Annual Report and Accounts
www.premierfarnell.com
Premier Farnell at a glance
Premier Farnell plc is a global, high service technology company,
predominantly engaged in the marketing and distribution of products
and services in the time-critical and innovation-focused electronic
components distribution sector. With over 4,500 employees,
operating in 36 countries, the Group is comprised of three distinct
business units that focus on specific market segments. The
element14 and CPC & MCM (MDD Other) businesses together
comprise our Marketing and Distribution Division (MDD). Akron
Brass is our Industrial Products Division (IPD).
2014/15 at a glance
Group sales
growth
Group adjusted
operating margin
Premier Farnell is committed to reducing the impact of its activities on the environment.
Adjusted earnings
per share
Dividend per share
+3.3% 9.2% 13.8p 10.4p
(2013/14: +2.6%)
(2013/14: 9.6%)
(2013/14: 14.3p)
(2013/14: 10.4p)
Throughout this Annual Report, unless otherwise stated, sales growth is based on sales
per day for continuing businesses at constant exchange rates and like for like periods.
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in Africa.
element14
80%
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please pass it on to other interested readers or dispose of it in your recycled paper waste. Thank you.
£357.1M
46.4%
Europe
CPC & MCM
12%
£117.1M
£333.1M
43.3%
Americas
CPC & MCM
Akron Brass
element14 comprises both our Americas,
Europe and Asia distribution business,
selling electronic components and
tools to engineers and manufacturing
customers globally and our rapidly
growing technology offering from
Embest and AVID Technologies
to component manufacturers.
CPC & MCM are also distribution
businesses. Focused on the sale of
electronic products, the division serves
a complementary marketplace to our
main element14 business in the UK
and North America.
Akron Brass is a global leader in
the sale and manufacture of high
performance fire-fighting and
emergency response equipment.
Global reorganisation
of element14 businesses
Market leader in Raspberry Pi
Integration of REACH Engineering
New global web platform
rollout complete
CPC & MCM working
closer together
Over 30% sales outside US
More technical expertise acquired
through AVID Technologies
New CPC catalogue launched
Developed Tailored
Customer Applications
£960.1M
£73.5M
8%
Asia Pacific
£79.3M
10.3%
element14
Akron Brass
Designed and produced by SampsonMay
Telephone: 020 7403 4099 www.sampsonmay.com
1
Annual Report and Accounts 2014/15
In this report, we’ll discuss how Premier Farnell is supporting its
customers’ and suppliers’ evolving needs, explain our strategy to
deliver improved future financial performance and provide detail
on how the Group operates and is governed.
Visit our online community here:
www.element14.com
Contents
Strategic Report
Governance Report
02.
40.
Corporate Governance Report
40.
Chairman’s Overview
44.
The Board of Directors
52.
Nominations Committee Report
54.
Audit Committee Report
58.
Directors’ Report
62.
Remuneration Report
Chief Executive’s Overview
Premier Farnell – Business and Markets
04.
element14
08.
CPC & MCM
10.
Akron Brass
Our Strategic Vision
13.
Building the Global Destination
14.
Strategic Focus 1: Engineering Customers
Financial Statements
18.
Strategic Focus 2: Manufacturing Customers
86.
Independent Auditors’ Report
20.
Strategic Focus 3: Component manufacturers
92.
Consolidated Financial Statements
104.
Notes to the Consolidated Financial Statements
139.
Company Financial Statements
142.
Notes to the Company Financial Statements
Performance and Risks
22.
Measuring our performance
24.
Principal risks, uncertainties and opportunities
26.
Financial and operational review
33.
Sustainability report
38.
Employees
Further Information
149.
Glossary
150.
Shareholder Information
151.
Historic Record
2
Premier Farnell
Welcome to our 2014/15
Annual Report and Accounts
Laurence Bain
Chief Executive
We have outlined our
vision to become the
global destination for electronics
customers and set out the clear
strategic priorities we will deliver
to reach this goal. Through the
investments we have made
this year, along with the global
reorganisation of our element14
business, Premier Farnell is
positioned to improve its future
financial performance.
2014/15 performance
The past financial year has been a
challenging period for Premier Farnell
as we transform the business and
position ourselves for future profitable
growth. Group sales grew by 3.3% in
2014/15, up from 2.6% in the prior
financial year, with growth supported
by our strategic initiatives.
During the year, we have evolved our
strategy to focus on three complementary
target customer segments. The first
segment comprises the design and
maintenance engineers who have
historically made up the core of our
business. We are building and leveraging
our technical experience to attract
customers at the cutting edge of
technology. The second segment is
manufacturing customers with small to
medium production volume requirements.
The third segment is the component
manufacturers who have long been our
key supplier partners. It is our intent to
become the recognised technology
experts for design services and the
manufacturing of development kits.
We have made significant investments
in developing our proposition to each
of these segments which has helped to
improve the top line sales momentum.
As we invest to grow revenues, we
remain focused on managing gross
margin in line with market conditions
but recognise that progress in each
customer segment and the resulting
customer and product mix will most
likely lead to dilution of our gross
margin over time.
Our focus is on growing
gross profit year on year
whilst improving the overall
efficiency of our model.
Whilst this transition has led to a 0.7
percentage point decline in gross margin
to 36.8%, we have delivered growth in
gross profits, on a constant currency
basis, up 1.4% year on year. Focused
cost control and improving the efficiency
of our model are constant priorities for our
business. The effective management of
our cost profile has enabled us to offset
the majority of the gross margin decline,
delivering SG&A as a percentage of sales
at 27.6%, a reduction of 0.4 percentage
points at constant exchange rates.
Through the management of sales,
gross margin and costs our full year
adjusted operating profit was maintained
at broadly flat levels at constant currency
compared to the prior year.
A detailed review of our 2014/15
performance is set out from
pages 26 to 32.
3
Annual Report and Accounts 2014/15
Figure 01: Our Seven Strategic Priorities
Objective
Strategic priority
KPI
Growth
Become the recognised technology experts for design services and manufacturing
of development kits for global component manufacturers
6% sales growth
3.3%
Build and leverage technical expertise to attract engineering customers at the cutting
edge of technology
4% ACB growth
-2.1%
Grow our business with engineering and manufacturing customers, especially
in the emerging markets
10% emerging
markets growth
13.1%
Efficiency
2014/15
Evolve our operating model into a more efficient and effective global, function based structure
>30% RONA
29.6%
Develop attractive eCommerce channels that enable automation of processes
70% eCommerce
49.3%
Profitability
Optimise our business through effective management of gross margin and costs
10%-12% ROS%
9.2%
Cash
Optimise use of cash in the business and distribution of funds to shareholders
through-the-cycle
6% FCF to sales
3.7%
Further detail on 2014/15 performance against the KPIs is outlined on pages 22 and 23.
Strategic priorities
As shown in figure 01, we have outlined
seven strategic priorities and the metrics
by which we will measure our progress
across the economic cycles in executing
our strategy. In doing so, we will create
sustainable shareholder value by
growing our business, delivering
efficiencies, optimising profitability
and delivering free cash flow.
We are on a journey to transform
Premier Farnell and have made
some positive strides this year.
The investments planned and
implemented this year have enhanced
our customer proposition for all three
of our target customer segments,
thereby supporting our ambitions to
improve sales growth.
The global rollout of our new web platform
is now complete and performing as
expected. The new web platform
provides us with the foundation on
which to drive our eCommerce agenda
and attain our eCommerce and Active
Customer Base targets. And we have
now embarked on the rationalisation of
our operating model as we transform
the regional element14 businesses into
a new globally aligned organisation. In
June 2014, we announced our move to
become one element14 team. A new
executive team was appointed with
functional leaders for Sales and
Marketing, Product and Suppliers,
Supply Chain, and Technology, as well
as global leaders for support functions
including Finance, Human Resources
and Legal. The leadership structures
for Akron Brass and MDD, the other
distribution businesses (CPC & MCM)
remain unchanged. Since then, we have
completed the design of a proposed
new integrated, global organisational
structure which involved over 70
functional experts from around the
business. As well as better enabling the
execution of our strategy, the simplified
global structure will deliver operating
efficiencies, economies of scale and our
ability to better leverage our global assets
in serving all our customers.
Through this rigorous design process,
we have identified efficiency savings
beyond those initially anticipated. We
are now targeting total annual cost
benefits of £10m to £12m, once the
new structure is fully implemented,
with approximately £3m to £4m of
benefit in 2015/16 and the further
£7m to £8m of benefit in 2016/17.
Whilst our 2014/15 performance in
comparison to our targets reflects our
journey to transform Premier Farnell,
the investments made will enable us
to deliver improving future financial
performance. We are now focused
on driving profitable growth, reducing
costs and improving the efficiency of
our model as we position the business
for the future. With the transformation
of the Group underway, the Board
recommends that the full year dividend
is maintained at 10.4p, reflecting our
commitment to shareholder returns.
Outlook
As we look to the future, the investments
we have made will enable us to accelerate
the execution of our strategic growth
initiatives as we strive to become the
global destination for electronics
customers. By delivering this vision,
remaining focused on costs and
completing the global transformation
of element14, we believe that Premier
Farnell will be well positioned to
deliver enhanced medium term
financial performance.
4
Premier Farnell
element14
Building the global destination for electronics
To support our ambition of becoming the trusted experts that link suppliers and the
innovators of technology, we have begun to evolve and extend our business model.
Beyond the distribution of small quantities of components, delivered to meet very
short lead times, we now also provide a range of value-add services, such as the
online community for design engineers which was enhanced during the year by
the implementation of a state of the art design centre; the build out of our software
offering; as well as the introduction of and investment in a higher volume production
proposition. In addition, we now provide turnkey design, manufacturing and distribution
solutions to our suppliers as we support their new product introductions.
Through our multichannel sales and marketing approach, we seek to enhance
the relationships with our core engineering customer base, especially online. By
investing in extensive and innovative multichannel sales and marketing resources,
we have developed an online ecosystem that combines technology expertise,
24 hours five days a week support, an online engineering community and local
multichannel sales support for customers all around the globe.
element14 – 2014/15 snapshot
• Full year sales growth up 2.8% year on year
• Price positioning actions taken to ensure the competitiveness of our proposition
given the impact of currency fluctuations on local markets
• Progress to enhance proposition for our three target customer segments:
-- Engineering customers: development kit sales up over 20% year on year
-- Manufacturing customers: investments completed to build small
production proposition
-- Component manufacturers: over 90 projects for 20 semiconductor
manufacturers completed
• The design of a global, functional organisation completed with a new Executive
team appointed
• Roll-out of new global web platform completed globally to enable growth of the
eCommerce channel
5
Annual Report and Accounts 2014/15
Marketplace
The entire global electronics
market is worth
The global electronic components marketplace has historically been comprised
of three broad segments: high service distribution; volume distribution; and mass
volume, which is typically serviced by the component manufacturers directly.
These segments reflect the volume of products needed at each stage of the
product lifecycle (see figure 02). The entire electronics market is worth
approximately £300 billion globally.
£300 billion
The element14 business is one of the leaders in the global high service distribution
marketplace, which is estimated to be worth approximately £20 billion globally.
Here we sell relatively small quantities of components and tools to our many
engineering customers, either directly or through purchasing professionals. These
engineers are engaged at either the front end of the product lifecycle where they
are conceptualising, designing and prototyping new electronic innovations or are
involved in servicing, maintaining and repairing existing technology products.
2014/15 saw significant currency fluctuations which contributed to a more competitive
global marketplace. Over the longer term, we expect customer behaviour to continue
to evolve as more business is conducted online and as the distinction between high
service and volume distribution blurs further. Against this backdrop, we have taken
steps to ensure that our price positioning is appropriate and during the last year built
a small volume production proposition for manufacturing customers that will enable
us to compete more effectively in this market.
element14 has entered a new market in design services and the manufacturing of
development kits, developing a leading solution for a market that we estimate to be
worth approximately £350 million globally. This is a fragmented marketplace typically
served by a combination of independent design houses and contract equipment
manufacturers. Through the services offered by our recent acquisitions of Embest
and AVID Technologies, we now support component manufacturers through their
innovative processes as they design new technology ahead of it being launched
through our distribution channels, thereby turning these key suppliers into customers.
Figure 02
Design Services
Electronics Market
£350mn global market
Volume
> £300bn global market; > £20bn addressable
Component
Manufacturing
Direct
Volume distribution
Manufacturing Customers
High services
Component
Manufacturer
Maintenance
Repair
Service
Pilot
Prototype
R&D
Maker
Production (OEM/CEM)
6
Premier Farnell
Resources
Our global infrastructure and resources include innovative online resources,
regional contact centres, back office systems and a network of distribution
centres. The reorganisation of our element14 business towards a global structure,
which is being undertaken in the new financial year, will enable us to leverage
these resources more effectively and efficiently as we support customer and
supplier partners around the world.
Leeds
Liège
Shanghai
South Carolina
Singapore
Mexico
Sydney
100
1
600,000
engineers at Embest &
AVID Technologies
element14 online community including
the Design Center
in stock products available
1.1m
1
1,270
sq ft warehouse space in our nine
element14 distribution centres
new global web platform, supporting
48 websites in 35 languages
customer facing staff globally
7
Annual Report and Accounts 2014/15
Business model
Value-add component distribution
As outlined in figure 02, our core business is the distribution of products
to engineering and manufacturing customers. We continue to evolve our
proposition as we seek to add value at every stage of customers’ innovation,
design and manufacturing processes. Further information on how we seek
to add value to our three targeted and complementary customer segments
is outlined in the strategic focus section beginning on page 13.
How we create value:
Stock
We 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 meet customers’
need for access to a vast range
of technologies.
Support
Engineering customers require
detailed information to ensure
purchases meet their technical
specifications.
The element14 community allows
engineers to collaborate as well
as access technical insights.
Sell
Ship
Customers interact and purchase
from us in the way they prefer
through our multichannel sales and
marketing resources. Our innovative
online presence combines with
extensive telesales capability and
620 field sales resources as well as
significant technical resources to
make it easy for customers to do
business with us.
Fast and reliable distribution of
locally stocked products is at the
core of our customer proposition.
Our distribution centres located
around the globe ship 30,000
packages each day.
• Digital Advisory Board provides
insights on enhancing our online
channels from external subject
matter experts.
• We maintain business continuity
plans which are kept under
review for all our locations and
have ongoing reviews and
testing of our IT infrastructure.
How we will sustain and grow this value:
• P
roduct lifecycle management
processes, including rigorous
stocking criteria, mitigate
inventory risk.
• Where appropriate, we agree
terms with suppliers to manage
the risk posed by new product
introductions including sale
or return.
• Insights from data resources
used to enhance
stocking processes.
• We continue to develop and
enhance our web capabilities
as part of our multichannel sales
strategy in order to maintain our
competitive advantage digitally.
• We are partnering increasingly
closer with key suppliers
to provide the technical
specifications and legislative
information that customers need.
• By leveraging our supplier
relationships to enhance
our online channels.
• Data and analytics allow
us to personalise our
customer proposition.
• Services offered to component
manufacturers provide
leadership at the early stages
of the product lifecycle.
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.
• Investment in systems and
focus on workflow
improvements will deliver
operational efficiencies and
allow us to meet a higher future
demand. We remain focused
on reducing the environmental
impact of doing business.
8
Premier Farnell
CPC & MCM
Electrical & electronic product range for
businesses and enthusiasts
CPC and MCM supply electrical and electronic and associated products, such
as audio visual, lamps and lighting, security, test equipment, tools, computing,
mains electrical accessories and PA equipment to a huge range of customers
in the United Kingdom and North America.
CPC and MCM’s customer base complements our core brands as it includes
major wholesalers, education, government, utility companies, IT companies,
broadcasters, internet resellers and hobbyists. Following the lifecycle of a
customer is central to the development of these businesses.
Structured to optimise distribution efficiency within the North American and UK
regions, CPC and MCM resources aim to provide a customer centric experience.
This is supported by a multichannel strategy which leverages our extensive reach
through online, print, contact centre and trade counter sales & marketing capabilities.
All products are stocked onsite, ready for fast same day despatch to support the
needs of our customers.
CPC & MCM – 2014/15 snapshot
• Full year sales growth up 7.9% year on year
• Transfer to CPC & MCM of some Raspberry Pi business
• MCM continues to benefit from operating ever closer with CPC
• Rollout of new web platform completed
• Harmonisation of the product offering is ongoing
9
Annual Report and Accounts 2014/15
Marketplace
The gradual return of business investment and productivity in the UK and North
American markets has generated increased demand in related market sectors,
stimulating growth in the core MCM and CPC electrical, installation and tools
product segments. This has led to the growth seen in CPC and MCM’s associated
ranges for retail customers, including makers and electronics enthusiasts.
Increased output in manufacturing and construction industries, underpinned by
an upturn in the domestic and commercial real estate sector has helped to increase
sales growth in our wholesale customer segment. Through new product strategy
and a highly competitive Private Label offering, CPC and MCM have further
enhanced the depth and relevance of our core MRO offering. This has resulted
in accelerated new customer acquisition and a greater share of this market.
Customer facing
sales resources:
+80
Warehouse staff:
+250
Business model
As broad line distributors with a diverse customer base, these businesses compete
effectively by operating a low cost, fast paced model. By listening to customers and
developing solutions that customers value, the businesses are highly appreciated by
suppliers and customers alike.
As a distribution business, CPC and MCM’s business model is similar to the core
element14 business with four key stages of value creation: stock, support, sell and
ship. We outline below how CPC and MCM add value at each point in the chain.
How we create value:
Stock
CPC and MCM stock over
150,000 diverse products to help
us meet customers’ needs for
a one-stop shop of electronic
products and supplies.
Support
Extensive product information
available online and through our
catalogues as well as customer
support via our call centres.
Sell
Ship
CPC and MCM’s range of
customer channels make it
easy to do business with them.
Customers value the broad
offering and our competitive
product pricing.
Fast and reliable distribution of
locally stocked products is at the
core of our customer proposition.
• Continue to build business in
growing customer segments
such as the Maker space.
• We have ongoing reviews and
testing of our IT infrastructure.
We offer free shipping for online
orders over £10 in the UK.
How we will sustain and grow this value:
• Product lifecycle management
processes, including rigorous
stocking criteria, mitigate
our inventory risk.
• We use data resources and
market feedback to enhance
the insights used in
stocking processes.
• We continue to develop and
enhance our web capabilities.
• Continuous focus on workflow
improvements will deliver
operational efficiencies and
allow us to meet increased
future demand. We remain
focused on reducing the
environmental impact of
doing business.
10
Premier Farnell
Akron Brass
Global leader in high performance fire-fighting
and emergency response equipment
Since its inception in 1918, Akron Brass has been an industry leader in fire-fighting
equipment including handheld nozzles, monitors and valves. The business continues
to add more products to its core water-flow categories while extending its portfolio
with specialised electronics and lighting solutions. The business has invested in new
product developments such as unique high-power LED lighting products for global
applications and custom designed monitors and nozzles addressing specialised
needs of customers in emerging markets.
Akron Brass offers customers a balanced product portfolio within our five core
categories: valves, monitors, nozzles, electronics and lighting. Each category
is analysed for product evolution (investments to sustain business), category
expansion (closing product line gaps, taking competitive share), and category
revolution (all new products that expand and/or create categories).
Headquartered in Wooster, Ohio, in the United States, Akron Brass has manufacturing
facilities in Columbus, Ohio, Washington, Illinois and sales offices in Beijing, China,
Dubai and UAE. With over 30% of 2014/15 sales coming from outside the United
States, Akron Brass continues to expand its market reach and build a global brand.
Akron Brass – 2014/15 snapshot
• Full year sales growth up 1.3% year on year
• Robust financial performance given strong prior year comparators
• Reach Engineering fully integrated following prior year acquisition
• Long term supply contract win for private label vehicle controls for primary
US emergency vehicle builder
• International project wins in China, India and Thailand
11
Annual Report and Accounts 2014/15
Marketplace
Customers in over
The strengthening US economy is boosting demand in the fire apparatus, ambulance,
bus and commercial truck markets. Akron Brass’s share of the US fire apparatus
market achieved a 9% growth rate, supported by its sales and distribution partners.
Our Weldon business drove 38% growth in ambulance and 37% in commercial
truck related sales fuelled by new products, strategic business agreements, and
increasing vehicle demand. Overall concerns on exports by US manufacturers
have not significantly slowed vehicle build rates; 2015 indicators for the US specialty
markets are positive for Akron and will be further supported by differentiated product
introductions planned within each segment.
100
countries
Akron Brass’s fire protection and mitigation solutions for industrial markets saw
sales growth of 11% as project momentum continued in petro-chemical systems
for fixed-site and marine based segments. Lower global oil prices have resulted in oil
producers reducing capital spending plans and this is expected to have a moderate
impact on business with these customers which Akron Brass will mitigate through
a solid project pipeline, regional focus, and downstream activities in oil tanking,
transportation and refining.
Excluding the large India contracts, Akron’s International sales were flat year on
year despite increasing headwinds on US$ strength and a challenging economic
environment in Europe. North American municipal equipment had similar results.
While department funds are improving, cyclical spending for personal protective
gear and breathing apparatus which are not part of the Akron Brass product
proposition was a focus this past year. Municipal sales rebounded in the fourth
quarter and momentum is forecast into the new financial year as spending shifts
back towards Akron’s core product lines and several new products targeted at
this segment are launched.
Business model
Akron Brass 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. The business
creates value through a three step process encompassing innovating new solutions,
high quality product manufacture and its global sales and marketing capability.
How Akron creates value:
Innovate
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 specification, delivery,
installation and servicing of its products.
Akron employs the largest factory-direct
sales team of the industry.
12
13
Our Strategic Vision:
Building the
Global Destination
for electronics customers
The following pages describe the opportunities, investments and progress that we
have made in meeting the requirements of the three customer segments that we
have identified.
0.1
0.2
0.3
Engineering customers: our traditional targeted customer base
of design engineers and maintenance engineers
Manufacturing customers: supporting customers for longer
through their production process
Component manufacturers: turning our traditional supplier base
into customers by supporting their new product innovations
Each customer segment is complementary to the others. Our insight into new and
coming soon technology from working with component manufacturers enhances
our offering to engineers. We can follow the signs of activity with engineering
customers to open up small production opportunities with manufacturing
customers. The larger volume sales completed with manufacturing customers
reinforces the value provided through demand generation to our component
manufacturing customers.
14
Premier Farnell
0.1 Engineering customers
Meeting the needs of engineers is at the core of our business proposition, making
up the majority of element14 sales through the high service distribution of electronic
components in relatively small quantities, as well as related equipment, tools,
software and services.
Partnering with engineering customers globally
Engineers from all over the world, serving a wide range of industries, choose
to partner with element14. These customers range from electronics design
engineers to those engaged in maintenance and repair of existing electronics.
At the core of this relationship is our capability to meet engineering customers’
five key service requirements:
1. Availability of an extensive range of products
2. Real time product data and information
3. Competitive Price positioning
4. Ease of doing business and
5. Reliable and timely shipment
We are enriching our capabilities and the customer experience in each of the five
areas. Our aim to partner more closely with a greater number of engineers is central
to us delivering profitable growth.
Annual Report and Accounts 2014/15
15
16
Premier Farnell
0.1 Engineering customers continued
Enhancing our product range
Providing easy access to a wide range
of in-stock products is at the heart
of our role as a high service electronics
distributor. We offer over 600,000 in stock
products, available for same day shipment.
These products range from semiconductors
and passive components, too small to
count individually, through to larger items
such as tools and testing equipment.
We aim to carry everything that our
targeted engineering customers require.
In 2014/15, we achieved our product
linefill target of 97%. This means that
97% of the time we have the products in
stock and available for same day shipment
that our customers are looking to buy.
Over the past two years, we have made
incremental inventory investments to
enhance our product range, of which
over £20m is targeted at engineering
customers. With this inventory
investment complete, we are focused
on driving turns on this enhanced
product offering.
As part of the inventory
investment, we added over
2,000 development kits and
evaluation boards.
These products are strategically
important to us as their sales signal
the commencement of design activity
and flag an opportunity for us to partner
with customers from the outset of their
design process all the way through
prototyping and into production.
In addition, our work with component
manufacturers, described on page 20
and 21, is seeing us become a significant
partner in the launch of their latest
technologies. Access to the latest
products is differentiating for engineering
customers, especially for electronics
design engineers, as they look to benefit
from the added capability and efficiency
that new technology frequently brings.
Trusted, technical expertise
The technical nature of the products
that we sell and the applications for
which they are used makes product
information highly valuable to our
customers. The information that
customers require includes the product’s
key features and capabilities, sensitivity
to different environments and also any
relevant legislative information. The
adoption by the European Union of the
Restriction of Hazardous Substances
(RoHS) directive in 2003 acted as a
catalyst for the Group to enhance the
data provided to customers, especially
through its online resources, and we
are now viewed as a trusted source
of information.
On our transactional websites, we
have over 260,000 unique product
datasheets, providing key technical
information, which receive more than
550,000 downloads per week. Our
product experts update more than
18,000 product datasheets per
month, working in partnership with
our suppliers so that our engineering
customers have access to complete
and up-to-date information. This
resource is supplemented by 24/5
live chat online technical support and
dedicated field application engineers
who work closely with customers to
bring new products to market.
The element14 community is another
important source of information for
engineers. With over 300,000 registered
members, the Community is a place
where engineers from around the globe
can come together to discuss solutions
to their technical problems, share ideas
and experiences of different products
and interact with suppliers and experts.
During the course of 2014/15, we have
further improved this resource with
the launch of the element14 Design
Center. The Design Center is an online
workspace where engineers can access
the latest development kits and tools.
Since the Design Center was launched
in June 2014, it has received over 40,000
visits per week.
Beyond physical products, we see the
distribution of engineering software as
an area of increasing importance to our
customers and, for us, an opportunity
for profitable growth. Having acquired
CadSoft in 2009, a business which
produces printed circuit board layout
software, we are now focused on the
launch of an online software licensing
store by evolving the element14 Design
Center launched this year. The software
store will offer products for download
from a range of software vendors.
During 2014/15, we have
signed a number of franchise
agreements with key software
partners, including ARM
and Altium.
A personalised customer experience
Benefiting from the insights of a
dedicated in-house customer and
market research capability, we are
developing a personalised experience
which considers the requirements of
engineering customers’ varying job
roles, industries and environments,
as well as the differences across
geographic regions.
An important aspect is the way that
we interact with customers through
our range of sales and marketing
channels as we see that customers
often choose to interact with us through
multiple channels depending on what
they are looking to achieve. For example,
a large customer account might have a
regular review with a field sales person,
a dedicated contact at one of our call
centres and an integrated eProcurement
system for day-to-day order processing
by the engineering team. This combination
of channels makes it easier for our
customers to do business, a key
source of differentiation for element14.
17
Annual Report and Accounts 2014/15
Our multichannel sales and marketing
approach is centred on the web with sales
via eCommerce channels contributing to
49.3% of total MDD revenues. Our online
resources include transactional websites
in over 30 languages, eProcurement
solutions and the industry leading
element14 Community.
Many engineering customers prefer
ordering online as they benefit from
the information resources that can be
provided through this channel. Over
the past year, we have increased the
number of images with 360 degree
visualisations on technical products
such as development kits and test
equipment. In addition to contributing
to the customer experience, the
increased data provided on products
helps to optimise online search engine
performance and attract new customers.
This year, we completed the
single largest IT systems
development ever undertaken
at Premier Farnell by
implementing our new global
web platform across the
element14 business.
By moving to a single global web
platform, we now benefit from more
efficient and faster processes as we
rollout global marketing programmes
and tailor our offering to the individual
needs of customers. Additionally, we
can now specify, develop and implement
future enhancements far more quickly,
such as the better mobile experience
which is planned to go-live in 2015/16,
and the new web platform also helps to
provide better protection against cyber
security risk. Customer reaction to the
new web platform has been positive and
the performance of our transactional
sites has met our expectations through
this transitional period.
The web provides a digital shop window
that plays an important role in attracting
new customers as well as helping us
to personalise the user experience.
Growing the business transacted online
also enables us to eliminate inefficient
manual practices, reduce the opportunity
for error, and free up resource to focus
on value-add activities for customers
and suppliers.
Pricing to market
A typical order placed with us comprises
about three to four lines and has an
average order value of approximately
£170 in Europe and Asia or $430 in
North America.
Despite the relatively small order size,
pricing does remain one of the factors
considered by engineering customers
before placing an order. With more
business conducted online and in an
economic environment characterised
by slow growth, price perception has
become more important to customers
over recent years. In response to this
changing market circumstance, we
have been developing our approach to
pricing that sees us maintaining a price
competitive solution, whilst seeking to
extract the value-add that our high
service proposition provides in
each market.
Through the course of 2014/15, we used
our eCommerce tools, data and analytics
to dynamically adjust our pricing to
the prevailing market levels. Given the
considerable fluctuations in currency
seen in the period, especially in relation
to the US dollar and the Euro, we have
aimed to ensure that our European and
Asia propositions maintained their
price competitiveness.
As part of our engineering customer
proposition, we offer a range of private
label brands of more than 70,000
products, providing customers with a
value range for commodity products
which frequently form part of their order.
These are high quality and high margin
products that represent good value for
money alternatives for customers.
Delivering to promise
Every day, we receive in the region of
30,000 orders through our sales teams
and global websites which equates to
over 75,000 lines of product globally.
These orders are then processed by one
of our 11 distribution centres, with the
principal sites in the UK, Belgium and
North Carolina, USA.
Efficient processes mean that
99.95% of the time the order
is shipped same day.
Our regional distribution model enables
us to deliver to promise time and again.
Yet there remains scope to further
enhance the effectiveness of our supply
chain as we leverage our regional
resources globally, share best practice
and enable greater inventory visibility for
our customers. This is an opportunity
that we will continue to address through
the transformation of the element14
business in 2015/16.
Building our business with
engineering customers
By providing a competitive proposition
that meets customers’ changing
behaviour, we expect that the
engineering customer base will remain
the core of our business and a future
growth opportunity. Through the
investments made to enhance our
offering this year, especially in
developing considerable technical
expertise, element14 is now better
positioned to benefit from a number of
growth drivers in electronics including
our early visibility of coming soon
technologies, the developing internet of
things, shortening product lifecycles and
growth in emerging markets. In addition,
actions taken to transform element14
into a global business, as well as the
completed rollout of the new global web
platform will allow for greater leveraging
of our regional resources and a superior
customer experience.
18
Premier Farnell
0.2 Manufacturing customers
Manufacturing customers, are engaged in the
production phase of electronics manufacturing
and require components as part of their scheduled
production run.
As described on page 5, the total electronics marketplace is worth over £300 billion
annually. The vast majority of this marketplace is in the production phase
of electronics manufacturing, a market which has historically been supported
either directly by the component manufacturers or through volume distribution.
With increasingly shortening production runs, and greater technical support and
knowledge widely available due to the rise of the internet, the lines between volume
and high service distribution are increasingly blurring. Our strategy opens an
estimated £20 billion incremental addressable market to the element14 business
as we target small production runs by supporting innovation from design into
prototyping then production.
Manufacturing customers are not new to us and account for approximately 20%
of our element14 sales. Whilst we have long supported these customers at the
early prototyping phase, especially in the UK and North America, we have not
focused heavily on this area in the past. We are confident that with a more
competitive proposition, we can successfully and profitably grow our business
with these customers.
Manufacturing customers largely benefit from our proposition to meet the needs
of engineers. In addition, we have made substantial progress in 2014/15 to meet
manufacturing customers’ specific product requirements and preferred ways to
do business.
19
Annual Report and Accounts 2014/15
Investments in production inventory
Manufacturing customers typically want
to purchase board components in the
packaging options that enable them to
be loaded directly onto the automated
assembly equipment on their production
lines. This contrasts with our engineering
customers who are looking to order
products in small quantities for design,
testing or repair purposes.
Over the past two years, we have invested
over £15m in incremental inventory
targeted at the production space.
