RS Group H2 2026 Earnings Report

RS Group EPS Results

• Actual EPS: GBX 38.70
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

RS Group Revenue Results

• Actual Revenue: $2.88 billion
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

RS Group Announcement Details

• Quarter: H2 2026
• Date: 5/20/2026
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 20, 2026
• Conference Call Time: 4:00AM ET

RS Group (LON:RS1) is a global product and service solutions provider for industrial customers, enabling them to operate efficiently and sustainably. We operate in 36 markets, stock over 800,000 technical and specialist products and list an additional five million relevant for our industrial customers, sourced from over 2,500 suppliers. This extensive range supports our customers across the industrial lifecycle of designing, building, and maintaining equipment and operations. We enhance their experience through a tailored service model, leveraging our efficient physical, digital and process infrastructure sustainably. We combine a technically led and digitally enabled approach with an exceptional team of experts; ultimately, it’s our people that make the difference. Our purpose, making amazing happen for a better world, reflects our focus on delivering results for people planet and profit. www.rsgroup.com

RS Group H2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: RS Group delivered a resilient FY2026 performance with revenue flat on a like-for-like basis after adjusting for FX and trading days, while pricing discipline helped keep operating margins stable despite slightly lower volumes.
• Positive Sentiment: Momentum improved in the second half, with EMEA returning to growth and continued growth in North America and APAC; management highlighted better sentiment and performance into Q4 and signs of a potential tailwind from improving PMIs.
• Positive Sentiment: Cash generation remained strong, with cash conversion at 109%, net debt down to GBP 329 million, and ROCE stable at 15%, supporting a 2% increase in the final dividend and a new GBP 100 million share buyback.
• Positive Sentiment: Strategic investments are beginning to pay off, especially in customer data, digital commerce, product management, and supply chain efficiency, with RS PRO, solutions/services, and corporate customer growth all outperforming the wider group.
• Neutral Sentiment: Management expects further investment in FY2027 in technology, process harmonization, and operational excellence, while warning that cost inflation, Mexico-related headwinds, and ongoing macro/geopolitical uncertainty could pressure results even as the company targets higher medium-term growth and margins.

Presentation

[Simon Pryce, CEO at RS Group]

Good morning, everybody. Welcome to the RS Group preliminary results presentation for the year ended 31st of March, 2026, which was a year for us of good progress and building momentum. Thanks for joining us here today at the Teneo offices, and thank you for your continuing interest in RS. Our presentation should take about 30 minutes today, and we'll leave some time at the end for questions, but we'll try and make sure everybody gets away by no later than 10:00 A.M. The presentation materials are already available on our website. There are some hard copies in the room, and a recording of this presentation and the Q&A will be available on that website later today. Before we start, we always begin our meetings at RS with a health and safety moment. There are no planned fire drills today.

[Simon Pryce, CEO at RS Group]

The fire exit is through the door on my right. Don't take the lift, take the stairs to the left of the lift and assemble outside the building. At RS Group, we also start each of our meetings with a values moment, and I'd just like to take this opportunity to call out that as one team delivering brilliantly, doing the right thing, and making every day better. Recognizing the efforts of our RS colleagues across the world who for the last two weeks have taken part in an Active for Change challenge. In two weeks, they've actually walked 36,000 mi between them, which is the equivalent of going around the world one and a half times.

[Simon Pryce, CEO at RS Group]

That's all to raise funds for our new social impact partner, SolarAid, that delivers clean and safe solar light and power to over 150,000 people living in rural communities without the access to electricity in sub-Saharan Africa. They've been around the world one and a half times. Goodness knows how many times they'll get around the world by the time they finish their challenge. On to the meat of the presentation this morning. I'm going to start by summarizing that good progress and building momentum that I referred to earlier. Kate's then going to run through our financials that were in line or slightly ahead of expectations. She'll also take us through what's driving them, both at group and regional level. I'll then remind you of the multi-year journey that we're on.

[Simon Pryce, CEO at RS Group]

Share with you in a bit more detail where we are on that journey and the progress that we are seeing, also where our major initiatives are going to be for 2027 as we continue to improve RS and to deliver on the significant value creation opportunity here. Then I'll conclude with how a couple of years of this disciplined execution is increasing our confidence in our ability to deliver against those medium-term financial targets and sustainable returns that we shared with you over the last year or so. To that good year of more disciplined strategic execution and strong operational discipline. In challenging markets, as you'll hear from Kate in a minute, we delivered a resilient financial performance that was in line with or marginally ahead of expectations.

[Simon Pryce, CEO at RS Group]

Volumes were slightly down, but revenue was flat through good pricing discipline, which also led to improved gross margins, and costs were well controlled, and as a result, operating margins were maintained. We're two years into this multi-year value acceleration plan, and we continue to make strategic and operational investments in the business that are already beginning to deliver. As you can see from the slide, our growth drivers of RS PRO and our solutions and services grew well ahead of the rest of the group. Even in digital, where we did see a small decline in the year, this was in part due to some of the short-term disruption arising from the enhancements and the technology upgrades that we're making to improve our customer experience, and digital is already back in growth.

[Simon Pryce, CEO at RS Group]

Our internal and external data tells us that we're continuing to outperform in most of our markets and in most of our component categories. We saw sequential improvement both in sentiment and performance across the year, particularly in Q3 and Q4. This is despite the quite challenging macro environment and the difficult market environment that's creating. We acquired BPX in March for an acquisition consideration of up to about GBP 30 million. We've also got a good M&A pipeline, but excellent cash generation and a very strong balance sheet means that we've got more than sufficient financing capacity at this point in the cycle to execute both our organic investment program and to enhance it with value-creative acquisitions.

