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2019 Half-year Results
ELECTROCOMPONENTS
2019 half-year
financial results
20 November 2018
2019 Half-year Results
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,
statements regarding the future financial position, strategy,
projected costs, plans and objectives for the management of
future operations of Electrocomponents plc and its subsidiaries is
not warranted or guaranteed. These statements typically contain
words such as "intends", "expects", "anticipates", "estimates" and
words of similar import. By their nature, forward-looking 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.
2
2019 Half-year Results
OVERVIEW
Above market,
sustainable growth and
strong execution
9.8% like-for-like(1)
revenue growth,
continuing to drive
share gains in
large, fragmented
market
Adjusted(2)
operating profit
margin rose 1.5
percentage points
aided by higher
gross margin and
cost control
Strong growth in
profit before tax,
earnings and free
cash flow
Further
improvement in
customer
experience –
Group NPS(3) up 3.8%
IESA acquisition
performing well –
>30% revenue
growth and
encouraging new contract wins
Good progress on
PIP II(4) – positioning
the Group to drive
continued growth
and superior returns
(1) Like-for-like change excludes the impact of acquisitions and the effects of changes in exchange rates on translation of overseas
operating results, with 2018 converted at 2019 average exchange rates for the period. Revenue is also adjusted to eliminate the
impact of trading days year on year.
(2) Adjusted excludes amortisation of intangible assets arising on acquisition of businesses, substantial reorganisation costs, asset
write-downs, one-off pension credits or costs, significant tax rate changes and associated income tax.
(3) Rolling 12-month Net Promoter Score – a measure of customer satisfaction.
(4) Second phase of Performance Improvement Plan (PIP).3
2019 Half-year Results
AGENDA
1
2 PERFORMANCE IMPROVEMENT PLAN
3
CURRENT TRADING & OUTLOOK
FINANCIAL RESULTS
6
4
BECOMING FIRST CHOICE
REGIONAL PERFORMANCE
5 ACCELERATING OWN-BRAND GROWTH
VALUE-ADDED SERVICES – IESA
7
David Egan
CFO
Lindsley Ruth
CEO
4
2019 Half-year Results2019 Half-year Results
FINANCIAL RESULTS
1
Significant progress
2019 Half-year Results
Significant growth in profit and earnings per share
FINANCIAL HIGHLIGHTS
Strong revenue growth Improving profitability EPS and dividend growth
13.0
17.2
H1 2018 H1 2019 Like-for-like change
Adjusted EPS (p)
5.25 5.30
H1 2018 H1 2019
Dividend per share (p)
9.911.4
H1 2018 H1 2019 Like-for-like change
Adjusted operating profit margin (%)
(1) Like-for-like change excludes the impact of acquisitions and the effects of changes in exchange rates on translation of overseas operating results, with 2018 converted at 2019 average exchange rates for the
period. Revenue is also adjusted to eliminate the impact of trading days year on year.
(2) Adjusted excludes amortisation of intangible assets arising on acquisition of businesses, substantial reorganisation costs, asset write-downs, one-off pension credits or costs, significant tax rate changes and
associated income tax.
(3) At the year end it was announced that in the normal course of business, the interim dividend would be equivalent to 40% of the prior year full-year dividend.
