Avnet 2006 Annual Report Download - page 4

2
PROFITABLE GROWTH
The world’s
leading technology
suppliers and more
than 100,000
customers put
their trust in us.
$550
500
450
400
350
300
250
200
150
100
50
0‘02 ‘03 ‘04 ‘05 ‘06
Operating Income (2)
(in millions)
$524
Sales by Operating Group
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65%
35%
4.0%
3.0
2.0
1.0
0‘02 ‘03 ‘04 ‘05 ‘06
Operating Income Margin (2)
3.7%
(percentage)
We started FY‘06 with a significant opportunity, the acquisition of Memec Group Holdings, Ltd. With sales of
$2.3 billion and operations in 33 countries, Memec was the largest specialist semiconductor distributor focused
on design services. By providing engineering expertise to customers, they built a unique business that was also
attractive to semiconductor suppliers wanting their proprietary products designed into customers’ goods.
Despite the workload associated with the integration, our team stayed focused externally on our customers’
and suppliers’ needs. As a result, our trading partners remained loyal. Our revenue grew and profits soared,
while we substantially accelerated working capital velocity and return on total capital.
It’s one thing to grow revenue by acquiring a company, but it is also important to grow organically. In FY‘06,
we added more than $900 million in revenue on top of Memec’s $2.3 billion, an increase of 8 percent.(3)
Five years ago, we turned our attention to profitable growth with return on capital and economic profits, rather
than accounting profits, as our primary measures of success. At 11 percent ROCE, we exceeded our weighted
average cost of capital and created shareholder value as we exited FY‘06, evidence that we are delivering more
value and getting paid fairly for it. Our objective is to outpace the markets we serve on the top line and grow
economic profits substantially faster than sales.
With our superior technical expertise and supply chain solutions, we are taking advantage of synergistic
opportunities to sell more components, services and solutions to customers throughout the design-to-
manufacturing process. In FY‘06, our electronic components business, Avnet Electronics Marketing:
• Grew revenue 48 percent to $9.26 billion(1)
• Grew operating income 80 percent to $419 million(2)
• Rapidly increased ROWC every quarter (2)
For computer products, our growth standouts were storage, software and services. We are now targeting
vertical markets with value-added scalable services. We are expanding our line card to embrace emerging
technologies and complementary new suppliers. In FY‘06, Avnet Technology Solutions:
• Substantially exceeded our 12.5 percent ROCE hurdle rate each quarter
• Achieved double-digit revenue growth in its largest business unit
• Expanded operating income margin 25 basis points(1)
Avnet opens the International IC
China Conference and Exhibition.