RS Group PLC (EENEF) (FY 2025) Earnings Call Highlights: Navigating Challenges with Strategic Growth and Strong Cash Flow

• EMEA: Total revenue declined by 1%.
• Americas: Total revenue fell by 3%.
• Asia Pacific: Total revenue grew by 2%.

Release Date: May 21, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• RS Group PLC (EENEF, Financial) reported resilient performance despite challenging market conditions, with strategic initiatives beginning to deliver results.
• The company has a strong, diverse, and stable leadership team with enhanced capabilities and aligned objectives.
• RS Group PLC (EENEF) achieved over 200 million pounds of free cash flow, demonstrating strong cash conversion and effective balance sheet management.
• The company is actively managing costs, exceeding expectations on restructuring benefits, and taking additional actions to reflect the trading environment.
• RS Group PLC (EENEF) continues to gain market share, with strategic investments driving stronger growth and operating leverage.

Negative Points

• Year-on-year revenue decreased by 1%, with a 2% decline on a like-for-like basis, reflecting the challenging market backdrop.
• The company's adjusted operating profit margin reduced by 100 basis points to 9.4%, primarily due to inflation in the cost base.
• RS Group PLC (EENEF) faced a decline in digital revenue, particularly in web sales to medium and smaller customers.
• The UK market remains challenging, with weak industrial production output and ongoing economic weakness.
• The company experienced a slight decline in average order value, which could indicate margin pressure due to more frequent, smaller orders.

Q & A Highlights

Q: Can you provide a rough split of the proportion of products sourced from Europe, the UK, and China into the US? Also, have you ruled out any pull forward of orders ahead of tariffs?
A: About 34% of products are sourced from China, and around 40% from Germany and the rest of Europe combined. We haven't seen evidence of tariffs driving accelerated growth or pull forward of orders. Our business model, which involves high complexity, small volume, specialist manufacturing, and mainly brake-fix MRO, doesn't typically project forward machine breakdowns. We are well-positioned to manage tariffs due to our global operations and ability to switch products across our network.

Q: Could you elaborate on the delta of the 31 million organic investments versus the deferred amount for future years? Also, is the free cash flow improvement with better working capital a one-off or structural change?
A: The deferral of some investment is due to analyzing scheduling and interdependencies, and ensuring efficient spending. We expect to spend between 35 to 40 million next year. The free cash flow improvement is partly due to a one-off working capital release, but we aim to maintain the quality of our metrics going forward.

Q: Can you expand on RS Pro's range development and how you're managing supplier relationships? Also, regarding headcount reductions, how much was natural attrition versus active management?
A: RS Pro's brand development is crucial, and we focus on launching products that customers want without competing with suppliers. Some suppliers even provide products for RS Pro. We aim for RS Pro to grow to 20% of group revenue over time. Regarding headcount, some reductions were due to hiring freezes and natural attrition, particularly from the integration of Drelek and RS. We have significant capacity and don't foresee a large labor influx as volumes increase.

Q: Could you provide an update on the competitive landscape and the dynamics behind the drag from smaller customers in digital? Also, what are your thoughts on shareholder returns beyond the dividend?
A: We are taking share from smaller local non-digital distributors globally. The drag from smaller customers is due to their price sensitivity and one-off electronic component purchases. We continue to target these customers effectively. Regarding shareholder returns, we prioritize organic and inorganic investments, and if we don't see sufficient opportunities, we will consider returning capital to shareholders.

Q: Can you provide more detail on the inventory measurement error and why it was reported as a restatement? Also, has the trend of average order value being down and frequency up been consistent all year?
A: The inventory measurement error was due to the incorrect application of a group policy, hence the prior year adjustment. The trend of lower average order value and higher frequency is due to customers buying for immediate need and the unwinding of post-COVID trading patterns. This creates some margin pressure but doesn't significantly impact our medium-term margin targets.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.