> > >
43.4 44.4
H1 2018 H1 2019 Like-for-like change
Gross margin (%)
30.5%
0.7 pts 1.4 pts
12.2
9.7 9.8
RS Pro Digital Group
Like-for-like revenue growth (%)
81.2
104.0
H1 2018 H1 2019 Like-for-like change
Adjusted operating profit (£m)
25.9%
6
2019 Half-year Results
1.0 percentage point improvement
– 0.3 percentage point accretion from IESA acquisition
– 0.7 percentage point like-for-like improvement
Driven by our own actions to:
– Grow higher-margin products, including RS Pro
– Improve discount discipline and pricing
Foreign exchange broadly neutral
Tougher H2 gross margin comparatives (gross margin was
43.4% in H1 2018 and 44.5% in H2 2018) but on track to deliver
stable gross margin in our base business(1) in the full year
Progress Going forward
DRIVING OPERATIONAL EXCELLENCE – GROSS MARGIN
> >
Shifting our culture to focus on profitability
We are focused on initiatives to drive gross margin:
Growing higher-margin products:
– Accelerating new product introductions at RS Pro
– 5,400 new products in 2018
– 5,290 new products in H1 2019
– On track for > 10,000 new products in 2019
Controls and process – more discipline on discounting
Pricing – dynamic pricing tool to be rolled out in EMEA in H2
Smarter purchasing:
– Today strategic supplier engagement
– Tomorrow global sourcing initiatives
7
(1) Base excludes the post-acquisition results of IESA.
2019 Half-year Results
We are focused on improving our operating profit margin towards best-in-class mid-teen operating profit margin
Revenue growth, higher gross margin and improvement in adjusted operating profit conversion ratio to 25.7% (H1 2018: 22.7%)
drove a 1.5 percentage point improvement in adjusted operating profit margin to 11.4% (H1 2018: 9.9%)
DRIVING OPERATIONAL EXCELLENCE – OPERATING PROFIT MARGIN
Revenue growth and gross margin
improvement – Market growth and
market share gains, plus improving product mix
Disciplined investment – In H1 we saw the annualisation of the
step up in digital and innovation investment made in H2 2018. Despite this, adjusted operating costs grew at 7.8% on a like-for-like basis, below revenue growth of 9.8%. Adjusted operating costs as a percentage of revenue fell to 33.0% (H1 2018: 33.5%)
Operating profit margin
6%
7%
8%
9%
10%
11%
12%
13%
14%
FY18 H1 IESA Revenue
Growth
Gross Margin Inflation Digital People Other FY19 H1
Ad
just
ed
op
era
tin
g p
rofi
t m
argi
n
2.7% 0.6% 0.6% 0.9% 0.2% 0.2%0.1%9.9% 11.4%
8
2019 Half-year Results
SUMMARY INCOME STATEMENT
£m H1 2019 H1 2018
Reported Adjustments Adjusted(1) Reported Adjustments Adjusted(1)
Revenue 911.8 - 911.8 823.8 - 823.8
Operating profit 96.8 7.2 104.0 77.9 3.3 81.2
Net finance costs (3.9) - (3.9) (2.2) - (2.2)
Share of profit of JV 0.1 - 0.1 - - -
Profit before tax 93.0 7.2 100.2 75.7 3.3 79.0
Income tax expense (23.0) (1.2) (24.2) (21.2) (0.6) (21.8)
Profit for the period 70.0 6.0 76.0 54.5 2.7 57.2
Earnings per share (p) 15.9 1.3 17.2 12.4 0.6 13.0
(1) Adjusted excludes amortisation of intangible assets arising on acquisition of businesses, substantial reorganisation costs, asset write-downs,
one-off pension credits or costs, significant tax rate changes and associated income tax.
Highlights
Revenue saw an adverse impact from
currency (£7.5 million); this was partially
offset by a positive impact from extra
trading days (£4.3 million)
Net finance costs increased to £3.9 million
(H1 2018: £2.2 million)
Adjusted PBT excludes:
– £5.4 million labour-related restructuring costs
– £1.8 million amortisation of intangible assets arising
on acquisition of IESA
H1 2019 adjusted tax rate of 24% (H1 2018:
28%)
9
2019 Half-year Results
CASH FLOW
Highlights £m H1 2019 H1 2018
EBITDA 111.8 90.7
Movement in working capital (49.1) (50.7)
Movement in provisions 2.2 2.4
Other 3.9 2.4
Cash generated from operations 68.8 44.8
Net interest paid (3.2) (2.5)
Income tax paid (20.3) (16.2)
Net cash from operating activities 45.3 26.1
Net capital expenditure (14.5) (9.4)
Free cash flow 30.8 16.7
Add back cash effect of adjustments(2) 3.2 0.7
Adjusted free cash flow 34.0 17.4
(1) Adjusted operating cash flow conversion is adjusted free cash flow before income tax and net interest paid as a percentage of adjusted
operating profit.
