Annual Report & Accounts
2015/16
Welcome to
www.premierfarnell.com
Contents
Strategic Report
02.
Premier Farnell plc at a glance
03.
What we do
04.
Chairman’s statement
06.
Review of operations
10.
Business model
12.
Strategic review
14.
Measuring our performance
16.
Principal risks, uncertainties and opportunities
18.
Viability report
20.
Financial review
26.
Sustainability report
31.
Employees
Governance
34.
Corporate governance report
54.
Directors’ report
61.
Remuneration report
Financial Statements
88.
Consolidated financial statements
100.
Notes to the consolidated financial statements
133.
Company financial statements
138.
Notes to the company financial statements
Further Information
146.
Glossary
147.
Shareholder information
148.
Historic record
Annual Report and Accounts 2015/16
02
Premier Farnell
Premier Farnell plc at a glance
Premier Farnell plc is a global leader in high service
distribution of technology products and solutions for
electronic system design, production, maintenance and repair.
Our second business is CPC/MCM which supplies mainly
finished electrical products to customers in the UK and
North America.
It has two main businesses: element14, which trades as
Farnell element14 in Europe, Newark element14 in North
America and element14 across Asia Pacific.
The Premier Farnell financial year for 2015/2016 ended
on 31 January 2016 – our financial year end is the nearest
Sunday to 31 January – and is referred to as 2015/16 in
this report.
element14 distributes electronic components and related
products to three main groups of customers: engineering;
manufacturing; and component manufacturers.
As we sold Akron Brass in March 2016, we have reported
2015/16 on the basis of continuing operations (excluding
Akron Brass), as it is viewed as a discontinued operation.
2015/16 continuing operations at a glance
Group revenue
903.9m
£
Sales per day growth
1.7%
Gross profit
307.2
£
(2014/15 £886.6m)
(2014/15: 3.5%)
(2014/15: £323.6m)
Group revenue
(total operations)
Gross margin
Adjusted operating profit
(total operations)
982.7m
34.0%
(2014/15: £960.1m)
(2014/15: 36.5%)
(2014/15: £88.0m)
Total operating profit
Adjusted earnings per share
(total operations)
Proposed full year
dividend per share
11.1p
6.2p
(2014/15: 13.8p)
(2014/15: 10.4p)
£
44.9m
£
(2014/15: £68.1m)
73.0m
£
Strategic Report
Governance
Financial Statements
Further Information
03
What we do
Following the disposal of Akron Brass, we have two business divisions, element14 and CPC/MCM.
element14
Distributes products worldwide
and includes AVID and Embest,
who design and manufacture
development kits for component
manufacturers. The year saw an
increase in element14 revenue
from £769.5m to £778.5m. There
was good growth by AVID and
Embest, which represent a small
part of the business. We aim
to stabilise gross margins by
increasing our use of online
sales and refreshing our
product portfolio.
Key facts
ƒƒ Launched third phase of
global online sales platform
ƒƒ Global organisation in place
ƒƒ Inventory investment
in North America
CPC/MCM
Supplies mainly finished electrical
products such as audio visual,
lights and lighting, security, test
equipment, tools, computing,
mains electrical accessories
and PA equipment to customers
in the UK and North America.
We had revenue growth from
£117.1m to £125.4m in 2015/16,
driven by general growth within
the consumer market and by
growth in the single board
computer (SBC) market. We
supply the top SBC worldwide –
the Raspberry Pi – and it, together
with sales of the BeagleBone
Black, our second best selling
SBC, have also shown good
revenue increase year on year.
The majority of our SBC revenue
is recognised within CPC/MCM,
with the minority in element14.
Key facts
ƒƒ Launched Raspberry Pi 3
in February 2016
778.5m
125.4m
£
£
2015/16 revenue
2015/16 revenue
86%
14%
Percentage of total group sales
(excludes Akron Brass)
Percentage of total group sales
(excludes Akron Brass)
Akron Brass
Akron Brass is a global leader
in the sale and manufacture of
high performance fire-fighting
and emergency response
equipment. Akron Brass has
further diversified into the marine,
petrochemical, mining, and heavy
truck markets. On 5 February
2016, we announced that we
would be disposing of Akron Brass
to IDEX Corporation for cash
consideration of US$224.2m.
Key facts
ƒƒ Disposal of Akron Brass
completed on 16 March 2016
Annual Report and Accounts 2015/16
04
Premier Farnell
Chairman’s statement
Val Gooding
Chairman
Premier Farnell’s core business is the provision
of a one-stop source of components and finished
products for our customers from the engineering,
manufacturing and components industries. This financial
year 2015/16 has been challenging for us, but it has
also been one in which we have addressed many of the
operating and structural issues facing the company.
Summary of 2015/16
For the year 2015/16, revenue for our
continuing businesses (which excludes
Akron Brass) was £903.9m, a small
increase from £886.6m in the prior
financial year, 2014/15. Including
Akron Brass, revenue was £982.7m, an
increase on the prior year of £960.1m.
to make in order to achieve sustainable
and profitable growth. Our operational
review took account of the change in
our gross margin profile, the status
of our current businesses, growing
competition and the need to compete
effectively in an increasingly digital
market.
However, at the same time as seeing
a small uplift in sales, there was
a significant slowdown in Group sales
per day momentum during 2015/16 due
to increased competition, particularly in
our North American and UK markets.
We saw a reduction in gross margin from
36.5% in the previous year to 34.0%
in 2015/16, which in turn impacted
our gross profitability, operating
profit and earnings per share.
In order to refocus on our core
distribution capabilities, one of the
first key decisions from the review
was to dispose of Akron Brass,
which, although it was and remains
an excellent business, did not
strategically fit within the portfolio.
I am pleased that we achieved a sale
price of $224.2m for Akron Brass and
it marks an important milestone in the
strategic refocusing of Premier Farnell,
while also enabling us to reduce net
debt. Mark Whiteling, our Deputy
Chief Executive Officer, discusses the
operational review in more detail on
pages 6 to 8.
Operational review
Given the decline in gross margin
during 2015/16, in July 2015, we
initiated a review of our business
to look at the changes we needed
Strategic Report
Governance
I am pleased to note that we completed
our transition to a global operating
model, which is discussed in further
detail on pages 8 and 12.
Dividend
In addition to the decision to sell
Akron Brass, the Board also gave
careful consideration to the current
shape and capacity of our balance
sheet, and the need of rebasing the
dividend. The Board recognises the
significance of the dividend to our
shareholders – but also the importance
of it being sustainable and progressive
– and will therefore target dividend
cover in the range 1.5x to 2.0x.
As a result of the decline in profitability
during 2015/16, we have proposed
a final dividend for 2015/16 of 3.6p,
a reduction of 40% from the prior year
(2014/15: 6.0p). Including the interim
dividend of 2.6p, the proposed full
year dividend for 2015/16 is 6.2p,
a reduction of 40% from 10.4p in
2014/15.
Management and Board changes
There have been a number of changes
to the management structure and
members of the Board during the year.
In August 2015, Laurence Bain stepped
down as Chief Executive Officer and
Mark Whiteling, Chief Financial Officer
was appointed Interim Chief Executive
Officer. Mark’s responsibilities were
transferred to Helen Willis, Global
Director of Commercial Finance. The
in-depth talent in the Company allowed
us to achieve a seamless transfer of
responsibilities.
In March 2016, I was pleased to
announce that following an extensive
global search, we appointed Jos
Financial Statements
Further Information
Opdeweegh as Chief Executive
Officer on 11 April 2016. Jos was,
until recently, Chief Executive Officer
of Neovia Logistics, where he led the
carve out from Caterpillar. For the
past 16 years he has worked in senior
leadership positions in a number of
industrial sectors in North America,
including Chief Executive Officer of
Americold Realty Trust and Syncreon
(formerly TDS Logistics).
I have no doubt that his international
experience and achievements in
enhancing value for shareholders in
a number of different businesses will
provide a strong platform for the next
stage of Premier Farnell’s development.
As Jos joined the company in April
2016, after the end of the financial
year 2015/16, Mark will be reviewing
the operations of the company in this
year’s Annual Report and Accounts.
We have also initiated a search for
a permanent Chief Financial Officer
and Helen Willis has been invited to
consider applying for the role.
On behalf of the Board, I would like
to thank Mark for the excellent work
he has done in guiding the Company
as Interim Chief Executive Officer. I am
pleased that he will assume the role
of Deputy Chief Executive, providing
continuity for the Company and strong
support for Jos.
As indicated in last year’s Annual
Report and Accounts, Andrew Dougal
retired from his position as nonexecutive director of the Company
in June 2015. I would like to thank
Andrew for his valuable contribution to
the Board. In November 2016, Geraint
Anderson joined the Board as one of
its non-executive directors. Geraint’s
05
former roles include Chief Executive
Officer at TT Electronics plc, Vice
President of Cisco Systems and Senior
Vice President of Pirelli.
Our competitive environment
Premier Farnell has a long and
successful history of dealing with
change and facing the challenges
of the evolving marketplace for
electronics. The Board is mindful
of the challenges that lie ahead and
we continue to evaluate the potential
risks that could impact the Group.
We address these matters in more
detail on pages 16 to 17.
People
In a year such as this, there have been
changes at all levels, including our
leadership. On behalf of the Board,
I would like to thank all the people
in Premier Farnell for their effective
contribution throughout the year.
We work in an increasingly changing
environment and I am pleased to
see the high level of dedication from
employees, as we rise to the challenges
generated by the markets in which we
compete.
Looking forward
The year 2015/16 has been one in which
we have increased our focus on our core
markets. While there will undoubtedly
be challenges ahead, we believe we have
the right portfolio of products, services
and people and look forward to progress
in the year ahead.
Val Gooding
Chairman
25 April 2016
06
Annual Report and Accounts 2015/16
Premier Farnell
Review of operations
Mark Whiteling
Deputy Chief Executive Officer
Our aim is to make it easier for our customers
to do business with us and to grow revenue,
look to restore gross margin stability and so increase
gross profits, while maintaining cost control.
The past financial year 2015/16 has
been a difficult one for Premier Farnell,
as we transform the business to face
the changing marketplace and position
ourselves for long-term sustainable
growth. As discussed in the Strategic
Review and the discussion of our
Business model on pages 10 and 11,
we face a number of challenges to our
business which we are responding to
− although much more needs to be done.
Overall, our aim is to make it easier
for our customers to do business with
us and to grow revenue, restore gross
margin stability and to increase gross
profits, while maintaining cost control,
driving efficiencies and an adequate
return on investment.
Looking at the 2015/16 year as a
whole for Premier Farnell, the financial
performance for the year was below
that which we would have wanted
it to be as a company.
2015/16 First Half Trading
Trading in the first half of the year 2015/16
saw group sales per day (in constant
currency) for total operations (including
Akron Brass) grow 2.9% year on year.
However, sales momentum slowed in the
second quarter, particularly in our UK and
North American markets, which are our
largest by revenue. Excluding Raspberry
Pi, Group sales per day declined 0.4%
in Q2 2015/16, compared with growth
of 1.9% in Q1 2015/16. Group sales per
day, excluding Raspberry Pi, also saw
a slowdown, with 0.8% growth versus
3.3% growth in the prior year.
Americas’ sales per day growth
slowed over the first half. While this
was consistent with weaker US
manufacturing purchasing managers’
indices (PMIs) in the second quarter,
we initiated a product-led repositioning
of the business with new inventory that
focuses on industrial electronics. There
was strong growth (total operations)
of 9.3% year on year in Continental Europe,
while this strong performance was offset
by weakness in the UK, where conditions
remain challenging and we saw a first
half sales decline of 7.6% year on year.
Dealing with the UK and US performance
are a key focus for our management
team and we have put in place new sales
management in order to improve our
performance. Although a smaller market
for us than Europe and the Americas,
within Asia Pacific, India sales momentum
continued with first half sales growth of
27.6%, and our more established markets
of Australia and Singapore delivered strong
growth of 7.7% and 9.1% respectively.
Greater China growth remained steady
across the first half at 10.0%, despite the
heightened economic uncertainty in
the region, reflected in the significant
weakening of PMI data.
While representing a small part of
Group sales, we are the leader in the
production and sale of the Raspberry
Pi board, our biggest selling single
board computer (SBC), and sales
grew 67% in the first half following
the launch of the Raspberry Pi 2.
However, despite higher revenue year
on year for the first half of 2015/16, total
operations Group gross profit (including
Akron Brass) fell £3.8m to £175.6m, and
gross margin declined by 2.2 percentage
points to 35.2%.
Strategic Report
Governance
Financial Statements
Further Information
07
Our operations
Our key warehouse locations
CPC
Leeds
MCM
Liège
South Carolina
Shanghai
Mexico
Singapore
Sydney
1
1.1m
1
element14 online community
including the Design Center
sq ft warehouse space
in our distribution centres
global web platform, supporting
48 websites in 35 languages
650,000
in stock products available
30,000
packages shipped each day
100
engineers at Embest
& AVID Technologies
08
Annual Report and Accounts 2015/16
Premier Farnell
Review of operations
Continuation
The decline in gross margin in the first half
primarily reflected continued downward
pressure from price positioning of -0.8%
percentage points, product mix given
significant Raspberry Pi growth of -0.4%
percentage points, and from unfavourable
foreign exchange rates.
Operational Review
Given our weak first half 2015/16
performance, in July 2015 we announced
that the Board had commenced a review
of the Group’s operations. As noted
by our Chairman on page 4, included
in the review was intention to sell Akron
Brass, the sale of which was announced
in September 2015. The sale was
subsequently approved by shareholders
on 16 March 2016 and completed on
the same day.
In December 2015, we presented
the findings of the operational review,
confirming opportunities to improve the
operational and financial performance
of the Group.
The review identified four areas that offered
the greatest opportunity for simplification
and improvement. These were:
ƒƒ Improved customer proposition
and a more effective multi-channel
experience. Our major focus has
been to build on the global online
platform implemented last year and
we have subsequently implemented
two major upgrades of our online
platform. We discuss this in more
detail on pages 10 and 12.
ƒƒ Improved sales force effectiveness
through the redesign of the new
global sales & marketing
organisation. We have appointed
new sales leaders in the UK and US,
and a new global sales leader.
ƒƒ Improved direct procurement
through a global product
organisation to drive product cost
savings. We discuss this in more
detail in our review of the business
model on pages 10 and 11.
ƒƒ Operating and indirect procurement
improvements across the business
with the implementation of a
global operating model.
During 2015/16, we discontinued our
direct operations in Brazil, which were
no longer cost-efficient.
Following the operational review, we
are making good progress in achieving
increased operating efficiency and
are on track to deliver expected cost
savings of £19m in financial year
2017/18. We also intend to reconsider
the KPIs that we have been targeting
over the last three years. Our current
KPIs are reviewed on pages 14 and 15.
While we remain committed to driving
growth, efficiency, profitability and
cash, future targets will be reviewed
by management to reflect the revised
shape of the Group.
Continuing Operations (which excludes
Akron Brass) saw sales per day growth
in 2015/16 of 1.7% year on year. Sales
momentum increased slightly overall
in the fourth quarter, due to growth in
Continental Europe and APAC. We saw
sales per day decline of 6.9% and
5.1% in Q3 and Q4 respectively in
the Americas. We saw sales per day
growth of 14.6% in APAC for 2015/2016.
Continental Europe benefitted from
strong sales per day growth of 7.0%
year on year in the second half, in spite
of the mixed economic backdrop across
some of the Eurozone. This strong
performance was offset by weakness
in the UK, with a second half sales
decline of 9.5%.
Excluding Raspberry Pi, continuing
operations sales per day declined
2.9% year on year in the second half.
CPC/MCM second half sales growth
benefitted significantly from sales
of Raspberry Pi 2, with year on year
revenue growth of 4.3%.
Operating profits
We continued to see weaker gross
margins during the second half of
2015/16, with full year gross margin
for continuing operations falling from
36.5% in 2014/15 to 34.0% in 2015/16,
driven mainly by the continuing impact
of foreign exchange of -1.0%
percentage point, -0.6% percentage
points of price positioning and -0.6%
percentage points of product mix.
Adjusted operating profit contributions
from element14, CPC/MCM and Akron
Brass are shown opposite.
Adjusted operating profit from total
operations for the full year was £73.0m
(2014/15: £88.0m), representing a decline
of 17.0% year on year. The operating
margin of 7.4% (adjusted) reflected
a decline in gross margin as noted
opposite. Adjusting items are outlined
on page 22 in the financial review.
Outlook
Looking ahead, we expect global
market conditions to remain variable
and are not anticipating any near-term
diminution in the competitive pressures
on our businesses. We are focused
on implementing the actions from our
operational review in order to stabilise
our gross margin and reduce our
operating costs. Whilst we expect
some gross margin decline, we
anticipate making progress during
2016/17.
We believe that Premier Farnell is
now better positioned to serve its
customers and expect our business
to make progress during the current
financial year as we continue to focus
on improving our operational and
financial performance.
2017/18 and beyond
We are taking a series of measures, as
outlined in the Strategic Review and the
Business Model sections of this report,
which are aimed at putting Premier
Farnell on a path to sustainable and
profitable growth. The operational
review has already yielded positive
results in company efficiency, which
we will continue to build on.
We look forward to updating you on
our progress as we continue to reshape
the business.
Mark Whiteling
Deputy Chief Executive Officer
25 April 2016
Strategic Report
Governance
Financial Statements
Further Information
09
Full Year 2015/16 Trading
We experienced continued decline in our UK and North America markets during the second half of 2015/16 and saw strong
growth in Asia-Pacific, ahead of regional GDP growth.
H2 15/16
H2 14/15
FY 15/16
FY 14/15
element14
378.5
382.7
778.5
769.5
CPC/MCM
64.1
60.6
125.4
117.1
Akron Brass
41.5
37.5
78.8
73.5
Total Group
484.1
480.8
982.7
960.1
Revenue (£m)
Revenue for element14 for the full year 2015/16 was £778.5m (2014/15: £769.5m), a 1.2% increase on the prior year and revenue for
CPC/MCM during 2015/16 was £125.4m (2014/15: £117.1m) a 5.0% increase on the prior year. Akron Brass revenue for 2015/16 was
£78.8m (2014/15: £73.5m). Sales per day growth across our regions and per business for 2015/16 are shown below.
Sales growth(a)
Q1
Q2
Q3
Q4
H2
FY
Europe
5.9%
1.6%
(0.5%)
1.1%
0.3%
2.1%
Americas
2.2%
(0.8%)
(6.9%)
(5.1%)
(6.1%)
(2.6%)
16.2%
8.2%
14.9%
19.4%
17.2%
14.6%
element14
5.3%
1.2%
(1.9%)
0.3%
(0.8%)
1.2%
CPC/MCM
13.9%
(1.9%)
7.7%
1.0%
4.3%
5.0%
Continuing Operations
6.3%
0.8%
(0.6%)
0.4%
(0.1%)
1.7%
Excluding Raspberry Pi
2.6%
0.0%
(3.7%)
(2.0%)
(2.9%)
(0.8%)
Akron Brass
(6.1%)
(4.6%)
13.6%
(2.7%)
5.1%
(0.2%)
Total Operations
5.4%
0.4%
0.5%
0.2%
0.3%
1.6%
APAC
In order to reflect underlying business performance, sales growth is based on sales per day for continuing and total operations at constant exchange rates,
unless otherwise stated.
(a)
Adjusted Operating Profit(b) (£m)
Operating Margin %
H2 15/16
H2 14/15(c)
FY 15/16
FY 14/15(c)
element14
23.6
6.2%
33.9
8.8%
56.5
7.3%
73.2
9.5%
CPC/MCM
5.5
8.7%
6.1
10.2%
11.8
9.4%
11.7
10.0%
(5.4)
(5.0)
(10.9)
(11.9)
23.7
5.4%
35.0
7.9%
57.4
6.4%
73.0
8.2%
Akron Brass
8.3
20.0%
7.5
20.0%
15.6
19.8%
15.0
20.5%
Total Group
32.0
6.6%
42.5
8.8%
73.0
7.4%
88.0
9.2%
Central costs
Continuing Operations
(b)
(c)
2015/16 and 2014/15 adjusting items are outlined on page 22.
Restated to reflect Akron Brass disposal.
10
Annual Report and Accounts 2015/16
Premier Farnell
Business model
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.
Business process
Stock
We identify and stock the products that
our customers require, benefitting from
web analytics and insights from the
element14 community. In total, we
stock more than 650,000 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.
Key outputs from the operational review
ƒƒ Increase levels of consignment stock
to broaden range whilst controlling
working capital
ƒƒ Gain greater purchasing efficiencies
by procuring on a global basis
ƒƒ Enhance global inventory visibility
for our customers
ƒƒ Product lifecycle management
processes, including rigorous
stocking criteria and mitigating
inventory risk
ƒƒ We continue to develop and enhance
our web capabilities as part of our
multichannel sales strategy in order
to maintain our competitive
advantage digitally
ƒƒ We are partnering increasingly
closer with key suppliers to provide the
technical specifications and legislative
information that customers need
ƒƒ Enhance support (e.g. search, order
query functions) within successfully
launched new web platform
ƒƒ Improve productivity and quality
of call centres
Strategic Report
Governance
Financial Statements
Further Information
Looking across the business, we have several initiatives in
place in order to deliver value. These include a restructuring
programme to reduce long-term costs, improve back office
processes, simplify internal support and increase the use of IT.
Sell
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 field sales resources as well
as significant technical resources
to make it easy for customers to
do business with us.
Ship
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.
ƒƒ Enhance functionality of successfully
launched new web platform to
support sales
ƒƒ Investment in systems and focus on
workflow improvements will deliver
operational efficiencies and allow us
to meet a higher future demand.
ƒƒ Enhance sales force effectiveness
to better leverage our specialist field
sales capabilities
ƒƒ Improve margins through disciplined
target pricing
ƒƒ We remain focused on reducing the
environmental impact of doing business
ƒƒ Refine our fulfilment network to improve
efficiency and better meet customer
requirements
11
Annual Report and Accounts 2015/16
12
Premier Farnell
Strategic review
We operate two main continuing
divisions, element14, and CPC/ MCM
and offer three segments of products
and services as shown and illustrated
on ‘The Product Lifecycle’ on this page:
distribution of electronic components
and related products, which is our main
business; design services (principally
delivered though CadSoft, Embest and
AVID, which are within element14);
and finished products, such as the
Raspberry Pi, which is within both
CPC/MCM (with the majority of sales)
and element14. We sold Akron Brass
on 16 March 2016.
Efficiency
Given the changing face of global
distribution due to new competitors
and the rise of online ordering, we
have looked to reorganise the business
and improve our online offering.
Starting in 2014/15, we looked to move
to a global structure from a regional
basis, which was aimed at making us
more efficient and save costs, while also
enabling us to deliver a better service to
customers. We completed the proposed
design of the new global organisation
in 2015/16. In addition, we completed
our move to a single global code base,
which enables us to efficiently create
marketing programmes.
We were able to announce in the
second half of 2015/16 that we
expected greater cost savings on
this and other initiatives compared
to our initial estimates, the cost savings
are mentioned in review of operations
on page 8.
Online upgrades
Moving onto ecommerce initiatives,
we continue to look to improve our
online experience and have undertaken
a series of upgrades to our systems.
Our major drive has been to build a
global online platform using IBM’s
WebSphere, which was completed in
Q2 2015/16, providing greater system
stability at a global scale.
Some of the major recent upgrades
include an enhanced website search
engine which can better process
alpha-numeric, or natural language
queries; greater product information,
so customers can more easily complete
to a sale; better mobile access, and we
have overhauled the design of important
web pages, so that the experience
is more intuitive and faster. Our online
system has around two million products
available for US customers (delivered
directly, or via partners) and 840,000
products available for European and
Asia-Pacific customer (delivered directly,
or via partners).
In addition to these initiatives, we aim
to make pricing simpler for customers,
especially around the area of freight
delivery. During 2015/16, we saw 48.9%
of sales via online compared to 49.5%
in 2014/15 and we have a mediumterm target of 70% online sales via
ecommerce of our total Group sales.
The product lifecycle
Component
Manufacturer
Manufacturing
Customers
As customer needs develop and the
way they operate changes, we are
reviewing the business in order to
reposition ourselves in the evolving
marketplace. We offer customers a
differentiated service from the purely
online sales model adopted by some
competitors, as we have field
application engineers and direct sales
people. In addition, we supply products
mostly on a next day delivery schedule
based on our extensive global network
and we recognise that some customers
are content with the three day delivery
window adopted by some players in
the industry. We are examining our
market proposition as we see changes
in the industry and in our customers.
element14
element14 is one of the leaders in
the global high service distribution
marketplace, supplying products
and services to mainly engineering
customers to facilitate the building of
electrical goods. The division has eight
distribution centres worldwide with a
total of around 1.1 million square feet of
warehouse space, with approximately
1,300 customer facing staff. This
division represents around 86% of
continuing (this excludes Akron Brass)
2015/16 Group revenue.
It serves three main groups of
customers: engineering, manufacturing,
and component manufacturers.
Mass Volume
Volume Production
Small Production
Prototype
Design
Technology Launch
Engineers
Customer requirements
We continued our work during 2015/16
on the operational review, as we
examine and scope the opportunities
to restructure and reconfigure the
business, so that we can serve our
customers and deliver long-term
sustainable shareholder value. The
initial outcomes from the review are
discussed on pages 10 and 11.
Key to element14’s engagement with
engineers is its deep knowledge of
the requirements of our customers and
this segment represents the majority
of element14 sales. We look to identify,
source and stock products globally that
we believe will provide our customer
base with the quality and choice to
meet their needs. element14 stocks
Strategic Report
Governance
approximately 650,000 products, of
which 97% are delivered to customers
within 24 hours.
In order to provide engineers with a high
level of technical support, element14
has around 260,000 unique product
datasheets, which are downloaded
more than half a million times a week.
This is supplemented by live online chat
support and field application engineers
who work closely with their customers.
element14 also has around 400,000
registered community members who
can share ideas online regarding our
products and solutions. Customers can
also buy products online in more than
30 languages and we continue to invest
in online with two global upgrades
undertaken during the year, as
described above.
In 2014/15 we launched the element14
Design Center, where engineers can
access the latest development kits
and tools. And in 2015/16 we launched
phase two of the Design Center, where
customers can buy licences for
embedded systems such as ARM,
Timesys and Atollic, as well as via our
exclusive online relationship with Altium’s
Circuit Studio and CadSoft EAGLE
computer-aided design software.
We believe the serviceable addressable
market for this form of high service
distribution business to be around
£20 billion per year.
Manufacturing customers represent
around 20% of element14 sales.
They typically want to purchase board
components in the packaging options
that enable them to be loaded directly
onto automated assembly equipment
and generally require higher volumes
of products compared to engineers.
This market has typically been serviced
by component manufacturers directly,
or through high volume distribution.
We believe that as manufacturing
processes use shorter production runs,
element14 can become more relevant
to these customers.
Financial Statements
Further Information
In order to service this market, we have
invested in the past three years in order
to implement systems and processes
that allow us to trace certain date
and lot codes on more than 150,000
products. We implemented the AS9120
standard which is required by the
aerospace industry, in South Carolina
six years ago and rolled out AS9120
in Europe in October 2015.
We continue to look to move into
new and adjacent markets and in
calendar years 2014 and 2015, we
entered into the market for the design
and manufacturing of development
kits for component manufacturers, a
market typically served by independent
design houses and contract equipment
manufacturers. These services are
mainly offered via our recent
acquisitions, Embest and AVID
Technologies and customers include
semiconductor manufacturers such
as Freescale, NXP and AMD. This
segment represents less than 5%
of element14 revenue, and compared to
our overall revenue, shows good growth.
We acquired CadSoft in 2009, a
business which produces printed
circuit board layout software. Embest,
based in China, was acquired in 2012
and has embedded technology based
on ARM’s architecture, while AVID,
based in Ohio, USA, specialises in
wireless, connectivity, power and
analog technologies.
Internet of Things
The Internet of Things (IoT) continues
to represent significant growth
opportunities; it encompasses a
fusion of wireless, sensors and control
technologies and represents a major
shift and potential growth opportunity
for connectivity, both machine-tomachine and people-to-machine.
We are well positioned to serve
customers within this technology arena
at a component level through element
14, as we stock connectivity sensors
and controllers, while our solution based
businesses of AVID and Embest are
positioned to offer bespoke solutions
based on ‘connect-communicate –
control’ technologies.
13
In addition to the initiatives outlined
above, we have invested in incremental
inventory for element14 to enhance our
product range in order to serve the
engineering and manufacturing
segments.
CPC/MCM
CPC/MCM supply mainly finished
electrical products such as audio
visual, lights and lighting, security,
test equipment, tools, computing,
mains electrical accessories and PA
equipment to customers in the UK
and North America. Their customers
include wholesalers, education,
government, utility companies,
IT companies, broadcasters,
internet resellers and hobbyists.
CPC/MCM represent around 14%
of continuing Group revenue (this
excludes Akron Brass). These two
distributors stock around 150,000
products in two warehouses and use
a multichannel strategy through online,
print, contact centre and trade counter
sales and marketing capabilities.
Together, they have around 80 sales
people and 250 warehouse staff.
As Raspberry Pi is primarily sold to end
customers such as manufacturers and
hobbyists, this and similar product lines
are located mainly within CPC/MCM,
with some sold via element14.
Akron Brass
During 2015/16 we announced the
proposed disposal of Akron Brass.
Akron Brass is an industry leader
in fire-fighting equipment including
handheld nozzles, monitors and valves.
It has extended its portfolio into
specialised electronics and lighting,
such as high-power LED lighting and
custom designed nozzles. It is treated
as a discontinued business in the
statutory reports and accounts and
the sale of Akron Brass was completed
in March 2016.
Annual Report and Accounts 2015/16
14
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 2015/16 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.
Strategic
objective 1
Growth
Strategic Priorities
ƒƒ Grow gross profit, which is the profit we make after buying the products and services we sell and is
key to our overall profitability
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.
6% gross
profit growth
Strategic
objective 2
Profitability
10%-12% ROS
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.
We target gross profit growth as it
captures the amount of profit available
to the company to pay for operating
expenditure, finance costs and tax.
Trend
Commentary
1.7%
3.3%
2015/16
2014/15
-5.1%
-3.3%
2015/16
2014/15
Sales growth of 1.7% in 2015/16
which remains below our target,
due to weakness in North America
and the UK. We have appointed new
sales leaders in these areas and are
implementing the outcomes of the
operational review in order to move
towards our target.
Gross profit growth is a key measure
for the company as we look to grow
this element of the business while
keeping control of costs. We saw
a 5.1% reduction in gross profit in
2015/16. A key outcome of our
operational review is the stabilisation
of gross profits following weakness in
sales growth and gross margin decline
due to foreign exchange movements,
product mix and price positioning.
Strategic Priorities
ƒƒ Optimise our business through effective management of gross profit and costs
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.
6.4%
8.2%
2015/16
2014/15
Full year operating margin of
6.4% was a decline on the previous
year and lower than our target.
This reflected the decline in gross
margins and lower than target sales
growth. As noted, we are taking
actions to rectify both measures.
Strategic Report
Governance
Financial Statements
Further Information
15
KPIs for 2014/15 and 2015/16 are for continuing businesses,
(which exclude Akron Brass).
Strategic
objective 3
Efficiency
Strategic Priorities
ƒƒ Evolve our operating model into a more efficient and effective global, function based structure
ƒƒ Develop attractive ecommerce channels that enable automation of processes
ƒƒ Stabilise gross margin, which is the level of profitability we make on our sales
KPI
Definition
>30% RONA
The effective and efficient investment
of our shareholders’ funds is a critical
overall measure of the success of
our strategy. Return on Net Assets 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
Strategic
objective 4
Cash
6% FCF to sales
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
Commentary
22.1%
27.4%
2015/16
2014/15
48.9%
49.3%
2015/16
2014/15
RONA of 22.1% is below our target due
to the reasons opposite. As we move
to a more efficient global operating
model and drive increased inventory
turns, we intend to improve our future
performance against this metric.
Approximately flat percentage of sales
via ecommerce at 48.9% year on year.
We have implemented two upgrades of
our online system in 2015/16 and look
to improve on this metric during 2016/17.
Strategic Priorities
ƒƒ Optimise use of cash in the business and distribution of funds to shareholders through-the-cycle
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.
6.8%
3.7%
2015/16
2014/15
This measure is based on total
operations including Akron Brass.
Adjusted free cash flow to sales
of 6.8% (2014/15: 3.7%) was above
our through the cycle target of 6%,
following strong control of working
capital. We do not expect a similarly
strong level of working capital to
be repeated during 2016/17.
Annual Report and Accounts 2015/16
16
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
Risks and
uncertainties
Relative
increase/
decrease
compared
to prior year
impact, with a full review also undertaken by the Senior
Executive Team (SET).
Management also review specific strategic, operational,
financial and compliance risks in regular focused forums
during the year: including SET meetings, quarterly functional
reviews, 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 53.
Mitigating actions
Opportunities
We have rationalised our element14
organisation by globalising our operating
model and leveraging the efficiencies of
the web. Further work is being undertaken
to drive efficiencies and save cost following
an operational review undertaken with the
support of Alvarez & Marsal.
Our major drive has been to build a global
online platform using IBM’s WebSphere
which was completed in Q2 2015/16, which
has provided greater system stability on
a global scale.
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.
We have also invested in incremental
inventory to support the Industrial
Electronics segment in North America
in 2015.
In 2015 we launched phase two of the
element14 Design Centre, where customers
can buy licences for embedded systems.
Since 2014 we have invested in capability
through our acquisitions of Embest and
AVID, for designing and manufacturing
development kits for component
manufacturers.
Leveraging our technology expertise
offers significant opportunities in meeting
the needs of our component manufacturer
customers but also in our core engineering
customer base.
Software and services continues to play
an increasing role. This increases value
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.
The Group takes actions to reduce the impact
of its business on the environment through
carbon emissions and by encouraging
recycling, especially of packaging.
The regional warehouse model reduces
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.
Business Risks
Competitive
pressures increase
S
O
Insufficient
progress with
improving
performance
in the Americas
S
O
R
Failure to leverage
our technology
expertise and
partnerships
with key suppliers
S
Long term
evolution of the
electronic
component
distribution model
S
We have undertaken a set of online upgrades
that enhance our search capabilities and will
be simplifying our pricing, particularly with
respect to freight services.
