electrocomponents plc announcement of interim results half year ended 30 september 2012 8 november...

Electrocomponents plc

ANNOUNCEMENT OF INTERIM RESULTS

HALF YEAR ENDED 30 SEPTEMBER 2012

8 NOVEMBER 2012

22

Agenda

Overview and current trading Ian Mason

Financial performance Simon Boddie

Business performance Ian Mason

Strategy Ian Mason

Global Marketing Keith Reville

Q&A All

3

Key themes

Short-term and long-term performance improvement

Difficult market conditions, particularly in electronics

Significant impact on H1 financial performance

Decisive actions taken and expect stronger H2

New organisation structure to accelerate strategy and drive efficiencies

Structural growth opportunity from advantages over smaller competitors

4

Financial highlights

Flat underlying sales UK +5%, International -2%

Gross margin decline -1.2% pt reduction to 45.5%

Fixed cost leverage 3% constant currency cost growth

Fewer trading days, adverse fx -£5m headline PBT impact

Headline PBT decline -30%, £41.5m

Headline free cash flow growth +6% growth, £24.0m

Strong balance sheet 1.2x net debt:EBITDA

Maintained interim dividend 5.0p, confidence in long-term prospects

Profits down, cash flow up, balance sheet strong

Current trading

October Group sales trends consistent with H1

FY12 Q1 Q2 H1 October

Continental Europe 1% (1)% 0% 1%

North America (4)% (6)% (5)% (6)%

Asia Pacific (3)% 3% 0% (1)%

International (2)% (2)% (2)% (2)%

UK 5% 5% 5% 3%

Group 0% 0% 0% 0%

Underlying sales growth (1)

5(1) Adjusted for currency and trading days

Sales per day

Q2 Group sales 17% above 2008 levels(1)

ƒ

£’000 sales per trading day (constant currency)

£’000 sales per trading day (constant currency)

£’000 sales per trading day (constant currency)

(1) Constant currency

3,000

3,500

4,000

4,500

5,000

5,500

500

700

900

1,100

1,300

1,500

1,700

1,500

2,000

2,500

3,000

3,500

4,000

Group sales per day

UK sales per day

International sales per day

6

77

Agenda

Overview and current trading Ian Mason

Financial performance Simon Boddie

Business performance Ian Mason

Strategy Ian Mason

Global Marketing Keith Reville

Q&A All

Basis of preparation

Unless otherwise stated:

Figures have been prepared using International Financial Reporting Standards (IFRS)

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

Sign conventions: % changes in sales and costs are disclosed as positive if improving

profit and negative if reducing profit

In H1 2012/13 net expenses of £2.5m were reported in the half year for items excluded

from headline profit before tax

Key performance measures such as return on sales and EBITDA use headline profit

figures

8

Profit and loss account

(1) Adjusted for currency; sales also adjusted for trading days

Headline profit before tax down by 30%

£mH1

2012/13H1

2011/12Reported Change

Sales 606.5 626.5 0% (1)

Gross margin 45.5% 46.7% (1.2)% points

Headline operating costs 231.8 230.3 (3)% (1)

Headline operating profit 44.3 62.1 (29)%Interest (2.8) (2.7) (4)%Headline profit before tax 41.5 59.4 (30)%

Headline return on sales 7.3% 9.9% (2.6)% points

Impacts on headline profit before tax:

• Lower gross margin c.£6m

• Increased operating costs c.£7m

• Fewer trading days and currency movements c.£5m

9

Group headline profit before tax movement

International driving contribution decline

Change (1)

£59.4m

£41.5m

£(18.0)m

£0.9m £(0.8)m

H1 2011/12 International UK Processes H1 2012/13

(1) Adjusted for currency

(19)% 2% (2)%

10

International contribution

(1) Adjusted for currency; sales also adjusted for trading days

£mH1

2012/13 H1

2011/12

Underlying

Change (1)

Sales 420.9 448.2 (2)%Gross margin 44.2% 45.4% (1.2)% points

Operating costs (124.8) (124.3) (4)%

Contribution 61.0 79.0 (19)%

Contribution % 14.5% 17.6% (3.1)% points

International contribution margin down by 3% pts

11

International contribution components

Contribution decrease broadly based

(1) Adjusted for currency

Change (1)