(2) Adjusted excludes the impact of substantial reorganisation cash flows.
Cash generated from operations increased
to £68.8 million (H1 2018: £44.8 million)
Working capital as a percentage of sales
increased by 1.5 percentage points to 22.7%
– Like-for-like increase was 0.3 percentage points
– Balance relates to acquisition of IESA
H1 2019 capex was 0.9 times depreciation
(H1 2018: 0.7 times) – expect the full year to
be around 1.7 times
Adjusted operating cash flow conversion(1)
55.3% (H1 2018: 44.5%)
Net debt increased to £139.0 million (H1
2018: £124.5 million)
Additional short-term investment of around
£30 million in fast-moving inventory in H2 to
ensure we can maintain customer service
during the UK’s exit from the EU
10
2019 Half-year Results2019 Half-year Results
PERFORMANCE IMPROVEMENT PLAN – PHASE II
Setting ourselves up to drive continued success
2
2019 Half-year Results
PERFORMANCE IMPROVEMENT PLAN II - UPDATE
Objective
To build an even more
customer-centric, lean and
scalable platform for growth
More activities and decision making taking place closer to the customer
Good progress at building a scalable platform to support growthScalable
Simple New simpler regional structure in place
Customer
Centric
12
2019 Half-year Results
PERFORMANCE IMPROVEMENT PLAN II - UPDATE
Simple
More activities closer to customers and suppliers
Increased accountability
On track to deliver:
– £4 million of savings in year to
March 2019
– £12 million of cumulative
annualised savings by March
2021
New regional model
Sup
plie
rs
Cu
sto
me
rs
EMEA
Americas
Asia Pacific
Regional focus:
Sales
Product & Inventory
Marketing & Digital
People
Finance
Corporate Services
Commercial Services
Group Finance
Group HR
Group Legal
Corporate
Development
Technology
Sourcing
Pricing
RS Pro
Electronics
Supply Chain
13
2019 Half-year Results
PERFORMANCE IMPROVEMENT PLAN II - UPDATE
Global shared services strategy New regional centre of expertise (CoE) opened for Asia Pacific in Foshan, China
– Today – 100 people in finance, customer services and inventory
– H2 expansion – digital content teams, Australia / New Zealand support functions
EMEA regional shared service CoE in Corby
– Focus today is finance and customer services but scope to expand over time
Establishing regional CoE in the Americas
Global automation Pilots complete, third party automation partner identified and on track to deliver
our first automated solution this financial year
Identifying standardised transactional activities across the business which could be
automated
Plans to scale the use of automation across the business
Optimise and invest in supply chain Global track and trace capability now live
Launching global project to optimise transportation
Shared services
Automation
Customer-centric supply chain
Building the engine to
support continued growth
and drive improved
service at lower cost
Scalable
14
2019 Half-year Results2019 Half-year Results
BECOMING FIRST CHOICE
3
Sustainable growth and superior returns over the longer term
2019 Half-year Results
OUR MISSION
Becoming first choice
More than just a slogan
Fundamental development
of the entire organisation
Delivering a customer-centric,
scalable and agile business capable
of driving sustainable growth
Sustainable growth and
superior financial returns over the
long term
16
2019 Half-year Results
WHICHEVER WAY YOU LOOK AT IT, OUR MARKETPLACE IS LARGE
Our market is large and highly
fragmented. We have significant scope to grow market share
organically and via acquisition
$155bn Global A&C(4)
market Source:
Business Wire
$570bn Global MRO (1)
market Source: W.W.
