ELECTROCOMPONENTS 2018 half-year financial results

Transcription

1 ELECTROCOMPONENTS 2018 half-year financial results 14 November 2017

2 SAFE HARBOUR This presentation contains certain statements, statistics and projections that are or may be forward-looking. The accuracy and completeness of all such statements, including, without limitation to, statements regarding the future financial position, strategy, projected costs, plans and objectives for the management of future operations of Electrocomponents plc and its subsidiaries are not warranted or guaranteed. These statements typically contain words such as "intends", "expects", "anticipates", "estimates" and words of similar import. By their nature, forwardlooking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Although Electrocomponents plc believes that the expectations reflected in such statements are reasonable, no assurance can be given that such expectations will prove to be correct. There are a number of factors, which may be beyond the control of Electrocomponents plc, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. Other than as required by applicable law or the applicable rules of any exchange on which our securities may be listed, Electrocomponents plc has no intention or obligation to update forward-looking statements contained herein.

3 OVERVIEW A strong first half 13% underlying revenue growth with double-digit growth in all five regions 14% digital underlying revenue growth in H1 rolling 12-month revenues reaching 1bn in November Gross margin improvement and cost control have driven significant growth in profit and EPS Further year-onyear reduction in debt despite investment in inventory and dividend increase Customer experience continues to improve RS Net Promoter Score up 8% year on year Established innovation team to develop new revenue streams for the future Another step forward 3

4 AGENDA 1 FINANCIAL & OPERATIONAL REVIEW David Egan Group Finance Director 2 BECOMING FIRST CHOICE Lindsley Ruth CEO 3 CURRENT TRADING AND OUTLOOK Lindsley Ruth CEO 4

5 1 FINANCIAL AND OPERATING REVIEW Significant progress

6 FINANCIAL HIGHLIGHTS > > > Accelerating underlying revenue growth Improving profitability EPS and dividend growth 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.9% 3.1% 6.6% 8.1% 12.9% 13.9% Headline operating profit ( m) % H H Underlying change Gross margin (%) Headline EPS (p) % H H Underlying change H1 Dividend per share (p) % 0.6 pts 5.0% H H Underlying change Change Significant growth in profits and earnings (1) Underlying adjusted for currency; revenue also adjusted for trading days. (2) Gross margin re-presented for a change in the classification of the expense with respect to the write-down of inventory to net realisable value to cost of sales. (3) Headline measures exclude net reorganisation costs of 3.3 million in 2018 and 0.6 million in

7 DRIVING OPERATIONAL EXCELLENCE GROSS MARGIN H1 progress 0.6 percentage point underlying improvement Driven by our own actions to: Improve pricing and increase discount discipline Drive the sales of higher margin products Reduce the level of inventory write-downs and increase vendor rebates Foreign exchange broadly neutral negative for gross margin in Northern Europe, positive rest of Europe & Asia Pacific Continued progress on shifting our culture to focus on profitability > Going forward > On track to deliver stable gross margin for full year despite a one-off foreign exchange benefit in H The focus remains on: Growing higher margin products: o o New product introductions (RS Pro) Driving market penetration with increased advertising/marketing Increasing discount discipline o Controls and process Purchasing and pricing initiatives o o o Supplier performance rewards Smarter purchasing Dynamic pricing tools On track to deliver stable gross margins in full year 7

8 Headline operating cost ( m) DRIVING OPERATIONAL EXCELLENCE COST DISCIPLINE & REINVESTMENT Change 2.0% 1.4% 2.4% 2.6% 1.5% (1.3)% 8.7% FY17 H1 FX Inflation Volume Incentives FTEs Digital Savings FY18 H1 Cost discipline Volume-related costs Disciplined investment Savings Underlying headline operating cost growth of 8.7%, less than revenue growth of 13.3%. Cost as percentage of revenue fell to 33.5% (2017: 34.6%) During H1 we saw higher variable and employee incentive costs driven by faster revenue growth Increased investment in talent: RS Pro, Innovation and IT. Higher digital marketing spend to drive faster growth A further 3m of savings in H1, on track to deliver 30m cumulative savings by March 2018 Improvement in headline operating conversion ratio to 22.7% (H1 2017: 19.1%) 8

