Annual Report and Accounts 2013/14

Transcription

Group Headquarters
55 The Strand
London WC2N 5LR
T +44 (0) 20 7851 4100
F +44 (0) 20 7851 4110
017159_PF_AR13-14_1_Cover_AW.indd 1-3
Premier Farnell plc Annual Report and Accounts 2013/14
www.premierfarnell.com
24/04/2014 13:20
Who we are
Premier Farnell plc is a global, high service technology
company, predominantly engaged in the marketing
and distribution of products and services in the timecritical and innovation-focused electronic components
distribution sector.
Visit our online community here:
www.element14.com
Strategic report:
Following the design
01
Governance
Research
02
Board of Directors
46
Design & develop
04
Corporate governance report
48
Prototype, test & produce
06
Nominations Committee report
54
Audit Committee report
55
Remuneration Committee
overview
58
Directors’ report
60
63
Our market & business
Industry megatrends
08
Business model
10
Customer & supplier
propositions
12
Remuneration report
CPC & MCM
14
Financial statements
Akron Brass
16
Consolidated financial
statements
78
Notes to the consolidated
financial statements
87
Performance & risks
Chairman’s statement
18
Chief executive’s statement
20
Operating performance
23
Key performance indicators
24
Principal risks, uncertainties
& opportunities
26
Strategic focus
1: Customer focus
28
2: Multichannel
30
3: International
32
Financial & operational review
34
Sustainability & employees
Sustainability report
39
Employees
43
Company financial statements 107
Notes to the Company financial
statements
110
Independent auditor’s report
114
Glossary
118
Shareholder information
119
Historic record
120
CBP00015510111122116
Premier Farnell is committed to reducing the impact of its activities on the environment.
Paper: Club Silk – Wood Free FSC accredited – Carbon Neutral
Printed and bound by Duffield Printers using vegetable based inks from renewable sources on
presses that are 98% solvent free. Strict procedures are in place to safeguard the environment
through all processes.
Duffield are FSC registered with Soil Association-Woodmark. This “Chain of Custody Certification”
guarantees that chlorine free paper resource excludes risk of illegally cropped timber or funding
conflict and that pulp originates from “certified forest farms”. Reforestation takes place at a
guaranteed minimum rate of two for every tree felled. Forest floors, canopies, and biodiversity
are minimally disturbed.
Designed and produced by Radley Yeldar www.ry.com
Photography by Henry Thomas
Premier Farnell plc
Registered in England and Wales No. 876412
Registered office: Farnell House, Forge Lane, Leeds LS12 2NE
24/04/2014 13:20
Premier Farnell
1
Premier Farnell
Performance & risks
As we execute our strategy, we will add more value across the lifecycle
of electronic products, to make it easier for our customers to innovate
and turn their ideas into reality.
In this report, we’ll explain how we are working to support the
customer journey by following their product development process
earlier, more closely and for longer.
Strategic focus
Today, customers from around the world choose Premier Farnell as their
high service electronics distributor. Now we are making their experience
better. We are partnering more closely with suppliers to launch new
technology to our electronics engineering customer base. We are then
supporting these customers throughout the design and development of
the latest electronics innovations, delivering technology solutions at every
step from research to production.
Governance
017159_PF_AR13-14_2_Overview-Gov_AW.indd 1
Design and develop
Prototype, test and produce
Research
24/04/2014 16:00
2
Premier Farnell
24/04/2014 16:00
Premier Farnell
3
We are following the design earlier,
with the element14 community playing a key
role in our customers’ research and providing
a hub for innovation.
Design engineers, supplier partners and our technical
resources come together on the Community to
collaborate and support each other through their
customers’ design process.
Websites provide detailed product information
to help customers with the technical and
environmental specifications they need.
24/04/2014 16:00
4
Premier Farnell
We are following the design more closely,
working in partnership with key suppliers to provide
a leading edge range of development kits and
tools, as well as establishing leadership in the
single-board computing market.
We offer software and solutions, including CadSoft
Eagle, providing engineers with the tools
they need to design their products.
element14 community provides an online forum
for engineers to research and source solutions
to their design problems.
24/04/2014 16:00
Premier Farnell
5
24/04/2014 16:00
6
Premier Farnell
We are following the design for longer,
as we stay in touch with our customers
through our multichannel sales resources
from design to build.
Next day shipment on over 600,000 stocked
products, including 7,900 test and measurement
SKUs, gives engineers the products and tools
they need to bring their ideas to life.
Investments in our product range, including
production quantity packaging, enable us
to follow the design further and service
customers at low production volumes.
24/04/2014 16:00
Premier Farnell
7
24/04/2014 16:01
8
Premier Farnell
Industry
megatrends
Electronics distribution market
The global electronics distribution market
includes high service distributors which
provide a wide range of products normally
sold on demand in relatively low volume,
and high volume distributors which
service the scheduled manufacturing
of electronic components.
Estimated to be worth in excess
of £20 billion, the high service
distribution market is very fragmented.
Approximately 20% of the total available
market is served by Premier Farnell’s
main MDD businesses and three other
global high service players. The remainder
of the market is served by small and
medium-sized local competitors.
1
Everywhere, electronics drives structural
growth in design engineering
As users demand greater functionality, improved aesthetics
and new electronics innovations, the electronics product
lifecycle is getting shorter, driving market growth across
the industry.
Increased competition in the marketplace adds to the
pressure on design engineers to reduce the time and
cost to market of their new products.
New environmental legislation increases the need for
energy efficient products and presents innovators with
new opportunities to differentiate.
Every year, more than a million electronics engineers
graduate to meet the world’s thirst for electronics.
But they are not the only new participants fuelling the
rate of innovation. As design engineering becomes
democratised, users of products and services play an
increasing role in the next generation of products while
the “maker” movement brings together experts, enthusiasts
and hobbyists to develop and modify new applications.
With more minds at work, the pace of electronics innovation
accelerates, ensuring that the proliferation of electronics
everywhere continues.
Increased
innovation
More engineers
needed
Increasing
number
of graduates
Pervasion of
electronics is
driving innovation
6% long
term
growth
Increased
competitiveness
Reduced
cost/Time-tomarket
New environmental
legislation adds
further pressure
24/04/2014 16:01
Premier Farnell
2
9
3
Customers want
Suppliers want
Single source of products
and design solutions.
Efficient channel to high
service markets globally.
Trusted, branded products
reflecting increasingly
stringent regulation in
markets worldwide.
Insights from the
global marketplace.
Support along every step
of the product development
process including access
to latest technologies.
A distribution partner from
pre-launch to production,
which is able to get their
latest products into the
hands of the design
engineering community
quickly and efficiently.
Ease of doing business
and technical capability
that helps them make
appropriate product
selection decisions.
Technical capability to
provide necessary support,
especially as they introduce
new products to market.
tEnhanced product proposition and increased breadth
and depth of global inventory availability
tAccess to local markets through global multichannel
sales and marketing resources, combined with
customer insight
tTechnically-minded customers everywhere
attracted by innovative web capability, including the
element14 community
tEastern Europe reach enhanced by Krakow telesales
and telemarketing centre
tAsia Pacific infrastructure in place to support increasing
customer demand
tSuppliers looking to enter the emerging markets do so
more efficiently through global distributors
Governance
By meeting these needs through our
customer-centric strategy, Premier Farnell
is positioned to become a trusted source
for engineering customers and a global
partner for suppliers.
By combining global reach with regional resources,
Premier Farnell is well positioned to benefit from this trend.
Strategic focus
Consolidation of the global supply chain will
favour the larger, international high service
distributors who can meet the full spectrum
of customer and supplier demands
Performance & risks
Design and production is increasingly
global, with emerging markets playing
a greater role
1m
Every year more than a million
electronics engineers graduate
to meet the world’s thirst for
electronics.
24/04/2014 16:01
10
Premier Farnell
MDD business model
Marketing and Distribution Division (MDD) businesses
purchase electronic components and related
products from leading suppliers around the world.
Customers usually buy relatively low quantities
of components and other related products as well
as software and services, attributing significant value
to the high level of service and support we provide.
How we create value
Stock
Support
How we create value:
We work with both suppliers and
customers to identify and stock the
products and services our customers
require, benefiting from web analytics
and insights from the element14
community. In total, we stock over
600,000 products to help us meet
customers’ need for access to
a broad range of technologies.
How we will sustain and
grow this value:
> Product lifecycle management
processes, including rigorous stocking
criteria, mitigates our inventory risk.
> Where appropriate, we agree terms
with suppliers that serve to manage
the risk posed by new product
introductions, including sale or return.
> We continue to invest in data
resources and management to
enhance the insights we use in
stocking processes.
> Increasing technology capability
enhances our position in the
supply chain at the early stages
of product development.
Sell
Both electronics and MRO customers
require detailed information to ensure
purchases meet their technical
specifications. The element14
community allows engineers to
collaborate while our online workspace
provides technical information
and access to additional services
and solutions. We further support
our customers by providing 24/5
technical support.
Our multichannel sales and marketing
approach allows customers to interact
and purchase from us in the way
they prefer. Premier Farnell has led
the industry through eCommerce,
like the element14 community and
eProcurement tools such as iBuy.
These innovations, together with our
telesales capability and 620 field sales
resources, make it easy for customers
to do business with us.
grow this value:
> We continue to develop and enhance
our web capabilities as part of our
multichannel sales strategy, such as
through our new web platform and
ongoing updates to the Community,
in order to maintain our competitive
advantage through digital channels.
> We are partnering increasingly closely
with key suppliers to provide the
technical specifications and legislative
information that customers need.
grow this value:
> Digital Advisory Board provides
knowledge from external subject
matter experts as we seek to
build and maintain our competitive
advantage online.
> Annual eSupplier conference provides
insights from key supplier partners on
the development of our eCommerce
proposition and an opportunity to
work more closely with suppliers
as we enhance our online channels
including the element14 community.
> Data and analytics allow us
increasingly to tailor our marketing
and offer a differentiated proposition
to customers. This approach enables
us to increase customer loyalty and
win new business.
Ship
Fast and reliable distribution of locally
stocked products is at the core of
our customer proposition. Our nine
distribution centres located around the
globe ship 30,000 packages each day.
With the support of our global logistics
partners, this allows us to achieve same
or next day shipping for 99.9% of the
products we sell.
grow this value:
> We maintain business continuity plans
which are kept under review for all our
locations and have ongoing reviews
and testing of our IT infrastructure.
> Investment in systems and focus
on workflow improvements, such
as the roll-out of voice picking in
European distribution centres, will
deliver operational efficiencies and
allow us to meet increased future
demand. We remain focused on
reducing the environmental impact
of doing business.
> Our growing range of software
and solutions offsets the potential
commoditisation of the value
attributed to next day shipment
over the longer term.
Enabling new technology & supporting business continuity
By connecting suppliers to customers around the world we play a role in enabling innovation in technologies and
extending the life of existing products across a broad number of industry segments, from manufacturing
to healthcare, renewable energy to marine technology.
Through our business model, we aim to connect customers and suppliers while creating value for other
stakeholders, including employees and shareholders.
24/04/2014 16:01
Premier Farnell
11
Resources
warehouse space in our
nine distribution centres
48
transactional websites
in 34 languages
Strategic focus
1.1m sq ft
Performance & risks
Our global infrastructure and resources enables
Premier Farnell to serve the needs of customers
globally. From our innovative online resources to
our regional contact centres, back office systems
and network of distribution centres, Premier Farnell
is well placed to deliver high service and make it
easier than ever for customers to do business.
1,270
customer facing
staff globally
Leeds
Liège
Shanghai
South Carolina
Governance
Mexico
Singapore
Sydney
Americas
Newark element14, MCM
Operations in 4 countries
3 warehouses
260 sales staff
290 contact centre staff
Europe
Farnell element14, CPC
3 warehouses
250 sales staff
Asia Pacific
element14
3 warehouses
110 sales staff
24/04/2014 16:01
12
Premier Farnell
Customer
proposition
Wherever they are in the world, no matter which
industry or individual roles our customers occupy, they
have a common objective. They want to select the
appropriate technical products; to do business easily;
and to receive products in a way that makes their
processes as efficient as possible.
Achieving this objective is at the heart of high service distribution and to do
so our proposition centres on meeting five critical customer requirements:
1. Access to a broad range of in stock products. We stock
600,000 products from over 3,000 suppliers. This already represents
a world class linecard and we have invested in inventory to enhance
this offering further this year. Our product range includes the latest
technologies, crucial for customers involved in new product development
and the broad range required by MRO engineers.
2. Trusted product information. This enables customers to make
the right product selections. As environmental legislation becomes more
far-reaching and complex, this information becomes ever more valuable
to customers. The technical capability provided by our design centres and
support from our suppliers help keep that product data is comprehensive
and relevant. Online channels, including the element14 community with
its legislation portal and 24/5 technical support, provide a unique source
of trusted information.
3. Being easy to do business with. We have developed a
differentiating multichannel sales and marketing model that allows
customers to interact with us in the way they choose. We are continually
looking to enhance and personalise our interaction with customers to
make doing business with us even easier.
4. Fast delivery. Customers often need to receive products quickly
in order to maintain and repair products or to provide continuity in their
product development process. We ship 99.9% of orders same or next day
from our regional warehouses, leveraging our global resources to provide
a local service.
5. End-to-end service. Customers want a single distribution partner
that can support them from research to production and then in the MRO
market. By following the design and providing products and services
at every step, we are becoming a single destination catering for all our
customers’ needs.
End-to-end customer proposition
Research
> Technical information and legislative
expertise on the element14
community supports customers’
product selection.
> We provide access to the latest
products from the leading
semiconductor suppliers through our
multichannel marketing capability.
Design
& develop
> Broad range of development kits,
development tools and design
software available, including through
our development tool superstore.
> Range includes development kits
designed by Embest and AVID
technologies, plus CadSoft Eagle
design software.
Prototype, test
& produce
> Wide range of electronic components
available in packaging that meets
differing customer needs in
prototyping and production.
> We also stock associated tools and
equipment as well as a leading test
and measurement product range.
Maintenance, Repair
and Operations
> MRO engineers requirements are
catered for through our broad
product range, including test and
measurement equipment, available
for immediate shipment.
> Multichannel marketing capability
allows us to interact with MRO
customers in their preferred way.
24/04/2014 16:01
Premier Farnell
13
Suppliers appreciate our increasing interaction with customers through the
web. They benefit from insightful data on emerging technologies, evolving
customer trends and our innovative global eSupplier strategy, while our
online capabilities
es also satisfy our engineering customers’
customers requirement
for rich web-centric
ntric content.
Access to the software that powers
the latest innovations in technology
is becoming increasingly important
to our design engineering customers.
Over the past two years we have been
building a partnership with ARM, one
of the leaders in this space, using our
global reach to promote their software
to our customers worldwide.
See more here: http://www.element14.
com/community/groups/arm
Partnering with ARM
Governance
Design engineering expertise is highly attractive to our suppliers.
Embest Technology, our embedded design services subsidiary, has
enhanced our new product introduction capability and allows us to partner
with suppliers even more closely. We are now able to work with them more
closely as they develop and launch their latest innovations having signed
significant agreements with AMD, Cypress Semiconductor and Freescale.
Subject to the completion of the acquisition of the business and assets
of AVID, we will further enhance our value add to key suppliers through
additional design expertise across technologies such as wireless, power
management and FPGA and in a broader range of market segments.
See more here:
http://www.embest-tech.com
This unique approach is leading our suppliers to partner with us ever more
closely. They value our ability to launch new products to market, ensuring
that their components are specified in the earliest phases of design
and consequently will be required in large volumes when that design
reaches production.
In 2012, Premier Farnell acquired
Embest. Based in China, Embest is an
engineering design services business
specialising in embedded technology.
Semiconductor supplier partners
value Embest’s expertise as it designs
and manufactures development kits
and tools. These products play an
important role in seeding our partners’
latest technologies to market. Over the
past year, we focused on expanding
Embest’s manufacturing and production
capacity to meet demand. Embest also
benefited from its integration into the
wider Premier Farnell Group through
the implementation of processes
to ensure products meet our high
quality standards.
Strategic focus
Our multichannel sales strategy, including the award-winning element14
community, provides suppliers with a differentiating route to market and
access to unparalleled customer insights. We are now following the design
earlier than ever before by increasing our capability in the early stages
of the design lifecycle and new product introduction.
Embest in Focus
Performance & risks
By meeting our customers’ needs for the latest
technologies, we offer suppliers the opportunity to
seed new products to an extensive, global customer
base across a wide range of industry segments,
as well as providing an efficient channel for low
volume sales.
Supplier
proposition
24/04/2014 16:01
14
Premier Farnell
CPC and MCM
Our other distribution businesses, CPC and MCM,
supply electrical and electronic ranges, such as
audio visual and security products, to a broad range
of customers in their home markets of the United
Kingdom and the United States, respectively.
Complementing our core brands, CPC and MCM’s
typical customer works in an auxiliary role in the
electronics industry, such as IT departments, or is a
technically-minded consumer, such as an enthusiast
or hobbyist, developing and modifying electronics
in his spare time.
CPC is a leading business-to-business and
business-to-consumer distributor of electrical
and related products based in the UK.
CPC stocks over 90,000 products from more than 2,000
brands, adding in excess of 16,000 new lines in 2013/14.
CPC’s product range provides customers with a choice of
the latest products at competitive prices. Customers benefit
from multichannel sales and technical support – leveraging
the Group’s online capability, catalogues and contact centre
resource. In the year ahead, CPC will continue to broaden
its target customer base, releasing a new catalogue to
promote its enhanced product offering.
Customers choose CPC because of its broad product
range, exceptional value for money and reliable, friendly
and efficient service.
See more here: http://cpc.farnell.com/
Based in the US, MCM Electronics is a distributor
of electronic components, equipment and
accessories for business-to-business and the
consumer electronics industry.
MCM stocks over 33,000 products from more than 550
suppliers including computer hardware and peripherals,
security and surveillance, wire and cable, audio and video
equipment, tools and test equipment.
MCM’s proposition has benefited from increased
collaboration with CPC. By drawing on the insights and
experience of the CPC team, MCM has enhanced its core
product range to be of greater relevancy to a broader target
customer base.
A focus on top quality customer service, including technical
support through a range of channels, helps make MCM’s
proposition a trusted source for customers across its
home market.
See more here: http://www.mcmelectronics.com/
24/04/2014 16:01
Premier Farnell
15
CPC & MCM – Working together
Performance & risks
CPC and MCM’s collaboration
continues to leverage global efficiencies
and sharing of best practice across key
functions, including Product, Marketing
and Warehouse Management. Over the
past 12 months, extensive work has
been undertaken to accelerate the
alignment of MCM’s proposition with
that of CPC, primarily driven by a
robust strategy to increase the depth
of core product ranges.
Strategic focus
Governance
Raspberry Pi has provided a basis
for the successful implementation of
both direct and reseller strategies at
CPC and MCM to realise significant
sales opportunities within the ‘maker’
market segment. The maker movement
is seeing enthusiasts of engineeringoriented pursuits such as electronics,
robotics and 3-D printing come
together to learn and apply practical
skills that enable them to create unique
technology applications. CPC and
MCM offer a range of products that are
highly relevant to this customer base
including 3-D printers.
Maker market
24/04/2014 16:01
16
Premier Farnell
Akron Brass
Akron Brass is a global leader in the sale and
manufacture of high performance fire-fighting
and emergency response equipment. In recent
years, Akron Brass has further diversified into the
Marine, Petrochemical, Mining, Utility, and Heavy
Truck markets.
Since its inception in 1918, Akron Brass has been an
industry leader in fluid dynamics including handheld
nozzles, monitors and valves. The business continues to
add more products to its diverse portfolio making it easy
for customers to source everything from one company.
The business has invested in new product developments
such as LED lighting products for global applications and
application specific monitors and nozzles for customers
in emerging markets.
Headquartered in Wooster, Ohio, in the United States,
Akron Brass has manufacturing facilities in Columbus,
Ohio and Washington, Illinois and sales offices in Beijing,
China and Dubai, UAE. With customers in over 100
countries and over 33% of 2013/14 sales coming from
outside the United States, Akron Brass has developed
into a truly global organisation.
See more here: http://www.akronbrass.com
Innovating in India
The Hindustan Petroleum Company
Limited (HPCL), a large Indian oil
refinery, looked to Akron Brass to
design a custom solution for their
fire suppression needs. Against an
aggressive schedule, stainless steel
monitor and controls were developed.
These incorporated innovative solutions
in product design, test and certification,
supply chain, production, delivery,
distribution and support in order to
meet the customer’s requirements.
This represents the largest single order
manufactured from Wooster in the
history of Akron Brass.
24/04/2014 16:01
Premier Farnell
17
How Akron Brass creates value:
The business designs and develops products and systems, delivering value
by manufacturing innovative and reliable, high performance solutions that improve
the safety and efficiency of our customers’ personnel and equipment.
> Customer needs are at the centre of new product
development at Akron Brass. Through customer
insight and outcome-driven processes, Akron
strives to deliver innovative products and services.
Revenue from newly released products exceeds
20% of total sales.
Manufacture
> Akron seeks to deliver continuous improvement of
processes, capabilities, capacity, and quality through
its advanced manufacturing facilities and use of lean
production techniques and the latest technologies.
Customers benefit from access to highly customised,
short lot parts with exceptional quality and short
lead times.
Sell
> Akron Brass sells through a global network of
distributors and original equipment manufacturers
(OEMs). Close collaboration and joint development
efforts from end-user to distributor to OEM ensure
tight control of the specification, delivery, installation
and servicing of its products. Akron employs the
largest factory-direct sales team in the industry.
Performance & risks
Innovate
Strategic focus
Akron’s Weldon Division is focused
on OEM solutions in the speciality
vehicle market. Weldon’s V-MUX®
system allows apparatus builders
to integrate body, chassis, powertrain,
and vocational functions through a
robust hardware platform, intuitive
design software, and global
applications support. V-MUX is the
most specified control system in the fire
apparatus market and advancements
in V-MUX hardware are delivering
similar adoptions in ambulance and
bus. Weldon’s engineered solutions
approach along with innovative design
and use of leading technologies
demonstrated significant value in the
heavy-truck market as Weldon received
standard LED lighting contracts for a
major US truck chassis manufacturer.
In October 2013, Akron completed the
asset acquisition of Reach Engineering,
LLC, a pioneering developer of
customised electronics solutions
specifically addressing needs of the
fire service. A key element of the
purchase was the emerging Link2®
product which provides a web-based,
wireless software solution for accessing
critical truck operational, maintenance,
and performance data. The product
allows customers to gain valuable
insight to their fleet performance,
reduces maintenance costs and,
most significantly, improves apparatus
uptime. Strategically, the Reach
acquisition provides key technologies
and resources supporting Akron’s larger
systems integration goals.
R
hE
Reach
Engineering
Governance
Weldon,
W
ld
a di
division
i i of Akron
f Ak
B
Brass
24/04/2014 16:01
18
Premier Farnell
Chairman’s
statement
This year, Premier Farnell has continued to pursue
its strategic vision to become a unique partner for
customers and suppliers globally. As our refined
strategy and the related investments we have made
begin to take effect, the Group is well positioned to
deliver enhanced financial performance to the benefit
of its stakeholders.
Financial performance
As market conditions became more favourable in the
second half of the year, the Group’s top-line trajectory
improved. Encouragingly, every division delivered sales
per day growth during the second half and, for the full
year, the Group returned to sales per day growth.
There were strong performances by Asia Pacific, Akron
Brass and MDD Other which all outperformed their
markets this year, while Europe performed solidly in
tough market conditions. The Americas had a more
challenging year but, with a new leadership team, plans
are in place to improve the business’s performance.
Last year, we outlined how we would aim to optimise
financial performance through focus on operating
margin delivered through the balance of sales, gross
margin and costs. In particular, this more flexible
approach to gross margin allows us to take care
of customers in our targeted segments through the
economic cycles. By meeting customer needs more
consistently, the Group is better placed to capitalise
on its growth opportunities and build share in the
fragmented global marketplace, while ongoing
management of costs in response to changing market
conditions will balance the impact of fluctuations in
gross margin.
Valerie Gooding, CBE
Chairman
This year, the Group delivered adjusted operating
margin of 9.6% for the full year, an improvement
on the levels seen at the end of the prior year (after
adjusting for the extra week in the prior period).
A broadly stable performance across the year was
achieved as the impact of a lower gross margin was
offset by operational leverage and the implementation
of operating efficiencies.
In the year ahead, the Group will make incremental
investments in its customer proposition to accelerate
the execution of our strategy and increase our
differentiation in the marketplace. As we make
these investments, the Group’s operating margin
is anticipated to remain at a broadly similar level in
the coming year. By enhancing our customer and
supplier proposition, we expect to deliver enhanced
financial performance in 2015/16 by accelerating our
sales growth and as the Group’s operating margin
progresses towards our target of 10% to 12%.
The Group’s financial position
is robust and has allowed us
to invest in the enhancement
of our customer proposition.
The Group’s financial position is robust and has allowed
us to invest in the enhancement of our customer
proposition. Free cash flow this year reflects the phase
of planned inventory investments to strengthen our
product offering, undertaken to position the business
for future growth. Despite these investments, net debt
decreased to £225.8 million, which was 2.0 times
adjusted EBITDA.
24/04/2014 16:01
Premier Farnell
19
In light of this year’s performance and the improving
trajectory we have seen, together with both the level
of earnings and cash requirements of the Group, the
Board is recommending a final dividend of 6.0 pence
per share. Subject to approval at the Annual General
Meeting (AGM) on 17 June 2014, this will bring the
full year dividend to 10.4 pence per share, unchanged
from last year.
The Board constantly reviews Premier Farnell’s
performance and the effectiveness of our strategy
in optimising the value the business can deliver to
its shareholders.
For example, the Group saw record levels of customer
satisfaction following investments in its product
proposition, achieved significant growth in China and
India and also successfully completed the first stage in
the roll-out of its upgraded global web platform, having
gone live in North America.
Following the successful acquisition of Embest in 2012
and its significant progress since then, the Group has
now signed an agreement to acquire the business and
assets of AVID Technologies, Inc., a full service product
development business, subject to certain conditions.
We look forward to being able to welcome the AVID
team to the Group. Their technical capability will
enhance Premier Farnell’s capability at the front end of
electronics, providing further competitive differentiation
in high service distribution.
The calibre and commitment of employees throughout
the organisation continues to impress me. I would like
to thank all our 4,500 employees for their continued
efforts as they focus on executing the Company’s
strategy and putting our values into action for the
benefit of all our stakeholders.
We are proud to be a leader in business diversity,
as outlined on page 43, with our European business
winning the ‘Company of the Year’ at the UK National
Diversity Awards this year. As a global organisation,
we recognise that it is not only gender diversity
that supports the strength and future success of
the business; and, while we continue to make
appointments based on the best candidate for every
role, we remain focused on achieving the right level
of diversity whether related to ethnicity, gender, sexual
orientation, creed or culture.
Demonstrating our continued commitment to operating
in a sustainable way, we were delighted to be awarded
a Platinum “Big Tick” by Business in the Community
and to be named by Ethisphere in their list of the
world’s most ethical companies for the fourth year
in succession.
Outlook
We are positive about the Group’s ability to implement
our strategic vision. We remain focused on optimising
the business’s financial performance in the year ahead
as we execute the strategy, grow market share and
deliver accelerated financial returns.
As Laurence explains in his review, beginning on
page 20, there were some significant advances
made this year as the Group delivers the three pillars
of its strategy: enhancing our customer proposition;
providing a differentiating multichannel model; and
growing its developing markets.
Employees and sustainability
Last year, the
Group’s strategy
was evolved to
better serve the
future needs of our
customers and
suppliers in the
context of an
ever-changing
technology market.
Governance
Over the past year, our KPIs illustrate some notable
successes. The Group returned to sales per day
growth, made good progress in the development
of its business in emerging markets and delivered a
stable operating margin, while cash flow reflected the
strategic investments made in the first half of the year
to enhance our product proposition. Performance in
the active customer base and eCommerce KPIs, where
progress was not made, reflects actions to phase out
non-profitable customers and the decommissioning
of technology used for the automated processing of
faxes, which was no longer financially beneficial to
the Group.
As Chairman, it is my role to lead the Board and
ensure its effectiveness. The Board has a full schedule
of meetings, presentations, training sessions, papers
and time spent one-to-one between the Executives
and the Non-Executive Directors to ensure that the
Board functions effectively, stays informed and knows
the business and its people in depth. The breadth of
issues addressed by the Board this year is illustrated
on page 49. In addition, Non-Executive Directors have
conducted site visits to various locations around our
businesses, including my visits to Chicago, Leeds,
Krakow and Lyon as well as to Akron Brass and MCM
in Ohio. As part of a regular programme to increase
access to the Board and the Board’s exposure to
the businesses, the Board held one of its scheduled
meetings at our Chicago offices this year.
Last year, the Group’s strategy was evolved to serve
better the future needs of our customers and suppliers
in the context of an ever-changing technology market.
The opportunities in our fragmented and growing
marketplace are considerable. As we evolved our
strategy, we also set out the KPIs by which we would
measure the success of the Group. Taken together,
these metrics are designed to provide a framework to
indicate the financial performance that we expect to
achieve over the course of the economic cycles and
incorporate measures of growth, efficiency, profitability
and cash.
During the course of the year, we were pleased
to appoint Peter Ventress to the Board as a NonExecutive Director. Peter’s strategic and commercial
skills, along with his experience of different regions and
industries, make him well qualified to make a significant
contribution to Premier Farnell.
Strategic focus
Strategic progress
Governance and the Board
Performance & risks
The Board remains confident that the Group’s balance
sheet provides a stable and long term funding platform
for the business as we enter this new financial year.
Under the guidance of the Board, with strong Executive
leadership and an enhanced strategic focus, I believe
Premier Farnell is well positioned to capitalise on the
expected improvement in the wider economy, and its
extensive long term opportunities, to the benefit of our
shareholders, employees, customers and suppliers.
Valerie Gooding, CBE
Chairman
24/04/2014 16:01
20
Premier Farnell
Chief Executive’s
statement
Premier Farnell is focused on the evolution and
execution of our strategy which will enable the
business to gain market share, deliver profitable
growth and optimise financial performance through
the economic cycles for the benefit of its stakeholders.
Positive sales momentum
Premier Farnell returned to sales growth in 2013/14
driven by the benefit of ongoing strategic investments in
our customer proposition as well as an improving market
backdrop. The momentum seen in the second half of the
year across all of our divisions was highly encouraging
and provides us with further confidence that through our
strategic focus we will deliver through-the-cycle financial
performance in line with our expectations. For the full
year, the Group sales per day rose 2.6%, compared
to a decline in the prior year of 2.8%.
We will invest in the execution of our strategic vision
to ensure we continue to develop the highly valued
partnering relationships that we have established
with both customers and suppliers. This will provide
the business with greater differentiation and allow us
to accelerate our future growth.
Executing our strategy
As we described last year, our strategy is built around
three key pillars:
1. Developing a differentiating customer proposition
2. Providing a multichannel sales and marketing model
Laurence Bain
Chief Executive Officer
3. Delivering accelerated growth in developing markets
The continued execution of initiatives supporting these
strategic pillars will increase the value we create for our
customers and suppliers globally. This will enable us
to differentiate ourselves from the competition, attract
more customers to our business and gain market
share. This year, we have made some important
progress in each of these areas.
The continued execution
of initiatives supporting
our strategic pillars will
increase the value we create
for our customers and
suppliers globally.
Customers often choose to use a high service
distributor as they want access to a broad and
relevant product range in stock and available for next
day delivery. This year, we invested £25.8 million in
increasing the breadth and depth of our inventory
in order to better satisfy customers’ needs.
Using a product selection process that benefited
from customer and supplier insights, we added over
100,000 new SKUs and now stock over 600,000
products globally. This investment was a key factor in
the main MDD businesses achieving record levels of
customer satisfaction and service metrics this year.
£25.8m
This year, we invested £25.8m
in increasing the breadth and
depth of our inventory.
24/04/2014 16:01
Premier Farnell
21
With over 220,000 registered users, the element14
community continues to grow in size and influence,
adding over 5,500 new registered users per month.
When we launched the Community in 2009, we sought
to acquire more design engineering customers, gain
insights on new products and technologies, and drive
click-throughs and sales on our transactional sites.
We have surpassed these objectives. Initiatives such as
product RoadTests and global design contests enable
the Community to connect customers to suppliers and
provide valuable information to support innovation.
Europe delivered year-on-year sales growth of 1.9%,
despite a challenging market. Strategically, it is our
most advanced region with 73.4% of its business
via eCommerce channels in 2013/14. We are also
beginning to see the benefits from our outbound
contact centre in Krakow. In the year ahead we will
further build Europe’s multichannel capability through
the roll-out of our global web platform in the region.
With customers in Europe benefiting from an extended
product range, we believe that the business is well
positioned to grow share in a fragmented marketplace.
Last year we evolved our strategy and KPIs with
the objective of providing a more holistic approach
to meeting the needs of our customers throughout
the economic cycles, while continuing to maintain
operating margin by balancing sales, gross margin
and costs in order to optimise business performance.
While we will continue to realise further operating
efficiencies in our model, we plan to invest an
incremental £4 million in 2014/15. These investments
will help accelerate the future financial performance of
our business by enhancing our customer proposition
as we increase our focus on supporting product
development customers by following the design into
production. In making these investments, we anticipate
that operating margin in 2014/15 will be maintained
at levels broadly similar to this year, before returning
to our targeted range in 2015/16.
Asia Pacific performed well in 2013/14, achieving
sales per day growth of 12.4% over the prior year
and increasing its active customer base by 11.7%.
China and India continued to be a major source of
growth, with these key emerging markets up 25.7%
and 20.3% respectively. As a result, China is now our
largest single territory in the region with just over a
third of its sales. Much of this growth was driven by
our focus on meeting more design customers’ needs
and through improved digital marketing. We also set
up a shared services centre which will help the Group
to leverage better its data to gain increased levels of
insight. Asia Pacific will benefit from the upgrade to its
transactional websites next year and we will continue to
focus on growing its active customer base and sales.
In 2013/14 we remained focused on this goal and
delivered adjusted operating margin of 9.6% for the
full year. Operating margin was stable across the year
and has improved from the levels achieved in the final
quarter of the prior year, after adjusting for the benefit
of the extra week of trading in that period.
The long term opportunities
for Premier Farnell are
considerable. Each of
our divisions can deliver
significant profitable growth
and have plans in place to
achieve this.
Through Embest
and AVID, we now
have the capability
to partner with key
semiconductor
suppliers to design
and build the
development kits
that accompany
the release of their
latest chips.
Governance
Optimising financial performance
While our short term forward order visibility is limited,
the long term opportunities for Premier Farnell are
considerable. Each of our divisions can deliver
significant profitable growth and has plans in place
to achieve this.
This year we began the roll-out of our global web
platform which is now live throughout North America.
The delivery of this project is an important step for
Premier Farnell as it will enable greater efficiency in
the execution of new global marketing initiatives as
well as providing an enhanced online experience to
customers everywhere. Once the platform is fully
operational throughout the Group, the resources
invested in its development will be redirected to
accelerate the execution of other strategic projects
and marketing initiatives.
In 2013/14, Premier Farnell delivered robust
performances in Europe and Asia Pacific, while the
MDD Other and Akron Brass businesses outperformed
their markets. The Americas division had a more
challenging year but its performance improved as
we exited the year.
Strategic focus
Opportunities for each division
Performance & risks
We now stock over 13,000 development kits and
tools: products that help customers make key
product selection decisions in the very early stages
of their design process. Through the acquisitions
of Embest last year and the business and assets of
AVID Technologies, Inc., with an agreement signed
at the beginning of 2014/15, subject to certain
conditions, we now have the capability to partner with
key semiconductor suppliers to design and build the
development kits that accompany the release of their
latest chips. The addition of this technical resource
means that we can now support the design process
earlier and more closely than ever before.
24/04/2014 16:01
22
Premier Farnell
Chief Executive’s
statement
We have put in place a new leadership team in the
Americas and now have a clear plan of action to
improve the business’s financial performance. The initial
signs are positive with a return to growth in the second
half of the year, although strong local competition has
limited the extent of our recovery at a time when we
have been focused on building an enhanced customer
proposition. There were still some important strategic
steps taken in 2013/14 by the Americas business.
We chose to upgrade the
web platform in North
America first in recognition
of the significant opportunity
we have to transform
the business.
First, we invested in developing the region’s customer
proposition by improving linefill as part of our first half
inventory investments.
Secondly, we chose to upgrade the web platform
in North America first in recognition of the significant
opportunity we have to transform the business.
And lastly, at the end of the financial year, we
implemented cost actions in the Americas to realign
the cost base with its current sales profile. With these
actions completed successfully, the Americas business
is well placed to develop into a digital enterprise and
improve its performance over the medium term.
CPC and MCM, the Other Distribution businesses,
have performed strongly over the past year
with combined sales up 3.9% year-on-year.
This performance has been driven by an intensive
focus on customers’ needs. For example, we acted
on customer feedback to improve our delivery
proposition by introducing free delivery for online
sales. By continuing to work closely together and
focusing on customers’ requirements we expect further
progress from CPC and MCM this year, especially as
CPC further expands its product range and launches
a new catalogue to attract new targeted customers.
Finally, the Industrial Products Division has had an
outstanding year, delivering sales per day growth
of 11.3%. Akron Brass made significant strategic
progress as it won its largest ever contract from the
Hindustan Petroleum Company which was also its
first in India. The business also acquired the assets
of Reach Engineering LLC to extend its range of market
leading solutions. With signs of improving conditions
in its home US markets, Akron Brass is well positioned
to continue to grow in the future.
Building a culture of success
To execute our strategic vision, we know that the entire
organisation must work together with clear purpose
and objectives. Last year we refreshed the corporate
values by which we do business and set about building
a culture that makes Premier Farnell a great place
to work.
We believe in innovation and following the completion
of the agreed acquisition of the business and
assets of AVID Technologies, Inc., subject to certain
conditions, we will have 250 technical engineering
resources in the business.
We view the development of our people as an essential
business priority and see this as a fundamental enabler
to the attraction and retention of the best talent.
Integrity and trust are vital to our culture and in the last
year we have invested in training for all our leaders
on coaching their teams to success.
11.3%
Industrial Products
Division has had
an outstanding
year, delivering
sales per day
growth of 11.3%.
This year’s employee survey
provided us with insight
on areas of opportunity
for improvement but overall
engagement remains
strong at 71%.
This year’s employee survey provided us with insight
on areas of opportunity for improvement but overall
engagement remains strong at 71%, up 1% compared
to the prior year. More detail on how we engage with
our employees is shown on pages 43 to 45.
Looking ahead
The recent momentum delivered through the execution
of our strategy and improving market conditions is
encouraging. Clearly we would welcome sustained
recovery in our end markets but with limited forward
order visibility, we remain intently focused on optimising
our financial performance in line with the market
conditions and executing our strategic vision. As we
do so, we expect to optimise financial performance
and position the business for long term success
on behalf of all our stakeholders.
Laurence Bain
Chief Executive Officer
24/04/2014 16:01
Premier Farnell
23
Operating
performance
Group
Profit before tax
Total
Adjusted3
2013/14: £968.0m
2012/13: £952.0m
2.6%2
2013/14: £76.3m
2012/135: £74.8m
2.0%
2012/135: £69.0m
8.4%
Total
2013/14: £74.8m
Earnings per share
Adjusted3
Adjusted3
2013/14: £93.0m
2012/135: £95.1m -4.1%4
Total
2013/14: £91.5m
2013/14: 14.3p
2012/135: 14.6p
-2.1%
2012/135: 13.3p
5.3%
Basic
2012/135: £89.3m
0.3%4
2013/14: 14.0p
Dividends per share
Adjusted3
Total
2013/14: 9.6%
2013/14: 10.4p
2012/135: 10.0%
Operating margin
2012/13: 10.4p
Total
2013/14: 9.5%
2012/135: 9.4%
Division
Marketing and Distribution Division (MDD)
Sales
892.7
Industrial Products Division (IPD)
2013/135
£m
883.6
Operating profit
Sales
2013/14
£m
2013/13
£m
75.3
68.4
Operating profit
– Adjusted
92.1
97.2
– Adjusted
14.0
11.3
– Total
92.9
91.4
– Total
14.0
12.0
The Industrial Products Division comprises Akron
Brass, a global leader in the manufacture and sale
of high-performance fire-fighting and emergency
response equipment.
Countries of operation:
Austria, Australia, Belgium, Brazil, Canada, China, Czech
Republic, Denmark, Estonia, Finland, France, Germany,
Ireland, Hong Kong, Hungary, India, Israel, Italy, Malaysia,
Mexico, Netherlands, New Zealand, Norway, Poland,
Romania, Singapore, Slovakia, Slovenia, South Korea,
Spain, Sweden, Switzerland, Taiwan, Thailand, United
Kingdom, United States.
Countries of operation:
Australia, Canada, China, France, Germany, India,
Singapore, United Arab Emirates, United Kingdom,
United States.
The Marketing and Distribution Division
predominantly operates in the high service
electronic components distribution market.
Governance
2013/14
£m
Strategic focus
Operating profit
Performance & risks
Sales
Notes:
1. Unless otherwise stated, 2013/14 refers to the 52 week period ended 2 February 2014 and 2012/13 refers to the 53 week period ended 3 February 2013.
2. Sales growth is based on sales per day for continuing businesses at constant exchange rates and for like periods.
3. In 2013/14, adjusted operating profit, profit before tax, and earnings per share exclude restructuring costs of £3.9 million, partly offset by a £1.6 million net
gain on a US property disposal and a £0.8 million gain recognised following re-measurement of the fair value of contingent consideration payable in respect
of last year’s acquisition of Embest.
4. Growth in operating profit is calculated at constant exchange rates, unless otherwise stated.
5. Prior year comparatives have been restated to reflect the impact of IAS19 (revised) on the Group’s post-retirement expenses. This has reduced previously
reported 2012/13 adjusted operating profit by £0.9 million and total operating profit by £1.6 million. Full details of the restatement are disclosed in note 27
of the consolidated financial statements.
25/04/2014 11:22
24
Premier Farnell
Key performance
indicators
Growth
Active customer base:
We measure the Group’s performance and
progress of our strategic plans against its
key performance indicators (KPIs).
As a business whose end markets are
impacted by the economic cycles, we
recognise that our performance in relation
to these KPIs will fluctuate in the short
term, particularly when taken in isolation.
As we execute our strategy, we believe
that, over the course of an economic
cycle, we will deliver these KPIs and
by doing so the Group will optimise
its financial performance.
target 4% growth
Total %
2.70
1.30
–0.30
2011/12
2012/13
2013/14
Increasing the active customer base demonstrates the attractiveness of our
customer proposition and indicates market share gains. We continue to believe
that growing our active customer base and the quality of the relationships
with customers will enable the business to capitalise on the significant growth
opportunities afforded by our markets. Active customers are those who have
transacted with us within the past six months (excludes sales of Raspberry Pi
