Electrocomponents plc

Electrocomponents plc

Preliminary results for year ended 31 March 2015 21 May 2015

AGENDA

•

Overview

•

Financial performance

Simon Boddie

•

Business performance

•

Current trading

•

Introduction & initial observations

Lindsley Ruth

•

Q&A

All

OVERVIEW

•

Overall these are a disappointing set of financial results with headline

PBT adjusted for FX and days down 13%

• Investment not yet delivering expected step-up in revenues

• UK business remains in revenue decline

• Gross margin decline of 1.3%

• Foreign exchange and trading days adversely impacted PBT by 8%

•

Some bright spots

• Accelerating H2 growth in Europe and double-digit North American growth

• 6% eCommerce growth with share increasing to 59%

• 27% of products available globally, up from 10% last year

• Global rollout of SAP completed

Actions to address underperformance are being

intensified

4

BASIS OF PREPARATION

Unless otherwise stated:

• Figures have been prepared using International Financial Reporting Standards

• 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

• Key performance measures such as return on sales use headline profit figures

• Sign conventions: % changes in sales and costs are disclosed as positive if improving profit and negative if reducing profit

• In 2015 net income of £16.0m was reported for items excluded from headline profit before tax • We have revised the accounting treatment on rebates from vendors which are included in

gross margin from a cash to an accruals basis. This has had no material impact on full-year results, but would result in earlier recognition of £1.6m of rebates in our half-year results for the six months to 30 September 2014. This will be shown in restated comparatives for the 2016 half-year results. More details on this restatement in the Appendix (slide 30).

PROFIT AND LOSS ACCOUNT

£m

2015

2014

Change

Sales

1,266.2

1,273.1

3.5%

Gross margin (%)

44.6%

45.9%

(1.3)% pts

Headline operating costs

(479.5)

(477.8)

3.6%

Headline operating profit

85.2

106.1

(19.7)%

Headline operating margin (%)

6.7%

8.3%

(1.6)% pts

Headline PBT

80.1

101.1

(20.8)%

(1) Adjusted for currency; sales also adjusted for trading days

(2) Fewer trading days & currency movements decreased headline Operating Profit, PBT by c. £8m. Excluding these factors headline PBT reduced by c. 13%

Headline PBT down 21%, a 13% decline adjusting

for FX and trading days

GROUP HEADLINE PROFIT BEFORE TAX MOVEMENT

(1) Adjusted for currency movements

(2) Impact of foreign exchange and trading days on reported pre-tax profits

7

Change

_(8%)

_6%

_(8%)

_(9%)

(0%)

International contribution growth offset by UK

decline and process cost investment

2014 Fx and Days International UK Processes Interest 2015

£80.1m £101.1m

2014 Fx Cont Europe North America Asia Pacific 2015 £149.5m £150.4m

INTERNATIONAL CONTRIBUTION

(1) Adjusted for currency movements

8

Change

_4%

_9%

_10%

_6%

2014 Geographic mix Product mix Currency movements

Price & discounts 2015

GROSS MARGIN

Gross margin impacted by mix, currency & price

9

45.9%

(0.2)% pt

(0.3)% pt

(0.4)% pt (0.4)% pt

44.6%

(1) Geographic mix relates to faster growth in lower margin geographies such as North America (2) Product mix relates to faster growth in lower margin product categories such as semiconductors

OPERATING COSTS

Cost growth reflects investment in strategy

10

2014 Fx Inflation Strategy inc Depn

Variable Reorg efficiencies

2015

£478.0m £479.5m

Change

_1.4%

_2.5%

_0.5%

_(0.8%)

_3.6%

HEADLINE EARNINGS PER SHARE

£m

2015

2014

Change

Headline PBT

80.1

101.1

(20.8)%

Pension credit and

Reorganisation costs

16.0

-

-

Reported PBT

96.1

101.1

(5.0)%

Effective tax rate

(28)%

(29)%

1% pt

Per share amounts:

Headline earnings

13.2p

16.3p

(19.0)%

Full-year dividend

11.75p

11.75p

-

Dividend maintained

11

(1) Comprises a £20.4m pension credit and reorganisation costs of £4.4m (2) 2015 comprises 5p interim dividend, 6.75p proposed final dividend

IMPACT OF FOREIGN EXCHANGE - TRANSLATION

2015 PBT at current FX rates

would be £5m lower

•

During FY15 the Euro weakened and

the US dollar strengthened

significantly against sterling

•

As such adverse FX movements

reduced FY15 Headline PBT by £6m

•

Reported profit sensitivity to a 1 cent

movement in:

•

Euro: £0.5m

•

US $: £0.2m

12

STRENGTHENING OF STERLING

REDUCES PROFIT BEFORE TAX

Reported rates

May 15

rates Impact Headline

PBT £80m £75m £(5)m

Sterling:Euro 1.27 1.38 (8)%

CASH FLOW

£m 2015 2014 2016 guidance

Profit before tax (1) _{96.1 101.1}

Depreciation & amortisation 30.5 28.1 c. £33m

Working capital 0.4 (14.3) Stock turn 2.5x

Pension credit (20.4) -

Finance expenses (net) 5.1 5.0

Other non-cash movements 1.5 2.9

Operating cash flow 113.2 122.8

Interest paid (net) (5.1) (5.0)

Tax paid (21.6) (24.5)

Net capital expenditure (37.5) (35.6) c. £35m

Reported free cash flow 49.0 57.7

Add back: reorg. cash flows 3.3 0.6

Headline free cash flow 52.3 58.3

Headline free cash flow of £52.3m

13

2014 Headline Free cashflow

Dividends paid Reorganisation Translation/Other 2015

NET DEBT

Strong balance sheet with 1.3x Net Debt/EBITDA

• Combined deficit £60.4m (2014: £40.9m) • Changes to benefits in UK

• One-off non cash pension credit of £20.4m • New deficit recovery plan agreed

• £172m multi-currency facility signed in Aug 2014, expiring in Aug 2019

• Group has agreed to issue $100m of fixed rate five year private placement (PP) notes to replace the $65m PP notes due in June 2015

14

£52.3m

£(6.4)m

£(51.6)m

SUCCESSFUL REFINANCING

PENSION DEFICIT

15

BUSINESS PORTFOLIO

International over 70% of sales

2015

Sales growth

% of Group

sales

Contribution

margin

Continental Europe

4%

35%

21%

North America

10%

24%

14%

Asia Pacific

4%

12%

8%

International

6%

71%

17%

UK

(2)%

29%

27%

Group

3%

100%

20%

(1) Underlying sales growth, adjusted for currency and trading days

2015

2014

Growth

Sales

£447.3m

£460.6m

4.4%

Contribution

£95.7m

£99.4m

4.0%

Contribution

margin

21.4%

21.6%

(0.2)% pts

(1) Adjusted for currency; sales also adjusted for trading days

CONTINENTAL EUROPE

(35% Group sales)

Sales growth accelerated in H2

•

All markets in growth

•

France back in growth

following management action

plan

•

8% eCommerce growth

71% eCommerce share (+2%

pts)

•

eProcurement solutions driving

corporate accounts expansion

•

4% contribution growth

2015

2014

Growth

Sales

£302.7m

£281.3m

10.0%

Contribution

£41.9m

£39.1m

8.8%

Contribution

margin

13.8%

13.9%

(0.1)% pts

NORTH AMERICA

(24% Group sales)

Double-digit revenue growth

(1) Adjusted for currency; sales also adjusted for trading days

•

Strong revenue growth driven

by growth in automation &

control

•

Significant new product

introductions

•

16% eCommerce growth

41% eCommerce share (+2%

pts)

•

9% contribution growth held

back by investment in SEM and

healthcare insurance

2015

2014

Growth

Sales

£152.4m

£156.9m

3.6%

Contribution

£11.9m

£11.9m

10.2%

Contribution

margin

7.8%

7.6%

0.2% pts

ASIA PACIFIC

(12% Group sales)

10% contribution growth

(1) Adjusted for currency; sales also adjusted for trading days

•

Growth in China & SEA

•

Japan recovering post SAP

rollout

•

Australasia difficult

•

SAP rollout completed

•

eCommerce grew 4%, represents

50% of revenues

•

Cost benefits from

reorganisation initiatives driving

contribution growth

2015

2014

Growth

Sales

£363.8m

£374.3m

(2.4)%

Contribution

£98.8m

£107.5m

(8.1)%

Contribution

margin

27.1%

28.7%

(1.6)% pts

UK

(29% Group sales)

