Electrocomponents : Half-year results (six months ended 30 September 2020) (Statement)

10 November 2020, 7.00 am

ELECTROCOMPONENTS PLC

RESULTS FOR THE HALF YEAR ENDED 30 SEPTEMBER 2020

RESILIENT PERFORMANCE, MARKET SHARE GROWTH AND IMPROVING MOMENTUM

LINDSLEY RUTH, CHIEF EXECUTIVE OFFICER, COMMENTED:

"Electrocomponents has delivered a resilient performance with significant market share gains and robust cash generation despite the challenges our suppliers, customers and teams have faced whilst keeping safe. Over the last five years we have repositioned Electrocomponents to become a omni-channel and service-led solutions provider of a wide range of quality products and services. We are simplifying our business further and accelerating efficiency gains, enabling the Group to grow faster.

We are in difficult and uncertain times and we remain cautious about the economic outlook. However, what has become clear, especially over recent months, is that our value-added solutions offer provides competitive advantage, gross margin support and customer engagement that ensures customers are won and retained. Meanwhile our industry-leadingomni-channel proposition positions us well versus peers. The operational building blocks and financial strength are in place for Electrocomponents to accelerate future growth and deliver ongoing outperformance."

				Like-for-like1
Highlights	H1 2021	H1 2020	Change	change
Revenue	£908.9m	£978.7m	(7.1)%	(7.3)%
Adjusted2 operating profit	£77.6m	£105.6m	(26.5)%	(26.5)%
Adjusted2 operating profit margin	8.5%	10.8%	(2.3) pts	(2.3) pts
Adjusted2 profit before tax3	£74.3m	£103.4m	(28.1)%	(28.1)%
Adjusted2 earnings per share	12.8p	17.8p	(28.1)%	(28.1)%
Operating profit	£58.9m	£91.2m	(35.4)%
Profit before tax	£55.6m	£89.0m	(37.5)%
Earnings per share	9.5p	15.2p	(37.5)%
Interim dividend	6.1p	5.9p	3.4%
Additional 2020 interim dividend	9.5p
Adjusted2 free cash flow	£85.0m	£13.9m	511.4%
Net debt	£114.8m	£220.7m
Net debt to adjusted2 EBITDA	0.5x	0.9x

Resilient performance driven by service-led proposition to deliver market share gains

• Continuing focus on our employee physical and emotional wellbeing
• Significant market share gains
• Momentum continued to build in all regions in H1
• Ongoing outperformance from RS PRO which now accounts for c. 14% of revenue
• Digital, which accounts for c. 62% of revenue, performed in line with the Group, but outperformed in Q2
• Ongoing emphasis on best-in-class customer experience - Group Net Promoter Score (NPS)4 rose 2.9% to 56.3

Strong operational improvements more than offset by COVID-19 costs

• Gross margin of 43.2%, down 0.5 pts; underlying gains offset by COVID-19 freight costs and inventory provisions
• Additional £8.8 million of outbound freight and labour operating costs due to COVID-19
• Adjusted operating profit margin down 2.3 pts to 8.5%; adjusted operating profit conversion of 19.8% (-4.9 pts)

We are simplifying the business further to accelerate Destination 2025 and position the Group for faster growth

• Simplifying and flattening the operating model further to serve our customers and suppliers better
• Increased focus on sales mix and cost efficiencies to deliver our mid-teens adjusted operating profit margin target
• Strengthening and empowering the Group to take advantage of future growth opportunities
• Expect to achieve £25 million of net operational savings within two years; £22 million of associated costs

Dividend reinstated supported by strong free cash flow generation

• Dividend payments resumed given increased confidence in business model and financial strength
• Previously deferred 2020 final dividend of 9.5p will be paid as an additional interim dividend
• Interim dividend of 6.1p for H1 2021, in line with normal Group policy
• Strong cash flow control delivered adjusted free cash flow of £85.0 million (H1 2020: £13.9 million)

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Well positioned for future opportunities with significant balance sheet headroom and liquidity

• Emerging stronger from the crisis to take advantage of, and accelerate, our growth ambitions
• Net debt of £114.8 million (H1 2020: £220.7 million) and net debt to adjusted EBITDA of 0.5x
• Sufficient liquidity with £446.0 million of committed facilities, of which £289.1 million are undrawn

Current Trading

Over the first five weeks of H2 we have continued to see momentum across all regions. We saw market share gains in Industrial and continued positive growth in RS PRO. However, we remain acutely aware of the challenges and uncertainty we all face as we navigate through this global pandemic, with further lockdown restrictions in some of our key markets meaning COVID-19 related costs are unlikely to ease slightly as previously hoped. Thus, although we are confident about the strength of our business, we remain cautious about the economic backdrop and short-term uncertainties.

