Electrocomponents (ECM) revealed a disappointing half-year performance, as weak US manufacturing and increased UK operating costs depressed earnings. As a result, management has outlined plans to overhaul the global engineering distributor.
"This company has a great past of setting targets and then missing them," says chief executive Lyndsley Ruth. So, instead of numerical targets, management has set out strategic goals, including plans to scale-back operations in the Asia Pacific region, together with skewing the sales mix in favour of the higher-margin RS Private Label business. Mr Ruth decided to halt the design of a new website in order to reallocate resources to improve its existing one. As a result, the group incurred an £11.4m non-cash charge, further eroding profit.
Sales in Asia Pacific declined 4 per cent, due to a weak economic backdrop in China, and management now plans to close offices in Singapore, China, and move to a web-based operation in Japan. Closer to home, sales in the UK contracted marginally due to order declines among small- and medium-sized customers, while the gross margin was squeezed as the engineering group cut prices to drive corporate account business.
Broker Numis expects adjusted EPS of 11.8p for the March 2016 year-end, down from 13.2p in 2015.
ELECTROCOMPONENTS (ECM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 237p | MARKET VALUE: | £1.04bn | |
| TOUCH: | 236.5-237p | 12-MONTH HIGH: | 263p | LOW: 168p |
| DIVIDEND YIELD: | 5% | PE RATIO: | 25 | |
| NET ASSET VALUE: | 82p* | NET DEBT: | 47% | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 (restated) | 616 | 57.1 | 9.6 | 5 |
| 2015 | 627 | 19.9 | 3.1 | 5 |
| % change | +2 | -65 | -68 | - |
Ex-div: 3 Dec Payment: 13 Jan *Includes intangible assets of £235m, or 53p a share | ||||