and associated products).
2013/14 Performance: focus on leveraging our enhanced customer
proposition
As we gain greater insight into customers’ behaviour, we continually assess the
relevancy and appropriateness of our proposition in relation to each targeted
customer segment. While we focused on leveraging our enhanced customer
proposition by increasing the depth of relationship with our core targeted customers
in the second half, we also instigated actions to phase out non-profitable customers
in segments not core to our strategic objectives. As a consequence, our MDD
active customer base was broadly flat year-on-year.
Efficiency
Sales via eCommerce channels:
target 70% of MDD sales
Total %
55.0
56.8
55.1
2011/12
2012/13
2013/14
eCommerce is a highly efficient route to market and enabler of further efficiencies
in our business model. We target 70% of sales in our MDD businesses through
online channels.
2013/14 Performance: new web platform provides foundation
for eCommerce growth
This year, we decommissioned optical character recognition (OCR) technology for
the fully automated processing of faxes because the cost of maintaining the OCR
infrastructure no longer justifies its benefits as this channel becomes less favoured
by our customers. Whereas this change resulted in a decline in eCommerce
penetration to 55.1% of sales, it creates greater opportunity to benefit from further
efficiencies from the business that we conduct through eCommerce channels in
the future.
Profitability
Operating margin:
target 10 –12% growth
Total %
2011/12
2012/13
2013/14
11.0
10.0
9.6
Through the ongoing management of gross margin and costs, the Group targets
an operating margin in the range of 10% to 12% in order to optimise profitability
through the economic cycles.
2013/14 Performance: Group remains focused on optimising
profitability
Market conditions resulted in lower gross margin and, although this was offset
through ongoing cost efficiencies, the business performed below our targeted level
to deliver adjusted operating margin of 9.6%. We anticipate operating margin will
be maintained at a broadly similar level in the year ahead as we seek to optimise
performance and make strategic investments.
24/04/2014 16:01
Premier Farnell
Emerging markets growth:
Total %
1.6
–2.8
2.6
2011/12
2012/13
2013/14
target 10% growth
2011/12
2012/13
2013/14
Total %
21.1
7.5
14.9
Over the economic cycles, we target accelerated sales growth through a
combination of structural growth in our targeted customer base, market share
growth and developing our business in emerging markets. We measure sales
per day on a constant exchange rate basis.
We will continue to develop our business internationally, focusing on the fastest
growing territories such as China, India and Eastern Europe.
2013/14 Performance: return to sales per day growth
In 2013/14, the Group’s emerging markets business delivered growth of 14.9%
year-on-year, ahead of our targeted level. At the end of the year, sales to emerging
markets accounted for 9.8% of our total MDD business.
2013/14 Performance: China and India underpinned strong growth
2011/12
2012/13
2013/14
Total %
37.1
34.3
32.3
Return on net operating assets:
Strategic focus
Investments in our customer proposition helped sales per day return to growth
in 2013/14, up 2.6% year-on-year. Although economic conditions remain mixed,
data from the Semiconductor Industry Association (SIA) and the manufacturing
Purchasing Managers Indices (PMI) indicate improving conditions compared with
the prior year.
target >30%
Performance & risks
target 6% growth
Sales per day growth:
25
The effective and efficient investment of our shareholders’ funds is a critical overall
measure of the success of our strategy and we continue to target a return on net
operating assets of greater than 30% for the Group.
In 2012/13 the Group’s return on net operating assets was 32.3%. This achieved
our goal of >30% for the fourth consecutive year and is testament to the
optimisation of our business across the economic cycle.
Free cash flow to sales:
target 6% free cash flow to sales
Total %
2011/12
2012/13
2013/14
Cash flow
Governance
2013/14 Performance: Group delivers RONA target
4.9
6.1
3.7
We remain committed to generating cash flow performance and target 6% free
cash flow to sales over the cycle.
2013/14 Performance: investing in our proposition
As expected following investments during the course of the first half to enhance
our product range, full year free cash flow as a percentage of sales was below
our targeted levels at 3.7%. Our cash performance improved in the second half
with free cash flow to sales of 5.9%, in line with our through-the-cycle target.
24/04/2014 16:01
26
Premier Farnell
and opportunities
The principal risks and uncertainties facing the Group
are summarised on the following page. The disclosure
of risks and uncertainties in the table opposite reflects
the approach of the Company to also look for
the opportunities presented when addressing
significant risks.
The principal risks are formally reviewed, twice per
year by the Board. Updates in terms of emerging risks
or significant actions undertaken are addressed as and
when required at Board meetings. The principal risks
are determined through an evaluation of likelihood of
occurrence and potential impact, with a full review
also undertaken by the Global Executive Team (GET),
comprising the CEO and his direct reports.
Management also review specific strategic,
operational, financial and compliance risks in
regular focused forums during the year, at GET
meetings, quarterly business reviews with each of the
businesses, major programmes and project reviews,
and at other key Executive management meetings.
Further details on our risk management and internal
control procedures are included on page 56.
24/04/2014 16:01
Premier Farnell
27
Risks and uncertainties
Recruitment,
development
or retention
of talented people
Failure to leverage
the investment made
in Asia Pacific
Legal and regulatory risks
Long term evolution of
the electronic component
distribution model
Ù
Ù
The Digital Advisory Board includes external
subject matter experts to provide advice and
guidance to the Board and eCommerce team.
Implementation of the global web platform
will enable the Group to enhance its online
proposition faster and more efficiently.
We actively measure the retention of talent
within our organisation which enables us to
track trends and respond with the appropriate
and necessary actions.
Annual employee engagement surveys
enable progress of our people actions to be
monitored, areas of improvement identified
and actions put in place.
Reward schemes are continuously evaluated
to drive and reward performance and ensure
retention of key talent.
We seek actively to engage employees
by focusing on training and development,
customer relationships, leadership, social
responsibility and communications.
Ù
A dedicated data function has been
established to ensure compliance with internal
processes and external regulations.
A data strategy and governance framework
has been developed to support the information
requirements of our strategic programmes.
Continued investment in data and data
management processes to provide our
customers with high quality product
information and suppliers with rich insights
into customer behaviour.
×
We have a fully integrated multichannel sales
and marketing plan aimed at addressing the
needs of our customers, including a focus on
specific segmentation by type of customers
and vertical industries.
By enhancing and better targeting our
offering, we can significantly improve operating
performance in North America by taking
market share and attracting customers to our
online environment. A new Business President
has been appointed to lead the region and
execute its strategy.
Ø
Best practice and personnel leveraged
from around the Group to ensure delivery.
We continue to invest and effect structural
growth in our key Asia Pacific markets.
Investments in global inventory and our
proposition will significantly benefit our
customers in Asia Pacific.
Business continuity plans are kept under
review for all our locations.
Ongoing review of our IT infrastructure
and conduct regular testing of our systems.
We continually improve workflows and
operational efficiencies and provide increased
capacity and investment in capability.
We have exposure to a number of countries
and their respective legal compliance
requirements are addressed through a variety
of controls.
The increase in environmental legislation
for electronics, such as the introduction of
REACH, allows us to provide real value to our
customers through our legislative expertise.
Software and services is increasingly part of our
offering to product development customers.
This increases the value that they extract from
our proposition while diversifying our business
model away from pure distribution.
The Group takes actions to reduce the impact
of its business on the environment through
carbon emissions and by encouraging
recycling, especially of packaging.
Regional warehouse model reduces impact
of carbon emissions compared to alternatives.
Environmental and technology trends are
sources of electronics innovation which
underpin sales to our product development
customers.
Through ongoing focus on reducing the
environmental impact of doing business,
we are introducing more efficient processes
and can offer further complementary services
to our customers.
×
Ù
Ù
Ù
Significant failure
or inefficiencies
in our systems
and infrastructure
We continue to implement strategic initiatives
to build customer loyalty and provide a
differentiated proposition for our customer
base. Our proposition is increasingly
personalised to meet the needs of customers
in targeted segments.
Fragmentation of the marketplace allows
us opportunities to win business and
create further barriers to entry from
smaller competitors.
Governance
Insufficient progress with
improving performance
in North America
We continue to build our high service
proposition by adding new technologies
and a broad range of products, working
closely with suppliers as we provide endto-end solutions throughout their product
development process.
Data and content quality
inhibit effectiveness of our
eCommerce strategy
Opportunities
Strategic focus
Competitive advantage
in the web channel
is not maintained
Mitigating actions
Performance & risks
Competitive pressures
increase
Relative
increase/
decrease
compared
to prior year
24/04/2014 16:01
Premier Farnell
28
Strategic focus 1
Customer focus
Premier Farnell’s primary objective is to
connect the right suppliers to the right
customers, helping both achieve their
goals. By increasing our understanding
of customers’ differing requirements and
tailoring our proposition accordingly, we are
making it easier for them to do business.
We already meet our customers’ core high
service needs by offering a broad range
of available products, delivered quickly
through our logistics partners and providing
a wealth of information and resources to
help inform product selection. And now,
by seeking to partner in the product
development process earlier and more
closely, we are enabling innovation more
than ever before.
Key investments
Results
Fostering a customer and
supplier focused culture.
Customer satisfaction
and service metrics at
record levels.
Trusted, branded products
reflecting increasingly
stringent regulation in
global markets.
Agreement to acquire
business and assets
of AVID, subject to
certain conditions, and
successful integration
of Embest completed.
£25.8m inventory
investment focused on
improving linefill and
enhancing product offering.
Inventory turns increasing
and expected to turn in line
with Group.
Embest and AVID enhanced
offering at early stages of
product development.
Agreements with Cypress
Semiconductor, AMD and
Freescale. Development kit
sales increased 40%.
Continue to enhance
the online experience,
element14 community,
legislative information,
product data and
technology content.
220,000 registered users
adding at a rate of 5,500
per month. 5,000 units
of content downloaded
per week.
Over 600,000 products
from 3,000 suppliers
24/04/2014 16:01
Premier Farnell
29
Product availability
With ever increasing time pressure to deliver
their projects, customers expect reliable delivery
of products, often requiring next day delivery
to achieve their business objectives.
We continuously look to improve our fulfilment
proposition. By delivering to promise, we have
seen customer feedback and service metrics
rise to record highs this year.
Trusted information
Premier Farnell has been a market leader in
providing information and support to customers.
In addition to the technical product information
sheets available on the transactional websites
and 24/5 technical support, Premier Farnell has
an extensive social media presence and the
leading online community, element14.
Seeding products to the design engineering
marketplace creates substantial value to
suppliers as it provides the opportunity for
greater future volume growth should these
projects reach production. Beyond simply
providing a fast and effective conduit to this
market, our technical capability and multichannel
sales and marketing resources – in particular
the Community – provide a compelling
proposition to suppliers as they launch the
latest technologies. In 2013/14 we worked with
supplier partners to launch 30 exclusive or firstto-market products.
Research. Develop. Design.
As engineers embark on a project, they usually
begin by researching online to identify the
technology needed to make it a success.
They will be looking for datasheets, application
notes and the software necessary for their
projects. The element14 community provides
engineers with a resource where they can join
the conversation, consult industry experts on
a range of topics and access content such
as video and blogs as well as our design
workspace which holds over 15 gigabytes
of product information.
The customer will then select his core
technology and move onto the development
stage. At this point, the engineer often
purchases a development kit and tools which
allow him to bring the idea to life. This is done
by programming the kit using development tools
and software, a critical in the product creation
process and a flag to us that design activity is
taking place. In 2013/14 we added 2,300 new
development kits and tools to our inventory and
achieved year-on-year sales growth of 40% in
these products. We are now launching a new
development tool superstore, a destination
where engineers can access kits and tools,
including software, from a single source online.
Embest strengthened our new product
introduction offering, allowing us to partner
even more closely with suppliers as they bring
the latest technology to market. As suppliers
develop their new products, Embest can design
Prototype. Test.
After the design has been completed, the
conceptual drawings can become reality in a
working prototype. The basis for the product
will be the PCB upon which components are
mounted to create the assembled prototype.
Premier Farnell offers PCB fabrication services
through partners such as Eurocircuits and
Screaming Circuits which can be delivered to the
customer in as little as two days, as well as the
components and lab supplies that customers
need to build their prototype.
The prototypes are then tested to ensure that
the product is ready for the end consumer.
Premier Farnell offers a wide range of test and
measurement equipment from leading suppliers
such as Fluke and Tektronix.
Low volume production
After the project has been fully tested it will
proceed into production. At this stage the
purchasing decision will normally have moved
from the product development teams to buyers
and production runs are frequently completed
by contract equipment manufacturers (CEMs).
We now cater for the requirements of CEM
customers in the low volume production space
with packaging that better suits their needs,
such as the stocking of full reels of components
and supporting specific kitting needs.
When product volumes increase to a point
where the value we deliver through our high
service offering is less relevant, we no longer
continue to participate; volume manufacturers
tend to service that market instead.
For their projects to progress as planned, it
is critical that customers purchase products
that meet the technical specifications in the
design brief. Having the relevant technical
and legislative information is increasingly
valuable therefore, particularly as the regulatory
environment develops.
New product introductions
Design engineering customers value the
greater technical capabilities that new products
frequently offer and the reduced likelihood
of near-term future obsolescence.
Once comfortable with the initial development
work and choice of the core technology
component, the engineer will then design the
architecture of the electronic product using
computer-aided design software. CadSoft Eagle
software provides customers with a printed
circuit board (PCB) design tool. Since Premier
Farnell’s acquisition of CadSoft in 2009, it has
achieved a CAGR of 38.7%.
Governance
As we seek to optimise our inventory to achieve
this requirement, we are continuously leveraging
our global resources and warehouse network.
65% of our main MDD inventory offering is
available to customers globally and through
effective inventory management, our distribution
centres are able to ship 99.9% of orders same
or next day.
As described below, we are now supporting
customers at every stage in the product
development process:
Fast delivery
Our position in the electronics supply chain
provides us with the opportunity to follow our
customers’ designs through to production and
provide services and solutions throughout their
product development processes. By doing
this we will enhance the value we create
for customers and suppliers alike, from the
launch of the latest semiconductor to the early
stages of production encompassing research,
development, design, prototyping and testing.
and manufacture the development kits which are
critical to the successful product launch. At the
same time, the element14 community can help
ensure its success by generating interest and
engagement in the target design engineering
customer base. The acquisition of the business
and assets of AVID Technologies, Inc., currently
conditional, provides the next step as we build
this design proposition by adding expertise in
analog, radio frequency and wireless induction
technologies. The combination of the element14
community, Embest and AVID positions us
uniquely as a supplier partner at the earliest
stages of the design cycle.
Strategic focus
This year, we enhanced our product range
through an incremental investment of £25.8 million
which saw us add more than 100,000 new
SKUs and increase inventory depth in certain
key product areas. Following this investment,
linefill reached record levels of 97%, enabling us
to satisfy customer demands while continuing
to achieve acceptable returns. Since making our
investments we have seen the turns of the new
inventory begin to improve towards the levels
we expect.
Creating value as we support customers’
product development processes
Performance & risks
We pride ourselves on stocking a world-class
linecard of over 600,000 products from 3,000
suppliers as product availability for customers
is fundamental to high service distribution.
Although their projects differ substantially,
customers value the breath of our offering
as they typically want to make their purchase
from a single source and need to receive their
order quickly. Customers want both the latest
technologies but also access to tools and
similar commodity products. Our range of over
50,000 own brand products offers customers
exceptional quality in key commodity areas at
competitive prices.
Maintain and repair
MRO engineers place considerable value on
the core high service elements in our offering as
they frequently need a small quantity of specific
components quickly to maintain and repair
electronic products already in use. The products
they require are highly complementary to those
sought by our design engineering customers.
24/04/2014 16:01
Premier Farnell
30
Strategic focus 2
Multichannel sales
and marketing
Providing effective marketing and sales
channels as we connect suppliers to
customers is fundamental to the value
that our business creates.
For suppliers, we provide a powerful
combination of targeted marketing which
enables us to seed their latest products to
our global customer base and an efficient
distribution channel for low volume sales
of existing products.
For customers, our approach helps
to simplify their purchasing decisions
and processes by offering a seamless
combination of field sales, contact centre
and leading-edge eCommerce channels.
650
24/5
3
Contact centre staff
Online tech support
Tier 1 regional
contact centres
620
250
1
Field salespeople
Technical engineers
element14
community
Transactional
websites
24/04/2014 16:01
Premier Farnell
31
Our multichannel sales and marketing strategy
is critical to our success. As outlined on
page 27, we consider a principal risk for the
business to be the loss of our competitive
advantage online. In order to mitigate this risk,
our multichannel sales and marketing strategy
remains a considerable focus of our investment
for the future.
New web platform
Over the coming year, the platform will be
rolled-out across Asia Pacific and Europe.
Following the completion of this significant
strategic project, we will be able to reallocate
resources and accelerate our online
marketing initiatives.
element14 community
In 2013/14 the element14 community extended
the considerable progress made in the prior year.
element14 has established itself as the leading
online community in our industry and a unique
resource for its 220,000 registered users.
The ever popular Ben Heck show, available on
the Community, YouTube and the Discovery
Channel, reached a new milestone with over
10 million views since launch. Video content
on the Community had over 283,000 views
this year.
element14 community continues to contribute
to our commercial success with sales generated
up over 50% compared to the prior year. As an
authority for new technology and engineering
information, the Community hosted over 71
webinars. These sessions covered a range
of topics and were often held in partnership
with key suppliers, including Freescale,
MikroElectronica and Texas Instruments.
Suppliers and customers alike benefited
from the 33 RoadTests as new products
were launched on the Community.
As the legislative environment evolves, the
Community continues to act as a central hub
to support our design engineer customers.
Developments in RoHS legislation remained
the main area where customers required
information and guidance in 2013/14, as the
reach of the regulations expands over the next
six years. “Ask the Expert” received questions
from mainland Europe, the US, China, India and
New Zealand, while 14 comprehensive new
documents and guides and 40 focused articles
helped provide the necessary direction on many
areas of legislation.
The Community also provided support to
customers with regards to Conflict Minerals
legislation towards the end of 2013 as specific
legislation in Europe and the US will come into
force during 2014. The Community witnessed
a surge in customer requests, in particular for
knowledge and information on Conflict Minerals
and the position taken by both Farnell element14
and Newark element14 on this matter.
Online workspace for design engineers
Supporting customers through their product
development journey is a central element of
our strategy. In 2010/11, we launched a first for
our industry: a dedicated workspace for design
solutions and tools, the Knode.
Putting multichannel into practice
Customers often choose to interact with us
through multiple channels depending on what
they are looking to achieve. For example, a
large account might have a regular review with
a field sales person, a dedicated contact person
at a call centre providing ongoing support,
and an integrated eProcurement system for
day-to-day orders across the engineering team.
This powerful combination of channels gives us
a competitive advantage over businesses with
a single channel relationship.
More than 620 field salespeople manage
relationships with our larger customers and
target accounts, providing a local touch point
to meet customers’ needs.
Our contact centres play a critical role in
optimising efficiency and customer service,
providing support for electronics professionals
around the world. We have over 650 contact
centre staff, predominantly based in tier one
centres in each region – in Cleveland for North
America, Krakow, Poland for Europe and in
Shanghai, Singapore and Sydney for Asia
Pacific. As well as providing a cost efficient
structure, operating from central call centres
enables us to develop best practice and core
skills in our customer facing staff.
eCommerce makes up the largest portion of
our business with 55.1% of MDD sales coming
through online channels in 2013/14.
By leading online innovation in our industry, we
are better connecting suppliers to customers,
enabling targeted information and marketing
to be disseminated quickly to a relevant global
customer base. This is only achievable through
a web offering like ours where commerce,
content and community converge.
Customers who use our transactional websites
and eProcurement solutions often find it an
easier way to do business and the web also
enables efficiencies in our own business
model. As described in our KPIs on page 24,
we target 70% of our MDD sales to come via
eCommerce channels as part of our focus
on driving efficiency.
Following an initial pilot in Canada, we
successfully completed the roll-out of the site
across the remainder of our North American
territories at the end of the 2013 calendar year.
Customer reaction has been positive and sales
levels through our transactional sites were
largely unaffected.
Over the past 12 months we have invested to
enhance the user experience of the workspace
and to create a new development tool
superstore within the element14 community
which we expect to launch in the coming
financial year.
Governance
By moving to a single global platform, we will
benefit from increased efficiencies as we roll-out
multi-regional marketing programmes faster
and reduce the burden on our back office IT
teams as we implement future enhancements.
In addition, our online customer proposition in
emerging markets will be significantly enhanced,
enabling further customisation of the front end of
our websites to each marketplace and ensuring
that key requirements, such as local languages
or currency requirements, are met.
Activity levels on the Community have risen
substantially over the prior year and it received
over 21 million page views while attracting
more than 5,500 new members every month.
Engineers accessed the Community from
around the world, downloading over 5,000 units
of content a week as they conducted research
for their projects. This resulted in participation
levels increasing by 36.8% year-on-year.
We have invested in upgrading the global web
platform for our 48 transactional websites.
In 2013/14, we implemented this across
North America, the region where we have the
greatest opportunity to increase the amount
of business conducted online. The new web
platform represents a step change in our online
proposition by providing the foundation for a
better user experience, making it easier for
customers to transact with us online.
The Knode allows engineers to work, store key
information and provides them with access to
our range of design and development solutions
including software such as CadSoft EAGLE or
development kits designed and manufactured
by Embest.
Strategic focus
The insights that we gain from our customers
are helping us to better meet their requirements.
This year, we established a new shared services
centre in India to help build our analytical
expertise to allow us to interpret our data better
in order to enhance the customer experience.
Engineers come together on the Community
to discuss topics ranging from Raspberry Pi
projects to Power Management. Our technical
marketing teams and many of our supplier
partners are also on hand to answer questions
and provide advice.
Performance & risks
Being multichannel sales allows us to optimise
operational performance while supporting a
broad range of customers. Online channels
eliminate inefficient manual practices, improve
the quality of our processes and allow our
people to focus on activities where the human
touch adds value to our customers.
Through continued focus on providing a
differentiating multichannel experience, Premier
Farnell will continue to connect suppliers with
customers and act as a partner to both through
the electronics cycle.
24/04/2014 16:01
32
Premier Farnell
Strategic focus 3
International
The megatrends identified on pages 8
and 9 point to a world of ever greater
interconnectivity, where engineers across
multiple countries combine in the design
and production of new electronic products.
To adapt to the added complexity brought
by a globalised supply chain, customers
and suppliers increasingly call for a single
global high service distribution partner.
Achieving 99.7%
shipping accuracy
24/04/2014 16:01
Premier Farnell
33
Global presence; local touch
Customers and suppliers across the globe
can come together through the element14
community with users from different languages
able to participate and collaborate using our
integrated Google translation functionality.
Over the last 12 months, the Community has
received close to nine million visits from nearly
200 different countries around the world.
Opportunity in developing markets
As one of just four global high service
distributors, we believe that we can satisfy
customers’ requirements more fully than
the fragmented local competition, giving us
significant competitive advantage.
As we continue to enhance the value that we
deliver by connecting suppliers to customers
throughout the product development
process, Premier Farnell is well positioned to
continue to deliver accelerated growth in the
developing markets.
Benefiting from India’s development
Economists estimate that India will grow at
more than double the rate of the rest of the
world with the World Bank predicting GDP
growth of 7.1% by 2016/17 as global demand
recovers and domestic investment increases.
Should this materialise, it is likely to support
accelerated growth in our end markets in
the territory.
This year, Premier Farnell delivered sales
per day growth in India of 20.3%. The strong
sales growth came despite relatively subdued
manufacturing conditions for much of the year,
as indicated by the region’s manufacturing
PMI readings which contracted for three of
the 12 months.
Customers in India benefit from element14’s
product offering in Asia Pacific and are
also able to access products from our
European warehouses.
Although we service customers primarily through
field sales and our contact centres in India, with
the support of our technical centre in Bangalore,
Google trends data confirms that element14 has
led the high service distribution industry as the
country’s strongest eCommerce brand.
Developing our business in Asia Pacific
As a high service distributor, our emphasis is
on meeting customers’ requirements through
our product portfolio and distribution capability
to make their work easier.
Today, we stock 100,000 products in the
Asia Pacific region, in particular in our regional
headquarters in Singapore, which is supported
by hubs in Sydney and Shanghai. Over the
past year, we have continued to develop our
proposition in the region by adding 45,000 new
lines and customers in Asia also benefit from
our wider global product offering.
We continue to develop the attractiveness
of our proposition and customer experience
through our multichannel sales strategy, while
taking steps to improve our efficiency in the
region which will benefit customers through
increased reliability and quality. In China, for
example, we are upgrading our systems to bring
this territory in line with our other businesses.
As our element14 brand name becomes
synonymous with high service, we remain
confident that our business remains ideally
positioned to leverage the extensive growth
opportunities in Asia Pacific and across the
wider global electronics markets.
In 2013/14, emerging markets sales per day
grew 14.9%, above our 10% target, as detailed
in our KPIs on page 25, and contributed 9.8%
of MDD sales.
The requirement for a high service distribution
partner to support engineers throughout the
product development process is not limited
to the developed markets. Engineers in the
emerging markets need the same range of
services and solutions.
Last year, we increased our focus in the region
by establishing a best-in-class contact centre in
Krakow, Poland, to run our outbound telesales
and telemarketing activity across Europe in
22 languages, including Eastern European
dialects. We are beginning to see the benefit
of this investment across Europe but especially
in Eastern Europe where sales rose 17.3%
year-on-year in 2013/14. The centre combines
with field sales, customer service support,
eCommerce and marketing activity, plus the
ability for customers to buy from us in local
currency to create the ideal platform to build
market share in the region.
Governance
As the manufacturing becomes more global,
emerging economies such as Eastern Europe,
China and India continue to play a greater
role in the electronics industry from design to
production. Since 2006 Premier Farnell has
focused on increasing our footprint in these
markets, predominantly through organic growth
but supplemented by small strategic acquisitions
such as Hynetics in India in 2007/08, Microdis in
Eastern Europe in 2008/09 and Embest in China
in 2012/13.
Our scale means that we offer a more efficient
channel to emerging markets for our global
electronic component manufacturer partners.
They value our global reach and frequently
provide us with preferential terms compared
to the local players as well as access to their
latest products.
Industrial businesses across Europe are relying
to an ever increasing extent on Eastern Europe
as a manufacturing hub. The first global, high
service distributor to focus on this growth market
in 2006, Premier Farnell has benefited from the
growth in electronics across a wide range of end
customer segments, resulting in a three-year
CAGR of 15.9%.
Following the implementation of our new web
platform in North America during 2013/14, we
will soon upgrade the platform in Europe and
Asia Pacific. This will simplify tailoring of content
and user experience to local markets and allow
us to roll-out our web proposition faster to
targeted emerging markets in future.
Furthermore, being a large organisation means
we are recognised by our customers as a
trusted source of branded products which is
increasingly important as regulation and quality
control develops.
Growing in Eastern Europe
Strategic focus
Our multichannel sales and marketing model,
incorporating our innovative eCommerce
offering, enables us to reach customers
worldwide. It allows us to tailor our offering to the
local marketplace whether that’s through local
salespeople on the ground, our regional contact
centres or the 48 transactional websites around
the globe which cater for over 30 languages
from Chinese Mandarin to Finnish.
In addition to an innovative web interface and
technical resources, our scale means that we
can offer a broad range of products and services
from a global supplier base.
Performance & risks
Premier Farnell is a truly global business with
operations in 37 countries. Nine distribution
centres, located across the globe, provide
over 1.1 million square feet of warehouse space
and combine efficiently with our sales functions.
From there, we ship over 30,000 packages per
day, working with logistics partners such as UPS
to achieve 99.7% shipping accuracy.
24/04/2014 16:01
34
Premier Farnell
Financial and
operational review
Market conditions in high service
electronics distribution have been greatly
impacted by the economic cycles
experienced over the past three years.
More recently however, data from the SIA
and manufacturing PMIs have indicated
improvement in industrial markets.
The improving market conditions have
benefited our recent financial performance.
Key Financials
£m
Total revenue
Adjusted operating profit(c)
Total operating profit
Adjusted profit before tax(c)
Total profit before taxation
Adjusted earnings per share(c)
Basic earnings per share
Free cash flow(d)
2013/14(a)
(52 weeks)
968.0
93.0
91.5
76.3
74.8
14.3p
14.0p
36.1
2012/13(a)
Restated(e)
(53 weeks)
952.0
95.1
89.3
74.8
69.0
14.6p
13.3p
58.1
Growth(b)
2.6%
-4.1%
0.3%
2.0%
8.4%
-2.1%
5.3%
-37.9%
Notes:
(a) The financial year ended 2 February 2014 (2013/14) was a 52 week accounting period and
the financial year ended 3 February 2013 (2012/13) was a 53 week accounting period.
(b) In order to reflect underlying business performance, sales growth is based on sales per day for
continuing businesses at constant exchange rates and for like periods, and growth in operating
profit is calculated at constant exchange rates, unless otherwise stated. References to financial
results refer to “adjusted” numbers unless otherwise stated (see note (c) below).
(c) In 2013/14, adjusted operating profit, profit before tax, and earnings per share exclude
restructuring costs of £3.9 million, partly offset by a £1.6 million net gain on a US property
disposal and a £0.8 million gain recognised following re-measurement of the fair value of
contingent consideration payable in respect of last year’s acquisition of Embest.
(d) Free cash flow comprises total cash generated from operations, excluding cash flows related
to adjusting items, less net capital expenditure, interest, preference dividends and tax payments.
Free cash flow also excludes net proceeds from the US property disposal.
(e) Throughout this Financial and operational review prior year comparatives have been restated
to reflect the impact of IAS19 (revised) on the Group’s post-retirement expenses and liabilities.
This has reduced previously reported 2012/13 adjusted operating profit by £0.9 million and total
operating profit by £1.6 million, and reduced the Group’s brought forward post-employment
liabilities by £6.2 million. Full details of the restatement are disclosed in note 27 of the
consolidated financial statements.
Divisional Analysis
Mark Whiteling
Chief Financial Officer
2013/14
(52 weeks)
2012/13
Restated
(53 weeks)
Growth
Europe
APAC
MDD Europe & APAC
MDD Americas
MDD CPC & MCM
MDD Total
Akron Brass
Group
363.8
72.1
435.9
347.1
109.7
892.7
75.3
968.0
355.5
67.1
422.6
353.8
107.2
883.6
68.4
952.0
1.9%
12.4%
3.6%
-0.6%
3.9%
2.0%
11.3%
2.6%
Adjusted Operating
Profit/Operating Margin
2013/14
(52 weeks)
2012/13
Restated
(53 weeks)
Growth
MDD Europe & APAC
60.3
13.8%
19.7
5.7%
12.1
11.0%
92.1
10.3%
14.0
18.6%
(13.1)
93.0
9.6%
61.9
14.6%
24.7
7.0%
10.6
9.9%
97.2
11.0%
11.3
16.5%
(13.4)
95.1
10.0%
Revenue
MDD Americas
MDD CPC & MCM
MDD Total
Akron Brass
Head office costs
Group
-5.0%
-21.1%
14.0%
-7.0%
22.5%
-4.1%
Notes:
The above current year results have been adjusted to exclude the following items:
1. Restructuring costs of £3.9 million (MDD Europe and APAC £0.6 million, MDD Americas
£1.0 million, Head Office £2.3 million).
2. Net gain on a US property disposal of £1.6 million (MDD Americas).
3. Gain on the change in fair value of contingent consideration, with respect to the prior year
acquisition of Embest, of £0.8 million (MDD Europe and APAC).
24/04/2014 16:01
Premier Farnell
35
Group sales
Marketing and Distribution Division (MDD)
Market conditions in high service electronics distribution have been
greatly impacted by the economic cycles experienced over the past three
years. More recently however, data from the SIA and manufacturing PMIs
have indicated improvement in industrial markets. The improving market
conditions have benefited our recent financial performance.
We have invested to enhance our high service customer proposition
as we look to provide greater value to both customers and suppliers.
This provides our business with significant differentiation, particularly from
the smaller, regional competitors, to deliver accelerated market share
growth in future in line with our strategic objectives.
We also invested in additional Raspberry Pi inventory to support the
ongoing demand that we have seen from the success of this revolutionary
product. In 2013/14, MDD sold a total of £31.7 million Raspberry Pi
and associated products to a diverse customer base including makers,
hobbyists, resellers and engineers. We anticipate strong demand for the
Raspberry Pi and our exclusive range of ancillary products, along with
other single-board computer products, to continue in the year ahead.
The element14 community continues to play an increasingly important
role in differentiating our proposition to both customers and suppliers.
The largest community of its kind, element14 has over 220,000 registered
members and received over 21 million page views in the past 12 months.
Europe and Asia Pacific
Compared to the prior year, when sales declined 3.4%, economic
conditions in Europe and Asia Pacific improved and the division achieved
sales per day growth of 3.6%. The recovery in market conditions has been
uneven, however, resulting in varying sales performances between the
underlying territories.
We have continued to manage our business in line with market conditions
and developed initiatives to support customers’ requirements at this point
in the cycle. As a consequence of the lower gross margin in the period,
Europe and Asia Pacific’s full year adjusted operating margin declined by
0.8 percentage points to 13.8%.
In 2013/14, European markets continued on the path to recovery following
the Eurozone crisis 18 months ago. Our business in the region delivered
year-on-year sales per day growth of 1.9%.
MDD Americas’ sales trajectory improved through the second half of
2013/14 to deliver a full year sales per day decline of 0.6% on the prior
year. Although the business environment has improved to some extent
in the region, including those customers which were heavily impacted
by the tightening of federal government spending this year, strong local
competition has limited the extent of our recovery in North America
at a time when we have been focused on building an enhanced
customer proposition. Full year adjusted operating margin declined by
1.3 percentage points year-on-year to 5.7% as lower sales and gross
margin impacted operational leverage.
Towards the end of 2013/14, a new leader of the Americas business
was appointed to develop the business and deliver medium term financial
performance in line with our expectations. As the leadership develops
plans to achieve this, we have been investing to strengthen the business
and enhance the value of its offering while also taking action to implement
cost efficiencies and improve its operating model.
eCommerce accounted for 37.8% of MDD Americas’ sales in 2013/14.
Following the substantial upgrade of the region’s web platform this
year, it now has the foundation to accelerate online and develop into
a digital enterprise.
CPC and MCM
Although the market backdrop for electrical, electronic equipment
and accessories continues to be challenging, the Other Distribution
businesses delivered sales per day growth of 3.9% year-on-year. With the
greater operating leverage, profitability also increased and the combined
businesses operating margin rose by 1.1 percentage points to 11.0%.
Following on from the acquisition of Embest last year, we recently agreed
to acquire the business and assets of AVID Technologies, Inc., subject to
certain conditions, to enhance significantly our capability and resources
with the addition of 40 engineers specialised in leading-edge technology.
This strategic acquisition will allow us to partner even more closely with
suppliers to promote the innovation of new and exciting technologies.
Americas
Governance
As covered in detail on pages 30 and 31, our multichannel sales and
marketing model allows us to build a tailored relationship with our
customers. The roll-out of our web platform, now implemented in North
America, is an important step on this journey and will enable the business
to advance towards its strategic KPI to have 70% of business from
eCommerce channels.
Asia Pacific provides the Group with a significant long term growth
opportunity, particularly in the key emerging markets of China and India.
Despite mixed PMI manufacturing data throughout the year, we made
solid progress in 2013/14, achieving growth rates of 25.7% and 20.3%
in China and India, respectively. Australia saw some of the lowest PMI
manufacturing readings anywhere in the world in 2013 yet our business
performed robustly, returning to positive sales growth by the end of the
year and declining just 1.1% for the full year. As a result of the trends,
China has overtaken Australia as our largest region in Asia Pacific,
making up a third of the region’s sales.
This year, we invested £25.8 million in inventory (at constant exchange
rates) to expand our range and offer more depth in key products to
support customer demands. The new products include development
kits and tools which are crucial to design engineering customers and
add to our capability to work with customers through their product
development process.
In the first half of the year, the United Kingdom was impacted by
challenging market conditions with sales to certain large customers
operating in sectors exposed to public sector cuts especially weak.
We took action to implement a series of sales and marketing initiatives,
such as refocusing on areas which presented a greater opportunity to
our business and this resulted in significant improvement in the territory’s
performance in the second half. For the full year, UK sales per day
declined 2.5%.
Strategic focus
MDD returned to growth in 2013/14 as sales per day rose 2.0%,
compared to a decline of 3.6% in the prior year.
Despite Eurozone manufacturing PMIs indicating decline for six months
of the year, Continental Europe grew 4.1% with strong performances by
Eastern Europe, up 17.3%, and Germany, up 5.3%. This performance
benefited from investments in our multichannel sales and marketing
capability following the implementation of an outbound contact centre
in Krakow in 2012/13.
Performance & risks
Group sales for the financial year were £968.0 million (2012/13: £952.0 million)
representing growth of 2.6%, based on sales per day for continuing
businesses at constant exchange rates. The following commentary sets out
the performance achieved by each of our business units.
Both businesses delivered good strategic progress, particularly in the
development of their respective eCommerce propositions. This saw
eCommerce rise to 56.5% of sales, an improvement of 4.9 percentage
points compared to the prior year.
Our UK business, CPC, delivered sales growth of 3.3% year-on-year.
This growth was underpinned by its value proposition complemented
by the delivery of a high service customer experience.
We have increased our focus on understanding the requirements
of our customers. For example, we acted on customer feedback to
improve our delivery proposition, leading to the introduction of Free
Online Delivery. This enhanced the business’s price perception in the
market leading to greater effectiveness in online marketing and helping
to attract customers to CPC.
24/04/2014 16:01
36
Premier Farnell
Financial and
operational review
A diverse product range continues to help CPC differentiate from its
competition. Supported by effective global product sourcing, CPC has
enhanced its range for certain business customers such as installers
and electricians.
The Other Distribution businesses continue to work together to leverage
global efficiencies and share best practice across key functions, including
Product, Marketing and Warehouse Management. Over the past year,
MCM’s proposition has benefited from increased collaboration with CPC.
By drawing on the insights and experience of the CPC team, MCM has
enhanced its core product range to be of greater relevancy to a broader
target customer base.
Raspberry Pi and related ‘maker’ products contributed to both CPC
and MCM’s growth, both as a result of the implementation of our reseller
strategy and via direct sales to ‘makers’ and electronics enthusiasts
within their customer base.
MCM has continued its transformation to a web-focused business.
Despite reducing reliance on larger account customers, MCM delivered
sales growth of 5.4% in 2013/14.
Akron Brass
Akron Brass had a standout year in 2013/14, delivering sales per day
growth of 11.3%. Akron has a significant share of the North American
market and is continuing to give focus to the development of international
markets. In 2013/14, 33.1% of Akron Brass sales came from international
markets, including its largest ever contract and the first to India with
the sale of specifically designed monitors to the Hindustan Petroleum
Company Limited. More detail of this contract win is available on page 16.
New product development is a key capability of Akron Brass as it looks
to provide unique solutions to its customers worldwide. In 2013/14,
Akron Brass acquired the assets of Reach Engineering LLC which provides
further key technologies and resources to enable innovation in this market.
Profitability
As outlined in the KPIs on page 24, the Group targets an operating margin
that optimises profitability through the economic cycles by balancing gross
margin and cost management.
Gross margin
Managing our gross margin in line with the competitive environment
and in a way that best supports our customers’ requirements is of
great importance to our operational execution and the delivery of our
strategic vision.
In 2013/14 gross margin reduced to 37.5%, reflecting conditions in our
end markets. In addition, the ongoing success of Raspberry Pi continues
to adversely impact gross margin.
Adjusting items include £3.9 million of restructuring costs as we continue
to realign our focus on areas of greatest opportunity, drive efficiency of
global operations and optimise performance. Offsetting this is a £1.6 million
net gain arising from the first half disposal of our Newark element14
Americas head office property, less costs associated with relocating
to new premises. This relocation will enhance the working environment
which will enable us to attract and retain key talent, develop our culture
and accelerate our strategic objectives. Also included within adjusting
items is a one-off £0.8 million gain recognised in the second half following
re-measurement of the expected contingent consideration payable
in respect of last year’s Embest acquisition.
Operating profit/operating margin
Adjusted operating profit was £93.0 million (2012/13: £95.1 million
restated) representing a year-on-year decline of 4.1% at constant
exchange rates or 2.3% after adjusting for the extra week in the
prior period.
Total operating profit was £91.5 million, reflecting a net cost from
adjusting items of £1.5 million (2012/13: £89.3 million restated, after
reflecting a net cost from adjusting items of £5.8 million). This resulted
in year-on-year growth of 0.3% at constant exchange rates.
The Group delivered an adjusted full year operating margin of 9.6%,
down 0.4 percentage points on the prior year which benefited from
an extra week. The decline in operating margin was principally a
consequence of this year’s lower gross margin performance, albeit
offset by ongoing efficiency actions.
There were significant foreign exchange movements during the course
of the 2013/14 financial year, in particular as sterling strengthened
against the US dollar in the second half, although for the full year the
average exchange rate was broadly similar to 2012/13.
A one cent movement in the exchange rate between the US dollar
and sterling impacts the translation of the Group’s operating profit by
approximately £0.2 million per annum, and a one cent movement in the
exchange rate between the Euro and sterling impacts the translation of the
Group’s operating profit by approximately £0.5 million per annum. Overall,
there was a beneficial impact on full year adjusted operating profit of
£1.9 million from the translation of overseas results compared with the prior
year, reflecting both the foreign exchange movements and the phasing
of profits.
Return on net assets
Return on net operating assets (operating profit expressed as a percentage
of net assets excluding cash, financial liabilities, taxation and goodwill) for
the year was 32.3% (2012/13: 34.3% restated) and remained above our
strategic target of greater than 30%.
Finance costs
Costs and adjusting items
Adjusted net operating expenses were reduced by £3.2 million on the
prior year (£5.1 million at constant exchange rates). Costs as a percentage
of sales (at constant exchange rates) reduced by 0.7 percentage points
to 27.9% for the full year.
Net finance costs in the financial year were £16.7 million (2012/13:
£20.3 million). This comprises net interest payable of £12.4 million
(2012/13: £16.0 million), which was covered 7.5 times by adjusted
operating profit, and a net charge of £4.3 million (2012/13: £4.3 million)
in respect of the Company’s convertible preference shares.
The Group continues to manage its cost base both strategically, as
we continue to simplify our organisation by taking advantage of the
regional resources within our global model and the efficiencies arising
from increased eCommerce activity, and tactically, in response to sales
volumes as we focus on optimising business performance.
The net cost in respect of the Company’s convertible preference
shares included the preference dividend for the year of £3.5 million
(2012/13: £3.5 million), together with a £0.8 million (2012/13: £0.8 million)