Grainger
$140bn US MRO(1)
marketSource: Fastenal
$343bn Semiconductor
and IP&E (6)
marketSource: Avnet
c.£300bn Global
Electronic component
marketSource:
DiscoverIE
c.£400bnGlobal MRO (1), HSE(2)market
Source: Electrocomponents
Our market today
Large
Highly fragmented
Traditional competition
– Largely offline businesses
– Regional / local players and / or vertical sub-category specialists
$800bn US MRO (1) &
OEM (5) marketSource: WESCO
c.$1 trillion US B2B (3)
e-commerce market
Source: Forrester Research(1) MRO is Maintenance Repair and Operations.
(2) HSE is the High Service Electronics market.
(3) B2B is Business to Business.
(4) A&C is Automation and Control.
(5) OEM is an Original Equipment Manufacturer.
(6) IPE is Interconnect, Passive and Electromechanical.
17
2019 Half-year Results
A SIGNIFICANT OPPORTUNITY TO TAKE SHARE
(1) Source: Oxford Economics. 2017 manufacturing value-added output, real US$, at constant 2010 prices and exchange rates.
UK Germany Japan US China
Our differentiation
Global scale
Digital leadership / expertise
One-stop shop
Range and inventory availability
Technical expertise and value-added services
(1)
We are focused on driving growth in customer numbers
Mu
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K m
an
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DP
Cu
stom
ers
18
0
50,000
100,000
150,000
200,000
0
5
10
15
20
Manufacturing GDP Number of customers
We have significant potential to grow the
number of customers we serve. We have
> 160K customers in the UK, over 2x that of
the US, despite the fact that the US market
is > 9x the size of UK
2019 Half-year Results
WE ARE FOCUSED ON DRIVING SHARE IN A FRAGMENTED MARKET
Increasing spend with
existing customers
Organic investment
and acquisitions to
accelerate strategy
We will be disciplined in our allocation of strong cash flow between investment in business to drive sustainable growth and superior returns for shareholders
Growing our customer
base
19
2019 Half-year Results2019 Half-year Results
REGIONAL PERFORMANCE
4
Driving share in the regions
2019 Half-year Results
ANOTHER STEP FORWARD IN CUSTOMER / SUPPLIER EXPERIENCE
Driving a best-in-class online experience
Optimised and simplified online navigation
Scaled data-driven personalisation – making online experience more relevant to the user
Introduced solution-orientated bundles to provide customers with all the associated parts
to build a solution
Further acceleration in our mobile first strategy – with improved mobile experience –
faster page loads and search improvements
Other customer and supplier improvements
Continuous improvement project to drive a better returns process
Significant reduction in the time to launch new products from an average of 162 days in
Q1 2018 to 27 days in Q2 2019
Improvement in our on time to promise (OTTP) delivery of back orders(1) with a 25%
improvement in monthly OTTP during the current financial year
All our regions saw improved customer Net Promoter Scores in H1(1) Back orders are when stock is not held at the time the order is placed.
Customer-
centric
21
2019 Half-year Results
DRIVING MARKET SHARE
Strong revenue growth across board >
9.6
10.9
9.3
0 4 8 12
Asia Pacific
Americas
EMEA
Like-for-like revenue growth %
Estimated market growth Estimated market share gains
Increasing average order value across existing and new customers >
…and growing our customer count via
digital and more effective marketing
Average order value (AOV) – we are
selling more to our customer base…
Average order value (AOV) Customer numbers
When we are first choice, our research shows customers spend 25% more with us
22
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rs
Av
era
ge
ord
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alu
e
£160
£170
£180
£190
500,000
575,000
650,000
725,000
Ap
r
Jun
Au
g
Oct
Dec
Feb
Ap
r
Jun
Au
g
Oct
Dec
Feb
Ap
r
Jun
Au
g
Oct
Dec
Feb
Ap
r
Jun
Au
g
FY2016 FY2017 FY2018 H1 2019
Digital marketing
step-up
2019 Half-year Results
REGIONAL PERFORMANCE – EMEA
£m H1 2019 H1 2018Like-for-like
change(1)
Northern Europe revenue 254.2 217.8 10.8%
Southern Europe revenue 171.7 158.7 6.6%
Central Europe revenue 126.0 112.6 10.8%
Emerging Markets revenue 23.8 22.2 7.4%
EMEA revenue 575.7 511.3 9.3%
EMEA operating profit 89.1 73.5 16.6%
EMEA operating profit margin (%) 15.5% 14.4% 0.9 pts
Significant market share gains driving growth
9.3% like-for-like revenue growth
– Strong market share gains
– All sub-regions in growth
Selling more to existing customers
– Improved customer experience NPS up 4.3%
– Broader offer and value-added services
– Better utilisation of our sales resource
– Data-driven website personalisation and solution -
based selling
Adding new customers
– Brand awareness and digital marketing
Gross margin improvement and tight cost
control
16.6% like-for-like operating profit growth
and further improvement in operating
profit margin to 15.5%
Highlights
23
(1) Like-for-like adjusted for currency and to exclude the impact of acquisitions; revenue also adjusted for trading days.
