RS : Full-year results (year ended 31 March 2023) Statement

Highly Confidential

23 May 2023

RS GROUP PLC

RESULTS FOR THE YEAR ENDED 31 MARCH 2023

STRONG PERFORMANCE

SIMON PRYCE, CHIEF EXECUTIVE OFFICER, COMMENTED: "RS delivered a strong performance in 2022/23 despite a more challenging macroeconomic backdrop in the second half. This reflected our on-going operational excellence initiatives, geographical, industry and product mix, inventory availability and strong pricing. Together with the efforts of our people this resulted in good financial results. We also acquired domnick hunter and Risoul and, after year end, agreed to acquire Distrelec.

After 30 days in the role, I am excited about the opportunity I see for RS going forward. We have a solid business, a sound strategy and great people. We are transitioning to an omni-channel operator in a large and fragmented market. We are supplier and increasingly customer focused, who see the value we bring as we move from being a product distributor to a solutions provider. We continue to invest in operational improvement, customer experience and digital and technical capabilities, and are extending our relevant product offer and value-added service solutions.

While we are mindful of near-term external challenges, we remain comfortable with current consensus profit expectations for 2023/24 and have the tools, proposition, financial capacity and roadmap to deliver significant outperformance over time and capitalise on further strategic opportunities to accelerate growth and value creation."

				Like-for-like1
Highlights	2023	2022	Change	change
Revenue	£2,982.3m	£2,553.7m	17%	10%
Adjusted2 operating profit	£402.2m	£320.4m	26%	18%
Adjusted2 operating profit margin	13.5%	12.5%	1.0 pts	0.9 pts
Adjusted2 profit before tax	£390.7m	£313.8m	25%	17%
Adjusted2 earnings per share	63.6p	51.3p	24%	16%
Operating profit	£383.0m	£308.8m	24%	17%
Profit before tax	£371.5m	£302.2m	23%	16%
Earnings per share	60.4p	48.9p	24%	16%
Full-year dividend	20.9p	18.0p	16%
Adjusted free cash flow3	£263.6m	£162.9m	62%
Cash generated from operations	£413.0m	£267.1m	55%
Net debt3	£113.0m	£42.1m
Net debt to adjusted2 EBITDA	0.2x	0.1x

Strong financial performance driven by availability, inflation and improved adjusted operating profit conversion

• Revenue growth of 17% includes 10% like-for-like, 2% acquisition contribution and 5% currency benefit
• Industrial products, 76% of Group revenue, grew like-for-like revenue by 16% with electronics products, 23% participation, growing 1%
• Adjusted operating costs grew 18%, 13% like-for-like, reflecting inflation, ongoing strategic investment of c. £20 million and c. £10 million of ad hoc payments to support our people during more difficult times
• Adjusted2 operating profit margin grew 1.0 pts to 13.5%, with adjusted operating profit conversion3 of 29.7%
• Final dividend increased to 13.7p; full-year dividend of 20.9p

Ongoing investment in operational and strategic improvements

• Enhanced product and content management work to develop our proposition
• Freight and distribution optimisation work as our model becomes more local, regionalised and sustainable
• Detailed customer analysis to understand our customers better and improve our service offer

Good financial management and cash generation supporting organic and inorganic investment

• Adjusted free cash flow of £264 million despite inventory investment
• Net debt of £113 million includes £234 million for acquisitions, with net debt to adjusted EBITDA of 0.2x (0.9x proforma post Distrelec)
• Return on capital employed remains strong at 30.8%, due to profitability and maintained financial discipline
• Acquired domnick hunter and Risoul and announced agreement to buy Distrelec post year end4

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Current trading and outlook

We continue to outperform in the industrial market, especially in EMEA, although trading over the first seven weeks of 2023/24 reflects a slowing in industrial growth, as indicated by PMI data, and continued weakness and aggressive competition in electronics. Despite this more uncertain economic environment and the strong comparator period last year, we are comfortable with current consensus profit expectations5 for 2023/24, albeit with performance more weighted to the second half.