[Simon Pryce, CEO at RS Group]

In line with our disciplined approach to capital structure and allocation, we will therefore be returning an additional GBP 100 million back to shareholders by way of a buyback program, which we started this morning. Therefore, we enter the next financial year with attractive and building momentum, notwithstanding the quite challenging macro environment that remains out there. We set out our multi-year plan about two years ago. There's still a lot to do at RS, but our great people have embraced the change journey that we're on, and I'm really pleased with the progress that we've made. You'll recognize the diagram on the left-hand side of this slide highlighting where we're making strategic investments and in the five areas. Later in the presentation, I'll share with you a bit more detail of what those investments actually are.

[Simon Pryce, CEO at RS Group]

I'll also explain the colored banding. I'll talk to where the focus of our investment will be in FY 2027. The Gantt chart on the right is the summary of the plan we're executing, which hasn't really changed since we launched it. It shows at a high level where we're investing and importantly where we expect those investments to start delivering. I know it's a bit of an eye chart. When you get your rulers out and dig into it, what it should show you is that after a lot of foundational investment, particularly in customers, experience, product, and supply chain, in FY 2027, we're now moving into activation phase. We're already beginning to see some of the benefits of the investments that we've made over the last couple of years.

[Simon Pryce, CEO at RS Group]

You'll also have seen these charts before, and as we've highlighted, PMI data, which is the gray bars on the chart on the left, typically lags by three to six months, is a pretty good indicator of whether RS has a headwind or a tailwind for its revenue growth, which is the red line on that chart. Despite that tough and volatile macro that we've referred to, the chart shows actually PMI data has been surprisingly stable over the last year and has actually started to move in an upward trajectory and even got into expansion territory in the last quarter of fiscal 2026. Given our three to six month lag, our revenue is doing broadly what it should against that background.

[Simon Pryce, CEO at RS Group]

On the right-hand side of the chart, we've set out the regional PMI data, which Kate will discuss and allude to in a minute. That is supporting the growth that we've seen in North America and in APAC throughout the year, which particularly accelerated into the second half when EMEA also returned to growth. With that PMI improvement now extending over a couple of quarters, whilst there's still a lot of uncertainty out there, it does feel like we have a bit of a zephyr or maybe even a tailwind going into 2027. As you know, our high-service industrial MRO distribution markets are large, they're complex, they're multifaceted, and it's quite difficult to get independent share data. In order to determine how we're performing against our markets, we use lots of imperfect data sources to triangulate our relative performance.

[Simon Pryce, CEO at RS Group]

We've highlighted a couple of those on this slide. On the left-hand side of the chart, in our digital channel, we monitor Google traffic for relevant search terms in our product category areas. You can see it broken down in that chart on the left by product categories. As you can see, across all four major drivers of our revenue, we are performing significantly better than the market as defined by search frequency on Google. On channel shares across EMEA and Americas, where we can get data from our suppliers, on the right-hand side of the slide, in looking at our relative performance to our suppliers' channel share data, we continue to gain or hold share in categories that make up over 90% of our revenue and are only losing share in categories that make up less than 7% of our revenue.

[Simon Pryce, CEO at RS Group]

All of which is indicative to us that our differentiated proposition and the strategic investments that we're making are continuing to drive share gain. With that quick trot through the highlights of the year and what's been going on in our markets, let me pass you over to Kate, who will take you through the numbers and the drivers behind them.

[Kate Ringrose, CFO at RS Group]

Thank you, Simon, good morning, everyone. I'd like to echo what Simon has said. We have made considerable progress over the two years as we execute our strategic plan. Although the market environment remains uncertain with recent events in the Middle East, RS Group is in a much better place today. There's plenty of evidence to support this in the numbers we've reported. In the second half of the year, the group showed good revenue momentum, demonstrated strong discipline in pricing, cost, and working capital, and investment choices.

[Simon Pryce, CEO at RS Group]

[audio distortion]

[Kate Ringrose, CFO at RS Group]

Revenue decreased by 1% compared with last year on a reported basis. Our like-for-like decline is flat after excluding the impact of a weaker dollar, reduced trading days, and one month of revenue from BPX, our recent acquisition. Group revenue growth improved in the second half of the year, with EMEA returning to growth and continued growth in APAC and North America. I'll go through a revenue bridge slide on the next page or so. Our gross margin improved in the second half of the year through ongoing price discipline and active inventory management. Reduced revenue volumes and increased organic investment was offset by reduced interest charges such that adjusted profit before tax reduced by low single digits. Our reported operating profit includes two large offsetting items, which are exceptional in nature.

[Kate Ringrose, CFO at RS Group]

A GBP 11 million positive settlement of a legal dispute relating to our purchase of the Synovos business and a GBP 15 million write-off of old and unused code which had previously been capitalized. Cash flow conversion was strong at 109% with continued good working capital management and return on capital employed was stable at 15%. The business continues to demonstrate strong cash generation characteristics. We remain committed to our progressive dividend and will increase the final dividend by 2% to GBP 0.142 per share, taking the full year to GBP 0.229 per share. Our balance sheet is now at the bottom of our target net debt to EBITDA range of 1x-2x. Given this, and consistent with our capital allocation policy, we have commenced a GBP 100 million share buyback over a 12-month period.