Strategic Report
Risks and
uncertainties
Governance
Relative
increase/
decrease
compared
to prior year
Financial Statements
Further Information
17
Mitigating actions
Opportunities
Cultural change to support our global
ways of working has been underpinned
by the definition and roll out of
Leadership Standards.
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.
People
Delivering our new
business model
S
O
Focus on priority improvement
programmes and cost efficiency has been
defined through the recent operational
review of the element14 businesses.
Recruitment,
development
or retention of
talented people
S
O
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.
Reward schemes are continuously
evaluated to drive and reward performance
and ensure retention of key talent.
We seek to actively engage employees
by focusing on customer relationships,
leadership, social responsibility and
communications.
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.
In order to provide engineers with a high
level of technical support, element14 has
around 260,000 unique product data
sheets, which are downloaded more
than a half million times per week.
Business continuity plans are kept
under review for all our key locations.
There is ongoing review of our IT
infrastructure and we conduct regular
testing of our systems.
We continually improve workflows
and operational efficiencies and
provide increased capacity and
investment in capability.
We have implemented sophisticated cyber
security tools to block external threats
and attacks including enhanced, integrated
security in the new global web platform.
A computer incident response team
established alongside enhanced
internal training and review processes.
Providing a safe and secure online
experience to customers is potentially
differentiating compared to smaller,
less established competitors.
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.
The new global structure will provide
our people with better ways of working
and development opportunities.
Systems, data and infrastructure
Data and content
quality inhibit
effectiveness of
our ecommerce
strategy
S
O
Significant failure
or inefficiencies in
our systems and
infrastructure
O
Cyber security
failure leading
to revenue or
reputational loss
O
NEW
Legal
Legal and
regulatory risks
O
S
Strategic
Requires a strategic response
O
Operational
Requires an operational response
R
Regional
Specific to one region
18
Annual Report and Accounts 2015/16
Premier Farnell
Viability report
Following recent executive management changes the Board
has taken a conservative approach to the group’s strategy,
with the recent focus on implementing actions resulting from
an extensive operational review which started in H2 2015/16.
This is discussed in more detail on page 8, and on pages
10 and 11.
The Board stated in 2015/16, that the focus will be on
developing the core distribution and related businesses.
The Board decided to sell Akron Brass in H2 2015/16 and
the sale was completed in March 2016. The Board also gave
careful consideration to the strength of the balance sheet
and decided to rebase the dividend, which is discussed
by our Chairman in her review on pages 4 and 5.
The assessment process and key assumptions
The Group’s prospects were assessed primarily through its
strategic planning process. This process includes an annual
review of the ongoing plan, led by the Deputy Chief Executive
Officer through the management committee, and all relevant
functions. The Board participates fully in the annual process
by means, in particular, of an annual strategic away-day, which
is discussed in more detail in the Corporate Governance
Report on page 34.
The Board considers whether the plan continues to take
appropriate account of the external environment and the
changes in industrial production levels and technological
changes. The annual review process delivers a set of
objectives, an analysis of the strategic risks and financial
forecasts.
During this year, additional business plans and financial
projections were prepared to specifically consider the
prospects of the core distribution businesses, and its impact on
the Group’s future performance and funding requirements, both
prior to and following completion of the sale of Akron Brass.
Viability statement
The directors have assessed the viability of the Group over
a three year period to 2019, taking into account of the Group’s
present position and the potential impact of the principal
risks documented on pages 16 and 17. Based upon this
assessment the directors have a reasonable expectation
that the Company will be able to continue in operation and
meet its liabilities as they fall due over the period to 2019.
The three year period was selected as this was seen as
appropriate for the nature of the business of the Premier Farnell
Group and was used as a basis for considering the output
of the operational review programme undertaken in 2015.
A business plan based on the strategy and risks facing the
Group is reviewed and updated annually. The first year of
the plan developed for the operational review forms the basis
for the Group’s operating budget for 2016/17. This process
has taken into account the current and prospective macroeconomic conditions in the countries in which we operate
and the competitive positioning that exists within the markets
that we trade.
The forecast has encompassed the projected cash flows,
dividend cover, and headroom against financial covenants
under the Group’s existing facilities. The forecast also makes
certain assumptions about the normal level of capital and
therefore considers whether additional financing will be
required. Current headroom against the Group’s existing
facilities is £217m as detailed on page 25. The core facilities
have maturity dates between 2017 and 2024, which exceeds
the period under review and provides sufficient headroom to
fund the capital expenditure and working capital requirements
during the planned period.
The forecast has also considered the disposal of Akron Brass
and the intended use of the proceeds. In making this statement,
the directors have considered the resilience of the Group,
taking into account its current position and the principal risks
facing the business. The operational review plan and forecast
were stress tested for severe but reasonable scenarios and
the effectiveness of any mitigating actions that would
reasonably be taken.
The Plan was specifically stress tested for scenarios resulting in
revenue and margin decline which result from a number of the
groups principal risks, which are set out on pages 16 and 17,
as well as considering execution risk associated with the
operational review.
The outcome of this testing satisfied the directors with respect
to the on-going liquidity and solvency of the Group over the
period under review and the ability to meet specific financial
covenants. In particular, should there be a significant
downturn in the demand for the Group’s business, cost
mitigation actions can be taken to address falling profitability.
Going concern
Having assessed the principal risks and the other matters
discussed in connection with the viability statement, the
directors considered it appropriate to adopt the going concern
basis of accounting in preparing the financial statements.
Strategic Report
Governance
Financial Statements
Further Information
19
260,000
400,000
150,000
unique product data sheets
registered community members
CPC/MCM products in stock
20
Annual Report and Accounts 2015/16
Premier Farnell
Financial review
2015/16 has been a year in which
we saw a decline in our profitability.
We are implementing a series of actions
from our operational review as we seek
to improve our financial performance.
Sales
Revenue for element14 for 2015/16 was
£778.5m (2014/15: £769.5m), a 1.2%a
increase on the prior year and revenue
for CPC/MCM during 2015/16 was
£125.4m (2014/15: £117.1m) a 5.0%a
increase on the prior year. Akron Brass
revenue for 2015/16 was £78.8m
(2014/15: £73.5m) a decline of 0.2%a
year on year. Continuing Operations
sales per day growth in 2015/16 was
1.7%a year on year.
element14
Sales momentum increased slightly
towards the end of the year, due to
growth in Continental Europe and Asia
Pacific (APAC). We saw sales per day
decline of 6.9%a and 5.1%a in Q3 and
Q4 respectively in the Americas. We are
addressing the performance in the UK
and North America markets and have
appointed new senior management, as
announced in the Q3 2015/16 external
update. We saw sales per day growth
of 14.6%a in APAC for 2015/2016.
Continental Europe benefitted from
strong sales per day growth of 7.0%a
year on year, in spite of the mixed
economic backdrop across some of
the Eurozone. This strong performance
was offset by weakness in the UK, where
conditions remain challenging and our
performance has been mixed, with
a second half sales decline of 9.5%a.
Sales per day in the Americas
declined over the second half
compared to the prior year. While
this was consistent with weaker US
manufacturing purchasing managers’
indices (PMI) in the second half,
we have initiated a product-led
repositioning of the business
focused on industrial electronics.
Excluding Raspberry Pi, continuing
operations sales per day declined
0.8%a in 2015/16.
CPC/MCM
CPC/MCM delivered combined full
year sales growth of 5.0%a in 2015/16,
benefitting from sales of the Raspberry
Pi 2. In February 2016, we launched
the latest version of the Raspberry Pi,
the Raspberry Pi 3.
Akron Brass Disposal
In September 2015, we announced the
decision to sell Akron Brass, as it did
not fit strategically within the portfolio
given the Group’s refocus on its core
distribution activities. On 5 February
2016, we entered into a conditional
agreement with IDEX Corporation with
respect to the sale of Akron Brass
Holding Corp. for a consideration
of $224.2m payable in cash on
completion, subject to customary
working capital adjustments. On 16
March 2016 we received shareholder
approval for the disposal, and
announced that all conditions to the
disposal had been satisfied and that
the disposal had been completed.
The sale of Akron Brass has been
presented as a discontinued operation
in this report, with the assets and
liabilities of Akron Brass classified
as “held for sale”. Total consideration
receivable was $224.2m (excluding
disposal costs) payable on completion,
subject to customary adjustments.
Net cash proceeds arising from the
disposal will be used to reduce Premier
Farnell’s existing indebtedness and to
redeem its preference shares.
Akron Brass contributed £15.6m
adjusted operating profit and £9.1m
profit after tax to the Group for the
full year (2014/15: £15.0m and
£10.7m respectively).
Strategic Report
Governance
Financial Statements
Further Information
Notes
Key financials
£m – Continuing Operations
2015/16
(52 weeks)
2014/15
(52 weeks)
903.9
886.6
57.4
73.0
Total operating profit
44.9
68.1
Adjusted profit before tax(b)
41.7
59.0
Total profit before tax
29.2
54.1
Adjusted earnings per share
8.2p
10.9p
Basic earnings per share
5.6p
10.0p
Free cash flow(c)
66.7
35.2
2015/16
(52 weeks)
2014/15
(52 weeks)
Total revenue
Adjusted operating profit
(b)
Divisional analysis
Revenue
element14
Europe
347.9
357.1
Americas
341.0
333.1
89.6
79.3
778.5
769.5
CPC/MCM
125.4
117.1
Group – Continuing Operations
903.9
886.6
78.8
73.5
982.7
960.1
APAC
Akron Brass
Group – Total Operations
Adjusted operating profit/operating margin%
element14
CPC/MCM
Head office
Group – Continuing Operations
Akron Brass
Group – Total Operations
21
2015/16
(52 weeks)
2014/15
(52 weeks)
56.5
73.2
7.3%
9.5%
11.8
11.7
9.4%
10.0%
(10.9)
(11.9)
57.4
73.0
6.4%
8.2%
15.6
15.0
19.8%
20.5%
73.0
88.0
7.4%
9.2%
In order to reflect underlying
business performance, sales growth
is based on sales per day at constant
exchange rates, and like for like
periods, unless otherwise stated.
(a)
(b)
(c)
2015/16 and 2014/15 adjusted
operating profit, profit before tax and
earnings per share exclude adjusting
items and are outlined below.
Adjusted free cash flow comprises
total cash generated from operations
(including discontinued 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 £13.3m
(element14 £12.2m and Head
Office £1.1m).
2.Costs associated with the closure
of our Brazil operation of £1.1m.
3.A legal provision release (credit)
of £1.9m.
4. Akron Brass disposal costs of £1.9m.
In the prior year, adjusting items comprise:
1.Restructuring costs of £5.1m
(element14 £1.3m and 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 Americas Head Office.
3. Acquisition costs of £0.1m.
22
Annual Report and Accounts 2015/16
Premier Farnell
Financial review
Continuation
Profitability
As outlined on pages 14 and 15 (KPIs),
we target gross profit growth and gross
profit margin percentage which we
view as two of the key performance
indicators for the Group. We aim to
manage costs as we transform our
business in line with changing market
conditions. Full year operating margin
of 6.4 % (continuing operations)
reflected a decline in gross margin,
mainly due to weakness in our UK
and American operations.
In December 2015, we presented
the findings of our operational review,
(discussed in more detail on page 8)
confirming certain opportunities to
improve the operational and financial
performance of our business. A key
focus of the operational review is the
stabilisation of gross margins through
improved controls on discounting.
During our operational review we
identified cost savings of £19m on
an annualised basis by 2017/18.
We discuss the operational review
in more detail on page 8.
Gross profit and costs
Gross margin for continuing operations
fell from 36.5% in 2014/15 to 34.0% in
2015/16, driven mainly by the continuing
impact of foreign exchange of -1.0%
percentage point, -0.6% percentage
points of price positioning and -0.6%
percentage points of product mix.
Adjusted net operating expenses from
continuing operations were reduced
by £0.8m on the prior year, resulting
in SG&A costs of 27.6% of sales,
a reduction of 0.7 percentage points.
Adjusting items
In 2015/16, we charged £14.4m of
adjusting items to the income statement
of which £1.9m related to Akron Brass
disposal costs. The remaining £12.5m
in continuing operations consists of
£11.7m related to the Group’s operational
review and global business reorganisation
programme, £1.1m associated with the
closure of our Brazil operation, £1.6m
for senior management exit costs and
a legal provision release (credit) of
£1.9m booked in the year.
The £11.7m costs associated with the
Group’s operational review and global
business reorganisation programme
consist of £3.8m of severance payments,
£1.5m of asset write offs and £6.4m
associated with the incremental resource
requirements to design and plan the
execution of the programmes, some
of which will continue into 2016/17.
Operating profit
Adjusted operating profit from
continuing operations was £57.4m
(2014/15: £73.0m,) representing a year
on year decline of 21.4%, reflecting
a reduction in the gross margin, as
noted above.
Adjusted operating profit from total
operations for the full year was £73.0m
(2014/15: £88.0m), representing
a decline of 17.0% year on year.
Operating margin of 7.4% (adjusted)
reflected a decline in gross margin.
Total operating profit from total
operations was £58.6m for the full year,
reflecting a net cost from adjusting
items of £14.4m (2014/15: £83.1m, after
reflecting a net cost from adjusting
items of £4.9m), representing a decline
of 29.5% year on year.
Finance Costs
Net finance costs in 2015/16 were
£15.7m (2014/15: £14.0m). This
comprises net interest payable of £12.0m
(2014/15: £10.5m), which was covered 6.1
times by adjusted total operating profit,
and a net charge of £3.7m (2014/15:
£3.5m) 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 £2.9m (2014/15: £2.9m),
together with a £0.8m (2014/15: £0.6m)
charge for the amortisation of the
implied redemption premium on
preference shares.
Adjusted profit before tax
Adjusted profit before tax from total
operations for the full year was £57.3m
(2014/15: £74.0m), a decline of 22.6%
on the previous year. Total profit before
tax from total operations for 2015/16
was £42.9m (2014/15: £69.1m), a
decline of 37.9% on the previous year.
Earnings per share
Adjusted basic earnings per share
for the financial year are 11.1p (2014/15:
13.8p). Basic earnings per share after
the net impact of adjusting items are
8.1p (2014/15: 12.9p). Adjusted basic
earnings per share for continuing
operations are 8.2p (2014/15: 10.9p).
Basic earnings per share for continuing
operations after the net impact of
adjusting items are 5.6p (2014/15: 10.0p).
Ordinary dividend
The Board recommends that the final
dividend is 3.6p per share (2014/15:
6.0p per share), making a total for the
year of 6.2p per share (2014/15: 10.4p
per share). The final dividend, subject
to approval at the Annual General
Meeting on 14 June 2016, is payable
on 23 June 2016 to shareholders on
the register at 27 May 2016.
Tax
The taxation charge represents
an effective tax rate for the 2015/16
financial year on profit before tax
and preference dividends of 28.4%
(2014/15: 30.0%). After excluding
adjusting items, the effective rate is
27.2% (2014/15: 29.9%). The effective
tax rate for continuing operations
is 26.2% (2014/15: 30.4%). After
excluding adjusting items, the effective
rate is 25.8% (2014/15: 30.3%).
The Group’s adjusted effective tax
charge for continuing operations can
be analysed as follows:
Strategic Report
Governance
Financial Statements
Further Information
2015/16
£m
Total profit before tax
Add back preference dividends
Profit
before tax
23
2014/15
Tax
charge
%
Profit
before tax
Tax
charge
%
57.0
17.3
30.4
29.2
54.1
2.9
2.9
32.1
8.4
26.2
13.3
3.1
5.1
1.5
Net gain on disposal of US property
–
–
(0.3)
(0.1)
Acquisition costs
–
–
0.1
–
1.1
–
–
–
(1.9)
–
–
–
44.6
11.5
61.8
18.7
Adjust for:
Restructuring costs
Brazil closure costs
Legal provision release
25.8
30.3
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 £7.5m (2014/15: £8.0m) and can be analysed as follows:
Charge £m
2015/16
2014/15
Defined benefit pension plans
2.7
2.5
Defined contribution pension plans
4.3
5.0
Post-retirement medical benefits
0.5
0.5
7.5
8.0
The Group’s two principal defined benefit pension plans are in the US and the UK. The movement in the balance sheet liability
of these plans during the year was as follows:
£m
Liability at beginning of year
Expense
Actuarial gains
Contributions
Currency translation
Liability at end of year
US Plan
UK Plan
(26.5)
(23.9)
(1.2)
(1.1)
3.3
4.4
–
4.8
(0.9)
–
(25.3)
(15.8)
The contributions expected to be paid during the 2016/17 financial year amount to £4.6m in respect of the UK plan and £nil
million in respect of the US plan. Post-employment benefits liabilities decreased to £58.2m from £70.7m at the end of
the previous financial year, principally due to actuarial re-measurements. The main driver of these remeasurements was the
impact of increased discount rates. In addition, £3.9m of post-employment benefit liability has been classified as held for sale
and has been transferred on the sale of Akron Brass.
Annual Report and Accounts 2015/16
24
Premier Farnell
Financial review
Continuation
Cash flow and net debt
Adjusted free cash flow as a percentage of sales of 6.8% for
the full year reflected strong working capital management.
Free cash flow attributable to ordinary shareholders is
summarised below:
£m
2015/16 2014/15
Adjusted operating profit
Net cash inflow from working capital was £18.8m (2014/15:
£15.1m outflow), resulting in adjusted cash generated from
operations of £108.8m, and an adjusted cash conversion
of 149.0% (2014/15: 97.5%).
Capital expenditure of £16.7m included £11.1m of software
development costs, principally to upgrade our customer web
experience and to enhance existing systems (which is
discussed in more detail on pages 12 and 13).
The change in net financial liabilities for total operations
is summarised below:
From continuing operations
57.4
73.0
From discontinued operations
15.6
15.0
73.0
88.0
£m
Depreciation and amortisation
18.9
15.3
Opening net financial liabilities
Changes in working capital
18.8
(15.1)
Free cash flow after impact of adjusting items
Additional funding for post-retirement
defined benefit plans
(2.7)
(3.9)
Issue of ordinary shares
0.8
1.5
Preference share redemption premium
(0.8)
108.8
85.8
Derivative financial instruments
(2.4)
149.0%
97.5%
Amortisation of arrangement fees
(0.7)
Capital expenditure
(16.7)
(20.7)
Exchange movement
(8.7)
Interest and preference dividends
(14.1)
(12.5)
Closing net financial liabilities
Taxation
(11.3)
(17.4)
Other non-cash movements
Total cash generated from operations
As a % of operating profit
Free cash flow before impact
of adjusting items
As a % of sales
Cash flow impact of restructuring
costs
Cash flow impact of US property
disposal
2015/16
(256.6)
Ordinary dividends
66.7
35.2
6.8%
3.7%
(9.3)
(7.0)
(0.6)
Akron transaction fees
(0.2)
–
Free cash flow after impact
of adjusting items
57.2
27.6
(31.6)
0.3
(243.3)
At 31 January 2016, the Group’s net financial liabilities for
total operations comprised the following:
£m
Cash in bank and in hand
Bank loans
–
57.2
US$ Senior Notes
Other loans
Preference shares
Derivative financial instruments
The US$ Senior Notes comprise:
$30.0m due 2017
$58.5m due 2018
$91.5m due 2021
$85.0m due 2024
2015/16 2014/15
28.7
43.8
(31.8)
(66.4)
(184.4)
(176.0)
(2.3)
(7.7)
(53.3)
(52.5)
(0.2)
2.2
(243.3)
(256.6)
Strategic Report
Governance
Financial Statements
The maturity of the Group’s gross financial liabilities at
31 January 2016, for total operations excluding derivative
financial instruments, is as follows:
£m
2015/16 2014/15
Due within one year
54.1
6.3
Between one and two years
21.0
52.6
Between two and five years
72.9
125.6
123.8
118.1
271.8
302.6
After five years
Net financial liabilities (including preference shares) for total
operations decreased to £243.3m from £256.6m at the end
of the prior financial year. The impact of exchange rates in
the period was to increase net financial liabilities by £8.7m,
principally in relation to our US$ denominated private
placement notes.
Net cash proceeds arising from the disposal of Akron Brass
will be used to reduce Premier Farnell’s existing indebtedness
including the redemption of all its preference shares.
At 31 January 2016, net debt to adjusted EBITDA was
2.6x and headroom on bank borrowings was £216.5m,
under facilities in place until September 2019.
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. Additionally, monthly reports are
produced by the Group treasury function. 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.
Further Information
25
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.
Annual Report and Accounts 2015/16
26
Premier Farnell
Sustainability report
Code of Conduct
All employees are required to state that they carry out their
role in full understanding and compliance of 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.
94% of new employees completed the Code of Conduct
as part of their induction and confirmed that they had done
so via the Group’s Online Learning Centre within 30 days
of starting employment. The remainder completed outside
of this timeline.
The Trust Line
Premier Farnell provides an anonymous telephone hotline
for employees to report concerns about corporate ethics in
their workplace. In 2015/16, 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.
Greenhouse gas (GHG) statement for the Group
Summary of GHG emissions for the year ended
31 December 2015:
Tonnes Carbon Dioxide equivalent (CO2 e)
2015
2014
2013
Scope 1
3,483
3,964
4,351
Scope 2
13,692
15,831
16,278
Total
17,175
19,795
20,629
Intensity metric:
Tonnes Carbon Dioxide equivalent per thousand square
metres (CO2 e/’000m2)
2015
2014
2013
Scope 1
19
22
23
Scope 2
75
88
87
Total
94
110
110
The decrease in tonnes CO2e emitted by the Group, and the
reduction in the Group’s intensity metric, is principally due
to the relocation of an Americas head office to a Leadership
in Energy and Environmental Design (LEED) certified energy
efficient building in downtown Chicago, approximately half
the size of the previous office. This took place in September
2014, and 2015 is the first full year that the full benefit of the
reduction in emissions has been registered. In addition,
carbon factors in most countries in which the Group
operates, in particular the US and UK, were reduced
during 2015 resulting in lower overall emissions totals.
Each region has developed plans to reduce absolute energy
use and associated GHG emissions, which will be measured
against the 2013/14 baseline. Efficiency investments will
primarily target upgrades to premises that we own in order
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 ISAE3000, against a clear
and public set of criteria which can be found online at www.premierfarnell.com/sustainability. Their assurance
report can be found on page 29 of this report.
Resource use
2015/16 2014/15 2013/14
Waste generated (tonnes)
Waste sent to landfill
(tonnes)
Waste recycled (tonnes)
Waste recycled (%)
4,381
4,488
4,409
742
903
922
3,639
3,585
3,488
83%
80%
79%
Strategic Report
Governance
Financial Statements
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 31 and 32.
Human rights
Premier Farnell supports the fundamental human rights of all
of its employees and stakeholders. Our policies and procedures
are aligned with the principles of the United Nations Global
Compact and we implement a Code of Conduct in our internal
and external dealings to protect the integrity of the people with
whom we interact.
Our Private Label suppliers are subject to our Workplace
Standards policy, setting out the expectation that human
rights will be upheld by those companies with which we
contract, including the elimination of forced and child labour,
and we assess those suppliers’ performance to ensure that
their commitment is being kept.
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.
Supplier Workplace Standards and Ethics
Premier Farnell distributes products on behalf of several
thousand suppliers worldwide, working with large and small
manufacturers to offer a broad range of components and
electronic equipment to our customers.
Further Information
27
We recognise that the electronics supply chain is at risk
of human trafficking and modern-day slavery, particularly
in the raw material-sourcing and manufacturing phases
of a product’s lifecycle.
Since 2009, we have maintained a policy that requires
fundamental standards to be in place for the safe and ethical
treatment of workers employed by all of our suppliers.
We take an active role in monitoring the standards and
compliance of those suppliers that provide us with products
sold under our own brands. Since 2008, these manufacturers
have been required to complete self-assessment
questionnaires, based on the Ethical Trading Initiative’s
Base Code. Respondents are then audited by our Strategic
Sourcing Group to confirm the accuracy of their submission.
2015 Performance
Surveyed
Audited
24
11
Surveyed
Audited
# Suppliers
250
167
% Suppliers
49
31
% Spend1
96
91
# Suppliers
Programme performance since 2008
1 509 total suppliers since 2008.
For 2016, we have set two targets for our Private Label
supplier audit programme:
1.Complete sufficient audits to cover 95% of total spend
on Private Label products
2.Revisit all Private Label suppliers who were last audited
five years ago or more (28)
Premier Farnell falls within the requirements of the
Modern Slavery Act 2015. The first formal declaration will
be published in 2017, following the end of our first eligible
financial year. Next year, we will begin to engage with
franchised suppliers and with providers of goods and
services to Premier Farnell companies in order to expand
our visibility of the working conditions and ethics within our
company supply chain.
Annual Report and Accounts 2015/16
28
Premier Farnell
Health and safety
Global Safety Performance
We report safety performance under the following two
categories:
1.Recordable injuries – injuries requiring treatment by
a medical professional, excluding first aid and initial
diagnosis consultations
2.Days-Away-from-Work (DAW) injuries – injuries resulting
in lost work days, excluding the day of the incident
We set targets based on a computed average for the types
of industry across the Group. Our target is to achieve rates
of Recordable and DAW injuries per 100,000 hours worked
that are 50% or less of that computed industry rate.
Target FY16 Performance
Recordable Injuries
0.40
0.39
DAW Injuries
0.11
0.28
We have achieved our target for Recordable injuries in
2015/16 but have not achieved our DAW injuries target.
# Injuries
2015
Rate per 100,000
hours worked
7+ Days1
151
0.18
3-6 Days
4
0.05
1-2 Days
8
0.10
6
0.08
Incident Severity
Lost Time
No Lost Time
Medical treatment
required
1 46% of 7+ day injuries were incurred at our facility in Liège.
No major incidents or fatalities occurred during 2015.
Continuous improvement plans for 2016/17
In Europe, near miss reporting and incident investigation
procedures will be refreshed in order to improve our ability
to take preventive action and reduce the number of minor
and lost-time injuries incurred on our sites. Additional training
will also be provided to warehouse Shift Managers in the UK
to improve their competence at addressing health and safety
matters. Ongoing training is scheduled for our site in Liège,
Belgium to deliver regular refresher training to all employees
over the course of the year.
Our distribution centre in Singapore will complete certification
to the OHSAS 18001: 2007 Occupational Health & Safety
Management System, formalising the procedures in place
for managing site safety.
We will also implement a global reporting mechanism for
safety incidents, improving the ability of facilities in all three
regions to share data and identify potential risks at their own
sites, based on information collected elsewhere in the group.
Community investment
We focus our community investment activities on the key
area of STEM education 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.
As part of our support for Make the Grade, we also ran
a very successful wearable technology competition for
a number of local schools. We provided both leading edge
technology for the pupils to use, but also partnered with
Leeds Beckett University, who supported the schools
using Student Ambassadors from the areas of computer
programming and product design. The competition gave
the school children an introduction to basic programming
and the opportunity to make a real product.
We are also one of the partner organisations taking part in the
BBC’s Make it Digital initiative and supported this by providing
the manufacturing of one million micro:bit pocket-sized
codeable devices to year 7 school children in the UK.
Strategic Report
Governance
Financial Statements
Further Information
29
Independent Limited Assurance Report to the Directors
of Premier Farnell plc
The Board of 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 Annual Report
and Accounts for the year ended 31 January 2016.
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 that the Selected
Information for the year ended 31 December 2015 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 our report.
Selected Information
We assured the information for the year ended 31 December
2015 presented in the Greenhouse Gas Statement for the
Group (the “Selected Information”) which is published on
the following website: www.premierfarnell.com/sustainability.
The Selected Information and the Reporting Criteria against
which it was assessed 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
31 January 2016.
Selected Information
Reporting Criteria
Scope 1 emissions
Scope 2 emissions
www.premierfarnell.com/
sustainability
Carbon intensity
Professional standards applied and level of assurance
We performed a limited assurance engagement in
accordance with International Standard on Assurance
Engagements 3410 ‘Assurance engagements on greenhouse
gas statements’ (ISAE3410) and, in respect of intensity
measures information, in accordance with the International
Standard on Assurance Engagements 3000 (Revised)
‘Assurance Engagements other than Audits and Reviews
of Historical Financial Information’ (ISAE3000) 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 applied 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 &
Ireland) 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 an independent team with
experience in sustainability reporting and assurance.
Understanding reporting and measurement
methodologies
The Selected Information needs to be read and understood
together with the Reporting Criteria, which Premier Farnell
plc is solely responsible for selecting and applying.
The absence of a significant body of established practice
on which to draw to evaluate and measure non-financial
information allows for different, but acceptable, measurement
techniques and can affect comparability between entities
and over time. The Reporting Criteria used for the reporting
of the Selected Information are as at 25 April 2016 and should
therefore be read in conjunction with the Selected Information
and associated statements as at 25 April 2016 reported on
Premier Farnell plc’s website.
Work done
We are required to plan and perform our work in order to
consider the risk of material misstatement of the Selected
Information. In doing so, we:
ƒƒ made enquiries of Premier Farnell plc’s relevant
management;
ƒƒ interviewed personnel;
ƒƒ performed analytical procedures;
ƒƒ considered the structure and basis of data management
system and controls;
ƒƒ performed limited substantive testing on a selective basis
of the Selected Information to check that data had been
appropriately measured, recorded, collated and reported;
and
ƒƒ considered the disclosure and presentation of the
Selected Information.
30
Annual Report and Accounts 2015/16
Premier Farnell
Independent Limited Assurance Report to the Directors
of Premier Farnell plc
Continuation
Premier Farnell plc’s responsibilities
The Directors of Premier Farnell plc are responsible for:
ƒƒ 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;
ƒƒ establishing objective Reporting Criteria for preparing
the Selected Information;
ƒƒ measuring and reporting the Selected Information
based on the Reporting Criteria; and
ƒƒ the content of the Greenhouse Gas Statement for
the Group and the Annual Report and Accounts
for the year ended 31 January 2016.
Our responsibilities
We are responsible for:
ƒƒ 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;
ƒƒ forming an independent conclusion, based on the
procedures we have performed and the evidence we
have obtained; and
ƒƒ reporting our conclusion to the Directors of Premier Farnell plc.
This report, including our conclusions, has been prepared
solely for the Board of Directors of Premier Farnell plc 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 31 January 2016,
to assist the Directors in responding to 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 Board of Directors
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
25 April 2016
Strategic Report
Governance
Financial Statements
Further Information
31
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.
As we have evolved from a 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
around 3,600 employees based in 38 countries.
Through its range of employee initiatives, described below, the
Group seeks to attract and develop its people around the globe.
In the first half of 2015/16 we undertook a significant
organisational change programme as we moved from a
regional to a global structure. The purpose of this change
was to ensure that our resources were best deployed in
order to deliver the business strategy. This change affected
the majority of our employees, as we reduced regional roles
while increasing global roles. These changes meant that
many roles within the organisation were directly impacted,
while we also redeployed people within the business.
Overall, the organisation’s headcount was reduced as
a result of these changes.
In the second half of 2015/16, we undertook a further
organisational change, in order to reduce the operating costs
of the business as a result of our trading performance.
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 Groupwide performance review approach – Pathway – has been
a platform in helping us move towards a differentiated
performance environment.
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 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
Premier Farnell ‘Leadership Standards’ were co-created
by the business leaders and colleague groups right across
the business. We are working to fully embed them within the
business, including links to our learning and development
options to 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
e-learning, coaching, mentoring and direct on-the-job learning.
The focus moving into our new financial year is to roll out greater
investment in leadership development – ‘Premier Leaders’ being
an integrated Management programme for improving skills and
capabilities which will be rolled out during the coming year.
Since reporting last year, we have made significant progress
on the talent and succession planning agenda. The majority
of our senior leadership population have been through an
objective assessment to help identify strengths and
development areas and to tailor individual development
activities. There has been a strengthening of the leadership
succession pipeline with select external hiring. Internal mobility
of resources has also increased in this last year with greater
open access to internal vacancies, with more than 50% of roles
now filled with internal moves and career progression.
Annual Report and Accounts 2015/16
32
Premier Farnell
Employees
Continuation
Gender diversity (as at 1 February 2016)
% Employees
ƒƒ Board
ƒƒ (7 members)
ƒƒ E14ET
ƒƒ (12
employees)
ƒƒ Senior
Management
ƒƒ (177
employees)
ƒƒ Entire organisation
ƒƒ (4,296 employees – average for
the year)
Male
ƒƒ 88%
ƒƒ 75%
ƒƒ 76%
ƒƒ 56%
Female
ƒƒ 14%
ƒƒ 25%*
ƒƒ 24%
ƒƒ 44%
*NB includes 2 interim appointments to the E14 Executive team
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.
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 encourage mentoring for all colleagues where
mentors actively work with individuals to assist with their
development plans. 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 business updates, through regular,
consistent and open communication, are essential
to engaging our people by keeping them informed.
Equity Award Plan
Introduced in 2015 the Equity Award Plan is granted to
exceptional performers across the Group demonstrating
recognition from the Senior Executive Team and the Board.
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:
ƒƒ Customers and suppliers are at the heart of everything we do
ƒƒ Only by working together can we deliver results
ƒƒ We must innovate; learning and adapting faster than
anyone else
ƒƒ Developing our people is crucial to our success.
ƒƒ Integrity and Trust are fundamental to our culture
Strategic Report
The Strategic Report was approved by a duly authorised
Committee of the Board of Directors on 25/04/2016 and
signed on its behalf by:
Helen Willis
Interim Chief Financial Officer
25 April 2016
Strategic Report
Governance
Governance
34.
Corporate governance report
54.
Directors’ report
58.
Remuneration report
Financial Statements
Further Information
33
Annual Report and Accounts 2015/16
34
Premier Farnell
Corporate Governance Report
Val Gooding
Chairman
The Board has had a very active role in
overseeing the implementation of the Group’s
transformation in 2015/16.
2015/16 has been a busy year at
Premier Farnell. During the year, the
Company has remained focused on
improving its financial performance,
reducing costs and positioning the
business for future growth. The Board
has had an active role in overseeing
this transformation: approving targets;
reviewing financial results; determining
on a global review of operations to
identify efficiencies; starting the
process to sell Akron Brass, our
leading fire-safety products business;
and refreshing the Group’s executive
leadership. Some of these decisions
have been challenging.
