31 March 2016 19 May 2016 Agenda Overview of results Lindsley - - PowerPoint PPT Presentation

Preliminary results for year ended 31 March 2016

19 May 2016

Agenda

Overview of results Lindsley Ruth Financial highlights David Egan Business overview Lindsley Ruth Performance Improvement Plan Lindsley Ruth Current trading and outlook Lindsley Ruth

2

Overview

2016: a year of significant progress with some key highlights

• Good progress on Performance Improvement Plan (PIP)

– Customer experience, accountability and simplification

• New international leadership team
• UK returned to growth with four consecutive months of growth from December
• Double-digit growth in Central and Southern Europe
• Accelerating growth of RS Pro with 5.6% H2 growth
• 6.1% growth in digital in full year
• Firm action on costs led to significant step up in H2 profitability

3

A major step forward but still significant potential for improved performance

Financial results David Egan

4

Financial highlights

• 2.8% revenue growth
• Stabilised gross margins in H2
• Higher than targeted savings of £7 million delivered in H2
• 14.2% underlying headline operating profits growth in H2
• 19.7% growth in headline free cash flow – supported by improved stock turn of 2.7x (2015: 2.5x)
• Robust balance sheet with Net Debt: EBITDA of 1.5x (interest cover 19.2x)
• Dividend maintained

5

Group overview

Underlying(1) change H1 H2 FY H1 H2 FY Sales (£m) 626.5 664.6 1,291.1 3.7% 1.9% 2.8% Gross margin (%) 43.3% 43.7% 43.5% (1.2)pts (0.5)pts (0.8)pts Headline operating profit (£m) 33.8 48.2 82.0 (14.6)% 14.2% 0.2% Headline operating profit margin (%) 5.4% 7.3% 6.4% (1.1)pts 0.7pts (0.1)pts

6

• Overall, revenue growth of 2.8% with some anticipated disruption from restructuring in H2
• Stabilisation in gross margin in H2 – pricing initiatives, more discount discipline
• Cost actions led to H2 operating margins up 0.7% points on an underlying basis to 7.3%
• 14.2% underlying growth in operating profits during H2
• ROCE of 15.7% (2015: 16.4%)

(1) Underlying measures, unless otherwise stated, are adjusted for currency movements. Sales are also adjusted for trading days. (2) 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 and pension credits.

Year of two halves – with significant improvement in H2

Stabilise the gross margin

2016 progress Results 7 Next steps

Good progress in H2

• 1. Reported 1.1% point full-year

gross margin decline, with stabilisation in margin in H2

• 2. Two thirds of full-year decline

driven by FX, balance mix of product and price

• 3. Acceleration in RS Pro growth

aiding mix

• 4. Pricing initiatives and

increased discounting discipline supported H2 stabilisation

• 2.0%
• 1.8%
• 1.5%
• 1.3%
• 1.0%
• 0.8%
• 0.5%
• 0.3%

0.0% Q1 Q2 Q3 Q4

Quarterly GM% decline year on year

• 1. Improve mix

– Drive RS Pro growth – Prune low margin tail

• 2. Control discounts

– Controls and process – Incentivisation link

• 3. Purchasing initiatives

– Smarter purchasing – Incentivisation link – Development of global franchises for semis

Operate for less

2016 progress Results 8 Next steps

On track to deliver at least £25 million of savings by 2018

• 1. £7 million of cost savings

delivered in H2

• 2. Operating profit conversion

ratio rose to 16.6% in H2 (H2 2015: 15.2%)

• 3. Refocused workforce with

10% gross reduction

• 4. Reinvestment in focus areas,

RS Pro, electronics and digital

Change (1) 1.1% 0.8% 1.0% (1.6)% 1.3%

Operating cost movement

2015 Fx Inflation Volume Other Savings 2016

(1) Other includes IT and one-off costs including the French rate repayment

• 1. On track to deliver at least

£25 million of annualised cost savings by 2018 – £15 million in 2017 – £3 million in 2018

