Earnings Call: H1 2021

Nov 10, 2020

Ladies and gentlemen, welcome to the Electro Components 2021 Half Year Results Call. My name is Ruby, and I will be your moderator for today's I will now hand over to your host, Lucy Sharma begin. Lucy, please go ahead. Good morning, everyone, and welcome to the Virtual 2021 interim results presentation for Electro Components for the 6 months for the 30th September 2020. I'm Lucy Sharma, responsible for Investor Relations at Electric Components. I'd like to introduce you to Lindsey Ruth, our CEO, who joins us from Texas today, and David Egan, our CFO, who is in the UK. First, on a technical note, if you'd like to ask questions at the end of this presentation, please dial into the audio conference call use the presentation slides on our website under our Investor Relations link. Over to you, Lindsey. Thank you very much, Lucy, and I wanted to start by saying that we hope you and all of your families are doing well and staying safe. Our number one priority remains the health and well-being of our employees and we continue to do all we can to ensure their safety. These remain difficult and uncertain times that have got worse over recent weeks. Especially in Europe and in the United States. We remain very mindful of the challenges our colleagues and all of our stakeholders are going through today personally and professionally. Electric components has worked exceptionally well through this crisis. I am so proud of our team. Our team has done an amazing job at demonstrating the resiliency within this business leadership within this business and most importantly protecting those around them during this pandemic, their families, their coworkers, while it's still delivering on the key initiatives within the business. Our digital and technological capabilities around the group have been a great strength. Our management teams have been more connected than ever as we work remotely and our employee engagement has remained at high levels throughout the pandemic. Most importantly, our DCs have remained open and our operating model has not been disrupted as we continue centers. Our people have been amazing, and we have returned the business as usual quicker than we expected, albeit with new norms. In short, have adapted well. So on to Slide 4, we have been resilient during this crisis. Not something that we could have said about electric components when I joined the business 5 years ago. This resilience has been driven by repositioning the business, allowing us to perform well given the challenges that COVID 19 presents, despite no PPE benefit, personal protection, equipment benefit. We have continued to drive market share gains as we have focused on delivering customers and suppliers, a reliable and trusted service. And it is our differentiating and outstanding customer service that gives us an edge and build a bigger barrier against competitive threat. Four key areas to highlight. 1, our value added solutions offer as we partner with our customers. 2, our omnichannel offer, which isn't just digital but an entire service infrastructure. 3, our own brand proposition, our private label RS Pro, develops products our customers' needs, and 4, it goes without saying our customer service and technical support, which is down to the outstanding people we have that have delivered continue to deliver and improve customer experience for our customers. This pandemic has brought challenges as well as opportunity. And And oftentimes we hear the words there is opportunity in crisis. It's no different for us. COVID night team has driven an acceleration in the industry and customer trend towards our proposition, providing more of an opportunity for us both now and in the future. Rise will help us to grasp this opportunity. It is not a change in our strategy. RISE is an acceleration of our strategy, which we call destination 2025. To make Electro Components a leaner, more agile and more responsive business. The improving momentum we have been seeing is not driven by the market, but rather the work we have done to turn this business around, the confidence in our model and our financial strength led the board to recommend resuming our dividend policy with reinstatement of the final dividend that was deferred last year and to propose an interim dividend this year. Today, we have the building blocks in place to go faster so we can accelerate our growth strategy. Many of you heard me 5 years ago, almost to the day, when I presented my performance improvement plan, and at that point in time, I never used the word strategy once because it was more about solution than strategy. And that strategy was focused at the time on execution and more specifically, getting the basics right and setting strong foundation. It was based on 3 principles of delivering the best customer supplier experience. So putting the customer and supplier back at the heart of everything we do, creating an accountable and responsive organization driving accountability and P and Ls back into the business and operating And that is exactly what we have delivered as seen on slide 5. We have turned this business around. Improving the customer journey and experience has always been at the center of all we do. We have seen a further improvement in customer net promoter score, the way we measure customer satisfaction, now standing at 56.3 on a worldwide basis. Gaining in all regions despite the challenges that everyone faces. Our productivity continues to improve with revenue per employee increasing by 37% over the last 5 years. We don't just sell solutions. We use them ourselves to deliver these improvements. Our omnichannel offer is industry leading and has underpinned our digital revenue growth and our market outperformance. We continue to focus on improving our margins by increasing the proportion of our own brand private label products to RS Grove adding more value added solutions to our offer and also driving overhead efficiencies. Most importantly, We have transformed the culture within this business and invested in our people. To this end, We have seen our employee engagement scores rise the highest ever at 75 in the first half of this year. This is a testament to our incredible leaders in the way our people have all worked together through this crisis. So how do we differ from the