RS Group PLC

So good morning, everybody. Welcome to the RS group preliminary results presentation for the year ended 31st of March 2026, which was a year for us of good progress and building momentum. Thanks for joining us here today at the Teneo offices and thank you for your continuing interest in RS. Our presentation should take about 30 minutes today, and we'll leave some time at the end for questions, but we'll try and make sure everybody gets away by no later than 10 o'clock. The presentation materials are already available on our website. There are some hard copies in the room, and a recording of this presentation and the Q&A will be available on that website later today. But before we start, we always begin our meetings at RS with a health and safety moment. So there are no planned fire drills today. The fire exit is through the door on my right. Don't take the lift. Take the stairs to the left of the lift and assemble outside the building. At RS, we also start each of our meetings with a values moment. And I'd just like to take this opportunity to... to call out that as one team delivering brilliantly, doing the right thing and making every day better, recognising the efforts of our RS colleagues across the world who for the last two weeks have taken part in an active for change challenge. And in two weeks, they've actually walked 36,000 miles between them, which is the equivalent of going around the world one and a half times. And that's all to raise funds for our new social impact partner, SolarAid, that delivers clean and safe solar light and power to over 150,000 people living in rural communities without the access to electricity in sub-Saharan Africa. So they've been around the world one and a half times. Goodness knows how many times they'll get around the world by the time they finish their challenge. So on to the meat of the presentation this morning. I'm going to start... by summarising that good progress and building momentum that I referred to earlier. Kate's then going to run through our financials that were in line or slightly ahead of expectations, and she'll also take us through what's driving them, both at group and regional level. I'll then remind you of the multi-year journey that we're on, share with you in a bit more detail where we are on that journey and the progress that we're seeing, and also where our major initiatives are going to be for 2027 as we continue to improve RS and to deliver on the significant value creation opportunity here. And then I'll conclude with how a couple of years of this disciplined execution is increasing our confidence in our ability to deliver against those medium-term financial targets and sustainable returns that we shared with you over the last year or so. So, to that good year of more disciplined strategic execution and strong operational discipline. In challenging markets, as you'll hear from Kate in a minute, we delivered a resilient financial performance that was in line with or marginally ahead of expectations. Volumes were slightly down, but revenue was flat through good pricing discipline, which also led to improved gross margins, and costs were well controlled, and as a result, operating margins were maintained. We're two years into this multi-year value acceleration plan and we continue to make strategic and operational investments in the business that are already beginning to deliver. As you can see from the side, our growth drivers of RS Pro and our solutions and services grew well ahead of the rest of the group. And even in digital where we did see a small decline in the year, this was in part due to some of the short-term disruption arising from the enhancements and the technology upgrades that we're making to improve our customer experience and digital is already back in growth. Our internal and external data tells us that we're continuing to outperform in most of our markets and in most of our component categories. And we saw sequential improvement both in sentiment and performance across the year, particularly in Q3 and Q4. And this is despite the quite challenging macro environment and the difficult market environment that that's creating. We acquired BPX. in March for an acquisition consideration of up to about $30 million. And we've also got a good M&A pipeline, but excellent cash generation and a very strong balance sheet means that we've got more than sufficient financing capacity at this point in the cycle to execute both our organic investment program and to enhance it with value-creative acquisitions. So in line with our disciplined approach to capital structure and allocation, we will therefore be returning an additional £100 million back to shareholders by way of a buyback programme, which we started this morning. And therefore, we enter the next financial year with attractive and building momentum, notwithstanding the quite challenging macro environment that remains out there. So we set out our multi-year plan about two years ago, and there's still a lot to do at RS, but our great people have embraced the change journey that we're on, and I'm really pleased with the progress that we've made. You'll recognise the diagram on the left-hand side of this slide. highlighting where we're making strategic investments and in the five areas. And later in the presentation, I'll share with you a bit