RS Group PLC

Thanks very much, and good morning, everyone. Welcome to the RS Group Regional Results Call for the six-month period ending 30 September 2025, and thank you all for joining us this morning. The presentation should take around 30 minutes, and then we'll have some time at the end for questions, but we'll try and make sure that we finish the call by no later than 10. I'm going to start by summarizing our pleasing first half performance. Kate will then run through our in-line financials and what's driving them, both at a group and a regional level. Then I'll conclude by sharing with you the good underlying progress that we're making as we make the business better at RS and position ourselves to accelerate growth, improve efficiency, and drive better operating leverage over time. But before we get into the details of this morning's presentation, we would like to start our meetings, virtual or physical, at RS with a health and safety moment and values highlight. So although it's virtual, please make sure you do take a safety moment to identify your nearest exit and safest evacuation route in the event of an emergency. For our values highlight, I'd just like to call out and celebrate our new multi-year global partnership with SolarAid to support their mission to light up lives across more Africa. As our new global charity partner, their and our purposes and values are completely aligned. And as one team, delivering readily, doing the right thing, and making every day better, we will bring our people, our innovation, our technical expertise, and our suppliers and partners together to help raise over a million pounds to partner with SolarAid to deliver clean, safe solar light and power to over 150,000 people living in rural communities without electricity. And this is very much RS demonstrating our values in action and continuing to make amazing happen for a better world. So, as you know, we're on a journey to create a better business here at RRS, and I'm really pleased with the progress that we've made in the first half. Against the background of a challenging geopolitical environment and uncertain markets, our data tells us that we're continuing to outperform. We're delivering financial outcomes that are in line with expectations. We're actively managing our business to reflect the trading environment we find ourselves in. But we're continuing to invest in the strategic and operational initiatives that are already beginning to deliver, which underpins our confidence, our continued confidence in returning our S group to growth, which we focus investment and effective execution delivering on those medium term financial targets and much improved value creation will be first talked about at our Capital Markets Day last September. So before Kate takes you through the financials, I think it's worth looking at what's going on in our markets, which remain uncertain, although I have to say a bit more stable. As we shared with you at our Capital Markets Day, high service industrial NMRO distribution markets are large, complex, and multifaceted. And they're also generally fragmented, as are the competitors who play in them. And it's for this reason that we have highlighted that the best way of thinking about our future direction of travel is to look at PMI data, and that our revenue growth is very closely correlated. The trend is in PMI data typically lags by between three and six months. And during the first half of the year, this remained true. As you can see from the chart on the left and in the red circles, PMI data, which is the gray bars, have been improving since a low point in our fiscal Q3 last year. But it still does remain below 50, suggesting modest contraction. And markets in the first half were probably a bit slower than we anticipated. But against this backdrop, our revenue, shown by the red line, has stabilised and indeed started to move in the right direction over the last couple of quarters. We actually returned some marginal growth. in Q2. As the chart of the regional PMI data on the right indicates, and as you'll hear from Kate in a minute, this was reflected in good growth in Americans and APAC, broadly offsetting a small decline in the media. Now, whilst PMI data is a good indicator of the likely future direction of travel, We used other data sources to assess our relative performance. So probably the most relevant of these are web searches and supplier-reported channel shares. We monitored Google traffic for relevant search terms, and these were down 6% in the first half, versus our own group and indeed digital performance, which was only down 2%. And in the chart on the left, you can see that we broke this down by product category, across India where we have the most detailed data. And in all four of our major product categories, you can see that we are performing significantly better than the market. And on the right-hand side of the chart on channel shares, supply data continues to indicate that we're gaining share from other distributors across virtually all of our industrial product categories in Europe. And if anything, this is probably picked up a bit in the first half of this year, which is all related to our continued outperformance, which is enabled by our differentiated proposition. So with that market background, let me pass you over to Kate, who will take you through the numbers and the drivers behind them.

