Earnings Call: H2 2020

Jun 2, 2020

Good morning, everyone, and welcome to the virtual fiscal year 2020 full year results presentation for Electro Components. This is Lindsey Ruth, CEO of Electric Components. And today, I'm presenting from Texas. It's very early in the morning, and I'm joined by David Eagan, our CFO, joins me from the United Kingdom. Firstly, I wanted to say that we both hope you and all your families are doing well and staying safe wherever this finds you in the world. Rest assured, while Dave and I are working safely remotely, there is opportunity in crisis, and we are working diligently to leverage our operating model strengths working as one team worldwide, regardless of where we might be located. Now given this a virtual presentation, we have tried to keep it brief and to the point. For those of you who would like to participate in Q And A at the end of this presentation, Please make sure you use the conference call dial in. Slide 3 of the agenda. So I will reference the slides So, well, David, as we go through the presentation, you can follow on on the phone, if you don't see the slides. So starting on slide 3, In terms of today's agenda, 1st, I will give a quick overview of our performance in 2020. And an update of how our business is responding to COVID when I say 2020, I mean, fiscal year 2020, then David will take us through our fiscal year 2020 performance in more detail. Run through current trading April and May and highlight some of the actions we are taking to protect profit and conserve cash. Finally, I will finish up on the strong progress we are making to set ourselves up for success through destination 2025. And how the changes we have been making position as well to continue to deliver share gains and emerge from the current crisis stronger. So moving on to slide 5 in the deck and our fiscal year 20 20 results. 2020 was a strong year. We continue to drive revenue growth and market share gains despite uncertain, uncertainty in many of our markets and the impact of COVID 19 during the final 2 weeks of March, We saw revenue growth and strong share gains in all three regions despite what seems so long ago pre COVID 19 we saw PMI is in contraction and more than 80% of countries around the world, if you recall, but it seems a long ago now. For us, RSPro, our own private label brand continued to show strong growth of 9%. This in combination with the resilient performance in our industrial business offset the cyclical downturn in electronics. We have continued to drive further improvement in customer experience and group NPS was up 3.1% during the year. And it's important to note as we've emphasized been every update since November of 2015. The customer truly is at the heart of what we do, and we cannot become complacent. In our customer satisfaction journey. It remains a huge focus for us. During the year, we accelerated both operating and capital investment to support our destination 2025 strategy, which has enabled us to adapt to the reality of remote working much more effectively and efficiently than many of our competitors. In fact, I've I've heard several stories recently of competitors rushing to order laptops and train people on how to work from home. For us, given our additional strength, it's been quite a seamless transition. In many ways, I would even say it's been more productive than before. This important strategic investment overall as a company meant adjusted profit was broadly flat during the year. And overall, these strategic investments and the strong progress we have made on the strategy will drive further differentiation into our offer helped to build a lean and scalable infrastructure and set our business up to deliver sustained growth and improved returns. Over the longer term. Now on to slide 6, resilient business in response to COVID 19. I am extremely proud about the way our business and our people have responded to the current COVID 19 crisis internally as well as externally. We have acted decisively and responsibly to ensure we balance the needs of all of our shay stakeholders and our commitment to society and sustainability. Our teams across the world have been outstanding. They have shown incredible collaboration and commitment. As well as a willingness to look after each other and deliver for our customers and suppliers during this challenging time. Their health and safety, and that of their families remain our number one priority. We responded swiftly in January a crisis emerging in Asia to initiate home working for all roles that we're able and to introduce new safety measures within our distribution centers to ensure people were kept safe. This valuable experience allowed us to develop best practices which have been shared across the world as the virus spreads. Our DCs across the globe remain operational and we continue to provide a reliable service to our customers and suppliers. We take great pride and the speed of our response as well as resilience we have built within our models and as well as our people. Given this relative resilience of our business, we have taken the decision not to access the UK government support. For furloughing employees at this time. I'm also extremely proud about the way the business has stepped up to play our critical role and supporting our local communities in the fight against COVID 19. We take our social responsibility seriously. Business absolutely has a role to play as we cannot simply rely on governments to provide all the answers. Please allow me to just share a few examples of how we're fighting COVID 19. We're playing our part helping to distribute 3 d printed personal protection equipment or PPE to frontline health workers, donating filament across Europe to help people produce PPE equipment and also setting up our own 3 d printing farms in the UK and Americas to support this effort. We've helped to build supply chains and as well as assisted with design for a wide range of COVID 19 customer projects, including