RS : Full-year results (year ended 31 March 2022) (TRANSCRIPT)

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RS Group Full Year 2022

Results

Tuesday, 24th May 2022

Internal

RS Group Full Year 2022 Results

Tuesday, 24th May 2022

Introduction

David Egan

CFO, RS Group

Welcome

Good morning, everyone, and welcome to the RS Group's results for the year ended 31st March 2022. I am David Egan. I am the CFO of RS Group, and I will be hosting the call today.

Unfortunately, as we advised last night, Lindsley Ruth, our CEO, has contracted COVID and is unable to join us today. However, we did receive a video from Lindsley overnight, and so we would like to roll the tape.

Opening Remarks

Lindsley Ruth

CEO, RS Group

Welcome

Good morning, and hello everyone. Welcome to RS Group and our 2022 preliminary results. It has been a great year with very strong outperformance, which I thank all of our people for their hard work, efforts around the world. Unfortunately, I am really sorry, I cannot join you in person today. But unfortunately, I have been struck down with COVID.

I was on a flight coming to London last week, and there was somebody next to me that was really sick. The last thing I do not want to do is do that to somebody else. If that did not happen to my father, he would probably still be here today. Therefore, I take it very seriously.

For us as a company, we always put the health, wellbeing and safety of our people first, including all of our stakeholders. It is a top priority for us. I am staying at home and doing the right thing. I just, unfortunately, moved into a new home in London, a new flat, which should be exciting, although it appears to be in a mobile dead spot, I have not been able to get Wi-Fi set up yet, as no one can come, and as you can imagine, not ideal for hosting the virtual presentation. Therefore, today, I am going to leave the presentation to David, as I know he will do a great job in explaining our results and opportunities.

As most of you heard at our investor event in March, I am extremely excited about our journey to greatness. We have a great team. We are well positioned for the changing market. We are differentiated. Many of the levers to pull to drive stronger revenue and high quality profitable growth are defined by us and we are executing. There is so much more upside.

With that, I am going to pass you to David. However, first, I would like to go unscripted. I just wanted to say, in the slides and the presentation you will see, all the regions did well, but in particular, Asia Pacific delivered double-digit operating profit. I remember three, four years ago people saying, if you are losing so much money in Asia, and we are losing more than 10%. When you are in Asia, people said, why would you even do business there? I believed in our team, and I thought we could turn it around; and our team has turned it around, and I think there is more upside to come. As far as the big question of the day is, I think what is

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RS Group Full Year 2022 Results

Tuesday, 24th May 2022

our outlook on the market? I will tell you. I mean we cannot predict the future, but I will tell you, I could not be more proud of the people we have within this company, the culture that we are developing. I think it gives us a competitive advantage. I can assure you, all of our investors, that what you will see from us is a best effort in everything that we do.

The shortages are starting to slow. We are seeing less of those. Lead times are starting to come down again. They are still not where they used to be. I think there will still be some volatility in the market ahead. For us, I think everything we have today is within our control.

With that, I will turn you to David. I am always available for anybody. If anybody wants to visit me in a mask and outside the door, I would be more than willing to be with you. Have a great day. Bye for now.

Financial Overview

David Egan

CFO, RS Group

A year of strong outperformance

Thank you, Lindsley. We certainly wish you a speedy recovery, and we are very sorry that you are not here with us today. As Lindsley said, the wellbeing and health of our people remains our number one priority. It really is very, very important.

Welcome to our 2021-2022 full year results presentation. We are extremely excited and delighted that our rebranding has begun and that our new corporate name, RS Group, is live. The rebranding reflects our strong RS brand, which is recognised by engineers around the world.

We are bringing our businesses together under one strong unified brand united behind our strong purpose of making amazing happen for a better world. As Lindsley said, we have had an outstanding year. As Lindsley said, and as I am saying, we have had an outstanding year. Our revenue has grown by over a quarter with increased margins in all regions. We have generated strong free cash flow despite a significant inventory reinvestment.

We delivered 29% return on capital employed with a strong balance sheet that supports growth investment and capital return to our shareholders. We have proposed a final dividend of 11.6p, that is up 18%, giving a full year dividend of 18p. We are making good progress on our 2030 ESG action plan, For a Better World.

Our outperformance is seen in this chart, which shows our revenue growth versus nominal industrial production growth. This is illustrating our market share gains and our resilience even during more difficult times.

