# RS Group sees decline in H1 like-for-like revenue

- Link: https://www.directorstalkinterviews.com/rs-group-sees-decline-in-h1-like-for-like-revenue/4121132119
- Published: 2023-11-07T07:51:00+00:00
- Author: Amilia Stone

**[RS Group plc](https://www.directorstalkinterviews.com/ftse-company/rs-group/rs1.l)**(
LON:RS1)** **has announced its results for the half year ended 30th September 2023.

| **Highlights** | **H1 2023/24** | **H1 2022/23** | **Change** | **Like-for-like^(1) change** | 
| **Revenue** | **£1,447m** | £1,458m | (1)% | (8)% | 
| **Adjusted operating profit^(1)** | **£156m** | £196m | (21)% | (24)% | 
| **Adjusted operating profit margin^(1)** | **10.8%** | 13.4% | (2.6) pts | (2.3) pts | 
| **Adjusted profit before tax^(1)** | **£143m** | £192m | (25)% | (29)% | 
| **Adjusted earnings per share^(1)** | **22.3p** | 31.5p | (29)% | (32)% | 
| **Operating profit** | **£139m** | £187m | (26)% | (26)% | 
| **Profit before tax** | **£126m** | £183m | (31)% | (30)% | 
| **Earnings per share** | **19.5p** | 30.0p | (35)% | (34)% | 
| **Interim dividend** | **8.3p** | 7.2p | 15% |  | 
| **Adjusted free cash flow^(1)** | **£26m** | £112m | (77)% |  | 
| **Cash generated from operations** | **£104m** | £182m | (43)% |  | 
| **Net (debt) / cash** | **£(502)m** | £3m |  |  | 
| **Net debt to adjusted EBITDA^(1)** | **1.2x** | n/m |  |  |

**Resilient performance in challenging markets in first half**

·   Revenue down 1%, including 8% like-for-like decline and 10% benefit from acquisitions

·   Like-for-like revenue for digital declined 5%, service solutions grew 4% and
our main own-brand, RS PRO, grew 5%

·   Robust gross margin at 43.7%, down 0.4 pts like-for-like

·   Adjusted operating profit margin of 10.8% due to lower volumes, lack of 2022/
23 trading tailwind, short-term dilutive impact of acquisitions and input cost inflation

·   Adjusted free cash flow impacted by easing of supply chain constraints, expected
to normalise in second half

**Positive strategic and operational momentum**

·   Operating cost actions identified that deliver annualised savings over £30m

·   Opportunity for further improvement through reducing complexity and greater 
efficiency

·   Continuing to invest in growth accelerators and to improve operational leverage
and operational effectiveness

·   Integration of Distrelec progressing well

**Exciting growth opportunity**

·   Strong position in fragmented markets with attractive through-cycle growth characteristics

·   Global presence, digitally led, product breadth and service focus support potential
for continued market outperformance

·   Margin expansion opportunity through leveraging physical, process and digital
infrastructure and improved execution

·   Attractive cash generation and returns profile and a robust balance sheet

**SIMON PRYCE, CHIEF EXECUTIVE OFFICER, COMMENTED:**

“RS has delivered a resilient performance in difficult markets, which have been 
more challenging than anticipated at the beginning of the year. Industrial revenue
has been robust despite the challenging macro and geopolitical environment but cyclical
weakness in electronics has been exasperated by customer de-stocking. Our committed
people are responding effectively in this environment by reducing costs and driving
improvement in operational effectiveness, whilst continuing to invest to improve
operational leverage and in our growth accelerators.

Whilst markets remain difficult in the short term, the medium and longer-term growth
characteristics are attractive. We are managing our costs more appropriately whilst
continuing to invest in key strategic accelerators. We are also already beginning
to see the benefit of tighter focus, more alignment, better prioritisation and improved
execution across the Group. This is positioning the Group very effectively to benefit
when our markets return to growth and gives us continued confidence in our ability
to realise our exciting growth strategy and deliver first choice outcomes for all
our stakeholders.”

_1.         See Note 13 for definitions and reconciliations of all alternative performance
measures, including like-for-like change and adjusted measures._

There will be an analyst presentation today at 9am (UK time) at Numis, 45 Gresham
Street, London EC2V 7BF. We will also provide a video webcast, which can be accessed
live and later as a recording on the RS Group website at www.rsgroup.com.

**Webcast link:** [https://www.investis-live.com/rsgroup/65201e2919d2ca0e00132399/qeqq](https://www.investis-live.com/rsgroup/65201e2919d2ca0e00132399/qeqq)

It is advisable to pre-register early to avoid any delays in joining the conference
call. To ask a question, participants will need to be connected by phone.

**Participant dial-in numbers**

United Kingdom (Local):  +44 20 4587 0498

All other locations:           [Global Dial-In Numbers](https://protect-eu.mimecast.com/s/ldnxCql8AToyWOmhXM-ba?domain=netroadshow.com)

Participant access code:  006872

**Presentation timing**

Date: Tuesday, 7 November 2023

Time: 9am UK time

Venue: Deutsche Numis, 45 Gresham Street, London EC2V 7BF

**BUSINESS REVIEW**

In the half year ended 30 September 2023, we experienced continuing geopolitical
uncertainty, ongoing deterioration in manufacturing PMI^(1) data globally, industry
destocking particularly in electronics, supply chain normalisation, reducing price
inflation and ongoing cost inflation. Last year we also benefited from the tailwind
of having inventory in a constrained global supply environment experiencing material
price inflation, which delivered an estimated c. £35 million of adjusted operating
profit of which £26 million was realised in H1 2022/23 and a further £9 million 
in H2 2022/23.

