TIDMECM
RNS Number : 3781W
Electrocomponents PLC
14 November 2017
ELECTROCOMPONENTS PLC
RESULTS FOR THE HALF YEARED 30 SEPTEMBER 2017
SIGNIFICANT STEP FORWARD IN GROWTH AND PROFITABILITY IN H1
Change
Highlights H1 2018 H1 2017 Reported Underlying(1)
Revenue GBP823.8m GBP706.3m 16.6% 13.3%
Gross Margin(2) 43.4% 42.8% 0.6pts 0.6pts
Headline operating profit(3) GBP81.2m GBP57.7m 40.7% 29.3%
Headline operating margin(3) 9.9% 8.2% 1.7pts 1.4pts
Headline profit before
tax(3,4) GBP79.0m GBP55.1m 43.4% 31.3%
Headline earnings per
share(3) 13.0p 9.1p 42.9% 29.9%
Headline free cash flow(3) GBP17.4m GBP61.9m (71.9)% (72.4%)
Net debt GBP124.5m GBP140.9m
Leverage (x EBITDA) 0.7x 1.0x
Interim dividend 5.25p 5.0p 5.0%
Reported profit before
tax GBP75.7m GBP54.5m 38.9% 27.0%
Reported earnings per
share 12.4p 9.0p 37.8% 23.9%
------------------------------ ---------- ---------- --------- --------------
(1) Underlying growth, unless otherwise stated, is adjusted for
currency movements, in addition underlying revenue growth measures
are also adjusted for trading days. Positive currency movements
increased Group reported H1 revenue by around GBP35 million, whilst
fewer trading days reduced Group revenues by around GBP16
million.
(2) Gross margin has been re-presented: - the write-down of
inventory to net realisable value had previously been included
under distribution and marketing expenses, and has now been
included as a cost of sales. There is no change in the underlying
business and no impact on operating profit. (see further details on
Page 20).
(3) Headline measures exclude net reorganisation costs of GBP3.3
million in 2018 and GBP0.6 million in 2017. For an explanation of
these measures, see Basis of Preparation on Pages 18 to 20.
(4) Positive currency movements increased headline profit before tax by around GBP5 million.
Financial highlights
Accelerating revenue growth
-- Strong execution and a positive market backdrop drove
underlying revenue growth of 13.3% (reported 16.6%).
-- All five regions saw double-digit underlying revenue growth and market share gains.
Significant profitability increase whilst also investing to
drive future growth
-- Gross margin improved 0.6% points in H1 and we remain on
track to deliver stable gross margins in the full year.
-- Reported H1 PBT was GBP75.7m, up 38.9%, despite higher
restructuring charges of GBP3.3m (H1 2017: GBP0.6m) which relates
to the consolidation of our digital operations and head office into
one location in London.
-- Headline H1 PBT was GBP79.0m, up 43.4% or 31.3% on an underlying basis.
-- Headline operating margin rose 1.7% points to 9.9% due to
revenue growth, gross margin and cost control.
Growth in EPS and interim dividend
-- Reported EPS was 12.4p up 37.8%. Headline EPS was 13.0p up
42.9% or 29.9% on an underlying basis.
-- Interim dividend increased by 5% to 5.25p (2017: 5.0p).
Net Debt reduction year on year despite inventory investment to
improve availability
-- During H1 we increased inventory by GBP39.1 million to drive
improved stock availability and support revenue growth, as a result
headline free cash flow reduced to GBP17.4m (H1 2017:
GBP61.9m).
-- Despite higher investment and an increase in the dividend,
net debt reduced to GBP124.5m (H1 2017 GBP140.9m).
Operational Highlights
-- Rolling 12-month Net Promoter Score rose by 8.4% to 43.8
demonstrating improved customer satisfaction.
-- Digital marketing strategy and improved online experience
drove 14% underlying growth in digital revenue.
-- RS Pro underlying revenue growth of 10% in H1 with growth
accelerating to 11% in Q2 versus 8% in Q1.
-- Significant step forward in Asia, with all sub-regions in
growth and losses reduced to GBP2.3 million (2017: GBP5.4m).
-- On track to deliver GBP30 million of cumulative annualised cost savings by March 2018.
CURRENT TRADING & PROSPECTS
We have made an encouraging start to the second half of the
year, with all regions seeing continued strong underlying revenue
growth in October. Our markets currently remain strong but as ever
our forward visibility remains limited and our trading comparatives
will toughen as the year progresses. As such, we are focused on
driving market share gains by delivering an excellent customer
experience and investing to support continued long-term growth of
the business. We are on track to deliver annualised net cost
savings of GBP30 million by March 2018 and work continues to
identify further efficiencies in the way we do business. All these
actions mean that we are well positioned to make strong progress in
the current financial year.
LINDSLEY RUTH, CHIEF EXECUTIVE OFFICER, COMMENTED:
"We delivered a strong performance in the first half with
double-digit top line growth in all five of our regions, improved
gross margins, and significant growth in profits. We are making
good progress on our journey to become first choice for customers,
suppliers and employees and the opportunity for further growth and
improvement remains significant.
Today we have an energised business with real momentum, we are
investing in our people, innovation and our brands and continue to
focus on what our customers value. We remain committed to driving
value for our shareholders and we are excited by the
potential."
LEI: 549300KVXDURRKVW7R37
Enquiries:
Lindsley Ruth, Chief Executive
Officer Electrocomponents plc 0207 239 8400
David Egan, Group Finance Director Electrocomponents plc 0207 239 8400
Polly Elvin, VP of Investor Relations Electrocomponents plc 07973 812481
Martin Robinson/David Allchurch Tulchan Communications 020 7353 4200
The results statement and presentation to analysts are published
on the Electrocomponents website at www.electrocomponents.com.
Notes on financial terms:
In order to reflect underlying business performance, the Group
uses a number of alternative performance measures, including
headline and underlying performance measures. Comparisons of
underlying revenue between periods (including by region, product
group and channel) have been adjusted for currency and trading days
(underlying revenue growth). For all alternative performance
measures, refer to the Basis of Preparation and Principal
Accounting Policies on pages 18 to 20.
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 revenue and costs are disclosed
as positive if improving profit and negative if reducing
profit.
Notes to editors:
Electrocomponents, through its brands RS Components and Allied
Electronics, is the global distributor for engineers. We offer more
than 500,000 industrial and electronic products, sourced from 2,500
leading suppliers, and provide a wide range of value-added services
to over one million customers. With operations in 32 countries, we
trade through multiple channels and ship around 50,000 parcels a
day.
We support customers across the product life cycle, whether via
innovation and technical support at the design phase, improving
time to market and productivity at the build phase, or reducing
purchasing costs and optimising inventory in the maintenance phase.
We offer our customers tailored product and service propositions
that are essential for the successful operation of their businesses
and help them save time and money.
OVERALL RESULTS
Change
--------------------------- ---------- -----------
H1 2018 H1 2017(2) Reported Underlying(1)
--------------------------- ---------- ----------- --------- --------------
Revenue GBP823.8m GBP706.3m 16.6% 13.3%
Gross margin 43.4% 42.8% 0.6pts 0.6pts
Headline operating profit GBP81.2m GBP57.7m 40.7% 29.3%
Reported operating profit GBP77.9m GBP57.1m 36.4% 25.2%
Headline operating margin 9.9% 8.2% 1.7 pts 1.4pts
Headline operating profit
conversion % 22.7% 19.1% 3.6pts 2.9pts
1) Underlying adjusted for currency; revenue also adjusted for trading days
2) Gross margin re-presented for a change in the classification
of the write-down of inventory to net realisable value to cost of
sales from distribution and market expenses(see the Basis of
Preparation and Principal Accounting Policies on page 20)
Revenue
Group revenue increased by 16.6% on a reported basis to GBP823.8
million (2017: GBP706.3 million). Foreign exchange movements had a
positive impact on revenue of GBP35 million during H1, while fewer
trading days had an adverse impact on revenues of around GBP16
million. Underlying revenue growth was 13.3% during H1, with all
five of our geographic regions showing double-digit underlying
revenue growth in the period, driven by strong execution and a
buoyant underlying marketplace. All product categories performed
well during the first half, with our electronics products and
particularly semiconductors outperforming during the period. RS
Pro, our own brand range, which accounts for 12% of Group revenue
saw underlying growth of 10%. This was below that of the Group
rate, reflecting a higher exposure to industrial products. Digital
revenue grew 14% on an underlying basis and accounted for 60% of
Group revenue.
Gross Margin
Group gross margin at 43.4% was up 0.6 percentage points on both
an underlying and a reported basis with management initiatives on
price, mix and increased discount discipline driving two thirds of
the improvement. The balance of the improvement was driven by
higher vendor rebates and a reduction in the level of inventory
write-downs. Foreign exchange was broadly neutral overall to Group
gross margin during H1. While we saw a negative impact on gross
margin from the devaluation of sterling in Northern Europe, due to
higher cost prices for our UK business, our other European regions
and Asia Pacific saw a benefit to gross margins with sterling
devaluation leading to lower cost prices.
