Tough markets but Premier expects to return to growth

Electronics distributor Premier Farnell expects to see a return to growth in the second half of the year following an improvement in trading in August and September.

The Leeds-based group is battling against tough markets as both Europe and the US succumb to difficult economic conditions.

Premier reported a 20 per cent slide in second quarter pre-tax profits from £23m to £18.4m during the three months to July 31.

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But this was an improvement on the first quarter. Over the first half as a whole profits fell 51 per cent from £65m to £32m.

The group said its stronger second quarter had improved its year-on-year sales decline from 5.0 per cent in the first quarter to 3.3 per cent for the first half.

Premier has had to cope with the industry contracting by 10 per cent in America and Europe during May, June and July.

Premier’s chief executive Laurence Bain said: “In Continental Europe the situation in Greece, Italy and Spain is clearly having an impact. GDP growth isn’t strong.

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“In America there has been a lot of investment to keep the economy up. As we head towards the US election there has been a lot of spending to bolster the US economy, but the US is suffering from the same challenges we see in Europe.

“In very challenging global markets we continue to show resilience and make strategic progress.”

The group is managing to hold its own in tough markets and has reported four consecutive quarters of stable sales per day within a market that continued to decline.

“With our customer base increasing further in the second quarter and our year on year sales performance improving from the first quarter to the second quarter in Europe and the Americas, the business continues to perform well on a comparative basis,” said Mr Bain.

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Premier said that as markets recover it anticipates its gross margin returning to its longer term average range.

“We see the oversupply and overstocking will start to disappear,” said Mr Bain. “We’re hoping that by the beginning of next year we’ll see an improving performance.”

Premier reported a return to year on year growth of 0.4 per cent in August and Mr Bain said the group has seen “more of the same” in September.

The group has struggled as the global economic slowdown has taken its toll and its shares have fallen by around 13 per cent since it missed market expectations at its full year results in March.

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Analysts at Jefferies, who have a ‘buy’ rating on the stock, said: “In our view, a return to positive year on year sales growth in August and a modest valuation are likely to outweigh a seven per cent second quarter earnings per share miss relative to consensus, a soft gross margin and likely full year downgrades.” But analysts at Seymour Pierce were more gloomy, pointing to falling billings in semi conductor shipments.

“Although the company is outperforming its market the outlook is not encouraging,” they said, reiterating their ‘reduce’ stance on the stock.

Premier will be up against softer comparatives in the second half, making it easier to increase growth. “I hope the market is somewhere near the bottom,” said Mr Bain.

Analyst Robin Speakman, at Shore Capital, said: “We judge the interim results to be a robust performance in difficult markets in all regions. Nevertheless, the operating results were below our estimates for the period and this is set to have a knock-on effect on results for the full year.

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“However, we hold our forecast stance for next year and beyond.”

The group is taking a number of actions to boost its performance. The active customer base grew by one per cent in the second quarter, which Mr Bain said would deliver increasing sales going forward.

The group’s element14 website, dubbed the ‘Facebook for engineers’, received 1.7 million visits in the second quarter.