Despite this more challenging than anticipated market backdrop, the lack of trading
tailwind and a cost structure that needs to be more closely aligned to our market
and strategic opportunity, we delivered a resilient performance.

In the first half, new leadership met with RS people across the globe and took the
opportunity to review strategy and evaluate markets, projects, progress and barriers
to execution. This work served to support and confirm the Group’s strategic ambitions
and potential. However, following a sustained period of strong trading post COVID-
19 it also identified significant opportunities to improve operating effectiveness
and execution. We are therefore taking actions to tighten our focus, create more
alignment, prioritise better and improve agility to accelerate the realisation of
our exciting growth strategy.

**Driving operational effectiveness**

We have commenced a review of the way we operate and of our core processes to reduce
complexity and improve efficiency. Key actions that we are undertaking include:

·      Streamlining the Senior Management Team to an empowered Executive Committee(
ExCo) responsible for prioritisation and effective resource allocation to drive 
greater focus, agility and improved operational and financial performance.

·      Creating a broader Advisory Group formed of senior leaders and functional
experts to align, shape, challenge, test and lead the delivery of our strategic 
priorities and improvement actions.

·      Simplifying and clarifying our operating model to reduce complexity and improve
operating effectiveness, agility and scalability.

·      Commencing a bottom-up, action orientated and aligned planning process within
clearer Group-wide guiderails.

·      Enhancing the Group’s performance management metrics and processes to ensure
effective operational oversight, better information and sharing of best practice
and to improve alignment and collaboration across functional, regional and country
teams.  

·      Reducing duplication and creating clarity on accountability.

**Improving operational leverage**

We are pursuing clear opportunities to improve our operational leverage as we continue
to evolve from a transactional product supplier to a strategic partner and product
and service solutions provider for our customers and suppliers. This is through 
increased prioritisation of higher lifetime value customers, focusing on cost to
serve, implementing and optimising global processes, and increasing volumes through
efficient physical, process and digital infrastructure.

We are taking action to manage our operating costs more effectively. We anticipate
these actions will deliver over £30 million of annualised savings of which £10 million
will be realised this year and most of the remainder in 2024/25. The costs of delivering
these savings are estimated to be c. £15 million of which £4 million has been incurred
in the first half with the remainder to be incurred in the second half.

Key actions that we have delivered include:

·      Reorganised, aligned our divisional management structures and reduced headcount
in our Americas and Asia Pacific regions.

·      Optimising our supply chain and distribution footprint with the Distrelec
acquisition providing a needed distribution centre (DC) in Switzerland, improving
the functionality of our DC in Germany and adding third party customer fulfilment
centres in Asia.

·      Completing the migration of all our servers and over 100 back-office, middleware
and frontend applications to become a cloud-based business.

**Ongoing growth accelerators**

We continue to develop our growth accelerators; the products, services and customer
experience that drive stronger revenue and increase our share of customer wallet.
Over the last six months we have:

·      Developed and introduced sophisticated search capabilities powered by Google
technology and AI into our UK and Irish websites which we are rolling out across
the globe in the second half.

·      Developed and launched a common customer relationship management process 
and tool, initially in Germany, but to be deployed globally over the next 18 months.

·      Expanded our own-brand range, RS PRO, to include more automation and control(
A&C) products, which are relevant for our customer base in Americas.

·      Better World sustainable product range now available in 15 countries across
EMEA and Asia Pacific.

·      Expanded our service solutions offer further in EMEA, specifically our inventory
management solutions.

**Strategic acquisitions**

On 30 June 2023 we acquired Distrelec, gaining critical mass in key markets, widening
our product and service solutions offer and creating the opportunity to realise 
material operational efficiencies. Integration is proceeding well, with more potential
benefits than initially anticipated and lower costs of delivery. With Distrelec 
experiencing similar market conditions to those of RS Germany, Switzerland and Scandinavia
we are taking the opportunity to accelerate integration and remain confident that
the acquisition of Distrelec will generate exciting returns for all stakeholders
over the medium and long term.

Our integration of Risoul is progressing well. Trading is exceeding expectations,
helped by the buoyant Mexican market driven by the nearshoring trend and benefit
from strong product availability where supply remains constrained. We are extending
the product offer from RS into Risoul, developing a transactional website and leveraging
Risoul’s technical service knowledge into our business in Americas.

**Driving [sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news)
for a better world**

We continue to advance sustainability across our global operations through energy
saving initiatives and decarbonisation activities at our DCs, switching to renewable
energy tariffs and transitioning to a net zero fleet, resulting in further reductions
in our direct carbon emissions. Additionally, we are reducing the cost, distance
and emissions of our product transportation, enabled by our regionalised supply 
chain, to help reduce our overall carbon footprint.

Four of our science-based targets covering our direct operations, logistics, suppliers
and products have been validated by the Science Based Targets initiative.

**Exciting through-cycle opportunity**

We are a strong global player operating in very fragmented markets. We are a digitally-
led, high-service, broad-based maintenance, repair and operation (MRO) distributor
with particular strengths in electrical (including electronics), automation and 
control as well as complementary products such as test and measurement, tools and
consumables, safety and fluid power.

We provide these critical product and service solutions to help our industrial customers
maintain, repair and operate their facilities. We execute high volumes of small 
batch orders through a well-established physical, process and digital infrastructure,
providing a fast and responsive customer service. The breadth of our reach through
multiple geographies, industries, product categories, channels and our increasing
product and service solutions focus gives us the potential for continued and sustained
market outperformance over time.

We are already beginning to see the benefit of tighter focus, more alignment, better
prioritisation and much improved execution and this gives us continuing confidence
in our ability to accelerate realisation of our exciting opportunity.