charge for the amortisation of the implied redemption premium on
preference shares.
In 2013/14 we opened a new shared services centre in Bangalore, India,
set up to provide a business intelligence resource for the Group. The centre
is improving our data processes which provide efficiency benefits as well
as greater knowledge sharing across the regional business units.
24/04/2014 16:01
Premier Farnell
37
Post-retirement benefits
Adjusted profit before taxation was £76.3 million compared to the prior
year adjusted profit before taxation of £74.8 million (restated). Total profit
before taxation was £74.8 million (2012/13: £69.0 million restated).
Profit attributable to ordinary shareholders after taxation was £51.4 million
(2012/13: £48.6 million restated).
The Group accounts for pensions and other post-retirement benefits
in accordance with IAS 19 (revised). The net charge for post-retirement
benefits was £8.0 million (2012/13: £0.7 million net credit, restated) and
can be analysed as follows:
Charge/(credit) £m
Earnings per share
Adjusted earnings per share for the financial year are 14.3 pence
(2012/13: 14.6 pence restated). Basic earnings per share after the net
impact of adjusting items are 14.0 pence (2012/13: 13.3 pence restated).
Ordinary dividend
The Board is recommending a final dividend of 6.0 pence per share
(2012/13: 6.0 pence per share), amounting to a total dividend for the year
of 10.4 pence per share (2012/13: 10.4 pence per share) and with a total
impact in shareholders’ funds of £38.1 million. The final dividend, subject
to approval at the Annual General Meeting on 17 June 2014, is payable
on 25 June 2014 to shareholders on the register at 30 May 2014.
Business acquisition
After the close of the financial year, the Group signed an agreement to
acquire the business and assets of AVID Technologies, Inc., subject to
certain conditions, for expected consideration of US$13.0 million.
2.2
5.1
0.7
2.1
5.0
0.7
–
8.0
(8.5)
(0.7)
The Group’s two principal defined benefit pension plans are in the US and
the UK. The movement in the balance sheet liability of these plans during
the year was as follows:
£m
Liability at beginning of year (restated)
Expense
Actuarial gains/(losses)
Contributions
Currency translation
Liability at end of year
US plan
UK plan
(11.2)
(0.9)
0.1
–
0.4
(11.6)
(17.2)
(1.2)
(3.5)
3.8
–
(18.1)
The contributions expected to be paid during the 2014/15 financial year
amount to £3.5 million in respect of the UK plan and £nil in respect of the
US plan.
Tax
The effective tax rate of the Group is 29.9% of profit before tax after adding
back preference dividends charged within finance costs. The adjusted
effective tax rate of 30.0% is increased from 27.2% (restated) in the prior
year. This increased rate year-on-year is due to reassessment of our
current position based on prevailing tax rates, remaining tax provisions
and utilisation of tax losses across the Group.
Cash flow and net debt
The Group’s adjusted effective tax charge for continuing operations can
be analysed as follows:
£m
£m
Adjust for:
– Restructuring costs
– Net gain on disposal
of US property
– Gain on
re-measurement
of contingent
consideration
– One-off pension gain
– Acquisition costs
%
74.8
3.5
78.3
Profit
before
tax
Tax
charge
%
69.0
23.4 29.9%
3.5
72.5
20.4 28.1%
3.9
1.1
13.9
3.9
(1.6)
(0.6)
–
–
(0.8)
–
–
79.8
–
–
–
23.9 30.0%
–
(8.5)
0.4
78.3
–
(3.0)
0.1
21.4 27.2%
Free cash flow attributable to ordinary shareholders is summarised below:
Adjusted operating profit
Depreciation and amortisation
Changes in working capital
Additional funding for post-retirement
defined benefit plans
Other non-cash movements
Total cash generated from operations
Capital expenditure
Proceeds from sale of property, plant
and equipment
Interest and preference dividends
Taxation
Free cash flow before impact
of adjusting items
Cash flow impact of restructuring costs
Cash flow impact of US property disposal
Free cash flow after impact of adjusting items
2013/14
2012/13
Restated
93.0
17.7
(23.7)
95.1
18.4
6.6
(2.6)
2.2
86.6
(17.8)
(2.2)
2.4
120.3
(21.9)
0.3
(15.5)
(17.5)
0.1
(18.0)
(22.4)
36.1
(6.2)
3.9
33.8
58.1
(7.0)
–
51.1
Total profit before tax
Add back preference
dividends
Profit
before
Tax
tax charge
Free cash flow to sales was 3.7%, a decline of 2.4 percentage points
versus the prior year, reflecting the investments made in inventory this year.
Governance
2012/13
Restated
2013/14
In the first half, Akron Brass acquired the assets of Reach Engineering LLC
for contingent consideration of approximately £0.7 million, primarily payable
over a four-year period.
2012/13
Restated
Strategic focus
Defined benefit pension plans
Defined contribution pension plans
Other post-retirement benefits
One-off pension income
(US defined benefit pension plan)
2013/14
Performance & risks
Profit before tax
Total cash generated from operations represented 93.2% of operating
profit (2012/13: 126.5% restated). Net working capital increased by
£23.7 million over the year reflecting strategic inventory investments made
to enhance our customer proposition.
Capital expenditure of £17.8 million included £12.7 million of software
development costs, principally to upgrade our customer web experience
and enhance existing systems.
24/04/2014 16:01
38
Premier Farnell
Financial and
operational review
The change in net financial liabilities is summarised below:
Treasury operations
£m
Opening net financial liabilities
Free cash flow after impact of adjusting items
Acquisition of businesses (deferred consideration)
Ordinary dividends
Issue of ordinary shares
Preference shares
Derivative financial instruments
Amortisation of arrangement fees
Exchange movement
Closing net financial liabilities
(229.6)
33.8
(2.2)
(38.1)
0.8
(0.8)
4.2
(0.5)
6.6
(225.8)
At 2 February 2014, the Group’s net financial liabilities comprised
the following:
£m
Cash in bank and in hand
Bank loans and overdrafts
US$ Senior Notes
Other loans
Preference shares
Derivative financial instruments
2013/14
2012/13
42.8
(39.2)
(161.0)
(7.0)
(63.4)
2.0
(225.8)
131.6
(20.1)
(269.1)
(7.2)
(62.6)
(2.2)
(229.6)
The US$ Senior Notes comprise:
$85.0 million due 2016
The maturity of the Group’s gross financial liabilities at 2 February 2014,
excluding derivative financial instruments, is as follows:
Due within one year
Between one and two years
Between two and five years
After five years
The Group treasury function is responsible for sourcing and structuring
borrowing requirements, managing interest rate and foreign exchange
exposure and managing any surplus funds, which are invested mainly in
short term deposits with financial institutions that meet the credit criteria
approved by the Board. Specifically, counterparty creditworthiness
is determined by reference to credit ratings as defined by the global
rating agency, Fitch. In addition, monthly reports are produced by the
Group treasury function, which are used to report treasury activities.
Treasury activities are monitored by the Tax and Treasury Committee which
meets at least twice a year with major decisions and the overall treasury
policy being approved by the Board.
Group policy prohibits speculative arrangements in that transactions in
financial instruments are matched to an underlying business requirement,
such as forecast debt and interest repayments and expected foreign
currency revenues. The Group uses derivatives only to manage its foreign
currency and interest rate risks arising from underlying business activities.
The Group treasury function is subject to periodic independent reviews
by the Internal Audit Department. Controls over interest rate and foreign
exchange exposures and transaction authenticity are in place and dealings
are restricted to those banks with the relevant combination of geographic
presence and suitable credit rating.
The Group monitors the credit ratings of its counterparties and credit
exposure for each of its counterparties.
£m
The Group is exposed to a number of different market risks, including
movement in interest rates and foreign currency exchange rates.
The Group has established policies and procedures within the treasury
function to monitor and manage the exposures arising from volatility
in these markets, with derivative instruments being entered into when
considered appropriate by management.
2013/14
2012/13
1.8
4.0
208.4
56.4
270.6
102.8
0.1
160.1
96.0
359.0
The Group typically hedges transactions primarily related to the purchase
and sale of inventories denominated in foreign currencies through foreign
exchange forward contracts. These contracts reduce currency risk from
exchange rate movements with respect to these transactions and cash
flows. The Group does not hedge profit translation exposure, unless
there is a corresponding cash flow, since such hedges provide only a
temporary deferral of the effect of movements in exchange rates. Similarly,
while a significant proportion of the Group’s borrowings are denominated
in US dollars, the Group does not specifically hedge all of its long term
investments in overseas assets.
The Group has £200 million bank facilities, expiring in October 2016 which,
together with the Group’s continuing strong cash generation, provide
a good level of operational and financial flexibility to meet the Group’s
funding requirements.
Based on these facilities, the Group’s headroom on bank borrowings at
the end of the financial year was £159.5 million which, together with the
net cash position of £42.8 million, gives us a healthy funding position and
the confidence to invest in our strategy.
24/04/2014 16:01
Premier Farnell
39
Performance & risks
Following the positive reception to our concise
sustainability reporting in 2013, we have again decided
to focus on the key elements of strategic sustainability
across the business in this report. As in 2013, relevant
sustainability information is included throughout the
wider report.
Strategic focus
Greenhouse gas (GHG) statement for the Group
The Principles element of our sustainability strategy centres on those
activities which we believe will deliver competitive advantage or financial
benefit to the company. We don’t report on compliance activities, which
we are required to fulfil (and that would not set us apart from other
corporate ‘good citizens’) in favour of initiatives that we believe drive
internal or external business value.
Summary of GHG emissions for the year ended 31 December 2013:
Code of Conduct
The Trust Line
Premier Farnell provides an anonymous telephone hotline for employees
to report concerns about corporate ethics in their workplace. In FY14, six
issues were reported and investigated by the hotline. All issues raised were
resolved within the year and none remain outstanding.
As a distributor with no owned logistics or freight, we have focused our
environmental reporting on the direct impacts of our operations at our
own facilities. The environmental impacts of the transport of products are
managed by third-party carriers through their own procedures.
4,351
16,278
20,629
Intensity Metric:
Tonnes Carbon Dioxide equivalent per thousand square metres (CO2e/’000m2)
Scope 1
Scope 2
Total
23
87
110
The reporting of Scope 1 and 2 emissions is in accordance with the
new requirements of the Companies Act this year. Comparatives will be
presented from 2014/15 onwards.
Each region has developed plans to reduce absolute energy
use and associated GHG emissions against the 2013 baseline.
Efficiency investments will primarily target owned facility upgrades to
reduce the consumption of electricity and natural gas and the resultant
Scope 1 and Scope 2 emissions.
We have appointed PricewaterhouseCoopers LLP to provide
independent assurance on selected information in the GHG statement.
Their assurance is performed in accordance with the internationally
recognised Standards on Assurance Engagements ISAE3410 and 3000,
against a clear and public set of criteria which can be found online at
http://www.premierfarnell.com/sustainability. Their assurance report can
be found on page 41 of this report.
Resource use
Waste generated (tonnes)
Waste sent to landfill (tonnes)
Waste Recycled (tonnes)
Waste Recycled (%)
2013
2012
2011
4,488
903
3,585
80%
4,409
922
3,488
79%
4,943
1,305
3,638
74%
Planet
Scope 1
Scope 2
Total
Governance
All employees are required to re-read and commit to the Premier Farnell
Code of Conduct during their annual Mid Year Review. This gives them
the opportunity to ask questions and raise concerns with their line
manager. In FY14, 99.87% of employees confirmed that they had read
and understood the Code of Conduct. The remaining 0.13% consists
of employees on long term absence and those who have less than three
months’ service with the Company. These newer employees complete
an education module on the Code of Conduct as part of their induction.
Tonnes Carbon Dioxide equivalent (CO2e)
Principles
Our overall performance on waste recycling has increased by 1% since
2012. In addition to segregating and recycling our own waste on site, our
Distribution Centres offer a returns service for production reels and waffle
trays. This scheme allows customers to return unwanted production
packaging free-of-charge to be cleaned, sorted and re-used.
24/04/2014 16:01
40
Premier Farnell
People
Absenteeism
The success of our business is dependent on the skills and commitment
of our people. It is vital to our sustainability strategy that we attract, develop
and retain the right people to ensure our profitability continues in the
long term.
We measure the sickness and injury-related absence rates of employees at
our contact centres and distribution centres worldwide. As a high service
business, the engagement and commitment of our staff is paramount to
fulfilling our customer promise.
Human rights
Premier Farnell supports the fundamental human rights of all of its
employees and stakeholders. Our policies and procedures are aligned with
the principles of the United Nations Global Compact and we implement
a Code of Conduct in our internal and external dealings to protect the
integrity of the people with whom we interact.
Our Private Label suppliers are subject to our Workplace Standards policy,
setting out the expectation that human rights will be upheld by those
companies with which we contract, including the elimination of forced and
child labour, and we assess those suppliers’ performance to ensure that
their commitment is being kept.
Health and safety
We monitor the injury rates at all facilities and our global performance is
reported below. We target injury rates that are not higher than 50% of
the average injury rate for our industry, based on the OSHA performance
figures for industries in the US.
FY14 Target (50% computed OSHA average)
FY14 Performance
FY13 Performance
Recordable
injuries1
DAW
injuries2
0.45
0.31
0.36
0.11
0.21
0.24
Notes:
1. Recordable injuries are those which require medical treatment beyond the application of on-site
first aid.
2. Days Away from Work injuries are those which result in an employee taking medical leave from
work, or being assigned to restricted duties outside of their normal contract.
In Europe, we have improved the quality and consistency of our safety
management reporting, in order to better capture near-miss accidents and
minor injuries. This provides us with greater visibility of the risks and issues
in our facilities, but has increased the number of injuries reported in Europe.
Overall performance at our US businesses has improved during the
financial year with a significant decrease in the number of injuries during
the year.
Location
Business type
Absence rate1
Leeds, UK
Distribution Centre
Business Contact Centre
Distribution Centre
Distribution Centre
Distribution Centre
Distribution Centre
4.2%
5.0%
3.9%
4.3%
1.4%
2.0%
2.0%
2.0%
1.8%
Preston, UK
Gaffney, US
Richfield, US
Dayton, OH
Singapore
Note:
1. Absence rates are calculated by the number of working days not attended by employees as a
percentage of planned and agreed working days for the year.
Supplier workplace standards
We have continued our audit programme for Private Label Suppliers that
are based in Asia. We have concluded that these are our highest-risk
suppliers in terms of potential human rights violations. To date, 90.14%
of Private Label suppliers (by spend) have been audited by a member of
our Strategic Sourcing Team and 95.85% have completed surveys on
worker rights and workplace standards. No audits have identified any
concerns for the welfare of suppliers’ employees.
This accounts for all significant Private Label suppliers. Approximately
10% of suppliers are “inactive”, being used significantly less regularly
to purchase products. We have taken the decision to focus the audit
programme on regularly-used suppliers. This ensures that the significant
majority of work for which we are responsible in the Asia Pacific region
with subcontractors is conducted in high-standard environments.
Community investment
We have taken the decision to focus our investment activities on two
key areas: STEM education and Assistive Technologies; as this directly
supports our business in the longer term, developing a pool of both
potential employees and potential customers.
We continue to support the Make the Grade programme in the UK,
which provides business support to local schools. Our support is focused
on Swallow Hill Community College in Leeds, providing science and
engineering support to technology departments, as well as broader
mentoring and workplace skills sessions for students.
Our online community, element14, is host to Project Nocturne – an
international collaborative design project in partnership with DesignAbility.
The project brings together electronic design engineers from across
the globe to provide pro-bono development of a product to support
sufferers of dementia and their carers. The Project Nocturne group on the
element14 community website has attracted 10,800 page views during
2013/14 as it brings key stakeholders together across geographical
boundaries to find an innovative solution to an important problem.
24/04/2014 16:01
Premier Farnell
41
Independent Limited
Assurance Report to the
Directors of Premier Farnell plc
Performance & risks
The Directors of Premier Farnell plc engaged us
to provide limited assurance on the information
described below and set out in Premier Farnell plc’s
Greenhouse gas (GHG) statement for the Group within
the Sustainability report and the Annual Report and
Accounts for the year ended 2 February 2014.
Strategic focus
Our independence and quality control
Based on the procedures we have performed and the evidence we
have obtained, nothing has come to our attention that causes us to
believe the Selected Information for the year ended 31 December
2013 has not been prepared, in all material respects, in accordance
with the Reporting Criteria.
We have complied with the Institute of Chartered Accountants in England
and Wales (ICAEW) Code of Ethics, which includes independence
and other requirements founded on fundamental principles of integrity,
objectivity, professional competence and due care, confidentiality and
professional behaviour.
This conclusion is to be read in the context of what we say in the remainder
of this report.
We apply International Standard on Quality Control (UK&I) and accordingly
maintain a comprehensive system of quality control including documented
policies and procedures regarding compliance with ethical requirements,
professional standards and applicable legal and regulatory requirements.
Selected information
We assured the information for the year ended 31 December 2013
presented in the Greenhouse gas statement for the Group (the “Selected
Information”). See http://www.premierfarnell.com/sustainability.
Selected Information
Reporting Criteria1
Scope 1 emissions
Scope 2 emissions
See http://www.premierfarnell.com/sustainability
Carbon intensity
We have performed a limited assurance engagement in accordance with
International Standard on Assurance Engagements 3410 ‘Assurance
engagements on greenhouse gas statements’ (ISAE 3410) and, in respect
of intensity measures information, in accordance with the International
Standard on Assurance Engagements 3000 ‘Assurance Engagements
other than Audits and Reviews of Historical Financial information’ issued
by the International Auditing and Assurance Standards Board. A limited
assurance engagement is substantially less in scope than a reasonable
assurance engagement in relation to both the risk assessment procedures,
including an understanding of internal control, and the procedures
performed in response to the assessed risks.
Non-financial information needs to be read and understood in conjunction
with the Reporting Criteria, given the characteristics of the subject matter
and the methods used in determining such information. The absence
of a significant body of established practice on which to draw allows
for selection of different but acceptable measurement techniques
which can result in materially different measurements and can affect
comparability. The precision of different measurement techniques may
also vary. Furthermore, the nature and methods used to determine such
information, as well as measurement criteria and precision thereof, may
change over time. The Reporting Criteria used as the basis of Premier
Farnell plc’s reporting are as at 17 April 2014 and should therefore be read
in conjunction with the Selected Information and associated statements
as at 17 April 2014 reported on Premier Farnell plc’s website.
Professional standards applied and level of assurance
Understanding reporting and measurement methodologies
Governance
The Selected Information and the Reporting Criteria are summarised in the
table below. Our assurance does not extend to information in respect of
earlier periods or to any other information included in the Annual Report
and Accounts for the year ended 2 February 2014.
Our work was carried out by a team of sustainability and assurance
specialists, independent of management.
Our conclusion
Note:
1. The maintenance and integrity of Premier Farnell plc’s website is the responsibility of the Directors;
the work carried out by us does not involve consideration of these matters and, accordingly,
we accept no responsibility for any changes that may have occurred to the reported Selected
Information or Reporting Criteria when presented on Premier Farnell plc’s website.
24/04/2014 16:01
42
Premier Farnell
Independent Limited Assurance Report
to the Directors of Premier Farnell plc
Work done
Our responsibilities
Considering the risk of material misstatement of the Selected
Information, we:
We are responsible for:
t made enquiries of relevant management;
t interviewed personnel;
t planning and performing the engagement to obtain limited assurance
about whether the Selected Information is free from material
misstatement, whether due to fraud or error;
t performed analytical procedures;
t forming an independent conclusion, based on the procedures
we have performed and the evidence we have obtained; and
t considered the structure and basis of data management system
and controls; and
t reporting our conclusion to the Directors of Premier Farnell plc.
t performed limited testing, on a selective basis, of supporting
documentation to the Selected Information disclosed in the GHG
statement for the Group.
Premier Farnell plc’s responsibilities
The Directors of Premier Farnell plc are responsible for:
t designing, implementing and maintaining internal controls over
information relevant to the preparation of the Selected Information
that is free from material misstatement, whether due to fraud or error;
t establishing objective Reporting Criteria for preparing the
Selected Information;
t measuring and reporting the Selected Information based
on the Reporting Criteria; and
t the content of the Greenhouse Gas Statement for the Group and the
Annual Report and Accounts for the year ended 2 February 2014.
This report, including our conclusions, has been prepared solely for
the Directors of Premier Farnell plc as a body in accordance with the
agreement between us, to assist the Directors in reporting Premier Farnell
plc’s performance and activities. We permit this report to be disclosed
in the Annual Report and Accounts for the year ended 2 February 2014,
to enable the Directors to show they have addressed their governance
responsibilities by obtaining an independent assurance report in connection
with the Selected Information. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the Directors
as a body and Premier Farnell plc for our work or this report except where
terms are expressly agreed between us in writing.
PricewaterhouseCoopers LLP
Chartered Accountants, Leeds
17 April 2014
24/04/2014 16:01
Premier Farnell
43
Employees
Performance & risks
Sustainable, profitable growth in line with our strategic
objectives can only be achieved by a high performing,
engaged workforce with the right knowledge and skills.
Strategic focus
Through its range of employee initiatives, described below, the Group
seeks to attract and develop its people around the globe.
Performance management
All employees participate in our annual performance review process which
links each individual employee’s work with the Company’s strategic and
operational objectives. The performance review process also incorporates
our key development planning processes so that we continually address
performance and ongoing professional and personal development.
Performance management continues throughout the year and we
also consider the performance review process to be an ideal platform
for engaging and motivating employees. As part of our continuous
improvement philosophy, we also ensure that we equip our people
managers with the necessary skills, such as coaching, to bring out
the best in their teams.
We reward and recognise employees based on their performance and
contribution to the success of the business and provide both competitive
and fair remuneration in every country and region in which we operate.
Learning and development
We are continually building on our commitment to enable our people
to reach their full potential through learning, training and development.
We invest in the development of our employees even throughout tough
economic cycles, providing a suite of various training and development
Our current learning and development initiatives include leadership
development, such as the coaching programme undertaken by all our
leaders this year, and various relevant training programmes with our online
learning centre which provides all employees with a variety of material and
resources to aid professional and personal development.
This includes customised learning programmes delivered in partnership
with a leading business school. We also provide a comprehensive
induction module available online so that every new employee in the world
has equal opportunity to learn and grow.
Diversity and inclusion
With thousands of customers around the world, Premier Farnell is an
organisation which values both diversity and inclusion.
The Group is committed to employment policies which follow best practice
and provide equal opportunities for all employees.
Our strong commitment to diversity was recently recognised at the
prestigious UK National Diversity Awards where our European business,
Farnell element14, won the “Company of the Year” award.
We are fully supportive of the benefits of a diverse workforce and our
employee base proudly reflects the diversity of the various countries
in which we operate. We believe that this ensures richness in both
business and culture and an organisation that truly reflects our global
business presence.
Today the Group has over 4,500
employees based in 37 countries with
more than 90 eCommerce specialists
and 250 technical engineers amongst
its ranks.
Local, functional and global learning programmes are available for all levels
of employees and are available through a blend of classroom training,
e-learning, coaching, mentoring and direct on-the-job learning. We review
needs at all levels on a regular basis and proactively look for solutions to
ensure that optimal learning is achieved in every region of the world.
Governance
Effective performance management plays an important role in enabling our
employees to contribute to the success of the organisation. Our Groupwide performance review process has been instrumental in shaping our
journey towards a high performance culture.
options and avenues, depending on needs, both individual and
organisational, identified during our performance review process.
As we have evolved from catalogue distributor to a global, multichannel
business focused on supporting customers’ requirements, we have
acquired and developed critical new skills within our employee base
including eCommerce expertise and technical capability. Today, the
Group has over 4,500 employees based in 37 countries around the globe
with more than 90 eCommerce specialists and 250 technical engineers
amongst its ranks.
We continually seek to recruit, develop and employ throughout the
organisation suitably qualified, capable and experienced people irrespective
of age, race, ethnicity, gender, religion or sexual orientation. By ensuring
diversity within our talent and leadership pool, we are also ensuring
we build a future team that best reflects our client, investor and global
employee base.
Full and fair consideration is given to applications for employment for
disabled persons, having regard to their particular aptitudes and abilities.
Appropriate arrangements are made for the continued employment and
training, career development and promotion of disabled persons employed
by the Group. If members of staff become disabled, the Group continues
employment, either in the same or an alternative position, with appropriate
retraining being given if necessary.
24/04/2014 16:01
Premier Farnell
44
Employees
Gender diversity
% employees
Your voice all employee engagement survey
Board
(12
employees)
GET
(12
employees)
Senior
Management
(188
employees)
87.5%
12.5%
83%
17%
76%
24%
Male
Female
Entire organisation (4,537 employees)
55%
45%
We firmly believe in the importance of listening to our people. In 2013/14,
82% of our employees took part in our seventh all-employee engagement
survey, providing vital feedback on what it is like to work for the Company.
Engagement rose slightly on last year to 71%, a reading in this key metric
which is comparable with the high performance company benchmark.
Specific and concrete action plans are derived, built and implemented to
continually improve the organisation, leveraging on the key engagement
drivers uncovered as a result of the survey. The key engagement
drivers highlighted in last year’s survey remain consistent with Training
& Development; Leadership; Strategy & Direction; and Organisational
Change, key areas of focus for our people strategy.
Senior leadership forums
Mentoring
Our internal Mentoring Programme is now in its seventh year.
The programme pairs high-potential employees with mentors across
every function and geography, ensuring the nurturing of a global culture.
Mentoring continues to be a powerful tool for the development of our key
and emerging talent pool with the senior team including internal, external
and Board mentors.
As with previous years, we are continuing the Group’s commitment to
include representation and participation from a cross section of employees
in our Leadership Forums. These forums consist of bi-annual meetings
at which the strategy and key issues related to its implementation are
discussed, and participants have the opportunity to learn about and
provide inputs to our business progress. Our forums provide an arena for
the exchange of relevant and appropriate information and constructive
dialogue between executive management and leadership regarding where
the business is, and where it intends to go.
Employee communications and involvement
The Group provides employees with relevant information, consulting them
or their representatives regularly, so that their views can be taken into
account when making decisions that are likely to affect their interests.
Within the group of operating companies, employee involvement and
engagement is encouraged at all times, to ensure that employees are
informed on matters relating to our business performance.
Our people have access to information
about our business through our global
intranet, weekly newsletters and
various town halls, with local business
context, content and translation
where appropriate.
Our people have access to information about our business, strategy and
operational performance through various internal communication channels.
This includes our global intranet, weekly newsletters and various town halls,
with local business context, content and translation where appropriate.
To support our emphasis on building a high performance culture, all
employees in all regions and countries participate in our annual kick-off
meetings, which are conducted at the start of the financial year. The theme
of the annual kick-offs provides clarity on the key strategic imperatives and
allows the shaping of the objectives cascade process which highlights
the individual’s expected contribution towards delivering the Company’s
strategy. Our ongoing business updates, through regular, consistent and
open communication, are essential to engaging our people by keeping
them informed.
Great place to work
To complement our journey towards building a high performance culture,
we are also continuing with our initiative to create an internal environment
within Premier Farnell as “a great place to work”. There are several global
activities that transcend national and cultural barriers including our support
of three Paralympic athletes, and various recreational events. At the same
time, we have also encouraged culturally specific events that resonate with
the local population.
Share option scheme
Our share option reward schemes extend across the business in all
regions, motivating employees through share price growth. We strongly
believe in including employees for participation in the Group’s performance
by providing a stake in our future together.
Our values
Core values are central to the long term success of any organisation
and bind it together with an operating framework for employees.
At Premier Farnell we believe:
t Customers and suppliers are at the heart of everything we do
t Only by working together can we deliver results
t We must innovate; learning and adapting faster than anyone else
t Developing our people is crucial to our success
t Integrity and Trust are fundamental to our culture.
We listen to our employees through both our annual engagement
survey and through direct feedback channels to the CEO. We are firmly
committed to understanding and responding to the internal pulse of
our people.
24/04/2014 16:01
Premier Farnell
45
Global Executive Team
Senior Leadership Forums
Leaders from around the business, including the GET, individual business
leaders and functional heads, meet regularly at an internal conference to
review, research and develop the Group’s strategy. This approach of strong
governance in the Group’s strategic direction ensures that now and in the
future we are able to continue to execute and deliver on the commitments
made to our customers, suppliers, shareholders and employees.
People throughout Premier Farnell embrace our values each and every
day. As part of the Group’s commitment to encourage high performance,
outstanding contributions made by our employees are recognised and
rewarded twice per year in the Making a Difference Awards. These awards
are categorised, with global and regional winners recognised for Customer/
Supplier Focus, Innovation, Working Together, and there is a People’s
Choice award for an individual who exemplifies coaching in action.
All of the global winners receive special recognition and an award
presented by the CEO. This year, Premier Farnell recognised 42 individuals
and teams from around the globe through the Making a Difference Awards.
Governance
Employees and managers are encouraged to submit details of an
individual or team that they feel has gone above and beyond their
required duties. All these nominations are then reviewed by the regional
senior management team who select which of their regional nominations
they believe has delivered exceptional service to the organisation.
Those selected in this regional process are then sent to the members
of the senior leadership team from around the Group for review.
Making a Difference Awards
Strategic focus
The GET, which meets every month and holds one face-to-face meeting
per quarter, comprises the CEO, CFO, Regional Business Presidents,
Group General Counsel, Chief Technology Officer, Chief Strategy Officer,
Chief of Supply Chain, Chief People Officer, Head of MDD Other and
Head of Akron Brass. Subject matter experts attend where relevant
to the meeting’s agenda.
Performance & risks
Premier Farnell is constantly evolving to be a highly efficient, global
organisation and the formation of the Global Executive Team (GET) was
another step along this path. The GET was established in July 2012 as a
high level forum of senior leaders to improve accountability, regularly and
quickly address issues, decide on priorities and assess the progress of the
implementation of the Group’s strategy ensuring a consistent and clear
focus for the organisation.
Strategic report
Mark Whiteling
Chief Financial Officer
17 April 2014
The Strategic report was approved by a duly authorised Committee of the
Board of Directors on 17 April 2014 and signed on its behalf by:
24/04/2014 16:01
46
Premier Farnell
Board of
Directors
Committee Membership at March 2014
Val Gooding*, CBE Aged 63
Laurence Bain, CA Aged 60
Audit Committee
Role: appointed as Non-Executive Chairman
on 15 June 2011.
Role: appointed as Chief Executive Officer
on 12 June 2012. Laurence joined the Board
as an Executive Director in his former role
of Chief Operating Officer on 1 July 2003.
Dennis Millard (Chairman)
Andrew Dougal
Paul Withers
Peter Ventress
Nominations Committee
Val Gooding (Chairman)
Andrew Dougal
Dennis Millard
Laurence Bain
Paul Withers
Thomas Reddin
Paul Withers (Chairman)
Andrew Dougal
Dennis Millard
Peter Ventress
Other appointments: Non-Executive Director
of Vodafone Group Plc and TUI Travel plc.
Trustee of Historic Royal Palaces and the English
National Ballet.
Skills and experience: Val has formerly held a
number of senior operational and strategic roles
in businesses with a reputation for high levels of
customer service and brings a wealth of global
business experience to the Board. Val was CEO
of BUPA during a ten-year period of strong
growth and global expansion and was a senior
manager at British Airways, serving latterly as
Director for Asia Pacific. Val has also served
as a Non-Executive Director of J Sainsbury
plc, Standard Chartered plc, the BBC and
the Home Office.
Skills and experience: Laurence is a chartered
accountant and spent ten years working in
the profession in Scotland. He has extensive
financial and operational management
experience which he gained at the highest
level, primarily in electronics manufacturing and
distribution. Before joining Premier Farnell in July
2002 as Chief Operating Officer, Laurence was
Vice President and Director of Operations for
Motorola in Europe, Middle East and Africa.
Mark Whiteling, M.Comms (Hons) Aged 51
Role: appointed as Chief Financial Officer
on 5 November 2012.
and Chair of the Audit Committee of Future plc.
Skills and experience: Mark is a chartered
accountant, with extensive financial and
commercial experience in the global distribution
and electronics industries. Mark was Premier
Farnell’s Chief Financial Officer and a member
of the Board from 2006 to 2011, rejoining the
Company in November 2012 in an expanded
role. From August 2011 to November 2012 he
was Chief Financial Officer of Autobar Limited.
Before joining Premier Farnell in 2006 Mark was
Group Finance Director of Communisis plc and,
prior to that, of Tibbett & Britten plc.
24/04/2014 16:01
Premier Farnell
47
Performance & risks
Andrew Dougal*, B Acc, CA Aged 62
Paul Withers*, MA Aged 57
Role: appointed as a Non-Executive Director
in September 2006.
Role: appointed as a Non-Executive
Director in September 2007. Paul chairs the
Remuneration Committee.
of Hyder Consulting plc and Devro plc, and
Senior Independent Director of Keller Group plc.
Skills and experience: Paul has a background
in engineering and has considerable experience
of business expansion and operations in
developing markets, particularly Asia. Paul was
formerly Group Managing Director of BPB plc,
where he led their Emerging Markets operations.
Thomas Reddin*, BSc, MBA Aged 53
Peter Ventress*, Aged 52
Steven Webb, Secretary Aged 51
in September 2010.
with effect from 1 October 2013.
LLB Solicitor
Deluxe Corporation and Tanger Factory Outlet
Centers Inc. He is Managing Partner of Red Dog
Ventures, LLC, a venture capital and advisory
firms in the digital arena, and also publisher
of MortgageRates.us.
Other appointments: Chief Executive Officer
of Berendsen plc.
Governance
Skills and experience: in addition to the
extensive experience that Dennis brings
of non-executive board leadership, Dennis
is a chartered accountant and was, for nine
years until 2005, Group Finance Director
of Cookson Group plc.
Skills and experience: Andrew is a chartered
accountant and has considerable leadership
experience in finance, operational and strategic
roles. Formerly he served as Chief Executive
Officer of Hanson plc, the international building
materials company, following its demerger from
Hanson plc, the Anglo American diversified
industrial company where he had been Group
Finance Director. Previously Andrew was a
Non-Executive Director of Taylor Wimpey plc,
Taylor Woodrow plc and BPB plc.
Other appointments: Non-Executive Chairman
of Halfords Group plc and of Connect Group plc
(formerly Smiths News Plc), Senior Independent
Director and Chairman of the Remuneration
Committee of Debenhams plc, Deputy Chairman
of the Board and Chairman of the Remuneration
Committee of Pets at Home Group plc and
Chairman of the Board of Trustees of the Holy
Cross Children’s Trust charity.
and Chair of the Audit Committee of Carillion
plc, Senior Independent Director and Chair
of the Audit Committee of Creston Plc and
Council Member of the Institute of Chartered
Accountants of Scotland (ICAS).
Strategic focus
Dennis Millard*, CA (SA), MBA Aged 65
in September 2007 and as Senior Independent
Director in June 2008. Dennis chairs the
Audit Committee.
Other appointments: Member of the Board
of Governors of Leeds Metropolitan University.
Skills and experience: Tom’s expertise ranges
from marketing, branding and innovation to
the web. Tom was formerly Vice President
of Consumer Marketing at Coca-Cola USA
and President, COO, and ultimately CEO,
of LendingTree LLC, a market leader in webbased lending.
Skills and experience: Peter has broad
international experience in the B2B environment.
Prior to joining Berendsen in 2010, he was
International President of Staples Inc and also
spent ten years in senior management positions
with Corporate Express N.V., becoming
Chief Executive in 2007. During his roles at
Corporate Express and Staples, Peter was also
a Non-Executive Director of Corporate Express
Australia Ltd.
Role: appointed as Company Secretary and
General Counsel in December 2000.
Skills and experience: Steven is a qualified
lawyer with a specialism in company law and
has served the boards in a number of regulated
and non-regulated business and consumer
industries. Before joining Premier Farnell, he was
the Company Secretary and General Counsel
of Kelda Group plc (formerly Yorkshire Water)
and Company Secretary of Kalon Group plc.
*Denotes Non-Executive Director
24/04/2014 16:01
Premier Farnell
48
Corporate
governance
report
This report describes our governance principles and
structures and reflects our commitment to good
corporate governance across the Group.
Chairman’s overview
Compliance with the UK Corporate
Governance Code
The Chairman’s views on corporate governance
at Premier Farnell and our compliance with the
UK Corporate Governance Code (the Code) are
included in the Chairman’s statement set out on
pages 18 and 19.
Corporate governance framework
The Premier Farnell Group operates within a
clear governance framework, which is outlined
in the diagram below and set out in this report.
The Group’s risk management framework is
described in the Effective Risk Management and
Internal Control section on page 57 of the Audit
Committee’s report.
This report describes how, throughout the
year ended 2 February 2014, we complied
with the main principles and provisions of the
Code. Premier Farnell is committed to good
corporate governance across the Group, for
which the Board is accountable. The Company’s
description of its business model is set out in
the Strategic report starting at page 10. A copy
of the Code can be found on the FRC website
(https://www.frc.org.uk).
Corporate governance framework
Premier Farnell plc
Chairman: Val Gooding
Principal objective: leading the Board
to ensure effectiveness in all aspects of
its role.
Board of Premier Farnell plc
Eight directors: two Executive Directors,
a Non-Executive Chairman and five further
Non-Executive Directors.
Principal objective: collectively to ensure
the long term success of the Company.
Nominations Committee
Audit Committee
Chairman: Val Gooding
Andrew Dougal
Dennis Millard
Laurence Bain
Paul Withers
Thomas Reddin
Chairman: Dennis Millard
Andrew Dougal
Paul Withers
Peter Ventress
Chairman: Paul Withers
Andrew Dougal
Dennis Millard
Peter Ventress
Principal objective: to ensure that the
interests of shareholders are properly
protected in relation to financial reporting
and internal controls.
Principal objective: to develop policy
on Executive remuneration and set the
remuneration of the Chairman of the Board,
individual Executive Directors and senior
managers immediately below board level.
Principal objective: to lead a formal,
rigorous and transparent process for the
appointment of new Directors to the Board
and its Committees.
Audit Committee report page 55.
Remuneration Committee overview page 58.
Nominations Committee report page 54.
Digital Advisory Board
Tax and Treasury Committee
Disclosure Committee
Chairman: Tom Reddin
Chairman: Mark Whiteling
Chairman: Steven Webb
Principal objective: to offer counsel to the
Board on matters relating to the web and
eCommerce. Further detail on page 59.
Principal objective: to make
recommendations to the Board on tax and
treasury strategy and policy. Further detail
on page 59.
Principal objective: to assist the Board in
ensuring that its disclosures are accurate,
complete and fairly represent the financial
condition and results of operations of the
Company. Further detail on page 59.
24/04/2014 16:01
Premier Farnell
49
Board size and composition
The Non-Executive Directors are responsible for:
t constructively challenging and helping develop proposals on strategy;
t scrutinising the performance of management;
t determining levels of remuneration;
t satisfying themselves on the integrity of financial information; and
t succession planning for the Executive Directors.
The Board reviews strategic issues on a regular basis and exercises control
over the performance of the Company by agreeing budgetary targets
and monitoring performance against those targets. Certain matters are
reserved for approval by the Board and the Board has overall responsibility
for the Group’s system of internal controls and risk management, as
described on pages 56 and 57. Following presentation by executive
management and a disciplined process of review and challenge by
the Board, clear decisions on policy and strategy are adopted and the
executive management are empowered to implement those decisions.
A formal schedule of matters reserved for Board approval is maintained
which covers items that are significant to the Group as a whole due to
their strategic, financial or reputational implications. A summary of these
matters includes:
Finance, governance
and controls
t*OUFSOBMDPOUSPMBOESJTL
management systems
t"QQSPWBMPGQPMJDJFTNBKPS
projects and contracts
t0WFSTJHIUPG%JSFDUPSTDPOnJDUT
of interest
t3VMFTBOEQSPDFEVSFTGPS
dealing in the Company’s shares
t$PSQPSBUFHPWFSOBODFQPMJDZ
and compliance with the Code
Board
Decisions
Regulatory
t"QQSPWBMPGUIF(SPVQTJOUFSJN
dividend and recommendation
of final dividend
t$PNQMJBODFXJUIUIF'$"T
Listing Rules, Disclosure
and Transparency Rules and
the City Code on Takeovers
and Mergers
Succession planning
and reward
t&OTVSJOHBEFRVBUFTVDDFTTJPO
plans are in place
t#PBSEBOE#PBSE$PNNJUUFF
appointments and removals
t"QQPJOUNFOUPSSFNPWBMPGUIF
Company Secretary
t"QQPJOUNFOUPSSFNPWBMPGUIF
auditors and determination of
the audit fee
t.BKPSDIBOHFTJOFNQMPZFF
share or pension schemes
Governance
Strategic
t"QQSPWBMBOENPOJUPSJOHTUSBUFHJD
and annual business plans
t3FWJFXPGCVTJOFTTQFSGPSNBODF
t"QQSPWJOHTJHOJmDBOUBDRVJTJUJPOT
mergers or disposals
Summary of Board matters for approval
Strategic focus
The Board is collectively responsible for the long term success of the
Group. Executive Directors are responsible for running the business
operations and ensuring that the necessary financial and human resources
are in place in order to achieve the Company’s strategic aims.
t satisfying themselves that financial controls and systems of risk
management are robust;
Performance & risks
The Board currently comprises eight Directors: the Chairman, five further
Non-Executive Directors and two Executive Directors. The size and
composition of the Board and its Committees are regularly reviewed by
the Board and, in particular, by the Nominations Committee to ensure
that there is an appropriate balance and diverse mix of skills, experience,
independence and knowledge of the Group. During the year there was one
change to the Board’s composition, when Peter Ventress was appointed
as a Non-Executive Director on 1 October 2013. More details of our board
members can be found on pages 46 and 47.
Reporting
t"QQSPWBMPGUIF"OOVBM3FQPSU
and Accounts to be put before
the Company
t"QQSPWBMPGmOBODJBMTUBUFNFOUT
t.BUUFSTGPSCVTJOFTTSFWJFXT
24/04/2014 16:01
50
Premier Farnell
Corporate governance
report
Board roles and responsibilities
Full biographical details for all Board members can be found on pages 46 and 47 of this report.
Chairman –
Val Gooding
Senior Independent Director (or SID) –
Dennis Millard
The role of the Chairman (or Chair) is to:
tlead the Board to ensure effectiveness in all aspects
of its role;
The role of the Senior Independent Director is to:
tprovide a line of communication to the Company for
shareholders on issues they may not want to address
through other channels;
tplan agenda items and timings for board meetings;
tensure the membership of the Board is appropriate
to meet the needs of the business;
tlead the resolution of any significant issues within the
Board that it would not be appropriate for the Chair
or the CEO to handle;
toversee that the Board Committees carry out their
duties including reporting to the Board;
tact as a sounding board for the Chairman; and
testablish appropriate personal objectives for the
Chief Executive;
tlead the other Non-Executive Directors in their annual
appraisal of the Chairman’s performance.
tensure Directors are up to date with training
and development;
tprovide the information necessary for Directors to take
a full and constructive part in board discussions;
tpromote an open culture of debate; and
tdevelop and maintain effective communication
with shareholders.
Chief Executive –
Laurence Bain
Company Secretary –
Steven Webb
The role of the Chief Executive Officer
(or Chief Executive or CEO) is to:
trun the day-to-day business and operations
of the Group;
Under the direction of the Chairman, the role of the
Company Secretary and his team is to:
tensure good information flows within the Board and
its Committees and between senior management
and Non-Executive Directors;
tlead the development and delivery of strategy to enable
the Group to meet the requirements of its shareholders;
tlead and oversee the executive management
of the Group;
tmeet the Group’s budget and strategic plans; and
tprovide the appropriate environment to recruit,
engage, retain and develop the personnel needed
to deliver the strategy.
tfacilitate Director inductions and
professional development;
tas requested, arrange independent professional
advice for Directors at the Company’s expense; and
tadvise the Board through the Chairman on
governance matters.
24/04/2014 16:01
Premier Farnell
51
External appointments
Date of
appointment
Start date for
current term
A Dougal
01/09/2006
18/06/2013 (one year)
D Millard
01/09/2007
18/06/2013 (one year)
P Withers
01/09/2007
18/06/2013 (one year)
T Reddin
V Gooding
P Ventress
30/09/2010
15/06/2011
01/10/2013
18/06/2013 (three year)
15/06/2011 (three year)
01/10/2013 (three year)
Name
2011
2012
2013
2014
2015
2016
Induction, business awareness and development
The Chairman is responsible for ensuring that Directors receive a full formal
and comprehensive induction. This includes but is not limited to:
t an overview of the Group, its functions and governance;
t briefings on Directors’ regulatory and compliance responsibilities;
Strategic focus
Our Chairman, Val Gooding, was appointed as a Trustee to the Board of
the Historic Royal Palaces Charitable Trust with effect from 1 August 2013
and as Trustee to the Board of the English National Ballet with effect from
1 January 2014. She was also appointed as a Non-Executive Director of
Vodafone Group Plc with effect from 1 February 2014. Val stepped down
from her roles as Non-Executive Director of Standard Chartered plc in May
2013 and the Lawn Tennis Association on 31 December 2013. After the
financial year ended, Val was appointed as a Non-Executive Director
of TUI Travel PLC, commencing on 7 February 2014.
Board succession – Non-Executive Directors
Performance & risks
Premier Farnell recognises that there are significant advantages to both
individuals and to the Board of our Directors serving on the Boards of other
