You are in:
Investor Relations > Results > Annual Review 2008
Annual Review 2008
Financial and Operational Highlights
- Turnover of £279.0m: down 2.7% (2007: £286.9m) due to trading conditions
- Gross profit of £67.9m: down 5% (2007: £71.5m) reflecting the trading conditions and impact of the weaker Pound on UK cost of sales
- Other operating expenses pre-exceptional items were £55.9m (2007: £54.9m) reflecting unfavourable currency effect of £3.2m
- Profit before tax (after exceptionals and amortisation): £8.3m (2007: £0.6m), before exceptionals and amortization: £7.9m (2007: £12.9m)
- Basic EPS after exceptional items and amortisation: 8.2p (2007: 0.3p). Basic EPS pre-exceptional items and amortisation: 7.0p (2007: 11.8p)
- Net borrowings reduced to £55.7m as at 30 September 2008 (2007: £59.9m) despite weakness of Pound on Euro denominated debt
Post year end Highlights
- Recommended cash offer of 55p from Avnet Inc to acquire the issued share capital of Abacus, announced on 10 October 2008
Chairman's Statement
As indicated in my report to shareholders last year, and then reiterated at the time of my Interim report, Abacus Group has had to cope with challenging trading conditions for the last 18 months. Although it is no consolation, these challenging conditions are now reflected in all sectors of European economies. As a consequence, the results for 2008 are lower than those for 2007. In addition to the difficult trading conditions the financial performance of the Group has also been impacted by the precipitous decline in the value of the Pound against the Dollar in the last few months, and the Euro throughout the year. Notwithstanding the impact of these influences, I am pleased to report that the Group has been profitable throughout the year and continues to be held in high esteem by competitors, suppliers and customers for its philosophy to providing personal and dedicated service. The strong reputation of Abacus undoubtedly led to the Board receiving approaches from competitors interested in acquiring the business which in turn culminated in the announcement of the recommended cash offer for the Company on 10 October 2008.
Results in 2008
Turnover for the year was 3% lower than in 2007 at £279.0m. The impact of the weak Pound was a contributor to a decline in gross margins from 24.9% in 2007 to 24.3% in 2008. Gross profit was therefore £3.6m lower in 2008 at £67.9m. Continued tight control of operating expenses meant that, notwithstanding the strength of the Euro, operating expenses increased by only £1.0m to £55.9m before amortisation and exceptional items. Bank interest charges of £3.7m were the same as in 2007.
During the year there was an exceptional gain on the sale of two properties of £2.2m (2007: £1.1m). In 2007 there was an exceptional charge of £10.6m (including the £1.1m profit on property sale) primarily relating to the write off of the IT business system that was being developed “in house”. In addition, in 2008 there was also a charge for amortisation of intangibles arising on acquisitions of £1.8m (2007: £1.7m).
Profit before tax before amortisation and exceptional items in 2008 was £7.9m (2007: £12.9m) and, after amortisation and exceptional items, profit before tax was £8.3m (2007: £0.6m). Tax on profits, before amortisation and exceptional items, was £2.8m (35.4%) (2007: £4.2m and 32.6%). Basic earnings per share were 8.2p (2007: 0.3p) and, before amortisation and exceptional items, 7.0p (2007: 11.8p) per share.
The offer from Avnet Inc is conditional upon there being no final dividend and accordingly the Board is not recommending one. In the Interim Statement I reported that net borrowings at 31 March 2008 had increased to £62.9m from £59.9m at 30 September 2007. Net borrowings at 30 September 2008 have reduced to £55.7m as a consequence of a significant reduction in Inventory to £40.4m (£45.7m at 31 March 2008) and Trade and other receivables to £57.2m (£64.6m at 31 March 2008). Abacus has been well supported by its main lending bank throughout the year.
In the individual European countries where Abacus is active, there has been a mixed performance. In the , ECD sales were down 11%, and Alpha 3, our manufacturing business, reported a 6% decline in sales to £18.7m. In Scandinavia, sales increased by 10% due to the continued success of the Conelec business in and the Nordic Trident business. In Italy and France there were declines of 6% and 8% respectively, whilst in Germany and Austria there was an increase of 26%. This performance was generally in line with underlying country by country market conditions, except in where the investment in new offices has led to a useful increase in the number of franchises and business activity being reported.
With regard to operating expenses, the impact of the Euro on local currencies contributed to an increase of £3.2m (compared to 2007 average exchange rate). Additional new office rentals to replace buildings that were sold because they were no longer fit for purpose, added £0.4m. It will be noted that a combination of these two influences has been mitigated by headcount savings and a salary freeze across the Group.
Cash Offer by Avnet Inc.