1.         Purchasing Manager Index (PMI) is a survey-based economic indicator designed
to provide a timely insight into business conditions. The PMI is widely used to 
anticipate changing economic trends in official data such as GDP, or sometimes as
an alternative gauge of economic performance and business conditions to official
data, as the latter sometimes suffer from delays in publication, poor availability
or data quality issues. (Source: S&P Global).

**OVERALL RESULTS**

| ** ** | **H1 2023/24** | **H1 2022/23** | **Change** | **Like-for-like^(1) change** | 
| **Revenue** | **£1,447m** | £1,458m | (1)% | (8)% | 
| **Gross margin** | **43.7%** | 45.5% | (1.8) pts | (0.4) pts | 
| **Operating profit** | **£139m** | £187m | (26)% | (26)% | 
| **Adjusted operating profit^(1)** | **£156m** | £196m | (21)% | (24)% | 
| **Adjusted operating profit margin^(1)** | **10.8%** | 13.4% | (2.6) pts | (2.3) pts | 
| **Adjusted operating profit conversion^(1)** | **24.6%** | 29.6% | (5.0) pts | (4.6) pts | 
| **Digital revenue^(2)** | **£872m** | £916m | (5)% | (5)% | 
| **Service solutions revenue^(2)** | **£337m** | £320m | 5% | 4% | 
| **RS PRO revenue^(2)** | **£188m** | £182m | 3% | 5% |

1.         See Note 13 for definitions and reconciliations of all alternative performance
measures, including like-for-like change and adjusted measures.

2.         See Note 2 for disaggregation of revenue analysis and reconciliations.

**Revenue**

Group revenue decreased by 1% to £1,447 million. Like-for-like revenue declined 
8% after adjusting for the £142 million gain from acquisitions, £21 million from
adverse exchange rate movements and a negative impact of £13 million from fewer 
trading days. As anticipated, the transition of our single-board computing range
away from Raspberry Pi accounted for 1% of the Group like-for-like revenue decline.
Our strong product availability when global supply chains were constrained provided
a trading benefit in H1 2022/23. We estimate the reversal of this benefit contributed
c. 5% of the revenue decline in this half year, as the global supply chain issues
eased and our customers reduced their higher inventory levels.

Our industrial product and service solutions ranges, which account for 80% of Group
revenue, declined by 2%
like-for-like during the first half with growth across all
ranges apart from A&C (43% of Group revenue) where performance is most correlated
towards the electronics cycle. The macroeconomic environment remains challenging
illustrated by the PMI and industrial production figures which have deteriorated
across our main markets.

Our electronics product and service solutions range accounts for 19% of Group revenue
and is predominantly supplied to our industrial customers as they become more digitalised
and better connected. Supply constraints have continued to ease and demand soften,
especially for passives and semiconductor components. As a result, our like-for-
like electronics revenue declined by 24%.

RS PRO, which is our main own-brand product range and accounts for 13% of Group 
revenue, grew by 5% on a
like-for-like basis, due to extending its product breadth
and the end-to-end sales and marketing focus in the regions. Our competitively priced
offer continues to gain traction as a quality but non-competing alternative to main
branded ranges as we demonstrate quality and value through our quality assurance
qualifications and design and test facilities.

Digital, accounting for 60% of Group revenue (65% of Group like-for-like revenue
but diluted by Risoul’s current offline model), performed ahead of the Group overall
with a like-for-like revenue decline of 5%. Web revenue decreased by 8% on a like-
for-like basis, while eProcurement and other digital, which are used predominantly
by our larger customers, grew by 2% on a like-for-like basis.

In the first half, service solutions revenue accounted for 23% of our Group revenue
and increased by 5% to £337 million, 4% like-for-like, with our digital solutions
offer being one of the strongest areas.

**Gross margin**

Group gross margin decreased 1.8 percentage points to 43.7%, of which 1.4 percentage
points was a function of the dilutive impact from our recent acquisitions due to
their lower digital participation compared to the rest of the Group. Last year’s
gross margin benefit from our cost of sales inflation lagging price inflation, especially
within electronics products, due to our low inventory turn has begun to unwind. 
Like-for-like gross margin decreased 0.4 percentage points, better than anticipated,
reflecting our focus on gross margin optimisation through direct procurement initiatives,
commercial discipline, tighter discount policies and expanding our own-brand ranges.
We expect our gross margin dilution in the second half to be more than in the first
half due to lower price inflation and full dilutive effect of acquisitions.

**Operating costs**

Operating costs, which include regional and central costs, increased by 4% mainly
due to the acquisitions made in the past 12 months. Excluding the impact of acquisitions,
the benefit of currency movements, amortisation and impairment of acquired intangibles
and acquisition-related items, adjusted operating costs reduced by 4% like-for-like
with lower variable costs more than offsetting cost inflation specifically within
labour and energy. We have also taken action to manage our operating costs more 
effectively, part of which is accelerating the integration of Distrelec. We estimate
that these actions will deliver over £30 million of annualised savings of which 
£10 million will be realised this year and most of the remainder in 2024/25. The
costs of delivering these savings are estimated to be some £15 million of which 
£4 million has been incurred in the first half with the remainder in the second 
half.  

A large proportion of our operating costs relate to our people. We awarded a mid-
single digit pay increase across the Group which included a higher than average 
increase for our non-management employees in most markets in recognition of the 
greater impact of inflationary pressures. As sales volumes have reduced, we have
flexed our variable people costs and additional actions in specific areas, with 
people costs slightly down excluding the impact of acquisitions. Our employee voluntary
annual turnover rate remains low at 8.2%.