Today, we have a compelling
range of production inventory
in stock featuring over 40,000
full reel products.
Enabling product traceability
Having full traceability of the product
source is another key requirement for
many of our manufacturing customers.
Traceability of the product date and
lot code is particularly important
for customers in industries such
as aerospace, defence and certain
government related sectors.
We have implemented systems and
processes to allow us to trace certain
date and lot codes on over 300,000
products while our South Carolina
warehouse has been operating the
AS9120 standard for the past six years.
This means that it provides the high level
of product traceability required by the
aerospace industry. We are now looking
to take the AS9120 standard to Europe
as we see this as increasingly important
to customers in other regions too. Further
best practice is coming soon to the industry
in terms of new anti-counterfeiting
standards. We will be looking to be a
leader in implementing such standards
across the globe as we build on our
position as a trusted source for electronics.
Enhancing the buyer experience
The relationship with manufacturing
customers will typically be with a
purchasing professional, especially
when they are conducting small
production runs. With many of the
critical enhancements to the production
proposition completed behind
the scenes, we are now focused on
delivering a leading experience for our
buyer customers and communicating
what we now offer.
Achieving a competitive price is critical
to winning larger orders. We made
a substantial change to our pricing
proposition this year by introducing
additional price breaks in Europe for
customers looking to purchase stock
in higher volumes. These additional
price breaks have increased the
competitiveness of our offer and price
perception for production customers
coming to us via online channels.
Having completed the rollout
of our new web platform, we
will now begin to implement
upgrades to our websites
targeted at production customers.
For example, we will implement a
bill of material upload function which
will allow customers to automatically
cross-check their shopping list against
our inventory and receive an immediate
quote. We will also provide customers
with real-time stocking information, such
as packaging options, availability of date
and lot traceability and product lead
times. Buyers will also soon be able to
schedule and reschedule orders online,
providing the flexibility needed to ensure
their order is delivered just-in-time for
their planned production runs.
Building our business with
manufacturing customers
Over the past two years, we have
made substantial investments to build
a compelling production proposition
for manufacturing customers. As we
focus on attracting new manufacturing
customers to our offering and drive
improved turns on the incremental
inventory, we expect to achieve a
return on these investments over
the medium term.
20
Premier Farnell
0.3 Component manufacturers
Amplifying our role in electronics
Component manufacturers have long partnered with us to launch their new product
introductions, valuing the access that we provide to design engineering customers
around the world. Suppliers view our distribution capabilities as essential for them
to seed their new products with engineers early in the product lifecycle, creating the
opportunity for the amplifying effect, shown in figure 3, to take hold.
For the suppliers of those products, a successful product launch underpins their
future growth. An engineer incorporating this latest technology into their design
will potentially result in the significant volume sales growth in the production stage.
Figure 03
Component
Manufacturer
Manufacturing
Customers
Mass Volume
Volume Production
Small Production
Prototype
Design
Technology Launch
Engineering
Customers
21
Annual Report and Accounts 2014/15
New product introductions
Development kits play an important role
in the success of new technologies as
they are used by engineers to evaluate
the attributes of the core semiconductor
chip that is being considered for a design.
As such they are used at the very outset
of the product design process. Engineers
frequently regard the development kit as
a reference design for their product.
Our research shows that in
almost 50% of cases, a design
engineer will re-use part of the
development kit design in
their prototype.
Semiconductor manufacturers recognise
the important role these products play
in product selection and future demand
generation, especially in ensuring the
success of new technologies. As such,
they will typically launch a development
kit alongside their latest new products
and will look to distributors to help them
to ensure its success.
The element14 community is viewed by
many of our suppliers as an important
tool in the product launch process.
Engineering customers often come to
the Community at the outset of their
design process when they are researching
possible solutions for their products.
Through the Community, we can partner
with suppliers to conduct social marketing,
such as new product roadtests by influential
members. In addition to creating customer
engagement around the product, such
activity allows for third party product
endorsement and real-time feedback.
In 2014/15, we enhanced the element14
community with the launch of the Design
Center, an online hub for information on
development kits and tools.
Embest and AVID provide design services
and manufacturing of development kits
to a substantial number of the major
semiconductor manufacturers including
Freescale, NXP and AMD. Beyond the
growth opportunity for element14
represented by this activity, the total
available market is highly fragmented
and estimated to be worth approximately
£400m annually. Working on the design
of the development kit means that we are
partnering before the launch of the new
technology. The insights that we gain from
the coming-to-market technology can
help us to enhance our proposition to
our core engineering customers and
drive leadership in the introduction of
new technology products.
Turning suppliers into customers
The acquisition of Embest in 2012, a
technology business based in China,
saw us begin to evolve our business
model beyond the distribution of
products from suppliers to customers
by providing design services and
outsourced manufacturing solutions.
The capability that we acquired
through Embest means that we
now provide turnkey solutions
to our component manufacturer
partners in the launch of their
new technologies.
As a result, we are working with
our suppliers as they develop their
technology from the design and
manufacturing of their development
kits all the way through to the launch
of the product, supported by our
established distribution business.
We can now support component
manufacturers across a number of
key technology areas. Embest has
embedded technology expertise –
designs based on the popular ARM
embedded architecture by the British
technology leader, ARM. With Embest
growing strongly, we required further
resource to support demand. In April
2014, the Group acquired AVID
Technologies, a design house based
in Ohio, USA. AVID has enhanced
our offering through its specialisation
in wireless, connectivity, power and
analog technologies.
With over 200 engineers across the
business, the technical capability we can
provide is unparalleled in our space. We
are now unique amongst distributors in
influencing electronics at the outset of
the amplifying effect. This is seeing us
turn these key supplier partners into new
customers and enhancing the value-add
that we provide to them.
In addition, we have the opportunity
to enhance the value provided to auxiliary
component manufacturer partners in
technology areas such as connectors, as
the development kit plays a critical role in
their own demand generation. Given our
existing relationships in distributing such
products to engineering customers, we
are uniquely positioned to work closely
with these partners compared with the
incumbent players in design services
and manufacturing of development kits.
Building our business with
component manufacturers
In 2014/15, Embest and AVID completed
over 90 projects for more than 20
semiconductor manufacturers. The
value of the projects has increased as
component manufacturers’ confidence
in us has grown and the future pipeline
appears healthy as we look to 2015/16.
While the total business conducted by
Embest and AVID is still a relatively
small part of the Group, with combined
revenues of £9.4m in 2014/15, we
anticipate that this business area
will provide an incremental growth
opportunity that will benefit our
larger distribution activities.
22
Premier Farnell
Measuring our performance
We measure the Group’s performance and progress of our
strategic priorities against seven key performance indicators
(KPIs) as we aim to deliver growth, efficiency, profitability and
cash. Our 2014/15 performance in comparison to our targets
reflects our journey to transform Premier Farnell, with
investments made that will enable us to deliver improving
future financial performance.
As we execute our strategic priorities and continue our
journey to build our strategic vision of becoming the
global destination for electronics customers, we will
create sustainable shareholder value by growing our
business, delivering efficiencies, optimising profitability
and delivering free cash flow.
Strategic Objective 1: Growth
Strategic Priorities
• Become the recognised technology experts for design services and manufacturing
of development kits for global component manufacturers
• Build and leverage technical expertise to attract engineering customers at the cutting edge of technology
• Grow our business with our engineering and manufacturing customer base, especially in the
emerging markets of China, India and Eastern Europe
KPI
Definition
6% sales
growth
Across the economic cycles, we target
accelerated sales growth through the
execution of our strategic growth
priorities. We measure sales per day
on a constant exchange rate basis.
4% active
customer
growth
10%
emerging
markets
growth
Increasing the active customer base
demonstrates the attractiveness of our
customer proposition and indicates market
share gains. Active customers are those
who have transacted with us within the
past six months (excluding sales of
Raspberry Pi and associated products).
We continue to develop our business
internationally, focusing on the fastest
growing territories such as China,
India and Eastern Europe.
Trend
Commentary
2014/15 3.3%
2013/14 2.6%
2012/13 -2.8%
2014/15 -2.1%
2013/14 -0.3%
2012/13 1.3%
2014/15 13.1%
2014/15
2013/14 14.9%
2013/14 2.6%
2012/13 -2.8%
7.5%
Full year underlying sales growth of 3.3%, up from
2.6% in 2013/14. The improved sales growth was
driven by focus on our three targeted customer
segments and reflecting conditions in our end
markets. The execution of strategic growth
supports our aim of achieving our target of 6%
sales growth through the cycle.
Active customer base exited the year 2.1% lower
compared to the prior year. The active customer
base has been impacted by initiatives to
de‑emphasise non-profitable customers in
non-core customer segments. Investments
made to enhance our customer proposition,
particularly online, are expected to improve
our future performance against this metric.
Sales growth in the emerging markets remains
ahead of our strategic target. This year’s growth
was driven by China and India, up 18.1% and
20.3%, respectively. We remain focused in
realising the opportunity for growth in the
emerging markets.
23
Annual Report and Accounts 2014/15
Strategic Objective 2: Efficiency
Strategic Priorities
• Evolve our operating model into a more efficient and effective global, function based structure
• Develop attractive eCommerce channels that enable automation of processes
KPI
Definition
>30%
RONA
The effective and efficient investment
of our shareholders’ funds is a critical
overall measure of the success of our
strategy. RONA is defined as operating
profit expressed as a percentage of net
assets excluding cash, financial liabilities,
taxation and goodwill.
70% of
distribution
sales from
eCommerce
eCommerce is a highly efficient route
to market and an enabler of further
efficiencies in our business model.
Our target of 70% of sales in MDD
via eCommerce means that the
processing of transactions must
be completed entirely through
fully-automated processes.
Trend
2014/15 29.6%
2013/14 32.3%
2012/13 34.3%
2014/15 49.3%
2013/14 55.1%
2012/13 56.8%
Commentary
Return on Net Assets of 29.6% was marginally
below our KPI of >30%. As we move to a more
efficient global operating model and drive increased
inventory turns, we expect to improve our future
performance against this metric.
eCommerce penetration was 49.3%, down 5.8
percentage points from the prior year. The decline
principally reflects the decommissioning of optical
character recognition for the fully automated
processing of faxes, which took place at the end
of the prior year. With the rollout of the new web
platform complete, we expect to make progress
towards our medium term target in the year ahead.
Strategic Objective 3: Profitability
Strategic Priorities
• Optimise our business through effective management of gross profit and costs
KPI
Definition
10%-12%
ROS
Through the ongoing management
of gross profit and costs, the Group
targets an operating margin in the
range of 10% to 12% through the
economic cycles.
Trend
2014/15 9.2%
2013/14 9.6%
2012/13 10.0%
Commentary
Full year operating margin of 9.2% reflected
a decline in gross margin, combined with the
planned strategic investments to enhance our
customer proposition as we transform our
business and ongoing stringent management
of costs. We continue to execute transformational
programmes that drive the efficiency in our
business model and focus on executing our
profitable growth strategy.
Strategic Objective 4: Cash
Strategic Priorities
• Optimise use of cash in the business and distribution of funds to shareholders through-the-cycle
KPI
Definition
6% FCF
to sales
We remain committed to generating
cash flow performance through the
economic cycles. 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.
Trend
2014/15 3.7%
2013/14 3.7%
2012/13 6.1%
Commentary
Adjusted free cash flow as a percentage of sales
of 3.7% was below our through-the-cycle target
of 6%, following further inventory investments
to enrich our product offering for engineering
and manufacturing customers. These strategic
incremental inventory investments are now
completed and we remain selective on our capital
investments. We expect the investments made
to deliver improved future cash performance.
24
Premier Farnell
Principal risks, uncertainties
and opportunities
The Principal Risks and Uncertainties facing the Group are
summarised below.
The disclosure of risks and uncertainties in the table below
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 Senior Executive
Team (SET).
Risks and
uncertainties
Management also reviews specific strategic, operational,
and financial and compliance risks in regular focused forums
during the year; SET 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 42.
Relative increase /
decrease compared
to prior year
Mitigating actions
Opportunities
Business Risks
Competitive
pressures
increase
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 end-to-end solutions
throughout their product development process.
S O
We are rationalising our element14 organisation
by globalising our operating model and
leveraging the efficiencies of the web.
Insufficient
progress with
improving
performance in
the Americas
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.
We are partnering more closely with suppliers
as we look to support the introduction of their
new technology and drive market share gains
in key market segments.
We have a fully integrated multichannel sales
and marketing plan that is aligned with the wider
element14 strategy and the evolution of our global
proposition. This plan is 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,
and developing the customer proposition by
leveraging our global resources, we can
significantly improve operating performance
in the Americas.
Embest and AVID’s engineers are working
together to optimise performance of specific
projects. Investments have been made to
develop the leadership teams and back office
systems at Embest.
Leveraging our technology expertise offers
significant opportunities in meeting the needs
of our component manufacturer customers but
also in our core engineering customer base.
Long term
evolution of the
electronic
component
distribution model
Software and services are 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.
Environmental and technology trends are sources
of electronics innovation which underpin sales
to our product development customers.
S
The Group takes actions to reduce the impact
of its business on the environment through
carbon emissions and by encouraging
recycling, especially of packaging.
S O R
Failure to leverage
our technology
expertise and
partnerships with
key suppliers
new
S
Our regional warehouse model reduces
the impact of carbon emissions compared
to alternatives.
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.
25
Annual Report and Accounts 2014/15
Risks and
uncertainties
Relative increase /
decrease compared
to prior year
Mitigating actions
Opportunities
People
Business
reorganisation
as we evolve our
business model
S O
The CEO, CFO and CPO are directly involved
in managing this model change, supported
by both experienced programme managers
and high performing employees from across
the business.
Our new global structure will facilitate better
sharing of expertise and resources across
the business globally. It will allow us to enhance
the service we provide to meet the needs
of customers and suppliers across
regional boundaries.
Recruitment,
development
or retention of
talented people
We actively measure the retention of talent
within our organisation which provides us
with the ability to track trends and act with
the appropriate and necessary actions.
We seek to actively engage employees
by focusing on training and development,
customer relationships, leadership, social
responsibility and communications.
S O
Reward schemes are continuously evaluated
to drive and reward performance and ensure
retention of key talent.
New global structure will provide key
people with better ways of working and
development opportunities.
new
Systems, data and infrastructure
Data and content
quality inhibit
effectiveness of
our eCommerce
strategy
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.
S O
Significant failure
or inefficiencies
in our systems
and infrastructure
Business continuity plans are kept under review
for all our locations.
Our IT infrastructure is subject to ongoing review
and we conduct regular testing of our systems.
O
Cyber security
failure leading
to revenue or
reputational loss
O
new
Sophisticated cyber security tools are
employed to block external threats and attacks
including enhanced, integrated security in the
new global web platform.
Increased planned investment in global systems,
data and data management processes to
provide our customers with high quality product
information and suppliers with rich insights into
customer behaviour as well as enabling greater
operating efficiencies.
We continually improve workflows and operational
efficiencies and provide increased capacity and
investment in capability.
Providing a safe and secure online experience to
customers is potentially differentiating compared
with smaller, less established competitors.
A computer incident response team has been
established alongside enhanced internal training
and review processes.
Legal
Legal and
regulatory risks
O
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.
Key
S Strategic Requires a strategic response
O Operational Requires an operational response
R Regional Specific to one region
26
Premier Farnell
Financial and operational review
Mark Whiteling
Chief Financial Officer
Sales
Group sales for the financial year were
£960.1 million (2013/14: £968.0 million)
representing growth of 3.3%, based on
sales per day for continuing businesses
at constant exchange rates, reflecting
the market conditions seen through the
period and the execution of our strategic
growth initiatives.
Divisional performance
The following commentary sets out the
performance achieved by each of our
business units.
2014/15 has been a
challenging but important
year in Premier Farnell’s
development. As we seek to
improve our future financial
performance, we are focused
on improving our growth
trajectory, reducing costs
and transforming our business
through the proposed global
reorganisation of element14.
element14
Against a mixed economic backdrop,
Europe delivered full year sales growth of
1.9% year on year. Excluding Raspberry
Pi, Europe sales increased 2.5% year on
year. Market conditions in the United
Kingdom remain challenging, despite
some encouraging manufacturing PMIs,
with our business reporting a year on year
sales decline of 2.2%. Continental Europe
continued to perform more strongly,
growing sales by 3.8% year on year.
This performance was driven by above
average sales growth in Germany, Italy,
Spain, Benelux and Eastern Europe.
Asia Pacific continues to provide the
Group with long-term growth opportunities.
We have continued to grow market share
in the region, with full year sales up
16.1% over the prior year. Every market
in the region delivered positive growth
throughout the year with sales growth in
the key emerging markets of China and
India at 18.1% and 20.3%, respectively,
whilst Australia delivered sales growth
of 5.6% over the prior year.
The total Europe and Asia Pacific’s MDD
business delivered combined full year
sales growth of 4.2% year on year.
Americas’ element14 business delivered
full year sales growth of 1.1% year on
year as we began to implement plans to
transform the region’s performance and
integrated AVID Technologies into the
Group. Excluding AVID Technologies,
Americas’ full year sales were flat year
on year. We anticipate that the Americas
will benefit from our proposed global
organisational structure as this will
enable us to better leverage our global
resources to enhance the customer
proposition and sales effectiveness.
CPC and MCM
CPC and MCM delivered combined full
year sales growth of 7.9% in 2014/15,
despite a challenging market backdrop,
benefitting from sales of the Raspberry
Pi. This follows the transfer of some
Raspberry Pi business from element14
to CPC and MCM in the first half of the
year, as well as the launch of the CPC
catalogue at the end of the first quarter.
27
Annual Report and Accounts 2014/15
Key financials
2014/15
(52 weeks)
£m
Total revenue
2013/14
(52 weeks)
960.1
968.0
Growth(a)
3.3%
88.0
93.0
-0.1%
Total operating profit
83.1
91.5
-4.0%
Adjusted profit before tax(b)
74.0
76.3
-3.0%
Total profit before tax
69.1
74.8
-7.6%
Adjusted earnings per share
13.8p
14.3p
-3.5%
Basic earnings per share
12.9p
14.0p
-7.9%
35.2
36.1
-2.5%
Adjusted operating profit
Free cash flow(c)
(b)
Divisional analysis
Revenue
2014/15
(52 weeks)
2013/14
(52 weeks)
Growth(a)
element14
Europe
APAC
Europe & APAC
Americas
CPC & MCM
Total MDD
Akron Brass
Group
357.1
363.8
1.9%
79.3
72.1
16.1%
436.4
435.9
4.2%
333.1
347.1
1.1%
769.5
783.0
2.8%
117.1
109.7
7.9%
886.6
892.7
3.5%
73.5
75.3
1.3%
960.1
968.0
3.3%
Adjusted operating profit/operating margin
2014/15
(52 weeks)
Europe & APAC
Americas
CPC & MCM
Total MDD
Akron Brass
2013/14
(52 weeks)
57.2
60.3
13.1%
13.8%
19.5
19.7
5.9%
5.7%
11.7
12.1
10.0%
11.0%
88.4
92.1
10.0%
10.3%
13.7
14.0
18.6%
18.6%
Head office
(14.1)
(13.1)
Group
88.0
93.0
9.2%
9.6%
Growth(a)
0.7%
4.3%
-3.3%
0.9%
1.5%
-0.1%
Notes
(a) In order to reflect underlying business
performance, sales growth is based on sales
per day for continuing businesses at constant
exchange rates and like for like periods, and
growth in operating profit is stated on a constant
currency basis, consistent with the way that
performance is measured by the business.
References to financial results refer to ‘adjusted’
numbers unless otherwise stated (see note
(b) below).
(b) In 2014/15, adjusted operating profit, profit before
tax and earnings per share exclude restructuring
costs of £5.1m, net gain on US property disposal
of £0.3m related to savings on expenses incurred
in the prior year relocation of the MDD Americas
Head Office and acquisition costs of £0.1m. In the
prior year, adjusting items comprise restructuring
costs of £3.9m, net gain on US property disposal
of £1.6m and gain on remeasurement of
contingent consideration of £0.8m.
ree cash flow comprises total cash generated
(c) F
from operations, excluding cash flows related to
adjusting items, less net capital expenditure,
interest, preference dividends and tax payments.
Notes:
The current year results have been adjusted to
exclude the following items:
1.Restructuring costs of £5.1m (MDD Europe &
APAC £1.1m, MDD Americas £0.2m, Head Office
£3.8m).
2.Net gain on US property disposal of £0.3m
related to savings on expenses incurred in
the prior year relocation of MDD Americas
Head Office.
3. Acquisition costs of £0.1m.
In the prior year, adjusting items comprise:
1.Restructuring costs of £3.9m (MDD Europe
& APAC £0.6m, MDD Americas £1.0m, Head
Office £2.3m).
2.Net gain on US property disposal of £1.6m.
3.Gain on remeasurement of contingent
consideration of £0.8m.
28
Premier Farnell
Financial and operational review continued
Akron Brass
Following a standout year in 2013/14,
Akron Brass performed in line with our
expectations with full year sales up 1.3%
year on year. The comparators from last
year’s contract win with the Hindustan
Petroleum Company Limited were
especially strong in the second half and
Akron Brass sales declined 3.8% year
on year in the period. The business is well
positioned to continue its expansion into
international markets and build on its
market leading position in North America.
Profitability
As outlined in the KPIs on page 23, the
Group targets an operating margin that
optimises profitability through-the-cycle
by seeking to maximise gross profit and
managing costs both strategically, as
we transform our business, and tactically
in line with market conditions. Full year
operating margin of 9.2% (adjusted)
reflected a decline in gross margin, our
planned strategic investments to enhance
our customer proposition as we transform
our business and ongoing focus on cost
management. As a consequence of our
focus on costs, adjusted operating profit
reduced by only 0.1% at constant
currency compared to the prior year.
Gross profit
A core objective of our strategy is that
we will provide a customer proposition
that delivers growth in sales and gross
profits. We remain focused on managing
gross margin in line with market conditions
but we also anticipate that certain aspects
of our strategy – namely the evolving
customer and product mix – will result
in further dilution to gross margin over
time. Figure 4 illustrates the key drivers
that are likely to impact gross margin
resulting from the execution of our strategy.
Figure 04:
Gross margin vs. historic levels
Customer
mix
Engineering distribution
Manufacturing distribution
Component manufacturers
Product
mix
Development kits
Semiconductors
Raspberry Pi
Electronic components
Test & measurement
Geog.
mix
Operating profit
Adjusted operating profit was
£88.0 million (2013/14: £93.0 million)
representing a year on year decline
of 0.1% at constant exchange rates.
Americas
APAC
Europe
Key
is accretive
is neutral
Adjusting items
Adjusting items include £5.1m of
restructuring costs related to our global
business re-organisation, of which
£2.8m were recognised in the second
half. Total cost to achieve the business
re-organisation is expected to be
approximately £10m with the remainder
recognised in 2015/16. Prior year
adjusting items included restructuring
costs of £3.9m, a net gain on US
property disposal of £1.6m and
a one-off £0.8m gain following
remeasurement of the expected
contingent consideration payable
in respect of the Embest acquisition.
is dilutive
In line with this objective, we have
realigned our pricing to reflect the
current competitive environment in
an increasingly global marketplace
and also continued to grow faster in
strategically important products such as
development kits and semiconductors,
as well as in higher volume business
and establishing our leadership in the
embryonic single board computing
space. Whilst this approach has led to
a 0.7 percentage point decline in gross
margin to 36.8%, we have delivered
growth in gross profits, on a constant
currency basis, up 1.4% year on year.
Costs
Focused cost control and improving
the efficiency of our model are constant
priorities for our business. Adjusted
net operating expenses were reduced
by £4.7 million on the prior year. The
effective management of our cost profile
has enabled us to offset the majority
of the gross margin decline, delivering
SG&A as a percentage of sales at
27.6%, a reduction of 0.4 percentage
points at constant exchange rates.
Total operating profit was £83.1m for
the full year, reflecting a net cost from
adjusting items of £4.9m (2013/14:
£91.5m, after reflecting a net cost from
adjusting items of £1.5m), resulting in a
year on year decline of 4.0% at constant
exchange rates.
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
29.6% (2013/14: 32.3%), slightly below
our target of greater than 30%. As we
move to a more efficient global operating
model, the Group will be able to better
leverage its assets.
Foreign currency
In 2014/15, the average exchange rates for
sterling against the US dollar and the Euro
were, respectively, £1 = US$1.64 (2013/14:
£1 = US$1.57) and £1 = €1.26 (2013/14: £1
= €1.18). Prior year comparatives for
revenues and adjusted operating profit
benefited by £38.9m and £4.9m,
respectively, as a result of the foreign
exchange rates compared to 2014/15.
29
Annual Report and Accounts 2014/15
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 £0.2m
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 £0.4m per annum.
Finance costs
Net finance costs in the financial year
were £14.0 million (2013/14: £16.7
million). This comprises net interest
payable of £10.5 million (2013/14: £12.4
million), which was covered 8.4 times
by adjusted operating profit, and a net
charge of £3.5 million (2013/14: £4.3
million) in respect of the Company’s
convertible preference shares.
The net cost in respect of the Company’s
convertible preference shares included
the preference dividend for the year of
£2.9 million (2013/14: £3.5 million),
together with a £0.6 million (2013/14:
£0.8 million) charge for the amortisation
of the implied redemption premium on
preference shares.
The reduction in net finance costs reflects
the repayment of the US$159m private
placement notes in June 2013, combined
with the retranslation of US$ interest
charges on the Group’s US$ private
placement notes, as well as the benefit
of the repurchase and cancellation of
712,948 preference shares.
Profit before tax
Adjusted profit before taxation was £74.0
million compared to the prior year adjusted
profit before taxation of £76.3 million.
Total profit before taxation was £69.1 million
(2013/14: £74.8 million). Profit attributable
to ordinary shareholders after taxation
was £47.5 million (2013/14: £51.4 million).
Earnings per share
Adjusted earnings per share for the
financial year are 13.8 pence (2013/14:
14.3 pence). Basic earnings per share
after the net impact of adjusting items
are 12.9 pence (2013/14: 14.0 pence).
Ordinary dividend
The Board is recommending a final
dividend of 6.0 pence per share
(2013/14: 6.0 pence per share),
amounting to a total dividend for the
year of 10.4 pence per share (2013/14:
10.4 pence per share) and with a total
impact in shareholders’ funds of
£38.2 million. The final dividend,
subject to approval at the Annual
General Meeting on 16 June 2015,
is payable on 25 June 2015 to
shareholders on the register at
29 May 2015.
Business acquisition
In the first half, the Group acquired
the business and assets of AVID
Technologies, Inc. for a total
consideration of £7.7 million, with
additional acquisition costs of £0.1
million shown as an adjusting item.
Of the total consideration of £7.7 million,
£0.3 million relates to the fair value of net
assets acquired and £7.4 million relates
to goodwill. This acquisition enhances
our offering to component manufacturer
customers. Further information on our
offering to component manufacturers
is outlined on pages 20 to 21.
Tax
The taxation charge represents an
effective tax rate for the 2014/15
financial year on profit before tax
and preference dividends of 30.0%
(2013/14: 29.9%). After including
adjusting items the effective rate is
29.9% (2013/14: 30.0%). We expect
that the effective tax rate should
fall in 2015/16 by approximately 1%
reflecting the continuing reduction
in the UK tax rate.
30
Premier Farnell
Financial and operational review continued
The Group’s adjusted effective tax charge for continuing operations can be analysed as follows:
£m
2014/15
Profit
before tax
Total profit before tax
Tax
charge
%
2013/14
Profit
before tax
69.1
Add back preference dividends
Tax
charge
%
23.4
29.9
74.8
2.9
3.5
72.0
21.6
30.0
78.3
Adjust for:
Restructuring costs
Net gain on disposal of US property
Gain on remeasurement
of contingent consideration
Acquisition costs
5.1
1.5
3.9
1.1
(0.3)
(0.1)
(1.6)
(0.6)
–
–
(0.8)
–
79.8
23.9
0.1
–
76.9
23.0
29.9
30.0
Post-retirement benefits
The Group accounts for pensions and other post-retirement
benefits in accordance with IAS 19 (revised). The net charge
for post-retirement benefits was £8.2 million (2013/14: £8.0
million) and can be analysed as follows:
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:
Charge £m
Liability at beginning of year
2014/15 2013/14
Defined benefit pension plans
2.5
2.5
Defined contribution pension plans
5.0
4.8
Other post-retirement benefits
0.7
0.7
8.2
8.0
£m
Expense
Actuarial losses
Contributions
Currency translation
Liability at end of year
US Plan
UK Plan
(11.6)
(18.1)
(0.9)
(1.2)
(12.7)
(10.3)
–
5.7
(1.3)
–
(26.5)
(23.9)
The contributions expected to be paid during the 2015/16
financial year amount to £4.8 million in respect of the UK plan
and £nil million in respect of the US plan. Post-employment
benefits liabilities increased to £70.7m from £45.1m at the
end of the previous financial year principally due to actuarial
remeasurements. The main driver of these remeasurements
was the significant fall in discount rates at the end of 2014/15,
as a result of weak corporate bond yields.
31
Annual Report and Accounts 2014/15
Cash flow and net debt
Adjusted free cash flow to sales was 3.7%, unchanged versus
the prior year and reflects further inventory investments made
to enhance the customer proposition.
Free cash flow attributable to ordinary shareholders is
summarised below:
£m
2014/15
2013/14
Adjusted operating profit
88.0
93.0
Depreciation and amortisation
15.3
17.7
Changes in working capital
(15.1)
(23.7)
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
(3.9)
(2.6)
1.5
2.2
85.8
86.6
(20.7)
(17.8)
–
0.3
(12.5)
Total cash generated from operations represented 97.5%
of operating profit (2013/14: 93.2%). Net working capital
increased by £15.1 million over the year reflecting strategic
inventory investments made to enhance our customer
proposition, particularly for our manufacturing customers.
Capital expenditure of £20.7 million included £14.5 million
of software development costs, principally to upgrade our
customer web experience and enhance existing systems.
The change in net financial liabilities is summarised below:
£m
UK Plan
Opening net financial liabilities
(225.8)
Free cash flow after impact of adjusting items
27.6
Acquisition of businesses (deferred consideration)
(7.8)
Ordinary dividends
(38.2)
Issue of ordinary shares
0.1
Preference shares
(0.6)
(15.5)
Derivative financial instruments
0.2
Amortisation of arrangement fees
(0.6)
Taxation
(17.4)
(17.5)
Free cash flow before impact
of adjusting items
35.2
36.1
Closing net financial liabilities
Cash flow impact of
restructuring costs
(7.0)
(6.2)
Cash flow impact of US
property disposal
At 1 February 2015, the Group’s net financial liabilities
comprised the following:
(0.6)
3.9
Free cash flow after impact
of adjusting items
27.6
33.8
Exchange movement
£m
Cash in bank and in hand
Bank loans and overdrafts
US$ Senior Notes
Other loans
Preference shares
Derivative financial instruments
The US$ Senior Notes comprise:
$30.0 million due 2017
$58.5 million due 2018
$91.5 million due 2021
$85.0 million due 2024
(11.5)
(256.6)
2014/15
2013/14
43.8
42.8
(66.4)
(39.2)
(176.0)
(161.0)
(7.7)
(7.0)
(52.5)
(63.4)
2.2
2.0
(256.6)
(225.8)
32
Premier Farnell
Financial and operational review continued
Treasury activities are monitored by the Tax and Treasury
Committee which meets at least twice a year with major
decisions and the overall treasury policy being approved
by the Board.
The maturity of the Group’s gross financial liabilities at 1
February 2015, excluding derivative financial instruments,
is as follows:
£m
Due within one year
2014/15
2013/14
6.3
1.8
Between one and two years
52.6
4.0
Between two and five years
125.6
208.4
After five years
118.1
56.4
302.6
270.6
Net financial liabilities (including preference shares) increased
to £256.6m from £225.8m at the end of the prior financial year.