more detail of what those investments actually are. I'll also explain the coloured banding and I'll talk to where the focus of our investment will be in FY27. The Gantt chart on the right is the summary of the plan we're executing, which hasn't really changed since we launched it. It shows at a high level where we're investing and, importantly, where we expect those investments to start delivering. And I know it's a bit of an eye chart, but when you get your rulers out and dig into it, what it should show you is that after a lot of foundational investment, particularly in customers, experience, product, and supply chain. In FY27, we're now moving into activation phase, and we're already beginning to see some of the benefits of the investments that we've made over the last couple of years. You'll also have seen these charts before. And as we've highlighted, PMI data, which is the gray bars on the chart on the left, Typically lagged by three to six months is a pretty good indicator of whether RS has a headwind or a tailwind for its revenue growth, which is the red line on that chart. And despite that tough and volatile macro that we've referred to, the chart shows actually PMI data has been surprisingly stable over the last year and has actually started to move in an upward trajectory and even got into expansion territory in the last quarter of fiscal 26. And given our three to six month lag, our revenue is doing broadly what it should against that background. On the right hand side of the chart, we've set out the regional PMI data, which Kate will discuss and allude to in a minute. But that is supporting the growth that we've seen in North America and in APAC throughout the year, which particularly accelerated into the second half when EMEA also returned to growth. And with that PMI improvement now extending over a couple of quarters, whilst there's still a lot of uncertainty out there, it does feel like we have a bit of a zephyr or maybe even a tailwind going into 2017. So as you know, our high service industrial MRO distribution markets are large, they're complex, they're multifaceted, and it's quite difficult to get independent share data. So in order to determine how we're performing against our markets, we use lots of imperfect data sources to triangulate our relative performance. And we've highlighted a couple of those on this slide. On the left-hand side of the chart, in our digital channel, we monitor Google traffic for relevant search terms in our product category areas. And you can see it broken down in that chart on the left by product categories. And as you can see, across all four major drivers of our revenue categories, we are performing significantly better than the market as defined by search frequency on Google. And on channel shares across EMEA and Americas, where we can get data from our suppliers, on the right-hand side of the slide, in looking at... our relative performance to our suppliers' channel share data, we continue to gain or hold share in categories that make up over 90% of our revenue and are only losing share in categories that make up less than 7% of our revenue, all of which is indicative to us that our differentiated proposition and the strategic investments that we're making are continuing to drive share gain. And so with that quick trot through the highlights of the year and what's been going on in our markets, 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 have made considerable progress over the two years as we execute our strategic plan. And although the market environment remains uncertain with recent events in the Middle East, RS Group is in a much better place today. There's plenty of evidence to support this in the numbers we've reported. And in the second half of the year, the group showed good revenue momentum, demonstrated strong discipline in pricing, cost, and working capital and investment choices. Revenue decreased by 1% compared with last year on a reported basis. Our like-for-like decline is flat after excluding the impact of a weaker dollar, reduced trading days, and one month of revenue from BPX, our recent acquisition. Group revenue growth improved in the second half of the year, with a near returning to growth and continued growth in APAC and North America. I'll go through a revenue bridge slide on the next page or so. Our gross margin improved in the second half of the year through ongoing price discipline and active inventory management. Reduced revenue volumes and increased organic investment was offset by reduced interest charges such that adjusted profit before tax reduced by low single digits. Our reported operating profit includes two large offsetting items, which are exceptional in nature, an 11 million positive settlement of a legal dispute relating to our purchase of the Synovos business, and a 15 million write-off of old and unused code, which had previously been capitalized. Cash flow conversion was strong at 109%, with continued good working capital management, and return on capital employed was stable at 15%. The business continues to demonstrate strong cash generation characteristics. We remain committed to our progressive dividend and will increase the final dividend by 2% to 14.2 pence per share, taking the full year to 22.9 pence per share. And our balance sheet is now at the bottom of our target net debt