£79.0m

£61.0m

£(9.6)m

£(4.8)m

£(3.6)m

H1 2011/12 Continental Europe North America Asia Pacific H1 2012/13

(12)% (23)% (43)%

12

UK contribution

(1) Sales adjusted for trading days

Strong UK contribution margin above 28%

£mH1

2012/13 H1

2011/12

Underlying

Change (1)

Sales 185.6 178.3 5%Gross margin 48.6% 50.0% (1.4)% points

Operating costs (37.8) (37.5) (1)%

Contribution 52.5 51.6 2%

Contribution % 28.3% 28.9% (0.6)% points

13

Reorganisation: impact on profit and cash

14

Annualised savings of £6m-£8m expected

Impacts

One-off costs:

H1 charges of £2.5m

H2 charges of c. £4m - £6m

One-off cash outflows:

H1 reorganisation cash outflow of £1.2m

H2 reorganisation cash outflow of c. £5m - £7m

Benefits

Recurring cost savings:

H2 savings c. £3m

Annualised savings c. £6m - £8m

Net reduction in roles of c. 140

Headline earnings per share

Interim dividend maintained

£mH1

2012/13H1

2011/12 Change

Headline profit before tax 41.5 59.4 (30)%

Effective tax rate (30)% (31)% 1% point

Per share amounts:Headline earnings 6.6p 9.4p (30)%

Interim dividend 5.0p 5.0p -

15

Cash flow

Headline free cash flow up by 6%

H1 H1

£m 2012/13 2011/12

Profit before tax 39.0 59.4

Depreciation 11.1 13.0

Employee share options / non-cash mvts 0.9 0.9

Finance expense (net) 2.8 2.7

Working capital (6.8) (21.7)

Cash generated from operations 47.0 54.3

Interest paid (net) (2.8) (2.7)

Tax paid (11.3) (13.3)

Net capital expenditure (10.1) (15.6)

Reported free cash flow 22.8 22.7

Add back: reorganisation cash flows 1.2 -

Headline free cash flow 24.0 22.7

Stock turns 2.6x in H1 2012/13

Profits down 34%

Lower systems spend

Comment

FY13 cash considerations:

Stock turns 2.5x, net capex c. £30m, H2 reorganisation cash outflows c. £5m - £7m

16

17

Net debt

Strong balance sheet

Pension deficit £8.4m (March 2012 £8.3m)

H1

£m 2012/13

Net debt as at 1 April 2012 (154.2)

Free cash flow 22.8

Dividends paid (29.5)

New shares issued 0.4

Own shares acquired (0.2)

Translation differences 2.6

Net debt as at 30 September 2012 (158.1)

H1£m 2012/13Committed facilities 296.6Used facilities (162.4)Unused facilities 134.2

H12012/13 Covenant

Net debt / EBITDA 1.2x <3.25x

EBITA net interest cover 21.3x >3x

Facilities & covenantsMovement in net debt

18

Financial highlights

Flat underlying sales UK +5%, International -2%

Gross margin decline -1.2% pt reduction to 45.5%

Fixed cost leverage 3% constant currency cost growth

Fewer trading days, adverse fx -£5m headline PBT impact

Headline PBT decline -30%, £41.5m

Headline free cash flow growth +6% growth, £24.0m

Strong balance sheet 1.2x net debt:EBITDA

Maintained interim dividend 5.0p, confidence in long-term prospects

Profits down, cash flow up, balance sheet strong

1919

Agenda

Overview and current trading Ian Mason

Financial performance Simon Boddie

Business performance Ian Mason

Strategy Ian Mason

Global Marketing Keith Reville

Q&A All

Attractive margins with upside potential

H1 FY12/13 £m

Underlying sales

growth% of Group

salesContribution

marginMarket

position

Continental Europe 0% 33% 19% No.1

North America (5)% 22% 14% No. 3

Asia Pacific 0% 14% 6% No. 1

International (2)% 69% 14% No. 1

UK 5% 31% 28% No.1

Group 0% 100% 19% No. 1

Business portfolio

20

Continental Europe

Flat sales growth(1)