• 2. Relentless focus on operating

more efficiently

• 3. Review of our supply chain

continues

• 4. Our aim is to drive a culture of

continuous improvement

Summary income statement

9

• £41.9 million exceptional includes:

– £23 million labour restructuring charge – £3.9 million cost of exiting facilities – £15 million write-downs, including £11.2 million website write-down

• 2017 guidance

– No significant change in headline tax rate of 28% – We expect the cash tax rate and profit and loss tax rate to converge

2016 2015 (£m) Reported Adjustments Headline results Reported Adjustments Headline results Revenue 1,291.1

• 1,291.1

1,266.2

• 1,266.2

Operating profit before exceptional items 82.0

• 82.0

85.2

• 85.2

Exceptional items (41.9) 41.9

• 16.0

(16.0)

• Operating profit

40.1 41.9 82.0 101.2

• 85.2

Interest (5.2)

• (5.2)

(5.1)

• (5.1)

Profit before tax 34.9 41.9 76.8 96.1 (16.0) 80.1 Income tax costs – ordinary activities (21.4)

• (21.4)

(22.1)

• (22.1)

Income tax costs – exceptional items 8.4 (8.4)

• (3.7)

3.7

• Profit for the year

21.9 33.5 55.4 70.3 12.3 58.0 Earnings per share (p) 5.0

• 12.6

16.0

• 13.0

Cash flow

(£m)

2016 2015

Headline operating profit 82.0 85.2 Depreciation and amortisation 29.6 30.5 Loss on assets and other non-cash movements 3.2 1.5 Movement in working capital 2.1 (0.7) Adjusted cash generated from

• perations

116.9 116.5 Net interest paid (5.2) (5.1) Income tax paid (20.2) (21.6) Adjusted net cash inflow from

• perating activities

91.5 89.8 Net capital expenditure (28.9) (37.5) Headline free cash flow 62.6 52.3 Outflow related to restructuring (16.0) (3.3) Free cash flow post restructuring 46.6 49.0 Net debt 165.1 152.6

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• 2016 highlights

– Headline free cash flow +19.7% – Operating cash flow conversion (3) 107% (93%) – Stock turn 2.7x (2015: 2.5x) – Net Debt: EBITDA 1.5x (2015: 1.3x)

• 2017 guidance

– Capex guidance: 1x depreciation – Stock turn stable at 2.7x – Cash restructuring outflow expected to be largely

• ffset by proceeds from Singapore warehouse sale

(1) Underlying measures, unless otherwise stated, are adjusted for currency movements. Sales are also adjusted for trading days. (2) 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 and pension credits. (3) Headline operating cash flow conversion is defined as headline free cash flow, pre taxation and interest as a percentage of operating profits.

Impact of foreign exchange

Translation

• We are sensitive to FX rates on the translation of
• verseas profits
• Reported profit sensitivity to a 1 cent movement in:

– Euro: £0.6 million – USD: £0.2 million

• If current rates persist we will see a tailwind from

foreign exchange in 2017

Transaction exposure

• Group treasury maintains 3-6 month hedging to

smooth impact of currency movements

• Key exposures: euros and US dollar
• Net buyer of US dollars, net seller of euros
• As such, gross margin impacted over time from

weakening in sterling versus – Euro: positive impact – USD: negative impact Our US dollar exposure is c. 2x greater than Euro exposure

11

1.00 1.10 1.20 1.30 1.40 1.50 1.60 1.70 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16

Euro and USD movements to sterling

€ to £ £ to $

Key focus areas

• Efficiency – delivering the targeted savings and identifying further ways we can simplify
• Continuing efforts to stabilise gross margin
• Maximising cash flow with a particular focus on working capital
• Driving growth – both organic and inorganic via bolt-on acquisitions
• There is a major opportunity to deliver higher returns and increased cash flow

12

Focused on driving improvement

13

Business overview Lindsley Ruth

Northern Europe (30% of sales)