ventilator production, automated people counters, thermal imaging solutions, safety solutions, medical robotics, and industrial automation solutions. And the list goes on and on. We talk a lot about a culture of innovation in this business. And some of these projects have really shown this in action as well as a strong purpose of making amazing happen by helping others. We remain highly committed to delivering value for our shareholders And David will talk through some of the actions we are talking, we are taking to protect profits and conserve cash later. We continue to advance with destination 2025, our group strategy and we're accelerating work to ensure our business is well positioned for the opportunities which will arrive in the post COVID 19 world. Of course, we recognize the importance of the dividend for shareholders. However, the board has decided it is prudent to defer the final dividend decision until visibility improves and we will review this at the interim results in November. I'd like to stress that this is a deferral. Not a cancellation. So now if we move on to Slide 7, we'll position for future opportunities. Over the last 5 years, we've made substantial investments to change the culture, offer organizational structure, and capabilities of Electro Components. We are now clearly seeing the benefits of these changes as our employee engagement scores and the customer satisfaction scores have reached all time highs. I do weekly podcast emphasizing the importance of our in their mental health. We might be in the middle of a crisis, but as I said, there is opportunity in crisis. The market might seem a bit dark now but the sun will rise again. And so shall we, we have a highly differentiated and adaptable business model. Which means we remain well placed to win. And let me just give you a few examples. Our broad range means we have a very diversified customer base. As well as a very diversified supplier base. Our digitally led omni channel model means we can continue to serve customers with 63% of our revenue today online or in a digital channel. This is a massive advantage versus many of our competitors whose brick and mortar trade counter models are struggling. The global footprint of our distribution network has been critical in ensuring supply chain continuity for both customers and suppliers as we can switch supply from one DC to another. Our organizational structure has a part to play too. Has allowed us to respond and adapt quickly to changes in demand, in particular, regional demand. We are also seeing more collaboration, more innovation, more agile decision making than we have ever seen before. We're moving fast as a team as one team to take advantage of the opportunities that do exist. We've also set up weekly virtual trading operations teams where we pivot and capitalize on the rapidly changing customer opportunities with cross functional teams, linking marketing sales, product management and digital to coordinate our campaigns and customer delivery. We've also been collaborating across all regions on sales rent. Sharing ideas, materials, and best practices to target specific industry verticals with demand upside during the crisis. And as I said, the sun will rise again in so will we, but we are waiting for the market to change. Who knows when that might be? So we've initiated a program called Sunrise with 7 work streams from innovation to marketing to focus on short term opportunity. As I said, there is opportunity in crisis and we're looking for those opportunities on a daily basis. We've also initiated a program called Rise for the future to look deeper at the new normal and how we should be adjusting our strategy and operating model over the next 2 years, which we expect further significant savings. As a result. And we'll be providing more detail on both programs, Sunrise and Rise to the future that our half year results presentation in November. As a result of all this activity and the hard work of our teams, the business is performing relatively, resistently down 14% during the 1st 8 weeks of the year and I'm confident we will continue and our continuing to win market share. All of this while making progress on the longer term strategy. And with that, I will now hand over to David to talk through fiscal year 2020 performance and a little more detail. David? Thank you, Lindsey, and good morning, everyone. Turning first to the financial highlights, which is on Slide 9 of your pack. Group like for like revenue growth was 2.2 percent, a continued outperformance versus the market. Digital Revenue Growth for the year grew broadly in line with group revenue. RSPro, our own brand, continued to see strong growth like for like revenue growth of 8.9%. Gross margin fell 80 basis points on both a like for like and a reported basis, and I will cover this in more detail shortly. Adjusted operating profit fell 0.5 percent on a like for like basis. As reported at our interim, we accelerated spend on strategic initiatives, excluding the 14,000,000 of investment during the year, adjusted operating profit growth would have been closer to 6%. Adjusted EPS was up 1.1%, on a like for like basis to 37.7p. And we continue to have a strong balance sheet. Net debt increased to $189,800,000, but this now includes IFRS 16 lease liabilities of 56,300,000. We have not restated our prior year for IFRS 16, but you can find full details on the impact in the appendix of your pack. Net debt to adjusted EBITDA remained low at 0.7 times. Turning now to our summary income statement, which is on Slide 10. Revenue was up 3.7%, or 2.2% on a like for like basis. The COVID 19 impact was approximately 1% on our full year growth. Gross margin was down 0.8percentto43.7percent. It was impacted by product mix, including lower growth in some higher margin products. And strong growth in our lower margin okay do range. Adjusted operating cost were up 1.6%, less than revenue growth despite the fact that this included 1,000,000 of