RS Group plc (LON:RS1) has announced its results for the half year ended 30 September 2022.
| Highlights | H1 2022/23 | H1 2021/22 | Change | Like-for-like2 change |
| Revenue | £1,458.0m | £1,208.9m | 21% | 16% |
| Adjusted3 operating profit | £196.1m | £144.8m | 35% | 30% |
| Adjusted3 operating profit margin | 13.4% | 12.0% | 1.4 pts | 1.5 pts |
| Adjusted3 profit before tax | £191.6m | £141.8m | 35% | 30% |
| Adjusted3 earnings per share | 31.5p | 23.0p | 37% | 32% |
| Operating profit | £187.0m | £139.1m | 34% | 29% |
| Profit before tax | £182.5m | £136.1m | 34% | 29% |
| Earnings per share | 30.0p | 21.5p | 40% | 34% |
| Interim dividend | 7.2p | 6.4p | 13% | |
| Adjusted3 free cash flow | £111.9m | £84.8m | 32% | |
| Net cash / (debt) | £2.6m | £(83.6)m | ||
| Net debt to adjusted3 EBITDA | n/m | 0.3x |
Outperformance reflects the strength of our people, purpose-led culture and differentiated offer
· Our people are the most powerful driver of our success, delivering our strong revenue and profit performance
· Employee engagement score of 78 (2021/22: 75), placing us near the upper quartile of top performing companies
· Ongoing increase in average order value as our proposition gains traction with our core customers
· Industrial products, 74% of Group revenue, grew volumes c. 8% with total like-for-like growth of 21%
· Net Promoter Score of 48.5 (rolling six month4), with all regions increasing slightly, remains a Group-wide focus
· Awarded Platinum medal with EcoVadis: we are committed to being net zero in our operations by 2030
· All employees are empowered and aligned to our Journey to Greatness through a share-based award5
Margin accretion driven by a tighter commercial focus and operating leverage while investing strategically
· Revenue growth of 21% includes a 16% like-for-like contribution and a 5% currency benefit2
· Gross margin of 45.5%, up 1.8 pts year on year, due to improved pricing and tighter discount policy
· One-off payment of c. £5 million to financially support our employees during these more difficult economic times
· Adjusted3 operating profit margin of 13.4% benefits from gross margin gains and strong operating cost leverage
o EMEA operating profit margin of 15.4% includes ongoing targeted investment in our operating model
o Americas operating profit margin of 17.0% reflects strong operational leverage on the underlying base
o Asia Pacific operating profit margin of 16.4% due to growing scale and a tighter commercial focus
· Adjusted operating profit conversion of 29.6%
Rigorous financial management and balance sheet strength supports organic and inorganic growth opportunities
· Adjusted free cash flow generation was strong at £111.9 million with inventory investment supporting growth
· Modest net cash position, with proforma net debt to adjusted EBITDA of c. 0.6x upon acquisition of Risoul6
· Return on capital employed of 31.4%, a 6.7 percentage point increase year on year due to strong profitability
· Increased sustainability-linked loan to £400 million and maturity extended to five years at similar terms
· Acquisitions of domnick hunter, Thailand, and Risoul6, Mexico, enhance our product, service and market offer
· Strong pipeline of acquisition opportunities and strict financial, strategic and cultural discipline being maintained
Current trading and outlook
Overall, trading over the first four weeks of the second half has been in line with our expectations.
Despite the more difficult economic backdrop, our performance in EMEA remains broadly in line with the second quarter driven by our strong industrial offer, greater proportion of service solutions revenue and improving service levels. Americas continues to deliver strong revenue, against toughening comparatives, as we maintain our investment in our operational capabilities after a period of exceptional growth. Trading in Asia Pacific continues to be affected by the slower electronics market and reduced availability of single-board computing product as well as a more challenging geopolitical backdrop and lockdowns resuming in China.
Notwithstanding the tougher global economic environment, trading remains in line with our and consensus expectations for the full year.
