Electrocomponents plc Electrocomponents Electrocomponents plc Electrocomponents Annual Report and Accounts for the year ended 31 March 2017 ended 31 March the year for and Accounts Annual Report Annual Report and Accounts for the year ended 31 March 2017 ended 31 March the year for and Accounts Annual Report Electrocomponents plc Annual Report and Accounts for the year ended 31 March 2017 www.electrocomponents.com Stock Code: ECM Electrocomponents-AR2017 Proof 2.indd 3 24/05/2017 16:57:16 Who we are Electrocomponents is a global high-service distributor supporting our customers with a broad range of industrial and electronic products and services that are essential for the successful operation of their businesses. Significant market opportunity ■ Our global marketplace is large (estimated at £380 billion) and growing. ■ It remains extremely fragmented and our market shares remain low. ■ Our leadership in digital, improvements in customer service and investments in innovative solutions mean we are well positioned to take market share. ■ We are focussed on operational efficiency, improving our headline operating profit conversion ratio. ■ We aim to maximise cash flow, which can be reinvested to drive faster top line growth both organically and via acquisitions and to pay dividends to our shareholders. A global reach NORTHERN SOUTHERN CENTRAL NORTH ASIA EUROPE EUROPE EUROPE AMERICA PACIFIC Revenue Revenue Revenue Revenue Revenue £413m £302m £207m £393m £197m 27% of 2017 revenue 20% of 2017 revenue 14% of 2017 revenue 26% of 2017 revenue 13% of 2017 revenue 4.6% 4.2% 2.2% 7.3% 4.2% Underlying growth Underlying growth Underlying growth Underlying growth Underlying growth Underlying revenues are adjusted for currency and trading days – for definitions of alternative performance measures, refer to Note 2 to the Consolidated Financial Statements (page 88). Product categories Serviced through our trusted brands ■ Automation and Control (A&C) ■ Tools and Consumables (T&C) ■ Test and Measurement (T&M) ■ Interconnect, Passives and The leading high-service High-service distributor for distributor for engineers across engineers and buyers in Electromechanical (IP&E) Europe and Asia Pacific. the Americas. ■ Semiconductors ■ Single Board Computers (SBC) Our online design community Our own-brand range of 40,000+ and resource centre for high-quality, competitively priced 500,000+ engineers. products and components. Electrocomponents plc Annual Report and Accounts for the year ended 31 March 2017 Electrocomponents-AR2017 Proof 2.indd 4 25314.02-AR2017- Proof Two 24/05/2017 16:57:17 Strategic Report Our progress in 2017 Contents Strategic Report Revenue Underlying revenue growth Chairman’s Introduction 02 Our Marketplace 04 £1,511.7m Business Model 06 Growth 17.1% 4.8% Our Strategy 08 2016: 2.8% Key Performance Indicators 10 2016: £1,291.1m CEO’s Review 12 Financial Review 20 Managing our Risks 25 Reported profit before tax Corporate Responsibility 28 Headline profit before tax Headline profit before tax £127.1m £128.0m Corporate Governance £••.•m Growth 264.2% Underlying growth 35.7% 2016: £76.8m 2016: £34.9m 2016: £76.8m Board of Directors 34 Directors’ Report 39 Corporate Governance Report 42 Reported earnings per share Headline earnings per share Audit Committee Report 48 Nomination Committee Report 54 Directors’ Remuneration Report 56 20.9p 21.0p Statement of Directors’ Responsibilities 72 Growth 318.0% Underlying growth 35.5% 2016: 5.0p 2016: 12.6p Financial Statements Auditors Report 73 Dividend per share Headline free cash flow Group Income Statement 81 Group Balance Sheet 82 Group Cash Flow Statement 83 12.3p £117.7m Consolidated Statement of Growth 4.7% Comprehensive Income 84 Underlying growth 75.9% Consolidated Statement of 2016: 11.75p 2016: £62.6m Changes in Equity 85 Notes to the Group Accounts 86 Company Balance Sheet 128 Underlying measures are adjusted for currency; revenue also adjusted for trading days. Headline measures exclude reorganisation costs. For definitions of alternative performance measures, refer to Company Statement of Changes in Equity 129 Note 2 to the Consolidated Financial Statements (page 88). Notes to the Company Accounts 130 Five Year Record 143 Operational ■ Underlying revenue (adjusted for trading days and currency movements) grew by 4.8%. ■ Reported profit before tax was up 264.2% to £127.1 million with year-on-year growth Shareholder Information aided by the reduction in reorganisation costs to £0.9 million (2016: £41.9 million). ■ Headline profit before tax (pre-reorganisation costs) rose 35.7% on an underlying basis, Registered office, financial calendar and advisers 144 a 66.7% increase on reported basis to £128.0 million. Headline EPS rose 35.5% on an Locations 146 underlying basis, up 66.7% on a reported basis to 21.0p. ■ Headline free cash flow (before financing activities and net reorganisation cash outflow of £5.1 million) was up 88.0% to £117.7 million. www.electrocomponents.com Stock Code: ECM 1 Electrocomponents-AR2017 Proof 2.indd 1 25314.02-AR2017- Proof Two 24/05/2017 16:57:17 Chairman’s Introduction Underlying revenue growth “We have taken a major step forward in 4.8% 2017 with a significant improvement in earnings and cash flow supporting an 3.5% increase in the full-year dividend.” 