Thank you, Simon, and good morning, everyone. I'd like to echo what Simon has said. We've made considerable progress over the last couple of years, and although the market environment remains uncertain, our group is in a much better place today. There's plenty of evidence to support this in the third part. In Q2, we moved into growth in the group. We're actively demonstrating strong cost management, managing pricing, and cash flow, and low-side discipline in investments. Revenue decreased by 3% compared to last year on a reported basis on a life-to-life of the finest 1% after excluding impact of the weaker dollar and reduced trading days. And we have evolved relatively well in a weak industrial environment and performance in America and Asia Pacific was positive. And I'll go through the revenue break on the next slide. Lower revenue and increased investment drove single-digit reductions in our adjusted profit and earnings measures despite the benefit of a slightly higher gross margin. And cash circumversion was very strong at 107%, with continued good working capital management and broker stable at 15%. In our unadjusted free cash flow, we also saw a 10 million cash contribution following a successful legal challenge. We're increasing the interim dividend by 2% to 8.7 pence per share, in line with our progressive dividend policy and our expectation of low single-digit growth until Canada grows back to historical levels. A few things highlight on the progress we're making in our growth accelerator at the bottom corner, right corner of this page. As Simon has illustrated, in current market conditions, the digital revenue decrease of 2% is indeed a resilient performance, supported by the advancement of web conversion and a 9% growth in our e-procurement solution for higher value customers. This largely offset reduced revenue from typically lower-value web-only customers, including the temporary impact of our U.S. digital platform upgrade. This growth in e-containment is also reflected in a 7% increase in life-to-life service solutions revenue, alongside improved revenue and profit from our integrated supply, following the strategic refocusing of that business and the new leadership last year. And RS Pro grew sales by 4% with growth in all of our regions. We continue to develop our product offering and include the marketing of our range, and RS Pro now accounts for 14% of group revenues. Let's turn to its revenue in a bit more detail. As I said, life-to-life revenue fell 1% compared to last year after exceeding the impact of FX working days. And in those charts, we also show the temporary impact on revenue of the U.S. digital platform upgrade. Most of that impact was in the first quarter with steady recovery 322. And adding this back, life-to-life revenue would have been flat in the first half. We also saw a reduced every-order frequency and a lower number of customers as demand fell in markets that were in contraction through the period, including some expected customer attrition industrially as customers migrated to the Irish opposition. However, this was offset by the benefit of active pricing, management including supply price and pass-through, and importantly, the increased revenue from our high-value corporate and managed key customer accounts. These factors resulted in a 3% increase in the average order value in the first half. At a product level, the more resilient categories of specificity and maintenance, mechanical fluid power, PPE, and site and safety grew 3%. Automation and control and electrification was down 2%, but due to responsive recovery, demand for sensitive panels continued to be weak with ad markets remaining challenging. Certainly, the cost and capital management in the last year has been great, and I'm really pleased that the discipline is evidenced across the group. We held costs flat, half on half, despite inflation and increased organic optics investments, and the net impact of inflation, a favorable effect impact for the weaker dollar, and a 5 million increase in organic optics investments, with largely offset by the substrate and integration benefits, including those in district next, which was an additional 9 million in the first half. where our strategy comes with the achievement of over 15 million of benefits for the full year. Within our ongoing cost base, our efficiency and savings, which have also enabled us to absorb investments in people, capability, and the migration of technology space to the software as a service model for solutions partners. This results in an ongoing cost base of $482 million for the half, effectively flat on last year. The amount of benefit relates to a $3 million profit on the disposal of part of the District's Nordic business to our existing export partner. And the cost to deliver the restructuring and integration savings in the house was $4 million. Underlying operating margin excludes the elevated organic investment objects that swap through the effective management of pricing and cost. The net impact was very revenue-at-cost inflation-reduced margin by 100 basis points. However, this was all saved by restructuring and integration benefits alongside a reduced cost to deliver these. And in addition, we have the deliberate and increasing occupancy investment spend through the transition period, with the year-on-year increase reducing margins by 40 basis points, shown to the right of the chart. These investments will drive improved margins over time from a strength in differentiated population at improved operating leverage. So moving on to the regions now, and starting with EMEA, which