflected in the Group's sales growth rates, which improved from 1% in the first half (on a day-adjusted, constant currency basis) to 3% during the second half. This improvement did not occur in a consistent manner. After a step-up in sales growth rates in the autumn, growth faltered during December and January (these months were noticeably impacted by severe weather conditions in North America which kept many of our customers away from their workplace) before another step-up was seen in February and March.

The most important indicator of our market conditions remains the manufacturing Purchasing Managers Indices (PMIs). In the early part of the year the PMIs in the UK, Europe and Japan improved to a reading above 50, which is indicative of a return to growth in the manufacturing sector in these countries. In the US and China the PMIs have been relatively stable, with the US reading slightly above 50 and China reading around 50 for most of the year. We believe that the Group's improved sales growth performance in the second half of the year in part reflects this more favourable PMI backdrop.

Trade associations from within the electronics distribution industry, such as the Association of Franchised Distributors of Electronic Components (AFDEC) and National Electronic Distributors Association (NEDA), have reported improving activity levels from their members during the year. In addition, the large volume electronics distributors have reported a return to sales growth during the year and improving order book trends. This more favourable electronics environment has also begun to feed through to our business, with our electronics product categories, an important part of our Famous For product range, showing a return to sales growth of 3% in the year, having been in slight decline for much of the past two years.

Whilst our market backdrop is more robust than it was a year ago it remains difficult to predict future sales growth, particularly given our limited order book visibility.

International share gains and margin expansion

During the year the International business grew sales by 4% (on a day-adjusted, constant currency basis). Whilst there has been a more favourable market backdrop as the year has progressed we have supplemented this by taking market share from the numerous small distributors against whom we primarily compete.

Within the International business the share gains have been greatest in our Continental Europe region. This partly reflects the fact that many of our smaller competitors in this region have found it difficult to obtain credit for several years now and therefore they have not been able to significantly invest in their product range, website or sales capabilities. This has created an opportunity for the larger global competitors, such as Electrocomponents, to gain market share by continuing to invest in these areas to enhance their service levels. Continental Europe is also the region where the Group has made the greatest progress in implementing the new global strategy, particularly with regards to the sharing and rolling-out of global best practice in sales and marketing. The progress we have made implementing our new global strategy is discussed further below.

When we introduced our global strategy last year we highlighted that during the period 2006 - 2013 around half of the 6% compound annual growth rate achieved by our International business was generated by share gains, with the other half coming from market growth. Our global strategy, introduced last year, is seeking to alter this sales growth composition such that more than half of our International growth comes from share gains, reducing our dependency on the market rate of growth.

The rate of sales growth of our International business is particularly important as this is where we have the greatest ability to generate economies of scale and improve the International business' contribution margin. Our UK business, where we are well penetrated in the marketplace having operated there for over 75 years, generates a contribution margin of around 28% - 29% which we believe is sustainable. Our International business, in contrast, generated a contribution margin of 16.7% last year. Whilst this was an improvement of around 70 basis points on the prior year, it is still considerably below the UK contribution margin. With all regions achieving similar levels of gross margin as the UK except for North America (where the industry gross margin is lower) there is a significant opportunity for the International business to expand its contribution margin towards the UK level as it grows and generates economies of scale.

UK profitability

When we introduced our global strategy last year we raised our ambitions for the UK business, targeting an average of 1% to 2% per annum sales and contribution growth through the cycle, rather than seeking to maintain absolute contribution levels as had previously been the case. This increased ambition for the UK is based on our view that the UK manufacturing sector now provides a more stable trading environment than it did a decade ago.

During the year the UK business' sales declined by 2% (on a day-adjusted, constant currency basis). Sales trends improved in the second half versus the first half, but not by as much as we had expected given the improvement in UK manufacturing PMI. Consequently, we have made several senior management changes. Whilst the UK sales performance was disappointing the UK business did improve its contribution margin by 120 basis points to 28.7% due to an increase in gross margin and good control of operating costs, and contribution increased by 4%.

Strategy implementation progress

A new global strategy and a new global operating model for the business were introduced last year in order to put the business in the best possible position to capture the international growth opportunity described above whilst maintaining our strong UK position and profitability.

In the past 12 months the new global operating model has bedded down, and there has been good early progress implementing the global strategy and delivering our seven strategic priorities (comprising four growth initiatives supported by three enablers). We summarise below information on some of the key strategic milestones achieved over the past year.

Accompanying the global strategy last year we also set out a new medium-term performance framework to reflect our increased ambition. We report further below on the four elements of this medium-term performance framework, together with five key operational performance measures that we use to monitor our strategic progress.

Four Growth Initiatives:

1. Grow target customers

Across the Group, corporate customer numbers have increased by 3% since the end of last year.

Some of this growth reflects the initial realisation of the benefits from sharing best practice on when and how to deploy the human touch to more effectively grow customer numbers. For example, our French business had previously developed a customer qualification process, working with our suppliers to identify which industry sectors and customers had high growth potential and warranted a targeted sales approach. During the year we shared this best practice from France with our smaller European markets, helping businesses like our Spanish operation attract new customers and deliver strong underlying sales growth in the period.

Customer growth was also aided by driving a significant increase in traffic to our websites and our continued focus on providing great service to engineers via our family of free, easy-to-use design tools, Design Spark. In the middle of the year we successfully launched our latest such tool, Design Spark Mechanical. This fast 3D modelling and assembly tool brings 3D design capability to mechanical engineers, helping them to bring innovative products to market quickly. In the first seven months following its launch there have been over 70,000 activations of the software, with a large proportion of these coming from new contacts.

We also made progress developing an integrated strategy for each of our four target customer types to ensure our sales, offer and marketing approach and service levels are targeted to each group, and we are now managing customers more effectively across the customer life cycle.

2. One global offer

Our five product categories are built to service our four target customer groups and there are clear, distinct strategies for each. Our Famous For range, comprising semiconductors, interconnect, passives and electromechanical and automation and control product categories, are actively promoted and are the primary growth driver for the Group. During the year, the Famous For range grew underlying sales by 4%, around twice the Group sales growth rate. Our two other product categories - electrical, test and measurement; and tools and consumables - comprise our Other Maintenance range. We aim to defend and grow these product categories whilst focusing on return on stock.

Across the Group we added around 60,000 new products to our range during the year, slightly below the 70,000 products added in the previous year. This is in line with our objectives of improving the quality of our range by focusing new product investment on the Famous For product categories and building a more consistent global offer. During the year we took our first significant steps towards this second element. We have completed the build of a more consistent global offer across RS and Allied for our TE Connectivity product range, and have begun this process with ON Semiconductor, Omron, Honeywell, Panasonic and Phoenix Contact. This means that there are around 30,000 additional products now available to customers globally that previously were only available in certain regions. As at the end of the year, around 10% of our global product range was available to customers anywhere in the world. These initial pilots have successfully proven the concept, and moving forward we will now look to scale up our ability to conduct a range level-up so that we can proceed at a faster pace over the next few years.

The new way in which we manage our product categories has enabled us to improve our management of our stock. Stock provisions as a percentage of gross stock have fallen from 11% last year to 10% this year. All of the above has been achieved whilst maintaining our high and reliable levels of service.