competition? So let's flip to slide 6 and let's first look at our omnichannel approach. We have a strong omnichannel business based on customer type and needs. This is not just about digital. It's about the whole offering, which continues to expand. Our omnichannel model is a significant advantage to us. As many of our competitors don't offer the customer the choice of being able to order exactly how they want to order. We have a lot of data from our digital operations for the most of our peers. This allows us to understand and optimize customer lifetime value. Through targeted acquisitions. We've also been able to redirect our marketing spend and drive increased return on advertising spend. So while we focus on improving our digital returns, We will continue to leverage So let's move on to Slide 7 and another area of differentiation from our competition, our value added solutions business. Our value added solutions generate cost efficiencies for our customers by saving time across their procurement process, eliminating waste and downtime and lowering inventory holding. We find solutions to procurement process and problems using specialist businesses within maintenance, inventory management, procurement and design. Building these layers, into our proposition increases the most between our business and the competition and increases the stickiness of our customer relationships. Tyisa, our outsourced procurement inventory and storage management services business has seen an increase in customer engagement and client wins during the first half as customers have increasingly wanted more time saving solutions. We are on track to offer a in the RS world as well called RS Plus. In addition, Okdo, our single board computing business, has won a high profile contract to launch the new BBC micro bit computer based on being able to offer distribution into new markets. Design Sparks, our engineering community now has 1,000,000 members with a piece of content being downloaded every 12 seconds. We will continue to build out our value added services offering both organically and also inorganically by selectively adding high quality businesses that pass our stringent fit and value criteria. Following on from the success of IESIS. COVID 19 has delivered many challenges But our steps has never faltered. We had pulled together as a group, and even 2 weeks closure of our DC in Italy led to minimal change in service levels, and if orders were fulfilled out of our DCs elsewhere. Slide 8 shows what changes we are seeing as a result of COVID 19. COVID 19 is a fast track trend. COVID has forced us to prioritize within the business on what is most important. We have seen this with our customers and suppliers too where we are more aligned than ever before. The accelerated shift and working digitally has driven a double digit increase in our customer numbers in the first half, even more in customer traffic as people have gravitated to our site to use digital purchasing systems and e procurement. Procurement teams are becoming increasingly they're becoming a more increasingly important part of a company's strategy and good supply relationships have been critical in maintaining procurement operations throughout the pandemic. Supply chains are being rethought, reimagined and consolidated to use the strongest most agile and trusted partners with the most extensive reach, which fits us perfectly. Operationally, we have focused on improving efficiencies and reducing costs, and we're seeing a greater automation of transactional tasks through eprocurement as well as robotic process automation. Lastly, we are seeing increased focus on supplier codes of conduct Employee protection and sustainability within business processes. Our ESG considerations are driven by our people and teams overseen and monitored by our management, but embedded throughout all our decisions and into our destination 2025 targets. Customers wanna partner with those they trust. And we are doing these things because they're the right things to do. And not just to check some box on a scorecard. The world has changed, and distribution is changing more rapidly than ever. But we are already there. We are well positioned for the changes we see and anticipate in the future. So let's take a look at the next phase of our journey on Slide 9. Hours is a growth strategy. That continues to evolve. The 1st half of the journey was putting the foundations in place, fixing the house. We believe that our improving momentum continues to outperform the market and that is due to our differentiated offer and outstanding people. So that is why we wanna go faster. We wanna differentiate further, and we wanna leverage our increased scale. We want to be bolder in pursuit of our outperformance. Moving to slide 10. Let's be clear. There is no change to our strategy and ambition. We have always been aspirational but we wanted to fix the house first. We want to simplify it further the way we operate. We're flattening the structure and moving to a globally connected, but regionally delivered business. We are integrating regional teams across marketing, digital, innovation and products and supplier management so that expertise can be shared across the group and adapt it locally. This will give our management the opportunity to shape their area better to regional needs using globally shared tools. We wanna drive higher gross margins by improving the sales mix towards our value added solutions offer and our own branded RSPro products. And we also want to work more efficiently by leveraging our distribution capabilities. These initiatives will generate £25,000,000 of net benefits over a 2 year period, with the majority in fiscal year 2022, at a cost of £22,000,000. Details of phasing is in the appendix on Slide 23. RISE will help us accelerate the opportunities we see to drive further outperformance and support us in achieving our target of a mid teen operating profit margin. So let's bring what we're doing all together on slide 11, and I'll pause for a moment for you to turn to slide 11. We are well positioned We are well positioned. The pandemic has stress tested the business, but is also fast tracking market trends towards our proposition. Momentum is building as our proposition continues to resonate with customers. We are simplifying our business