[Kate Ringrose, CFO at RS Group]

Our M&A pipeline remains strong, and we continue to pursue inorganic opportunities which would accelerate our strategy. Let's turn to look at revenue in a bit more detail. As already mentioned, like-for-like revenue is flat year-on-year after excluding impacts of FX and working days. However, when I look at like-for-like daily average growth, price is up around 2% and volumes are down about 2.5%, and we see a very similar shape in EMEA and Americas. Volume trends also improved through the second half of the year. We've welcomed BPX into the business on the 1st of March. To give you a little bit more color on revenue performance, average order value was up from GBP 263 million to GBP 276 million, improving across all customer segments and outpacing price movements.

[Kate Ringrose, CFO at RS Group]

Whilst the number of orders was down, specifically in the smaller key and standard customers who mostly purchase infrequently, and through our web channel. Moving on to that, the digital revenue, which accounts for about 60% of our group revenues, decreased by 1% on a like-for-like basis, which is largely as a result of this web demand, which declined in softer markets and short-term H1 impacts. At a product level, the more resilient categories of facilities and maintenance and mechanical and fluid power grew 2% and 8% respectively. Automation and Control and Electrification, our largest product category, was down 2%. Demand for semis and passives continued to be weak with end markets remaining challenging. RS PRO continued to outpace other categories, growing by 5% year-on-year and increasing revenue share by almost 100 basis points to 14.4%.

[Kate Ringrose, CFO at RS Group]

We continue to demonstrate discipline in our cost management while ensuring we have the appropriate skills and tools to deliver our strategy. Our adjusted operating cost base includes the strategic uplift in organic project investment and restructuring and integration costs. Reported operating costs were flat year-on-year and remained stable at 35% of revenue. Our ongoing run cost base, excluding one-offs, increased by 2%. We continue to build back our employee incentives, and inflation increased costs by GBP 29 million. These cost increases were in part offset by GBP 17 million restructuring and integration benefits. What is not visible in these bridges, though, is how we're absorbing the investment in key skills and the migration of software payment models to Software as a Service.

[Kate Ringrose, CFO at RS Group]

Our total efficiency savings over the last three years now total GBP 55 million. We have increased our organic OpEx investment in the year by GBP 4 million to the lower end of our guidance range, which was GBP 35 million-GBP 45 million. We benefited from a GBP 5 million one-off gain, largely driven by the GBP 3 million profit on the disposal of Distrelec Nordic and Baltics business. The cost to deliver the restructuring and integration savings in the year was GBP 9 million. Wrapping it all up in operating profit margin, the underlying operating margin, excluding the choice to increase organic investment, OpEx was flat through the year. You can see on the chart that revenue inflation offset cost inflation very neatly. Gross margin was positive, offset against volume reductions, on a net basis, reduced operating margins by 90 basis points.

[Kate Ringrose, CFO at RS Group]

This was mitigated by our cost reduction program and lower restructuring and integration costs in financial year 2026 versus the previous year. Let's focus a bit on the regions and specifically on EMEA. The key messages here to share with you. We had revenue momentum in H2 in all our markets. PMI indicators moved into expansion territory. However, these are indicators and we tend to have a three to six month lag in our performance versus markers in industrial production recovery. The U.K. has shifted to growth, France continues to outperform, and the DACH region was mostly impacted by Germany, where broader market context remained challenging. Our strategic focus areas are outperforming the markets, notably corporate customers, services and solutions, and RS PRO.

[Kate Ringrose, CFO at RS Group]

NPS did take a dip in H1 and is recovering, but given it's a rolling 12-month measure, it does take a little while for this to fully reflect in the numbers. We are pleased with the integration of Distrelec into the business, which is almost complete. Our business case targeted GBP 30 million of margin and cost synergies on a euro basis. So far we've delivered EUR 41 million on an annualized basis, with a bit more to come. Switching to Americas. Again, a couple of key points to pull out. U.S. and Southeast Asia growth accelerated through the second half. Offline sales show good momentum as the customer relationship management tools and targeted supplier strategy are actively deployed. Gross margins in the U.S. improved off the back of pricing and better inventory management and provisioning.

[Kate Ringrose, CFO at RS Group]

I also said at the half year that we were seeing some delays in Mexico in customers committing to large capital projects, and that while the order book was robust, large projects had been shifting to the right, off the back of the trade arrangement that hadn't been fully agreed with the U.S., Canada, and Mexico. We still see that impact in the second half while we wait for that resolution. We also have a mechanistic decrease in revenue in Mexico because of a significant strengthening of the peso versus the dollar. Most of our sales in Mexico and our inventory purchases are dollar-priced. They are then converted into peso, which is the reporting country currency. This accounted for about half of the 21% revenue decline that you see in H2.

[Kate Ringrose, CFO at RS Group]

It has an equivalent offset in cost of sales, so from a gross profit gross margin perspective, it was flat in Mexico. Finally, there's a positive story to tell in APAC, where our subregions are all in growth in both price and volume and showing positive sales momentum. Gross margins are holding, and good cost management means we see evidence of positive drop-through in our operating profit year-on-year. Let's move on to cash, where our continued focus delivered cash flow conversion at 109%, broadly similar to last year and well in excess of our target of over 80%. Adjusted free cash flow was down GBP 12 million, primarily reflecting lower adjusting operating profit. Our working capital was well managed, with key metrics showing inventory purchasing discipline and stability in receivables and payables.