DAVID EGAN, RS GROUP ACTING CHIEF EXECUTIVE OFFICER, COMMENTED:
“We have delivered a strong revenue and profit performance in the first half as our differentiated proposition continues to resonate with all our stakeholders. Our performance has been driven by our people who are aligned to our purpose-led culture and are working hard to improve our customer experience and commercial focus further. We continue to invest in our Group to become stronger, more profitable and to take greater market share. While mindful of a slowing economic backdrop, we remain optimistic that we will continue to outperform the market.”
1. Consensus for the year ending 31 March 2023 is revenue of £2,919 million, adjusted operating profit of £372.4 million and adjusted profit before tax of £364.9 million. Source: rsgroup.com/investors/analyst-coverage.
2. Like-for-like change excludes the impact of acquisitions and the effects of changes in exchange rates on translation of overseas operating results, with 2021/22 converted at 2022/23 average exchange rates for the period. Revenue is also adjusted to eliminate the impact of trading days year on year. Acquisitions are only included once they have been owned for a year, at which point they start to be included in both the current and comparative periods for the same number of months. Currency movements increased revenue by £48.7 million and fewer trading days decreased revenue by £8.0 million during the period. Currency movements increased adjusted profit before tax by £5.8 million.
3. Adjusted excludes amortisation and impairment of intangible assets arising on acquisition of businesses, acquisition-related items, substantial reorganisation costs, substantial asset write-downs, one-off pension credits or costs, significant tax rate changes and associated income tax. See Note 11 for definitions and reconciliations of all alternative performance measures.
4. Our customer key performance indicator is Group rolling 12-month Net Promoter Score (NPS). We have updated the methodology from 1 April 2022 to make it more representative of our customer base. The changes made are to weight NPS by percentage of orders; separate out business to business (B2B) from business to consumer (B2C) customers, with B2B becoming our primary metric; and customers that opted out of marketing can be included in the survey. As a result, we currently do not have the data to calculate a Group rolling 12-month NPS (see appendix in 2021/2022 full year results presentation for full details).
5. Awarded to all permanent and fixed-term employees and apprentices employed on 14 July 2022.
6. Acquisition of Risoul is subject to review by Mexican competition authorities and we anticipate it will be completed by the end of December 2022.
There will be an analyst presentation today at 9am (UK time) at Numis, 45 Gresham Street, London EC2V 7BF. We will also provide a video webcast, which can be accessed live and later as a recording on the RS Group website at www.rsgroup.com.
Webcast link: https://www.investis-live.com/rsgroup/634585495cf89d1500069ce5/qbke
It is advisable to pre-register early to avoid any delays in joining the conference call.
Participant dial-in numbers
United Kingdom (Local): 020 3936 2999
All other locations: +44 20 3936 2999
Participant access code: 362958
Presentation timing
Date: Thursday, 3 November 2022
Time: 9am UK time
Venue: Numis, 45 Gresham Street, London EC2V 7BF
BUSINESS REVIEW
Our first half performance has been strong: we have delivered excellent revenue and profit growth while continuing to invest in our proposition and support our strategic aspirations. Our people are driving this outperformance and the investment we have made in them is supporting a high-performance, purpose-led culture.
This investment has been the most powerful component of our success and we never underestimate the value our people bring to all our stakeholders. We thank them all, demonstrating our appreciation and ensuring all employees can share in our success through a share-based award based on our Journey to Greatness plan. We have also invested in more inclusive and relevant employee benefit programmes and are providing ad-hoc financial support to all employees during these more difficult economic times.
This has been an exciting six months for our Group. We have rebranded our corporate name from Electrocomponents plc to RS Group plc and our businesses are gradually transitioning to the RS brand. Operating as RS brings recognition to our global reach, strengthens our product and service solutions offer and unites our Group. We see significant opportunity from leveraging the RS proposition globally.
Our work in making amazing happen for a better world, our purpose, continues to be recognised externally. EcoVadis, the independent provider of global sustainability ratings, has awarded RS Group a Platinum medal, its highest ranking, for notable leadership in the fields of environment and sustainable procurement. This is another step forward on our Journey to Greatness.