investment relating to strategic initiatives. Stripping out this investment, underlying operating costs actually saw a modest reduction as efficiency and lower incentive costs more than offset increases in wage inflation volumes, and digital advertising. Adjusted operating profit margin fell 0.3% points on a like at 215,000,000 was broadly flat on the prior year. Excluded from adjusted profit, are charges of 15,400,000, and these relate to restructuring, amortization of intangible assets, and the asset write down relating to British Steel in our IESA business. The adjusted tax rate was 21.8%, down on last year's rate of 23.6%. Turning now to the regional performance, which is on Slide 11. All three of our regions saw a negative impact from COVID 19 during the last quarter of the year, which then impacted our 2nd half growth rates. In total, we estimate this took about 1% of the full year group like for like growth rate. But the impact was most heavily felt in our EMEA region. Despite this, EMEA saw full year like for like revenue growth of 2.2%, almost entirely driven by share gains. EMEA continued to deliver operating profit growth, which was up 2.1% like for like in the year. Our Americas region saw like for like revenue growth of 2.1 percent during the year in what was a more volatile market. Our Americas profit was down 10.2%, like for like with lower gross margin and continued investment in areas such as talent and sales and marketing. We are pleased by the progress to date we have made in the Americas to build the right team, tools and infrastructure, to drive a Asia Pacific saw like for like revenue growth of 2.7 percent in the year. And this growth was driven by strong performance in Southeast Asia and Australia. It was also pleasing to see Greater China return to growth in the final quarter of the year, despite the impact of COVID 19. Asia Pacific saw a significant step up in 2nd half profit. Aided by stronger growth and good progress on regional efficiency gains. Now moving to our cash flow on Slide 12. Adjusted free cash flow of $80,900,000 was marginally lower than the prior year, driven by investments to support the strategy. We increased our inventory levels to reposition electronics, to launch okay do and to expand the RS pro range. As a result, Working capital as a percentage of sales increased by 1.7 percentage points to 23.9 percent. And inventory turn reduced to 2.6 times versus 2.7 times last year. In addition, we also increased CapEx on our strategic initiatives to transform our supply chain and improve our information technology suite so that we can scale to depreciation was 2.6 times, well above our typical maintenance expenditure of closer to one times. ROCE fell due to both the adoption of IFRS 16 and higher capital investment. But still remained attractive at 22.9 percent. Just a quick look at the balance sheet, which is on Slide 3rd 18. As of the 31st March 2020, our net debt to adjusted EBITDA was 0.7 times. And EBITA to interest cover was around 34 times. This gives us plenty of headroom against our financial covenants which we have laid out on the slide. As of the 31st March 2020, we had committed facilities of 350,000,000 of which 189 was undrawn. These facilities are long dated with August 2022 being our earliest maturity. Since the year end, We have been working to secure additional contingency liquidity facilities. We are approved to participate in the Bank of England COVID corporate financing facility. And we have credit approved new short term facilities of 100,000,000 with our existing banking partners. As things stand today, We do not plan to draw down on either of these facilities, which we very much see as backup or contingency facilities. Now moving on to current trading and 2 key priorities. I'm now on Slide 15. Current trading. We continue to manage the supply side of our business well. However, Demand levels have been negatively impacted by the COVID 19 lockdown. Measures which became extensive across our key markets during both April May. During the 1st 8 weeks of our year, group like for like revenue declined 14%. All three regions have seen declines. EMEA saw a like for like decline of 18% The Americas saw a like for like revenue decline of 10%. At Asia Pacific saw like for like revenue decline of 2%. At a group level, the rate of revenue decline moderated slightly during as lockdown restrictions began to ease in some of our key markets. This effect was most pronounced in EMEA driven by easing of restrictions, particularly in Southern Europe. The Americas at this point still remains volatile from week to week. Moving now to 2 key priorities. These being profitability and cash conservation. Firstly, on Slide 16, driving efficiency and scalability. As an organization, we have a constant focus on driving efficiency. However, never has this been more important than right now. As you can see from the pie chart, the largest part of our cost base is people at around 50%. Approximately 20% of our costs are variable, 10% discretionary, and 20% is relatively fixed. The drop through impact of lost revenues to adjusted operating profit for our business is typically in the mid thirties. Premitigating actions. In the short term, we are proactively managing our cost base. And limiting discretionary expenditure while ensuring we protect the core of our business to take advantage of ongoing market opportunities. We have temporarily stood down some of our people on full pay due to lower volumes. However, given the relative resilience of our business, we are not currently accessing UK Government Furlough subsidies. Longer term, we're on a journey to build a market beating, disruptive offer, and a lean and scalable infrastructure to support growth. During the year, we and common value proposition. This aligned approach means we can accelerate progress and remove duplication. This work and continuing simplification of our operating model will allow us to move faster and drive further significant