During the second half of the year, we will see tougher gross
margin comparatives as H2 2017 saw a benefit from foreign exchange
which will not be repeatable in H2 2018. However, we remain
confident of delivering stable gross margins in the full year.
Operating costs
We continue to focus on increasing efficiency and simplification
so we can reallocate resource into higher growth areas and convert
a higher proportion of gross profit into operating profit.
During the first half, total headline operating costs, which
include regional costs and central costs, increased 8.7% on an
underlying basis, and 12.9% on a reported basis to GBP276.2 million
(H1 2017: GBP244.7 million). Approximately half the underlying
increase was due to higher variable costs and employee incentive
costs driven by faster revenue growth and improved business
results. We saw around a 2% percentage point impact from
inflationary increases to wages. The balance of the underlying
increase was driven by the annualisation of the step-up in
investment in digital, innovation and RS Pro that was made in H2
2017 to support growth in the business.
As revenue growth outpaced cost growth, our headline operating
profit conversion improved by 2.9 percentage points on an
underlying basis, and by 3.6 points on a reported basis to 22.7% in
2018 (2017: 19.1%). Reported operating costs as a percentage of
revenue fell by 0.8 percentage points to 33.9% (2017: 34.7%).
Operating profit
Reported operating profit for H1 was up 36.4% to GBP77.9 million
(H1 2017: GBP57.1 million). Headline operating profit increased
40.7% to GBP81.2 million (H1 2017: GBP57.7 million) or 29.3% on an
underlying basis. The headline operating margin improved 1.7
percentage points to 9.9% (H1 2017: 8.2%) or 1.4 percentage points
on an underlying basis.
Segmental Performance
The following section explains the revenue and profit
performance of our five regions; Northern Europe, Southern Europe,
Central Europe, the Americas and Asia Pacific (which includes both
our Asia Pacific and our emerging market operations).
During the first half we have seen strong revenue growth in all
five regions as we have executed well and driven market share gains
in a favourable market environment. All our regions have focused on
the following key priorities during the period:
-- Excellent customer & supplier experience: During H1, we
have invested in inventory to improve product availability for our
customers. We have continued to drive improvements in the online
experience. We have also undertaken a number of local initiatives,
which we cover in more detail below. As a result of all these
activities, our 12-month rolling average Net Promoter Score rose
8.4% to 43.8 year on year for the year to September 2017.
-- Innovation and digital leadership: During H2 2017 we
increased our digital investment across all regions, with a
particular focus on Northern Europe. The investment was focused on
two areas. First, a digital marketing strategy encompassing PPC
(pay-per-click marketing), SEO (Search engine optimisation), link
building, and brand building using social media and video. This has
been successful at driving double-digit percentage growth in
traffic to our website. Secondly, we have invested resource to
accelerate changes to our web and mobile platforms driving an
improved customer online experience. This has led to a 15%
year-on-year improvement in Group website speed and an 11% increase
in our UK customer satisfaction score in the year to September
2017. These improvements in the online customer experience have
enabled us to convert a higher proportion of this traffic into
revenues, leading to 14% underlying growth in digital revenues
during H1 2017. As a result of increased focus, cumulative rolling
12-month digital revenues reached GBP1 billion in November
2017.
-- Sales effectiveness: We have over 1,300 customer-facing
staff, which is a source of competitive advantage. Over the last
12-18 months, we have focused on strengthening the impact of our
sales team. We have successfully trialled a sales effectiveness
programme in the UK using a standard set of metrics to measure
sales impact and utilise data to qualify and prioritise leads.
During the first half, we have begun rolling elements of this
programme out across the other regions.
-- RS Pro: During H1, we increased investment in RS Pro
inventory to drive improved availability, tailored product ranges
to reflect local market needs, refreshed product packaging, and
continued to educate our salesforce on the benefits of RS Pro for
customers. This investment drove an acceleration in underlying
growth at RS Pro across the period resulting in Q2 underlying
revenue growth of 11% (Q1 2018: 8%).
Northern Europe
The Northern European region consists of the UK, Ireland and
Scandinavia and is our most profitable region. The UK is the main
market in this region and accounts for around 90% of the revenue.
In the UK we have 16 trade counters which have been rebranded as RS
Local during the period.
Change
------------------ ---------- -----------
H1 2018 H1 2017(2) Reported Underlying(1)
------------------ ---------- ----------- --------- --------------
Revenue GBP217.8m GBP199.3m 9.3% 11.1%
Operating profit GBP41.4m GBP41.1m 0.7% 0.0%
Operating margin 19.0% 20.6% (1.6)pts (1.6)pts
1) Underlying adjusted for currency; revenue also adjusted for trading days
2) 2017 figures re-presented for reallocation of annual incentive charge
-- Overall, our Northern European region saw 11.1% underlying
revenue growth, with growth in all three markets in the region. The
UK continues to see strong growth aided by a robust manufacturing
export market and continued market share gains.
-- A renewed focus on value-added services drove improved
customer experience and strong revenue growth at RS Local (our
trade counter business), RS Product Plus (extended range) and
Calibration services.
-- Digital revenue, which accounts for 69% of revenue in the
region, grew at 13% on an underlying basis.
-- RS Pro sales, which account for 22% of revenue in the region,
grew at 10% on an underlying basis.
-- Gross margins were stable during H1 with the negative impact
of weaker sterling offset by two factors: first, our own actions to
drive improved mix and pricing; and secondly, a positive impact
from higher vendor rebates during the period due to increased
inventory investment.
-- Operating margins fell 1.6 percentage points on both an
underlying basis and a reported basis to 19.0% (H1 2017: 20.6%).
This reflected a substantial step up in digital investment and a
change in intercompany charging for picking and packing goods.
During the first half, we reduced the intercompany charges that our
central distribution centres in the UK charge the other regions for
picking and packing goods. This change has had no impact on overall
costs or profits for the Group but it changes the mix of profits
between regions. The new policy led to a GBP1.6m increase in supply
chain cost for Northern Europe and a commensurate lower share of
costs for our other European regions and Asia Pacific.
-- Operating profit was flat on an underlying basis, an increase of 0.7% on a reported basis.
Southern Europe
The Southern European region consists of France, Italy, Spain
and Portugal. France is the main market for this region and
accounts for approximately two-thirds of the revenue.
Change
------------------ ---------- -----------
H1 2018 H1 2017(2) Reported Underlying(1)
------------------ ---------- ----------- --------- --------------
Revenue GBP158.7m GBP136.3m 16.4% 11.2%
Operating profit GBP23.0m GBP11.6m 98.3% 67.9%
Operating margin 14.5% 8.5% 6.0pts 5.2pts
1) Underlying adjusted for currency; revenue also adjusted for trading days
2) 2017 figures re-presented for reallocation of annual incentive charge
-- Overall, our Southern European region saw 11.2% underlying
revenue growth. Strong execution and good underlying markets across
the region drove robust revenue growth trends in all markets with a
standout performance in Spain and Portugal.
-- An increased focus on digital and on sales lead
identification, pre-qualification and account management has been a
key element in driving market share gains during the period.
-- Digital revenue, which accounts for 72% of revenue in the
region, grew at 13% on an underlying basis.
-- RS Pro, which accounts for 15% of revenue in the region, grew at 9% on an underlying basis.
-- Gross margins rose during H1 aided by foreign exchange,
higher vendor rebates and our own actions on pricing, mix and
continued discount discipline.
-- Operating margins improved 5.2 percentage points on an
underlying basis or by 6.0 percentage points on a reported basis to
14.5% (H1 2017: 8.5%). The improvement was driven by higher gross
margins, operational gearing, the change in intercompany charging
for picking and packing goods and tight cost control. These effects
more than offset increased investment in digital and innovation
during the period.
-- Operating profit was up 67.9% on an underlying basis or 98.3%
on a reported basis to GBP23.0 million.
Central Europe
The Central European region consists of Germany, Austria,
Benelux, Switzerland and Eastern Europe. Germany is the main market
for this region and accounts for approximately two-thirds of the
revenue.
Change
------------------ ---------- -----------
H1 2018 H1 2017(2) Reported Underlying(1)
------------------ ---------- ----------- --------- --------------
Revenue GBP112.6m GBP95.3m 18.2% 12.8%
Operating profit GBP12.7m GBP4.0m 217.5% 139.6%
Operating margin 11.3% 4.2% 7.1pts 6.1pts
1) Underlying adjusted for currency; revenue also adjusted for trading days
2) 2017 figures re-presented for reallocation of annual incentive charge
-- Overall our Central European region saw 12.8% underlying
revenue growth driven by our own actions and a strong macro
backdrop in the region.
-- The new leadership team is now in place in Central Europe and
key priorities include refreshing our go-to-market strategy,
increasing profitability and improving customer service and
acquisition in the region. Local initiatives on customer service in
H1 included programmes to improve call handling, technical support
and order processing.
-- Digital revenue, which accounts for 71% of revenue in the
region, grew at 13% on an underlying basis.