1. Like-for-likechange excludes the impact of acquisitions and the effects of changes in exchange rates on translation of overseas operating results, with 2020 converted at 2021 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. All acquisitions had been owned for more than a year at 1 April 2020. Currency movements decreased revenue by £1.7 million, extra trading days increased revenue by £3.7 million during the period.
2. Adjusted excludes amortisation of intangible assets arising on acquisition of businesses, substantial reorganisation costs, substantial asset write-downs,one-off pension credits or costs, significant tax rate changes and associated income tax (see Note 12 on pages 27 to 30 for reconciliations).
3. Currency movements decreased adjusted profit before tax by £0.1 million.
4. Rolling 12-month NPS is a measure of customer satisfaction.

Enquiries:
David Egan, Chief Financial Officer	Electrocomponents plc	020 7239 8400
Lucy Sharma, VP Investor Relations	Electrocomponents plc	020 7239 8427
Martin Robinson / Olivia Peters	Tulchan Communications	020 7353 4200

There will be a virtual analyst presentation today at 10.30am GMT. We will provide an audio webcast, which can be accessed live, and later as a recording, on the Electrocomponents website at www.electrocomponents.com.

Notes to editors:

Electrocomponents plc is a global omni-channel partner for industrial customers and suppliers who are involved in designing, building or maintaining industrial equipment and facilities. We aim to offer our customers unrivalled choice of product technologies, solve problems with innovative solutions and deliver a world-class customer experience, making it easy to do business with us.

We stock more than 500,000 industrial and electronic products, sourced from over 2,500 leading suppliers. We solve problems and provide a wide range of value-added solutions to over one million customers. With operations in 32 countries, we trade through multiple channels and ship over 50,000 parcels a day.

Electrocomponents plc is listed on the London Stock Exchange and in the last financial year ended 31 March 2020 reported revenue of £1.95 billion. Electrocomponents plc has six operating brands; RS Components, Allied Electronics & Automation, RS PRO, OKdo, DesignSpark and IESA.

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COVID-19

We responded quickly and decisively to the COVID-19 crisis and continue to support the needs of all our stakeholders. However, the situation around the pandemic remains fluid, volatile and uncertain in all geographic regions and thus we do all we can to maintain our high levels of safety, service and care to all. We have moved from crisis to 'business as usual', albeit at COVID-19 compliant levels. We are taking the following actions:

• Ensuring the health and safety of our people: Our distribution centres (DCs) and offices operate with social distancing and safety measures in place with appropriate personal protective equipment (PPE) and sanitisation for employees. Where possible, our office-based employees are working from home while our 'Keep Connected' website delivers important wellbeing and communication resources to keep everyone in touch wherever they may be. Our Group crisis management team continues to develop and adjust business continuity plans on an ongoing basis.
• Maintaining our high service level to our customers and supporting our suppliers: We continue to provide a reliable service and supply chain continuity for our customers and suppliers, supported considerably by our strong digital proposition. We remain committed to paying our suppliers to agreed terms and have continued to offer our best-in-classservice.
• Supporting our communities: We have played a key role in our local communities and will continue to do so. This has to date included providing technical resource to build supply chains for the manufacture of ventilators and other medical devices; 3D printing and distribution of PPE; launching 'Kits for Kids' to support home schooling; and launching a global distributor support line to continue to supply critical parts during the crisis.
• Delivering value for our shareholders: We continue to focus on business performance and take appropriate actions to protect profit, conserve cash, improve liquidity and strengthen our balance sheet whilst continuing to invest for the future. Given the resilience of our business we have not taken UK government furlough support for our employees.

RISE

Destination 2025, launched in June 2019, identified a number of key initiatives to become the first choice for our customers, suppliers, people and shareholders. Our objective was to deliver this through our purpose of 'making amazing happen'.

Prior to COVID-19, we began to look at ways to accelerate the delivery of Destination 2025, enhance returns and strengthen our execution capabilities for both organic and inorganic growth. The experiences through COVID-19 have been invaluable to ensure that we are best aligned to the new norms, capturing new opportunities, ensuring we remain relevant, agile, innovative and able to RISE to the future and become first choice.