2019 Half-year Results
REGIONAL PERFORMANCE – Americas
£m H1 2019 H1 2018Like-for-like
change(1)
Revenue 240.2 222.8 10.9%
Operating profit 31.4 25.8 25.6%
Operating profit margin (%) 13.1% 11.6% 1.6 pts
Double-digit like-for-like revenue growth
– Half market / half share gain
Selling more to existing customers
– Improved customer experience NPS up 2.7%
– Range expansion – 19,500 new stocked products in
H1, warehouse expansion project
– Automation and Control focus driving share
– Introducing RS Pro to our customer base
Adding new customers
– Brand awareness and digital marketing
– Geographic expansion (Mexico)
Gross margin improvement
– Discount discipline
– RS Pro expansion
25.6% like-for-like growth in operating profit,
improved operating profit margin
Highlights
Strong growth, gross margin improvement and tight cost control
24
(1) Like-for-like adjusted for currency; revenue also adjusted for trading days.
2019 Half-year Results
REGIONAL PERFORMANCE – Asia Pacific
£m H1 2019 H1 2018Like-for-like
change(1)
Revenue 95.9 89.7 9.6%
Operating profit / (loss) 0.7 (3.9) 115.9%
Operating profit / (loss) margin (%) 0.7% (4.3)% 5.7 pts
Highlights
9.6% like-for-like revenue growth
– Outgrowing the market: Australia / New Zealand,
South East Asia
– Growing more in line with market: China / Japan
We have fixed many of the basics
– Improved customer experience NPS up 18.2%
– Restructured cost base
– Opened shared service centre in Foshan
We need to build our capabilities to grow
– Strengthen local leadership team
– Improve local online experience
– Develop and build local offer
Good progress on RS Pro
– Local reseller strategy
Profitable in H1. Need to drive scale to
improve profitability longer term
Fixed basics, investing to build capabilities to drive faster growth
25
(1) Like-for-like adjusted for currency; revenue also adjusted for trading days.