The Board as a whole and I as its
Chair are very conscious of our role to
promote the long-term success of the
Company. That calls for decisiveness,
based on clear values and standards,
balanced by awareness of and
vigilance against risk. The Board is
not complacent about how it fulfils its
role; we have also scrutinised our own
make-up and performance as a Board
and concluded that there are things we
could do better. There is more on that
later in this report.
Strategic Report
Governance
So what have we done in 2015/16?
The Group continued its transition to
a global operating model, under which
functional responsibility and reporting
lines established across the element14
business are designed to improve
efficiencies and provide a clear and
cohesive proposition. Throughout
the year, the Board has continued to
monitor carefully the implementation
of this operating model, aware
that governance should not be
compromised during the period of
transition.
In June 2015, the Board held a off-site
strategy session. This was attended by
the Board and key members of the senior
executive team. The Board received
presentations on the Group’s competitive
environment and its vision and strategy
for the medium term, as well as
opportunities, risks and resourcing.
These were debated with and without
executive management in attendance.
The outputs of the meeting were collated
and the themes arising have informed
subsequent Board discussions. The
strategy day is an annual event in the
Board calendar.
In July 2015 the Company announced
that, having been affected by the
slowdown in the trading environment,
it was commencing a review of all its
operations globally in order to identity
further opportunities for efficiency.
The outcome of this review was
announced in December 2015; there
is more information on this on page 8.
The Board has been closely involved
in overseeing the scope and scale
of that review and its governance.
Financial Statements
Further Information
In August 2015 the Board appointed
Mark Whiteling as Interim Chief Executive
Officer and Laurence Bain stepped down
from the Board. Laurence Bain had been
with the Company since 2003 and had
been instrumental in shaping the strategy
and driving the move to a more effective
organisational structure. We are grateful
to Laurence for his dedication and
commitment and wish him every
success for the future.
During the latter half of the year,
we carried out a global search for a
new CEO and I am pleased to welcome
Jos Opdeweegh, whose appointment
was announced on 8 March 2016, to
Premier Farnell. Jos will be supported
in his work by Mark Whiteling who has
moved into the role of Deputy CEO.
I would like to take this opportunity to
thank Mark for stepping up to fill the
role of CEO as interim during the search
process. We also launched the search
for a permanent CFO in 2015/16. That
process is on-going and Helen Willis,
who has been in the role of Interim CFO
since November 2015, has been invited
to consider applying for the role. Mark
Whiteling continues to maintain oversight
of the Group’s Finance function.
In September 2015 the Board set the
interim dividend at 2.6p per share and
took the opportunity to articulate clearly
the Company’s targets for dividends
going forward.
35
Consequent on the operational review,
the Board announced its decision to
sell the Group’s Akron Brass business
in September 2015. As a manufacturer
of fire safety solutions, the business
was flourishing but not core to an
electronics components group. The sale
would allow management to concentrate
its focus on the fundamentals of
distribution in the electronics market.
The interest in the business was
considerable and after the year end
the Board approved the disposal of all
of the shares in Akron Brass’s holding
company for a cash consideration
payable on completion of $224.2
million, having gained the approval
of shareholders at a general meeting
of the Company on 16 March 2016.
The sale completed on 16 March 2016.
We appreciate shareholder support
in this.
Annual Report and Accounts 2015/16
36
Premier Farnell
Corporate Governance Report
Continuation
How did the Board itself develop
in 2015/16?
Consistent with the review of the
Group’s operations, the Board also
evaluates regularly its composition,
effectiveness and skills to ensure that
it remains fit for its responsibilities of
delivering the long-term success of
the Company. In 2015/16, this review
was externally facilitated by Consilium
Board Review. This was a valuable
process for the Board and its members
individually and the outcomes of this
review are detailed on page 44.
There were also changes to the
composition of the Board during the
year under review. Andrew Dougal
stood down from the Board after the
Company’s AGM in June 2015 after
nine years of significant contribution
for which we were very grateful.
In November 2015, we were delighted
to welcome Geraint Anderson as
one of our Non-Executive Directors.
Geraint has considerable executive
management and operational
experience in a number of industries,
including engineering and power
products, and he is a valuable
addition to the Board.
Where do we stand in relation
to our other stakeholders?
The Board recognises that this has
also been a demanding year for our
employees. In 2015/16 the majority
of them received no pay rise and little
by way of bonus but have remained
committed to and passionate about
the business. We have looked to retain
and engage them in the success of
the Group through the introduction of
a new equity award plan specifically for
key talent below Board level (on which
there is more in the Remuneration
Report on page 60). Board members
get to meet a wide range of employees
during their scheduled visits to the
Group’s sites and facilities and this
opportunity is welcomed by them all.
We continue to be impressed by the
dedication, enthusiasm and quality
of our people, to each of whom I would
like to express my gratitude for their
hard work and commitment.
As Chairman, it is my responsibility to
ensure the Board is accessible to our
investors and aware of any concerns
they may have. I have had numerous
meetings with the Group’s major
shareholders in 2015/16.
These have taken place with and
without other members of the Board,
including the Executive Directors, face
to face and by phone and have covered
subjects as diverse as leadership,
financial performance, remuneration
and strategy. Other Board members
have been informed of the views
expressed at such meetings and the
outcomes discussed at subsequent
Board meetings, some of which have
been attended by our brokers and
house analysts to elicit their input.
We consulted our principal investors
on the proposed implementation of
our executive remuneration policy in
2015/16. These discussions continued
well into the first half of the year and the
feedback we received was instrumental
in structuring remuneration practice
in the year. There is more on this in
the Remuneration Report on page 70.
In my view this engagement is essential
to developing trust and mutual
understanding between the Board
and the Company’s investors.
Strategic Report
Governance
What is the Board’s approach
to governance and risk?
The Board is accountable for the
standards of corporate governance
achieved across the Group. The
report which follows describes how,
throughout the year ended 31 January
2016, the Group complied with the
principles and provisions of the Code1.
Risk management has figured high
on the agendas of the Board and
its Committees this year. Our work
in 2015/16 has included robust
assessment of the risks facing the
Group – whether arising out of the
external environment or as an inevitable
result of the Group’s own operations
or transformational programmes –
and, through the Audit Committee,
the controls the Company has in place
to mitigate or manage those risks.
Financial Statements
Further Information
That process has enabled the Board
to consider and assess the prospects
of the Company and decide on the
period over which we are able to make
that assessment. There is more on the
Company’s principal risks on pages
16 and 17 and its system of internal
controls on pages 50 and 53.
What will happen in the year ahead?
I speak for the whole of the Board
when I say that we are looking forward
to 2016/17. Jos Opdeweegh, our new
Chief Executive Officer, joined us
on 11 April 2016. His appointment,
combined with other senior hires made
recently by the Group, brings refreshed
and invigorated leadership to the Group
and its drive to profitable growth. While
Jos completes his induction, the Board
continues its focus on the Company’s
strategic priorities to deliver growth,
reduce costs and optimise performance.
Thank you for your support to date.
Val Gooding, CBE
Chairman
25 April 2016
1The UK Corporate Governance Code 2014. Known as the Code in this report. A copy of the Code can
be found on the FRC website (www.frc.org.uk).
37
Annual Report and Accounts 2015/16
38
Premier Farnell
The Board of Directors
The Board
Val Gooding1
Jos Opdeweegh2
Mark Whiteling
Paul Withers1
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 executive at British
Airways, serving latterly as
Director for Asia Pacific. Val has
also served as a Non-Executive
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.
Jos has over 17 years’
experience in senior leadership
positions in a number of
industrial sectors and global
enterprises. Most recently he
was CEO of Neovia Logistics,
a global leader in industrial
contract logistics, and led its
carve-out from Caterpillar to
form a standalone company.
His operational executive roles
include 4 years as CEO of
Americold Realty Trust and
7 years as President and
CEO of syncreon, (formerly
TDS Logistics). His board
experience includes a NonExecutive Directorship of
Interline Brands, a leading
distributor of MRO products
in the USA. Jos’ international
experience and achievements
in enhancing value for
shareholders across a range
of businesses provide a strong
platform for the next stage
of the Group’s development.
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 was formerly Group
Managing Director of BPB
Plc and has considerable
experience of leadership
in both developing and
established markets and of
strategic development at both
business and corporate level.
Paul’s extensive board
experience and the interaction
he has with the Company’s
shareholders in his role as Chair
of the Remuneration Committee
serve Paul well in his role as
Senior Independent Director.
Committees
Nominations (Chairman).
Other appointments
Non-Executive Director of
Vodafone Group Plc and
TUI AG, Trustee of Historic
Royal Palaces, The Royal
Botanic Gardens, Kew and
the English National Ballet.
CBE, Aged 65
Non-Executive Chairman
since June 2011.
MBA, Aged 50
Chief Executive Officer
from 11 April 2016.
M.COMM (HONS), Aged 53
Deputy Chief Executive
Officer from 11 April 2016.
Interim Chief Executive
Officer from 14 August 2015
to 11 April 2016.
Chief Financial Officer
from 5 November 2012
to 14 August 2015.
MA, Aged 59
Non-Executive Director
since September 2007.
Chairman of the Remuneration
Committee and Senior
Independent Director.
Remuneration (Chairman),
Audit and Nominations.
Non-Executive Director of
Aplicor Inc, a US business
involved in the development
and supply of ERM, CRM
and ecommerce software
solutions.
1 Denotes Non-Executive Director.
2 Jos Opdeweegh was appointed to the Board on 11 April 2016, after the year-end 2015/16.
Chair of Audit Committee and
Senior Independent Director
of Hogg Robinson Group plc.
Non-Executive Director
of Devro plc and Senior
Independent Director
of Keller Group plc.
Strategic Report
Governance
Financial Statements
Further Information
39
Company Secretary
Gary Hughes1
Thomas Reddin1
Peter Ventress1
Geraint Anderson1 Steven Webb
Aged 56
Non-Executive Director
from 9 November 2015.
LLB Solicitor, Aged 53
Appointed as Company
Secretary and General
Counsel in December 2000.
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 web-based lending.
Peter has broad international
experience in the B2B
environment. Until 2014,
Peter was Chief Executive
Officer of Berendsen plc.
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 Non-Executive Director
of Corporate Express
Australia Ltd.
Geraint has extensive
experience in executive
management and operational
role in a number of industries,
including engineering and
power products. He was
formerly Interim Chief
Executive Officer of Volex
plc, a leading provider of
interconnect solutions and
power products where he also
served as a Non-Executive
Director. He has also held
roles as Chief Executive
Officer at TT Electronics plc,
Vice President of Cisco
Systems, and Senior
Vice President of Pirelli.
Experience:
Steven is a qualified lawyer
with a specialism in company
law and has served the
boards in a number of
regulated and non-regulated
business and consumer
industries. Before joining
Premier Farnell, he was the
Company Secretary and
General Counsel of Kelda
Group plc (formerly Yorkshire
Water) and Company
Secretary of Kalon Group plc.
Audit (Chairman),
Nominations.
Remuneration and Nominations.
Audit, Remuneration
and from 17 March 2015
Nominations.
Audit, Remuneration
and Nominations.
Senior member of the
Operational Excellence team
at Apax Partners LLP, a leading
global private equity firm, and
Non-Executive Director of two
of their portfolio companies,
Smart Technologies Inc in
Canada and BMI Healthcare
Ltd in the UK. Non-Executive
Director of Booker Group plc;
Non Executive Director, Chair of
the Audit Committee and Senior
Independent Director of SECC
Limited; Non-Executive Director
and Chair of the Remuneration
Committee of the Scottish
Football Association Limited;
and Non-Executive Director
and Chair of the Audit and Risk
Committee of Majid al Futtaim
Retail Ltd in the Middle East.
Deputy Chairman and Senior
Independent Director of
Galliford Try plc and NonExecutive Director of Softcat
plc and BBA Aviation plc.
Senior Independent Director
of Fenner plc.
Aged 53
Non-Executive Director
since November 2014.
Chairman of the Audit
Committee.
Gary’s extensive involvement
in both the public and private
markets, as well as his general
management, corporate finance,
operational finance and
private equity experience
adds considerable value
across the strategic agenda
of Premier Farnell and its
operational finance and
makes him a good choice as
Chair of the Company’s Audit
Committee. 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. He has
also recently completed
10 years on the board of
J Sainsbury plc.
BSc, MBA, Aged 55
Non-Executive Director
since September 2010
and Chair of the Digital
Advisory Board.
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.
Aged 55
Non-Executive Director
since October 2013.
Other appointments:
Member of the Board
of Governors and Audit
Committee of Leeds
Beckett University.
Annual Report and Accounts 2015/16
40
Premier Farnell
The Board of Directors
Continuation
Fulfilled by
Role/Remit
Whose responsibilities are divided as follows:
Non-Executives Val Gooding
(6)
Chairman of
the Board
leading the
Board to ensure
effectiveness
in all aspects of its role
ƒƒ ensure the membership of the Board is appropriate to
meet business needs
ƒƒ oversee that the Board Committees carry out their duties
ƒƒ establish appropriate personal objectives for the Chief
Executive
ƒƒ promote an open culture of debate, and
ƒƒ develop and maintain effective communication
with shareholders
Paul Withers
SID
acting as deputy
to the Chair of the Board
ƒƒ provide a line of communication to the Company
for shareholders
ƒƒ lead the resolution of any significant Board issues that
are not appropriate for the Chair or the CEO to handle
ƒƒ act as a sounding board for the Chairman, and
ƒƒ lead the other Non-Executive Directors in their annual
appraisal of the Chairman’s performance
Geraint
Anderson
Non-Executive
Director1
constructively
challenging and
helping develop
proposals
on strategy
ƒƒ scrutinise performance of management in meeting goals
and objectives
ƒƒ satisfy themselves on the integrity of financial information and
that financial controls and systems are robust and defensible
ƒƒ determine appropriate levels of remuneration for Executive
Directors, and
ƒƒ lead the process to appoint and remove Executive Directors
and ensure adequate succession plans are in place
Jos Opdeweegh
CEO2
operationally
executing
the strategy
ƒƒ run the day-to-day business and operations of the Group
ƒƒ lead the development and delivery of strategy to enable
the Group to meet the requirements of its shareholders
ƒƒ lead and oversee the executive management of the Group
ƒƒ meet the Group’s budget and strategic plans, and
ƒƒ provide the appropriate environment to recruit, engage, retain
and develop the personnel needed to deliver the strategy
Mark Whiteling
Deputy CEO3
supporting
and deputising
for the CEO
ƒƒ to support the CEO in all aspects of his role
Steven Webb
Company
Secretary
supporting the
Chairman, the
Board and its
Committees
ƒƒ ensure good information flows within the Board and its
Committees and between senior management and NonExecutive Directors
ƒƒ facilitate Director inductions and professional development
ƒƒ as requested, arrange independent professional advice for
Directors at the Company’s expense, and
ƒƒ advise the Board through the Chairman on governance matters
Gary Hughes
Non-Executive
Director
Tom Reddin
Non-Executive
Director
Peter Ventress
Non-Executive
Director
Executives
(2)
Board support
1 Appointed to the Board on 9 November 2015. Until 16 June 2015, Andrew Dougal was a Non-Executive Director of the Company.
2 Appointed as CEO after the year end, on 11 April 2016.
3Appointed as Deputy CEO on 11 April 2016, with continuing oversight of the Group’s Finance function until a permanent CFO is appointed. From 14 August 2015
to 11 April 2016, Mark was the Company’s Interim CEO. Prior to that Mark was Chief Financial Officer of the Company, supporting the CEO in developing and
delivering strategy and driving financial and operational performance.
Strategic Report
Governance
Further Information
Financial Statements
41
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
Geraint Anderson, Gary Hughes,
Thomas Reddin, Peter Ventress, Paul Withers
Geraint Anderson, Peter Ventress, Paul Withers
Geraint Anderson, Gary Hughes, Peter Ventress
Nominations Committee report p47
Audit Committee report p49
Remuneration report p58
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: Company Secretary
Objective: to assist the Board in ensuring
disclosures are fair, accurate and complete
Tax and Treasury
Committee**
Chairman: CFO
Objective: to make recommendations to the
Board on tax and treasury strategy and policy
What are its responsibilities?
* A committee of the Board
** Not a formal committee of the Board but
provides advice and/or information to the Board
What does it not do?
ƒƒ Led by the CEO, the senior executive team are responsible
ƒƒ It is collectively responsible for the long-term success of
for presenting to the Board proposals on strategic direction
the Group and delivering sustainable shareholder value.
and business development.
ƒƒ It reviews strategic issues and sets strategy.
ƒƒ It exercises control over the performance of the Company ƒƒ The Board reviews and challenges these proposals so
that informed decisions are reached.
by agreeing budgetary targets and monitoring performance
ƒƒ The senior executive team are responsible for
against those targets.
implementing these decisions and for day to day operations
ƒƒ It is responsible for internal controls and risk management.
and performance.
ƒƒ It sets values and standards, including good governance,
sustainability, integrity and ethical conduct for adoption
throughout the Group as a whole.
How did it work in 2015/16?
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 2015/16 there were 13 Board meetings of which 6 were
formal scheduled meetings and 7 were, variously, to review
market conditions, business performance, the operational
review and approve the release of the Group’s trading
statements, as well as considering other strategically
important matters. At each scheduled meeting the Board
receives a report from the CEO and CFO on business
performance and market conditions and most scheduled
meetings include 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:
Annual Report and Accounts 2015/16
42
Premier Farnell
The Board of Directors
Continuation
Matter
Actions undertaken during the year
Strategy and
Management
ƒƒ Held a strategy day specifically focused on reviewing the Group’s opportunities, risks, strengths and
weaknesses over the medium term
ƒƒ Set the Group’s strategic plans including the operational review, the proposed sale of Akron Brass and the
annual business plans for the functions and business units
ƒƒ Appointed the Interim CEO and, through the Nominations Committee, launched the search for a permanent
appointee to this and the CFO role, considering internal and external candidates (see page 48 in the
Nominations Committee report)
ƒƒ Resolved to launch the sale of Akron Brass
ƒƒ Kept under review management and business performance, including the continued embedding of the
element14 global operating model
ƒƒ Received feedback on and discussed with the Company’s brokers market perception of the Company
ƒƒ Reviewed HR strategy and leadership succession planning and, through the Remuneration Committee,
pay, conditions and diversity across the Group (see page 70 in the Remuneration report)
ƒƒ Through the Remuneration Committee, approved the terms of appointment of senior leaders of the Sales
and Marketing Function
ƒƒ Reviewed the Company’s sustainability and health and safety record and practices
ƒƒ Reviewed compliance with the principles and provisions of UK Corporate Governance Code and good
Corporate
governance practice generally
Governance
ƒƒ Received updates on and resolved on the Company’s approach to changes in corporate reporting and
and
governance requirements
Communication
ƒƒ Reviewed and assessed the nature and extent of the principal risks faced by the Group in achieving its
strategic objectives
ƒƒ Through the Audit Committee, monitored the actions underway to manage or mitigate the potential effect
of the Group’s principal risks (see page 50 in the Audit Committee report)
ƒƒ Through the Audit Committee, ensured the maintenance of a robust system of internal control and risk
management (see page 53 in the Audit Committee report)
ƒƒ Through the Audit Committee, assessed the Group’s fraud risk exposure
ƒƒ Through the Remuneration Committee, consulted major shareholders on the implementation of the
Executive remuneration policy during the year (see page 70 in the Remuneration report)
ƒƒ Approved the resolutions to be put to shareholders at its annual general meeting, including the adoption
of an new equity award plan as a long-term incentive for employees below Board level
ƒƒ Approved appointments to and removals from the Board and its Committees including the appointment
Board
of Geraint Anderson (see page 48 in the Nominations Committee report)
membership
and committees ƒƒ Approved the terms of reference of the Board Committees (www.premierfarnell.com/investors/board-
committees).
ƒƒ Undertook an externally facilitated and rigorous performance evaluation and implemented recommendations
from previous reviews (page 44)
ƒƒ Through the Nominations Committee, conducted the recruitment process for our permanent CEO and
launched the search for our permanent CFO.
Financial and
Contracts
ƒƒ Reviewed and approved all financial announcements
ƒƒ Reviewed and approved various elements of the Group’s banking and finance arrangements, including the
redemption of the Company’s preference shares and updates to the Group’s banking and private loan facilities
ƒƒ Reviewed and approved (as appropriate) various capital projects, investments and contracts of material value
ƒƒ Responsible for the approval of business acquisitions and disposals, including the proposal to dispose of
Akron Brass
ƒƒ Considered and reported on the position of the Group as a going concern and its viability for the short and
longer term
ƒƒ Set the Group’s insurance strategy
ƒƒ Reviewed and approved the Group’s tax management and planning
Policies and
Procedures
ƒƒ
ƒƒ
ƒƒ
ƒƒ
ƒƒ
ƒƒ
Set the target range for the Company’s dividend
Reviewed and approved the matters reserved for the Board’s approval
Updated the Company’s share dealing code
Approved procedures for the detection of fraud and the prevention of bribery
Approved the Group’s tax and treasury policies
Through the Audit Committee, revised and approved the Company’s policies on non-audit services (see
page 51 of the Audit Committee report)
Strategic Report
Governance
Further Information
Financial Statements
43
How well were the meetings attended?
Name of Director
Scheduled
Board
meetings1
Ad hoc
Board
meetings1
Audit
Committee
meetings
Remuneration
Committee
meetings
Nominations
Committee
meetings
Chairman:
Val Gooding
6/6
7/7
–
–
4/4
Mark Whiteling
6/6
7/7
–
–
-
Laurence Bain
5/5
3/3
–
–
1/1
Geraint Anderson3
3/3
1/1
1/1
2/2
1/1
Andrew Dougal
Executive Directors:
2
Non-Executive
Directors:
1/1
0/1
2/2
2/2
-
Gary Hughes
6/6
6/7
4/4
5/5
4/4
Thomas Reddin
6/6
4/7
–
–
4/4
Paul Withers
6/6
7/7
4/4
5/5
4/4
6/6
6/7
4/4
5/5
4/4
Peter Ventress
4
5
– Not a member of the relevant Committee at the time any meetings of that Committee were held.
1Scheduled board meeting dates are set 18 months in advance. Ad hoc meetings may be held at short notice, making it more difficult to secure full
attendance, particularly from overseas directors.
2 Laurence Bain stepped down from the Board on 14 August 2015.
3 Geraint Anderson joined the Board on 9 November 2015.
4 Andrew Dougal stepped down on 16 June 2015, following the Company’s AGM and before the June Board meeting.
5 Peter Ventress was appointed to the Nominations Committee with effect from 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 and, during 2015/16, this was carried out by
Raymond Dinkin of Consilium Board Review. Neither Mr Dinkin or Consilium have any other connection with the Group.
The process of the review included:
ƒƒ A briefing discussion with each of the Group Company Secretary and the Chairman of the Board;
ƒƒ Review by Consilium of Board artefacts, including minutes, past papers and agendas, strategy papers and analysts reports;
ƒƒ The completion by each Board member and the Company Secretary of a questionnaire on Board culture, perceived
effectiveness and processes;
ƒƒ Individual sessions between Raymond Dinkin and each Board member and with the Company Secretary;
ƒƒ Observation of a Board meeting;
ƒƒ A written report to the Board;
ƒƒ Feedback and an open discussion of outcomes directly to the Board as a whole;
ƒƒ Feedback to the SID on the Chair’s performance, used in the annual review of the Chair’s performance;
ƒƒ A de-brief with the Chairman on Board performance.
44
Annual Report and Accounts 2015/16
Premier Farnell
The Board of Directors
Continuation
The outputs of this review for 2015/16 were (in summary):
2015/16 Performance review
Outcome
Action taken during the year
The Board should have clear and measurable objectives
for it to achieve in each financial year
The Board will decide on 2 or 3 key objectives for the Board
for each year and track progress, the first of which are to be
determined in consultation with the permanent CEO
The Board receives a lot of information on the Company
but should have a succinct and accessible means to taking
the pulse of the business at any time
The regular CEO reports to the Board include a standing
update on a number of key indicators of the core state of
the business
Each Board meeting should conclude with an NED-only
session to review the outcome of that meeting and
requirements for the next
Each Board meeting concludes with an NED-only session
The Board should receive regular updates on the status
of succession planning for the senior team
This is now a standing item for each Board meeting
To avoid any suggestion of conflict of interest, the CEO
should not, as of right, be a member of the Nominations
Committee
Going forward, the CEO will not be appointed to the
Nominations Committee
Board members should have more access to key talent
below Board level
In addition to the time spent with them during site visits and
Board meetings, key talent will be invited to attend at least one
Board dinner per year to allow Board members to spend time
with them in a less formal environment
The evaluation of performance in the prior year (2014/15) had determined a number of actions, the current status of which
is as follows:
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
Throughout the year under review, papers have focused
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
NED sessions have taken place at the end of Audit Committee
meetings through the year and this will continue going forward
The 2015/16 Board evaluation is to be externally facilitated
The evaluation process in 2015/16 was facilitated by Consilium
Board Review as above
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 took place on 17 June 2015 and a day of
strategy review for 2016/17 is scheduled for 15 June 2016
Refreshing of the Board is to continue as vacancies arise
Geraint Anderson was appointed to the Board in 2015.
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 Board has received regular updates on the Group’s
technology function and a detailed presentation from the
Chief Technology Officer in early 2016
Strategic Report
Governance
Financial Statements
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.
Further Information
45
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 this external appointment is
in the Remuneration report on page 78.
The external appointments and interests of Jos Opdeweegh
were reviewed by the Board before his appointment and are
not considered to give rise to any conflict or diversion of time
or attention away from his role with Premier Farnell.
The other appointments and interests of the Chairman are
set out on page 38 and were unchanged during the year
under review.
In 2015/16, all Directors committed an appropriate amount
of time to fulfil their duties and responsibilities to the Board.
Annual Report and Accounts 2015/16
46
Premier Farnell
The Board of Directors
Continuation
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 2015/16 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. In light of the significant
contribution which Paul Withers has and continues to make
to the Board as Chair of the Remuneration Committee and
Senior Independent Director, Paul has been asked to remain
in those roles for the coming year and has agreed to do so.
Paul’s professionalism and discipline are evident in all his
interactions with the Company and the Board and he
continues to fulfil the independence criteria required
for Non‑Executives.
Name
Appointed
on
The Chairman met the independence criteria defined by the
Code as at the date of her appointment. In compliance with
the Code, all of our Directors will retire at our Annual General
Meeting in June 2016 and offer themselves for re-election
(save for Geraint Anderson and Jos Opdeweegh, both of
whom will seek election as this is their first year in office:
as a Non-Executive Director in the case of Geraint and
as an Executive Director in the case of Jos).
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 2015/2016 are:
Start date for term held
during 2015/16
Andrew Dougal1
01/09/2006
17/06/2014 (one year)
Paul Withers
01/09/2007
16/06/2015 (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)
Geraint Anderson2
09/11/2015
09/11/2015 (three years)
2013
2014
2015
2016
2017
2018
One year term
Three year term
1 Andrew Dougal stood down on 16 June 2015.
2 Geraint Anderson joined the Board on 9 November 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 2015, Geraint Anderson
commenced a tailored induction programme which includes:
ƒƒ an overview of the Group, its functions and governance;
ƒƒ briefings on Directors’ regulatory and compliance
responsibilities;
ƒƒ site visits to Group locations (with a visit to Leeds
having taken place in December 2015);
ƒƒ detailed reviews of the strategic projects and initiatives
underway; and
ƒƒ one-to-one meetings with the executive management
team and other key personnel.
A comprehensive induction programme has also been developed
for 2016/17 to ensure that Jos Opdeweegh is given extensive
exposure to and a thorough grounding in all Group businesses
and the competitive environments in which they operate.
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 Munich (Germany), Leeds (UK) and
Chicago (USA).
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. As noted on page 44,
it is proposed that key talent be invited to one Board dinner
per year to facilitate the Board’s interaction with them in a
less formal environment.
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. Strategic Report
Governance
Financial Statements
Further Information
Nominations Committee Report
Nominations Committee Report
Val Gooding
Nominations Committee Chairman
Who else is on the Committee?
What does it do?
ƒƒ
ƒƒ
ƒƒ
ƒƒ
ƒƒ
Key objective:
To lead a formal, rigorous and transparent process
for the appointment of new Directors to the Board
and its Committees.
Geraint Anderson (from 9 November 2015)
Gary Hughes
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. While only members of the Committee have
the right to attend meetings, the Chief Executive Officer,
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.
Responsibilities:
ƒƒ To review the composition of the Board including
its balance of skills and experience
ƒƒ To lead the process for Board appointments and
recommend the appointment of new Directors
ƒƒ To review the re-appointment of
Non-Executive Directors
ƒƒ To make recommendations on the composition
of the Board’s Committees
ƒƒ 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.
47
48
Annual Report and Accounts 2015/16
Premier Farnell
Nominations Committee Report
Continuation
What did the Committee do during the year under review?
The Committee meets when necessary and was convened
four times during the financial year to consider Board,
Committee and Executive appointments, Directors’ tenure,
succession and Board composition. In addition to these
formal meetings, Committee members held a number of
informal meetings and frequent discussion to identify and
assess the candidates for the CEO role.
Non-Executive Directors’ re-appointment and re-election
In 2015, the Committee met to consider the re-appointment of
Paul Withers as a Non-Executive Director. Following a rigorous
review, the Committee recommended to the Board that Paul
be reappointed for a term of one year from June 2015. The
re-appointment of Paul, Tom Reddin and Peter Ventress to the
Board has also been considered by the Committee following
the year end. All are proposed for re-appointment – Paul and
Tom for a one-year term and Peter for three years – with effect
from the Company’s AGM in 2016.
All Directors will continue to be considered for annual
re-election or appointment at every AGM provided they
demonstrate commitment and effective performance.
Appointment of Geraint Anderson
During the year the Nominations Committee recommended
the appointment of Geraint Anderson as an additional
Non-Executive 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. A draft specification was reviewed and approved by
the Nominations Committee. Russell Reynolds (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 the Interim Chief Executive Officer.
Candidates also met other Board members. From the
shortlist of interviewed candidates, Geraint Anderson was
chosen for appointment due to his extensive experience
in executive management and operational role in a number
of industries, including engineering and power products.
Geraint joined the Board on 9 November 2015 and attended
his first face to face Board meeting in December 2015.
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
made up 30% of management grade employees. As at the
beginning of the current financial year, women made up 24%
of senior management positions and 25% of the senior
executive team, while female membership of the Board stood
at 14%. The proportion of women at all three levels is below
target. Provided that the candidate is otherwise the best fit
for the position, the Board’s aspiration is to increase its
gender diversity in 2016/17.
There is further information on the Company’s policy and
practices on diversity on page 32 of the Strategic Report.
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.
The Chief Executive Officer presents annually to the Board
on succession planning for the executive team, to identify the
pipeline of prospective candidates for all senior executive
positions, and updates on succession for the senior
leadership team are reviewed at each Board meeting.
The CEO search and appointment
The Nominations Committee led the search for a permanent
CEO. Korn Ferry, the world-leading executive search agency,
were retained to assist with this. A specification for the role
and ideal candidate profile were drawn up with input from
all members of the Committee and formed the basis of the
search process. A number of internal and external candidates
were put forward and interviewed by the Chairman and other
members of the Board and undertook a rigorous assessment
process.
After the year end, the Committee recommended to the Board
that Jos Opdeweegh be appointed as permanent CEO and
the Board accepted the recommendation. Jos’s appointment
was announced, in accordance with the requirements of the
UKLA’s Listing Rules, on 8 March 2016 and he took office on
11 April 2016.
The search for a permanent CFO has also been launched
and is ongoing, with internal and external candidates being
considered.
Strategic Report
Governance
Financial Statements
Further Information
49
Audit Committee Report
Audit Committee Report
Gary Hughes
Audit Committee Chairman
Who else is on the Committee?
What does it do?
ƒƒ Geraint Anderson (from 9 November 2015)
ƒƒ Peter Ventress
ƒƒ Paul Withers
Key objective:
To ensure that the interests of shareholders are properly
protected in relation to financial reporting and internal
controls.
Committee Secretary: Steven Webb
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 nonexecutive 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 38 and 39.
Other regular attendees at scheduled meetings include
the Chief Executive, the Board Chairman, the other
Non-Executive Directors, Chief Financial Officer,
Head of Internal Audit and lead external audit partner.
Committee members take time after each 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.
Responsibilities:
ƒƒ To review accounting policies and the integrity and
content of the financial statements
ƒƒ To monitor and review the effectiveness of the Group’s risk
management and internal control systems
ƒƒ To consider the adequacy and scope of external and
internal audits
ƒƒ To oversee the appointment and ongoing relationship with
the external auditor
ƒƒ At the Board’s request, to provide advice on whether
the Annual Report and Accounts, taken as a whole, is fair
balanced and understandable
ƒƒ To monitor the objectivity, independence and effectiveness
of the external auditor, particularly with regard to the scope
and expenditure on non-audit work, and the effectiveness
of the Internal Audit function
ƒƒ To review and approve the statements to be included in
the Annual Report on internal control and risk management
ƒƒ To review and report on the significant issues considered
in relation to the financial statements and how these have
been addressed
The Committee’s terms of reference are reviewed annually
and are available on the Governance section of our website
at www.premierfarnell.com.
50
Annual Report and Accounts 2015/16
Premier Farnell
Audit Committee Report
Continuation
What did the Committee do during the year under review?
The key activities for the Committee in 2015/16 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 and reviewed fees and terms
of engagement. It considered progress during the year,
assessing the auditor’s principal findings and taking
feedback from management involved in the audit process.
This feedback is then relayed to the auditor to enable it
to focus on areas for improvement in the year ahead.
The Committee meets the lead audit partner without
executive management present after each Committee
meeting, to enable open discussion of any issues or
concerns. The Committee also took steps to ensure that
auditor independence and objectivity are safeguarded,
on which there is more on page 51 below.
The Committee considers the external auditor to be
independent, objective and effective in its role. Accordingly,
the Committee has recommended to the Board that
PricewaterhouseCoopers LLP are proposed for reappointment
as the Company’s external auditor at the June 2016 AGM. The
Committee has reviewed and approved the auditor’s fee for
recommendation to the Company at that meeting.
