Sales drop but Farnell remains resilient

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ELECTRONICS distributor Premier Farnell reported a slight dip in third-quarter sales due to tough market conditions, but said it is upbeat about its future prospects.

The Leeds-based group, which supplies thousands of products ranging from microchips to batteries, said profits are in line with expectations when compared with last year’s strong performance.

Chief executive Harriet Green said: “We’re very encouraged at the resilience of our strategy. We’re generating strong cash so we can pay our dividend.

“I’m encouraged with our performance. If we can continue, we can take leadership as we did after the last downturn.”

She added that although the group is cautious on the global economic outlook, the business has responded well to the challenging environment.

“I’m not as negative as some. The same Armageddon we saw in 2008 has not happened,” she added.

Premier, which counts Microsoft, Philips and Nokia among its customers, said adjusted pre-tax profits fell seven per cent to £21.1m in the three months to October 30, while revenues were down one per cent to £241.8m.

Gross margin, at 38.6 per cent, was down 2.1 per cent.

Ms Green said the 2010 figures were boosted by very strong growth when the group grasped market share as the sector recovered.

The company said margins in November were up from third-quarter levels.

November sales per day were also above third-quarter levels, but down slightly from last year.

The UK business, which accounts for 20 per cent of group sales, performed well with growth of 4.2 per cent.

“Over 75 per cent of the UK business is e-commerce,” said Ms Green.

“We’ve invested in our community. We’re very targeted and are giving customers what they want. We’re taking market share via the web and from some of our smaller competitors.”

Europe as a whole grew 0.6 per cent year on year as the area felt the impact from the eurozone crisis.

“We’ve taken market share in Europe,” said Ms Green. “We saw change in Europe in June and July, but we’ve seen no marked change in the last couple of months.”

Finance director Nicholas Cadbury said 20 per cent of the group’s turnover is based in the eurozone and over half of that is in strong eurozone countries such as Germany, France, Finland and Holland.

Following very strong growth of 31 per cent in the third quarter of last year, sales across Asia Pacific reported a slowdown of 3.6 per cent year on year, as technology and industrial growth across the region weakened.

Singapore and Malaysia absolute sales per day were flat throughout the quarter.

Last month, rival distributor Electrocomponents posted an 18 per cent rise in first-half profit, and said it would keep second-half costs flat to help offset the impact of tougher economic conditions.

Analyst Guy Hewett, at Investec, said Premier is battling well against weak markets and a weak outlook.

“We view this as a decent performance at this stage in the cycle. We continue to wait for a better risk/reward opportunity in a company we like strategically and retain our ‘hold’ recommendation,” he said.

Last month Premier secured a new £200m credit facility that it said would put the company in a “very strong” position to manage the tough economy and invest in future growth.

The group has established a five-year £200m multicurrency revolving facility, which will expire in October 2016.