The impact of exchange rates in the period was to increase
net financial liabilities by £11.5m, principally in relation to
our US$ denominated private placement notes. Net debt to
adjusted EBITDA was 2.5x following the acquisition of AVID
Technologies and reflecting the impact of foreign exchange
movements in the year.
The Group has £250 million bank facilities, expiring in
September 2019, which together with the Group’s continuing
cash generation provide the 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 £181.2 million
which, together with the net cash position of £43.8 million,
gives us a secure funding position and will facilitate repayment
of the preference shares on their maturity in 2016. In addition,
the Group successfully refinanced $85m US private placement
notes due August 2016 until 2024.
Treasury operations
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.
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.
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. 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.
33
Annual Report and Accounts 2014/15
Sustainability report
Principles
The Principles element of our sustainability strategy centres
on those activities which we believe will deliver competitive
advantage or financial benefit to the Group. 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.
Code of Conduct
All employees are required to re-read and commit to
the Premier Farnell Code of Conduct during their annual
performance review. This gives them the opportunity to
ask questions and raise concerns with their line manager.
In FY15, 91% of employees confirmed that they had read
and understood the Code of Conduct. The remaining 9%
consists of employees who did not complete a year-end
review and therefore did not submit their confirmation.
94% of new employees required to read the Code of Conduct
as part of their induction confirmed that they had done so
via the Group’s Online Learning Centre.
The Trust Line
Premier Farnell provides an anonymous telephone hotline for
employees to report concerns about corporate ethics in their
workplace. In FY15, nine issues were reported and investigated
by the hotline. All issues raised were resolved within the year
and none remain outstanding.
Planet
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.
Intensity metric
Tonnes Carbon Dioxide equivalent per thousand square
metres (CO2e/’000m2)
2014
2013
Scope 1
22
Scope 2
88
87
110
110
Total
The decrease in tonnes CO2e emitted by the Group compared
with the prior year is mainly due to the relocation of some
office sites to smaller and more energy efficient buildings, in
particular the movement of the MDD Americas head office to a
LEED certified energy efficient building in downtown Chicago.
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 International 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 36 of this report.
Resource use
Waste generated (tonnes)
Greenhouse gas (GHG) statement for the Group
Summary of GHG emissions for the year ended
31 December 2014:
Tonnes Carbon Dioxide equivalent (CO2e)
2014
Waste sent to landfill (tonnes)
Waste recycled (tonnes)
Waste recycled (%)
2013
Scope 1
3,964
Scope 2
15,831
16,278
Total
19,795
20,629
4,351
23
2014
2013
2012
4,381
4,488
4,409
742
903
922
3,639
3,585
3,488
83%
80%
79%
Our overall performance on waste recycling has increased by
3% since 2013. 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.
People
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. Our focus
on developing a high performance culture with our employees
is outlined on pages 38 and 39.
34
Premier Farnell
Sustainability report continued
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.
In Europe, DAW injury rates have increased primarily as a
result of short term absences following minor injuries becoming
more commonplace. A significant proportion of this is driven
by legislation affecting sick pay entitlements at our Liege
Distribution Centre. However, we have also seen minor injuries
occurring in our European office locations that were unrelated
to work processes.
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.
Both Recordable and DAW rates remain below the computed
OSHA industry average for the business types operated by
Premier Farnell.
Absenteeism
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.
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.
Recordable
DAW
1
injuries per injuries2 per
100,000
100,000
hours
hours
worked
worked
Business type
Leeds, UK
Distribution Centre
5.3%
Business Contact Centre
9.0%
Distribution Centre
5.5%
Business Contact Centre
4.1%
Preston, UK
Gaffney, US
Distribution Centre
2.2%
Richfield, US
Business Contact Centre
2.0%
Distribution Centre
1.8%
FY15 Target (50% computed
OSHA average)
0.41
0.16
Dayton, US
FY15 Performance
0.38
0.30
Singapore
FY14 Performance
0.31
0.21
Notes:
1 Recordable injuries are those which require medical treatment beyond the
application of on-site first aid.
2 Days Away from Work (DAW) injuries are those which result in an employee
taking medical leave from work, or being assigned to restricted duties outside
of their normal contract.
Absence
rate1
Location
Distribution Centre
3.0%
Business Contact Centre
8.0%
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.
The UK Business Contact Centre experienced higher
absences than usual as a result of concentrated long-term
sickness absence, unrelated to working activities.
35
Annual Report and Accounts 2014/15
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% of Private Label
suppliers (by spend) have been audited by a member
of our Strategic Sourcing Team and the percentage of
suppliers surveyed (by spend) has increased to 97%.
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
continued 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 focus our community 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 more than 30,000 page
views since launch in 2012 (10,800 in FY15 alone) as it brings
key stakeholders together across geographical boundaries
to find an innovative solution to an important problem.
36
Premier Farnell
Independent Limited Assurance Report
to the Directors of Premier Farnell plc
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 2014 Sustainability
Report and the Annual Report and Accounts for the year
ended 1 February 2015.
Our conclusion
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 2014
has not been prepared, in all material respects, in
accordance with the Reporting Criteria.
This conclusion is to be read in the context of what we say
in the remainder of this report.
Selected Information
We assured the information for the year ended 31 December
2014 presented in the Greenhouse Gas Statement for the
Group (the “Selected Information”), http://www.premierfarnell.
com/sustainability.
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 1 February 2015.
Selected Information
Scope 1 emissions
Scope 2 emissions
Carbon intensity
Reporting Criteria1
http://www.premierfarnell.com/
sustainability
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
Professional standards applied and level of assurance
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’ (ISAE 3000) 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.
Our Independence and Quality Control
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.
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.
Our work was carried out by a team of sustainability and
assurance specialists, independent of management.
Understanding reporting and measurement methodologies
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 24 April 2015 and should
therefore be read in conjunction with the Selected Information
and associated statements as at 24 April 2015 reported on
Premier Farnell plc’s website.
37
Annual Report and Accounts 2014/15
Work done
Considering the risk of material misstatement of the Selected
Information, we:
• made enquiries of relevant management;
• interviewed personnel;
• performed analytical procedures;
• considered the structure and basis of data management
systems and controls; and
• 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:
• 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;
• establishing objective Reporting Criteria for preparing the
Selected Information;
• measuring and reporting the Selected Information based
on the Reporting Criteria; and
• the content of the Greenhouse Gas Statement for the Group
and the Annual Report and Accounts for the year ended
1 February 2015.
Our responsibilities
We are responsible for:
• 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;
• forming an independent conclusion, based on the
procedures we have performed and the evidence we have
obtained; and
• reporting our conclusion to the Directors of Premier Farnell plc.
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 1 February 2015,
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
24 April 2015
38
Premier Farnell
Employees
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.
We are also conducting a detailed review of our talent
pipeline and building tailored executive assessment and
development solutions.
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 38 countries with 100 eCommerce
specialists and 300 technical engineers amongst its ranks.
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.
Through its range of employee initiatives, described below, the
Group seeks to attract and develop its people around the globe.
Performance management
Effective performance management plays an important role
in enabling all of our employees to understand how they
contribute to the success of the organisation. Our Group-wide
performance review process has been instrumental in shaping
our journey towards a high performance culture.
All employees within our core businesses participate in our
annual performance review process, which links each individual’s
work with the Company’s strategic and operational objectives.
The performance review process also incorporates development
planning, providing an opportunity for individuals to focus on their
ongoing professional and personal development.
In addition to structured reviews, ongoing performance
discussions throughout the year provide an ideal platform
for engaging and motivating employees. In line with 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
To respond to our strategic ambitions, we have redefined
the behaviours we need from all colleagues in the business.
Our ‘Leadership Standards’ will also allow us to review our
learning and development options and make sure we support
colleagues to have the skills to effectively deliver in their roles
as well as developing capability for the longer term.
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.
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.
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.
Mentoring
We continue to provide a platform to connect high potential
colleagues 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.
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,
strategy and operational performance through various internal
communication channels. These include our global intranet,
weekly newsletters, regular video broadcasts and various
town halls, with local business context, content and translation
where appropriate. Our ongoing business updates, through
regular, consistent and open communication, are essential to
39
Annual Report and Accounts 2014/15
Gender diversity (as at 1 February 2015)
%
Board
employees
(8 members)
SET
(12 employees)
Senior Management
(177 employees)
Entire organisation
(4,554 employees)
Male
87%
92%
76%
56%
Female
13%
8%
24%
44%
engaging our people by keeping them informed. Further
communications resources have been added to support
employee engagement throughout our proposed global
reorganisation programme.
Great place to work
We are starting to re-energise our employment brand –
investing to ensure that we can attract and retain the best
possible talent for our global business. We continue to
encourage 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:
• Customers and suppliers are at the heart of everything we do.
• Only by working together can we deliver results.
• We must innovate; learning and adapting faster than
anyone else.
• Developing our people is crucial to our success.
The previous leadership structures for Akron Brass and the
Other Distribution businesses (CPC & MCM) remain in place
and report to the Chief Executive directly.
Making a Difference Awards
People throughout Premier Farnell embrace our values every
day. As part of the Group’s commitment to encourage high
performance, outstanding contributions made by our
employees are recognised and rewarded during the year
through our Making a Difference Awards.
These awards are categorised, with winners recognised for
their dedication to focusing on our customers and suppliers,
innovation at work, collaborating with each other, and a People’s
Choice award, voted for by colleagues around the business, to
find an individual who exemplifies coaching in action.
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.
All of the global winners receive special recognition and
an award presented by the CEO. This year, Premier Farnell
recognised 93 colleagues from around the globe through the
Making a Difference Awards.
• Integrity and Trust are fundamental to our culture.
New Executive Teams
Premier Farnell is constantly evolving to become a highly
efficient, global business. The proposed reorganisation of the
element14 businesses to an integrated global structure is a
critical step on this journey. In June 2014, we appointed a new
Executive team to lead the simplified organisation. Led by
Laurence Bain, the Group’s Chief Executive, the new team
includes Mark Whiteling, the Group’s Chief Financial Officer,
global functional leaders for Sales and Marketing, Product and
Suppliers, Supply Chains, and Technology, as well as global
leaders for support functions including Human Resources and
Legal. The new team holds one face-to-face meeting every
month. Subject matter experts attend where relevant to the
meeting agenda.
Strategic Report
The Strategic Report was approved by a duly authorised
Committee of the Board of Directors on 24 April 2015 and
signed on its behalf by:
Mark Whiteling
Chief Financial Officer
24 April 2015
40
Premier Farnell
Corporate Governance Report
Val Gooding, CBE
Chairman
The 2014/15 financial
year has been a
challenging period for Premier
Farnell but one in which we
took steps to position the
Company for improved future
financial performance.
As Laurence outlined in the Strategic
Report, we have begun our transformation
to become the global destination for
electronics customers. During the year
we made investments to support this
evolution, including acquiring AVID
Technologies and completing the
rollout globally of our new web platform.
We also commenced the process to
transform our regional element14
businesses to one global business, a
move that will deliver a more efficient
and effective organisational structure.
The Board has been actively involved
in overseeing this transformation,
developing the Group’s strategy and
assessing the Group’s performance.
The Group’s financial progress this year
against its key performance indicators
reflected the transitional nature of the
past year. The focus on strategic priorities
to deliver growth, reduce costs and
optimise performance gives the Board
confidence that the Company will deliver
improved performance in the future.
41
Annual Report and Accounts 2014/15
The Board has also undergone a number
of significant changes during the year.
First, in its composition, as valued Board
members have come to the end of their
tenure and new talent has been brought in.
Secondly, through actions taken to enhance
how the Board can best fulfil its role of
providing leadership within a framework
of prudent and effective controls.
The new element14 operating model
The executive team began discussing
the next stage of Premier Farnell’s
evolution during the first half of the
financial year. As Laurence outlined in
his CEO statement (page 2), the Board
is confident that moving the element14
business to a global model where
duplication is removed and a consistent
strategy can be executed world-wide
is the right approach to deliver the next
phase of Premier Farnell’s journey. Led
by the executive team, the operational
structure will move away from regional
delivery to one in which defined global
functions concentrate on Group-wide
implementation to improve efficiencies
and provide a clear and cohesive
proposition. During the financial year
2015/16, the Board will continue to
monitor carefully the implementation
of the operating model to ensure that
it is capable of delivering the expected
levels of performance and long-term
value for shareholders.
Premier Farnell employees
Change brings opportunity but also
uncertainty. For some, this engenders
excitement but in others discomfort.
As the Group drives forward in its
transformation, I continue to be
sincerely impressed by the commitment,
professionalism and passion of Premier
Farnell’s employees, many of whom I
and other members of the Board have
had the pleasure to meet personally
during our time spent in the business.
These Board visits are highly appreciated
by the Non-Executives, giving them
the chance to spend time with local
personnel and find out more about
market conditions and culture and the
pressing issues for the business on the
ground. Particular highlights from the
year include Paul Withers spending time
with staff at our distribution centre in
Leeds and Andrew Dougal visiting the
new Chicago offices where he received
positive feedback from employees about
the improved working environment there.
In October 2014 I had the opportunity to
go to our business in India where I was
impressed with the dedication and
enthusiasm of our team and encouraged
by the results they are achieving. The
quality of our people is a regular theme in
the updates provided by Board members
after each visit.
On behalf of the Board, I would like to
thank each of Premier Farnell’s 4,500
employees globally for all their hard
work and commitment.
Board developments
The Board’s evolution is consistent with
the UK Governance Code1 (the Code),
and its own performance evaluation.
As the Group’s strategic transformation
gains pace, the Board calendar has been
expanded to include an additional Board
meeting in each year. The Board also held
an offsite strategy day in June 2014, set
to be an annual event. We focused on
market trends, the competitive landscape
and stakeholder expectations as well
as the Group’s proposed strategy and
early proposals for the element14
business reorganisation.
A joint Board and Digital Advisory Board
meeting took place in October 2014.
Attended by all members of both
Boards, the meeting provided a unique
forum in which the Digital Advisory
Board members provided updates
on the latest trends in the digital
environment and discussed with
the Board where growth and market
opportunities could be embraced.
1 Known as the Code in this report. For reference, a copy of the Code can be found on the FRC website (https://www.frc.org.uk).
42
Premier Farnell
Corporate Governance Report continued
Board appointments
During the year several changes were
made to the composition of the Board
and another is anticipated in the year
ahead. We welcomed one new Director
to the Board while one of our longstanding and highly valued Board
members stepped down as an
independent Non-Executive Director
and another will step down following
our AGM in June.
After serving as a Non-Executive
Director for nine years, Andrew Dougal
will also be standing down from the
Board immediately after the Annual
General Meeting in June 2015. Andrew
has been a substantial contributor to
the Board throughout his tenure. He
and Dennis will be greatly missed and
we thank them for their dedication and
commitment and wish both every
success for the future.
On 1 November 2014 Gary Hughes
joined us as a Non-Executive Director.
Gary was appointed because of his
considerable business experience and
his financial expertise. A qualified and
experienced chartered accountant, with
a background in corporate finance, Gary
also has the credentials required to take
on the appointment of chairing the Audit
Committee, following Dennis Millard’s
retirement from the Board at the end
of January 2015.
Risk and governance
Good leadership and effective
governance are critical at all times,
but never more so than during times of
change. The Board, under my direction,
is responsible for delivering the longterm success of the Company. It has
overseen the development of the
Company’s new operating model and
will maintain this oversight of its
implementation throughout 2015/16,
ensuring that the Company remains
vigilant against risk.
Dennis Millard joined the Board as a
Non-Executive Director in 2007 and
during his time with the Board acted as
the Group’s Senior Independent Director
and Chairman of its Audit Committee.
With his financial expertise and wealth of
experience, Dennis has been invaluable
as a member of the Premier Farnell Board.
Paul Withers has significant experience
with the Board and considerable
knowledge of the Company and, as
Chair of our Remuneration Committee,
has forged good working relationships
with a number of the Group’s
shareholders. He was accordingly
nominated and agreed to take on the
role of Senior Independent Director
from 1 February 2015.
The effectiveness of the Board, its
composition and skills continue to be
regularly reviewed in order to meet these
demands. Premier Farnell is committed
to good corporate governance across
the Group and the Board is accountable
for this. The report which follows
describes how, throughout the year
ended 1 February 2015, the Group
complied with the principles and
provisions of the Code.
There is more on the Company’s
principal risks on pages 24 and 25
and its system of internal controls
on pages 56 and 57.
43
Annual Report and Accounts 2014/15
Relations with shareholders
As Chairman, it is my responsibility to
ensure the Board is accessible to our
major shareholders and aware of any
concerns they may have. In this I am
supported by the significant work of
the Senior Independent Director and
the Chairman of the Remuneration
Committee (on matters relating to
executive remuneration) and the regular
dialogue that Laurence and Mark have
with our institutional shareholders.
During the financial year 2014/15,
Paul Withers and I held individual
meetings, in person and by phone,
with shareholders at which issues such
as strategy, succession planning and
executive remuneration were discussed.
We undertook extensive consultation
on certain of our proposals on executive
remuneration which are explored in
more detail in the Remuneration Report
on pages 63 and 64. The Company also
held a capital markets day in October
2014 where investors were updated on
our strategy.
I consider this engagement with our
shareholders as essential. By
maintaining a good dialogue with
shareholders, we ensure that our
objectives are understood and receive
feedback on our strategy, performance
and governance. It also enables the
shareholders to build confidence in
the Board’s ability to oversee the
implementation of the strategy and to
know with whom to raise any concerns
they might have. The feedback we have
received from shareholders during the
year under review reflects that the year
has been one of challenge but that we
have started on a journey which
presents significant opportunity to the
Company. I look forward to continuing
this dialogue in 2015/16 – at our AGM,
as well as in other forums.
2015/16 Priority
The Board’s priority in 2015/16 is to
focus on improving the Company’s
financial performance by achieving
better sales growth, reducing costs and
transforming our business through the
global reorganisation of element14.
Val Gooding, CBE
Chairman
44
Premier Farnell
The Board of Directors
Val Gooding*
Laurence Bain
Mark Whiteling
Paul Withers*
Gary Hughes*
Experience brought
to the Board
Val has a wealth of
international business
and leadership
experience, having held
senior strategic and
operational roles in a
variety of businesses
focused on customer
service and served on
the boards of a number
of global quoted
companies, charities
and governmental
organisations. Val was
CEO of BUPA during a
10-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 NonExecutive Director of
Standard Chartered plc,
J Sainsbury plc, the
BBC, the Lawn Tennis
Association, the Home
Office, Compass Group
plc, BAA plc and CWC
Communications plc.
Laurence joined the
Board as Chief Operating
Officer on 1 July 2003.
Laurence has extensive
leadership experience 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.
He was Chief Operating
Officer of Premier Farnell
from July 2002 until his
appointment as CEO.
Mark has considerable
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, re-joining 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.
Mark formerly held the
position of Non-Executive
Director and chairman of
the Audit Committee at
Future plc. Mark is a
chartered accountant.
Paul has considerable
experience of business
expansion and operations
in developing markets,
particularly Asia, which is
valuable to the Company
as it continues its
international expansion.
Paul was formerly Group
Managing Director of
BPB plc, where he led
their Emerging Markets
operations. Paul’s
extensive Board
experience and the
interaction he has with the
Company’s shareholders
in his role as chair of the
Remuneration Committee
made him the ideal
candidate to take over
from Dennis Millard as
Senior Independent
Director.
Gary is a chartered
accountant with
extensive experience in
financial and operational
roles. Gary was formerly
Chief Financial Officer
of Gala Coral Group,
Chief Executive Officer
of the largest operating
division of United
Business Media plc and
Group Finance Director
of Emap plc. Gary’s
background in finance
and global business
experience made him
ideally placed to take
over from Dennis Millard
as Chairman of the
Audit Committee on
Dennis’s retirement.
Committees
Nominations (Chairman).
Nominations.
Committees:
Remuneration (Chairman),
Audit and Nominations.
Audit (Chairman from
1 February 2015),
Remuneration
and Nominations.
Other appointments
Non-Executive Director of
Vodafone Group Plc and
TUI Travel plc, Trustee of
Historic Royal Palaces,
The Royal Botanic
Gardens, Kew and the
English National Ballet.
Non-Executive Director of
Devro plc and Senior
Independent Director of
Keller Group plc.
Senior Member of the
Operational Excellence
team at Apax Partners
LLP and a NonExecutive Director of J
Sainsbury plc, Matomy
Media Group plc, Smart
Technologies Inc, The
People’s Operator Plc
and SECC Limited
CBE Aged 64
Non-Executive Chairman
since 15 June 2011.
* Denotes Non-Executive Director
Recent Board retirements:
Dennis Millard (31 January 2015)
CA Aged 61
Chief Executive Officer
since 12 June 2012.
M.COMM (HONS) Aged 52
Chief Financial Officer
since 5 November 2012.
Non-Executive Director of
Hogg Robinson Group plc.
MA Aged 58
Non-Executive Director
since September 2007.
Chairman of the
Remuneration Committee
and, from 1 February
2015, Senior
Independent Director.
Aged 52
Non-Executive Director
since 1 November 2014.
Chairman of the Audit
Committee from
1 February 2015.
45
Annual Report and Accounts 2014/15
Thomas Reddin*
Peter Ventress*
Andrew Dougal*
Steven Webb
Tom’s primary areas of
expertise are in
marketing, branding and
digital innovation. Tom’s
extensive experience in
these areas makes him
well-placed to chair the
Digital Advisory Board.
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.
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 10 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 NonExecutive Director of
Corporate Express
Australia Ltd.
Having served on the
Board for nine years,
Andrew is standing down
in June 2015. Andrew
has significant 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 NonExecutive Director of
Taylor Wimpey plc,
Taylor Woodrow plc
and BPB plc.
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. During the
year under review
Steven served as acting
Chair of the Board of
Governors of Leeds
Beckett University.
Nominations.
Audit, Remuneration
and, from 17 March 2015,
Nominations.
Audit, Remuneration
and Nominations.
Non-Executive Director of
Asbury Automotive Group
Inc., Deluxe Corporation
and Tanger Factory
Outlet Centers Inc. He is
a Managing Partner of
Red Dog Ventures, LLC,
a venture capital and
advisory firm in the digital
arena, and also publisher
of MortgageRates.us.
Chief Executive Officer
of Berendsen plc.
Non-Executive Director
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). Andrew
joined the Board of
Victrex plc as a NonExecutive Director in
March 2015.
BSc, MBA Aged 54
Non-Executive Director
from September
2010 and chair of the
Digital Advisory Board.
Aged 54
Appointed as a
Non-Executive Director
with effect from
1 October 2013.
B Acc, CA Aged 63
Non-Executive Director
from September 2006.
LLB Solicitor Aged 52
Appointed as Company
Secretary and
General Counsel in
December 2000.
Member of the Board
of Governors and Audit
Committee of Leeds
Beckett University.
46
Premier Farnell
The Board of Directors continued
Non-Executives
(6)
Fulfilled by
Role/Remit
Whose responsibilities are divided as follows:
Val Gooding
Chairman of
the Board
leading the Board to
ensure effectiveness
in all aspects of
its role
• ensure the membership of the Board is appropriate to meet
business needs
• oversee that the Board Committees carry out their duties
• establish appropriate personal objectives for the Chief Executive
• promote an open culture of debate, and
• develop and maintain effective communication with shareholders
Paul Withers
SID*
acting as deputy
to the Chair of
the Board
• provide a line of communication to the Company for shareholders
• lead the resolution of any significant Board issues that are not
appropriate for the Chair or the CEO to handle
• act as a sounding board for the Chairman, and
• lead the other Non-Executive Directors in their annual appraisal of
the Chairman’s performance
Andrew Dougal
Non-Executive
Director
Gary Hughes
Non-Executive
Director
constructively
challenging and
helping develop
proposals
on strategy
• scrutinise performance of management in meeting goals and objectives
operational
execution of
the strategy
• run the day-to-day business and operations of the Group
• satisfy themselves on the integrity of financial information and that
financial controls and systems are robust and defensible
• determine appropriate levels of remuneration for Executive Directors, and
• lead the process to appoint and remove Executive Directors and ensure
adequate succession plans are in place
Tom Reddin
Non-Executive
Director
Peter Ventress
Non-Executive
Director
Executives
(2)
Laurence Bain
CEO
• lead the development and delivery of strategy to enable the
Group to meet the requirements of its shareholders
• lead and oversee the executive management of the Group
• meet the Group’s budget and strategic plans, and
• provide the appropriate environment to recruit, engage, retain
and develop the personnel needed to deliver the strategy
Board support
Mark Whiteling
CFO
execution of financial • support the CEO in developing and delivering the strategy and
deliverables
in driving financial and operational performance
Steven Webb
Company Secretary
supporting the
Chairman, the
Board and its
Committees
• ensure good information flows within the Board and its Committees
and between senior management and Non-Executive Directors
• facilitate Director inductions and professional development
• as requested, arrange independent professional advice for
Directors at the Company’s expense, and
• advise the Board through the Chairman on governance matters
* Paul Withers appointed as SID from 1 February 2015. Dennis Millard held the role of SID throughout the year under review.
47
Annual Report and Accounts 2014/15
How is the Board made up?
Board of Premier Farnell plc
Val Gooding
Chairman of the Board
Nominations Committee*
Audit Committee*
Remuneration Committee*
Chairman: Val Gooding
Chairman: Gary Hughes
Chairman: Paul Withers
Andrew Dougal, Gary Hughes, Thomas Reddin,
Paul Withers, Peter Ventress, Laurence Bain
Nominations Committee report p52
Andrew Dougal, Peter Ventress, Paul Withers
Andrew Dougal, Peter Ventress, Gary Hughes
Audit Committee report p54
Remuneration Committee report p62
Digital Advisory Board**
Chairman: Tom Reddin
Objective: to offer counsel to the Board and the
Chief Executive Officer on matters relating to the
web, eCommerce and the digital arena
Disclosure Committee**
Chairman: Steven Webb
Objective: to assist the Board in ensuring
disclosures are fair, accurate and complete
Tax and Treasury
Committee**
Chairman: Mark Whiteling
Objective: to make recommendations to the
Board on tax and treasury strategy and policy
* A committee of the Board
** Not a formal committee of the Board but provides advice and/or information to the Board
What are its responsibilities?
What does it not do?
• It is collectively responsible for the long-term success of the Group
and delivering sustainable shareholder value.
• It reviews strategic issues and sets strategy.
• Led by Laurence Bain, the executive team are responsible for
presenting to the Board proposals on strategic direction and
business development.
• It exercises control over the performance of the Company by agreeing
budgetary targets and monitoring performance against those targets.
• The Board reviews and challenges these proposals so that informed
decisions are reached.
• It is responsible for internal controls and risk management.
• The executive team are responsible for implementing these decisions
and for day to day operations and performance.
• It sets values and standards, including good governance,
sustainability, integrity and ethical conduct for adoption throughout
the Group as a whole.
48
Premier Farnell
The Board of Directors continued
How did it work in 2014/15?
There is a formal schedule of matters reserved for Board
approval which covers items that are significant to the Group
as a whole due to their strategic, financial or reputational
implications. There is also a rolling schedule of agenda items
to be brought to the Board in each year. The matters reserved
are reviewed annually and the rolling agenda at each meeting
to ensure they remain up to date and appropriate.
In 2014/15 there were nine Board meetings of which six
were formal scheduled meetings, two were to review market
conditions and business performance and approve the
Matter
Strategy and
Management
release of the Group’s interim management statements
and one was to deal with ad hoc matters arising. At each
scheduled meeting the Board receives a report from the CEO
and CFO on business performance and market conditions
and, at most scheduled meetings, a presentation and question
and answer session with a business or functional leader on
their business or function. In addition to these reports and
other matters arising for review by the Board, the following
matters were dealt with at Board or Committee meetings
in the year:
Actions undertaken during the year
• Set the Group’s strategic plans including the approval of the element14 operating model and the annual business plans
for all business units
• Kept under review management and business performance
• Received feedback on and discussed with the Company’s brokers the market perception of the Company
• Reviewed HR strategy and leadership succession planning
• Received inputs on the digital arena in which the Company operates
• Reviewed the Company’s sustainability and health and safety record and practices
Corporate
Governance
and
Communication
• Reviewed compliance with the principles and provisions of UK Corporate Governance Code and good governance
practice generally
• Resolved on the Company’s approach to a number of changes in corporate reporting requirements
• Ensured the maintenance of a sound system of internal control and risk management (further information included
in the Audit Committee update on page 57)
• Kept under review the Group’s high level risks
• Approved resolutions to be put to shareholders at general meeting
Board
membership and
committees
• Approved appointments to and removals from the Board and its Committees including the appointment of Gary Hughes
(for further details see page 53 of the Nominations Committee report)
• Approved the terms of reference of Board Committees (http://www.premierfarnell.com/investors/board-committees).
• Undertook a formal and rigorous performance evaluation and received updates on the outcome of previous reviews
(page 49)
Financial and
Contracts
• Reviewed and approved all financial announcements
• Reviewed and approved various elements of the Group’s banking and finance arrangements, including the refinancing
of the Group’s banking and private loan facilities
• Reviewed and approved (as appropriate) various capital projects, investments and contracts of material value
• Responsible for the approval of business acquisitions and disposals including the acquisition of AVID Technologies Inc
(for further details about the AVID Technologies Inc acquisition see page 21 of the Strategic Report)
• Considered and reported on the position of the Group as a going concern
• Set the Group’s insurance strategy
• Reviewed and approved the Group’s tax management and planning
Policies and
Procedures
• Considered and approved the Company’s share dealing code
• Approved procedures for the detection of fraud and the prevention of bribery
• Approved the Group’s treasury policies
• Approved the Company’s policies on non-audit services
• Reviewed and approved the Directors’ expenses and travel policy
49
Annual Report and Accounts 2014/15
How well were the meetings attended?
Board
meetings
Audit Committee
meetings
Remuneration
Committee
meetings
Nominations
Committee
meetings
9/9
–
–
2/2
Laurence Bain
9/9
–
–
2/2
Mark Whiteling
9/9
–
–
–
2/2
Name of Director
Chairman:
Val Gooding
Executive Directors:
Non-Executive Directors:
Andrew Dougal
9/9
4/4
5/5
Gary Hughes1
3/3
1/1
1/1
–
Dennis Millard2
9/9
4/4
4/5
2/2
Thomas Reddin
9/9
–
–
2/2
Paul Withers
9/9
4/4
5/5
2/2
Peter Ventress3
9/9
4/4
5/5
–
– Not a member of the Committee (or not a member at the date of the relevent meetings).
1Gary Hughes joined the Board on 1 November 2014 and attended all Board and Committee meetings convened following his appointment to the Board and the
relevant Committees.
2 Dennis Millard was unavoidably absent from the December Remuneration Committee meeting due to a prior commitment. He provided feedback on the papers,
points for discussion and questions prior to the meeting, with apologies for his inability to attend.
3 Peter Ventress was appointed to the Nominations Committee on 17 March 2015.
What does the Board think it can do better?
A 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, the last being 2012/13.
In 2013/14 the evaluation determined the following:
2013/14 Performance review
Outcome
Action 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 set agenda
items to align with strategic priorities and financial events
Each Board paper to include an executive summary and clearly
identify key issues. Length of papers to be reviewed to ensure
appropriate focus maintained
The Company Secretary issued revised Board paper guidelines to
contributors to clarify management’s view of key issues for Board
consideration
A full day meeting to be held each year to specifically
review strategy
The annual strategy day for 2014/15 was held in June 2014
More frequent feedback on the functioning of the Board
Each Board meeting was ended with an informal discussion
of what worked well and areas for improvement
50
Premier Farnell
The Board of Directors continued
In June 2014, for the financial year 2014/15, an internal Board
evaluation took place led by Val Gooding. All Board members
contributed to the appraisal of the performance of individual
Directors, by way of a questionnaire, and 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 Chairman and discussed this with her.