further to increase agility. Our customer base is increasing. We doubled our DC capacity in the Americas and will soon do so in Germany, it will be done by next summer, more than likely in June. These two extensions will allow us to substantially increase our breadth of product portfolio, including our private label offers. We have strengthened our relationships with customers and suppliers and continue to add more on both fronts. We continue to invest in our team and we want to unlock the talent, unleash the talent, unleash the potential that we have that exists around the group to allow everyone to take ownership. We have a very strong balance sheet and we've managed cash well. So with all that in place, As we look forward to the next 5 years, I believe we have the potential to transform this business again. And I am more confident in the model today more so than I've ever been and I'm also more confident in our people than I've ever been. Thanks, Lindsey, and good morning, everyone. Turning first to the financial highlights, which is on Slide 13 of the presentation. Group like for like revenue fell 7.3% in the first half. We delivered a significant improvement We have continued to outperform product and service offering. Our trading has not benefited from any material PPE and safety related products. Today, this category accounts for less than 3% of the group's revenue. Digital which accounted for 62% of group revenue grew broadly in line with the group over the first half, but outperformed by 1.4 percentage points in the second quarter. Our digital performance was temporarily affected at the start of COVID 19 by a fall in corporate customer orders, but demand returned as we moved into quarter 2. We saw good growth in both website visits, and in new customers during the period. ARRIS Pro returned to growth in June and has continued to outperform the group. Delivering 8% like for like revenue growth in quarter 2 and 2% for the first half. This has been driven by product launches, digital marketing and being more proactive in our sales and marketing approach. Adjusted operating profit fell 26.5 percent as we experienced a decline in demand as well as incurred additional costs relating to COVID. We saw strong cash flow generation as we took actions to conserve cash with adjusted free cash flow of 85,000,000 in the period. Our return on capital employed for the period is 20.7%. Whilst this is down from the 23.5 percent in the prior year, we have continued to invest in the medium and long term priorities of the group. Ensuring discipline around capital allocation. With strong cash flow and continuing capital allocation discipline, Our balance sheet remains strong, with net debt to EBITDA falling to 0.5 times. As a result of the resilience, the group has shown over the past month, our robust trading position and strong balance sheet, we have reviewed our position on dividends. We've decided to pay the previously deferred final dividend for the year ended 31st March 2020, at the same level as the March 2019 final dividend of 9.5p per share. This dividend will be paid on the 18th December 2020. In addition, in the normal course, the interim dividend is equivalent to approximately 40% of the prior year full year dividend. As such, we will pay an interim dividend for the year ending 31st March, 2021, of 6.1p per share. This dividend will be paid on the 29th January 2021. Let's look in a bit more detail at the summary income statement on Slide 14. Revenue fell 7.1% to 908000000 dollars or 7.3percent on a like for like basis. The gross margin was down 0.5 points to 43.2%. Excluding COVID 19 impacts, The gross margin saw an improvement, driven by pricing initiatives, discount discipline, and some mix benefits. However, we saw 2 pressures from COVID 19. Firstly, additional inventory provisions. This was from slower moving inventory through the pandemic and price declines of certain PPE products. Now that supply is more plentiful. And the second pressure has been higher inbound freight costs. Adjusted operating costs fell by 2.1% on a like for like basis. Driven by lower volumes, labor savings, digital advertising efficiencies, and lower regional offline marketing. The group did not make any follow claims in the UK. However, there was an additional 8.8 $1,000,000 of COVID-nineteen related costs, and this stemmed from increased outbound freight costs and labor inefficiencies as we adhere to social distancing within both our DCs and office environments. Adjusted operating profit margin fell 2.3 points to 8.5%. And our adjusted profit before tax of $74,300,000 was down 28.1 percent on the prior year. Excluded from our adjusted profit are charges of $18,700,000, and these relate to the rise reorganization costs of $16,000,000 $2,700,000 of amortization of acquired intangible assets. For the period, the adjusted tax rate was 23%, down slightly on the prior year of 23.3%. Turning now to our regional We saw 8% like for like revenue decline in the first half. We grew market share in all sub regions, despite the difficult economic backdrop. Digital for EMEA, which accounts for 74% of the region's revenue outperformed the region by 1.9 percentage points. As a result of lower revenue, operating profit fell by 22.8% on a like for like basis. Looking at the subregions of EMEA, we have taken significant market share in Northern Europe, aided by the higher proportion of value added solutions integrated into our offer. The UK remained relatively resilient with a significant improvement in momentum during quarter 2. The strongest growth was from small to medium sized customers, due to our strong The IASA value added solutions model has remained robust throughout the period. While we've seen a small number of large corporate customers decrease their trading due to their end markets. We have seen many others either maintain or increase their spend through this model. In addition, Ayesha has both a strong prospects pipeline as well as some new client wins, including some international contracts. Southern Europe performed well and saw a significant improvement in trading from Q1 into Q2. As the most severe lockdown restrictions in April unwound, leading to a strong recovery, we continue to grow market share of in all countries within this sub region. Central Europe saw a small