[Kate Ringrose, CFO at RS Group]

We would expect cash conversion percentages to reduce in more buoyant market conditions in order to support volume growth while maintaining working capital discipline, and that will be a pleasant problem to contend with. We slightly increase our CapEx investment in the year, notably on the build-out of our new Italy and Ireland warehouses, and our business remains well invested with the CapEx to depreciation ratio at 1.3x. Net debt decreased to GBP 329 million and is now equivalent to 1x net debt-to-EBITDA. On our capital allocation policy, this cash-generative business model, strong balance sheet, and the debt facility headroom does provide us with plenty of capacity for continued organic investment and selective M&A, as well as returning capital back to shareholders in the form of both dividends and share buybacks, as we've announced today. There is no change to our previously communicated capital allocation policy.

[Kate Ringrose, CFO at RS Group]

For me, just to give a little bit of help, a few guidance points with next year's modeling. We are not signaling a change in gross margins from full year 2025 to 2026, albeit there may be some movement between gross margin and variable costs depending on what happens with freight movements in the year. Specifically on operating costs, you'll record on slide 11, I took you through our ongoing cost base in full year 2026 to GBP 981 million. That excludes our one-off benefits and in-year restructuring and integration costs. With that as your starting point, things to take into account for 2027. The cost inflation is likely to continue at around 3%. Variable costs, don't forget those for those who are modeling volume increases in revenue are about 6% of revenues.

[Kate Ringrose, CFO at RS Group]

Our organic OpEx investment is likely to increase towards the top of the stated range of GBP 35 million-GBP 45 million as we increase our spend on process harmonization and technology, and we expect to continue at that rate for a few years. The continued rebalancing of employee incentives, including the change to the RS Group and our choice to make our people shareholders in the business, will increase employee incentives by around GBP 5million-GBP 10 million. Net integration and cost efficiencies are around GBP 10 million, and we're also making additional cost savings to absorb the investments required in capability. For example, data analytics, security, pricing, as well as the continued transition to the Software as a Service pricing model that many of our technology partners deploy. We will ultimately reduce our technology CapEx spend.

[Kate Ringrose, CFO at RS Group]

We expect around GBP 10 million-GBP 15 million of integration and restructuring costs to enable some of these efficiencies, and CapEx to remain at around GBP 50 million. I'll now hand you back to Simon.

[Simon Pryce, CEO at RS Group]

Thanks, Kate. As touched on at the beginning of the presentation, here's the infamous RS wheel. This is where we have started a program in 2024 to enhance and accelerate our sustainable growth, to improve the efficiency of our business, and to deliver much better operating leverage from RS over time, and particularly as end markets move into recovery. We're investing in five areas: customer, customers, customer experience, products and suppliers, solutions, and operational excellence, which is all underpinned by improving capability and our great people. In the next few slides, I'm going to take you through a bit more of the detail of what we've invested in so far, where I see us beginning to realize some benefits from that investment, and where we're going to continue to invest in 2027.

[Simon Pryce, CEO at RS Group]

The pie chart on the left-hand side of the page sets out the investments and where we made them in 2026. The dark red coloring represents the strategic OpEx investment. The light red is strategic CapEx, and the purple is investment in our physical infrastructure. As you can see, a good chunk of that investment was foundational and focused on front-end systems, data, and processes to enhance our customer capture, to improve our share of wallet, and to drive better experience for them. I will talk more about that in the next couple of slides. As we move into 2027, whilst we'll be activating a lot of these investments, the major additional investment we'll be doing is more around operational excellence as we position ourselves well for enhanced drop-through on future growth in the years to come.

[Simon Pryce, CEO at RS Group]

Now let's go through each of these areas in a bit more detail. I'm particularly encouraged by the progress we've made in unifying our customer data and platforms to allow us to better target high potential value customers and drive share of wallet growth with them through more personalized experiences and at an optimized cost to serve. Last year, we finished and completed our global customer data platform and rolled out a common CRM across our digital and EMEA high-touch channels, giving us a unified behavior-led view of customers and of their potential. As we deploy these insights, early results are encouraging with improving conversion rates, stronger sales conversion, pipeline conversion, and a 6% like-for-like revenue increase across our high-touch corporate customers. We'll continue to build on this momentum through 2026-2027 as we optimize and increase the automation of data flows across our customer-facing platforms and channels.

[Simon Pryce, CEO at RS Group]

We'll also start integrating all our data and tools with our CRM, which will allow us to drive an increasingly automated and efficient deployment of our sales and marketing resources to target those high potential value customers with a more personalized and efficient sales, service, and support engagement. All of this is targeted at allowing us to continue to grow market share and to capture more of our customers' wallet. The design and development and upgrade of our digitally enabled omnichannel customer experience is now largely complete, and most of the foundational investments to enable it have been made. This year, we completed the rollout of our AI-enabled web search, and began integrating it with our existing digital commerce platform. We've seen significant increases, as Kate alluded to, in our add-to-cart rate and a meaningful increase in our basket-to-order conversion.

[Simon Pryce, CEO at RS Group]

We also completed the development of and launched an upgraded digital commerce platform based on Adobe in America. In the first half of the year, which is now beginning to deliver improved functionality, greater personalization, and much richer data capture, particularly as we tune it with our global digital data and experience capability. We're continuing to enhance this digital commerce platform, which will ultimately replace the existing platform we have across the group, and it's already in testing phase in EMEA. We also finished the rollout across EMEA and APAC of the final phase of our delivery-to-promise solution, which after the expected decline in MPS on preliminary implementation, which you heard about from Kate, has led to significant improvements in H2 and also drove a 4% uplift in average order value.