1. Like-for-likechange 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. 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 (see Note 10 for reconciliations).
2. 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 10 for reconciliations).
3. See Note 10 for definition and reconciliation.
4. Acquisition of Distrelec B.V. subject to regulatory clearances and we anticipate it will be completed by the end of July 2023.
5. Consensus for the year ending 31 March 2024 is revenue of £3,116 million, adjusted operating profit of £390 million and adjusted profit before tax of £379 million. Source: rsgroup.com/investors/analyst-coverage.

Enquiries:
Jane Titchener	Interim Chief Financial Officer	020 7239 8400
Lucy Sharma	VP Investor Relations	020 7239 8427
Martin Robinson / Olivia Peters	Teneo	020 7353 4200

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:www.investis-live.com/rsgroup/64634a5a4170900d00559b9e/ewpp

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: [phone]

Participant access code: 159746

Presentation timing

Date: Tuesday, 23 May 2023

Time: 9am UK time

Venue: Numis, 45 Gresham Street, London EC2V 7BF

Notes to editors:

RS Group plc provides product and service solutions that help our customers design, build, maintain, repair and operate industrial equipment and operations, safely and sustainably. We stock more than 750,000 industrial and electronic products, sourced from over 2,500 leading suppliers, and provide a wide range of product and service solutions to 1.1 million customers.

We support customers across the product lifecycle, whether via innovation and technical support at the design phase, improving time to market and productivity at the build phase, or reducing purchasing costs and optimising inventory in the maintenance, repair and operation phase. We offer our customers tailored product and service propositions that are essential for the successful operation of their businesses and help them save time and money.

RS Group plc is listed on the London Stock Exchange with stock ticker RS1 and in the year ended 31 March 2023 reported revenue of £2,982 million.

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BUSINESS REVIEW

RS is full of great people who have delivered strong profitable growth against a more challenging economic backdrop working together as a team to continue making amazing happen for a better world.

Our journey

We continue to make progress on our journey as we transition from being a product distributor to a solutions provider for industrial customers around the world. The strength of our proposition lies in the combination of our broad product offer, high-touch and digital-enabled service and growing solutions portfolio, all delivered through the increasingly effective use of data and the knowledge and commitment of our amazing people.

During the year, we have transformed our brand architecture towards the RS brand globally that can be recognised by our stakeholders anywhere in the world. Operating as RS we can leverage our brand strength and marketing assets more widely to generate stronger supplier relationships and deliver a better customer service. This will help us fulfil our vision of becoming first choice for all our stakeholders.

We are a global business operating under one brand but are managed at a regional and local market level to ensure we can meet the specific needs of our customers and suppliers better. This allows us to understand the unique drivers of each market so that we adapt our offer to local demands and utilise local resources as much as possible to increase efficiency and reduce costs. Our global business functions, such as technology, people, marketing and data, provide specialist support and insight which the regional teams utilise to suit their specific requirements. This empowers our regions and local country markets giving them greater accountability and responsibility.

For a Better World

We have made good progress towards our 2030 ESG action plan - For a Better World. We are making positive strides towards our 2030 net zero ambition and have set science-based targets covering our Scope 1, 2 and 3 emissions, including a commitment to reduce our direct emissions by 75% by 2029/30 relative to 2019/20. We have achieved leading status in a number of global ESG ratings including being awarded AA rating from MSCI and being included in the Dow Jones Sustainability Indices Europe for the first time.

The world is at a pivotal point in the fight against climate change and all businesses need to take action to decarbonise their wider supply chain. We are working together with our customers and suppliers to reach a net zero value chain by 2050. This involves us optimising our facilities and supply chain, as we use our regional model to increase the amount of inventory held locally, so reducing freight miles.

This is also an exciting business opportunity for RS as we help our suppliers develop new products that use lower impact materials, offer our customers solutions to reduce energy consumption and decarbonise their facilities, and offer a more sustainable product range, our Better World products, that help customers tackle their sustainability challenges.

Reviewing 2022/23

We generated 17% revenue growth during the year and our operating profit grew by 24%.