improvement in trading from Q1 into Q2. Our German business is heavily focused on the OEM, automotive, and electronic subcontractor segments. Areas of the market that have been significantly impacted by reduced capital budgets. We saw minimal improvement in momentum during the half, We continue to make The Americas saw a 7.8% decline in like for like revenue during the half, with a small improvement in Q2. Automation and Control, which is driven more by larger CapEx programs, continues to play a significant role in the allied proposition, which we believe explains the more measured recovery. The Americas operating profit was down 27% on a like for like basis, within the period. To revenue and gross margin growth. Our newly extended DC provides a significant increase in capacity, and allows us to broaden our range more into the MRO market. Moving on to Asia Pacific we saw a 2% decline in like for like revenue during the first half. Performance was a little mixed and varied by country, but this was predominantly driven by the extent of COVID-nineteen lockdowns. Greater China has seen growth excluding IPDoo every month even during the height of COVID-nineteen as it benefited from a more focused sales force. Meanwhile, Japan has underperformed primarily due to our electronic exposure. Asia Pacific reported flat operating profit, due to the tight control of overheads and labor costs. And given the circumstances, we're actually very pleased with that performance. Now moving on to the $5,000,000 was materially better than last year due to a smaller investment in inventories and improvements in other working capital. Working capital as a percentage of revenue improved by 90 basis points to 23% whilst inventory turn remained unchanged at two point five times. As a result, adjusted operating cash flow conversion increased 132.5 percent from 42.3 percent in the prior year. Net CapEx decreased to $25,500,000 from $37,200,000 last year. During the first half, we deferred or slowed some projects to conserve cash while ensuring that the delays would not impact the delivery of our medium to long term strategy. Our CapEx spend concentrated on expanding our DCs in the Americas and Germany as well as our technology platform, which included the development and launch of our new IRS mobile first responsive website. Due to the reduction in spend, the CapEx to depreciation ratio fell to 2.1 times, but is still well above our typical maintenance equivalent of 1 to 1.5 times. Our full year CapEx spend is likely to be around 60,000,000. On to the balance sheet, which is on Slide 17. As of 30th September, 2020, our net debt fell to $114,800,000, including IFRS 16 lease liabilities of $57,900,000. This was down from the $189,800,000 at the year end in March, and this was due to improved free cash flow. Plus no final dividend having been paid during the period. EBITA to interest is around 25 times. We have significant headroom against our banking covenants, which are detailed on the slide. As of the 30th September, we have committed facilities of $446,000,000, of which $289,000,000 remains undrawn. Now moving on to current trading on Slide 18. Over the 1st 5 weeks of the second half, we have continued to see momentum across all regions. We saw market share gains in industrial and continued positive growth in RSPro. However, we remain acutely aware of the challenges and uncertainty we all face as we navigate through this global pandemic. With further lockdown restrictions in some of our key markets, meaning COVID-nineteen related costs, are unlikely to ease slightly as previously hoped. Thus, although we are confident about the strength of our business, we remain cautious about the economic backdrop and short term uncertainties. And so with that, I will now hand you back to Lindsey. Thank you very much. So to finish on slide 20, we are ready. And and let me be very clear. And this isn't a hate coach who already put us in the game. We're not on the sidelines. We're we're we're not on the stand. We're in the game. We're not playing defense. We're playing offense. We're not using the pandemic as an excuse. When we say it's business as usual, that does not mean that the health and well-being, but our employees is not still our number one priority because it is. And that starts with me and taking better care of myself, which I have been, and and I could assure you, I feel better than I felt in the last 30 years, and I'm more motivated than ever. So we can see we've weathered the pandemic well, but of course, the pandemic is far from over. We know we're outperforming the market and we must continue to outperform the market. And when I look around this business, I can see that our proposition is resonating with our customers and our suppliers, but you know what? Most importantly, especially with our people. We're facing in the right direction in terms of this changing world, and we've built a strong resilient business. But I do understand the environment we face and the uncertainty there is. This is a very tough economic situation. And it's likely to get worse, given the second lockdown, the unrest we see around the world, and the many countries that we operate, we can see businesses struggling. We know eventually government subsidies might subside And we know the competition is not going to be standing still either. The difference this time is we know we can trade well through it. We know where to put our priorities and we also know what is most important to our customers and pot and suppliers and most importantly, we know we have an aligned leadership team. We have an aligned leadership team across the business as well as an aligned board of directors. And the reason for that confidence, as I've said, is down to our people We have changed all the top management within the last 5 years. And in my view, we have the strongest team I've ever seen and my 30 plus years within this industry. We have leaders that we can see are making a difference. They're not watching what's happening or wondering what's happening. They're out making things happen, and they wanna aim higher. They want to be more aspirational. We are empowering our teams to drive decisions quicker and take more responsibility. In this ever changing world we live in today, we need to move forward building on what we have