savings. Turning to Slide 17, Our second priority is about cash, conservation, and cash flow and liquidity. Given the degree of uncertainty in the world right now, we have performed a variety of stress tests on our business under a range of potential scenarios of different duration and severity. Our stress tests include scenarios where we see another occurrence of COVID 19 in our second half of sim similar magnitude to that of which we have seen during the last few months. This scenario results in minimal recovery in revenue in the balance of the year. And higher impairment allowance against our 2021 receivables. We are confident that we have sufficient liquidity and can continue to operate within our current banking facilities even under this range of demanding stress tests. To be clear, we have not included our contingency facilities within this stress test analysis. We remain highly focused on managing our cash and liquidity. We are a cash generative business, and typically generate strong cash as revenue growth slows. To ensure this happens, we are focused on perspective, we are monitoring receivables ratios very closely. Reassuringly, to date, we have seen limited adverse impact from COVID 19 on receivable collections. We are also tightly monitoring inventory levels while ensuring we continue to offer our customers good availability. And finally, we are ensuring that we pay our suppliers to agreed terms. On capital expenditure, we have lowered our CapEx guidance While our destination 2025 roadmap, including our 2 DC expansion, remains a key priority for the group, We are slowing some less time sensitive projects and reducing our 2021 CapEx from CHF 80,000,000 to around CHF 60,000,000. And then finally, as Lindsey mentioned, the board believes it is prudent to defer the decision on a final dividend until we have greater visibility and the impact of COVID 19 on activity levels and cash generation in our key markets have become clearer. We recognize the importance of our progressive dividend policy to shareholders and will therefore review making an additional interim dividend payment relating to the financial year ended the 31st March. 2020 at the group's interim results in November 2020. And with that, I will now hand you back to Lindsey. Thank you, David. We're now on to slide 19, which is emerging themes in a post COVID world. Let me just start with one theme that's not on the slide. And and that is, I think in times of crisis, sometimes we realize those things we take for granted. For me, in the past, that was health. And I can assure you I've been back in the business, fully healthy since the beginning of February. I feel great. I'm stronger than ever. But I think it also helps us to to be a bit more appreciative of those around us. So I just wanna take a moment, to say thank you to you, David. To give you a big virtual high 5, on this call, a hug and to say, thank you, my friend, for stepping up as the interim CEO during my absence. I think you did a great job. So I'm very appreciative and just wanted to recognize you on this call. So thank you very much. You're a good friend. You're a great CFO, and you did a good job in the CEO. Hopefully not too good, but thank you. So we're now on to slide 19. There's no doubt and the COVID COVID 19 has changed how we all work and do business. While some of these changes, we'll no doubt the temporary, let's hope. History has shown that previous crises can fundamentally change behavior. And this is a big part of how we're thinking as we prepare for the post COVID world. However, on that might be that were in this situation, and when we come out of it. And there are four teams that I believe have radically accelerated during this crisis. And which we believe we're well positioned for. Firstly, during the current crisis, customers and business have gotten used to interacting with brands online, acting online, working online, and communicating socially online. So have suppliers. And just SRS in 2003 drove the online behavioral change it did in China. We believe that this crisis will speed up digital transition in our own business around the world. We have a strong £1,200,000,000 digital business today, but it has the potential to be so much more. We suppose the importance of supply chain continuity. Customers and suppliers alike will be looking for strong agile partners with extensive reach. We have been investing in our global supply chain to ensure we can provide this critical support. We are also able to provide our customers with supply chain solutions via AEsa. And this brings me on to my next point in a potentially economically challenged post COVID world. Convenience and efficiency will be key for all customers and suppliers. This past week, I spoke to 2 key executives of one of our top suppliers. We've doubled our business with them over the past 4 years. And intend to do it again in a shorter time period moving forward. What excites me most about our conversation is we both want the same thing. We're completely aligned and our joint approach to the new normal. We're focused on delivering the right value added solutions to our customers to reduce their cost by saving time right across their process from design procurement through to inventory management and maintenance while leading in a digital way. This is the key to winning now and in the future in partnership with our suppliers. And finally, safety in the workplace will remain a focus and be expanded to encompass hygiene in a way it didn't before. Expect companies to level up their PPE usage, be this the factory floor or the front office. We are ensuring we can provide our customers with the products and solutions they need to keep their people safe. So turning on to slide 20, well positioned, executing upon a clear strategy. Across the year, we have made great progress on our destination 2025 strategy. We continue to place significant focus on offering our customers more in terms of our range as well as