Avnet 2005 Annual Report Download - page 4

Dear Fellow Avnet Shareholder:
Avnet is an efficient and cost-
effective sales and marketing
channel helping suppliers
reach a broad base of customers
Avnet’s state-of-the-art
logistics systems manage a
high volume of transactions
and complex information flows
to ensure accurate and timely
product delivery
Avnet is an efficient manager of
more than 300,000 unique products
in the technology supply chain
Avnet’s supply chain management
solutions reduce customers’
working capital and inventory risk
Avnet’s value-added solutions
for design chain management
help customers reduce cycle
time and lower costs
Avnet’s experienced technical
customer support teams ensure
the highest quality solutions
and products are utilized by
the customer
1965 1968 1973 1974 1978 1979 1980 1981 1982
2005 Annual Report
50 YEARS OF MAKING HISTORY
Posting year-over-year revenue growth for
10 consecutive quarters, we ended fiscal
2005 with $11.1 billion in sales. Memec,
acquired by Avnet on July 5, 2005, had
sales of $2.3 billion in the same 12 month
period. The combined $13.4 billion in
revenue would have represented an Avnet
record. Memec is Avnet’s first global
acquisition, and it significantly expands
our operations, enhances our design win
capabilities and gives us entrée into the
Japanese market (the only major market
in Asia in which we had not yet established
a presence). (Please see page 8 for more
on this historic acquisition.)
This was a year in which we focused
on maximizing profitable growth while
improving productivity and efficiency.
Diluted earnings per share more than
doubled year over year, from $0.60 to
$1.39. Operating income, which has
increased annually four years in a row,
came in at $321.3 million, up 59 percent
over last year. Working capital velocity
achieved record heights in the final quarter.
This asset productivity drove return on
working capital to 19.3 percent in the
fourth quarter, an increase of 186 basis
points over the same quarter last year.
Operating margin rose to 2.9 percent from
the prior year’s 2.0 percent. Our net debt
was at its lowest level in six years, and we
were able to generate $426 million in free
cash flow for the year.
Avnet Electronics Marketing
The inventory correction that affected Avnet Electronics Marketing’s
results is, we believe, a mid-cycle one, reflecting a new paradigm
for the technology components supply chain in which the cycles
are more frequent but much less volatile than those that previously
defined the industry. The operating group returned to positive
book-to-bill ratios in all regions by the third quarter. Avnet
Electronics Marketing finished the fiscal year with $6.3 billion in
revenue, a 6.2 percent increase over FY04. Driven by our value-
based management initiatives, we were able to react quickly to the
changing marketplace and weather the short correction with minimal
financial impact. The group reduced inventory 13 percent worldwide
while maintaining optimum levels to support suppliers’ and
customers’ needs, an effort that pushed operating income to $233.1
million, a 9.7 percent increase over the prior year. With inventory
turns at a record 5.2 in the fourth quarter, the group contributed the
majority of the cash generated at the enterprise level, which was
instrumental in the Company’s purchase of Memec. Working capital
as a percent of revenue was at an all-time low in the final quarter.
Avnet Technology Solutions
Avnet Technology Solutions, which serves an array of information
technology and computer products customers, enjoyed record
results in FY05, with revenue growing 10.5 percent to $4.8 billion
and operating income up 49.4 percent to $147.7 million. Solutions
– customized combinations of goods and services that meet specific
needs – are the name of the game, driven by businesses looking
for a rapid and demonstrable return on investment for their
information technology purchases. Strong demand for services,
software, servers and microprocessors contributed significantly to
the group’s growth. The solutions selling approach has led Avnet
Technology Solutions to become IBM’s No. 1 distributor, with more
than $2 billion in sales of its computer products annually.
What’s in Store for FY06
According to analysts, worldwide semiconductor growth is predicted
to average 8 to 12 percent for the foreseeable future, and Avnet
Electronics Marketing will focus on further improvements in
productivity in the Americas and Europe, the Middle East and
Africa (EMEA), where the markets we serve are maturing. In the
Americas, quoting platforms are being merged and refined for
speed, accuracy and ease of use. Gaining profitable market share
will occupy the team in Asia, which is still posting gains as
indigenous growth and the shift of manufacturing to low-cost
regions continue. The integration of Memec will, of course,
play a huge role in the coming year.
No. 1 in the world. For much of our history, Avnet has been
at the forefront of the technology distribution industry, so
it is fitting that we celebrate the 50th anniversary of our
incorporation this year as the leading global technology
marketing, distribution and services provider.
In China and around the world, Avnet employees celebrate
their accomplishments.
1979 – Hamilton/Avnet
opens the U.S.
distribution industry’s
first Asia stocking
location in Tokyo
1980 – Electronic Marketing
Group sales account for more
than 50% of Avnet’s revenue
1979 – Avnet surpasses
$1 billion in sales
$$11BB
1981 – The Electronic
Marketing Group touts
a decentralized inventory
strategy for speedy delivery,
boasting 53 stocking
locations in the
U.S., Canada
and Japan
1974 – Avnet surpasses
$500 million in sales
1968 – Avnet enters the
Fortune 500 at No. 467
500
1978 – An internal
organization is
established to
handle a growing
microcomputer system
segments business
1973 – CEO Simon Sheib lauds the
wisdom of a diversified portfolio;
Avnet’s five groups span the
electronic components, consumer
products, wire
and cable,
automotive, and
electrical and
engineering
markets
1965 – Avnet surpasses
$50 million in sales with
five divisions: Automotive,
Electronics, Hi-Fidelity,
Freeman Products,
and Processes &
Equipment
1982 – Avnet signs a deal to
distribute Digital Equipment
Corp.’s personal computers
Companies turn to Avnet for two simple reasons:
We save them money and we help them grow
faster, thereby increasing their profit.
Avnet supports children’s education. In
Germany, the Company’s EBV Elektronik
division sponsored a computer room for a
local elementary school.