companies. In line with the Code, the Company’s policy is that Executive
Directors are permitted to hold one Non-Executive Directorship with
another company, with all external appointments being approved by the
Board. In accordance with this policy, Mark Whiteling retains his position
as Non-Executive Director and Chairman of the Audit Committee of Future
plc. Details of the remuneration for this external appointment are included
in the Remuneration report on page 75.
t site visits to Group locations;
t detailed reviews of the strategic projects and initiatives underway; and
Any Director is obliged to seek authorisation before taking up any position
that conflicts, or may possibly conflict, with the interests of the Company.
The Board is empowered to authorise situations of potential conflict
of interest, where it sees fit, so that a Director is not in breach of his or
her duty. All existing external appointments and other such ‘situational
conflicts’ of each Director have been reviewed and authorised by the
Board and are recorded on a register which is reviewed annually and
noted at each board meeting. All Directors must ensure that their external
appointments do not involve a time commitment that would adversely
affect their responsibilities to Premier Farnell. If a conflict were to arise
in relation to a transaction or other arrangement proposed between the
Company and a party in which any Director had an interest, that Director
would be obliged to declare the interest, would not receive board papers
and would take no part in any discussions or decisions on the matter.
t one-to-one meetings with senior managers.
In compliance with the Code, all of our Directors will retire at our Annual
General Meeting in June 2014 and offer themselves for re-election (save
for Peter Ventress who will seek election as this is his first year as a NonExecutive Director with the Company). Details of the AGM 2014 can be
found on page 61.
A further aspect of ongoing development occurs during the Board’s formal
performance evaluation each year. To review individual contribution, each
Director receives feedback on his or her performance; this feedback is also
used by the Chairman to assess the time commitment and the training and
development needs of each Director.
Governance
Re-election of directors
In order that Directors continue to further their understanding of the issues
facing the Group and are able to challenge constructively and help develop
proposals on strategy, the Non-Executive Directors are encouraged to
visit Group locations. During the year under review, visits have taken
place to our facilities in Liege (Belgium), Ravenswood (US), Cleveland
(US), Ohio (US), Preston (UK), Lyon (France), Krakow (Poland) and Leeds
(UK). In addition, the December 2013 board meeting was held in Chicago
(US), providing an opportunity for the Non-Executive Directors to meet
members of the Americas management team and review strategic plans
and business performance. These site visits, which include business
presentations and updates, are in addition to the frequent reviews on
current issues made at the scheduled board meetings by Executive
Directors and other senior managers and the presentation on his or her
business that each regional business president and functional head makes
to the Board at one of its scheduled meetings at least annually.
Conflicts of interest
Non-Executive Director independence and length of service
In line with the Code, Non-Executive Directors are appointed for specified
terms, subject to re-election, and terms beyond six years are subject to
rigorous review. Accordingly, Non-Executive Directors are appointed for
a maximum of two terms of three-years and thereafter annually subject
to satisfactory performance and commitment. The respective periods
of service of our Non-Executive Directors (including the Chairman) are:
The Board considers each Non-Executive Director’s independence
on an annual basis as part of his or her performance evaluation. In its
2013/14 review, the Board concluded that all the Non-Executive Directors
who had served during the year (other than the Chairman for whom
this is not relevant under the Code) were independent. The Chairman
met the independence criteria defined by the Code as at the date of
her appointment.
24/04/2014 16:01
Premier Farnell
52
report
Board meetings
Performance evaluation
During the financial year ended 2 February 2014, the Board held eight
scheduled board meetings, of which two were to consider business
performance and review the Company’s Interim Management Statements
(IMS) prior to their publication.
A formal and rigorous evaluation of the effectiveness of the Board, its
Committees and each individual Director is conducted every year. In line
with the Code, this process is externally facilitated in every third year.
In 2012/13, the external evaluation was led by Raymond Dinkin, of
Consilium Board Review (or Consilium) an independent consultancy.
In 2013/14, all Directors committed an appropriate amount of time to fulfil
their duties and responsibilities to the Board.
The main points that arose from the 2012/13 evaluation and the actions
taken are summarised below:
Board and Committee attendance during 2013/14
Name of Director
Chairman:
Val Gooding
Executive
Directors:
Laurence Bain
Mark Whiteling
Non-Executive
Directors:
Andrew Dougal
Dennis Millard
Thomas Reddin
Paul Withers
Peter Ventress1
Board
meetings
Audit
Committee
meetings
Remuneration
Committee
meetings
Nominations
Committee
meetings
8/8
–
–
2/2
8/8
8/8
–
–
–
–
2/2
–
8/8
7*/8
8/8
8/8
4/4
4/4
4/4
–
4/4
1/1
4/4
4/4
–
4/4
2/2
2/2
2/2
2/2
2/2
–
– Not a member of the Committee.
* Dennis Millard was unavoidably absent from the May 2013 board meeting when a prior
commitment required him to be elsewhere. He provided feedback on the papers, points
for discussion and questions prior to the meeting, with apologies for his inability to attend.
1. As Peter Ventress was appointed to the Board on 1 October 2013, these represent the
maximum number of meetings that Peter could have attended during the year.
2012/13 Performance review
Outcome
Action taken during the year
Information presented to the
Board should include more fully
developed market analysis with
clear performance metrics.
Key performance metrics have been
agreed with the Board and are now
reviewed annually. Market insights
are presented to the Board at
each meeting.
Schedule the strategy review
ahead of operational planning
each year, with guidance from
the Board on its agenda.
A review of the strategy was held
in March 2013 and further annual
reviews are scheduled.
Consider adding one additional
board meeting per year to
review strategic priorities and
new initiatives.
A further full board meeting has been
added to the Board’s annual calendar
in October each year, in addition to
the two shorter meetings held to
review the Group’s IMS in September
and March each year.
Strengthen the relationship with
investors through occasional
meetings with the Company’s
brokers to provide overviews
of the marketplace and
shareholder perspectives.
The Company’s brokers have been
invited to attend and present to
at least one board meeting each
year, commencing with the March
2013 meeting.
Consider holding a minimum
of two meetings per annum
at which only Non-Executive
Directors are present.
The Non-Executive Directors have
two meetings each year without the
Executive Directors present and hold
discussions without the Executives
prior to each Remuneration
Committee meeting.
Consider which Executives
should attend the Remuneration
Committee meetings to provide
advice on senior manager and
Group remuneration.
The Chief Executive and Chief People
Officer regularly attend meetings
to provide input, except where
inappropriate. The Chief Finance
Officer does not attend unless his
specific input is required.
Conduct more frequent and
regular reviews of all businesses
and functions in detail.
Reviews of all business units have
been added to the Board’s rolling
12-monthly schedule, with functional
heads attending the Board’s annual
review of strategy.
Consider whether Company
should move to half yearly reporting.
Decision was announced to the
market in March 2013 to move
to half yearly reporting.
24/04/2014 16:01
Premier Farnell
53
Neither Consilium nor Raymond Dinkin has any connection with the
Company and both are considered to be independent.
Action planned and taken
during the year
Board and Committee agendas to
be revised to enable increased focus
on strategic issues and reduce time
spent on routine matters.
The Chairman of the Board and the
Company Secretary reviewed the
spread and timing of agenda items
to align with strategic priorities and
financial events through the year.
The Company Secretary issued
Each board paper to include an
revised board paper guidelines
executive summary and clearly
identify key issues. Length of papers to contributors to clarify
to be reviewed to ensure appropriate management’s view of key issues
for Board consideration.
focus maintained.
A day-long meeting to be
held in each year specifically
reviewing strategy.
The annual strategy day for 2014/15
is scheduled for June 2014.
More frequent feedback on the
functioning of the Board.
Each board meeting ends with an
informal discussion of what worked
well and areas for improvement.
Shareholder engagement activities during the financial
year included:
t the Chair of the Board and the Chairman of our Remuneration
Committee holding individual meetings, in person and by phone, in
which issues such as strategy, succession planning and executive
remuneration were discussed;
t the Company Secretary corresponding in writing and by phone with
several major shareholders in relation to executive remuneration;
t the Chief Executive and Chief Financial Officer holding a number
of face-to-face meetings with investors during the year; and
t all Directors attending the AGM, where they were available to answer
questions and undertake constructive dialogue with shareholders.
Going concern
The Strategic report reviews, in relation to the Group as a whole:
t its business activities;
t its financial position;
Governance
t the factors likely to affect its future development and performance;
t the objectives and policies in managing the financial risks to which
it is exposed; and
t its financial capital.
Share capital and control
Details are included on pages 60 and 61 of the Directors’ report.
The Directors have assessed, in the light of current and anticipated
economic conditions, the Group’s ability to continue as a going concern,
including its solvency and liquidity. The Directors confirm they are satisfied
that the Company and the Group have adequate resources to continue in
business for the foreseeable future. For this reason, they continue to adopt
the “going concern” basis for preparing accounts.
Outcome
Strategic focus
2013/14 Performance review
Engagement with our shareholders is essential to ensure that Premier
Farnell’s medium and long term objectives are understood and to receive
feedback on our strategy, performance and governance. It is also crucial
that shareholders have the confidence in the Board’s ability to oversee
the implementation of the strategy and that, if they have concerns, they
know to whom these should be addressed. The Chairman, supported by
the Senior Independent Director and the Chairman of the Remuneration
Committee (on matters relating to Executive remuneration), is primarily
responsible for ensuring that the Board is accessible to major shareholders
and that channels for communication are open. She also has principal
responsibility for ensuring that all of the board members and in particular
the Non-Executive Directors are aware of any concerns raised by major
shareholders and that their views are taken into account. The Chief
Executive and Chief Financial Officer both have regular dialogue with
institutional shareholders.
Performance & risks
In June 2013, for the financial year 2013/14, an internal board evaluation
took place led by Val Gooding, Chair of the Board. The review included
individual Director appraisals to which all board members contributed by
way of a questionnaire. In addition the Chairman met each Director in
order to provide him with feedback on his performance from the rest of
the Board, discuss contribution and personal development requirements
and consider wider approaches to enhance or refresh board processes.
The SID took feedback from the other board members on the performance
of the Chair and met to discuss this with her. The recommendations made
by each board member were discussed in an open forum by the whole
Board during the December 2013 meeting and the outcomes of the
evaluation and resulting actions agreed. These were (in summary):
Relations with shareholders
25/04/2014 11:24
54
Premier Farnell
report
The composition of the Nominations Committee during the year was:
Val Gooding
Andrew Dougal
Laurence Bain
Dennis Millard
Thomas Reddin
Paul Withers
Val Gooding (Chairman)
As recommended by the Code, the Committee comprises a majority of
independent Non-Executive Directors. Laurence Bain, Chief Executive
Officer, is also a permanent member, enabling him to comment on the
balance of skills and knowledge required at Board and Committee level
and among the next level of management immediately below the Board.
If the Committee is convened to discuss the Board Chairman’s position,
the Senior Independent Director chairs the meeting. While only members
of the Committee have the right to attend meetings, the Chief People
Officer and external advisers may also be invited to contribute on specified
agenda items. Steven Webb, the Group Company Secretary, acts as
secretary to the Committee.
Key objective: to lead a formal, rigorous and transparent process for the
appointment of new Directors to the Board and its Committees.
Responsibilities:
t To review the composition of the Board including its balance of skills
and experience
t To lead the process for board appointments and recommend the
appointment of new Directors
t To review the re-appointment of Non-Executive Directors
t To make recommendations on the composition of the
Board’s Committees
t To consider succession for senior and Executive positions.
The Committee’s terms of reference are reviewed annually and are available
on the Governance section of our website at www.premierfarnell.com.
Actions undertaken during the year
The Committee meets when necessary and was convened twice
during the financial year to consider Board, Committee and Executive
appointments, Directors’ tenure, succession and composition.
In considering the skills, experience and knowledge of the Board, the
Committee met to consider the re-appointment of Andrew Dougal, Paul
Withers, Dennis Millard and Thomas Reddin as Non-Executive Directors.
Following a rigorous review, the Committee recommended to the Board
that all four Non-Executive Directors be reappointed – for a term of one
year in the case of Andrew, Paul and Dennis and for a second three year
term in the case of Thomas Reddin. As outlined by the Code, all Directors
will continue to stand for annual re-election or appointment at every AGM,
provided they are considered to demonstrate commitment and their
performance remains effective.
The Nominations Committee recognises the benefits to the Group of
diversity in the workforce and in the composition of the Board itself.
While the Company’s policy is to make all appointments based on the
best candidate for the role, its target is for women to make up 30% of
management grade employees. The Company is making progress towards
achieving this, with women making up over 16% of the Global Executive
Team (or GET, the level immediately below the Board). Female membership
of the Board currently stands at 12.5%. Although the percentage is
below the overall Group target for senior management, the Board has
followed the Company’s policy of engaging the best candidate for a role,
regardless of gender or other diversity. The recognition of the benefit of
greater female representation at Board and senior management level will
continue to be a factor in future appointments. There is further information
on the Company’s policy and practices on diversity on page 43 of the
Strategic report.
Succession planning is a key remit of the Committee and is reviewed
regularly for the Board as a whole, the Board Committees and the wider
leadership of the organisation. Membership of the Board and Committees
was considered as part of the annual evaluation and re-election process
during the year to ensure each Director continues to perform his or her
role effectively and that, when required, membership will be refreshed.
Succession planning for the GET is reviewed annually by the Board
to ensure that there is a pipeline of prospective candidates for Senior
Executive positions.
During the year, on reviewing the composition of the Board, the
Nominations Committee recommended the appointment of Peter Ventress
as an additional Non-Executive Director. Before starting the search for a
new member, the Nominations Committee evaluated the balance of skills,
experience, independence and knowledge of the Board before a detailed
candidate specification defining the criteria for the new appointment was
drawn up.
The Miles Partnership (an agency with no connection to the Company) was
appointed to help with the search for the additional Non-Executive, and put
forward candidates to be interviewed by the Chairman of the Board and
Laurence Bain. Candidates also had the opportunity to meet Paul Withers,
Chairman of the Remuneration Committee, and other Board members
more informally. From the shortlist of interviewed candidates, Peter
Ventress was chosen for appointment due to his extensive international
business to business experience and his combination of both strategic and
commercial skills. Peter joined the Board with effect from 1 October 2013
and attended his first full face-to-face board meeting in December 2013.
24/04/2014 16:01
Premier Farnell
55
Dennis Millard
Andrew Dougal
Paul Withers
Peter Ventress (from 01/10/13)
Dennis Millard, the Chairman of the Committee, brings significant recent
and relevant financial expertise, which is augmented by the considerable
financial expertise and experience of the other members of the Committee.
There is more information on Dennis’s experience on page 47. Steven Webb,
the Group Company Secretary, acts as secretary to the Committee.
Responsibilities:
t To review accounting policies and the integrity and content of the
t To monitor disclosure controls and procedures and the Group’s
internal controls
t To consider the adequacy and scope of external and internal audits
t At the Board’s request, to provide advice on whether the Annual Report
and Accounts, taken as a whole, is fair, balanced and understandable
t To monitor the objectivity, independence and effectiveness of the
external auditor, particularly with regard to the scope and expenditure
on non-audit work
In accordance with the Code, the Committee monitors the effectiveness
of both the internal audit and external audit functions. To comply with
this requirement, the Committee reviews and comments on the internal
and external audit plans before it approves them. It then considers
progress during the year by assessing the major findings of their work, the
perceptiveness of observations, the implementation of recommendations
and finally from management feedback.
In 2013/14, the Audit Committee’s terms of reference were modified to
reflect the new responsibilities that the Committee was asked to assume
in regard of the additional regulatory requirement that the Board now has
in ensuring that the Annual Report, taken as a whole, is fair, balanced
and understandable. In looking at this new requirement, the Committee
was encouraged that existing procedures were well aligned to achieving
this objective. Accordingly, ensuring that these procedural aspects were
sufficiently well co-ordinated and documented was a key part of putting
the Committee in a position to complete the work necessary to fulfil its
obligations to the Board.
t To oversee the appointment and ongoing relationship with the
external auditor
The Audit Committee has adopted and implemented a Group-wide policy
restricting the employment by the Group of former employees of the
external auditor.
Governance
Key objective: to ensure that the interests of shareholders are properly
protected in relation to financial reporting and internal controls.
The independence and objectivity of the external auditor was also
considered by the Committee, as it is each year. Particular regard is given
to the level of non-audit fees. A formal policy is maintained on the provision
of non-audit services which prohibits the provision of services such as
financial information systems design and implementation, internal audit
outsourcing or legal services, with tax compliance services permitted
within defined monetary limits. All other permitted non-audit services are
considered on a case-by-case basis by the Chair of the Audit Committee
on behalf of the Committee. This policy also allows certain auditrelated services to be provided by the auditor within defined monetary
limits. The full non-audit services policy is available in the Investors,
Corporate Governance, Board Committees section of our website at
www.premierfarnell.com. At each meeting, the Audit Committee received
a report on all non-audit services provided and the estimated cost since
the last meeting. The Audit Committee monitors these costs in the context
of the audit fee for the year, in order to ensure that the potential to affect
auditor independence and objectivity does not arise. The split between
audit and non-audit fees for 2013/14 and information on the nature of
the non-audit fees incurred is detailed on page 88 of the consolidated
financial statements.
In addition to Committee members, there are a number of regular
attendees at each meeting. The Chief Executive, the Board Chairman,
the other Non-Executive Directors, Chief Financial Officer, Head of Internal
Audit and lead external audit partner normally attend all scheduled Audit
Committee meetings. The Audit Committee members regularly take
time before or after a meeting, without any Executive Directors or senior
management present, to raise any questions and discuss issues with
the external auditor or Head of Internal Audit. The Chairman of the Audit
Committee meets each of the CFO, Head of Internal Audit and the external
auditor separately to review current issues and developments prior to
each meeting of the Audit Committee. The Head of Internal Audit reports
directly to the Chief Financial Officer for line management purposes and
functionally to the Chairman of the Audit Committee.
As in each year, the effectiveness of the annual audit process was reviewed
during the year, along with the performance of the lead audit partner,
when the robustness of the audit process, quality of delivery and service
levels provided was rigorously assessed and input sought from senior
management and those involved in the audit process across the business.
PricewaterhouseCoopers LLP were first appointed as the Group’s auditor
in 1997. In accordance with the Financial Reporting Council’s Guidance to
Audit Committees published in September 2012, the Company proposes
to put the Group’s requirement for audit services out to tender once in
each ten-year period, with the tender timed to coincide with the rotation of
engagement of the lead audit partner. Such rotations take place every five
years, with the next rotation scheduled for 2017/18.
Strategic focus
Dennis Millard (Chairman)
The key activities for the Committee in 2013/14 were as follows:
Performance & risks
The composition of the Audit Committee during the year was:
t To review and approve the statements to be included in the Annual
Report on internal control and risk management
t To review and report on the significant issues considered in relation
to the financial statements and how addressed.
24/04/2014 16:01
56
Premier Farnell
report
In addition to the Committee’s responsibility to review the Annual Report at
the request of the Board, the Committee also monitors the integrity of all
financial statements in the Annual Report and half year results statements,
and the significant financial reporting judgements contained in them.
To support with this process, the Audit Committee members review the
minutes and reports from the Disclosure Committee whose responsibility it
is to review and sign off business unit internal controls, consider the interim
and preliminary results announcements following management verification
and to assess the principal risks and uncertainties facing the business.
Further details of the Committee’s procedures to review the effectiveness
of the Group’s systems of internal control during the year can be found in
Effective risk management and internal control below.
The Committee recognises that all financial statements include estimates
and judgements by management. The key audit areas are agreed with
management and the external auditors as part of the year-end audit
planning process. This includes an assessment by management at
both a business unit and Group level of the significant areas requiring
management judgement. These areas are reviewed with the auditors to
ensure that appropriate levels of audit work are completed and the results
of this work are reviewed by the Committee. In 2013/14 these areas were:
1. Inventory and inventory valuation
Consolidated Group inventories as at the year-end were £236.0 million.
The accounting policy in respect of inventory and the valuation of
inventory is set out in the Accounting Policies note to the Group’s financial
statements on page 91. The Group’s provisioning policy is generally
applied on a consistent, systematic basis recognising the level of sales
and level of inventory at the period end. The review of this calculation, its
accuracy and the appropriateness of the end result with respect to the
requirement to provide against slow moving and obsolete inventory was
reviewed in detail. The history of inventory write-offs beyond the provision
made at the year-end is very low, reflecting the operating procedures of the
Group and the commercial relationships in place with its supplier partners
and, as such, management continue to believe that the systematic
application provides a result which is consistent with its judgement on the
provision required. The Audit Committee agrees with this assessment.
3. Tax accounting
The Audit Committee has reviewed the tax position of the Group with
both management and the auditors. The Committee reviewed the basis
of calculation of the effective tax rate, the status of the Group’s tax
compliance, details of significant estimates of matters under discussion
with the tax authorities and the level of provisions for them. The Committee
concluded there is appropriate provision for the Group’s tax liabilities.
4. Going concern
The Audit Committee has considered the ‘Going Concern’ basis
assumed within the financial statements. The underlying assumptions,
the reasonableness of those assumptions and the comparison of those
assumptions versus previous years were all considered as part of the
Going Concern review. This review also takes into account budgetary
performance as well as known funding facilities. The Committee agrees
with these assumptions and the adoption of the ‘Going Concern’ basis
for the preparation of the financial statements.
The Committee is satisfied with the judgements in these areas and that
sufficient audit work has been undertaken to support management’s
position in other areas of the financial statements.
Effective risk management and internal control
One of the Board’s key responsibilities is to ensure that management
maintains a system of internal control which provides assurance of effective
and efficient operations, internal financial controls and compliance with law
and regulation. The Board’s consideration of the materiality of financial and
other risks to the Group’s business and reputation ensures that appropriate
controls are in place. Consideration is also given to the relative costs and
benefits of implementing specific controls.
2. Adjusted items and profit and loss treatment
In the first and second half the Group reported adjusting items. The details
of these adjusted items are set out in note 2 of the financial statements.
The approach for the identification and disclosure of exceptional costs
is applied consistently and the costs identified were examined carefully
to establish that they were not normal operating costs and that the
recognition of adjusting items is balanced with both debits and credits
being recorded. Management believe that this presentation is consistent
with the fair, balanced and understandable requirement and, as such,
have presented these items this way and reviewed the substance of the
items being recorded in adjusting items. The Audit Committee agrees with
this assessment.
24/04/2014 16:01
Premier Farnell
57
Assurance
t the systems of internal control, primarily through approving the
internal audit plan and reviewing its findings, reviews of the financial
controls for financial reporting of the annual, preliminary and half yearly
financial statements and a review of the nature, scope and reports of
external audit;
t the management of risk by reviewing evidence of risk assessment
activity and internal audit reports on the process; and
The Audit Committee has completed its review of the effectiveness of the
Group’s systems of internal control during the year, which is in compliance
with the Turnbull Guidance on Internal Control (Revised Guidance for
Directors on the Combined Code 2005). It confirms that the necessary
action plans to remedy identified weaknesses in internal control are in place
and have been throughout the year. The Board also, where appropriate,
ensures that necessary actions have been, or are being, taken to remedy
or mitigate significant failings or weaknesses identified from the review of
effectiveness of internal controls.
Management regularly conducts reviews of the internal controls in place
in respect of the processes of preparing consolidated financial information
and financial reporting. During the year ended 2 February 2014, there were
no changes to the internal controls over these processes that have or are
reasonably likely to materially affect the level of assurance provided over
the reliability of the financial statements.
t Risk and control process for
identifying, evaluating and
managing major business risks.
During the year, business and
function leaders have operated
the process, which has been
co-ordinated by the Head of
Internal Audit
t Internal and external audit
reports, which comment on
controls to manage identified
risks and also identify new ones
t A confidential whistle-blowing
helpline and an email address
available for employees to
contact the CEO in confidence
t A quarterly process to collate
all contingent liabilities identified
by the business units and
function heads. This report is
reviewed by the Disclosure
Committee and then by the
Audit Committee
t A Tax and Treasury Committee
which identifies and manages
the Group’s risks for tax and
treasury and provides an
annual confirmation to the Audit
Committee that tax and treasury
policies have been implemented
correctly and an efficient and
effective system for internal
control is in place.
t Formal authorisation process
for investments
t An organisational structure
where authorities and
responsibilities for financial
management and maintenance
of financial controls are
clearly defined
t The Code of Conduct which
outlines the expected standards
of business compliance and
behaviour. This Code is available
to all employees and is a formal
part of the induction process
t The anti-bribery and corruption
(‘AB&C’) policies and
procedures and dedicated email
hotline, designed to address
the specific areas of risk of
corruption faced by the Group
t Our comprehensive financial
review cycle where the annual
budget is approved by the
board and monthly variances
are reviewed against detailed
financial and operating plans
t The Disclosure Committee
where executive management
review and sign off business
unit internal controls, including
financial, compliance and
operational controls
t A process of internal control
self-assessment co-ordinated
by the Internal Audit team.
The statement of Directors’ responsibilities in relation to the preparation
of the Annual Report and Accounts is on page 62 of the Directors’ report.
Governance
Because of its inherent limitations, internal control over financial reporting
cannot provide absolute assurance and may not prevent or detect all
misstatements whether caused by error or fraud. The Group’s internal
controls over financial reporting and the preparation of consolidated
financial information include policies and procedures that provide
reasonable assurance that transactions have been recorded and
presented accurately. Finance officers of subsidiary businesses of the
Group are required to certify that the financial information they have
provided as part of the annual consolidation process has been properly
prepared and reviewed in accordance with instructions from the Group
Finance Department.
Internal control system
The internal controls which provide
assurance to the Committee of
effective and efficient operations,
internal financial controls and
compliance with law and
regulation include:
The Group’s internal controls over the financial reporting and consolidation
processes are designed under the supervision of the Chief Financial
Officer to provide reasonable assurance regarding the reliability of
financial reporting and the preparation and fair presentation of the
Group’s published financial statements for external reporting purposes in
accordance with IFRS.
Risk management system
As well as the risks that
management identify through the
ongoing processes of reporting
and performance analysis, the
Audit Committee has additional
risk identification processes,
which include:
Strategic focus
t any action taken to manage critical risks or to remedy any control
failings or weaknesses identified, ensuring these are managed through
to closure.
Risk management and internal control system features
Performance & risks
On behalf of the Board, the Audit Committee examines the
effectiveness of:
24/04/2014 16:01
58
Premier Farnell
report
Remuneration Committee overview
The composition of the Remuneration Committee during the year was:
During the year the Committee met four times to consider a wide range
of remuneration matters. These included:
Paul Withers
Andrew Dougal
Dennis Millard
Peter Ventress (from 01/10/13)
Paul Withers (Chairman)
The Committee members are all independent Non-Executive Directors.
There are a number of regular attendees at Committee meetings, including
the Group Chief Executive, the Chairman of the Board and the Chief
People Officer. No individual is present when his or her own remuneration
or fees are discussed or decided. Steven Webb, the Group Company
Secretary, acts as secretary to the Committee.
t Exercising its discretion to award a bonus of up to 10% under
the Group’s annual bonus plan
Against a backdrop of challenging trading conditions during the year
ending 3 February 2013 the Group did not meet its operating profit
target for the annual bonus plan but did nonetheless achieve an industryleading return on sales. In recognition of this, cash bonuses of up to 10%
(determined against achievement of personal objectives supporting the
strategy) were paid across the Group in March 2013, with a corresponding
award of up to 60% of the value of the cash bonus made under the
Group’s deferred share bonus plan (DSBP). Details of the cash bonus and
DSBP awards made to Laurence Bain and Mark Whiteling can be found
on page 71 of the Remuneration report.
t Reviewing the salaries of the Executive Directors and
most senior level of management and the Chairman of the
Board’s fees
Responsibilities:
t To determine remuneration for Executive Directors and Executive
Committee members consistent with the remuneration policy
The Committee reviewed the performance of Laurence Bain and Mark
Whiteling and received advice from New Bridge Street (NBS), the
Company’s appointed independent remuneration consultants, on market
trends and executive pay at similar companies in the FTSE 250. Having
re-aligned their salaries in 2012 when each took on their new roles, the
Committee determined that salary increases of 2% should be awarded to
Laurence Bain and Mark Whiteling, in line with increases across the Group.
A similar exercise was undertaken in relation to senior managers within the
Remuneration Committee population and for the Chairman of the Board.
An average increase of 4.1% was agreed for the senior managers and
4.6% for the Chairman of the Board, following a review of fees across the
FTSE 250 which revealed the Chair’s fees to be significantly below median.
t To review and have regard to remuneration trends across the Group
when setting remuneration policy for Executive Directors
t Overseeing arrangements in relation to the Company’s
share plans
t To approve design of and targets for performance-related pay for
Executive Directors, approving any payments to be made based
on performance
The Company’s share plans are key to rewarding high performance and
retaining key talent. The Committee reviewed recommendations and
approved awards under the Company’s long term incentive plan during
the year. The Committee also reviewed the potentially dilutive impact of the
Company’s shares plans and determined that, where possible under the
plan rules, awards be settled on a ‘net’ basis and, provided not prejudicial
to participants or restricted under local laws, using shares held for this
purpose by the Company’s employee benefit trust. The awards made
to the Executive Directors during the year and details of the Company’s
available headroom under the rules of the share plans and investor
guidance are on pages 73 and 75, respectively.
Key objective: to develop policy on Executive remuneration and fix the
remuneration of individual Executive Directors, the Chairman of the Board
and senior managers immediately below board level.
t To determine the fees of the Chairman
t To approve contracts of employment with Executive Directors
t To monitor the reward policies and structure for Senior Executives
and Group as a whole
t To approve the design of and oversee awards under employee
share schemes
t To oversee changes to employee benefit structures
t To consider risks to the Group as a result of remuneration plans.
In addition, to ensure all eligible UK employees have an easy, accessible
way to acquire shares in the Company and align their interests with those
of our shareholders, the Committee reviewed and approved the adoption
of a new UK ‘Save As You Earn’ scheme, to be put to shareholders for
approval at the Company’s General Meeting in June 2014. If the plan is
approved it will enable the Company to run this HMRC approved scheme
for the next ten years.
t Implemented the new Directors’ remuneration
reporting regulations
The new Directors’ remuneration reporting regulations have come into
effect since our last Directors’ Remuneration report was published.
In 2012/13, we chose to adopt early many of the proposals in the then
draft regulations. The response from our shareholders at our 2013
AGM was positive and in 2013/14 we have continued to engage with
major shareholders on remuneration issues to assist us in formulating
remuneration policy. We will put this policy to a binding shareholder vote
in June 2014. That policy and our implementation of it during the year to
2 February 2014 is set out in the Remuneration report which commences
on page 63.
24/04/2014 16:01
Premier Farnell
59
Other Committees
Digital Advisory Board (DAB)
Key objective: to offer counsel to the Board and the Chief Executive
Officer on matters relating to the web and eCommerce.
Disclosure Committee
Key objective: to assist the Board in ensuring that its disclosures are
accurate, complete and fairly represent the financial condition and results
of operations of the Company.
Tax and Treasury Committee
Key objective: to make recommendations to the Board on tax and
treasury strategy and policy.
Governance
The Tax and Treasury Committee comprises the Chief Financial Officer
(Chairman of the Committee), the Finance Director for Europe and Group,
Group Tax Manager, Group Treasury Manager and the Group Financial
Controller. It meets once per quarter and provides recommendations
to the Board on the Group’s strategy and policy on tax and treasury
matters. This includes risk identification, annual confirmations to the Audit
Committee on the internal controls for tax and treasury, the monitoring of
KPIs and approval of intra-group loans.
The Disclosure Committee is made up of the Executive Directors, the
Group Company Secretary, the Group Financial Controller, the Head
of Internal Audit and the Investor Relations Executive. It met twice in
2012/13 to review the interim and preliminary results announcements,
following validation and certification from individual executive managers.
Reports of its proceedings, along with minutes of the Committee’s
meetings, are provided to the Audit Committee.
Strategic focus
Chaired by Thomas Reddin, the DAB brings together both internal and
external eCommerce expertise to provide challenge and insight in this
key strategic area. Regular contributors include representatives from
companies specialising in enterprise search and business intelligence
applications and from web platform providers, as well as electronic design
engineers. Meeting quarterly, the DAB reviews major web developments,
potential opportunities and threats for the Company online and evaluates
new innovations and best practice from leading markets.
Performance & risks
The following Committees form part of the Group’s governance framework,
but are not Committees of the Board.
24/04/2014 16:01
60
Premier Farnell
Directors’ report
The Directors present their report and the audited
financial statements of the Company for the year
ended 2 February 2014.
Strategic report and review of business performance
Directors
A detailed and fair review of the Group’s business, its development, and
performance during and at the end of the financial year is set out in the
Strategic report on pages 1 to 45. The principal risks and uncertainties the
Group faces are outlined on pages 26 and 27, and information relating to
diversity, human rights and environmental matters can be found on pages
43 and 39 respectively. Disclosures on greenhouse gas emissions and
methodologies for calculation are detailed in the Sustainability report on
page 39.
The names and biographical details of the Directors who held office at the
date of this report appear on pages 46 and 47.
Profit and dividends
The Group’s total operating profit for the financial year was £91.5 million
which included a charge of £3.9 million relating to restructuring costs,
a £1.6 million net gain on US property disposal and a £0.8 million gain
on the re-measurement of contingent consideration. Adjusting for these
items, the Group’s adjusted operating profit was £93.0 million. In 2012/13
the Group’s operating profit was £89.3 million which included a charge of
£13.9 million relating to restructuring costs, £0.4 million of acquisition costs
and a £8.5 million one-off pension gain following the Group’s offer to buy
out the pension rights of the deferred members of its US defined benefit
pension plan. Adjusting for these items, the Group’s adjusted operating
profit in 2012/13 was £95.1 million.
The Group’s profit attributable to owners of the parent for the financial year
to 2 February 2014 was £51.4 million (2012/13: £48.6 million).
The Directors recommend that a final dividend of £22.0 million, equivalent
to 6.0 pence per ordinary share (2012/13: £22.0 million, equivalent to
6.0 pence per ordinary share) be paid on 25 June 2014 to those
shareholders on the register of members at the close of business
on 30 May 2014.
An interim dividend of £16.1 million, equivalent to 4.4 pence per ordinary
share, was paid on 24 October 2013, making a total for the year of
£38.1 million or 10.4 pence per ordinary share (2012/13: £38.1 million in
total and 10.4 pence per ordinary share). The Premier Farnell Executive
Trust (EBT or Trust) holds ordinary shares in the Company (acquired in the
market) in order to meet obligations under the Company’s Share Plans.
Throughout the year under review, a waiver by the Trustees of the Trust’s
right to receive dividends on ordinary shares held by it was in place.
During the year there was one change to the membership of the Board,
when Peter Ventress was appointed as an additional Non-Executive
Director on 1 October 2013.
In accordance with the UK Corporate Governance Code, all Directors will
retire at the forthcoming Annual General Meeting of the Company, Peter
Ventress will offer himself for election, and all other Directors for re-election.
A formal evaluation of the performance of each Director* and of the Board
has been carried out and the performance of each of them continues to be
effective and to demonstrate commitment to his or her role. There is more
information on the evaluation and its outcome on pages 52 and 53.
The Company provided indemnities to each of its Directors during
the year ending 2 February 2014 in accordance with the provisions of
the Company’s Articles of Association allowing the indemnification of
Directors out of the assets of the Company to the extent permitted by law.
These indemnities constitute qualifying indemnities for the purposes of the
Companies Act 2006 and remain in force at the date of approval of this
report without any payment having been made under them.
Additional information relating to Directors’ remuneration, service contracts
and interests in the Company’s shares is given in the Remuneration report
on pages 63 to 77. The details of Directors’ interests in the Company’s
shares form part of this report.
Share capital and control
Details of the Company’s issued share capital are set out in notes 15 and
19 to the consolidated financial statements, including any changes which
have taken place during the year under review. The Company’s authorised
share capital comprises ordinary shares of five pence each in nominal value
and cumulative convertible redeemable preference shares of £1 each in
nominal value. As at 2 February 2014, the ordinary shares and preference
shares represented 82.5% and 17.5% respectively of the Company’s total
share capital.
The rights attached to the Company’s ordinary shares and its preference
shares, in addition to those conferred on their holders by law, are set out in
the Company’s Articles of Association (the Articles), a copy of which can be
obtained on request from the Company Secretary. A summary of the rights
attached to the preference shares appears in note 15 to the consolidated
*
with the exception of Peter who joined the Board after the evaluation had been completed.
24/04/2014 16:01
Premier Farnell
61
Company
Schroders plc
Prudential Public Limited
Company
UBS Global Asset
Management
Baillie Gifford & Co
Limited
Harris Associates Ltd
Newton Investment
Fidelity International (FIL)
Artemis Investment
Old Mutual Global
Investors (UK) Limited
Standard Life
Investments Limited
Legal & General
Norge Bank
BlackRock Inc
% holding as at
02/02/2014
% holding as at
09/04/2014
14.06%
13.71%
7.51%
7.51%
Below 3%
5.13%
5.12%
5.04%
4.97%
4.90%
4.86%
5.12%
5.04%
4.97%
4.90%
4.86%
4.60%
4.60%
4.43%
4.03%
3.92%
3.69%
4.43%
4.03%
3.92%
3.69%
Trading subsidiaries
Details of the Group’s principal trading subsidiaries can be found on
page 110 of the notes to the financial statements.
Financial instruments
Independent auditors
Product research and development
Disclosure of information to auditors
The Group’s product research and development activities are restricted
to the development of new or enhanced products for Akron Brass.
Akron Brass is part of the Group’s Industrial Products Division.
During the year the Industrial Products Division expensed £3.2 million
(2012/13: £3.0 million) on product research and development.
Each of the Directors confirms that so far as he or she is aware, there is
no relevant audit information of which the Company’s auditors are unaware
and that he or she has taken all steps that he or she ought to have taken
as a Director in order to make himself or herself aware of any relevant audit
information and to establish that the Company’s auditors are aware of
that information.
Employment
Information on the Group’s policy in relation to employment, performance
reviews, feedback, diversity, development and employee communications
is set out on pages 43 to 45 of the Strategic report.
Annual General Meeting
The notice convening the Company’s 2014 Annual General Meeting at
the offices of Allen & Overy at One Bishops Square, London E1 6AD on
17 June 2014 at 10.30 am is set out in a separate document issued to
shareholders. The Directors’ report for the year ended 2 February 2014
comprises these pages (60 to 62) and the other sections and pages
of the Annual Report cross-referred to above, which sections and pages
are incorporated by reference.
In addition, the Group is constantly striving to provide new or improved
levels of customer service. This is illustrated in the advances in our web
offering: whether through our transactional sites or the further development
of our element14 community, which offers a source of engineering
knowledge and design solutions as well as access to colleagues, suppliers
and experts globally. During the year the Group expensed £5.8 million
(2012/13: £5.2 million) in these areas.
Resolutions to reappoint PricewaterhouseCoopers LLP as auditors and
to authorise the Directors to determine their remuneration will be proposed
at the forthcoming Annual General Meeting of the Company.
Governance
Information on the Group’s financial risk management objectives and
policies and on the exposure of the Group to relevant risks in respect of
financial instruments is set out under the heading “Treasury operations”
on page 38 and in note 18 to the consolidated financial statements.
The Company’s multicurrency bank facilities and its private note
placements are subject to provisions allowing the lenders to terminate
the facilities and demand repayment following a change of control.
The trustees of the EBT may vote or abstain from voting shares held
in the trust in any way they see fit.
The table below shows the position at 2 February 2014 and any changes
up to and including 9 April 2014 where the Company had been notified,
pursuant to the Financial Conduct Authority’s Disclosure and Transparency
Rules, of the following notifiable voting rights in its ordinary share capital:
Strategic focus
Rules about the appointment and replacement of Directors are set out
in the Articles. Changes to the Articles may only be made if approved by
special resolution of the shareholders. The Directors’ powers are granted
to them by UK legislation and by the Articles. There are no agreements
between any Group company and any of its employees or any Director of
the Company that provide for compensation to be paid to the employee
or Director for termination of employment or for loss of office as a
consequence of a takeover of the Company, other than provisions that
would apply on any termination of employment.
Substantial shareholdings
Performance & risks
The Articles contain certain restrictions on the transfer of ordinary and
preference shares and on the exercise of voting rights attached to them,
including where the Company has exercised its right to prohibit transfer
following the omission of their holder or any person interested in them to
provide the Company with information requested by it in accordance with
Part 22 of the Companies Act 2006. Holders of preference shares are
entitled to receive notice of, but not attend or vote at general meetings of
the Company other than in limited circumstances. The preference shares
are not equity for the purposes of financial reporting. At the forthcoming
Annual General Meeting of the Company in June 2014, the Company will
seek authority from its shareholders to purchase its ordinary and preference
shares. Authorities were previously granted at the Annual General Meeting
in 2013 and expire at the close of the forthcoming meeting. During the
year ended 2 February 2014 the Company did not purchase, acquire or
dispose of any ordinary or preference shares. The authorities sought will,
if granted, empower the Directors to exercise the authorities on behalf of
the Company.
By order of the Board
Steven Webb
Company Secretary
Premier Farnell plc
Farnell House
Forge Lane
Leeds LS12 2NE
17 April 2014
24/04/2014 16:01
62
Premier Farnell
Directors’ report
Statement of Directors’ responsibilities
Directors’ responsibility statement pursuant to DTR 4
The Directors are responsible for preparing the Annual Report, the
Directors’ Remuneration report and the financial statements in accordance
with applicable laws and regulations. Under that law the Directors have
prepared the consolidated financial statements and Annual Report in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and the parent company financial
statements in accordance with UK Generally Accepted Accounting
Practice (UK GAAP). Under company law the Directors must not approve
the financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Company and the Group, and of the
profit or loss of the Group for that period.
Each of the Directors, as listed on pages 46 and 47 confirms that, to the
best of his or her knowledge:
In preparing these financial statements the Directors are required to:
t select suitable accounting policies and then apply them consistently;
(a) the consolidated financial statements in this report, which have been
prepared in accordance with, International Financial Reporting Standards