We continue to invest to ensure we are developing our strategic growth drivers, 
strengthening our digital and commercial capabilities, technology platform, product
and service solutions capacity and improving our operating basics. This means we
will be well-positioned to benefit when economic conditions improve. We are monitoring
our investment spend closely and implementing greater oversight around execution,
progress and delivery.

We are seeing a continued benefit from the expansion and ongoing optimisation of
our DC in Bad Hersfeld, Germany, which allows us to route more inventory directly
into Europe, and not through our UK DCs, so reducing the additional border costs
relating to Brexit and improves our environmental footprint. Against this, lower
volumes in our DCs overall have reduced our operational efficiencies. We remain 
focused on optimising our network of DCs to minimise freight costs and miles and
are improving our operating structure to drive greater operational focus and ownership
so that we can simplify our cost base further.

Central costs (Group strategic investment, Board, Group Finance and Group Professional
Services and People costs that cannot be attributed to region-specific activity)
decreased by £6 million to £31 million, largely reflecting foreign exchange and 
lower share-based payments. We will focus on tighter cost management going forward.

Adjusted operating costs as a percentage of revenue increased by 0.9 percentage 
points to 33.0%, while adjusted operating profit conversion is 5.0 percentage points
lower at 24.6%.

**Items excluded from adjusted profit**

To improve the comparability of information between reporting periods and between
businesses with similar assets that were internally generated, we exclude certain
items from adjusted profit measures. The items excluded are described below (see
Note 13 for definitions and reconciliations of adjusted measures).

Amortisation and impairment of acquired intangibles

Amortisation of acquired intangibles was £13 million (H1 2022/23 amortisation and
impairment of acquired intangibles: £9 million) and relates to the intangible assets
arising from acquisitions.

Acquisition-related items

Acquisition-related items of £4 million mainly relate to transaction costs incurred
in the first half which are directly attributable to the acquisition of Distrelec.

**Operating profit**

Operating profit decreased by 26% to £139 million. Excluding the impact of acquisitions
and the adverse impact of currency movements, adjusted operating profit saw a like-
for-like decrease of 24%. We estimate the reversal of the one-off trading benefit
in H1 2022/23 contributed c. 13% of the decrease in this half year. Adjusted operating
profit margin declined by 2.6 percentage points to 10.8%.

**Non-financial key performance indicators (KPIs)**

We have eight non-financial KPIs to help measure progress against our strategy and
the commitments of our 2030 ESG action plan – For a Better World. To provide greater
transparency on our performance in the period, a summary of our progress is included
below with further details available in the ESG section on our website: www.rsgroup.
com/esg.   

| ** ** | **H1 2023/24** | **H1 2022/23** | 
| **Carbon intensity ^(1,2,3)**
(tonnes of CO_(2)e due to Scope 1 and 2 emissions / £m revenue) | **1.4 | 1.4 | 
| Carbon emissions^(1,2,3)(tonnes of CO_(2)e due to Scope 1 and 2 emissions) | 1,800 | 2,000 | 
| Packaging intensity^(1,2) (tonnes / £m revenue) | 1.73 | 1.76 | 
| Waste^(1) (% of waste recycled) | 83% | 76% | 
| Group rolling 12-month Net Promoter Score (NPS) | 50.4 | 48.5 | 
| Employee engagement^(4)   | – | 78 | 
| Percentage of management that are women | 31% | 32% | 
| All accidents (per 200,000 hours) | 0.34 | 0.35 |

1.         Revenue and environmental-related performance of businesses acquired 
in 2022/23 and 2023/24 are not included pending finalisation and confirmation of
their reports, which we are aiming to publish in our Annual Report and Accounts 
for the year ending 31 March 2024 (Annual Report 2024).

2.         KPI is on a constant exchange rate basis and updated to reflect changes
in reporting methodology and emissions factors.

3.         Scope 2 emissions calculated with electricity purchased from renewable
sources at zero CO_(2)e per kWh and grid average CO_(2)e per kWh for all other sources.

4.         We are in the process of compiling the results from our October 2023 
engagement survey and the results will be published in our Annual Report 2024.

**REGIONAL PERFORMANCE**

**EMEA**

| ** ** | **H1 2023/24** | **H1 2022/23** | **Change** | **Like-for-like****^(1)** **change** | 
| **Revenue** | **£861m** | £854m | 1% | (4)% | 
| **Operating profit^(2)** | **£132m** | £131m | 1% | (2)% | 
| **Operating profit margin** | **15.3%** | 15.4% | (0.1) pts | 0.4 pts | 
| **Digital revenue^(3)** | **£637m** | £624m | 2% | (1)% | 
| **Service solutions revenue^(3)** | **£252m** | £235m | 7% | 6% | 
| **RS PRO revenue^(3)** | **£168m** | £159m | 5% | 6% |

1.         Like-for-like adjusted for currency and to exclude the impact of acquisitions;
revenue also adjusted for trading days.

2.         See Note 2 for reconciliation to Group operating profit.

3.         See Note 2 for disaggregation of revenue analysis and reconciliations
to region’s revenue.

EMEA revenue increased 1% with like-for-like revenue declining 4% as some of our
product markets contracted and recession affected some countries. PMI data in all
countries has worsened during the period, with specific weakness in our A&C industrial
category where some parts of our range are closely aligned to more cyclical electronics
components. The electronics market has continued to deteriorate and is affecting
those countries with the most exposure. In the comparative period we benefited from
our strong inventory availability which temporarily increased our volumes, particularly
with one-off transactional customers. We have maintained share with our target customers
but have seen some smaller, lower value and transitory customers revert to their
usual distribution channels.

