Electrocomponents warns on profits

Electronics and maintenance products distributor Electrocomponents has warned that full year profits are likely to be lower than the market is expecting after a disappointing first half performance.

The consensus forecasts for full year headline profit before tax range from £110m to £120m, and Electrocomponents said that, assuming no change in market conditions, it expects the actual number will be "slightly below the lower end of consensus." Headline profit before tax at the interim stage will be around £40m, down from £59.4m in the first half of last year.

Group sales growth in the first half of the financial year is expected to be flat on the prior year, with maintenance sales growing slightly and electronics sales declining slightly. Within the period sales trends were similar between the first quarter and the second, with continuing strong comparators and a challenging economic environment.

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During the second quarter the rate of sales decline in North America reduced as the quarter progressed.

Group eCommerce growth in the first half will be around 3% and in the UK and Continental Europe eCommerce growth is expected to be over 10%. Group eCommerce share in the first half will be around 54%, the group revealed.

The group gross margin in the first half of the financial year is likely to be around 1.2 percentage points below what it was in the corresponding period of last year, for a variety of reasons, such as the increased use of customer discounts and a stronger performance from lower-margin technologies. Unhelpful exchange rates will also have an effect on margins.

Operating costs (at constant foreign exchange) are expected to be around 4% higher than the prior year, of which around £3.5m, or a couple of percentage points, is due to previously disclosed additional costs, which are skewed to the first half. Investments to drive future sales growth and inflation are expected to have a negative impact on operating costs by a further two percentage points.

The shares plunged to 195p in the first two hours of trading from 219.7p overnight, despite the group's attempts to talk up second half (H2) prospects.

"We expect results in H2 to benefit from a return to sales growth and actions to improve operating margins. Sales growth should benefit from easier comparators and continued implementation of our strategic initiatives," the group's outlook statement said.

"Gross margins should benefit from targeted selling price increases and actions to improve discount effectiveness. Efficiencies from the implementation of our new global organisation structure are expected to deliver cost savings of £3m to £4m in H2. Combined with other cost actions, operating costs as a % of sales should be lower in H2 than H1," the statement said.

"With a strong balance sheet and leading global market positions, we believe the group is well placed to continue to take market share in international markets," declared Ian Mason, Group Chief Executive.

JH