3. eCommerce with a human touch

During the year our eCommerce channel grew sales at 6% in the year, significantly ahead of the 2% Group sales growth. eCommerce channel share, up 2% points in the year to 58%, continues to move towards our medium-term target of 70%.

This growth has been driven by a number of factors, including enhanced search functionality, increased investment in search engine marketing (SEM) and the clear value provided by our human touch, which manifests itself in the strong sales performance of our eProcurement solutions for larger customers and in our Live Chat service, amongst other initiatives.

Improved search functionality has made it even easier for our customers to do business with us. Visitors to our websites now get more relevant and clearer product information and have the ability to browse quick views of product specifications. Together with improvements we have made to the speed and effectiveness of the search filtering functionality, customers are now able to find and buy the products they need faster.

We have driven a significant increase in traffic to our RS websites over the year, reflecting an increase in SEM investment of over 10%. Offsetting this increased SEM spend has been a reduction in our expenditure on catalogue marketing of a broadly equivalent amount.

Our eProcurement solution, sales of which grew by 13% in the year, helps large customers reduce their total cost of procurement. During the year our sales force worked hard to market the solution's benefits, resulting in sales to our large customers across RS outperforming the overall customer base. We also completed the global roll-out of our Live Chat service across RS during the year. The service includes both sales chats, when customers are invited to chat based on their behaviour on site, and service chats, when customers can click a button to initiate a chat themselves. This service is now live in 29 countries in 19 languages across the world.

4. Value for money

This strategic priority is concerned with improving customers' perception of our range, availability and price. This is underpinned by our global price differentiation strategy, which is designed to enable us to capture more value from our slower-moving products. This will mitigate partially our investment in margin to improve our value for money proposition to customers of our fast-moving products. We made particular progress with this strategy in the UK and Continental Europe, and have begun to implement this strategy in Asia Pacific. This strategy, together with actions implemented to improve our customer discount effectiveness, has enabled the business to deliver a broadly stable Group gross margin in the year.

During the year we significantly increased our communication on our value for money and we also carried out pricing experiments to improve our knowledge of how different product categories react to price movements and price messaging. We rolled out a price perception measurement tool in the UK, US and China to help us understand how both existing and potential customers view our prices, and plan to take this tool into more of our markets during the coming year.

Three Strategic Enablers

1. High performance team

The major milestone for this strategic priority was the achievement of a smooth transition from our previous country-based operating structure to a global operating model that is functionally-based but which retains the value of a local sales presence.

Our first global employee engagement survey in spring 2013 showed above average levels of employee engagement. During the year we then developed action plans across the Group to enable us to improve upon these levels of employee engagement and in spring 2014 we undertook our second global employee engagement survey to check how we were progressing with these action plans. This reported an improvement in employee engagement levels, which we will look to build on in the coming year.

We have also invested in building our programme management capabilities to ensure we are well-equipped to deliver our growth ambitions.

2. Business insight

During the year we defined, built, installed and implemented a new SAP-based business intelligence system on time and in budget. The systems will support quicker and more effective data analysis and insight. We are leveraging this new system to establish global product data tools. We are now generating product reports significantly faster than before and are putting in place training to enable users to utilise these tools and reports to generate improved product insight for the business.

3. World class systems

During the year we successfully installed a SAP-based system in South East Asia and Greater China. These are the second and third of our four sub-regions in Asia Pacific to move to this system, following Australasia which went live with its new system in December 2012. Asia Pacific is the last of the Group's regions to move to a SAP-based system. During the coming year our systems implementation focus moves to the final sub-region, Japan. Having all four global regions on a common SAP-based system will allow all of our markets to have greater and faster access to the Group's strategic initiatives.

We have begun the initial work required to separate the front office, middle office and back office of our systems architecture to enable more change to occur in the business, faster; this work will continue into the coming year. We have also commenced the installation of a new disaster recovery system for Allied.

Strategic focus for next year

Looking into the 2015 financial year, the strategic emphasis will be on our one global offer and eCommerce with a human touch strategic priorities, though there will be ongoing developments in all seven of our strategic elements next year.

Within the one global offer strategy we plan to work with more of our major suppliers to build a more consistent global range in their product categories, using the lessons we learnt this year to enable us to move faster as we extend the process to additional suppliers. We also intend to implement a global planning tool that will improve our supply chain planning effectiveness and demand planning across the RS distribution network. The third major area of focus for this strategic priority next year is the development of a new product management tool to allow us to consistently manage the life cycle of our products globally whilst remaining compliant with local market regulations.

The eCommerce with a human touch strategic focus will be on the preparation for the upgrade of our web platform which we plan to commence during the year. This will be designed to enable improved functionality to enhance our competitive edge and alongside this we will embed new ways of working to enable us to drive a faster pace of change to our website.

Other important strategic developments planned for the coming year include the roll-out of a SAP-based system in Japan. This will complete the SAP-based system implementation in Asia Pacific, the last of the Group's regions to move to this system. We also plan further systems investment in order to enable the business to make more changes faster, including a second testing environment.

We will retain our focus on growing our four customer types, implementing a new customer insight tool and communicating our value proposition in a globally consistent manner to improve brand awareness.

Current trading and outlook

In the first seven weeks of the new financial year the Group has delivered sales growth of 2%. Sales trends in May to date have improved as compared to April, which was impacted by the timing of Easter holidays. The International business grew by 4% and the UK declined by 3% (UK sales decline excluding Raspberry Pi was 2%). Within International, Continental Europe grew by 1%, North America grew by 6% and Asia Pacific grew by 8%.

Whilst the global economic recovery is uneven and there are foreign exchange headwinds, we will continue to invest in our strategic initiatives. We expect to make further progress towards our medium-term performance goals during the coming year.

Key performance indicators (KPIs)

Medium-term performance framework KPIs:

All of our KPIs associated with our medium-term performance framework are "through the cycle" targets, and in any single-year period our performance may be significantly above or below the target range depending on what stage of the economic cycle we have been operating in.

1.   Group sales growth

Definition:Underlying sales growth, adjusted for trading days and currency movements

Target: We are targeting an average Group sales growth rate of 5% to 8% per annum through the cycle. This compares to our historical average of 4% Group sales growth per annum. We expect International sales growth to average between 7% and 10% per annum through the cycle (compared to a historic average of 6% per annum), and we expect UK sales growth to average between 1% and 2% per annum through the cycle (compared to a historic average of 1% per annum).

Performance:Group sales growth in 2014 was 2%, with International sales growth of 4% and a decline in UK sales of 2%. The Group and International sales growth rates represent an improvement on 2013 sales growth rates, but remained below the lower end of the "through the cycle" target range, reflecting the early stage of the global economic recovery. The UK sales performance was disappointing, and we have recently taken action to improve this going forward.

2.   Group return on sales

Definition: Headline operating profit expressed as a percentage of sales

Target: We are targeting a "through the cycle" Group operating margin range of between 9% and 11%, which would represent an improvement on our historical performance of 7% to 10% (adjusted to reflect a 75:25 International:UK sales mix). This improvement is primarily driven by operating cost leverage. Our targets also assume that Group gross margin will reduce by around two percentage points over the medium term as we grow faster in lower-margin technologies and countries. Our global pricing strategy will enable us to mitigate partially the investment in margin we will make to improve our value for money proposition to customers.

