Premier profits warning hits share price

The Leeds-based group, which supplies products ranging from microchips to batteries, was the biggest FTSE 250 faller, closing down 49.1p at 195p, a 20.1 per cent fall.

The group said the global economic slowdown, especially in North America and Europe, has been exacerbated by companies overstocking following the Japanese tsunami.

It revealed combined sales for the first two months of its second quarter, May and June, rose just 1.4 per cent.

Premier has a sales growth target of six to eight per cent.

The company added it was too soon to say what July’s sales will do, but said second quarter sales will miss its target.

As a result, the distributor expects to deliver “marginally lower” profitable growth this year.

A spokesman said April sales were up 11 per cent year on year, but growth slid to 3.5 per cent in May. He said June sales were flat, which prompted the group to issue the profits warning.

Yesterday’s statement contrasted with Premier’s first quarter results announcement on June 16, when the company insisted it was on track to meet its second quarter sales target.

That followed sales growth of 8.3 per cent in the first quarter.

Chief executive Harriet Green said at the time: “Although we recognise that our business model inherently provides us with limited visibility, the board expects second quarter sales growth to be in-line with our target range and remains confident that the group will continue to capitalise on the profitable growth opportunities inherent in its strategy.”

Yesterday Ms Green said the group has experienced rapidly changing market conditions in recent weeks and updated the market as soon as possible.

“We’ve had some very positive feedback from investors thanking us for sharing the realities of the market quickly and clearly,” she said.

“We have hundreds of thousands of customers around the globe telling us that the orders they are receiving from their customers have slowed and their new products are not selling as well.

“The macros (macro-economic indicators) have fallen away quite considerably in the last three weeks.”

The company, which is increasingly targeting the high-spending electronic design engineer community, has limited visibility over future orders. Most of Premier’s products are shipped the same or the next day.

Premier said the global slowdown, combined with the “significant inventory purchases” made in April and early May by customers worried about the impact of the Japanese earthquake on supply chains, will mean this stock is likely to take longer to be used up.

However, Premier, which was the first electronic components distributor to bounce back from the recession, added gross margins remain stable and said it continues to win new customers.

Ms Green said: “Every single person in Premier Farnell is in with our strategy and I think the market has become very, very used to us exceeding expectations.”

A spokesman said the company aims to make £10m of savings to compensate for the sales shortfall, which includes a recruitment freeze.

“Job losses will be a very minor part of this,” he said. “It’s more about shaping the business around the web. There will be a number of projects and capital expenditure which will be looked at or curtailed.”

Ms Green added the company has grown its Leeds workforce by six per cent in the past two years.

The company’s shares also fell last month after it missed first quarter profit forecasts, which it blamed on problems in its Singapore and Malaysia operations.

Robin Speakman, an analyst at Shore Capital stockbrokers, said: “We now assume that growth for the full year will be below our current forecasts and thus expect to downgrade profit expectations.

“The reason cited for the change in performance is put down to stock building in response to the Japanese earthquake.

“This comes as a surprise given Premier’s focus on the electronic design engineer segment which we have been told is less subject to cycles and shocks.”

David Greenall, an analyst at RBC Capital Markets, said: “We already knew Premier Farnell’s growth rates were slowing down. What is surprising is that they have deteriorated so much more quickly.”

A FACEBOOK FOR ENGINEERS

PREMIER Farnell’s strategy involves increasing its international penetration and claiming more of its sales from the internet.

E-commerce now makes up almost 54 per cent of Premier’s business. It counts Microsoft, Philips and Nokia among its customers.

The group has also been building its element14 online design community, where engineers can design, interact and purchase components.

A ‘Facebook for electronic design engineers’, it received 645,000 visits from customers between February and April, while the number of click-throughs to its transactional websites increased by 10.2 per cent.

The community has been dubbed ‘an engineering Google’ by experts.

Element14 targets high-spending electronic design engineers (EDEs), who now account for 55.5 per cent of its electronics sales.