UK and Ireland, which accounts for 40% of the region’s revenue, delivered low single-
digit revenue growth resulting from a focus on higher-value corporate customers 
and less exposure to electronics products. A more targeted customer focus, coordinated
marketing campaigns, effective pricing and understanding our cost to serve has supported
revenue and profit growth.

France grew in the first half as we continued to focus on our long-term high-value
customers. We are working in partnership with our strategic suppliers to develop
effective commercial and marketing activities, especially in our core product categories,
providing technical product support using both our sales teams and digital channels.

Germany suffered due to the weakening economy and slowdown in production output.
Germany has the greatest exposure to electronics products in Europe, leading to 
a material fall in demand for on-board products. We are continuing to expand the
product range stocked in the market at our enlarged DC, pivoting our offer towards
growth sectors to ensure preparedness to exploit our position when the market recovers.
Additionally, this is reducing fulfilment costs and improving service to customers.

Digital, accounting for 74% of the region’s revenue, was supported by growth from
our target customers using eProcurement and purchasing manager channels. We continue
to focus on generating recurring revenue and customer loyalty with our target customers
through providing digital procurement solutions. Web revenue is most impacted by
lower demand from transitory customers as the supply chain constraints have eased.

Service solutions growth, which accounts for 29% of EMEA’s revenue, benefited from
greater participation of our digital solutions offer of eProcurement and purchasing
manager as we migrate higher-value customers from the web. RS Integrated Supply 
in EMEA continues to win new contracts, although the operational investment of their
rollout continues to impact financial performance and depress profitability. We 
are improving our commercial model, which, together with cross-selling opportunities,
will enhance our financial results going forward.

RS PRO, which accounts for 20% of the region’s revenue, increased its share as we
continue to expand the range of products, using quarterly marketing launches, to
provide customers with a high quality and lower price point alternative.

Distrelec contributed £45 million to revenue and £3 million to EMEA’s operating 
profit since its acquisition on 30 June 2023. Detailed plans have been developed
for accelerating the integration of key markets. In the first three months of ownership
trading has been below original expectations given Distrelec’s German and electronics
exposure; albeit performance has been in line with trading seen in our similar businesses.
We remain confident in the delivery of the anticipated cost savings and synergy 
benefits from cross selling opportunities; Distrelec has already started to sell
RS PRO products.

EMEA’s operating profit margin was impacted by the effect of the acquisition of 
Distrelec and integration costs. Excluding this, like-for-like operating profit 
margin increased due to gross margin benefiting from the quick pass through of product
cost inflation against a lower average cost of inventory and tight operating cost
control.

EMEA’s rolling 12-month NPS was 50.8, 6% above H1 2022/23. We have continued to 
improve inventory availability as lead times reduce, while inventory investments
in our expanded DC in Germany and our new warehouse in Spain have also improved 
service levels to customers.

**Americas**

| ** ** | **H1 2023/24** | **H1 2022/23** | **Change** | **Like-for-like****^(1)** **change** | 
| **Revenue** | **£476m** | £461m | 3% | (14)% | 
| **Operating profit^(2)** | **£52m** | £78m | (33)% | (41)% | 
| **Operating profit margin** | **11.0%** | 17.0% | (6.0) pts | (5.2) pts | 
| **Digital revenue^(3)** | **£172m** | £205m | (16)% | (13)% | 
| **Service solutions revenue^(3)** | **£63m** | £62m | 3% | 0% | 
| **RS PRO revenue^(3)** | **£3m** | £4m | (8)% | (4)% |

1.         Like-for-like adjusted for currency and to exclude the impact of acquisitions;
revenue also adjusted for trading days.

2.         See Note 2 for reconciliation to Group operating profit.

3.         See Note 2 for disaggregation of revenue analysis and reconciliations
to region’s revenue.

Revenue increased by 3% due to the acquisition of Risoul in January 2023. Excluding
Risoul, exchange rate movements and the impact of trading days, revenue declined
14% like-for-like against very strong comparatives in H1 2022/23 when we benefited
from strong inventory availability when market supply was constrained, delivering
trading and pricing gains, especially within electronics and associated product 
ranges.

Volumes during the period fell reflecting the declining market, especially in A&
C which trades more in line with the electronics cycle. This particularly impacted
Americas as A&C accounted for 70% of the region’s revenue versus 43% across the 
Group. Also, customers had less of a requirement to hold inventory as supply chain
constraints eased. Demand from more transitory customers, who purchased from us 
when their typical channels did not have supply, has reduced and we saw greater 
pricing competition within the market particularly in the electronics product range.

We have made significant changes in our sales proposition as we develop more strategic
customer relationships. This has focused on targeting high-growth vertical markets,
generating more targeted product campaigns and improving our digital proposition
and service offer, all of which are resulting in greater customer engagement and
marketing returns.

Our digital like-for-like revenue decline slightly outperformed the region’s revenue
decline as we moved some of our large customers onto our eProcurement platforms.

While less mature than in EMEA, we have been developing our digitally led service
solutions offer in Americas. Growth has been driven by developing our eProcurement
offer and more customised order and project consultancy services. RS Integrated 
Supply in Americas has seen several changes as we have focused on profitable accounts
and put in place processes that will allow the business to scale more quickly and
efficiently. We have signed several new contracts with multinational customers and
are focusing on driving cross-selling opportunities with RS PRO.

RS PRO continues to account for under 1% of the region’s revenue but we expect to
benefit from our rebranding to RS Americas and tailoring the product offering to
be more appropriate for the region’s customers.

Risoul contributed £95 million to revenue and £8 million to Americas’ operating 
profit in the first half. Revenue performance is stronger than anticipated helped
by strong inventory availability despite ongoing supply chain issues. 