Performance:Group return on sales in 2014 was 8.3%, slightly below the lower end of our medium-term target range but an improvement on the 2013 Group return on sales of 8.1%. The year over year improvement reflects the operating leverage attained from maintaining a stable gross margin whilst growing sales and continuing to invest in our strategic priorities. 

3.   Return on capital employed

Definition:Headline operating profit expressed as a percentage of net assets plus net debt

Target:Historically the Group's return on capital employed (including goodwill) has ranged between 15% and 25%, significantly above the Group's weighted average cost of capital. We are targeting to raise this range to between 20% and 30% as the benefits of faster sales growth and continued strong cash generation are realised.

Performance:Return on capital employed in 2014 was 20.9%, within our medium-term target range. This represents an improvement on the 2013 return on capital employed of 18.5%, reflecting the growth in operating profit from a relatively stable capital base.

4.   Headline free cash flow as a percentage of sales

Definition: Headline free cash flow is reported free cash flow before reorganisation cash flows expressed as a percentage of Group sales

Target: Our global strategy is being supported by increased investment. Combined with a slight improvement in stock turns and improved profitability we are targeting medium-term Group headline free cash flow to range between 4% and 6%.

Performance:Headline free cash flow as a percentage of sales was 4.6% in 2014, within our medium-term target range and in line with the corresponding 2013 figure of 4.5%.

Operational KPIs:

In order to monitor progress against our strategy we also have a range of operational KPIs.

1.   Growth in customer numbers

Definition:Percentage increase in number of corporate customers placing an order during the year

Objective:In order to achieve our Group sales growth targets we will need to increase both corporate customer numbers and our sales to existing corporates, with the first of these expected to be of greatest importance as we seek to increase our market share in our international markets.

Performance: Group corporate customer numbers increased by 3% during the year.

2.   Group eCommerce sales growth

Definition:Growth in Group eCommerce sales

Objective:For the Group to deliver its Group sales growth target and achieve its medium-term growth ambitions it will need to continue to successfully grow its eCommerce business. We expect that eCommerce sales growth rate should consistently exceed the Group sales growth rate.

Performance: Group eCommerce sales growth was 6%, significantly ahead of the overall Group sales growth of 2%.

3.   Famous For product sales growth

Definition:Growth in Famous For product sales (electronics and automation and control)

Objective:For the Group to deliver its Group sales growth target and achieve its medium-term growth ambitions it will also need to achieve its aim of being famous for electronics and automation and control product ranges. We expect that the sales growth rate of our Famous For product ranges should consistently exceed the Group sales growth rate.

Performance: Famous For product sales growth was 4%, around twice the growth rate of the Group's full product range.

4.   Group gross margin

Definition:Group gross profit expressed as a percentage of Group sales

Objective:A key component of the Group's medium-term return on sales target is the delivery of a broadly stable Group gross margin, before allowing for product or geographical mix effects and currency movements. As a result of these mix effects, we expect Group gross margin to reduce by around two percentage points over the medium term.

Performance: Group gross margin was stable at 45.9% (2013: 46.0%).

5.   Group lost time accident rate

Definition:Number of lost time accidents per 200,000 hours worked

Objective:The delivery of the Group's global strategy is dependent on our largest asset, our workforce, and we are committed to providing a safe and healthy work environment. We are targeting an ongoing reduction in the rate at which time is lost due to our employees suffering accidents in the workplace.

Performance: The Group lost time accident rate reduced from 0.60 in 2013 to 0.42 in 2014.

FINANCIAL PERFORMANCE AND POSITION

Financial Performance	2014	2013 As restated (1)
Sales	£1,273.1m	£1,235.6m
Gross margin	45.9%	46.0%
Headline contribution (2)	£257.9m	£241.0m
Headline Group Process costs (2)	£(151.8)m	£(141.3)m
Headline operating profit (2)	£106.1m	£99.7m
Headline return on sales (2)	8.3%	8.1%
Interest (net)	£(5.0)m	£(5.6)m
Headline profit before tax (2)	£101.1m	£94.1m
Headline free cash flow (2)	£58.3m	£56.1m
Headline earnings per share (2)	16.3p	14.9p
Dividend per share (3)	11.75p	11.75p
Net debt to EBITDA(4)	1.1x	1.2x

(1)   Restated for the changes in IAS19R Employee Benefits. For further details refer to Changes to accounting standards

(2)   Headline measures of profitability and cash flow are defined as the relevant reported profit/cash flow measure before reorganisation costs/cash flows. Additional trading days and currency movements increased headline profit before tax by £4 million

(3)   2014: comprises 5p interim and 6.75p proposed final dividend

(4)   EBITDA:  Earnings before interest, tax, depreciation and amortisation (inc. government grants)

Sales

Group sales were £1,273.1 million, representing underlying sales growth of 2.1%. Group eCommerce sales growth was 6%, with eCommerce averaging 58% of Group sales during the year. Our Famous For products (comprising around 55% of Group sales) grew by 3.7%. These products outperformed our Other Maintenance products (comprising around 45% of Group sales), sales of which grew by 0.2%.

Additional trading days and currency movements increased Group reported sales by around £12 million.

Gross margin

Group gross margin at 45.9% was stable with the prior year. This reflected favourable currency movements, offset by adverse geographic mix and some price repositioning.

Costs

Headline operating costs at constant currency increased by 2.3% (1.9% as reported). We benefitted from the annualisation of the cost efficiencies arising from last year's implementation of a global organisation structure amounting to £3 million in the year, all of which was reflected in the first half, together with lower stock provisions. These benefits were offset by fixed cost inflation, increased IT costs, higher depreciation and investment in our strategic growth initiatives, which was particularly focused on the second half. These factors are expected to continue into the coming financial year, leading to expected growth in headline operating costs at constant currency of around 5%.

Headline profit before tax

Headline profit before tax was £101.1 million, an increase of £7.0 million (or 7.4%) on the prior year.  The International business' contribution increased by £12.6 million (9.1%), driven by a strong performance from Continental Europe and North America, whilst the UK's contribution increased by £4.3 million (4.2%). Process costs increased by £10.5 million (7.4%), primarily reflecting inflation and additional IT costs and depreciation associated with the implementation of our global strategy. Net interest costs reduced by £0.6 million, reflecting lower net debt levels and lower interest costs associated with our new multicurrency European cash pool.

Group headline profit before tax benefitted by £4 million due to additional trading days and currency movements.

Reported profit before tax

Reported profit before tax, which comprises headline profit before tax after reorganisation costs, increased by 16.6%. This increase was above the 7.4% increase in headline profit before tax due to the absence of exceptional items in the year. In the prior year non-recurring reorganisation costs of £7.4 million arose, primarily relating to redundancy charges arising from the implementation of the global organisation structure.

Taxation

The Group's effective tax rate was 29% of headline profit before tax, 2% points lower than the prior year primarily reflecting the reduction in the UK corporate tax rate. The effective tax rate on reported profit before tax was 29%. The Group's effective tax rate includes the effect of a significant and continuing increase in the deferred tax liability due to the tax amortisation of overseas goodwill. This deferred tax liability is not expected to crystallise in the foreseeable future. The effective tax rate was higher than the cash tax rate of 24% of headline profit before tax, which is expected to increase going forward as prior-year tax losses are utilised.