value added solutions. Over the last year, we have repositioned and expanded our electronics business. We've launched OkDo and expanded our own brand range RS growth. Our teams throughout the year have been developing and rebuilding our RS website, which will help drive an improved mobile experience. We're also making good progress in building a lean and more scalable supply chain. Our America's distribution center expansion is set to finish the summer, and work is ongoing for the German distribution center expansion to complete in the next calendar year. We've continued to also expand our global shared business service centers, and these are helping us to improve service at a lower costs. We are investing in our system, and we've made strong progress in the area of products and content technology which is key to driving improved experiences online, launching a new document management system during 2020. This and our product information system will also enable us to scale our range rapidly, improve time to market for new products. And lower our cost to serve customers as well as suppliers. Finally, we've made some great progress at driving greater collaboration across our regions, and we've reached alignment around a common go to market approach. And his role of chief operating officer, Mike England will be helping us to take this to a new level so we can move faster and drive economies of scale across the business. So now turning to Slide 21, well positioned from a digital leadership standpoint. We've talked to you for some time now about digital transition in our industry. This is accelerating rapidly. While demand levels across our industry are down, online traffic levels are seeing growth, and we are well placed to benefit from this trend. We are a leader in digital, while digital represents 63 percent of our revenue around £1,200,000,000 of revenue, Through the customer's lens, the vast majority of our purchasing journey is online as we no longer print a catalog. Over the last five years, we have transformed our online experience and built up industry leading talent in this area. It is one of our key competitive differentiators in the industrial space. And this slide shows the online penetration of a selection of our larger listed industrial distribution peers. However, obviously, the vast majority of our competitors are much smaller and would be even further behind us. We are not in place. And however, as the quarter in the digital world is like a year in the analog world, and we can never Dan Steel. Our rebuilt RS mobile first responsive website. As I mentioned earlier, we'll launch in the first half of this fiscal year, and will drive a step change online, experience in EMEA, Europe, Middle East, and Africa, and Asia Pacific. We have further work we need to do with Allied and the Americas also on this front. During the past financial year, we have been piloting new technologies to accelerate customer acquisition and to optimize and improve returns on paid acquisition or search. With an increased focus the new rent in the online world. We are now rolling these technologies out across the globe to maximize our profit on customer acquisition costs Finally, we are increasing our digital marketing with a focus on customer re engagement and retention and step change in personalization to drive a higher average order value for basket 5. There remains huge opportunity for us to grow and develop online. So moving on to Slide 22, well positioned with our targeted range expansion. We have a very strong supply relationship there's no doubt about that. And then we continue to add new suppliers, as as we speak this morning. And over the last few years, We have invested significantly in our suppliers via inventory, and these relationships have strengthened even further. In recent months. Our broad range and high inventory availability means we appeal a wide customer base covering a broad spread of sectors. Over the last few years, our investments in data and technology and improved sourcing capabilities meaning we can now move at pace as an organization to identify trends, launch products efficiently, and with high quality content. In fact, we have reduced the time it takes to launch a new product by 2 years and work continues to make this process even faster. These capabilities position us well to perform in the current environment and our teams around the world are moving quickly to source in demand products at higher volumes and pivot our offer towards higher demand sectors and categories. RS Pro, our own private label business has launched kits and solutions to support our customers but the challenges of bringing people safely back into the workplace, whether it be with PPE or social distancing signage. We are using data and the strength of the R supply chain to expand the allies range into higher margin MRO products and our teams across the world are collaborating more than ever before to not only thin supplier relationships across our regions, but also drive best practice and economies of scale on purchasing. So just in the last week, we've actually added 60 new suppliers to Ally at 40,000 new products from the RS range from a call that I had last week. So good progress on that front. Now on to slide 23. We're well positioned from a value added standpoint in an environment where all companies are looking for ways to make their operations more efficient Our suite of value added solutions, which help organizations reduce process costs, eliminate waste and downtime, and lower inventory holdings are well placed to benefit. We're accelerating work to roll out our value added solutions further across the world which today are by far most advanced in the EMEA region. We are also looking to develop an IE select service for our RS and allied customers, we call it RS Plus, which combines the strength of Ayesha's cloud enabled prepare proprietary Marketplace solution, which is called my MRO, with RS's suite of value added