delivered a resilient revenue and operating profit performance in weak economic conditions. PMIs were below 50 in our main market for the period, indicating market contraction, and life-to-life revenue was down 2%, which includes the anticipated district customer attrition due to the closure of the district in D.C., which in and of itself saved us over €10 million per year. Now let's build up our market. Business confidence remained weak in the UK, but we relatively outperformed. Our performance in France continued to be strong, and our targeted products and sales operating to more resilient industry verticals were successful. For example, those connected to process manufacturing, such as food and beverage. The DAF market remained challenging, with volumes remaining weak in the manufacturing and automotive industry. Growth margin was slightly up, with early benefits of pricing coming through, operating costs increased by less than inflation through active cost management and strong synergy delivery. Largely reflected the reduction in revenue on a life-like operating profit was down 11% to 86 million, and most of the increased organic uptake investment resides in the near, which was a main factor in the operating market decline to close fence. Moving to America, which on a like-for-like basis grew by 1%, a reported dollar basis of around 5%, which is largely in function of a weaker U.S. dollar. You can see the recovery in digital sales since May, which we impact in following the upgrade of our digital platform in Q1, and if we adjust America's like-for-like revenue for the temporary impact, H1 revenue would have been up around 5%. Both rates accelerated through Q2 in the U.S. and Canada against a backdrop of resilient economic sentiment. Markets in Mexico remained more volatile, with persistent concerns over tariffs and their impact on the wider Mexican economy. And this has led to a number of larger customers deferring capital expenditure, which was a significant factor in a decrease in life-like revenue in Mexico. The margin for the region was slightly up, with a strong performance in the U.S. against the tariff backdrop, more than offsetting increased costs of sales in Mexico due to unfavorable dollar-to-petro movements. Inflation and strategic investment in digital and pricing optimization were reflected in operating costs. And like-for-like operating profit was down 9%. Profit was down in Mexico, which reflects a reduced revenue growth margin. However, profit was slightly off in the U.S. and Canada from improved revenue growth margin. Let's move on to Asia-Pacific. We have been seeing positive momentum here since the final quarter of last year, and revenue was up 4% on a like-for-like basis. We delivered growth in Australia and New Zealand, with last year's transit acquisition performing ahead of expectations. We also delivered growth in Southeast Asia and Japan and Korea. Great China was impacted by its very weak performance in Hong Kong, reflecting significantly lower spend from a few large state-earned customers linked to government budgetary constraints. Gross margin benefited from favorable pricing in their industry provision, and with cost more than same old, we saw a strong increase in operating profit, reflecting improved operational leverage. If we move on to cash, Since where our continued focus has delivered strong cash conversion, our adjusted pre-cash flow has brought these slaps with our working cash flow matrix stable. This results in a cash flow conversion of 107% while an exit above target of 80%. And this is largely a function of disciplined inventory management in response to revenue demand. Stable cap is at 25 million, translated to 1.1 times depreciation as we continue to invest in our physical and system infrastructure. And our well-funded pension obligations, we don't anticipate any further additional company contributions for B2. Net debt decreased to $333 million, continuing a downward trend over the last 12 months, and is now equivalent to one-times net debt to EBITDA at the low end of a one-to-two-times rate. Our cash-gathered business model's strong value sheet and ditch facility headroom provide us with plenty of capacity for continued investment and selective M&A. And there is no change to our capital allocation policy. Firstly, we prioritize organic investment in order to significantly improve our efficiency and our market position. Secondly, financially disciplined acquisitions in the global fragmented market can accelerate our strategy, especially mobile times. And third, we believe in sharing cash generated with our shareholders through progressive dividend policy. And if we can't productively invest excess taxable over a reasonable period of time, we will seek to return this to shareholders. Finally, for me, Our full year outlook, which is pretty consistent with what we indicated at the start of the year, there are a few points of emphasis for the second half. We now expect our gross margin to be a bit above 43%, somewhere higher than last year. Our organic investment to deliver our strategic initiatives in optics is still likely to be at the lower half of the guided rate of 35 to 45 million per annum, and appreciation and accruing incentives are expected to be weighted to the second half. We've demonstrated our active cost management in relation to the market environment, and we will continue to do so. There are further guidance points, including trading days, and the summary of our restructuring benefits to date, which are included in slide 29 of the presentation. I'll now hand you back to Simon.

