Abacus Group plc

Interim Results

Abacus Group plc (LSE: ABU), a leading European electronic components distributor, is pleased to announce its Interim Results for the six months ended 31 March 2008.  

Financial Highlights

• Turnover of £139.1m: down 6.4% (2007: £148.6m) due to trading conditions 

• Gross profit of £34.3m: down 7.8% (2007: £37.2m) reflecting the trading conditions and impact of the stronger Euro on UK cost of sales

• Operating expenses at £28.0m: down by 1.4% (2007: £28.4m) due to tight control over expenditure

• Impact of currency reduced net profit by £0.4m 

• Profit before tax (after exceptionals and amortisation): £5.8m (2007: £5.9m), before exceptionals and amortization: £4.5m (2007: £6.8m)

• EPS of 6.1p: up 8.9% (5.6p in 2007) after exceptional items and amortisation. EPS pre-exceptional items and amortisation were 4.1p in 2008 (6.4p in 2007)

• Dividend: 1.8p per share (2007: 3.6p)

• Borrowings of £62.9m (30 September 2007: £59.9m) impacted by weakness of Sterling on Euro denominated debt

Operational Highlights

• Final stage of Group IT business system implementation to commence later this year and to be completed in twelve months time

• All operating companies profitable in challenging local market conditions

Commenting on the results, Chairman, Harry Westropp, said: 

"Trading in the first half of 2008 has been ahead of the Board's expectations but for the rest of the year is now expected to be in line with second half 2007. Whilst market conditions have remained stable, I am pleased that the Group continues to be profitable and cash generative and that each of the country operations is trading profitably.  The Board has reviewed the dividend cover and determined that it should be at least two times; accordingly the interim dividend has been reduced to 1.8p per share."

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Chairman's Statement

The first six months of the 2008 financial year have, as expected, seen a continuation of the market conditions experienced in the second half of the previous financial year. However, in the six months to 31 March 2008, trading has been ahead of the budgeted expectations of the Group which were set below the financial performance achieved in the first half 2007. The phasing of the budget for the 2008 financial year anticipated an upturn from March 2008, in line with previous business cycles experienced by Abacus. To date, the bookings and billings of the Group do not reflect this upturn and, in light of the broader macro economic environment, it is now expected by the Board that the second half performance will be similar to that of the second half 2007.  

The Group has continued to benefit from the broader geographic coverage and infrastructure secured as a result of the acquisitions of Deltron and Axess in 2006. The integration of the businesses and support activities are complete. Later this year the final stage of implementing the Group IT business system will commence and should be completed in twelve months time.  

Financial review

Abacus Group sales in the six months to 31 March 2008, were £139.1 million, a 6.4% reduction on the same period in 2007, when trading conditions were significantly stronger. The gross profit of £34.3 million was 7.8% lower than the equivalent period and reflects, in addition to the lower sales, the impact of the stronger Euro on UK cost of sales. Operating expenses of £28.0 million were 1.4% lower than the equivalent period and demonstrate, notwithstanding the effect of the strong Euro, the very tight cost control that has been exercised throughout the first half. The profit before tax, exceptional items and amortisation for the six month period was £4.5 million (2007: £6.8 million). As a result of the sale of two buildings in the UK for £5.7 million at the beginning of the period, which realised a book profit of £2.3 million, there is an exceptional credit, net of amortisation, of £1.3 million (2007: an exceptional loss of £0.9 million). As a result, the profit before tax, after exceptional items and amortisation was £5.8 million (2007: £5.9 million). After a taxation charge of £1.3 million (2007: £1.8 million) the profit after tax was £4.5 million (2007: £4.1 million). The reduction in the tax charge resulted partly from the utilisation of previously unrecognised capital losses against the profit on disposal of the buildings. The earnings per share was 6.1p (2007: 5.6p), after exceptional items and amortisation, 4.1p (2007: 6.4p) before exceptional items and amortisation. 

The financial performance of the Group in the period has been affected by the strengthening Euro against Sterling. This has benefited the performance of the European businesses when translated into Sterling in terms of higher sales and higher profits (respectively £6.6 million and £0.5 million higher than using the first half 2007 average exchange rates). The relative strengthening of the Euro, partially offset by the weakness of the Dollar, has also impacted on the cost of goods for the UK businesses. As a result the gross margin in the UK has been reduced by £0.9 million, representing a 0.6% negative impact on the Group's gross margin percentage. In the light of the significant currency fluctuations experienced in the last nine months, the Group no longer takes out foreign exchange cover except for specific transactions. Generally, short term movements have an impact on the business and can be protected, whilst only longer term currency change can be reflected in pricing to customers.

The Euro exchange rate has also had an impact on the balance sheet. Borrowings at the end of March 2008 were £62.9 million, an increase of £3.0 million from 30 September 2007.  These borrowings would have been £3.4 million lower if the Euro denominated debt was translated at the same exchange rate as at 30 September 2007 (€1.433: £1).  

The property sale proceeds of £5.7 million referred to above reduced the level of borrowings. This benefit has been offset by an increase in inventory from £38.7 million at 30 September 2007 to £45.7 million at 31 March 2008 (including £1.7m increase from translating European stock at the rate of €1.254 at 31 March 2008 rather than €1.433 at 30 September 2007). The level of inventory is being actively managed to ensure that it reduces to a level considered sufficient to support business needs which the Board believes would be approximately £3 million lower.  

With respect to the dividend, the Board is conscious of the need to maintain an appropriate level of dividend cover, which it considers to be at least two times the level of dividend. Accordingly a dividend of 1.8p is proposed (2007: 3.6p) with payment made on 11 July 2008 to shareholders on the Register on 6 June 2008. The Board will continue to monitor the level of dividend paid to ensure it remains appropriate given the dividend cover.

Outlook

As commented upon in the opening statement, the Board considers the current trading conditions to be stable with relatively few signs of growth in the principal markets in which Abacus operates. Notwithstanding this, it is pleasing to note that the activities of the Group remain profitable and cash generative; indeed each of the country operations is trading profitably following the integration of Deltron with Abacus. The Board considers that the European infrastructure of the Group is not only of a size to manage the current activities but is also capable of supporting additional levels of sales with minimal additional resource requirements. For this reason the Group continues to seek transaction opportunities which the Board believes could be highly accretive to shareholder value. The challenge of managing vendor valuation expectations has reduced the availability of candidates but the Board believes that this situation may change in the coming months.  

It is encouraging that the trading conditions have not deteriorated further as the macro economic situation has become more difficult and so the Board is confident that by the end of this year the Group will have lower debt levels and continuing satisfactory sales performance.

Harry Westropp

28 May 2008

Condensed Consolidated Income Statement

for the six months ended 31 March 2008

All results represent continuing activities.

* The half yearly figures as at 31 March 2007 and 2008 are neither audited nor reviewed by the auditors.

Condensed Consolidated Statement of Recognised Income and Expense

for the six months ended 31 March 2008

There were no transactions with equity holders during the period which would require disclosure in accordance with IAS34:  Interim financial reporting.

* The half yearly figures as at 31 March 2007 and 2008 are neither audited nor reviewed by the auditors.

Condensed Consolidated Balance Sheet

as at 31 March 2008