Premier Farnell warns of another year of hardship

PREMIER FARNELL, the troubled electrical components distributor, yesterday warned of another year of hardship, with tough markets and a radical internal restructuring set to take their toll on profits.

The company, which sells electronic products to manufacturers through mail-order catalogues, said the harsh trading conditions experienced in 1998 in its core UK and US markets would continue into this year. Premier's US customers are suffering from a slump in demand in Asia, while UK industrial companies have been hit by the strength of sterling.

Its customers' woes caused a steep fall in the group's 1998 profits. The company, formed in 1996 with the controversial pounds 1.8bn purchase of Premier of the US by the British group Farnell, posted a 27 per cent decline in pre-tax profits to pounds 100.4m on sales down 5 per cent to pounds 705m. The dividend was slashed 30 per cent to 9p.

The new chief executive John Hirst, who joined in July from Imperial Chemical Industries, said Premier would try to buck its difficult markets with a sweeping programme of internal changes. The company is spending pounds 45m over three years to create a computer database of all its customers and to upgrade its logistics systems. Premier will also invest pounds 15m a year to boost its marketing operations

But the immediate future looks bleak. Markets remain difficult and the restructuring spend will not pay off until the new millennium. However, City analysts believe the company is on the right track to repair the damage caused by the risky US acquisition, masterminded by the former chief executive Howard Poulson, and a raft of pricing blunders.

"There could be some more pain in terms of profits in 1999 but without it Premier would continue to drift away," said Ed Wright, an analyst at Dresdner Kleinwort Benson, who is predicting 1999 profits of pounds 89m.

The shares, down 2p to 192p yesterday are on 14 times 1999 earnings. At this level, the stock is at a large discount to Electrocomponents, Premier's main rival, and, given the hopes of a long-term turnaround, is worth a punt.