to EBITDA range of one to two times. Given this and consistent with our capital allocation policy, we have commenced a £100 million share buyback over a 12-month period. Our M&A pipeline remains strong and we continue to pursue inorganic opportunities which would accelerate our strategy. Let's turn to look at revenue in a bit more detail. And as already mentioned, like-for-like revenues flat year on year after excluding impacts of FX and working days. However, when I look at like-for-like daily average growth, prices up around 2% and volumes are down about 2.5%. And we see a very similar shape in EMEA and Americas. Volume trends also improved through the second half of the year. We've welcomed VPX into the business on the 1st of March. And to give you a little bit more color on revenue performance, average order value was up from 263 to 276, improving across all customer segments and outpacing price movements. Whilst the number of orders was down, specifically in the smaller key and standard customers who mostly purchase infrequently and through our web channel. Moving on to that, the digital revenue, which accounts for about 60% of our group revenues, decreased by 1% on a like-for-like basis, which is largely as a result of this web demand, which declined in softer markets and short-term H1 impacts. At a product level, the more resilient categories of facilities and maintenance and mechanical and fluid power grew 2% and 8% respectively. Automation and control and electrification, our largest product category, was down 2%. Demand for semis and passives continued to be weak, with end markets remaining challenging. RS Pro continued to outpace other categories, growing by 5% in-year and increasing revenue share by almost 100 basis points to 14.4%. We continue to demonstrate discipline in our cost management, whilst ensuring we have the appropriate skills and tools to deliver our strategy. Our adjusted operating cost base includes the strategic uplift in organic project investment and restructuring and integration costs. Reported operating costs were flat year-on-year and remain stable at 35% of revenue. Our ongoing run cost base, excluding run-offs, increased by 2%. We continued to build back our employee incentives and inflation increased costs by $29 million. These cost increases were in part offset by $17 million restructuring and integration benefits. What is not visible in these bridges, though, is how we're absorbing the investments in key skills and the migration of software payment models to software as a service. Our total efficiency savings over the last three years now total 55 million, and we have increased our organic optics investment in the year by 4 million to the lower end of our guidance range, which was 35 to 45 million. We benefited from a 5 million one-off gain largely driven by the 3 million pound profit on the disposal of Distrilex Nordic and Baltics business. The cost to deliver the restructuring and integration savings in year was 9 million. So wrapping it all up in operating profit margin and the underlying operating margin, excluding the choice to increase organic investment, OPEX was flat through the year. And you can see on the chart that revenue inflation offset cost inflation very neatly. Growth margin was positive, offset against volume reductions, and so on a net basis reduced operating margins by 90 basis points. This was mitigated by our cost reduction program and lower restructuring and integration costs in financial year 26 versus the previous year. So let's focus a bit on the regions and specifically on EMEA. The key messages here to share with you. We had revenue momentum in H2 in all our markets. PMI indicators moved into expansion territory. However, these are indicators, and we tend to have a three- to six-month lag in our performance versus markets in industrial production recovery. The UK has shifted to growth. France continues to outperform, and the DAC region was mostly impacted by Germany, where broader market context remained challenging. Our strategic focus areas are outperforming the markets, notably corporate customers, services and solutions, and RS Pro. NPS did take a dip in H1 and is recovering, but given it's a rolling 12-month measure, it does take a little while for this to fully reflect in the numbers. We are pleased with the integration of Disflect into the business, which is almost complete. Our business case targeted 30 million of margin and cost synergies on a euro basis, and so far we've delivered 41 million euros on an annualized basis, with a bit more to come. Switching to Americas. Again, a couple of key points to pull out. US&C growth accelerated through the second half. Offline sales showed good momentum as the customer relationship management tools and targeted supplier strategy are actively deployed. Gross margins in the US improved with the back of pricing and better inventory management and provisioning. Also, I said at the heart here that we were seeing some delays in Mexico in customers committing to large capital projects, and that while the order book was a bust, large projects had been shifting to the right off the back of the trade arrangement that hadn't been fully agreed with the U.S., Canada, and Mexico. And we still see that impact in the second half while we wait for that resolution. But we also have a