-- RS Pro, which accounts for 12% of revenue in the region, grew
at 10% on an underlying basis.
-- Gross margins increased, aided by foreign exchange benefits,
higher vendor rebates, actions taken to improve discount discipline
pricing initiatives and the quotation process on corporate account
business.
-- Operating margins improved 6.1 percentage points on an
underlying basis or by 7.1 percentage points on a reported basis to
11.3% (H1 2017: 4.2%). Central Europe saw the benefits of higher
gross margin, operational gearing and the change in intercompany
charging for picking and packing goods, which more than offset
increased investment in areas such as digital and innovation.
-- Operating profit was up 217.5% on a reported basis or 139.6%
on an underlying basis to GBP12.7 million (H1 2017: GBP4.0
million)
Americas
Our Americas region consists of our Allied operations in the
USA, together with smaller operations in Canada, Mexico and
Chile.
Change
------------------ ---------- ----------
H1 2018 H1 2017 Reported Underlying(1)
------------------ ---------- ---------- --------- --------------
Revenue GBP222.8m GBP181.8m 22.6% 15.6%
Operating profit GBP27.1m GBP21.0m 29.0% 19.9%
Operating margin 12.2% 11.6% 0.6pts 0.5pts
1) Underlying adjusted for currency; revenue also adjusted for trading days
-- The Americas saw 15.6% underlying revenue growth. We believe
we continued to take market share in a favourable market
environment.
-- Growth was driven by strong performances in automation and control and digital revenues.
-- Digital revenue, which accounts for 43% of revenue in the
region, grew at 19% on an underlying basis.
-- RS Pro continued to grow strongly from a very low base in the
Americas with significant further potential.
-- Gross margins rose, driven by increased focus on pricing and discount discipline.
-- Operating margins rose 0.5 percentage points on an underlying
basis to 12.2%, with strong revenue growth, improved gross margin
and tight underlying cost control, offsetting increased investment
in digital and marketing during the period.
-- Operating profit rose 29% on a reported basis or 19.9% on an
underlying basis to GBP27.1m (2017: GBP21.0m).
Asia Pacific
The Asia Pacific region consists of four similarly sized
sub-regions: Australia/New Zealand, Greater China, Japan and South
East Asia. We also have emerging markets operations in South Africa
and use distributors in other territories.
Change
------------------ ---------- -----------
H1 2018 H1 2017(2) Reported Underlying(1)
------------------ ---------- ----------- --------- --------------
Revenue GBP111.9m GBP93.6m 19.6% 17.2%
Operating loss GBP(2.3)m GBP(5.4)m 57.4% 57.4%
Operating margin (2.1)% (5.8)% 3.7pts 3.6pts
1) Underlying adjusted for currency; revenue also adjusted for trading days
2) 2017 figures re-presented for reallocation of annual incentive charge
-- Overall, Asia Pacific revenue increased 17.2% on an
underlying basis with all four sub-regions returning to growth in
the period.
-- During the period the team in Asia Pacific focussed on
driving improved online experience and delivery on time and to
promise in the region. Our Asia Pacific NPS (Net Promoter Score)
continued to improve with the 12-month rolling score for September
2017 up 22.7% year on year. While we have made some good progress
on improving customer service in the region, we still have more
work to in this area as APAC NPS still remains well below that of
the Group average.
-- Digital revenue, which accounts for 50% of revenue in the
region, grew at 15% on an underlying basis.
-- RS Pro, which accounts for 12% of revenue in the region, grew at 8% on an underlying basis.
-- Gross margins improved in Asia during the first half, aided
by foreign exchange, higher vendor rebates but also activities to
drive improved pricing and discount discipline. However, gross
margins declined in our emerging markets due to product mix.
-- Losses more than halved due to revenue growth, the change in
intercompany charging for picking and packing goods and continued
tight cost discipline.
Central Costs
Headline central costs are Group head office costs and include
PLC, Group finance, Group human resources and Group legal
costs.
Change
------------------------ ------------ ------------
H1 2018 H1 2017(2) Reported Underlying(1)
------------------------ ------------ ------------ --------- --------------
Headline central costs GBP(20.7)m GBP(14.6)m (41.8)% (40.8)%
1) Underlying adjusted for currency
2) 2017 figures re-presented for reallocation of annual incentive charge
-- Central costs of GBP20.7 million (H1 2017: GBP14.6 million)
increased by 40.8% on an underlying basis and 41.8% on a reported
basis.
-- Over half the increase in central costs was due to higher
performance related pay reflecting improved results and the
increase in the Group's share price. The balance of the increase
was due to a higher pension charge relating to the increase in the
net retirement obligation and some additional dual running costs
related to the relocation of our Head Office from Oxford to
London.
-- We would expect central costs in H2 to be broadly similar to H1.
FINANCIAL REVIEW
Net finance costs
Net finance costs in H1 reduced to GBP2.2 million (H1
2017:GBP2.6 million) reflecting the strengthened balance sheet.
Restructuring charges
The Group incurred a restructuring charge of GBP3.3 million in
H1 (H1 2017: GBP0.6 million). The majority of this cost related to
the consolidation of our Oxford-based headquarters, with our
London-based digital office into one enlarged head office and
digital hub in Kings Cross St Pancras, London.
Profit before tax
Headline profit before tax was up 43.4% to GBP79.0 million (H1
2017: GBP55.1 million), a 31.3% increase on an underlying basis.
Reported profit before tax was up 38.9% to GBP75.7 million (H1
2017: GBP54.5 million) with growth impacted by higher restructuring
charges of GBP3.3 million (H1 2017: GBP0.6 million).
Taxation
The Group's headline tax charge was GBP21.8 million (H1 2017:
GBP15.3 million), resulting in an effective tax rate of 28% of
headline profit before tax (2017: 28%).
Earnings per share
Reported earnings per share of 12.4p was up 37.8% (H1 2017:
9.0p). Headline earnings per share of 13.0p was up 42.9% (H1 2017:
9.1p) or 29.9% on an underlying basis.
The weighted average number of shares was 440.8 million (H1
2017: 440.3million).
Return on Capital Employed (ROCE)
Net assets at the end of the first half were GBP397.4million (H1
2017: GBP326.9 million). ROCE, calculated using headline operating
profit for the 12 months to September 2017 and period end net
assets excluding net debt balances and net retirement obligations
was 25.2% (H1 2017: 17.6%).
Cash flow
H1 2018 H1 2017
Headline Headline
GBPm Reported Adjustments results Reported Adjustments results
------------------------- --------- ------------ --------- --------- ------------ ---------
Cash generated
from operations 44.8 0.7 45.5 75.3 6.8 82.1
Net interest
paid (2.5) - (2.5) (2.6) - (2.6)
Income taxes
paid (16.2) - (16.2) (9.2) - (9.2)
------------------------- --------- ------------ --------- --------- ------------ ---------
Net cash flow
from operating
activities 26.1 0.7 26.8 63.5 6.8 70.3
Net capital expenditure (9.4) - (9.4) (4.6) (3.8) (8.4)
------------------------- --------- ------------ --------- --------- ------------ ---------
Free cash flow 16.7 0.7 17.4 58.9 3.0 61.9
------------------------- --------- ------------ --------- --------- ------------ ---------
Headline cash generated from operations reduced to GBP45.5
million (H1 2017: GBP82.1 million). H1 cash flow was impacted by
three key factors; higher 2017 incentive payments, increased
inventory investment and higher cash tax payments. The most
significant impact was the GBP39.1 million increase in inventory.
During H1 faster revenue growth drove higher working capital
absorption by the Group. We also took a decision to increase
inventory levels within the business to improve product
availability and our on time to promise ratio (OTTP), which had
trended downwards during H2 2017. Product availability and OTTP are
a key driver of Net Promoter Score (NPS) and as such an important
driver of customer satisfaction.
Working capital as a percentage of sales improved by 1.2
percentage points to 21.2% (H1 2017: 22.4%). Stock turn was 2.7x
(H1 2017: 2.8x). Looking forward, we expect H2 cash flow to be
higher than the equivalent period last year.
Net interest paid was GBP2.5 million (H1 2017: GBP2.6 million).
Income tax paid rose to GBP16.2 million (H1 2017: GBP9.2 million),
with a headline cash tax rate of 20.5% during H1.
Net capital expenditure in the first half was GBP9.4 million (H1
2017: GBP8.4 million). As a result, capital expenditure was 0.7x
depreciation during the first half (H1 2017: 0.6x). We continue to
expect capex to depreciation for the full year to be around
1.0x.
Headline free cash flow for the first half was GBP17.4 million
(H1 2017: GBP61.9 million). Headline operating cash flow
conversion, which is defined as headline free cash flow
pre-taxation and interest as a percentage of headline operating
profit and is one of our seven KPIs, was 44.5% (H1 2017:
127.7%).
There was a net cash outflow related to the restructuring
activities of GBP0.7 million during the first half, which largely
relates to labour restructuring charges and our head office
relocation.