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. PricewaterhouseCoopers LLP were first
appointed as the Group’s auditor in 1997 and, under the
transitional provisions of the Statutory Audit Services Order,
the Company has until 2023 to put the audit out to
competitive tender. Following senior management changes
at the Group’s auditor, the next rotation of the Group’s lead
audit partner (which normally takes place every five years)
has been brought forward to 2016/17. In light of the recent
appointment of our permanent CEO and the work underway
to complete the outputs of the operational review, the
Committee is of the view that the competitive tender process
would be better undertaken no sooner than in 2017/18 by
which time the Group’s permanent finance leadership is
expected to be in place and embedded.
During 2016/17 the Committee will oversee the rotation of the
lead audit partner.
Monitored and kept under review the Group’s risk
management processes and system of 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 considers the materiality of financial
and other risks to the Group’s business and reputation
and the mitigating actions in place to minimise those risks.
The Board reviewed the principal risks facing the Group
and their mitigations twice in 2015/16. A full overview of the
Group’s principal risks, uncertainties and opportunities can
be found on pages 16 and 17 of the Strategic Report. The
Committee has delegated authority to monitor and assess
the effectiveness of the Group’s system of internal controls
and other processes to manage these risks.
2015/16 was a transitional year for the Group as the move
to a global operating model took effect. The Board and the
Committee were aware that this change in structure would
also affect the Company’s internal controls. The Committee
received a number of reports and updates from the Group’s
Internal Audit function on the effectiveness and embedding
of internal controls under the new structure and on the
governance in place over the operational review. The Internal
Audit function serves as a fundamental line of defence for
the Group. It re-shaped its annual audit plan in 2015/16 to
enable it to assess the potential risks to controls arising out
of the operational review and change in operating model.
It coordinated a number of risk workshops with heads of
the Group’s functions to review and assess the Group’s
principal risks in detail prior to their review by the Board.
It also undertook and reported to the Committee on its own
effectiveness and that of the co-sourced services it employs
in carrying out its audit plan in 2015/16. As the change to
a global operating model is further embedded and the
operational review work develops in 2016/17, the Committee
will continue to keep the effectiveness of the Group’s internal
controls high on its agenda.
The Committee also reviewed treasury and wide-ranging
fraud risks encountered by the business as standalone items
and has commissioned further reports on cyber risk and
cyber security for the Group in the coming year.
There is more on the Group’s risk management and internal
controls on page 53.
Strategic Report
Governance
Financial Statements
Monitored non-audit services and revised the non-audit
services policy
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.
As usual, the policy was reviewed by the Committee during
the year to ensure that it remains up to date and appropriate.
As part of that review the Committee elected to impose a
target ratio of twice audit to non-audit fees under its policy
going forward. Further revision of the policy will take place in
the year ahead as the EU Audit Services Reform regulations
are finalised. The current non-audit services policy is available
in full 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.
The split between audit and non-audit fees for 2015/16 and
information on the nature of the non-audit fees incurred is
detailed on page 103 of the Consolidated Financial Statements.
The Committee reviews the procedures followed by PwC
to maintain its objectivity and independence and receives
specific assurance each year on the effective segregation of
audit staff on competing audits in smaller offices. The Audit
Committee has adopted and implemented a Group-wide
policy restricting the employment by the Group of former
employees of the external auditor engaged in the audit of
the Company in the previous 12 months.
Advised on fair, balanced and understandable and the
viability of the Group
The Committee advises the Board on whether the
Annual Report and Accounts offers a fair, balanced and
understandable view of the Group. The Committee considers
the process which enables Board members to reach this
conclusion and reviews and comments on the drafts of the
Report in its entirety, before making its recommendation to
the Board.
The Committee – and the Board as a whole – received
presentations and papers on the new disclosure requirements
on viability introduced in respect of the year under review.
The statement set out on page 18 was considered by the
Committee in draft and recommended by it to the Board
for approval.
Further Information
51
Reviewed the integrity of financial statements
The Committee monitors the integrity of all financial
statements in the Annual Report and half year results
statement and the significant accounting policies, principal
estimates and financial reporting judgements contained in
them. The Company Secretary reports to the Committee
on the proceedings of each Disclosure Committee meeting.
The meetings of the Disclosure Committee review the
interim and preliminary results announcements following
management verification, obtain assurance on management
sign-offs and assess the principal risks and uncertainties
facing the business. The Company Secretary provides
specific assurance to the Audit Committee that these
procedures have been followed in full.
There is more on the Group’s systems of internal control
on page 53.
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 2015/16 these areas were:
• Inventory and inventory valuation
Consolidated Group inventories for continuing operations
as at the year end were £247.7m. 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 98. 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.
52
Annual Report and Accounts 2015/16
Premier Farnell
Audit Committee Report
Continuation
• Adjusted items and profit and loss treatment
Due to their significance and nature, the Group reported
adjusting items for continuing operations of £12.5m in 2015/16.
The details of these adjusted items are set out in note 2
of the financial statements. Management believes that this
provides additional useful information on underlying trends
and performance and, as such, have presented these items
in this way. The Audit Committee agree with this assessment.
• Discontinuing operations
On 16 March 2016 the Group completed the disposal of Akron
Brass Holding Corp (Akron Brass). The results of Akron
Brass are presented as a discontinued operation in the
Consolidated income statement with the assets and liabilities
of Akron Brass classified as “held for sale”. The direct costs
associated with the sale of Akron Brass that were incurred
in 2015/16 of £1.9m have been recorded as adjusting items
within discontinued operations. The Audit Committee agrees
with this presentation of Akron Brass.
• 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.
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 disposal of Akron Brass and
its positive impact on the Group’s funding position over the
coming period as well as the impact of Operational Review
initiatives on the continuing Group. 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.
Viability statement
The Audit Committee have assessed the viability of the
Group over a three year period to 2019, taking into account
the Group’s current position and the potential impact of
the principal risks documented in the Strategic Report.
The underlying assumptions, the reasonableness of those
assumptions and the comparison of those assumptions
versus previous years were all considered as part of the
viability assessment, set out in the Strategic report, page 18.
The Audit Committee agrees with these assumptions and the
assessment of the Directors, having a reasonable expectation
that the Group will be able to continue in operation and meet
its liabilities as they fall due over the period to 2019.
In addition to the significant accounting issues noted above,
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.
Assurance on Risk Management and Internal Controls
On behalf of the Board, the Audit Committee examines the
effectiveness of:
ƒƒ the Group’s systems of internal control, including by its review
and approval of the internal audit plan and by reviewing the
outputs of those audits; by its review of the controls on
reporting the annual, preliminary and half yearly financial
statements; and by its review of the nature and scope of
the external audit and the reports of the external auditor;
ƒƒ the management of risk by reviewing the Group’s risk
assessment processes and by receiving reports on the
effectiveness of those processes; and
ƒƒ actions taken to manage critical risks or emerging risks and
to remedy any control failings or weaknesses identified,
maintaining its oversight to ensure these are managed
through to closure.
The Audit Committee has monitored and reviewed the
effectiveness of the Company’s risk management and
internal control systems, covering all material controls
including financial, operational and compliance controls,
throughout the financial year 2015/16 and carried out an
annual evaluation of the extent of its oversight in 2015/16.
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 Committee recognises that the transition to a global
operating structure in the year under review has had some
impact on the Group’s controls environment as roles and
processes have been subject to change. During the year
ended 31 January 2016, the Committee has concluded that
these are not so significant as to have affected, or be
reasonably likely to materially affect the level of assurance
provided over the reliability of the financial statements.
Strategic Report
Governance
Financial Statements
Further Information
53
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:
ƒƒ Risk and control process for identifying, evaluating
and managing principal risks. Coordinated by the
Head of Internal Audit
ƒƒ Risk registers in place for each function or business
unit, with mitigating actions recorded and tracked
ƒƒ Internal and external audit reports which comment
on controls to manage identified risks and identify
new ones
ƒƒ A quarterly compilation of all contingent liabilities
identified by the business. The report is reviewed
by the Disclosure Committee twice per year and
then by the Audit Committee
ƒƒ 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
ƒƒ A confidential whistle-blowing helpline and
an email address available for employees to
contact the CEO in confidence
ƒƒ Regular updates on current developments and
emerging themes in corporate governance
and risk management practice
The internal controls which provide assurance to the Committee
of effective and efficient operations, internal financial controls
and compliance with law and regulation include:
A formal authorisation process for expenditure and investments
ƒƒ 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 on a function by
function basis
ƒƒ Controls over financial reporting and the preparation of
consolidated financial information to provide reasonable assurance
that transactions have been recorded and presented accurately
ƒƒ Accountability defined by function or business unit with all relevant
legal, regulatory and internal policy requirements
ƒƒ An organisational structure with defined authorities for financial
management and maintenance of financial controls, including
segregation of duties controls; controls over financial reporting
and transactional records; and finance certification as part of the
consolidation process
ƒƒ Quarterly reviews by the senior executive team of each function and
business unit, tracking priorities, issues, resourcing, costs and risks
ƒƒ The Code of Conduct which outlines the expected standards of
business compliance and behaviour. Employees confirm
compliance as part of their year-end review
ƒƒ Mandatory induction training for all incoming employees on the Group’s
Code of Conduct, information security and trade and data compliance
ƒƒ A framework of anti-bribery and corruption policies and
procedures and a dedicated anti-bribery hotline
ƒƒ The procedural checklists and controls sign-offs completed halfyearly by all functions and business units, to confirm compliance with
financial and operational controls, with certification at intervening
quarter ends that no new issues have arisen
ƒƒ The work of the Disclosure Committee in overseeing this sign-off
process and each function or business unit’s material contingent
liabilities
ƒƒ Internal control self-assessment questionnaires, identifying core
and fundamental controls, completed by the relevant function or
business unit annually and co-ordinated through Internal Audit who
cross-check outputs against their findings during the year and
subsequent year’s audits
ƒƒ A defined process for issue identification, reporting and resolution
ƒƒ A finance compliance team, focused on the integrity of financial
reporting and escalation to Internal Audit as appropriate
ƒƒ A framework of operational and HR-related policies and procedures
The statement of Directors’ responsibilities in relation to the preparation of the Annual Report and Accounts is on page 57.
Annual Report and Accounts 2015/16
54
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 31 January 2016.
The Directors’ Report comprises these pages (54 to 57)
and the other sections and pages of the Annual Report
cross-referred to 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 32). These
disclosures include information relating to future business
developments (references throughout the Strategic Report)
and the Group’s principal risks and uncertainties (pages
16 and 17). The Directors’ viability statement is at page 18.
What profit was made during the year?
The Group’s total operating profit for the financial year was
£58.6 million (2014/15: £83.1 million) and its adjusted operating
profit was £73 million (2014/15: £88.0 million). Current year
adjusting items comprise restructuring costs of £13.3 million,
costs of £1.1 million in respect of the closure of local
operations in Brazil and £1.9 million in respect of the release
of a provision on successful conclusion of a potential legal
action. Profit attributable to owners of Premier Farnell plc
for the financial year to 31 January 2016 was £29.9 million
(2014/15: £47.5 million).
What final dividend are the Directors recommending?
The Directors recommend that a final dividend equivalent
to 3.6 pence per ordinary share be paid on 23 June 2016 to
those shareholders on the register of members at the close
of business on 27 May 2016. If this is approved, this will
result in a dividend on the ordinary shares for FY15/16 of:
Ordinary shares
£m
Interim dividend of 2.6p per share
paid on 22 October 2015
(2014/15: 4.4p per share)
9.5
Proposed final dividend of 3.6p per share
(2014/15: 6.0p per share)
13.4
Total ordinary dividend of 6.2p per share
(2014/15: 10.4p per share)
22.9
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
121) 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 2016 AGM
appear on pages 38 and 39. Information relating to Directors’
interests in the Company’s shares is included in the
Remuneration report on page 78. The Directors who
held office during the year under review were:
ƒƒ Val Gooding
ƒƒ Geraint Anderson (appointed 9 November 2015)
ƒƒ Andrew Dougal (stood down 16 June 2015)
ƒƒ Gary Hughes
ƒƒ Tom Reddin
ƒƒ Peter Ventress
ƒƒ Paul Withers
ƒƒ Mark Whiteling
ƒƒ Laurence Bain (stood down 14 September 2015)
Are the Directors indemnified?
The Company provided indemnities to each of its Directors
during the year ending 31 January 2016 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.
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, throughout
the year under review, cumulative convertible redeemable
preference shares of £1 each in nominal value. As at
31 January 2016, the ordinary shares and preference
shares represented 85.17% and 14.83% respectively
of the Company’s total share capital.
Strategic Report
Governance
Financial Statements
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 111) and 20 (page 118)
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, 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 shares 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.
Under the Articles, the preference shares are scheduled to
be redeemed in full and cancelled on 29 April 2016.
Does the Company have powers to buy back its own
shares?
At the forthcoming Annual General Meeting of the Company
on 14 June 2016, the Company will seek authority from its
shareholders to purchase its ordinary shares. An authority
was previously granted at the Annual General Meeting in
2015 and expires at the close of the forthcoming meeting.
The authority sought will, if granted, empower the Directors
to exercise that authority on behalf of the Company.
Although an authority to purchase its preference shares was
granted at the Company’s AGM in June 2014 and remains in
force, no authority to purchase the preference shares is
proposed to be sought at the June 2016 Annual General
Meeting as the preference shares will be redeemed in full
in April 2016.
During the year ended 31 January 2016 the Company did
not purchase, acquire or dispose of any of its ordinary or
preference shares.
Further Information
55
Were there any important events affecting the Group
after the year end?
On 29 April 2016, the Company will redeem and subsequently
cancel all of its outstanding 3,236,471 cumulative convertible
preference shares for a total consideration of £53.3 million.
These shares, which represent all of the outstanding
cumulative convertible redeemable preference shares in
issue, have a nominal value of £3,236,471. The preference
shares were issued in April 1996 as redeemable shares with
the date and terms of their redemption set out in the
Company’s Articles. Further details are set out in note 16
(page 111) to the consolidated financial statements.
On 16 March 2016, the Company – together with its whollyowned subsidiaries, Celdis Limited and Premier Farnell Corp
– completed the sale of all of the shares in Akron Brass
Holding Corp (Akron Brass) to Idex Corporation for a cash
consideration of US$224.2 million (subject to customary
adjustments). Akron Brass is the holding company of the
Akron Brass group which designs, manufactures and sells
engineered life safety products and solutions for fire fighting
and emergency response applications to the municipal fire
fighting equipment, industrial fire and vapour mitigation,
commercial vehicle, and emergency medical rescue and
transport markets globally. IDEX Corporation is a publicly
traded global applied solutions provider specialising in fluid
and metering technologies, health and science technologies,
and fire, safety and other diversified products in high-growth
markets. The disposal was approved by the Company’s
shareholders in general meeting on 16 March 2016. The
net proceeds of the disposal are proposed to be used to
redeem the Company’s preference shares and reduce its
indebtedness under its note purchase and revolving credit
facilities. Further information on the disposal is set out on
page 20.
On 8 March 2016 the Company announced the appointment
of Jos Opdeweegh as Chief Executive Officer and Jos joined
the Company on 11 April 2016, when Mark Whiteling took up
the role of Deputy CEO.
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.
Annual Report and Accounts 2015/16
56
Premier Farnell
Directors’ Report
Continuation
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 31 January 2016 and any
changes up to and including 18 April 2016.
Company
% holding
as at 31/01/2016
% holding
as at 18/4/2016
Schroders plc
4.84%
4.84%
Newton Investment
4.97%
4.97%
Legal & General
4.03%
4.03%
Artemis Investment
4.86%
4.86%
Fidelity International
(FIL)
4.90%
4.90%
Old Mutual Asset
Managers UK Ltd
4.60%
4.60%
UBS Global Asset
Management
5.13%
5.13%
Prudential PLC (M and G)
8.37%
8.37%
Standard Life
Investments Ltd
4.76%
4.76%
Norge Bank
3.92%
3.92%
Harris Associates
5.04%
5.04%
Baillie Gifford & Co
less than 5%
less than 5%
BlackRock inc
less than 5%
less than 5%
5.08%
5.08%
JO Hambro Capital
Management Limited
Is there anything else we should know?
ƒƒ Greenhouse gas emissions – disclosures on greenhouse
gas emissions and environmental matters can be found
in the Sustainability Report on page 26.
ƒƒ Employees and diversity – information about the
Company’s employees and the Group’s policy on diversity
can be found on pages 31 to 32 of the Strategic Report.
ƒƒ Political donations – the Group’s policy is not to make
contributions to political parties and no donations were
made during 2015/16.
ƒƒ Group subsidiaries – details of the Group’s principal
trading subsidiaries can be found on pages 144 and 145.
ƒƒ 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 114 (note 19)
to the consolidated financial statements.
ƒƒ 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 121 (note 20) to the consolidated financial
statements.
ƒƒ Publication of unaudited financial information – the
Company has published four trading statements (dated
18 June, 29 July, 17 September and 17 December 2015)
containing unaudited financial information relating to the
financial year ended 31 January 2016. The actual audited
figures for the same period are included in the
consolidated financial statements pages 88 to 136.
Strategic Report
Governance
Financial Statements
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. 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, as required by UK
Accounting Standards and applicable law. 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:
ƒƒ select suitable accounting policies and then apply
them consistently;
ƒƒ make judgements and estimates that are reasonable
and prudent;
ƒƒ state whether IFRSs as adopted by the European Union
and applicable UK Accounting Standards have been
followed, subject to any material departures disclosed
and explained in the Group and parent company financial
statements respectively; and
ƒƒ prepare the financial statements on the going concern
basis, unless it is inappropriate to presume that the
Group will continue in business.
The Directors are responsible for keeping adequate
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.
Further Information
57
The 2015/16 financial statements will be published on
the Company’s website. The Directors are responsible for
maintenance and integrity of the version of the financial
statements appearing on the Company’s website to the
same extent as for the hard copy version. The work carried
out by the auditors does not include consideration of the
maintenance and integrity of the website. Legislation in
the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
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.
Directors’ responsibility statement pursuant to DTR 4
Each of the Directors, as listed on pages 38 to 39, 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 IFRSs as adopted
by the EU, give a true and fair view of the assets, liabilities,
financial position and profit of the Group; and
b.the Strategic Report contained in this Annual Report
includes a fair review of the development and
performance of the business and the position of the
Group together with a description of the principal risks
and uncertainties that it faces on pages 16 to 17.
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
25 April 2016
58
Annual Report and Accounts 2015/16
Premier Farnell
Remuneration Report
ANNUAL MESSAGE TO SHAREHOLDERS FROM THE
CHAIRMAN OF THE REMUNERATION COMMITTEE
Dear shareholder
The Remuneration Committee went into 2015/16 proposing
to make a number of changes to the way we implement the
Company’s Remuneration Policy. We planned to simplify the
design of our short-term incentive scheme, making it more
understandable and accessible to the participants so as
to motivate them more effectively. We proposed the
introduction of a new equity award plan for employees
below Board, to operate as a mechanism for retention and
alignment with shareholder interests and under which award
sizes would be modest. We were conscious that retention
would be crucial in 2015/16. The prior year had been a year
of change for the Group and we expected further transition
in 2015/16 as the new operating model was embedded.
2015/16 proved to be even more eventful than anticipated.
Group sales were adversely affected by a slowdown in a
number of core markets and gross margin by exchange
rate fluctuations, our product mix and price positioning.
An operational review was commenced to identify efficiency
and margin improvements and restore growth in profitability.
In August 2015, we recognised that a change in leadership
was required. Laurence Bain stepped down and Mark
Whiteling took over as Interim CEO while the search for a
permanent appointee was launched. For much of 2015/16
and at the year end, Mark was our sole Executive Director,
supported in his leadership by his management team, which
was in turn invigorated and refreshed by new recruits to our
Sales and Marketing leadership during the year.
The changes we had already conceived for 2015/16 were
implemented and the Committee continues to be vigilant
in its ongoing scrutiny of our remuneration practices to
ensure that they are fit for purpose in challenging conditions.
Retaining and attracting the right talent to ensure the
success of the business remains critical. On 8 March 2016,
we announced the appointment of Jos Opdeweegh as our
permanent CEO and he joined the Group on 11 April 2016.
In this annual statement, I will focus first on what the
Committee did in 2015/16 before going on to outline what
is 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 62). The Committee’s view is that the
Policy remains appropriate and fulfils its aims; our actions
during the year under review were within its scope, as are
our proposals for 2016/17, and no amendments to it are
proposed. The Policy will next be put to shareholders at our
Annual General Meeting in June 2017. Our annual report on
the implementation of that Policy during the year under
review starts at page 71.
Strategic Report
Governance
Financial Statements
What happened to Directors’ remuneration in 2015/16?
Executives’ salaries and Non-Executives’ fees.
We assessed the Executives’ salaries in June 2015 as part
of our annual review. The Executives requested that no
increase to them should be made and the Committee
agreed. Similarly, there was no annual increase in the
fees of any of the Non-Executive Directors in 2015/16.
Appointment of the Interim CEO
On Mark’s appointment as Interim CEO in August 2015,
his salary was increased to £500,000 commensurate with his
added responsibilities and accountability but, recognising that
he was new to this role, less than that paid to his predecessor.
Certain other elements of his remuneration were also changed
to reflect those customarily offered to a CEO under our
Remuneration Policy: the maximum opportunity available
to him under the annual bonus was increased to 160%,
his car allowance to £15,000 per annum and his other
benefits calculated on the basis of his new salary. These
arrangements were in effect at the 2015/16 year-end as
Mark continued to act as our Interim CEO at that time.
Annual bonus payout
We simplified our annual bonus plan in FY16 for all participants.
70% of maximum opportunity was dependent on Group
operating profiti while the remaining 30% was payable
against other performance criteria relevant to the individual’s
role. Operating profiti acted as an underpin: if it did not reach
the performance threshold no bonus would be payable
unless the Committee exercised its discretion to determine
that it should be when a maximum of 10% of the total
opportunity could be awarded. The operating profit threshold
was not achieved and so no bonus – in cash or shares –
was payable.
Long-Term Incentive Awards
The awards granted under the Company’s long-term incentive
plan in 2012/13 were scheduled to mature in July 2015/16.
Vesting was subject to the awards meeting stringent returns
on sales and earnings per share targets by the end of
January 2015. These targets were not achieved and the
awards lapsed.
i Adjusted operating profit, excluding Akron Brass and CPC/MCM.
Further Information
59
We determined to make our annual scheduled long-term
incentive awards in 2015/16 under our performance share
plan (PSP) only, rather than by a combination of performance
shares and market value options. Following consultation
with the Company’s major shareholders, it was decided
that 70% of each award would be subject to an earnings
per share target, requiring at least 7% per annum growth
in EPS in the period to January 2018, with maximum vesting
for that portion of the award on achieving 14% growth in EPS
per annum over that period. The remaining 30% would be
subject to a relative total shareholder return performance
condition, assessed against a comparator group made up of
the FTSE All Share Index, less investment trusts. Using the
two metrics allows us to combine a clear focus on growing
profits with a clear simple metric aligned to shareholder
interests.
Mark Whiteling was our sole Executive Director in October
2015 when the annual award of long term incentives was
made. He received an award of performance shares equal in
value at grant to £425,000 or 85% of his base salary – well
below the maximum allowed under our Remuneration Policy
and the rules of the long-term incentive scheme. As in the
prior year, awards under the PSP bear a right to dividend on
vesting, payable in the form of shares, to the extent that the
award meets its performance conditions.
The link between performance and remuneration
outcome in FY16
The Company saw growth in sales per day but experienced
continued margin pressure as a result of the competitive
environment, so there were no payouts under the variable
remuneration elements of Executive pay this year. In the
circumstances, the Committee considers that the rewards
achieved are appropriate.
Arrangements on the departure of the former CEO
The Committee oversaw the terms on which Laurence Bain
left the Company in September 2015. Laurence received the
contractual payments in lieu of notice to which he was
entitled under his service contract, payable over the eleven
month period following his leaving and subject to potential
reduction should Laurence secure other employment during
this period. In view of Laurence’s commitment and achievements
over many years, the Committee determined that Laurence
was a good leaver and hence entitled under the plan rules to
retain a proportion of his share awards, on a pro-rated basis
where those awards had not already vested and subject to
applicable performance conditions. There is more detail on
this on pages 76 and 77.
Annual Report and Accounts 2015/16
60
Premier Farnell
Remuneration Report
Continuation
What changes are planned for 2015/16?
Annual Bonus Scheme
In 2016/17, the percentages of base salary potentially available to the Executive Directors under the annual bonus scheme
is as follows:
Maximum bonus
opportunity as a
percentage of base salary
CEO
Deputy CEO
CFO
160
140
140
We will continue to determine 70% of the total maximum bonus
opportunity by reference to adjusted operating profit for the
Group and the remaining 30% against other performance
criteria relevant to the individual’s role. The scheme is
designed to be self-funding. Pay-out may only be made under
the plan to the extent that the Group’s budgeted operating
profit is exceeded, save where the Committee exercises its
discretion to pay up to 10% of the total opportunity.
Long-Term Incentive Plan
In the year ahead, scheduled annual long-term incentive plan
awards are proposed to be made to Executive Directors under
the PSP only, although the Committee retains its discretion
to make exceptional awards in accordance with the Policy.
Awards will be subject to the same performance measures,
weighted as in 2015/16, as applied to awards made in 2015/16.
What else did the Committee do in 2015/16?
The Committee takes seriously the views of its shareholders
on remuneration matters and consulted widely with its major
investors in 2015/16. These discussions centred on the
simplification of the Company’s long-term incentive plan and
the performance targets to be employed under it for Executive
Directors; the proposed changes to the annual bonus scheme
outlined above; the adoption of a new equity award plan
for employees below Board level; and enhancements to the
Company’s rights of scale-back and claw-back under its
short and long-term incentive schemes. The views expressed
by shareholders were taken into account in shaping the
Committee’s implementation of the Remuneration Policy
in 2015/16.
The Committee oversees the design and operation of
the Company’s share plans and in 2015/16 those plans
commanded a significant portion of the Committee’s
attention. The equity award plan proposed to be introduced
for senior employees and key talent below Board level was
approved for adoption by the Company’s shareholders at
the AGM in June 2015. The plan is an important tool for
use selectively to retain and reward non-Board talent
and increase alignment with the Company’s shareholders.
The first awards were made under the plan in October 2015.
The Committee also made changes to the annual bonus plan
to clarify the contribution each participant makes to the Group’s
success and to simplify its structure. This clarification and
simplification was well received across the Group.
In cash
In deferred shares
Percentage of total MIP
opportunity awarded in
deferred shares
40
36
36
24
20
20
38
36
36
Percentage of salary available at target under the plan
2015/16 also saw the first offer under the Company’s new save
as you earn plan which was approved by shareholders at the
June 2014 AGM. This scheme allows UK eligible employees
to purchase shares in the Company and enables all such
employees to align their interests clearly with those of the
Company’s shareholders. I am pleased to report that the
take-up of the offer was encouraging.
Amendments were made during the year to enhance the
Company’s rights of claw-back and scale-back under the
Company’s short-term and long-term incentive plans,
strengthening the Committee’s right to withhold outstanding
awards and payments and recover those already made or
vested in the event of exceptional misconduct or misstated
performance.
The Committee’s duties include reviewing and approving the
terms of appointment of senior managers immediately below
Board level. A number of key leadership appointments were
made during the year. We were delighted to welcome Ralf
Buehler, Dan Hill and Peter Birks to the senior management
team and to approve their remuneration packages. Together
they contribute formidable strength to our Sales leadership.
As for 2015/16, we look forward to further change in 2016/17.
Thank you for your support over the past year – from me
personally and on behalf of the Committee. I trust you will
continue to engage with us on all remuneration matters in
the year ahead.
Paul Withers
Chairman of the Remuneration Committee
Strategic Report
Governance
Further Information
Financial Statements
61
Remuneration Committee overview
Remuneration Committee overview
Paul Withers
Remuneration Committee Chairman
Who else was on the Committee?
ƒƒ
ƒƒ
ƒƒ
ƒƒ
Geraint Anderson (from November 2015)
Andrew Dougal (until June 2015)
Gary Hughes
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 set and apply the policy on remuneration for the
Executive Directors and senior managers immediately below
Board level (known as the RemCo Population), keeping that
policy under review, reporting on it and appointing and
managing advisers to assist in doing so.
Responsibilities:
ƒƒ To set the Company’s policy on remuneration for the
RemCo Population so as to promote the long-term
success of the Company;
ƒƒ To apply that policy, by:
–– Determining the pay and conditions, including
pension benefits
–– Setting the design, metrics and targets of the
Company’s performance-related pay schemes
and approving pay-outs under them;
–– Operating the Group’s share incentive plans;
–– Operating any rights of claw back or scale back
under long or short-term incentive schemes;
–– Determining any compensation on termination
of an Executive Director’s employment or the
Chairman’s engagement;
And in so doing to take account of any resultant
risks arising to the Company;
ƒƒ To report on the Company’s policy on remuneration,
including this report;
ƒƒ To determine the fees of the Chairman of the Board;
ƒƒ To select and appoint remuneration advisers to assist
the Committee.
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. Other than the
advice provided on the Group’s share plans 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
remuneration advice during the year was £55,000
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.
62
Annual Report and Accounts 2015/16
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.
We have, however, noted where there have been changes
in practice (none of which affect policy) and have updated
the sections on:
ƒƒ consultation with our shareholders to reflect the position
during the year under review;
ƒƒ the mix of fixed and variable remuneration for the Interim
CEO as sole Executive Director to illustrate current salary,
benefits and pension as shown on page 67 and proposed
implementation of policy on long and short term incentives
in 2016/17;
and page numbers and cross-references to the Annual
Remuneration Report have been updated throughout.
All such changes are highlighted in italics or bold for clarity.
What is our policy?
Overall, it is to:
Be consistent and principled
ƒƒ maintain a consistent Executive compensation strategy,
based on clear principles and objectives
Link pay to strategy
ƒƒ support the Company’s strategy and its execution
Align with shareholders’ interests
ƒƒ closely align Executive reward with shareholder returns
Be competitive
ƒƒ ensure that the organisation can attract, motivate and retain
high-calibre talent, to enable Premier Farnell to compete in
an international market
Link pay to performance
ƒƒ 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
ƒƒ operate broadly-based incentives to recognise talented
performers throughout the Group
And be clear
ƒƒ be easy to understand and supported by clear communication
And has these elements:
Fixed
ƒƒ Salary
ƒƒ Benefits
ƒƒ Pension or pension allowance
Variable based on performance
ƒƒ Annual bonus (including deferred shares)
ƒƒ Long-term incentive plan, comprising one or more of the
following:
– Performance share plan awards;
– Executive share options
Strategic Report
Governance
Financial Statements
Further Information
63
Which for our Executive Directors are structured as follows:
What? A
Why?
How? And how much?
Salary
To recruit and retain
the right people to
execute the strategy
Based on:
ƒƒ skills and experience;
ƒƒ salaries across the Group, including those of other senior employees;
ƒƒ salaries paid by other FTSE 250 companies (as this was the index of which the Company
was a member until September 2015, when it moved to the small-cap index) 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 72 for implementation in 2015/16.
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 71 for implementation in 2015/16.
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 72 for implementation in 2015/16.
A. See notes on page 66.
Annual Report and Accounts 2015/16
64
Premier Farnell
Policy on Directors’ Remuneration
Continuation
What? A
Why?
How? And how much?
Annual Bonus
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
Targets set by the Remuneration Committee at the beginning of the year and achievement
reviewed by it after the year end. Considered to be commercially sensitive but disclosed
in the subsequent year’s Annual Report.
The deferred element
promotes retention
and alignment with
shareholders
The Company’s policy is that the annual bonus is paid partly in cash, with a significant
proportion paid by way of share award under the Deferred Share Bonus Plan (DSBP),
the vesting of such award being dependent on the Executive remaining with the Company
for two years from grant.
The current practice is that the ratio of cash to deferred shares is approximately 60:40,
but the Committee reserves the right to vary this ratio if it thinks it appropriate to do so.
DSBP awards may be made by way of nil cost option, conditional award or forfeitable
share award and may be satisfied with new issue shares, market purchase or treasury
shares, at the Committee’s discretion.
DSBP awards are subject to the executive shareholding policy, requiring one half of shares
vesting (after tax and costs) to be retained throughout employment until a holding of the
requisite level is achieved and that level of holding maintained. The Committee determines
the percentage of salary to be achieved and other terms of the policy.
The Committee has the discretion to provide that dividends will accrue on awards made
prior to vesting, to the extent that awards vest.
The annual bonus offers the following maximum opportunity at maximum performance:
ƒƒ 160% of salary for the CEO;
ƒƒ 140% for the Deputy CEO and 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 73 for implementation in 2015/16.
Strategic Report
Governance
Financial Statements
Further Information
What? A
Why?
How? And how much?
Long-Term
Incentive
Plan (LTIP)
To reward long-term
success and provide
alignment with
shareholders
Made up of awards under:
(i) a performance share plan (PSP) with no exercise price; and/or
(ii)an executive share option plan (ESOP) with an exercise price set by reference to the
market price at grant.
65
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.
In 2015/16 the two metrics applied to long-term incentive awards granted were (i) growth
in earnings per share (EPS) which applies to 70% of the LTI award and (ii) relative total
shareholder return (TSR) which applies to the remaining 30% of the award and uses the
FTSE all-share index, excluding investment trusts, as its comparator group. The same
performance conditions, with the same weightings across the award, are proposed to
apply to LTI awards in 2016/17.
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.
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):
ƒƒ For the CEO 60% under the PSP and 100% under the ESOP;
ƒƒ For the CFO 60% under the PSP and 100% under the ESOPC.
In 2015/16, an award was made to the Interim CEO under the PSP only, at 85% of his 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.
A and B. See notes on page 66.
Annual Report and Accounts 2015/16
66
Premier Farnell
Policy on Directors’ Remuneration
Continuation
What? A
Why?
How? And how much?
See page 67 for an illustration of the amounts potentially receivable by the Interim CEO
for minimum, on-target and maximum performance under current policy and practice.
This shows that, at targeted performance, 45% and, at maximum performance,
66% of his total remuneration is performance-linked.
See page 74 for implementation in 2015/16.
Notes:
ADifferences 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 or EAP without performance conditions.
Maximum available opportunity varies according to grade and individual performance.
