Focus on internet reaps the rewards for Farnell

Premier’s chief executive Harriet Green said she is confident of delivering further strong growth in 2011, adding she does not expect Japan’s tsunami crisis to have a significant effect on the business.

The Leeds-based group, which supplies products ranging from microchips to batteries, said profits in the year to the end of January rocketed 70 per cent to £93.3m.

Sales surged 21 per cent to £990.8m. Compared with two years ago, the group’s sales were up 11.6 per cent, which analysts at house brokers Royal Bank of Scotland said demonstrated a “strong performance against pre-recession levels”.

“We’re quite positive that we will continue to see sales growth,” said Ms Green. “The strategy which I brought in as I became new chief executive (in 2006) has built pretty consistent sales growth.”

Despite increasingly tough comparative results, Premier said sales increased by eight per cent in February, giving the group confidence in strong revenue growth in 2011. Its European operations also recorded their two highest ever days’ sales in February.

It has a target of achieving six to eight per cent annual sales growth, and is confident it can exceed this by gaining more market share.

Under Ms Green the group has prioritised e-commerce, expansion into the fast-growing markets such as Korea and China, and focusing on the affluent and tech-savvy electronic design engineer community.

Premier said internet sales crossed the 50 per cent threshold for the first time in 2010, accounting for 51.1 per cent of revenues. In Europe, internet sales are now running at more than 70 per cent and in the Asia/Pacific region they make up 56.8 per cent of sales.

Ms Green acknowledged it has much more to do on driving internet sales, especially in North America, where they account for 36.9 per cent of sales, but said Premier has made huge progress.

“When I started in North America we had virtually no web capability,” she said. “I’m very excited about the web with our electronic design engineer proposition and giving customers the service that they want.”

It also added 72,500 new products to its portfolio over the year. Premier claims to be the first to bring 3,700 of these to market. It also added 43 new franchises during the year.

The group has built sales to developing markets to 22.9 per cent of total revenues from nothing prior to Ms Green’s arrival. Premier launched in Taiwan, Thailand and Korea in 2010 and the group said “their performance to date has confirmed the huge potential of these markets”. It now has 33 foreign language websites.

Premier is still weighing up the impact of the Japanese tsunami and earthquake on its supply chain as some of the country’s component makers are forced to halt operations. But the group said its customer base and direct supply chain in the country are very small.

“From our perspective Japan has not been much of a focus for us – we have less than 0.2 per cent of our business in Japan,” said Ms Green. Of its 3,500 franchisees in Japan, only 20 have so far been in touch about disruption caused by the crisis, she added.

Premier Farnell hiked its final dividend by 15.4 per cent to 6p per share, and earnings per share surged 76 per cent over the year to 18.3p.

Analysts at RBS were reassured by Premier’s comments on Japan. “Management believe they are well positioned to cope with any likely component shortages given their supplier relationships, and year-end inventory levels,” they said. “The group’s resilience in gross margin should assuage any concerns over the ability to pass on the impact of any price squeezes caused by component shortages.”

They see Premier reporting sales of £1.057bn this year, with profits of £113.9m. “Top-line growth in February has slowed versus the fourth quarter reflecting tougher comparators, but importantly the group is still seeing quarterly sequential growth and management remain confident in full-year 2012 targets,” they said.

However, analysts at Shore Capital questioned whether the company remains a cyclical business and retained a “sell” stance. “Management state their intention to move the group towards higher quality earnings streams targeting resilient demand,” they said. “We remain to be convinced as to whether this is a realistic possibility given the nature of electronics in particular and end markets.”

Shares in the group lifted 3.6p to close up 1.3 per cent at 280.2p.