During the year the Board reviewed and endorsed the Group's tax strategy. The strategy seeks to ensure that key tax risks are appropriately mitigated, that appropriate taxes are paid in each jurisdiction where the group operates, and that the Group's reputation as a responsible taxpayer is safeguarded. We are committed to having a positive relationship with tax authorities, and to dealing with our tax affairs in a straightforward, open and honest manner.

Headline earnings per share

Headline earnings per share of 16.3p increased by 9.4%. This was slightly above the increase in headline profit before tax, reflecting the decrease in the effective tax rate noted above.

Dividend

The Board is proposing a maintained final dividend of 6.75p per share. This will be paid on 29 July 2014 to shareholders on the register on 27 June 2014.  As a result, the total dividend for the financial year will be maintained at 11.75p per share, resulting in headline earnings dividend cover of 1.4 times. The business has significant opportunities to invest for growth at attractive returns and we intend to maintain a strong balance sheet. As previously stated, over time and as earnings increase, the Board intends to pursue a progressive dividend policy whilst increasing headline earnings dividend cover towards two times.

Cash flow

Headline free cash flow for the year of £58.3 million was 4% above the prior-year level, with the increase in headline profit before tax partially offset by increased capital expenditure.

Stock turn improved from 2.5 times to 2.7 times, or 2.6 times on a consistent currency basis. Next year we expect stock turn to be around 2.5 times.

As planned, net capital expenditure increased by £8.2 million from £27.4 million to £35.6 million. All of this growth in capital expenditure arose in the second half, reflecting the commencement of our investment in several strategic initiatives following a period of planning. We invested in a SAP-based business intelligence system and commenced investment in a new enterprise architecture to enable the business to make more system changes, faster. We also continued to roll out a SAP-based IT system across Asia Pacific, the last region to move to this system, with its successful installation in South East Asia and Greater China.

Next year we expect capital expenditure to be around £40 million, consistent with the planned investment in our global strategy. We plan to complete the system investment in Asia Pacific, with Japan being the final market to transition to a new SAP-based IT system. Additional investment will be targeted at our strategic priorities, including a new enterprise architecture, preparation for an upgrade of our web platform, enhanced website functionality and systems to enable a more consistent global offer across RS and Allied.

Financial position

At 31 March 2014 net debt was £143.6 million. This was £16.1 million lower than last year, reflecting positive free cash flow after dividend payments together with currency movements. Year-end net debt comprised gross borrowings of £144.2 million (currency split: £58.3 million US Dollars, £58.8 million Sterling, £23.6 million Euros and the balance in other currencies) and financial assets of £0.7 million. The currency mix is designed to partially hedge the Group's translation exposures. The peak month-end net borrowing during the year was £175.1 million.

The Group's committed debt finance comprises a syndicated multi-currency facility (currency split: US Dollars $75 million, Sterling £120 million, Euros €50 million) maturing in November 2015, together with $150 million of US Private Placement notes ($65 million with a June 2015 maturity and $85 million with a June 2017 maturity). Taken together, the Group's committed debt facilities and loans amount to £296.9 million, of which £169.1 million was undrawn as at 31 March 2014.

The Group's financial metrics remain strong with net debt to EBITDA of 1.1 times, gearing of 39% and EBITA interest cover of 24.7 times, with significant headroom to the Group's banking covenants.

Pension

The Group has defined benefit pension schemes in the UK, Ireland and Germany, the largest of which is the UK scheme. All these schemes are closed to new entrants. The German and Irish schemes are closed to accruals for future service.

Under IAS19R the combined gross deficit of the Group's defined benefit schemes was £40.9 million as at 31 March 2014 (UK deficit: £33.7 million, Germany deficit: £6.2 million, Republic of Ireland deficit: £1.0 million deficit). The UK deficit increased from a deficit of £12.4 million at 31 March 2013, reflecting higher liabilities (due to the use of updated census data for the current triennial valuation and higher life expectancy assumptions) together with actuarial losses due to returns on assets being lower than expected; these factors were only partially offset by a higher discount rate. In order to mitigate the increase in the UK deficit the Company has been consulting with active members of the scheme regarding changes to benefits. These changes involve lowering the cap on the level of salary which is pensionable and increasing member contributions. Members are in the process of making decisions in respect of their future pension provision. The triennial actuarial valuation of the UK defined benefit scheme is currently ongoing and due to complete in summer 2014.

Amendments to IAS19, which became effective for periods beginning on or after 1 January 2013, have resulted in the use of a lower rate of return on assets and a £4.4 million increase in the 2014 pension charge, which totalled £7.2 million. The prior-year pension charge has also been restated to reflect these amendments (IAS19R restatement £4.6 million, total pension charge £6.4 million). The £1.2 million increase in the pension charge is mainly due to lower discount rates used to value scheme liabilities.

INTERNATIONAL

	2014	2013	Growth reported	Growth underlying(1)
Sales	£898.8m	£860.5m	4.5%	3.8%
Gross margin	44.1%	44.6%
Operating costs	£(246.2)m	£(245.7)m	(0.2)%	(0.6)%
Contribution	£150.4m	£137.8m	9.1%	8.8%
Contribution % of sales	16.7%	16.0%

(1)   Adjusted for currency; sales also adjusted for trading days

The International business represents over 70% of Group revenue and comprises three regions: Continental Europe (51% of the International business), North America (31%) and Asia Pacific (18%).

During the year, underlying sales increased by 3.8%. Within International, both Continental Europe and North America grew underlying sales by 4% and underlying sales in Asia Pacific grew by 2%. All of our emerging markets continued to deliver strong sales growth, particularly Eastern Europe and South Africa. International eCommerce sales grew by 10%, more than twice the rate of the overall International business, driven by a strong performance from North America and Continental Europe.

Gross margin reduced by 0.5% points. This was impacted by adverse currency movements, negative product mix (due mainly to Raspberry Pi) and some price repositioning and discounting in certain markets. Operating costs at constant currency grew by 0.6%, with fixed cost inflation and investment in search engine marketing partially offset by the annualisation of cost efficiencies associated with the prior-year reorganisation and lower stock provisions.

The above combination of sales growth, lower gross margin and increased costs resulted in the International contribution as a percentage of sales increasing by 0.7% points to 16.7%.

CONTINENTAL EUROPE

	2014	2013	Growth reported	Growth underlying(1)
Sales	£460.6m	£426.2m	8.1%	4.1%
Contribution	£99.4m	£90.9m	9.4%	5.6%
Contribution % of sales	21.6%	21.3%

(1)  Adjusted for currency; sales also adjusted for trading days

Our business in Continental Europe operates in fifteen markets. The largest of these are France, Germany and Italy, which together comprise around 70% of sales in the region. The remaining markets are Austria, Belgium, Czech Republic, Denmark, Hungary, Ireland, Netherlands, Norway, Poland, Spain, Sweden and Switzerland.