BPerformance 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: the EPS performance condition applies to 70% of the award made under the LTIP in the year under review with the remaining 30% subject to the TSR
metric. 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. TSR aligns the interests of the Executive with those of the Company’s shareholders and offers a simple and robust underpin
to growth in EPS. The Committee reserves the right to vary the weighting of the measures for any grant. Details of changes proposed in 2016/17 are set out
in the annual statement of the Chairman of the Remuneration Committee on page 60.
CO ther 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 Executive at varying levels of
performance (based on the Policy in implementation at the 2015/16 year-end) is illustrated in the bar charts below and shows
that, of the Interim CEO’s total remuneration, 45% is performance-linked at on-target performance and 66% is performance
linked at maximum performance.
Strategic Report
Governance
Further Information
Financial Statements
67
Interim Chief Executive total remuneration scenarios
66%
Maximum
34%
43%
55%
27%
£1,174
£641
£500
Total fixed
18%
%
100%
£0
£1,866
45%
On-target performance
Minimum
23%
Total annual incentive
£1,000
£1,500
£2,000
Total long-term incentive
Notes:
1 Total fixed includes salary applicable at the end of the 2015/16 financial year, plus the value of benefits and pension contributions in the single figure table on page 71.
2 Total annual incentive is the sum of cash and deferred annual bonus.
3Total 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?
Why?
How? And how much?
Fees
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 72 for implementation in 2015/16.
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 FTSE250ii 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.
ii The Company was a member of the FTSE250 at the time that the policy was set.
68
Annual Report and Accounts 2015/16
Premier Farnell
Policy on Directors’ Remuneration
Continuation
However, the Committee may offer additional cash and/or
share-based elements where it considers these to be in the
best interests of the Company and its shareholders. This
includes the use of awards made under 9.4.2 of the Listing
Rules. Such elements would take account of remuneration
foregone by the individual in order to take up the role,
including the terms of that remuneration, its amount, how
and when it might be payable and any performance
measures applicable to it.
If the appointment were internal, any variable pay awarded
in respect of the individual’s former role with the Group
would be allowed to pay out in accordance with its terms,
adjusted as appropriate to take account of the appointment.
In addition, any other ongoing remuneration obligations of
the Group which 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.
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.
What would a Director get on leaving or if there were
a takeover?
On an Executive leaving, the approach of the Committee
would be to consider all relevant surrounding circumstances
in deciding whether or not to exercise any discretion open
to it and to act in accordance with the rules of any relevant
incentive plan and any contractual provisions.
Executive Directors’ service contracts are usually terminable
by the Company on 12 months’ notice and by the individual
on six months’ notice. The Company would continue to
pay salary, benefits and pension in line with its contractual
obligations during any notice period and, in the case of the
existing Executive Directors, can:
ƒƒ 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
ƒƒ pay salary and benefits in lieu of the whole or part
of the notice period in a single payment or by way
of monthly instalments.
The Company would seek to include similar provisions in
any contract with any incoming Executive, recognising that
it may be necessary to agree to a longer notice period, in
exceptional circumstances, with that period reducing to
12 months 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.
Any annual bonus normally ceases to be receivable once
an Executive gives or is given notice to leave. However, the
Committee may make annual bonus payments, subject to
performance and payable following the end of the bonus
year, in respect of the period during the year when the
individual has served as a Director or employee, if it deems
it appropriate.
There are specific rules under each of the Company’s share
plans (including the DSBP, PSP and ESOP) dealing with the
treatment of awards on leaving. In summary, if an Executive
were a ‘good leaver’, he or she may be entitled to retain his
or her award, although, for unvested awards:
ƒƒ the number of shares under an award may be reduced to
reflect any unexpired performance period (referred to as
pro rating); and
ƒƒ 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.
Strategic Report
Governance
Further Information
Financial Statements
69
Plan
Good leaver?
Type of Award
Vested
Unvested
DSBP
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
NA
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 leaving (or death if
relevant)3
Exercisable for 12 months from
vesting, subject to performance
and pro rating3
No
Option
Exercisable for three
months from leaving4
Lapses
No
PSP
Yes
No
ESOP5
1
1
1Not 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.
2Subject 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.
3Subject 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.
4Subject to claw-back, save for approved options under the ESOP.
5Rules 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 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.
70
Annual Report and Accounts 2015/16
Premier Farnell
Policy on Directors’ Remuneration
Continuation
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.
iii No survey was conducted in 2015/16.
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 Committeeiii.
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 2015/16, the proposed
simplification of the long-term incentive plan and the
performance metrics to apply to awards under it in the year
under review; the introduction of a new equity award plan for
employees below Director level; the structure of the annual
bonus plan following the move to the new operating model;
proposed changes to the Company’s short and long-term
incentive plans to enhance its rights to claw-back and
scale-back awards of variable pay; and the Company’s
Executive shareholding policy and approach to post-vesting
retention). The feedback received has been taken into
account in shaping the implementation of the Policy.
Strategic Report
Governance
Further Information
Financial Statements
71
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 31 January 2016.
What did the Directors earn in the year under review?
The following table shows the remuneration paid to our Directors in 2015/16 and in the prior year (audited).
Base salary
and fees
(£000’s)
Benefits1
Company pension
contribution
Annual bonus2
LTI awards3 vesting
for performance
period ending
during
Total
2015/16
2014/15
2015/16
2014/15
2015/16
2014/15
2015/16
2014/15
2015/16
2014/15
2015/16
2014/15
448
398
20
18
121
108
–
119
–
–
589
643
357
517
41
65
88
140
–
176
–
–
486
898
172
167
–
–
–
–
–
–
–
–
172
167
12
–
–
–
–
–
–
–
–
–
12
–
21
51
–
–
–
–
–
–
–
–
21
51
61
13
–
–
–
–
–
–
–
–
61
13
–
65
–
–
–
–
–
–
–
–
–
65
83
82
–
–
–
–
–
–
–
–
83
82
67
60
–
–
–
–
–
–
–
–
67
60
51
51
–
–
–
–
–
–
–
–
51
51
1,272
1,404
61
83
209
248
–
295
–
–
1,542
2,030
Executives
Mark
Whiteling
Laurence
Bain4
Non-Executives
Val
Gooding
Geraint
Anderson5
Andrew
Dougal6
Gary
Hughes7
Dennis
Millard8
Tom
Reddin
Paul
Withers
Peter
Ventress
Total
1 Benefits: these comprised a cash allowance in lieu of a company car, life and health insurance.
2
A nnual bonus for 2015/16:
No annual bonus was awarded in respect of 2015/16.
Details of the performance conditions, weightings and performance achieved against targets for the annual bonus in 2015/16 are set out later in this report.
Annual bonus for 2014/15:
For Mark Whiteling, this was 64.3% of maximum available opportunity in cash and 35.7% in deferred shares under the DSBP.
For Laurence Bain, this was 62.5% of maximum available opportunity in cash and 37.5% in deferred shares under the DSBP.
3 Long-term incentive: performance conditions, weightings and performance achieved against targets for awards vesting in the year under review are detailed
in subsequent sections of this report.
4 Laurence Bain left the Company on 14 September 2015.
5 Geraint Anderson joined the Board on 9 November 2015.
6 Andrew Dougal retired from the Board on 16 June 2015.
7 Gary Hughes joined the Board on 1 November 2014.
8 Dennis Millard retired from the Board on 31 January 2015.
72
Annual Report and Accounts 2015/16
Premier Farnell
Annual Report on Remuneration
Continuation
What changes were there to salaries and fees?
No increase was made to the salaries of our Executive Directors or the fees payable to Non-Executive Directors in 2015/16,
save for an increase in Mark Whiteling’s salary to recognise his taking on the role of Chief Executive Officer on an interim
basis and for the duration of his appointment as such, with the amounts paid to Mark in that role being less than those paid
to his predecessor. This increase took effect from 14 August 2015, the date that Mark assumed that role. Mark remained in
that role at the year end.
The annual Directors’ salaries or fees at the beginning and end of the financial year 2015/16 were:
At 1 February 2015
At 31 January 2016
£402,528
£522,756
£500,0001
–2
241%
–
£172,000
–
£51,264
£61,2645
£83,2646
£51,264
£67,2647
£172,000
£51,2643
–4
£61,2645
£83,2646
£51,264
£67,2647
0%
–
–
0%
0%
0%
0%
Percentage increase
Executives
Mark Whiteling
Laurence Bain
Non-Executives
Val Gooding
Geraint Anderson
Andrew Dougal
Gary Hughes
Tom Reddin
Peter Ventress
Paul Withers
1 2
3 4
5
6 7 This was not an annual merit increase but was made on and for the period of Mark’s appointment to the role of Interim CEO.
Laurence Bain left the Company on 14 September 2015.
Geraint Anderson joined the Board on 9 November 2015.
Andrew Dougal retired from the Board on 16 June 2015.
Gary Hughes joined the Board on 1 November 2014. His fees include fees of £10,000 for chairing the Audit Committee.
Tom Reddin’s fees include £32,000 for chairing the Company’s Digital Advisory Board.
Paul Withers’ fees include £10,000 for chairing the Remuneration Committee and £6,000 for acting as SID.
What pensions are Directors entitled to?
Under the terms of his appointment, Mark Whiteling may elect to have defined contributions made to the Premier Farnell UK
Pension Scheme (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.
The pension benefits of Mark Whiteling as sole Executive as at 31 January 2016 were (audited):
Nature of benefit
Mark Whiteling
Combination of cash allowance and contributions to Mark’s
personal pension plan
Company
contribution (or allowance)
as a percentage of salary1
27%
Annual cost for
2015/16 (2014/15)
£120,863
(2014/15: £107,607)
1 As set out in Mark’s service contract and subject to his making personal contributions of a minimum percentage amount. The normal retirement age under
Mark’s service contracts is 65 years of age.
Throughout the year until he left in September 2015, 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 UK Scheme and a funded
unapproved scheme previously in place. This supplement was paid at the same rate as the Company’s previous contributions
to the UK Scheme and the funded unapproved scheme, being 27% of base salary. The annual cost of this allowance was
£87,763 for the period of his employment in 2015/16 (2014/15: £139,709) (audited).
Neither Mark nor Laurence received any final salary pension benefits.
Strategic Report
Governance
Financial Statements
Further Information
73
What annual bonus was payable for 2015/16?
The design of the annual bonus provided that, for the year under review, 70% of the maximum bonus opportunity would
be payable on achieving defined levels of Group operating profit (OP)iv, with cut-in at 90% of budgeted operating profit.
The remaining 30% would be payable based on the achievement of key strategic objectives (SOs). For the CEO, these
included sales per day growth and succession planning and for the CFO, operating cash flow improvements over budget
and compliance. Both had personal objectives based on achieving absolute gross margin, reductions in overhead costs
and implementing the Group’s new operating model. On Mark’s appointment as Interim CEO, Mark’s maximum bonus was
increased to 160% of salary, with his performance in his role as Interim CEO to be assessed separately from his performance
as CFO and any pay-out to be pro-rated accordingly.
Throughout the year, all SOs were subject to an underpin such that, if OP were not achieved at cut-in, no bonus would be
payable against the SOs, save where the Committee exercised its discretion to award a bonus capped at 10% of maximum
opportunity.
The required level of operating profit was not achieved in 2015/16 and accordingly no bonus is payable in respect of that year.
As Laurence Bain left the Company in September 2015, Laurence would not have been entitled to receive any bonus in respect
of 2015/16.
How will the amount of the annual bonus be determined for 2016/17?
In 2016/17, the maximum opportunity available to the CEO remains at 160%, with 64% of salary available at target. For the
Deputy CEO and the CFO, the maximum opportunity is 140% of base salary, with 56% of base salary payable at target
performance under the scheme. As in 2015/16, 70% of the total maximum bonus opportunity will be determined by reference
to Group adjusted operating profit and the balance of 30% on the achievement of other performance criteria. Any payout
under the plan must be funded from operating profit in excess of the Group’s budgeted levels, so that the scheme is selffunded, unless the Committee determines to make a discretionary payment of up to 10% of the maximum opportunity.
The ratio of cash to deferred share award remains at roughly 5:3, as follows:
Bonus opportunity as a percentage of salary
Weighting between cash and shares
Total bonus
opportunity
Percentage
in cash (max)
Percentage
in shares (max)
160%
140%
140%
100%
90%
90%
60%
50%
50%
CEO
Deputy CEO
CFO
The amounts payable in respect of different levels of operating profit performance (expressed as a percentage of the total
bonus opportunity) are:
Weighting of
total bonus
opportunity
Operating profit
Percentage of total bonus
opportunity payable for target
performance under the scheme
70%
Up to 28%
Percentage of total bonus
opportunity payable for
stretch performance
Up to 70%
Performance against the Executives’ other criteria is measured by the Committee on a scale of 1 to 5, with between 9% and
15% of total payable if median performance is achieved and outstanding performance required to qualify for 24% to 30% of
the total bonus. The make-up of these measures is commercially sensitive but will be disclosed for the Executive Directors
as a team in the annual report for 2016/17.
iv Adjusted operating profit, excluding Akron Brass and CPC/MCM.
Annual Report and Accounts 2015/16
74
Premier Farnell
Annual Report on Remuneration
Continuation
What happened in relation to the LTIPs in 2015/16?
Awards maturing in 2015/16
The following awards made in 2012 were scheduled to vest in 2015. They were granted subject to the satisfaction of
performance conditions which were not met. The awards therefore lapsed in full. The targets and performance achieved
against those targets is set out below.
Grant date
Mark
Whiteling
10/12/2012
Laurence
Bain
09/07/2012
Number of
shares under
the PSP
Performance
target for the PSP
105,191 CAGR in EPS of 5%
for threshold vesting
and 12% for full
173,713
vesting
Performance
Number of
achieved in shares under the
2014/15
ESOP
EPS of -7.4%
Performance
target for the ESOP
157,786 Adjusted RoS of 12%
for threshold vesting
and 15% for full
289,521
vesting
Performance
achieved in 2014/15
Adjusted RoS of 9.2%
Awards granted in 2015/16
For the reasons set out in the Chairman’s annual letter to shareholders (see page 59) the Committee decided to make awards
under the PSP only in the year under review. As sole Executive Director at the point of grant, the award to Mark was capped
at 85% of base salary and subject to two performance conditions. 70% of the award at face value is subject to a condition
requiring cumulative annual growth (CAGR) in EPS and the remaining 30% is subject to a relative TSR condition. These
metrics were chosen following consultation with the Company’s major shareholders: CAGR in EPS because it provides a
clear focus on growing the Group’s profits and TSR because it offers an underpin to EPS and is simple and robust, aligning
the position of the Executive with that of shareholders. The comparator group for TSR is the FTSE All-Share index excluding
investment trusts at the point of grant. The CAGR in EPS targets for awards made in 2015/16 were increased over those in
place for awards in the prior year and are:
Annual Compound EPS Growth
2015/16 – 2017/181
14% or more
EPS required in 2017/18
for vesting (pence)
20.4 or more
Between 7% and 14%
Less than 7%
16.9 to 20.4
Under 16.9
Vesting percentage
100%
Between 20% and 100%
on a straight-line basis
0%
1 The baseline against which growth in EPS over the three year performance period to 2017/18 is measured is EPS performance in 2014/15.
Vesting of the 30% of each award subject to the relative TSR condition is on the following basis:
Rank among the comparator group
Upper quartile or above
Median to upper quartile
Below median quartile
Vesting
100%
Between 20% and 100% determined on a straight line interpolation
0%
Details of the award made to Mark during the year are set out in the table opposite.
Strategic Report
Governance
Further Information
Financial Statements
75
The Committee exercised its discretion to allow dividend equivalents to accrue on the award made to Mark, to the extent that such
award vests. If it does, 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 2015/16?
During the year under review, the following award was made to Mark Whiteling as sole Executive Director (audited):
Plan and
type of award
Mark
Whiteling
No of shares
Nil cost option
under the PSP
Date of grant
394,431
9 October 2015
Face value1
(percentage of
salary on grant)
Exercise price2
(pence)
Percentage vesting at
threshold performance
Performance
period3
0
If the EPS condition
is fulfilled: 14%
If the TSR condition
is fulfilled: 6%
2015/16 to
2017/18
£425,000
(85%)
1Face 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
107.75p per share). Awards under the PSP are made on the basis of the maximum percentage of salary specified.
2 This is the price to exercise the award and is not applicable to the award under the PSP as the award has been granted as a nil cost option.
3 Performance conditions for the award are below.
As Laurence Bain left the Company on 14 September 2015, prior to the annual grant under the LTIP, no award was made
to him. Non-Executive Directors are not entitled to receive share awards.
What share awards were held by the Executive Director at the end of the financial year?
Mark Whiteling has share awards outstanding under the DSBP, ESOP, PSP and SAYE schemes as detailed below.
Exercised/
vested
Exercise
price
(pence)
Market price
on exercise
(pence)
(vesting)
Lapsed
At 31
January
20161
203.3
234.4
191
–
–
–
0
0
0
–
–
–
–
–
–
1,709
18,345
22,233
–
183
–
183
–
157,786
–
28/06/2013
–
200.4
–
200.4
–
–
195,958
211,856
24/09/2014
–
190
–
190
–
–
211,856
105,191
10/12/2012
–
183
–
0
–
105,191
–
117,574
28/06/2013
–
200.4
–
0
–
–
117,574
127,113
24/09/2014
–
190
–
0
–
–
127,113
–
5,056
4,787
09/10/2015
01/06/2013
01/06/2014
394,431
–
–
107.75
222.5
234.4
–
–
–
0
178
188
–
–
–
–
–
–
394,431
5,056
4,787
At 1
February
20151
Grant date
DSBP
1,709
18,345
–
19/04/2013
08/04/2014
26/03/2015
–
–
22,233
ESOP3
157,786
10/12/2012
195,958
Scheme
PSP3
SAYE
Market price
on award2
Awarded
(pence)
Notes for Mark’s outstanding share awards are on the following page.
End of
performance/
vesting
period3
April 2015
April 2016
March 2017
January
20154
January
20164
January
20174
January
20155
January
20165
January
20175
January
20186
June 2016
June 2017
Annual Report and Accounts 2015/16
76
Premier Farnell
Annual Report on Remuneration
Continuation
1The market price of the Company’s ordinary shares at 1 February 2015 was 169.0p. The market price of the shares at 31 January 2016 was 101p (both
priced on the immediately preceding trading day, as the last day of each financial year was a Sunday). The range during the year was 87.75p to 2.046p.
2Save 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 eligible employees.
3Awards under the ESOP and the PSP have performance conditions. Awards under the DSBP and the 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 Awards under the ESOP are subject to the following performance conditions:
Financial year awarded
Performance period ends
Performance condition and vesting scale (% of award)
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:
Performance condition and maximum percentage of award
dependent on each measure
Financial year awarded
Performance period ends
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%
2015/16
January 2018
70% on CAGR in EPS: range from 7% to 14%
30% on relative TSR: 20% vesting at median quartile and 100% at
upper quartile, with straight line interpolation between these points.
What is intended in relation to the LTIPs for 2016/17?
In 2016/17, scheduled annual awards will be made to Executive Directors under the PSP only (with the Committee reserving
its right to make other awards in exceptional circumstances). Awards will be subject to the same two performance measures
as applied in 2015/16, with 70% of each award subject to requirement for CAGR in EPS and 30% determined by reference
to relative TSR. The level of awards to be made in the scheduled annual grant will be determined prior to the grant of awards
and disclosed in next year’s Annual Remuneration Report.
What payments did the Company make to past or departing directors during the year?
Under the terms of his service contract dated 5 November 2012, Laurence Bain was entitled to twelve months’ notice.
This period started on 14 August 2015 and Laurence left the Company on 14 September 2015. In accordance with his service
contract and the Company’s Remuneration Policy, Laurence will receive monthly payments in lieu of notice equal to the
amount of his base salary, the payments he received in lieu of pension contributions and his other benefits (as specified in
the table on page 71) for the balance of that twelve month period to August 2016. If he takes up alternative employment prior
to that date, the Committee has the discretion to reduce these payments or cease them altogether. The maximum amount
due to Laurence following the termination of his employment is £667,524, of which £242,524 was paid in 2015/16 and up to
£425,000 could be paid in 2016/17, subject to the Remuneration Committee’s right to reduce or cease paying this amount if
Laurence takes on another role. Laurence did not receive any annual bonus in respect of 2015/16, whether in cash or deferred
shares, and no award was made to Laurence under the Company’s LTIP in the year under review.
Recognizing his long service and commitment to the Company, the Committee exercised its discretion, in accordance with
the plan rules, to treat Laurence as a good leaver for the purposes of his share awards. In accordance with the rules of the
Company’s executive share plans, his unvested awards (including unvested deferred bonus awards) were subject to pro-rata
reduction to reflect the unexpired performance or vesting period of the relevant award. Unvested LTIP awards will only vest
to the extent that the award meets its performance condition. Details of the awards held by Laurence at the beginning of the
financial year 2015/16 and immediately following his termination date are set out opposite:
Strategic Report
At 1
February
Scheme
20151
DSBP
Governance
Further Information
Financial Statements
Market
Options
price on exercised
award2
/awards
(pence)
vested
Exercise
price
(pence)
Market
price on
exercise
(pence)
(vesting)
77
Lapsed
At 15
September
20153
End of
performance/
vesting period4
Exercisable until
April 2015
–
Grant date
Awarded
10,114 19/04/2013
–
203.3
10,114
0
104
–
–
28,589 08/04/2014
–
234.4
21,441
0
104
7,148
–
104
September 2015
5
–
September 2015
5
–
– 26/03/2015
34,649
191
8,662
0
25,987
–
ESOP6 289,521 09/07/2012
–
172.7
–
172.7
– 289,521
–
January 2015
–
254,491 28/06/2013
–
200.4
–
200.4
–
66,874
187,617
January 20166
June 20176
275,134 24/09/2014
–
190
–
190
– 186,017
89,117
January 2017
September 20186
173,713 09/07/2012
–
172.7
–
0
– 173,713
–
January 2015
–
152,694 28/06/2013
–
200.4
–
0
–
38,174
114,520
January 2016
June 20177
165,080 24/09/2014
–
190
–
0
– 110,054
55,026
5,056 01/06/2013
–
222.5
–
178
–
5,056
4,787 01/06/2014
–
234.4
–
188
–
4,787
PSP7
SAYE
8
8
6
7
January 20177 September 20187
–
June 2016
–
–
June 2017
–
1The market price of the Company’s ordinary shares at 1 February 2015 was 169.0p (priced on the immediately preceding trading day, as the last day
of the financial year was a Sunday).
2Save 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 eligible employees.
3 The market price of the shares at 15 September 2015 (the day immediately following the cessation of Laurence’s employment) was 133p.
4This is the date on which options become exercisable (subject to meeting any relevant performance conditions) and conditional awards vest (subject
to meeting any relevant performance conditions).
5Awards under the DSBP are granted as nil-cost options. Unvested DSBP awards are pro-rated and become exercisable from the date of cessation
of employment.
6Awards under the ESOP have performance conditions, as follows:
Financial year awarded
Performance period ends
Performance condition and vesting scale (% of award)
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%
Subject to meeting these performance conditions, the balance of the award following pro-rating is exercisable for 12 months from the third anniversary of grant.
7 Outstanding awards under the PSP are subject to the following performance conditions:
Performance condition and maximum percentage of award
dependent on each measure
Financial year awarded
Performance period ends
2013/14
January 2016
50% on Adjusted RoS: range from 10% to 12%
50% on CAGR in EPS: range from 5% to 12%
2015/16
January 2017
50% on Adjusted RoS: range from 9.5% to 11.5%
50% on CAGR in EPS: range from 5% to 12%
Subject to meeting these performance conditions, the balance of the award following pro-rating is exercisable for 12 months from the third anniversary of grant.
8 SAYE awards lapse on cessation of employment.
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. The value of the
shares held is determined by reference to the price on acquisition, or the market price over a 30 day period prior to the date of
calculation, if higher. 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.
Annual Report and Accounts 2015/16
78
Premier Farnell
Annual Report on Remuneration
Continuation
Mark is required to reach a shareholding with a value equal to his annual base salary. The table below includes his current
shareholding and shows that, as at 31 January 2016, Mark had achieved an 85.77% holding. The reduction in this percentage
compared with that reported in the Annual Remuneration Report for 2014/15 (109.4%) results from the increase in Mark’s
salary as Interim CEO.
The table below 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 18 April 2016 (the nearest practical day prior to the publication of this report).
(audited)
Shareholdings
Mark Whiteling
Interests in shares
LTIP2
No of shares held
% holding
achieved1
PSP
ESOP
DSBP
SAYE
204,314
85.77%
639,118
407,814
42,287
9,843
Non-Executives
Val Gooding
Geraint Anderson
Gary Hughes
Tom Reddin
Peter Ventress
Paul Withers
19,903
–
10,500
15,000
15,000
70,000
1 As at the year end and at the share price at that time.
2 Subject to performance conditions.
As employees and potential beneficiaries of the Trust, the Executive Directors are also deemed to be interested in 3,644,113
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 31 January 2016, based on the number of awards outstanding under employee share plans to be satisfied using new
issue shares:
ƒƒ 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 2.73% of the Company’s issued ordinary capital;
ƒƒ 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 2.39% 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?
Throughout the year under review Mark Whiteling was a Non-Executive Director of Hogg Robinson Group plc and from 24 July
2015 he was appointed as Chairman of their Audit Committee and Senior Independent Director. In line with the Company’s
Policy, Mark is entitled to retain the fees he receives from these appointments. During 2015/16 these totalled £40,833.
When were the Directors appointed and what are the current dates of their service contracts or letters
of appointment?
Mark Whiteling
Date of
appointment
Date of service
contract
5 November 2012
23 November 2012
15 June 2011
9 November 2015
30 September 2010
1 September 2007
1 October 2013
1 November 2014
17 June 2014
9 November 2015
18 June 2013
16 June 2015
1 October 2013
1 November 2014
Non-Executives
Val Gooding
Geraint Anderson
Tom Reddin
Paul Withers
Peter Ventress
Gary Hughes
Strategic Report
Governance
Financial Statements
Further Information
79
How much does the Company spend on pay compared with dividends?
The following table sets out the amounts spent in each of 2014/15 and 2015/16 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
i
ii
£s in millions
Total compensation expense
Dividends
In 2014/15
In 2015/16
Percentage change
165.3
38.2
161.4
31.6
-2.4%
-17.3%
1
1
1 Includes £1.5m (2014/15 £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 2014/15 to 2015/16 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. To ensure that the comparison is made on a like for like basis,
the amounts payable to Mark Whiteling and Laurence Bain in their roles as CEO during the year under review have been
calculated on an annualised basis and both are included below, with the percentage increase determined by reference to
the amounts paid to the CEO during the prior year.
Percentage change
Laurence Bain as CEO
Mark Whiteling as CEO2
Average UK employee
1
Salary
Benefits
Annual Bonus
1.0%
-3.4%
2.02%
2.8%
-66.5%
-0.45%
-100%
-100%
-56.91%
1The amounts shown for Laurence Bain’s salary, benefits and annual bonus in 2015/16 are the annualised equivalent of the amounts received by him during
the period of his tenure as CEO from 1 February 2015 to 14 August 2015, as compared with the relevant amounts paid to the CEO in the prior financial year.
2The amounts shown for Mark Whiteling’s salary, benefits and annual bonus in 2015/16 are the annualised equivalent of the amounts received by him during
the period of his tenure as Interim CEO during the year under review, being from 14 August 2015 to 31 January 2016, as compared with the relevant amounts
paid to the CEO in the prior financial year. Amounts payable to Mark in his role as CFO are not included.
How did shareholders last vote on your Directors’ Remuneration Policy and your Annual Remuneration Report?
At the AGM held on 16 June 2015 shareholders voting at the meeting and by proxy voted on the resolutions to approve the
Annual Remuneration Report as follows:
Resolution to approve the
Annual Remuneration Report
Votes for
Votes against
Total
Votes withheld
Number of votes cast
% of votes cast
286,063,561
8,218,608
294,282,169
291,204
97.21
2.79
100
–
As there were no changes to policy the Directors’ Remuneration Policy was not put to the shareholders in general meeting
in June 2015. At the AGM held on 17 June 2014 the votes on the Policy were as follows:
Resolution to approve the Directors’
Remuneration Policy
Votes for
Votes against
Total
Votes withheld
Number of votes cast
% of votes cast
298,328,556
14,295,499
312,624,055
1,721,856
95.43
4.57
100
–
Annual Report and Accounts 2015/16
80
Premier Farnell
Annual Report on Remuneration
Continuation
How has the Company performed in the last seven 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 seven financial
years of the Company, with 2015/16 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 and (ii) the FTSE All-Share Index. Both indices exclude investment trusts.
Total shareholder return
Source: Thomson Reuters
400
350
300
250
200
150
100
50
0
2009
2010
2011
2012
FTSE250 Index (excl. Investment Trusts)
2013
2014
2015
FTSE All-Share Index (excl. Investment Trusts)
2016
Premier Farnell
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 2016. The other points plotted show the TSR performance at intervening financial year ends.
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.
LTI vesting as a percentage of maximum opportunity1
Year
2015/16
2014/15
2013/14
2012/13
2011/12
2010/11
2009/10
Total remuneration
£279,666
£485,9834
£898,000
£894,000
£316,6695
£378,000
£1,632,826
£1,539,531
£1,151,270
3
Annual bonus as a percentage of
maximum opportunity
PSP
ESOP
0%
0%
21.1%
21.9%
7.3%
0%
0%
100%
57%
0%
0%
0%
0%
0%
0%
79%
49%
59%
0%
0%
0%
0%
0%
0%
n/a
n/a
100%6
In aggregate2
0%
0%
0%
0%
0%
0%
79%
49%
79.5%
CEO
Mark Whiteling
Laurence Bain
Laurence Bain
Laurence Bain
Laurence Bain
Harriet Green
Harriet Green
Harriet Green
Harriet Green
1 Indicating the extent to which the relevant awards vesting in this year met their performance conditions.
2Showing 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 Amounts paid to Mark Whiteling as Interim CEO from 14 August 2015 to the financial year end.
4 Amounts paid to Laurence Bain during the period from the beginning of the financial year to 14 September 2015, when Laurence left the Company.
5 Paid in respect of the period of tenure of Laurence Bain as Chief Executive, but excluding his period of tenure as Chief Operating Officer.
6Share 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 25 April 2016.
Signed on behalf of the Board by
Paul Withers
Chairman of the Remuneration Committee
Strategic Report
Governance
Financial Statements
Further Information
81
Independent auditors’ report to the members of Premier Farnell Plc
Report on the financial statements
OUR OPINION
In our opinion:
ƒƒ Premier Farnell Plc’s group 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 31 January 2016 and of the group’s profit and
cash flows for the year then ended;
ƒƒ the group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union;
ƒƒ the company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
ƒƒ 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
WHAT WE HAVE AUDITED
The financial statements, included within the Annual Report and Accounts (the “Annual Report”), comprise:
ƒƒ the Consolidated balance sheet as at 31 January 2016;
ƒƒ the Company balance sheet as at 31 January 2016;
ƒƒ the Consolidated income statement and Consolidated statement of comprehensive income for the year then ended;
ƒƒ the Consolidated statement of cash flows for the year then ended;
ƒƒ the Consolidated statement of changes in equity for the year then ended;
ƒƒ the Company statement of changes in equity for the year then ended;
ƒƒ the accounting policies; and
ƒƒ the notes to the financial statements, which include other explanatory information.
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 United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law (United Kingdom Generally Accepted Accounting Practice).
CONTEXT
In the year, the group completed the implementation of the reorganisation and restructuring plan associated with the
transition to a global operating model in the Group’s element14 distribution business. In FY16, an operational review identified
further initiatives to improve operational performance and the Group announced its intention to dispose of Akron Brass, a
significant segment of the Group which is presented as a discontinued operation and as an asset held for sale on the balance
sheet. These activities provide the context for our audit.
Our audit approach
OVERVIEW
Materiality
Audit Scope
Areas of
focus
Materiality
ƒƒ Overall group materiality: £3.0 million which represents 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.
Audit scope
ƒƒ The Group engagement team performed an audit of the complete financial information of the
two financially significant reporting units within element14 in the UK and US. PwC component
auditors, under our instruction, performed an audit of the complete financial information of a
further 7 reporting units in element14.
ƒƒ The Group engagement team performed an audit of the complete financial information of CPC,
the largest reporting unit in the CPC & MCM segment and an audit of the complete financial
information of Akron Brass.
ƒƒ As a result of this scoping we obtained coverage over 80% of the Group’s external revenues,
89% of the Group’s profit before tax and 89% of the Group’s adjusted profit before tax.
Areas of focus
ƒƒ Inventory valuation in element14.
ƒƒ Presentation of income statement adjusting items in continuing operations.
ƒƒ Planned disposal of Akron Brass.
82
Annual Report and Accounts 2015/16
Premier Farnell
Independent auditors’ report to the members of Premier Farnell Plc
Continuation
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” in the table 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
How our audit addressed the area of focus
Inventory valuation in element14
Refer to page 51 (Audit Committee Report) and the
accounting policies for the directors’ disclosures of the
related accounting policies, judgements and estimates.
As the element14 provisioning methodologies are
dependent on the accurate recording and valuation of
electronic component inventory, we evaluated and tested
the key controls over inventory recording in the element14
business. Our testing supported our approach to rely on
the controls as part of our audit.
The Group has significant inventory holdings at a number
of reporting units. Group inventories at the year-end were
£266 million. Of this balance a significant proportion is
electronic component inventory in the element14 business,
82% 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 held in inventory are regularly
updated to provide the latest technologies to customers
and inventory management is a critical business process.
Inventory is held at cost less a provision for slow moving and
obsolete stock. Changes in technology, market dynamics and
investment in new products increases the risk of inventory
becoming slow moving or obsolete. 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.
To confirm the completeness and accuracy of inventory
recording and reporting, we tested the automated threeway-match 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 3
distribution centres, attending a sample of cycle counts
and checking the items counted at the distribution centres
were accurately recorded in the inventory records.
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 invoices. Our testing supported the completeness
and accuracy of inventory recording and reporting.
We evaluated 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. We examined the level of
inventory write offs and compared them to previous
provisions held by the Group. We also performed a lookback test which tracked the movements of inventory
classified as slow moving in prior year and we found
the approach to estimating inventory provisions to
be reasonable.
