Electrocomponents improves margins though sales slow in first quarter

Electrocomponents got off to a strong start to its financial year, with gross margins improving as cost-cutting proves more effective than expected.

Sales in the electrical components distributor's first quarter to 30 June grew only 1%, but this was a slowdown from the 3.5% rise in the first six weeks of the period. This was also down from the 2% growth in the preceding quarter and 2.8% in the last full year.

Analysts had mostly expected a sequential fall in sales growth at the group level.

Management said the slowdown was anticipated, given the particularly strong comparative performance in June last year in Southern and Central Europe, though Northern Europe continued to perform well, with the UK seeing growth throughout the period.

"It is still early days but July has started encouragingly," the FTSE 250 company added.

Europe fell to 3% from 7% in the fourth quarter, though the UK is reported to be back in growth and the decline in both Asia and North America decelerated to -2% in both regions from the respective previous -4% and -6%.

The RS Pro own-brand division, which represents 12.8% of revenues, increased growth to 7%.

Gross profit margins improved by 0.3% points compared to the same period last year, with a negative impact of foreign exchange in the period being outweighed by price and mix efforts.

If foreign exchange rates persist, Electrocomponents should see a benefit to profits in the current year, with every single euro cent movement having a £0.6m impact on profits and every dollar cent movement having a £0.2m impact on profits.

The cost saving programme and performance improvement plan is producing better than expected results and management are confident of making £15m of annualised net savings during the current financial year and at least £25m by March 2018.

"We have made a strong start to the year, with our cost saving programme and performance improvement plan initiatives driving noticeably improved profitability," said cief executive Lindsley Ruth.

"We continue to pursue our initiatives to improve customer service, stabilise gross margins and create a leaner, simpler organisation. Whilst it is too early to know the impact of the Brexit vote on the UK and global economy, we remain confident of making further good progress in the current year."