solutions. And we're currently piloting this with a number of RS customers in EMEA. In addition, we continue to make good progress with IES' core business and have recently added new customers, including United Biscuits, Nestle, and 3 n. We went live with 3 m last fiscal year, and we're now serving them across eleven sites. RS is also winning new customers towards value added solutions proposition in addition to AEs that we've been working closely with Amazon to provide solutions to help manage their maintenance requirements of their warehouses across the UK. And in fiscal year 20, They were our fastest growing UK corporate account. We now have the opportunity to replicate this success across EMEA, And we're working closely with Amazon to maximize this relationship, and then we can look at the rest of the globe. So in summary, on slide 24. Firstly, let's not forget, we had a strong year versus our competition in fiscal year 2020, and we made good strategic and operational progress. We entered this crisis in a very strong position and through our focus will emerge strongly. Our response to COVID 19 has, I believe, highlighted some of the best things about this business. The power of our online offer and the global network, the capacity for innovation, the ability to move quickly and make amazing things happen for our customer suppliers, and the communities around us. I am passionate about this business, and our focus on ESG which wouldn't be as enjoyable and rewarding if it were not for the loyal, hardworking men, and women of electrical components. So I'm proud to call my colleague. This is all possible because we have fundamentally changed to how we operate and our capabilities over the last 5 years. Such that our business model is adaptable and resilient. Our results speak for themselves, but that was in the past. And as I always say, the older I get, the more I believe in what people do as opposed to what they say. We aren't resting on our past performance. Rest of shirt who are taking action now to better prepare for the future, and I very much look forward with David to discuss this in more detail with you in November at our half year results. The future remains uncertain, but as David described, We're taking the right short term action to protect profit and serve cash. And we do have a strong balance sheet with sufficient liquidity, even under a demanding range of stress test. Scenarios. We remain highly committed to our destination 2025 strategy and are accelerating work in some areas where we see opportunity in a post COVID world. We are well positioned to emerge from the current downturn strongly with enhanced share. Now I'd like to pass it back to the operator to open up the conference call line for Q and a. Our first question comes from Ken Martin from Jefferies. Keene, your line is now open. Please go ahead. Morning, all, and great to hear you back with me, please. I have on 3, if I can. Can you just help us understand your strategy regarding SKU numbers? I'd also put that in the context of the broader market. So I think your C numbers in the UK and U. S. Have been broadly flat for about the last 6 to 12 months. But it looks like, Farnell and and Digi Key, her baggage, you know, anywhere sort of, you know, 5%, 10% upwards. So what are they doing that you guys are? Are you diverging or are you moving towards each other in certain different product verticals? Secondly, are there any operating protocols post COVID that might lead to, a step change up within your operating costs? Or are you sufficiently automated, but that isn't particularly material. And then finally, you touched on this a little bit earlier. But what are the new roles for the CEO position And if that role has freed up time for others, what are they using that for? Yes. Thank you. So first of all, In regards to strategy and SKU numbers, we haven't talked a lot about our SKU numbers, but we've been doing a lot of cleanup in terms of our inventory. So taking, that inventory replacement with good inventory, finding new suppliers, etcetera. So I'll give you a further detailed update certainly at the half year in regards to supplier strategy as I'm leading those category reviews myself. In regards to the Americas, we've actually increased our SKU count in the Americas, not by 5 10% like our competitors, but by 20% prior to the new warehouse being opened. So we've actually made room in the existing space cleaned up quite a bit. We'll start the transition into the new space and the new highly automated space. I was there a few weeks ago, And they were doing tests that day. So, we said, well, in the presentation that we'll be opening out this summer, But, you know, it's it's really closer to this month where we'll begin moving products in as opposed to the latter part of the summer. But but we have increased our SKU count by more than 20% in the in the US. We do have a a road map. We'll do that over time, but we'll do it intelligently. We don't wanna take, obviously, major hits her inventory turns, and that's always the concern when you sign new suppliers. So we wanna be data led with how we add new products. But in terms of the strategy, our strategy is to add more non inventory lines from our suppliers. Phoenix contact is the 1st supplier where we offer their entire range. So as of last week, we're now offering the entire range from Phoenix contact both in stock and there's some items that we can we call DNS, which is vendor non stock. So we're using that as a test. We're doing more steaming or Schneider. So some of our top suppliers were expanding the range dramatically and may have a lead time associated with it. So we're working for those issues as we speak. What we've what we've guided in terms of destination 2025 is our goal ultimately is to have more than a 1,000,000 stock line items today were roughly around just over a half a 1,000,000 stock lines. So so that you'll see over time expand and expand obviously into to similar product areas. So