Shares in industrial and electronic equipment supplier Electrocomponents (ECM) gained 5% to 673p despite the firm posting just a 2.2% increase in like for like sales for the year to 31 March and cautioning that sales and margins would be lower due to the pandemic.
In the 12 months to the end of March, revenues rose 2.2% on an organic basis to £1.95bn while operating profits dipped 0.5% to £220.7m when excluding amortisation of intangibles on acquisitions, asset write-downs and substantial reorganisation costs.
Sales were impacted in the second half of March, wiping 1% off the full year like for like growth rate even though all of its distribution centres were open and fully operational.
In the first eight weeks of the new financial year, like for like sales were down 14% led by weakness in Europe, Middle East and Africa (EMEA) which were down 18%. Sales in Northern Europe fell by 19%, while Southern Europe fared worse down 21% and Central Europe fared slightly better down 13%.
Sales in the Americas were down 10% while Asia Pacific sales were down just 2%. The firm noted that the rate of decline had ‘moderated slightly in May as lockdown restrictions began to ease’ in some of its markets.
However, it also warned that the drop-through impact of lost revenue on its adjusted operating profit would be in the region of ‘mid-thirties’ percent, before any mitigating actions.
In order to manage its cash and outgoings, the firm has cut its capital spending budget by £20m to £60m and slowed less time-sensitive projects while deferring a decision on whether to pay the final dividend for last year and the interim dividend for this year.
In terms of liquidity the firm has £350m of existing banking facilities and is also eligible to borrow from the Bank of England under the Covid financing facility. It is also closely monitoring receivables as delays in payments from customers represent the greatest short-term liquidity risk.
According to its own stress tests, in the event that a second wave of the pandemic were to strike during the second half of the financial year, ‘resulting in limited recovery in revenue during the balance of the current financial year from that seen during the first eight weeks', the firm could continue to operate within its current banking facilities and financial covenants.
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