Thanks, Kate. And as I think you can tell, Stephen, there is a huge amount going on at RRS. But I do recognize that in challenging markets, it's difficult to see this in our financial performance. So over the next few slides, I'm going to highlight a number of the areas where I see the changes and the strategic improvement investments that we're making already beginning to deliver. Because it's this that I'm pleased about, and it's real evidence of the progress we're making in repositioning RS to drive better growth, improve efficiency, deliver better operating leverage, and much improved sustainable shareholder value over time. So just a quick reminder that we set out our ambitious strategy to improve RS at our capital market stage as they were a year ago, and we continue to execute to that multi-year plan. Our aim is to deliver sustainable outcomes and to be first choice for all of our stakeholders, and particularly our customers and suppliers. And we have detailed actions in each of the areas of our strategic wheel set out on this slide. Whilst it's still relatively early in our change journey, in the first half we executed effectively, and we've set that out in a further detail in the R&S. But what I'd like to do here is just highlight a few areas where we're making real tangible progress. delivering increased resilience today, improving some of our key underlying operational metrics, and supporting accelerated growth that are all the indicators of us beginning to realize some of the exciting RS genes. Core to delivering our strategy is, of course, our people, and we've significantly strengthened our leadership over the past two years, and we continue to do so while investing in training and upskilling across the globe. Our people buy into this strategic journey that we're on with our engagement score well into the mid-70s, despite the challenging markets and the level of change going on within the group today. A lot of people are doing a fantastic job and they remain the lifeblood of this business as they embrace and drive change to create greater agility and efficiency. But it's probably in customers where our biggest opportunity lies and where I'm most excited about the progress that we've made over the last six months. There is huge potential here through the more effective use of our unique data to target the right type of high potential value customers and to increase our share of wallets through delivering a tailored value proposition and a personalized experience, but with an optimized cost to serve. This requires consistent and ultimately connected customer data engagement and management platforms coordinated across each house globally. We've now reconfigured, cleansed, and uploaded and matched over 90% of our customer data across EMEA and APAC with Americas to follow. And we're already starting to use this data to develop highly targeted and potential-based segmentation models, which will allow us to prioritize customer targeting with both human and digital marketing and to more effectively deploy our sales efforts next year, We also completed in the first half the development of our customer data platform, which we are now using to develop opportunity-based personalized experiences, both online and offline, to better attract, nurture, and gain a larger share of customers' warrants. Our CRM system, which we completed the rollout of last year, has now recorded over 340,000 customer interactions. And to date, this has enabled our sales team to identify more than 50,000 new sales opportunities. And levering this richer data insight, we've seen materially higher win rates and bigger deal sizes which is part of how we've achieved that 4% growth in revenue from our corporate customer segment in our one that Kate referred to earlier. And this is all before we ultimately knitted all together and connected to our enhanced digital commerce engine as we rolled that out across the group, all of which would accelerate customer and wallet capture through enhanced connected data platforms. I'm also pleased in the progress we're making to further strengthen our technical product. Our product management solution launched at the end of last year now has allowed us to more than triple our average new production introductions to over 30,000 a month in the first half of this year. And that resulted in a nearly 30% increase in new product sales and great expansion of our curated product range. And initial investment in more dynamic pricing has allowed us to process over three times the normal number of pricing changes that we make in America, which is part of how we've dealt so effectively with the impact of tariffs. But the real opportunity of dynamic pricing and the database margin optimization capability that comes with it is already supporting gross margin expansion in America's And we'll be rolling this out across the group more widely over the next couple of years. And these investments are just examples of how we're better supporting both suppliers and customers and enhancing the value that we create for them. Can I share with you a bit earlier the growth that upgrading our e-procurement solution is already delivering, and we continue to invest in our other digital procurement solutions for upgrade next year. And then our investment in process and technology, as Kate alluded to, is also repositioning our integrated supply business, our SIS, which delivered strong rate in revenue and much improved profitability in the first half, which is all evidence that our solutions and services focus is driving much improved strategic engagement and, importantly, product pull-through and enhanced family. I'd also like to call out the investments that we've made in the first half to improve our digital experience, which is also contributing to our performance. Our investment in enhanced findability tools have driven a 2% improvement and more than 18% in our add-to-cart rate when a customer searches the product on our website. And our new basket and checkout functionality has resulted in a 5% improvement in basket-to-order conversions. which is now up to 41%. And we launched an upgraded version of our enhanced digital platform in North America in the first half, as you know. And we continue to tune that platform. And just an example of how much more effective it is, our website load times are now a third quicker compared to the old website. And we also continue to tune our delivery promise solution that we launched last year. And that's already resulting in fewer cancellations and returns, but is importantly now beginning to yield increasingly granular data, which will outcur commercialization of artificial intelligence and machine learning optimized decisions, particularly in the areas of stock availability, inventory management, and pricing. Kate already talked about much of what we've achieved to enhance the efficiency of our physical, digital and process infrastructure across the group, and that is an ongoing initiative. But it's important to realise that we've now delivered sustainable restructuring and integration savings, taking over £47 million over the last two years, and that's more than we anticipated at the outset. And we're also now well into the detailed plans that will deliver the at least an additional 150 basis points of margin that we referred to as potential upside in our capital markets day over a year ago. But it isn't just about cost reduction. And as an example, our delivery to promise investment that I mentioned earlier is also allowing us to do things like optimize product flames through our distribution networks. And in the first half, we reduced the number of times we handled a product more than once from 52% to 40%, clearly reducing our cost to serve and, importantly, also reducing our carbon footprint. And we see lots of opportunity to further optimize this with more data going forward. And all of these efforts around improving our infrastructure is driving significant improvement in our future operating level. So, notwithstanding a decent in-life financial performance, despite the challenging, albeit a bit more stable markets, I hope this presentation has highlighted for you the real reason why I'm pleased with the first half performance. The change in investment we're making is already delivering. better revenue resilience, and continued outperformance. It's furthering growth in our accelerators and areas of focus, such as our corporate customer segment, RS Pro, and our solutions business. It's driving improvements in our gross margin, in part driven by our investments in new pricing technology and capability, and we're also exercising big cost control and improved efficiency. And always more importantly for me, it confirms that RRS is uniquely positioned in fragmented markets with attractive through cycle great characteristics. We have an increasingly differentiated technical and digital product and service solutions offer, which positions us to continue to drive market share gains. We're improving the efficiency of our global infrastructure, which will drive operating leverage and significant margin expansion over time. And we can deliver value-creative growth through disciplined acquisitions. And although we haven't made any in the first half, this was a result of value discipline, not a lack of opportunity. And we have a good pipeline going into second half. Most importantly, further evidence to me that our medium-term financial targets to grow revenues at twice the market, mid-teens adjusted operating margins, over 80% cash conversion, and over 20% return on invested capital are more than achievable. And this will all deliver exciting, sustainable value creation that all of our stakeholders over time. That's the end of the formal presentation. Thank you for listening. And I'd now like to open the call up to any questions you might have.