rather than sitting still. This is about being proactive, not reactive, not sitting back, waiting for the market to come to us but creating the market. The building blocks are in place to grow faster, and rest assured we will. Now is the time to rise to the future and accelerate. Lastly, I'd like to welcome Aaron Rona Fairhead today. Rona joined the board on the 1st November as a non executive director and will become chairman on the 1st February 2021 to succeed Peter Johnson when he steps down. I'd like to thank Peter for everything he has done for electric components. As we have turned this business around and the support he has also given to me personally. He has been a wise counsel. Offered challenge when needed and ensured we remain bold. He is aimed high and has been committed to us delivering our focus on being first choice for our customers, our suppliers, and our people. He's also been a true friend to me and will always remain a true friend. And I'm looking forward to working with Rona as chairman. And I'm more certain than ever that we will succeed. She shares our optimism and ambitions for the future as we keep making amazing happen. And brings also a tremendous range of commercial and strategic experience to our company that will help us drive forward at pace. Now I'd like to pass it back to the operator You open up the conference call line for Q And A. Thank you. Thank you very Ruby, I just wanted to point out that before you get to questions, I wanted to point out that what I said was ensure Peter that made sure that we ensure that we were old, but it sounded like I said ensure that we're old. And I say that because it just turned 50, but I would just wanna make just wanna clarify that was bold. But the one thing I do wanna highlight to everyone on the Q and A slide on slide 21, That's actually our bad hearstel facility, and you can see how far along it is to completion. I just wanna point out on top of that, you'll see solar panels. And in the back of this index, you'll you'll see in the ESG slide, the numbers actually referred to the United Nations numbering of what they had within their package related to ESG. So for us, you know, ESG isn't just some fluffy buzzword we're really focused on it and not just, the social side, which we do quite a bit on the social side, but the solar panels just highlight what we're doing to achieve neutrality and from a carbon standpoint and not to distant future. So, Ruby, we'll continue with questions. First question is from Henry Carver of Peel Hunt. Your line is now open. Please go ahead. Thanks. Good morning, guys. And good to hear, so, Tony, so well, Leslie. Just a query on on the sort of the fact that COVID would have changed behavior, customer behavior and accelerated change in that regard. I just wanted to know if there's any sort of tangible evidence of that where your customers have sort of shifted to digital instead, we are going to keep it this way, or if it's just a sort of a feel for customer behavior. And whether when we go back to normal, you will you will see actually behaviors sort of go back to how they were and you'll need more, more sort of face to face stores. Yes, just any more sort of commentary around that would be really useful. Thanks. Yes, no, Henry, that's a really good question. And I would say, let me make 3 comments on that. Number 1, as it relates to COVID, we we've got 7000 parts in our personal equipment portfolio. So it's not a significant area of of focus today for us. I think moving forward, as we expand out our product portfolio, we'll do some more in safety products because it fits what our customers are buying. So One, we don't have a huge up PPE, which means that the future, we're not gonna see a big lapse over those numbers like some of our competitors. Have seen. 2, because of the fact customers have been so focused on PPE, we've seen a nearly 40% increase and b to c traffic. So we've seen a lot of what we call private customers. So we've seen a lot of consumers that have come to our website and an increase in traffic. That's taken our average order value down as a company. And I wouldn't say they're the most profitable customer set And I would say what's changed in the future is the need not to eliminate that customer segment, but to find in a way find a way to make it more profitable. And what I would say is not profitable because of average order values of less than £30 when you pay freight and you handle material the way we handle material, We're not making money. So we've got to find a way to make money in that segment. The third comment I would make is I think some of the changes with COVID certainly will change and define new norms, but I do expect in many cases, face to face meetings to resume when there is normalcy that resumes in the marketplace. But who knows how long this is gonna last? You know, if only half the people would have seen. There's a lot of excitement around vaccines right now and the markets are reacting. But how many people are actually gonna take the vaccine? So if you're gonna say in this market, say this continues for another 6, 9, 12 months. For us, we have to adapt to this as business as usual. We have to learn to sell virtually. You have to learn to do field sales calls online, and that's exactly what we're doing. So I think some of this will stick. I was talking to a friend that's the CEO of a major company here in the US. And he said, you know, I look forward to not doing any road shows anymore and just doing them virtually because they seem to be equally, if not more beneficial than in the past. So I think we'll see over the coming years what happens, but either way, we're very well prepared. And I think what it does change is it changes the importance of health and safety, and it puts that right at the forefront that it's not about price and saving money. On masks and gloves and those things that protect employees, but it's about the availability and making sure you have the right level of the stock. If anything, our customers have cut back way too far on inventory. So we're seeing some inventory builds again from a maintenance standpoint once operations kick back in, they have the products available to immediately fix the line as opposed to having to order order products and people home, employees home. So I think