Premier Farnell, a distributor of electronic and industrial components, reported that interim profits had halved as the economic slowdown took hold, and said there were no signs of recovery.
The company's shares dropped by 9 per cent to 241p as it announced that pre-tax profit fell from £51.5m last year to £26.2m for the six months to 29 July. The stock has crashed from 529p over the past 12 months. It has underperformed the UK distribution sector by around 30 per cent over the same period.
Sales at Premier Farnell were down by 4.7 per cent at £406.5m for the period as a whole, but the decline accelerated in the second quarter, when sales fell 8.7 per cent – or 12.3 per cent when excluding the effects of the recent Buck & Hickman acquisition.
Half of group business is in North America, where Premier Farnell said a slowdown in telecoms, electronics and automotive demand was apparent throughout the year.
John Hirst, the chief executive, said that from April a more general slowdown in the US kicked in and, three months later, it hit Europe.
"We had extraordinary growth last year. It's much tougher this year. Europe is still growing – it's just not the huge growth we saw last year, when the market was buoyant and we increased our products and marketing in the region," Mr Hirst said.
Business in the US is down by 20 per cent, while growth in Europe, a relatively immature market, has slowed from 40 per cent last year to 4 per cent this time. UK orders are down by nearly 5 per cent.
"We're not counting on any improvement in North America this year and Europe will continue to weaken," Mr Hirst said buthe added that as we come out of the holiday season, the outlook should become more clear. "Nobody is able to forecast what the next six months will bring in North America right now. In the third quarter, 2002 will become clearer," he said.
Premier Farnell dispatches products immediately upon receipt of orders, leaving it with no order book and no guaranteed future business. It delivers components to a broad range of industries and prides itself on its high-speed, last-minute service.
Sue Cox, an analyst at ABN Amro, said this means Premier Farnell simply rides the economic cycle.
"It's a bloodbath out there," she said. "Premier Farnell is a bellwether for the economies in which it operates."
Companies keep orders to a minimum in recessions, she said, and cut the average size of orders, as only components that are immediately required are bought. Ms Cox yesterday cut her full-year pre-tax profit forecast for this year from £90m to £80m. She was originally looking for earnings in excess of £100m for 2001.
David O'Brien, at Credit Suisse First Boston, said that Premier Farnell was not losing customers, they were just spending less. CSFB cut its pre-tax profits forecast for this year by 22 per cent to £77.5m and by 13 per cent for next year to £93.3m.
To tackle the weaker environment, Premier Farnell said it had been taking steps to reduce its cost base by about £20m. It has cut jobs in North America by around 10 per cent – or in the region of 160 to 170 people. The group employs some 5,500 staff worldwide. The cost-cutting also included reduced marketing programmes and the closure of one of its warehouses in Canada. Mr Hirst said the company was not looking to lower the head count much further.Reuse content