9 NORTHERN EUROPE (26% OF REVENUE) Revenue ( m) Underlying growth 11.1% H H Operating profit Underlying stable profit Northern European region consists of the UK, Ireland and Scandinavia 11.1% revenue growth with all three markets in the region growing well Digital growth of 13% and RS Pro growth of 10% Renewed focus on value added services driving strong growth and stickier customer relationships Stable gross margins Operating margin declined 1.6 percentage points on an underlying basis to 19.0% due to higher share of supply chain costs and significant digital step up Operating profit flat on underlying basis H H (1) Underlying change, unless otherwise stated, is adjusted for currency. Underlying revenue growth is also adjusted for trading days. (2) 2017 figures re-presented for reallocation of annual incentive charge. 9

10 SOUTHERN EUROPE (19% OF REVENUE) Revenue ( m) H H Underlying growth 11.2% Operating profit Underlying growth 67.9% 23.0 Southern European region consists of France, Italy, Spain and Portugal 11.2% revenue growth. All markets in growth and standout performance in Spain/Portugal Digital growth of 13% and RS Pro growth of 9% Gross margin improvement Operating margin rose 5.2 percentage points on an underlying basis to14.5%, driven by higher gross margins and operational gearing Operating profit up 67.9% on an underlying basis to 23.0 million H H (1) Underlying change, unless otherwise stated, is adjusted for currency. Underlying revenue growth is also adjusted for trading days. (2) 2017 figures re-presented for reallocation of annual incentive charge 10

11 CENTRAL EUROPE (14% OF REVENUE) H H Revenue ( m) Underlying growth 12.8% Operating profit Underlying growth 139.6% 12.7 Central European region includes Germany, Austria, Benelux, Switzerland and Eastern Europe 12.8% revenue growth with a significant turnaround in the region during the period New leadership prioritising customer service improvements and refreshing go-to-market approach Digital growth of 13% and RS Pro growth of 10% Gross margin improvement Operating margin improved 6.1 percentage points on an underlying basis to 11.3% due to higher gross margins and operational gearing Operating profit rose 139.6% on an underlying basis to 12.7 million H H (1) Underlying change, unless otherwise stated, is adjusted for currency. Underlying revenue growth is also adjusted for trading days (2) 2017 figures re-presented for reallocation of annual incentive charge. 11

12 THE AMERICAS (27% OF REVENUE) H H Revenue ( m) Underlying growth 15.6% Operating profit Underlying growth 19.9% (1) Underlying change, unless otherwise stated, is adjusted for currency. Underlying revenue growth is also adjusted for trading days H H The Americas region consists primarily of our Allied business and includes operations in the US, Canada, Mexico and Chile Revenue was up 15.6%, driven by a particularly strong performance in automation and control Digital revenue grew at 19% and we saw continued strong growth in RS Pro from low base New venture in Mexico also saw strong growth Gross margin improvement driven by increased focus on pricing and discount discipline Operating margins rose 0.5 percentage points on an underlying basis to 12.2% with strong revenue growth, tight underlying cost control offsetting increased investment in digital and marketing Operating profits rose 19.9% on an underlying basis to 27.1 million 12

13 ASIA PACIFIC (14% OF REVENUE) 93.6 Revenue ( m) Underlying growth 17.2% H H Operating losses ( m) Underlying improvement 57.4% H H Asia Pacific region includes Australia/New Zealand, China, Japan, South East Asia (SEA) and our emerging markets operations Revenue was up 17.2%, with all four sub-regions returning to growth in the period Improvements to online experience and product availability drove a 22.7% improvement in NPS in the region year on year in September 2017 Digital revenues were up 15% and RS Pro saw growth of 8% Gross margins improved in Asia, but declined in emerging markets due to product mix Revenue growth, gross margin improvement and continued tight cost control led to a 57.4% underlying reduction in operating losses in the region (1) Underlying change, unless otherwise stated, is adjusted for currency. Underlying revenue growth is also adjusted for trading days. (2) 2017 figures re-presented for reallocation of annual incentive charge. 13

