Key Performance Indicators
In the three years since we began to transform our business we have made strong progress in many areas. 2010 saw us accelerate our business transformation and our operations have continued to recognise the significant benefits that the execution of our strategy brings. However, like many companies this year, we have not been immune to the impact of the economic downturn, making the progress we have delivered in this last year even more of an achievement. As we look forward to 2011, we will continue on our transformational journey, working towards targets that are aligned to the business' future. These targets are shared in full in the Strategy section of this report. Our transparency and willingness to regularly communicate our nine identified Key Performance Indicators (KPIs) provides both our internal and external stakeholders with a clear and consistent view of the business' performance.
Sales per day growth %
We target accelerated sales growth through focusing on the faster growing Electronic Design Engineering (EDE) sector and faster growing international economies.
Performance
Sales per day growth of 4.6% in 2008 slowed to 1.0% in 2009 as the global economic downturn began to impact our end markets, in particular the global Maintenance Repair and Operations (MRO) markets. In 2010 our sales per day declined 9.7% as the economic climate continued to impact our performance in the first half of the year. However, in the fourth quarter of the year sales grew 6.0% and were in line with our target.
Gross margin %
We will achieve gross margin stability through a balanced customer and geographic profile in order to manage risk.
Performance
Gross margin for the year was 39.8% and has now been stable for over four years, reflecting the value that our customers and suppliers attribute to our proposition.
Return on sales %
Operating efficiencies and the success of our eCommerce strategy will result in the business' return on sales improving.
Performance
Our underlying return on sales in 2008 reflected the operational benefits of gross margin stability and operational leverage inherent in our business model. This was also reflected in the 2009 performance, in particular the impact of the decline in revenue in the fourth quarter of 2009. Underlying return on sales in 2010 was 9.1% reflecting the operational gearing in our business. Having been at a low of 8.2% in the second quarter, the benefit of costs actions taken meant that we exited the year with a return on sales of 10.5%.
Sales from developing markets %
Targeting sales growth in the developing markets is a key part of our strategy, essential to the sustainability of our profitable growth.
Performance
China, India and Eastern Europe have continued to deliver strong growth through our strategic journey. This year our developing international markets accounted for 19.8% of total Group revenue and exited the year at 21.6%.
Working capital as a % of sales
The strategy review we undertook three years ago identified operational and working capital efficiencies, the achievement of which enables us to fund investment programmes.
Performance
Our 2008 working capital as a percentage of sales reflects the early benefit of programmes that were being executed at this time. In 2009 the fourth quarter slowdown meant that inventory levels were significantly above activity levels, leading to an increase in our working capital to sales as a percentage of sales. In 2010 working capital as a percentage of sales decreased to 25.2%. This reflects the efficiency programmes executed over the previous two years and the sustained management of working capital to reflect activity levels.
Free cash flow to sales %
This is a combined measure of both the improved profitability and cash flow targets of the strategy.
Performance
Free cash flow as a percentage of sales in the year was 8.3%, excluding the impact of restructuring. This reflects the benefits achieved in working capital management in 2008 and 2009 as well as the reduction in working capital inline with activity levels seen through the recessionary period of 2010.
Return on net operating assets %
The effective and efficient investment of our shareholders' funds is a critical overall measure of the success of our strategy.
Performance
In 2010 RoNA was 29.2%. This is a significant performance which comes despite the impact of lower levels of profitability seen in the first half of the year and is still 0.4% above where we were prior to beginning our strategic journey. We will continue to invest in the strength of our strategy as we further enhance and differentiate our proposition in the coming year.
Sales via eCommerce channels %
Increasing sales on the web is a cost effective and sensible approach to growing our business, offering us and our customers increased flexibility.
Performance
Prior to embarking on our strategy three years ago eCommerce sales accounted for 23.0% of total MDD sales. eCommerce sales this year accounted for 38.8% of total MDD sales and 41.5% by the fourth quarter, with Farnell Europe at 58.8%, APAC at 50.9% and Newark at 25.8%.
Employee engagement
An engaged workforce is essential for any high-performing business.
Performance
Since we launched our all-employee survey in 2007 we have improved on all known drivers of engagement. Over this period the Group's engagement score has improved by three percentage points. The Group's employee engagement work is outlined in more detail in Resources and Relationships.
Share price performance
The assumptions which underpin our strategy together with continued execution have provided our business with a high level of resilience. This continues to be recognised by our shareholders and our share price closed the year up 37.4% on the prior year. For the first two months of financial year 2011 our share price performance has accelerated and is up 25.4%, representing a 16.2% outperformance of the FTSE 250.
NOTE: 2008 refers to the 53 week period ended 3 February 2008, 2009 refers to the 52 week period ended
1 February 2009 and 2010 refers to the 52 week period ended 31 January 2010. Underlying performance excludes restructuring costs of £7.6 million (2009: £3.4 million) and the one-off non-cash gain of £6.3 million arising from the reorganisation of the Group’s North American pension plans (2009: £nil).