We have delivered very strong growth in our industrial product ranges in all three regions, due to a strong proposition and market share gains, but experienced volume declines in our electronics product range, reflecting the softer market and strong comparative performance of last year.

We are working hard to support our customers better - the designers, operators and maintainers of industrial equipment and operations. Our average order value has increased 21% to £255 (excluding RS Integrated Supply's pass-through sales orders), over and above inflation, as we have focused our sales and marketing efforts on our higher spending customers and promoted our digital self-service to lower-spending transactional customers. Our on time to promise metric improved by 5 percentage points to 91%. We have a lot of data, insight and knowledge of our customers and their needs, and can see significant upside from providing a more customised and personalised offer as we develop our customer segmentation and service model and deploy our sales forces more appropriately.

We provide an important service to our suppliers given our customer reach, technical knowledge and execution capabilities. Our customers generally require small volumes of many products for their maintenance, repair and operations (MRO) needs and we provide the expert knowledge for them to understand if these products are compatible with their current operations. Our suppliers do not tend to have the distribution capabilities, or desire, to service or deliver directly to these customers in such small volumes. RS plays a very important role connecting over 2,500 suppliers and 1.1 million customers.

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Developing our offer

We are continuing to widen our product offer to provide more specialist ranges, allowing us to strengthen our supplier relationships further as we help market, sell and distribute their existing and new products. Such an example has been in safety product and service solutions in EMEA where we now offer a much more extensive, comprehensive and specialist range after our acquisitions in 2020/21 of Needlers and Liscombe.

We have seen strong growth in our own brand, RS PRO, which has benefited from enhanced brand recognition and more targeted marketing campaigns, such as an energy efficiency promotion earlier this year. RS PRO also offers a quality-assured alternative to the branded ranges, providing customers with a lower priced option. During the year, we invested in a state-of-the-art RS PRO lab at our distribution centre (DC) in Corby, UK, which allows our team of engineers to test, monitor and measure new products better.

We continue to grow our portfolio of product and service solutions that increase the value add we provide to our customers, driving greater loyalty, recurring revenue and product pull through. During the year, we expanded our service solutions offer in Americas and Asia Pacific and have enhanced our offer in EMEA, especially within the maintenance areas where we have delivered strong growth within calibration, predictive maintenance and energy optimisation. RS Integrated Supply, which provides outsourced procurement and storeroom solutions to large organisations, has seen a significant increase in new contracts signed. We believe our global offer is industry leading and are excited by our proposition given the number of existing customers who are expanding the number of sites we service for them.

We are monitoring our offer versus the market and competitors to ensure we are providing value to our customers while optimising our gross margin. During the year, we benefited from the combined effect of price inflation and a lagging effect in our cost of sales due to our low inventory turn and greater utilisation of our price optimisation tools to calculate the best pricing and discounts.

Continuing to invest in the future

Cost pressures have continued to be a headwind during the year, especially for labour, technology, freight and energy. Additionally, we have invested in our operating model to strengthen our proposition. This has focused on areas such as branding, digital, technology and systems and areas relating to our strategy.

As an organisation, we believe we are connected closely to our people and are aware of the more difficult economic backdrop and cost of living crisis they have experienced. We have therefore taken steps to support our employees during the year with an ad hoc payment in November 2022. A further ad hoc payment was approved in March 2023 and paid in April to all eligible employees, excluding our senior leaders, to help them deal with the impact of exceptional personal cost inflation.

Creating value through acquisitions

We have accelerated our growth inorganically in the year with the addition of domnick hunter-RL (Thailand) Co., Ltd. (DH) in Thailand and Risoul y Cia, S.A. de C.V. and its subsidiaries (Risoul) in Mexico. Both acquisitions have expanded our service solutions capabilities, our product range and deepened our geographic coverage. In addition, Risoul will benefit from the global trend of near shoring, especially within North America, and so is experiencing a strong market backdrop and is performing slightly ahead of our initial expectations. Integration of both businesses is going well and we are excited about the opportunities to develop their service solutions capabilities and to introduce our own-brand range. We expect to generate significant shareholder value through expansion of their product range and services, developing their digital offer and leveraging our execution expertise.