Underlying(1) change H1 H2 FY H1 H2 FY Sales (£m) 187.1 197.1 384.2 0.2% 2.6% 1.4% Operating profit (£m) 31.2 37.1 68.3 (12.6)% 19.7% 2.4% Operating profit margin (%) 16.7% 18.8% 17.8% (2.4)%pts 2.8%pts 0.3%pts

14

• Northern European hub consists of the UK, Ireland and Scandinavia
• Overall 1.4% revenue growth, with growth accelerating to 2.6% in H2
• All three markets in growth but UK turnaround has been the key driver behind H2 improvement
• Operating profits up 2.4% in 2016 on an underlying basis, with a 19.7% improvement in

profitability in H2 driven by higher gross margins and tight cost control

(1) Underlying growth, unless otherwise stated, is adjusted for currency. Underlying sales growth is also adjusted for trading days.

Southern Europe (19% of sales)

Underlying(1) change H1 H2 FY H1 H2 FY Sales (£m) 114.3 136.1 250.4 12.8% 11.1% 11.8% Operating profit (£m) 9.5 13.5 23.0 (5.9)% 4.7% 0.0% Operating profit margin (%) 8.3% 9.9% 9.2% (1.6)%pts (0.8)%pts (1.1)%pts

15

• Southern European hub consists of France, Italy, Spain and Portugal
• Double-digit revenue growth throughout 2016 driven by strong performance in France and Spain
• Market share gains driven by focus on high revenue potential accounts
• Cost initiatives offset by a FX related gross margin reduction and higher supply chain costs

(includes £1.5 million one-off repayment of French rates incurred in H1)

• Operating profit flat on an underlying basis, with 4.7% growth in H2

(1) Underlying growth, unless otherwise stated, is adjusted for currency. Underlying sales growth is also adjusted for trading days.

Central Europe (13% of sales)

Underlying(1) change H1 H2 FY H1 H2 FY Sales (£m) 82.6 90.8 173.4 13.1% 6.3% 9.5% Operating profit (£m) 3.5 2.8 6.3 (5.4)% 16.7% 3.3% Operating profit margin (%) 4.2% 3.1% 3.6% (0.8)%pts 0.2%pts (0.3)%pts

16

• Central European hub includes Germany, Austria, Benelux, Switzerland and Eastern Europe
• Double-digit revenue growth driven by good growth in Germany and standout performances from Benelux and

Eastern Europe

• Significant action on costs, with c. 8% headcount reduction in the region
• Operating margins down 0.3% points on an underlying basis, with cost initiatives offset by the negative impact
• f FX on gross margins
• Operating profits up 3.3% year on year on an underlying basis, with 16.7% year-on-year growth in H2

(1) Underlying growth, unless otherwise stated, is adjusted for currency. Underlying sales growth is also adjusted for trading days.

Asia Pacific (13% of sales)

Underlying(1) change H1 H2 FY H1 H2 FY Sales (£m) 82.6 80.5 163.1 (0.9)% (3.9)% (2.4)% Operating profit (£m) (13.2) (8.7) (21.9) 5.0% 0.0% 3.1% Operating profit margin (%) (16.0)% (10.8)% (13.4)% 0.5%pts (0.3)%pts 0.1%pts

17

• Asia Pacific hub includes Australia, New Zealand, China, Japan, SEA and emerging markets operations
• Revenues declined 2.4% as we saw the anticipated impact of restructuring
• Current returns in Asia Pacific are not acceptable; significant action to rightsize cost base to level from which

we can drive improved returns

• As expected, restructuring impacted H2 revenue performance in markets most affected i.e. Singapore, China,

Japan, whilst Australia and smaller SEA markets continued to see growth

• Cost actions more than offset a reduction in gross margin driven by weaker yen; as a result operating losses

reduced 3.1% year on year on an underlying basis

(1) Underlying growth, unless otherwise stated, is adjusted for currency. Underlying sales growth is also adjusted for trading days.