2019 Half-year Results2019 Half-year Results
ACCELERATING OWN-BRANDGROWTH
6
2019 Half-year Results
RS PRO ‒ BECOMING FIRST CHOICE FOR QUALITY AND VALUE
Longer term we aspire to generate 20% of revenue from RS Pro
Outperforming Group growth
Revenue growth accelerated to 12.2% in
H1
Focused on key markets
Strong today: UK > 20% of revenue and
France around 15% of revenue
Opportunities: Americas, Germany, Italy
and China
New channels to market
Reseller partnerships
IESA opportunities
Data-driven range expansion
10,000 new products in 2019
Expand range in A&C and IP&E
Localise range in T&C
27
2019 Half-year Results2019 Half-year Results
VALUE-ADDED SERVICES − IESA ACQUISITION
5
2019 Half-year Results
Deepens customer relationships
Extends value-added services
Fast growing and accretive
Strong initial contribution
£11 million revenue and £2.8 million adjusted operating profit in first four months of ownership by Group
> 30% like-for-like revenue growth during first four months
Accretive to Group gross margin and Group operating profit margin
Encouraging new business pipeline with contract wins from blue chip clients
On track to cover our cost of capital in first full year of ownership
IESA
acquisition
VALUE-ADDED SERVICES – BECOMING FIRST CHOICE
29
2019 Half-year Results
Further growth with IESA’s existing client base – UK and overseas
Potential to sell IESA’s services to RS and Allied customers over time
Scope to deepen the supplier relationship between RS, RS Pro and IESA
Significant
potential
VALUE-ADDED SERVICES – BECOMING FIRST CHOICE
Singapore Slovakia
France
Sweden
IESA has 80 blue chip customers across 7 countries
Ireland Germany
2018
20082007
2001
30
2016
2019 Half-year Results2019 Half-year Results
CURRENT TRADING AND OUTLOOK
7
Well positioned to show continued strong progress in current financial year
2019 Half-year Results
AN ENCOURAGING START TO H2 2019
We have seen around 7% like-for-like revenue growth in the first seven weeks of the second half
While the external environment in some of our key markets is uncertain, we are focused on driving market share
We are tightly managing our costs, while investing to drive longer-term growth
We are on track to deliver savings of £4 million in the year to 31 March 2019 and £12 million of savings by March 2021
We continue to make strong progress in full year
32
2019 Half-year Results
SUMMARY
We have a significant market opportunity
We have invested in talent and are building a simple, scalable model so we are well placed to exploit it
We will continue to drive share gains via:
– A relentless focus on the customer
– Leadership in digital
– Expansion of our range and value-added service offering
We will look to use value accretive acquisitions to accelerate our strategy
We remain excited by the significant opportunity for continued growth and improvement
33
Well positioned to
continue to drive
sustainable growth and
superior returns for
shareholders
2019 Half-year Results2019 Half-year Results
Q&A
8
Thank you for your continued interest in Electrocomponents
2019 Half-year Results2019 Half-year Results
APPENDIX
9
2019 Half-year Results
STORY IN A NUTSHELL
1SIGNIFICANT MARKET OPPORTUNITY We estimate the overall high-service electronics
and industrial market in which we operate is valued a c. £400bn
Growing at GDP+ Highly fragmented but beginning to see
consolidation Digitally immature but digital transition now
starting
2DRIVING MARKET SHARE GAINS Market-leading customer service Leadership in digital Strong supplier relationships, product knowledge
and technical expertise Best-in-class sales process and
go-to-market approach Value-added services Differentiation with technology, innovation and
data-led insight
3BUILDING A LEAN AND SCALABLE MODEL We aim to maintain stable and where possible
grow our gross margin We are committed to using shared services and
automation to lower our cost to serve while continuing to drive improved service
Since 2015, we have increased our adjusted operating profit conversion ratio from 15.3% to 25.7% at H1 2019, and our long-term goal is to further improve this ratio to 30%
Over the same period, we have increased adjusted operating profit margin from 6.7% to 11.4% at H1 2019 and our long-term aspiration is to achieve a mid-teen adjusted operating profit margin
4STRONG CASH GENERATION We are a highly cash-generative business We will be focused on disciplined reinvestment
both organic and inorganic to accelerate top-line growth
We are committed to growing our dividend while improving dividend cover and generating attractive returns for our shareholders
c. £400bnmarket opportunity
>2Xmarket growth is our goal
30%adjusted operating profit conversion ratio is our goal
> 80%adjusted operating cash flow conversion
36
2019 Half-year Results
PERFORMANCE OVER TIME
37
Since the change in management in
April 2015 and the launch of the first
Performance Improvement Plan in
November 2015, Electrocomponents
has delivered significantly improved
financial results
Adjusted operating profit margin has
increased from 6.7% in 2015 to 11.4%
in H1 2019
The Group has also consistently
grown adjusted operating profit and
adjusted earnings per share over this
period
Return on Capital Employed has also
benefited since the company’s
turnaround strategy, rising from 13.4%
in H1 2016 to 26.4% in H1 2019
5.27.4
9.1
11.913.0
15.417.2
H1 16 H2 16 H1 17 H2 17 H1 18 H2 18 H1 19
Adjusted earnings per share (p)
33.848.2
57.775.5 81.2
95.9 104.0
H1 16 H2 16 H1 17 H2 17 H1 18 H2 18 H1 19
Adjusted operating profit (£m)
(1) Adjusted excludes amortisation of intangible assets arising on acquisition of businesses, substantial reorganisation costs, asset write-downs,
one-off pension credits or costs, significant tax rate changes and associated income tax.