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 that
inventory provisions were being calculated appropriately.
Strategic Report
Governance
Financial Statements
Further Information
83
Area of focus
How our audit addressed the area of focus
Presentation of income statement; adjusting items
in continuing operations
Refer to page 52 (Audit Committee Report) and the
accounting policies for the directors’ disclosures of the
related accounting policies, judgements and estimates.
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 95 of the financial statements.
During FY16, the Group completed the implementation of
the reorganisation and restructuring plan associated with
the transition to a global operating model in the Group’s
element14 distribution business. In July 2015, the Group
also commenced an operating review process which
includes initiatives to improve the operational and financial
performance of the Group.
Certain costs associated with the global reorganisation
and the operating review process are reported by the group
as adjusting items on the Consolidated income statement
and are presented separately in arriving at an adjusted profit
measure which is considered by management to provide
a more consistent indicator of underlying operating
performance.
In FY16, the adjusting items recorded on the income
statement in respect of continuing operations totalled
£12.5 million. The costs identified as adjusting items are
detailed in note 2 to the accounts and include:
(i) Restructuring costs;
(ii) Costs associated with the closure of the Brazil
operations;
(iii) Release of a legal provision.
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
items and justifying their separate disclosure. Consistency
in identifying and disclosing items as adjusting is also
important to maintain comparability of the results year
to year.
The judgements involved in calculating and presenting
adjusting items in the income statement include assessing
that the items relate to the period under review and
assessing that the amounts are not normal operating
costs but by their nature, size or incident are appropriate
to be classified as adjusting items.
We assessed the clarity of the disclosure surrounding
adjusting items in addition to the balance in the use of
adjusted and statutory measures.
We tested a sample of costs which confirmed that the costs
related to the period under review and arose from continuing
operations. We also assessed whether these items had a
material impact on the Group’s financial performance due
to either their size or nature, that they do not relate to
normal operating activities of the group and that appropriate
consideration was given to including items of an income
nature as well as costs.
We found that the classification, judgements and
disclosures made by management were in line with the
Group’s accounting policy and that the amounts are
appropriate to include within adjusting items in the
continuing operations in the Consolidated income
statement.
84
Annual Report and Accounts 2015/16
Premier Farnell
Independent auditors’ report to the members of Premier Farnell Plc
Continuation
Area of focus
How our audit addressed the area of focus
Planned disposal of Akron Brass –
discontinued operation
Refer to page 52 (Audit Committee Report) and note 23
of the financial statements for further detail of the planned
disposal.
We performed an audit of the complete financial information
of Akron Brass. Our testing supported the carrying value
of the assets and completeness of liabilities.
During FY16, Premier Farnell announced its intention to
dispose of Akron Brass which was a separate reporting
segment in the Group. Akron Brass contributed 32% to
Group’s FY16 profit before tax.
The results of Akron Brass are presented as a discontinued
operation in the Consolidated income statement and an
asset held for sale on the Consolidated balance sheet.
The comparatives have been restated accordingly.
Direct costs associated with the sale of Akron Brass have
been recorded as adjusting items within discontinued
operations.
We evaluated and tested the Director’s approach to the
extraction of information relating to Akron Brass to confirm
the basis for calculating and presenting the results of Akron
Brass as a discontinued operation was appropriate and has
been applied consistently to the restated FY15 results and
found that it was.
We tested a sample of costs included as adjusting items to
confirm the costs were directly related to the disposal and
relate to the period under review and found no exceptions.
We also assessed whether these costs are non-operational
in nature and therefore by their nature are appropriate to be
disclosed as adjusting items and concluded that they were.
The financial transactions and balances relating to Akron
Brass are not considered to give rise to significant or
elevated risk but we focused on this area because the
effect of the sale of Akron Brass is of significance to the
understanding of the performance and financial position
of the Group and there are some complexities in extracting
the amounts to be presented as discontinued operations.
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 62 reporting units in 22 countries. 36 reporting units are included
in the element14 reporting segment, 2 reporting units are in the CPC/MCM reporting segment and 1 reporting unit in the
discontinued Akron Brass reporting segment. The remaining 23 reporting units are group entities.
The Group engagement team, performed an audit of the complete financial information of the 2 financially significant
reporting units in element14 in the UK and US. PwC component auditors, under our instruction, performed an audit of the
complete financial information of a further 7 reporting units in element14 overseas territories.
The Group engagement team also performed an audit of the complete financial information of the largest reporting unit in the
CPC/MCM segment and a full scope audit of Akron Brass which is reported as a discontinued operation.
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 by the Group engagement team.
The procedures performed over the components (either by the Group team or PwC component audit teams) accounted for 80%
of the Group’s external revenues and 89% of the Group’s profit before tax and 89% of the Group’s adjusted profit before tax.
Where the work was performed by PwC component auditors we determined the level of involvement we needed to have in the
audit work at those components 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. We were involved at the planning and completion stages
of their audits by virtue of regular communications including the issue of detailed audit instructions and review of audit
findings, in particular over our areas of focus.
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Governance
Financial Statements
Further Information
85
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 on the individual financial statement line items and disclosures and in evaluating 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
£3.0 million (FY15: £4.0 million).
How we determined it
5% of adjusted profit before tax.
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
(2015: £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 57, in relation to going concern.
We have nothing to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in
relation to the directors’ statement about whether they considered it appropriate to adopt the going concern basis in
preparing the financial statements. We have nothing material to add or to draw attention to.
As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going concern basis in
preparing the financial statements. 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.
Other required reporting
CONSISTENCY OF OTHER INFORMATION
Companies Act 2006 opinions
In our opinion:
ƒƒ 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
ƒƒ the information given in the Corporate Governance Report as set out on pages 34 to 53 with respect to internal control and
risk management systems is consistent with the financial statements.
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Annual Report and Accounts 2015/16
Premier Farnell
Independent auditors’ report to the members of Premier Farnell Plc
Continuation
ISAS (UK & IRELAND) REPORTING
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
ƒƒ 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
–– otherwise misleading.
We have no exceptions
to report.
ƒƒ the statement given by the directors on page 57, 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 position and performance, business
model and strategy is materially inconsistent with our knowledge of the group and
company acquired in the course of performing our audit.
We have no exceptions
to report.
ƒƒ the section of the Annual Report on page 50, 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.
THE DIRECTORS’ ASSESSMENT OF THE PROSPECTS OF THE GROUP AND OF THE PRINCIPAL RISKS THAT WOULD
THREATEN THE SOLVENCY OR LIQUIDITY OF THE GROUP
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in
relation to:
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
ƒƒ the directors’ confirmation on page 57 of the Annual Report, in accordance with provision
C.2.1 of the Code, that they have carried out a robust assessment of the principal risks
facing the group, including those that would threaten its business model, future
performance, solvency or liquidity.
We have nothing material to
add or to draw attention to.
ƒƒ the disclosures in the Annual Report that describe those risks and explain how they are
being managed or mitigated.
We have nothing material to
add or to draw attention to.
ƒƒ the directors’ explanation on page 18 of the Annual Report, in accordance with provision
C.2.2 of the Code, as to how they have assessed the prospects of the group, over what
period they have done so and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the group will be able
to continue in operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
We have nothing material to
add or to draw attention to.
Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of
the principal risks facing the group and the directors’ statement in relation to the longer-term viability of the group. Our review
was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process
supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and
considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit.
We have nothing to report having performed our review.
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:
ƒƒ we have not received all the information and explanations we require for our audit; or
ƒƒ 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
ƒƒ the company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
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Governance
Financial Statements
Further Information
87
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 ten further
provisions of the Code. We have nothing to report having performed our review.
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, 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:
ƒƒ whether the accounting policies are appropriate to the group’s and the company’s circumstances and have been
consistently applied and adequately disclosed;
ƒƒ the reasonableness of significant accounting estimates made by the directors; and
ƒƒ 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 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
25 April 2016
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Annual Report and Accounts 2015/16
Premier Farnell
Consolidated income statement
Financial year ended 31 January 2016
Note
Revenue
Cost of sales
1
Gross profit
Net operating expenses
adjusted operating expenses
adjusting items
Total net operating expenses
Operating profit
adjusted operating profit
adjusting items
Total operating profit
Finance income
Finance costs
interest payable
preference dividends
premium on redemption of preference shares
Total finance costs
Profit before taxation
Taxation
Profit from continuing operations
Profit from discontinued operation
Profit attributable to owners of the parent
Earnings per share for profit attributable to the ordinary equity holders of the company (pence):
Basic
Diluted
Earnings per share for profit from continuing operations attributable to the ordinary equity
holders of the company (pence):
Basic
Diluted
2
2
2
1
2
1
3
3
3
3
3
4
5
23
2015/16
£m
2014/15
restated
£m
903.9
(596.7)
886.6
(563.0)
307.2
323.6
(249.8)
(12.5)
(262.3)
(250.6)
(4.9)
(255.5)
57.4
(12.5)
44.9
0.8
73.0
(4.9)
68.1
0.7
(12.8)
(2.9)
(0.8)
(16.5)
(11.2)
(2.9)
(0.6)
(14.7)
29.2
(8.4)
54.1
(17.3)
20.8
9.1
29.9
36.8
10.7
47.5
8.1p
8.1p
12.9p
12.8p
5.6p
5.6p
10.0p
9.9p
6
6
The accounting policies and notes on pages 93 to 132 are an integral part of these consolidated financial statements.
Strategic Report
Governance
Financial Statements
Further Information
89
Consolidated statement of comprehensive income
Financial year ended 31 January 2016
Note
Profit for the year
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss
Remeasurements of post-employment benefit obligations
Deferred tax (charge)/credit on remeasurements of post-employment benefit obligations
Items that may be reclassified to profit or loss
Net exchange adjustments
Net fair value gains on cash flow hedges
Total other comprehensive income/(expense)for the year
27
18
19
2015/16
£m
2014/15
£m
29.9
47.5
8.0
(2.1)
(26.7)
7.8
5.9
(18.9)
(1.6)
(2.4)
0.3
0.2
(4.0)
0.5
1.9
(18.4)
Total comprehensive income for the year arises from
Continuing operations
Discontinued operations
22.5
9.3
18.9
10.2
Total comprehensive income for the year attributable to owners of the parent
31.8
29.1
The accounting policies and notes on pages 93 to 132 are an integral part of these consolidated financial statements.
90
Annual Report and Accounts 2015/16
Premier Farnell
Consolidated balance sheet
At 31 January 2016
2015/16
£m
2014/15
£m
42.6
36.9
1.3
43.3
0.6
47.1
40.4
1.0
52.3
3.5
124.7
144.3
247.7
2.9
126.6
1.2
28.5
406.9
45.6
260.9
2.4
142.5
0.5
43.8
450.1
–
Total current assets
452.5
450.1
Total assets
577.2
594.4
(54.1)
(3.1)
(142.7)
(9.9)
(6.3)
(0.2)
(130.7)
(12.7)
(209.8)
(11.9)
(221.7)
230.8
(149.9)
–
(149.9)
300.2
(217.7)
(58.2)
(1.1)
(296.3)
(70.7)
(0.3)
(277.0)
(367.3)
78.5
77.2
18.6
8.5
33.1
5.2
(0.2)
15.7
(2.4)
18.6
8.5
32.8
5.2
2.2
17.3
(7.4)
78.5
77.2
Note
Assets
Non-current assets
Goodwill
Other intangible assets
Investments held at fair value
Property, plant and equipment
Deferred tax assets
8
9
10, 27
11
18
Total non-current assets
Current assets
Inventories
Derivative financial instruments
Trade and other receivables
Current tax receivable
Cash and cash equivalents
Assets of disposal group classified as held for sale
Liabilities
Current liabilities
Financial liabilities
Derivative financial instruments
Trade and other payables
Current tax payable
Liabilities of disposal group classified as held for sale
Total current liabilities
Net current assets
Non-current liabilities
Financial liabilities
Post-employment benefits
Deferred tax liabilities
12
19
13
14
23
15
19
17
23
15
27
18
Total non-current liabilities
Net assets
Equity
Ordinary shares
Equity element of preference shares
Share premium
Capital redemption reserve
Hedging reserve
Cumulative translation reserve
Retained earnings
Total equity
20
16
The consolidated financial statements on pages 93 to 132 were approved by the Board of Directors on 25 April 2016 and were
signed on its behalf by:
Mark Whiteling
Director
The accounting policies and notes on pages 93 to 132 are an integral part of these consolidated financial statements.
Strategic Report
Governance
Further Information
Financial Statements
91
Consolidated statement of changes in equity
Financial year ended 31 January 2016
Note
Equity at 2 February 2014
Equity
Ordinary element of
share preference
capital
shares
£m
£m
Capital
Share redemption
premium
reserve
£m
£m
Cumulative
Hedging translation
reserve
reserve
£m
£m
Retained
earnings
£m
Total
equity
£m
18.6
10.4
32.7
4.4
2.0
17.0
(0.4)
84.7
Profit for the year
Other comprehensive income/(expense):
–
–
–
–
–
–
–
–
–
0.2
–
0.3
47.5
(18.9)
47.5
(18.4)
Total comprehensive income
–
–
–
–
0.2
0.3
28.6
29.1
–
–
–
–
–
0.1
–
–
–
–
–
–
(38.2)
–
(38.2)
0.1
–
–
–
(1.9)
–
–
–
–
–
–
0.8
–
–
–
–
–
–
–
1.9
(0.8)
1.5
–
–
1.5
–
(1.9)
0.1
0.8
–
–
(35.6)
(36.6)
18.6
8.5
32.8
5.2
2.2
17.3
(7.4)
77.2
Profit for the year
Other comprehensive (expense)/income:
–
–
–
–
–
–
–
–
–
(2.4)
–
(1.6)
29.9
5.9
29.9
1.9
Total comprehensive income
–
–
–
–
(2.4)
(1.6)
35.8
31.8
–
–
–
–
–
–
–
0.3
–
–
–
–
–
–
–
–
–
–
(31.6)
–
0.8
(31.6)
0.3
0.8
–
–
0.3
–
–
–
(30.8)
(30.5)
18.6
8.5
33.1
5.2
(0.2)
15.7
(2.4)
78.5
Transactions with owners:
Ordinary dividends paid
Ordinary share capital subscribed
Purchase of preference shares
Equity element
Transfer to non-distributable reserves
Share-based payments
7
20
16
21
Total transactions with owners
Equity at 1 February 2015
Transactions with owners:
Ordinary dividends paid
Ordinary share capital subscribed
Share-based payments
Total transactions with owners
Equity at 31 January 2016
7
20
21
The accounting policies and notes on pages 93 to 132 are an integral part of these consolidated financial statements.
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Annual Report and Accounts 2015/16
Premier Farnell
Consolidated statement of cash flows
Financial year ended 31 January 2016
Note
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Dividends paid on preference shares
Taxation paid
24
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of businesses
Akron transaction fees
Net outflow from sale of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intangible assets (computer software)
22
24
Net cash used in investing activities
Cash flows from financing activities
Issue of ordinary shares
Purchase of preference shares
Proceeds from bank loans
Repayment of bank loans
Dividends paid to ordinary shareholders
20
16
25
25
7
Net cash used in financing activities
Net decrease in cash, cash equivalents and bank overdrafts
25
Cash, cash equivalents and bank overdrafts at beginning of year
Exchange (losses)/gains
Cash, cash equivalents and bank overdrafts at end of year
14, 25
2015/16
£m
2014/15
£m
99.5
0.8
(12.0)
(2.9)
(11.3)
78.8
0.7
(10.3)
(2.9)
(17.4)
74.1
48.9
–
(0.2)
–
(5.6)
(11.1)
(7.8)
–
(0.6)
(6.2)
(14.5)
(16.9)
(29.1)
0.3
–
15.0
(55.0)
(31.6)
0.1
(11.5)
63.3
(35.1)
(38.2)
(71.3)
(21.4)
(14.1)
(1.6)
43.8
(1.0)
42.8
2.6
28.7
43.8
The accounting policies and notes on pages 93 to 132 are an integral part of these consolidated financial statements.
Strategic Report
Governance
Financial Statements
Further Information
93
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 25 April 2016.
Basis of preparation
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRSs) and IFRS Interpretations Committee (IFRS IC) 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 57, 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 31 January 2016
There are no IFRSs or IFRS IC 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 31 January 2016 not
early adopted
IFRS 16 ‘Leases’ (effective for the Group financial year 2019/20) will require virtually all lease contracts to be recognised on
the balance sheet. Currently under IAS 17 only finance leases are recognised on the balance sheet, with operating leases
not recognised. At this stage, the Group is still making an assessment of the impact on the Group’s financial statements.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact
on the Group.
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:
ƒƒ The estimation of the cost of pensions and other post-employment benefits (note 27);
ƒƒ The estimation of the net realisable value of inventory (note 12);
ƒƒ The estimation of the recoverable amount of goodwill used when assessing goodwill for impairment (note 8);
ƒƒ The estimation of vesting conditions in the calculation of cost of share-based payments (note 21); and
ƒƒ The estimation of tax liabilities and 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 31 January 2016, a 52 week period (financial year ended 1 February 2015: 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 subsidiaries of the Group is shown on pages 144 to 145.
Intra-group balances and transactions are eliminated on consolidation.
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Annual Report and Accounts 2015/16
Premier Farnell
Accounting policies
Continuation
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:
ƒƒ Transaction costs are expensed as incurred;
ƒƒ 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 decisionmaker, 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:
ƒƒ assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
ƒƒ income and expenses for each income statement are translated at the average exchange rate for the period; and
ƒƒ 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:
element14 and CPC/MCM
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.
Strategic Report
Governance
Financial Statements
Further Information
95
Both the element14 and CPC/MCM business segments operate 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.
Akron Brass
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
The Directors believe that adjusted operating profit and adjusted earnings per share measures provide additional useful
information for shareholders on underlying trends and performance. These measures are used for performance analysis.
Adjusted operating profit is not defined by IFRS and therefore may not be directly comparable with other companies’ adjusted
profit measures. It is not intended to be a substitute for IFRS measurements of profit.
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 due to either their size or nature and which do not reflect the underlying performance
of the Group, 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.
96
Annual Report and Accounts 2015/16
Premier Farnell
Accounting policies
Continuation
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:
ƒƒ technically feasible to complete the software so that it will be available for use;
ƒƒ management intends to complete the software for use;
ƒƒ ability exists to use the software;
ƒƒ probable future economic benefits of the software can be demonstrated;
ƒƒ adequate technical, financial and other resources are available to complete and use the software; and
ƒƒ 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.
Strategic Report
Governance
Financial Statements
Further Information
97
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.
98
Annual Report and Accounts 2015/16
Premier Farnell
Accounting policies
Continuation
Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever
an employee accepts voluntary redundancy in exchange for these benefits.
Share-based payments
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.
Strategic Report
Governance
Financial Statements
Further Information
99
Deferred tax is recognised in respect of the retained earnings of overseas subsidiaries only to the extent that, at the balance
sheet date, dividends have been accrued as receivable or a binding agreement to distribute past earnings in future periods
has been entered into by the subsidiary.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the
related dividend.
Investment in own shares
Shares acquired by the Premier Farnell Executive Trust are shown as a reduction in shareholders’ funds. The cost of administering
the trust is borne by the Company as incurred.
Trade and other receivables
Trade and other receivables are initially recognised at fair value and subsequently held at amortised cost. A provision for
impairment is made when there is objective evidence, for example default or delinquency in payments, that the full amount
will not be collectible. Such amounts are written down to their estimated recoverable amounts, with the charge being made
to operating expenses.
Cash and cash equivalents
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.
Annual Report and Accounts 2015/16
100
Premier Farnell
Notes to the consolidated financial statements
1 Segmental information
The Group is organised into two reportable business segments: element14 and CPC/MCM.
To facilitate the effective execution of the Group’s strategy, the organisational structure of the Group’s marketing and distribution
activities have been reshaped. An integrated global structure has been implemented to form the element14 business segment,
which replaces the former regional business units in the Americas and Europe/APAC. CPC/MCM (formerly ‘Other Distribution
Businesses’) is unaffected by the change.
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 results of Akron Brass (formerly ‘Industrial Products Division’) have been classified as discontinued operations in the
current year, their performance in the current and prior year is therefore not presented in the segmental information below.
The marketing and distribution activities of the Group support customers around the world who range from engineers
to purchasing professionals and electronics enthusiasts. CPC/MCM supply electrical and electronic product ranges for
businesses and enthusiasts.
2015/16
£m
2014/15
£m
Europe
Americas
Asia Pacific
347.9
341.0
89.6
357.1
333.1
79.3
element14
CPC/MCM
778.5
125.4
769.5
117.1
903.9
886.6
Segment revenue
Revenues between business segments are not significant.
2015/16
Segment result (operating profit)
Before
adjusting
items £m
Adjusting
items
(note 2)
£m
2014/15
After
adjusting
items
£m
Before
adjusting
items
£m
Adjusting
items
(note 2)
£m
After
adjusting
items
£m
element14
56.5
(11.2)
45.3
73.2
(4.4)
68.8
CPC/MCM Businesses
Central costs
11.8
(10.9)
(0.2)
(1.1)
11.6
(12.0)
11.7
(11.9)
–
(0.5)
11.7
(12.4)
57.4
(12.5)
44.9
73.0
(4.9)
68.1
Central 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
element14
CPC/MCM Businesses
2015/16
£m
2014/15
£m
17.0
0.5
17.5
13.5
0.5
14.0
Strategic Report
Governance
Financial Statements
Further Information
101
2016
£m
2015
£m
element14
CPC/MCM
Head Office
448.9
47.5
0.7
448.0
45.9
0.8
Total segment assets
Unallocated assets
Discontinued operations
Cash and cash equivalents
Derivative financial instruments
Current tax receivable
Deferred tax assets
Investments held at fair value
497.1
494.7
45.6
28.5
2.9
1.2
0.6
1.3
48.5
43.8
2.4
0.5
3.5
1.0
577.2
594.4
Segment assets
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
Americas
UK
Rest of Europe and Asia Pacific
No one single customer accounts for more than 1.5% of revenue.
Non-current assets
2015/16
£m
2014/15
£m
2015/16
£m
2014/15
£m
382.1
293.4
228.4
364.9
283.9
237.8
36.5
70.0
16.3
36.1
70.7
18.5
903.9
886.6
122.8
125.3
Annual Report and Accounts 2015/16
102
Premier Farnell
Notes to the consolidated financial statements
Continuation
2 Net operating expenses
2015/16
Distribution costs
Administrative expenses
Before
adjusting
items
£m
2014/15
Adjusting
items
£m
After
adjusting
items
£m
Before
adjusting
items
£m
Adjusting
items
£m
After
adjusting
items
£m
238.9
10.9
11.4
1.1
250.3
12.0
238.7
11.9
4.4
0.5
243.1
12.4
249.8
12.5
262.3
250.6
4.9
255.5
Adjusting items included within distribution costs comprise £12.2 million of restructuring costs, £1.1 million of costs related to
the closure of local operations in Brazil, and a £1.9m legal provision release (2014/15: a net charge of £4.4 million, comprising
£4.6 million of restructuring costs, £0.1 million of acquisition costs, and a £0.3 million net gain on a US property disposal).
Adjusting items included within administrative expenses comprise £1.1 million of restructuring costs (2014/15: £0.5 million
of restructuring costs).
Restructuring costs of £13.3m incurred in the year include £11.7m relating to the Group’s operational review and global
business reorganisation programme and £1.6m for senior management exit costs. The £11.7m costs associated with the
Group’s operational review and global business reorganisation programme consist of £3.8m of severance payments, £1.5m
of asset write offs and £6.4m associated with the additional resource requirements to design and plan the programmes, some
of which will continue into 2016/17. These costs have been excluded from adjusted operating profit as they do not reflect the
underlying performance of the Group. The net impact of restructuring costs after tax was £10.2 million.
Costs related to the closure of local operations in Brazil of £1.1m were incurred in the year which includes severance, legal
costs and the write-off, disposal or impairment of assets no longer in use. These are non recurring costs associated with
the closure and as such they do not reflect the underlying performance of the Group. The net closure costs after tax was
£1.1 million.
During the year the release of a £1.9m provision was included within adjusting items, relating to the successful conclusion
of a potential legal action. As the provision release is a one-off item it does not represent the underlying performance of the
Group. The net provision release after tax was £1.9 million.
In the prior year, acquisition costs of £0.1 million related to the purchase of AVID Technologies. The £0.3 million net gain on US
property disposal related to savings on expenses incurred in the relocation of the Group’s Americas Head Office.
3 Net finance costs
2015/16
£m
2014/15
£m
0.8
0.7
(3.8)
(8.3)
(0.7)
(2.9)
(0.8)
(2.9)
(7.7)
(0.6)
(2.9)
(0.6)
Total finance costs
(16.5)
(14.7)
Net finance costs
(15.7)
(14.0)
Note
Finance income
interest receivable on short-term deposits
Finance costs
interest payable on bank borrowings
other interest payable
amortisation of arrangement fees
preference dividend
premium on redemption of preference shares
Other interest payable primarily relates to US private placement notes.
16
16
Strategic Report
Governance
Financial Statements
Further Information
103
4 Profit before taxation – analysis by nature
Profit before taxation is stated after charging/(crediting):
Note
Employee benefits expense
Depreciation of property, plant and equipment
Amortisation of intangible assets
Gain on sale of other property, plant and equipment
Operating lease rentals
land and buildings
other
Impairment of trade receivables
Exchange (gains)/losses (except those arising on financial instruments)
Adjusting items:
Restructuring costs
Brazil closure costs
Legal provision release
Akron disposal costs
Net gain on US property disposal
Acquisition costs
26
11
9
24
13
2
2
2
23
2
2
2015/16
£m
2014/15
£m
161.4
7.2
11.7
–
165.3
7.2
8.1
–
6.6
1.4
1.2
(0.3)
5.5
1.2
1.4
1.4
13.3
1.1
(1.9)
1.9
–
–
5.1
–
–
–
(0.3)
0.1
14.4
4.9
Amounts above reflect the Group’s total operations.
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditor as
detailed below:
2015/16
£m
2014/15
£m
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:
The audit of the Company’s subsidiaries
0.4
0.4
0.3
0.3
Total audit services
Taxation compliance services
Other services
0.7
0.1
0.6
0.7
0.1
0.1
1.4
0.9
The fee for audit services shown above includes £0.1 million (2014/15: £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.
The fee for other services shown above represents fees in connection with the reporting accountant roles for the Class1
circular to shareholders relating to the disposal of Akron Brass.
104
Annual Report and Accounts 2015/16
Premier Farnell
Notes to the consolidated financial statements
Continuation
5 Taxation
2015/16
£m
2014/15
£m
6.0
0.1
13.8
0.5
6.1
14.3
2.5
3.0
(0.2)
2.3
(0.1)
2.9
Total tax charge
8.4
17.3
Tax on items charged directly to equity/other comprehensive income:
deferred tax charge/(credit) on remeasurements of post employment benefit obligations
2.1
(7.8)
Note
Current taxation charge
current year
adjustment in respect of prior years
Deferred taxation charge
current year
adjustment in respect of prior years
The overall tax for the financial year can be reconciled to the rate of corporation tax in the UK of 20.2% (2014/15: 21.3%)
as follows:
2015/16
£m
2014/15
£m
Profit before taxation
Preference dividends
29.2
2.9
54.1
2.9
Profit before tax and preference dividends
32.1
57.0
2015/16
£m
2014/15
£m
Profit before tax and preference dividends multiplied by 20.2% (2014/15: 21.3%)
Effect of prior year adjustments
Adjustments in respect of foreign tax rates
Other current year items
6.5
(0.1)
1.3
0.7
12.1
0.4
1.7
3.1
Total tax charge
8.4
17.3
Factors affecting current and future tax charges:
During the year, the UK main corporation tax rate was reduced from 21% to 20% from 1 April 2015, with further reductions
to 19% and 17% to take effect from 1 April 2017 and 1 April 2020 respectively. Deferred tax balances were remeasured at
the 19% rate for 2016.
Strategic Report
Governance
Further Information
Financial Statements
105
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:
2015/16
2014/15
Earnings
£m
Basic
earnings
per share
pence
Diluted
earnings
per share
pence
Earnings
£m
From continuing operations
From discontinued operations
20.8
9.1
5.6
2.5
5.6
2.5
36.8
10.7
10.0
2.9
9.9
2.9
Profit attributable to owners of the parent
29.9
8.1
8.1
47.5
12.9
12.8
Restructuring costs
Tax attributable to restructuring costs
13.3
(3.1)
3.6
(0.8)
3.6
(0.8)
5.1
(1.5)
1.4
(0.4)
1.4
(0.4)
Brazil closure costs
Tax attributable to Brazil closure costs
1.1
–
0.3
–
0.3
–
–
–
–
–
–
–
Legal provision release
Tax attributable to legal provision release
(1.9)
–
(0.5)
–
(0.5)
–
–
–
–
–
–
–
Akron disposal costs
Tax attributable to Akron disposal costs
1.9
(0.3)
0.5
(0.1)
0.5
(0.1)
–
–
–
–
–
–
Acquisition costs
Tax attributable to acquisition costs
–
–
–
–
–
–
0.1
–
–
–
–
–
Net gain on US property disposal
Tax attributable to net gain
on US property disposal
–
–
–
(0.3)
(0.1)
(0.1)
–
–
–
0.1
–
–
40.9
11.1
11.1
51.0
13.8
13.7
2015/16
Number
2014/15
Number
367,921,735
1,099,218
369,020,953
367,511,796
1,498,900
369,010,696
Profit attributable to owners of the parent
before adjusting items
Basic
earnings
per share
pence
Diluted
earnings
per share
pence
Adjusted earnings per share have been provided in order to facilitate year on year comparison.
Weighted average number of shares
Dilutive effect of share options
Diluted weighted average number of shares
106
Annual Report and Accounts 2015/16
Premier Farnell
Notes to the consolidated financial statements
Continuation
7 Ordinary dividends paid during the year
Ordinary dividends paid during the year were as follows:
Interim paid of 2.6p (2014/15: 4.4p) per share
Prior year final paid of 6.0p (2014/15: 6.0p) per share
2015/16
£m
2014/15
£m
9.5
22.1
16.2
22.0
31.6
38.2
Dividends amounting to £0.3 million (2014/15: £0.4 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 31 January 2016 of 3.6 pence per share
which will absorb £13.4 million of shareholders’ funds. This is subject to approval at the Annual General Meeting and thus
has not been provided for at 31 January 2016. Once approved, the final dividend will be paid on 23 June 2016 to shareholders
on the register of members on 27 May 2016.
8 Goodwill
£m
Cost and net book value
At 2 February 2014
Acquisition of business (note 22)
Currency translation adjustment
38.3
7.4
1.4
At 1 February 2015
Transfer to disposal group held for sale (note 23)
Currency translation adjustment
47.1
(5.2)
0.7
At 31 January 2016
42.6
Of the total goodwill at 31 January 2016 of £42.6 million, £42.5 million relates to element14 and £0.1 million to CPC/MCM.
In accordance with IAS 36, goodwill of £26.6 million (2015: £26.6 million) for the purpose of impairment testing has been
allocated to the cash generating unit that comprises Farnell UK (part of element14).
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:
ƒƒ 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 2.0% (2015: 2.5%);
ƒƒ operating margins were projected based on recent trends; and
ƒƒ a market risk premium, of 5.0% (2015: 4.0%), 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 12.7% (2015: 12.1%).
No impairment arose during the current financial year as a result of this test. The remaining goodwill of £16.0 million (2015:
£20.5 million) is allocated across five (2015: six) 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.
Strategic Report
Governance
Financial Statements
Further Information
107
9 Other intangible assets
Computer
software
£m
Other
£m
Total
£m
Cost
At 2 February 2014
Additions
Disposals
Currency translation adjustment
147.5
14.5
(4.3)
6.7
10.2
–
–
0.4
157.7
14.5
(4.3)
7.1
At 1 February 2015
Additions
Disposals
Transferred to assets of disposal group held for sale (note 23)
Currency translation adjustment
164.4
11.1
(8.1)
(1.4)
4.0
10.6
–
–
(4.3)
0.2
175.0
11.1
(8.1)
(5.7)
4.2
At 31 January 2016
170.0
6.5
176.5
Accumulated amortisation
At 2 February 2014
Charge for the year
Disposals
Currency translation adjustment
120.5
7.5
(4.3)
5.6
4.6
0.6
–
0.1
125.1
8.1
(4.3)
5.7
At 1 February 2015
Charge for the year
Disposals
Transferred to assets of disposal group held for sale (note 23)
Currency translation adjustment
129.3
11.1
(7.5)
(1.1)
3.4
5.3
0.6
–
(1.6)
0.1
134.6
11.7
(7.5)
(2.7)
3.5
At 31 January 2016
135.2
4.4
139.6
Net book amounts
At 31 January 2016
34.8
2.1
36.9
At 1 February 2015
35.1
5.3
40.4
At 2 February 2014
27.0
5.6
32.6
Amortisation of £11.5 million (2014/15: £7.9 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
£6.6 million (2014/15: £7.0 million) of internal labour was capitalised.
Commitments to acquire intangible assets authorised and contracted at 31 January 2016 amounted to £nil million
(2015: £nil million).
Other intangible assets relate to the following items acquired through business combinations:
Contractually based customer relationships and trade names
Patents
2016
£m
2015
£m
2.1
–
2.1
5.2
0.1
5.3
Useful life
9–20 years
16–20 years
108
Annual Report and Accounts 2015/16
Premier Farnell
Notes to the consolidated financial statements
Continuation
10 Investments held at fair value
Listed fixed income and equity funds
2015/16
£m
2014/15
£m
1.3
1.0
The Group has £1.3 million (2015: £1.0 million) 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 27.