North America (25% of sales)

Underlying(1) change H1 H2 FY H1 H2 FY Sales (£m) 159.9 160.1 320.0 0.1% (4.8)% (2.4)% Operating profit (£m) 17.9 18.4 36.3 (9.6)% (14.8)% (12.3)% Operating profit margin (%) 11.2% 11.5% 11.3% (0.9)%pts (2.0)%pts (1.5)%pts

18

• North America consists of our Allied business
• Revenues declined 2.4% due to weak oil and gas markets, lower US manufacturing output
• Gross margins remained stable
• Action to rightsize costs in September: c.5% workforce reduction and reduced discretionary

spend; £2.5m of savings delivered in 2016

• Operating profits fell 12.3% on an underlying basis in the full year

(1) Underlying growth, unless otherwise stated, is adjusted for currency. Underlying sales growth is also adjusted for trading days.

19

Performance Improvement Plan Lindsley Ruth

The market opportunity is large…

Customer types Characteristics

• Maintenance engineers
• Machine and panel builders
• Buyers
• Highly fragmented
• GDP type growth
• ECM global market share <5%

Primary product categories

• Automation and control
• Tools, consumables & test

20

\ Customer types Characteristics

• Electronic design engineers
• Buyers
• Four global high-service distributors serving

this market with combined share <10%

• Through the cycle growth of c. 2x GDP
• ECM global market share remains low

Primary product categories

• Semiconductors
• Interconnect, Passives

and Electromechanical

Electronics Industrial

…and it is highly fragmented

>£250bn >£30bn

Our plan to capitalise on the market opportunity

High-performance culture Operational excellence Innovation Best supplier and customer experience Reinvest cash to accelerate growth 21

Driving superior results for customers, suppliers and shareholders

Improve customer experience Increase accountability Simplify –

• perate

for less Drive innovation Embed cultural change Reinvest cash for faster growth

Getting the basics right – PIP Accelerate growth

Step 1 Step 2

Our strategic priorities

10 things we said we would do…

• Improve customer experience

1) Fix the basic customer experience 2) Deliver a superior digital experience

• Accountable, responsive organisation

3) Strengthened leadership team 4) Profit & loss accountability 5) Return UK to growth 6) Reinvigorate RS Pro

• Operate for less

7) Deliver £6 million of savings in 2016 8) £25 million of annualised savings by March 2018 9) Rebase, fix and grow Asia Pacific 10) Stabilise the gross margin

22

On track On track Achieved Achieved Achieved Achieved Achieved On track On track On track

Improve customer experience

Tactical improvements Results 23

Focused on improving customer experience

• 1. Rollout of real-time customer

feedback system, Voice of the Customer (VOC)

• 2. Action plan established to

drive improved customer experience

• 3. Voice picking – Nuneaton &

Bad Hersfeld – significant reduction in errors

• 4. Proactive communication
• 5. More local stocking in Asia

06-Dec 13-Dec 20-Dec 27-Dec 03-Jan 10-Jan 17-Jan 24-Jan 31-Jan 07-Feb 14-Feb 21-Feb 28-Feb 06-Mar 13-Mar 20-Mar

Digital customer satisfaction score (1)

Global Linear (Global)

• 1. >60k search improvements,

four-year conversion high

• 2. >5m product data pieces

cleansed, easier selection

• 3. >120k products reshot with

high-resolution images

• 4. Site speed improved >30%
• 5. RS online growth at a

three-year high

Digital improvements

(1) NES (Net Ease Score)

Accountable, responsive organisation

24

46.0% 43.3%

A significant opportunity for growth

Reinvigorate RS Pro

• New leadership and P&L accountability
• Revenue growth of 3.8% in 2016, 5.6% in H2
• Increase to 12.5% of Group revenues
• Introduced in North America in July 2015
• Launch of one global brand in February: RS Pro

Return UK to growth

• New leadership and P&L accountability
• Four consecutive months of growth from

December to March

• Relaunch of RS Pro
• Corporate accounts back to growth
• Simplify go-to-market approach
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0%

Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16 Q2 FY16 Q3 FY16 Q4 FY16

UK sales growth rate

Operate for less – Asia Pacific

• 20% reduction in workforce
• Consolidated regional management

function in Hong Kong

• Strengthened leadership team
• Substantial restructuring, closure of:

– Singapore office and warehouse – Three offices in China – Three trade counters in Australia

• Established low-cost back office

shared service centre in Philippines and China

• Move to primarily web-only model in

Japan

• Improve customer service

– Superior online experience – Increase service reliability

• Service reliability

– More local fulfilment – Range review

• Customer acquisition

– China: Industrial Parks – Growth markets

25

Driving improved returns

Rebase Fix and grow

26

Looking forward

Current trading and outlook

27

Sales growth

(1)

H1 2016 H2 2016 Apr/May 2016(2) Northern Europe 0.2% 2.6% 3.5% Southern Europe 12.8% 11.1% 8.2% Central Europe 13.1% 6.3% 3.7% Asia Pacific(3) (0.9)% (3.9)% 6.8% Americas

0.1%

(4.8)% (1.8)% Group 3.7% 1.9% 3.5 %

Well positioned to make progress in 2017

(1) Underlying sales growth, adjusted for currency and trading days (2) Seven weeks to 13 May 2016 (3) Asia Pacific hub includes emerging markets which benefitted from weak trading comparatives during the period

• Overall a similar revenue picture to

H2 2016

• Europe saw good revenue growth

– Continued recovery in Northern Europe – Slight moderation in growth in Southern and Central Europe due to tougher comparatives

• No significant change in North

American market

• Asia Pacific remains volatile and we

would be cautious about extrapolating the six-week trend as the period benefited from:

– Strong emerging market growth (weak comparator and Pi launch) – A focused promotion across Asia Pacific region during April

Summary

• Performance Improvement Plan on track
• We will transform the customer experience with our organisation

– First step, getting basics right – Second step, driving differentiation into our offering

• We will drive accountability

– To develop a high-performance culture

• We will continue to simplify and operate for less

– On track for at least £25 million of annualised savings by March 2018 – Work continues to identify further savings

• We will drive innovation
• We will reinvest both organically and via bolt-on acquisitions to accelerate growth

28

The opportunity is significant and we will deliver

29

Appendix

Basis of preparation

Unless otherwise stated:

• Figures have been prepared using International Financial Reporting Standards
• Changes in sales are adjusted for currency movements and 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

• Key performance measures such as return on sales use headline profit figures
• Sign conventions: % changes in sales and costs are disclosed as positive if improving profit and

negative if reducing profit

• A net charge of £41.9m (H1: £11.4m) was reported for items excluded from headline profit before
• tax. 2015 net income of £16.0m was reported for items excluded from headline profit before tax.
• We have restated our balance sheets for FY15 and FY14 following a change in accounting policy

relating to the grossing up treatment of our multi-currency cash pools.

• We have represented our segmental results, in line with the restructuring of the Group this year

into 5 operational hubs and central costs.

30

Group financial highlights

Reported Change (%) 2016 2015 Reported Constant

Sales (£m) 1,291.1 1,266.2 2.0% 2.8% Gross profit (£m) 561.5 564.7 (0.6)% 1.2% Operating costs (£m) (479.5) (479.5) 0.0% (1.3)% Operating profit (£m) 82.0 85.2 (3.8)% 0.2% Headline PBT (£m) 76.8 80.1 (4.1)% 0.0% Headline EPS (p) 12.6 13.2 (4.5)% 0.0% Headline free cash flow (£m) 62.6 52.3 Net debt (£m) (165.1) (152.6) Underlying Sales growth (%) 2.8 3.5 Gross margin (%) 43.5 44.6 (1.1)pts (0.8)pts Operating profit margin (%) 6.4 6.7 (0.3)pts (0.1)pts Gross profit conversion (%) 14.6 15.1 Operating cash flow conversion (%) 107.3 92.7 Net debt/EBITDA (x) 1.5 1.3 Return on capital employed (%) 15.7 16.4

31

Measuring our success: KPIs

2016 2015 H2 2016 H2 2015

Underlying revenue growth (%) 2.8 3.5 1.9 4.1 RS Net Promoter Score 41.0

• Headline operating profit as % of gross profit (%)