14 SUMMARY INCOME STATEMENT Reported revenue saw a benefit from currency (c 35 million) and an adverse impact from fewer trading days (c 16 million) Net interest payable reduced to 2.2m (H1 2017: 2.6m) H headline tax rate of 28% Majority of 3.3 million exceptional charge relating to the consolidation of our Londonbased digital operations and Oxford headquarters into one head office and digital hub in London ( m) H H Reported Adjustments Headline results Reported Adjustments Headline results Revenue Operating profit before exceptional items Exceptional items (3.3) (0.6) Operating profit Net interest (2.2) - (2.2) (2.6) - (2.6) Profit before tax Income tax costs ordinary activities Income tax costs exceptional items (21.8) (21.8) (15.3) - (15.3) 0.6 (0.6) (0.6) - Profit for the year Earnings per share (p)

15 CASH FLOW Half-year highlights Headline free cash flow was lower at 17.4 million (H m) due to three factors: Increased incentive payments Investment in inventory Higher tax payments The largest impact was the 39.1million investment in inventory to: Support faster revenue growth Improve product availability and on time to promise (OTTP) We expect to see growth in headline free cash flow year on year during H2 Capex 0.7x depreciation in H1 Stock turn 2.7x (H1 2017: 2.8x) Working capital as a percentage of sales improved 1.2 percentage points to 21.2% ( m) H H Headline cash generated from operations Net interest paid (2.5) (2.6) Income tax paid (16.2) (9.2) Adjusted net cash inflow from operating activities Net capital expenditure (9.4) (8.4) Headline (1) free cash flow Outflow related to restructuring (0.7) (3.0) Reported free cash flow (post restructuring) Net debt (124.5) (140.9) (1) Headline measures of profitability and cash flow are defined as the relevant reported profit/cash flow measure before reorganisation costs/cash flows, disposals and asset write-downs. (2) Headline operating cash flow conversion is defined as headline free cash flow, pre taxation and interest as a percentage of operating profits. 15

16 NET DEBT MOVEMENTS Strong balance sheet In June 2017, the Group repaid $85m of its US private placement notes Net debt: EBITDA 0.7x (H1 2017: 1.0x) ( m) H H Net debt at 1 April (112.9) (165.1) Headline free cash flow Restructuring outflow (0.7) (3.0) Pension Combined deficit million (March 2017: million, September 2016: million) Decrease due to fall in UK defined benefit scheme deficit, a result of discount rates increasing from 2.6% to 2.7% Equity dividends paid (32.2) (29.7) New shares issued Own shares acquired (1.3) (0.4) Translation differences 4.9 (5.6) Net debt at 30 September (124.5) (140.9) Year-on-year reduction in net debt 16

17 DISCIPLINED INVESTMENT TO ACCELERATE GROWTH Organic reinvestment in business >1x depreciation Acquisitions in line with strategy Growth in dividend while rebuilding cover We will be disciplined in our allocation of strong cash flow between investment in business to drive faster growth and attractive returns to shareholders 17

18 2 BECOMING FIRST CHOICE Driving improved performance

19 OUR STRATEGIC PRIORITIES We are focused on becoming first choice for customers, suppliers and employees We are driving scale by share gains Best customer and supplier experience High-performance team Operational excellence Excelling at the basics and driving differentiation for our customers and suppliers via innovation and data-led insight Investing in talented leaders to build a results-orientated, customer-focused, diverse, global talent base Continuously improving service and efficiency Innovation Introducing new products and solutions for our customers harnessing our digital expertise, data and insight, and taking advantage of changing market dynamics and new opportunities for growth and efficiency Reinvestment to accelerate growth Being disciplined in our allocation of strong cash flows between investment in the business to drive faster market share gains and providing attractive returns to shareholders 19