(IFRSs) as adopted by the EU, IFRIC interpretations and those parts of the
Companies Act 2006 applicable to companies reporting under IFRS, and
the Company financial statements in this report which have been prepared
in accordance with UK GAAP give a true and fair view of the assets,
liabilities, financial position and profit of the Group taken as a whole; and
(b) the management report contained in this Annual Report includes a
fair review of the development and performance of the business and the
position of the Company and the Group taken as a whole, together with
a description of the principal risks and uncertainties that they face.
t make judgements and estimates that are reasonable and prudent;
t state that the consolidated financial statements comply with IFRSs
as adopted by the European Union and the parent company financial
statements comply with UK GAAP; and
t prepare the financial statements on the going concern basis, unless
it is inappropriate to presume that the Group will continue in business.
The Directors confirm that they have complied with the above requirements
in preparing the financial statements.
The Directors are responsible for keeping proper accounting records that
are sufficient to show and explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial position of the Company
and the Group and to enable them to ensure that the financial statements
and the Directors’ Remuneration report comply with the Companies
Act 2006 and, as regards the consolidated financial statements, article
4 of the IAS Regulation. They are also responsible for safeguarding the
assets of the Company and the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The 2013/14 financial statements will be published on the Company’s
website (in addition to the paper version). The Directors are responsible
for maintenance and integrity of the electronic version of the financial
statements to the same extent as for the paper version. Legislation in the
United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions. The work
carried out by the auditors does not include consideration of the
maintenance and integrity of the website.
The Directors consider that the Annual Report and Accounts, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s performance,
business model and strategy.
24/04/2014 16:01
Premier Farnell
63
Remuneration
report
Dear shareholder
What happened during the year?
The awards granted under the Company’s long term incentive plan in
2010/11 matured in 2013/14 but failed to meet their performance criteria,
so that the awards lapsed in full, as the long term incentive awards had
also done in 2012/13.
The threshold for operating profit was the primary measure of performance
for the annual bonus plan in 2013/14. Having exceeded this threshold,
a payment of 18.3% out of a potential maximum opportunity of 60%
was due to the Executives for this element. Taking into account the
achievement of the Group strategic objectives, this has resulted in a cash
bonus awards for Laurence and Mark as follows, payable in March 2014:
Cash Bonus Award
Laurence Bain
Mark Whiteling
Amount
As a percentage
of salary
As a percentage
of total maximum
opportunity
£111,690
£77,401
21.9
19.7
21.9
21.9
The Committee reviewed the performance measures for the Group’s long
term incentive plan awards to be made in 2014/15 and concluded that a
stretching return on sales target and a measure of growth in earnings per
share remain appropriate to enhance shareholder value and drive profitable
growth. The targets set must not encourage the sacrifice of profitable sales
opportunities to preserve returns and the awards must remain achievable
and motivational. With this in mind, the Committee is proposing to set
the return on sales performance range applying to awards in 2014/15 at
9.5% for threshold and 11.5% for stretch performance. To exemplify this:
at current turnover (without taking into account any sales growth which
may be achieved in the intervening period), these targets would necessitate
operating profit of between £92.0 million and £111.3 million in 2016/17.
Consulting and communicating
In early 2013 we consulted extensively with our major shareholders on
our remuneration proposals for the year, including the proposed move to
a full year performance measure of operating profit and the changes to
the weighting of operating profit and other objectives in the annual bonus
scheme and on applying the same performance measures across both
elements of the long term incentive plan. Our shareholders were largely
supportive and we have taken into account their feedback in shaping the
implementation of our policy this year. Personally, I have continued dialogue
on a number of remuneration issues throughout 2013/14.
What else is new?
This is our first report under the new directors’ remuneration reporting
regulations, although we chose last year to adopt early many of
the requirements of the then draft regulations. This report reflects
the Committee’s policy on remuneration on pages 64 to 69 and
the implementation of that policy in 2013/14 on pages 70 to 77.
The terms used in the report are defined in the glossary on page 118.
When Mark re-joined us in November 2012, he took on a larger remit
than the previous incumbent in his role. We were keen to recognise this
in a way which motivates enhanced performance, by increasing the
maximum percentage opportunity available to Mark by way of long term
incentive award in 2013/14 to bring it into line with that granted to the
Chief Executive Officer. Awards under the long term incentive plan are now
subject to two targets – one requiring growth in earnings per share and the
second relating to adjusted return on sales – to give a more rounded view
of performance and for simplicity. To ensure alignment with our strategy
of seeking faster profitable growth without sacrificing profitable sales
opportunities, the threshold for the return on sales metric was reduced
compared with the prior year. It remains challenging.
In the year ahead, the Group’s operating profit will remain the primary
measure of success for the Executives’ annual bonus plan, with up to
60% of maximum opportunity payable against this metric. The remaining
40% of maximum opportunity is payable on hitting other strategically
important targets related to cash generation, margin percent and active
customer growth. As for last year, performance is measured across the
year as a whole.
Governance
In 2012/13 we revised Laurence and Mark’s base salaries to reflect their
new roles and responsibilities. In the year under review, salary increases for
the Executives were limited to 2%, in line with the pay awards made across
the Group. The same level of increase was made to the Non-Executive
Directors’ base fees and there was no increase in fees for chairing any of
the Board’s or Company’s other committees. Following a benchmark of
companies within the FTSE 250, Val Gooding’s fee was increased by 4.6%
to bring her remuneration into alignment with the level appropriate for her
position as Chairman of the Board.
Looking forward
The Committee believes that the Executive Directors’ remuneration
policy should fulfil two objectives: it should provide a clear link between
performance and reward and it should attract, retain and motivate
high-calibre executives with the skills and experience to manage the
business and deliver the strategy. In 2013/14 we achieved the threshold
set for operating profit for our annual incentive plan but not its target.
This performance reflects the challenging and competitive environment
prevailing during the year; a year in which we made significant progress
in the realignment of our strategy to provide a sound base for future
growth in profits.
Laurence and Mark also received share awards under the deferred element
of the annual bonus plan at the same percentage of maximum opportunity,
deferred for two years. The Committee considers that this level of award is
commensurate with the performance achieved.
Strategic focus
This has been the first full year with both of our current Executives in
place. Laurence and Mark’s focus, with their senior team, has been on
reviewing, revising and embedding the Company’s strategy as it has
evolved since their appointment to their current roles.
Performance & risks
Annual message to shareholders from the
Chairman of the Remuneration Committee.
As this is the first year in which the policy is formally adopted, it will be put
to our shareholders for approval at our Annual General Meeting in June
2014. We will also be seeking your approval to our implementation of our
policy for the year under review. I trust both these resolutions will have
your support.
Paul Withers
Chairman of the Remuneration Committee
24/04/2014 16:01
Premier Farnell
64
Remuneration
report
Our policy on Directors’ remuneration
This section sets out the Company’s policy on Directors’ remuneration to 2016/17. It will be put to the shareholders for approval at the Company’s Annual
General Meeting in June 2014 and will come into effect immediately on its approval.
What is our policy?
Overall it is to:
Be consistent
and principled
maintain a consistent executive compensation strategy, based on clear principles and objectives
Link pay to
strategy
support the Company’s strategy and its execution
Aligned with
shareholders’
interests
closely align Executive reward with shareholder returns
Be competitive
ensure that the organisation can attract, motivate and retain high-calibre talent, to enable Premier Farnell to compete in an
international market
Link pay
to performance
provide the opportunity for Executives and other colleagues to receive competitive rewards for performance, aligned to the
sustained success of the overall Group, paying what is commensurate with achieving these aims
Reflect the
internal
landscape
operate broadly-based incentives to recognise talented performers throughout the Group
And be clear
be easy to understand and supported by clear communication
And has these elements:
Fixed
Salary
Benefits
Pension or pension allowance
Variable based
on performance
Annual bonus (including deferred shares)
Long term incentive plan, comprising one or more of the following:
– Performance share plan awards;
– Executive share options.
Which for our Executive Directors are structured as follows:
What?a
Why?
How? And how much?
Salary
To recruit and retain
the right people to
execute the strategy
Based on:
t4LJMMTBOEFYQFSJFODF
t4BMBSJFTBDSPTTUIF(SPVQJODMVEJOHPGPUIFSTFOJPSFNQMPZFFT
t4BMBSJFTQBJECZPUIFS'54&DPNQBOJFTBOECZPUIFSDPNQBOJFTPGTJNJMBSTJ[FBOE
complexity operating internationally.
Reviewed annually, with changes usually implemented at mid-year each year. Changes could take
place at other times on changes in role or responsibility. Such changes, along with personal and
Company performance and levels of increase throughout the Company, are taken into account in
deciding whether an increase should be made.
No specific cap. However, increases granted to the Executives will normally be in line with those
for the general workforce, except where there is a change of role or responsibilities or in other
exceptional circumstances.
Not appropriate to be subject to recovery once paid.
See page 71 for implementation in 2013/14.
24/04/2014 16:01
Premier Farnell
65
Why?
How? And how much?
Benefits
the right people to
Dependent on the requirements of the role and the individual, provided reasonable and in line with
market practice.
Strategic focus
Benefits might include, for example: life and health insurance for the Executive Director and his
or her family; medical assessments and access to walk-in medical care; a car or car allowance;
health club membership; independent tax, legal or financial advice; and relocation assistance where
appropriate such as housing and education allowances, travel and tax equalisation arrangements
and other costs of relocation where an Executive is asked to relocate or spend significant periods
away from home.
Where an Executive is recruited from overseas, other benefits typically provided in the Executive’s
home country may also be provided to secure and retain that person’s services.
Executives are also entitled to take advantage of benefits offered to other UK-based employees
including discounts on Company products, access to the Company’s sponsored discounted
rewards programme, childcare vouchers, a cycle to work scheme and the right to take part in any
HMRC approved all-employee share or savings scheme run by the Company, if eligible.
Performance & risks
What?a
No predetermined maximum, but benefits generally constitute a small percentage of
total remuneration.
Not appropriate to be subject to recovery once provided.
the right people to
Pension
In the form of:
i. money purchase benefits only; or
ii. equivalent cash supplement; or
iii. a mix of (i) and (ii).
Not included as salary for the purposes of the annual bonus or LTI awards.
No predetermined maximum but in line with market practice for Executives.
Not appropriate to be subject to recovery once provided.
Performance assessed against the achievement of key elements of the Company’s financial results.
This may be combined with personal objectives driving other key elements of strategy, if the
Committee thinks appropriate, although the principal weighting will be on financial measuresb.
Targets set by the Remuneration Committee at the beginning of the year and achievement reviewed
by it after the year-end. Considered to be commercially sensitive but disclosed in the subsequent
year’s Annual Report.
The deferred
element promotes
retention and
alignment with
shareholders
The Company’s policy is that the annual bonus is paid partly in cash, with a significant proportion
paid by way of share award under the Deferred Share Bonus Plan (DSBP), the vesting of such
award being dependent on the Executive remaining with the Company for two years from grant.
The current practice is that the ratio of cash to deferred shares is approximately 60:40, but the
Committee reserves the right to vary this ratio if it thinks it appropriate to do so.
DSBP awards may be made by way of nil cost option, conditional award or forfeitable share
award and may be satisfied with new issue shares, market purchase or treasury shares, at the
Committee’s discretion.
DSBP awards are subject to the executive shareholding policy, requiring one half of shares vesting
(after tax and costs) to be retained throughout employment until a holding of the requisite level is
achieved and that level of holding maintained. The Committee determines the percentage of salary
to be achieved and other terms of the policy.
The Committee has the discretion to provide that dividends will accrue on awards made prior to
vesting, to the extent that awards vest.
To motivate and
reward performance
to further strategic
and operational
goals over the year
Governance
Annual
bonus
The annual bonus offers the following maximum opportunity at maximum performance:
tPGTBMBSZGPSUIF$&0BOE
tGPSUIF$'0
made up of a combination of cash and deferred share awards.
Subject to claw-back or scale-back if performance is misstated or in the event of misconduct.
24/04/2014 16:01
Premier Farnell
66
Remuneration
report
What?a
Why?
How? And how much?
Long Term
Incentive Plan
(LTIP)
To reward long term
success and provide
alignment with
shareholders
Made up of awards under:
i. a performance share plan (PSP) with no exercise price; and/or
ii. an executive share option plan (ESOP) with an exercise price set by reference to the market price
at grant,
Which, if used together, provide the opportunity to blend awards not subject to share price volatility
(allowing focus on performance targets) with those whose value depends on absolute share price
growth, aligned with the interests of shareholders.
Currently, both have two performance conditionsb measured over a minimum three-year period,
starting not earlier than the beginning of the year in which the grant is made: growth in earnings per
share (EPS) and adjusted return on sales (RoS). The Committee retains the discretion to determine
the weightings of each measure and may select other measures, if it considers it appropriate to do
so to ensure alignment with the Group’s strategy.
The Committee sets the targets relevant to any grant and decides for each grant whether, and the
extent to which, each performance condition has been met and the awards vest. The Committee
can amend performance condition(s) for a grant if an intervening event makes it appropriate to do
so, provided the revised conditions are considered by the Committee to be no less challenging in
all the circumstances.
Awards under the ESOP may be made by way of option (which for UK participants may be approved
or unapproved and for US participants may be an incentive stock option or non qualifying option) or
share appreciation right (SAR) (save in the case of approved options) and may be satisfied with new
issue shares, market purchase or treasury shares, at the Committee’s discretion. SARs are market
priced options that, on exercise, deliver only the gain in shares, rather than all of the shares comprised
in the option, thus reducing the Company’s share usage. The Committee may also grant phantom
awards or satisfy awards in cash with the Executive’s agreement and can settle options as SARs.
The maximum grant permissible under each plan (and this policy) is 100% of base salary, based on face
value, save in exceptional circumstances when awards of up to 150% can be made under each plan.
For information, the Committee’s practice has been to make awards below the maximum permitted
under the policy, as follows (as a percentage of base salary):
– For the CEO 60% under the PSP and 100% under the ESOP;
– For the CFO 60% under the PSP and 100% under the ESOPc.
Awards are usually granted annually although awards may exceptionally be granted more frequently:
for example, to a new appointee. The Committee has the discretion to provide that dividends will
accrue on awards made prior to vesting, to the extent that awards vest.
Awards under the LTI are subject to the Company’s executive shareholding policy, requiring one half
of shares vesting (after tax and costs) to be retained throughout employment until a holding of the
requisite level is achieved and that level of holding maintained. The terms of the policy, including the
percentage of salary to be achieved, are set by the Committee.
Subject to claw-back or scale-back in the event of misstated performance or misconduct.
See page 67 for an illustration of the amounts potentially receivable by the Executives for minimum,
on-target and maximum performance. This shows that, at targeted performance, 17 and 19% and,
at maximum performance, 22 and 24% of the Executives’ total remuneration is payable under the
long term incentive plan, depending on role.
Notes:
a Differences in policy compared with other employees:
Generally, remuneration for the Executives is more heavily weighted to performance-related pay than that of less senior employees, so that the Executive Directors are personally motivated to deliver
the strategy successfully and to enhance the link between their interests and shareholders’. Fixed elements vary by role, grade and geography but are largely consistent in policy.
Base salary: No differences in policy. The Group’s overall salary budget and percentage increases made to other employees with similar levels of performance are taken into account in setting the
Executives’ salaries.
Benefits: No differences in policy; benefits vary by grade and jurisdiction and with job role. For example: cars or car allowances and health and life insurance are only available in the UK where, in the
case of a car, there is a need based on role or to managers of above a certain grade.
Pension: The level of contribution made by the Company varies with jurisdiction and the age and grade of the employee.
Annual bonus: All employees of management grade are eligible to participate in the annual bonus scheme, with maximum opportunity varying with grade and performance. Financial objectives are
primarily based on the profit centre to which the individual contributes and, in the event that the bonus is structured to take account of personal objectives, objectives relevant to the employee’s role
would be set.
LTIP: Employees of management grade and nominated talented performers participate in the LTIP. The Global Executive Team have awards subject to performance conditions. Other managers
and talented performers receive awards under the ESOP without performance conditions. Maximum available opportunity varies according to grade and individual performance.
b Performance conditions:
Annual bonus: The performance conditions for the annual bonus may be entirely based on key aspects of the Company’s financial performance, or may also be measured against strategic or
operational targets relevant to the individual’s role and designed to drive the Company’s strategy, at the Committee’s discretion. DSBP awards, once granted, have no performance conditions as
their grant requires each Executive to have met the performance targets relevant to the annual bonus before any award can be granted to him or her.
LTIP: The EPS and RoS conditions apply equally to awards under the PSP and the ESOP, where both are granted. EPS was chosen as an appropriate measure of the Company’s strategy for
profitable growth, expressed as a compound growth rate to assist in the clear communication of targets. RoS is a key strategic financial target for Premier Farnell. By measuring RoS performance, the
Remuneration Committee seeks to promote the corporate goal of targeting sales growth and managing margin. The combination of the two measures requires both return and growth for the awards to
achieve value. The Committee reserves the right to vary the weighting of the measures for any grant.
c Other share-based schemes:
In common with all eligible employees of the Group, Executive Directors in the UK are entitled to participate in any HMRC approved, all-employee share plan. These options are not subject to the
satisfaction of a performance condition as such schemes are not restricted to Executive Directors and Senior Executives and are subject to maximum contribution limits set by HMRC. The Committee
sets the terms of each grant offered under such plan.
24/04/2014 16:01
Premier Farnell
67
So what could the Executive Directors earn under this policy?
t at on-target performance, 43%; and
t at maximum performance, 63%
of the Executives’ total remuneration is performance-linked.
Chief Executive total remuneration scenarios
37%
On-target
performance
57%
Minimum
100%
0
Total fixed
£’000
41%
26%
£1,969
£1,262
22%
17%
£719
500
1,000
Total annual incentive
1,500
2,000
Total long term incentive
Chief Financial Officer total remuneration scenarios
Maximum
37%
On-target
performance
57%
Minimum
39%
24%
£’000
£1,398
£902
24%
19%
Total fixed
500
Total annual incentive
1,000
1,500
Total long term incentive
Notes:
1. Total fixed includes salary applicable at the date of this report, plus the value of benefits and
pension contributions in the single figure table on page 70.
2. Total annual incentive is the sum of cash and deferred annual bonus.
3. Total long term incentive is the face value of performance shares and approximate fair value of
options calculated by multiplying the option face value by 25%. There is no allowance for share
price appreciation. The value at maximum is the amount granted; the value at on-target is taken
to be half the amount granted.
And what do Non-Executive Directors earn?
Why?
How? And how much?
Fees
the right people to
contribute to the
Company’s success
without compromising
their independence
Annual fee for Chairman.
Annual base fee for NonExecutive Directors.
Additional fees payable to the
Senior Independent Director
(SID) and the Chairmen of the
Audit and the Remuneration
Committees and to the Chair
of the Digital Advisory Board.
Fees reviewed annually by the
Board (or the Remuneration
Committee, in the case of
the Board Chairman) to
avoid conflicts.
However, the Committee may offer additional cash and/or share-based
elements where it considers these to be in the best interests of the
Company and its shareholders. This includes the use of awards made
under 9.4.2 of the Listing Rules. Such elements would take account
of remuneration foregone by the individual in order to take up the role,
including the terms of that remuneration, its amount, how and when it
might be payable and any performance measures applicable to it.
If the appointment were internal, any variable pay awarded in respect of
the individual’s former role with the Group would be allowed to pay out in
accordance with its terms, adjusted as appropriate to take account of the
appointment. In addition, any other ongoing remuneration obligations of
the Group which exists prior to the individual’s appointment may continue
in force.
The salary for a new Executive may be set below the normal market rate,
with phased increases over the first few years as the Executive gains
experience in his or her new role.
Fees for Non-Executive Directors would be set in accordance with the
fee structure for Non-Executives in place at the time of appointment,
with additional fees or remuneration awarded where appropriate to
take account of additional responsibilities.
All fees are paid in cash and
cover time spent in travel as
well as attendance at meetings
and site visits.
The Committee would seek to align the pay of any incoming Director with
each of the elements of remuneration described in the policy tables for an
Executive or a Non-Executive Director, as appropriate. This includes the
expectation that, for incoming Executive Directors, pay would be linked to
performance as it is for our current Executives, through the annual bonus
and long term incentive plan. The maximum amounts receivable under
those arrangements would be within the policy maxima available to the
other Executives.
Governance
What?
The Company’s policy is to pay what is necessary to attract individuals
with the skills and experience appropriate to the role to be filled. This would
take account of the remuneration offered by other FTSE 250 companies
and other companies of similar size and complexity and, in the case
of appointments to Executive positions, the levels and structure of
remuneration across the Group, including to other senior appointees.
£516
100%
0
What would we pay to recruit a new Director to the Board?
Strategic focus
Maximum
Non-Executive Directors are not entitled to participate in any of the
Company’s incentive plans (including the annual bonus scheme and the
LTIP) or in any Company pension arrangements and are not entitled to any
payment in compensation for any early termination of their appointment.
Performance & risks
Performance-related elements have the potential to make up a substantial
portion of Executives’ remuneration, especially if maximum performance is
achieved. The mix of fixed and performance-related pay of the Executives
at varying levels of performance is illustrated in the bar charts below,
showing that:
No prescribed cap or standard
percentage increase. However,
fee levels are benchmarked
against market levels.
Not appropriate to be subject
to recovery once paid.
See page 70 for
implementation in 2013/14.
24/04/2014 16:01
Premier Farnell
68
Remuneration
report
What would a Director get on leaving or if there were a takeover?
On an Executive leaving, the approach of the Committee would be to
consider all relevant surrounding circumstances in deciding whether or not
to exercise any discretion open to it and to act in accordance with the rules
of any relevant incentive plan and any contractual provisions.
Executive Directors’ service contracts are usually terminable by the
Company on 12 months’ notice and by the individual on six months’
notice. The Company would continue to pay salary, benefits and pension
in line with its contractual obligations during any notice period and, in the
case of the existing Executive Directors, can:
t oblige the Executive to mitigate his or her loss, where payments
are made monthly, and reduce monthly payments or cease them
altogether on his or her accepting alternative employment (save that
the Company’s right to pay monthly does not apply where termination
results from a change of control); and
t pay salary and benefits in lieu of the whole or part of the notice period
in a single payment or by way of monthly instalments.
The Company would seek to include similar provisions in any contract
with any incoming Executive, recognising that it may be necessary to
agree to a longer notice period, in exceptional circumstances, with that
period reducing to 12 months within a defined timeframe.
Any annual bonus normally ceases to be receivable once an Executive
gives, or is given, notice to leave. However, the Committee may make
annual bonus payments, subject to performance and payable following the
end of the bonus year, in respect of the period during the year when the
individual has served as a Director or employee, if it deems it appropriate.
There are specific rules under each of the Company’s share plans
(including the DSBP, PSP and ESOP) dealing with the treatment of awards
on leaving. In summary, if an Executive were a ‘good leaver’, he or she may
be entitled to retain his or her award, although, for unvested awards:
t the number of shares under an award may be reduced to reflect any
unexpired performance period (referred to as ‘pro rating’); and
t the award would normally remain subject to any applicable
performance condition.
A ‘good leaver’ is someone who leaves by reason of injury, disability,
redundancy, on the sale or transfer out of the Group of his or her employing
business, on retirement with the agreement of the Committee or in other
special circumstances at the Committee’s discretion. (Someone dying in
service would also be a good leaver, with their personal representatives
assuming their rights in respect of their awards.) How awards are treated if
someone is a good leaver also depends on the type of award made under
the relevant plan. The following table summarises the position for each of
our current plans.
In the unusual circumstance in which an Executive Director were to leave
without notice as a result of summary dismissal, his or her salary, benefits
and pension contributions would normally stop immediately.
Plan
Good leaver?
Type of award
Vested?
Unvested?
DSBP
Yes
Conditional or forfeitable share award
n/a1
Vests on leaving date, but subject
to pro rating2
Yes
Option
Exercisable for 12 months
from leaving2
Exercisable for 12 months from leaving
(or from vesting, in the event of death)
but subject to pro rating2
No
n/a1
Lapses
No
Option
Lapses
Lapses
Yes
n/a1
Vests at end of performance period,
subject to performance and pro rating3
Yes
Option
from vesting3
Exercisable for 12 months from end
of performance period, subject to
performance and pro rating3
No
n/a1
Lapses
No
Option
Exercisable for three months
from vesting4
Lapses
Yes
Option
from leaving (or death if
relevant)3
Exercisable for 12 months from leaving
(or from vesting, in the event of death)
subject to performance and pro rating3
No
Option
Exercisable for three months
from leaving4
Lapses
PSP
ESOP5
Notes:
1. Not applicable as the shares under award vest automatically if the award is a conditional or forfeitable share award.
2. Subject to pro rating for unvested awards, unless the Committee applies its discretion otherwise, and to claw-back. The 12 month exercise period for options is subject to an end date of ten years from
grant (seven years for Irish residents) if sooner.
3. Subject to the award meeting its performance condition and subject to pro rating, for unvested awards, unless the Committee applies its discretion otherwise, and to claw-back. Approved options under
the ESOP are not subject to claw-back and, on death, become and remain exercisable for 12 months. The Committee has the discretion to extend the period of exercise for good leavers other than on
death, provided it ends not later than 42 months from the date the award was granted.
4. Subject to claw-back, save for approved options under the ESOP.
5. Rules may vary if options were to be granted to non UK Directors to take account of local laws or regulation. For example in Denmark where compulsory leaver provisions are imposed under local law.
24/04/2014 16:01
Premier Farnell
69
The Executives’ service contracts do not have a set duration, while NonExecutive Directors, engaged under letters of appointment, are initially
retained for a three-year term. In accordance with the UK Corporate
Governance Code, all Directors stand for election when first appointed,
and then annual re-election, by the shareholders at the Company’s Annual
General Meeting. No one can continue in office as a Director if not elected
or re-elected, as appropriate.
Does the Committee consult shareholders on remuneration policy?
The Remuneration Committee is committed to an open dialogue with
shareholders on Executive remuneration. The Chairman of the Board and
the Chair of the Remuneration Committee have met and spoken to major
shareholders about Executive pay and policy on a number of occasions
during the year. These consultations have covered a number of aspects
of our pay policy (including the proposed changes to the annual bonus,
the long term incentive plan and most recently our executive shareholding
policy) and the feedback provided has been taken into account in shaping
the implementation of the policy during the year and into 2014/15.
Governance
Provided that they are re-elected, Non-Executive Directors’ appointments
are normally renewed for a second three-year period and then annually for
a total of not more than three further years. The letters of appointment set
out the time commitment expected of the Non-Executive Directors in the
performance of their duties, with more time expected to be spent by the
Chairmen of the Audit and Remuneration Committees.
Employees are not specifically consulted on Executive remuneration.
They are, however, invited to take part annually in an all-employee
engagement survey when they have the opportunity to raise any question,
issue or concern that they might have. The results of the survey are
reviewed by the Board and any significant concerns relating to Executive
remuneration would be taken into account by the Committee.
For how long are the Directors employed?
In setting the remuneration policy for Executive Directors, the
Remuneration Committee takes account of the pay arrangements for
other colleagues in the Premier Farnell Group. The same principles apply
to remuneration policy for all colleagues: that pay should be benchmarked
against relevant markets to ensure competitiveness while controlling costs;
that there should be performance-based components for all senior and
most customer- and supplier-facing staff; and that performance-related pay
should be aligned with and help to drive the achievement of the Company’s
business strategy. In determining any increase in the level of base salaries
for Executive Directors, the policy requires that the rate of increase for
other colleagues be considered. The Committee receives a report annually
on those remuneration arrangements and employment conditions across
the Group.
Strategic focus
If there were a takeover of Premier Farnell plc or if the Company were
wound up, awards vest over such number of shares as the Committee
determines, subject to claw-back and after applying any performance
condition and pro rating, if the Committee thinks fit. Awards made as
options have a one month exercise period. The Committee has authority
to allow awards to vest early on similar terms in the event of a demerger
and to require awards to be surrendered and replaced with equivalent
awards in the acquiring company in the case of an internal reorganisation.
The discretion to apply performance conditions and to pro rate the number
of shares under award does not apply to DSBP awards, as they do not
have performance conditions. Awards under the SAYE scheme become
exercisable early in the case of a takeover (when the Committee has
discretion to set an exercise period of up to six months), a compulsory
acquisition, scheme of arrangement or winding-up and are subject to
rollover in the event of a merger.
Does the Committee take account of pay across the Group?
Performance & risks
Under the SAYE scheme, unvested awards normally lapse on leaving,
although ‘good leavers’ are given six months from leaving to exercise
their unvested awards (and that period is extended to 12 months from
vesting in the case of death). If the award has passed its third anniversary
of grant, all leavers other than those who are dismissed for misconduct
have six months from leaving to exercise their awards (or 12 months from
the vesting date if the participant dies within six months after the date
of vesting). Otherwise, awards lapse on leaving. A ‘good leaver’ for the
purposes of the SAYE scheme is largely as above but includes retirees
as of right.
The Executives’ service contracts and the Non-Executive Directors’
letters of appointment can be viewed by shareholders at the Company’s
registered office.
What is the Company’s policy on Executive Directors taking
Non-Executive roles with other companies?
The Company’s policy is that Executives are normally permitted to hold
one Non-Executive Directorship with another company, provided that the
appointment is approved by the Board. Any fees payable in respect of
that external appointment are retained by the Executive. In exceptional
circumstances the Board may permit an Executive to hold more than one
outside directorship.
24/04/2014 16:01
Premier Farnell
70
Remuneration
report
Annual Report on Remuneration
This section sets out how the Company has implemented its policy on Directors’ remuneration during the financial year ending 2 February 2014.
Who is on the Remuneration Committee?
Paul Withers (chair), Dennis Millard and Andrew Dougal served on the Remuneration Committee throughout the year. The Committee is responsible for
determining the specific remuneration packages for Executive Directors and senior managers (being the first layer of management below Board level),
for setting the Chairman of the Board’s fees, administering the Company’s share plans and operating any performance-related pay or share plans for
the Executives and senior managers (including setting targets and determining pay-outs and awards). The Committee’s terms of reference are available
on the Company’s website at www.premierfarnell.com.
During the year, except when there has been a possible conflict, the Chairman of the Board and the Chief Executive Officer have attended all meetings of
the Committee, to provide input and advice. The Company Secretary serves as secretary to the Committee. Meetings of the Committee are also attended
by the Company’s Chief People Officer (Sandra Campopiano until July 2013 and Andrea Dunstan from 2 September 2013) to advise on remuneration
arrangements generally. The Company’s policy is that no individuals be present to provide input when their own remuneration or fees are decided.
New Bridge Street (NBS) has been appointed by the Committee to provide Executive remuneration advice to the Committee and to the Company.
NBS has not provided any other services and has no other connections with the Group. The Committee Chairman and other members of the Committee
have direct access to advice from NBS, and the Committee Chairman is informed of all material advice NBS provides to the Company. New Bridge Street
is a founder member of the Remuneration Consultants Group and a signatory of its Code of Conduct setting out the role of Executive remuneration
consultants and the professional standards by which they advise their clients. NBS charges for its advice on an hourly basis and the amount paid to them
for their advice during the year was £23,092 excluding VAT. The appointment of NBS as advisers and the level of fees paid to them are reviewed by the
Committee annually. The Committee members also use their experience serving on other boards to assess the objectivity and independence of the advice
they receive.
What did Directors earn in total in the year?
The following table shows the remuneration paid to our Directors in 2013/14 and in the prior year (audited).
(£000)
Base salary
and fees
2013/14
Executives
Laurence Bain
Mark Whiteling4
Non-Executives
Val Gooding
Andrew Dougal
Dennis Millard
Tom Reddin
Paul Withers
Peter Ventress6
Total
Benefits1
2012/13 2013/14
Company pension
contribution
2012/13 2013/14
Annual bonus2
2012/13 2013/14
LTI awards3
vesting for
performance period
ending during
2012/13 2013/14
Other
2012/13 2013/14
Total
2012/13 2013/14
506
389
464
94
72
20
55
4
137
104
125
24
179
120
56
9
–
–
–
–
–
–
–
1365
157
50
62
80
59
17
1,320
152
49
61
79
58
–
957
–
–
–
–
–
–
92
–
–
–
–
–
–
59
–
–
–
–
–
–
241
–
–
–
–
–
–
149
–
–
–
–
–
–
299
–
–
–
–
–
–
65
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
136
2012/13
894
633
700
267
157
50
62
80
59
17
1,952
152
49
61
79
58
–
1,366
Notes:
1. Benefits for both Executive Directors comprise a cash allowance in lieu of a company car and life and health insurance. Laurence’s benefits include £53,027 in respect of life cover.
2. Annual bonus for 2013/14:
For Laurence Bain, this is made up of 62.5% in cash and 37.5% in deferred shares under the DSBP.
For Mark Whiteling, this is made up of 64.3% in cash and 35.7% in deferred shares under the DSBP.
Details of the performance conditions, weightings and performance achieved against targets are set out later in this report.
Annual bonus for 2012/13:
For Laurence Bain, the annual bonus was split 62% in cash and 38% in deferred shares.
For Mark Whiteling, the annual bonus was split 64% in cash and 36% in deferred shares.
3. Long term incentive: performance conditions, weightings and performance achieved against targets are detailed in subsequent sections of this report.
4. Mark Whiteling joined the Board on 5 November 2012.
5. This payment to Mark Whiteling was a one-off compensatory cash bonus of £135,745, agreed to be paid to Mark when he rejoined the Company, equal to an amount that Mark would have received
by way of bonus from his former employer had he remained with that company.
6. Peter Ventress joined the Board on 1 October 2013.
24/04/2014 16:01
Premier Farnell
71
What changes were there to salaries and fees?
The Directors’ salaries or fees at the beginning and end of the financial year were:
At 2 February 2014
Percentage increase
£500,004
£385,000
£510,000
£392,700
2%
2%
£153,000
£61,000
£49,000
£58,000
£79,000
n/a
£160,000
£62,000
£50,000
£59,000
£80,000
£50,000
4.6%
2%
2%
2%
2%
n/a
Strategic focus
At 3 February 2013
Executives
Laurence Bain
Mark Whiteling
Non-Executives
Val Gooding
Dennis Millard1
Andrew Dougal
Paul Withers2
Tom Reddin3
Peter Ventress4
Performance & risks
With effect from mid-year 2013, a 2% increase in salary and in fees was awarded to our Executives and our Non-Executive Directors respectively.
No increase was made to the fees paid for chairing the Board or other Committees or acting as SID. On review, the fees of the Chairman of the Board
were found to be significantly below median for the FTSE 250 and were increased by 4.6%.
Notes:
1. Fees include fees of £9,000 for chairing the Audit Committee and £3,000 for acting as SID.
2. Fees include fees of £9,000 for chairing the Remuneration Committee.
3. Fees include fees of £30,000 for chairing the Company’s Digital Advisory Board.
4. Peter Ventress joined the Board on 1 October 2013.
The amounts payable (as a percentage of maximum), as compared with the potential, are set out below, along with more information on the other financial
objectives linked to key elements of the strategy (SO) and their weighting as compared with operating profit (OP).
Key performance area
Weighting
Percentage of maximum
bonus payable at threshold
performance
Percentage of maximum
bonus payable at stretch
performance
18.3%
3.6% in total.
Achieved
as follows:
3.6%
0%
0%
Based on achievement of £90.05 million1 in operating profit for the year and the assessment of performance against the other strategic objectives as
follows, the amounts paid or awarded were:
Laurence Bain
Mark Whiteling
In respect of
OP achieved
In respect of
SO achieved
Total
annual bonus
Cash award
Face value of DSBP award
at grant (number of shares)
£149,397
£100,656
£29,307
£19,746
£178,704
£120,402
£111,690
£77,401
£67,014 (or 28,589 shares2)
£43,001 (or 18,345 shares2)
Notes:
1. The actual operating profit figure used for the purposes of the annual bonus is that at the budget exchange rates in effect at the time the operating profit target was set (in order to remove the effect
of exchange rate movements from the outcome) and therefore differs from the reported operating profit figure for 2013/14 which is arrived at using the average exchange rates for the year.
2. At a share price on grant of 234.4 pence.
Governance
Achievement of specified levels
of operating profit for 2013/14
60%
12%
60%
Objectives for each of the CEO and CFO linked to the key elements of the strategy as follows:
CEO and CFO:
40% if OP met.
8% if OP met.
40%
If OP not met, up to 10%
Weighted
targets relating to
at Committee’s discretion
as follows:
achieving budgeted:
– cash flow
15%
– growth in the customer base
15%
– gross margin
10%
Actual pay-out in respect
of 2013/14, as a percentage
of maximum available
How was the amount of the annual bonus determined in 2013/14?
24/04/2014 16:01
Premier Farnell
72
Remuneration
report
How will the annual bonus be determined for 2014/15?
The same weighting of annual bonus between operating profit and other key financial measures, discretion to the Committee to pay up to 10% if
operating profit is not achieved, maximum potential opportunity for each Executive role and split between cash and deferred shares will apply to the
annual bonus in 2014/15 as applied in 2013/14.
The financial objectives against which the personal performance of the CEO and CFO are assessed are considered to be commercially sensitive.
They will be disclosed in next year’s Annual Report.
Key performance area
Weighting
Achievement of specified levels
of operating profit for 2013/14
Financial objectives linked to the strategy,
including cash and growth in active
customer base
60%
40%
Percentage of maximum bonus
payable at threshold performance
Percentage of maximum bonus
payable at stretch performance
12%
8% if OP met.
60%
40% if OP met.
What happened in relation to long term incentives in 2013/14?
t"XBSETNBUVSJOH
Awards granted in July 2010 under the PSP and the ESOP were scheduled to vest in July 2013 and included the following awards made to
Laurence Bain, subject to the following performance targets:
Number of
shares under
the PSP
Performance target
for the PSP
(pence)
71,622
EPS of 15
for threshold
vesting and 20
for full vesting
Chief Executive1
Performance
achieved
in 2012/13 (pence)
EPS of 14.8
Number of
shares under
the ESOP
Performance
target for
the ESOP
Performance
achieved
in 2012/13
107,433
Adjusted
RoS of 11.7%
for threshold
vesting and 13%
for full vesting
RoS of 10.1%
Note:
1. Awarded to Laurence Bain in his former role as Chief Operating Officer. The awards made to Mark Whiteling in July 2010 lapsed when Mark left the Company in August 2011.
These awards therefore lapsed in full without vesting.
tAwards granted in 2013/14
The Remuneration Committee reviews the performance conditions that apply to long term incentives each year to ensure that they remain relevant and
stretching. All awards to Executives and senior management made in 2013/14 under the PSP and the ESOP are subject to the same two performance
conditions in order to ensure a rounded view of performance, with one half of the award under each scheme subject to an EPS target (expressed as a
compound growth rate) and the other half subject to an adjusted RoS performance measure. The Committee considered that higher RoS performance
conditions could lead to the business turning down profitable sales opportunities. The adjusted RoS target was therefore lowered for 2013/14 to 10% for
threshold vesting and 12% for full vesting. This change was considered appropriate given the market sectors and mix of customers targeted by the Group
and given that it remains challenging. The targets for awards made in 2013/14 are:
CAGR in EPS 2013/14 – 2015/16
12% or more
Between 5% and 12%
Less than 5%
EPS required in 2015/16 for vesting (pence)
Vesting percentage
20.8 or more
17.1 to 20.8
Under 17.1
100%
Between 20% and 100% on a straight-line basis
0%
Adjusted return on sales in 2015/16
12% or more
Between 10% and 12%
Less than 10%
Vesting percentage
100%
Between 20% and 100% on a straight-line basis
0%
Details of the awards made to Laurence and Mark during the year are set out in the table on page 73.
24/04/2014 16:01
Premier Farnell
73
t"XBSETUPCFHSBOUFEJO
What pensions are the Directors entitled to?
The pension benefits of the Executives as at 2 February 2014 were (audited):
Nature of benefit
Laurence Bain
Company contribution (or allowance) as
a percentage of salary1
Annual cost for 2013/14 (2012/13)
27%
£136,575
(2012/13: £124,825)
Cash allowance
Combination of cash allowance
and contributions to Mark’s
personal pension plan
Mark Whiteling
£103,984
(2012/13: £23,766)2
27%
No Executive Directors receive any final salary pension benefits. Non-Executive Directors do not receive any pension benefits.
What long term incentive awards were made to the Directors during the financial year?
In 2013/14, awards were made to the Executives under the ESOP and PSP as follows (audited):
Type of award
No of shares
Date of grant
Laurence Bain
Nil cost option
152,694
28 June 2013
Mark Whiteling
ESOP
Nil cost option
117,574
28 June 2013
254,491
28 June 2013
195,958
28 June 2013
Exercise price2
(pence)
Percentage vesting
at threshold
performance3
Notes:
1. As set out in the Executive’s service contract and subject to his making personal contributions of a minimum percentage amount. The normal retirement age under the Executives’ service contracts is
65 years of age.
2. From the date of Mark rejoining the Company.
Face value1
(percentage of
salary on grant)
Strategic focus
Throughout the year, Laurence Bain elected to receive a cash supplement in place of the contributions which would otherwise have been made
by the Company on his behalf to the Premier Farnell UK Pension Scheme (the ‘UK Scheme’) and a funded unapproved scheme previously in
place. This supplement is paid at the same rate as the Company’s previous contributions to the UK Scheme and the funded unapproved scheme.
Mark Whiteling may elect to have defined contributions made to the UK Scheme or a registered personal pension scheme, to take a cash allowance
or for some combination of the two, up to the amount of the Company’s contribution under his service contract. Mark chose to have some of his
contributions made to his personal pension plan, with a cash allowance in respect of the balance.
Performance & risks
The Committee considers that the CAGR in EPS and adjusted RoS targets remain appropriate to enhance shareholder value and drive profitable growth
in the period from 2014/15 to 2016/17. In order to ensure that the targets set do not risk profitable growth by encouraging the sacrifice of profitable sales
opportunities to preserve returns and that the awards remain achievable and motivational, the Committee is proposing to reduce the adjusted return on
sales target applying to all awards in 2014/15 to between 9.5% and 11.5%. The application of each measure to one half of each award under each plan,
the CAGR in EPS target and maximum level of awards (as a percentage of salary) will remain as for 2013/14.
Performance
period4
PSP
Mark Whiteling
Market value
option
Market value
option
£510,000
(100%)
£392,700
(100%)
0
10%
0
10%
200.4
10%
200.4
10%
2013/14 to
2015/16
2013/14 to
2015/16
2013/14 to
2015/16
2013/14 to
2015/16
Notes:
1. Face value is the maximum number of shares which will vest if all performance targets are achieved in full multiplied by the share price at grant (being 200.4 pence per share for the PSP and ESOP).
Awards under the PSP and ESOP are made on the basis of the maximum percentage of salary specified.
2. This is the price to exercise the award. This is different from the price at grant used to calculate face value for the PSP as this is a nil cost option.
3. Assuming that either the RoS or the EPS performance condition is met in respect of one half of an award and that the performance condition for the other half lapses.
4. Performance conditions for the PSP and ESOP awards are on page 72.
Non-Executive Directors are not entitled to receive share awards.
Governance
Laurence Bain
£305,999
(60%)
£235,618
(60%)
24/04/2014 16:01
Premier Farnell
74
Remuneration
report
What share awards did the Directors hold at the end of the financial year?
At the end of the year under review, the Executive Directors had share awards outstanding under the DSBP, ESOP, PSP and SAYE schemes as
detailed below.
t-BVSFODF#BJOBVEJUFE
Scheme
DSBP
ESOP
PSP
SAYE
At 3 February
20131
Grant date
Awarded
Market price
on award2
in pence
59,983
–
107,433
157,765
289,521
–
86,322
198,978
71,622
140,937
173,713
–
–
18/3/2011
19/4/2013
16/7/2010
26/7/2011
9/7/2012
28/6/2013
14/6/2007
17/4/2008
16/7/2010
26/7/2011
9/7/2012
28/6/2013
1/6/2013
–
10,114
–
–
–
254,491
–
–
–
–
–
152,694
5,056
280.2
203.3
240
190.16
172.7
200.4
211
155.8
240
190.16
172.7
200.4
222.5
Exercised/ Exercise price
vested
in pence
–
–
–
–
–
–
86,322
198,978
–
–
–
–
–
0
0
240
190.16
172.7
200.4
0
0
0
0
0
0
178
Market price
on exercise in
pence (vesting)
Lapsed
At
2 February
20141
End of
performance/
vesting period3
–
–
–
–
– (107,433)
–
–
–
–
–
–
200.3 (243.6)
–
200.3 (271)
–
–
(71,622)
–
–
–
–
–
–
–
–
59,9834
10,114
–
157,765
289,521
254,491
–
–
–
140,937
173,713
152,694
5,056
March 2013
April 2015
January 2013
January 20145
January 20155
January 20165
June 2010
April 2011
January 2013
January 20146
January 20156
January 20166
June 2016
Notes:
1. The market price of the Company’s ordinary shares at 3 February 2013 was 215.2 pence. The market price at 2 February 2014 was 217.5 pence. The range during the year was 191.0 pence to 238.4 pence.
2. Save in the case of SAYE awards, this is the market price on the day prior to grant, being the price used to determine the number of shares under award. For SAYE awards, this is the market price
used to determine the discounted price at which the awards were offered to all employees.
3. Awards under the ESOP and the PSP have performance conditions. Awards under the DSBP and SAYE are dependent on remaining employed by the Company for two and three years respectively
from grant (unless a good leaver) and on the participant making the necessary contributions to the savings plan, in the case of the SAYE.
4. Vested award now capable of exercise. During the year, awards made under the DSBP in 2011 as conditional awards were converted to nil cost options, exercisable until 2021.
5. Outstanding awards under the ESOP are subject to the following performance conditions:
Financial year awarded
Performance period ends
Performance condition
2011/12
2012/13
January 2014
January 2015
2013/14
January 2016
Adjusted RoS: range from 12.0% to 15.0%
Adjusted RoS: range from 12.0% to 15.0%
50% on Adjusted RoS: range from 10% to 12%
50% on CAGR in EPS: range from 5% to 12%
6. Outstanding awards under the PSP are subject to the following performance conditions:
Financial year awarded
Performance period ends
Performance condition
2011/12
2012/13
January 2014
January 2015
2013/14
January 2016
EPS (pence): range from 21.9 to 25.8
CAGR in EPS: range from 5% to 12%
50% on Adjusted RoS: range from 10% to 12%
50% on CAGR in EPS: range from 5% to 12%
t.BSL8IJUFMJOHBVEJUFE
Scheme
DSBP
ESOP
PSP
SAYE
At
3 February
20131
Grant date
Awarded
Market price
on award2
(pence)
– 19/4/2013
157,786 10/12/2012
– 28/6/2013
105,191 10/12/2012
– 28/6/2013
–
1/6/2013
1,709
–
195,958
–
117,574
5,056
203.3
183
200.4
183
200.4
222.5
Market price on
Exercised/ Exercise price exercise (pence)
vested
(pence)
(vesting)
–
–
–
–
–
–
0
183
200.4
0
0
178
–
–
–
–
–
–
Lapsed
At
2 February
20141
End of
performance/
vesting period3
–
–
–
–
–
–
1,709
157,786
195,958
105,191
117,574
5,056
April 2015
January 20155
January 20165
January 20156
January 20166
June 2016
Notes as for the table of Laurence’s outstanding share awards above.
Do you have a policy or issue guidelines on Directors’ shareholdings?
The Company’s executive shareholding policy requires Executive Directors and other senior executives to retain a number of the shares acquired as a
result of the exercise of Company share plans or their own purchases until a shareholding with a value equal to a multiple of the individual’s annual base
salary is reached. Only shares beneficially owned are taken into account for these purposes; vested but unexercised share awards are not included in
calculating a holding. Once achieved, the minimum level of shareholding is then to be maintained until the Executive leaves office. Non-Executive Directors
are not subject to the shareholding policy or other requirements to build up a holding of shares.
24/04/2014 16:01
Premier Farnell
75
The interests of the Executive Directors under the Company’s share plans as at the year-end are also set out in this table, although not taken into account
under the executive shareholding policy. These interests have increased since the end of the financial year as set out on page 71.
(Audited)
Shareholdings
435,678
154,314
LTIP2
PSP
ESOP
214.4%
96.8%
467,344
222,765
701,777
353,744
DSBP
SAYE
70,0973
1,709
5,056
5,056
16,853
10,000
27,500
15,000
70,000
15,000
As employees and potential beneficiaries of the trust, the Executive Directors are also deemed to be interested in 4,261,702 ordinary shares held by the
Premier Farnell Executive Trust. Neither they nor any other employee is expected to receive from the trust a greater number of shares than he or she is
entitled to on exercise of his or her awards under the Company’s share plans.
Do the Executives have other directorships?
Mark Whiteling remains a Non-Executive Director of Future plc and Chairman of its Audit Committee. In accordance with the Company’s policy, Mark is
entitled to retain the fees he receives for this appointment. During 2013/14 these totalled £45,000.
Laurence Bain1
Mark Whiteling
Date of appointment
Date of service contract
12 June 2012
5 November 2012
5 November 2012
23 November 2012
Val Gooding
Dennis Millard
Andrew Dougal
Tom Reddin
Paul Withers
Peter Ventress
Date of appointment
Date of letter of
appointment
15 June 2011
1 September 2007
1 September 2006
30 September 2010
1 September 2007
1 October 2013
15 June 2011
18 June 2013
18 June 2013
18 June 2013
18 June 2013
1 October 2013
What is the Company’s policy on satisfying share awards with new issue shares?
During 2013/14, the Committee reviewed the number of shares required to satisfy all awards issued under its share plans, including the PSP, ESOP,
DSBP and SAYE, and determined that the majority of its awards would be satisfied using shares bought in the market (although this would not be
done for participants in countries where this is inadvisable as a result of local laws and regulation) and on a ‘net’ basis (as a SAR) in the case of marketpriced options.
Note:
1. As CEO. Laurence was formerly Chief Operating Officer.
Governance
When were the Directors appointed and what are the dates of their current service contracts or letters of appointment?
Notes:
1. As at the year-end and by reference to the share price at that time.
2. Subject to performance conditions.
3. Of which 59,983 have vested but have not been exercised.
Strategic focus
Executive
Laurence Bain
Mark Whiteling
Non-Executive
Val Gooding
Andrew Dougal
Dennis Millard
Tom Reddin
Paul Withers
Peter Ventress
Interests in shares
% holding
achieved1
Performance & risks
Laurence and Mark are each required to reach a shareholding with a value, calculated in accordance with the policy, equal to their annual base salary.
The table below includes the shareholdings of each of them for this purpose and shows that, as at the end of the financial year, Laurence Bain had
achieved the minimum level of holding, with Mark within 5% of doing so, notwithstanding that he rejoined the Board in late 2012. It also shows the
holdings of our Non-Executive Directors at the end of the year. There were no changes to these shareholdings in the period from the year-end to
14 April 2014 (the nearest practical day prior to the publication of this report).
On this basis, the number of awards outstanding under the share plans to be satisfied using new issue shares at 2 February 2014, when aggregated with:
t the number of new shares issued or to be issued under all share option plans over the last ten years, including both executive and all-employee plans,
totalled an amount equal to 4.74% of the Company’s issued ordinary capital;
t the number of new shares issued or to be issued under all executive share option plans over the last ten years totalled an amount equal to 4.12%
of the Company’s issued ordinary share capital.
These totals are well within the dilution limits of 10% and 5% respectively set by the Association of British Insurers and reflected in the rules of the
Company’s share plans.
24/04/2014 16:01
Premier Farnell
76
Remuneration
report
How much does the Company spend on pay compared with other major items of expenditure?
The following table sets out the amounts spent in each of 2013/14 and 2012/13 on pay for all employees across the Group and dividends in respect of
the same period, together with the difference in spend between those years. It also includes the adjusted operating profit for each year.
£s in millions
Item
1
2
3
Adjusted operating profit1
Total compensation expense2
Dividends
In 2012/13
In 2013/14
Percentage
change
95.1
168.2
37.9
93.0
168.2
38.1
-2.2%
-0.0%
0.5%
Notes:
1. Restated to take account of changes to IAS 19 (revised) as disclosed in note 27 on page 106. Adjusted operating profit has been included as the Directors consider that operating profit is a useful
reference point when considering the relative importance of pay.
2. Includes £2.0 million (2012/13: £2.2 million) in respect of Directors’ total remuneration.
How much has what you have paid your Chief Executive Officer changed compared with your other employees?
The table below shows the percentage change from 2012/13 to 2013/14 in the salary, benefits and annual bonus paid to the person holding the position
of CEO and in those of the average comparable UK employee. ‘Comparable’ here means other employees who have been employed on a full-time basis
in the UK throughout this two-year period and who have not been on sick, maternity, paternity or other extended leave in that period; it excludes the
CEO’s salary, benefits and annual bonus. This comparator group has been chosen because it provides a stable comparison and because the Company
has not to date collated this information to this level of detail on its employees in other parts of the Group.
Percentage change
CEO1
Average UK employee
Salary
Benefits
Annual bonus
(3.33)%
5.94%
(0.56)%
6.54%
354.55%
87.95%
Note:
1. The salary, benefits and annual bonus include amounts paid to Harriet Green during her tenure as CEO in the period to July 2012.
How did the shareholders vote at your last Annual General Meeting on your Remuneration report?
At the AGM held on 18 June 2013 shareholders voting at the meeting and by proxy voted on the resolution to approve the Remuneration report
as follows:
Resolution to approve the Remuneration report
Votes for
Votes against
Total
Abstentions
Number of votes cast
% of votes cast
283,050,766
3,201,319
286,252,085
137,184
98.88%
1.12%
100%
How has the Company performed in the last five years? How does that compare with what the CEO has received?
The graph below shows the total shareholder return for a holding of the Company’s ordinary shares for five consecutive financial years of the Company,
with 2013/14 being the last. This is compared to the total shareholder return for a hypothetical holding in the FTSE mid-250 Index (excluding investment
trusts) over the same period, chosen as it is the index of which the Company is a constituent.
This is followed by a table setting out the total remuneration of the Chief Executive Officer of the Company over the same period, with awards made in
each year under the annual bonus and LTI shown as a percentage of maximum opportunity in each case.
Premier Farnell
Total shareholder return
FTSE 250 Index (excl. Investment Trusts)
£350
£280
£210
£140
£70
£0
2009
2010
2011
2012
2013
2014
This graph compares the TSR performance of Premier Farnell, assuming dividends are re-invested, with the TSR performance of the FTSE 250 (excluding Investment Trusts)
over the period 1 February 2009 to 2 February 2014. The other points plotted show the TSR performance at intervening financial year-ends.
Source: Thomson Reuters
24/04/2014 16:01
Premier Farnell
77
2013/14
2012/13
2011/12
2010/11
2009/10
Total remuneration
£894,000
£316,6693
£378,000
£1,632,826
£1,539,531
£1,151,270
21.9%
7.3%
0%
0%
100%
57%
LTI vesting as a percentage of maximum opportunity1
PSP
ESOP
0%
0%
0%
79%
49%
59%
0%
0%
0%
n/a
n/a
100%4
CEO
In aggregate2
0%
0%
0%
79%
49%
79.5%
Laurence Bain
Laurence Bain
Harriet Green
Harriet Green
Harriet Green
Harriet Green
Approved by the Board on 17 April 2014.
Strategic focus
Notes:
1. Indicating the extent to which the relevant awards vesting in this year met their performance conditions.
2. Showing as a percentage the aggregate value of the LTIP (PSP and ESOP combined) received at vesting divided by the aggregate value which could have vested if all performance measures had
been met.
3. Paid in respect of the period of tenure of Laurence Bain as Chief Executive, but excluding his period of tenure as Chief Operating Officer.
4. Share options granted and meeting their performance conditions but underwater at the date of becoming exercisable. These awards subsequently lapsed without exercise.
Performance & risks
Year
Annual bonus as a
percentage of
maximum opportunity
Signed on behalf of the Board by
Paul Withers
Chairman of the Remuneration Committee
Governance
24/04/2014 16:01
78
Premier Farnell
Consolidated financial
statements
Consolidated income statement
Financial year ended 2 February 2014
Note
Revenue
2013/14
£m
2012/13
Restated1
£m
968.0
952.0
Cost of sales
(605.1)
(583.8)
Gross profit
362.9
368.2
(269.9)
(273.1)
1
Net operating expenses
– adjusted operating expenses
2
– adjusting items
2
(1.5)
(5.8)
Total net operating expenses
2
(271.4)
(278.9)
95.1
Operating profit
– adjusted operating profit
1
93.0
– adjusting items
2
(1.5)
(5.8)
Total operating profit
1
91.5
89.3
Finance income
3
0.4
0.5
Finance costs
– interest payable
3
(12.8)
(16.5)
– preference dividends
3
(3.5)
(3.5)
– premium on redemption of preference shares
3
(0.8)
(0.8)
Total finance costs
3
(17.1)
(20.8)
Profit before taxation
4
74.8
69.0
Taxation
5
(23.4)
(20.4)
51.4
48.6
Basic
14.0p
13.3p
Diluted
13.9p
13.2p
Profit attributable to owners of the parent
Earnings per share (pence)
6
Consolidated statement of comprehensive income
Note
Profit for the period
2013/14
£m
2012/2013
Restated1
£m
51.4
48.6
(14.8)
Other comprehensive (expense)/income:
Items that will not be reclassified to profit or loss
Remeasurements of post-employment benefit obligations
25
(4.0)
Deferred tax credit on remeasurements of post-employment benefit obligations
17
0.7
4.3
(3.3)
(10.5)
Items that may be reclassified to profit or loss
Net exchange adjustments
(5.9)
3.3
6.0
(5.4)
0.1
(2.1)
Other comprehensive expense for the period
(3.2)
(12.6)
Total comprehensive income for the period attributable to owners of the parent
48.2
36.0
Net fair value gains/(losses) on cash flow hedges
18
1. The 2012/13 comparatives throughout these consolidated financial statements have been restated for the impact of IAS 19 (revised). Full details of the restatement are
disclosed in note 27.
The accounting policies and notes on pages 82 to 106 are an integral part of these consolidated financial statements.
017159_PF_AR13-14_3_Accounts_AW.indd 78
23/04/2014 13:15
Premier Farnell
79
At 2 February 2014
2013
Restated1
£m
Goodwill
8
38.3
37.9
Other intangible assets
9
32.6
31.0
Property, plant and equipment
10
49.5
55.1
Deferred tax assets
17
4.9
7.7
125.3
131.7
216.4
Assets
Non-current assets
Total non-current assets
Current assets
11
236.0
Derivative financial instruments
18
2.0
2.2
Trade and other receivables
12
128.9
131.0
2.1
3.8
13
42.8
131.6
411.8
485.0
(1.8)
(102.8)
–
(4.4)
(118.0)
(120.5)
Current tax receivable
Cash and cash equivalents
Total current assets
Liabilities
Current liabilities
Financial liabilities
14
18
Trade and other payables
16
Current tax payable
Total current liabilities
Net current assets
(12.4)
(10.4)
(132.2)
(238.1)
279.6
246.9
Financial liabilities
14
(268.8)
(256.2)
Post-employment benefits
25
(44.7)
(43.7)
Deferred tax liabilities
17
Total non-current liabilities
Net assets
(6.7)
(6.5)
(320.2)
(306.4)
84.7
72.2
Governance
Non-current liabilities
Inventories
Strategic focus
Note
2014
£m
Performance & risks
Consolidated balance sheet
Equity
19
18.6
18.5
Equity element of preference shares
15
10.4
10.4
32.7
32.0
4.4
4.4
Share premium
Capital redemption reserve
Hedging reserve
2.0
(4.0)
17.0
22.9
Retained earnings
(0.4)
(12.0)
Total equity
84.7
72.2
Cumulative translation reserve
Ordinary shares
The consolidated financial statements on pages 78 to 106 were approved by the Board of Directors on 17 April 2014 and were signed on its behalf by:
Mark Whiteling
Director
23/04/2014 13:15
80
Premier Farnell
statements
Consolidated statement of changes in equity
Ordinary
share capital
Note
£m
Equity
element of
preference
shares
£m
Share
premium
£m
Capital
redemption
reserve
£m
Hedging
reserve
£m
Cumulative
translation
reserve
£m
18.5
10.4
31.1
4.4
1.4
19.6
(13.6)
71.8
Profit for the year
–
–
–
–
–
–
48.6
48.6
–
–
–
–
(5.4)
3.3
(10.5)
(12.6)
Total comprehensive income
–
–
–
–
(5.4)
3.3
38.1
36.0
Equity at 29 January 2012 (restated1)
Retained
earnings
£m
Total
equity
£m
Transactions with owners:
– Ordinary dividends paid
7
–
–
–
–
–
–
(37.9)
(37.9)
– Ordinary share capital subscribed
19
–
–
0.9
–
–
–
–
0.9
– Share-based payments
20
–
–
–
–
–
–
1.4
1.4
–
–
0.9
–
–
–
(36.5)
(35.6)
18.5
10.4
32.0
4.4
(4.0)
22.9
(12.0)
72.2
51.4
Total transactions with owners
Equity at 3 February 2013 (restated1)
Profit for the year
–
–
–
–
–
–
51.4
–
–
–
–
6.0
(5.9)
(3.3)
(3.2)
Total comprehensive income
–
–
–
–
6.0
(5.9)
48.1
48.2
7
–
–
–
–
–
–
(38.1)
(38.1)
– Ordinary share capital subscribed
19
0.1
–
0.7
–
–
–
–
0.8
– Share-based payments
20
–
–
–
–
–
–
1.6
1.6
0.1
–
0.7
–
–
–
(36.5)
(35.7)
18.6
10.4
32.7
4.4
2.0
17.0
(0.4)
84.7
Transactions with owners:
– Ordinary dividends paid
Total transactions with owners
Equity at 2 February 2014
23/04/2014 13:15
Premier Farnell
81
Note
2013/14
£m
2012/13
£m
22
80.4
113.3
0.4
0.5
(12.4)
(15.0)
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Dividends paid on preference shares
Net cash generated from operating activities
(3.5)
(17.5)
(22.4)
47.4
72.9
Cash flows from investing activities
Acquisition of businesses
21
(2.2)
(2.8)
Net proceeds from sale of property, plant and equipment
22
4.2
0.1
Purchase of property, plant and equipment
(5.1)
(8.6)
Purchase of intangible assets (computer software)
(12.7)
(13.3)
Net cash used in investing activities
(15.8)
(24.6)
Issue of ordinary shares
19
0.8
0.9
Proceeds from bank loans
23
27.3
0.7
Repayment of bank loans
23
(108.6)
–
(38.1)
(37.9)
(118.6)
(36.3)
Dividends paid to ordinary shareholders
7
Net cash used in financing activities
Net (decrease)/increase in cash, cash equivalents and bank overdrafts
23
Cash, cash equivalents and bank overdrafts at beginning of year
Exchange (losses)/gains
Cash, cash equivalents and bank overdrafts at end of year
13,23
12.0
131.6
116.9
(1.8)
2.7
42.8
131.6
Governance
(87.0)
Cash flows from financing activities
Strategic focus
Taxation paid
(3.5)
Performance & risks
Consolidated statement of cash flows
23/04/2014 13:15
82
Premier Farnell
statements
Accounting policies
Key sources of estimation and uncertainty
These consolidated financial statements have been approved by the
Board of Directors on 17 April 2014.
The preparation of financial statements in conformity with IFRS requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the reported amounts
of revenue and expenses during the reporting period. Actual results
could differ from these estimates. Information about such judgements
and estimates is contained in the Accounting Policies and Notes to
the consolidated financial statements, and the key areas are
summarised below:
Basis of preparation
The key sources of estimation uncertainty that have the most significant
effect on the carrying value of assets and liabilities are:
Premier Farnell plc (the “Company”) is a company incorporated and
domiciled in the UK and is listed on the London Stock Exchange.
The address of the Company’s registered office is Farnell House,
Forge Lane, Leeds LS12 2NE, England. The Company’s registered
number is 876412.
These consolidated financial statements have been prepared in
and International Financial Reporting Interpretations Committee (IFRIC)
interpretations endorsed by the European Union (EU) and with those
parts of the Companies Act 2006 applicable to companies reporting
under IFRS. These consolidated financial statements have been
prepared on a going concern basis, as referred to in the Directors’
report on page 62, and under the historical cost convention with the
exception of certain financial assets and financial liabilities (including
derivative financial instruments) which are recognised at fair value
through profit and loss. A summary of the more important Group
accounting policies adopted in the preparation of the consolidated
financial statements is set out below.
These policies have been consistently applied to all the years presented,
unless otherwise stated.
(a) Standards, amendments to published standards and
interpretations effective for the year ended 2 February 2014
The following standards have been adopted by the Group for the first
time for the year ended 2 February 2014 and have either a material
impact on the Group or amended disclosure is required.
Amendments to IAS 1 ‘Financial statement presentation’. The Group
has presented items in ‘other comprehensive income’ on the basis
of whether they are subsequently and potentially re-classified to profit
and loss.
IAS 19 (revised) ‘Employee benefits’. In accordance with the revised
standard, the Group’s accounting policies have been changed to
replace interest on the defined benefit obligation and expected return
on plan assets with a single net interest cost calculated by applying
the discount rate to the net defined benefit liability. Administration costs
are now recognised in the income statement when the administration
services are provided, with provisions for administration costs formerly
included as part of the defined benefit obligation having been removed.
A restatement of the comparative information has been made due
to the revision to IAS 19. See note 27 for the impact on the
financial statements.
IFRS 13 ‘Fair value measurement’. IFRS 13 measurement and
disclosure requirements are applicable for the year ended 2 February
2014. See note 18.
(b) New standards, amendments and interpretations issued but not
effective for the year ended 2 February 2014 not early adopted
IFRS 9 ‘Financial Instruments’. The Group is yet to assess IFRS 9’s
full impact but this is not currently expected to have a material impact on
the Group.
IFRS 10 ‘Consolidated Financial Statements’ is not currently expected
to have a material impact upon the Group.
There are no other IFRSs or IFRIC interpretations that are not yet
effective that would be expected to have a material impact on
the Group.
− The estimation of the cost of pensions and other post-employment
benefits (note 25);
− The estimation of the net realisable value of inventory (note 11);
− The estimation of the recoverable amount of goodwill used when
assessing goodwill for impairment (note 8);
− The estimation of vesting conditions in the calculation of cost of share
based payments (note 20); and
− The estimation of deferred tax (note 17).
Basis of consolidation
The consolidated financial statements incorporate the results of the
Company and each of its subsidiaries for the financial year ended
2 February 2014, a 52 week period (financial year ended 3 February 2013:
53 week period). Subsidiaries are all entities (including special purpose
entities) over which the Group has the power to govern the financial and
operating policies generally accompanying a shareholding of more than
one half of the voting rights. The results of subsidiaries are included in
the consolidated financial statements from the date the control
commences until the date that control ceases. Consistent accounting
policies have been adopted across the Group.
Intra-group balances and transactions are eliminated on consolidation.
Business combinations and goodwill
All business acquisitions are accounted for by applying the purchase
method.
Goodwill arises where the fair value of the consideration paid exceeds
the fair value attributed to the net assets acquired and is measured at
cost less accumulated impairment losses. Goodwill arising on
acquisitions after 1 February 1998 and prior to 2 February 2004, the
transition date to IFRS, was capitalised and amortised over its estimated
useful life. As a result of the transition to IFRS, such amortisation ceased
on the transition date to IFRS. Goodwill arising on acquisitions made
prior to 1 February 1998 was written off directly to reserves in the year
of acquisition. Under IFRS 1 and IFRS 3 such goodwill will remain
eliminated against reserves and will not be written back to the income
statement in the event of a disposal.
Any business combination on or after 31 January 2011 will be
accounted for in accordance with IFRS 3 (revised), ‘Business
Combinations’, as follows:
− Transaction costs are expensed as incurred;
− Consideration transferred for the acquisition of subsidiaries is the fair
value of assets transferred, liabilities incurred and equity interests
issued by the Group which includes the fair value of any asset or
liability resulting from a contingent consideration arrangement.
23/04/2014 13:15
Premier Farnell
83
Segment reporting
Foreign currency translation
Monetary assets and liabilities are translated at the exchange rates ruling
at the end of the financial period. Non-monetary assets and liabilities are
translated at historic transaction rates. Exchange profits or losses on
trading transactions are included in the Group income statement except
when deferred in equity as qualifying cash flow hedges or qualifying net
investment hedges, which, along with other exchange differences arising
from non-trading items are dealt with through reserves.
− assets and liabilities for each balance sheet presented are translated
at the closing rate at the date of that balance sheet;
− income and expenses for each income statement are translated at the
average exchange rate for the period; and
− with effect from the transition date to IFRS all resulting exchange
differences are recognised as a separate component of equity and
included in the Group’s cumulative translation reserve.
Expense classification
Cost of sales comprises the cost of goods delivered to customers
including the cost of freight, packaging and inventory adjustments.
Distribution costs represent all operating expenses including sales,
marketing, product and purchasing, warehousing, information
technology and electronic commerce.
Administrative expenses comprise the cost of central head office and
the Group Board.
Adjusting items
Non-recurring charges/credits and restructuring costs that are
considered to be sufficiently significant to have a material impact on
the Group’s financial results are disclosed in the appropriate category
separately on the face of the income statement as “adjusting items”
and are described in detail in note 2.
Catalogue costs
Catalogue costs are treated as an expense as incurred and included
in distribution costs.
Expenditure on research and development activities undertaken with
the prospect of gaining new technical knowledge and understanding
is expensed in the income statement as incurred.
Revenue recognition
Property, plant and equipment
Revenue from the Group’s principal business segments is recognised
on the following basis:
Property, plant and equipment are stated at cost less accumulated
depreciation. Cost includes the original purchase price of the asset and
the costs attributable to bringing the asset to working condition for its
intended use. Depreciation is calculated to write off the cost of the
individual assets, less the estimated residual value, from the time they
become operational by equal annual instalments over their estimated
useful lives. Asset lives and residual values are reviewed annually.
MDD
Revenue comprises the fair value of the sale of goods to external
customers, net of sales taxes, returns and discounts. Revenue is
recognised on despatch of goods when the significant risks and
rewards of ownership have passed to the customer and the amount of
revenue can be measured reliably. Freight costs charged to customers
are included within revenue.
The MDD business segment operates a variety of sales promotion
schemes that give rise to goods being sold at a discount to standard list
price. Revenue is adjusted to show sales net of all related discounts
which are primarily recognised at point of sale.
Design service revenue is earned principally on the sale of development
kits and tools and design software to external customers and is
recognised on despatch of the goods or delivery of the design software.
Customer support services such as technical support and access to the
Group’s online community website form part of the Group’s ongoing
customer proposition, do not attach to any separable transaction and
are not charged to external customers.
Depreciation rates are principally as follows:
Freehold land
Freehold buildings
Plant and equipment
not depreciated
between 20 and 50 years
Research and development
Goodwill and fair value adjustments arising on the acquisition of a
foreign entity are treated as assets and liabilities of the foreign entity
and translated at the closing rate.
Governance
When a foreign entity is sold, such translation differences are recognised
in the income statement as part of the gain or loss on sale.
The results and financial position of all the Group entities that have a
functional currency different from the presentation currency are
translated into the presentation currency as follows:
Strategic focus
Items included in the financial statements of each of the Group’s entities
are measured using the currency of the primary economic environment
in which the entity operates (“the functional currency”). The consolidated
financial statements are presented in pounds sterling, which is the
Group’s presentation currency.
IPD
Revenue comprises the fair value of the sale of goods to external
customers, net of sales taxes and discounts which are primarily
recognised at point of sale. Revenue is recognised on the sale of
goods when the significant risks and rewards of ownership have passed
to the customer and the amount of revenue can be measured reliably.
Revenue is recognised on this basis according to the terms of the
customer contract which is typically on despatch to customers but
can be according to other trigger points as documented in the relevant
contract, for example on customs clearance at destination. Freight costs
charged to customers are included within revenue.
Performance & risks
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker,
who is responsible for allocating resources and assessing performance
of the operating segments, and who has been identified as the Board
of Directors.
between 5 and 10 years
Property, plant and equipment is reviewed for impairment when there
are indications that the carrying value may not be recoverable.
23/04/2014 13:15
84
Premier Farnell
statements
Intangible assets
Computer software is capitalised on the basis of the costs incurred
to acquire and bring to use the specific software. Development costs,
including internal labour, are capitalised where directly attributable to the
design and testing of identifiable and unique software assets controlled
by the Group, and where the following criteria are met:
− technically feasible to complete the software so that it will be available
for use;
− management intends to complete the software for use;
− ability exists to use the software;
− probable future economic benefits of the software can be
demonstrated;
− adequate technical, financial and other resources are available
to complete and use the software; and
− expenditure attributable to the software during development can
be reliably measured.
These costs are amortised on a straight-line basis over their estimated
useful lives, between three and seven years.
Other intangible assets acquired through business combinations are
recognised at fair value on acquisition and amortised on a straight-line
basis over their estimated useful lives as follows:
Contractually-based customer
relationships and trade names
Patents
Between 4 and 20 years
Up to 20 years
Impairment
The carrying amounts of the Group’s goodwill are reviewed annually,
or when there are indications that the carrying value may not be
recoverable, to determine whether there is any indication of impairment.
Goodwill is allocated to cash generating units for the purpose of
impairment testing. If any such indication exists, the assets’ recoverable
amount is estimated and if the carrying value exceeds the recoverable
amount, a loss is recognised in the income statement. The recoverable
amount is the greater of the assets’ net selling price and value in use
where value in use is based on the present value of the estimated future
cash flows arising from the asset.
A financial asset or a group of financial assets is impaired and
impairment losses are incurred if there is objective evidence of
impairment as a result of a past event subsequent to the asset’s initial
recognition. The Group assesses whether objective evidence exists for
each financial asset or group of financial assets at the balance sheet
date to determine whether any impairment has arisen.
The Group uses derivative financial instruments to hedge its exposure
to foreign exchange and interest rate risks arising from operational,
financing and investment activities. In accordance with its treasury
policy, the Group does not have or issue speculative derivative
arrangements. All transactions in financial instruments are matched
to an underlying business requirement.
Derivative financial instruments are recognised at fair value. At period
ends, the gain or loss on re-measurement to fair value is recognised
in the income statement. However, where derivatives qualify for hedge
accounting, recognition of any resulting gain or loss will depend upon
the nature of the item being hedged (see accounting policy on hedging).
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently carried at amortised cost; any
difference between the proceeds (net of transaction costs) and the
redemption value is recognised in the income statement over the
period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as
transaction costs of the loan to the extent that it is probable that some
or all of the facility will be drawn down. In this case, the fee is deferred
until the draw-down occurs. To the extent there is no evidence that it is
probable that some or all of the facility will be drawn down, the fee is
capitalised as a pre-payment for liquidity services and amortised over
the period of the facility to which it relates.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of
the variability in cash flows of a recognised asset or liability, or highly
probable forecast transaction, the effective part of any gain or loss
on the derivative financial instrument is recognised directly in other
comprehensive income. If a hedge of a forecast transaction
subsequently results in the recognition of a financial asset or liability,
the associated gains or losses that were recognised directly in other
comprehensive income are reclassified into profit or loss in the same
period(s) during which the income/expense is recognised. For other
cash flow hedges, the associated cumulative gain or loss is removed
from other comprehensive income and recognised in the income
statement in the same period(s) as which the hedged forecast
transaction affects profit or loss. The gain or loss on any ineffective part
of the hedge, or when the hedge no longer meets the hedging criteria,
is immediately recognised in the income statement.
Hedge of net investment in foreign operations
The portion of the gain or loss on an instrument used to hedge a net
investment in a foreign operation that is determined as an effective
hedge is recognised directly in other comprehensive income. The gain
or loss on any ineffective portion of the hedge is recognised immediately
in the income statement.
Leases
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating leases.
The costs of operating leases are charged to the income statement
on a straight-line basis over the period of the lease.
Dilapidation provisions
The Group is required to perform dilapidation repairs on leased
properties prior to the properties being vacated at the end of their
lease term. Provision for such costs is made where a legal obligation
is identified and the liability can be reasonably quantified.
23/04/2014 13:15
Premier Farnell
85
Employee benefits
In respect of defined benefit plans (where the amount of pension is
defined, usually based on factors such as age, years of service and
compensation), the net asset or obligation of each plan at the balance
sheet date is calculated by a qualified actuary using the projected unit
credit method. The obligation is calculated by discounting the amount
of future benefits that employees have earned in return for their service
in the current and prior periods.
Administration costs are recognised in the income statement when
the administration services are provided.
Payments to defined contribution pension plans (where the Group pays
fixed contributions into a separate entity) are charged as an employee
benefit expense as they fall due. The Group has no further payment
obligations once contributions have been paid.
Termination benefits
Termination benefits are payable when employment is terminated by the
Group before the normal retirement date, or whenever an employee
accepts voluntary redundancy in exchange for these benefits.
Share-based payments
Inventories
Inventories are stated at the lower of cost and net realisable value on a
first-in first-out basis. Cost comprises all expenditure, including related
production overheads where appropriate, incurred in the normal course
of business in bringing the inventory to its present location and condition
at the balance sheet date. Net realisable value is the estimated selling
price less any selling costs. Provision is made against slow moving and
obsolete inventory where appropriate.
Current and deferred income tax
Income tax on the profit or loss for the year comprises current and
deferred tax. Income tax is recognised in the income statement except
to the extent that it relates to items recognised directly in equity, in
which case it is recognised in equity, or other comprehensive income.
Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect
of previous years.
Deferred tax is provided using the balance sheet liability method,
providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The following temporary differences are
not provided for: goodwill not deductible for tax purposes, the initial
recognition of assets or liabilities that affect neither accounting nor
taxable profit, and differences relating to investments in subsidiaries to
the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner
of realisation or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantially enacted at the
balance sheet date.
The Group operates five equity settled, share-based incentive schemes:
an Executive Share Option Plan, a Performance Share Plan, a Restricted
Share Plan, a Deferred Share Bonus Plan and a Save As You Earn
Scheme. These are accounted for in accordance with IFRS 2, Sharebased Payments, which requires an expense to be recognised in the
income statement over the vesting period. The expense is based on the
fair value of each instrument at the grant date, using appropriate option
pricing models. The expense is credited to retained earnings.
The Group’s preference shares are split into debt and equity
components, with the associated dividend being recognised on an
accruals basis in the income statement as a finance cost. The fair value
of the debt element is established on issue of the shares, based on the
discounted cash flows of the instrument to the date of maturity, and is
then increased each year on an amortised cost basis through the
income statement in order to arrive at the redemption amount payable
on maturity of the shares. On purchase and cancellation of preference
shares by the Company, a gain or loss is recognised in the income
statement based on the difference between the book value and fair
value of the financial liability element of the instrument at the date of
purchase. The difference between the book value and fair value of
the equity element of the instrument is recognised as a movement in
retained earnings. In addition, a transfer is made to non-distributable
reserves from retained earnings in order to maintain the legal nominal
value of share capital.
Governance
Other post-employment benefits
In the US, the Group provides unfunded post-employment medical
benefits to certain US employees. The expected costs of these benefits
are accrued over the period of employment using an accounting
methodology similar to that for defined benefit pension plans. Actuarial
gains and losses are recognised in other comprehensive income in the
period in which they arise.
Ordinary share capital is classified as equity. Interim ordinary dividends
are recognised when paid and final ordinary dividends are recognised
as a liability in the period in which they are approved.
All actuarial gains and losses at the date of transition to IFRS have
been recognised in equity at that date. Actuarial gains and losses
that arise subsequent to the transition date to IFRS in calculating the
Group’s obligation in respect of each plan, are recognised in other
comprehensive income in the period in which they arise.
Share capital and distribution of dividends
Strategic focus
Plan assets are recorded at fair value. The net income statement
credit/charge comprises principally the service cost, and the finance
income/costs, which are recognised in the period in which they arise.
The net income statement impact is credited/charged in arriving at
operating profit. The net pension deficit/surplus of each pension plan
is recorded on the balance sheet.
All of the Group’s share-based incentives have non-market based
performance measures (earnings per share or return on sales), for
which the Black Scholes model is used and the value of the expense
is adjusted to reflect expected and actual levels of vesting. The fair value
of SAYE grants is calculated using the Black Scholes model and the
expense is only adjusted to reflect forfeitures.
Performance & risks
Pensions
The Group operates both defined benefit and defined contribution
pension plans.
23/04/2014 13:15
86
Premier Farnell
statements
A deferred tax asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the asset can
be utilised. Deferred tax assets are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
Deferred tax is recognised in respect of the retained earnings of
overseas subsidiaries only to the extent that, at the balance sheet
date, dividends have been accrued as receivable or a binding
agreement to distribute past earnings in future periods has been
entered into by the subsidiary.
Additional income taxes that arise from the distribution of dividends are
recognised at the same time as the liability to pay the related dividend.
Investment in own shares
Shares acquired by the Premier Farnell Executive Trust are shown as
a reduction in shareholders’ funds. The cost of administering the trust
is borne by the Company as incurred.
Trade and other receivables
Trade and other receivables are initially recognised at fair value and
subsequently held at amortised cost. A provision for impairment is made
when there is objective evidence, for example default or delinquency in
payments, that the full amount will not be collectible. Such amounts are
written down to their estimated recoverable amounts, with the charge
being made to operating expenses.
Cash and cash equivalents comprise cash balances and short term
deposits repayable on demand and available within one day without
penalty. Bank overdrafts that are repayable on demand and form an
integral part of the Group’s cash management are included as a
component of cash and cash equivalents for the purpose of the cash
flow statement, but shown separately within current liabilities in the
balance sheet.
Trade and other payables
Trade and other payables are initially recognised at fair value and
subsequently held at amortised cost.
23/04/2014 13:15
Premier Farnell
87
financial statements
1 Segmental information
2013/14
£m
Segment revenue
2012/13
£m
MDD
Americas
147.4
146.6
Europe and Asia Pacific
250.9
241.1
Other Distribution Businesses
Total MDD
Americas
347.1
353.8
435.9
422.6
109.7
107.2
Total MDD
892.7
883.6
75.3
68.4
Industrial Products Division
968.0
952.0
2012/13
Restated
2013/14
39.6
0.9
0.6
485.3
471.4
42.8
131.6
2.0
2.2
Current tax receivable
2.1
3.8
Deferred tax assets
4.9
7.7
537.1
616.7
Total segment assets
Unallocated assets
Before Adjusting
adjusting
items
items
(note 2)
£m
£m
After
adjusting
items
£m
Americas
19.7
0.6
20.3
24.7
4.8
29.5
Europe and
Asia Pacific
60.3
0.2
60.5
61.9
(11.1)
50.8
Head Office assets do not meet the definition of a segment as defined
under IFRS 8 ‘Operating Segments’ but are presented in order to
reconcile to assets presented in the consolidated balance sheet. Cash
and cash equivalents are managed on a Group basis and thus it is not
practical to allocate these assets to segments.
The Group is domiciled in the UK. Revenue based on origin and noncurrent assets other than deferred tax assets by main geographical area
are split as follows:
Revenue
Other Distribution
Businesses
12.1
–
12.1
10.6
0.5
11.1
Total MDD
92.1
0.8
92.9
97.2
(5.8)
91.4
–
14.0
11.3
0.7
12.0
(13.1)
(2.3)
(15.4)
(13.4)
(0.7)
(14.1)
93.0
(1.5)
91.5
95.1
(5.8)
89.3
Head Office costs do not meet the definition of a segment as defined
under IFRS 8 ‘Operating Segments’ but are presented in order to
reconcile to the operating profit presented in the consolidated
income statement.
2012/13
£m
2014
£m
2013
£m
Americas
450.9
449.5
34.4
36.3
UK
234.7
235.7
67.6
67.2
Rest of Europe and Asia Pacific
282.4
266.8
18.4
20.5
968.0
952.0
120.4
124.0
No one single customer accounts for more than 1.5% of revenue.
2 Net operating expenses
2012/13
Restated
2013/14
2012/13
£m
Americas
6.5
6.7
9.5
9.9
0.4
0.4
16.4
17.0
1.3
1.4
17.7
18.4
Before
After
adjusting Adjusting adjusting
items
items
items
£m
£m
£m
MDD
Total MDD
Distribution
costs/(credit):
247.8
Administrative
expenses
13.1
2.3
Research and
development
expenditure
9.0
269.9
(0.8) 247.0
Before
adjusting Adjusting
items
items
£m
£m
After
adjusting
items
£m
251.5
5.1
256.6
15.4
13.4
0.7
14.1
–
9.0
8.2
–
8.2
1.5
271.4
273.1
5.8
278.9
2013/14
£m
Segment depreciation and amortisation
Governance
14.0
Non-current assets
2013/14
£m
Before Adjusting
After
adjusting
items adjusting
items
(note 2)
items
£m
£m
£m
MDD
Head Office costs
42.5
Head Office
Revenues between business segments are not significant.
Industrial
Products Division
43.5
431.2
Strategic focus
Segment result
(operating profit)
43.6
441.9
MDD
2013
Restated
£m
2014
£m
Segment assets
Performance & risks
The Group is organised into four reportable business segments: the
Marketing and Distribution Division (MDD), comprising the Americas,
Europe and Asia Pacific and Other Distribution Businesses, and the
Industrial Products Division (IPD).The segments presented below are
consistent with the information presented to the Board which is deemed
to be the Group’s chief operating decision-maker (CODM).
Adjusting items included within distribution costs total a net credit
of £0.8 million, comprising a £1.6 million net gain on a US property
disposal and a £0.8 million gain on re-measurement of the fair value
of contingent consideration, offset by £1.6 million of restructuring costs
(2012/13: £12.4 million of restructuring costs and £0.4m of acquisition
costs, offset by £7.7 million one-off pension gain).
23/04/2014 13:15
88
Premier Farnell
2 Net operating expenses continued
4 Profit before taxation – analysis by nature
Adjusting items included within administrative expenses comprise
£2.3 million of restructuring costs (2012/13: £1.5 million restructuring
costs offset by £0.8 million one-off pension gain).
Profit before taxation is stated after charging/(crediting):
Total restructuring costs of £3.9 million (2012/13: £13.9 million) were
incurred during the current year, reflecting headcount changes and
costs associated with the outsourcing of some aspects of the Group’s
global IT operations together with actions taken to drive efficiency of
global operations and optimise Group structure and performance.
The net impact of restructuring costs after tax was £2.8 million.
The US property disposal gain of £1.6 million recognised in the period
reflects the net position arising on the sale of the Group’s Newark
element14 Americas head office property in the first half of the current
year, less associated costs. The net gain on disposal after tax was
£1.0 million.
A one-off gain of £0.8 million has been recorded in the current year to
reflect a re-measurement of the fair value of contingent consideration
payable in respect of the prior year acquisition of Shenzhen Embest
Technology Co Ltd (note 21). There was nil tax impact associated with
this one-off gain.
Research and Development (R&D) expenditure comprises product R&D
expensed by the Industrial Products Division of £3.2 million (2012/13:
£3.0 million), and the R&D costs incurred by the Marketing and
Distribution Division in researching and developing new and improved
solutions to customer service of £5.8 million (2012/13: £5.2 million).
3 Net finance costs
Note
2013/14
£m
2012/13
£m
Note
2013/14
£m
2012/13
Restated
£m
Employee benefits expense
24
168.2
168.2
Depreciation of property, plant and
equipment
10
7.4
8.5
9
10.3
9.9
(0.1)
(0.1)
– land and buildings
6.1
6.2
– other
1.5
1.7
11
550.1
530.4
2
9.0
8.2
12
1.4
1.4
1.1
(3.0)
Amortisation of intangible assets
Gain on sale of other property, plant and
equipment
Cost of inventories recognised as an
expense (included in cost of sales)
Research and development expenditure
Impairment of trade receivables
Exchange losses/(gains) (except those
arising on financial instruments)
Adjusting items:
Restructuring costs
2
3.9
13.9
Net gain on US property disposal
2
(1.6)
–
2
(0.8)
–
–
(8.5)
Remeasurement of contingent
consideration
One-off pension gain
Finance income
– interest receivable on short term deposits
0.4
0.5
Acquisition costs
Finance costs
– interest payable on bank borrowings
– other interest payable
– amortisation of arrangement fees
(2.0)
(1.8)
(10.3)
(13.8)
(0.5)
(0.9)
– preference dividend
15
(3.5)
(3.5)
– premium on redemption of
preference shares
15
(0.8)
(0.8)
Total finance costs
(17.1)
(20.8)
Net finance costs
(16.7)
(20.3)
22
Operating lease rentals
25
–
0.4
1.5
5.8
During the year the Group (including its overseas subsidiaries) obtained
the following services from the Company’s auditor as detailed below:
2013/14
£m
2012/13
£m
0.4
0.4
The audit of the Company’s subsidiaries
0.3
0.3
Total audit services
0.7
0.7
Taxation compliance services
0.2
0.3
Other services
0.1
–
1.0
1.0
Audit services
Other interest payable relates to US private placement notes.
Fees payable to the Company’s auditors
for the audit of the parent company and
the consolidated financial statements
Other services
Fees payable to the Company’s auditors and
its associates for other services:
The fee for audit services shown above includes £0.1 million
(2012/13: £0.1 million) in respect of the Company.
Taxation services paid to the Company’s Auditors, PricewaterhouseCoopers
LLP, are in respect of assignments carried out on a worldwide basis.
It is the Group’s policy to employ PricewaterhouseCoopers LLP on
assignments additional to their statutory duties where their expertise
and experience of the Group is important, or where they are awarded
assignments on a competitive basis.
23/04/2014 13:15
Premier Farnell
89
5 Taxation
2013/14
£m
17.9
15.9
(0.9)
The overall tax for the financial year can be reconciled to the rate of
corporation tax in the UK of 23.2% (2012/13: 24.3%) as follows:
2013/14
£m
2012/13
Restated
£m
Profit before taxation
74.8
69.0
Preference dividends
3.5
3.5
78.3
72.5
2013/14
£m
2012/13
Restated
£m
18.2
17.6
Current taxation charge
– current year
– adjustment in respect of prior years
(0.4)
17.5
15.0
– current year
5.4
4.5
– adjustment in respect of prior years
0.5
0.9
5.9
5.4
23.4
20.4
Deferred taxation charge
Profit before tax and preference dividends
Performance & risks
Note
2012/13
Restated
£m
17
Tax on items charged directly to
equity/other comprehensive income:
– deferred tax credit on actuarial losses
Effect of prior year adjustments
0.1
–
Adjustments in respect of foreign tax rates
3.5
5.0
Other current year items
(0.7)
(4.3)
Total tax charge
1.6
(2.2)
23.4
20.4
Strategic focus
Total tax charge
Profit before tax and preference dividends
multiplied by 23.2% (2012/2013: 24.3%)
Factors affecting current and future tax charges:
6 Earnings per share
Reconciliations of earnings and the weighted average number of ordinary shares used in the calculations are set out below:
2012/13
Restated
2013/14
Diluted
earnings
per share
pence
51.4
14.0
3.9
1.1
Tax attributable to restructuring costs
(1.1)
Net gain on US property disposal
(1.6)
Profit attributable to owners of the parent
Restructuring costs
Tax attributable to net gain on US property disposal
Remeasurement of contingent consideration
Earnings
£m
Basic
earnings
per share
pence
Diluted
earnings
per share
pence
13.9
48.6
13.3
13.2
1.1
13.9
3.8
3.8
(0.3)
(0.3)
(3.9)
(1.1)
(1.1)
(0.4)
(0.4)
–
–
–
0.6
0.1
0.1
–
–
–
(0.8)
(0.2)
(0.2)
–
–
–
Acquisition costs
–
–
–
0.4
0.1
0.1
Tax attributable to acquisition costs
–
–
–
(0.1)
–
–
One-off pension gain
–
–
–
(8.5)
(2.3)
(2.3)
Tax attributable to one-off pension gain
–
–
–
3.0
0.8
0.8
52.4
14.3
14.2
53.4
14.6
14.5
Profit attributable to owners of the parent before adjusting items
Earnings
£m
Basic
earnings
per share
pence
Governance
Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders for the year by the weighted average number of
ordinary shares in issue during the year, excluding those shares held by the Premier Farnell Executive Trust (note 19). For diluted earnings per share,
the weighted average number of ordinary shares in issue is adjusted to assume issue of all dilutive potential ordinary shares, being those share
options and awards with a non-market based performance condition granted to employees where the exercise price is less than the average market
price of the Company’s ordinary shares during the year.
During the year, as a result of the change in the UK main corporation tax
rate from 23% to 21% from 1 April 2014, with a further reduction to
20% from 1 April 2015, that was substantively enacted on 2 July 2013,
the relevant deferred tax balances have been remeasured. No further
reductions to the UK corporation tax rate have been announced since
July 2013. In any event any rate changes that are not substantively
