Video transcript

When we conducted our strategic review in 2006 the 150 strong team that worked on it were drawn from right across the business – people with an in-depth knowledge of our customers’ needs; people who really understand high service distribution. This knowledge and experience of what our customers require led to the creation of a strategy that comprehends the needs of our target audience. The strength of our strategy is in its simplicity and the clear levels of understanding across the business. Everyone understands our drive to deliver profitable growth through focusing on the needs of the global Electronic Design Engineering (EDE) community, driving business to the web, internationalising our business model and maintaining our strong support to the Maintenance, Repair and Operations (MRO) segment.

The world has changed significantly in the time since we began the implementation of our strategy, however I still feel that after two years our strategy is the right one for the future – built on the solid foundation of last year’s strong financial performance, our focus has been consistent. Unlike many businesses we have not had to change course mid-way through the year. Our employees are clear on the priorities and focus for the business – clear on what we must deliver, and their part in our success. We pulse our customers and suppliers very carefully and constantly in so many different ways, through web analytics, surveys and one to one interaction. We listen to the voice of our customers very carefully and are constantly looking for ways to enhance the customer experience. We strive to be easy to do business with, we want customers to return to buy from us again and again. Customer feedback consistently tells us we are doing the right things and focusing in the right areas – as always there is much to do. This is a journey and we’re not done yet! Suppliers continue to want to partner with us as we seed their technologies and products into the critical early design phases of the electronic engineers’ product design life cycle.

Our strategy was predicated on faster growing markets and growth in the EDE segment has continued to outperform the MRO markets. Latest data shows that the EDE market is still growing faster than the overall MRO market which has slowed from previous estimates. Whilst there are still growth segments within the MRO arena, such as robotics, this year has seen particularly rapid expansion in the EDE intensive fields of biomedical equipment, energy management products and the high-brightness LED segment which have all afforded exciting opportunities for growth. Our best in class array of suppliers – whether world leaders or niche technology companies – offer our design engineering customers unparalleled access to the latest products and technologies so very critical to their work. The product offering when combined with our growing suite of design tools, technical support services, expansive product information and easy to use web purchasing options is compelling and I am confident it will continue to drive growth in this segment.

The omnipresent nature of the web which continues to touch every area of life is the preferred sales channel for increasing numbers of our customers. Throughout the year we have added eTools and rich content to ensure that our websites stay at the very forefront of our industry – offering a compelling and flexible experience to purchasing professionals and design engineers alike. With year on year web growth of 24% all of our distribution businesses have seen significant growth in their eCommerce sales levels. Farnell Europe closed the year with over 51% of its business now being transacted via eChannels, an upward trend we expect to continue into year three of the strategy, as we further grow our web footprint to excite and delight more customers than ever before. Researchers report a 93% global increase in the use of social networking tools since 2006 and we have taken a leadership stance that recognises these trends, through the creation and piloting of our own online Community, which has undergone thorough user testing and is ready for full launch imminently. Whilst the web is becoming our primary channel and certainly the fastest growing, we continue to offer customers a multi-channel experience – with many different ways to access the information and products we supply.

Economists are now reporting slowdown in the major western markets and Japan, with the key growth markets identified as India, China and much of Eastern Europe. These are the three markets we chose to focus on when we began our strategic journey, confident they were the right ones for our approach. All markets that were prepared to invest in technology, education and infrastructure. In 2009, the second year of our strategy, our businesses in these markets have continued to build on the presence already established to refine their proposition – combining local knowledge, product and expertise with rich local language websites and catalogues and the promise of same or next day delivery which lies at the heart of our promise to customers.