mechanistic decrease in revenue in Mexico because of a significant strengthening of the peso versus the dollar. Most of our sales in Mexico and our inventory purchases are dollar-priced. They are then converted into peso, which is the reporting currency. And this accounted for about half of the 21% revenue decline that you see in H2. It has an equivalent offset in cost of sales. So from a gross profit, gross margin perspective, it was flat in Mexico. And finally, there's a positive story to tell in APAC, where our sub-regions are all in growth in both price and volume and showing positive sales momentum. Gross margins are holding, and good cost management means we see evidence of positive drop-through in our operating profit year on year. So let's move on to cash, where our continued focus delivered cash flow conversion at 109%, broadly similar to last year, and well in excess of our target of over 80%. Adjusted free cash flow was down 12 million, primarily reflecting lower adjusting operating profit. Our working capital was well managed, with key metrics showing inventory purchasing discipline and stability in receivables and payables. We would expect cash conversion percentages to reduce in more buoyant market conditions in order to support volume growth while maintaining working capital discipline, and that will be a pleasant problem to contend with. We slightly increased our CapEx investment in the year, notably on the build-out of our new Italy and Ireland warehouses, and our business remained well invested with the CapEx to depreciation ratio at 1.3 times. Net debt decreased to $329 million and is now equivalent to one times net debt to EBITDA. So on our capital allocation policy, this cash generative business model, strong balance sheet, and the debt facility headroom does provide us with plenty of capacity for continued organic investment and selective M&A, as well as returning capital back to shareholders in the form of both dividends and share buybacks, as we've announced today. There is no change to our previously communicated capital allocation policy. Finally, for me, just to give a little bit of help, a few guidance points with next year's modelling. So we are not signalling a change in gross margins from full year 25 to 26, albeit there may be some movement between gross margin and variable costs depending on what happens with freight movements in the year. Specifically on operating costs, you'll record on slide 11, I took you through our ongoing cost base in full year 26 to $981 million. That excludes our one-off benefits and in-year restructuring and integration costs. So with that as your starting point, things to take into account for 27. The cost inflation is likely to continue at around 3%. Variable costs, don't forget those for those who are modeling volume increases in revenue, are about 6% of revenues. Our organic OPEX investment is likely to increase towards the top of the stated range of $35 to $45 million as we increase our spend on process harmonization and technology, and we expect to continue at that rate for a few years. The continued rebalancing of employee incentives, including the change to the RSU, and our choice to make our people shareholders in the business, will increase employee incentives by around $5 to $10 million. Net integration and cost efficiencies are around $10 million, and we're also making additional cost savings to absorb the investments required in capability, for example, data analytics, security, pricing, as well as the continued transition to the software as a service pricing model that many of our technology partners deploy. We will ultimately reduce our technology cap expense. We expect around 10 to 15 million of integration and restructuring costs to enable some of these efficiencies and capex to remain at around 50 million. I'll now hand you back to Simon.

Thanks, Kate. So, as touched on at the beginning of the presentation, here's the infamous RS wheel. This is where we have started a program in 2024 to enhance and accelerate our sustainable growth. to improve the efficiency of our business and to deliver much better operating leverage from RS over time, and particularly as end markets move into recovery. We're investing in five areas, customers, customer experience, products and suppliers, solutions, and operational excellence, which is all underpinned by improving capability and our great people. In the next few slides, I'm going to take you through a bit more of the detail of what we've invested in so far, where I see us beginning to realise some benefits from that investment, and where we're going to continue to invest in 27. And the pie chart on the left-hand side of the page sets out the investments and where we made them in 2026. The dark red colouring represents the strategic OPEX investment. The light red is strategic CAPEX. And the purple is investment investment. in our physical infrastructure. And as you can see, a good chunk of that investment was foundational and focused on front-end systems, data and processes to enhance our customer capture, to improve our share of wallet and to drive better experience for them. And I will talk more about that in the next couple of slides. As we move into 27, whilst we'll be activating a lot of these investments, The major additional investment we'll be doing is more around