Farnell Electronics Plc – with its selling phase behind it – is set to expand its overseas operations with the principal target of a slice of the huge US electronic components distribution market. The Wetherby, Yorkshire firm is now purely a distribution business, having sold its manufacturing arm last month for #80m (CI No 2,637) and offloaded its 63% stake in Farnell-Tandberg Data to Tandberg Data of Norway last week for #1.3m. Pre-tax profits for the year to January were up 21% to #59.2m and turnover jumped 61% to #514.2m. Turnover without the manufacturing arm would be #450.5m before inter-segmental business. The component distribution business is split into two parts, Farnell Components and Farnell Electronic Services. The former, which sells high margin, low volume products through catalogues, saw sales growth overseas of more than 40% in the year with the established UK arm growing by 8%. The French operation broke even in only its second year, a result not normally achieved in less than three, according to finance director Andrew Fisher. The German and Australian businesses performed particularly well, the latter also providing the backbone for the new Singapore office opened in January. In the Asia-Pacific region, Farnell is concentrating initially on those markets where English is widely spoken, to avoid costly catalogue translation.
Buying fresh air
It believes that it could be very succesful in the region, but is relying on organic growth at the moment, otherwise the company could end up buying fresh air, said chief executive Howard Poulson. Over the last four years, Farnell has spent more than #100m buying its way into the volume components business and these results include the first full-year contribution from Multicomponents, acquired from ITT Corp in December 1993 and merged with ESD to form Farnell Electronic Services. It has seen underlying sales growth of around 9% with turnover of #191m and operating profits of around #7m. Fisher said that Farnell had improved Multicomponents’ return on sales from around 1% in its last year with ITT to 3.5% in 1994, through increasing productivity and concentrating operations in fewer centres. Further improvement is expected this year, he said. The company also announced the acquistion of Spelec’s electronic component distribution business in France for the equivalent of #6.4m. Spelec is a subsidiary of Silec SA, part of Sagem SA, with turnover of around #15m and 50 employees. It will be integrated with Farnell’s existing operation in France. Poulson indicated that further acuisitions in France and Germany are likely in the near future, with companies with turnovers of between #10m and #20m the targets. Farnell has been looking for similar-sized businesses in the US to break into what Poulson believes is a an under-exploited $4,000m catalogue distribution market. It intends to spend up to #50m over the next two years to bring the company’s expertise garnered from the UK catalogue business – the best in the world – to the US. Markets such as South America and southern Europe are other uncharted waters that Farnell may explore in years to come. Cash at the year-end of #13.7m was boosted to around #95m after the sale of the manufacturing division. Poulson stressed that Farnell could produce record figures this year without acquisitions, but that is not a likely scenario. We really are not short of things to do to expand this business over the next four to five years, he said. A final dividend of 5.2p makes 9.0 pence for the year, a rise of 22%.