Continental Europe delivered underlying sales growth of 4.1%. All markets in the region contributed to this growth, notably Germany, which benefited from strong sales of Raspberry Pi, and smaller markets such as Spain, Benelux, Scandinavia and Eastern Europe. Regional growth improved as the year progressed, increasing from around 3% in the first half to 5% in the second half. This improvement was partly due to the more favourable PMI backdrop but also reflected good progress implementing the new global strategy, particularly with regards to the sharing of best practice in sales and marketing to enhance our customer proposition.

eCommerce has played a key role in the region's success. Continental Europe is the region with the highest eCommerce penetration in the Group, averaging 69% share of sales in the year (compared to 66% in the prior year) and exiting the year at 70%. eCommerce sales grew by 8% in the year, around twice the rate of the region's overall sales, driven by sales of our leading eProcurement solution. This helped the region gain 20 corporate accounts during the year.

The 5.6% increase in underlying contribution reflected positive operating cost leverage and also benefited from the annualisation of the cost efficiencies associated with the prior-year reorganisation and lower stock provisions.

NORTH AMERICA

	2014	2013	Growth reported	Growth underlying(1)
Sales	£281.3m	£268.6m	4.7%	4.2%
Contribution	£39.1m	£34.9m	12.0%	14.3%
Contribution % of sales	13.9%	13.0%

(1)  Adjusted for currency; sales also adjusted for trading days

Allied, our North American business, reported underlying sales growth of 4.2%. Growth rates improved as the year progressed, with the exception of a temporary but significant impact from adverse weather conditions during December and January which prevented many customers from getting to work. The improvement in sales growth rates during the year partly reflected easier comparators, but also reflected a gradual recovery in the electronics market.

Business performance benefited from enhancements to Allied's electronics and automation and control range, with around 42,000 new products added to the range, which is significantly above its usual annual run-rate of 25,000 - 30,000 products. This reflected the commencement of our strategy to build a more consistent global offer across RS and Allied. During the year we completed this process with our largest electronics supplier TE Connectivity and began the process with other leading global suppliers ON Semiconductor, Omron, Honeywell, Panasonic and Phoenix Contact.

The restoration of full online functionality during the year (following the SAP-based system implementation in the prior year there was a temporary reduction in online functionality) led to a strong recovery in Allied's eCommerce performance, with eCommerce sales growth of 19%. eCommerce sales averaged 39% during the year (compared to 34% in 2013), and this metric has now returned to the 40% level it reached prior to SAP implementation.

The 14.3% increase in underlying contribution reflected positive operating cost leverage partly offset by costs related to the strategy to build a more consistent global offer.

ASIA PACIFIC

	2014	2013	Growth reported	Growth underlying(1)
Sales	£156.9m	£165.7m	(5.3)%	2.1%
Contribution	£11.9m	£12.0m	(0.8)%	19.8%
Contribution % of sales	7.6%	7.2%

(1)   Adjusted for currency; sales also adjusted for trading days

Our Asia Pacific business is the region's market leader and comprises four similarly-sized sub-regions; Australasia, Greater China, Japan and South East Asia. Underlying sales in the region increased by 2.1% in the year, improving from flat in the first half to 4% growth in the second half. This in-year improvement was principally due to a pick-up in growth rates in Japan and a return to growth in Australasia and South East Asia following a period when both of these markets had been impacted by the slowdown in the resources-related sectors. Greater China remained in growth during the year.

Our Japanese business benefited from improving PMIs, easier comparators and a gradual recovery in the electronics market. However, our Japanese business also improved performance by enhancing its customer offer. This included increased focus on its automation and control range and the targeting of large customer accounts with eProcurement solutions. Across the region 46 corporate accounts were added to the large customer portfolio during the year.

The improvement in sales growth in Japan, which has a high eCommerce sales share of around 75%, contributed to regional eCommerce sales growth of 5% exceeding the overall regional sales growth of 2%. The region's eCommerce sales share improved slightly to 50%.

Asia Pacific's contribution margin improved by 40 basis points to 7.6%, mainly reflecting positive operating cost leverage and lower marketing costs after the prior-year period included set-up costs for the RS Infinity customer loyalty programme.

UK

	2014	2013 As restated (1)	Growth reported	Growth underlying (2)
Sales	£374.3m	£375.1m	(0.2)%	(1.8)%
Gross margin	50.0%	49.3%
Operating costs	£(79.8)m	£(81.7)m	2.3%	2.3%
Contribution	£107.5m	£103.2m	4.2%	4.2%
Contribution % of sales	28.7%	27.5%

(1)   Restated for the changes in IAS19R Employee Benefits. For further details refer to Changes to accounting standards

(2)   Sales adjusted for trading days

Our UK operation is the largest high service distributor in its market. Against strong comparators the UK business' underlying sales declined by 1.8%, 0.6% excluding sales of Raspberry Pi. There was a slight improvement in sales trends following the pick-up in the UK manufacturing PMI, with UK sales excluding Raspberry Pi flat in the final quarter. However, this improvement was not as significant as we had expected and we have made several senior management changes.

We added 16 corporate accounts during the year but experienced a softening of demand in the latter part of the year from some existing corporate accounts, particularly those in the manufacturing, utilities and defence sectors.

eCommerce sales declined by 1%, outperforming the overall UK business, and eCommerce sales share averaged 62%, which was similar to the prior year.

Despite declining sales UK contribution increased by 4.2%, delivering a 120 basis point improvement in the contribution margin to 28.7%. This reflected an increase in gross margin of 0.7% points, due to favourable currency movements, favourable product mix and benefits from our global pricing strategy, together with a 2.3% reduction in operating costs, reflecting the annualisation of cost efficiencies associated with the prior-year reorganisation and lower stock provisions.

PROCESSES

	2014	2013 As restated (1)	Change reported	Change underlying (2)
Process costs	£(151.8)m	£(141.3)m	(7.4)%	(8.0)%
Costs % of sales	(11.9)%	(11.4)%

(1)   Restated for the changes in IAS19R Employee Benefits. For further details refer to Changes to accounting standards

(2)   Adjusted for currency

The Processes principally comprise our teams that manage our Group-wide Marketing, Offer and IT activities, together with Group management and head office costs. These Processes have responsibility for the identification, introduction and sourcing of the Group's products, managing supplier relationships, developing the Group's marketing strategy and its implementation, managing the Group's stock and overseeing the Group's worldwide IT infrastructure.

Process costs increased by 8.0% at constant currency, primarily reflecting the impact of fixed cost inflation and a double-digit increase in IT costs and depreciation as we commenced the implementation of our systems strategy to support our medium-term growth ambitions. This included the commencement of a new enterprise architecture to enable our systems to deliver more change, faster. There were enhancements to the search functionality on our websites and we introduced our latest design tool for engineers, DesignSpark Mechanical. This tool provides engineers with free access to an extensive library of 3D models, enabling them to save time and money by bringing new products to market more quickly.

Our one global offer strategic priority is focused on building a more consistent global offer across RS and Allied and targeting new product investment on our Famous For products rather than expanding the entire range. Hence the level of new product introduction across RS in the last year, at around 34,000, was below prior-year levels and over three-quarters of the new products were in the Famous For product categories. Allied added around 42,000 new products in the year. This is significantly above Allied's run-rate in recent years, reflecting the addition of products from our RS range from TE Connectivity, Omron, ON Semiconductor, Honeywell, Panasonic and Phoenix Contact, being the first of our major suppliers where we are developing a more consistent global range. There has been increased cost investment accompanying the delivery of this more consistent global offer.