Our people are making RS Group an amazing place to work - thank you

All this is being driven by our talented and skilled people who work hard, share our purpose and vision and have fun despite all of the challenges. We have delivered and will continue to deliver a change in culture by:

• Investing in talent;
• Empowering our leaders; and

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• Incentivising our teams.

We talked a lot about that in our Investor Day recently.

We have demonstrated our ability to adapt to the significant external challenges that we have faced. We are controlling our own future through anticipating and adapting to the changes that are occurring around us. We are incredibly proud of our people and all that they do for RS Group around the world.

Strong profitable revenue growth and cash performance

Let us go through the results for the year ended 31st March 2022, and also the outlook as we see it today.

In summary, we have delivered very strong revenue growth on a one and also a two-year basis. On a one-year basis, our adjusted operating margins grew by over 3 percentage points to 12.5%. Our adjusted operating profit conversion is over 28%, and our return on capital employed is nearly 29%.

Three non-financial KPIs linked to our sustainability-linked loan

We have eight non-financial KPIs, which are detailed in the appendix of your packs. I've pulled out three that are linked directly to our £300 million sustainability loan. As you can see, ESG is integrated throughout our Group.

Scope 1 and 2 carbon emissions decreased by 20% during the year, and 88% of our electricity is from renewable resources. Our packaging intensity fell by 16% from 2020 to 2021, and 13% in the year just gone. We were ranked in the top third of the FTSE 100 ranking 2021 Women on Boards and Leadership.

Strong profit performance

Looking at the income statement. During the year, our revenue grew by 28% to £2.5 billion, and our adjusted PBT grew by 73% to £314 million. Our adjusted effective tax rate grew 1 percentage point to 23%, reflecting the UK corporate income tax rate changes.

Revenue growth is driven largely by volume and average order value

Our revenue growth was due to:

• Increased order volumes;
• Growth in the average order size due to more products in each basket, circa 7% price inflation over the course of the year;
• Our 2021 acquisitions of Synovos, Needlers and Liscombe; and
• There was a £63 million headwind resulting from foreign exchange.

Key and corporate customers are our core focus

As outlined previously, we are focusing attention on higher-margin customers, such as our key and corporate customers. They account for circa 10% of customer numbers, but roughly three quarters of our revenue; so critical for our future successes.

Our average order value increased by 10% to £211, helped by more product in our customers' baskets and our focus on higher value transactions. Our rolling 12-month Net Promoter Score, which is a KPI for all employees, decreased to 50.6, mostly due to external

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product availability challenges. We are not happy with this score. However, our customer metrics and conversations suggest that we are outperforming our peers within the difficult markets with very strong product availability.

Please note that going forward, we will be slightly modifying our NPS measurement approach, and the details of this are included in the appendix of your pack.

Adjusted operating profit margin growth despite cost pressures and investment

Our adjusted operating profit margin grew to 12.5%, largely driven by revenue through volume growth. Our gross margin increased 1.5 points to 44.2%, which included 60 basis points recovery from the last year's PPE provisions, and a 1.1 percentage point benefit from better pricing and more detailed price management work.

Operating costs were impacted by freight, labour and energy inflation. Many of the cost pressures show no signs of abating and are not expected to unwind any time soon. However, we are mitigating some of these pressures by:

• Reengineering our transportation routes;
• Increasing automation; and
• Seeing improving labour productivity.

Our RISE programme is nearing completion and delivered £15 million of benefit in the year. Our people have worked hard and driven our outperformance, and so we awarded a real pay increase and a one-off thank you bonus during the year.

Despite all of these cost challenges, our adjusted operating profit conversion margin grew over 6 percentage points to 28.4%.

Regional performance

Looking at the regions. All three regions delivered material improvements in adjusted operating profit, and they did this through:

• Volume growth;
• Improved margins;
• Operational efficiencies and leverage; and
• From being a more streamlined and agile business. This was despite some headwinds of:
• • Limited inventory with OKdo;
  • Reduced trading at some of our major heavy industry customers within IESA; and
  • Lower revenue from existing customers and operational investments in Synovos;
  • Ongoing investments in our operating model to strengthen our expertise, our technical capabilities, and product and service capacity.

In EMEA, our operating profit margin was 15.4% despite increased cost to serve after Brexit and not yet fully leveraging the benefit of our DC expansion in Germany.

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