it's not going deeper in existing ranges because, that we offer because we're quite deep there. But expand deeper into areas like PPE, Mechanical, etcetera. So, we can share more of that, in the future. But, as far as verticals are concerned, obviously, we pivoted, which is which is the great thing about how we set up this business. And when I talked earlier, about the resiliency and the adaptability of our model, that is part of it. Our ability to shift our focus away from slower industry market segments or verticals into those that are in growth right now. So food and beverage, pharmaceuticals, from the processing industry. So we've had to do that in the US away from oil and gas, which was a small percentage, but I'll be in an essential region, still large part with third party pliers, etcetera, into other areas. So so that is something we've been very focused on. Inventory then follows along with that. So we want to offer a broader range to certain verticals as well. As far as the COVID cost, We figured it's about £1,000,000 of incremental costs that the COVID-nineteen situation has created for us. So it's not really that different from what we've talked about in the past in regards to preparation for a hard Brexit So it's something that Brexit unfortunately gave us the experience. Unfortunately, depending on how you look at, gave us that level of experience to really understand our cost structure sure. I think it's also helping us understand. Look, I mean, there's some things as I mentioned, if you look at what SARS did with China and the acceleration of online, we're seeing similar trends that I think will stay way beyond, the impact of COVID 19. So we're seeing a shift in behaviors that probably will be around for quite some time. So questioning roles and responsibilities is the right thing to do as we adjust and adapt to the new normal. But outside of that incremental £1,000,000 of costs, there are no substantial incremental costs. Obviously, we would like to have more inventory on safety products. The level of search we've seen on safety products has gone up dramatically from mostly B2C customers, but also B2B. But we've seen in some markets a doubling of traffic and mostly related to single item PP searches math clubs, those types of things. And then the last question you had was, it was in regards to the COO role. So I look at Mike number one responsibility. It sells and marketing and ownership of the regional P and Ls related to RS and allied. So looking at a common go to market approach. So it doesn't really replace anyone's role other than me. So, I would say it allows me to be a bit more CGIC to develop more relationships longer term on the M and A front with with those companies we don't have relationships with. But again, as we've always said, our number one priority is organic growth. So it allowed me to have my hands free so that I'm not just playing a CEO role and a CEO role. So I can focus in on the right thing. ESG is a huge priority of mine. You'll see on slide 32 in the deck today, we've added 5 additional non financial metrics, to track our progress against our strategy. You'll see additional metrics around people and the environment and safety. So that's a huge priority of mine. It always has been, but but I want to to spend more time in that area. So you'll see more in our annual report. And I say ESG, we still use corporate social responsibility in our annual report, but we'll be transitioning that over time to use more of the common language that that investors are using today. But for us, definitely environmental and social responsibility is huge. I wanna spend more time in that area, and we're doing a lot in that area too. So it's not just talk. So with that, you know, Mike's ability. It's something that we have planned for a long time as part of our succession planning, to make sure that, he has the proper experience on a worldwide basis. So That's the number one responsibility for him is driving that regional performance. Thank you. We now have a question from Sam Bland from JP Morgan. Sam, your line is now open. Please go ahead. Morning. 3 questions as well, please, if I can. Obviously, I think you talked about this, slight improvement in May. Is that, I just want to get a sense. Was it only slide or was, May kind of dramatically better than April? Second question is, on market share in this 1st 8 weeks, and it sounds as if because you've got a little bit more, you know, a lot more digital presence and peers probably gaining share. Do you think that's fair? And how does that kind of come through? Is that sort of, basket spend or market size holding up better or with existing customers or basically more new customers coming across. And then, let me get a sense on this $14,000,000 strategic spend. Is that something that, at some point, would go away or new zero reality with this destination 2025 program that those kind of expenditures are going to be here for a while as the business keeps on changing. Okay. Thank you, Sam. I'll take 1 and 2 and then, David can answer the the $14,000,000 on the investment side. As far as May is concerned, it was a, a pretty significant improvement over April. And what we saw is, as countries reopened, we saw more normalcy back into the numbers. And obviously, there was some pent up demand because of those locations that were in complete lockdown. But as you can see from our numbers, APAC is APAC has reopened and many markets were back in growth. We expect similar performances. Now I will put a caveat to it that, you know, what most people have forgotten is pre COVID nineteen we were trending and I say we, as in the industry, the market in general, was trending towards a deeper contract heading towards the recession of my book because more than 80% of the PMIs were in contraction. So, you know, we haven't seen the return as those locations have reopened to a pre pre COVID world, meaning, meaning growth of PMIs in North And Fifty So so, you know, it's hard to predict the future and what we're gonna see, but certainly as things have reopened, we've seen better performance. Overall of those markets. And without a doubt, to the second point of your question, we know we're taking market share. We're up in 38 of our top 50 lines. 