The RISE programme will focus the business further by streamlining and simplifying the model to build a lean and scalable operation capable of delivering accelerating growth and higher returns, focusing on three key areas:

• Simplify the way we operate, enabling us to go faster
  o Implement a consistent go-to-market approach and proposition across our three regions. o Flatten the structure in EMEA and remove the sub-regions.
  o Integrate Group and local teams in Marketing, Digital, Innovation and Product and Supplier Management supporting our three regions.
  o Evolve our culture, develop our leadership model and unleash our talent.
• Identify ways to improve gross margin
  o Identifying the opportunities to increase the sales mix and find ways of reducing the cost of what we sell.
• Identify ways we can operate for less
  o Running our business in a more effective and efficient way, leveraging scale.

Our longer-term aim remains to generate a mid-teen adjusted operating profit margin and drive an adjusted operating profit conversion of 30%.

The implementation of this proposed programme is progressing well.

Our primary goal is to set the business up for continued growth and success. One output of these initiatives in generating a simpler, more efficient operating model is the delivery of cost savings. These are expected to total c. £25 million of net benefit through labour and non-labour operational improvements. These benefits will be delivered over a two-year period with the majority expected in 2022 (expected phasing of £7 million in 2021,

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£15 million in 2022 and £3 million in 2023). The total cost of implementing the changes will be c. £22 million (estimated to be £20 million in 2021 and £2 million in 2022).

DIGITAL

Digital, which accounts for c. 62% of Group revenue, performed in line with the Group trend over H1. Performance was affected at the start of COVID-19 due to a fall in corporate customer demand which temporarily affected eProcurement and RS PurchasingManagerTM revenue. Despite this, we saw good growth in both website visits and new business-to-business (B2B) and business-to-consumer (B2C) customers; an uptick in the latter driven by searches for health and safety, and PPE products. This change in sales mix led to lower conversion rates and lower average order value (AOV).

In the second quarter, we have seen a return of our more normal customer base, in line with industry and the manufacturing sector returning to work, and a corresponding recovery in key metrics. Q2 digital revenue outperformed the Group trend by 1.4 pts as momentum improved during the quarter. EMEA exited the first half with year-on-year growth in eProcurement revenue and paid visits. Asia Pacific and the Americas lag EMEA due to lower digital penetration, but momentum remains positive and on an upward trend.

Our digital offer is backed up by our core operational capability in terms of strength of supply ensuring industry-leading availability for our broad product range while our logistics and DC network has ensured continuity of deliveries to our customers. The strength of the Group's omni-channel offer, with digital allowing ease of ordering and our salesforce providing specialist customer service, allows us to continue to take market share as customers increasingly consolidate supply leading to higher AOV.

BREXIT

Our Brexit working group continues to assess and plan to mitigate the key business risks as the transition period post the UK's exit from the European Union (EU) finishes on 31 December 2020. Our key activities have focused on:

• Communicating and working very closely with customers and suppliers.
• Increasing the level of inventory as a business continuity contingency plan. We expect this to be c. £15 million of additional inventory to take the Group past the end of the Brexit transition period, but for this to have been largely utilised by our year end.
• Our technology teams are working hard to ensure that all systems and processes are updated, working and compliant when the transition comes to an end.
• We are working with our transport partners to ensure an as-seamless-as-possible flow of goods and services across borders.
• The extension of our Germany DC, to be completed during the summer of 2021, will provide a more substantial distribution platform for the future as we grow further in Continental Europe.

We will remain flexible and agile in planning our mitigating actions to address any changing requirements that could arise close to the end of the transition period.

ESG

We are committed to ensuring that the Group sustains the highest standards of corporate governance and is socially and environmentally responsible. Our environmental, social and governance (ESG) plan helps ensure we deliver economic, environmental and social value to our stakeholders with an approach that aligns with six of the United Nations Sustainable Development Goals.

Our Chief Executive Officer is responsible for corporate responsibility matters. We have a Group-wide ESG team, led by our President, Global Supply Chain, which has developed a robust implementation programme to ensure ongoing delivery of our ESG plan across all brands and functions within the Group. Targets and non-financial key performance indicators (KPIs) are in place to monitor progress across our four ESG pillars: environment; people and health & safety; customers and suppliers; and community. Our ESG plan is being integrated within our Destination 2025 strategy. We are also working to implement further ESG performance opportunities and to develop net-zero targets for CO2 emissions.

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