Net debt
At 30 September 2017 net debt was GBP124.5 million. This was
GBP11.6 million higher than at 31 March 2017. This was principally
due to first-half headline free cash flow of GBP17.4 million being
less than the final dividend of GBP32.2 million for the 2017
financial year paid during the period.
In June 2017 the Group repaid $85 million of its US private
placement (PP) loan notes and in August 2017 the maturity of the
Group's c. GBP186 million syndicated multi-currency bank facility
was extended with six banks from August 2021 to August 2022. This
facility, together with the remaining $100 million PP notes
maturing in June 2020, provides the majority of the Group's
committed debt facilities and loans of GBP259.5 million, of which
GBP113.2 million was undrawn as at 30 September 2017. Cross
currency interest rate swaps have switched $20 million of the PP
notes from fixed dollar to fixed sterling, giving the Group an
appropriate spread of financing maturities and currencies.
The Group's financial metrics remain strong Net Debt to EBITDA
of 0.7x (based upon twelve months ended 30 September 2017
financials), leaving significant headroom to the Group's banking
covenants.
Pension
The Group has material defined benefit schemes both in the UK
and Europe, with the UK scheme being the largest. All these schemes
are closed to new entrants and in Germany and Ireland the pension
schemes are closed to accrual for future service.
The combined deficit of the Group's defined benefit and
retirement indemnity schemes at 30 September 2017 was GBP100.9
million; this compares to GBP104.6 million at 31 March 2017 and
GBP133.5 million at 30 September 2016. Under IAS 19, the deficit of
the UK defined benefit scheme at 30 September 2017 was GBP86.7
million which compares to GBP90.9 million at 31 March 2017 and
GBP116.6 million at 30 September 2016.
The decrease in the UK deficit at 30 September 2017 was
principally driven by a decrease in liabilities due to discount
rates increasing by 0.1 percentage point from 2.6% to 2.7%.
The triennial valuation of the UK Scheme at 31 March 2016 showed
a deficit of GBP60.8 million on a statutory technical provisions
basis. A recovery plan is in place, which has been agreed with the
Trustees of the UK Scheme and our deficit contributions will
continue with the aim that the Scheme is fully funded on a
technical provisions basis by 2023.
Dividend
The Board proposes to increase the interim dividend to 5.25p per
share. This will be paid on 10 January 2018 to shareholders on the
register on 1 December 2017.
The increase in the dividend reflects the Board's confidence in
the future prospects of the Group and the Group's strengthened
balance sheet. The Board intends to pursue a progressive dividend
policy whilst remaining committed to further improving dividend
cover over time by driving improved results and stronger cash
flow.
Foreign exchange risk
The Group does not hedge translation exposure on the income
statements of overseas subsidiaries. Based on the mix of non-pound
sterling denominated revenue and adjusted operating profit, a one
cent movement in euro would impact annual profits by GBP1.2 million
and a one cent movement in US dollars would impact annual profits
by GBP0.4 million.
The Group is also exposed to foreign currency transactional risk
because most operating companies have some level of payables in
currencies other than their functional currency. Some operating
companies also have receivables in currencies other than their
functional currency. Group Treasury maintains three to six month
hedging against freely tradable currencies to smooth the impact of
fluctuations in currency. The Group's largest exposures relate to
euros and US dollars.
Risks and uncertainties
The Group's risk management process identifies, evaluates and
manages the Group's principal risks and uncertainties. These are
reviewed by both the Group's Risk Committee, comprising the Group's
senior managers, and the Board, which regularly discusses the
principal risks and receives risk reports covering risk mitigations
and controls.
The Group has a defined risk appetite, which has been adopted by
the Board, which are considered across three risk categories:
strategic, operating and regulatory/compliance risks. These risk
appetites have both quantitative and qualitative criteria.
The principal risks and mitigations disclosed in the 2017 Annual
Report continue to be valid.
Responsibility statement of the Directors in respect of the
half-year financial report
The Directors confirm that these Condensed Interim Financial
Statements have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and that the interim management report
includes a fair review of the information required by Disclosure
and Transparency Rules (DTR) 4.2.7 and DTR 4.2.8, namely:
-- An indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- Material related party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
The Directors of Electrocomponents plc are listed in the
Electrocomponents Annual Report and Accounts for the year ended 31
March 2017. A list of current Directors is maintained on the
Electrocomponents plc website: www.electrocomponents.com.
David Egan, Group Finance Director
13 November 2017
SAFE HARBOUR
This financial report contains certain statements, statistics
and projections that are or may be forward-looking. The accuracy
and completeness of all such statements, including, without
limitation, statements regarding the future financial position,
strategy, projected costs, plans and objectives for the management
of future operations of Electrocomponents plc and its subsidiaries
is not warranted or guaranteed. These statements typically contain
words such as "intends", "expects", "anticipates", "estimates" and
words of similar import. By their nature, forward-looking
statements involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future.
Although Electrocomponents plc believes that the expectations
reflected in such statements are reasonable, no assurance can be
given that such expectations will prove to be correct. There are a
number of factors, which may be beyond the control of
Electrocomponents plc, which could cause actual results and
developments to differ materially from those expressed or implied
by such forward-looking statements. Other than as required by
applicable law or the applicable rules of any exchange on which our
securities may be listed, Electrocomponents plc has no intention or
obligation to update forward-looking statements contained
herein.
Condensed Consolidated Income Statement
Unaudited Unaudited Audited
6 months 6 months Year to
Note to 30.9.2017 to 30.9.2016 31.3.2017
GBPm GBPm GBPm
--------------------------------------- ---- -------------- ------------- ----------
Revenue 1 823.8 706.3 1,511.7
Cost of sales (466.4) (403.9) (855.0)
--------------------------------------- ---- -------------- ------------- ----------
Gross profit 357.4 302.4 656.7
Distribution and marketing expenses (255.5) (230.1) (491.0)
Central costs (24.0) (15.2) (33.4)
Operating profit 77.9 57.1 132.3
Financial income 2.7 0.5 4.3
Financial expense (4.9) (3.1) (9.5)
Profit before tax 1 75.7 54.5 127.1
Income tax expense 3 (21.2) (14.7) (35.0)
--------------------------------------- ---- -------------- ------------- ----------
Profit for the period attributable to
the equity shareholders of the parent
company 54.5 39.8 92.1
======================================= ==== ============== ============= ==========
Earnings per share - Basic 4 12.4p 9.0p 20.9p
Earnings per share - Diluted 4 12.2p 9.0p 20.8p
Dividends
Amounts recognised in the period:
--------------------------------------- ---- -------------- ------------- ----------
Final dividend for the year ended 31
March 5 7.30p 6.75p 6.75p
Interim dividend for the year ended
31 March 2017 5 - - 5.00p
--------------------------------------- ---- -------------- ------------- ----------
An interim dividend of 5.25p per share has been proposed since
the period end.
Unaudited Unaudited Audited
6 months to 6 months Year to
Note 30.9.2017 to 30.9.2016 31.3.2017
GBPm GBPm GBPm
Headline operating profit
Operating profit 77.9 57.1 132.3
Net reorganisation costs 2 3.3 0.6 0.9
-------------------------- ---- ------------ ------------- ----------
81.2 57.7 133.2
========================== ==== ============ ============= ==========
Headline profit before tax
Profit before tax 75.7 54.5 127.1
Net reorganisation costs 2 3.3 0.6 0.9
--------------------------- ---- ---- -----
79.0 55.1 128.0
=========================== ==== ==== =====
The notes on pages 18 to 27 form part of the condensed set of
financial statements.
Condensed Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
6 months 6 months Year to
to 30.9.2017 to 30.9.2016 31.3.2017
GBPm GBPm GBPm
---------------------------------------------- ------------- ------------- ----------
Profit for the period 54.5 39.8 92.1
----------------------------------------------- ------------- ------------- ----------
Other comprehensive income
Items that are not reclassified subsequently
to the income statement
Re-measurement of pension deficit 2.1 (91.3) (65.7)
Taxation relating to re-measurement of
pension deficit (0.3) 15.0 11.2
Items that are reclassified subsequently
to the income statement
Foreign exchange translation differences (15.7) 30.6 36.6
(Loss) gain on cash flow hedges (1.0) 3.6 5.1
Taxation relating to components of other
comprehensive income 0.3 1.7 1.0
Other comprehensive expense for the financial
period (14.6) (40.4) (11.8)
Total comprehensive income (expense) for
the financial period 39.9 (0.6) 80.3
=============================================== ============= ============= ==========
The notes on pages 18 to 27 form part of the condensed set of
financial statements.