High service distribution allows customers to manage their inventory, trial the latest technology and improve their critical time to market. Flawless execution and distribution excellence – focusing on the detail and ensuring the very highest standards lay at the heart of our business. We continue to invest for growth and we have not been disappointed. China sales closed the year 39% up on last year, having acquired new customers in more than 140 cities. Our Indian business has now completed its first full year as part of the Premier Farnell Group – delivering sequential quarter on quarter growth, up 24% in the fourth quarter. Eastern Europe, home to our latest acquisition is up nearly 69% on the prior year. These high growth levels fuelled by the introduction of five new East European language websites during the year. At the outset of our three year plan we targeted 20% of our total sales to come from our emerging international markets. As actual sales are rapidly approaching this target, and the markets continue to grow at an aggressive rate – and with them our opportunity – we are confident of exceeding the target we set ourselves by the end of the year.

In summary, I remain positive that our strategy is the right one for Premier Farnell and remains relevant for the different market cycles. Growth opportunities still exist for those companies bold enough to take a positive approach and focus on growth, innovation and excellence, as well as continuing to drive a high performance culture.

The opportunity to grow and shape our business as we transform to a very different Premier Farnell, committed to delivering our promises profitably through the execution of a very clear plan.

The way our global teams have embraced the challenge of what we must do and got behind it to deliver results by a commitment to high performance, raising the bar of our daily execution to a new level and striving to lead our high service distribution space through the relentless pursuit of a clear strategy in an intense performance driven environment.

Our strategy has afforded us the opportunity to attract talent from within our industry and also specialists in their own field – high performers who want to be part of the future we are creating. Building an organisation for the future – capable of consistent, sustainable, profitable growth – now that really excites me.

Every year we conduct a global employee engagement survey and we independently benchmark our results against the highest performing companies in the world in our quest to improve and never rest on our laurels. This year we showed year on year improvement in all key measurable areas.

We scored very highly for the clarity of our vision and strategy right across the business – we invest time and energy in communication, training and personal development, innovation and involving our employees in the customer experience building a culture of shared responsibility for that experience. The senior team are all measured on the growth of our engagement score year on year. We want to be a place that people want to work – an organisation capable of attracting, developing and retaining great talent. As a service organisation our people are our ultimate differentiator and as such are at the heart of everything that we do.

In the survey 92% of respondents said they believed in what we are doing, and 20% said we weren’t moving fast enough.

We have continued to simplify our organisation structure, increase accountability and responsibility, and provide richer career opportunities as we automate many processes, driving efficiency and reducing the cost to serve.

Tools and technology – automation and efficiency all underpin the acceleration programme. During the fourth quarter we took further steps to align our people resources more closely to customer need and streamline operations, and this work will continue as we focus our sales teams more closely on the needs of our different customer segments. Our growing suite of eTools has helped make these changes possible –as we effectively now have “one touch processing” on many of our orders, placed via the web and then processed through to the warehouse with minimal intervention reducing the risk of human error or delay. Internally through our “eLife” programme – which seeks to educate and support employees in their use and adoption of today’s new technologies – we continue to embrace new ways of working, and develop innovative communication and information sharing tools. This ensures our global team are well-versed in the use of the eTools that are so critical to improving customer experience.

As we continue to shape our business for the future we will align our people resources where they can add the most benefit, creating virtual and global teams where it makes sense to do so to reduce duplication and share best practices. We will also have local resource close to the customer that understands the customers’ needs.

As a service business our people are our strength and we hold them at the very heart of all we do. We have a commitment to open and transparent communication, and integrity is a value that goes to the core of the organisation – doing what we say we will, and building trust.

Acting with integrity for our customers, our suppliers, each other, and all stakeholders is part of who we are and the way we do business. Our employees helped shape the values we espouse today and we have a culture where people are encouraged to live and breathe life into them in all that they do.

Our teams value the clarity of our strategy, are clear about their part in our future and are eager to get on with it, and have responded very well to our drive to accelerate progress.

We have continued to invest in the key areas of the strategy and the resources to support our growing EDE customer base, such as web tools and other features unique to us, eQuotes and iBuy as examples that are explained in more detail on page 15. We have also made a new acquisition in one of our target markets – Eastern Europe.

We firmly believe we will not shrink our way to success and that well managed investment remains key to growth – this is made possible by the strength of our overall financial position.