14.6 15.1 16.6 15.2 Headline operating profit margin (%) 6.4 6.7 7.3 6.7 Headline operating cash flow conversion (%) 107.3 92.7 132.6 92.0 Return on capital employed (%) 15.7 16.4

• Group Lost Time Accident Frequency (1)

0.15 0.29

• 32

(1) Number of Lost Time Accidents per 200,000 hours worked

Segmental analysis

Sales (£m) Headline operating profit (£m) Operating margin (%) Reported Change (%) Reported Change (%) Reported Change (%pts)

2016 2015 Reported

Underlying

2016 2015 Reported

Underlying

2016 2015 Reported

Underlying

Northern Europe

384.2 383.4 0.2% 1.4% 68.3 68.0 0.4% 2.4% 17.8% 17.7% 0.1% 0.3%

Southern Europe

250.4 239.0 4.8% 11.8% 23.0 25.5 (9.8)% 0.0% 9.2% 10.7% (1.5)% (1.1)%

Central Europe

173.4 169.2 2.5% 9.5% 6.3 7.4 (14.9)% 3.3% 3.6% 4.4% (0.8)% (0.3)%

Asia Pacific

163.1 171.9 (5.1)% (2.4)% (21.9) (21.6) 1.4% (3.1)% (13.4)% (12.6)% (0.8)% 0.1%

North America

320.0 302.7 5.7% (2.4)% 36.3 38.7 (6.2)% (12.3)% 11.3% 12.8% (1.5)% (1.5)%

Central costs

(30.0) (32.8) (8.5)% (8.8)%

Group

1,291.1 1,266.2 2.0% 2.8% 82.0 85.2 (3.8)% 0.2% 6.4% 6.7% (0.3)% (0.1)%

33

Restructuring charges and pension credits

34

Reported (£m) 2016 2015 Labour restructuring charge (23.0) (4.4) Cost of exiting facilities (3.9)

• Website write-down

(11.2)

• Other write-downs

(3.8)

• Total exceptional charge

(41.9) (4.4) Exceptional income

• 20.4

Total net exceptional charge (41.9) 16.0

Net debt movements

(£m) 2016 2015 Net debt at 1 April (152.6) (143.6) Headline free cash flow 62.6 52.3 Restructuring outflow (16.0) (3.3) Equity dividends paid (51.6) (51.6) New shares issued 1.7 0.4 Own shares acquired (2.3) (0.6) Translation differences (6.9) (6.2) Net debt at 31 March (165.1) (152.6)

35

(1) Restated due to revised accounting treatment on vendor rebates

Strong balance sheet

• EBITA to interest cover 19.2x (covenant 3x )
• Net debt to EBITDA of 1.5x (covenant 3.25x)

Pension

• Combined deficit £43.3 million (2015: £60.4 million)

Guidance points for 2017

• Capital expenditure: 1 x depreciation
• Stock turn: flat at 2.7x
• Effective tax rate: no significant changes

from current year’s headline rate of 28%

• Cash tax rate: to converge with profit and

loss rate over time

• Cash restructuring outflow expected to be
• ffset by proceeds from Singapore

warehouse sale

36 Foreign exchange rates

2016 reported rates 2016 year end rates 17 May rates Sterling: euro 1.37 1.26 1.28 Sterling: USD 1.51 1.44 1.45

Net Promoter Score (NPS)

37

Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 Mar 16

Net Promoter Score (NPS)

Global (Excl Allied) UK Continental Europe APAC

Fix the basic customer experience – 2017 focus areas

Ease

• Further improvements to
• nline experience
• Increase choice on

packaging options

• Improve quotation

capability

• Introduce product

traceability across relevant product categories

Range and availability

• New KPIs to improve stock

availability in top sellers and most searched for items

• Clear labelling of available

stock and transparency of despatch date across all products

• Realign range in Asia

Pacific with more locally sourced inventory

38 Service reliability

• Parcel tracking in all

markets; better customer information on delivery

• Introduce forward and

scheduled ordering

Delivering tactical changes that drive an improved experience