Condensed Consolidated Balance Sheet
Unaudited Unaudited Audited
Note 30.9.2017 30.9.2016 31.3.2017
GBPm GBPm GBPm
----------------------------------------------- ---- ---------- ---------- ----------
Non-current assets
Intangible assets 244.1 254.8 260.3
Property, plant and equipment 94.3 97.5 96.9
Investments 0.8 0.8 1.0
Other receivables 8.6 2.7 4.7
Other financial assets 8 1.3 1.8 2.2
Deferred tax assets 22.7 26.7 22.5
371.8 384.3 387.6
----------------------------------------------- ---- ---------- ---------- ----------
Current assets
Inventories 6 337.9 277.9 303.8
Trade and other receivables 270.2 238.9 277.9
Other financial assets 8 - 13.7 16.8
Income tax receivables 1.0 0.5 0.4
Cash and short-term deposits 7 83.1 56.3 76.7
----------------------------------------------- ---- ---------- ---------- ----------
692.2 587.3 675.6
----------------------------------------------- ---- ---------- ---------- ----------
Current liabilities
Trade and other payables (247.3) (199.2) (256.9)
Provisions and other liabilities (1.4) (2.3) (0.8)
Loans and borrowings 8 (62.6) (107.7) (123.4)
Income tax liabilities (14.8) (8.2) (9.1)
----------------------------------------------- ---- ---------- ---------- ----------
(326.1) (317.4) (390.2)
----------------------------------------------- ---- ---------- ---------- ----------
Net current assets 366.1 269.9 285.4
----------------------------------------------- ---- ---------- ---------- ----------
Total assets less current liabilities 737.9 654.2 673.0
----------------------------------------------- ---- ---------- ---------- ----------
Non-current liabilities
Other payables (14.8) (10.1) (13.4)
Provisions and other liabilities (1.8) - -
Retirement benefit obligations 9 (100.9) (133.5) (104.6)
Loans and borrowings 8 (146.3) (105.0) (85.2)
Deferred tax liabilities (76.7) (78.7) (80.8)
----------------------------------------------- ---- ---------- ---------- ----------
(340.5) (327.3) (284.0)
----------------------------------------------- ---- ---------- ---------- ----------
Net assets 397.4 326.9 389.0
=============================================== ==== ========== ========== ==========
Equity
Called-up share capital 44.2 44.2 44.2
Share premium account 44.8 44.4 44.5
Retained earnings 256.8 177.2 231.6
Cumulative translation reserve 54.7 64.4 70.4
Other reserves (3.1) (3.3) (1.7)
----------------------------------------------- ---- ---------- ---------- ----------
Equity attributable to the equity shareholders
of the parent company 397.4 326.9 389.0
=============================================== ==== ========== ========== ==========
The notes on pages 18 to 27 form part of the condensed set of
financial statements.
Condensed Consolidated Cash Flow Statement
Unaudited Unaudited
6 months 6 months Audited
to to Year to
Note 30.9.2017 30.9.2016 31.3.2017
GBPm GBPm GBPm
--------------------------------------------- ---- ---------- ---------- ----------
Cash flows from operating activities
Profit before tax 75.7 54.5 127.1
Depreciation and other amortisation 12.8 14.9 29.2
Loss on disposal of non-current assets 0.2 0.8 0.9
Equity-settled transactions 2.4 1.2 3.7
Finance income and expense 2.2 2.6 5.2
Non-cash movement on investment in associate (0.2) (0.2) (0.3)
Operating cash flow before changes in
working capital, interest and taxes 93.1 73.8 165.8
(Increase) decrease in inventories (39.1) 6.5 (17.3)
Decrease (increase) in trade and other
receivables 2.0 11.5 (29.2)
(Decrease) increase in trade and other
payables (13.6) (9.0) 50.1
Increase (decrease) in provisions and
other liabilities 2.4 (7.5) (9.3)
--------------------------------------------- ---- ---------- ---------- ----------
Cash generated from operations 44.8 75.3 160.1
Interest received 2.7 0.5 4.4
Interest paid (5.2) (3.1) (9.3)
Income tax paid (16.2) (9.2) (27.5)
--------------------------------------------- ---- ---------- ---------- ----------
Net cash from operating activities 26.1 63.5 127.7
Cash flows from investing activities
Capital expenditure (9.4) (8.4) (19.0)
Proceeds from sale of property, plant
and equipment - 3.8 3.9
--------------------------------------------- ---- ---------- ---------- ----------
Net cash used in investing activities (9.4) (4.6) (15.1)
Free cash flow 16.7 58.9 112.6
--------------------------------------------- ---- ---------- ---------- ----------
Cash flows from financing activities
Proceeds from the issue of share capital 0.3 1.0 1.1
Purchase of own shares (1.3) (0.4) (1.3)
Loans drawn down 70.1 - -
Loans repaid (52.8) (23.8) (47.6)
Equity dividends paid 5 (32.2) (29.7) (51.7)
--------------------------------------------- ---- ---------- ---------- ----------
Net cash used in financing activities (15.9) (52.9) (99.5)
Net increase in cash and cash equivalents 0.8 6.0 13.1
--------------------------------------------- ---- ---------- ---------- ----------
Cash and cash equivalents at the beginning
of the period 21.4 8.3 8.3
Effects of exchange rate fluctuations
on cash (1.7) 1.0 -
--------------------------------------------- ---- ---------- ---------- ----------
Cash and cash equivalents at the end
of the period 7 20.5 15.3 21.4
============================================= ==== ========== ========== ==========
Unaudited Unaudited Audited
6 months 6 months Year to
to 30.9.2017 to 30.9.2016 31.3.2017
GBPm GBPm GBPm
Headline free cash flow
Free cash flow 16.7 58.9 112.6
Net reorganisation cash flow 0.7 3.0 5.1
------------------------------ ------------- ------------- ----------
17.4 61.9 117.7
============================= ============= ============= ==========
The notes on pages 18 to 27 form part of the condensed set of
financial statements.
Condensed Consolidated Statement of Changes in Equity
Other reserves
--------------------
Share premium Hedging Own shares Cumulative Retained
Share capital account reserve held translation earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2017 44.2 44.5 0.6 (2.3) 70.4 231.6 389.0
Profit for the period - - - - - 54.5 54.5
Foreign exchange translation
differences - - - - (15.7) - (15.7)
Re-measurement of pension
deficit - - - - - 2.1 2.1
Net loss on cash flow hedges - - (1.0) - - - (1.0)
Taxation relating to components
of other comprehensive
income (expense) - - 0.3 - - (0.3) -
-------------------------------- ------------- ------------- -------- ---------- ------------ --------- ------
Total comprehensive (expense)
income - - (0.7) - (15.7) 56.3 39.9
-------------------------------- ------------- ------------- -------- ---------- ------------ --------- ------
Equity settled transactions - - - - - 2.4 2.4
Dividends paid - - - - - (32.2) (32.2)
Shares allotted in respect
of share awards - 0.3 - 0.6 - (0.6) 0.3
Own shares acquired - - - (1.3) - - (1.3)
Related tax movements - - - - - (0.7) (0.7)
At 30 September 2017 44.2 44.8 (0.1) (3.0) 54.7 256.8 397.4
================================ ============= ============= ======== ========== ============ ========= ======
At 1 April 2016 44.1 43.5 (5.5) (3.0) 33.8 242.9 355.8
Profit for the period - - - - - 39.8 39.8
Foreign exchange translation
differences - - - - 30.6 - 30.6
Re-measurement of pension
deficit - - - - - (91.3) (91.3)
Net gain on cash flow hedges - - 3.6 - - - 3.6
Taxation relating to components
of other comprehensive
income (expense) - - 1.7 - - 15.0 16.7
Total comprehensive income
(expense) - - 5.3 - 30.6 (36.5) (0.6)
-------------------------------- ------------- ------------- -------- ---------- ------------ --------- ------
Equity settled transactions - - - - - 1.2 1.2
Dividends paid - - - - - (29.7) (29.7)
Shares allotted in respect
of share awards 0.1 0.9 - 0.3 - (0.3) 1.0
Own shares acquired - - - (0.4) - - (0.4)
Related tax movements - - - - - (0.4) (0.4)
-------------------------------- ------------- ------------- -------- ---------- ------------ --------- ------
At 30 September 2016 44.2 44.4 (0.2) (3.1) 64.4 177.2 326.9
================================ ============= ============= ======== ========== ============ ========= ======
Condensed Consolidated Statement of Changes in Equity
(continued)
Other reserves
--------------------
Share Premium Hedging Own shares Cumulative Retained
Share capital account reserve held translation earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2016 44.1 43.5 (5.5) (3.0) 33.8 242.9 355.8
Profit for the period - - - - - 92.1 92.1
Foreign exchange translation
differences - - - - 36.6 - 36.6
Re-measurement of pension
deficit - - - - - (65.7) (65.7)
Net gain on cash flow
hedges - - 5.1 - - - 5.1
Taxation relating to
components of other
comprehensive income
(expense) - - 1.0 - - 11.2 12.2
----------------------------- ------------- ------------- -------- ---------- ------------ --------- ------
Total comprehensive
income - - 6.1 - 36.6 37.6 80.3
----------------------------- ------------- ------------- -------- ---------- ------------ --------- ------
Equity settled transactions - - - - - 3.7 3.7
Dividends paid - - - - - (51.7) (51.7)
Shares allotted in respect
of share awards 0.1 1.0 - 2.0 - (2.0) 1.1
Own shares acquired - - - (1.3) - - (1.3)
Related tax movements - - - - - 1.1 1.1
At 31 March 2017 44.2 44.5 0.6 (2.3) 70.4 231.6 389.0
============================= ============= ============= ======== ========== ============ ========= ======
The notes on pages 18 to 27 form part of the condensed set of
financial statements.
BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
Electrocomponents plc (the Company) is a company domiciled in
the UK. The condensed set of financial statements for the six
months ended 30 September 2017 comprises the Company and its
subsidiaries (together referred to as the Group) and the Group's
interest in a jointly controlled entity. This condensed set of
financial statements does not comprise statutory accounts within
the meaning of section 434 of the Companies Act 2006. Statutory
accounts for the year ended 31 March 2017 were approved by the
Board of Directors on 23 May 2017 and delivered to the Registrar of
Companies. The report of the auditors on those accounts was
unqualified, did not contain an emphasis of matter paragraph and
did not contain any statement under section 498 of the Companies
Act 2006.
This condensed set of financial statements has been reviewed,
not audited. The Group financial statements for the year ended 31
March 2017 are available upon request from the Company's registered
office at 2 Pancras Square, London, N1C 4AG.
The Group presents headline operating profit, headline profit
before tax, headline free cash flow, headline contribution and
headline earnings per share information as it believes these
measures provide a helpful indication of its performance and
underlying trends. The term headline refers to the relevant measure
being reported before one-off items. These measures are used by the
Company for internal performance analysis. The terms headline and
one- off items are not defined terms under IFRS and may not,
therefore, be comparable with similarly titled measures reported by
other companies. They are not intended to be a substitute for, or
be superior to, GAAP measurements of performance.
These condensed interim financial statements for the six months
ended 30 September 2017 have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34, 'Interim financial reporting', as
adopted by the European Union. The condensed set of financial
statements should be read in conjunction with the annual financial
statements for the year ended 31 March 2017, which have been
prepared in accordance with IFRSs as adopted by the European
Union.
Going concern
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence over a period of at least twelve months from
the date of approval of the financial statements. For this reason
they continue to adopt the going concern basis in preparing the
financial statements. The financial risk management objectives and
policies of the Group and the exposure of the Group to price risk,
credit risk, liquidity risk and cash flow risk are discussed in
note 22 to the Group's Annual Report and Accounts for the year
ended 31 March 2017.
Statement of compliance
This condensed set of financial statements was approved by the
Board of Directors on 13 November 2017.
Significant accounting policies
The accounting policies applied by the Group in these condensed
consolidated financial statements are the same as those that
applied to the consolidated financial statements of the Group for
the year ended 31 March 2017.
There are no IFRSs or IFRS Interpretation Committee
interpretations not yet effective that would be expected to have a
material impact on the Group.
Estimates and judgements
The preparation of a condensed set of financial statements
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
The significant judgements made by management in applying the
Group's accounting policies were the same as those that applied to
the Group financial statements for the year ended 31 March 2017.
The key risks and uncertainties are explained on page 10 of this
half-year financial report. Full details are in the Group's Annual
Report and Accounts on pages 25 to 27.
Alternative Performance Measures (APMs)
The Company uses a number of APMs, including headline
performance measures, in addition to those reported in accordance
with IFRS. Such APM's are not defined terms under IFRS and may not
be comparable with similar measures disclosed by other companies.
Likewise, these measures are not a substitute for IFRS measures of
profit or cash flow.
Headline performance measures are adjusted to take into account
items that have a significant impact on the Group's results by
virtue of their size, nature or occurrence, including but not
limited to; reorganisation costs, one off pension credits or costs,
asset write downs and associated income tax.
The Directors believe that these APMs, listed below, are
important when assessing the underlying financial and operating
performance of the Group. These measures are also used for internal
reporting purposes and employee incentive arrangements.
Underlying performance
Underlying performance measures are adjusted to exclude the
effects of changes in exchange rates on translation of overseas
operating results to pounds sterling.
Underlying revenue growth
Underlying revenue growth is growth in revenue adjusted to
eliminate the impact of changes in exchange rates and trading days
year on year.
Headline performance
Headline performance measures include headline operating profit,
headline profit before tax, headline tax charge, headline profit
for the year attributable to equity shareholders and headline
earnings per share. These headline performance measures are
adjusted to take account of reorganisation costs, one-off pension
income or costs, asset write-downs and associated income tax.
Headline operating profit margin
Headline operating profit margin is headline operating profit
expressed as a percentage of revenue.
Headline operating profit conversion
Headline operating profit conversion is headline operating
profit expressed as a percentage of gross profit.
Headline cash generated from operations
Headline cash generated from operations is cash generated from
operations as reported in the Group cash flow statement adjusted
for the impact of reorganisation cash flows.
Headline net cash from operating activities
Headline net cash from operating activities is net cash from
operating activities as reported in the Group cash flow statement
adjusted for the impact of reorganisation cash flows.
Free cash flow
Free cash flow is defined as the net increase or decrease in
cash and cash equivalents before net cash used in financing
activities.
Headline free cash flow
Headline free cash flow is defined as free cash flow, as defined
above, adjusted for the impact of reorganisation cash flows.
Headline operating cash flow conversion
Headline operating cash flow conversion is headline free cash
flow, pre taxation and interest expressed as a percentage of
headline operating profit.
Earnings before interest, tax, depreciation and amortisation
(EBITDA)
EBITDA is calculated as the total of operating profit excluding
depreciation and other amortisation charges.
Net debt
Net debt comprises the net total of cash and short-term
deposits, bank overdrafts, finance lease liabilities, current and
non-current interest-bearing borrowings, and the fair value of
swaps that are hedging fixed rate borrowings.
Net debt to EBITDA
Net debt to EBITDA is the ratio of net debt to EBITDA, excluding
reorganisation costs, for the preceding twelve month period.
Return on capital employed (ROCE)
ROCE is calculated as headline operating profit expressed as a
percentage of net assets excluding net debt and net retirement
benefit obligations.
Presentational changes
During the year ended 31 March 2017, the Group amended its
presentation of costs relating to the write-down of inventory to
net realisable value from distribution and marketing expenses to
cost of sales. In addition, the Group has allocated a proportion of
the annual incentive charge across its operating segments. The
Directors believe that the revised presentation of these costs
provides a better understanding of the Group's gross profit, gross
margin and segment results. The table below shows the impact of
these presentational changes on the comparative results for the 6
months ended 30 September 2016:
As previously Inventory Annual As re-
reported write-down incentive presented
6 months to 6 months to 6 months to 6 months to
30.09.2016 30.09.2016 30.09.2016 30.09.2016
Group income statement GBPm GBPm GBPm GBPm
---------------------------- -------------- ------------- ------------- -------------
Revenue 706.3 - - 706.3
Cost of sales (398.6) (5.3) - (403.9)
---------------------------- -------------- ------------- ------------- -------------
Gross profit 307.7 (5.3) - 302.4
Distribution and marketing
expenses (232.5) 5.3 (2.9) (230.1)
Central costs (18.1) - 2.9 (15.2)
---------------------------- -------------- ------------- ------------- -------------
Operating profit 57.1 - - 57.1
---------------------------- -------------- ------------- ------------- -------------
Gross margin 43.6% (0.8)pts - 42.8%
---------------------------- -------------- ------------- ------------- -------------
1. Segmental reporting
In accordance with IFRS 8 Operating Segments, Group management
has identified its operating segments. The performance of these
operating segments is reviewed, on a monthly basis, by the Chief
Executive Officer and the Executive Management Team.
The Group's operating segments are organised into five operating
regions and one segment of central costs. These regions are:
Northern Europe, Southern Europe, Central Europe, Asia Pacific
(APAC) and Emerging Markets, and the Americas. Each segment is
comprised of a main market with one or more associated local
markets. Northern Europe's main market is the UK, with associated
local markets in Denmark, Norway, Sweden and Ireland. Southern
Europe's main market is France, with associated local markets in
Italy, Spain and Portugal. Central Europe's main market is Germany,
with associated local markets in Austria, Switzerland, the
Netherlands, Belgium, Poland, Hungary and the Czech Republic. The
Americas' main market is the United States of America, with
associated local markets in Canada, Mexico and Chile. Asia Pacific
and Emerging Markets has markets in Hong Kong, Japan, Australia,
New Zealand, Singapore, Malaysia, Philippines, Thailand, Taiwan,
People's Republic of China, South Korea, South Africa and exports
to distributors where the Group does not have a local operating
company.
Each reporting segment derives its revenue from the high service
level distribution of electronics, automation and control and other
maintenance products. Intersegment pricing is determined on an
arm's length basis, comprising sales of product at cost and a
handling charge included within distribution and marketing
expenses. Our business has a broad portfolio of customers and
products, and as such has a seasonal impact in line with economic
output, with a slightly greater weighting of activity in the second
half of the year.