operational excellence as we position ourselves well for enhanced drop through of future growth in the years to come. Now let's go through each of these areas in a bit more detail. I'm particularly encouraged by the progress we've made in unifying our customer data and platforms to allow us to better target high potential value customers and drive share of wallet growth with them through more personalized experiences and at an optimized cost to serve. Last year, we finished and completed our global customer data platform and rolled out a common CRM across our digital and EMEA high-touch channels, giving us a unified behavior-led view of customers and of their potential. And as we deploy these insights, early results are encouraging with improving conversion rates, stronger sales conversion, pipeline conversion, and a 6% like-for-like revenue increase across our high-touch corporate customers. We'll continue to build on this momentum through 26-27 as we optimize and increase the automation of data flows across our customer-facing platforms and channels. And we'll also start integrating all our data and tools with our CRM, which will allow us to drive an increasingly automated and efficient deployment of our sales and marketing resources to target those high potential value customers, with a more personalised and efficient sales, service and support engagement. And all of this is targeted at allowing us to continue to grow market share and to capture more of our customers' wallet. The design and development and upgrade of our digitally enabled omni-channel customer experience is now largely complete and most of the foundational investments to enable it have been made. This year, we completed the rollout of our AI-enabled web search and began integrating it with our existing digital commerce platform. And we've seen significant increases, as Kate alluded to, in our add to cart rate and a meaningful increase in our basket to order conversion. We also completed the development of of and launched an upgraded digital commerce platform based on Adobe in America in the first half of the year, which is now beginning to deliver improved functionality, greater personalization, and much richer data capture, particularly as we tune it with our global digital data and experience capability. We're continuing to enhance this digital commerce platform, which will ultimately replace the existing platform we have across the group, and it's already in testing phase in EMEA. We also finished the rollout across EMEA and APAC of the final phase of our delivery to promise solution, which, after the expected decline in NPS on preliminary implementation, which you heard about from Kate, has led to significant improvements in H2 and also drove a 4% uplift in average order values. And combined with stronger search and a new basket and checkout experience, we're seeing meaningful gains in findability and conversion. And our focus in 27 is to start the phased rollout of our upgraded digital engine in Europe, while scaling and tuning our experiences to support enhanced retention and, again, greater wallet capture. Our product management solution moved into activation phase this year and is significantly accelerating the pace at which we can bring new products to market. We can now list and accept 50,000 new products a month and now have also a non-stocked capability, which we've launched with more than 185,000 products available for customer-only order. In addition to listing more complete line cards for suppliers, this also allows us and provides data for us to test demand and make better informed new product inventory decisions. Our enhanced product management capability extends to our own label business, RS Pro, where we launched an additional 10,000 new products, up more than 45% this year, and it's part of the reason that RS Pro's It's part of the reason that RS Pro delivered a record year and we continue to see good opportunity for further pro growth over time. We're continuing to invest in pricing tools and capability, particularly in North America, which has strengthened our ability to navigate trade uncertainty and inflation effectively. And by combining strong capability and execution with AI-enabled pricing tools, we were able to deliver three times more targeted price actions than than we did in the prior year, which improves our alignment to both our cost and market dynamics and supports both our customers and suppliers. And as we go into 27, we'll continue to tune our product management system to further optimize global stocking decisions and build on our American-based, data-based margin optimization capability, automating it and integrating it before rolling it out across the rest of the group over the next couple of years, all of which will improve inventory management and greater pricing agility. We continue to enhance and scale our solutions offer, which is delivering 6% like-for-like growth this year and now represents over 25% of group revenue. Digital procurement remains a key driver, with e-procurement growing 9% like-for-like, and this allows us also to build much deeper and stickier relationships with our higher potential value customers. Our RS integrated supply business delivered a strong year as we further improved our in-house tech platform, RS Sync. which is with AI-enabled product