Operating profit and operating profit margin fell due to the volume decline and 
as last year’s gross margin gains from price inflation benefits unwound. During 
the period we took action to adjust our cost base to the reduced volumes, namely
within our headcount, which led to short-term operating costs with benefits second-
half weighted. We have also invested in training, tools and technology for our customer-
facing teams and continue to adjust our operating model to serve our customers better
while lowering overall cost. Additionally, we continued to invest in marketing and
other strategic initiatives focused on customer growth, digital and technology advances
and our service solutions offering.

Americas’ rolling twelve-month NPS was 64.4, a 4% decline from 67.0 in H1 2022/23,
reflecting some market pricing pressures and the twelve-month metric includes the
temporary effect of the brand change which took place in February 2023. Our focus
remains on delivering a strong customer experience and mitigating the external industry
issues we are facing.

**Asia Pacific**

| ** ** | **H1 2023/24** | **H1 2022/23** | **Change** | **Like-for-like****^(1)** **change** | 
| **Revenue** | **£110m** | £143m | (23)% | (18)% | 
| **Operating profit^(2)** | **£2m** | £23m | (91)% | (90)% | 
| **Operating profit margin** | **1.9%** | 16.4% | (14.5) pts | (13.7) pts | 
| **Digital revenue^(3)** | **£64m** | £87m | (26)% | (21)% | 
| **Service solutions revenue^(3)** | **£21m** | £23m | (10)% | (5)% | 
| **RS PRO revenue^(3)** | **£17m** | £19m | (13)% | (6)% |

1.         Like-for-like adjusted for currency and to exclude the impact of acquisitions;
revenue also adjusted for trading days.

2.         See Note 2 for reconciliation to Group operating profit.

3.         See Note 2 for disaggregation of revenue analysis and reconciliations
to region’s revenue.

Asia Pacific’s revenue decline was against a period of exceptionally strong growth
in H1 2022/23 with performance negatively impacted by a sharp slowdown and then 
contraction in the electronics market and the unwinding of supply constraints. The
global economic slowdown was across the whole region, although we have seen particularly
difficult trading in China given less external investment as industrial production
has moved outside the country.

As with many distribution businesses, a certain level of revenue is required to 
offset the underlying cost base making operating profit very sensitive to changes
in revenue. The rapid reduction in revenue at a time of growth investment has had
an impact on our operating profit margin.

Australia and New Zealand, accounting for 33% of the region’s revenue, maintained
like-for-like revenue growth, benefiting from stronger performance in large industrial
customers and less exposure to the electronics sector. Our success with large corporate
customers has provided a blueprint to scale across the rest of the region.

Greater China, which represents 24% of the region’s revenue, was heavily impacted
by the ongoing geopolitical uncertainty and greater exposure to the electronics 
sector. The economic recovery after the COVID-19 lockdowns has been much slower 
than expected.

South East Asia revenue represents 31% of the region’s revenue and saw like-for-
like revenue decline with softer demand for electronics products, stagnant manufacturing
segment growth and political instability specifically in Thailand. We have invested
in expanding our local inventory capacity including upgrading our warehouse in Thailand
and opening new local warehouses in Malaysia and Philippines in the first half which
will support revenue growth and improve lead times once the market starts to recover.

Japan and Korea saw the steepest revenue decline due to its high exposure to the
electronics market and weaker industrial performance following strong growth in 
H1 2022/23. We have seen customer destocking in Japan as inventory held as a buffer
when supply chains were constrained has unwound.

Digital like-for-like revenue decline was due to weaker market demand and lower 
search engine optimisation performance with reduced traffic and conversion rates;
a function of supply chain normalisation within the market and the more transitory
customers reverting to previous suppliers.

Like-for-like revenue decline in RS PRO outperformed the region. This was supported
by an improved go-to-market strategy with specific product marketing campaigns to
targeted customers. We have launched RS PRO focused product ranges to capture high
value opportunities with target customers.

Operating profit margin was impacted by the reversal of the inventory benefits in
H1 2022/23, resulting in significant volume reduction, and a weaker gross margin
as supply chain constraints eased and competitive pressures increased. The new warehouses
opened in South East Asia are operated by third party logistic providers, with the
associated cost being an operating, rather than capital, expenditure. We have made
some adjustments to our cost base to reflect lower volumes, including adapting our
labour requirements, which will start to deliver financial benefits by the end of
the second half.

Asia Pacific’s rolling twelve-month NPS was 20.2, versus 17.1 in H1 2022/23. Our
focus remains on delivering a strong customer experience and mitigating the external
industry issues we are facing.

**FINANCIAL REVIEW**

**Net finance costs**

Net finance costs were £13 million, up from £5 million mainly due to the impact 
of increased net debt resulting from the acquisition of Distrelec and Risoul and
higher interest rates. At 30 September 2023, 20% of the Group’s gross borrowings
excluding lease liabilities (H1 2022/23: 30%; 2022/23: 49%) was at fixed rates, 
with surplus cash deposited at variable rates. Going forward we expect the full 
year 2023/2024 net finance costs to be c. £30 million based on current interest 
rates.

**Profit before tax**

Profit before tax declined 31% to £126 million. Adjusted profit before tax was down
25% to £143 million, 29% on a like-for-like basis.

**Taxation**

The Group’s income tax charge was £34 million (H1 2022/23: £41 million). The adjusted
income tax charge, which excludes the impact of tax relief on items excluded from
adjusted profit before tax, was £38 million (H1 2022/23: £43 million), resulting
in an effective tax rate of 26.2% on adjusted profit before tax (H1 2022/23: 22.5%).

The main driver for the increase in the rate was the change in the UK corporate 
income tax rate from 19% to 25% effective from 1 April 2023. Going forward we expect
the full year 2023/2024 effective tax rate on adjusted profit before tax to be c.
26%.