Thank you very much. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from David Brockton from Deutsche Numis. Your line is open, David. Please go ahead.

Thank you. Good morning all. Can I ask three quick ones, please? Firstly, on the US, I guess that's the region where you have a little bit more visibility, or at least historically have done. Can you just touch on what the book to build looks like there? The second question relates to Germany. Clearly, it's still been a tough region for you. Can you maybe give any insight as to whether you're seeing any signs of improvement in that region? And then the final question relates to some of the improvements that you've touched on, the share gains as well, that you clearly set out. The one sort of lagging indicator or indicator that's still off a little bit looks like the net promoter score, which is down year on year. Can you maybe just give any insight into what you think is happening there, please? Thanks.

Thanks, David, and Maureen. Yeah, US book-to-bill rates stayed on to slightly positive. In North America, in Mexico, stable-ish. I think what we are seeing in Mexico is a continued deferral of some quite big capital projects. So although the book to build looks okay, we do see pretty consistent deferral. We haven't seen that capital investment spend loosen up yet. but but generally yeah pretty solid that in germany yes it remains difficult there is the hope that stimulus will eventually be through both to industrial confidence and to investment i mean the one thing about germany is that lapping means the pace of decline is slamming uh we have new leadership in germany uh and i'm i'm very confident uh that we're positioned to recover or to benefit from recovery in Germany when it happens. But no major signs of that happening yet. But equally, Germany is a lot more stable than it was even six months ago. And then lastly, the MPS score that you referred to, David, the way we report MPS is on a rolling, lagging basis, 12-month basis. We did anticipate internally a decline in our MPS score, both in Europe and in North America, firstly, with the launch of DTP, and secondly, with the introduction of our new digital commercial commerce engine. I think, pleasingly, the monthly recovery in MPS has actually followed or slightly exceeded, if I'm honest, our own expectations. So whilst the externally reported number still looks a bit weak, if you look at the movement that we can see internally month on month, we're on a very good trajectory of NPS. Thank you very much.

As a reminder, to ask a question, please press star followed by one on your telephone keypad. Our next question comes from Michael Donnelly from Investec. Your line is open, Michael. Please go ahead.

Thank you. Just a couple from me, please. And they're both about RS Pro. Now that it's 14% of growth and we've seen great strength in the US, albeit from a low base, should we be thinking about a sustained mid-single digit growth trajectory for that product in the medium term, or is it more likely to moderate group growth at some point? And related to that, I think you've mentioned the potential in the past for RS to reach about a fifth of group revenues. Could you comment on that potential, given the recent performance over the period? Thank you.

Thanks, Michael. Good morning. So we have seen a good performance for RS growth in the first half, given the very low The very low base we're starting from in America, I'm not sure that we're celebrating Bixly there quite yet. There's a lot of work to do to build both recognition and understanding the RS Pro brand to make sure we've got the live product stocked for our US customer base and are actively selling and promoting the brand in the right way. I do think you should expect RS, I mean, it will be a little choppy, but I do expect, well, I do think you should expect to continue to see RS pro growth outperform the bull that group growth over time. And with reference to sort of medium and long-term targets, I'm not sure we've gone out there with a formal position on where our RS pro is. brand should get to. But if you look at world-class distributors, I think your comments about between 20% and 25% of revenue being about the right level for a private label product, I don't think we're necessarily disagreeing with that. It takes time to get there. And we're on a journey with RS Pro that's not yet finished. It's very clear. Thank you.

We currently have no further questions. And with that, this concludes today's call. We thank everyone for joining and you may now disconnect your lines.