11 Property, plant and equipment
Freehold
land and
buildings
£m
Plant and
equipment
£m
Total
£m
Cost
At 2 February 2014
Additions
Disposals (note 24)
Currency translation adjustment
49.7
3.4
(0.7)
2.5
109.7
5.8
(19.8)
3.0
159.4
9.2
(20.5)
5.5
At 1 February 2015
Additions
Disposals (note 24)
Transferred to assets of disposal group held for sale (note 23)
Currency translation adjustment
54.9
0.1
–
(6.3)
1.2
98.7
5.1
(14.6)
(17.5)
1.7
153.6
5.2
(14.6)
(23.8)
2.9
At 31 January 2016
49.9
73.4
123.3
Accumulated depreciation
At 2 February 2014
Charge for the year
Disposals (note 24)
Currency translation adjustment
19.4
1.2
(0.3)
1.8
90.5
6.0
(19.4)
2.1
109.9
7.2
(19.7)
3.9
At 1 February 2015
Charge for the year
Disposals (note 24)
Transferred to assets of disposal group held for sale (note 23)
Currency translation adjustment
22.1
1.3
–
(3.8)
0.7
79.2
5.9
(14.0)
(13.0)
1.6
101.3
7.2
(14.0)
(16.8)
2.3
At 31 January 2016
20.3
59.7
80.0
Net book amounts
At 31 January 2016
29.6
13.7
43.3
At 1 February 2015
32.8
19.5
52.3
At 2 February 2014
30.3
19.2
49.5
Capital commitments authorised and contracted at 31 January 2016 amounted to £nil million (2015: £0.5 million). The Group
has no significant assets held under finance leases.
Strategic Report
Governance
Financial Statements
Further Information
109
12 Inventories
Raw materials
Work in progress
Finished goods and goods for resale
2016
£m
2015
£m
6.4
2.1
239.2
9.7
8.4
242.8
247.7
260.9
The cost of inventory recognised as an expense and included in cost of sales amounted to £540.3 million (2014/15:
£507.4 million). During the current financial year £1.6 million (2014/15: £2.1 million) was recognised as an expense relating
to the write-down of inventory to net realisable value.
13 Trade and other receivables
2016
£m
2015
£m
Trade receivables
Less: provision for impairment
113.0
(3.7)
127.1
(4.3)
Net trade receivables
109.3
122.8
3.0
14.3
3.2
16.5
126.6
142.5
2016
£m
2015
£m
95.9
12.3
4.8
108.9
12.9
5.3
113.0
127.1
Other receivables
Prepayments and accrued income
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:
Up to one month past due
Between one and two months past due
Over two months past due
2016
£m
2015
£m
9.2
2.5
0.6
9.4
2.9
0.6
12.3
12.9
110
Annual Report and Accounts 2015/16
Premier Farnell
Notes to the consolidated financial statements
Continuation
The movement in the provision for impairment of trade receivables can be reconciled as follows:
2016
£m
2015
£m
4.3
1.2
(0.8)
(0.9)
(0.2)
0.1
4.1
1.4
(0.6)
(0.5)
–
(0.1)
3.7
4.3
2016
£m
2015
£m
Sterling
US dollars
Euro
30.1
45.2
29.5
31.4
65.8
27.7
Other
21.8
17.6
126.6
142.5
Provision brought forward
Provision for impairment
Amounts written off
Provision released
Transferred to assets of disposal group held for sale
Exchange movement
Provision carried forward
The carrying amounts of trade and other receivables are denominated in the following currencies:
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
Current
Current borrowings
Preference shares
Note
2016
£m
2015
£m
16
0.8
53.3
6.3
–
54.1
6.3
31.8
20.9
40.7
63.6
59.2
1.5
66.4
20.0
38.8
60.7
56.5
1.4
217.7
–
243.8
52.5
217.7
296.3
Non-current
Bank loans
5.2% US dollar Guaranteed Senior Notes payable 2017
4.4% US dollar Guaranteed Senior Notes payable 2018
4.8% US dollar Guaranteed Senior Notes payable 2021
4.0% US dollar Guaranteed Senior Notes payable 2024
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.
Strategic Report
Governance
Financial Statements
Further Information
111
Current and non-current borrowings and preference shares are repayable as follows:
Within one year
Between one and two years
Between two and five years
After five years
2016
£m
2015
£m
54.1
21.0
72.9
6.3
52.6
125.6
123.8
118.1
271.8
302.6
2016
Number
2015
Number
32,000,000
3,236,471
32,000,000
3,236,471
16 Preference shares
Cumulative, convertible, redeemable preference shares of £1 each.
Authorised
Allotted and fully paid
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
At 1 February 2015
Premium on redemption
8.5
–
52.5
0.8
At 31 January 2016
8.5
53.3
2015/16
£m
2014/15
£m
2.9
2.9
Preference dividends paid
At 31 January 2016, the preference shares comprised 95,122 (2015: 96,172) US$1.35 cumulative, convertible, redeemable
preference shares of £1 each (the “US preference shares”) and 3,141,349 (2015: 3,140,299) 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:
112
Annual Report and Accounts 2015/16
Premier Farnell
Notes to the consolidated financial statements
Continuation
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.
Strategic Report
Governance
Financial Statements
Further Information
113
17 Trade and other payables
Trade payables
Payroll and other taxes
Other payables
Accruals and deferred income
2016
£m
2015
£m
95.0
3.8
0.8
43.1
79.9
6.2
3.4
41.2
142.7
130.7
2015/16
£m
2014/15
£m
18 Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method.
The movement on the net deferred tax (liability)/asset is as follows:
Brought forward
Charge for the year
Credited to other comprehensive expense (employee benefits)
Transferred to assets of disposal group held for sale
3.2
(2.2)
(2.1)
0.6
(1.8)
(2.8)
7.8
–
Carried forward
(0.5)
3.2
Comprising:
Non-current assets
Non-current liabilities
0.6
(1.1)
3.5
(0.3)
(0.5)
3.2
The deferred tax charge for the year comprises the following:
2015/16
£m
Accelerated tax depreciation
Employee benefits
Preference shares
Tax losses
Other temporary differences
2014/15
£m
1.2
0.3
(0.2)
0.5
0.4
2.3
2.3
(0.3)
0.3
(1.8)
2.2
2.8
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.
Annual Report and Accounts 2015/16
114
Premier Farnell
Notes to the consolidated financial statements
Continuation
Liabilities
Accelerated tax depreciation
Employee benefits
Fair value of property, plant and
equipment acquired
Fair value of intangible assets acquired
Preference shares
Tax losses
Other temporary differences
Assets
Net
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
£m
(14.6)
–
(13.4)
–
–
10.2
–
13.8
(14.6)
10.2
(13.4)
13.8
(1.3)
–
–
–
(1.6)
(1.3)
(1.0)
(0.2)
–
(1.3)
–
–
–
0.5
6.3
–
–
–
1.0
5.6
(1.3)
–
–
0.5
4.7
(1.3)
(1.0)
(0.2)
1.0
4.3
(17.5)
(17.2)
17.0
20.4
(0.5)
3.2
£0.6 million (2015: £3.5 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 financial risks in the normal course of business including liquidity, credit, interest rate
and foreign currency risks.
Liquidity risk
The Group is exposed to liquidity risks on its financial borrowings detailed in note 15.
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:
ƒƒ regular review, monitoring and forecasting of working capital requirements across Group companies;
ƒƒ use of short term, local bank facilities;
ƒƒ operation of short term money market dealing lines; and
ƒƒ the implementation and ongoing review of committed multi-currency bank facilities, which are available at short notice.
The Group has bank borrowing facilities consisting of a £250 million multi-currency revolving facility expiring in September 2019,
carrying a LIBOR based floating rate of interest. At 31 January 2016 the Group’s headroom on this facility was £216.5 million
(2015: £181.2 million).
Maturity of financial liabilities
The table below analyses the Group’s non derivative financial liabilities into relevant maturity groupings based on their
contractual maturity dates. The amounts disclosed in the table are the contractual undiscounted cash flows.
At 31 January 2016
Less
than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over
5 years
£m
Borrowings
Preference shares
10.2
54.2
29.5
–
94.0
–
137.3
–
Less
than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over
5 years
£m
13.8
2.9
9.4
53.5
151.3
–
136.3
–
At 1 February 2015
Borrowings
Preference shares
The table opposite analyses the Group’s derivative financial instruments which will be settled in the relevant maturity
groupings based on their contractual maturity date. The Group’s forward foreign exchange contracts have been included
at their fair value, as these contracts are managed on a net fair value basis.
Strategic Report
Governance
At 31 January 2016
Forward foreign exchange contracts
– Cash flow hedges
Outflow
Inflow
At 1 February 2015
Forward foreign exchange contracts
– Cash flow hedges
Outflow
Inflow
Financial Statements
Further Information
Less
than
1 year
£m
(3.1)
2.9
Less
than
1 year
£m
(0.2)
2.4
115
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over
5 years
£m
–
–
–
–
–
–
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over
5 years
£m
–
–
–
–
–
–
Credit risk
The Group is exposed to credit risk on cash and cash equivalents, derivative financial instruments and trade and other receivables.
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. Disclosure of impaired trade receivables is included in note 13.
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 31 January 2016 and 1 February 2015 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’s main interest rate risk arises from its bank borrowing facilities. 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 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 (2014/15: £0.4 million).
Foreign currency risk
The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in currencies other
than pounds sterling. The currencies giving rise to this risk are primarily the Euro and US dollar.
The Group hedges significant foreign currency exposures in respect of forecast sales and purchases of inventory through
foreign exchange contracts. All such foreign exchange contracts have maturities of less than one year.
The Group does not hedge profit translation exposure, unless there is a corresponding cash flow, since such hedges provide
only a temporary deferral of the effects of movement in foreign exchange rates. Similarly, whilst a significant proportion of the
Group’s borrowings are denominated in US dollars, the Group does not specifically hedge all of its long-term investments
in overseas assets.
If the US dollar and Euro rates against the pound sterling were both higher/lower by one cent, with all other variables held constant,
operating profit for the year would have been £0.2 million lower/higher, and equity would have been £1.2 million higher/lower.
The financial instruments affected by foreign exchange risk include cash and cash equivalents, borrowings, trade and other
receivables/payables and derivative financial instruments which are not denominated in the functional currency of the entity that
holds them. The sensitivity analysis above is indicative only and is unrepresentative of the inherent foreign exchange risk on
trade and other receivables/payables as the year end exposure does not reflect the transactional foreign currency risk during
the year. Translational foreign currency risk is not included in the calculation.
Annual Report and Accounts 2015/16
116
Premier Farnell
Notes to the consolidated financial statements
Continuation
2) Derivative financial instruments
2016
Current
liabilities
£m
Current
assets
£m
Forward foreign exchange contracts
Cash flow hedges relating to trade transactions
2016
Current
liabilities
£m
Current
assets
£m
2.9
(3.1)
2.4
(0.2)
2.9
(3.1)
2.4
(0.2)
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 31 January 2016, £3.1 million net fair value gains were recognised in other comprehensive income
(2014/15: £3.6 million net fair value gains). Gains of £5.5 million (2014/15: £3.4 million gains) 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 (2015: US$265 million) partially hedge the Group’s
investment in its US subsidiaries. The Group’s Euro denominated unsecured borrowings of €25 million partially hedge the
Group’s investment in its Eurozone subsidiaries.
3) Fair values
The category, book values, and fair values of the Group’s financial instruments are as follows:
At 31 January 2016
Non-current assets
Investments held at fair value
Loans and
receivables
£m
Financial liabilities
measured at
amortised cost
£m
Assets at fair Derivatives at fair
value through value used for cash
profit and loss
flow hedging
£m
£m
Total
£m
Fair
value
£m
–
–
1.3
–
1.3
1.3
Current assets
Derivative financial instruments
Trade and other receivables
Cash and cash equivalents
–
112.3
28.5
–
–
–
–
–
–
2.9
–
–
2.9
112.3
28.5
2.9
112.3
28.5
Current liabilities
Current borrowings
Derivative financial instruments
Preference shares
Trade and other payables
–
–
–
–
(0.8)
–
(53.3)
(144.5)
–
–
–
–
–
(3.1)
–
–
(0.8)
(3.1)
(53.3)
(144.5)
(0.8)
(3.1)
(53.6)
(144.5)
Non-current liabilities
Bank and other loans
Private placement notes
–
–
(33.3)
(184.4)
–
–
–
–
(33.3)
(184.4)
(32.9)
(189.3)
140.8
(416.3)
1.3
(0.2)
(274.4)
(279.2)
Total
Strategic Report
At 31 February 2015
Non-current assets
Investments held at fair value
Governance
Financial Statements
Loans and
receivables
£m
Further Information
117
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
–
–
1.0
–
1.0
1.0
Current assets
Derivative financial instruments
Trade and other receivables
Cash and cash equivalents
–
126.0
43.8
–
–
–
–
–
–
2.4
–
–
2.4
126.0
43.8
2.4
126.0
43.8
Current liabilities
Current borrowings
Derivative financial instruments
Trade and other payables
–
–
–
(6.3)
–
(129.9)
–
–
(0.8)
–
(0.2)
–
(6.3)
(0.2)
(130.7)
(6.3)
(0.2)
(130.7)
Non-current liabilities
Bank and other loans
Private placement notes
Preference shares
–
–
–
(67.8)
(176.0)
(52.5)
–
–
–
–
–
–
(67.8)
(176.0)
(52.5)
(67.5)
(184.6)
(52.0)
169.8
(432.5)
0.2
2.2
(260.3)
(268.1)
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:
ƒƒ investments held at fair value: are valued using listed market prices. The fair values are within Level 1 of the fair value hierarchy;
ƒƒ derivatives: forward exchange contracts are marked to market using listed market prices. The fair values are within Level 2
of the fair value hierarchy;
ƒƒ 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;
ƒƒ 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;
ƒƒ 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 3.4–4.3% 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;
ƒƒ convertible redeemable preference shares: fair value is based on quoted market prices. The fair values are within Level 1;
and
ƒƒ 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.
At 31 January 2016, 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 £28.5m.
4) Fair value measurements
The valuation methods for Group financial instruments held at fair value are defined by the following fair value measurement hierarchy:
ƒƒ Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
ƒƒ Level 2: 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);
ƒƒ Level 3: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
118
Annual Report and Accounts 2015/16
Premier Farnell
Notes to the consolidated financial statements
Continuation
The following table presents the Group’s assets and liabilities that are measured at fair value into the three levels above.
At 31 January 2016
Assets
Investments held at fair value
Derivatives used for hedging
Liabilities
Derivatives used for hedging
Net assets/(liabilities)
Level 1
£m
Level 2
£m
Level 3
£m
Total
balance
£m
1.3
–
–
2.9
–
–
1.3
2.9
–
(3.1)
–
(3.1)
1.3
(0.2)
–
1.1
Level 1
£m
Level 2
£m
Level 3
£m
Total
balance
£m
Assets
Investments held at fair value
Derivatives used for hedging
1.0
–
–
2.4
–
–
1.0
2.4
Liabilities
Derivatives used for hedging
Contingent consideration
–
–
(0.2)
–
–
(0.8)
(0.2)
(0.8)
1.0
2.2
(0.8)
2.4
At 1 February 2015
Net assets/(liabilities)
The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date.
5) 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 27). Net debt is calculated as total borrowings (including current and non-current
borrowings and the debt element of preference shares as shown in the consolidated balance sheet) less cash and cash
equivalents. At the year end, the net debt to total capital ratio was 1.8 (2015: 1.7).
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.
20 Ordinary shares
2016
Nominal
value
£m
2015
Nominal
value
£m
Authorised
500,000,000 ordinary shares of 5p each (2015: 500,000,000)
25.0
25.0
Allotted, called up and fully paid
At 1 February 2015 (371,332,467 shares)
18.6
18.6
Group and Company
Allotted under share option schemes (285,744 shares)
At 31 January 2016 (371,618,211 shares)
–
–
18.6
18.6
Strategic Report
Governance
Financial Statements
Further Information
119
Allotments during the year
On various dates during the year, allotments were made under the Company’s Executive Share Option Plans totalling 285,744
(2014/15: 109,797) ordinary shares with a nominal value of £14,289 (2014/15: £5,490) for a cash consideration of £0.3 million
(2014/15: £0.1 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 58. 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.
At 31 January 2016, the aggregate number of shares covered by options under the Company’s Executive Share Option
Scheme is 8,871,136 (2015: 11,822,381) and the total potential consideration is £17.2 million (2015: £22.7 million). The following
table summarises information about these options:
Range of exercise prices
£1.00 – £2.00
£2.00 – £3.00
2016
Number
2016
Weighted average
remaining
contractual
life (years)
2015
Number
2015
Weighted average
remaining
contractual life
(years)
5,454,262
3,416,874
7.0
6.6
7,879,665
3,942,716
7.9
7.6
8,871,136
6.9
11,822,381
7.8
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 2016 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 58.
At 31 January 2016, the aggregate number of outstanding shares covered by grants under the PSP was 2,894,378 (2015: 2,479,856)
as follows:
Number of ordinary shares
Date of grant
April 2006
April 2008
July 2012
December 2012
June 2013
September 2014
October 2015
2016
2015
7,759
15,019
–
–
618,812
7,759
18,983
707,404
105,191
656,986
760,998
983,533
1,491,790
–
2,894,378
2,479,856
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.
120
Annual Report and Accounts 2015/16
Premier Farnell
Notes to the consolidated financial statements
Continuation
At 31 January 2016, the aggregate number of shares covered by the grants under the DSBP was 789,678 (2015: 739,160) as follows:
Number of shares outstanding
Date of grant
Vesting date
2016
2015
April 2013
April 2014
March 2015
April 2015
April 2017
March 2018
22,757
368,057
398,864
276,737
462,423
–
789,678
739,160
Restricted Share Plans
Under the Company’s Restricted Share Plans (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 31,596 (2014/15: 128,288) shares vested under plans outstanding during the year, nil (2014/15: nil) shares were
granted under any plans, nil (2014/15: nil) shares lapsed under any plans and nil (2014/15: 6,593) shares were cancelled under
any plans.
At 31 January 2016, there were nil (2015: 31,596) outstanding ordinary shares granted under the plan.
Number of shares outstanding
Date of grant
March 2013
June 2013
June 2013
Vesting date
2016
2015
April 2015
July 2014
July 2015
–
–
–
9,772
–
21,824
–
31,596
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. In June 2014 the Company adopted a new Save As You
Earn Scheme, approved by shareholders at the Company’s AGM in June 2014 with the first offer made under the plan in 2015.
At 31 January 2016, the aggregate number of shares covered by options under the Company’s SAYE option scheme is
1,088,149 (2015: 1,281,848) and the total potential consideration of £1.8 million (2015: £2.3 million) is made up as follows:
Number of shares outstanding
Date of grant
April 2010
April 2011
April 2012
April 2013
April 2014
April 2015
Option price
2016
2015
173p
222p
176p
178p
188p
155p
–
20,694
23,005
174,313
276,242
593,895
53,203
23,748
310,564
323,332
571,001
–
1,088,149
1,281,848
Equity Award Plan
Grants may be made under the Company’s Equity Award Plan to any employee of the Company or its subsidiaries (other than
directors), with awards usually made to the Company’s senior management or key talent nominated to receive them. Executive
Directors of the Company are not eligible to participate in the Plan. Grants can be structured as conditional awards, nil or nominal
cost options, grants of forfeitable shares or the grant of cash-based awards of an equivalent value to share-based awards in
the Company. There is no performance condition applicable to awards under the Equity Award Plan, unless the Company’s
Remuneration Committee decides otherwise, and the Committee also determines the vesting period for any award. Vesting
is subject to the recipient of the relevant award remaining employed by the Group at that time or otherwise being a good leaver
in accordance with the rules of the Plan. The Equity Award Plan was approved by the Company in general meeting at its annual
general meeting in June 2015 and awards under it offered for the first time in 2015.
Strategic Report
Governance
Financial Statements
Further Information
121
At 31 January 2016, the aggregate number of outstanding shares covered by the grants under the EAP was 872,070 as follows:
Number of shares outstanding
Date of grant
October 2015
Vesting date
2016
2015
October 2017
872,070
–
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 122,220 of the Company’s ordinary shares (2014/2015: 2,949) and the
Trust used 340,127 (2014/15: 402,630) ordinary shares to satisfy vesting conditions under the Company’s option schemes.
At 31 January 2016, the Trust held 3,644,114 (2015: 3,862,021) ordinary shares with a total nominal value of £182,206 (2015:
£193,101) and a total market value of £3.6 million (2015: £6.6 million).
Reconciliation of option movements during the year
A reconciliation of option movements under the ESOP and SAYE is as follows:
2015/16
2014/15
Weighted average
Number
exercise
(‘000)
price
Weighted average
exercise
price
Number
(‘000)
13,104
902
(3,797)
(164)
(39)
(47)
£1.92
£1.55
£1.84
£1.76
£1.90
£1.46
12,190
3,554
(2,416)
(107)
(20)
(97)
End of year
9,959
£1.82
13,104
£1.91
Exercisable
Weighted average remaining contractual life (years)
4,092
£1.94
6.3
3,088
£2.08
7.2
Beginning of year
Granted
Forfeited
Exercised
Cancelled
Expired
£1.92
£1.88
£1.96
£1.23
£1.95
£2.08
The weighted average share price at the date of exercise for share options exercised during the year was £1.91 (2015: £2.14).
Reconciliation of share award movements during the year
A reconciliation of movements in awards under the PSP, DSBP and EAP is as follows:
Number of awards (‘000s)
2015/16
2014/15
Beginning of year
Granted
Exercised
Cancelled
Forfeited
3,219
2,903
(309)
(10)
(1,247)
2,921
1,510
(296)
–
(916)
End of year
4,556
3,219
23
1.0
27
1.7
Exercisable
Weighted average remaining contractual life (years)
122
Annual Report and Accounts 2015/16
Premier Farnell
Notes to the consolidated financial statements
Continuation
21 Share-based payments
The total charge for share-based payments was £0.8 million (2014/15: £1.5 million) all of which related to equity-settled
transactions. After tax, the total charge was £1.0 million (2014/15: £1.8 million).
The fair value of the Company’s principal grants made in the year and the assumptions used in the calculations are as follows:
2015/16
Plan
Primary performance condition
Grant date
Share price at grant date
Exercise price
Number granted
Option pricing model
Vesting period (years)
Expected volatility (Company)
Expected volatility (Comparators)
Contractual life (years)
Correlation with comparators
Risk free rate
Dividend yield
Fair value per instrument
Equity Award
PSP
DSBP
SAYE 3yr/5yr
n/a
9/10/15
£1.08
n/a
905,288
Black–Scholes
2
30%
n/a
2
n/a
n/a
7.8%
£0.93
EPS/TSR
9/10/15
£1.08
n/a
1,491,790
Monte Carlo (TSR)
3
30%
29.2%
3
20.0%
0.8%
7.8%
£1.08/£0.18
n/a
26/3/15
£1.91
n/a
505,965
Black–Scholes
2
30%
n/a
2
n/a
n/a
5.5%
£1.71
n/a
20/4/15
£1.88
£1.55
728,078/173,595
Black–Scholes
3/5
30.0%
n/a
3.5/5.5
n/a
0.7%/1.1%
5.5%
£0.37/£0.37
ESOP
PSP
DSBP
SAYE 3yr/5yr
2014/15
Plan
Primary performance condition
Grant date
Share price at grant date
Exercise price
Number granted
Option pricing model
Vesting period (years)
Expected volatility
Contractual life (years)
Correlation with comparators
Risk free rate
Dividend yield
Fair value per instrument
EPS/RoS/none
24/9/14
£1.90
£1.90
2,901,283
Black Scholes
3
35%
10
n/a
n/a
5.7%
£0.40
EPS/RoS
24/9/14
£1.90
n/a
983,533
Black Scholes
3
35%
3
n/a
1.3%
5.7%
£1.61
n/a
8/4/14
£2.34
n/a
526,738
Black Scholes
2
35%
2
n/a
n/a
4.4%
£2.14
n/a
2/5/14
£2.25
£1.88
553,793/99,242
Black Scholes
3/5
35%
3.5/5.5
n/a
1.2%/1.9%
4.6%
£0.54/£0.58
The expected volatility is based on historical volatility over the last 5 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.
22 Businesses acquisitions
Acquisitions in prior year
On 17 April 2014, the Group acquired the trade and assets of AVID Technologies Inc (AVID), a full service product development
business, for cash consideration of £7.7 million. Goodwill of £7.4 million was recognised from the acquisition.
Strategic Report
Governance
Financial Statements
Further Information
123
23 Discontinued operation
On 5 February 2016 the Group announced it had entered into a conditional agreement to sell Akron Brass Holding Corp and
its subsidiary (“Akron Brass”) to IDEX Corporation. On 16 March 2016 the Group received shareholder approval and the sale
was completed. The financial performance of Akron Brass is presented within discontinued operations and assets and
liabilities classified as held for sale.
The tables below show the results of the discontinued operations which are included in the Group Income Statement, Group
Balance Sheet and Group Cash Flow Statement respectively.
2015/16
£m
Revenue
Adjusted expenses
Adjusting items (Akron disposal costs – note 4)
Total expenses
2014/15
£m
78.8
(63.2)
(1.9)
(65.1)
73.5
(58.5)
–
(58.5)
15.6
13.7
(4.6)
15.0
15.0
(4.3)
9.1
10.7
2015/16
£m
2014/15
£m
Assets classified as held for sale
Goodwill
Other intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
5.2
3.0
7.0
18.4
11.8
0.2
–
–
–
–
–
–
Total assets of disposal group held for sale
45.6
–
Liabilities directly associated with assets classified as held for sale
Trade and other payables
Current tax payable
Deferred tax liability
Post-employment benefits
(4.8)
(2.6)
(0.6)
(3.9)
–
–
–
–
(11.9)
–
Adjusted operating profit
Profit before taxation
Taxation
Profit for the year from discontinued operations
Total liabilities of disposal group held for sale
2015/16
£m
2014/15
£m
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
16.6
(1.4)
–
13.4
(1.9)
–
Net cash flows from discontinued operations
15.2
11.5
124
Annual Report and Accounts 2015/16
Premier Farnell
Notes to the consolidated financial statements
Continuation
24 Cash generated from operations
2015/16
£m
2014/15
£m
Profit after tax
From continuing operations
From discontinuing operations
20.8
9.1
36.8
10.7
Total profit after tax
29.9
47.5
13.0
7.2
11.7
–
–
2.9
(0.8)
12.8
0.8
(3.7)
1.2
(0.2)
0.8
4.3
0.8
(1.9)
–
–
1.9
21.6
7.2
8.1
(0.3)
–
2.9
(0.7)
11.2
0.6
(4.5)
0.9
(0.3)
1.5
(1.5)
–
–
0.1
(0.4)
–
Changes in working capital:
increase in inventories
decrease/(increase) in trade and other receivables
increase in trade and other payables
–
6.7
12.1
(14.1)
(9.7)
8.7
Total cash generated from operations
99.5
78.8
2015/16
£m
2014/15
£m
Note
Adjustment for:
tax
depreciation
amortisation of intangible assets
net gain on sale of US property
gain on sale of other property, plant and equipment
preference dividends
interest income
interest expense
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
non-cash impact of restructuring costs
non-cash impact of Brazil closure costs
non-cash impact of legal provision release
non-cash impact of acquisition costs
non-cash impact of US property disposal
non-cash impact of Akron disposal costs
5, 23
11
9
2
16
3
3
16
21
Proceeds from the sale of property, plant and equipment comprise:
Note
Net book value
Net gain on sale of US property (included within adjusting items)
Loss on sale of other property, plant and equipment (included within adjusting items)
Non-cash impact of US property disposal costs
Net proceeds
11
0.6
–
(0.6)
–
0.8
0.3
(0.8)
(0.9)
–
(0.6)
Strategic Report
Governance
Further Information
Financial Statements
125
25 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
Net
financial
liabilities
£m
At 2 February 2014
Net decrease in cash, cash equivalents and
bank overdrafts
Increase in debt
Repayment of borrowings
Premium on redemption of preference shares
Purchase of preference
Derivative financial instruments
Amortisation of arrangement fees
Exchange movement
42.8
(1.8)
(205.4)
(63.4)
2.0
(225.8)
(1.6)
–
–
–
–
–
–
2.6
–
(4.4)
–
–
–
–
–
(0.1)
–
(58.9)
35.1
–
–
–
(0.6)
(14.0)
–
–
–
(0.6)
11.5
–
–
–
–
–
–
–
–
0.2
–
–
(1.6)
(63.3)
35.1
(0.6)
11.5
0.2
(0.6)
(11.5)
At 1 February 2015
Net decrease in cash, cash equivalents and
bank overdrafts
Increase in debt
Repayment of borrowings
Premium on redemption of preference shares
Derivative financial instruments
Amortisation of arrangement fees
Exchange movement
43.8
(6.3)
(243.8)
(52.5)
2.2
(256.6)
(14.1)
–
–
–
–
–
(1.0)
–
–
5.6
–
–
–
(0.1)
–
(15.0)
49.4
–
–
(0.7)
(7.6)
–
–
–
(0.8)
–
–
–
–
–
–
–
(2.4)
–
–
(14.1)
(15.0)
55.0
(0.8)
(2.4)
(0.7)
(8.7)
At 31 January 2016
28.7
(0.8)
(217.7)
(53.3)
(0.2)
(243.3)
Amounts above reflect the Group’s total operations.
26 Employees and Directors
Note
Employee benefit expense during the year was as follows:
Wages and salaries
Social security costs
Post retirement
Share-based payments
27
21
2015/16
£m
2014/15
£m
131.2
21.5
8.2
0.5
134.1
21.5
8.2
1.5
161.4
165.3
Amounts above reflect the Group’s total operations.
In addition to the above, restructuring costs, including £5.0 million relating to severance (2014/15: £1.8 million), and internal
labour costs of £6.6 million (2014/15: £7.0 million), comprising wages and salaries and social security costs, were capitalised
(note 9).
Annual Report and Accounts 2015/16
126
Premier Farnell
Notes to the consolidated financial statements
Continuation
The average monthly number of persons employed (including Executive Directors) was as follows:
2015/16
£m
2014/15
£m
element14
CPC/MCM
Head Office
3,508
412
42
3,679
430
46
Continuing Operations
Discontinued Operations
3,962
385
4,155
393
4,347
4,548
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 58 to 80, which forms part of these financial statements.
The total remuneration of the Directors comprises:
Aggregate emoluments
Company contributions to money purchase pension schemes
2015/16
£m
2014/15
£m
1.3
0.2
1.8
0.2
1.5
2.0
None of the Directors have retirement benefits accruing under the Group pension plans (2015: none).
In addition to the above, there was an accounting credit for share-based payments in respect of the Directors of £0.2 million
(2014/15: charge of £0.3 million). Gains made by Directors on the exercise of share options during the year amounted to
£41,826 (2014/15: £112,378).
Details of the highest paid Director are given on page 71. Further details on Directors’ pension arrangements are given on
page 72.
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.
27 Pension commitments and other post-retirement obligations
Note
Non-current liabilities
Retirement benefit liabilities
Post-retirement medical benefits
27A
27B
2016
£m
2015
£m
(42.5)
(15.7)
(51.3)
(19.4)
(58.2)
(70.7)
The following remeasurements were recognised in the year through the consolidated statement of comprehensive income
following the year end valuations of the Group’s pension and post-retirement plans:
2016
£m
Defined benefit pension plans
UK
US
Other plans
4.4
3.3
(0.1)
2015
£m
(10.3)
(12.7)
0.1
Post-retirement medical benefits
0.4
(3.8)
Defined benefit pension plans and post-retirement medical plan
8.0
(26.7)
Strategic Report
Governance
Financial Statements
Further Information
127
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.
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 net pension charge
and balance sheet liability of this plan is included within Other plans below and corresponding investment shown in note 10.
The net pension charge and balance sheet liability of the Group’s pension plans are as follows:
2015/16
£m
2014/15
£m
(1.1)
(1.2)
(0.4)
(1.2)
(0.9)
(0.4)
Defined contribution plans
(4.3)
(5.0)
Total net pension charge in the year
(7.0)
(7.5)
Defined benefit plans
UK
US
Other plans
2015/16
£m
Defined benefit balance sheet liability:
UK plans
US plans
Other plans
2014/15
£m
(15.8)
(25.3)
(1.4)
(23.9)
(26.5)
(0.9)
(42.5)
(51.3)
128
Annual Report and Accounts 2015/16
Premier Farnell
Notes to the consolidated financial statements
Continuation
The disclosures relating to the UK and US defined benefit plans are set out below based on valuations performed by Willis
Towers Watson, as at 31 January 2016, using the projected unit credit method.
The principal assumptions for the UK and US plan are as follows:
Rate of increase in pensionable salaries
Rate of increase in pensions in payment (where applicable):
RPI inflation capped at 5% pa
RPI inflation capped at 3% pa
Discount rate
Inflation assumption (RPI)
Inflation assumption (CPI)
Life expectancy of a 60-year-old male/female current retiree
Life expectancy of a 60-year-old male/female future retiree
UK Plan
2016
%
UK Plan
2015
%
US Plan
2016
%
US Plan
2015
%
3.4
–
2.8
2.1
3.7
2.9
1.9
3.3
–
2.6
2.0
3.0
2.7
1.7
–
2.8
–
–
4.0
–
–
–
2.6
–
–
3.3
–
–
27/29yrs
28/30yrs
27/29yrs
28/30yrs
26/28yrs
26/29yrs
26/29yrs
27/29yrs
For 2016 and 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%. The mortality tables have been based on
the tables used in the 5 April 2014 actuarial valuation. For the US Plan, the rates of longevity are based on standard tables
RP-2014 and MP-2015 projection scale for 2016. For 2015, the rates of longevity are based on standard tables RP-2014 and
MP-2014 projection scale.
The amounts recognised in the balance sheet are as follows:
UK Plan
2016
£m
Present value of defined benefit obligations
Fair value of plan assets
Net liability
UK Plan
2015
£m
US Plan
2016
£m
US Plan
2015
£m
(110.4)
94.6
(122.3)
98.4
(121.6)
96.3
(134.3)
107.8
(15.8)
(23.9)
(25.3)
(26.5)
The major categories of plan assets as a percentage of total plan assets are as follows:
Equities
Diversified growth funds
Index-linked gilts
Corporate bonds
Cash/LDI
UK Plan
2016
%
UK Plan
2015
%
US Plan
2016
%
US Plan
2015
%
–
46.8
28.1
24.7
0.4
–
46.3
28.0
24.5
1.2
3.0
–
–
–
97.0
4.0
–
–
–
96.0
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 31 January 2016, 92% 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 31 January 2016 included ordinary shares issued by Premier Farnell plc with a fair value
of £2.3 million (2015: £3.9 million).
Premier Farnell Preference shares are not included in either UK or US investments.