[Simon Pryce, CEO at RS Group]

Combined with stronger search and a new basket and checkout experience, we're seeing meaningful gains in findability and conversion. Our focus in 2027 is to start the phased rollout of our upgraded digital engine in Europe while scaling and tuning our experiences to support enhanced retention and again, greater wallet capture. Our product management solution moved into activation phase this year and is significantly accelerating the pace at which we can bring new products to market. We can now list in excess of 50,000 new products a month and now have also a non-stocked capability which we've launched with more than 185,000 products available for customer-only order. In addition to listing more complete line cards for suppliers, this also allows us and provides data for us to test demand and make better informed new product inventory decisions.

[Simon Pryce, CEO at RS Group]

Our enhanced product management capability extends to our own label business, RS PRO, where we launched an additional 10,000 new products, more than 45%, up more than 45% this year. It's part of the reason that RS PRO delivered a record year, and we continue to see good opportunity for further PRO growth over time. We're continuing to invest in pricing tools and capability, particularly in North America, which has strengthened our ability to navigate trade uncertainty and inflation effectively. By combining strong capability in execution with AI-enabled pricing tools, we were able to deliver three times more targeted price actions than we did in the prior year, approves our alignment to both our cost and market dynamics and supports both our customers and suppliers.

[Simon Pryce, CEO at RS Group]

As we go into 2027, we'll continue to tune our product management system to further optimize global stocking decisions and build on our American-based, data-based margin optimization capability, automating it and integrating it before rolling it out across the rest of the group over the next couple of years. All of which will improve inventory management and greater pricing agility. We continue to enhance and scale our solutions offer, which is delivering 6% like-for-like growth this year and now represents over 25% of group revenue. Digital procurement remains a key driver, with e-procurement growing 9% like-for-like. This allows us also to build much deeper and stickier relationships with our higher potential value customers. Our RS Integrated Supply business delivered a strong year as we further improved our in-house tech platform, RS SYNC, which is with AI-enabled product identification and an expanded curated marketplace for our customers.

[Simon Pryce, CEO at RS Group]

This supports those large customers with multi-site facilities that are seeking to optimize their total indirect procurement costs by outsourcing processes and acquisitions. Drives total MRO cost efficiency. In 2027, we will be upgrading and launching enhanced purchasing manager solution that enables SMEs to have greater control and oversight over their indirect procurement across the site, as well as continuing to enhance and build our eProc system into our broader technical base, technology base. We will also finish the rollout of our improved integrated supply solution to all our integrated supply customers, which drives those deeper relationships that are important for share gain. There is a lot going on at RS, and we should not forget we continue to invest in optimize our physical distribution network as well as our process and technology estate.

[Simon Pryce, CEO at RS Group]

In 2026, as you've heard from Kate, we completed the exit from our Distrelec warehouse in the Netherlands and made significant progress in the build of upgraded facilities in Italy and Ireland. This will include the installation of a state-of-the-art robotic automation system in Italy, which will become the standard for all of our regional distribution centers going forward. We're continuing to simplify our technology estate. To date, we've taken out more than 100 applications and we see further opportunities for consolidation and harmonization as we continue to drive process and operational excellence. This will allow our business to absorb the increased licensing costs that we see as a result of our shift from an organic development model to a Software as a Service technology approach. We've optimized our flow through our distribution network.

[Simon Pryce, CEO at RS Group]

We've removed non-value-added touch, and we've reduced the number of times we handle a product, which has resulted in a 50% increase in our supply chain efficiency ratio and a much improved cost to serve. As we enter 2027, we'll commence operations in Italy and complete Ireland and our U.K. warehouse management systems upgrade. Importantly, we'll start to prepare in earnest for the upgrade of our enterprise resource planning system, scrubbing the data, completing the process design, and mapping current and future state, with the first country market rollout anticipated in calendar 2028. All of which allows us to access the next phase of process harmonization, automation, and that improved operating leverage that we've referred to. Value creative M&A remains an important addition to our organic growth strategy. In the year, as you've heard from Kate, we broadly completed the integration of Distrelec.

[Simon Pryce, CEO at RS Group]

Trident's going well, and we also acquired BPX. As we enter 2027, we've got a decent pipeline of further opportunity. As you've heard from Kate, after two years of positive underlying progress, a clear plan, and an understanding of what we will be investing organically and what that will deliver, we have more than sufficient financing capacity to execute our organic investment program and continue with these bolt-ons. In line with our disciplined approach to capital structure and allocation. We've announced this GBP 100 million buyback this morning. With that quick trot through of what's going on here, I hope we've given you a feel for why we're pleased with both performance and strategic progress. As we go into FY 2027, while there is still a lot of uncertainty out there, we've demonstrated resilience.

[Simon Pryce, CEO at RS Group]

We are seeing stable to improving sentiment, sequential increase in growth, and most of our major markets are performing as they should. We've got a differentiated proposition that's allowing us to continue to gain share across most categories. There is a lot going on here, but the significant strategic investments that we've made to accelerate growth, improve efficiency, and drive better operating leverage are all on track. More importantly, they are beginning to deliver. I'm comfortable that the level and pace of change at RS and our people's capacity to execute our value acceleration plan is all in hand and proceeding as anticipated. We continue to deploy capital in a disciplined way through organic investments, M&A, dividend, and where it's surplus, returning capital to shareholders.