In the year we’ve added over 90,000 new products to our extensive portfolio, a critical part of the service our customers expect from a high service distributor, particularly as they hold less stocks themselves. Our efficient and improving supply chain ensures that 99.6% of our orders are delivered same day or next day from our network of Distribution Centres globally.

In addition to these strategic initiatives we are extremely pleased to have been able to renegotiate our borrowing facilities, one year early – a very clear indication that the banks value our future growth profile and the differentiated position we are building.

We have added new franchises ranging from world leaders in their field to suppliers of the very latest niche technologies so critical to design engineers in their work.

Our online community where design engineers will collaborate, communicate and create designs is due for launch in the first half of the financial year 2010. Developed during the past year in conjunction with design engineers from our customers, who have been an important part of its testing and creation, this latest innovation will be a first for electronic distribution, as we continue to take a lead in this area and develop our web footprint.

We continue to attract high calibre talent, capable of moving our business forward and shaping and building an organisation for the future, unrecognisable as the Premier Farnell of the last economic slowdown. Our Industrial Products Division has also seen new investment this year as some of its more traditional markets have declined; the Group has pursued international opportunities and also focused on new and different sectors with positive results, to further strengthen and grow the Division.

We continue to streamline operations, reducing headcount and cost by over 300 positions globally in the year as we shape our business for the future, a shape which utilises greater automation and increases usage of the lower cost to serve web channel. We remain committed to offering customers a multi-channel experience and continue to offer local sales support, contact centres and catalogues alongside our more than 30 transactional websites – websites that now receive over 30 million global page views a month.

Most of all we continue to meet our commitments and do what we said we would. Although the market slowed our quarter on quarter growth trend, prior to the fourth quarter we had delivered 13 periods of quarter on quarter growth, with a stable margin performance, despite the investments we have been making.

The results of all this is a business that attracts new customers and continues to delight existing ones with a more efficient service model and a potential for a more variable cost base. We believe we are creating a strong business for the future – in any market cycle.

Innovation is central to our approach – whether supporting our customer in their design innovations, driving process improvements and automation, developing the next generation of web tools, or responding to internal ideas and suggestions.

We continue to recognise the importance of innovation in business today for customers and for our employees as together we look for new and improved solutions to customer challenges and the ever changing needs of our customers. Our packaging innovations continue to make a real difference to customers, and our web innovations harnessing the power of web 2.0 are market-leading. Our supply chain innovations not only bring improvement to customers but also the environment as you will read in the CSR Report.

As we continue to innovate around our strategy we have appointed a Chief Innovation Officer, who reports directly to me, overseeing the exciting work of our web innovation lab, and managing Innovation Exchange – a participative forum for anyone in the Company to join in sharing their new ideas and evaluating others.

In a technology industry to stand still is to fall behind. Unlike our suppliers and customers, Premier Farnell’s innovation isn’t in product – but we have so much scope, particularly in a web world, to keep driving for change and improvement in all we do.

Our environmental commitments continue stronger than ever. They’re part of how we do business and are more embedded in our culture than they ever have been. We’re continuing to drive these programmes, and the power of our commitment is exemplified in our results from the Business in the Community CR Index.

During the year we have launched The Premier Farnell Trust Agenda – an approach that puts our environmental concerns high on our business agenda and we believe a differentiator for us – we are a technology company investing in our people, in the planet and in our local communities; forward thinking and innovating in a market where others are consolidating and cutting back.

We are harnessing our talent for the good of the Company, for the good of our industry and the community. Our Trust Agenda is part of who we are as an organisation – part of our core values – and therefore something for which everyone is equally accountable. We operate with the highest standards of ethics and integrity and with transparency, be it 360 degree feedback given to our leaders, the ethics hotline, employee surveys or my popular “Ask Harriet” mailbox where employees can email me directly and confidentially and be certain of a reply. We also use customer feedback mechanisms or performance metrics that are communicated consistently internally and externally. Whilst this approach is challenging, it adds value to the customer/supplier and employee experience of Premier Farnell and builds upon our sense of corporate pride. People who work here understand responsibility, to each other, to our customers, to our suppliers and investors and to our communities and our environment.