1 Segmental reporting (cont.)
6 months
6 months to to Year to
30.9.2017 30.9.2016 31.3.2017
GBPm GBPm GBPm
--------------------------------- ----------- ----------- ----------
Revenue from external customers
Northern Europe 217.8 199.3 413.1
Southern Europe 158.7 136.3 301.9
Central Europe 112.6 95.3 206.6
--------------------------------- ----------- ----------- ----------
Europe 489.1 430.9 921.6
--------------------------------- ----------- ----------- ----------
APAC and Emerging Markets 111.9 93.6 197.1
Americas 222.8 181.8 393.0
--------------------------------- ----------- ----------- ----------
Group 823.8 706.3 1,511.7
================================= =========== =========== ==========
6 months
6 months to to Year to
30.9.2017 30.9.2016* 31.3.2017
GBPm GBPm GBPm
--------------------------------- ----------- ----------- ----------
Contribution
Northern Europe 41.4 41.1 79.5
Southern Europe 23.0 11.6 36.1
Central Europe 12.7 4.0 14.3
--------------------------------- ----------- ----------- ----------
Europe 77.1 56.7 129.9
--------------------------------- ----------- ----------- ----------
APAC and Emerging Markets (2.3) (5.4) (10.4)
Americas 27.1 21.0 46.2
--------------------------------- ----------- ----------- ----------
Group 101.9 72.3 165.7
================================= =========== =========== ==========
*Re-presented for the allocation of the annual incentive charge
across segments.
6 months
6 months to to Year to
30.9.2017 30.9.2016* 31.3.2017
GBPm GBPm GBPm
------------------------------------------------ ----------- ----------- ----------
Reconciliation of contribution to profit
before tax
Contribution 101.9 72.3 165.7
Reorganisation costs and profit on disposal (3.3) (0.6) (0.9)
Central costs (excluding reorganisation costs) (20.7) (14.6) (32.5)
Net financial expenses (2.2) (2.6) (5.2)
Profit before tax 75.7 54.5 127.1
================================================ =========== =========== ==========
*Re-presented for the allocation of the annual incentive charge
across segments.
The Group derives its revenue from two product categories:
6 months
to 6 months to Year to
30.9.2017 30.9.2016 31.3.2017
GBPm GBPm GBPm
------------ ---------- ----------- ----------
Industrial 514.8 445.6 954.8
Electronics 309.0 260.7 556.9
------------ ---------- ----------- ----------
Group 823.8 706.3 1,511.7
============ ========== =========== ==========
Following a product review in the second half of 2017, certain
products were reclassified from industrial to electronics. The
comparative information for the 6 months to 30 September 2016 has
been re-presented.
2 Reorganisation costs
Items excluded from headline profit arising during the period
were as follows:
6 months 6 months
to to Year to
30.9.2017 30.9.2016 31.3.2017
GBPm GBPm GBPm
-------------------------------- ---------- ---------- ----------
Redundancy and associated costs 0.5 1.8 2.1
Onerous lease costs 2.5 - -
Asset write-downs 0.3 - -
Profit on sale of warehouse - (1.2) (1.2)
Total reorganisation costs 3.3 0.6 0.9
================================ ========== ========== ==========
During the six months ended 30 September 2017, the Group
consolidated its Oxford based headquarters, with our London based
digital office into one enlarged head office and digital hub in
Kings Cross St Pancras, London.
As a result, reorganisation costs were incurred associated with
an onerous lease on the Oxford premises as well as redundancy costs
associated with the office closure. At the end of the period,
GBP1.4 million was held within provisions due in less than one year
and GBP1.8 million was held within provisions due in more than one
year.
3 Taxation on the profit of the Group
6 months 6 months
to to Year to
30.9.2017 30.9.2016 31.3.2017
GBPm GBPm GBPm
------------------------ ---------- ---------- ----------
United Kingdom taxation 8.0 3.8 12.6
Overseas taxation 13.2 10.9 22.4
------------------------ ---------- ---------- ----------
21.2 14.7 35.0
======================== ========== ========== ==========
4 Earnings per share
6 months 6 months
to to Year to
30.9.2017 30.9.2016 31.3.2017
GBPm GBPm GBPm
----------------------------------------------------- ---------- ---------- ----------
Profit for the period attributable to equity
shareholders 54.5 39.8 92.1
Net reorganisation costs 3.3 0.6 0.9
Tax impact of net reorganisation costs (0.6) (0.6) (0.4)
----------------------------------------------------- ---------- ---------- ----------
Headline profit on ordinary activities after
taxation 57.2 39.8 92.6
----------------------------------------------------- ---------- ---------- ----------
Weighted average number of shares (millions) 440.8 440.3 440.4
Diluted weighted average number of shares (millions) 446.4 441.7 443.7
Headline basic earnings per share 13.0p 9.1p 21.0p
Basic earnings per share 12.4p 9.0p 20.9p
Headline diluted earnings per share 12.8p 9.0p 20.9p
Diluted earnings per share 12.2p 9.0p 20.8p
===================================================== ========== ========== ==========
5 Dividends
6 months to 6 months Year to
30.9.2017 to 31.3.2017
30.9.2016
GBPm GBPm GBPm
----------------------------------------------- ------------ ----------- -----------
Amounts recognised and paid in the period:
Final dividend for the year ended 31 March
2017: 7.3p (2016: 6.75p) 32.2 29.7 29.7
Interim dividend for the year ended 31 March
2017: 5.0p - - 22.0
----------------------------------------------- ------------ ----------- -----------
32.2 29.7 51.7
Amounts determined after the balance sheet
date:
Interim dividend for the year ending 31 March
2018: 5.25p 23.1
The timetable for the payment of the interim dividend is:
Ex-dividend 30 November
2017
Dividend record 1 December 2017
date
Dividend payment 10 January 2018
date
6 Inventories
30.9.2017 30.9.2016 31.3.2017
GBPm GBPm GBPm
------------------ --------- --------- ---------
Gross inventories 369.7 309.1 333.3
Stock provision (31.8) (31.2) (29.5)
------------------ --------- --------- ---------
Net inventory 337.9 277.9 303.8
================== ========= ========= =========
During the 6 months ended 30 September 2017, GBP5.5 million
(2016: GBP5.3 million; year ended 31 March 2017: GBP6.7 million)
was recognised as an expense relating to the write down of
inventory to net realisable value.
7 Cash and cash equivalents/analysis of movements in net
debt
30.9.2017 30.9.2016 31.3.2017
Cash and cash equivalents GBPm GBPm GBPm
-------------------------------------------------- ---------- ---------- ----------
Cash and short-term deposits 83.1 56.3 76.7
Bank overdrafts (62.6) (41.0) (55.3)
-------------------------------------------------- ---------- ---------- ----------
Cash and cash equivalents in the cash flow
statement 20.5 15.3 21.4
Loans repayable after more than one year (71.9) (28.1) (5.8)
Private placement loan notes (74.4) (143.6) (147.5)
Fair value of swap hedging fixed rate borrowings 1.3 15.5 19.0
-------------------------------------------------- ---------- ---------- ----------
Net debt (124.5) (140.9) (112.9)
Pension deficit (100.9) (133.5) (104.6)
-------------------------------------------------- ---------- ---------- ----------
Net debt including pension deficit (225.4) (274.4) (217.5)
-------------------------------------------------- ---------- ---------- ----------
6 months 6 months
to to Year to
30.9.2017 30.9.2016 31.3.2017
Analysis of movements in net debt GBPm GBPm GBPm
---------------------------------- ---------- ---------- ----------
Net debt at 1 April (112.9) (165.1) (165.1)
Free cash flow 16.7 58.9 112.6
Equity dividends paid (32.2) (29.7) (51.7)
New shares issued 0.3 1.0 1.1
Own shares acquired (1.3) (0.4) (1.3)
Translation differences 4.9 (5.6) (8.5)
Net debt at period end (124.5) (140.9) (112.9)
================================== ========== ========== ==========
8 Financial Instruments
Fair values of financial assets and liabilities
The fair values of financial assets and liabilities, together
with the carrying amounts shown in the statement of financial
position, are below. None of the financial assets or financial
liabilities has been reclassified during the year.