The recommendations made by each Board member were
discussed in an open forum by the Board at the January 2015
meeting and the outcomes of the evaluation and resulting
actions agreed. These were (in summary):
2014/15 Performance review
Outcome
Action planned and taken during the year
Further refinement of Board papers is required. Papers should be
concise and focus on strategic rather than tactical issues
The Chairman of the Board and Chief Executive Officer agreed that
papers will focus on strategic matters for discussion and decision
The Board should consider holding NED only sessions at the end,
rather than the start, of Audit Committee meetings
The ordering of Audit Committee agendas has been revised by the
Chairman of the Audit Committee and the Company Secretary
The 2015/16 Board evaluation is to be externally facilitated
The Chairman of the Board is to appoint an external facilitator ahead
of the 2015/16 Board evaluation
The Board should hold a full strategy day off-site each year to focus
on strategic issues, shareholder value and business performance
A strategy day is scheduled for 17 June 2015
Refreshing of the Board is to continue as vacancies arise
The Chairman of the Board and Nominations Committee will continue
to develop role specifications and as required search for prospective
candidates to be recommended to the Board
The Board requires greater insight into the Group’s
technology function
The Executive Directors are to provide the Board with regular updates
on the Group’s technology function
In addition to this rigorous evaluation process, the Board also
takes time after each scheduled Board meeting to consider
less formally what went well and whether the way the Board
operates could be improved in any way.
Do the Directors commit enough time to the Company?
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.
Premier Farnell recognises that there are significant
advantages to both individuals and to the Board when our
Directors serve 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. On 30 November 2014, Mark
Whiteling stood down from his position as Non-Executive
Director and Chairman of the Audit Committee at Future plc
in order to accept an appointment as a Non-Executive
Director of Hogg Robinson Group plc on 1 December 2014,
with the Board’s approval. Details of the remuneration for
these external appointments are in the Remuneration Report
on page 82.
Val Gooding stepped down from her role as Non-Executive
Director of the Home Office on 30 April 2014 and was
appointed as a Trustee of The Royal Botanic Gardens,
Kew on 1 October 2014.
In 2014/15, all Directors committed an appropriate amount
of time to fulfil their duties and responsibilities to the Board.
Are the Non-Executive Directors independent?
The Board considers each Non-Executive Director’s
independence on an annual basis as part of his or her
performance evaluation. In its 2014/15 review, the Board
concluded that all the Non-Executive Directors who had
served during the year were independent in accordance
with the provisions set out in the Code. The Chairman met
the independence criteria defined by the Code as at the
date of her appointment.
51
Annual Report and Accounts 2014/15
In compliance with the Code, all of our Directors will retire
at our Annual General Meeting in June 2015 and offer
themselves for re-election (save for Gary Hughes who will
seek election as this is his first year as a Non-Executive
Director with the Company).
Appointed on
Start date for
current term
Andrew Dougal
01/09/2006
17/06/2014 (one year)
Dennis Millard*
01/09/2007
17/06/2014 (one year)
Name
Paul Withers
01/09/2007
17/06/2014 (one year)
Thomas Reddin
30/09/2010
18/06/2013 (three years)
Val Gooding
15/06/2011
17/06/2014 (three years)
Peter Ventress
01/10/2013
01/10/2013 (three years)
Gary Hughes
01/11/2014
01/11/2014 (three years)
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 Board Chairman) during 2014/2015 are:
2013
2014
2015
2016
2017
2018
* Dennis Millard stood down on 31 January 2015.
How do they get to know and keep up to date
with the business?
All Directors receive a comprehensive induction. On his
appointment in November 2014, Gary Hughes commenced
a tailored induction programme which includes:
• an overview of the Group, its functions and governance;
• briefings on Directors’ regulatory and
compliance responsibilities;
• site visits to Group locations (with Leeds and Chicago
planned for 2015);
• detailed reviews of the strategic projects and initiatives
underway; and
• one-to-one meetings with the executive management team
and other key personnel.
To further their understanding of the Group and enhance
constructive challenge, Non-Executive Directors are
encouraged to visit Group locations and spend time with
local personnel. During the year under review, visits have
taken place to our facilities in Cleveland (USA), Chicago (USA),
Ohio (USA), Bangalore (India) and Leeds (UK).
The Board held its December meetings at CPC in Preston, UK
enabling Non-Executive Directors to meet the management
team there and review business performance.
Each scheduled Board meeting includes a review and
discussion of the Group’s businesses and the majority of
scheduled meetings include a presentation by a business or
functional leader of his or her area of responsibility. The Board
also spends time and has regular correspondence with the
executive management team; in 2014/15, this included at the
joint Board and DAB meeting.
The Board’s annual performance evaluation is used by the
Chairman to assess the time commitment and the training
and development needs of each Director.
52
Premier Farnell
Nominations Committee Report
Nominations Committee Report
Val Gooding
Nominations Committee Chairman
Who else is on the Committee?
-- Andrew Dougal
-- Laurence Bain
-- Gary Hughes (from 1 February 2015)
-- Dennis Millard (to 31 January 2015)
-- Thomas Reddin
-- Peter Ventress (from 17 March 2015)
-- Paul Withers
Committee Secretary: Steven Webb
As recommended by the Code, the Committee comprises
a majority of independent Non-Executive Directors. The
Chief Executive Officer is also a permanent member.
While only members of the Committee have the right to
attend meetings, the Chief People Officer and external
advisors may also be invited to contribute on specified
agenda items. If the Committee is convened to discuss
the Board Chairman’s position, the Senior Independent
Director chairs the meeting.
What does it do?
Key objective:
To lead a formal, rigorous and transparent process
for the appointment of new Directors to the Board
and its Committees.
Responsibilities:
• To review the composition of the Board including
its balance of skills and experience
• To lead the process for Board appointments and
recommend the appointment of new Directors
• To review the re-appointment of
Non-Executive Directors
• To make recommendations on the composition
of the Board’s Committees
• To consider succession for senior 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.
53
Annual Report and Accounts 2014/15
What did the Committee do during the year
under review?
The Committee meets when necessary and was convened
twice during the financial year to consider Board, Committee
and Executive appointments, Directors’ tenure, succession
and Board composition.
Directors’ re-appointment and re-election
In 2014, the Committee met to consider the re-appointment
of Andrew Dougal, Paul Withers and Dennis Millard as
Non-Executive Directors and Val Gooding as Non-Executive
Chairman of the Board. Following a rigorous review, the
Committee recommended to the Board that all three
Non-Executive Directors each be reappointed for a term
of one year from June 2014, and that the Chairman of the
Board be reappointed for an additional three year term1.
Dennis Millard has since retired and Andrew Dougal
announced his intention to retire at the end of his current term.
All Directors will continue to be considered for annual
re-election or appointment at every AGM provided they
demonstrate commitment and effective performance.
Review of diversity
The Nominations Committee recognises the benefits to the
Group of diversity in the workforce and in the composition
of the Board itself. It is the Company’s policy (whether it be
at employee or Board level) to make all appointments based
on the best candidate for the role regardless of gender or
other diversity. In recognition of the benefit of greater female
representation at all levels, the Group targets women to make
up 30% of management grade employees. Women currently
make up 24% of senior management positions and 8% of the
senior executive team, while female membership of the Board
stands at 13%. The proportion of women at both the executive
team and Board level is below target and will continue to be
a factor in future appointments.
There is further information on the Company’s policy and
practices on diversity on page 38 of the Strategic Report.
1 Subject to re-election at the Annual General Meeting in each year.
Succession planning
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
in 2014/15.
Laurence Bain presents annually to the Board on succession
planning for the executive team, ensuring that there is a pipeline
of prospective candidates for all senior executive positions.
Appointment of Gary Hughes
During the year the Nominations Committee recommended
the appointment of Gary Hughes as an additional NonExecutive Director. Before starting the search for a new
member, the Nominations Committee evaluated the desired
qualities for the appointment by reviewing the balance of
skills, experience, independence and knowledge of the Board.
Given Dennis Millard’s stated intention to retire in January
2015, it was agreed that candidates must have the requisite
experience (including recent and relevant financial experience)
necessary to chair the Audit Committee.
Catalyst Advisors (an agency with no connection to the
Company) was appointed to help with the search and put
forward candidates for interview by Val Gooding and Laurence
Bain. Candidates also had the opportunity to meet Paul Withers
and other Board members. From the shortlist of interviewed
candidates, Gary Hughes was chosen for appointment due
to his extensive business and broad non-executive board
experience and for his financial acumen. Gary formally joined
the Board on 1 November 2014 and attended his first face to
face Board meeting in December 2014.
54
Premier Farnell
Audit Committee Report
Audit Committee Report
Gary Hughes
(from 1 November 2014,
Chairman from 1 February 2015)
Who else is on the Committee?
What does it do?
Committee Secretary: Steven Webb
Responsibilities:
• To review accounting policies and the integrity and
content of the financial statements
-- Dennis Millard (Chairman) to 31 January 2015
-- Andrew Dougal
-- Peter Ventress
-- Paul Withers
Gary Hughes is a qualified chartered accountant, with a
background in corporate finance, who brings to the role of
Chairman of the Committee recent and relevant financial
expertise from both his executive and non-executive
appointments. Gary is supported by three independent
Non-Executive Directors, all of whom have considerable
recent financial experience. Further details on the
Committee members’ experience can be found on
pages 44 and 45.
Other regular attendees at scheduled meetings include
the Chief Executive, the Board Chairman, the other NonExecutive Directors, Chief Financial Officer, Head of Internal
Audit and lead external audit partner. 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.
Key objective:
To ensure that the interests of shareholders are properly
protected in relation to financial reporting and internal controls.
• To monitor disclosure controls and procedures and
the Group’s internal controls
• To consider the adequacy and scope of external
and internal audits
• To oversee the appointment and ongoing relationship
with the external auditor
• At the Board’s request, to provide advice on whether
the Annual Report and Accounts, taken as a whole,
is fair balanced and understandable
• To monitor the objectivity, independence and
effectiveness of the external auditor, particularly with
regard to the scope and expenditure on non-audit work
• To review and approve the statements to be included in the
Annual Report on internal control and risk management
• To review and report on the significant issues considered
in relation to the financial statements and how these
have been addressed
Annual Report and Accounts 2014/15
The Committee’s terms of reference are reviewed annually
and are available on the Governance section of our website
at www.premierfarnell.com.
What did the Committee do during the year under review?
The key activities for the Committee in 2014/15 were:
Assessed and approved the audit process
In accordance with the Code, the Committee monitored the
effectiveness of both the internal audit and external audit
functions – including the performance of the lead audit partner
and Head of Internal Audit. The Committee reviewed and
commented on the internal and external audit plans before
they were approved. It considered progress during the year,
assessing the auditor’s principal findings and taking feedback
from management involved in the audit process.
Having concluded their review in 2014/15, the Committee
considers the external auditor to be independent, objective
and effective in its role. Accordingly, the Committee intends
to recommend to the Board that PricewaterhouseCoopers LLP
are proposed for reappointment as the Company’s external
auditor at the June 2015 Annual General Meeting. The
Committee also considers internal audit to be effective in
appraising the implementation and monitoring of internal
controls and risk management.
The Committee plans to put the Group’s requirement for
audit services out to tender once in each ten year period,
in accordance with the Code, FRC guidance and relevant
EU legislation requiring mandatory audit tenders for all listed
companies. The tender will coincide with the rotation of the
lead audit partner which takes place every five years. The
next rotation – and audit tender – is scheduled for 2017/2018.
PricewaterhouseCoopers LLP were first appointed as the
Group’s auditor in 1997.
Monitored non-audit services
The independence and objectivity of the external auditor was
also considered by the Committee, as it is each year, with
particular regard 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 and permits tax compliance
services and certain audit-related services 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. The full non-audit
services policy is available in the Board Committees section
of our website.
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, to ensure that the potential
to affect auditor independence and objectivity does not arise.
55
The split between audit and non-audit fees for 2014/15 and
information on the nature of the non-audit fees incurred is
detailed on page 107 of the Consolidated Financial Statements.
The Audit Committee has adopted and implemented a
Group-wide policy restricting the employment by the Group
of former employees of the external auditor.
Reviewed the integrity of financial statements
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 statement and the significant financial reporting
judgements contained in them. The Company Secretary reports
to the Committee on the proceedings of each Disclosure
Committee meeting which reviews the interim and preliminary
results announcements following management verification, seeks
assurance on management sign-offs and assesses the principal
risks and uncertainties facing the business. Further details of
the Committee’s processes to review the effectiveness of the
Group’s systems of internal control during the year can be
found in Risk management and internal control below.
Determined the significant issues affecting the Group
The Committee recognises that all financial statements
include estimates and judgements by management. The key
audit areas are agreed with management and the external
auditor 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 2014/15 these areas were:
1. Inventory and inventory valuation
Consolidated Group inventories as at the year end were
£260.9m. 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 102. 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 continues 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 and
considered, as part of this assessment, the potential impact
of a move to a more global operating model and the changing
inventory profile for the Group.
56
Premier Farnell
Audit Committee Report continued
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. Management believe that this presentation
is consistent with the fair, balanced and understandable
requirement and, as such, have presented these items in
this way. The Audit Committee agree with this assessment.
3. Tax accounting
The Audit Committee has reviewed the tax position of the
Group with both management and the auditor. The time
lag between the Company’s financial statements and the
finalisation of tax matters inevitably requires management
judgement. The provision made reflects the latest view of
the anticipated outcome, as well as the best estimate of the
probable outcome, following filing of the tax returns for the
relevant financial periods.
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. In
addition, this review encompasses a sensitivity analysis to
exchange rate fluctuations, among other risks, as well as
ranges of potential outcomes versus planned budgetary
performance. In forming its view, the Committee considered
the range of potential actions available to the Group to
improve the cash generation over the coming period. This
included an assessment of the robustness of working capital
improvement plans, scale of planned capital expenditure and,
more broadly, the efficiency of the Group’s balance sheet.
The year-end position for net debt as well as known funding
facilities at year end also impacts this assessment. The
Committee agrees with these assumptions and the adoption
of the ‘Going Concern’ basis for the preparation of the
financial statements.
Although there has been no change in the significant
accounting issues affecting the Group this year compared
to the prior year, the Committee reviewed other areas
of judgement as part of its normal review process. 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.
Reviewed the effectiveness of risk management
and internal controls
One of the Board’s key responsibilities is to satisfy itself 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.
A full overview of the Group’s principal risks, uncertainties and
opportunities can be found on pages 24 and 25 of the
Strategic Report.
Assurance
On behalf of the Board, the Audit Committee examines the
effectiveness of:
• the Group’s 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;
• the management of risk by reviewing evidence of risk
assessment activity and internal audit reports on the
process; and
• any action taken to manage critical risks or to remedy any
control failings or weaknesses identified, ensuring these are
managed through to closure.
The Audit Committee has completed its review of the
effectiveness of the Group’s systems of internal control
for the year under review, which is in compliance with the
Turnbull Guidance on Internal Control published by the FRC.
It confirms that the necessary action plans to remedy identified
weaknesses in internal control are in place and have been
throughout the year. Where appropriate, the Board also
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.
The Audit Committee confirms that no significant failings or
57
Annual Report and Accounts 2014/15
weaknesses were identified as part of the review process.
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.
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.
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 1 February 2015, there were no changes to the internal
controls over these processes that have affected, or are
reasonably likely to materially affect the level of assurance
provided over the reliability of the financial statements.
Risk management and internal control system features
Risk management system
Internal control 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:
The internal controls which provide assurance to the Committee of
effective and efficient operations, internal financial controls and
compliance with law and regulation include:
• Risk and control process for identifying, evaluating and managing
major business risks. Coordinated by the Head of Internal Audit
• Formal authorisation process for investments
• Internal and external audit reports which comment on controls
to manage identified risks and identify new ones
• A confidential whistle-blowing helpline and an email address
available for employees to contact the CEO in confidence
• A quarterly compilation of all contingent liabilities identified by the
business. The report is reviewed by the Disclosure Committee and
then by the Audit Committee
• The Tax and Treasury Committee which identifies and manages
the Group’s risks for tax and treasury and provides implementation
updates to the Audit Committee
• An organisational structure with clearly defined authorities for financial
management and maintenance of financial controls
• The Code of Conduct which outlines the expected standards of
business compliance and behaviour. This Code is a formal part of
the employee induction process
• The anti-bribery and corruption (‘AB&C’) policies and procedures and
dedicated employee email
• The comprehensive financial review cycle where the annual budget is
approved by the Board and monthly variances are reviewed against
detailed financial and operating plans
• The Disclosure Committee where senior management review and sign
off business unit internal controls, including financial, compliance and
operational controls
• A process of internal control self-assessment coordinated by the
Internal Audit team
The statement of Directors’ responsibilities in relation to the preparation of the Annual Report and Accounts is on pages
60 and 61 of the Directors’ Report.
58
Premier Farnell
Directors’ Report
The Directors of Premier Farnell plc present their report and
the audited financial statements of the Group and Company
for the year ended 1 February 2015.
The Directors’ Report comprises these pages (58 to 61) and
the other sections and pages of the Annual Report crossreferred below which are incorporated by reference.
As permitted by legislation, certain disclosures normally
included in the Directors’ Report have instead been integrated
into the Strategic Report (pages 2 to 39). These disclosures
include information relating to future business developments
(references throughout the Strategic Report) and the Group’s
principal risks and uncertainties (pages 24 and 25).
What profit was made during the year?
The Group’s total operating profit for the financial year was
£83.1 million (2013/14: £91.5 million) and its adjusted operating
profit was £88.0 million (2013/14: £93.0 million). Current year
adjusting items comprise restructuring costs of £5.1 million, a
net gain on the disposal of certain US property of £0.3 million
and acquisition costs of £0.1 million. Profit attributable to
owners of Premier Farnell plc for the financial year to 1
February 2015 was £47.5 million (2013/14: £51.4 million).
What final dividend are the Directors recommending?
The Directors recommend that a final dividend equivalent
to 6.0 pence per ordinary share be paid on 25 June 2015 to
those shareholders on the register of members at the close
of business on 29 May 2015. If this is approved, this will
result in a dividend on the ordinary shares for FY14/15 of:
Ordinary shares
£m
Interim dividend of 4.4p per
share paid on 23 October 2014
(2013/14: 4.4p per share)
16.2
Proposed final dividend of 6.0p
per share
(2013/14: 6.0p per share)
22.0
Total ordinary dividend of 10.4p
per share
(2013/14: 10.4p per share)
38.2
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 executive
share plans. Throughout the year under review, a waiver by
the Trust’s right to receive dividends on ordinary shares held
by it was in place (further details are set out in note 20 (page
126) to the consolidated financial statements). The Trustees
of the EBT may vote or abstain from voting shares held in the
Trust in any way they see fit.
Who are the members of the Board?
The names and biographical details of the Directors who
are standing for election or re-election at the June 2015 AGM
appear on pages 44 and 45. Information relating to Directors’
interests in the Company’s shares is included in the
Remuneration Report on page 82. The Directors who
held office during the year under review were:
• Val Gooding
• Laurence Bain
• Mark Whiteling
• Andrew Dougal
• Gary Hughes (appointed 1 November 2014)
• Dennis Millard (stood down 31 January 2015)
• Tom Reddin
• Peter Ventress
• Paul Withers
Are the Directors indemnified?
The Company provided indemnities to each of its Directors
during the year ending 1 February 2015 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.
Have the Directors disclosed information to the
Company’s Auditors’?
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 auditor is aware of that information.
Resolutions to reappoint PricewaterhouseCoopers LLP as
auditor and to authorise the Directors to determine the auditor’s
remuneration will be proposed at the forthcoming Annual
General Meeting of the Company.
59
Annual Report and Accounts 2014/15
What classes of shares does the Company have
and do they have any rights or restrictions?
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 1 February 2015, the ordinary shares and preference
shares represented 85.16% and 14.84% respectively of the
Company’s total share capital. Details of the Company’s issued
share capital, including any changes which have taken place
during the year under review, are set out in notes 16 (page 115)
and 20 (page 123) to the consolidated financial statements.
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 16
to the consolidated financial statements.
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 classed as
equity for the purposes of financial reporting.
Does the Company have powers to buy back its own shares?
At the forthcoming Annual General Meeting of the Company
on 16 June 2015, 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 2014 and expire at the close of the forthcoming
meeting. The authorities sought will, if granted, empower
the Directors to exercise them on behalf of the Company.
During the year ended 1 February 2015 the Company did
not purchase, acquire or dispose of any ordinary shares. The
Company exercised its authority to acquire and subsequently
cancel 712,948 cumulative convertible preference shares for a
total consideration of £11,442,815. These shares had a nominal
value of £712,948 and represented 18.1% of the cumulative
convertible redeemable preference shares in issue prior to the
purchase. The purchase was considered to be beneficial to
the ongoing earnings and cash flow profile of the Group.
Further details are set out in note 16 (page 115) to the
consolidated financial statements.
Are there any significant agreements or agreements
to provide compensation upon takeover?
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.
The Company’s multi-currency 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.
Who are the major shareholders and what are their
interests in the Company?
The table below shows the notifiable voting rights in the
Company’s ordinary share capital disclosed in accordance
with the Financial Conduct Authority’s Disclosure and
Transparency Rules (DTR5) at 1 February 2015 and any
changes up to and including 15 April 2015.
% holding
as at
01/02/2015
% holding
as at
15/4/2015
M&G
9.21%
9.21%
UBS Global Asset
Management
5.13%
5.13%
J O Hambro Capital
Management
5.08%
5.08%
Company
5.04%
5.04%
Baillie Gifford & Co
Harris Associates Ltd
Below 5%
Below 5%
BlackRock Inc
Below 5%
Below 5%
Newton Investment
4.97%
4.97%
Fidelity International (FIL)
4.90%
4.90%
Artemis Investment
4.86%
4.86%
Schroders plc
4.84%
4.84%
4.76%
(3.05% Direct and
1.71% Indirect)
4.76%
(3.05% Direct and
1.71% Indirect)
Old Mutual Global
Investors (UK) Limited
4.60%
4.60%
Legal & General
4.03%
4.03%
Norges Bank
3.92%
3.92%
Standard Life
Investments Limited
60
Premier Farnell
Directors’ Report continued
Is there anything else we should know?
• Greenhouse gas emissions – disclosures on greenhouse
gas emissions and environmental matters can be found in
the Sustainability Report on page 33.
• Employees and diversity – information about the
Company’s employees and the Group’s policy on diversity
can be found on pages 38 to 39 of the Strategic Report.
• Political donations – the Group’s policy is not to make
contributions to political parties and no donations were
made during FY14/15.
• Group subsidiaries – details of the Group’s principal
trading subsidiaries can be found on page 143 (note D)
to the Company’s financial statements.
• Research and development – the Group’s expenditure on
product research and development activities is included on
page 106 (note 2) to the consolidated financial statements.
• Financial Instruments – 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 on page 118 (note 19)
to the consolidated financial statements.
• Disclosure of information under Listing Rule 9.8.4 –
information on allotments of shares for cash pursuant to
the Group’s employee share schemes can be found on
page 123 (note 20) to the consolidated financial statements.
• Publication of unaudited financial information – the
Company published two Interim Management Statements
(15 May 2014 and 14 November 2014) and a trading
statement (5 February 2015) containing unaudited financial
information relating to the financial year ended 1 February
2015. The actual audited figures for the same period are
included in the consolidated financial statements pages
92 to 138.
Directors’ Statements
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report,
the Directors’ Remuneration Report and the financial statements
in accordance with applicable law 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 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.
In preparing these financial statements the Directors are
required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and estimates that are reasonable
and prudent;
• 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
• 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 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 position and performance, business model
and strategy.
Annual Report and Accounts 2014/15
Directors’ responsibility statement pursuant to DTR 4
Each of the Directors, as listed on pages 44 and 45, confirms
that, to the best of his or her knowledge:
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 (Strategic 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.
Going concern
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 the financial statements.
By order of the Board
Steven Webb
Company Secretary
Premier Farnell plc
Farnell House,
Forge Lane
Leeds LS12 2NE
24 April 2015
61
62
Premier Farnell
Remuneration Report
Annual message to shareholders from the Chairman of
the Remuneration Committee
What happened to the Directors’ remuneration in
2014/15?
Dear shareholder
In 2014 the Remuneration Committee put its Directors’
Remuneration Policy (Policy) to a binding shareholder vote at
the Company’s Annual General Meeting (AGM) for the first time.
We were very pleased that the Policy was well received and
approved by shareholders and we thank our shareholders for
their feedback and support. One year on, the Committee
remains satisfied that the Policy continues to fulfil its principal
objectives of providing a clear link between performance and
reward and attracting, retaining and motivating high-calibre
executives with the skills and experience to manage the
business and deliver the strategy. We are not, therefore,
proposing any changes to the Policy for the coming year.
Executives’ salaries
We reviewed the Executives’ salaries in June 2014 and, in line
with the rest of the workforce, increased these by 2.5%.
There are, however, a number of changes to practice planned
for 2015/16, primarily resulting from the drive to ensure that, in
implementing the Policy, we maximise alignment of reward with
the achievement of our strategic priorities, while keeping our
pay structures as clear and simple as possible. The changes will
not increase the Executive Directors’ remuneration opportunity
or expected level of payout and are within our Policy.
In this annual statement, I will focus first on what the
Committee did in 2014/15 before going on to outline the
changes proposed for the year ahead. For ease of reference,
a full copy of the Policy approved last year is included
with this report (from page 66). Our annual report on the
implementation of that Policy during the year under review
starts at page 75.
Non-Executives’ fees
These were also reviewed at our June 2014 meeting. Base
fees for the Non-Executive Directors were subject to a 2.5%
increase, commensurate with changes to salaries across the
Group. The fees payable to the Chairman of the Board, our
Senior Independent Director and the Chairman of each of
the Audit and Remuneration Committees were found to be
significantly below median when they were benchmarked
across the FTSE250 using a number of data sources.
They were increased, accordingly, to bring them in line
with market practice, as shown on page 76.
Annual bonus payout
The primary measure for payments under the FY15 annual
bonus plan was operating profit, against which up to 60%
of the annual bonus opportunity was measured, with the
remaining 40% determined by reference to the achievement
of strategic targets for cash-flow, growth in the Group’s
customer base and gross margin. The Group exceeded the
scheme’s cut-in for operating profit and cash but did not hit
the measures for growth in customer base or gross margin.
The payouts under the scheme, in cash and deferred shares,
to the Executive Directors were:
63
Annual Report and Accounts 2014/15
Cash Bonus Award
Amount
Deferred Share Bonus Plan Award
As a %
of salary
As a %
of total maximum
opportunity
Amount
As a %
of salary
As a %
of total maximum
opportunity
Lawrence Bain
£110,302
21.10%
21.10%
£66,181
12.66%
21.10%
Mark Whiteling
£76,440
18.99%
21.10%
£42,467
10.55%
21.10%
Long-Term Incentive Awards
The awards granted under the Company’s long-term incentive
plan in 2011/12 were scheduled to mature in July 2014/15.
Vesting was subject to the awards meeting stringent returns
on sales and earnings per share targets by the end of January
2014. These metrics were not achieved and the awards lapsed.
Following the Company’s interim results announcement in
September 2014, awards were made to Laurence and Mark
under the performance share plan and executive share
option plan available for use under the Company’s long-term
incentive scheme. Conscious of the continued need to reward
sales growth without sacrificing profits, we reduced the return
on sales target for awards made in 2014/15 but retained the
growth in earnings per share target at the 2013/14 level.
In order to better align long-term incentive payments with
all aspects of shareholder return, the Committee decided to
allow dividend equivalents to accrue on long-term incentive
awards granted going forward as the Committee considers
that such accruals represent a reasonable outcome. Dividend
equivalents will accrue only to the extent that awards vest and
will be made in the form of shares.
The link between performance and remuneration
outcome in FY15
Payouts under the variable remuneration elements have
been low this year. While the Committee considers that
the Company has made good progress on its strategy,
the year has been challenging and the competitive nature
of the market has prevented us from reaching a number
of our targets. No discretion was exercised in relation to
the outcome of long- or short-term awards and, in the
circumstances, the Committee considers that the rewards
achieved are appropriate.
What changes are planned for 2015/16?
The Committee keeps the Company’s remuneration policy and
practices under regular review. During 2014/15, we identified
a number of opportunities to reflect changes in best practice
or better achieve the underlying aims of the Policy: specifically
to simplify our reward structures and increase their alignment
with the Company’s strategy. We have consulted extensively
with our major shareholders on these proposals and, having
taken account of their feedback and received broad support,
intend to make the following changes to our remuneration
practice in the year ahead:
MIP scheme
To reflect proposed changes to the Company’s operating
model, the Committee intends to move to a simpler annual
bonus plan across the Group in 2015/16. Operating profit
will remain the primary measure of success, with up to 70%
payable against this metric and the remaining 30% payable
on hitting other strategically important and quantifiable
targets. This contrasts with the 60:40 split operated in recent
years. Performance will be measured across the year as a
whole. The total maximum bonus opportunity will remain at up
to 160% of base salary for Laurence and 140% for Mark, as in
prior years, but the opportunity at threshold performance is
reduced from 20% to 15% of maximum. If threshold operating
profit is not achieved, no bonus will be payable save where the
Committee exercises its discretion to make a payment of up
to 10% of each Director’s total maximum bonus opportunity
based on performance against the strategic targets.
Long-Term Incentive Plan
In recent years, the Company has made long-term incentive
awards using a mix of performance shares and market-priced
options under its executive share option scheme. In 2015/16
the Committee proposes to make awards to the Executive
Directors under the performance share plan only and not
under the executive share option scheme (ESOP). Doing so
will simplify the Company’s long-term incentives and increase
the emphasis on achieving performance targets; it will also
reduce share dilution, compared with granting share options
of equivalent potential value under the executive share option
scheme, and is in line with market practice among other
FTSE250 companies.
Award sizes under the performance share plan will continue
to have a maximum of 100% of base salary, based on the face
value of the award at the date of grant. Actual award sizes
may be below this limit and the Committee will continue
to take account of a range of factors in determining any
adjustment to award sizes at the time of grant, including
market practice, overall performance of the Company and
personal performance. For awards to be made in 2015 to
Executive Directors, the level has been set at 85% of base
salary, based on face value at grant. This compares with awards
in prior years of 100% of base salary under the executive share
option plan and 60% under the performance share plan,
reflecting the move away from market-priced options.
64
Premier Farnell
Remuneration Report continued
In order to provide clear focus on growing profits, the
Committee is also proposing to re-balance the two
performance metrics applicable to awards. The primary
measure, applying to 70% of each award, will remain growth
in earnings per share (EPS), subject to adjustment where
appropriate by the Committee to avoid distortions from
exceptional events or changes in capital structure and to
ensure that the result for vesting purposes accurately reflects
underlying growth in profits. In 2014 the growth in EPS range
for long-term incentive awards was from 5% to 12% per
annum. For awards to be made in 2015 the target will be
increased so that there will be no vesting at less than 7%
growth in EPS and 14% growth must be achieved for
maximum vesting. These are stretching targets and reflect the
lower baseline figure as well as the Group’s confidence in the
strategy over the longer term. A second performance metric
which supports the Group’s strategic focus and which will
apply to the remaining 30% of each award will be determined
by the Committee prior to the annual grant of long-term
incentive awards, scheduled this year for September 2015.
What else did the Committee do in 2014/15?
During the year, the Committee reviewed the rights of
clawback and scaleback under the Company’s short-term
and long-term incentive plans. These plans already allow
for the reduction of awards or payments in the event of
misconduct or misstated performance but the Committee
considers that enhancements can be made to these rules
to strengthen the Committee’s right to withhold outstanding
awards and payments and recover those already made or
vested in such circumstances. Changes to the schemes to
achieve this were adopted by the Committee at its meeting
on 16 March 2015.