2.8% PETER JOHNSON CHAIRMAN Over the past year we have begun to One example of this was the launch of Trading performance make encouraging progress. We have our new mobile innovation experience for 2015 2016 2017 Underlying revenue (adjusted for trading taken major steps forward to improve the our customers, ‘RS Live’ pictured on the For definitions of all alternative performance measures, refer to Note 2 to the Consolidated Financial Statements (page 88). days and currency movements) grew by experience of our customers and suppliers, front cover of this year’s Annual Report. 4.8%, with growth improving from 2.1% in stabilise our gross margin and increase The 35-tonne truck has toured around H1 to 7.5% in H2, driven by stronger sales efficiency. These steps supported an Northern and Central Europe showcasing performance in all regions but particularly acceleration in revenue growth, a year-on- RS’s innovative products first hand in an Cash flow in the year increased significantly. North America and Asia Pacific. It was year improvement in gross margin and £18 interactive environment across the design, Headline free cash flow (that is before pleasing to see all our five regional hubs million of net cost savings, which together build and maintain phases of the product financing activities and net reorganisation back in revenue growth for the full year. led to 264% growth in reported profit life cycle to inspire and inform engineers of cash outflows of £5.1 million) was £117.7 before tax (or 161% growth at constant today and tomorrow. RS Live has received 2017 full-year revenue and profit have million (2016: £62.6 million) with the exchange rates). We have achieved a much more than 5,000 visitors over the last seen a significant benefit from currency improvement resulting from higher profits, improved experience for our customers, year, including customers, suppliers and movements and additional trading days. tight working capital management and demonstrated by a 6.3% year-on-year students. It has also visited three trade Revenue has benefitted by around £141 lower capital expenditure. As a result improvement in our Net Promoter Score shows, including ‘electronica’ which is the million from currency movements and of strong cash flow, net debt balances (NPS), a measure of customer satisfaction, largest electronics trade fair in Europe. around £10 million from extra trading days reduced to £112.9 million (2016: £165.1 which will help sustain this improved versus 2016. In 2018 we will see some million). However, our combined pension Finally, we continue to invest in creating financial performance. of this benefit reverse, as we will see an deficit increased during the year to £104.6 the strongest management team in our adverse impact from fewer trading days million (2016: £43.3 million), due mainly We continue to drive greater cost discipline industry, with key hires in the past year (see full details on page 21). to a decrease in discount rates leading to a within our organisation and to simplify including new Presidents of RS and Allied, rise in the UK pension deficit. the way we operate. We delivered net a new President of Product and Supplier Headline profit before tax has benefitted cumulative annualised savings of £25 Management and new leaders for IT and by around £18 million from currency Dividend million during 2016 and 2017, and have Innovation. I am excited about the calibre movements. On an underlying basis, The Board understands the continuing committed to deliver £30 million annualised of the new talent we are attracting to our headline profit before tax (which is stated importance of the dividend to shareholders. net savings in total by March 2018. organisation and am confident we have the pre-reorganisation costs) grew by 35.7% The Board proposes to increase the final However, there is still much to be done leadership team in place to drive significant with the improvement being driven by dividend to 7.3p per share. This will be so we remain focussed on driving further future growth in the business. higher sales, a 0.8 percentage point paid on 26 July 2017 to shareholders on efficiencies in the way we operate. While underlying improvement in gross margin the register on 16 June 2017. As a result, These are the initial benefits of the changes cost is still a focus, we are also investing and tight cost control. Reported profit the total proposed dividend for the 2017 Lindsley Ruth has introduced since being in driving long-term growth and increasing before tax was up 161% on an underlying financial year will be 12.3p per share, appointed CEO in April 2015.