Electrocomponents hails reduction in bad debts: Profits advance by 22% as fewer customers fail to pay up

ELECTROCOMPONENTS, a distributor of electronic and mechanical components throughout Europe, believes a halving of bad debts signals the end of the UK recession.

The reduction in unpaid bills helped the company to announce a 22 per cent improvement in pre-tax profits for the half-year to September and a doubling of its cash pile.

Sales in the UK were 11 per cent higher, boosted by an increase in the number of products in Electrocomponents' three catalogues from 33,000 last year to 41,000. Trade customers are guaranteed next-day delivery on all requests received before 6pm.

In Europe, where greenfield operations have been set up in Germany, Italy and Denmark, sales rose 40 per cent. All are on course to break into profits within three years, which in Germany means a move into the black next spring.

Losses at the new European operations were offset by a strong performance in France, where Radiospares Composants continued to shrug off recession.

Cash generation remained strong, with pounds 52m in the bank at the end of the first half compared with pounds 37m at the year-end and only pounds 20m a year ago.

Robert Tomkinson, finance director, said that pounds 35m of the money would be used to finance a third phase of expansion at the company's Corby distribution centre in Northamptonshire.

The enlarged site, near the planned Channel tunnel freight terminal at Daventry, will act as the hub of the European distribution network.

Pact International, which distributes electrical components such as plugs and sockets to the retail market, provided the only black spot, suffering from lower volumes at do- it-yourself stores. Its loss of less than pounds 1m is expected to be reversed in the second half, with break-even forecast for the full year.

Group pre-tax profits emerged at pounds 31.1m ( pounds 25.4m) from sales of pounds 183m ( pounds 161m). Earnings per share jumped 29 per cent to 9.8p (7.6p) and there was a 25 per cent rise in the dividend to 2.5p, although the company warned that a similar rise at the full year could not be expected.

Electrocomponents, which came to the stock market in 1967, has increased its market capitalisation from pounds 3m to pounds 951m at yesterday's close of 455p, up 1p.

Tressan McCarthy, electronics analyst at Panmure Gordon, nudged her full-year forecast up after yesterday's announcement to pounds 71.5m, implying earnings per share of 22p and putting the shares on a prospective p/e ratio of 21.