identification and an expanded curated marketplace for our customers. And this supports those large customers with multi-site facilities that are seeking to optimize their total indirect procurement costs by outsourcing processes and acquisitions and drives total MRO cost efficiency. In 27, we'll be upgrading and launching enhanced purchasing manager solution that enables SMEs to have greater control and oversight over their indirect procurement across the site, as well as continuing to enhance and build our e-proc system into our broader technology base. And we'll also finish the rollout of our improved integrated supply solution to all our integrated supply customers, which drives those deeper relationships that are important for share gain. There's a lot going on at RS. And we should not forget we continue to invest and optimize our physical distribution network as well as our process and technology estate. In 26, as you've heard from Crate, we completed the exit from our Distrelec warehouse in the Netherlands and made significant progress in the build of upgraded facilities in Italy and Ireland. And this will include the installation of a state-of-the-art robotic automation system in Italy, which will become the standard for all of our regional distribution centres going forward. We're continuing to simplify our technology estate. To date, we've taken out more than 100 applications and we see further opportunities for consolidation and harmonization as we continue to drive process and operational excellence. And this will allow our business to absorb the increased licensing costs that we see as a result of our shift from an organic development model to a software as a service technology approach. We've optimized our flow through our distribution network. We've removed non-value-added touch, and we've reduced the number of times we handle a product, which has resulted in a 50% increase in our supply chain efficiency ratio and a much improved cost to serve. And as we enter 27, we'll commence operations in Italy and complete Ireland and our UK warehouse management systems upgrade. And importantly, we'll start to prepare in earnest for the upgrade of our enterprise resource planning system. scrubbing the data, completing the process design and mapping current and future state with the first country market rollout anticipated in calendar 28, all of which allows us to access the next phase of process harmonization, automation and that improved operating leverage that we referred to. Value Creative M&A remains an important addition to our organic growth strategy. In the year, as you've heard from Kate, we broadly completed the integration of Distrelec, Trident's going well, and we also acquired BPX. As we enter 27, we've got a decent pipeline of further opportunity. But as you've heard from Kate, After two years of positive underlying progress, a clear plan and an understanding of what we will be investing organically and what that will deliver, we have more than sufficient financing capacity to execute our organic investment programme and continue with these bolt-ons. So in line with our disciplined approach to capital structure and allocation, we've announced this £100 million buyback this morning. So with that quick trot through of what's going on here, I hope we've given you a feel for why we're pleased with both performance and strategic programs. And as we go into FY27, whilst there is still a lot of uncertainty out there, we've demonstrated resilience. We are seeing stable to improving sentiment, sequential increase in growth, and most of our major markets are performing as they should. We've got a differentiated proposition that's allowing us to continue to gain share across most categories. There is a lot going on here, but the significant strategic investments that we've made to accelerate growth, improve efficiency, and drive better operating leverage are all on track. And more importantly, they are beginning to deliver, and I'm comfortable that the level and pace of change at RS and our people's The capacity to execute our value acceleration plan is all in hand and proceeding as anticipated. We continue to deploy capital in a disciplined way through organic investments, M&A, dividend, and where it's surplus, returning capital shareholders. So whilst being alert to volatile macro and geopolitical conditions, we are keeping focused on the things that we can control. on activating those investments that we've already made, on continuing to drive operating leverage through global collaboration, cooperation and process harmonisation, and maintaining capital discipline whilst pursuing value-accretive external opportunities. And all of this gives me and the Board increasing confidence that our medium-term financial targets – growing revenues at twice the market, achieving mid-teens operating margins, strong cash conversion and returns on investor capital aren't just credible, they're achievable and will deliver sustainable value for all stakeholders over time. So thank you for listening. We'll now be happy to take any questions. If you could raise your hands, state the name of the institution that you represent and then ask your questions. We will answer them as best we can. We also have people online and they will submit their questions online and somebody will ask them for us.