We have strengthened existing partnerships with leading global brands and signed new global agreements during the year with Fairchild Semiconductor, Parralax, Exar, Philips Lumileds and Red Pitaya, whilst our commitment to promoting new and innovative products was enhanced with our distribution agreement with RepRapPro to bring affordable, open-source 3D printing technology to engineers worldwide.

Ian Mason, Group Chief Executive

Simon Boddie, Group Finance Director

22 May 2014

Condensed Consolidated Income Statement

	Note	Year to 31.3.2014	Year to 31.3.2013 As restated*
		£m	£m
Revenue	1	1,273.1	1,235.6
Cost of sales		(689.2)	(667.2)
Gross profit		583.9	568.4
Distribution and marketing expenses		(466.1)	(466.4)
Administrative expenses		(11.7)	(9.7)
Operating profit		106.1	92.3
Financial income		2.5	2.8
Financial expense		(7.5)	(8.4)
Profit before tax	1	101.1	86.7
Income tax expense	4	(29.6)	(27.3)
Profit for the period attributable to the equity shareholders of the parent company		71.5	59.4
Earnings per share - Basic	5	16.3p	13.6p
Earnings per share - Diluted	5	16.2p	13.5p
Dividends
Amounts recognised in the period:
Final dividend for the year ended 31 March 2013	6	6.75p	6.75p
Interim dividend for the year ended 31 March 2014	6	5.0p	5.0p

* Restated for the changes in IAS19R Employee Benefits. For further details refer to Changes to accounting standards

	Note	Year to 31.3.2014	Year to 31.3.2013 As restated*
		£m	£m
Headline operating profit
Operating profit		106.1	92.3
Reorganisation costs	3	-	7.4
		106.1	99.7

Headline profit before tax
Profit before tax		101.1	86.7
Reorganisation costs	3	-	7.4
		101.1	94.1

Condensed Consolidated Statement of Comprehensive Income

		Year to 31.3.2014	Year to 31.3.2013 As restated*
		£m	£m
Profit for the period		71.5	59.4
Other comprehensive income Items that are not reclassified subsequently to the income statement
Remeasurement of pension deficit		(20.2)	(21.5)
Movement in unrecognised pension surplus		-	11.9
Taxation relating to remeasurement of pension deficit		3.5	1.7
Items that are reclassified subsequently to the income statement
Foreign exchange translation differences		(22.4)	11.5
Gain (loss) on cash flow hedges		1.7	(0.7)
Taxation relating to components of other comprehensive income		(0.7)	1.4
Other comprehensive (expense) income for the financial period		(38.1)	4.3
Total comprehensive income for the financial period		33.4	63.7

* Restated for the changes in IAS19R Employee Benefits. For further details refer to Changes to accounting standards

Condensed Consolidated Balance Sheet

	Note	31.3.2014	31.3.2013
		£m	£m
Non-current assets
Intangible assets	7	219.8	223.5
Property, plant and equipment	8	104.6	112.1
Investments		0.4	0.6
Other receivables		5.3	7.1
Other financial assets		3.7	11.8
Deferred tax assets		8.9	6.4
		342.7	361.5
Current assets
Inventories	9	258.8	261.9
Trade and other receivables		214.8	221.1
Income tax receivables		8.3	5.9
Cash and cash equivalents	10	0.7	9.3
		482.6	498.2
Current liabilities
Trade and other payables		(185.4)	(194.8)
Provisions and other liabilities	3	-	(0.6)
Loans and borrowings	10	(15.8)	(10.7)
Other financial liabilities		(0.7)	(1.4)
Income tax liabilities		(15.5)	(13.9)
		(217.4)	(221.4)
Net current assets		265.2	276.8
Total assets less current liabilities		607.9	638.3
Non-current liabilities
Other payables		(11.8)	(11.8)
Retirement benefit obligations	11	(40.9)	(19.0)
Loans and borrowings	10	(131.4)	(168.0)
Other financial liabilities		(0.1)	(0.7)
Deferred tax liabilities		(59.4)	(59.2)
		(243.6)	(258.7)
Net assets		364.3	379.6
Equity
Called-up share capital		44.0	43.8
Share premium account		41.5	40.3
Retained earnings		268.2	263.9
Cumulative translation reserve		10.4	32.8
Other reserves		0.2	(1.2)
Equity attributable to the equity shareholders of the parent company		364.3	379.6

Condensed Consolidated Cash Flow Statement

	Note	Year to 31.3.2014	Year to 31.3.2013 As restated*
		£m	£m
Cash flows from operating activities
Profit before tax		101.1	86.7
Depreciation and other amortisation charges		28.1	25.9
Loss on disposal of non-current assets		1.2	-
Equity-settled transactions		1.5	2.0
Finance income and expense		5.0	5.6
Non-cash movement on investment in associate		0.2	-
Operating cash flow before changes in working capital, interest and taxes		137.1	120.2
(Increase) decrease in inventories		(9.8)	1.4
(Increase) decrease in trade and other receivables		(1.1)	3.0
Decrease in trade and other payables		(2.8)	(17.3)
(Decrease) increase in provisions and other liabilities	3	(0.6)	0.6
Cash generated from operations		122.8	107.9
Interest received		2.5	2.8
Interest paid		(7.5)	(8.4)
Income tax paid		(24.5)	(25.6)
Net cash from operating activities		93.3	76.7
Cash flows from investing activities
Capital expenditure and financial investment		(35.7)	(28.7)
Proceeds from sale of property, plant and equipment		0.1	1.3
Net cash used in investing activities		(35.6)	(27.4)
Free cash flow		57.7	49.3
Cash flows from financing activities
Proceeds from the issue of share capital		1.4	0.6
Purchase of own shares		(0.6)	(0.5)
Loans repaid		(23.3)	(18.2)
Dividends from vested share options		-	(0.7)
Equity dividends paid	6	(51.4)	(51.3)
Net cash used in financing activities		(73.9)	(70.1)
Net (decrease) in cash and cash equivalents		(16.2)	(20.8)
Cash and cash equivalents at the beginning of the period		(1.4)	18.6
Effects of exchange rate fluctuations on cash		2.5	0.8
Cash and cash equivalents at the end of the period	10	(15.1)	(1.4)

* Restated for the changes in IAS19R Employee Benefits. For further details refer to Changes to accounting standards

	Note	Year to 31.3.2014	Year to 31.3.2013
		£m	£m
Free cash flow		57.7	49.3
Reorganisation costs	3	0.6	6.8
Headline free cash flow		58.3	56.1

Condensed Consolidated Statement of Changes in Equity

			Other reserves
	Share capital	Share premium account	Hedging reserve	Own shares held	Cumulative translation	Retained earnings	Total
	£m	£m	£m	£m	£m	£m	£m
At 1 April 2013	43.8	40.3	(0.1)	(1.1)	32.8	263.9	379.6
Profit for the period	-	-	-	-	-	71.5	71.5
Foreign exchange translation differences	-	-	-	-	(22.4)	-	(22.4)
Remeasurement of pension deficit	-	-	-	-	-	(20.2)	(20.2)
Gain on cash flow hedges	-	-	1.7	-	-	-	1.7
Taxation relating to components of other comprehensive income	-	-	(0.7)	-	-	3.5	2.8
Total comprehensive income	-	-	1.0	-	(22.4)	54.8	33.4
Equity settled transactions	-	-	-	-	-	1.5	1.5
Dividends paid	-	-	-	-	-	(51.4)	(51.4)
Shares allotted in respect of share awards	0.2	1.2	-	1.0	-	(1.1)	1.3
Own shares acquired	-	-	-	(0.6)	-	-	(0.6)
Related tax movements	-	-	-	-	-	0.5	0.5
At 31 March 2014	44.0	41.5	0.9	(0.7)	10.4	268.2	364.3