20 WE ARE MAKING GOOD PROGRESS AT BECOMING BEST IN CLASS Growth (quarterly underlying revenue growth) 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 3.1% 6.6% 8.1% 12.9% Efficiency (headline operating profit Customer experience > conversion) > (rolling 12-month NPS) > % 13.9% 25.0% % 21.3% 19.1% 20.0% 17.2% % 12.7% % % 0.9% 5.0% % 0.0% 35.0 (1) Underlying adjusted for currency; revenue also adjusted for trading days. (2) Headline measures exclude net reorganisation costs of 3.3 million in 2018 and 0.6 million in

21 THE MARKET OPPORTUNITY REMAINS SIGNIFICANT A 380bn market place Our market place is large and growing. Scale, digital expertise and our ability to serve our customers globally will help us win in this market Well positioned to take share Market trends Consolidation Digital transition Customer seeking a one-stop shop Industry 4.0, increasing factory connectivity Become first choice in this space The market today Large (estimated at 380bn) Fragmented Local in nature Digitally immature majority of revenue offline Our competition Local independent stores Regional players Vertical sub-category specialists Our differentiation Global footprint Broad range RS Pro, own brand range Digital expertise 1bn digital business Technical expertise Supplier relationships DesignSpark, our online design community The future market Large More consolidated Multi-channel majority of revenue online Electrocomponents 21

22 WE ARE BUILDING A HIGH-PERFORMANCE TEAM Creating the right environment to attract talent 1 Building a high performance team Strengthened Executive Team New President of Supply Chain, President, Product & Supplier Management Regional Leadership New leadership in place in APAC & Central Europe 2 Creating the right environment & culture New London office Corby office refurbishment 3 Talent development & retention Recruitment brought back in house On-boarding, in-house learning and development Focus on development and succession planning

23 INNOVATION IS CRITICAL TO OUR FUTURE SUCCESS CUSTOMER-CENTRIC INNOVATION Today: making things easy Best-in-class online experience and digital insight Introducing new DesignSpark tools to save engineers time and money PCB parts library - a PCB model creation service DS Safety - a web-based risk assessment and compliance software Revamping our eprocurement & epurchasing systems to become best in class - offering our customers more control and personalisation over their RS /Allied experience Tomorrow: doing things differently We are trialling ways we can use new technology to increase efficiency, drive scale and differentiate customer experience We will also use our data & insight and product knowledge to develop new services for suppliers & customers Chat bot Becoming first choice 23

24 WE HAVE INVESTED TO ACCELERATE GROWTH Focusing on the right levers to drive improvement Customer visits Conversion ratio Average order value We have increased expenditure in digital by around 15 million over the last two years with a focus on: Digital marketing o o Significant increase in PPC (pay-per-click) marketing Step change in creation of content rich marketing material Online experience o 6 agile teams focused on search, navigation, browse, content, site speed and mobile. o 62 agile releases in H1 (the same level as in the whole of 2017) As we build scale and reallocate resource into higher value added areas, innovation spend as a percentage of revenue is falling Online Revenue 24

25 WE ARE SEEING STRONG RESULTS FROM THIS INVESTMENT Website traffic (1) Double digit growth Website speed (2) Faster page loads Online customer experience Up 7 pts Significant growth: Significant improvement from: Significant improvement from: 47k More visits Per day 64% growth in mobile traffic 7.0 seconds: March 2015 to 2.7 seconds: Sept Sept 2016 to 71 Sept 2017 (1) 47,000 more visits to our RS website per day in the year to September % growth in RS mobile traffic in the year to September 2017 (2) RS Website speed - Page load time source: March 2015: Google analytics, October 2017: Akamai Mplus (3) RS UK customer satisfaction score from Foresee 25

