6309 Monarch Park Place, Suite 203
Niwot, CO 80503, USA
Phone (303) 443-5060
Toll free (888) 742-5060
Taking each of our key markets in turn:
The developments in European economies have led to volume and margin pressure. The construction and installation (C&I) markets have declined and this has led to a year on year reduction in sales to customers in this segment. Sales to industrial customers, a Hagemeyer strategic initiative, however developed positively during the first six months of the year. This is primarily a result of adding new customers although as a result of the softness in the economy the build up of sales has not been as fast as we had anticipated.
Hagemeyer UK has improved its market share, however markets have noticeably softened in the second quarter which has had an adverse impact on both sales and gross margins.
At the same time expense levels have been under pressure which combined with the softness in sales has led to a significant drop in UK operating income.
Expense levels were under pressure primarily for the following reasons:
ﾕ Hagemeyer UK has suffered a temporary increase in pension costs prior to changing the pension scheme to a defined contribution scheme in April.
ﾕ As part of the strategic change program the sales teams have been integrated and reorganised into two key divisions, electrical and industrial with further customer segmentation therein, the procurement function has been centralised, ICT and transport outsourced, a new shared service centre opened and the new regional distribution centre at Runcorn is nearing completion. The resulting redeployment of a significant number of staff has led to a temporary increase in costs.
ﾕ Hagemeyer UK is in the middle of the roll out phase of its new ICT platform which started at Eastern Electrical and Parkers. To support the further roll out to the rest of the UK group a new ICT infrastructure has been put in place. The associated increase in costs will be more than offset through structurally lower expense levels after the UK roll out has been completed.
The completion of the change program will give us a business and ICT platform capable of delivering superior and sustainable growth in UK earnings.
In the Nordics the negative growth in the first quarter of the year in C&I sales has continued throughout the second quarter and the rate of growth in industrial sales has diminished significantly, particularly in telecoms. The reduction in economic activity has led to a lower build up of sales from outsourcing contracts already won, whilst costs for the fulfilment of these new contracts, including telecoms in Brazil, are being incurred, leading to temporary pressure on operating margins.
In Germany the construction and installation markets have continued to significantly underperform with no sign of recovery despite further consolidation in the sector.
In Bavaria the new logistics model, based around regional distribution centres, has been successfully tested and will be rolled out in