(2) ROCE is adjusted operating profit for 12 months expressed a percentage of net assets excluding net debt and retirement benefit obligations.
13.4%14.5%
17.6%
22.0%
25.2%
28.6%
26.4%
H1 16 FY16 H1 17 FY17 H1 18 FY18 H1 19
Return on Capital Employed (ROCE)
2019 Half-year Results
BASIS OF PREPARATION
Unless otherwise stated:
Figures have been prepared using International Financial Reporting Standards as adopted by the European Union
Adjusted measures of profitability and cash flow exclude amortisation of intangible assets arising on
acquisition of businesses, substantial reorganisation costs, asset write-downs, one-off pension credits or costs, significant tax rate changes and associated income tax
Like-for-like change excludes the impact of acquisitions and the effects of changes in exchange rates on translation of overseas operating results, with 2018 converted at 2019 average exchange rates for the period. Revenue is also adjusted to eliminate the impact of trading days year on year
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 revenue and costs are positive if improving profit and negative if reducing profit
A net charge of £7.2 million (H1 2018: £3.3 million) was reported for items excluded from adjusted profit before tax
38
2019 Half-year Results
GUIDANCE POINTS
Trading days
Expect around £9 million positive
impact on revenue from additional
trading days in the year to March 2019
Other guidance points
Capex: £40 million Allied warehouse
expansion project will mean capex to
depreciation running at closer to 1.7x in
2019 and 2020
Stock turn: 2019 will be c. 2.5x given
additional potential inventory investment to
maintain service during the UK’s exit from
the EU
2019 effective tax rate: 24%
Cash tax rate: to converge with profit and
loss rate over time
Remain committed to a progressive
dividend policy. In the normal course the
interim dividend will be equivalent to 40%
of prior year full-year dividend
Foreign exchange
Foreign exchange rates (average for the period)
H1 2019 rates H1 2018 rates 2019 rates*
Euro 1.13 1.14 1.13
USD 1.33 1.29 1.31
* 2018 adjusted profit before tax converted at 2019 forecast average rates, using 16 November 2018 closing rates extrapolated for rest of year.