France outperforming Germany, Italy, Spain

12% eCommerce sales growth, 65% share

Extended Live Chat into 6 more markets

Catalogue launch after 2 years

Strategic supplier share gains

Leveraging the Group’s eCommerce capabilities

Europe eCommerce share %

(1) Adjusted for currency and trading days

40%

45%

50%

55%

60%

65%

70%

Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13

21

North America

5% sales decline(1), c. 75% electronics exposure

Adapting to new SAP system

26% eCommerce sales decline, 32% share

17k products introduced

Expanded supplier relationships

(1) Adjusted for currency and trading days

Investing in improving the offer despite tough H1

22

23

Asia Pacific

Flat sales growth(1), Japan significant impact

7% eCommerce sales decline, 48% share

Investment in online marketing initiatives

Extended Live Chat into 6 more markets

20 large customer account wins

Additional supplier agreements signed

Strategic progress, growth held back by Japan(1) Adjusted for currency and trading days

24

UK

75th Anniversary

5% sales growth(1), 3% ex-Raspberry Pi

c. 75% exposure to maintenance

12% eCommerce sales growth, 61% share

Expanded large customer account portfolio

Maintained good cost control

24

Contribution 9% above pre-2008 recession level

UK H1 contribution, FY08 – FY13

0

10

20

30

40

50

60

FY08 FY09 FY10 FY11 FY12 FY13

£m

(1) Adjusted for trading days

H2 profit improvement actions

Decisive actions taken and expect stronger H2

Price differentiationCompetitor price index

Fast moving products

Tail

Average position

Drive price perception on our key value items

Less price perception in

the tail

The bulk of products sit at or just under the

average

Slow moving products

Slow moving products

Sales growth to benefit from:

o Easier comparators

o Increased eCommerce marketing intensity

o Sales initiatives and Raspberry Pi

Gross margins to benefit from:

o Targeted selling price increases

o Discount effectiveness

o Vendor rebates

Lower operating costs as % of sales

25

2626

Agenda

Overview and current trading Ian Mason

Financial performance Simon Boddie

Business performance Ian Mason

Strategy Ian Mason

Global Marketing Keith Reville

Q&A All

IT FINANCE HR

SALESOFFER MARKETING

STRATEGY

2727

New global organisation structure in place

Significant change to how we run the business

Strong forces driving globalisation

Reorganised whole of business in 6 months

From country-based to functional-based

Faster implementation of strategy and

increased efficiency

Global Operating Model

2828

Single, global product offer

Improving the profitability of our offer

Integration of electronics, maintenance

and supply chain

Industry-leading product range and

service available globally

Dynamic pricing to transform value for

money perception

Drive higher return on stock

Five product categories

Famous

for

Known

for

Also

sell

Electronics (semiconductors,

passives & electromechanical)

Automation & Control

Test & Measurement

Support

Electrical

Electronics(semiconductors, passives & electromechanical)

Automation & Control

2929

Focused on growing target customers

Human touch to develop existing customers

Focused, local sales approach

Develop and grow existing customers

Deliver the best customer experience

Share best practice, improve efficiency

Targeting 4 contact groups

Electronic Design Engineers

Machine & Panel Builders

Maintenance Engineers

Buyers

Test & Measurement

Electrical

Electronics(semiconductors, passives & electromechanical)

Automation & Control

3030

Agenda

Overview and current trading Ian Mason

Financial performance Simon Boddie

Business performance Ian Mason

Strategy Ian Mason

Global Marketing Keith Reville

Q&A All

31

New Global Marketing approach

Single global function, balanced lifecycle approach

eCommerce “machine”

Human Touch

Cu

sto

mer

sp

en

d / p

ote

ntia

l

Awareness

Brand awareness

Nursery

First 4 months

Development

Beyond 4 months

Acquisition

First purchase

• Contacts know who we are

• Build the brand

• Acquire contacts in both new and existing

customers

• Drive average purchases higher

• Spot the winners’ and nurture them

• Drive breadth of purchase and average

order f requency

Single global effort across contact lifecycle

32

Opportunity to add value exists along the full length of the curve

Transforming the customer experience will drive eCommerce growth

Execute search

100%

Checkout Order Confirmation

Tra

ffic

a

cd

b

Add to cart

Search Conversion Curve

Persuasion (b/a) = ability to extract orders from visitors / sessions

Conversion (d/a) = ability to turn visitors / sessions into sales

33

New Search and Browse - one year on

Step-change in conversion delivered

80%

90%

100%

110%

120%

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12

RS Conversion Index (Jan 11 = 100%)