enacted at the balance sheet date are not recognised in these
23/04/2014 13:15
90
Premier Farnell
6 Earnings per share continued
The recoverable amounts have been measured based on value in use.
Adjusted earnings per share have been provided in order to facilitate
year-on-year comparison.
The key assumptions in the value in use calculations, which were
performed for the cash generating unit that comprises Farnell UK, based
on data available at the mid-point of the financial year, were as follows:
2013/14
Number
Weighted average number of shares
2012/13
Number
367,069,378 364,463,224
Dilutive effect of share options
2,763,398
3,019,704
− sales growth for the current year was based on internal forecasts with
growth in the five subsequent years broadly in line with historic UK
GDP and a terminal growth rate of 2.5% (2013: 2.5%);
Diluted weighted average number of shares 369,832,776 367,482,928
− gross margins were projected based on recent trends; and
7 Ordinary dividends paid during the year
− a market risk premium, of 5.0% (2013: 5.0%), was used in calculating
the weighted average cost of capital.
Ordinary dividends paid during the year were as follows:
Forecast cash flows have been prepared for a period of five years. From
the second year onwards, the rate of growth used does not exceed the
long term growth rate for the industry in which the business operates.
2013/14
£m
2012/13
£m
Interim paid of 4.4p (2012/13: 4.4p) per share
16.1
16.1
Prior year final paid of 6.0p (2012/13: 6.0p)
per share
The pre-tax cash flows that these projections produce have been
discounted at a pre-tax discount rate of 11.9% (2013: 10.2%).
22.0
21.8
38.1
37.9
No impairment arose during the current financial year as a result of this
test. The remaining goodwill of £11.7 million (2013: £11.3 million) is
allocated across five different cash generating units. Impairment tests
have been performed on the other amounts based on value in use and
using similar assumptions to that above. No impairments arose during
the year in relation to these amounts.
Dividends amounting to £0.5 million (2012/13: £0.6 million) in respect
of the Company’s ordinary shares held by the Premier Farnell Executive
Trust (note 19) have been waived in arriving at the aggregate of ordinary
dividends paid.
The Directors are proposing a final dividend in respect of the financial
year ended 2 February 2014 of 6.0 pence per share which will absorb
£22.0 million of shareholders’ funds. This is subject to approval at
the Annual General Meeting and thus has not been provided for
at 2 February 2014. Once approved, the final dividend will be paid
on 25 June 2014 to shareholders on the register of members on
30 May 2014.
9 Other intangible assets
At 29 January 2012
£m
Cost and net book value
34.3
Acquisition of business (note 21)
3.3
Other additions
0.3
Currency translation adjustment
At 3 February 2013
–
37.9
Acquisition of business (note 21)
0.7
(0.3)
At 2 February 2014
Computer
software
£m
Other
£m
Total
£m
Cost
8 Goodwill
At 29 January 2012
The Directors believe there are no reasonably possible changes to a key
assumption which would give rise to an impairment charge.
38.3
124.1
10.3
134.4
Additions
14.7
–
14.7
Disposals
(0.7)
–
(0.7)
At 3 February 2013
Additions
0.1
–
0.1
138.2
10.3
148.5
12.6
–
12.6
(3.3)
(0.1)
(3.4)
147.5
10.2
157.7
104.7
2.8
107.5
Charge for the year
8.9
1.0
9.9
0.1
–
0.1
113.7
3.8
117.5
Charge for the year
9.5
0.8
10.3
(2.7)
–
(2.7)
120.5
4.6
125.1
At 2 February 2014
27.0
5.6
32.6
At 3 February 2013
24.5
6.5
31.0
At 29 January 2012
19.4
7.5
26.9
At 2 February 2014
Accumulated amortisation
At 29 January 2012
Of the total goodwill at 2 February 2014 of £38.3 million, £nil relates
to MDD Americas, £33.7 million to MDD Europe and Asia Pacific,
£0.1 million to MDD Other Distribution Businesses and £4.5 million
to the IPD business.
At 3 February 2013
In accordance with IAS 36, goodwill of £26.6 million (2013:
£26.6 million) for the purpose of impairment testing has been
allocated to the cash generating unit that comprises Farnell UK
(part of MDD Europe and Asia Pacific Division).
At 2 February 2014
Net book amounts
Amortisation of £10.3 million (2012/13: £9.9 million) is included in
operating expenses.
23/04/2014 13:15
Premier Farnell
91
11 Inventories
9 Other intangible assets continued
Raw materials
Work in progress
Finished goods and goods for resale
Other intangible assets relate to the following items acquired through
business combinations:
2013
£m
Useful life
Contractually-based customer
relationships and trade names
5.5
6.4
4–20
years
Patents
0.1
0.1
16–20
years
5.6
6.5
Total
£m
58.4
107.9
166.3
0.9
5.3
6.2
–
0.1
0.1
Disposals (note 22)
–
(2.0)
(2.0)
(0.2)
0.3
0.1
At 3 February 2013
Less: provision for impairment
Net trade receivables
Other receivables
Business acquisition (note 21)
7.0
206.1
236.0
216.4
Prepayments and accrued income
2014
£m
2013
£m
116.4
118.5
(4.1)
(4.6)
112.3
113.9
3.3
3.7
13.3
13.4
128.9
131.0
2014
£m
2013
£m
Trade receivables can be analysed as follows:
111.6
170.7
Not past due
99.9
100.7
0.1
5.0
5.1
Past due but not impaired
12.4
12.8
Disposals (note 22)
(7.2)
(2.6)
(9.8)
Past due and impaired
(2.3)
(4.3)
(6.6)
49.7
109.7
159.4
At 29 January 2012
23.9
85.0
108.9
Charge for the year
1.5
7.0
8.5
Disposals (note 22)
–
(2.0)
(2.0)
0.2
–
0.2
At 3 February 2013
25.6
90.0
115.6
Charge for the year
1.3
6.1
7.4
Disposals (note 22)
(6.5)
(1.8)
(8.3)
(1.0)
(3.8)
(4.8)
19.4
90.5
109.9
At 2 February 2014
30.3
19.2
49.5
At 3 February 2013
33.5
21.6
55.1
At 29 January 2012
34.5
22.9
57.4
At 2 February 2014
Accumulated depreciation
Net book amounts
Capital commitments authorised and contracted at 2 February 2014
amounted to £0.5 million (2013: £1.3 million). The Group has no
significant assets held under finance leases.
The trade receivables which were past due but not impaired relate to a
number of independent customers for whom there is no recent history
of default.
The ageing of trade receivables classed as past due but not impaired
is as follows:
2014
£m
2013
£m
Up to one month past due
9.2
9.1
Between one and two months past due
2.6
2.9
Over two months past due
0.6
0.8
12.4
12.8
The movement in the provision for impairment of trade receivables can
be reconciled as follows:
Provision brought forward
Provision for impairment
2013/14
£m
2012/13
£m
4.6
4.7
1.4
1.4
Amounts written off
(0.8)
(1.4)
Provision released
(0.9)
(0.2)
Exchange movement
(0.2)
0.1
4.1
4.6
Provision carried forward
5.0
118.5
At 2 February 2014
4.1
116.4
Governance
59.1
Additions
Additions
6.6
225.2
12 Trade and other receivables
Cost
At 29 January 2012
3.3
During the current financial year £2.3 million (2012/13: £1.6 million) was
recognised as an expense relating to the write-down of inventory to net
realisable value.
Trade receivables
Plant and
equipment
£m
4.2
The cost of inventory recognised as an expense and included in cost
of sales amounted to £550.1 million (2012/13: £530.4 million).
10 Property, plant and equipment
Freehold
land and
buildings
£m
2013
£m
Strategic focus
2014
£m
2014
£m
Performance & risks
Computer software comprises software that is separately identifiable
from plant and equipment and includes software licences and the
capitalisation of internal labour relating to software development.
During the current financial year £6.7 million (2012/13: £7.7 million)
of internal labour was capitalised.
23/04/2014 13:15
92
Premier Farnell
12 Trade and other receivables continued
The carrying amounts of trade and other receivables are denominated
in the following currencies:
Current and non-current borrowings and preference shares are
repayable as follows:
2014
£m
2013
£m
1.8
102.8
2014
£m
2013
£m
Sterling
30.8
29.9
4.0
0.1
US dollars
55.8
54.2
Between two and five years
208.4
160.1
Euro
26.7
27.9
After five years
56.4
96.0
Other
15.6
19.0
270.6
359.0
128.9
131.0
Within one year
15 Preference shares
The fair value of trade and other receivables is approximate to their
carrying value.
Cumulative, convertible, redeemable preference shares of £1 each.
2014
Number
13 Cash and cash equivalents
Authorised
Cash and cash equivalents comprise balances at bank and short
term deposits repayable on demand and available within one day
without penalty.
Allotted and fully paid
14 Financial liabilities
2014
£m
2013
£m
1.8
1.7
–
101.1
1.8
102.8
Bank loans
39.2
20.1
3.0% US dollar Guaranteed Senior Notes
payable 2016
51.8
54.0
payable 2017
18.3
19.1
payable 2018
35.5
37.0
payable 2021
55.4
57.9
Note
Current
Current borrowings
payable 2013
Non-current borrowings
Preference shares
15
5.2
5.5
205.4
193.6
63.4
62.6
268.8
256.2
32,000,000 32,000,000
3,949,419
3,949,419
Under IAS 39, the Company’s cumulative, convertible, redeemable
preference shares are required to be split into debt and equity
components with the preference dividend being classified as a finance
cost. The fair value of the debt element is established on issue of the
shares, based on the discounted cash flows of the instrument to the
date of maturity and is then increased each year on a straight-line basis
through the income statement in order to arrive at the redemption
amount payable on maturity of the shares.
The movement in the debt and equity elements during the year is
as follows:
Non-current
Other loans
2013
Number
At 3 February 2013
Premium on redemption
At 2 February 2014
Preference dividends paid
Equity
element
£m
Debt
element
£m
10.4
62.6
–
0.8
10.4
63.4
2013/14
£m
2012/13
£m
3.5
3.5
The above current and non-current borrowings are unsecured.
Further details of the Group’s borrowing facilities are given in note 18.
23/04/2014 13:15
Premier Farnell
93
15 Preference shares continued
2) Changeover
A holder of US preference shares may serve notice on the Company
requiring that some or all of their US preference shares be changed
to sterling preference shares.
b) The fixed cumulative preferential dividends payable in respect of
the preference shares are paid in priority to any dividend payable
to the holders of ordinary shares and in priority to or pari passu with
the holders of any other class of preference shares in the capital of
the Company.
4) Conversion
a) Each holder of preference shares is entitled to convert all or any of
his fully paid preference shares into fully paid ordinary shares at the
rate of 10.3434 pence in nominal amount of ordinary share capital for
every £1 in nominal amount of preference share capital so converted
(the “conversion rate”).
b) The preference shares may be converted on any date at the option
of the holder on and from the date of issue up to and including
22 April 2016.
d) The conversion rate may be subject to adjustment if, inter alia, the
Company makes an issue of ordinary shares by way of capitalisation
of profits or reserves, a rights issue or another offer to ordinary
shareholders or if there is a change of control in the Company
following a take-over offer or if a capital distribution is made.
2014
£m
2013
£m
70.4
64.4
Payroll and other taxes
7.0
7.7
Other payables
4.0
4.2
36.6
44.2
118.0
120.5
Trade payables
Accruals and deferred income
17 Deferred tax
Deferred tax is calculated in full on temporary differences under the
liability method.
The movement on the net deferred tax (liability)/asset is as follows:
2013/14
£m
Brought forward
2012/13
Restated
£m
1.2
2.3
(5.9)
(5.4)
Reclassification from current tax payable
2.2
–
Credited to other comprehensive expense
(employee benefits)
0.7
4.3
(1.8)
1.2
Charge for the year (note 5)
Carried forward
c) If at any time 75% or more of all the preference shares have been
converted into ordinary shares (but assuming, for this purpose only,
that any preference shares which have been converted into ordinary
shares pursuant to the special conversion right made available in
2002 had never been issued or converted), the Company may give
written notice to the remaining holders of preference shares to
convert the remaining preference shares into ordinary shares.
16 Trade and other payables
Governance
c) If a holder of US preference shares has elected to changeover his or
her US preference shares to sterling preference shares then the fixed
cumulative preferential dividend and any arrears payable after the
changeover date will be paid at the sterling rate set out above.
7) Winding-up
Subject to the rights attached to any shares issued on any special terms
and conditions, on a return of capital on a winding-up of the Company
the assets available for distribution will be applied, first, in paying to each
holder of a preference share any arrears and accruals of the preferential
dividend; second, in repaying US$25 for every £1 of nominal value for
the US preference shares and £16.518 for every £1 of nominal value for
the sterling preference shares; third, in repaying the capital paid up on
each ordinary share; and fourth, in distributing the remainder rateably
among the members of the Company according to the amounts paid up
on their respective holdings of shares in the Company, each preference
share being treated for this purpose as if converted at the conversion
rate applicable into fully paid ordinary shares immediately prior to the
commencement of the winding-up.
3) Income
a) Each holder has a right to receive a fixed cumulative preferential
dividend at the rate of US$1.35 per annum for every £1 of nominal
value for the US preference shares and at the rate of 89.2 pence per
annum for every £1 of nominal value for the sterling preference
shares. Dividends on the preference shares are payable half-yearly
in arrears in equal amounts, on 26 January and 26 July.
6) Voting
Each preference share entitles the holder to receive notice of but not
to attend or vote at general meetings of the Company save in limited
circumstances. Subject to being entitled to vote on any resolution, each
holder of preference shares has one vote on a show of hands and on a
poll every such holder has one vote for every ordinary share to which he
would be entitled on conversion of his or her preference shares.
Strategic focus
1) Currency
Holders of preference shares are entitled to receive a preferential
dividend, a distribution on a winding-up and a payment on redemption.
Holders of US preference shares receive such payments in US dollars.
Holders of sterling preference shares receive such payments in sterling.
5) Redemption
The Company shall (subject to any statutory restrictions) on 29 April 2016
redeem all the US preference shares in issue at US$25 for every £1 of
nominal value and all the sterling preference shares in issue at £16.518
for every £1 of nominal value.
Performance & risks
At 2 February 2014, the preference shares comprised 107,682 (2013:
114,332) US$1.35 cumulative, convertible, redeemable preference
shares of £1 each (the “US preference shares”) and 3,841,737 (2013:
3,835,087) 89.2 pence cumulative, convertible, redeemable preference
shares of £1 each (the “sterling preference shares” and, together with
the US preference shares, the “preference shares”). The rights and
restrictions attaching to the preference shares are as follows:
Comprising:
Non-current assets
4.9
7.7
(6.7)
(6.5)
(1.8)
1.2
23/04/2014 13:15
Premier Farnell
94
17 Deferred tax continued
The deferred tax charge for the year comprises the following:
2012/13
Restated
£m
2013/14
£m
Accelerated tax depreciation
Employee benefits
0.9
(0.5)
1.7
3.0
Fair value of intangible assets
(0.1)
–
Preference shares
(0.2)
(0.2)
Tax losses
2.2
3.0
Other temporary differences
1.4
0.1
5.9
5.4
Deferred tax assets have been recognised in respect of any significant
tax losses and other temporary differences giving rise to deferred tax
assets where it is probable that these assets will be recovered.
The deferred tax assets and liabilities (prior to the offsetting of balances
within the same jurisdiction as permitted by IAS 12) at the financial yearend are analysed below. Deferred tax assets and liabilities are only offset
where there is a legally enforceable right of offset and there is an
intention to settle the balances net.
Accelerated tax
depreciation
Employee benefits
Liabilities
Assets
Net
2013
2014 Restated
£m
£m
2013
2014 Restated
£m
£m
2013
2014 Restated
£m
£m
(11.1)
(10.2)
–
–
(11.1)
(10.2)
–
–
8.3
9.0
8.3
9.0
Fair value of
property, plant
and equipment
acquired
(1.3)
(1.3)
–
–
(1.3)
(1.3)
Fair value of
intangible assets
acquired
(1.0)
(1.1)
–
–
(1.0)
(1.1)
Preference shares
(0.5)
(0.7)
–
–
(0.5)
(0.7)
–
–
1.3
1.5
1.3
1.5
Tax losses
Other temporary
differences
(2.0)
(2.2)
4.5
6.2
2.5
4.0
(15.9)
(15.5)
14.1
16.7
(1.8)
1.2
£4.9 million (2013: £7.7 million restated) of the deferred tax assets were
not available for offset against deferred tax liabilities and have therefore
been included within non-current assets.
18 Financial instruments
1) Financial risk factors
The Group is exposed to a number of different market risks in the
normal course of business including liquidity, credit, interest rate and
foreign currency risks.
Liquidity risk
Established procedures are in place to ensure that the operational and
working capital requirements of the Group can be met at all times.
These include:
− regular review, monitoring and forecasting of working capital
requirements across Group companies;
− use of short term, local bank facilities;
− operation of short term money market dealing lines; and
− the implementation and ongoing review of committed multi-currency
bank facilities, which are available at short notice. The Group has
bank borrowing facilities consisting of a £200 million multi-currency
revolving credit facility expiring in October 2016 and carrying a LIBOR
based floating rate of interest. At 2 February 2014 the Group’s
headroom on this facility was £159.5 million (2013: £178.3 million).
Credit risk
The Group has a customer credit policy in place and the exposure
to credit risk is monitored on an ongoing basis through the use of
customer credit limits. Investments to maximise the return on surplus
cash are allowed only in short term instruments and only with
counterparties that have sound credit ratings. The Group’s treasury
policy stipulates minimum ratings that institutions must have before
deposits can be made above a series of defined thresholds. Given
the high credit quality of counterparties with whom the Group has
investments, the Directors do not expect any counterparty to fail to
meet its obligations.
At 2 February 2014 and 3 February 2013 there were no significant
concentrations of credit risk. The maximum exposure to credit risk is
represented by the carrying amount of each financial asset included
in the balance sheet.
Interest rate risk
The Group adopts a policy of ensuring that it has an appropriate mix of
fixed and floating rates in managing its exposure to changes in interest
rates on borrowings. At 2 February 2014, if interest rates on variable rate
foreign currency denominated borrowings had been 50 basis points
higher/lower with all other variables held constant, pre-tax profit for the
year would have been £0.1 million lower/higher (2012/13: £0.1 million).
At 2 February 2014, if interest rates on variable rate pound sterling
denominated borrowings had been 50 basis points higher/lower with
all other variables held constant, pre-tax profit for the year would have
been £0.2 million lower/higher (2012/13: £0.2 million).
Foreign currency risk
The Group is exposed to foreign currency risk on sales, purchases
and borrowings that are denominated in currencies other than pounds
sterling. The currencies giving rise to this risk are primarily the Euro and
US dollar.
The Group hedges significant foreign currency exposures in respect
of forecast sales and purchases of inventory through foreign exchange
contracts. All such foreign exchange contracts have maturities of less
than one year.
The Group does not hedge profit translation exposure, unless there
is a corresponding cash flow, since such hedges provide only a
temporary deferral of the effects of movement in foreign exchange rates.
Similarly, whilst a significant proportion of the Group’s borrowings are
denominated in US dollars, the Group does not specifically hedge all
of its long term investments in overseas assets.
23/04/2014 13:15
Premier Farnell
95
18 Financial instruments continued
During the financial year ended 2 February 2014, £1.7 million net fair
value gains were recognised in other comprehensive income (2013:
£2.9 million net fair value losses). Losses of £4.3 million (2013:
£2.5 million gains) have been transferred to cost of sales for
contracts which matured during the year.
In the prior year the Group classified foreign exchange contracts relating
to US$194 million of its US dollar denominated Private Placement notes
as cash flow hedges. At 3 February 2013 the fair value of these forward
contracts was £1.8 million asset. During the year these contracts were
settled following the repayment of US$109 million Private Placement
notes and designation of US$85 million Private Placement notes within
the net investment hedge.
2) Capital risk management
The Group’s objectives when managing capital are to safeguard the
Group’s ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to
maintain an appropriate capital structure. In order to maintain or adjust
the capital structure, the Group will take into consideration the amount
of dividends paid to shareholders, the level of debt and the number of
shares in issue.
Hedge of net investment in foreign subsidiaries
US$265 million (2013: US$230 million) of the Group’s US dollar
denominated Private Placement notes partially hedge the Group’s
investment in its US subsidiaries. The Group’s Euro denominated
unsecured loans of €25 million partially hedge the Group’s investment
in its Eurozone subsidiaries.
4) Fair value of borrowings and preference shares
The book and fair values of the Group’s borrowings and preference
shares are as follows:
2014
Book
value
£m
Short term borrowing
Long term borrowings
Preference shares
3) Derivative financial instruments
2014
2013
Current
assets
£m
Current
liabilities
£m
Forward foreign exchange contracts
Cash flow hedges relating to trade
transactions
2.0
–
0.4
(4.4)
–
–
1.8
–
2.0
–
2.2
(4.4)
Forward foreign currency contracts
Forward foreign currency contracts hedge currency exposures for
sales receipts and payments for inventory purchases within the next
12 months and will recycle to the income statement over that period.
Fair
value
£m
1.8
1.8
102.8
105.1
205.4
209.4
193.6
202.8
73.8
63.1
73.0
59.2
The book value of the preference shares at 2 February 2014 comprises
the equity element of £10.4 million (2013: £10.4 million) and the debt
element of £63.4 million (2013: £62.6 million).
The main methods and assumptions used in estimating the fair values
of financial instruments are as follows:
− derivatives: forward exchange contracts are marked to market using
listed market prices;
− current borrowings: fair value is equal to current value, as the impact
of discounting is not significant. The fair values are within Level 2 of
the fair value hierarchy (see below);
− bank loans bear short term floating interest rates of LIBOR plus a
premium, and as a result the fair values are the same as the book
values. The fair values are within Level 2 of the fair value hierarchy;
− US dollar Private Placement notes bear coupons between 3.0–5.2%.
The fair value is based on discounted future principal and interest
cash flows, using discount rates of 1.5–4.7% calculated from treasury
yields for similar terms and adjusted to reflect the Group credit rating.
The fair values are within Level 2 of the fair value hierarchy;
− convertible redeemable preference shares: fair value is based on
quoted market prices. The fair values are within Level 1;
Cash flow hedges relating to
US Private Placement notes
Book
value
£m
Governance
The Group has two principal debt covenants in respect of its US Private
Placement notes and Revolving Credit Facility. These covenants relate
to the Group’s Net Borrowings to EBITDA ratio and EBITDA to Net
Interest Payable ratio (both on a rolling 12 month basis). At the year-end,
the Group comfortably met these covenants.
2013
Fair
value
£m
When monitoring capital, the Group takes into consideration its
gearing ratio, both including and excluding its post-retirement benefit
obligations. This is calculated as the ratio of net debt to total capital
(total equity adjusted for post-retirement benefit obligations as
appropriate, as shown in note 25). Net debt is calculated as total
borrowings (including current and non-current borrowings and the
debt element of preference shares as shown in the consolidated
balance sheet) less cash and cash equivalents. At the year-end the
net debt to total capital ratio was 1.8 (2013: 2.0). The improvement in
the net debt to total capital ratio during the year was mainly due to
improved profit generation.
Current Current
assets liabilities
£m
£m
Strategic focus
At 2 February 2014, if the Euro had weakened/strengthened against
the pound sterling by one cent, with all other variables held constant,
operating profit for the year would have been £0.5 million lower/higher,
mainly due to the translation of overseas results. Net assets would have
been £0.5 million lower/higher as a result of a similar one cent movement.
Performance & risks
At 2 February 2014, if the US dollar had weakened/strengthened against
the pound sterling by one cent, with all other variables held constant,
operating profit for the year would have been £0.2 million lower/higher,
mainly due to the translation of overseas results. Net assets would have
been £0.5 million lower/higher as a result of a similar one cent movement.
− trade and other receivables/payables: the notional amounts for trade
and other receivables/payables with a remaining life of less than one
year are deemed to reflect their fair value.
− contingent consideration: the fair value measurements are included
in note 21.
23/04/2014 13:15
96
Premier Farnell
18 Financial instruments continued
5) Fair value estimation
The valuation methods for Group financial instruments held at fair value
are defined by the following fair value measurement hierarchy:
− quoted prices (unadjusted) in active markets for identical assets or
liabilities (Level 1);
− inputs other than quoted prices included within Level 1 that are
observed for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices) (Level 2);
Less Between Between
than 1 and 2
2 and 5
1 year
years
years
£m
£m
£m
At 2 February 2014
Over
5 years
£m
Borrowings
9.0
11.7
163.7
65.3
Preference shares
3.5
3.5
65.1
–
Less
than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over
5 years
£m
113.2
8.0
120.4
110.1
3.5
3.5
69.6
–
At 3 February 2013
− inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs) (Level 3).
Borrowings
The following table presents the Group’s assets and liabilities that are
measured at fair value.
The table below analyses the Group’s derivative financial instruments
which will be settled in the relevant maturity groupings based on the
remaining period at the balance sheet date to the contractual maturity
date. The amounts disclosed in the table are:
At 2 February 2014
Level 1
£m
Level 2
£m
Level 3
£m
Preference shares
Total
balance
£m
Assets
Derivatives used for hedging
–
2.0
–
2.0
Liabilities
− the fair value of the Group’s derivative instruments covering trading
cash flows, as these contracts are managed on a net fair value basis.
£2.0 million (2013: negative fair value of £4.0 million) are included
within the less than one year maturity period; and
–
–
–
–
Contingent consideration
–
–
(0.7)
(0.7)
Net assets/(liabilities)
–
2.0
(0.7)
1.3
Level 1
£m
Level 2
£m
Level 3
£m
Total
balance
£m
–
2.2
–
2.2
– cash flow hedges
–
(4.4)
–
(4.4)
Outflow
Contingent consideration
–
–
(0.8)
(0.8)
Inflow
Net liabilities
–
(2.2)
(0.8)
(3.0)
At 3 February 2013
Assets
− for derivative instruments other than instruments covering the trading
cash flows of the Group, the contractual undiscounted gross cash
flows. For these instruments based on the contractual rates
applicable to the amounts disclosed in the table below the
undiscounted net cash flows would equate to £nil at any one time.
At 2 February 2014
Liabilities
The fair value of financial instruments that are not traded in an active
market (for example, over-the-counter derivatives) is determined by
using valuation techniques which maximise the use of observable
market data where it is available and rely as little as possible on entity
specific estimates. If all significant inputs required to fair value an
instrument are observable, the instrument is included in Level 2. The fair
value of forward foreign exchange contracts is determined using forward
exchange rates at the balance sheet date, with the resulting value
discounted back to the present value.
The movement in the year of the contingent consideration fair value
relates to £0.7 million from the acquisition of Reach Engineering LLC
(note 21) less £0.8 million gain recognised in profit and loss in respect
of Shenzhen Embest Technology Co Ltd (note 2).
At 3 February 2013
than 1 and 2
2 and 5
1 year
years
years
£m
£m
£m
Over
5 years
£m
–
–
–
–
2.0
–
–
–
Less
than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over
5 years
£m
71.9
–
54.0
–
–
–
–
–
– cash flow hedges
Outflow
Inflow
19 Ordinary shares
Group and Company
2014
Nominal
value
£m
2013
Nominal
value
£m
25.0
25.0
18.5
18.5
0.1
–
18.6
18.5
Authorised
6) Maturity of financial liabilities
The table below analyses the Group’s financial liabilities, which will be
settled on a net basis, into relevant maturity groupings based on the
remaining period at the balance sheet date to the contractual maturity
date. The amounts disclosed in the table are the contractual
undiscounted cash flows.
500,000,000 ordinary shares of 5p each
(2013: 500,000,000)
Allotted, called up and fully paid
At 3 February 2013 (370,377,627 shares)
Allotted under share option schemes
(845,043 shares)
At 2 February 2014 (371,222,670 shares)
23/04/2014 13:15
Premier Farnell
97
19 Ordinary shares continued
2013
Number
6,275,951
7.9 7,483,477
8.8
£2.00 – £3.00
4,875,656
8.4 2,312,992
7.0
11,151,607
8.1 9,796,469
8.4
–
86,322
April 2008
27,390
319,477
July 2010
–
501,985
July 2011
626,434
697,870
July 2012
780,773
921,875
December 2012
105,191
105,191
June 2013
805,821
–
Deferred Share Bonus Plan
Grants may be made under the Company’s Deferred Share Bonus Plan
(DSBP) to any employee of the Company or its subsidiaries who is
entitled to receive a bonus, with awards usually made to the Company’s
Executive Directors and managers. Grants can be structured as
conditional awards, nil or nominal cost options or grants of forfeitable
shares. There is no performance condition applicable to awards under
the DSBP, which normally vest on the second anniversary of their grant,
provided that the recipient of the relevant award remains employed by
the Group at that time.
At 2 February 2014, the aggregate number of shares covered by the
grants under the DSBP was 566,212 (2013: 1,282,562) as follows:
Number of shares outstanding
Vesting date
March 2011
March 2013
March 2012
March 2014
April 2012
April 2014
September 2012
September 2014
2013
April 2013
June 2013
April 2008
137p
–
38,989
April 2009
102p
84,992
106,472
April 2010
173p
62,191
183,433
April 2011
222p
136,725
184,517
April 2012
176p
365,167
442,566
April 2013
178p
389,209
–
1,038,284
955,977
June 2007
Date of grant
At 2 February 2014, the aggregate number of shares covered by
options under the Company’s SAYE option scheme is 1,038,284
(2013: 955,977) and the total potential consideration of £1.8 million
(2013: £1.7 million) is made up as follows:
2014
2013
34,377
2014
2013
78,934 1,074,535
171,217
205,579
–
1,085
1,363
1,363
April 2015
311,352
–
June 2015
3,346
–
Save As You Earn Option Scheme
Grants under the Save As You Earn (SAYE) option scheme are available
to all eligible UK employees and are not subject to any performance
conditions, although do require the employee to save over a three or
five-year period. SAYE options are exercisable within six months after
the end of the savings contract.
Option price
2014
8,918
2,354,527 2,667,097
2013
Weighted
average
remaining
contractual
life (years)
£1.00 – £2.00
Date of grant
April 2006
Governance
2014
Number
Range of exercise prices
2014
Weighted
average
remaining
contractual
life (years)
Number of ordinary shares
Date of grant
At 2 February 2014, the aggregate number of shares covered by
options under the Company’s Executive Share Option Scheme is
11,151,607 (2013: 9,796,469) and the total potential consideration is
£21.7 million (2013: £19.0 million). The following table summarises
information about these options:
At 2 February 2014, the aggregate number of outstanding shares
covered by grants under the PSP was 2,354,527 (2013: 2,667,097)
as follows:
Strategic focus
Potential issues of ordinary shares
Executive Share Option Plan
The Executive Share Option Plan (ESOP) is available to Executive
Directors and senior management. Grants are normally made with a
value of up to 100% of an individual’s annual salary, although this may
be increased to 150% in exceptional circumstances. The vesting of
options made to the Company’s executives and most senior managers
are subject to performance conditions set by the Company’s
Remuneration Committee. The conditions currently applicable are based
on both the level of return on sales and earnings per share growth
achieved in the third financial year counting from the financial year in
which the options were granted. Further details on the performance
conditions are set out in the Remuneration Report starting on page 63.
Awards without performance conditions may be made to eligible
employees who are not Board Directors or executive committee
members at the time of grant. Approved, unapproved options or share
appreciation rights may be granted under the ESOP and all are
exercisable, subject to their meeting any applicable performance
condition, between three and ten years from the date of grant.
Performance Share Plan
Under the Company’s Performance Share Plan (PSP), an Executive
Director or senior manager may receive an award of up to 100% of his
or her salary in any year and in exceptional circumstances this can be
increased to 150%. Awards may be structured as nil or nominal cost
options, conditional awards or forfeitable shares and all are subject
to performance conditions set by the Company’s Remuneration
Committee. The vesting of awards made in 2014 is subject to
performance conditions requiring the Company’s level of return on sales
and earnings per share to be at specific levels in the third financial year
from the year of grant. Further details of the performance conditions
applicable to awards under the PSP are available in the Remuneration
Report starting on page 63.
Performance & risks
Allotments during the year
On various dates during the year, allotments were made under the
Company’s Executive Share Option Plans totalling 845,043 (2012/13:
675,787) ordinary shares with a nominal value of £42,252 (2012/13:
£33,789) for a cash consideration of £0.8 million (2012/13: £0.9 million).
566,212 1,282,562
23/04/2014 13:15
Premier Farnell
98
19 Ordinary shares continued
Restricted Share Plan
Under the Company’s Restricted Share Plan (RSP), individuals are
granted rights to ordinary shares which carry no vesting conditions other
than the requirement that the employee must still be in the Company’s
employment at the vesting date. During the year 128,591 (2012/13:
90,382) shares vested under the plan, 264,425 (2012/13: 60,876)
shares were granted under the plan and nil (2012/13: 38,026) shares
lapsed under the plan.
At 2 February 2014, there were 166,477 (2013: 30,643) outstanding
ordinary shares granted under the plan of which 82,093 vest in the
financial year ending 1 February 2015 and 84,384 vest in the financial
year ending 31 January 2016.
Vesting date
January 2012
Number of awards (’000s)
2013/14
2012/13
Beginning of year
3,950
10,478
Granted
1,194
1,450
(1,405)
(260)
Exercised
Forfeited
Date of grant
Reconciliation of share award movements during the year
A reconciliation of movements in awards under the PSP & DSBP
is as follows:
(818)
(7,718)
End of year
2,921
3,950
Exercisable
36
440
Weighted average remaining contractual life
(years)
2.4
2.1
2014
2013
July 2013
–
7,793
April 2012
April 2013
–
6,855
20 Share-based payments
April 2012
April 2014
6,855
6,855
April 2012
April 2015
9,140
9,140
March 2013
April 2014
9,772
–
The total charge for share-based payments was £1.6 million (2012/13:
£1.4 million) all of which related to equity-settled transactions. After tax,
the total charge was £2.5 million (2012/13: £1.7 million).
March 2013
April 2015
9,772
–
June 2013
July 2014
65,466
–
June 2013
July 2015
65,472
–
166,477
30,643
Premier Farnell Executive Trust
The Premier Farnell Executive Trust has acquired ordinary shares in the
open market in order to partially meet obligations under the Premier Farnell
Performance Share Plans or to provide similar employee benefits. The
costs of administering the plan are borne by the Company. The Trustees
have waived the right to receive dividends in respect of the ordinary shares
held by the Trust. During the year the Company issued to the Trust
404,677 of the Company’s ordinary shares (2012/2013: nil shares) and
the Trust used 1,511,278 (2012/13: 675,705) ordinary shares to satisfy
vesting conditions under the Company’s option schemes. At 2 February
2014, the Trust held 4,261,702 (2013: 5,368,303) ordinary shares with a
total nominal value of £213,085 (2013: £268,415) and a total market value
of £9.3 million (2013: £11.6 million).
Granted
Forfeited
2013/14
2012/13
Weighted
average
Number exercise
(’000)
price
£1.92
4,248
£1.98
(676) £1.21
–
EPS/RoS/
none EPS/RoS
n/a
19/4/13
£2.03
£2.00
£2.00
£2.03
Exercise price
n/a
£2.00
n/a
£1.78
Number granted
338,773 3,804,842
855,650
389,366/
53,584
Option pricing model
Black
Scholes
Black
Scholes
Black
Scholes
Vesting period (years)
Correlation with
comparators
Black
Scholes
2
3
3
3/5
35%
35%
35%
35%
2
10
3
3.5/5.5
n/a
n/a
n/a
n/a
Risk free rate
n/a
n/a
0.7%
0.3%/
0.7%
5.1%
5.1%
5.1%
5.1%
£1.87
£0.43
£1.72
£0.42/
£0.44
Fair value per
instrument
(12) £2.08
SAYE 3yr/5yr
28/6/13
£1.73
(440) £1.82
PSP
28/6/13
5,049
Cancelled
n/a
ESOP
19/4/13
£1.98
Exercised
DSBP
Share price at
grant date
9,434
(2,987) £1.96
–
–
–
End of year
12,190
£1.92
10,752
£1.92
Exercisable
1,624
£2.29
606
£1.92
Weighted average remaining
contractual life (years)
Grant date
Dividend yield
(2,358) £2.03
Expired
Primary performance
condition
Contractual life (years)
Weighted
average
Number exercise
(’000)
price
10,752
2013/14
Plan
Expected volatility
Reconciliation of option movements during the year
A reconciliation of option movements under the ESOP and SAYE
is as follows:
Beginning of year
The fair value of the Company’s principal grants made in the year and
the assumptions used in the calculations are as follows:
(68) £1.82
8.1
8.4
The weighted average share price at the date of exercise for share
options exercised during the year was £2.15 (2013: £1.70).
23/04/2014 13:15
Premier Farnell
99
20 Share-based payments continued
22 Cash generated from operations
Plan
DSBP
Primary performance
condition
PSP
SAYE 3yr/5yr
Note
Profit after tax
n/a RoS/none
Grant date
Share price at grant
date
Exercise price
EPS
n/a
16/3/12
9/7/12
9/7/12
18/4/12
£2.21
£1.73
£1.73
£2.10
n/a
n/a
£1.76
236,047 4,544,692 1,214,223
448,017/
56,238
Option pricing model
Vesting period (years)
Expected volatility
Contractual life (years)
Black
Scholes
2
£1.73
Black
Scholes
3
Black
Scholes
Black
Scholes
3
3/5
35%
35%
35%
35%
2
10
3
3.5/5.5
n/a
n/a
n/a
n/a
Risk free rate
n/a
n/a
0.3%
0.6%/
1.1%
Dividend yield
6.0%
6.0%
6.0%
5.0%
£1.45
£0.47/
£0.49
Fair value per
instrument
£1.95
£0.33
The expected volatility is based on historical volatility over the last
ten years. The risk-free rate of return is the yield, based on the Bank
of England’s projected nominal yield curve, on zero-coupon UK
Government bonds of a term consistent with the assumed option life.
No performance conditions were included in the fair value calculations
where the condition is based on earnings per share performance.
Acquisitions
On 13 September 2013, the Group acquired the trade and assets of
Reach Engineering LLC (Reach), a specialist in custom electronic
systems to the emergency and industrial vehicles market.
The acquisition of Reach will enhance the product proposition of our
Industrial Products Division through the integration of strategically
important technologies to our existing customer offering.
Adjustment for:
– tax
– depreciation
– amortisation of intangible assets
Acquisitions in prior years
On 26 June 2012, the Group acquired the entire issued share capital of
Shenzhen Embest Technology Co Ltd (Embest), for cash consideration
of £2.6 million. In addition contingent consideration of £0.8 million, net
assets of £0.1 million and goodwill of £3.3 million were recognised.
At the end of the current financial year, based on latest forecasts, the
fair value of the contingent consideration due was remeasured to £nil.
5
23.4
20.4
10
7.4
8.5
9
10.3
9.9
(1.6)
–
(0.1)
(0.1)
– net gain on sale of US property
– gain on sale of other property,
plant and equipment
– preference dividends
15
3.5
3.5
– interest income
3
(0.4)
(0.5)
– interest expense
3
12.8
16.5
15
0.8
0.8
(2.6)
(2.2)
1.0
1.1
– premium on redemption of
preference shares
– additional funding for post-retirement
defined benefit plans
– increase in net pension liability
(US defined benefit plans)
– decrease in other post-retirement
obligations
(0.3)
–
1.6
1.4
– non-cash impact of
restructuring costs
(2.3)
6.9
– non-cash impact of remeasurement
of contingent consideration
– share-based payments
20
(0.8)
–
– non-cash impact of one-off
pension gain
–
(8.5)
– acquisition costs
–
0.4
(25.8)
(3.4)
Changes in working capital:
– increase in inventories
– (increase)/decrease in trade and
other receivables
– increase in trade and other payables
Total cash generated from
operations
(3.5)
9.0
5.6
1.0
80.4
113.3
Proceeds from the sale of property, plant and equipment comprise:
Cash consideration of less than £0.1 million was payable in relation to
the fair value of identifiable net assets acquired.
Both the trading results of Reach for the period since acquisition, and
also for the period since the start of the financial year had the acquisition
taken place on that date, are not material to the Group’s results.
48.6
Note
2013/14
£m
2012/13
£m
10
1.5
–
Net gain on sale of US property
1.6
–
Gain on sale of other property,
plant and equipment
0.1
0.1
Non-cash US property disposal costs
1.0
–
Net proceeds
4.2
0.1
Net book value
Contingent consideration of £0.7 million relates to goodwill attributable
to the future profitability of the business, and is dependent on the sales
performance of specific Reach products, primarily within the next
four years.
51.4
Governance
21 Businesses acquisitions and disposals
2012/13
Restated
£m
Correlation with
comparators
2013/14
£m
Strategic focus
Number granted
ESOP
Performance & risks
2012/13
During the current year, £2.2 million deferred consideration was paid
in respect of the 2009 acquisition of CadSoft Computer GmBH. No further
consideration will be payable in respect of the CadSoft acquisition.
23/04/2014 13:15
100
Premier Farnell
23 Analysis of changes in net financial liabilities and derivative financial instruments
Cash
and cash
equivalents
£m
At 29 January 2012
Loans
due within
one year
£m
Loans
due after
one year
£m
Preference
shares
£m
Derivative
financial
instruments
£m
Net
financial
liabilities
£m
116.9
(1.0)
(293.2)
(61.8)
2.0
(237.1)
12.0
–
–
–
–
12.0
Increase in debt
–
(0.7)
–
–
–
(0.7)
Premium on redemption of preference shares
–
–
–
(0.8)
–
(0.8)
–
–
–
–
(4.2)
(4.2)
(0.9)
Net increase in cash, cash equivalents and bank overdrafts
–
(0.1)
(0.8)
–
–
Other changes
–
(101.0)
101.0
–
–
–
2.7
–
(0.6)
–
–
2.1
131.6
(102.8)
(193.6)
(62.6)
(2.2)
(229.6)
(87.0)
Exchange movement
At 3 February 2013
Net decrease in cash, cash equivalents and bank overdrafts
(87.0)
–
–
–
–
Increase in debt
–
(0.3)
(27.0)
–
–
(27.3)
Repayment of borrowings
–
101.6
7.0
–
–
108.6
–
–
–
(0.8)
–
(0.8)
–
–
–
–
4.2
4.2
–
–
(0.5)
–
–
(0.5)
Exchange movement
(1.8)
(0.3)
8.7
–
–
6.6
At 2 February 2014
42.8
(1.8)
(205.4)
(63.4)
2.0
(225.8)
24 Employees and Directors
2013/14
£m
2012/13
Restated
£m
Wages and salaries
136.1
135.9
Social security costs
22.5
23.1
Note
Employee benefit expense during the year was as follows:
Net pension charge
25A
7.3
7.1
Post-retirement medical benefits
25B
0.7
0.7
1.6
1.4
168.2
168.2
2013/14
Number
2012/13
Number
Americas
1,285
1,344
2,361
2,270
20
In addition to the above, restructuring costs included £1.4 million relating to severance (2012/13: £5.1 million).
The average monthly number of persons employed (including Executive Directors) was as follows:
Marketing and Distribution Division
Head Office
419
413
4,065
4,027
386
379
56
58
4,507
4,464
23/04/2014 13:15
Premier Farnell
101
24 Employees and Directors continued
The total remuneration of the Directors comprises:
2012/13
£m
Aggregate emoluments
1.8
1.9
Company contributions to money purchase
pension schemes
0.2
0.3
2.0
2.2
None of the Directors have retirement benefits accruing under the Group
pension plans (2013: none).
The key management of the Group are deemed to be the Board of
Directors who have authority and responsibility for planning and
controlling all significant activities of the Group.
25 Pension commitments and other
post-retirement obligations
2013
Restated
£m
Note
2014
£m
Retirement benefit liabilities
25A
(30.2)
(29.2)
25B
(14.5)
(14.5)
(44.7)
(43.7)
The following remeasurements were recognised in the year through the
consolidated statement of comprehensive income following the year end
valuations of the Group’s pension and post-retirement plans:
Defined benefit pension plans
Defined benefit pension plans and
post-retirement medical plan
– UK
(3.5)
(4.3)
– US
0.1
(9.6)
– Other
0.4
–
(1.0)
(0.9)
(14.8)
(4.0)
The defined benefit plans expose the Group to actuarial risks, such as
longevity risk, currency risk, inflation risk, interest rate risk and market
(investment) risk. The Group is not exposed to any unusual, entity
specific or plan specific risks.
In respect of the defined contribution plans, the Group has no further
payment obligations once the contributions have been paid.
The net pension (charge)/income and balance sheet liability of the
Group’s pension plans are as follows:
2013/14
£m
Pension charge before one-off items:
Defined benefit plans
– UK
(1.2)
(1.0)
– US
(0.9)
(1.0)
– Other plans
(0.1)
(0.1)
Defined contribution plans
(5.1)
(5.0)
Net pension charge before
one-off items
(7.3)
(7.1)
–
8.5
(7.3)
1.4
One-off pension income (US Plan)
Total net pension (charge)/income in the year
2012/13
Restated
£m
2014
£m
2013
Restated
£m
On 21 February 2013 the Group became a partner in the Premier Farnell
Pension Funding Scottish Limited Partnership (SLP), under which the
Group contributed an interest in the SLP worth £18.0 million to the UK
Plan, and transferred a number of properties under sale and leaseback
arrangements to the SLP. The SLP made distributions to the UK Plan
of £1.4 million during the year, and will make annual contributions of
£1.5 million per year until 31 January 2026, or until the UK Plan is fully
funded, if earlier. The UK Plan’s interest in the SLP reduces the deficit
on a funding basis, although it does not impact the deficit on an IAS 19
accounting basis, as the investment held by the UK Plan in the SLP
does not qualify as an asset for the purposes of the fair value of scheme
assets included in the Group’s consolidated financial statements.
Governance
Details of the highest paid Director are given on page 70 under the
heading Directors’ remuneration. Further details on Directors’ pension
arrangements are given on page 73.
In addition to the above, there was an accounting charge for sharebased payments in respect of the Directors of £0.1 million (2012/13:
accounting credit of £0.4 million). Gains made by Directors on the
exercise of share options during the year amounted to £571,456
(2012/13: £5,104).
Strategic focus
2013/14
£m
A) Pensions
The Group operates pension plans throughout the world covering the
majority of its employees. These plans are devised in accordance with
local conditions and practices in the countries concerned and include
defined contribution and defined benefit plans. The Group’s two
principal defined benefit plans are in the UK and in the US under broadly
similar regulatory frameworks. The UK Plan is a final salary pension plan
providing a guaranteed level of pension payable for life. The US Plan is
a cash balance plan, with the exception of UK participants who accrue
benefits on a final salary basis. Both these plans are closed to further
accrual of future pensionable service with pensions calculated based on
salaries up until the date of leaving the plan. In the UK Plan, pensions in
payment can be updated in line with the UK inflation indices, subject to
caps and collars, whereas with the US Plan, pensions generally do not
receive inflationary increases once in payment. Benefit payments for
both plans are from trustee (or equivalent) administered funds. Plan
assets are held in trust funds and are governed by local regulations
in their relevant jurisdictions by a trustee board/advisory committee,
which is independent of the Group. In conjunction with the Group,
the trustees (or equivalent) are responsible for the operation and
governance of the fund, including making decisions relating to funding
and investment strategy.
Performance & risks
Directors’ remuneration
A detailed analysis of Directors’ remuneration, including salaries,
performance-related bonuses and long term incentives, is provided in
the Remuneration report on pages 63 to 77, which forms part of these
23/04/2014 13:15
102
Premier Farnell
25 Pension commitments and other post-retirement obligations continued
2014
£m
2013
Restated
£m
Defined benefit balance sheet liability:
– UK Plan
(18.1)
(17.2)
– US Plan
(11.6)
(11.2)
– Other plans
(0.5)
(0.8)
(30.2)
(29.2)
The disclosures relating to the UK and US defined benefit plans are set out below, based on valuations performed by Towers Watson, as at
2 February 2014, using the projected unit credit method.
The principal assumptions are as follows:
UK Plan
2014
%
UK Plan
2013
%
3.9
4.0
–
–
–
–
2.9
3.0
– RPI inflation capped at 5% pa
2.9
3.0
–
–
– RPI inflation capped at 3% pa
2.5
2.6
–
–
Discount rate
4.4
4.6
4.4
4.0
Inflation assumption (RPI)
3.1
3.2
–
–
Inflation assumption (CPI)
2.1
2.2
–
–
Rate of increase in pensionable salaries
Rate of increase in pensions in payment (where applicable):
US Plan
2014
%
US Plan
2013
%
Life expectancy of a 60-year-old male/female current retiree
27yrs/30yrs 27yrs/30yrs 25yrs/28yrs 25yrs/28yrs
Life expectancy of a 60-year-old male/female future retiree
28yrs/31yrs 28yrs/31yrs 26yrs/28yrs 26yrs/28yrs
For 2013 and 2014, the rates of longevity for the UK Plan are based on the standard tables known as the “SI” tables projected from 2002 using the
2011 Core Projection Model with a long term rate of 1.25%. The mortality tables have been based on a postcode mortality study, carried out as part
of the 5 April 2011 funding valuation. These tables will be reviewed as part of the 5 April 2014 funding valuation.
For the US Plan, the rates of longevity are based on standard tables RP-2000 with generational projections using scale BB for 2014 and 2013.
The amounts recognised in the balance sheet are as follows:
UK Plan
2014
£m
Present value of defined benefit obligations
UK Plan
2013 US Plan
Restated
2014
£m
£m
(102.1)
Fair value of plan assets
Net liability
US Plan
2013
Restated
£m
(99.4) (106.4)
(116.6)
84.0
82.2
94.8
105.4
(18.1)
(17.2)
(11.6)
(11.2)
The major categories of plan assets as a percentage of total plan assets are as follows:
UK Plan
2014
%
Equities
UK Plan
2013
%
US Plan
2014
%
US Plan
2013
%
–
–
5.0
6.0
Diversified growth funds
50.1
49.4
–
–
Index-linked gilts
24.4
25.9
–
–
Corporate bonds
24.9
24.4
–
–
0.6
0.3
95.0
94.0
Cash/LDI
The UK Plan’s assets do not include shares issued by the Group other than immaterial investments included within the diversified growth fund
investment portfolio. The UK Plan’s investment strategy is to invest broadly 50% in return-seeking assets (via diversified growth funds) and 50% in
matching assets (index-linked gilts and corporate bonds). This strategy reflects the UK Plan’s liability profile and the Trustees’ and Group’s attitude
to risk. As the Fund matures, the Trustees and the Group expect to gradually reduce the proportion allocated to return-seeking assets and increase
the proportion allocated to matching assets.
23/04/2014 13:15
Premier Farnell
103
Premier Farnell Preference shares are not included in either UK or US investments.
The amounts recognised in the income statement are as follows:
UK Plan
2013/14
£m
UK Plan
2012/13
Restated
£m
US Plan
2013/14
£m
US Plan
2012/13
Restated
£m
(0.7)
(0.5)
(0.4)
(0.4)
Past service cost
–
–
–
1.0
Settlement/curtailment
–
–
–
7.5
Administrative costs paid
(0.5)
(0.5)
(0.5)
(0.6)
Total (charge)/income (included in total net operating expenses)
(1.2)
(1.0)
(0.9)
7.5
Strategic focus
Net interest cost
Performance & risks
The majority of the US Plan assets follow a Liability Driven Investment strategy. At 2 February 2014, 95% of the US Plan’s assets were invested
under this strategy, which comprised a mixture of corporate bonds, government bonds, swaps and futures. The US Plan assets at 2 February 2014
included ordinary shares issued by Premier Farnell plc with a fair value of £5.1 million (2013: £5.0 million).
Changes in the present value of the defined benefit obligation are as follows:
UK Plan
2013/14
£m
US Plan
2013/14
£m
US Plan
2012/13
Restated
£m
(99.4)
(92.5)
(116.6)
(144.8)
(4.5)
(4.1)
(4.6)
(5.7)
Past service credit
–
–
–
1.0
–
–
–
41.2
Actuarial (losses)/gains due to plan experience
(0.2)
–
0.1
(0.8)
Actuarial (losses)/gains due to changes in financial assumptions
(2.0)
(5.4)
3.3
(8.4)
–
(2.0)
–
(3.7)
4.0
4.6
6.6
4.6
Interest cost
Actuarial losses due to changes in demographic assumptions
Actual benefit payments
–
–
4.8
–
(102.1)
(99.4)
(106.4)
(116.6)