it's actually building a more robust supply chain, which fits right into our value proposition. And so will it mean that you will be able to have fewer, sort of local sales guys and trade counters or is that Is that footprint not something that you'd look at changing as a result of COVID? No, I think that adds the stickiness of the relationship with customers, you know, having that that physical presence, you know, it's a combination of both. People available, live chat, available to answer technical questions. The value added solutions often, you gotta be in the facility. You gotta touch. You gotta fill it. You gotta see it. You gotta be able to look at lines. Gotta be identifying the problems. I know I think of anything that brings more value to what we've done. I think customers have realized, like, you know, hey. Look. We're not just doing this on our own. We need a partner like an RS or now I could be able to come in here or a nice day to come in here. To help us make our operations more efficient. So I think it goes the opposite way. I think it enhances that stickiness factor and adding more value if they had one of five we discussed, which to me is a digital mode. You know, you've gotta be really in this business, in this omnichannel business. You gotta deliver customers what they want, but you gotta add more value. And you gotta do so the way customers want it done terms of how you deliver the product, whether it's on the web or eprocurement or it's a fax word. You know, we still get more than a 100,000 fax orders a year. Or whether it's an email or a phone call or or or an order on a napkin, you know, we do it the way customers want us to do it. But I think what we're gonna see is when we move forward, is we're going to see greater use of digital technologies, greater use of E procurement, but a greater requirement for value added solutions at the same time. That's brilliant. Thanks, Lindsey. Much appreciated. Our next question is from David Brockton of Numis. Your line is now open. Please go ahead. Good morning. I've got 2, please. Firstly, in the presentation, you touched on perhaps a greater opportunity for inorganic expansion potentially for value added solutions. I just wondered if you can just touch on in terms of what you could be looking for either in terms of Is this capability expansion? Is this regional expansion? That's the first question. The second question, relates to the U SDC Now that's sort of, up and running. What's the sort of next steps in terms of prioritizing range expansion, is this sort of now a more concerted move into MRO? What should we expect to see more RS pro there team for any insights? Thank you. Yes. Thank you, David. Good questions. I think first of all, in regards to the inorganic expansion around value added solutions, our message has been pretty consistent over the last couple of years that our focus has been to deliver what customers want while adding more value the way customers want it. That was phase 1 of the journey. And when I say while adding more value, we talked about digestible bolt ons around value added solutions, product expansion, geographic expansion, and that priority. So the first two acquisitions that we had done in 20 years were around diabetics solutions. So we see the first opportunity being value added solutions in the 1st instance instance in terms of inorganic. The 2nd phase of this journey, we talked about adding scale and transformation, being bolder in our pursuit of outperformance, that means substantially expanding the product portfolio. And substantially expanding our customers and building scale, not for the sake of scale itself, but for the sake of actually building a greater moat around that e commerce side of the business and value added solutions. So I would say from a value added solution standpoint, It's both expanding regionally to your point as well as adding incremental capability to the suite of services we have. What you'll see from this in the future is a differentiated presentation as we move into May with the priorities around the value added solutions we want to offer, and then we are currently offering. There's a lot we don't talk about on these calls because we're in beta mode or test mode but we're very clear in terms of an attorney we're taking on a from a value added standpoint and enhances the stickiness of customers, it makes customers more loyal. And we know by becoming First Choice, which is our vision, it on average adds 25% more business to our relationship. The value added solutions is a very important part for them. The second part of your question As it relates to the United States distribution center, I've recently had a meeting with with our USC socially distance wearing masks, of course. And and for anyone that wants wants masks, we have plenty in stock, so please buy all means order from us. In the US distribution center, our number one priority is expanding our automation and controls portfolio. So our existing priority in terms of our business, but we will move into other categories. And I believe there's 13 product categories we can disrupt with our business model will expand. We'll offer products that our customers will buy. There's an old saying in distribution, which is well bought half sold. I turn that around and I say well sold, half bought. So what is it that our existing customers want to buy for us at a reasonable profit margin? Because just the stock and on the low margin adds no value to us, but at a reasonable profit margin, which means at the average margin or higher, and they're willing and they will buy from us. So not not just they say they're willing to buy from us, but they will buy from us. So that that's the way we're approaching it. We have a road map. We've actually signed so far in the last 6 months during the pandemic, 10 electronics lines. Maybe talking about the same when it comes to industrial lines as well. So we'll continue to add lines. We'll continue to add product to the existing franchises that we do have. You'll see the same thing as we move forward in Germany, but we're not going to wait until the DC is finished. We'll start that well in advance of the completion of the distribution center, which means we're starting this conversation now. Thanks very much. David, it's David. He can hear if I could just