Premier Farnell blames economy for damaging profits warning

Premier Farnell issued a profit warning blaming a "rapid change in the global business environment" yesterday, sending its shares plunging by a fifth.

The company said sales rose just 1.4 per cent in May and June – a far cry from its target of between 6 and 8 per cent – as the combination of the Japanese earthquake in March and a weakening world economy weighed on growth.

The "marked moderation" was particularly noticeable in Europe and North America, where buying to service an expected spike in demand following the quake has now become an inventory glut, the company said.

"It is now apparent that significant inventory purchases were made in April and early May by industrial and technology customers to service their underlying demand following the Japanese earthquake," the company said yesterday.

"In light of the global slowdown this inventory is now likely to take longer to be utilised before purchasing returns to more normal levels."

Premier Farnell management stressed that the group's gross margins will remain stable thanks to an on-going investment and a beefed-up cost-cutting programme. This should ensure profits increase over the year to the end of January, it hopes.

"The board continues to believe that Premier Farnell will deliver profitable growth this year, albeit marginally lower than our previous expectations," it said.

The company's shares closed down 49.1p at just 195p, valuing the FTSE 250 listed group at £721m.

Premier Farnell shares were already struggling before yesterday's warning. Its first-quarter profits missed analyst expectations last month as sales fell 3.7 per cent in its Asian division, dragged down by poor performance in Singapore and Malaysia in particular. Overall, Premier Farnell's underlying first-quarter profits were some £3.5m short of forecasts, up by 13 per cent to £24m.

"We already knew Premier Farnell's growth rates were slowing down," David Greenall, an analyst at RBC Capital Markets, said yesterday. "What is surprising is that they have deteriorated so much more quickly."