Changes in the fair value of plan assets are as follows:
Beginning of year
UK Plan
2013/14
£m
UK Plan
2012/13
Restated
£m
US Plan
2013/14
£m
US Plan
2012/13
Restated
£m
77.5
105.4
135.7
3.8
3.6
4.2
5.3
Contributions
3.8
3.1
–
–
(33.7)
–
–
–
Return on plan assets (less)/greater than discount rate
(1.3)
3.1
(3.3)
3.3
Actual benefits paid
(4.0)
(4.6)
(6.6)
(4.6)
Administrative costs paid
(0.5)
(0.5)
(0.5)
(0.6)
–
–
(4.4)
–
84.0
82.2
94.8
105.4
2.5
6.7
0.9
8.6
End of year
Actual return on plan assets
82.2
Interest income on plan assets
Governance
End of year
Beginning of year
UK Plan
2012/13
Restated
£m
23/04/2014 13:15
104
Premier Farnell
Analysis of the movement in the balance sheet liability:
UK Plan
2013/14
£m
Liability at beginning of year
Total (expense)/income as above
Contributions
Remeasurements recognised in the year
US Plan
2012/13
Restated
£m
US Plan
2013/14
£m
(17.2)
(15.0)
(11.2)
(9.1)
(1.2)
(1.0)
(0.9)
7.5
3.8
3.1
–
–
(3.5)
(4.3)
0.1
(9.6)
UK Plan
2012/13
Restated
£m
–
–
0.4
–
(18.1)
(17.2)
(11.6)
(11.2)
In accordance with IAS 19 (revised) the 2012/13 balance sheet liability for pension commitments has been restated, as described in note 27.
The table below shows the impact of restatement:
UK Plan 2012/13
US Plan 2012/13
Previously
stated
£m
Adopt IAS 19
(revised)
£m
Restated
£m
(17.6)
2.6
(15.0)
(12.3)
3.2
(9.1)
Total (expense)/income as above
(0.6)
(0.4)
(1.0)
8.7
(1.2)
7.5
Contributions
3.1
–
3.1
–
–
–
Remeasurements recognised in the year
(5.1)
0.8
(4.3)
(10.8)
1.2
(9.6)
–
–
–
–
–
–
(20.2)
3.0
(17.2)
(14.4)
3.2
(11.2)
Liability at beginning of year
Previously
stated
£m
Adopt IAS 19
(revised)
£m
Restated
£m
The UK Plan is undergoing its triennial valuation as at 5 April 2014. The contributions expected to be paid during the financial year ending 1 February
2015 amount to £3.5 million (including £0.5 million for expenses) in respect of the UK Plan and £nil in respect of the US Plan. With regard to the US
costs these are paid by the US Plan.
The weighted average duration of the defined obligation for the UK is 16 years and for the US Plan, 12 years.
Assets and obligations associated with the schemes may be sensitive to changes in market values of assets and market related assumptions used
in the valuation of scheme liabilities. Changes to asset values, discount rates, or inflation could change the future pension costs and funding
requirements.
A sensitivity analysis on the principal assumptions used to measure the plan assets and liabilities at the year-end, with all other variables held
constant, is given below:
UK Plan
Sensitivity analysis
Discount rate1
Inflation (and inflation related
assumptions)2
Mortality
US Plan
(Increase) in plan Increase in plan
obligations
assets
£m
£m
Net balance
(Increase) in Increase in plan
sheet impact plan obligations
assets
£m
£m
£m
Net balance
sheet impact
£m
1% decrease
(17.4)
3.4
(14.0)
(17.2)
11.3
(5.9)
0.5% increase
(6.1)
2.0
(4.1)
(2.2)
2.0
(0.2)
Increase of 1 year in expected
lifetime of plan participants
(3.1)
–
(3.1)
(2.5)
–
(2.5)
1. The change in discount rate is assumed to be due to a 1% per annum decrease in corporate bond yields.
2. The sensitivities to inflation assumption changes include corresponding changes to the future salary and pension increase assumptions.
23/04/2014 13:15
Premier Farnell
105
25 Pension commitments and other post-retirement
obligations continued
The amounts recognised in the income statement are as follows:
Through its defined benefit pension plans, the Group is exposed to a
number of direct risks, the most significant of which are detailed below.
2012/13
£m
Service cost
0.1
0.1
Interest cost
0.6
0.6
Total charge (included in total net
operating expenses)
0.7
0.7
Changes in the present value of the defined benefit obligation are
as follows:
2013/14
£m
(13.5)
Changes in bond yields – decreases in corporate bond yields will
increase plan liabilities, partially offset by an increase in the value of the
plans’ bond holdings.
(0.1)
(0.1)
Interest cost
(0.6)
(0.6)
Inflation risk – some of the Group pension obligations (UK’s) are linked
to inflation. Rises in inflation will lead to higher liabilities (with caps and
floors on the level of inflationary increases to protect against extreme
inflation). The index-linked bonds will be directly affected by inflation,
with the remainder being unaffected directly.
Actuarial losses
B) Post-retirement medical benefits
In the US, the Group provides unfunded post-retirement medical
benefits to certain US employees. The method of accounting for these is
similar to that used to account for pension obligations. The charge for
the year was £0.7 million (2012/13: £0.7 million) and the balance sheet
obligation at 2 February 2014 amounted to £14.5 million (2013:
£14.5 million).
The principal assumptions were as follows:
End of year
0.7
(0.9)
0.6
(0.1)
(14.5)
(14.5)
Cumulative actuarial gains and losses recognised in equity:
2013/14
£m
2012/13
£m
Beginning of year
(6.9)
(6.0)
Net actuarial losses recognised in the year
(1.0)
(0.9)
End of year
(7.9)
(6.9)
Experience gains and losses:
2013/14
2012/13
Experience (losses)/gains on defined benefit
obligation:
Amount (£m)
Percentage of the present value of liabilities
(1.6)
0.1
(11.4%)
0.7%
0.6
(1.0)
4.4%
(6.9%)
Gains/(losses) arising from change in
assumptions:
2013
Discount rate
4.4%
4.0%
Amount (£m)
Medical inflation
5.0%*
5.0%*
Percentage of the present value of liabilities
Life expectancy of a 60-year-old male
current retiree
25 yrs
25 yrs
Life expectancy of a 60-year-old male
future retiree
26 yrs
26 yrs
The weighted average duration of the post-employment medical
obligation is ten years.
2014
* The assumed long term rate of medical inflation is 5.0% per annum. In 2014, the
initial rate has been assumed to be 7.5%, which is assumed for one year and
then to reduce to the long term rate at 0.5% per annum over five years. In 2013,
the initial rate was assumed to be 8.0% for one year and then to reduce to the
long term rate at 0.5% per annum over six years.
1.1
(1.0)
Governance
The disclosures relating to post-retirement medical benefits are based
on an actuarial valuation performed by Towers Watson, as at
2 February 2014.
Payments
(14.5)
Service cost
Life expectancy – plan obligations are to provide benefits for the lifetime
of the member. Increases in life expectancy will lead to increased plan
liabilities.
Beginning of year
2012/13
£m
Strategic focus
Asset volatility – plan liabilities are calculated using a discount rate set
with reference to corporate bond yields. If plan assets underperform this
yield, this will create or increase a deficit.
2013/14
£m
Performance & risks
In practice the assumption that all other variables are held constant
is unlikely to occur and changes in some of the assumptions may be
correlated. The same method for calculating the sensitivity of the defined
benefit obligation to changes in the principal assumptions has been
applied as that used when calculating the pension liability recognised
within the statement of financial position.
Future life expectancy is based on RP 2000 mortality tables with
generational projections using scale BB in 2014 and 2013.
23/04/2014 13:15
Premier Farnell
106
25 Pension commitments and other post-retirement
obligations continued
27 Restatement of comparatives and change in accounting
policies (Employee benefits)
A sensitivity analysis on the principal assumptions used to measure
the plan liabilities at the year-end, with all other variables held constant,
is given below:
IAS 19 (revised) ‘Employee benefits’. In accordance with the revised
standard, the Group’s accounting policies have been changed to
replace interest on the defined benefit obligation and expected return
on plan assets with a single net interest cost calculated by applying the
discount rate to the net defined benefit liability. Administration costs are
now recognised in the income statement when the administration
services are provided, with provisions for administration costs formerly
included as part of the defined benefit obligation having been removed.
Increase
£m
Discount rate
1% decrease
1.7
Medical costs
1% increase
1.6
Increase of 1 year in expected lifetime
0.6
Mortality
The post-employment medical plan is exposed to the following risks:
Life expectancy – plan obligations are to provide benefits for the lifetime
of the member. Increases in life expectancy will lead to increased
plan liabilities.
Medical inflation – plan obligations will increase/decrease as the cost
of healthcare in the US rises/falls.
As an unfunded plan the post-employment medical plan is not directly
exposed to other risks such as currency risk, interest rate risk and
market (investment) risk.
26 Operating lease commitments
The Group has total minimum lease payments under non-cancellable
operating leases as follows:
Land and buildings
Due within one year
Due between one and five years
Due after five years
The impact of the restatement of comparative information for the year
ended 3 February 2013 was to reduce the defined benefit obligation
by £6.2 million, with associated deferred tax assets being reduced by
£0.7 million and deferred tax liabilities increased by £1.1 million, resulting
in an increase in total net assets of £4.4 million. The corresponding
restatement of the income statement for the year ended 3 February
2013 was to increase total operating expenses and reduce total
profit before taxation by £1.6 million, reduce profit after taxation by
£1.0 million and reduce both basic and diluted earnings per share by
0.3 pence. The impact on the year-end 29 January 2012 balance sheet
was to reduce the defined benefit obligation by £5.8 million, with
associated deferred tax assets being reduced by £0.7 million and
deferred tax liabilities increased by £1.1 million. A table showing the
impact of the restatement on the net pension liabilities is show in
note 25.
28 Events after the reporting period
Other assets
2014
£m
2013
£m
2014
£m
2013
£m
5.4
4.8
1.1
1.2
10.1
8.4
1.8
1.3
1.6
1.7
–
–
17.1
14.9
2.9
2.5
Subsequent to the year ended 2 February 2014, the Group has reached
an agreement to acquire the trade and assets of AVID Technologies
Inc., subject to certain conditions. This acquisition will enhance the
Group’s technology capability at the front end of the design cycle as
we support suppliers’ new product introduction strategies and extend
our business model. Total consideration payable is expected to be
US$13 million.
On the 28 March 2014, the Group acquired 712,948 of its cumulative
convertible redeemable preference shares of £1 each at a price of
£16.05 per share. The number of cumulative convertible redeemable
preference shares in issue following this purchase is 3,236,471.
The shares acquired by the Group will be cancelled.
23/04/2014 13:15
Premier Farnell
107
Company financial
statements
At 2 February 2014
Note
2014
£m
2013
£m
C
291.7
290.6
Fixed assets
Investments
Performance & risks
Company balance sheet
Current assets
D
54.4
53.1
Debtors – due after more than one year
D
904.8
901.6
959.2
954.7
Total debtors
Creditors – amounts falling due within one year
E
F
Net current assets
Total assets less current liabilities
–
26.6
959.2
981.3
(159.3)
(332.8)
799.9
648.5
939.1
F
(663.9)
(663.9)
Provision for liabilities and charges (deferred tax)
H
(0.1)
–
427.6
275.2
Net assets
Capital and reserves
J
18.6
18.5
Equity element/nominal value of preference shares
G
10.4
10.4
Share premium
K
32.7
32.0
Capital redemption reserve
K
4.4
4.4
Merger reserve
K
0.6
0.6
Hedging reserve
K
–
1.8
Profit and loss account
K
360.9
207.5
Total shareholders’ funds
L
427.6
275.2
The Company financial statements on pages 107 to 113 were approved by the Board of Directors on 17 April 2014 and were signed on its
behalf by:
Governance
Called up share capital
1,091.6
Creditors – amounts falling due after more than one year
Strategic focus
Debtors – due within one year
Mark Whiteling
Director
Premier Farnell plc Registered number 876412
The accounting policies and notes on pages 108 to 113 form an integral part of the Company financial statements.
23/04/2014 13:15
108
Premier Farnell
Company financial
statements
Accounting policies
Premier Farnell plc (the “Company”) is a company incorporated and
domiciled in the UK and is listed on the London Stock Exchange.
The address of the Company’s registered office is Farnell House,
Forge Lane, Leeds LS12 2NE, England. The Company’s registered
number is 876412.
These Company financial statements have been approved by the
Board of Directors on 17 April 2014.
Basis of preparation
The financial statements of the Company have been prepared under
the historical cost convention, with the exception of derivative financial
instruments which are recognised at fair value, and in accordance with
applicable UK accounting standards. The financial statements have
been prepared on a going concern basis. A summary of the more
important accounting policies of the Company, which the Directors
consider to be the most appropriate, is set out below. The Company
has not been required to adopt any new accounting standards or
interpretations during the year that have a significant impact on the
Company’s financial results.
The financial year ended 2 February 2014 was a 52 week period
(financial year ended 3 February 2013: 53 week period).
Foreign currencies
Transactions in foreign currencies are recorded using the rate of
exchange ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated using the
contracted rate or the rate of exchange ruling at the balance sheet
date and the gains or losses on translation are included in the profit
and loss account.
Retirement benefits
Employees of the Company are able to participate in the Premier Farnell
UK Pension Scheme, comprising both a defined benefit and a defined
contribution plan. The assets of the plan are held separately from those
of the Company in an independently administered fund.
Defined benefit plan
The Company is unable to identify its share of the underlying assets
and liabilities of the scheme on a consistent and reasonable basis and
therefore, as permitted by FRS 17, accounts for the plan as if it were a
defined contribution plan. The consolidated financial statements include
full disclosures of the UK defined benefit plan in accordance with IAS 19
(note 25).
Defined contribution plan
Payments to the defined contribution plan are charged as an expense
as they fall due.
Deferred taxation
Full provision is made, on an undiscounted basis, for deferred taxation
resulting from timing differences between the profits computed for
taxation purposes and profits stated in the accounts to the extent that
there is an obligation to pay more tax in the future as a result of the
reversal of those timing differences. Deferred tax assets are recognised
to the extent that they are expected to be recoverable.
Deferred tax is provided at the tax rates that are expected to apply in the
periods in which the timing differences are expected to reverse, based
on tax rates and laws that have been enacted or substantively enacted
by the balance sheet date.
Under FRS 25, the Company’s cumulative, convertible, redeemable
preference shares are required to be split into debt and equity
components with the preference dividend being reclassified as a finance
cost. The fair value of the debt element is established on issue of the
shares, based on the discounted cash flows of the instrument to the
date of maturity and is then increased each year on an amortised cost
basis through the income statement in order to arrive at the redemption
amount payable on maturity of the shares. On purchase and
cancellation of preference shares by the Company, a gain or loss
is recognised in the profit and loss account based on the difference
between the book value and fair value of the financial liability element of
the instrument at the date of purchase. The difference between the book
value and fair value of the equity element of the instrument is recognised
as a movement in the profit and loss account. In addition, a transfer is
made to non-distributable reserves from profit and loss account in order
to maintain the legal nominal value of share capital. The accounting for
the Company’s preference shares in accordance with FRS 25 is
identical to that under IAS 32, further details for which are given in
note 15 to the consolidated financial statements.
The Company uses derivative financial instruments to hedge its
exposure to foreign exchange and interest rate risks arising from
financing and investment activities. In accordance with its treasury
policy, the Company does not have or issue speculative derivative
arrangements. All transactions in financial instruments are matched
to an underlying business requirement. Derivative financial instruments
are recognised at fair value. At period ends, the gain or loss on remeasurement to fair value is recognised in profit and loss. However,
where derivatives qualify for hedge accounting, recognition of any
resulting gain or loss will depend upon the nature of the item being
hedged (see accounting policy on hedging).
The fair value of forward currency contracts has been determined based
upon market forward exchange rates at the balance sheet date. The fair
value of short term deposits, loans and overdrafts with maturities of less
than one year are assumed to approximate to their book values.
The fair value of the Company’s US dollar Guaranteed Senior
Notes is based on discounted cash flows using a discount rate
for similar instruments.
The fair value of the Company’s preference shares is based on the
quoted market price.
23/04/2014 13:15
Premier Farnell
109
Cash flow hedges
Shares in subsidiary undertakings
Shares in subsidiary undertakings are initially stated at cost. Provision
is made where, in the opinion of the Directors, a permanent diminution
in value has occurred.
The Company operates five equity settled, share-based incentive
schemes: an Executive Share Option Plan, a Performance Share Plan,
a Restricted Share Plan, a Deferred Share Bonus Plan and a Save As
You Earn Scheme. These are accounted for in accordance with FRS 20,
Share-based Payments. For incentives granted to employees of Premier
Farnell plc, an expense is required to be recognised in the profit and loss
account over the vesting period. The expense is based on the fair value
of each instrument at the grant date, using appropriate option pricing
models. The expense is credited to reserves. For incentives granted to
employees of Group companies other than Premier Farnell plc, the cost
for share-based incentives, again based on the fair value of each
instrument at grant date, is treated as an increase in investments,
with the corresponding credit being made directly to reserves.
Called up share capital is classified as equity and dividends are
recognised as a liability in the period in which they are approved.
Strategic focus
Called up share capital
Performance & risks
Where a derivative financial instrument is designated as a hedge of the
variability in cash flows of a recognised asset or liability, or highly
probable forecast transaction, the effective part of any gain or loss on
the derivative financial instrument is recognised directly in equity. If a
hedge of a forecast transaction subsequently results in the recognition
of a financial asset or liability, the associated gains or losses that were
recognised directly in equity are reclassified into profit or loss in the
same period(s) during which the income/expense is recognised. For
other cash flow hedges, the associated cumulative gain or loss is
removed from equity and recognised in the profit and loss account in
the same period(s) as which the hedged forecast transaction affects
profit or loss. The gain or loss on any ineffective part of the hedge is
immediately recognised in the profit and loss account.
All of the Group’s share-based incentives have non-market based
performance measures (earnings per share or return on sales), for
which the Black Scholes model is used and the value of the expense
is adjusted to reflect expected and actual levels of vesting. The fair value
of SAYE grants is calculated using the Black Scholes model and the
expense is only adjusted to reflect forfeitures.
Governance
23/04/2014 13:15
110
Premier Farnell
Notes to the Company
A. Premier Farnell plc – profit and loss account
Premier Farnell plc has not presented its own profit and loss account
as permitted by Section 408 of the Companies Act 2006. The profit after
taxation for the financial year dealt with in the accounts of the Company
is £189.9 million (2012/13: loss after taxation of £17.4 million) which
relates entirely to continuing operations. Gains/losses that have been
credited/charged directly to reserves are detailed in note K to the
Company financial statements.
The audit fee in respect of the Company was £0.1 million
(2012/13: £0.1 million).
The principal trading subsidiary undertakings of Premier Farnell plc,
owned either directly or indirectly through subsidiaries, are as follows:
Country of incorporation
and operation
Premier Farnell UK Limited
UK
element14 Pty Ltd
Australia
element14 Limited
New Zealand
Farnell GmbH
Germany
CadSoft Computer GmbH
Germany
Farnell Danmark AS
Denmark
B. Employees and Directors
Oy Farnell (Finland) AB
Finland
Staff costs during the year were as follows:
Farnell Components AB
Sweden
2013/14
£m
2012/13
£m
Wages and salaries
9.4
10.1
Social security costs
1.0
1.2
Pension costs
0.7
0.7
Share-based payments (note O)
0.5
0.5
11.6
12.5
Farnell AG
Switzerland
Farnell Components (Ireland) Limited
Eire
Farnell (France) SAS
Farnell (Netherlands) BV
France
Netherlands
Farnell Newark Brasil Distribuidora
de Produtos Electronicos Limitada
Brazil
element14 Pte Ltd
Singapore
element14 SDN BHD
Average monthly number of persons employed
(including Executive Directors)
2013/14
Number
2012/13
Number
77
80
eluomeng Limited
Malaysia
Hong Kong
Farnell Components SL
Directors’ remuneration is summarised in note 24 to the consolidated
financial statements. A detailed analysis of Directors’ remuneration,
including salaries, performance-related bonuses, retirement benefits and
long term incentives, is provided in the Remuneration Report on pages
63 to 77, which forms part of these financial statements. Details of the
highest paid Director are given on page 70.
Spain
Farnell Italia SRL
Italy
Farnell (Belgium) NV
Belgium
eluomeng electronics (China) Co. Ltd
China
element14 India Pvt Ltd
India
Newark Corporation
US
Newark Electronics Corporation
US
The Executive Directors received all of their remuneration from Premier
Farnell plc. However, it is not practical to allocate such costs between
their services as executives of the Company and their services as
Directors of the Group.
MCM Electronics Inc
US
C. Fixed asset investments
Shenzhen Embest Technology Co Ltd
Shares in subsidiary undertakings
Share-based payments (note O)
2014
£m
2013
£m
279.5
279.5
12.2
11.1
291.7
290.6
Akron Brass Company
US
Premier Farnell Canada Limited
Canada
Premier Farnell Electronics de Mexico SRL
Mexico
element14 Limited
China
Hong Kong
element14 Asia Pte Limited
Singapore
element14 SPzoo
Poland
All of the above are wholly-owned.
Companies incorporated in the UK are registered in England.
All companies are involved in distribution activities. Akron Brass
Company is also involved in manufacturing activities.
The Directors consider that to list all subsidiary undertakings would lead
to a statement of excessive length. A full list of subsidiary undertakings
will be annexed to the Company’s next annual return.
The Directors believe that the carrying value of investments is supported
by their underlying net assets or future cash flows.
23/04/2014 13:15
Premier Farnell
111
2013
£m
2014
£m
2013
£m
53.9
50.5
Other debtors
0.3
2.4
Prepayments and accrued income
0.2
0.2
54.4
53.1
Amounts falling due within one year:
Corporate tax recoverable
Unsecured loans
200.2
188.1
Amounts owed to subsidiary undertakings
400.3
413.2
600.5
601.3
63.4
62.6
663.9
663.9
Bank loans
39.2
20.1
payable 2016
904.8
901.2
–
0.4
51.8
54.0
payable 2017
904.8
901.6
18.3
19.1
The balances above do not include any impaired assets. The Company
does not hold any collateral as security. The carrying amount of debtors
is a reasonable approximation to fair value.
payable 2018
35.5
37.0
payable 2021
Cash at bank and in hand comprise bank and short term deposits
repayable on demand and available within one day without penalty.
Within one year
2013
£m
Amounts falling due within one year:
Bank overdrafts (unsecured)
153.1
322.5
–
–
Between two and five years
208.2
155.8
55.4
94.9
416.7
573.2
After five years
221.4
–
101.1
Taxation and social security
0.1
0.3
Other creditors
0.7
0.5
Accruals and deferred income
5.4
9.5
159.3
332.8
Governance
153.1
payable 2013
57.9
188.1
Bank overdrafts, unsecured loans and
preference shares are repayable as follows:
F. Creditors
2014
£m
55.4
200.2
E. Cash at bank and in hand
Strategic focus
Deferred tax assets (note H)
Preference shares
Unsecured loans comprise:
Amounts falling due after more
than one year:
Amounts owed by subsidiary undertakings
Amounts falling due after more than
one year:
Performance & risks
2014
£m
D. Debtors
23/04/2014 13:15
112
Premier Farnell
Notes to the Company financial
statements
G. Preference shares
Cumulative, convertible, redeemable preference shares of £1 each.
2014
Number
2013
Number
32,000,000
32,000,000
3,949,419
3,949,419
2014
£m
2013
£m
Equity element
10.4
10.4
Debt element
63.4
62.6
Authorised
Allotted, called up and fully paid
The accounting and disclosure for preference shares in accordance
with FRS 25 and FRS 26 is identical to IAS 32, Financial Instruments:
Disclosure and Presentation, and IAS 39, Financial Instruments
Recognition and Measurement. Further details relating to the
accounting, rights and restrictions of the preference shares are given
in note 15 to the consolidated financial statements, together with
an explanation of movements in the equity and debt elements during
the year.
2013/14
£m
2012/13
£m
Asset at beginning of year
0.4
0.2
(Charge)/credit in the year
(0.5)
0.2
(Liability)/asset at end of year
(0.1)
0.4
Over
5 years
£m
At 2 February 2014
Borrowings
175.2
7.5
163.3
63.9
Preference shares
3.5
3.5
65.1
–
Trade and other creditors
0.8
–
–
–
179.5
11.0
228.4
63.9
Less
than
1 year
£m
Between
1 and
2 years
£m
Between
2 and
5 years
£m
Over
5 years
£m
332.8
7.8
115.8
108.4
3.5
3.5
69.6
–
At 3 February 2013
Borrowings
Trade and other creditors
0.8
–
–
–
337.1
11.3
185.4
108.4
The Company is the borrower in respect of revolving credit facilities of
£200 million, expiring in October 2016, which carry a LIBOR based
floating rate of interest.
US dollar private placement notes bear coupons between 3.0% and
5.2%, and are repayable between August 2016 and November 2021.
Deferred tax provision comprises:
Preference shares
than
1 and
2 and
1 year
2 years
5 years
£m
£m
£m
Preference shares
H. Deferred tax
Short term timing differences
Maturity of financial liabilities
The table below analyses the Company’s financial liabilities into relevant
maturity groupings based on the remaining period at the balance sheet
date to the contractual maturity date. The amounts disclosed in the
table are the contractual undiscounted cash flows.
0.4
1.1
(0.5)
(0.7)
(0.1)
0.4
The book and fair values of the Company’s financial instruments are
as follows:
Book
value
2014
£m
Fair
value
2014
£m
Book
value
2013
£m
Fair
value
2013
£m
200.2
204.4
188.1
197.6
73.8
63.1
73.0
59.2
153.1
153.1
322.5
324.8
Other creditors
0.7
0.7
0.5
0.5
Other debtors
0.3
0.3
0.2
0.2
I. Financial instruments
The Company is exposed to a number of different market risks in the
normal course of business including liquidity, credit and interest rate risk.
The policies and procedures in place to control these risks are detailed
in note 18 to the consolidated financial statements.
The Company’s objectives, policies and strategies with respect to
financial instruments are outlined in the Company’s accounting policies.
Long term borrowings
Preference shares
Short term borrowings
The book value of the preference shares at 2 February 2014 comprises
the equity element of £10.4 million (2013: £10.4 million) and the debt
value of £63.4 million (2013: £62.6 million).
J. Called up share capital
Details of the Company’s ordinary share capital are given in note 19
to the consolidated financial statements.
23/04/2014 13:15
Premier Farnell
113
K. Movements in share capital and reserves
New share capital subscribed
Equity
element of
preference
shares
£m
Share
premium
£m
Capital
redemption
reserve
£m
Merger
reserve
£m
Hedging
reserve
£m
Profit and
loss account
£m
Total
£m
18.5
10.4
32.0
4.4
0.6
1.8
207.5
275.2
–
0.7
–
–
–
–
0.8
–
–
–
–
–
–
189.9
189.9
–
–
–
–
–
–
1.6
1.6
Ordinary dividends paid
–
–
–
–
–
–
(38.1)
(38.1)
–
–
–
–
–
(1.8)
–
(1.8)
18.6
10.4
32.7
4.4
0.6
–
360.9
427.6
At 2 February 2014
L. Reconciliation of movements in shareholders’ funds
2013/14
£m
2012/13
£m
189.9
(17.4)
Ordinary dividends paid
(38.1)
(37.9)
0.8
0.9
1.6
1.4
(1.8)
2.1
Net change in shareholders’ funds
152.4
(50.9)
Shareholders’ funds at beginning of year
275.2
326.1
Shareholders’ funds at end of year
427.6
275.2
M. Contingent liabilities
Profit/(loss) after taxation
New share capital subscribed
Strategic focus
0.1
Profit for the year
Performance & risks
At 3 February 2013
Called up
share capital
£m
The Company has guaranteed the loans of certain subsidiary undertakings which at 2 February 2014 amounted to £0.5 million (2013: £0.5 million)
and bank guarantees issued on behalf of certain subsidiary undertakings which at 2 February 2014 amounted to £12.2 million (2013: £4.6 million).
Governance
N. Ordinary dividends
Ordinary dividends paid and ordinary dividends proposed but not yet paid in respect of the financial year ended 2 February 2014 are detailed
in note 7 to the consolidated financial statements.
O. Share-based payments
The charge for share-based payments in respect of the Company was £0.5 million (2012/13: £0.5 million) which relates to grants made to
employees of Premier Farnell plc. In addition, the cost for share-based payments in respect of shares in the Company granted to employees of
Group companies other than Premier Farnell plc, was £1.1 million (2012/13: £0.9 million), and is treated as an increase in investments in subsidiary
undertakings. The credit relating to the combined amount of £1.6 million (2012/13: £1.4 million) has been credited directly to reserves.
Details of potential issues of ordinary shares under share option schemes for the Group are given in note 19 to the consolidated financial statements.
In respect of the Company, the number of outstanding options under these schemes as at 2 February 2014 was as follows:
Executive Share Option Plan
Save As You Earn Option Scheme
Performance Share Plan
Restricted Share Plan
Deferred Share Bonus Plan
2014
Number
2013
Number
3,135,973
3,022,880
163,234
129,810
1,253,468
1,517,522
101,008
22,850
99,311
309,661
4,752,994
5,002,723
Other than noted above, the method of accounting and assumptions adopted for share-based payments are consistent with those adopted in the
consolidated financial statements (note 20).
P. Post balance sheet events
On the 28 March 2014, the Company acquired 712,948 of its cumulative convertible redeemable preference shares of £1 each at a price of £16.05
per share. The number of cumulative convertible redeemable preference shares in issue following this purchase is 3,236,471. The shares acquired
by the Company will be cancelled.
23/04/2014 13:15
114
Premier Farnell
Independent Auditor’s
Report to the Members
of Premier Farnell plc
Report on the financial statements
Our opinion
In our opinion:
t the financial statements, defined below, give a true and fair view of
the state of the Group’s and of the Parent Company’s affairs as at
2 February 2014 and of the Group’s profit and of the Group’s and
Parent Company’s cash flows for the year then ended;
t the Group financial statements have been properly prepared in
as adopted by the European Union;
t the Parent Company financial statements have been properly prepared
in accordance with United Kingdom Generally Accepted Accounting
Practice; and
t the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
This opinion is to be read in the context of what we say in the remainder
of this report.
What we have audited
The Group financial statements and Parent Company financial statements
(the “financial statements”), which are prepared by Premier Farnell plc,
comprise:
t the Consolidated balance sheet and Company balance sheet
as at 2 February 2014;
t the Consolidated income statement and Consolidated statement
of comprehensive income for the year then ended;
t the Consolidated statement of cash flows for the year then ended;
t the Consolidated statement of changes in equity for the year then
ended; and
t the notes, comprising a summary of significant accounting policies
and other explanatory information.
The financial reporting framework that has been applied in the preparation
of the Group financial statements comprises applicable law and IFRSs
as adopted by the European Union. The financial reporting framework
that has been applied in the preparation of the Parent Company financial
statements comprises applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting Practice).
Certain disclosures required by the financial reporting framework have
been presented elsewhere in the Annual Report, rather than in the notes
to the financial statements. These are cross-referenced from the financial
statements and are identified as audited.
23/04/2014 13:15
Premier Farnell
115
t whether the accounting policies are appropriate to the Group’s and
Parent Company’s circumstances and have been consistently applied
and adequately disclosed;
t the reasonableness of significant accounting estimates made by the
directors; and
In addition, we read all the financial and non-financial information in the
Annual Report to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of any
apparent material misstatements or inconsistencies we consider the
implications for our report.
Where the work was performed by component auditors, we determined
the level of involvement we needed to have in the audit work at those
reporting units in order to conclude whether sufficient appropriate audit
evidence had been obtained as a basis for our opinion on the Group
financial statements as a whole.
We identified 23 reporting units, which in our view, required an audit of
their complete financial information due to their size, risk characteristics or
contribution to the Group. This provided us with 86% coverage of Group
profit before tax before adjusting items.
Specific audit procedures on certain balances and transactions were also
performed at one further reporting unit upon request of the directors and
the Audit Committee. This, together with additional procedures performed
on balances arising as a result of the Group’s consolidation process
gave us the evidence we needed for our opinion on the Group financial
statements as a whole.
In our audit, we tested and examined information, using sampling and
other auditing techniques, to the extent we considered necessary to
provide a reasonable basis for us to draw conclusions. We obtained
audit evidence through testing the effectiveness of controls, substantive
procedures or a combination of both.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above £0.2 million as well as
misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.
We considered the following areas to be those that required particular
focus in the current year. This is not a complete list of all risks or areas of
focus identified by our audit. We discussed these areas of focus with the
Audit Committee. Their report on those matters that they considered to
be significant issues in relation to the financial statements is set out on
page 56.
Overview of the scope of our audit
The Group is structured into three divisions being the Marketing and
Distribution Division (MDD), Other MDD Distribution Businesses and the
Industrial Products Division (IPD). The Group financial statements are a
consolidation of 52 reporting units within these divisions. 49 reporting units
comprise the MDD division and centralised functions, two units are in the
Other MDD Distribution businesses and one unit is in the IPD division.
Governance
Based on our professional judgement, we determined materiality for the
Group financial statements as a whole to be £4 million. This represents
approximately 5% of profit before tax before those items which are
identified as adjusting items set out separately on the face of the
income statement.
Overview of our audit approach
Materiality
We set certain thresholds for materiality. These helped us to determine
the nature, timing and extent of our audit procedures and to evaluate the
effect of misstatements both individually and on the financial statements
as a whole.
Areas of particular audit focus
In preparing the financial statements, the Directors made a number of
subjective judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future events
that are inherently uncertain. We primarily focused our work in these
areas by assessing the Directors’ judgements against available evidence,
forming our own judgements, and evaluating the disclosures in the
Strategic focus
t the overall presentation of the financial statements.
In establishing the overall approach to the group audit, we determined the
type of work that needed to be performed at the reporting units by us, as
the group engagement team, or component auditors within PwC UK and
from other PwC network firms operating under our instruction.
Performance & risks
What an audit of financial statements involves
We conducted our audit in accordance with International Standards on
Auditing (UK and Ireland) (ISAs (UK & Ireland)). An audit involves obtaining
evidence about the amounts and disclosures in the financial statements
sufficient to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or error.
This includes an assessment of:
23/04/2014 13:15
116
Premier Farnell
Independent Auditor’s Report to the
Members of Premier Farnell plc
Area of focus
How the scope of our audit addressed the area of focus
Inventory valuation
The Group has significant inventory holdings at a number
of reporting units in different territories.
The Group’s business model and type of products being
predominantly electronic components drives high levels of
inventory turn and regular changes in products.
As a result, inventory management is considered by the directors
to be a critical business process.
For these reasons, we focused on this area and in particular
the Directors’ subjective judgements in estimating the provision
required for slow moving and obsolete inventory.
We tested key controls relating to the inventory cycle.
We updated our understanding of any changes in provisioning
methodologies and considered if the changes were appropriate in light
of the industry in which Premier Farnell operates.
We tested the calculation of the inventory provision which included testing
the slow moving and obsolete, net realisable value and shrink provisions.
We compared the calculations to the Group policies and investigated
any differences.
Valuation of pension obligations
We focused on this area because of the materiality of the obligation
to the financial statements and the key judgements and assumptions
involved in determining the net pension obligation including discount
rates, RPI and mortality rates.
We evaluated the Group’s key judgements, taking into account the
specific characteristics of the Group’s pension schemes. We assessed
assumptions with respect to discount rates, RPI and mortality rates used
by the Directors by comparing them to our own, independently formed
expectations.
Fraud in revenue recognition
ISAs (UK & Ireland) presume there is a risk of fraud in revenue
recognition because of the pressure management may feel
to achieve the planned results.
Revenue comprises a high volume of low value transactions. Accordingly,
we tested key controls in the revenue and receivables cycle, including
automated and manual controls over revenue recognition, the review of
changes to master price file and testing automatic generation of invoices.
In addition, we performed substantive testing of revenue transactions,
performed analytical procedures, tested sales returns and performed
testing of manual journal entries into revenue.
Risk of fraud due to management override of internal controls
ISAs (UK & Ireland) require that we consider this.
We tested key reconciliations and manual journal entries. We
considered whether there was evidence of bias by the Directors in
the significant accounting estimates and judgements relevant to the
financial statements. We also assessed the overall control environment
of the Group, including the arrangements for staff to “whistle-blow”
inappropriate actions, and interviewed senior management and the
Group’s internal audit function.
Going Concern
Opinions on other matters prescribed by the Companies Act 2006
Under the Listing Rules we are required to review the directors’ statement,
set out on page 53, in relation to going concern. We have nothing to report
having performed our review.
In our opinion:
As noted in the directors’ statement, the directors have concluded that
it is appropriate to prepare the Group’s and Parent Company’s financial
statements using the going concern basis of accounting. The going
concern basis presumes that the Group and Parent Company have
adequate resources to remain in operation, and that the directors intend
them to do so, for at least one year from the date the financial statements
were signed. As part of our audit we have concluded that the directors’
use of the going concern basis is appropriate.
t the information given in the Strategic report and the Directors’ report
for the financial year for which the financial statements are prepared is
consistent with the financial statements;
t the part of the Directors’ Remuneration report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
t the information given in the Corporate Governance Statement set out
on pages 56 to 59 in the Annual Report with respect to internal control
and risk management systems and about share capital structures
is consistent with the financial statements.
However, because not all future events or conditions can be predicted,
these statements are not a guarantee as to the Group’s and the Parent
Company’s ability to continue as a going concern.
23/04/2014 13:15
Premier Farnell
117
Other matters on which we are required to report by exception
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
t we have not received all the information and explanations we require
for our audit; or
t adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received from
branches not visited by us; or
We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in
our opinion, certain disclosures of Directors’ remuneration specified by
law have not been made. We have no exceptions to report arising from
this responsibility.
Under the Listing Rules we are required to review the part of the Corporate
Governance Statement relating to the Parent Company’s compliance
with nine provisions of the UK Corporate Governance Code (“the Code”).
We have nothing to report having performed our review.
t is otherwise misleading.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Directors’ Responsibilities Statement set out
on page 62, the Directors are responsible for the preparation of the Group
and Parent Company financial statements and for being satisfied that they
give a true and fair view.
Our responsibility is to audit and express an opinion on the Group and
Parent Company financial statements in accordance with applicable law
and ISAs (UK & Ireland). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the
Company’s members as a body in accordance with Chapter 3 of Part 16
of the Companies Act 2006 and for no other purpose. We do not, in giving
these opinions, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
Caroline Roxburgh (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
17 April 2014
Governance
On page 62 of the Annual Report, as required by the Code Provision C.1.1,
the Directors state that they consider the Annual Report taken as a whole
to be fair, balanced and understandable and provides the information
necessary for members to assess the Group’s performance, business
model and strategy. On page 56, as required by C.3.8 of the Code, the
Audit Committee has set out the significant issues that it considered
in relation to the financial statements, and how they were addressed.
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
t apparently materially incorrect based on, or materially inconsistent with,
our knowledge of the Group and Parent Company acquired in the
course of performing our audit; or
Corporate Governance Statement
Under the Companies Act 2006, we are required to report to you if, in
our opinion a corporate governance statement has not been prepared
by the Parent Company. We have no exceptions to report arising from
this responsibility.
t materially inconsistent with the information in the audited financial
statements; or
Strategic focus
t the Parent Company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the
accounting records and returns.
Other information in the Annual Report
Under ISAs (UK & Ireland), we are required to report to you if, in our
opinion, information in the Annual Report is:
Performance & risks
Adequacy of accounting records and information and
explanations received.
t the statement given by the Directors is materially inconsistent with
our knowledge of the Group acquired in the course of performing
our audit; or
t the section of the Annual Report describing the work of the Audit
Committee does not appropriately address matters communicated
by us to the Audit Committee.
23/04/2014 13:15
Premier Farnell
118
Glossary
AGM
MDD
Marketing and Distribution Division
CAD
Computer Aided Design
MIP
Management Incentive Plan
CEO or Chief
Executive or
Chief Executive
Officer
The Chief Executive Officer of Premier Farnell plc
MRO
Maintenance Repair and Operation
NBS
New Bridge Street, the Company’s remuneration
advisers
OP
Operating profit
PCB
Printed Circuit Board
PMI
Purchasing Managers Index
The reduction of the number of shares under a share
award to reflect any unexpired performance period
CFO or Chief
The Chief Financial Officer of Premier Farnell plc
Financial Officer
Claw-back
The right to reduce awards in the event that the event
of misstated performance or misconduct
Code
The UK Corporate Governance Code
Pro rating
or pro rate
COO
Chief Operating Officer
PSP
Premier Farnell’s performance share plan 2010
Compound Annual Growth Rate
RoHS
Restriction on Hazardous Substances
DSBP
Premier Farnell’s deferred share bonus plan 2010
RONA
Return On Net Assets
DTR
The Financial Services Authority’s Disclosure on
Transparency Rules
ROS
Return On Sales
RPI
Retail Price Index
EPS
Earnings Per Share
SAR
ESOP
Premier Farnell’s executive share option plan 2010
EU
European Union
Share appreciation right, where market priced
options that, on exercise, deliver only the gain in
shares, rather than all of the shares comprised in
the option
Executive
or Executive
Director
An Executive Director of Premier Farnell plc
SAYE
Premier Farnell’s save as you earn plan (2004 or
2014 as appropriate)
FSC
Forestry Stewardship Council
SIA
Semiconductor Industry Association
GAAP
Generally Accepted Accounting Practice
SO
Objectives linked to key elements of the strategy
GDP
Gross Domestic Product
TSR
IFRS
International Financial Reporting Standards
IPD
Total shareholder return: the growth in value of a
share plus the value of dividends paid, assuming
that the dividends are reinvested in the Company’s
shares on the day on which they are paid.
KPI
Key Performance Indicator
UK Scheme
The Premier Farnell UK pension plan
LTI or LTIP
Premier Farnell’s long term incentive plan
US
United States
CAGR
23/04/2014 13:15
Premier Farnell
119
2014 Financial calendar
17 June 2014
Interim results
18 September 2014
Financial year-end
1 February 2015
Final ordinary dividend key dates
Ordinary shares
Interim ordinary dividend key dates
Ex-dividend
Record
Payment
Ex-dividend
28 May 2014
30 May 2014
25 June 2014
24 September 2014 26 September 2014 23 October 2014
Preference shares
Payment
Half-yearly preference dividend key dates
Ex-dividend
Record
Payment
Ex-dividend
Record
Payment
2 July 2014
4 July 2014
28 July 2014
29 December 2014
30 January 2015
26 January 2015
Share dealing service
The 2014 Annual General Meeting will be held at the offices of Allen &
Overy LLP, One Bishops Square, London E1 6AD on 17 June 2014
at 10.30 am.
A telephone dealing service has been arranged with Stocktrade
(a division of Brewin Dolphin Ltd.) which provides a simple way of
buying or selling Premier Farnell plc shares. Basic commission is 0.5%
up to £10,000, reducing to 0.2% thereafter (subject to a minimum
commission of £17.50). For further information call +44 131 240 0414
(between 8 am and 4.30 pm Monday to Friday) and quote reference
‘Premier Farnell dial and deal service’. Please note that some
transactions may be subject to money laundering regulations and you
may be required to provide certain personal details to Stocktrade prior
to any sale or purchase of shares. Please also note that these services
are not available in the US.
Registrar
Enquiries concerning shareholdings or dividends should be addressed
in the first instance to the Company’s Registrar, Computershare Investor
Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZZ,
United Kingdom or telephone +44 (0) 870 707 1648.
Alternatively, shareholders can contact Computershare online via
www.investorcentre.co.uk/contactus.
Registrar and share transfer office
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Governance
Shareholders have the ability to register for electronic shareholder
communications, set up or amend bank details for direct credit of
dividend payments, amend address details, request dividend payment
in a foreign currency, view payment history and access information
on the Company’s share price. For more information or to register
please visit www.investorcentre.co.uk.
Strategic focus
Final preference dividend key dates
Record
Performance & risks
23/04/2014 13:16
120
Premier Farnell
Historic record
2013/14
£m
2012/13
Restated
£m
2012/13
£m
2011/12
£m
2010/11
£m
2009/10
£m
968.0
952.0
952.0
973.1
990.8
795.3
Operating profit before restructuring costs,
gains on disposal of businesses and pension
changes
93.0
95.1
96.0
107.3
112.1
72.7
Adjusting items
(1.5)
(5.8)
(5.1)
16.1
–
(1.3)
Total operating profit from continuing
operations
91.5
89.3
90.9
123.4
112.1
71.4
Profit before taxation and accounting for
preference shares
79.1
73.3
74.9
108.9
97.6
57.8
Preference dividends
(3.5)
(3.5)
(3.5)
(3.5)
(3.5)
(3.5)
(0.8)
(0.8)
(0.8)
(0.8)
(0.8)
(0.8)
Profit before taxation from continuing
operations
74.8
69.0
70.6
104.6
93.3
53.5
Profit after taxation from continuing operations
51.4
48.6
49.6
76.9
66.2
37.5
Profit attributable to ordinary shareholders
51.4
48.6
49.6
76.9
66.2
37.5
– proposed
10.4p
10.4p
10.4p
10.4p
10.4p
9.4p
– paid
10.4p
10.4p
10.4p
10.4p
9.6p
9.4p
Basic earnings per share (pence)
14.0p
13.3p
13.6p
21.2p
18.3p
10.4p
Revenue from continuing operations
Dividend per share
Adjusting items (pence)
Adjusted earnings per share (pence)
0.3p
1.3p
1.2p
(3.8)p
–
0.3p
14.3p
14.6p
14.8p
17.4p
18.3p
10.7p
23/04/2014 13:16
Who we are
Premier Farnell plc is a global, high service technology
company, predominantly engaged in the marketing
and distribution of products and services in the timecritical and innovation-focused electronic components
distribution sector.
Visit our online community here:
www.element14.com
Strategic report:
01
Governance
Research
02
Board of Directors
46
Design & develop
04
Corporate governance report
48
Prototype, test & produce
06
54
55
overview
58
Directors’ report
60
63
Industry megatrends
08
Business model
10
Customer & supplier
propositions
12
Remuneration report
CPC & MCM
14
Akron Brass
16
Consolidated financial
statements
78
87
Performance & risks
Chairman’s statement
18
Chief executive’s statement
20
Operating performance
23
Key performance indicators
24
& opportunities
26
Strategic focus
1: Customer focus
28
2: Multichannel
30
3: International
32
Financial & operational review
34
39
Employees
43
Company financial statements 107
Notes to the Company financial
statements
110
Independent auditor’s report
114
Glossary
118
119
Historic record
120
CBP00015510111122116
Premier Farnell is committed to reducing the impact of its activities on the environment.
Paper: Club Silk – Wood Free FSC accredited – Carbon Neutral
Printed and bound by Duffield Printers using vegetable based inks from renewable sources on
presses that are 98% solvent free. Strict procedures are in place to safeguard the environment
through all processes.
Duffield are FSC registered with Soil Association-Woodmark. This “Chain of Custody Certification”
guarantees that chlorine free paper resource excludes risk of illegally cropped timber or funding
conflict and that pulp originates from “certified forest farms”. Reforestation takes place at a
guaranteed minimum rate of two for every tree felled. Forest floors, canopies, and biodiversity
are minimally disturbed.
Designed and produced by Radley Yeldar www.ry.com
Photography by Henry Thomas
Premier Farnell plc
Registered in England and Wales No. 876412
Registered office: Farnell House, Forge Lane, Leeds LS12 2NE
24/04/2014 13:20
Group Headquarters
55 The Strand
London WC2N 5LR
T +44 (0) 20 7851 4100
F +44 (0) 20 7851 4110
Premier Farnell plc Annual Report and Accounts 2013/14
24/04/2014 13:20

Annual Report and Accounts 2013/14

Transcription

Similar documents

Farnell - European Presentation

Financial Tips for Newlyweds

Life-Insurance-Infographic Final

Meal Deal menu

Dollar Wise

Sutura, Inc.

UP UP AND AWAY - Principato di Seborga

The Little School Bus - AmazingClassroom.com

First Medical Health Plan

Scam Alert-phishing.indd