We want to encourage real trust and give everyone an opportunity to make a difference, whether it is as a green champion, an eLife champion, a contributor to the innovation exchange or as someone who makes a customer commitment.

This approach comes from the top of the organisation and is a “red thread” that joins everything that we do.

Within the Trust Agenda our environmental focus continues. Taking responsibility for our impact on the environment is not just a luxury for us as a high performing company. It is intrinsic to our success, significantly reducing our outgoings and protecting the environments in which we operate. We will continue to monitor our impact, and to review the success of our environmental programmes in our quarterly business reviews. To ensure that we are reporting our impact in the best way that we can, this year we have worked with experts in the field to have our processes externally audited.

We set ourselves a target to reduce our carbon emissions by 10% of the 2006 footprint that we efined. Already we have cut our operating emissions to 79% of 2006, doubling our achievement against the target, and we intend to continue our investments to surpass this target even further in the coming year.

As a sustainable company, we have embedded processes which address the ethical integrity of our suppliers, so that customers know we can source products that can be trusted.

We do not just take responsibility for our own impact, but we also look at ways to address the impact of our supply chain and help our customers manage their impact. Our innovative peel packaging and our approach to packaging generally are reducing the waste generated by our customers, and in turn this reduces their cost of doing business with us.

The paper used for our catalogues is one of our main environmental impacts. Our successful transition to the web is naturally helping to reduce the number of catalogues that we print, and our public policy on paper and printing ensures that all of our catalogues, and this annual report use environmentally-friendly inks and are printed onto recycled or sustainably certified paper.

The trust of our colleagues, customers and of our suppliers that we are a responsible and reliable company is critical to our success, and we believe our “Trust Agenda”, underpins who we are as a business and will encourage us to accelerate our initiatives and communicate them honestly and openly to all of our stakeholders internally and externally.

We will continue to invest in line with our strategy to improve our business offering
to customers and to constantly enhance the fundamentals of our business such as the supply chain and warehouse efficiency and improving packaging solutions.

The world economy is slowing and creating uncertainty which places a greater responsibility on us to motivate our employees to deliver the results we need and to continue to deliver the experience and business results our customers and suppliers require. Now, more than ever we need to be innovative and efficient, using automation to reduce our cost to serve wherever possible and continuing to be a cash generative business.

The full launch of our eCommunity will be an exciting area for us in the year ahead bringing together EDEs to collaborate and share whilst providing them with the information and tools they need to complete their design and meet their own demanding development timelines.

As business continues to transition to the web we will shape our organisation to ensure we have the resource in areas where it will most benefit our customers ensuring their service experience is efficient and positive through whichever channel they choose to use. Our transition plans which continue to evolve and change the business are clear for the year ahead and our focus now remains on execution.

Our expanding international markets offer further opportunity for growth and we will align resources to ensure they deliver.

Inventory – as a high service distributor – is so important to our customers even more so in these uncertain markets as many companies are responding to the global economic slowdown by liquidating inventory. This will result in an even greater need for our high service, high stock proposition as customers must continue to meet their time sensitive needs. With a broad range of products from over 3,500 suppliers, and in a world of changing technology and new information our teams monitor our product portfolio to ensure we are offering customers everything they need.

Our multi-channel presence continues to offer customers the option to deal with us via the web, the contact centre, local branch office, or our field sales teams, taking information from the web or our latest catalogue. Our focus in this year will be to continue to exceed customer expectation whilst managing cost, and driving efficiency and automation. We continue to invest in the latest telephony technology to support our contact centres and through advanced usage of Optical Character Recognition (OCR) technology, now in its second enhancement phase, we are delivering against
our objectives.

We will continue to drive our strategy to deliver the commitments we have made to our shareholders at the end of our three year transformation plan, and drive for growth as we transition the business.