The Committee intends to introduce a new plan for senior
employees and key talent below Board level, the approval
of which by the Company’s shareholders will be sought at
the AGM in June 2015. The purpose of the plan is to retain
and reward such employees and, if approved, it is intended
to be used in place of the executive share option plan. The
grant of awards will be subject to individual performance but
their vesting will have no further metric attached. Executive
Directors will not be eligible to receive awards under this plan
which will be subject to the dilution limits in place for all
our plans.
The Committee is wholeheartedly in favour of aligning the
interests of shareholders and employees so I am pleased to
report that, at the last AGM in 2014, the Company approved
the adoption of a new save as you earn scheme allowing UK
eligible employees to acquire shares in the Company on a
discounted basis.
On the behalf of all of the Committee, I would like to thank you
for your ongoing support and for continuing to engage with us
on all remuneration matters.
Paul Withers
Chairman of the Remuneration Committee
65
Annual Report and Accounts 2014/15
Remuneration Committee
overview
Remuneration Committee overview
Paul Withers
Chairman
Who else was on the Committee?
-- Andrew Dougal
-- Gary Hughes (from 1 November 2014)
-- Dennis Millard (to 31 January 2015)
-- Peter Ventress
Steven Webb acted as Secretary to the Committee
throughout the year.
The Committee members are all independent NonExecutive Directors. There are a number of regular
attendees at Committee meetings, including the Group
Chief Executive Officer, 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.
What does it do?
Key objective:
To develop policy on Executive remuneration, linking
remuneration and performance, fix the remuneration of
individual Executive Directors, the Chairman of the Board
and executive team immediately below Board level and
administer the Company’s share plans.
Responsibilities:
• To determine remuneration for Executive Directors and
the executive team (the RemCo population) consistent
with the Policy
• To review and have regard to remuneration trends
across the Group when setting the Policy and
remuneration practice for the RemCo population
• To approve design of and targets for performancerelated pay for the RemCo population, approving any
payments to be made based on performance
• To determine the fees of the Chairman
• To approve contracts of employment with Executive
Directors and any termination arrangements
• To monitor the reward policies and structure for the
RemCo population and the Group as a whole
• To approve the design of and oversee awards under
employee share schemes, including satisfaction of
performance conditions
• To operate any rights of clawback or scaleback under
the short or long-term incentive schemes
• To approve pension benefits additional to those under
the Company’s pension schemes
• To oversee changes to employee benefit structures
• To consider risks to the Group as a result of the Policy
or its implementation
• To report on the Company’s remuneration, including
approving this report.
The Committee’s terms of reference are reviewed annually
and are available on the Governance section of our website
at www.premierfarnell.com.
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 £70,000 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.
66
Premier Farnell
Policy on Directors’
Remuneration
This section of the report sets out the Company’s Policy on
Directors’ remuneration to 2016/17. The Policy was approved
by shareholders at the Company’s Annual General Meeting
on 17 June 2014, following which it came immediately into
effect. As no changes have been made to the Policy since its
approval, the Policy is included for information purposes only.
What is our policy?
We have, however, noted where there have been changes in
practice (none of which affect policy) and have updated the
sections on:
• consultation with our shareholders to reflect the position
during the year under review;
• the mix of fixed and variable remuneration for the Executive
Directors to illustrate current salaries, benefits and pension
as shown on page 75 and proposed implementation of
policy on long and short term incentives in 2015/16
and page numbers and cross-references to the Annual
Remuneration Report have been updated throughout.
All such changes are highlighted in italics and bold for
further clarity.
Overall, it is to:
Be consistent and principled
• maintain a consistent Executive compensation strategy, based on
Link pay to strategy
• support the Company’s strategy and its execution
Align with shareholders’ interests
• closely align Executive reward with shareholder returns
Be competitive
• ensure that the organisation can attract, motivate and retain
clear principles and objectives
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
And be clear
• be easy to understand and supported by clear communication
throughout the Group
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
67
Annual Report and Accounts 2014/15
Which for our Executive Directors are structured as follows:
What?A
Salary
Why?
How? And how much?
To recruit and retain
the right people to
execute the strategy
Based on:
• skills and experience;
• salaries across the Group, including of other senior employees;
• salaries paid by other FTSE 250 companies and by other companies of similar size and
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 75 for implementation in 2014/15.
Benefits
To recruit and retain
the right people to
execute the strategy
Dependent on the requirements of the role and the individual, provided reasonable and in line with
market practice.
Benefits might include, for example: life and health insurance for the 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.
No pre-determined maximum, but benefits generally constitute a small percentage of total remuneration.
Not appropriate to be subject to recovery once provided.
See page 75 for implementation in 2014/15.
Pension
To recruit and retain
the right people to
execute the strategy
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 pre-determined maximum but in line with market practice for Executives.
Not appropriate to be subject to recovery once provided.
See page 77 for implementation in 2014/15.
A. See notes on page 69.
68
Premier Farnell
Policy on Directors’
Remuneration continued
What?A
Annual Bonus
Why?
How? And how much?
To motivate and
reward performance
to further strategic
and operational goals
over the year
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 measures.B
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.
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 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.
The annual bonus offers the following maximum opportunity at maximum performance:
• 160% of salary for the CEO;
• 140% for the CFO
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.
See page 77 for implementation in 2014/15.
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 a second measure, being return on sales (RoS) in 2014/15 and to be
defined for 2015/16.
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 PSP 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.
A See notes on page 69.
B See notes on page 70.
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Annual Report and Accounts 2014/15
What?A
Why?
How? And how much?
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 until the end of 2014/15 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.
In 2015/16, awards are proposed to be made to the CEO and CFO under the PSP only
at 85% of base salary.
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 pages 70 and 71 for an illustration of the amounts potentially receivable by the
Executives for minimum, on-target and maximum performance under current policy
and practice. This shows that, at targeted performance, 43% and, at maximum
performance, 64% of the CEO’s total remuneration (and 43% and 63% of the CFO’s)
is performance-linked.
See page 79 for implementation in 2014/15.
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, 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 was structured to take
account of personal objectives, these would be relevant to the employee’s role.
LTIP: Employees of management grade and nominated talented performers participate in the LTI plan. The senior 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.
70
Premier Farnell
Policy on Directors’
Remuneration continued
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 but 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: for awards made in the year under review, 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. Details of changes proposed in 2015/16 are set out in the annual statement of the Chairman
of the Remuneration Committee on pages 63 and 64.
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.
So what could the Executive Directors earn under this policy?
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 (based on proposed implementation of the Policy in 2015/16) is illustrated in the bar charts below and
shows that:
• at on-target performance, 43% of the CEO’s and the CFO’s total remuneration; and
• at maximum performance, 64% of the CEO’s and 63% of the CFO’s total remuneration
is performance-linked.
Chief Executive total remuneration scenarios
£000’s
64%
Maximum
36%
42%
22%
£2,010
43%
On-target
performance
57%
Minimum
100%
£0
Total fixed
See note on page 71.
£500
Total annual incentive
26%
£1,286
17%
£729
£1,000
Total long-term incentive
£1,500
£2,000
£2,500
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Annual Report and Accounts 2014/15
Chief Financial Officer remuneration scenarios
£000’s
63%
Maximum
37%
£1,435
24%
39%
43%
On-target
performance
57%
Minimum
100%
£0
Total fixed
24%
£926
19%
£529
£1,500
£1,000
£500
£2,000
£2,500
Total long-term incentive
Total annual incentive
Notes to the charts above:
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 75.
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 proposed to be awarded in 2015/16. 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?
What?
Fees
Why?
How? And how much?
To recruit and retain
the right people to
contribute to the
Company’s
success without
compromising their
independence
Annual fee for Chairman.
Annual base fee for Non-Executive 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.
All fees are paid in cash and cover time spent in travel as well as attendance at meetings and
site visits.
Fees reviewed annually by the Board (or the Remuneration Committee, in the case of the Board
Chairman) to avoid conflicts.
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 75 for implementation in 2014/15.
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.
What would we pay to recruit a new Director to the Board?
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 FTSE250 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.
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.
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.
72
Premier Farnell
Policy on Directors’
Remuneration continued
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 exist 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.
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 over
a set period.
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.
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.
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.
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.
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:
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:
• 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
• 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 number of shares under an award may be reduced to
reflect any unexpired performance period (referred to as
pro rating); and
• 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.
73
Annual Report and Accounts 2014/15
Plan
DSBP
Good leaver?
Type of Award
Vested
Unvested
Yes
Conditional or forfeitable
share award
NA
Vests on leaving date, but
subject to pro rating2
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
Conditional or forfeitable
share award
NA1
Lapses
Option
Lapses
Lapses
Conditional or forfeitable
share award
NA1
Vests at end of performance
period, subject to performance
and pro rating3
Option
Exercisable for 12 months
from vesting3
Exercisable for 12 months from
end of performance period,
subject to performance and
pro rating3
Conditional or forfeitable
share award
NA1
Lapses
Option
Exercisable for three months
from vesting4
Lapses
Yes
Option
Exercisable for 12 months from Exercisable for 12 months from
leaving (or death if relevant)3
leaving (or from vesting, in the
event of death) subject to
performance and pro rating3
No
Option
Exercisable for three months
from vesting4
No
PSP
Yes
No
ESOP5
1
Lapses
1 Not applicable as the shares under award vest automatically if the award is a conditional or forfeitable share award and will therefore have been exercised at the point
of leaving.
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 10 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.
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.
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
74
Premier Farnell
Policy on Directors’
Remuneration continued
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.
For how long are the Directors employed?
The Executives’ service contracts do not have a set duration,
while Non-Executive 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.
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 more
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.
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.
Does the Committee take account of pay across
the Group?
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. 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 Committee1.
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, in 2014/15 as in
2013/14, the proposed changes to the annual bonus and
the long-term incentive plan, as well as our executive
shareholding policy, and in 2014/15 the proposed
introduction of a new share plan for employees below
Board level and the clawback provisions in the Company’s
LTIP). In both years, the feedback received has been taken
into account in shaping the implementation of the Policy.
1 An all-employee engagement survey was held in 2013/14 and in each prior year from 2007 onwards. No survey was conducted in 2014/15.
75
Annual Report and Accounts 2014/15
Annual Report
on Remuneration
This section of the Remuneration Report sets out how the Company has implemented its Policy on Directors’ remuneration
during the period to 1 February 2015.
What did the Directors earn in the year under review?
The following table shows the remuneration paid to our Directors in 2014/15 and in the prior year (audited).
(£000’s)
Base salary
and fees
Benefits1
Company pension
contribution
Annual bonus2
LTI awards3 vesting
for performance
period ending
during
Total
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
Laurence
Bain
517
506
65
72
140
137
176
179
–
–
898
894
Mark
Whiteling
398
389
18
20
108
104
119
120
–
–
643
633
Val
Gooding
167
157
–
–
–
–
–
–
–
–
167
157
Andrew
Dougal
51
50
–
–
–
–
–
–
–
–
51
50
Gary
Hughes4
13
-
–
–
–
–
–
–
–
–
13
–
Dennis
Millard
65
62
–
–
–
–
–
–
–
–
65
62
Tom
Reddin
82
80
–
–
–
–
–
–
–
–
82
80
Paul
Withers
60
59
–
–
–
–
–
–
–
–
60
59
Peter
Ventress
51
17
–
–
–
–
–
–
–
–
51
17
1,404
1,320
83
92
248
241
295
299
–
–
2,030
1,952
Executives
NonExecutives
Total
1 Benefits for both Executive Directors comprise a cash allowance in lieu of a company car, life and health insurance. Laurence’s benefits include £45,000 in respect of
life cover.
2 Annual bonus for 2014/15:
For Laurence Bain is 62.5% in cash and 37.5% in deferred shares under the DSBP.
For Mark Whiteling is 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 2013/14:
For Laurence Bain is 62.5% in cash and 37.5% in deferred shares under the DSBP.
For Mark Whiteling is 64.3% in cash and 35.7% in deferred shares under the DSBP.
3 Long-term incentive: performance conditions, weightings and performance achieved against targets are detailed in subsequent sections of this report.
4 Gary Hughes joined the Board on 1 November 2014.
76
Premier Farnell
Annual Report
on Remuneration continued
What changes were there to salaries and fees?
With effect from July 2014, and in line with the general workforce, a 2.5% increase in salary and in base fees was awarded to our
Executives and our Non-Executive Directors respectively. Following a review against market levels, the fees of the Chairmen and
the SID were found to be significantly below median for FTSE250 companies.
Increases to the fees payable to the Company’s Non-Executive Directors in 2015/16 were as follows:
Percentage increase
Fee for role at
2 February 2014
Fee for role at
1 February 2015
Chair of the Board
7.5%
£160,000
£172,000
Non-Executive Director’s base fee
2.5%
£50,000
£51,264
Chair of the Audit Committee
11.1%
£9,000
£10,000
Chair of the Remuneration
Committee
11.1%
£9,000
£10,000
SID
100%
£3,000
£6,000
Chair of the DAB
6.7%
£30,000
£32,000
At 2 February 2014
At 1 February 2015
Percentage increase
Laurence Bain
£510,000
£522,756
2.5%
Mark Whiteling
£392,700
£402,528
2.5%
7.5%
Role
The Directors’ salaries or fees at the beginning and end of the financial year were:
Executives
Non-Executives
Val Gooding
£160,000
£172,000
Dennis Millard1
£62,000
–
–
Andrew Dougal
£50,000
£51,264
2.5%
Gary Hughes
–
£61,2642
–
Tom Reddin
£80,000
£83,2643
4.1%
Peter Ventress
£50,000
£51,264
Paul Withers
£59,000
£67,2644
1 2 3 4 2.5%
14.0%
(or 3.84% excluding
the £6,000 fee payable
in respect of his new
role as SID)
Including fees of £9,000 for chairing the Audit Committee and £3,000 for acting as SID. Dennis retired from the Board on 31 January 2015.
Gary Hughes joined the Board on 1 November 2014. His fees include fees of £10,000 for chairing the Audit Committee.
Including fees of £32,000 for chairing the Company’s Digital Advisory Board.
Including fees of £10,000 for chairing the Remuneration Committee and £6,000 for acting as SID.
What pensions are Directors entitled to?
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.
77
Annual Report and Accounts 2014/15
The pension benefits of the Executives as at 1 February 2015 were (audited):
Nature of benefit
Company
contribution (or allowance)
as a percentage of salary1
Laurence Bain
Cash allowance
27%
£139,709
(2013/14: £136,575)
Mark Whiteling
Combination of cash allowance
and contributions to Mark’s
personal pension plan
27%
£107,607
(2013/14: £103,984)
Annual cost for
2014/15 (2013/14)
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.
No Executive Director receives any final salary pension benefits.
How was the amount of the annual bonus determined for 2014/15?
For the Chief Executive Officer and the Chief Finance Officer, 60% of the maximum bonus opportunity is payable on achieving
defined levels of operating profit (OP), with the remaining 40% payable by reference to other objectives linked to key elements
of the strategy (SOs). The following table sets out the percentages available for each measure at threshold and stretch
performance and compares this potential with the actual payouts achieved.
Percentage of total bonus
opportunity payable at threshold
performance for this measure
Percentage of total bonus
opportunity payable at stretch
performance for this measure
Actual payout for this measure in
respect of 2014/15, as a
percentage of total bonus
opportunity
Operating profit
(60% of total bonus opportunity)
12%
60%
16.1%
Strategic objectives
(40% of total bonus opportunity)
Related to achieving budgeted:
8%1 made up as follows:
40%1 made up as follows:
5% achieved as follows:
Measure and weighting
cash flow
3%
15%
5%
growth in customer base
2%
10%
0%
gross margin
3%
15%
0%
1 Provided OP is met. If OP is not met, the Committee has the discretion to award a total bonus of up to 10% of the maximum opportunity based on performance
against the SOs.
The Company exceeded its threshold targets for operating profit (achieving £91.08m1 against a plan target of £94.97m) and
cashflow (achieving £66.60m against a plan target of £68.81m) but did not hit its threshold metric for customer growth and
margin (where the targets at plan were 2.9% and 37.7% respectively).
Based on this performance, the amounts paid or awarded were:
Face value of
DSBP award at grant
(number of shares)
In respect of OP
achieved
In respect of SOs
achieved
Total annual bonus
Cash award
Laurence Bain
£134,662
£41,821
£176,483
£110,302
£66,181
(or 34,649 shares2)
Mark Whiteling
£90,730
£28,177
£118,907
£76,440
£42,467
(or 22,233 shares2)
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 2014/15 which is
arrived at using the average exchange rates for the year.
2 At a share price on grant of 191.0p.
78
Premier Farnell
Annual Report
on Remuneration continued
How will the amount of the annual bonus be determined for 2015/16?
The Committee will operate a simplified annual bonus plan in 2015/16, under which the same maximum available opportunity,
operating profit underpin and maximum 10% discretionary payment in the event that operating profit is not met will apply as
for 2014/15 but of the total bonus opportunity in 2015/16:
• 70% will be payable based on Group operating profit; and
• 30% will be payable based on the achievement of personal objectives linked to the strategy.
A summary of the composition of the 2015/16 Bonus scheme can be seen in the table below. The targets for the strategic
objectives against which the personal performance of the CEO and CFO are assessed are commercially sensitive.
Bonus opportunity as a percentage of salary
Weighting between cash and shares
Total bonus
opportunity
Percentage
in cash (max)
Percentage
in shares (max)
CEO
160%
100%
60%
CFO
140%
90%
50%
Percentage of total bonus
opportunity payable against
this measure for stretch
performance
Weightings of the measures and potential
at threshold and stretch performance
Weighting
Percentage of total bonus
opportunity payable against
this measure for threshold
performance
Operating profit for 2015/16
70%
10.5%
70%
Other performance objectives
linked to the strategy
30%
4.5% if OP met1
30% if OP met1
Measure
1 If OP is not met, the Committee has the discretion to award a total bonus of up to 10% of the maximum bonus opportunity based on performance against the
strategic objectives.
What happened in relation to the LTIPs in 2014/15?
Awards maturing in 2014/15
The following awards were made to Laurence Bain in 2011, subject to the following performance targets, and were scheduled
to vest in July 2014:
Number of shares
under the PSP
Chief Executive
1
140,937
Performance
target for the PSP
(pence)
EPS of 21.9 for
threshold vesting
and 25.8 for full
vesting
Performance
achieved in
2013/14 (pence)
EPS of 14.3
Number of shares
under the ESOP
157,765
Performance
target for the
ESOP
Performance
achieved in
2013/14
Adjusted RoS of
12% for threshold
vesting and 15%
for full vesting
Adjusted RoS of
9.6%
1 Awarded to Laurence Bain in July 2011 in his former role as Chief Operating Officer. Awards made to Mark Whiteling in July 2011 lapsed when Mark left the Company
in August 2011.
These awards therefore lapsed in full without vesting.
79
Annual Report and Accounts 2014/15
Awards granted in 2014/15
The Remuneration Committee reviews the performance conditions that apply to long-term incentives each year to ensure
that they remain relevant and stretching. Awards made in 2014/15 under the PSP and the ESOP are subject to the same two
performance conditions, 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 targets for awards made in 2014/15 are:
CAGR in EPS
2014/15 – 2016/171
EPS required in 2016/17
for vesting (pence)
12% or more
Vesting percentage
20.1 or more
100%
Between 5% and 12%
16.6 to 20.1
Between 20% and 100%
on a straight-line basis
Less than 5%
Under 16.6
0%
1 The baseline against which growth in EPS over the three year performance period to 2016/17 is measured is EPS performance in 2013/14.
Adjusted return on sales in 2016/17
Vesting percentage
11.5% or more
100%
Between 20% and 100%
on a straight-line basis
Between 9.5% and 11.5%
Less than 9.5%
0%
Details of the awards made to Laurence and Mark during the year are set out in the table below.
The Committee exercised its discretion to allow dividend equivalents to accrue on PSP awards granted to Executive Directors
in the year, to the extent that such awards vest. If they do, dividend equivalents will accrue at the rate that dividends would
have been paid on a number of shares equal to the vested shares during the period from grant to vesting and will be awarded
as shares.
What long-term incentive awards were made to the Directors during 2014/15?
In 2014/15, awards were made to the Executives under the ESOP and PSP as follows (audited):
Exercise price2
(pence)
Percentage
vesting at
threshold
performance3
£313,653
(60%)
0
10%
2014/15 to
2016/17
24 September
2014
£241,516
(60%)
0
10%
2014/15 to
2016/17
275,134
24 September
2014
£522,756
(100%)
190.00
10%
2014/15 to
2016/17
211,856
24 September
2014
£402,528
(100%)
190.00
10%
2014/15 to
2016/17
Type of award
No of shares
Date of grant
Face value1
(percentage of
salary on grant)
Laurence Bain
Nil cost option
165,080
24 September
2014
Mark Whiteling
Nil cost option
127,113
Laurence Bain
Market value
option
Mark Whiteling
Market value
option
Performance
period4
PSP
ESOP
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 190.0p 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 adjusted 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 above.
Non-Executive Directors are not entitled to receive share awards.
80
Premier Farnell
Annual Report
on Remuneration continued
What share awards were held by the Executive Directors at the end of the financial year?
The Executive Directors have share awards outstanding under the DSBP, ESOP, PSP and SAYE schemes as detailed below.
Laurence Bain (audited):
Scheme
DSBP
ESOP3
PSP
3
SAYE
At 2
February
20141
Grant date
Awarded
Market
price on
award2
(pence)
Exercised/
vested
Exercise
price
(pence)
Market
price on
exercise
(pence)
(vesting)
59,983
18/03/2011
–
280.2
59,983
0
187.35
(220.00)
10,114
19/04/2013
–
203.3
–
0
–
End of
performance/
vesting period3
Lapsed
At 1
February
20151
–
–
March 2013
–
10,114
April 2015
–
08/04/2014
28,589
234.4
–
0
–
–
28,589
157,765
26/07/2011
–
190.16
–
190.16
–
157,765
–
January 20144
April 2016
289,521
09/07/2012
–
172.7
–
172.7
–
–
289,521
January 20154
254,491
28/06/2013
–
200.4
–
200.4
–
–
254,491
January 20164
–
24/09/2014
275,134
190
–
190
–
–
275,134
January 20174
140,937
26/07/2011
–
190.16
–
0
–
140,937
–
January 20145
173,713
09/07/2012
–
172.7
–
0
–
–
173,713
January 20155
152,694
28/06/2013
–
200.4
–
0
–
–
152,694
January 20165
–
24/09/2014
165,080
190
–
0
–
–
165,080
January 20175
5,056
01/06/2013
–
222.5
–
178
–
–
5,056
June 2016
–
01/06/2014
4,787
234.4
–
188
–
–
4,787
June 2017
Lapsed
At 1
February
20151
End of
performance/
vesting period3
Notes for both Laurence and Mark’s outstanding share awards are opposite.
Mark Whiteling (audited):
Scheme
DSBP
ESOP3
PSP
3
SAYE
Exercised/
vested
Exercise
price
(pence)
Market
price on
exercise
(pence)
(vesting)
At 2
February
20141
Grant date
Awarded
Market
price on
award2
(pence)
1,709
19/04/2013
–
203.3
–
0
–
–
1,709
April 2015
–
08/04/2014
18,345
234.4
–
0
–
–
18,345
April 2016
157,786
10/12/2012
–
183
–
183
–
–
157,786
January 20154
195,958
28/06/2013
–
200.4
–
200.4
–
–
195,958
January 20164
–
24/09/2014
211,856
190
–
190
–
–
211,856
January 20174
105,191
10/12/2012
–
183
–
0
–
–
105,191
January 20155
117,574
28/06/2013
–
200.4
–
0
–
–
117,574
January 20165
–
24/09/2014
127,113
190
–
190
–
–
127,113
January 20175
5,056
01/06/2013
–
222.5
–
178
–
–
5,056
June 2016
–
01/06/2014
4,787
234.4
–
188
–
–
4,787
June 2017
Notes for both Laurence and Mark’s outstanding share awards are opposite.
81
Annual Report and Accounts 2014/15
1 The market price of the Company’s ordinary shares at 2 February 2014 was 217.5p. The market price at 1 February 2015 was 169.0p (both priced on the immediately
preceding trading day, as the last day of each financial year fell on a Sunday). The range during the year was 160.9p to 240.5p.
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 eligible employees.
3 Awards under the ESOP and the PSP have performance conditions. Awards under the DSBP and SAYE are dependent on the participant 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 Outstanding awards under the ESOP are subject to the following performance conditions:
Financial year awarded
Performance period ends
Performance condition and vesting scale (% of award)
2012/13
January 2015
Adjusted RoS: range from 12.0% to 15.0%
2013/14
January 2016
50% on Adjusted RoS: range from 10% to 12%
50% on CAGR in EPS: range from 5% to 12%
2014/15
January 2017
50% on Adjusted RoS: range from 9.5% to 11.5%
50% on CAGR in EPS: range from 5% to 12%
5 Outstanding awards under the PSP are subject to the following performance conditions:
Financial year awarded
Performance period ends
Performance condition and vesting scale (% of award)
2012/13
January 2015
CAGR in EPS: range from 5% to 12%
2013/14
January 2016
50% on Adjusted RoS: range from 10% to 12%
50% on CAGR in EPS: range from 5% to 12%
2014/15
January 2017
50% on Adjusted RoS: range from 9.5% to 11.5%
50% on CAGR in EPS: range from 5% to 12%
What is intended in relation to the LTIPs for 2015/16?
In 2015/16, awards will be made to Executive Directors under the PSP only at a value of 85% of base salary (face value). There
will be two performance measures for each award. To provide a clearer focus on growing profits, 70% of each award will be
subject to a growth in EPS performance metric, measured over the three financial years to FY18. The EPS range for the 2015
awards will require Compound Annual Growth Rate of 7% at threshold (for 20% of maximum vesting) and 14% at stretch
performance for 100% vesting, with a straight-line interpolation between these two points. The remaining 30% of each award
will be subject to a second performance measure, aligned to the Group’s strategic imperatives, which the Committee will
determine prior to the grant of awards in September 2015.
Does the Company have a policy or issue guidelines on Directors’ shareholdings?
The Company’s executive shareholding policy requires Executive Directors and the rest of the RemCo population to retain a
number of shares equal to a percentage of the individual’s annual base salary. 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.
Laurence and Mark are each required to reach a shareholding with a value equal to their annual base salary. The table below
includes their current shareholdings and shows that, as at 1 February 2015, both Laurence and Mark have achieved the
minimum level of holding. It also shows the holdings of our Non-Executive Directors at the end of the year. There were no
changes to these holdings in the period from the year end to 24 April 2015 (the nearest practical day prior to the publication
of this report).
82
Premier Farnell
Annual Report
on Remuneration continued
(audited)
Shareholdings
Interests in shares
LTIP2
% holding
achieved1
Executive
PSP
ESOP
DSBP
SAYE
Laurence Bain
495,661
214.9%
491,487
819,146
38,703
9,843
Mark Whiteling
204,314
109.4%
349,878
565,600
20,054
9,843
Non-Executive
Val Gooding
19,903
Andrew Dougal
10,000
Gary Hughes
10,500
Dennis Millard
27,5003
Tom Reddin
15,000
Peter Ventress
15,000
Paul Withers
70,000
1 As at the year end and at the share price at that time.
2 Subject to performance conditions.
3 Shown at the year end only, as Dennis Millard retired from the Board on this date.
As employees and potential beneficiaries of the Trust, the Executive Directors are also deemed to be interested in 3,862,021
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.
How dilutive are the Company’s share-based incentive schemes?
As at 1 February 2015, based on the number of awards outstanding under employee share plans to be satisfied using new
issue shares:
• the number of new shares issued or to be issued under all share option plans over the last 10 years, including both executive
and all-employee plans, totalled an amount equal to 3.87% of the Company’s issued ordinary capital;
• the number of new shares issued or to be issued under all executive share option plans over the last 10 years totalled an
amount equal to 3.25% 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.
Do the Executive Directors have other directorships?
Mark Whiteling stood down from his role as Non-Executive Director and Chairman of the Audit Committee of Future plc on
30 November 2014 and was appointed a Non-Executive Director at Hogg Robinson Group plc on 1 December 2014. In line with
the Company’s Policy, Mark is entitled to retain the fees he receives from these appointments. During 2014/15 these totalled
£43,333, made up as follows:
Company
Future plc
Hogg Robinson plc
Fees
Payable in respect of the period
£37,500
2 February 2014 to
30 November 2014
£5,833
1 December 2014 to
1 February 2015
83
Annual Report and Accounts 2014/15
When were the Directors appointed and what are the current dates of their service contracts or letters
of appointment?
Dates of
appointment
Service
contracts
Laurence Bain1
12 June 2012
5 November 2012
Val Gooding
Mark Whiteling
5 November 2012
23 November 2012
Dennis Millard
Dates of
appointment
Letters of
appointment
15 June 2011
17 June 2014
1 September 2007
17 June 2014
Andrew Dougal
1 September 2006
17 June 2014
Tom Reddin
30 September 2010
18 June 2013
Paul Withers
1 September 2007
17 June 2014
2
Peter Ventress
1 October 2013
1 October 2013
Gary Hughes
1 November 2014
1 November 2014
1 As CEO. Laurence was Chief Operating Officer from 2003.
2 Dennis retired from the Board on 31 January 2015.
How much does the Company spend on pay compared with dividends?
The following table sets out the amounts spent in each of 2013/14 and 2014/15 on pay for all employees across the Group
and on dividends in respect of the same period, together with the difference in spend between those years.
Item
£s in millions
In 2013/14
i
Total compensation
expense
ii
Dividends
In 2014/15
Percentage change
168.21
165.31
-1.7%
38.1
38.2
0.3%
1 Includes £2.0m (2013/14 £2.0m) in respect of Directors’ total remuneration.
How much did your Chief Executive Officer’s pay change compared with pay for your other employees?
The table below shows the percentage change from 2013/14 to 2014/15 in the salary, benefits and annual bonus paid to the 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
Salary
Benefits
CEO
2.29%
-1.36%
Annual Bonus
-1.24%
Average UK employee
5.27%
-6.10%
-12.94%
84
Premier Farnell
Annual Report
on Remuneration continued
How did shareholders vote on your Directors’ Remuneration Policy and your Annual Remuneration Report
at your June 2014 AGM?
At the AGM held on 17 June 2014 shareholders voting at the meeting and by proxy voted on the resolutions to approve the
Annual Remuneration Report and the Directors’ Remuneration Policy as follows:
Resolution to approve the
Annual Remuneration Report
Number of votes cast
% of votes cast
307,368,164
97.95
6,440,884
2.05
313,809,048
100%
538,778
–
Number of votes cast
% of votes cast
298,328,556
95.43
14,295,499
4.57
312,624,055
100%
1,721,856
–
Votes for
Votes against
Total
Votes withheld
Resolution to approve the Directors’
Remuneration Policy
Votes for
Votes against
Total
Votes withheld
How has the Company performed in the last six years? How does that compare with what the CEO received?
The graph below shows the total shareholder return for a holding of the Company’s ordinary shares for the six financial years
of the Company, with 2014/15 being the last. This is compared to the total shareholder return over the same period for a
hypothetical holding in (i) the FTSE mid-250 Index (being the index of which the Company is a constituent) and (ii) the FTSE
All-Share Index. Both indices exclude investment trusts.
Total shareholder return
400
Total shareholder return
350
300
250
200
150
100
50
0
2009
2010
2011
2012
2013
2014
2015
This graph compares the TSR performance of Premier Farnell, assuming dividends are re-invested, with the TSR performance
of the FTSE250 (excluding Investment Trusts), and the FTSE All-Share (excluding Investment Trusts) over the period 1 February
2009 to 1 February 2015. The other points plotted show the TSR performance at intervening financial year ends.
Premier Farnell
Source: Thompson Reuters
FTSE250 Index (excl. Investment Trusts)
FTSE All-Share Index (excl. Investment Trusts)
85
Annual Report and Accounts 2014/15
This table sets out the total remuneration of the Chief Executive Officer of the Company over the same period, with awards
vesting in each year under the annual bonus and LTI shown as a percentage of maximum opportunity in each case.