Carrying
value Fair value
------------------------------------------ -----------------------
Valuation Methodology GBPm GBPm
------------------------------------------ ----------------------- --------- -----------
Financial assets at 30 September 2017
Financial assets held at Fair Value
Interest rate swaps used for fair value
hedging A 1.3 1.3
Forward exchange rate contracts used for
cash flow hedging A 0.5 0.5
------------------------------------------ ----------------------- --------- -----------
1.8 1.8
------------------------------------------------------------------ --------- -----------
Financial assets held at Amortised Cost
Cash and short-term deposits D 83.1 83.1
Trade receivables, other receivables and
accrued income F 261.2 261.2
------------------------------------------ ----------------------- --------- -----------
344.3 344.3
------------------------------------------------------------------ --------- -----------
Total Financial assets 346.1 346.1
------------------------------------------------------------------- --------- -----------
Carrying
value Fair value
--------------------------------------------- -----------------------
Valuation Methodology GBPm GBPm
--------------------------------------------- ----------------------- --------- -----------
Financial liabilities at 30 September
2017
Financial liabilities held at Fair Value
Forward exchange rate contracts used for
cash flow hedging A (1.3) (1.3)
Forward exchange rate contracts not in
a cash flow hedging relationship A (0.5) (0.5)
(1.8) (1.8)
--------------------------------------------------------------------- --------- -----------
Financial liabilities held at Amortised
Cost
Bank facilities D (71.9) (71.9)
Private Placement loan notes subject to
fair value hedge C (14.7) (14.8)
Private Placement loan notes D (59.7) (59.3)
Bank overdrafts D (62.6) (62.6)
Trade payables, other payables and accruals F (247.5) (247.5)
--------------------------------------------- ----------------------- --------- -----------
(456.4) (456.1)
--------------------------------------------------------------------- --------- -----------
Total Financial liabilities (458.2) (457.9)
---------------------------------------------------------------------- --------- -----------
Carrying
value Fair value
-------------------------------------------------- --------------
Valuation
Methodology GBPm GBPm
-------------------------------------------------- -------------- --------- -----------
Financial assets at 30 September 2016
Financial assets held at Fair Value
Interest rate swaps used for fair value hedging A 15.5 15.5
Forward exchange rate contracts used for cash
flow hedging A 1.1 1.1
-------------------------------------------------- -------------- --------- -----------
16.6 16.6
----------------------------------------------------------------- --------- -----------
Financial assets held at Amortised Cost
Cash and short-term deposits D 56.3 56.3
Trade receivables, other receivables and accrued
income F 222.0 222.0
-------------------------------------------------- -------------- --------- -----------
278.3 278.3
----------------------------------------------------------------- --------- -----------
Total Financial assets 294.9 294.9
------------------------------------------------------------------ --------- -----------
8 Financial Instruments cont.
Valuation Carrying
Methodology value Fair value
GBPm GBPm
-------------------------------------------------- -------------- --------- -----------
Financial liabilities at 30 September 2016
Financial liabilities held at Fair Value
Forward exchange rate contracts used for cash
flow hedging A (2.2) (2.2)
(2.2) (2.2)
----------------------------------------------------------------- --------- -----------
Financial liabilities held at Amortised Cost
Bank facilities D (28.1) (28.1)
Private Placement loan notes subject to fair
value hedge C (82.0) (85.3)
Private Placement loan notes D (61.6) (65.4)
Bank overdrafts D (41.0) (41.0)
Trade payables, other payables and accruals F (193.1) (193.1)
-------------------------------------------------- -------------- --------- -----------
(405.8) (412.9)
----------------------------------------------------------------- --------- -----------
Total Financial liabilities (408.0) (415.1)
------------------------------------------------------------------ --------- -----------
Carrying
value Fair value
--------------------------------------------- --------------
Valuation
Methodology GBPm GBPm
--------------------------------------------- -------------- --------- -----------
Financial assets at 31 March 2017
Financial assets held at Fair Value
Interest rate swaps used for fair value
hedging A 19.0 19.0
Forward exchange rate contracts used for
cash flow hedging A 0.8 0.8
--------------------------------------------- -------------- --------- -----------
19.8 19.8
------------------------------------------------------------ --------- -----------
Financial assets held at Amortised Cost
Cash and short-term deposits D 76.7 76.7
Trade receivables, other receivables and
accrued income F 261.1 261.1
--------------------------------------------- -------------- --------- -----------
337.8 337.8
------------------------------------------------------------ --------- -----------
Total Financial assets 357.6 357.6
------------------------------------------------------------- --------- -----------
Financial liabilities at 31 March 2017
Financial liabilities held at Fair Value
Forward exchange contracts used for cash
flow hedging A (0.3) (0.3)
(0.3) (0.3)
------------------------------------------------------------ --------- -----------
Financial liabilities held at Amortised
Cost
Bank facilities D (5.8) (5.8)
Private Placement loan notes subject to
fair value hedge C (83.8) (84.1)
Private Placement loan notes D (63.7) (64.1)
Bank overdrafts D (55.3) (55.3)
Trade payables, other payables and accruals F (255.7) (255.7)
--------------------------------------------- -------------- --------- -----------
(464.3) (465.0)
------------------------------------------------------------ --------- -----------
Total Financial liabilities (464.6) (465.3)
------------------------------------------------------------- --------- -----------
8 Financial Instruments cont.
Estimation of fair values
The fair values reflected in the table above have been
determined by reference to available market information at the
balance sheet date and using the methodologies described below.
A Derivative financial assets and liabilities
Fair values are estimated by discounting expected future
contractual cash flows using prevailing interest rate curves and
valuing any amounts denominated in foreign currencies at the
exchange rate prevailing at the balance sheet date. These financial
instruments are included on the balance sheet at fair value,
derived from observable market prices (Level 2 as defined by IFRS 7
Financial Instruments: Disclosures).
B Interest bearing loans held at fair value
These comprise sterling and foreign currency denominated
interest bearing loans which are subject to hedge accounting. Fair
values are estimated by discounting expected contractual cash flows
using prevailing interest rate curves and valuing any amounts
denominated in foreign currencies at the exchange rate prevailing
at the balance sheet date (Level 2 as defined by IFRS 7 Financial
Instruments: Disclosures).
C Loans designated under fair value hedge relationships
These comprise sterling and foreign currency denominated
interest bearing loans which are subject to hedge accounting. Fair
values are estimated by discounting expected contractual cash flows
using prevailing interest rate curves and valuing any amounts
denominated in foreign currencies at the exchange rate prevailing
at the balance sheet date. These loans have been designated under
fair value hedge relationships (Level 2 as defined by IFRS 7
Financial Instruments: Disclosures).
D Cash and short-term deposits, Bank overdrafts,
Interest-bearing loans held at amortised cost
Cash and cash equivalents largely comprise local bank account
balances, which typically bear interest at rates set by reference
to local applicable rates or cash float balances which have not yet
cleared for interest purposes. Fair values are estimated to equate
to carrying amounts as their re-pricing maturity is less than one
year.
Interest bearing loans held at amortised cost comprise fixed
rate sterling and foreign currency denominated loans. For carrying
values the foreign currency principal amounts have been valued at
the exchange rate prevailing at the balance sheet date. Fair values
are estimated by discounting future cash flows using prevailing
interest rate curves.
Bank overdrafts are repayable on demand and are all unsecured.
They bear interest at rates set by reference to applicable local
rates. Fair values are estimated to equate to carrying amounts as
their re-pricing maturity is less than one year.
E Finance lease liabilities
Fair values are estimated by discounting future cash flows using
prevailing interest rate curves.
F Other financial assets and liabilities
Fair values of receivables and payables are determined by
discounting future cash flows. For amounts with a re-pricing
maturity of less than one year, fair value is assumed to
approximate to the carrying amount.
9 Retirement benefit obligations
The Group operates defined benefit pension schemes in the United
Kingdom and Europe.
Details of the assets and liabilities of the Group's defined
benefit pension schemes are shown below:
30.9.2017 30.9.2016 31.3.2017
GBPm GBPm GBPm
Total market value of the schemes' assets 497.7 500.5 506.5
Present value of the schemes' liabilities (598.6) (634.0) (611.1)
------------------------------------------ --------- --------- ---------
Schemes' deficit (100.9) (133.5) (104.6)
========================================== ========= ========= =========
10 Principal exchange rates
6 months
6 months to to Year to
30.9.2017 30.9.2016 31.3.2017
----------------------- ----------- ----------- -----------
Average for the period
Euro 1.14 1.22 1.19
United States Dollar 1.29 1.37 1.31
30.9.2017 30.9.2016 31.3.2017
----------------------- ----------- ----------- -----------
Period end
Euro 1.13 1.15 1.18
United States Dollar 1.34 1.30 1.26
----------------------- ----------- ----------- -----------
11 Related party transactions
There are no significant related party transactions requiring
disclosure. Key management compensation will be disclosed in the
2018 Annual Report and Accounts.
Independent review report to Electrocomponents plc
Report on the condensed interim financial statements
Our conclusion
We have reviewed Electrocomponents plc's condensed interim
financial statements (the "interim financial statements") in the
half-yearly report of Electrocomponents plc for the 6 month period
ended 30 September 2017. Based on our review, nothing has come to
our attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the condensed consolidated balance sheet as at 30 September 2017;
-- the condensed consolidated income statement and condensed
consolidated statement of comprehensive income for the period then
ended;
-- the condensed consolidated cash flow statement for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the basis of preparation, principal accounting policies and
the explanatory notes to the interim financial statements.
The interim financial statements included in the half-yearly
report have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
As disclosed in the Basis of Preparation and Principal
Accounting Policies note to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the Directors
The half-yearly report, including the interim financial
statements, is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the
half-yearly report in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the half-yearly report based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half-yearly
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
13 November 2017
This information is provided by RNS
The company news service from the London Stock Exchange
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