Strategic Report
Governance
Financial Statements
Further Information
129
The amounts recognised in the income statement are as follows:
UK Plan
2016
£m
UK Plan
2015
£m
US Plan
2016
£m
US Plan
2015
£m
Net interest cost
Administrative costs paid
(0.6)
(0.5)
(0.7)
(0.5)
(0.8)
(0.4)
(0.5)
(0.4)
Total charge (included in total net operating expenses)
(1.1)
(1.2)
(1.2)
(0.9)
Changes in the present value of the defined benefit obligation are as follows:
UK Plan
2016
£m
UK Plan
2015
£m
US Plan
2016
£m
US Plan
2015
£m
Beginning of year
Interest cost
Actuarial gains/(losses) due to plan experience
Actuarial gains/(losses) due to changes in financial assumptions
Actuarial (losses)/gains due to changes in demographic assumptions
Actual benefit payments
Currency translation adjustment
(122.3)
(3.6)
–
11.0
(0.9)
5.4
–
(102.1)
(4.4)
0.3
(21.2)
1.0
4.1
–
(134.3)
(4.1)
1.2
12.7
1.6
7.2
(5.9)
(106.4)
(4.5)
(0.2)
(17.5)
(2.3)
6.5
(9.9)
End of year
(110.4)
(122.3)
(121.6)
(134.3)
Changes in the fair value of plan assets are as follows:
UK Plan
2016
£m
UK Plan
2015
£m
US Plan
2016
£m
US Plan
2015
£m
Beginning of year
Interest income on plan assets
Contributions
Return on plan assets (less)/greater than discount rate
Actual benefits paid
Administrative costs paid
Currency translation adjustment
98.4
3.0
4.8
(5.7)
(5.4)
(0.5)
–
84.0
3.7
5.7
9.6
(4.1)
(0.5)
–
107.8
3.3
–
(12.2)
(7.2)
(0.4)
5.0
94.8
4.0
–
7.3
(6.5)
(0.4)
8.6
End of year
94.6
98.4
96.3
107.8
Actual return on plan assets
(2.7)
13.3
(8.9)
11.3
Analysis of the movement in the balance sheet liability:
UK Plan
2016
£m
UK Plan
2015
£m
US Plan
2016
£m
US Plan
2015
£m
Liability at beginning of year
Total expense as above
Contributions
Remeasurements recognised in the year
Currency translation adjustment
(23.9)
(1.1)
4.8
4.4
–
(18.1)
(1.2)
5.7
(10.3)
–
(26.5)
(1.2)
–
3.3
(0.9)
(11.6)
(0.9)
–
(12.7)
(1.3)
Liability at end of year
(15.8)
(23.9)
(25.3)
(26.5)
Annual Report and Accounts 2015/16
130
Premier Farnell
Notes to the consolidated financial statements
Continuation
The UK Plan triennial valuation as at 5 April 2014 was completed in the year. The contributions expected to be paid during the
financial year ending 29 January 2017 amount to £4.6 million (including £0.5 million for expenses) in respect of the UK Plan
and £nil in respect of the US Plan. With regard to the US costs these are paid by the US Plan.
The weighted average duration of the defined obligation for the UK is 16 years and for the US Plan, 16 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
Sensitivity analysis
Discount rate
Inflation (and inflation
related assumptions)2
Mortality
1
1% decrease
0.5% increase
Increase of 1 year
in expected lifetime
of plan participants
(Increase) in
plan obligations
£m
Increase in
plan assets
£m
Net balance
sheet impact
£m
US Plan
(Increase) in
plan obligations
£m
Increase in
plan assets
£m
Net balance
sheet impact
£m
(19.1)
1.8
(17.3)
(19.0)
11.7
(7.3)
(2.5)
4.2
1.7
(2.5)
1.5
(1.0)
(3.3)
–
(3.3)
(3.1)
−
(3.1)
1 The change in discount rate is assumed to be due to a 1% per annum decrease in corporate bond yields.
2The sensitivities to inflation assumption changes include corresponding changes to the future salary and pension increase assumptions.
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 (2014/15: £0.7 million) and the balance sheet obligation at 31 January 2016 amounted
to £19.6 million (2015: £19.4 million).
Strategic Report
Governance
Financial Statements
Further Information
131
The disclosures relating to post-retirement medical benefits are based on an actuarial valuation performed by Willis Towers
Watson, as at 31 January 2016.
The principal assumptions were as follows:
Discount rate
Medical inflation
Life expectancy of a 60-year-old male current retiree
Life expectancy of a 60-year-old male future retiree
2016
2015
3.7%
5.0%*
25 yrs
25 yrs
3.2%
5.0%*
26 yrs
27 yrs
*The assumed long term rate of medical inflation is 5.0% per annum. In 2016, the initial rate has been assumed to be 6.75%, which is assumed for one year
and then to reduced to the long term rate of 5.0% per annum over 7 years. In 2015, the initial rate was assumed to be 7.0% for one year and then to reduced
to the long term rate of 5.0% per annum over eight years.
For 2016, future life expectancy is based on RP-2014 and MP-2015 projection scale. For 2015, future life expectancy is based
on RP-2014 and MP-2014 projection scale.
The amounts recognised in the income statement are as follows:
2015/16
£m
2014/15
£m
Service cost
Interest cost
0.1
0.6
0.1
0.6
Total charge
0.7
0.7
Allocation between continuing and discontinued operations:
Continuing operations (included in total net operating expenses)
Discontinued operations
0.5
0.2
0.5
0.2
2015/16
£m
2014/15
£m
Changes in the present value of the defined benefit obligation are as follows:
Beginning of year
Total charge
Payments
Actuarial gains/(losses)
Transferred to liabilities of disposal group held for sale
Currency translation adjustment
(19.4)
(0.7)
1.0
0.4
3.9
(0.9)
(14.5)
(0.7)
1.0
(3.8)
–
(1.4)
End of year
(15.7)
(19.4)
The defined benefit obligation presented has been reduced to the value of the obligations as at the 31 January 2016 that
will remain with the Premier Farnell Group on the completion of the disposal of Akron Brass (see note 23). The balance
of £3.9 million has been transferred from non-current liabilities to current liabilities of disposal group held for sale.
The contributions expected to be paid during the financial year ending 29 January 2017 amount to £1.1 million.
Cumulative actuarial gains and losses recognised in equity:
2015/16
£m
2014/15
£m
Beginning of year
Net actuarial gains/(losses) recognised in the year
(11.7)
0.4
(7.9)
(3.8)
End of year
(11.3)
(11.7)
132
Annual Report and Accounts 2015/16
Premier Farnell
Notes to the consolidated financial statements
Continuation
Experience gains and losses:
2015/16
Experience losses on defined benefit obligation:
Amount (£m)
Percentage of the present value of liabilities
2014/15
(1.4)
(6.8%)
(0.6)
(2.9%)
Gains/(losses) arising from change in economic assumptions:
Amount (£m)
Percentage of the present value of liabilities
1.1
5.4%
(2.7)
(14.2%)
Gains/(losses) arising from change in demographic assumptions:
Amount (£m)
Percentage of the present value of liabilities
0.7
3.3%
(0.5)
(2.5%)
The weighted average duration of the post-employment medical obligation is 10 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
1% increase
2.2
2.1
Increase of 1 year in expected lifetime
0.9
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.
28 Operating lease commitments
The Group has total minimum lease payments under non-cancellable operating leases as follows:
Land and buildings
Due within one year
Due between one and five years
Due after five years
Other assets
2016
£m
2015
£m
2016
£m
2015
£m
5.1
10.8
1.8
5.6
12.6
3.0
1.0
1.4
–
1.0
1.4
–
17.7
21.2
2.4
2.4
29 Events after the balance sheet date
On 16 March 2016, the Group completed the sale of its investment in Akron Brass Holding Corp., (“Akron Brass”), which formed
part of the Industrial Products Division, to IDEX Corporation for a total cash consideration payable on completion of $224.2 million.
Strategic Report
Governance
Financial Statements
Further Information
133
Company financial statements
Company balance sheet
At 31 January 2016
2016
£m
2015
£m
11.0
293.3
11.8
292.7
304.3
304.5
E
66.2
722.3
64.7
924.4
Total debtors
Cash at bank
F
788.5
–
989.1
–
Creditors – amounts falling due within one year
G
788.5
(182.2)
989.1
(122.8)
606.3
866.3
910.6
(299.6)
(15.8)
1,170.8
(797.4)
(23.9)
595.2
349.5
18.6
8.5
33.1
5.2
0.6
529.2
18.6
8.5
32.8
5.2
0.6
283.8
595.2
349.5
Note
Fixed assets
Intangible assets
Investments
Current assets
Debtors – amounts falling due within one year
Debtors – amounts falling due after more than one year
C
D
E
Net current assets
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Retirement benefit liabilities
G
O
Net assets
Capital and reserves
Called up share capital
Preference shares
Share premium
Capital redemption reserve
Merger reserve
Profit and loss account
Total shareholders’ funds
K
H
The Company financial statements on pages 133 to 145 were approved by the Board of Directors on 25 April 2016 and were
signed on its behalf by:
Mark Whiteling
Director
Premier Farnell plc Registered number 876412
The accounting policies and notes on pages 136 to 145 form an integral part of the Company financial statements.
134
Annual Report and Accounts 2015/16
Premier Farnell
Company statement of comprehensive income
Financial year ended 31 January 2016
Note
Profit/(loss) for the year
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss
Remeasurements of retirement benefit liabilities
Deferred tax (charge)/credit on remeasurements of retirement benefit liabilities obligations
Total other comprehensive income/(expense) for the year
2015/16
£m
2014/15
£m
271.7
(19.4)
5.9
(1.4)
(8.8)
1.2
4.5
(7.6)
276.2
(27.0)
Strategic Report
Governance
Financial Statements
Further Information
135
Company statement of changes in equity
Financial year ended 31 January 2016
Called
up share
capital
£m
Equity
element of
preference
shares
£m
Share
premium
£m
Capital
redemption
reserve
£m
Merger
reserve
£m
18.6
–
–
10.4
–
–
32.7
–
–
4.4
–
–
0.6
–
–
346.4
(19.4)
(7.6)
413.1
(19.4)
(7.6)
Total comprehensive expense
–
–
–
–
–
(27.0)
(27.0)
Transactions with owners:
New share capital subscribed
Ordinary dividends paid
Share-based payments
Purchase of preference shares – Equity element
Transfer to non-distributable reserves
–
–
–
–
–
–
–
–
(1.9)
–
0.1
–
–
–
–
–
–
–
–
0.8
–
–
–
–
–
–
(38.2)
1.5
1.9
(0.8)
0.1
(38.2)
1.5
–
–
Total transactions with owners
–
(1.9)
0.1
0.8
–
(35.6)
(36.6)
18.6
8.5
32.8
5.2
0.6
283.8
349.5
Called
up share
capital
£m
Equity
element of
preference
shares
£m
Share
premium
£m
Capital
redemption
reserve
£m
Merger
reserve
£m
Profit
and loss
account
£m
Total
£m
18.6
–
–
8.5
–
–
32.8
–
–
5.2
–
–
0.6
–
–
283.8
271.7
4.5
349.5
271.7
4.5
Total comprehensive income
–
–
–
–
–
276.2
276.2
Transactions with owners:
New share capital subscribed
Ordinary dividends paid
Share-based payments
–
–
–
–
–
–
0.3
–
–
–
–
–
–
–
–
–
(31.6)
0.8
0.3
(31.6)
0.8
Total transactions with owners
–
–
0.3
–
–
(30.8)
(30.5)
18.6
8.5
33.1
5.2
0.6
529.2
595.2
At 2 February 2014
Loss for the year
Other comprehensive expense
At 1 February 2015
At 1 February 2015
Profit for the year
Other comprehensive income
At 31 January 2016
Profit
and loss
account
£m
Total
£m
136
Annual Report and Accounts 2015/16
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 25 April 2016.
Basis of preparation
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (“FRS 101”). In preparing these financial statements, the Company applies the recognition, measurement and
disclosure requirements of International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”), but makes
amendments where necessary in order to comply with Companies Act 2006 and has set out below where advantage of the
FRS 101 disclosure exemptions has been taken. The financial statements have been prepared on a going concern basis 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.
In the transition to FRS 101, the Company has applied IFRS 1 whilst ensuring that its assets and liabilities are measured in
compliance with FRS 101. An explanation of how the transition to FRS 101 has affected the reported financial position and
financial performance of the Company is provided in note P.
IFRS 1 grants certain exemptions from the full requirements of Adopted IFRSs in the transition period. The following
exemptions have been taken in these financial statements:
ƒƒ Business combinations – Business combinations that took place prior to 3 February 2014 have not been restated.
In these financial statements, the company has applied the exemptions available under FRS 101 in respect of the following
disclosures:
ƒƒ a Cash Flow Statement and related notes;
ƒƒ Comparative period reconciliations for share capital, tangible fixed assets and intangible assets;
ƒƒ Disclosures in respect of transactions with wholly owned subsidiaries;
ƒƒ Disclosures in respect of capital management;
ƒƒ The effects of new but not yet effective IFRSs;
ƒƒ Disclosures in respect of the compensation of Key Management Personnel.
As the consolidated financial statements of Premier Farnell plc include the equivalent disclosures, the Company has also taken
the exemptions under FRS 101 available in respect of the following disclosures:
ƒƒ IFRS 2 Share Based Payments in respect of group settled share based payments;
ƒƒ Certain disclosures required by IAS 36 Impairment of assets in respect of the impairment of goodwill;
ƒƒ The disclosures required by IFRS 7 and IFRS 13 regarding financial instrument disclosures have not been provided.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented
in these financial statements and in preparing an opening FRS 101 IFRS balance sheet at 3 February 2014 for the purposes
of the transition to FRS 101 Adopted IFRSs.
The financial year ended 31 January 2016 was a 52 week period (financial year ended 1 February 2015: 52 week period).
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated using the 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.
Strategic Report
Governance
Financial Statements
Further Information
137
Defined benefit plan
The Company is the sponsoring employer of a group wide defined benefit pension plan. As there is no contractual agreement
or stated group policy for charging the net defined benefit cost of the plan to participating entities, the net defined benefit cost
of the pension plan is recognised fully by the sponsoring employer, which is the Company. The consolidated financial statements
include full disclosures of the UK defined benefit plan in accordance with IAS 19 (note 27).
Defined contribution plan
Payments to the defined contribution plan are charged as an expense as they fall due.
Deferred taxation
Deferred tax is provided on 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: the initial
recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, 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 substantively enacted at the balance sheet date. Deferred tax assets are
recognised only to the extent that it is probable that future taxable profits will be available against which the temporary
difference can be utilised.
Financial instruments
The accounting for the Company’s cumulative, convertible, redeemable preference shares in accordance with FRS101 is identical
to that under IAS 32, further details for which are given in note 16 to the consolidated financial statements.
Intra-group financial instruments
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its
group, the company considers these to be insurance arrangements and accounts for them as such. In this respect, the company
treats the guarantee contract as a contingent liability until such time as it becomes probable that the company will be required
to make a payment under the guarantee.
Share-based payments
The Company operates six equity settled, share-based incentive schemes: an Executive Share Option Plan, a Equity Award
Plan, a Performance Share Plan, a Restricted Share Plan, a Deferred Share Bonus Plan and a Save As You Earn Scheme. 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.
138
Annual Report and Accounts 2015/16
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 profit after taxation for the financial year dealt with in the financial statements of the Company is £271.7 million
(2014/15: loss after taxation of £19.4 million).
The audit fee in respect of the Company was £0.1 million (2014/15: £0.1 million).
B.Employees and Directors
Staff costs during the year were as follows:
Wages and salaries
Social security costs
Pension costs
Share-based payments (note N)
Average monthly number of persons employed (including Executive Directors)
2015/16
£m
2014/15
£m
13.1
1.1
0.7
0.2
11.2
1.2
0.7
0.5
15.1
13.6
2015/16
Number
2014/15
Number
94
100
Directors’ remuneration is summarised in note 26 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 58 to 80, which forms part of these financial statements. Details of the highest paid
Director are given on page 71.
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 1 February 2015
Additions
11.8
–
At 31 January 2016
11.8
Accumulated amortisation
At 1 February 2015
Charge for the year
–
0.8
At 31 January 2016
0.8
Net book amounts
At 31 January 2016
11.0
At 1 February 2015
11.8
Intangible assets relate to the element14 brand and associated trademarks for the Asia Pacific region. The brand will be
amortised over its useful economic life of 15 years.
Strategic Report
Governance
Financial Statements
Further Information
139
D.Investments
Shares in subsidiary undertakings
Share-based payments (note N)
2016
£m
2015
£m
279.5
13.8
279.5
13.2
293.3
292.7
The Directors believe that the carrying value of investments is supported by their underlying net assets or future cash flows.
The undertakings of Premier Farnell plc are listed on pages 144 to 145.
E.Debtors
Amounts falling due within one year:
Corporate tax recoverable
Other debtors
Prepayments and accrued income
2016
£m
2015
£m
65.9
0.1
0.2
64.2
0.2
0.3
66.2
64.7
719.3
3.0
919.6
4.8
722.3
924.4
Amounts falling due after more than one year:
Amounts owed by subsidiary undertakings
Deferred tax (note I)
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
Amounts falling due within one year:
Bank overdrafts (unsecured)
Preference shares
Taxation and social security
Other creditors
Accruals and deferred income
2016
£m
2015
£m
120.7
53.3
0.1
3.8
4.3
116.2
–
0.3
2.8
3.5
182.2
122.8
140
Annual Report and Accounts 2015/16
Premier Farnell
Notes to the company financial statements
Continuation
2016
£m
2015
£m
Amounts falling due after more than one year:
Unsecured loans
Amounts owed to subsidiary undertakings
215.9
83.7
242.4
502.5
Preference shares
299.6
–
744.9
52.5
299.6
797.4
31.5
20.9
40.7
63.6
59.2
66.4
20.0
38.8
60.7
56.5
215.9
242.4
174.0
20.9
72.2
122.8
116.2
52.5
185.9
56.5
389.9
411.1
Unsecured loans comprise:
Bank loans
5.2% US dollar Guaranteed Senior Notes payable 2017
4.4% US dollar Guaranteed Senior Notes payable 2018
4.8% US dollar Guaranteed Senior Notes payable 2021
4.0% US dollar Guaranteed Senior Notes payable 2024
Bank overdrafts, unsecured loans and preference shares are repayable as follows:
Within one year
Between one and two years
Between two and five years
After five years
US dollar private placement notes bear coupons between 4.0% and 5.2%, and are repayable between July 2017 and
September 2024.
H.Preference shares
Cumulative, convertible, redeemable preference shares of £1 each.
Authorised
Allotted, called up and fully paid
Equity element
Debt element
2016
Number
2015
Number
32,000,000
3,236,471
32,000,000
3,236,471
2016
£m
2015
£m
8.5
53.3
8.5
52.5
The accounting and disclosure for preference shares in accordance with FRS 101 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.
Strategic Report
Governance
Financial Statements
Further Information
141
I. Deferred tax
2015/16
£m
2014/15
£m
4.8
(0.4)
(1.4)
3.5
0.1
1.2
Asset at end of year
3.0
4.8
Deferred tax provision comprises:
Employee benefits
Short term timing differences
Preference shares
3.0
–
–
4.8
0.2
(0.2)
3.0
4.8
Asset at beginning of year
(Charge)/credit in the year
(Charge)/credit to other comprehensive income
J. Financial instruments
The Company is exposed to a number of different financial risks in the normal course of business including liquidity, credit
and interest rate risk. The Group’s objectives, policies and strategies with respect to financial instruments and its policies and
procedures in place to control these financial risks, which are detailed in note 19 to the consolidated financial statements,
are also relevant to the Company financial statements.
The book and fair values of the Company’s financial instruments are as follows:
2015/16
Book value
£m
Fair value
£m
2014/15
Book value
£m
Fair value
£m
Short term borrowings – bank overdrafts
(120.7)
(120.7)
(116.2)
(116.2)
Preference shares
Long term borrowings – bank loans
US private placement notes
Other debtors
Other creditors
(53.3)
(31.5)
(184.4)
0.1
(3.8)
(53.6)
(31.5)
(189.3)
0.1
(3.8)
(52.5)
(66.4)
(176.0)
0.2
(2.8)
(52.0)
(66.4)
(184.6)
0.2
(2.8)
The main methods and assumptions used in estimating the fair values of financial instruments are as follows:
ƒƒ The fair value of the Company’s preference shares is based on the quoted market price;
ƒƒ 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;
ƒƒ 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 3.4–4.3% calculated from treasury yields for similar terms and adjusted to
reflect the Group credit rating.
K.Called up share capital
Details of the Company’s ordinary share capital are given in note 20 to the consolidated financial statements.
L.Contingent liabilities
The Company has guaranteed the loans and bank overdrafts of certain subsidiary undertakings which at 31 January 2016
amounted to £1.8 million (2015: £nil) and bank guarantees issued on behalf of certain subsidiary undertakings which at
31 January 2016 amounted to £3.0 million (2015: £7.4 million).
M.Ordinary dividends
Ordinary dividends paid and ordinary dividends proposed but not yet paid in respect of the financial year ended 31 January 2016
are detailed in note 7 to the consolidated financial statements.
142
Annual Report and Accounts 2015/16
Premier Farnell
Notes to the company financial statements
Continuation
N.Share-based payments
The charge for share-based payments in respect of the Company was £0.2 million (2014/15: £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 £0.6 million (2014/15: £1.0 million), and is
treated as an increase in investments in subsidiary undertakings. The credit relating to the combined amount of £0.8 million
(2014/15: £1.5 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 31 January 2016 was as follows:
Executive Share Option Plan
Performance Share Plan
Deferred Share Bonus Plan
Restricted Share Plan
Save As You Earn Option Scheme
Equity Award Plan
2016
Number
2015
Number
2,249,700
1,499,618
187,320
–
279,517
245,153
3,391,827
1,255,551
120,872
20,684
263,573
–
4,461,308
5,052,507
O.Retirement benefit liabilities
Premier Farnell plc is the sponsoring employer for the Group’s UK defined benefit plan.
The accounting and disclosure for defined benefit pension plans in accordance with FRS 101 is identical to IAS 19(R),
Employee benefits. Further details relating to the nature of the plan are given in note 27 to the consolidated financial
statements, together with an explanation of movements in the liability during the year.
Analysis of the movement in the balance sheet liability:
2015/16
£m
2014/15
£m
Liability at beginning of year
Total expense
Contributions – paid by the company
Contributions – paid by other Group companies
Remeasurements recognised in the year
(23.9)
(1.1)
3.3
1.5
4.4
(18.1)
(1.2)
4.2
1.5
(10.3)
Liability at end of year
(15.8)
(23.9)
The contributions expected to be paid by the company during the financial year ending 29 January 2017 amount to
£3.1 million, including £0.5 million for expenses.
P. Explanation of transition to FRS 101
As stated in the accounting policies, these are the Company’s first financial statements prepared in accordance with FRS 101.
The accounting policies set out earlier have been applied in preparing the financial statements for the year ended
31 January 2016, the comparative information presented in these financial statements for the year ended 1 February 2015
and in the preparation of an opening FRS 101 balance sheet at 2 February 2014 (the Company’s date of transition).
In preparing its FRS 101 balance sheet, the Company has adjusted amounts reported previously in financial statements
prepared in accordance with its old basis of accounting (UK GAAP). An explanation of how the transition from UK GAAP
to FRS 101 has affected the Company’s financial position, financial performance and cash flows is set out in the following
tables and the notes that accompany the tables.
Strategic Report
Governance
Financial Statements
Further Information
143
Reconciliation of equity
2 February 2014
Note
Fixed assets
Intangible assets
Investments
Current assets
Debtors – due within one year
Debtors – due after more than one year
Cash and cash equivalents
UKGAAP
£m
Effect of
transition to
FRS 101
£m
FRS 101
£m
–
291.7
–
–
54.4
904.8
–
i
Creditors – amounts falling due within one year
Net current assets
1 February 2015
UKGAAP
£m
Effect of
transition to
FRS 101
£m
FRS 101
£m
–
291.7
11.8
292.7
–
–
11.8
292.7
–
3.5
–
54.4
908.3
–
64.7
919.6
–
–
4.8
–
64.7
924.4
–
959.2
(159.3)
3.5
–
962.7
(159.3)
984.3
(122.8)
4.8
–
989.1
(122.8)
799.9
3.5
803.4
861.5
4.8
866.3
1,091.6
3.5
1,095.1
1,166.0
4.8
1,170.8
(663.9)
(0.1)
–
(18.0)
(663.9)
(18.1)
(797.4)
–
–
(23.9)
(797.4)
(23.9)
Net assets
427.6
(14.5)
413.1
368.6
(19.1)
349.5
Capital and reserves
Called up share capital
Preference shares
Share premium
Capital redemption reserve
Merger reserve
Hedging reserve
Profit and loss account
18.6
10.4
32.7
4.4
0.6
–
360.9
–
–
–
–
–
–
(14.5)
18.6
10.4
32.7
4.4
0.6
–
346.4
18.6
8.5
32.8
5.2
0.6
–
302.9
–
–
–
–
–
–
(19.1)
18.6
8.5
32.8
5.2
0.6
–
283.8
Total shareholders’ funds
427.6
(14.5)
413.1
368.6
(19.1)
349.5
Total assets less current liabilities
Creditors – amounts falling due after more
than one year
Provision for liabilities
i
Reconciliation of loss for year ended 1 February 2015
Note
UKGAAP
Pension – net interest and admin costs
Pension – reversal of contributions charged as an expense
FRS 101
i
i
2015
Loss after tax
£m
(22.4)
(1.2)
4.2
(19.4)
Notes to reconciliations
i)Under UK GAAP, the company accounted for its share of the Premier Farnell UK Pension Scheme as if it were a defined
contribution scheme. As stated in the accounting policies, on transition to FRS101 the net defined benefit liability has been
recognised in full by the Company, which with the related deferred tax assets are included in the balance sheets above.
144
Annual Report and Accounts 2015/16
Premier Farnell
Related Undertakings
The subsidiary undertakings of Premier Farnell plc, owned either directly or indirectly through subsidiaries, are listed below.
All subsidiaries have been consolidated. All companies operate principally in their country of incorporation.
Akron Brass Company
Akron Brass Holding Corp
AVID Technologies Inc.
CadSoft Computer GmbH
Celdis Limited
Combined Precision Components Limited
element14 Asia Pte Limited
element14 BV
element14 BVBA
element14 Co. Ltd
element14 de Mexico S.DE R.L de C.V
element14 Electronics Limited
element14 Finance UK Limited
element14 Holding BV
element14 India Pvt Ltd
element14 Limited
element14 Limited
element14 Limited
element14 Ltd
element14 Pte Ltd
element14 Pty Ltd
element14 SDN BHD
element14 sp. Zoo
element14 UG
element14 US Holdings Inc
element14 US Holdings LLC
element14. S.DE.R.L.de C.V
eluomeng electronics (China) Co. Ltd
eluomeng Limited
eluomeng Limited Company
Farnell (Belgium) NV
Farnell (France) SAS
Farnell (Netherlands) BV
Farnell AG
Farnell Components (Ireland) Limited
Farnell Components (Israel) Ltd
Farnell Components AB
Farnell Components SL
Country of
incorporation
and operation
Group
beneficial
interest %
Principal activities
US
US
US
Germany
UK
UK
Singapore
Netherlands
Belgium
Thailand
Mexico
Ireland
UK
Netherlands
India
New Zealand
Hong Kong
UK
Korea, Democratic
People’s Republic of
Singapore
Australia
Malaysia
Poland
Germany
US
US
Mexico
China
Hong Kong
Taiwan
Belgium
France
Netherlands
Switzerland
Ireland
Israel
Sweden
Spain
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Manufacturing
Holding
Distribution
Distribution
Holding
Holding
Distribution
Dormant
Dormant
Distribution
Holding
Dormant
Dormant
Holding
Distribution
Distribution
Distribution
Holding
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Distribution
Distribution
Distribution
Distribution
Distribution
Dormant
Holding
Holding
Distribution
Distribution
Distribution
Distribution
Distribution
Distribution
Distribution
Distribution
Distribution
Distribution
Distribution
Distribution
Strategic Report
Governance
Financial Statements
Further Information
145
Country of
incorporation
and operation
Group
beneficial
interest %
Farnell Danmark AS
Farnell Electronic Components Limited
Farnell Finance Limited
Farnell GmbH
Farnell Holding Limited
Farnell Italia SRL
Farnell Newark Brasil Distribuidora de Produtos Electronicos Limitada
Farnell Overseas
InOne Holdings Limited
InOne Worldwide Limited
MCM Electronics Inc
Newark Corporation
Newark Electronics Corporation
Oy Farnell (Finland) AB
Premier Farnell (Scotland) Limited
Premier Farnell Canada Limited
Premier Farnell Corp
Premier Farnell Electronics Limited
Premier Farnell Finance Limited
Premier Farnell Holding Inc
Premier Farnell International S.A.R.L.
Denmark
UK
UK
Germany
UK
Italy
Brazil
UK
UK
UK
US
US
US
Finland
UK
Canada
US
UK
UK
US
Luxembourg
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Premier Farnell Pension Funding Scottish Limited Partnership
Premier Farnell Pension Trustees Limited
Premier Farnell Properties Inc
Premier Farnell Service Corporation
Premier Farnell UK Limited
Premier Industrial Holland BV
Shenzhen Embest Technology Co. Ltd
UK
UK
US
US
UK
Netherlands
China
100
100
100
100
100
100
100
Principal activities
Distribution
Holding
Dormant
Distribution
Holding
Distribution
Distribution
Holding
Holding
Dormant
Distribution
Distribution
Distribution
Distribution
Dormant
Distribution
Holding
Dormant
Holding
Holding
Holding
Pension funding
partnership
Trustee company
Holding
Holding
Distribution
Holding
Distribution
146
Annual Report and Accounts 2015/16
Premier Farnell
Glossary
AGM
CEO or Chief Executive or Chief Executive Officer
CFO or Chief Financial Officer
Claw-back and Scale-back
Code
CPO
CAGR
DSBP
DAB
DTR
EAP
EBITDA
EBT
EPS
ESOP
EU
Executive or Executive Director
FCF
FRC
FRS
FSC
GAAP
GDP
HR
IAS
IFRS IC
IFRS
IPD
KPI
LTI or LTIP
MDD
MIP
MRO
NBS
OP
PMI
Pro rating or pro rate
PSP
RONA
ROS
RPI
RSP
SAR
SAYE
SIA
SET
SG&A
TSR
UKLA
UK Scheme
Annual General Meeting
Chief Executive Officer of Premier Farnell plc
Chief Financial Officer of Premier Farnell plc
The right to reduce awards and recover amounts paid in the event of misstated
performance or misconduct
The UK Corporate Governance Code
The Chief People Officer of Premier Farnell plc
Compound Annual Growth Rate
Premier Farnell’s Deferred Share Bonus Plan
Digital Advisory Board
The Financial Conduct Authority’s Disclosure and Transparency Rules
Premier Farnell Equity Award Plan
Adjusted profit before interest, tax, depreciation and amortisation
Employee Benefit Trust
Earnings Per Share
Executive Share Option Plan
European Union
An Executive Director of Premier Farnell plc
Free cash flow
Financial Reporting Council
Financial Reporting Standard
Forestry Stewardship Council
Generally Accepted Accounting Practice
Gross Domestic Product
Human Resources
International Accounting Standard
IFRS Interpretations Committee
International Financial Reporting Standards
Industrial Products Division
Key Performance Indicator
Long-Term Incentive Plan
Marketing and Distribution Division
Management Incentive Plan
Maintenance Repair and Operation
New Bridge Street, the Company’s remuneration advisers
Operating profit
Purchasing Managers Index
The reduction of the number of shares under share award to reflect any
unexpired performance period
Performance Share Plan
Return On Net Assets
Return On Sales
Retail Price Index
Restricted Share Plan
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
Save As You Earn plan
Semiconductor Industry Association
Senior Executive Team
Operating expenses
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 Listing Authority
The UK pension plan
Strategic Report
Governance
Financial Statements
Further Information
147
Shareholder information
2017 Financial calendar
Annual General Meeting
Interim results
Financial year end
14 June 2016
15 September 2016
29 January 2017
Final ordinary dividend key dates
Ordinary shares
Ex-dividend
Record
Payment
26 May
2016
27 May
2016
23 June
2016
Interim ordinary dividend key dates
Ex-dividend
Record
Payment
22 September 23 September
2016
2016
21 October
2016
Redemption Date
Preference shares
29 April 2016
Annual General Meeting
The 2016 Annual General Meeting will be held at the offices of Allen & Overy LLP, One Bishops Square, London E1 6AD
on 14 June 2016 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) 370 707 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 1% (subject to a minimum commission of
£25.00). 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
BS99 6ZZ
148
Annual Report and Accounts 2015/16
Premier Farnell
Historic record
Revenue
Operating profit before adjusting items
Adjusting items
2015/16
£m
2014/15
£m
2013/14
£m
2012/13
£m
2011/12
£m
903.9
960.1
968.0
952.0
973.1
57.4
(12.5)
88.0
(4.9)
93.0
(1.5)
95.1
(5.8)
107.3
16.1
Total operating profit
44.9
83.1
91.5
89.3
123.4
Profit before taxation and accounting for preference shares
Preference dividends
Premium on redemption of preference shares
32.9
(2.9)
(0.8)
72.6
(2.9)
(0.6)
79.1
(3.5)
(0.8)
73.3
(3.5)
(0.8)
108.9
(3.5)
(0.8)
Profit before taxation
Profit after taxation
29.2
20.8
69.1
47.5
74.8
51.4
69.0
48.6
104.6
76.9
Profit for the year from discontinued operations
Profit attributable to ordinary shareholders
9.1
29.9
–
47.5
–
51.4
–
48.6
–
76.9
Dividend per share
proposed
paid
6.2p
8.6p
10.4p
10.4p
10.4p
10.4p
10.4p
10.4p
10.4p
10.4p
Basic earnings per share (pence)
Adjusting items (pence)
Adjusted earnings per share (pence)
8.1p
3.0p
11.1p
12.9p
0.9p
13.8p
14.0p
0.3p
14.3p
13.3p
1.3p
14.6p
21.2p
(3.8)p
17.4p
The results above are as reported for each year and have not been restated to reflect the disposal of Akron Brass.
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