39
Currency movements decreased H1 2019 adjusted profit before tax by
£0.8 million
If November rates persist we would expect around a £0.7 million benefit on
adjusted profit before tax in the full year *
2019 Half-year Results
GROUP FINANCIAL HIGHLIGHTS
(£m) H1 2018 H1 2017
Adjusted cash generated from operations 45.5 82.1
Net interest paid (2.5) (2.6)
Income tax paid (16.2) (9.2)
Adjusted net cash inflow from operating activities 26.8 70.3
Net capital expenditure (9.4) (8.4)
Adjusted(1) free cash flow 17.4 61.9
Outflow related to restructuring (0.7) (3.0)
Free cash flow post restructuring 16.7 58.9
Net debt (124.5) (140.9)
H1 2019 H1 2018 Change
Like-for-
like
change
Revenue (£m) 911.8 823.8 10.7% 9.8%
Gross profit (£m) 404.8 357.4 13.3% 11.9%
Adjusted operating profit (£m) 104.0 81.2 28.1% 25.9%
Adjusted PBT (£m) 100.2 79.0 26.8% 24.9%
Adjusted EPS (p) 17.2 13.0 32.3% 30.5%
Adjusted free cash flow (£m) 34.0 17.4 95.4%
Net debt (£m) 139.0 124.5
Like-for-like revenue growth (%) 9.8 13.3
Gross margin (%) 44.4 43.4 1.0 pts 0.7 pts
Adjusted operating profit margin (%) 11.4 9.9 1.5 pts 1.4 pts
Adjusted operating profit conversion (%) 25.7 22.7 3.0 pts 2.8 pts
Adjusted operating cash flow conversion (%) 55.3 44.5
Net debt to adjusted EBITDA (x) 0.6 0.7
Return on capital employed (%) 26.4 25.2
40
2019 Half-year Results
KEY PERFORMANCE INDICATORS
KPI Changes
We have changed our Net
Promoter Score from RS to Group
We are changing Group Lost
Time Accident frequency to All
Accidents
Driving an improved performance for
customers, suppliers and shareholders
H1 2019 H1 2018 Change
Like-for-like revenue growth (%) 9.8 13.3 (3.5) pts
Group Net Promoter Score 52.5 50.6 3.8%
Adjusted operating profit conversion (%) 25.7 22.7 3.0 pts
Adjusted operating profit margin (%) 11.4 9.9 1.5 pts
Adjusted EPS (p) 17.2 13.0 32.3%
Return on capital employed (%) 26.4 25.2 1.2 pts
Adjusted operating cash flow conversion (%) 55.3 44.5
All Accidents 26 29
41
2019 Half-year Results
Like-for-like adjusted operating cost growth of 7.8%, less than revenue growth of 9.8%. Adjusted operating cost as percentage
of revenue fell to 33.0% (H1 2018: 33.5%)
Improvement in adjusted operating profit conversion ratio to 25.7% (H1 2018: 22.7%)
ADJUSTED OPERATING COSTSA
dju
ste
d o
pe
ratin
g c
ost
(£
m)
Cost discipline
Inflation – 2.0% inflationary rises in
wages
Volume-related costs – During H1 2019
we saw higher variable costs driven by revenue growth
Disciplined investment – Annualisation
of the increased investment seen during H2 2018 in areas such as digital, talent and innovation
250
260
270
280
290
300
310
H1 FY18 FX IESA Inflation Volume FTEs Digital Other H1 FY19
Like-for-like change 2.0% 1.4% 0.6% 3.0% 0.7%
42
2019 Half-year Results
£m H1 2019 H1 2018
Net debt at 1 April (65.0) (112.9)
Adjusted free cash flow(1) 34.0 17.4
Acquisition of business (30.9) -
Cash and cash equivalents acquired with business 1.0 -
Loans acquired with business (42.0) -
Cash effect of adjustments (3.2) (0.7)
Equity dividends paid (35.4) (32.2)
New shares issued 2.1 0.3
Purchase of own shares by Employee Benefit Trust - (1.3)
Translation differences 0.4 4.9
Net debt at 30 September (139.0) (124.5)
NET DEBT MOVEMENTS
Strong balance sheet
Net debt rose to £139.0 million,
£74.0 million higher than at 31
March 2018 with the increase
largely due to the acquisition of
IESA and associated loans
In May 2018 the Group arranged
a new £120 million two-year loan
Net debt: EBITDA 0.6x (H1 2018:
0.7x)
Pension
Combined deficit £66.1 million
(September 2017: £100.9 million)(1) Adjusted excludes the impact of substantial reorganisation costs.
43
2019 Half-year Results
IMPACT OF FOREIGN EXCHANGE
Translation Exposure
Reported profit sensitivity to a one
cent movement in:
– Euro: £1.3 million
– USD: £0.4 million
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 currencies
Gross margin impacted over time from weakening in sterling versus:
– USD: negative impact
– Euro and other currencies: positive impact
44
1.00
1.10
1.20
1.30
1.40
1.50
Euro and USD movements to Sterling € to £ $ to £
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