Conversion from New Search – Monthly Trend

New Search & Browse roll-out

Staggered

34

New initiative - improved web checkout

Continuing to transform the customer experience

Opportunity:

4m shopping carts abandoned/year

210k registrations abandoned/year

Objectives:

Reduce abandoned carts/year by >100k

Reduce abandoned registrations/year by

c.50%

Clear and complete pricing in the basket

Simplify new customer buying experience

Organisation-wide order history

WENT LIVE SEPTEMBER 2012

Our basket and checkout hadn’t changed

Our customers’ expectations had..

For existing RS customers, our new basket and checkout is..

Clear and intuitive about product

445-444 5

445-444 5

Clear about delivery options & charges

Clear on full cost as you add each product

And offers multi-channel help & assistance at all times

Easier for first time RS customers

And rewarding for first time customers as well

We’ve taken the best of B2C design principles and applied them to B2B and our customers

“Exciting, professional, eye catching & definitely 21st Century”

“Good to know the total without having to have a calculator to hand , one less thing to think about”

“Very easy to understand”

What customers are saying about it

48

New Global Marketing approach

Single global function, balanced lifecycle approach

eCommerce “machine”

Human Touch

Cu

sto

mer

sp

en

d / p

ote

ntia

l

Awareness

Brand awareness

Nursery

First 4 months

Development

Beyond 4 months

Acquisition

First purchase

• Contacts know who we are

• Build the brand

• Acquire contacts in both new and existing

customers

• Drive average purchases higher

• Spot the winners’ and nurture them

• Drive breadth of purchase and average

order f requency

Single global effort across contact lifecycle

49

Key themes

Short-term and long-term performance improvement

Difficult market conditions, particularly in electronics

Significant impact on H1 financial performance

Decisive actions taken and expect stronger H2

New organisation structure to accelerate strategy and drive efficiencies

Structural growth opportunity from advantages over smaller competitors

5050

Agenda

Overview and current trading Ian Mason

Financial performance Simon Boddie

Business performance Ian Mason

Strategy Ian Mason

Global Marketing Keith Reville

Q&A All

Electrocomponents plc

ANNOUNCEMENT OF INTERIM RESULTS

HALF YEAR ENDED 30 SEPTEMBER 2012

8 NOVEMBER 2012

52

Financial appendices

53

Impact of foreign exchange

47.3

23.3

8.4

79.0

51.6

130.6

(68.5)

62.1

H1 2012/13 H1 2011/12 Growth Growthreported Foreign exchange

adjusted£m £m % %

Headline International contribution

Continental Europe

North America

Asia Pacific

International

Headline UK contribution

Headline Group contribution

Headline Process costs

Headline Operating profit

Reported

37.7

18.5

4.8

61.0

52.5

113.5

(69.2)

44.3

(20)%

(21)%

(43)% (43)%

(23)%

(12)%

(23)% (19)%

2% 2%

(11)%(13)%

(1)% (2)%

(29)% (25)%

54

Five year performance framework

1. Average share, 2. Region and Process Costs, 3.Headline operating profit expressed as a % of net assets plus net debt (12 months rolling period for H1 data)

KPIs 5 year target H1 2012/13 FY12

International sales growth 7-10% p.a. (1.7)% 8.7%

UK contribution Stable Increasing Increasing

Sales via eCommerce 70% 54%(1) 54%(1)

Underlying gross margin Stable Declining Stable in year

Cost as % of sales(2) Reducing Increasing Reducing

Return on capital employed(3) 25%+ 21.4% 24.6%

5555

800K Catalogues 54% e Commerce

44,000 Parcels Daily

> 1m Customers

Strong Brands

2,500 Major Suppliers > 550,000 Products

17 Distribution Centres 90+% of World GDP

Electrocomponents: what we do

The World’s distributor of choice