			Other reserves
	Share capital	Share Premium account	Hedging reserve	Own shares held	Cumulative translation	Retained earnings	Total
	£m	£m	£m	£m	£m	£m	£m
At 1 April 2012	43.7	39.8	0.2	(1.9)	20.3	263.9	366.0
Profit for the period	-	-	-	-	-	59.4	59.4
Foreign exchange translation differences	-	-	-	-	11.5	-	11.5
Remeasurement of pension deficit	-	-	-	-	-	(21.5)	(21.5)
Movement in unrecognised pension surplus	-	-	-	-	-	11.9	11.9
Net loss on cash flow hedges	-	-	(0.7)	-	-	-	(0.7)
Taxation relating to components of other comprehensive income	-	-	0.4	-	1.0	1.7	3.1
Total comprehensive income	-	-	(0.3)	-	12.5	51.5	63.7
Equity settled transactions	-	-	-	-	-	2.0	2.0
Dividends paid	-	-	-	-	-	(51.3)	(51.3)
Shares allotted in respect of share awards	0.1	0.5	-	1.3	-	(1.7)	0.2
Own shares acquired	-	-	-	(0.5)	-	-	(0.5)
Related tax movements	-	-	-	-	-	(0.5)	(0.5)
At 31 March 2013 As restated*	43.8	40.3	(0.1)	(1.1)	32.8	263.9	379.6

* Restated for the changes in IAS19R Employee Benefits. For further details refer to Changes to accounting standards

Notes to the Preliminary Statement

For the year ended 31 March 2014

Changes to accounting standards applied in this financial report

IAS 19 (revised 2011) Employee Benefits

The Group recognises all costs relating to the pension scheme within distribution and marketing costs within the income statement.

With effect from 1 April 2013, the Group has adopted the following new standard and amendment to an existing standard, which has been applied retrospectively. IAS19 (revised 2011) Employee Benefits, replaces interest cost and expected return on plan assets with a net pension cost on the pension deficit.

The defined benefit pension cost is calculated using the rate currently used to discount defined benefit pension liabilities. The discount rate is lower than the expected return on plan assets, increasing operating costs in the income statement and correspondingly reducing re-measurements recognised in other comprehensive income.

For the year to 31 March 2013, the impact has been to increase the net pension cost by £4.6m, to reduce profit before tax by £4.6m and reduce profit after tax by £3.5m. The actuarial loss on pension schemes has been reduced by £4.6m and the income tax credit on other comprehensive income has been reduced by £1.1m. The net pension deficit is unchanged in both comparative periods.

1. Analysis of income and expenditure

	Year to 31.3.2014	Year to 31.3.2013 As restated*
	£m	£m
Revenue	1,273.1	1,235.6
Cost of sales	(689.2)	(667.2)
Distribution and marketing expenses	(326.0)	(327.4)
Headline contribution before Process costs	257.9	241.0
Distribution and marketing expenses within Process costs	(140.1)	(131.6)
Administrative expenses within Process costs	(11.7)	(9.7)
Group Process costs	(151.8)	(141.3)
Headline operating profit	106.1	99.7
Net financial expense	(5.0)	(5.6)
Headline profit before tax	101.1	94.1
Reorganisation costs	-	(7.4)
Profit before tax	101.1	86.7

* Restated for the changes in IAS19R Employee Benefits. For further details refer to Changes to accounting standards

Distribution and marketing expenses within contribution comprise local costs incurred relating to the selling and distribution of the Group's products, and are attributable to the region to which they relate.

Distribution and marketing expenses within Process costs principally comprise our teams that manage our Group-wide Marketing, Offer and IT activities. These Processes have responsibility for the identification, introduction and sourcing of the Group's products, managing supplier relationships, developing the Group's global marketing strategy and its implementation, managing the Group's stock and overseeing the Group's worldwide IT infrastructure. Administrative expenses within Process costs principally comprise Group management and head office costs.

2. Segmental reporting

In accordance with IFRS 8 Operating Segments, Group management has identified its operating segments. The performance of these operating segments is reviewed, on a monthly basis, by the Group Chief Executive and the Group Executive Committee.

These operating segments are: the United Kingdom, Continental Europe, North America and Asia Pacific. The United Kingdom comprises operations in the United Kingdom and exports to distributors where the Group does not have a local operating company. Continental Europe comprises operations in France, Germany, Italy, Austria, Denmark, Norway, Sweden, Republic of Ireland, Spain, Switzerland, the Netherlands, Belgium, Poland, Hungary and the Czech Republic. North America comprises operations in the United States of America and Canada. Asia Pacific comprises operations in Japan, Australia, New Zealand, Singapore, Malaysia, Philippines, Thailand, Hong Kong, Taiwan, People's Republic of China, South Korea, Chile and South Africa.

During the year ended 31 March 2013, the Group changed from having a geographically-based operating model to a functionally-based operating model managed on a global basis. Management have reviewed the operating segments and continue to manage the business performance on a regional basis. Therefore, the operating segments are considered to be unchanged.

Each reporting segment derives its revenue from the high service level distribution of electronics, automation and control and other maintenance products. Intersegment pricing is determined on an arm's length basis, comprising sales of product at cost and a handling charge included within distribution and marketing expenses.

		Year to 31.3.2014	Year to 31.3.2013 As restated*
		£m	£m
Revenue from external customers
	United Kingdom	374.3	375.1
	Continental Europe	460.6	426.2
	North America	281.3	268.6
	Asia Pacific	156.9	165.7
		1,273.1	1,235.6
Contribution
	United Kingdom	107.5	103.2
	Continental Europe	99.4	90.9
	North America	39.1	34.9
	Asia Pacific	11.9	12.0
		257.9	241.0
Reconciliation of contribution to profit before tax
	Headline contribution	257.9	241.0
	Group Process costs	(151.8)	(141.3)
	Reorganisation costs	-	(7.4)
	Net financial expense	(5.0)	(5.6)
	Profit before tax	101.1	86.7

* Restated for the changes in IAS19R Employee Benefits. For further details refer to Changes to accounting standards

During the year ended 31 March 2014, the Group has changed the way in which it manages and reviews revenue by product category. The Group's growth strategy is focussed on products which it will be Famous For, which includes electronics and automation and control. All other products are classified as Other Maintenance and are managed separately.

