Electrocomponents fizzes in first half, second likely to be tougher
Electrocomponents expects a 42% increase in profits for the first half after enjoying an acceleration in revenue growth and market share in the second quarter and achieving a "modest increase" in gross margin.
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Thanks to a 14% increase in revenues in the second quarter that led to 13% growth in the first half, plus "stronger than expected progress" on efforts to stabilise margins and some benefit from currency changes, half year headline profit before tax is now expected to be around £78m, up from £55.1m last time.
Profits are likely to see a "more even distribution" between the first and second halves of the year, as management said the coming two quarters would see the business take advantage of the strong momentum in the market to increase investment in innovation and digital to support future growth.
Moreover, the second half will see trading comparatives toughen, with underlying revenue growth trends in the last financial year of 2.1% in the first half versus 7.5% in the second.
In the first half the positive market backdrop allowed revenue growth to be driven across all five geographic segments, with Europe up 13% in the second quarter after 11% growth in the first, while Asia & Emerging Market growth slowed to 17% from 18%, and North American slowed to 15% from 16%.
E-commerce grew 14% and there was an acceleration in growth to 10% for the RS Pro own-brand business.
On margins, management said it had made "good progress on our initiatives to stabilise gross margin and now expect to see a modest improvement in gross margin for H1 compared to the previous year" and remain on track to deliver stable gross margins for the full year.
"We have invested in inventory during H1 to improve stock availability and support faster revenue growth and, as such, we expect to see a higher than normal weighting of cash flow to the second half of our year to March 2018."