Total remuneration
Annual bonus as a
percentage of
maximum
opportunity
2014/15
£898,000
2013/14
2012/13
Year
LTI vesting as a percentage of maximum opportunity1
PSP
ESOP
In aggregate2
CEO
21.1%
0%
0%
0%
Laurence Bain
£894,000
21.9%
0%
0%
0%
Laurence Bain
£316,6693
7.3%
0%
0%
0%
Laurence Bain
£378,000
0%
0%
0%
0%
Harriet Green
2011/12
£1,632,826
0%
79%
n/a
79%
Harriet Green
2010/11
£1,539,531
100%
49%
n/a
49%
Harriet Green
2009/10
£1,151,270
57%
59%
100%4
79.5%
Harriet Green
1 Indicating the extent to which the relevant awards vesting in this year met their performance conditions.
2 Showing 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.
Approved by the Board on 24 April 2015.
Signed on behalf of the Board by
Paul Withers
Chairman of the Remuneration Committee
86
Premier Farnell
Independent auditors’ report to the members
of Premier Farnell Plc
Report on the financial statements
What we have audited
Premier Farnell Plc’s financial statements comprise:
Our opinion
• the Consolidated balance sheet as at 1 February 2015;
In our opinion:
Premier Farnell Plc’s consolidated financial statements and
Company financial statements (the “financial statements”)
give a true and fair view of the state of the Group’s and of the
Company’s affairs as at 1 February 2015 and of the Group’s
profit and cash flows for the year then ended;
• the Company balance sheet as at 1 February 2015;
• the Consolidated income statement and consolidated
statement of comprehensive income for the year
then ended;
• the Consolidated statement of cash flows for the year
then ended;
• the Group financial statements have been properly prepared
in accordance with International Financial Reporting
Standards (“IFRSs”) as adopted by the European Union;
• the Consolidated statement of changes in equity for the
year then ended;
• the Company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
• the notes to the financial statements, which include other
explanatory information.
• 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.
The financial reporting framework that has been applied in the
preparation of the Group financial statements is applicable law
and IFRSs as adopted by the European Union. The financial
reporting framework that has been applied in the preparation
of the Company financial statements is applicable law and
United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
• the Accounting policies; and
Our audit approach
Overview
• Overall Group materiality: £4 million, which represents 5% of profit before tax before those
Materiality
Audit Scope
items which are identified as adjusting items set out separately on the face of the consolidated
income statement.
• We conducted audit work in 10 countries covering 31 reporting units.
• The reporting units subject to audit procedures accounted for 81% of Group revenues
and 85% of Group adjusted profit before tax.
Areas of
focus
• element14 inventory valuation.
• Valuation of pension obligations.
• Presentation of income statement adjusting items.
87
Annual Report and Accounts 2014/15
The scope of our audit and our areas of focus
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and
assessing the risks of material misstatement in the financial
statements. In particular, we looked at where the Directors
made subjective judgements, for example in respect of
significant accounting estimates that involved making
assumptions and considering future events that are inherently
uncertain. As in all of our audits, we also addressed the risk of
management override of internal controls, including evaluating
whether there was evidence of bias by the Directors that
represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect
on our audit, including the allocation of our resources and
effort, are identified as “areas of focus” below. We have also set
out how we tailored our audit to address these specific areas
in order to provide an opinion on the financial statements as
a whole, and any comments we make on the results of our
procedures should be read in this context. This is not a
complete list of all risks identified by our audit.
Area of focus
element14 inventory valuation
Refer to page 55 (Audit Committee Report) and the Accounting
policies for the Directors’ disclosures of the related accounting
policies, judgements and estimates.
The Group has significant inventory holdings at a number
of reporting units. Group inventories at the year end were
£260.9 million. Of this balance, a significant proportion is
electronic component inventory in the element14 business,
91% of which is included within the reporting units subject
to audit procedures.
The Group’s operating model is designed to facilitate a high
level of electronic component inventory availability to enable
the Group to provide customers with access to a broad range
of stock and to be able to provide fast and efficient delivery of
products. The products are regularly updated to provide the
latest technologies to customers and the Group has made
significant investments in new electronic and technology
components in the last two years to increase product
availability and extend the range. Accordingly, inventory
management is a critical business process.
The changes in technology and investment in new products
increase the risk of inventory becoming slow moving or
obsolete. Inventory is held at cost less a provision for slow
moving and obsolete stock. The inventory provision
methodology is based on the level and value of inventory, the
volume of sales and assessment of slow moving and obsolete
inventory and requires a significant amount of judgement.
How our audit addressed the area of focus
As the element14 provisioning methodologies are dependent
on the accurate recording and valuation of electronic
component inventory, we understood and tested the key
controls over inventory recording in the element14 business.
To confirm the completeness and accuracy of inventory
recording and reporting, we tested the automated three-waymatch control of purchase orders, goods received notes and
purchase invoices and the controls over the complete and
accurate updating of inventory records. We tested cycle count
controls over inventory held at distribution centres, attending a
sample of cycle counts and checking the items counted at the
distribution centres were accurately recorded in the inventory
records. Our testing supported the completeness and
accuracy of inventory recording and reporting.
In order to test the value attributed to the inventory, we tested
the controls for the authorisation of changes to inventory cost
data and performed substantive testing of inventory costing by
agreeing a sample of inventory costs to external invoice which
supported the value attributed to the inventory.
We evaluated and challenged the Directors’ judgements on
the application of provisioning policies and the methodologies
used and considered if these remained appropriate in light of
the products held by the Group and agreed that they did.
We tested application of the Group’s provisioning
methodologies by agreeing that the value of inventory, the
ageing of inventory and product sales information which
determine the appropriate category for the provision were
being appropriately extracted from the system on a sample
of products and re-performed the calculation of inventory
provision on that sample of products which confirmed the
inventory provisions were being calculated appropriately.
We examined the level of inventory write offs and compared
them to previous provisions held by the Group to assess
the Directors’ accuracy in estimating inventory provisions
and found them to be reasonable. To assess new product
categories, we examined sales reports which demonstrated
the sales profile of new products over a three year period
and confirmed the Group policy for calculating provisions
for new products is also reasonable.
88
Premier Farnell
Independent auditors’ report to the members
of Premier Farnell Plc continued
Valuation of post employment benefits
Refer to the Accounting policies for the Directors’ disclosures
of the related accounting policies, judgements and estimates.
Presentation of income statement adjusting items
Refer to page 56 (Audit Committee Report) and note 2 in
the financial statements.
The Group has defined benefit pension plans in the UK and
US which have gross post retirement assets of £206.2 million
and gross post retirement liabilities of £256.6 million. In
addition to these two principal pension plans the Group
provides other post-retirement medical benefits. The total
post employment benefits obligation is a net liability of
£70.7 million, which is significant in the context of both
the overall balance sheet and the results of the Group.
The Group’s strategy involves the development of a global
customer and supply chain model. As part of this Group
strategy, in FY15 the Group announced a move to an
integrated global organisational structure in its element14
businesses and has reported costs associated with evaluating
and designing the programme in FY15. These costs are
reported by the Group as adjusting items on the Consolidated
income statement and are presented separately in arriving
at an adjusted profit performance measure.
The valuation of the pension and post-retirement medical
benefit liabilities requires significant levels of judgement and
technical expertise in choosing appropriate assumptions,
a number of which are volatile. Changes in a number of
the key assumptions (including salary increases, inflation,
discount rates and mortality) can have a material impact
on the calculation of the liabilities.
The Group uses independent third party actuarial experts
to calculate the pension and post-retirement medical
benefit liabilities.
How our audit addresed the area of focus
We evaluated the Group’s key judgements taking into account
the specific characteristics of the Group’s UK and US pension
plans and post-retirement medical benefits plan. We assessed
the assumptions used by the Directors’ with respect to discount
rates, inflation rates and mortality rates by comparing them
to our own, independently formed expectations. Based on
our audit work we found that the assumptions used by the
Directors’ were supportable and within our expected range.
We also read and assessed the disclosures made in the
financial statements, including disclosures of the assumptions
used, and concluded they were appropriate.
We focused on this area because the presentation of such
items is not defined by IFRSs and it therefore requires
judgement by the Directors’ when identifying such items and
justifying their separate disclosure. Consistency in identifying
and disclosing these items as adjusting is also important to
maintain comparability of the results year on year.
The judgements involved in calculating and presenting these
costs in the income statement include assessing that the
costs relate to the period under review and assessing that the
costs are not normal operating costs but by their nature, size
or incident are appropriate to be classified as adjusting items.
How our audit addresed the area of focus
We evaluated the Directors’ approach to the identification
and disclosure of adjusting items to confirm the basis for
presenting and calculating adjusting items has been applied
consistently and justifiably and assessing whether the
classification was in line with the Company’s accounting
policy set out on page 99 of the financial statements.
In FY15, the adjusting items recorded on the income statement
totalled £4.9 million. The costs identified as adjusting items are
primarily costs associated with the reorganisation programme
and include consultancy fees and severance costs. We tested
a sample of costs which confirmed the costs relate to the
period under review. We have also assessed whether these
costs are non-operational in nature and therefore by their
nature are appropriate to be classified as adjusting items.
We found that the classification judgements and disclosures
made by management were in line with the Group’s accounting
policy and that the costs are appropriate to include within
adjusting items in the consolidated income statement.
89
Annual Report and Accounts 2014/15
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls,
and the industry in which the Group operates.
The Group financial statements comprise a consolidation of 61 reporting units in 22 countries.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed by us,
as the Group engagement team, or component auditors from other PwC network firms operating under our instruction. 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 to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for
our opinion on the Group financial statements as a whole.
The Group’s operating reporting units vary significantly in size and we identified 29 reporting units that, in our view, required
an audit of their complete financial information, due to their size or risk characteristics. Specific audit procedures over certain
balances and transactions were performed at a further two reporting units, to give appropriate coverage of all material balances
at both divisional and Group levels. We conducted work in 10 countries and the Group engagement team visited multiple
reporting sites in the UK and North America.
Together, the reporting units subject to audit procedures were responsible for 81% of Group revenues and 85% of
Group adjusted profit before tax.
Further specific audit procedures over central functions and areas of significant judgement, including adjusting items, taxation,
goodwill, treasury, pension obligations and share-based payments, were performed at the local headquarters of each of the
divisions and at the Group’s Head Office.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and 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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
£4 million (2014: £4 million).
How we determined it
5% of profit before tax before those items which are identified as adjusting items set out
separately on the face of the consolidated income statement.
Rationale for benchmark applied
We believe that profit before tax adjusted for those items which are set out separately on the
face of the consolidated income statement provides us with a consistent year on year basis for
determining materiality, eliminating the volatility of their impact and applying our materiality
calculations to the reported profit on which the Group is normally measured.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.2 million
(2014: £0.2 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the Directors’ statement, set out on page 61, in relation to going concern.
We have nothing to report having performed our review.
As noted in the Directors’ statement, the Directors’ have concluded that it is appropriate to prepare the financial statements using
the going concern basis of accounting. The going concern basis presumes that the Group and 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.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s
and Company’s ability to continue as a going concern.
90
Premier Farnell
Independent auditors’ report to the members
of Premier Farnell Plc continued
Other required reporting
Consistency of other information
Companies Act 2006 opinions
In our opinion:
• 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; and
• the information given in the Corporate Governance Report set out on pages 40 to 43 with respect to internal control and risk
management systems and about share capital structures is consistent with the financial statements.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
• Information in the Annual Report is:
-- materially inconsistent with the information in the audited financial statements; or
-- apparently materially incorrect based on, or materially inconsistent with, our knowledge of
the Group and Company acquired in the course of performing our audit; or
We have no exceptions to report arising from
this responsibility.
-- otherwise misleading.
• the statement given by the Directors on page 60, in accordance with provision C.1.1 of the UK
Corporate Governance Code (“the Code”), 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 and Company’s performance, business model and strategy
is materially inconsistent with our knowledge of the Group and Company acquired in the
course of performing our audit.
• the section of the Annual Report on page 54, as required by provision C.3.8 of the Code,
describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We have no exceptions to report arising from
this responsibility.
We have no exceptions to report arising from
this responsibility.
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for
our audit have not been received from branches not visited by us; or
• the Company financial statements and the part of the Directors’ Remuneration Report to
We have no exceptions to report arising from
this responsibility.
be audited are not in agreement with the accounting records and returns.
Directors’ remuneration
Directors’ Remuneration Report – Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration
specified by law are not made. We have no exceptions to report arising from this responsibility.
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 Company. 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 Company’s
compliance with ten provisions of the UK Corporate Governance Code. We have nothing to report having performed our review.
Annual Report and Accounts 2014/15
91
Responsibilities for the financial statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’ responsibilities set out on pages 60 and 61, the Directors’ are responsible
for the preparation of the 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 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.
What an audit of financial statements involves
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:
• whether the accounting policies are appropriate to the Group’s and the Company’s circumstances and have been consistently
applied and adequately disclosed;
• the reasonableness of significant accounting estimates made by the Directors’; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own
judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide
a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report and Accounts (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.
Caroline Roxburgh (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors London
24 April 2015
92
Premier Farnell
Consolidated income statement
Financial year ended 1 February 2015
Note
Revenue
2014/15
£m
2013/14
£m
960.1
968.0
Cost of sales
(606.9)
(605.1)
Gross profit
353.2
362.9
1
Net operating expenses
– adjusted operating expenses
2
(265.2)
(269.9)
– adjusting items
2
(4.9)
(1.5)
Total net operating expenses
2
(270.1)
(271.4)
– adjusted operating profit
1
88.0
93.0
– adjusting items
2
(4.9)
Total operating profit
1
83.1
91.5
Finance income
3
0.7
0.4
– interest payable
3
(11.2)
(12.8)
– preference dividends
3
(2.9)
(3.5)
– premium on redemption of preference shares
3
(0.6)
(0.8)
Total finance costs
3
(14.7)
(17.1)
Profit before taxation
4
69.1
74.8
Taxation
5
(21.6)
(23.4)
47.5
51.4
Basic
12.9p
14.0p
Diluted
12.8p
13.9p
Operating profit
(1.5)
Finance costs
Profit attributable to owners of the parent
Earnings per share (pence)
6
The accounting policies and notes on pages 97 to 138 are an integral part of these consolidated financial statements.
93
Annual Report and Accounts 2014/15
Consolidated statement of
comprehensive income
Financial year ended 1 February 2015
Note
Profit for the year
2014/15
£m
2013/14
£m
47.5
51.4
(26.7)
(4.0)
7.8
0.7
(18.9)
(3.3)
Other comprehensive (expense)/income:
Items that will not be reclassified to profit or loss
Remeasurements of post-employment benefit obligations
26
Deferred tax credit on remeasurements of post-employment benefit obligations
18
Items that may be reclassified to profit or loss
Net exchange adjustments
Net fair value gains on cash flow hedges
Total other comprehensive expense for the year
Total comprehensive income for the year attributable to owners of the parent
19
0.3
(5.9)
0.2
6.0
0.5
0.1
(18.4)
(3.2)
29.1
48.2
The accounting policies and notes on pages 97 to 138 are an integral part of these consolidated financial statements.
94
Premier Farnell
Consolidated balance sheet
At 1 February 2015
Note
2015
£m
2014
£m
Goodwill
8
47.1
38.3
Other intangible assets
9
40.4
32.6
10, 26
1.0
0.8
Property, plant and equipment
11
52.3
49.5
Deferred tax assets
18
3.5
4.9
144.3
126.1
Assets
Non-current assets
Investments held at fair value
Total non-current assets
Current assets
Inventories
12
260.9
236.0
Derivative financial instruments
19
2.4
2.0
Trade and other receivables
13
142.5
128.9
0.5
2.1
Current tax receivable
Cash and cash equivalents
14
Total current assets
43.8
42.8
450.1
411.8
Liabilities
Current liabilities
Financial liabilities
15
(6.3)
(1.8)
Derivative financial instruments
19
(0.2)
–
Trade and other payables
17
(130.7)
(118.4)
(12.7)
(12.4)
Total current liabilities
(149.9)
(132.6)
Net current assets
300.2
279.2
Current tax payable
Non-current liabilities
Financial liabilities
15
(296.3)
(268.8)
Post-employment benefits
26
(70.7)
(45.1)
Deferred tax liabilities
18
(0.3)
(6.7)
(367.3)
(320.6)
77.2
84.7
Total non-current liabilities
Net assets
Equity
Ordinary shares
20
18.6
18.6
Equity element of preference shares
16
8.5
10.4
32.8
32.7
Capital redemption reserve
5.2
4.4
Hedging reserve
2.2
2.0
Cumulative translation reserve
17.3
17.0
Retained earnings
(7.4)
Share premium
Total equity
77.2
(0.4)
84.7
The consolidated financial statements on pages 92 to 138 were approved by the Board of Directors on 24 April 2015 and were
signed on its behalf by:
Mark Whiteling
Director
The accounting policies and notes on pages 97 to 138 are an integral part of these consolidated financial statements.
95
Annual Report and Accounts 2014/15
Consolidated statement of
changes in equity
Financial year ended 1 February 2015
Note
Equity at 3 February 2013
Equity
Ordinary element of
share preference
capital
shares
£m
£m
Capital
Share redemption
premium
reserve
£m
£m
Hedging
reserve
£m
18.5
10.4
32.0
4.4
(4.0)
Profit for the year
–
–
–
–
–
Other comprehensive income/
(expense):
–
–
–
–
Total comprehensive income
–
–
–
–
Cumulative
translation
reserve
£m
22.9
Retained
earnings
£m
Total
equity
£m
(12.0)
72.2
–
51.4
51.4
6.0
(5.9)
(3.3)
(3.2)
6.0
(5.9)
48.1
48.2
Transactions with owners:
– Ordinary dividends paid
7
–
–
–
–
–
–
(38.1)
(38.1)
– Ordinary share capital subscribed
20
0.1
–
0.7
–
–
–
–
0.8
– Share-based payments
21
–
–
–
–
–
–
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
Profit for the year
–
–
–
–
–
–
47.5
47.5
Other comprehensive income/
(expense):
–
–
–
–
0.2
0.3
(18.9)
(18.4)
Total comprehensive income
–
–
–
–
0.2
0.3
28.6
29.1
7
–
–
–
–
–
–
(38.2)
(38.2)
– Ordinary share capital subscribed
20
–
–
0.1
–
–
–
–
0.1
– Purchase of preference shares
16
Equity element
–
(1.9)
–
–
–
–
1.9
–
Transfer to non-distributable
reserves
–
–
–
0.8
–
–
(0.8)
–
–
–
–
–
–
–
1.5
1.5
0.1
0.8
–
–
(35.6)
(36.6)
32.8
5.2
2.2
17.3
(7.4)
77.2
Total transactions with owners
Equity at 2 February 2014
Transactions with owners:
– Ordinary dividends paid
– Share-based payments
Total transactions with owners
Equity at 1 February 2015
21
–
18.6
(1.9)
8.5
The accounting policies and notes on pages 97 to 138 are an integral part of these consolidated financial statements.
96
Premier Farnell
Consolidated statement of
cash flows
Financial year ended 1 February 2015
Note
2014/15
£m
2013/14
£m
23
78.8
80.4
0.7
0.4
(10.3)
(12.4)
(2.9)
(3.5)
Taxation paid
(17.4)
(17.5)
Net cash generated from operating activities
48.9
47.4
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Dividends paid on preference shares
Cash flows from investing activities
Acquisition of businesses
22
(7.8)
(2.2)
Net (outflow)/inflow from sale of property, plant and equipment
23
(0.6)
4.2
(6.2)
(5.1)
Purchase of property, plant and equipment
Purchase of intangible assets (computer software)
(14.5)
(12.7)
Net cash used in investing activities
(29.1)
(15.8)
20
0.1
0.8
Cash flows from financing activities
Issue of ordinary shares
Purchase of preference shares
16
(11.5)
Proceeds from bank loans
24
63.3
27.3
Repayment of bank loans
24
(35.1)
(108.6)
7
(38.2)
(38.1)
(21.4)
(118.6)
(1.6)
(87.0)
Dividends paid to ordinary shareholders
Net cash used in financing activities
Net decrease in cash, cash equivalents and bank overdrafts
24
Cash, cash equivalents and bank overdrafts at beginning of year
Exchange gains/(losses)
Cash, cash equivalents and bank overdrafts at end of year
14, 24
–
42.8
131.6
2.6
(1.8)
43.8
42.8
The accounting policies and notes on pages 97 to 138 are an integral part of these consolidated financial statements.
Annual Report and Accounts 2014/15
97
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 consolidated financial statements have been approved by the Board of Directors on 24 April 2015.
Basis of preparation
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRSs) 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 61, 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 1 February 2015
There are no IFRSs or IFRIC interpretations that are effective that have a material impact on the Group.
(b) New standards, amendments and interpretations issued but not effective for the year ended 1 February 2015 not
early adopted
There are no IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on
the Group.
Key sources of estimation and uncertainty
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:
The key sources of estimation uncertainty that have the most significant effect on the carrying value of assets and liabilities are:
• The estimation of the cost of pensions and other post-employment benefits (note 26);
• The estimation of the net realisable value of inventory (note 12);
• 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 21); and
• The estimation of deferred tax (note 18).
Basis of consolidation
The consolidated financial statements incorporate the results of the Company and each of its subsidiaries for the financial
year ended 1 February 2015, a 52 week period (financial year ended 2 February 2014: 52 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. A list of principal trading subsidiaries of the Group is shown in
note D of the Company financial statements.
Intra-group balances and transactions are eliminated on consolidation.
98
Premier Farnell
Accounting policies continued
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.
Segment reporting
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.
Foreign currency translation
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.
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.
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:
• 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.
When a foreign entity is sold, such translation differences are recognised in the income statement as part of the gain or loss
on sale.
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.
Revenue recognition
Revenue from the Group’s principal business segments is recognised on the following basis:
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.
99
Annual Report and Accounts 2014/15
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.
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.
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.
Research and development
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.
Property, plant and equipment
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.
Depreciation rates are principally as follows:
Freehold land
Freehold buildings
Plant and equipment
not depreciated
between 20 and 50 years
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.
100
Premier Farnell
Accounting policies continued
Intangible assets
Intangible assets are stated at cost less accumulated amortisation and impairment losses.
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.
Financial instruments
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 remeasurement 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.
Annual Report and Accounts 2014/15
101
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.
Employee benefits
Pensions
The Group operates both defined benefit and defined contribution pension plans.
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.
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 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.
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.
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.
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.
102
Premier Farnell
Accounting policies continued
Share-based payments
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, Share-based 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.
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.
Share capital and distribution of dividends
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.
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.
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.
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.
Annual Report and Accounts 2014/15
103
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
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.
104
Premier Farnell
Notes to the consolidated
financial statements
1 Segmental information
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).
The Marketing and Distribution Division (MDD) supports customers around the world who range from engineers to purchasing
professionals and electronics enthusiasts. MDD includes both the element14 businesses in Americas, Europe and Asia Pacific
as well as CPC and MCM.
The Industrial Products Division comprises Akron Brass, an innovator in life safety and the world leader in the manufacture of
high-performance components for fire-fighting.
2014/15
£m
2013/14
£m
Americas
333.1
347.1
Europe and Asia Pacific
436.4
435.9
Segment revenue
MDD
Other Distribution Businesses
Total MDD
Industrial Products Division
117.1
109.7
886.6
892.7
73.5
75.3
960.1
968.0
Revenues between business segments are not significant.
2014/15
2013/14
Before
adjusting
items
£m
Adjusting
items
(note 2)
£m
After
adjusting
items
£m
Before
adjusting
items
£m
Adjusting
items
(note 2)
£m
After
adjusting
items
£m
Americas
19.5
–
19.5
19.7
0.6
20.3
Europe and Asia Pacific
57.2
56.1
60.3
0.2
60.5
Other Distribution Businesses
11.7
11.7
12.1
–
12.1
Total MDD
88.4
Industrial Products Division
13.7
Head Office costs
(14.1)
88.0
Segment result
(operating profit)
MDD
(1.1)
–
(1.1)
87.3
92.1
0.8
92.9
13.7
14.0
–
14.0
(3.8)
(17.9)
(13.1)
(2.3)
(15.4)
(4.9)
83.1
93.0
(1.5)
91.5
–
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.
Segment depreciation
and amortisation
2014/15
£m
2013/14
£m
Americas
5.4
6.5
Europe and Asia Pacific
8.1
9.5
Other Distribution Businesses
0.5
0.4
14.0
16.4
1.3
1.3
15.3
17.7
MDD
Total MDD
Industrial Products Division
105
Annual Report and Accounts 2014/15
2015
£m
Segment assets
2014
£m
MDD
Americas
175.2
147.4
Europe and Asia Pacific
270.3
250.9
45.9
43.6
491.4
441.9
51.0
42.5
0.8
0.9
543.2
485.3
Other Distribution Businesses
Total MDD
Industrial Products Division
Head Office
Total segment assets
Unallocated assets
43.8
42.8
Derivative financial instruments
2.4
2.0
Current tax receivable
0.5
2.1
Deferred tax assets
3.5
4.9
Cash and cash equivalents
Investments held at fair value
1.0
0.8
594.4
537.9
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 non-current assets other than deferred tax assets by main
geographical area are split as follows:
Revenue
Non-current assets
2014/15
£m
2013/14
£m
2014/15
£m
2013/14
£m
Americas
438.4
450.9
50.4
34.4
UK
283.9
234.7
70.7
67.6
Rest of Europe and Asia Pacific
237.8
282.4
18.5
18.4
960.1
968.0
139.6
120.4
No one single customer accounts for more than 1.5% of revenue.
106
Premier Farnell
Notes to the consolidated
financial statements continued
2 Net operating expenses
2014/15
Distribution costs/(credit):
Administrative expenses
Research and development expenditure
Before
adjusting
items
£m
2013/14
Adjusting
items
£m
After
adjusting
items
£m
Before
adjusting
items
£m
Adjusting
items
£m
After
adjusting
items
£m
242.3
1.1
243.4
247.8
(0.8)
247.0
14.1
3.8
17.9
13.1
2.3
15.4
8.8
–
8.8
9.0
–
9.0
265.2
4.9
270.1
269.9
1.5
271.4
Adjusting items included within distribution costs comprise £1.3 million of restructuring costs, a £0.3 million net gain on US
property disposal and £0.1 million of acquisition costs (2013/14: 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 remeasurement of the fair value of contingent consideration, offset by
£1.6 million of restructuring costs).
Adjusting items included within administrative expenses comprise £3.8 million of restructuring costs (2013/14: £2.3 million of
restructuring costs).
Total restructuring costs of £5.1 million (2013/14: £3.9 million) were incurred during the current year, relating to the Group’s
global business re-organisation and comprise the cost of redundancies completed in the period and change programme costs
including consultancy in developing the proposed new organisational design. The net impact of restructuring costs after tax
was £3.6 million.
Acquisition costs of £0.1 million (2013/14: £nil) relate to the acquisition of AVID Technologies Inc (AVID) during the current
financial year (note 22). The net acquisition costs after tax were £0.1 million.
The £0.3 million net gain on US property disposal relates to savings on expenses incurred in the relocation of the MDD Americas
Head Office. The net gain after tax was £0.2 million.
Research and development (R&D) expenditure comprises product R&D expensed by the Industrial Products Division of £3.3
million (2013/14: £3.2 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 £5.5 million (2013/14: £5.8 million).
3 Net finance costs
Note
2014/15
£m
2013/14
£m
0.7
0.4
Finance income
– interest receivable on short-term deposits
Finance costs
– interest payable on bank borrowings
(2.9)
(2.0)
– other interest payable
(7.7)
(10.3)
– amortisation of arrangement fees
– preference dividend
16
– premium on redemption of preference shares
16
(0.6)
(0.5)
(2.9)
(3.5)
(0.6)
(0.8)
Total finance costs
(14.7)
(17.1)
Net finance costs
(14.0)
(16.7)
Other interest payable relates to US private placement notes.
107
Annual Report and Accounts 2014/15
4 Profit before taxation – analysis by nature
Profit before taxation is stated after charging/(crediting):
Note
2014/15
£m
2013/14
£m
Employee benefits expense
25
165.3
168.2
Depreciation of property, plant and equipment
11
7.2
7.4
9
8.1
10.3
23
–
(0.1)
5.5
6.1
Amortisation of intangible assets
Gain on sale of other property, plant and equipment
Operating lease rentals
– land and buildings
1.2
1.5
12
549.9
550.1
2
8.8
9.0
13
1.4
1.4
1.4
1.1
– other
Cost of inventories recognised as an expense (included in cost of sales)
Research and development expenditure
Impairment of trade receivables
Exchange losses (except those arising on financial instruments)
Adjusting items:
Restructuring costs
2
5.1
3.9
Net gain on US property disposal
2
(0.3)
(1.6)
Acquisition costs
2
0.1
–
Remeasurement of contingent consideration
2
–
(0.8)
4.9
1.5
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditor as
detailed below:
2014/15
£m
2013/14
£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
0.1
0.2
Audit services
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:
Other services
0.1
0.1
0.9
1.0
The fee for audit services shown above includes £0.1 million (2013/14: £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.
108
Premier Farnell
Notes to the consolidated
financial statements continued
5 Taxation
2014/15
£m
2013/14
£m
18.5
17.9
0.3
(0.4)
18.8
17.5
– current year
3.0
5.4
– adjustment in respect of prior years
(0.2)
0.5
2.8
5.9
Total tax charge
21.6
23.4
Note
Current taxation charge
– current year
– adjustment in respect of prior years
Deferred taxation charge
18
Tax on items charged directly to equity/other comprehensive income:
– deferred tax credit on actuarial losses
(7.8)
(0.7)
The overall tax for the financial year can be reconciled to the rate of corporation tax in the UK of 21.3% (2013/14: 23.2%)
as follows:
Profit before taxation
Preference dividends
Profit before tax and preference dividends
Profit before tax and preference dividends multiplied by 21.3% (2013/14: 23.2%)
2014/15
£m
2013/14
£m
69.1
74.8
2.9
3.5
72.0
78.3
2014/15
£m
2013/14
£m
15.4
18.2
Effect of prior year adjustments
0.1
0.1
Adjustments in respect of foreign tax rates
3.7
3.5
Other current year items
2.4
1.6
21.6
23.4
Total tax charge
Factors affecting current and future tax charges:
During the year, the UK main corporation tax rate was reduced from 23% to 21% from 1 April 2014, with a further reduction to
20% from 1 April 2015 substantively enacted in July 2013. Deferred tax balances were remeasured in the 2014 statements and
remain at the 20% rate for 2015. No further reductions to the UK corporation tax rate have been announced since July 2013.
109
Annual Report and Accounts 2014/15
6 Earnings per share
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 20). 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.
Reconciliations of earnings and the weighted average number of ordinary shares used in the calculations are set out below:
2014/15
Earnings
£m
Basic
earnings
per share
pence
Diluted
earnings
per share
pence
47.5
12.9
5.1
Profit attributable to owners of the parent
Restructuring costs
Tax attributable to restructuring costs
Acquisition costs
Tax attributable to acquisition costs
Net gain on US property disposal
Tax attributable to net gain on US property disposal
Remeasurement of contingent consideration
Profit attributable to owners of the parent before
adjusting items
2013/14
Earnings
£m
Basic
earnings
per share
pence
Diluted
earnings
per share
pence
12.8
51.4
14.0
13.9
1.4
1.4
3.9
1.1
1.1
(1.5)
(0.4)
(0.4)
(1.1)
(0.3)
(0.3)
0.1
–
–
–
–
–
–
–
–
–
–
–
(0.3)
(0.1)
(0.1)
(1.6)
(0.4)
(0.4)
0.1
–
–
0.6
0.1
0.1
–
–
–
(0.8)
(0.2)
(0.2)
51.0
13.8
13.7
52.4
14.3
14.2
Adjusted earnings per share have been provided in order to facilitate year-on-year comparison.
