31 March 2016 19 May 2016 Agenda Overview of results Lindsley - PowerPoint PPT Presentation

Preliminary results for year ended 31 March 2016 19 May 2016

Agenda Overview of results Lindsley Ruth Financial highlights David Egan Business overview Lindsley Ruth Performance Improvement Plan Lindsley Ruth Current trading and outlook Lindsley Ruth 2

Overview 2016: a year of significant progress with some key highlights  Good progress on Performance Improvement Plan (PIP) – Customer experience, accountability and simplification  New international leadership team  UK returned to growth with four consecutive months of growth from December  Double-digit growth in Central and Southern Europe  Accelerating growth of RS Pro with 5.6% H2 growth  6.1% growth in digital in full year  Firm action on costs led to significant step up in H2 profitability A major step forward but still significant potential for improved performance 3

Financial results David Egan 4

Financial highlights  2.8% revenue growth  Stabilised gross margins in H2  Higher than targeted savings of £7 million delivered in H2  14.2% underlying headline operating profits growth in H2  19.7% growth in headline free cash flow – supported by improved stock turn of 2.7x (2015: 2.5x)  Robust balance sheet with Net Debt: EBITDA of 1.5x (interest cover 19.2x)  Dividend maintained 5

Group overview Underlying (1) change H1 H2 FY H1 H2 FY Sales (£m) 626.5 664.6 1,291.1 3.7% 1.9% 2.8% Gross margin (%) 43.3% 43.7% 43.5% (1.2)pts (0.5)pts (0.8)pts Headline operating profit 33.8 48.2 82.0 (14.6)% 14.2% 0.2% (£m) Headline operating profit 5.4% 7.3% 6.4% (1.1)pts 0.7pts (0.1)pts margin (%) (1) Underlying measures, unless otherwise stated, are adjusted for currency movements. Sales are also adjusted for trading days. (2) Headline measures of profitability and cash flow are defined as the relevant reported profit/cash flow measure before reorganisation costs/cash flows, asset write-downs and pension credits.  Overall, revenue growth of 2.8% with some anticipated disruption from restructuring in H2  Stabilisation in gross margin in H2 – pricing initiatives, more discount discipline  Cost actions led to H2 operating margins up 0.7% points on an underlying basis to 7.3%  14.2% underlying growth in operating profits during H2  ROCE of 15.7% (2015: 16.4%) Year of two halves – with significant improvement in H2 6

Stabilise the gross margin 2016 progress Results Next steps Quarterly GM% decline 1. Reported 1.1% point full-year 1. Improve mix year on year gross margin decline, with – Drive RS Pro growth Q1 Q2 Q3 Q4 stabilisation in margin in H2 – Prune low margin tail 0.0% -0.3% 2. Two thirds of full-year decline 2. Control discounts driven by FX, balance mix of -0.5% – Controls and process product and price – Incentivisation link -0.8% -1.0% 3. Acceleration in RS Pro growth aiding mix -1.3% 3. Purchasing initiatives – Smarter purchasing -1.5% 4. Pricing initiatives and – Incentivisation link -1.8% increased discounting – Development of global discipline supported H2 -2.0% franchises for semis stabilisation Good progress in H2 7

Operate for less 2016 progress Results Next steps Operating cost movement 1. On track to deliver at least 1. £7 million of cost savings £25 million of annualised cost delivered in H2 Change (1) 1.1% 0.8% 1.0% (1.6)% 1.3% savings by 2018 – £15 million in 2017 2. Operating profit conversion – £3 million in 2018 ratio rose to 16.6% in H2 (H2 2015: 15.2%) 2. Relentless focus on operating more efficiently 3. Refocused workforce with 3. Review of our supply chain 10% gross reduction continues 4. Our aim is to drive a culture of 4. Reinvestment in focus areas, continuous improvement RS Pro, electronics and digital 2015 Fx Inflation Volume Other Savings 2016 (1) Other includes IT and one-off costs including the French rate repayment On track to deliver at least £25 million of savings by 2018 8

Summary income statement 2016 2015 (£m) Reported Adjustments Headline results Reported Adjustments Headline results Revenue 1,291.1 - 1,291.1 1,266.2 - 1,266.2 Operating profit before exceptional 82.0 - 82.0 85.2 - 85.2 items Exceptional items (41.9) 41.9 - 16.0 (16.0) - Operating profit 40.1 41.9 82.0 101.2 - 85.2 Interest (5.2) - (5.2) (5.1) - (5.1) Profit before tax 34.9 41.9 76.8 96.1 (16.0) 80.1 Income tax costs – ordinary activities (21.4) - (21.4) (22.1) - (22.1) Income tax costs – exceptional items 8.4 (8.4) - (3.7) 3.7 - Profit for the year 21.9 33.5 55.4 70.3 12.3 58.0 Earnings per share (p) 5.0 - 12.6 16.0 - 13.0  £41.9 million exceptional includes:  2017 guidance – £23 million labour restructuring charge – No significant change in headline tax rate of 28% – £3.9 million cost of exiting facilities – We expect the cash tax rate and profit and loss tax rate to converge – £15 million write-downs, including £11.2 million website write-down 9