[Simon Pryce, CEO at RS Group]

Whilst being alert to volatile macro and geopolitical conditions, we are keeping focused on the things that we can control, on activating those investments that we've already made, on continuing to drive operating leverage through global collaboration, cooperation, and process harmonization, and maintaining capital discipline whilst pursuing value-accretive external opportunities. All of this gives me and the board increasing confidence that our medium-term financial targets, growing revenues at twice the market, achieving mid-teens operating margins, strong cash conversion, and returns on invested capital, aren't just credible, they're achievable and will deliver sustainable value. For all stakeholders over time. Thank you for listening. We'll now be happy to take any questions. If you could raise your hands, state the name of the institution that you represent, and then ask your questions, we will answer them as best we can.

[Simon Pryce, CEO at RS Group]

We also have people online, and they will submit their questions online, and somebody in the room will ask them. For us.

[Tom Callan, Analyst at Investec]

Morning, it's Tom Callan from Investec. I've got three, please. Firstly, just on average order values, you know, strong year-over-year ahead of inflation at the group level. Just so I'm clear, was this growth mainly price or volume-led, and was there any disparity between the regions? On services and solutions, you know, continue to outperform. How important is the continued scaling of eProcurement and Integrated Supply to sort of achieving your medium-term margin ambitions? Then just on the pipeline that you alluded to, Simon, in terms of M&A, you know, are there any obvious strategic or operational gaps that you're looking to fill here? Thanks.

[Simon Pryce, CEO at RS Group]

Thanks, Tom. Average order values up, mainly price, little bit of volume depending on where you are, a little bit of more lines per order, but generally it's price and a little bit volume. No real difference, I think, across any of the regions. Kate?

[Kate Ringrose, CFO at RS Group]

I would say average order value is outpacing price, but we are seeing number of orders going down. Supportive of what Simon said. Across all regions, it's all very similar. The degree of improvement is the same in the North America is APAC. If you take GBP 263 million to GBP 276 million and apply that kind of differential across each region, it's very similar.

[Simon Pryce, CEO at RS Group]

I think if you look at it rather than on a regional basis, if you look at the touch versus non-touch customers, the growth in both volume and price is in the touch customers. The average order value is a bit lower in standard transactional come-to-the-web type customers. On how important is services and integrated supply to margin development, it's a piece of it. Our ability to achieve mid-teens operating margins is not dependent on RS PRO or our services business. It's actually dependent a little bit on volume. Then in terms of M&A pipeline, we've got a good M&A pipeline, and I think we continue to monitor all sorts of opportunities out there. If we think that there's a reasonable chance of us, on a risk-adjusted basis, creating value from them, we've got plenty of capacity to do that.

[Simon Pryce, CEO at RS Group]

There's nothing immediately that I'm sitting here thinking we must do this and we should tell you about it before we do it.

[Tom Callan, Analyst at Investec]

Thanks.

[Simon Pryce, CEO at RS Group]

Thanks, Tom.

[David Brockton, Analyst at Deutsche Numis]

Good morning. It's David Brockton from Deutsche Numis. Can I ask two as well, please? It's great to see improving momentum coming back into the business. Can you give any insight into how that trended through Q3 and Q4? If you can't do that, can you give a view as to what the exit rate was, just to help understand the magnitude of that momentum? I appreciate you're lapping a weak comp as you enter the year. The second question relates to electronics. Specifically semis and passives.

[David Brockton, Analyst at Deutsche Numis]

Appreciate you've acknowledged that you're losing share in that category, but we are in the midst of one of the strongest sort of semi cycles for quite some time, and I want to know if you're seeing that strength come through in the business and why you think you're losing share there and what plans you have to turn it around. Thanks.

[Simon Pryce, CEO at RS Group]

Thanks, David. Do you want to do Q3, Q4 exit rates, and I'll do the electronics?

[Kate Ringrose, CFO at RS Group]

I mean, we did see improvement Q3 to Q4. Group Q3 was -0.6%, Q4 was -0.3%. Good progression in EMEA, which went from negative to positive Q3 to Q4. Continued growth in APAC. The change was Americas, and that's largely to do with Mexico, and quite specifically as well around that dollar-denominated dynamic as well that, you know, is probably worth adjusting for.

[Simon Pryce, CEO at RS Group]

I sort of referred to zephyrs rather than tailwinds. I mean, it's feeling better, but we're conscious that there's a macro world out there. We're definitely feeling better, David. On electronics, I think as we've spoken to you in the past, there was a period where we went into probably greater depth in electronics than our traditional customer set was really interested in. That's been unwinding over the last couple of years. Electronics is a super important category for us, but it's for our MRO users, not for production-level buyers of electronics. I think your reference about semis and passives is absolutely true. There is good driving demand going on in the moment in semis and passives, but it's mainly in semis, not passives, and it's mainly driven by data and AI.

[Simon Pryce, CEO at RS Group]

For our MRO customers, that's not a big demand need right now. Whilst we do carry a lot of NVIDIA, Arduino type product, we're selling it into R&D labs and things like that where the demand level is relatively low. We would expect as the semis, particularly semis side of electronics, continues to move into a slight supply constrained environment, we will see that growth, but we will underperform those people that are supplying into mainstream production because of our target on those MRO customers.

[David Brockton, Analyst at Deutsche Numis]

Great. Thank you.

[Andrew Nussey, Analyst at Peel Hunt]

Good morning. Andrew Nussey from Peel Hunt. Excuse me. Again, another couple of questions. First of all, on RS PRO, how many more products do you think you can put onto the platform? Do you have any sort of updated thoughts on what regional penetration might be over the medium term? Once you've tried RS PRO, do you tend to stick with it? Is the first area of questions. Secondly, you mentioned there's a lot going on at RS, particularly in terms of moving into the backend. If we subscribe to a view where we start to see volume and mix improve, just your confidence that you can continue to meet your customer expectations as that ramps-up.

