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