2014/15
Number
2013/14
Number
367,511,796
367,069,378
1,498,900
2,763,398
369,010,696
369,832,776
2014/15
£m
2013/14
£m
Interim paid of 4.4p (2013/14: 4.4p) per share
16.2
16.1
Prior year final paid of 6.0p (2013/14: 6.0p) per share
22.0
22.0
38.2
38.1
Weighted average number of shares
Dilutive effect of share options
Diluted weighted average number of shares
7 Ordinary dividends paid during the year
Ordinary dividends paid during the year were as follows:
Dividends amounting to £0.4 million (2013/14: £0.5 million) in respect of the Company’s ordinary shares held by the Premier
Farnell Executive Trust (note 20) 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 1 February 2015 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 1 February 2015. Once approved, the final dividend will be paid on 25 June 2015 to shareholders on the register
of members on 29 May 2015.
110
Premier Farnell
Notes to the consolidated
financial statements continued
8 Goodwill
£m
Cost and net book value
At 3 February 2013
37.9
Acquisition of business (note 22)
0.7
Currency translation adjustment
At 2 February 2014
(0.3)
38.3
Acquisition of business (note 22)
7.4
Currency translation adjustment
1.4
At 1 February 2015
47.1
Of the total goodwill at 1 February 2015 of £47.1 million, £8.3 million relates to MDD Americas, £33.8 million to MDD Europe and
Asia Pacific, £0.1 million to MDD Other Distribution Businesses and £4.9 million to the IPD business.
In accordance with IAS 36, goodwill of £26.6 million (2014: £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).
The recoverable amounts have been measured based on value in use.
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:
• 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% (2014: 2.5%);
• gross margins were projected based on recent trends; and
• a market risk premium, of 4.0% (2014: 5.0%), was used in calculating the weighted average cost of capital.
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.
The pre-tax cash flows that these projections produce have been discounted at a pre-tax discount rate of 12.1% (2014: 11.9%).
No impairment arose during the current financial year as a result of this test. The remaining goodwill of £20.5 million (2014: £11.7
million) is allocated across six (2014: 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.
The Directors believe there are no reasonably possible changes to a key assumption which would give rise to an impairment charge.
111
Annual Report and Accounts 2014/15
9 Other intangible assets
Computer
software
£m
Other
£m
Total
£m
138.2
10.3
148.5
12.6
–
12.6
Cost
At 3 February 2013
Additions
Currency translation adjustment
(3.3)
(0.1)
(3.4)
147.5
10.2
157.7
Additions
14.5
–
14.5
Disposals
(4.3)
–
(4.3)
At 2 February 2014
Currency translation adjustment
6.7
0.4
7.1
164.4
10.6
175.0
113.7
3.8
117.5
Charge for the year
9.5
0.8
10.3
Currency translation adjustment
(2.7)
–
(2.7)
At 2 February 2014
120.5
4.6
125.1
Charge for the year
7.5
0.6
8.1
Disposals
(4.3)
–
(4.3)
Currency translation adjustment
5.6
0.1
5.7
129.3
5.3
134.6
At 1 February 2015
Accumulated amortisation
At 3 February 2013
At 1 February 2015
Net book amounts
At 1 February 2015
35.1
5.3
40.4
At 2 February 2014
27.0
5.6
32.6
At 3 February 2013
24.5
6.5
31.0
Amortisation of £8.1 million (2013/14: £10.3 million) is included in operating expenses.
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 £7.0 million (2013/14:
£6.7 million) of internal labour was capitalised.
Commitments to acquire intangible assets authorised and contracted at 1 February 2015 amounted to £nil million (2014: £0.5 million).
Other intangible assets relate to the following items acquired through business combinations:
2015
£m
2014
£m
Useful life
Contractually based customer relationships and trade names
5.2
5.5
9–20 years
Patents
0.1
0.1
16–20 years
5.3
5.6
112
Premier Farnell
Notes to the consolidated
financial statements continued
10 Investments held at fair value
Listed fixed income and equity funds
2015
£m
2014
£m
1.0
0.8
The Group has £1.0 million (2014: £0.8 million re-presented) of assets held in Trust on behalf of certain US employees as post
employment benefits. The assets are primarily invested in fixed income and equity funds under each employee’s instructions.
Further details are given in note 26.
11 Property, plant and equipment
Freehold
land and
buildings
£m
Plant and
equipment
£m
Total
£m
Cost
59.1
111.6
170.7
Additions
At 3 February 2013
0.1
5.0
5.1
Disposals (note 23)
(7.2)
(2.6)
(9.8)
Currency translation adjustment
(2.3)
(4.3)
(6.6)
At 2 February 2014
49.7
109.7
159.4
Additions
3.4
5.8
9.2
Disposals (note 23)
(0.7)
(19.8)
(20.5)
Currency translation adjustment
2.5
3.0
5.5
54.9
98.7
153.6
At 3 February 2013
25.6
90.0
115.6
Charge for the year
1.3
6.1
7.4
Disposals (note 23)
(6.5)
(1.8)
(8.3)
Currency translation adjustment
(1.0)
(3.8)
(4.8)
At 2 February 2014
19.4
90.5
109.9
Charge for the year
1.2
6.0
7.2
Disposals (note 23)
(0.3)
(19.4)
(19.7)
Currency translation adjustment
1.8
2.1
3.9
22.1
79.2
101.3
At 1 February 2015
Accumulated depreciation
At 1 February 2015
Net book amounts
At 1 February 2015
32.8
19.5
52.3
At 2 February 2014
30.3
19.2
49.5
At 3 February 2013
33.5
21.6
55.1
Capital commitments authorised and contracted at 1 February 2015 amounted to £0.5 million (2014: £0.5 million). The Group has
no significant assets held under finance leases.
113
Annual Report and Accounts 2014/15
12 Inventories
2015
£m
2014
£m
Raw materials
9.7
4.2
Work in progress
8.4
6.6
242.8
225.2
260.9
236.0
Finished goods and goods for resale
The cost of inventory recognised as an expense and included in cost of sales amounted to £549.9 million (2013/14: £550.1 million).
During the current financial year £2.1 million (2013/14: £2.3 million) was recognised as an expense relating to the write-down of
inventory to net realisable value.
13 Trade and other receivables
Trade receivables
Less: provision for impairment
Net trade receivables
Other receivables
Prepayments and accrued income
2015
£m
2014
£m
127.1
116.4
(4.3)
(4.1)
122.8
112.3
3.2
3.3
16.5
13.3
142.5
128.9
2015
£m
2014
£m
108.9
99.9
12.9
12.4
5.3
4.1
127.1
116.4
Trade receivables can be analysed as follows:
Not past due
Past due but not impaired
Past due and impaired
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:
2015
£m
2014
£m
Up to one month past due
9.4
9.2
Between one and two months past due
2.9
2.6
Over two months past due
0.6
0.6
12.9
12.4
114
Premier Farnell
Notes to the consolidated
financial statements continued
The movement in the provision for impairment of trade receivables can be reconciled as follows:
2014/15
£m
2013/14
£m
Provision brought forward
4.1
4.6
Provision for impairment
1.4
1.4
Amounts written off
(0.6)
(0.8)
Provision released
(0.5)
(0.9)
Exchange movement
(0.1)
(0.2)
Provision carried forward
4.3
4.1
2015
£m
2014
£m
Sterling
31.4
30.8
US dollars
65.8
55.8
Euro
27.7
26.7
The carrying amounts of trade and other receivables are denominated in the following currencies:
Other
17.6
15.6
142.5
128.9
The fair value of trade and other receivables is approximate to their carrying value.
14 Cash and cash equivalents
Cash and cash equivalents comprise balances at bank and short term deposits repayable on demand and available within one
day without penalty.
15 Financial liabilities
Note
2015
£m
2014
£m
6.3
1.8
66.4
39.2
–
51.8
Current
Current borrowings
Non-current
Bank loans
3.0% US dollar Guaranteed Senior Notes payable 2016
5.2% US dollar Guaranteed Senior Notes payable 2017
20.0
18.3
4.4% US dollar Guaranteed Senior Notes payable 2018
38.8
35.5
4.8% US dollar Guaranteed Senior Notes payable 2021
60.7
55.4
4.0% US dollar Guaranteed Senior Notes payable 2024
56.5
–
1.4
5.2
243.8
205.4
52.5
63.4
296.3
268.8
Other loans
Non-current borrowings
Preference shares
16
The above current and non-current borrowings are unsecured. Further details of the Group’s borrowing facilities are given in
note 19.
115
Annual Report and Accounts 2014/15
Current and non-current borrowings and preference shares are repayable as follows:
Within one year
2015
£m
2014
£m
6.3
1.8
Between one and two years
52.6
4.0
Between two and five years
125.6
208.4
After five years
118.1
56.4
302.6
270.6
During the year, the available multi-currency revolving credit facilities were increased by £50 million (note 19).
16 Preference shares
Cumulative, convertible, redeemable preference shares of £1 each.
Authorised
Allotted and fully paid
2015
Number
2014
Number
32,000,000
32,000,000
3,236,471
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:
Equity
element
£m
Debt
element
£m
10.4
63.4
–
0.6
Purchase of preference shares
(1.9)
(11.5)
At 1 February 2015
8.5
52.5
At 2 February 2014
Premium on redemption
During the year the Company purchased and cancelled 712,948 of its preference shares at a total cash cost of £11.5 million.
Based on the book value and fair value of the instrument at the date of purchase, the financial liability element of the preference
shares was reduced by £11.5 million and the equity element by £1.9 million.
There was no difference between the book value and fair value of the financial liability element at the date of purchase thus £nil
gain or loss was recognised. A transfer from retained earnings of £0.8 million to non-distributable reserves was made in order to
maintain the legal nominal value of share capital.
Preference dividends paid
2014/15
£m
2013/14
£m
2.9
3.5
At 1 February 2015, the preference shares comprised 96,172 (2014: 107,682) US$1.35 cumulative, convertible, redeemable
preference shares of £1 each (the “US preference shares”) and 3,140,299 (2014: 3,841,737) 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:
116
Premier Farnell
Notes to the consolidated
financial statements continued
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
117
Annual Report and Accounts 2014/15
17 Trade and other payables
Trade payables
Payroll and other taxes
Other payables
Accruals and deferred income
2015
£m
2014
Re-presented
(note 26)
£m
79.9
70.4
6.2
7.0
3.4
4.4
41.2
36.6
130.7
118.4
2014/15
£m
2013/14
£m
18 Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method.
The movement on the net deferred tax asset/(liability) is as follows:
Brought forward
(1.8)
1.2
Charge for the year (note 5)
(2.8)
(5.9)
–
2.2
Credited to other comprehensive expense (employee benefits)
7.8
0.7
Carried forward
3.2
(1.8)
Reclassification from current tax payable
Comprising:
Non-current assets
3.5
4.9
Non-current liabilities
(0.3)
(6.7)
3.2
(1.8)
The deferred tax charge for the year comprises the following:
2014/15
£m
2013/14
£m
Accelerated tax depreciation
2.3
0.9
Employee benefits
2.3
1.7
–
(0.1)
Fair value of intangible assets
Preference shares
(0.3)
(0.2)
Tax losses
0.3
2.2
Other temporary differences
(1.8)
1.4
2.8
5.9
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 year end 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.
118
Premier Farnell
Notes to the consolidated
financial statements continued
Liabilities
Assets
2015
£m
2014
£m
(13.4)
(11.1)
–
–
–
13.8
Fair value of property, plant and equipment acquired
(1.3)
(1.3)
–
Fair value of intangible assets acquired
(1.0)
(1.0)
–
Preference shares
(0.2)
(0.5)
–
–
Accelerated tax depreciation
Employee benefits
Tax losses
Other temporary differences
2015
£m
Net
2015
£m
2014
£m
–
(13.4)
(11.1)
8.3
13.8
8.3
–
(1.3)
(1.3)
–
(1.0)
(1.0)
–
–
(0.2)
(0.5)
1.0
1.3
1.0
1.3
2014
£m
(1.3)
(2.0)
5.6
4.5
4.3
2.5
(17.2)
(15.9)
20.4
14.1
3.2
(1.8)
£3.5 million (2014: £4.9 million) of the deferred tax assets were not available for offset against deferred tax liabilities and have
therefore been included within non-current assets.
19 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. During
the year the Group refinanced its bank borrowing facilities with the amendment and extension of its multi-currency revolving
facilities to £250 million expiring in September 2019, carrying a LIBOR based floating rate of interest. At 1 February 2015 the
Group’s headroom on this facility was £181.2 million (2014: £159.5 million on a £200 million facility).
• during the year the Group also refinanced US$85 million US private placement notes repayable in August 2016 to September 2024.
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 1 February 2015 and 2 February 2014 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. 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 (2013/14: £0.1 million). 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 £0.3 million lower/higher (2013/14:
£0.2 million).
119
Annual Report and Accounts 2014/15
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.
If the average US dollar rate against the pound sterling was higher/lower 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 £0.4 million lower/higher as a result of a similar one cent change at 1 February 2015.
If the average Euro rate against the pound sterling was higher/lower by one cent, with all other variables held constant,
operating profit for the year would have been £0.4 million lower/higher, mainly due to the translation of overseas results.
Net assets would have been £0.1 million lower/higher as a result of a similar one cent change at 1 February 2015.
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.
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 26). 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 1.7 (2014: 1.8).
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.
3) Derivative financial instruments
2015
Current
assets
£m
Current
liabilities
£m
2014
Current
assets
£m
Current
liabilities
£m
Forward foreign exchange contracts
Cash flow hedges relating to trade transactions
2.4
(0.2)
2.0
–
2.4
(0.2)
2.0
–
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.
During the financial year ended 1 February 2015, £3.6 million net fair value gains were recognised in other comprehensive
income (2013/14: £1.7 million net fair value gains). Gains of £3.4 million (2013/14: £4.3 million losses) have been transferred to
cost of sales for contracts which matured during the year.
Hedge of net investment in foreign subsidiaries
The Group’s US dollar denominated private placement notes of US$265 million (2014: US$265 million) 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.
120
Premier Farnell
Notes to the consolidated
financial statements continued
4) Fair values
The category, book values, and fair values of the Group’s financial instruments are as follows:
At 1 February 2015
Loans and
receivables
£m
Financial liabilities Assets at fair value
measured at through profit and
amortised cost
loss
£m
£m
Derivatives at fair
value used for cash
flow hedging
£m
Total
£m
Fair value
£m
Non-current assets
–
–
1.0
–
1.0
1.0
–
–
–
2.4
2.4
2.4
Trade and other receivables
126.0
–
–
–
126.0
126.0
Cash and cash equivalents
43.8
–
–
–
43.8
43.8
Financial liabilities
–
(6.3)
–
–
(6.3)
(6.3)
Derivative financial instruments
–
–
–
(0.2)
(0.2)
(0.2)
Trade and other payables
–
(129.9)
(0.8)
–
(130.7)
(130.7)
Bank and other loans
–
(67.8)
–
–
(67.8)
(67.5)
Private placement notes
–
(176.0)
–
–
(176.0)
(184.6)
Preference shares
–
(52.5)
–
–
(52.5)
(52.0)
169.8
(432.5)
0.2
2.2
(260.3)
(268.1)
Investments held at fair value
Current assets
Derivative financial instruments
Current liabilities
Non-current liabilities
Total
121
Annual Report and Accounts 2014/15
Loans and
receivables
£m
Financial liabilities
measured at
amortised cost
£m
Assets at fair value
through profit
and loss
£m
Derivatives at
fair value used for
cash flow hedging
£m
Total
£m
Fair
value
£m
–
–
0.8
–
0.8
0.8
–
–
–
2.0
2.0
2.0
Trade and other receivables
115.6
–
–
–
115.6
115.6
Cash and cash equivalents
42.8
–
–
–
42.8
42.8
Current borrowings
–
(1.8)
–
–
(1.8)
(1.8)
Trade and other payables
–
(117.7)
(0.7)
–
(118.4)
(118.4)
At 2 February 2014
Non-current assets
Investments held at fair value
Current assets
Derivative financial instruments
Current liabilities
Non-current liabilities
Bank and other loans
–
(44.4)
–
–
(44.4)
(44.2)
Private placement notes
–
(161.0)
–
–
(161.0)
(165.2)
Preference shares
–
(63.4)
–
–
(63.4)
(63.1)
158.4
(388.3)
0.1
2.0
(227.8)
(231.5)
Total
Prepayments are excluded from trade and other receivables balance, as this analysis is required only for financial instruments.
The main methods and assumptions used in estimating the fair values of financial instruments are as follows:
• investments held at fair value: are valued using listed market prices. The fair values are within Level 1 of the fair value
hierarchy;
• derivatives: forward exchange contracts are marked to market using listed market prices. The fair values are within Level 2
of the fair value hierarchy;
• 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;
• 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 4.0–5.2%. The fair value is based on discounted future principal
and interest cash flows, using discount rates of 3.0– 5.1% 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;
• 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; and
• contingent consideration: the fair value measurements are included in note 22.
At 1 February 2015, cash and cash equivalents are subject to offsetting and enforceable master pooling arrangements and is
presented in the consolidated balance sheet as a net amount of £43.8m.
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);
• inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
122
Premier Farnell
Notes to the consolidated
financial statements continued
The following table presents the Group’s assets and liabilities that are measured at fair value.
Level 1
£m
Level 2
£m
Level 3
£m
Total
balance
£m
Investments held at fair value
1.0
–
–
1.0
Derivatives used for hedging
–
2.4
–
2.4
Derivatives used for hedging
–
(0.2)
–
(0.2)
Contingent consideration
–
–
(0.8)
(0.8)
1.0
2.2
(0.8)
2.4
Level 1
£m
Level 2
£m
Level 3
£m
Total
balance
£m
At 1 February 2015
Assets
Liabilities
Net assets/(liabilities)
At 2 February 2014
Assets
Investments held at fair value
0.8
–
–
0.8
Derivatives used for hedging
–
2.0
–
2.0
–
–
–
–
Liabilities
Derivatives used for hedging
Contingent consideration
Net assets/(liabilities)
–
–
(0.7)
(0.7)
0.8
2.0
(0.7)
2.1
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.
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.
Less
than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over
5 years
£m
13.8
9.4
151.3
136.3
2.9
53.5
–
–
Less
than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over
5 years
£m
Borrowings
9.0
11.7
163.7
65.3
Preference shares
3.5
3.5
65.1
–
At 1 February 2015
Borrowings
Preference shares
At 2 February 2014
123
Annual Report and Accounts 2014/15
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 fair value of derivative instruments
covering trading cash flows is included, as these contracts are managed on a net fair value basis.
At 1 February 2015
Less
than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over
5 years
£m
(0.2)
–
–
–
2.4
–
–
–
Less than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over
5 years
£m
–
–
–
–
2.0
–
–
–
2015
Nominal
value
£m
2014
Nominal
value
£m
25.0
25.0
18.6
18.5
Forward foreign exchange contracts
– cash flow hedges
Outflow
Inflow
At 2 February 2014
Forward foreign exchange contracts
– cash flow hedges
Outflow
Inflow
20 Ordinary shares
Group and Company
Authorised
500,000,000 ordinary shares of 5p each (2014: 500,000,000)
Allotted, called up and fully paid
At 2 February 2014 (371,222,670 shares)
Allotted under share option schemes (109,797 shares)
At 1 February 2015 (371,332,467 shares)
–
0.1
18.6
18.6
Allotments during the year
On various dates during the year, allotments were made under the Company’s Executive Share Option Plans totalling 109,797
(2013/14: 845,043) ordinary shares with a nominal value of £5,490 (2013/14: £42,252) for a cash consideration of £0.1 million
(2013/14: £0.8 million).
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 62. 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 10 years from the date of grant.
124
Premier Farnell
Notes to the consolidated
financial statements continued
At 1 February 2015, the aggregate number of shares covered by options under the Company’s Executive Share Option Scheme
is 11,822,381 (2014: 11,151,607) and the total potential consideration is £22.7 million (2014: £21.7 million). The following table
summarises information about these options:
Range of exercise prices
£1.00 – £2.00
£2.00 – £3.00
2015
Number
2015
Weighted average
remaining
contractual
life (years)
7,879,665
7.9
2014
Weighted average
remaining
2014
contractual
Number
life (years)
6,275,951
7.9
3,942,716
7.6
4,875,656
8.4
11,822,381
7.8
11,151,607
8.1
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 2015 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 62.
At 1 February 2015, the aggregate number of outstanding shares covered by grants under the PSP was 2,479,856 (2014:
2,354,527) as follows:
Number of ordinary shares
Date of grant
2015
2014
April 2006
7,759
8,918
April 2008
18,983
27,390
July 2011
–
626,434
July 2012
707,404
780,773
December 2012
105,191
105,191
June 2013
656,986
805,821
September 2014
983,533
–
2,479,856
2,354,527
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.
125
Annual Report and Accounts 2014/15
At 1 February 2015, the aggregate number of shares covered by the grants under the DSBP was 739,160 (2014: 566,212)
as follows:
Number of shares outstanding
Date of grant
Vesting date
2015
2014
March 2011
March 2013
–
78,934
March 2014
–
171,217
September 2014
–
1,363
April 2013
April 2015
276,737
311,352
June 2013
June 2015
–
3,346
April 2014
April 2017
462,423
–
739,160
566,212
March 2012
September 2012
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 128,288 (2013/14: 128,591) shares vested under the plan, nil (2013/14: 264,425) shares were granted under
the plan, nil (2013/14: nil) shares lapsed under the plan and 6,593 (2013/14: nil) shares were cancelled under the plan.
At 1 February 2015, there were 31,596 (2014: 166,477) outstanding ordinary shares granted under the plan of which 31,596 vest
in the financial year ending 31 January 2016 and nil vest in the financial year ending 31 January 2017.
Number of shares outstanding
Date of grant
Vesting date
2015
2014
April 2012
April 2014
–
6,855
April 2012
April 2015
–
9,140
March 2013
April 2014
–
9,772
March 2013
April 2015
9,772
9,772
June 2013
July 2014
–
65,466
June 2013
July 2015
21,824
65,472
31,596
166,477
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 they 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.
At 1 February 2015, the aggregate number of shares covered by options under the Company’s SAYE option scheme is 1,281,848
(2014: 1,038,284) and the total potential consideration of £2.3 million (2014: £1.8 million) is made up as follows:
Number of shares outstanding
Date of grant
Option price
2015
2014
April 2009
102p
–
84,992
April 2010
173p
53,203
62,191
April 2011
222p
23,748
136,725
April 2012
176p
310,564
365,167
April 2013
178p
323,332
389,209
April 2014
188p
571,001
–
1,281,848
1,038,284
126
Premier Farnell
Notes to the consolidated
financial statements continued
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 2,949 of the Company’s ordinary shares (2013/2014: 404,677) and the
Trust used 402,630 (2013/14: 1,511,278) ordinary shares to satisfy vesting conditions under the Company’s option schemes.
At 1 February 2015, the Trust held 3,862,021 (2014: 4,261,702) ordinary shares with a total nominal value of £193,101 (2014:
£213,085) and a total market value of £6.6 million (2014: £9.3 million).
Reconciliation of option movements during the year
A reconciliation of option movements under the ESOP and SAYE is as follows:
Number
(’000)
2014/15
2013/14
Weighted average
exercise
price
Number
(’000)
Weighted
average
exercise
price
12,190
£1.92
10,752
£1.92
Granted
3,554
£1.88
4,248
£1.98
Forfeited
(2,416)
£1.96
(2,358)
£2.03
Exercised
(107)
£1.23
(440)
£1.82
Cancelled
(20)
£1.95
(12)
£2.08
Expired
(97)
£2.08
–
–
End of year
13,104
£1.91
12,190
£1.92
Exercisable
3,088
£2.08
1,624
£2.29
Beginning of year
Weighted average remaining contractual life (years)
7.2
8.1
The weighted average share price at the date of exercise for share options exercised during the year was £2.14 (2014: £2.15).
Reconciliation of share award movements during the year
A reconciliation of movements in awards under the PSP and DSBP is as follows:
Number of awards (’000s)
2014/15
2013/14
Beginning of year
2,921
3,950
Granted
1,510
1,194
Exercised
(296)
(1,405)
Forfeited
(916)
(818)
End of year
3,219
2,921
Exercisable
27
36
Weighted average remaining contractual life (years)
1.7
2.4
127
Annual Report and Accounts 2014/15
21 Share-based payments
The total charge for share-based payments was £1.5 million (2013/14: £1.6 million) all of which related to equity-settled
transactions. After tax, the total charge was £1.8 million (2013/14: £2.5 million).
The fair value of the Company’s principal grants made in the year and the assumptions used in the calculations are as follows:
2014/15
Plan
ESOP
PSP
DSBP
EPS/ROS/none
EPS/ROS
n/a
n/a
24/9/14
24/9/14
8/4/14
2/5/14
Share price at grant date
£1.90
£1.90
£2.34
£2.25
Exercise price
£1.90
n/a
n/a
£1.88
Primary performance condition
Grant date
Number granted
Option pricing model
Vesting period (years)
Expected volatility
Contractual life (years)
SAYE 3yr/5yr
2,901,283
983,533
526,738
553,793/99,242
Black Scholes
Black Scholes
Black Scholes
Black Scholes
3
3
2
3/5
35%
35%
35%
35%
10
3
2
3.5/5.5
Correlation with comparators
n/a
n/a
n/a
n/a
Risk free rate
n/a
1.3%
n/a
1.2%/1.9%
Dividend yield
5.7%
5.7%
4.4%
4.6%
Fair value per instrument
£0.40
£1.61
£2.14
£0.54/£0.58
2013/14
Plan
Primary performance condition
Grant date
ESOP
PSP
DSBP
SAYE 3yr/5yr
EPS/RoS/none
EPS/RoS
n/a
n/a
28/6/13
28/6/13
19/4/13
19/4/13
Share price at grant date
£2.00
£2.00
£2.03
£2.03
Exercise price
£2.00
n/a
n/a
£1.78
Number granted
Option pricing model
Vesting period (years)
Expected volatility
Contractual life (years)
3,804,842
855,650
338,773
389,366/53,584
Black Scholes
Black Scholes
Black Scholes
Black Scholes
3
3
2
3/5
35%
35%
35%
35%
3.5/5.5
10
3
2
Correlation with comparators
n/a
n/a
n/a
n/a
Risk free rate
n/a
0.7%
n/a
0.3%/0.7%
Dividend yield
5.1%
5.1%
5.1%
5.1%
Fair value per instrument
£0.43
£1.72
£1.87
£0.42/£0.44
The expected volatility is based on historical volatility over the last 10 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.
128
Premier Farnell
Notes to the consolidated
financial statements continued
22 Businesses acquisitions and disposals
Acquisitions
On 17 April 2014, the Group acquired the trade and assets of AVID Technologies Inc (AVID), a full service product
development business.
This strategic acquisition enhances the Group’s technology capability at the front end of the electronics design cycle, supporting
suppliers’ new product introduction strategies and extending the Group’s business model.
The following table summarises the consideration paid for the trade and assets of AVID and the fair value of assets acquired and
liabilities assumed at the acquisition date.
Recognised amounts of identifiable assets acquired and liabilities assumed
£m
Inventory
0.3
Trade and other receivables
0.7
Trade and other payables
(0.7)
Total identifiable net assets
0.3
Goodwill
7.4
Total
7.7
Total consideration (cash)
7.7
Acquisition costs of £0.1 million have been charged to operating expenses in the consolidated income statement for the current
financial year ended 1 February 2015, and have been included as an adjusting item separately disclosed on the face of the
income statement (note 2).
The fair value of trade and other receivables acquired was £0.7 million and included trade receivables with a fair value of £0.6
million. The gross contractual amount for trade receivables due was £0.6 million. No other material assets or liabilities were
separately identified.
The goodwill of £7.4 million arising from the acquisition, which cannot be directly attributed to identifiable assets and liabilities
acquired, is underpinned by a number of elements, including the strategic premium attributed to the existing, well-positioned
business, highly skilled workforce and established reputation in the electronics design and product development sector. Other
elements of this goodwill include the strengthening and expansion of the Group’s strategic customer and supplier proposition,
the opportunity to leverage the insights from AVID’s design opportunities to support the Group’s strategic programmes within
its distribution businesses and the scope to develop AVID’s customer base through the existing Service Agreement relationships
the Group has with certain suppliers. All of the goodwill is expected to be deductible for tax purposes.
The trading results of AVID 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.
Acquisitions in prior year
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. 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.
Cash consideration of less than £0.1 million was payable in relation to the fair value of identifiable net assets acquired.
129
Annual Report and Accounts 2014/15
23 Cash generated from operations
2014/15
£m
2013/14
£m
47.5
51.4
5
21.6
23.4
11
7.2
7.4
– amortisation of intangible assets
9
8.1
10.3
– net gain on sale of US property
2
(0.3)
(1.6)
–
(0.1)
Note
Profit after tax
Adjustment for:
– tax
– depreciation
– gain on sale of other property, plant and equipment
16
2.9
3.5
– interest income
3
(0.7)
(0.4)
– interest expense
3
11.2
12.8
16
0.6
0.8
(4.5)
(2.6)
– preference dividends
– premium on redemption of preference shares
– additional funding for post-retirement defined benefit plans (UK plan)
– increase in net pension liability (US plan)
– decrease in other post-retirement obligations
– share-based payments
21
– non-cash impact of restructuring costs
– non-cash impact of remeasurement of contingent consideration
– non-cash impact of acquisition costs
– non-cash impact of US property disposal
0.9
1.0
(0.3)
(0.3)
1.5
1.6
(1.5)
(2.3)
–
(0.8)
0.1
–
(0.4)
–
(14.1)
(25.8)
(9.7)
(3.5)
Changes in working capital:
– increase in inventories
– increase in trade and other receivables
8.7
5.6
78.8
80.4
Note
2014/15
£m
2013/14
£m
11
0.8
1.5
0.3
1.6
– increase in trade and other payables
Total cash generated from operations
Proceeds from the sale of property, plant and equipment comprise:
Net book value
Net gain on sale of US property (included within adjusting items)
(Loss)/gain on sale of other property, plant and equipment (included within adjusting items)
(0.8)
0.1
Non-cash impact of US property disposal costs
(0.9)
1.0
Net proceeds
(0.6)
4.2
130
Premier Farnell
Notes to the consolidated
financial statements continued
24 Analysis of changes in net debt
Cash
and cash
equivalents
£m
Loans
due within
one year
£m
Loans
due after
one year
£m
Preference
shares
£m
Derivative
financial
instruments
£m
131.6
(102.8)
(193.6)
(62.6)
(2.2)
(229.6)
(87.0)
–
–
–
–
(87.0)
Increase in debt
–
(0.3)
(27.0)
–
–
(27.3)
Repayment of borrowings
–
101.6
7.0
–
–
108.6
Premium on redemption of preference shares
–
–
–
(0.8)
–
(0.8)
Derivative financial instruments
–
–
–
–
4.2
4.2
Amortisation of arrangement fees
–
–
(0.5)
–
–
(0.5)
At 3 February 2013
Net decrease in cash, cash equivalents and
bank overdrafts
Exchange movement
Net
financial
liabilities
£m
(1.8)
(0.3)
8.7
–
–
6.6
42.8
(1.8)
(205.4)
(63.4)
2.0
(225.8)
(1.6)
–
–
–
–
(1.6)
Increase in debt
–
(4.4)
(58.9)
–
–
(63.3)
Repayment of borrowings
–
–
35.1
–
–
35.1
Premium on redemption of preference shares
–
–
–
(0.6)
–
(0.6)
Purchase of preference shares
–
–
–
11.5
–
11.5
Derivative financial instruments
–
–
–
–
0.2
0.2
Amortisation of arrangement fees
–
–
(0.6)
–
–
(0.6)
At 2 February 2014
Net decrease in cash, cash equivalents and
bank overdrafts
Exchange movement
At 1 February 2015
2.6
(0.1)
(14.0)
–
–
(11.5)
43.8
(6.3)
(243.8)
(52.5)
2.2
(256.6)
Note
2014/15
£m
2013/14
£m
134.1
136.1
21.5
22.5
8.2
8.0
25 Employees and Directors
Employee benefit expense during the year was as follows:
Wages and salaries
Social security costs
Post retirement
26
Share-based payments
21
1.5
1.6
165.3
168.2
In addition to the above, restructuring costs, including £1.8 million relating to severance (2013/14: £1.4 million), and internal labour
costs of £7.0 million (2013/14: £6.7 million), comprising wages and salaries and social security costs, were capitalised (note 9).