**Earnings per share**

Earnings per share declined by 35% to 19.5p. Adjusting for items excluded from adjusted
profit and associated income tax effects, adjusted earnings per share of 22.3p declined
32% on a like-for-like basis.

**Cash flow**

| £m | **H1 2023/24** | **H1 2022/23** | 
| **Operating profit** | **139** | 187 | 
| Add back depreciation and amortisation | **41** | 32 | 
| **EBITDA^(1)** | **179** | 219 | 
| Add back impairments and loss on disposal of non-current assets | **–** | 7 | 
| Movement in working capital | **(79)** | (45) | 
| Defined benefit retirement contributions in excess of charge | **(5)** | (6) | 
| Movement in provisions | **1** | (1) | 
| Other | **7** | 8 | 
| **Cash generated from operations** | **104** | 182 | 
| Net capital expenditure | **(25)** | (22) | 
| **Operating cash flow** | **79** | 160 | 
| Add back cash effect of adjustments^(1) | **5** | – | 
| **Adjusted operating cash flow^(1)** | **85** | 160 | 
| Net interest paid | **(13)** | (4) | 
| Income tax paid | **(46)** | (44) | 
| **Adjusted free cash flow^(1)** | **26** | 112 |

1.         See Note 13 for definitions and reconciliations of all alternative performance
measures.

Lower EBITDA (earnings before interest, tax, depreciation and amortisation) was 
compounded by the receipt of inventory from suppliers that had either been on order
for a long time or was received quicker than expected due to the easing of global
supply chain issues. As a result, cash generated from operations was £104 million(
H1 2022/23: £182 million) causing adjusted operating cash flow conversion to fall
by 27.5 percentage points to 54.3%.

Net capital expenditure increased from £22 million to £25 million as we continued
to invest in optimising our DCs, implementing new product management systems, augmenting
digital commerce capabilities and strengthening our technology platforms.

Capital expenditure was at 1.2 times depreciation (H1 2022/23: 1.0 times), in line
with our typical maintenance capital expenditure levels of 1.0 – 1.5 times depreciation.
We anticipate capital expenditure in 2023/24 to be c. £50 million including planned
spend to deliver our 2030 ESG action plan such as decarbonising our DC in Beauvais,
France.

Net interest paid increased by £9 million to £13 million due to increased net debt
resulting from the acquisition of Distrelec and Risoul and higher interest rates.

Income tax paid rose to £46 million reflecting additional payments made in respect
of the previous year and advance tax payments based on early estimates of higher
results.

Adjusted free cash flow fell to £26 million. We remain committed to conserving cash
while ensuring we continue to invest in our business to enable a swift recovery 
when the economic conditions improve.

**Working capital**

Working capital as a percentage of revenue increased by 3.5 percentage points year
on year to 26.3%, with half of the increase due to the impact of the acquisitions.

Trade and other receivables have decreased by £4 million since the year end to £
688 million, with the acquisition of Distrelec increasing receivables by £27 million.
The collection of receivables is our greatest short-term liquidity sensitivity and
we continue to limit our exposure through tight credit policies, proactive monitoring
and collections.

Gross inventories were £799 million, an increase of £139 million since the year 
end with the acquisition of Distrelec accounting for £74 million. Our inventory 
levels have increased due to the easing of global supply chain issues resulting 
in the improvement in performance of suppliers fulfilling new orders and the receipt
of inventory previously on long lead times. As a result, our inventory turn has 
decreased to 2.3 times from 2.6 times at March. We expect to benefit during the 
second half from actions to reduce inventory levels in response to declining volumes.
Inventory provisions have increased by £35 million to £79 million since the year
end, £23 million due to the acquisition of Distrelec as expected and the balance
due to the continued sales slowdown pushing inventory into excess, particularly 
of electronics products where minimum order quantities are high.

Overall trade and other payables decreased to £625 million from £659 million at 
March with the acquisition of Distrelec increasing payables by £35 million. The 
overall reduction reflects the slowdown in the business and the timing of payments
for inventories.

Looking forward we continue to manage our working capital position actively and 
optimising cash conversion is a key area of focus. We remain focused on receivables
collection. We will continue to seek to manage our inventory levels to take account
of changing demand dynamics and supply chain behaviour, while anticipating our customers’
expectations. We will continue to invest in the right inventory to ensure that we
remain well positioned to maintain service levels and deliver strong growth as the
markets recover. We pay our suppliers to terms and continue to work with some of
our larger suppliers to improve terms where possible.

**Net debt**

Our net debt has increased to £502 million from £113 million at March (see Note 
8) with the acquisition of Distrelec increasing net debt by £333 million.

The acquisition was funded by a new three-year term loan of €150 million and drawing
down part of our £400 million sustainability-linked loan (SLL) facility. The SLL,
term loan and the private placement loan notes form our committed debt facilities
of £691 million, of which £168 million was undrawn at 30 September 2023. In October
2023, our request to take up one of the one-year term extensions to the SLL was 
approved by the lenders and so this facility now matures in October 2028, with a
further one-year extension option remaining.

The Group’s financial metrics remain strong, with net debt to adjusted EBITDA of
1.2x and EBITA to interest of 18.8x, leaving significant headroom for the Group’s
banking covenants of net debt to adjusted EBITDA less than 3.25 times and EBITA 
to interest greater than 3 times.

**Return on Capital Employed (ROCE)**

ROCE is the adjusted operating profit for the 12 months ended 30 September 2023 
expressed as a percentage of the monthly average capital employed (net assets excluding
net debt and retirement benefit obligations). ROCE was 23.3% compared to 31.4% at
30 September 2022, due to the impact of acquisitions in the last twelve months (
2.0 percentage points), the decline in adjusted operating profit (3.8 percentage
points) and the increase in monthly average capital employed (2.3 percentage points).