A disappointing performance

(1) Sales adjusted for trading days

•

UK market remains difficult

•

eCommerce revenues flat,

represents 63% of revenues

•

8% contribution decline

•

UK Action Plan

• Tools and consumables • Corporate accounts • Online conversion

CURRENT TRADING

Sales Growth

H1 2015

H2 2015

Q4 2015

Apr/May

2016

Continental

Europe

2%

7%

8%

11%

North America

10%

10%

6%

4%

Asia Pacific

5%

3%

4%

(1)%

International

5%

7%

7%

6%

UK

(2)%

(3)%

(3)%

(2)%

UK ex-Rasp. Pi

(1)%

(2)%

(2)%

(2)%

Group

3%

4%

4%

4%

(1) Underlying sales growth, adjusted for currency and trading days (2) Seven weeks to 15 May 2015

Continental Europe strength offset by slower

growth in US

22

LINDSLEY RUTH – INTRODUCTION & INITIAL OBSERVATIONS

•

Career history

•

2002 – 2015

Future Electronics Inc. Executive Vice President

•

1999 – 2002

Solectron Corporation Vice President, Materials

•

1994 – 1999

TTI Inc. Director

•

1992 – 1994

Texas A&M University

Assistant Lecturer, College of Engineering

INITIAL OBSERVATIONS – STRENGTHS

•

Strong brands

•

Global footprint

•

RS branded products

•

eCommerce expertise

•

Commitment of the people

•

Innovative solutions e.g. DesignSpark

23

INITIAL OBSERVATIONS – OPPORTUNITIES

•

Increase customer focus

•

Improve service levels

•

Streamline decision making

•

Simplify operating model

•

Drive operating efficiencies

•

Asia Pacific and Emerging Markets

24

SUMMARY

•

Overall, 2015 financial results not satisfactory

•

Significant opportunity to improve performance

•

Will present my detailed plans at our interim results in November

•

Meanwhile actions to address underperformance are being

intensified

SIGNIFICANT OPPORTUNITY TO IMPROVE PERFORMANCE

25

Focusing on driving faster growth and improved

shareholder returns

26

27

IMPACT OF FOREIGN EXCHANGE

2015

£m

2014

£m

Growth

Reported

Growth FX

adjusted

Continental Europe

95.7

99.4

(3.7)%

4.0%

North America

41.9

39.1

7.2%

8.8%

Asia Pacific

11.9

11.9

-

10.2%

International

contribution

149.5

150.4

(0.6)%

5.9%

UK contribution

98.8

107.5

(8.1)%

(8.1)%

Process costs

(163.1)

(151.8)

(7.4)%

(9.4)%

Operating profit

85.2

106.1

(19.7)%

(14.5)%

All figures refer to headline movements where relevant

FINANCIAL KPIs

(1) Underlying sales growth, adjusted for currency and trading days

Medium-term Performance Framework

2014

(Year 1 of plan)

2015

(Year 2 of plan)

Medium-term target range

Group sales growth

2.1%

3.5%

5% - 8%

Group return on sales

8.3%

6.7%

9% - 11%

Return on capital

employed

20.9%

16.4%

20% - 30%

Free cash flow as a

percentage of sales

4.6%

4.1%

4% - 6%

RESTATED FY15 HALF-YEAR RESULTS

£m Group UK Int’l Europe APAC Allied

As originally reported

Sales 616.4 180.1 436.3 213.3 76.5 146.5

Gross profit 275.6 89.3 186.3

Gross margin 44.7% 49.5% 42.7%

Contribution 120.0 49.3 70.7 46.4 4.7 19.6

Contribution margin 19.5% 27.4% 16.2% 21.8% 6.1% 13.4%

Restated analysis

Gross profit 277.2 89.8 187.4

Gross margin 45.0% 49.9% 43.0%

Contribution 121.6 49.8 71.8 47.3 4.9 19.6

Contribution margin 19.7% 27.7% 16.5% 22.2% 6.4% 13.4%

Additional H1 rebates 1.6 0.5 1.1 0.9 0.2 -

30

• We have revised the accounting treatment on rebates from vendors, relating to volume of purchases which are included in gross margins.

• Previously the Group recognised rebates only once cash was received. These will now be recognised on an accruals basis, when there is a binding arrangement, the amount can be reliably estimated and receipt is probable.

• This change has had no material impact on the full-year results, but would result in the earlier recognition of £1.6m of rebates in our half-year results for the six months to 30 September 2014.

• The £1.6m increase in 2015 half-year operating profits will be shown in restated comparatives with the 2016 half-year results and is highlighted in the table above.

Electrocomponents plc

Preliminary results for year ended 31 March 2015 21 May 2015