[Simon Pryce, CEO at RS Group]

Thanks, Andrew. Both really good questions. All of them being really good questions, just to be clear. On RS PRO, Look, I think RS PRO is always a balance between ensuring that we're carrying the right products for our strategic suppliers and then supporting that strategic supplier content with some of our own label business. We're not limited by the pace at which we can take on new RS PRO products, other than we've got to source them. It's more about making sure we're balancing those strategic supplier and those strategic products with our own RS PRO offering. Once you've bought PRO, you tend to stick with it for a certain range of products, and so it does create some customer stickiness. We're far from complete on our RS PRO journey.

[Simon Pryce, CEO at RS Group]

RS PRO, by proportion of sales, is largest in Europe, and we see good building growth in Asia Pacific, and strong growth in America, but off an extremely low base. As you know, we've now got a slightly different approach to PRO America, which is to think about what our customers want, what our key strategic suppliers are, and what RS PRO products better suit that American customer. There's a long way to go for PRO. There's still more to do in Europe, a lot more to do in Asia, and a huge amount more to do in America. It will take time.

[Kate Ringrose, CFO at RS Group]

The share in RS PRO grew in all regions.

[Simon Pryce, CEO at RS Group]

Yes, there is a lot going on, Andrew, across RS. I'm comfortable with the capacity of the organization to deal with it. Hopefully, you won't have missed the fact that a lot of the stuff we've been focusing in this down cycle is improving the front end of our business. Being able to target the right customers with a better service and a better delivery. I'm comfortable that those investments are going to pay off as we continue to support the customer into what feels like a bit of a recovery, and the organization is finally beginning to be able to breathe a bit, which is good, and maintain that customer focus. I think we're in a good place.

[Andrew Nussey, Analyst at Peel Hunt]

Thank you.

[Simon Pryce, CEO at RS Group]

Thanks.

[James Rose, Analyst at Barclays]

Hi there, James Rose from Barclays. I'll go for three, please, if I can. Firstly, on Mexico, given the visibility you may have there and sort of where the peso is currently, do you still expect that to be a material drag over the first half of 2027? Secondly, the gross margin increases throughout the year, could you sort of unpick and explain what's driving that particularly? Thirdly, the guide for sort of core inflation, OpEx inflation, is about 3%. I think that's pretty similar to what we had in the prior year. Is there any sign that that's starting to tick up already within the business? If you just think across fuel, freight, and energy, what are the potential sort of offsets you've got if that happens?

[Simon Pryce, CEO at RS Group]

Thanks, James. I will let Kate deal with her favorite subject of Mexico and the peso and gross margins. I will let me just touch on OpEx inflation. We are guiding to 3%. We are seeing more than that in some cost areas, freight, fuel, things like that. We do see and have the ability to pass that on. In terms of pricing. It is a good working assumption. As the impact of this macro Middle East thing plays through, it will become much clearer which elements of our cost base move in what way. What we have shown is our ability to pass that on in terms of pricing. If that helps a little bit with that gross margin discussion, with that OpEx guidance discussion.

[Kate Ringrose, CFO at RS Group]

On Mexico, let's just separate two things that are going on in Mexico. If we focus on the mechanistic dynamic around the revenue and the COGS base, dollar-denominated in peso, the dollar significantly weakened versus the peso, particularly in the second half. That mechanistic calculation of revenue in dollars into peso and then into pound was a small upside in H2 and then quite a big downside in H1 and a big downside in H2. Using spot rates going forward, I'd expect that that will be similar. Who knows? You know, last year it was up and then down. Let's see how it is. If I look at spot rates, yes, that'll continue to be a drag.

[Kate Ringrose, CFO at RS Group]

If we then look at the underlying what's going on, which is really around those capital projects, we really kind of saw the delays of that kick in and around Q2 of last year. I think comparatives-wise, Q1 probably will still be a little bit tricky, and then we'll get into sort of a better comparator set from Q2 onwards. Cross fingers that the trade agreement gets resolved, the order book that we have really converts at the pace that it used to, and we'll see that coming through. It kind of depends on what happens with that trade agreement.

[Simon Pryce, CEO at RS Group]

I think the important thing in Mexico, James, is though, these projects aren't going away, they're moving to the right. We aren't losing them, it's just the capital investment decision is being deferred until the trade arrangements with North America, I think, are finally in place. Frankly, there is some underlying issues in Mexican stability that need to be resolved as well.

[Kate Ringrose, CFO at RS Group]

Just looking at gross margin, probably, I mean, not much to say about APAC, but if I just differentiate a little bit in EMEA and Americas, good underlying gross margin improvement in EMEA, net of discount. You know, feeling pretty comfortable around that. From an Americas perspective, there was some inventory management in particular that gave us a bit of a bump in H2 favorable that I don't expect to continue into next year, which is why net-net I guide to a sort of a flat position from 2025, 2026 into 2027.

[James Rose, Analyst at Barclays]

Great.

[James Rose, Analyst at Barclays]

Thanks very much.

[Simon Pryce, CEO at RS Group]

Thanks.

[William Blunt, Analyst at Rothschild & Co]

Good morning, it's William Blunt with Rothschild & Co. My first question is just on the 6% growth that you saw from the corporate customers. That marks quite an acceleration, I think, in the second half versus the first half of the year. Was there any regional disparity between that recovery? Maybe do you think you could give a split or some color around the split between how much of that was increasing share from existing accounts versus winning new corporate accounts? My second question is just on managing operating costs going forwards. I think previously you talked to letting some natural attrition lower your headcount rates across the group. Is that still the strategy going forward now you're seeing maybe a bit more momentum improving? Thank you.