	Year to 31.3.2014	Year to 31.3.2013
	£m	£m
Famous For products	696.1	664.1
Other Maintenance products	577.0	571.5
	1,273.1	1,235.6

3 Reorganisation costs

Reorganisation costs arising during the period are as follows:

	Year to 31.3.2014	Year to 31.3.2013
	£m	£m
Redundancy and associated costs	-	7.4

During the year ended 31 March 2013, the Group undertook a significant restructuring of the business from a geographically-based operating model to a functionally-based global operating model. The costs incurred in relation to this restructuring activity included redundancy and associated consultancy costs. £6.8m of the costs were paid in the year ended 31 March 2013, with the remaining balance of £0.6m held in provisions due within one year at the year end. At 31 March 2014, the provision has been utilised in full and no further liabilities are expected.

4 Taxation on the profit of the Group

	Year to 31.3.2014	Year to 31.3.2013 As restated*
	£m	£m
United Kingdom taxation	13.5	10.4
Overseas taxation	16.1	16.9
Income tax expense	29.6	27.3
Tax impact of reorganisation	-	1.7
Headline income tax expense	29.6	29.0
Headline profit before tax	101.1	94.1
Profit before tax	101.1	86.7
Headline effective tax rate	29%	31%
Effective tax rate	29%	31%

* Restated for the changes in IAS19R Employee Benefits. For further details refer to Changes to accounting standards

5 Earnings per share

	Year to 31.3.2014	Year to 31.3.2013 As restated*
	£m	£m
Profit for the period attributable to equity shareholders	71.5	59.4
Reorganisation costs	-	7.4
Tax impact of reorganisation	-	(1.7)
Headline profit on ordinary activities after taxation	71.5	65.1
Weighted average number of shares (millions)	439.1	437.8
Diluted weighted average number of shares (millions)	442.2	439.9
Headline basic earnings per share	16.3p	14.9p
Basic earnings per share	16.3p	13.6p
Headline diluted earnings per share	16.2p	14.8p
Diluted earnings per share	16.2p	13.5p

* Restated for the changes in IAS19R Employee Benefits. For further details refer to Changes to accounting standards

6 Dividends

	Year to 31.3.2014	Year to 31.3.2013
	£m	£m
Amounts recognised and paid in the period:
Final dividend for the year ended 31 March 2013: 6.75p (2012: 6.75p)	29.5	29.5
Interim dividend for the year ended 31 March 2014 - 5.0p (2013: 5.0p)	21.9	21.8
	51.4	51.3
Amounts determined after the balance sheet date:
Final dividend for the year ended 31 March 2014 - 6.75p	29.5

The timetable for the payment of the final dividend is:

Ex-dividend                     25 June 2014                  

Dividend record date       27 June 2014                                                                                                                

Dividend payment date   29 July 2014

7 Intangible assets

			Other
	Goodwill	Software	intangibles	Total
Cost	£m	£m	£m	£m
At 1 April 2013	172.2	177.0	0.3	349.5
Additions	-	28.4	0.1	28.5
Disposals	-	(5.2)	-	(5.2)
Reclassification	-	2.7	-	2.7
Translation differences	(15.4)	(3.3)	-	(18.7)
At 31 March 2014	156.8	199.6	0.4	356.8
Amortisation
At 1 April 2013	-	125.8	0.2	126.0
Charged in the year	-	17.1	0.1	17.2
Disposals	-	(4.1)	-	(4.1)
Translation differences	-	(2.1)	-	(2.1)
At 31 March 2014	-	136.7	0.3	137.0
Net book value
At 31 March 2014	156.8	62.9	0.1	219.8
At 31 March 2013	172.2	51.2	0.1	223.5

8 Property, plant and equipment

	Land and	Plant and	Computer
	buildings	machinery	systems	Total
Cost	£m	£m	£m	£m
At 1 April 2013	112.6	133.8	78.2	324.6
Additions	0.6	7.1	2.0	9.7
Disposals	-	(0.7)	(3.4)	(4.1)
Reclassification	-	-	(2.7)	(2.7)
Translation differences	(2.8)	(2.3)	(1.7)	(6.8)
At 31 March 2014	110.4	137.9	72.4	320.7
Depreciation
At 1 April 2013	36.4	111.5	64.6	212.5
Charged in the year	2.5	4.8	3.6	10.9
Disposals	-	(0.5)	(3.4)	(3.9)
Translation differences	(0.6)	(1.6)	(1.2)	(3.4)
At 31 March 2014	38.3	114.2	63.6	216.1
Net book value
At 31 March 2014	72.1	23.7	8.8	104.6
At 31 March 2013	76.2	22.3	13.6	112.1

9 Inventories

	31.3.2014	31.3.2013
	£m	£m
Gross inventories	286.4	293.7
Stock provision	(27.6)	(31.8)
Net inventory	258.8	261.9

During the year ended 31 March 2014 £9.1m (2013: £11.9m) was recognised as an expense relating to the write down of inventory to net realisable value.

10 Cash and cash equivalents/analysis of movements in net debt

	31.3.2014	31.3.2013
Cash and cash equivalents	£m	£m
Cash and cash equivalents in the balance sheet	0.7	9.3
Bank overdrafts	(15.8)	(10.7)
Cash and cash equivalents in the cash flow statement	(15.1)	(1.4)
Finance lease liabilities	(0.7)	(2.1)
Loans repayable after more than one year	(37.1)	(62.2)
Private placement loan notes	(94.3)	(105.8)
Fair value of swap hedging fixed rate borrowings	3.6	11.8
Net debt	(143.6)	(159.7)
Pension deficit	(40.9)	(19.0)
Net debt including pension deficit	(184.5)	(178.7)

	Year to 31.3.2014	Year to 31.3.2013
Analysis of movements in net debt	£m	£m
Net debt at 1 April	(159.7)	(154.2)
Free cash flow	57.7	49.3
Equity dividends paid	(51.4)	(51.3)
Dividends from vested share options	-	(0.7)
New shares issued	1.4	0.6
Own shares acquired	(0.6)	(0.5)
New finance leases	-	(2.0)
Translation differences	9.0	(0.9)
Net debt at period end	(143.6)	(159.7)

11 Retirement benefit obligations

The Group operates defined benefit pension schemes in the United Kingdom, Germany and Ireland.

At 31 March 2014 the Group's net retirement benefit obligation was £40.9m (2013: £19.0m).

Details of the assets and liabilities of the Group's defined benefit pension schemes are shown below:

	31.3.2014	31.3.2013
	£m	£m
Total market value of the schemes' assets	389.5	388.2
Present value of the schemes' liabilities	(430.4)	(407.2)
Schemes' deficit	(40.9)	(19.0)

12 Principal exchange rates

	2014	2014	2013	2013
	Average	Closing	Average	Closing
United States Dollar	1.59	1.67	1.58	1.52
Euro	1.19	1.21	1.23	1.19

SAFE HARBOUR

This half-yearly financial report contains certain statements, statistics and projections that are or may be forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial position, strategy, projected costs, plans and objectives for the management of future operations of Electrocomponents plc and its subsidiaries is not warranted or guaranteed. These statements typically contain words such as "intends", "expects", "anticipates", "estimates" and words of similar import. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Although Electrocomponents plc believes that the expectations reflected in such statements are reasonable, no assurance can be given that such expectations will prove to be correct. There are a number of factors, which may be beyond the control of Electrocomponents plc, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements.  Other than as required by applicable law or the applicable rules of any exchange on which our securities may be listed, Electrocomponents plc has no intention or obligation to update forward-looking statements contained herein.

 

END

 

 

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