26 WE WILL CONTINUE TO INVEST TO BECOME FIRST CHOICE Driving scale and efficiency 1 Investing in our brands again Multi-channel brand awareness campaign Establishing a brand leadership position 2 Investing in data, machine learning and artificial intelligence tools to drive relevance, scale and efficiency TelliINDUSTRIALISE PERSONALISATION TO DRIVE DATA-DRIVEN PRODUCT AND CONTENT saving RECOMMENDATIONS and improved sales Our customers have Cwe need to tell others content recommendations about it. Automated bidding using Google s double click technology 15% time Industrialise personalisation using Adobe tools to drive data-driven product and Bloomreach tools to inject relevant links to drive search engine optimisation (SEO) traffic growth a significant area of opportunity

27 3 CURRENT TRADING AND OUTLOOK On track to make strong progress in full year

28 3 AN ENCOURAGING START TO H2 All regions saw continued strong underlying revenue growth in October We remain focused on driving market share by focusing on delivering an excellent customer experience Tightly managing our costs, while investing to drive longer-term growth We are on track to deliver 30m of annualised savings by March 2018 We would not have been able to create Pi-Top if it hadn t been for DesignSpark Jesse Lozano, CEO and Co-founder, Pi-Top On track to make strong progress in full year

29 3 SUMMARY We have taken a major step forward but we still have a lot to do We are transforming the customer experience We are building a high-performance, customer-focused team We continue to strive for operational excellence We are innovating to drive faster growth and efficiency We will reinvest both organically and via acquisition to continue to deliver growth

30 4 Q&A Thank you for your continued interest in Electrocomponents

31 5 APPENDIX

32 BASIS OF PREPARATION Unless otherwise stated: Figures have been prepared using International Financial Reporting Standards Headline measures of profitability and cash flow are defined as the relevant reported profit/cash flow measure before reorganisation costs/cash flows, asset write-downs or disposals, and associated income tax Underlying revenue is adjusted for currency movements and also for the number of trading days ( underlying sales growth/decline ) Changes in profit, cash flow, debt and share-related measures such as earnings per share are, unless otherwise stated, at reported exchange rates Sign conventions: % changes in sales and costs are disclosed as positive if improving profit and negative if reducing profit A net charge of 3.3m (H1 2017: 0.6m) was reported for items excluded from headline profit before tax We have re-presented costs relating to the write-down of inventory to net realisable value from distribution and marketing expenses to cost of sales. In addition, we have allocated a proportion of the Group s annual incentive charge across the regions. 32

33 GUIDANCE POINTS Trading days Around 16m negative impact upon H1 revenues from fewer trading days Expect around 24m adverse impact on revenue from fewer trading days in the full year to March Foreign exchange Positive currency movements increased H headline profit before tax by around 5 million If November rates persist we would expect around a 6.0 million benefit in the full year Other guidance points 2018 capex: around 1.0x depreciation Stock turn: 2018 will be broadly in line with 2017 levels 2018 effective tax rate: no significant changes from H1 headline rate of 28% Cash tax rate: to converge with profit and loss rate in 2018 Foreign exchange rates (average for the period) H reported rates H reported rates Rates at 10/11/17 Euro USD