Cash flow  2016 highlights (£m) 2016 2015 – Headline free cash flow +19.7% Headline operating profit 82.0 85.2 – Operating cash flow conversion (3) 107% (93%) Depreciation and amortisation 29.6 30.5 – Stock turn 2.7x (2015: 2.5x) Loss on assets and other non-cash 3.2 1.5 – Net Debt: EBITDA 1.5x (2015: 1.3x) movements Movement in working capital 2.1 (0.7)  2017 guidance Adjusted cash generated from 116.9 116.5 – Capex guidance: 1x depreciation operations – Stock turn stable at 2.7x Net interest paid (5.2) (5.1) – Cash restructuring outflow expected to be largely Income tax paid (20.2) (21.6) offset by proceeds from Singapore warehouse sale Adjusted net cash inflow from 91.5 89.8 operating activities Net capital expenditure (28.9) (37.5) Headline free cash flow 62.6 52.3 Outflow related to restructuring (16.0) (3.3) Free cash flow post restructuring 46.6 49.0 Net debt 165.1 152.6 (1) Underlying measures, unless otherwise stated, are adjusted for currency movements. Sales are also adjusted for trading days. (2) Headline measures of profitability and cash flow are defined as the relevant reported profit/cash flow measure before reorganisation costs/cash flows, asset write-downs and pension credits. (3) Headline operating cash flow conversion is defined as headline free cash flow, pre taxation and interest as a percentage of operating profits. 10

Impact of foreign exchange Translation  We are sensitive to FX rates on the translation of overseas profits  Reported profit sensitivity to a 1 cent movement in: Euro and USD movements to sterling – Euro: £0.6 million 1.70 – USD: £0.2 million 1.60  If current rates persist we will see a tailwind from 1.50 foreign exchange in 2017 1.40 1.30 Transaction exposure 1.20 1.10  Group treasury maintains 3-6 month hedging to 1.00 smooth impact of currency movements Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16  Key exposures: euros and US dollar  Net buyer of US dollars, net seller of euros € to £ £ to $  As such, gross margin impacted over time from weakening in sterling versus – Euro: positive impact – USD: negative impact Our US dollar exposure is c. 2x greater than Euro exposure 11

Key focus areas  Efficiency – delivering the targeted savings and identifying further ways we can simplify  Continuing efforts to stabilise gross margin  Maximising cash flow with a particular focus on working capital  Driving growth – both organic and inorganic via bolt-on acquisitions  There is a major opportunity to deliver higher returns and increased cash flow Focused on driving improvement 12

Business overview Lindsley Ruth 13

Northern Europe (30% of sales) Underlying (1) change H1 H2 FY H1 H2 FY Sales (£m) 187.1 197.1 384.2 0.2% 2.6% 1.4% Operating profit (£m) 31.2 37.1 68.3 (12.6)% 19.7% 2.4% Operating profit margin (%) 16.7% 18.8% 17.8% (2.4)%pts 2.8%pts 0.3%pts (1) Underlying growth, unless otherwise stated, is adjusted for currency. Underlying sales growth is also adjusted for trading days.  Northern European hub consists of the UK, Ireland and Scandinavia  Overall 1.4% revenue growth, with growth accelerating to 2.6% in H2  All three markets in growth but UK turnaround has been the key driver behind H2 improvement  Operating profits up 2.4% in 2016 on an underlying basis, with a 19.7% improvement in profitability in H2 driven by higher gross margins and tight cost control 14

Southern Europe (19% of sales) Underlying (1) change H1 H2 FY H1 H2 FY Sales (£m) 114.3 136.1 250.4 12.8% 11.1% 11.8% Operating profit (£m) 9.5 13.5 23.0 (5.9)% 4.7% 0.0% Operating profit margin (%) 8.3% 9.9% 9.2% (1.6)%pts (0.8)%pts (1.1)%pts (1) Underlying growth, unless otherwise stated, is adjusted for currency. Underlying sales growth is also adjusted for trading days.  Southern European hub consists of France, Italy, Spain and Portugal  Double-digit revenue growth throughout 2016 driven by strong performance in France and Spain  Market share gains driven by focus on high revenue potential accounts  Cost initiatives offset by a FX related gross margin reduction and higher supply chain costs (includes £1.5 million one-off repayment of French rates incurred in H1)  Operating profit flat on an underlying basis, with 4.7% growth in H2 15