[Simon Pryce, CEO at RS Group]

Thanks, William. That 6% corporate growth is a bit of an acceleration.

[Simon Pryce, CEO at RS Group]

It's a mix of new customers and increased share. It's mainly in Europe and a little bit in Asia Pacific. In North America, we don't have as many of those large corporate customers today. It's a more automation and control and SME-focused business, although over time, I'm sure that will evolve. Do you want to do op costs?

[Kate Ringrose, CFO at RS Group]

Yes, I mean, on op costs, I mean, we seek to do this as efficiently as we possibly can. The change in cost is both third-party and labor costs. As you see, we've been spending, you know, a bit of money on both integration and restructuring charges through the year, and we'll continue to do that where we think it's the right thing to do. Part of that, William, as well, is about kind of changing sometimes our emphasis on skill sets, so reducing some things that we don't think we need as much of and increasing some skills that we think we need more of. There's a bit of redistribution there. I think on natural attrition, you know, I think like many companies we're seeing our voluntary attrition, if anything, go down.

[Kate Ringrose, CFO at RS Group]

Perhaps not giving us as much of ability of flex as we had before. You know, that again is the driver behind us being alert to the potential need to do more on the restructuring base.

[Simon Pryce, CEO at RS Group]

I think, William, that it's important that we understand that we're always actively managing our cost base to reflect the environment we see without damaging the business going into a potential recovery and upcycle. We're playing that balance all the time. I think it is fair to say we're also investing not just in hiring external capability, but upskilling our own people. Quite a lot of investment last year was in supporting our leaders and our people in upskilling them, because the world we're entering is quite a different world from the one that they've historically dealt with. A lot of that process optimization and harmonization that we're talking about will have a big automation piece in it. There will be an active management of the cost base going forward, but also an upskilling of our capability and our people. Any online? Okay, great.

[Simon Pryce, CEO at RS Group]

What's the online question? On the phone, We have

[Operator]

We have a question from [Zack Al-Khaledi]. Your line is now open.

[Analyst]

Morning, Simon. Morning, Kate. Just two questions, please. Firstly, on Germany, you noted that it remained more challenging there. Just are you seeing more recently any green shoots there that you would call out, or any more generally optimism in the market given the stimulus? Secondly, just on the cash conversion, that was one of the standout metrics today. Could you unpack that performance a little bit? Maybe were there any one-offs we should be aware of in there? Thank you.

[Simon Pryce, CEO at RS Group]

Great, thanks. I'll take the German question, and then Kate will talk to cash. Germany continues to be challenging. Although after two years of a challenging environment in Germany, the lapping comparatives are definitely getting easier. I think there is some signs of sentiment improvement in Germany, but the automotive industry, which supports a lot of German industry and, indeed, Italian industry, remains quite challenged.

[Simon Pryce, CEO at RS Group]

I think we have started to see the odd green day, week, or month in Germany. Again, that's as much from weaker lapping comparators as it is from a fundamental recovery in German industrial production. I think we will lag a little bit of that industrial stimulus because a lot of it will go into aerospace and defense. It will go into new production rather than maintenance, repair, and overhaul, which is what we support. We are softly optimistic that Germany will not be as bad this year as it was last year. Whether it shifts into growth or not, we'll see during the course of the year, but we're pretty confident that we continue to outperform in our— in Germany, notwithstanding it's a difficult market for most people.

[Simon Pryce, CEO at RS Group]

The interesting thing is we are seeing some recovery in Italy. A lot of the smaller industrial manufacturers in Italy are supplying into broader German industry. If that's a bit of a lead indicator, there may be a bit of hope there too. If that helps. Cash conversion?

[Kate Ringrose, CFO at RS Group]

I think from a cash conversion, no significant funnies there. I think we had a large amount of cash come in from that legal dispute, but we adjust for that out. Cash conversion doesn't include that. The real dynamic around that is what you'd expect to see in an environment where volumes are coming down a bit, as you would expect really tight inventory control and that inventory converting into cash while you maintain your metrics. Your turns, your days payables outstanding, your days sales outstanding. I think what you see in the numbers is good discipline around the metrics and a release of inventory sold into the market. That's what's driving the cash conversion to be north of 100%.

[Kate Ringrose, CFO at RS Group]

As I said, in an environment where we have more buoyant markets or volume growth, then it is very likely that we would increase our investment in inventory, and whilst holding our metrics, there'd be more of a working capital investment, which may drop that cash conversion below 100%. That would be a very lovely problem to be actively managing.

[Simon Pryce, CEO at RS Group]

I think though the key that people should also take away here is that active management of the business now extends not just to revenue, to gross margin, to operating cost, and to operating margin. It also extends to cash flow. There is an increased and regular drumbeat that Kate and the team have introduced, which is driving a much greater focus on cash in a positive way. I do think you're seeing the benefits of that in the cash conversion again that you saw this year. That looks like it from questions on the phone or online or in the room. Thanks very much for attending and have an enjoyable day.

Participants

Executives

• Kate Ringrose, CFO
• Simon Pryce, CEO

Analysts

• Andrew Nussey, Analyst at Peel Hunt
• David Brockton, Analyst at Deutsche Numis
• James Rose, Analyst at Barclays
• Tom Callan, Analyst at Investec
• William Blunt, Analyst at Rothschild & Co
• Analyst