131
Annual Report and Accounts 2014/15
The average monthly number of persons employed (including Executive Directors) was as follows:
2014/15
Number
2013/14
Number
Americas
1,258
1,285
Europe and Asia Pacific
2,406
2,361
430
419
4,094
4,065
393
386
Marketing and Distribution Division
Other Distribution Businesses
Industrial Products Division
Head Office
61
56
4,548
4,507
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 62 to 85, which forms part of these financial statements.
The total remuneration of the Directors comprises:
Aggregate emoluments
Company contributions to money purchase pension schemes
2014/15
£m
2013/14
£m
1.8
1.8
0.2
0.2
2.0
2.0
None of the Directors have retirement benefits accruing under the Group pension plans (2014: none).
In addition to the above, there was an accounting charge for share-based payments in respect of the Directors of £0.3 million
(2013/14: £0.1 million). Gains made by Directors on the exercise of share options during the year amounted to £112,378 (2013/14:
£571,456).
Details of the highest paid Director are given on page 75. Further details on Directors’ pension arrangements are given on pages
76 and 77.
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.
26 Pension commitments and other post-retirement obligations
Note
2015
£m
2014
£m
Retirement benefit liabilities
26A
(51.3)
(30.6)
Post-retirement medical benefits
26B
(19.4)
(14.5)
(70.7)
(45.1)
Non-current liabilities
132
Premier Farnell
Notes to the consolidated
financial statements continued
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
2015
£m
2014
£m
– UK
(10.3)
(3.5)
– US
(12.7)
0.1
0.1
0.4
(3.8)
(1.0)
(26.7)
(4.0)
– Other
Post-retirement medical benefits
Defined benefit pension plans and post-retirement medical plan
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 and US plans are final salary pension plans providing a guaranteed level of pension payable for life. The US Plan also
includes a cash balance pension for US participants. Both these plans are closed to further accrual of future pensionable
service with pensions calculated based on salaries up until the date of closing the plan. For UK participants, pensions in
payment can be updated in line with the UK inflation indices, subject to caps and collars, whereas with US participants,
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.
The Group is a partner in the Premier Farnell Pension Funding Scottish Limited Partnership (SLP), under which the Group has
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 £1.5 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.
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.
Re-presentation
The Group operates a deferred compensation plan in the US for certain employees. Contributions paid by Premier Farnell
Corporation (a US subsidiary) into this plan are held in trust on behalf of employees until post employment. Although the
investment risk on the trust’s assets is borne by the employee, the assets are ultimately available to the creditors of Premier
Farnell Corporation and so do not meet the definition of plan assets for IAS 19 purposes.
The financial information for the year ended 2 February 2014 is derived from the statutory financial statements for that year,
except certain comparative information has been re-presented to conform with the current year presentation. The Group has
re-presented £0.8 million of pension assets as investments held at fair value (note 10), and also re-presented £0.4 million of
accruals for Company contributions to trade and other payables within current liabilities (note 17), with a corresponding net
£0.4 million adjustment to post retirement obligations. There is no overall effect on the Group’s income statement, net assets
or overall cash flows from these re-presentations.
133
Annual Report and Accounts 2014/15
The net pension charge and balance sheet liability of the Group’s pension plans are as follows:
2014/15
£m
Defined benefit plans
2013/14
£m
– UK
(1.2)
(1.2)
– US
(0.9)
(0.9)
(0.4)
(0.4)
Defined contribution plans
(5.0)
(4.8)
Total net pension charge in the year
(7.5)
(7.3)
– Other plans
2015
£m
2014
£m
Defined benefit balance sheet liability:
– UK Plan
(23.9)
(18.1)
– US Plan
(26.5)
(11.6)
– Other plans
(0.9)
(0.9)
(51.3)
(30.6)
The disclosures relating to the UK and US defined benefit plans are set out below based on valuations performed by Towers
Watson, as at 1 February 2015, using the projected unit credit method.
The principal assumptions are as follows:
UK Plan
2015
%
UK Plan
2014
%
US Plan
2015
%
US Plan
2014
%
3.3
3.9
–
–
Rate of increase in pensionable salaries
–
–
2.6
2.9
– RPI inflation capped at 5% pa
2.6
2.9
–
–
– RPI inflation capped at 3% pa
2.0
2.5
–
–
Discount rate
3.0
4.4
3.3
4.4
Inflation assumption (RPI)
2.7
3.1
–
–
Inflation assumption (CPI)
1.7
2.1
–
–
Life expectancy of a 60-year-old male/female current retiree
27yrs/29yrs
27yrs/30yrs
26yrs/29yrs
25yrs/28yrs
Life expectancy of a 60-year-old male/female future retiree
28yrs/30yrs
28yrs/31yrs
27yrs/29yrs
26yrs/28yrs
Rate of increase in pensions in payment (where applicable):
For 2015, the rates of longevity for the UK Plan are based on the standard tables known as the “S2” tables projected from 2007
using the 2014 Core Projection Model with a long term rate of 1.25%. For 2014, the rates of longevity for the UK Plan were based
on the “S1” 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 2014 funding valuation.
For the US Plan, the rates of longevity are based on standard tables RP-2014 and MP-2014 projection scale for 2015. For 2014,
the rates of longevity are based on RP-2000 with generational projections using scale BB.
The amounts recognised in the balance sheet are as follows:
Present value of defined benefit obligations
Fair value of plan assets
Net liability
UK Plan
2015
£m
UK Plan
2014
£m
US Plan
2015
£m
(122.3)
(102.1)
(134.3)
(106.4)
98.4
84.0
107.8
94.8
(23.9)
(18.1)
(26.5)
(11.6)
US Plan
2014
£m
134
Premier Farnell
Notes to the consolidated
financial statements continued
The major categories of plan assets as a percentage of total plan assets are as follows:
UK Plan
2015
%
UK Plan
2014
%
US Plan
2015
%
US Plan
2014
%
–
–
4.0
5.0
Equities
Diversified growth funds
46.3
50.1
–
–
Index-linked gilts
28.0
24.4
–
–
Corporate bonds
24.5
24.9
–
–
1.2
0.6
96.0
95.0
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.
The majority of the US Plan assets follow a Liability Driven Investment (LDI) strategy. At 1 February 2015, 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 1 February 2015 included ordinary shares issued by Premier Farnell plc with a fair value of
£3.9 million (2014: £5.1 million).
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
2014/15
£m
UK Plan
2013/14
£m
US Plan
2014/15
£m
US Plan
2013/14
£m
Net interest cost
(0.7)
(0.7)
(0.5)
(0.4)
Administrative costs paid
(0.5)
(0.5)
(0.4)
(0.5)
Total charge (included in total net operating expenses)
(1.2)
(1.2)
(0.9)
(0.9)
UK Plan
2014/15
£m
UK Plan
2013/14
£m
US Plan
2014/15
£m
(102.1)
(99.4)
(106.4)
(116.6)
(4.6)
Changes in the present value of the defined benefit obligation are as follows:
Beginning of year
Interest cost
Actuarial gains/(losses) due to plan experience
Actuarial (losses)/gains due to changes in financial assumptions
US Plan
2013/14
£m
(4.4)
(4.5)
(4.5)
0.3
(0.2)
(0.2)
0.1
(21.2)
(2.0)
(17.5)
3.3
Actuarial gains/(losses) due to changes in demographic assumptions
1.0
–
(2.3)
–
Actual benefit payments
4.1
4.0
6.5
6.6
Currency translation adjustment
End of year
–
–
(9.9)
4.8
(122.3)
(102.1)
(134.3)
(106.4)
135
Annual Report and Accounts 2014/15
Changes in the fair value of plan assets are as follows:
Beginning of year
Interest income on plan assets
UK Plan
2014/15
£m
UK Plan
2013/14
£m
US Plan
2014/15
£m
US Plan
2013/14
£m
84.0
82.2
94.8
105.4
3.7
3.8
4.0
4.2
Contributions
5.7
3.8
–
–
Return on plan assets greater/(less) than discount rate
9.6
(1.3)
7.3
(3.3)
Actual benefits paid
(4.1)
(4.0)
(6.5)
(6.6)
Administrative costs paid
(0.5)
(0.5)
(0.4)
(0.5)
–
–
8.6
(4.4)
End of year
98.4
84.0
107.8
94.8
Actual return on plan assets
13.3
2.5
11.3
0.9
UK Plan
2014/15
£m
UK Plan
2013/14
£m
US Plan
2014/15
£m
US Plan
2013/14
£m
(18.1)
(17.2)
(11.6)
(11.2)
(1.2)
(1.2)
(0.9)
(0.9)
Currency translation adjustment
Analysis of the movement in the balance sheet liability:
Liability at beginning of year
Total expense as above
Contributions
Remeasurements recognised in the year
Currency translation adjustment
Liability at end of year
5.7
3.8
–
–
(10.3)
(3.5)
(12.7)
0.1
–
–
(1.3)
0.4
(23.9)
(18.1)
(26.5)
(11.6)
The UK Plan is undergoing its triennial valuation as at 5 April 2014. The contributions expected to be paid during the financial
year ending 31 January 2016 amount to £4.8 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 17 years and for the US Plan, 15 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 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
Discount rate
1
Inflation (and inflation
related assumptions)2
Mortality
1
2
US Plan
Sensitivity analysis
(Increase) in
plan obligations
£m
Increase in
plan assets
£m
Net balance
sheet impact
£m
(Increase) in
plan obligations
£m
Increase in Net balance
plan assets sheet impact
£m
£m
1% decrease
(22.5)
2.0
(20.5)
(23.2)
12.3
(10.9)
0.5% increase
(3.1)
2.5
(0.6)
(2.9)
1.7
(1.2)
Increase of 1 year in
expected lifetime of plan
participants
(3.7)
–
(3.7)
(3.4)
–
(3.4)
The change in discount rate is assumed to be due to a 1% per annum decrease in corporate bond yields.
The sensitivities to inflation assumption changes include corresponding changes to the future salary and pension increase assumptions.
136
Premier Farnell
Notes to the consolidated
financial statements continued
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.
Through its defined benefit pension plans, the Group is exposed to a number of direct risks, the most significant of which are
detailed below.
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.
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.
Inflation risk – some of the Group’s 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 within
plan assets will be directly affected by inflation, with the remainder being unaffected directly.
Life expectancy – plan obligations are to provide benefits for the lifetime of the member. Increases in life expectancy will lead to
increased plan liabilities.
B) Post-retirement medical benefits
In the US, the Group sponsors a retiree medical plan that provides certain healthcare benefits to Union participants in the US. The plan was closed to new participants in May 2003 and based on service earned as of that date employees are eligible for
either healthcare coverage until death or until eligible under Medicare. The plan is unfunded and is contributory, with
participants paying for a portion of their coverage. Any changes to the plan are negotiated with the Union.
The costs of this plan are paid by the Group up to a maximum of $400,000 per claim. Above this threshold the Group is insured. The method of accounting for these is similar to that used to account for defined benefit pension obligations. The charge for the
year was £0.7 million (2013/14: £0.7 million) and the balance sheet obligation at 1 February 2015 amounted to £19.4 million (2014:
£14.5 million).
The disclosures relating to post-retirement medical benefits are based on an actuarial valuation performed by Towers Watson,
as at 1 February 2015.
The principal assumptions were as follows:
2015
2014
Discount rate
3.2%
4.4%
Medical inflation
5.0%*
5.0%*
Life expectancy of a 60-year-old male current retiree
26 yrs
25 yrs
Life expectancy of a 60-year-old male future retiree
27 yrs
26 yrs
* The assumed long term rate of medical inflation is 5.0% per annum. In 2015, the initial rate has been assumed to be 7.0%, which is assumed for one year and then to
reduce to the long term rate at 0.25% per annum over eight years. In 2014, the initial rate was assumed to be 7.5% for one year and then to reduce to the long term
rate at 0.5% per annum over five years.
For 2015, future life expectancy is based on RP-2014 and MP-2014 projection scale. For 2014, the rates of longevity are based
on RP-2000 with generational projections using scale BB.
The amounts recognised in the income statement are as follows:
2014/15
£m
2013/14
£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
137
Annual Report and Accounts 2014/15
Changes in the present value of the defined benefit obligation are as follows:
2014/15
£m
Beginning of year
Total charge
2013/14
£m
(14.5)
(14.5)
(0.7)
(0.7)
1.0
1.1
Actuarial losses
(3.8)
(1.0)
Currency translation adjustment
(1.4)
0.6
(19.4)
(14.5)
Payments
End of year
The contributions expected to be paid during the financial year ending 31 January 2016 amount to £1.0 million (including
£0.1 million for expenses).
Cumulative actuarial gains and losses recognised in equity:
2014/15
£m
Beginning of year
Net actuarial losses recognised in the year
End of year
2013/14
£m
(7.9)
(6.9)
(3.8)
(1.0)
(11.7)
(7.9)
Experience gains and losses:
2014/15
2013/14
Experience (losses)/gains on defined benefit obligation:
Amount (£m)
Percentage of the present value of liabilities
(0.6)
(1.6)
(2.9%)
(11.4%)
(2.7)
0.6
(14.2%)
4.4%
(0.5)
–
(2.5%)
–
(Losses)/gains arising from change in economic assumptions:
Amount (£m)
Percentage of the present value of liabilities
Losses arising from change in demographic assumptions:
Amount (£m)
Percentage of the present value of liabilities
The weighted average duration of the post-employment medical obligation is 11 years.
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:
Increase
£m
Discount rate
Medical costs
Mortality
1% decrease
2.4
1% increase
2.6
Increase of 1 year in expected lifetime
1.0
138
Premier Farnell
Notes to the consolidated
financial statements continued
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.
27 Operating lease commitments
The Group has total minimum lease payments under non-cancellable operating leases as follows:
Land and
buildings
2015
£m
Due within one year
Due between one and five years
Due after five years
Other
assets
2014
£m
2015
£m
2014
£m
5.6
5.4
1.0
1.1
12.6
10.1
1.4
1.8
3.0
1.6
–
–
21.2
17.1
2.4
2.9
139
Annual Report and Accounts 2014/15
Company financial statements
Company balance sheet
At 1 February 2015
Note
2015
£m
2014
£m
Fixed assets
Intangible assets
C
11.8
–
Investments
D
292.7
291.7
304.5
291.7
Current assets
Debtors – due within one year
E
64.7
54.4
Debtors – due after more than one year
E
919.6
904.8
984.3
959.2
Total debtors
Cash and cash equivalents
Creditors – amounts falling due within one year
F
G
Net current assets
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Provision for liabilities and charges (deferred tax)
G
I
Net assets
–
–
984.3
959.2
(122.8)
(159.3)
861.5
799.9
1,166.0
1,091.6
(797.4)
(663.9)
–
(0.1)
368.6
427.6
18.6
18.6
Capital and reserves
Called up share capital
K
Preference shares
H
8.5
10.4
Share premium
L
32.8
32.7
Capital redemption reserve
L
5.2
4.4
Merger reserve
L
0.6
0.6
Hedging reserve
L
–
–
L
302.9
360.9
M
368.6
427.6
Profit and loss account
Total shareholders’ funds
The Company financial statements on pages 139 to 148 were approved by the Board of Directors on 24 April 2015 and were
signed on its behalf by:
Mark Whiteling
Director
Premier Farnell plc Registered number 876412
The accounting policies and notes on pages 140 to 148 form an integral part of the Company financial statements.
140
Premier Farnell
Accounting policies to the
Company financial statements
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 24 April 2015.
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 and in accordance with the Companies Act 2006 and
applicable accounting standards in the United Kingdom. A summary of the more important accounting policies of the Company,
which the Directors consider to be the most appropriate, is set out below and they have been applied consistently throughout
the year. 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 1 February 2015 was a 52 week period (financial year ended 2 February 2014: 52 week period).
Cash flow statement
The cash flows of the Group are included in the consolidated cash flow statement of Premier Farnell plc, which is set out on
page 96 of this document. Accordingly, the Company has taken advantage of the exemption under FRS 1 “Cash flow
statements” not to publish a cash flow statement.
Related party transactions
The Company has taken advantage of the exemption granted by paragraph 3(b) of FRS 8 “Related party disclosures” not to
disclose transactions with other Group companies.
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 26).
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.
Financial instruments
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
Annual Report and Accounts 2014/15
141
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 nondistributable 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 16 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.
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 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.
Share-based payments
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.
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.
Called up share capital
Called up share capital is classified as equity and dividends are recognised as a liability in the period in which they are approved.
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.
Intangible assets and amortisation
Intangible assets are stated at cost less accumulated amortisation. Intangible assets acquired are capitalised at cost, and are
amortised to nil by equal annual instalments over their useful economic lives.
142
Premier Farnell
Notes to the Company
financial statements
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 loss after taxation for the financial year dealt with in the financial statements of the Company is £22.4 million (2013/14: profit
after taxation of £189.9 million) which relates entirely to continuing operations. Gains/losses that have been credited/charged
directly to reserves are detailed in note L to the Company financial statements.
The audit fee in respect of the Company was £0.1 million (2013/14: £0.1 million).
B. Employees and Directors
Staff costs during the year were as follows:
2014/15
£m
2013/14
£m
Wages and salaries
11.2
9.4
Social security costs
1.2
1.0
Pension costs
0.7
0.7
Share-based payments (note P)
Average monthly number of persons employed (including Executive Directors)
0.5
0.5
13.6
11.6
2014/15
Number
2013/14
Number
100
77
Directors’ remuneration is summarised in note 25 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 62 to 85, which forms part of these financial statements. Details of the highest paid Director are
given on page 75.
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.
C. Intangible assets
£m
Cost
At 2 February 2014
–
Additions
11.8
At 1 February 2015
11.8
Accumulated amortisation
At 2 February 2014
–
Charge for the year
–
At 1 February 2015
–
Net book amounts
At 1 February 2015
At 2 February 2014
11.8
–
On 1 February 2015 Premier Farnell plc purchased the element14 brand and associated trademarks for the Asia Pacific region from
element14 Pte Limited, a subsidiary company, for £11.8m. The brand will be amortised over its useful economic life of 15 years.
143
Annual Report and Accounts 2014/15
D. Investments
Shares in subsidiary undertakings
Share-based payments (note P)
2015
£m
2014
£m
279.5
279.5
13.2
12.2
292.7
291.7
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
Oy Farnell (Finland) AB
Finland
Farnell Components AB
Sweden
Farnell AG
Farnell Components (Ireland) Limited
Farnell (France) SAS
Farnell (Netherlands) BV
Farnell Newark Brasil Distribuidora de Produtos Electronicos Limitada
element14 Pte Ltd
element14 SDN BHD
eluomeng Limited
Farnell Components SL
Farnell Italia SRL
Farnell (Belgium) NV
eluomeng electronics (China) Co. Ltd
element14 India Pvt Ltd
Switzerland
Eire
France
Netherlands
Brazil
Singapore
Malaysia
Hong Kong
Spain
Italy
Belgium
China
India
Newark Corporation
US
Newark Electronics Corporation
US
MCM Electronics Inc
US
Akron Brass Company
US
Premier Farnell Canada Limited
Canada
element14. S.DE.R.L.de C.V
Mexico
Shenzhen Embest Technology Co. Ltd
element14 Limited
element14 Asia Pte Limited
AVID Technologies Inc.
All of the above are wholly owned.
China
Hong Kong
Singapore
US
144
Premier Farnell
Notes to the Company
financial statements continued
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.
E. Debtors
2015
£m
2014
£m
64.2
53.9
0.2
0.3
Amounts falling due within one year:
Corporate tax recoverable
Other debtors
Prepayments and accrued income
0.3
0.2
64.7
54.4
919.6
904.8
919.6
904.8
Amounts falling due after more than one year:
Amounts owed by subsidiary undertakings
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.
F. Cash at bank and in hand
Cash at bank and in hand comprise bank and short term deposits repayable on demand and available within one day
without penalty.
G. Creditors
2015
£m
2014
£m
Bank overdrafts (unsecured)
116.2
153.1
Taxation and social security
0.3
0.1
Other creditors
2.8
0.7
Amounts falling due within one year:
Accruals and deferred income
3.5
5.4
122.8
159.3
145
Annual Report and Accounts 2014/15
2015
£m
2014
£m
Unsecured loans
242.4
200.2
Amounts owed to subsidiary undertakings
502.5
400.3
744.9
600.5
52.5
63.4
797.4
663.9
66.4
39.2
–
51.8
Amounts falling due after more than one year:
Preference shares
Unsecured loans comprise:
Bank loans
3.0% US dollar Guaranteed Senior Notes payable 2016
5.2% US dollar Guaranteed Senior Notes payable 2017
20.0
18.3
4.4% US dollar Guaranteed Senior Notes payable 2018
38.8
35.5
4.8% US dollar Guaranteed Senior Notes payable 2021
60.7
55.4
4.0% US dollar Guaranteed Senior Notes payable 2024
56.5
–
242.4
200.2
116.2
153.1
Between one and two years
52.5
–
Between two and five years
185.9
208.2
56.5
55.4
411.1
416.7
Bank overdrafts, unsecured loans and preference shares are repayable as follows:
Within one year
After five years
During the year, the available multi-currency revolving credit facilities were increased by £50 million (note 19).
H. Preference shares
Cumulative, convertible, redeemable preference shares of £1 each.
Authorised
Allotted, called up and fully paid
Equity element
Debt element
2015
Number
2014
Number
32,000,000
32,000,000
3,236,471
3,949,419
2015
£m
2014
£m
8.5
10.4
52.5
63.4
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 16 to the consolidated financial
statements, together with an explanation of movements in the equity and debt elements during the year.
146
Premier Farnell
Notes to the Company
financial statements continued
I. Deferred tax
2014/15
£m
2013/14
£m
(Liability)/asset at beginning of year
(0.1)
0.4
Credit/(charge) in the year
0.1
(0.5)
–
(0.1)
0.2
0.4
(0.2)
(0.5)
–
(0.1)
Liability at end of year
Deferred tax provision comprises:
Short term timing differences
Preference shares
J. 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 19 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.
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.
Less than
1 year
£m
Between
1 and
2 years
£m
Between
2 and
5 years
£m
Over
5 years
£m
158.5
9.3
150.8
134.9
2.9
53.5
–
–
At 1 February 2015
Borrowings
Preference shares
3.1
–
–
–
164.5
62.8
150.8
134.9
Less than
1 year
£m
Between
1 and
2 years
£m
Between
2 and
5 years
£m
Over
5 years
£m
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
Trade and other creditors
At 2 February 2014
Borrowings
147
Annual Report and Accounts 2014/15
During the year the Group refinanced its bank borrowing facilities with the amendment and extension of its multi-currency
revolving facilities to £250 million expiring in September 2019, carrying a LIBOR based floating rate of interest.
During the year the Group refinanced US$85 million US private placement notes repayable in September 2024.
US dollar private placement notes bear coupons between 4.0% and 5.2%, and are repayable between
July 2017 and September 2024.
The book and fair values of the Company’s financial instruments are as follows:
Book value
2015
£m
Fair value
2015
£m
Book value
2014
£m
Fair value
2014
£m
242.4
251.0
200.2
204.4
52.5
52.0
63.4
63.1
116.2
116.2
153.1
153.1
Other creditors
2.8
2.8
0.7
0.7
Other debtors
0.2
0.2
0.3
0.3
Long term borrowings
Preference shares
Short term borrowings
K. Called up share capital
Details of the Company’s ordinary share capital are given in note 20 to the consolidated financial statements.
L. Movements in share capital and reserves
Called up
share capital
£m
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
18.6
10.4
32.7
4.4
0.6
–
360.9
427.6
New share capital
subscribed
–
–
0.1
–
–
–
–
0.1
At 2 February 2014
Loss for the year
–
–
–
–
–
–
(22.4)
(22.4)
Share-based
payments
–
–
–
–
–
–
1.5
1.5
Ordinary dividends
paid
–
–
–
–
–
–
(38.2)
(38.2)
Purchase of
preference shares –
Equity element
–
(1.9)
–
–
–
–
1.9
–
Transfer to nondistributable reserves
–
–
–
0.8
–
–
(0.8)
–
18.6
8.5
32.8
5.2
0.6
–
302.9
368.6
At 1 February 2015
148
Premier Farnell
Notes to the Company
financial statements continued
M. Reconciliation of movements in shareholders’ funds
2014/15
£m
2013/14
£m
(Loss)/profit after taxation
(22.4)
189.9
Ordinary dividends paid
(38.2)
(38.1)
New share capital subscribed
0.1
0.8
Share-based payments
1.5
1.6
–
(1.8)
Net change in shareholders’ funds
(59.0)
152.4
Shareholders’ funds at beginning of year
427.6
275.2
Shareholders’ funds at end of year
368.6
427.6
Derivative financial instruments
N. Contingent liabilities
The Company has guaranteed the loans of certain subsidiary undertakings which at 1 February 2015 amounted to £nil (2014:
£0.5 million) and bank guarantees issued on behalf of certain subsidiary undertakings which at 1 February 2015 amounted to
£7.4 million (2014: £12.2 million).
O. Ordinary dividends
Ordinary dividends paid and ordinary dividends proposed but not yet paid in respect of the financial year ended 1 February
2015 are detailed in note 7 to the consolidated financial statements.
P. Share-based payments
The charge for share-based payments in respect of the Company was £0.5 million (2013/14: £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 £1.0 million (2013/14: £1.1 million), and is treated
as an increase in investments in subsidiary undertakings. The credit relating to the combined amount of £1.5 million (2013/14:
£1.6 million) has been credited directly to reserves.
Other than noted above, the methods of accounting and assumptions adopted for share-based payments are consistent with
those adopted in the consolidated financial statements (note 21).
Details of potential issues of ordinary shares under share option schemes for the Group are given in note 20 to the consolidated
financial statements. In respect of the Company, the number of outstanding options under these schemes as at 1 February 2015
was as follows:
2015
Number
2014
Number
Executive Share Option Plan
3,391,827
3,135,973
Performance Share Plan
1,255,551
1,253,468
Deferred Share Bonus Plan
Restricted Share Plan
Save As You Earn Option Scheme
120,872
99,311
20,684
101,008
263,573
163,234
5,052,507
4,752,994
149
Annual Report and Accounts 2014/15
Glossary
AGM
Annual General Meeting
CEO or Chief Executive or Chief
Executive Officer
Chief Executive Officer of Premier Farnell plc
CFO or Chief Financial Officer
Chief Financial Officer of Premier Farnell plc
Claw-back
The right to reduce awards in the event of misstated performance or misconduct
Code
The UK Corporate Governance Code
CPO
The Chief People Officer of Premier Farnell plc
CAGR
Compound Annual Growth Rate
DSBP
Premier Farnell’s Deferred Share Bonus Plan
DAB
Digital Advisory Board
DTR
The Financial Services Authority’s Disclosure on Transparency Rules
EBITDA
Adjusted profit before interest, tax, depreciation and amortisation
EPS
Earnings Per Share
ESOP
Executive Share Option Plan
EU
European Union
Executive or Executive Director
An Executive Director of Premier Farnell plc
FCF
Free cash flow
FRC
Financial Reporting Council
FRS
Financial Reporting Standard
FSC
Forestry Stewardship Council
GAAP
Generally Accepted Accounting Practice
GDP
Gross Domestic Product
IAS
International Accounting Standard
IFRIC
International Financial Reporting Interpretations Committee
IFRS
International Financial Reporting Standards
IPD
Industrial Products Division
KPI
Key Performance Indicator
LTI or LTIP
Long-Term Incentive Plan
MDD
Marketing and Distribution Division
MIP
Management Incentive Plan
MRO
Maintenance Repair and Operation
NBS
New Bridge Street, the Company’s remuneration advisers
OP
Operating profit
PMI
Purchasing Managers Index
Pro rating or pro rate
The reduction of the number of shares under share award to reflect any unexpired performance period
PSP
Performance Share Plan
RONA
Return On Net Assets
ROS
Return On Sales
RPI
Retail Price Index
RSP
Restricted Share Plan
SAR
Share Appreciation Right, where market priced options, on exercise, deliver only the gain in shares,
rather than all of the shares comprised in the option
SAYE
Save As You Earn plan
SIA
Semiconductor Industry Association
SET
Senior Executive Team
SG&A
Operating expenses
TSR
Total shareholder return: the growth in value of a share plus the value of dividends paid, assuming that
dividends are reinvested in the Company’s shares on the day they are paid
UK Scheme
The UK pension plan
150
Premier Farnell
Shareholder information
2015 Financial calendar
Annual General Meeting
16 June 2015
Interim results
17 September 2015
Financial year end
31 January 2016
Final ordinary dividend key dates
Ordinary shares
Record
Payment
Ex-dividend
Record
Payment
28 May
2015
29 May
2015
25 June
2015
24 September
2015
25 September
2015
22 October
2015
Final preference dividend key dates
Preference shares
Interim ordinary dividend key dates
Ex-dividend
Half-yearly preference dividend key dates
Ex-dividend
Record
Payment
Ex-dividend
Record
Payment
02 July
2015
03 July
2015
27 July
2015
24 December
2015
29 December
2015
26 January
2016
Annual General Meeting
The 2015 Annual General Meeting will be held at the offices of Allen & Overy LLP, One Bishops Square, London E1 6AD on
16 June 2015 at 11 am.
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.
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, view payment history and access information on the Company’s share
price. For more information or to register please visit www.investorcentre.co.uk.
Share dealing service
A telephone dealing service has been arranged with Stocktrade (a division of Brewin Dolphin Limited.) 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 and share transfer office
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
151
Annual Report and Accounts 2014/15
Historic record
Revenue from continuing operations
Operating profit before restructuring costs, gains on disposal of
businesses and pension changes
2014/15
£m
2013/14
£m
2012/13
£m
2011/12
£m
2010/11
£m
960.1
968.0
952.0
973.1
990.8
88.0
93.0
95.1
107.3
112.1
Adjusting items
(4.9)
(1.5)
(5.8)
16.1
–
Total operating profit from continuing operations
83.1
91.5
89.3
123.4
112.1
Profit before taxation and accounting for preference shares
72.6
79.1
73.3
108.9
97.6
Preference dividends
(2.9)
(3.5)
(3.5)
(3.5)
(3.5)
Premium on redemption of preference shares
(0.6)
(0.8)
(0.8)
(0.8)
(0.8)
Profit before taxation from continuing operations
69.1
74.8
69.0
104.6
93.3
Profit after taxation from continuing operations
47.5
51.4
48.6
76.9
66.2
Profit attributable to ordinary shareholders
47.5
51.4
48.6
76.9
66.2
– proposed
10.4p
10.4p
10.4p
10.4p
10.4p
– paid
10.4p
10.4p
10.4p
10.4p
9.6p
Basic earnings per share (pence)
12.9p
14.0p
13.3p
21.2p
18.3p
Dividend per share
Adjusting items (pence)
Adjusted earnings per share (pence)
0.9p
0.3p
1.3p
(3.8)p
13.8p
14.3p
14.6p
17.4p
–
18.3p
152
Premier Farnell
Premier Farnell is committed to reducing the impact of its activities on the environment.
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Premier Farnell plc
Registered in England and Wales No. 876412
Registered office: Farnell House, Forge Lane, Leeds LS12 2NE
www.premierfarnell.com
Group Headquarters
55 The Strand
London WC2N 5LR
T +44 (0) 20 7851 4100
F +44 (0) 20 7851 4110