Our acquisition pipeline remains strong. We have a disciplined approach to mergers and acquisitions, focusing on four areas: (i) our solution capabilities; (ii) product range; (iii) geographic reach and (iv) operational and cost efficiencies through consolidation opportunities. We continue to focus on acquiring high-quality,high-synergy businesses and, more critically, businesses with a strong cultural fit. We announced, post the year end on 27 April 2023, that we have reached agreement to acquire Distrelec B.V. for €365 million which will significantly expand our presence in continental Europe, bring strong synergy potential and accelerate our value creation further.

Our strong M&A track record was externally recognised by the ICAEW as we were awarded the 2023 Corporate Development Award for increasing our shareholder value through our strategic market acquisitions.

Aligning our people with our strategy

Our performance has been driven by our people and we recognise the importance of investing in them to incentivise and reward the value they bring to all our stakeholders. It has been an ambition of the Group that all our people share

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in the long-term success of the Company, which is why we launched the RS YAY! Award during the year, awarding up to 100 performance shares to every eligible employee.

How we drive our vision

At RS, our vision is to become first choice for all our stakeholders: our people, customers, suppliers, communities and shareholders. This includes finding the best answers to solve our customers' problems and partnering more closely with our suppliers to provide efficient and sustainable solutions. We want to work with all our stakeholders on our journey to realising our vision.

Working to a set of shared values

Our people bring our ambition and aspiration to life, which is why having a high-performance,purpose-led culture remains our highest priority. To cultivate this culture we need to provide a clear set of values and behaviours, and the training and development support to achieve this. We have been strengthening our leadership structure and have a clear focus on executing our Amazing Leaders framework while increasing diversity and inclusion. All of this will ensure that we have the very best people working together to deliver results that delight all our stakeholders.

Operational efficiency

We want to do the basics brilliantly, thereby putting in place strong foundations for us to operate more efficiently. Key to this is executional excellence and simplifying our business model. By operating more efficiently, we become more effective which enables our customers and suppliers to trust us to act as partners to help solve their problems, allowing us to engage in value-creating activities. Innovation is crucial to support us in being more efficient.

Developing our differentiated proposition

We see significant opportunity to increase our market share through differentiating our proposition further through our product and service solutions offer and enhancing our customer experience. Ultimately, we want our customers to come to RS as their first choice for their industrial and MRO needs.

Ease of doing business

We provide a digital offer with human touch; a combination that is crucial in delivering the best customer service. Our customers want us to provide the knowledge and insight but also the ease of doing business. Being able to provide our customers with a service that reduces the time and increases the efficiency of their MRO procurement will improve the overall customer experience and differentiate us from our competitors, so expanding our share of customers' wallets and increasing their loyalty.

Solving our customers' problems

We aspire to be more than just a product or price to a customer. We want to provide product and service solutions that meet the needs of designers, operators and maintainers of industrial equipment and operations as they manage their design, procurement, inventory and maintenance needs. Our ability to solve challenges for our customers by combining our products, services and digital solutions together is a key differentiator.

Extensive product offer

We continue to introduce new products across our wide product portfolio, helped by our strong supplier relationships, our digital capabilities and greater DC capacity. Our own brand, RS PRO, is a huge lever for growth and profitability and a great value alternative for our customers.

Looking forward

We operate in a large and fragmented market and have great people with the capabilities to turn our opportunities into realities, customers with whom we can grow our share of wallet and suppliers with whom we work in partnership. We have a solid strategy that we are executing where ESG is both core and represents a potentially significant business opportunity. We continue to strengthen our proposition through widening our product range including our own brand and sustainable product ranges, expanding innovative and sustainable solutions and developing our digital, technical and service capabilities to improve our customer experience. We are financially strong, providing us with the opportunity to accelerate our growth ambitions organically and inorganically.

Despite the challenging external environment, the breadth of opportunity for both improvement and growth is exciting. We will continue to invest to drive future market share gains while managing our cost base appropriately as we target value-creating sustainable growth. We are confident of the Group's strategy and future prospects and look forward to taking this business forward at pace.

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