add one little bit, to the DC. We certainly see IRS Pro is a key and an important element of some of that expansion as well. So IRS Pro in the U. S. Still remains a very small element of our proposition. So we're looking to bring as many of the RS Pro products into the new DC and into the offer of the U. S. Operations going forward as well. Great. Thank you. Our next question is from Tim Martin Jefferies. Your line is now open. Please go ahead. Good morning, all. My first question actually is an adjunct the previous one on the U. S. Distribution center. Can you help us understand what's the limiting factor to scale the inventory build in that facility? So is it managing the impact on short term profitability? Is it relationship with suppliers to basically get your hands on the SKUs? Or is it people or or something else? So just trying to understand how how that builds over the next year or 2. Then secondly, you obviously talk a lot about digital, and online these days. I'm wondering, is there still the still potential for you to scale your vending business in an omnichannel world? And then thirdly, just a couple of quick balance sheet questions. Is all pretty straightforward. Firstly, has the better than expected free cash flow in the first half? Changed your view about the timing of the $25,000,000 pension top up? And then secondly, should we expect you to refinance your revolver next year? And if so, could you just give us a quick reminder, David, please, about what your current credit spread is, please? So, let me start with the first question. And then, for the sake of, of, David Staine with the company. I will stay away from the cash flow and and the financial questions, because I like them too much. So first of all, let's talk about the UC DC, the US DC expansion. This is not related to suppliers. You know, if it's up to suppliers, we would stock every single product they have that maybe even some, they haven't sold in a few years. It might have them be on their shelf. They've shipped it to our shelf, and that's not an Alcon supplier. That's just a natural way of how things happen in this business. So the first thing we have to do, as I said earlier, well sold half bought have to make sure that we understand working from the customer backwards and existing customers are the best customer, loyal customers that you currently have are your best customer. Now we want to expand our customer base and we want to expand our customer base in the Pogo's product segment, which means we start there and look at how we broaden our portfolio. The only limiting factor that we really have seen in is actually receiving products. So we got to continue to go organically. While we continue to add new products to the portfolio and grow from an organic standpoint on that front. So really the only limiting factor we have is the ability to receive products and to receive 1000 and 1000 additional products every day put in the stock. At this point, that hasn't been an issue even through COVID. So we'll continue to expand that but we don't wanna just put it on the shelf. We wanna sell it. So we have to stay balanced from a turns perspective. So we've got turns goals. We've got budgets. So we've got a strategy on that front. So we don't feel the need to go out and just add 300,000 parts overnight for the sake of filling a distribution center. And products that we won't sell. So we wanna make sure the products we do sell. So we've gotta make sure we leverage the data that we have. Information, the knowledge to wisdom or insight to be able to drive the right decision. So that's number 1. 2, as it relates to digital and you brought up vending, I think on the digital front, you know, we continue to make substantial investments in digital from find and search, which tends to be the weakest part of the journey for customers where they're looking for a product. Maybe they don't know what they're looking for, and they can only put it in description. So that's an area every company has to continue to invest in through the pay per click, the SEO, the pay per click search engine optimization, pay per click being paid search. The return on advertising spend is a key metric there, but now we're looking at, long term value and doing that based on profit, not just sales, in terms of how we make investments there. So we're becoming much more intelligent using data to lead the insight to make proper decisions on that front. SEO search engine optimization continues to be a huge focus, check out personalization, understanding customer's behaviors, doing more product boosting associative sales. So we're still on this digital journey. And although it's 6263 percent of our global sales, our goal longer term is to get it to 80%. So the web itself is very important. A lot of people now are saying the words or the word tech innovation instead of digital. So for us, he's gone from digital as the department to channel to where he really wants digital to be part of the culture of this company. When you get into vending solutions, I don't really see that as digital. I see that more as a value added solution. We're testing that right now in three countries. We're building scale in that area. It's just a very important part of having products like safety products, other products on-site where the customer can go to vending machines they can get the product pulled from the machine and then track the usage of this product. So it's a great opportunity for us specifically in Europe where there there's not a dominant player like Vethanol in the US. Vethanol has done an outstanding job, but then definitely an opportunity, one of which we're investing in as our others. So we're doing it, to make sure the return is there and that we don't make the take of just getting vending machines away for the sake of building a number, but that it's tied into an overall profitable growth strategy. And that starts more with larger customers and larger customers for us and they exist within AIDA and our integrated supply side. As far as the financial questions, cash flow, the top up in regards to, the pension, I will defer to Mister Egan on that front on that front. Yes, thanks Lindsey. And on the pension top up, our obligation is GBP 25,000,000 by the end of next financial year. At this stage, we haven't made any