**Retirement benefit obligations**

Overall, the retirement benefit net obligations of the Group’s defined benefit schemes
at 30 September 2023 were £31 million compared to £36 million at 31 March 2023 and
£41 million at 30 September 2022. The UK defined benefit scheme (our largest scheme)
had a net obligation of £21 million under International Accounting Standard 19 ‘
Employee Benefits’, being the present value of the agreed future deficit contributions
agreed following the March 2022 triennial funding valuation and payable to September
2025.

**Dividend**

The Board intends to continue to pursue a progressive dividend policy while remaining
committed to a healthy dividend cover over time by driving improved results and 
stronger cash flow.

In the normal course, the interim dividend is equivalent to approximately 40% of
the prior year full-year dividend. As such, the Board proposes an interim dividend
of 8.3p per share. This will be paid on 5 January 2024 to shareholders on the register
on 24 November 2023.

**Foreign exchange risk**

The Group does not hedge translation exposure on the income statements of overseas
subsidiaries. Based on the mix of non-sterling denominated revenue and adjusted 
operating profit, a one cent movement in the euro would impact annual adjusted profit
before tax by £2.1 million and a one cent movement in the US dollar would impact
annual adjusted profit before tax by £1.2 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 seven months hedging
against freely tradable currencies to smooth the impact of fluctuations in currency.
The Group’s largest exposures related to euros and US dollars.

**RISKS AND UNCERTAINTIES**

The Board has overall accountability for the Group’s risk management, which is managed
by the Executive Committee and co-ordinated by the Group’s risk team. The principal
elements of the process are: the identifying of risks, their assessment, their mitigation
and then the ongoing monitoring of these risks.

The Group has a defined risk appetite, which has been adopted by the Board, and 
is considered across three risk categories: strategic, operational and regulatory/
compliance. These three categories use both quantitative and qualitative criteria.

**Principal risks and uncertainties**

The principal risks and mitigations disclosed in the 2023 Annual Report and Accounts(
pages 40 to 47) were:

1.     Talent and people resources

2.     Change in customer, supplier or competitor behaviours

3.     Geopolitical environment

4.     Delivery of strategy: The RS Way

5.     M&A activity

6.     Organisational resilience

7.     Cyber security breach / information loss

8.     Future global pandemics

9.     Macroeconomic environment

10.  Climate change

11.  Legal and regulatory compliance

These risks have not changed since they were reported in the 2023 Annual Report 
and Accounts.

**GOING CONCERN**

**Overview**

In adopting the going concern basis for preparing these condensed Group accounts,
the Board has considered the Group’s future trading prospects; the Group’s available
liquidity, the maturity of its debt facilities and obligations under its debt covenants;
and the Group’s principal risks as summarised above.

As described in more detail in the Viability Statement in the 2023 Annual Report
and Accounts, our business model is structured so that the Group has a global network
of DCs; a talented and customer-centric team; strong supplier relationships; a broad
and deep product offering and service solutions capabilities; and a strong digital
presence. We are not reliant on one particular group of customers or suppliers and
have a very broad spread of customers both in terms of industry sector and geography.

**Financial position, liquidity and debt covenants**

Our capital position is supported by regular reviews of the Group’s funding facilities
and debt covenants’ headroom, through the Board’s Treasury Committee.

The Group’s net debt at 30 September 2023 was £502 million (31 March 2023: £113 
million). Our committed debt facilities were £691 million, of which £168 million
were undrawn (see the net debt section in the Financial Review for more details 
of our committed facilities). The earliest facility expiring is our £130 million(
€150 million) term loan in April 2026.

The Group’s debt covenants are EBITA to interest to be greater than 3 times and 
net debt to adjusted EBITDA to be less than 3.25 times, which are measured on a 
rolling 12-month basis at half year and year end. At 30 September 2023 EBITA to 
interest was 18.8x (31 March 2023: 34.2x) and net debt to adjusted EBITDA was 1.2x(
31 March 2023: 0.2x) (see Note 13 for reconciliations).

**Financial modelling**

We frequently update our rolling 18-month forecast and this is reviewed regularly,
and the assumptions approved, by the Board.

We have undertaken reverse stress tests on the latest forecast to assess the circumstances
that would threaten the Group’s current financing arrangements. These included significant
declines in like-for-like revenue, significant declines in revenue and gross margin
and a major deterioration in cash collection and each would have to result in adjusted
operating profit margin falling to under 3% in at least one of the following five
quarters. Also, a reverse stress test of an acquisition of a significantly loss-
making business was undertaken and would have to cost over £250 million to use up
our debt facilities. All these reverse stress tests assumed no mitigations, capital
expenditure and dividends are unchanged from those forecast and there are no changes
in debt financing. The Board considers the risk of these circumstances occurring
to be remote.

**Going concern basis**

Based on the assessment outlined above, the Board has a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they
fall due over the going concern period of at least 12 months from 6 November 2023.
Therefore, the Board believes that it is appropriate to continue to adopt the going
concern basis in preparing these condensed Group accounts.

**RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF-YEAR FINANCIAL
REPORT**

The Directors confirm that these condensed Group accounts have been prepared in 
accordance with International Accounting Standard 34 ‘Interim Financial Reporting’
as contained in UK-adopted International Financial Reporting Standards 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 accounts, 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.

A list of current Directors of RS Group plc is maintained on the RS Group plc website:
[www.rsgroup.com](http://www.rsgroup.com/).

**Kate Ringrose, Chief Financial Officer
6 November 2023

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