We are a global business with one vision that is delivered regionally. Our strategy, The RS Way, remains unchanged but we are increasing accountability and responsibility by empowering our regional teams. This allows each country manager to operate their business according to their local markets and customer needs, which in turn provides a more relevant, competitive and agile offer.
We continue to grow market share. We have invested to ensure strong inventory availability at a time when industry supply chain constraints persist. We have focused on widening our proposition, solving our customers’ problems through providing more product and service solutions and improving our customer service so our customers can operate more efficiently.
We are delivering operational efficiencies as we benefit from the investment we have made in people, processes and tools that have improved our inventory management, pricing, customer analysis, marketing and sales effectiveness. This has resulted in greater agility and a more proactive offer as we utilise the skills and expertise we have across the Group. Additionally, we are benefiting from greater automation within our distribution centres (DCs), allowing us to redeploy our people into more productive and value-adding operations. We are running a more commercial operating model, using our extensive data and insight, which is generating better returns.
At the same time, we are excited about the opportunities we see for our Group and so continue to invest in our operating model in areas such as innovation, branding, marketing, systems, technology and people. We believe that ongoing investment will ensure we are fit for the future and are strong enough to withstand external challenges as they occur. Fundamentally, ensuring we remain relevant and agile, do not become complacent and can adapt to our environment will underpin our success.
We are committed to acting as a responsible and sustainable business for all our stakeholders to ensure we are fulfilling our purpose of making amazing happen for a better world. We continue to make progress on our 2030 ESG action plan – For a Better World and are now reporting on our key eight metrics every six months.
Our number one priority remains to ensure that we create a safe, inclusive and dynamic culture in which our people can thrive and grow. In our most recent employee engagement survey, our engagement score improved three points to 78, placing us near the upper quartile of high-performing organisations. Our commitment has been recognised externally with our US business ranking 33rd on the list of Top 50 Inspiring Workplaces in North America in 2022, receiving special recognition for its inclusive practices.
Given our technical expertise, supplier relationships and product breadth we are well placed to help our customers on their sustainability journey. Working closely with our suppliers, we are developing a range of sustainable product and service solutions that help our customers maximise operational and environmental benefits such as reducing energy use, reducing water waste and cutting CO2 emissions.
Our organic growth remains a priority. However, with less than a one percent share of our total addressable market, we want to accelerate our growth with high-quality acquisitions that have a compelling strategic, financial and cultural fit.
We are delighted to welcome both domnick hunter in Thailand and Risoul, subject to Mexican anti-trust clearance expected by the end of the calendar year. Both these acquisitions expand our capabilities into new product and service solutions categories and strengthen our geographic coverage. These are strong specialist businesses with exceptional teams, which we are very pleased to retain, who will drive cross-selling synergies in line with our strategic growth ambitions.
We have transformed and strengthened our Group materially over recent years, embracing the trends within a rapidly changing market with significantly greater revenue from service solutions and digital channels, utilising our extensive data and insight and driving greater responsibility. We have invested in our model, both our assets and operations, and have a strong business which supports our outperformance.
Most importantly we have a different mindset and culture within our Group; we are more proactive, agile and commercial, operating a dynamic pricing model, a strong inventory management system and having a greater understanding of our customers. We have proven we operate well during more difficult times and have emerged stronger over recent years despite the COVID-19 pandemic and supply constraints.
We outlined at the start of our financial year our plans and vision, within our Journey to Greatness plan, to drive stronger revenue and high-quality profitable growth. We believe that the fundamentals of our plan are in place, our proposition is resonating with all our stakeholders and our future aspirations are underpinned by providing a
best-in-class service and experience in everything we do.
While we are mindful of a more difficult economic backdrop and inflationary pressures, we are concentrating our efforts on improving what we can control and seeing challenges as potential opportunities. We are confident in the strength of our people and proposition and believe we are well positioned to deliver continued market share gains and attractive returns.