commitment in terms of the timing of that, but I think it's probably highly likely given the reinstatement of our dividends that we will offer, to the trustees to pay a portion of that 25,000,000 in the current financial year. So I think probably around CHF 10,000,000 probably in the current financial year. To be fair, I have not spoken to the trustees, and we'll do that later this afternoon. In terms of the RCF, we have 190,000,000 or thereabouts of RCF that's due to expire in 2022. We are sort of in the process of, of looking at, refinancing the RCS, but we haven't got anything definitive to date say yes, but we'll do so when we're ready. I'm sorry to press you, David, the current spread that you pay on the RCF? It varies, but the all in cost is, the all is very depending upon the net debt, but it's a it's less than 3%. It's cheaper than RPP. Yes. Sorry. Is that the spread or the all the all in cost? The all in cost. Brilliant. Thanks very much for that. Thanks very much for that. And please pass on our best wishes to tutor as well for all the good work in the last lost close 6 years. Definitely. Thank you. Thanks. Thank you very much, Keenan. Just want to point out that David got a lot more. We gave a lot more information on the pension that I would have. Ruby, next question. We currently have no further questions, but I will reiterate should anyone wish to ask We have a question from James Barrow of Barclays. Your line is now open. Please go ahead. For the presentation. It was just one on I think when you gave your presentation 5 years ago, Lindsey, and you talked about regional accountability one of the things you talked about at that time was sort of people in Oxford making decisions on things like marketing in China. And so just wanted to sort you to sort of reassure us that as you squash that pyramid a level further in EMEA and consolidate group and local teams into areas like marketing and product management, etcetera? How you ensure you maintain that sort of local accountability and local knowledge that driven so many good decisions over the last few years? Yes, you know, James, that's a fantastic question. And thank you for bringing up November of 20 15, because if if you remember at that time, it wasn't about a fluffy strategy. In fact, I didn't use the word strategy once in that presentation. It was all about execution. And we talked at that point in November of 2015 about 3 key priorities. 1 was putting the customer at the heart of everything we do. 2 was driving accountability and 3 was operating for less. So as we look forward and exactly to your point, what we've been doing is we've gone from this highly centralized global model, like you said, in Oxford, with having people in Japan reporting the in Germany that reported to people in Oxford. We've flattened that structure, but we've taken a kind of halfway where because we didn't have the right leaders did have enough of the right leaders in place to be able to make it happen at the time. We weren't able to go all the way to where we want it to go. That's where we've gone now. So there's still our people in local markets, but they're regionally coordinated. So they report into re team so that they can share best practices in a common language. And that's exactly what we've done everywhere. Around the world. So I would say we have the most effective model that we've ever had. The collaboration is an all time high. Then there's 3 key philosophical principles that we had at the time that were actionable around putting the customer back in the heart of what we do. You can see the results in the NPS scores, driving accountability in into the business. We have almost the same number of people now that we did then. With twice the revenue and four times the profit, not the withstand that you're taking out co the COVID impacts. So quite proud of that We've been able to operate for less. We've been able to do that by putting accountability in the business by making decisions where they should be made. Now there's some cases, you know, we don't talk about shared business services, but we have close to 600 people now centralized and shared business service functions with more than 50 RPA processes that we're using to benefit the company now that drives a much greater efficiency overall So I couldn't be more proud of the team. We have what's called an amazing leaders framework right now that's focused on, you know, people wanna call leaders that have humility. Leaders they trust and leaders that are passionate about the business. And that's where we are today. And and that's where our leadership is today. And I couldn't be more proud of the way we've responded to the pandemic, the way we're not using excuses of the pandemic for performance in the way we're driving forward, but still keeping our focus on the health and safety of our employees and making sure they're protected and their families are protected and those around them are protected. So that's where we are right now, Jane. Congratulations on your win over the weekend. Thanks very much. Thanks, Lindsey. We currently have no further questions. So I will hand back to your host. Thank you Thank you very much, Ruby, and thank you all for being on this call. As always, we're available. I just wanna highlight one last point, and that is communication. We're open to talk to anyone at any point in time. Within our company, we have a daily call between myself and David and a few others. Every 2 weeks, we have a call with our senior leadership team across the business and the top 20 leaders. And then every month We have a call, a business update with the top 300 leaders, and then I do weekly podcast if you have a monthly forward call. So I think the communication within our company is at an all time high. And I hope we can continue this level of communication as we move forward. Collaborations at an all time high, I'm committed now more than ever. We will emerge stronger from this pandemic than we've ever been in the history of this company. Thank you for taking the time to listen on this call today from wherever you are in the world. And, we look forward to your support moving forward. As always, call us if you need us. We're here. And thanks for being on the, on the call this morning. Thank you very much, and thank you, Ruby. Thank you very much.