As mentioned earlier, the Abacus Board announced on 10 October 2008 that it was recommending a cash offer at 55p per share from Avnet Inc. to acquire the issued share capital of Abacus. The Board, in considering this offer, recognised that it represented a significant premium (125% above the average price for the three months period before the announcement). Further, given the continuing challenging trading conditions, combined with the relatively high borrowings of the Group and the deflated share price, the Board considered that it was unlikely, in the foreseeable future, to be able to continue its strategy of acquiring European businesses to integrate into the Group activities. Accordingly, the Board recommended the offer which, providing the offer pre-conditions (EU competition clearance and shareholder acceptance) are met, is expected to complete in January 2009.
It is never an easy decision to agree the sale of a successful business to which we are all committed, but the Board believes that the interests of employees and shareholders alike will be well served as a result of this acquisition. The Board would like to thank the employees of Abacus for their dedication and hard work during the challenging last 18 months.
A H Westropp
Chairman
4 December 2008
Results in 2008
Turnover for the year was 3% lower than in 2007 at £279.0m. The impact of the weak Pound was a contributor to a decline in gross margins from 24.9% in 2007 to 24.3% in 2008. Gross profit was therefore £3.6m lower in 2008 at £67.9m. Continued tight control of operating expenses meant that, notwithstanding the strength of the Euro, operating expenses increased by only £1.0m to £55.9m before amortisation and exceptional items. Bank interest charges of £3.7m were the same as in 2007.
During the year there was an exceptional gain on the sale of two properties of £2.2m (2007: £1.1m). In 2007 there was an exceptional charge of £10.6m (including the £1.1m profit on property sale) primarily relating to the write off of the IT business system that was being developed “in house”. In addition, in 2008 there was also a charge for amortisation of intangibles arising on acquisitions of £1.8m (2007: £1.7m).
Profit before tax before amortisation and exceptional items in 2008 was £7.9m (2007: £12.9m) and, after amortisation and exceptional items, profit before tax was £8.3m (2007: £0.6m). Tax on profits, before amortisation and exceptional items, was £2.8m (35.4%) (2007: £4.2m and 32.6%). Basic earnings per share were 8.2p (2007: 0.3p) and, before amortisation and exceptional items, 7.0p (2007: 11.8p) per share.
The offer from Avnet Inc is conditional upon there being no final dividend and accordingly the Board is not recommending one. In the Interim Statement I reported that net borrowings at 31 March 2008 had increased to £62.9m from £59.9m at 30 September 2007. Net borrowings at 30 September 2008 have reduced to £55.7m as a consequence of a significant reduction in Inventory to £40.4m (£45.7m at 31 March 2008) and Trade and other receivables to £57.2m (£64.6m at 31 March 2008). Abacus has been well supported by its main lending bank throughout the year.
In the individual European countries where Abacus is active, there has been a mixed performance. In the , ECD sales were down 11%, and Alpha 3, our manufacturing business, reported a 6% decline in sales to £18.7m. In Scandinavia, sales increased by 10% due to the continued success of the Conelec business in and the Nordic Trident business. In Italy and France there were declines of 6% and 8% respectively, whilst in Germany and Austria there was an increase of 26%. This performance was generally in line with underlying country by country market conditions, except in where the investment in new offices has led to a useful increase in the number of franchises and business activity being reported.
With regard to operating expenses, the impact of the Euro on local currencies contributed to an increase of £3.2m (compared to 2007 average exchange rate). Additional new office rentals to replace buildings that were sold because they were no longer fit for purpose, added £0.4m. It will be noted that a combination of these two influences has been mitigated by headcount savings and a salary freeze across the Group.
Cash Offer by Avnet Inc.
As mentioned earlier, the Abacus Board announced on 10 October 2008 that it was recommending a cash offer at 55p per share from Avnet Inc. to acquire the issued share capital of Abacus. The Board, in considering this offer, recognised that it represented a significant premium (125% above the average price for the three months period before the announcement). Further, given the continuing challenging trading conditions, combined with the relatively high borrowings of the Group and the deflated share price, the Board considered that it was unlikely, in the foreseeable future, to be able to continue its strategy of acquiring European businesses to integrate into the Group activities. Accordingly, the Board recommended the offer which, providing the offer pre-conditions (EU competition clearance and shareholder acceptance) are met, is expected to complete in January 2009.
It is never an easy decision to agree the sale of a successful business to which we are all committed, but the Board believes that the interests of employees and shareholders alike will be well served as a result of this acquisition. The Board would like to thank the employees of Abacus for their dedication and hard work during the challenging last 18 months.
A H Westropp
Chairman
4 December 2008