34 GROUP FINANCIAL HIGHLIGHTS H1 Highlights ( m) Reported H Change H1 (%) 2017 Adjusted cash generated from operations H H Reported Underlying 82.1 Revenue ( m) % 13.3% Net interest paid (2.5) (2.6) Gross profit ( m) % 10.0% Headline Income tax operating paid costs ( m) (276.2) (244.7) (16.2) (12.9)% (9.2) (8.7)% Headline Adjusted operating net cash inflow profit from ( m) operating activities % % Headline PBT ( m) % 31.3% Net capital expenditure (9.4) (8.4) Headline EPS (p) % 29.9% Headline (1) free cash flow Headline free cash flow ( m) (71.9)% 61.9 (72.4)% Net Outflow debt related ( m) to restructuring (124.5) (140.9) (0.7) (3.0) Free cash flow post restructuring Underlying revenue growth (%) 13.3% 2.1% Gross Net debt margin (%) 43.4% 42.8% (124.5) 0.6 pts (140.9) 0.6 pts Headline operating profit margin (%) 9.9% 8.2% 1.7 pts 1.4 pts Headline operating profit conversion (%) 22.7% 19.1% 3.6 pts 2.9 pts Headline operating cash flow conversion (%) 44.5% 127.7% Net debt/ebitda (x) 0.7x 1.0x Return on capital employed (%) 25.2% 17.6% 34

35 KEY PERFORMANCE INDICATORS KPI Changes We have added Headline EPS to our key performance indicators H H Change Underlying revenue growth (%) pts RS Net Promoter Score pts Headline operating profit conversion (%) pts Headline operating profit margin (%) pts Headline EPS (p) % Return on capital employed 1 (%) pts Headline operating cash flow conversion (%) (83.2) pts Group Lost Time Accident Frequency Driving an improved performance for customers, suppliers and shareholders (1) We have changed our definition of Return On Capital Employed (ROCE). ROCE has been calculated using year-end net assets, excluding net debt balances and net retirement benefit obligations. (2) We have changed our definition of Net Promoter Score to rolling 12 month vs rolling 3 month. 35

36 SEGMENTAL ANALYSIS Revenue ( m) Headline operating profit ( m) Headline operating margin (%) Reported Change (%) Reported Change (%) Reported Change (%pts) H H Reported Underlying H H Reported Underlying H H Reported Underlying Northern Europe (1.6) pts (1.6) pts Southern Europe pts 5.2 pts Central Europe pts 6.1 pts Americas pts 0.5 pts Driving an improved performance for customers, suppliers and shareholders Asia Pacific (2.3) (5.4) (2.1) (5.8) 3.7 pts 3.6 pts Central costs (20.7) (14.6) (41.8) (40.8) Group % 8.2% 1.7 pts 1.4 pts

37 Customer Experience Net Promoter Score We have made good progress at improve customer satisfaction across all regions RS NPS up 8% year on year N Europe S Europe C Europe APAC

38 IMPACT OF FOREIGN EXCHANGE Translation Exposure Reported profit sensitivity to a one cent movement in: Euro: 1.2 million USD: 0.4 million H saw around 35 million benefit to revenue and 5 million benefit to profit before tax from foreign exchange Europe and USD movements to Sterling to $ to Transaction Exposure Group treasury maintains 3-6 month hedging to smooth impact of currency movements Key exposures: net buyer of US dollars, net seller of euros and other Asian currencies Gross margin impacted over time from weakening in sterling versus: Euro and Asian currencies: positive impact USD: negative impact Sterling weakness will impact regional margins positive impact in our Asia Pacific and Central and Southern European regions. Negative impact: Northern Europe. No impact to Americas. 38

39 PENSION Sept 2017 March 2017 Combined deficit declined to million (September 2016: million; March 2017: million) UK defined benefit scheme deficit was 86.7m (September 2016: million; March 2016: 90.9m) Decline in UK deficit due to discount rates increasing from 2.6% to 2.7% m UK Germany Republic Republic Other Total UK Germany of Ireland of Ireland Other Status of funded plans Total (86.7) - (0.3) - (87.0) (90.9) - (0.4) - (91.3) Unfunded plans - (9.1) - (4.8) (13.9) - (8.8) - (4.5) (13.3) Total net liabilities (86.7) (9.1) (0.3) (4.8) (100.9) (90.9) (8.8) (0.4) (4.5) (104.6) A recovery plan is in place, which has been agreed with the Trustees of the UK Scheme and our deficit contributions will continue with the aim that the Scheme is fully funded on a technical provisions basis by