3037 of those lines are what we would class advise industrial 13 or electronic of the 37 were up in 29. On the industrial side of the 13, we're up in 9 on, on, let's see. Actually, yes. Yeah, I think that's right. 8, actually. 8 of the 13, 37 of 50, actually. The 29 and 8, we're up 8 to 13 on the electronic side, which means we're taking market share. When I say up, I mean, we're we're up as opposed of the channel. So we do know that we're taking market share. And to your point, having the online strength is a huge benefit today as more customers are working from home as well. So we see that as a significant advantage. Now you asked about new customers, new customers roughly were around 4.8%. We're seeing a lot of online traffic. We're seeing a lot of searches We're seeing a lot of new customers, which is good, but the biggest challenge with new customers in an online world is retention of those new So we have a major internal focus now on returning returning or returning customers and actually focus on retention of new customers so that we can keep them as existing customers. So not just one time buyers that come in, maybe they buy safe product and they leave, we want them to be long term customers. So we're now looking at, as they referenced on the call, not just profit, in terms of our customer acquisition cost, but also long term value or LTV as well. As far as strategic investments, let me just flip it to David. To comment on the 14,000,000. Sure. Yep. The 14,000,000 in FY 'twenty was focused on areas such as, okay, do people Relanton Technology. You know, our our best view at the moment is for FY21. Is it sort of gonna be closer to the 10,000,000 And then over time, it will certainly diminish, your sort of the view. One additional piece of, with regards to the first question of what we saw in April and May, I think we did see a slight improvement at the group level if you look in the individual markets, the greatest improvement came from Southern Europe, which was principally France, Italy, and Iberia, which pretty much opened up. In other markets such as the UK and Germany sort of flat to very slight improvement And then in the Americas, we have seen the greatest sort of volatility in the Americas market. You know, so, the Americas is the one that's a little more difficult for us to call. And then finally for, APAC, you know, we have seen good improvement, coming through the APAC region and, you know, China as an example has been in growth, you know, throughout this period albeit off small numbers and the comps are relatively small. But, you know, even it all started in China and, but China has sort of delivered growth through that period. We now have a question from Rajesh Kumar from HSBC. Rajesh your line is now open. Please go ahead. Hi. Good morning. Thanks for taking the questions. First, when you look at the improvement you've seen in most recent weeks. Is there just a geographic pattern or are there certain sectoral patterns as well in terms of whether MRO is doing better than electronics or, you know, If we could get some color on that, if that is possible, it would be very helpful. Second, you mentioned inventory obsolescence earlier. Could you give us some framework as to how you're thinking about inventory of citizens, especially during the COVID 19 period. Appreciate you hold the inventory for a very long time. And if our lockdown is for 3 months, it may be well beyond the period you hold inventory. So, potentially, not a big impact, but just in terms of current run rate of obsolescence and how you're thinking in terms of increasing it or you know, putting more provisions for that. And finally, when you talk about market share, are you assessing your market share again by comparing your growth rate against start off your peers, or you're talking to suppliers and the volumes you're doing with suppliers versus what your competitors are doing, or it's a combination of all these factors. How do you assess the market share? Yes. Thank you, Ritesh. Let me start with market share and work backwards. First of all, in terms of market share, best way to measure market share and distribution, there's always the supplier, because there's not everybody likes to payers to Farnell. The Farnell is pivoted and has a much greater focus on electronics as they became part of the Aetna organization over the last couple of years. So they're even not a great comparator, but that's what people historically have used. And obviously, we've performed better than they have to the last year, but we look at the best way to do it when I talk about market share, I talk about the channel. When I say the channel, I'm talking about distribution. And that is how we compare versus our competitors with that specific supplier. So and when I used the case earlier, in regards to the suppliers, that was versus distribution in general than the share we have with the channel. That's the best way and our business to track market share outside of market share gains with individual customers, which is also important and we call that share of wallet. We also track that. But obviously, we don't have all the customers in the world. So the end, the better indicators on the supplier front As far as inventory is concerned, my reference was to bad inventory. Now to me, bad inventory Sometimes people call it bad in excess. They'll call it excess and obsolete. I look at excess, as as being bad too over a certain level. We don't really have a significant problem with obsolescence. We were provisioning at the right level. And I think we have we've done a great job over the years at managing the obsolete inventory. And I would think if anything, we could probably be a bit more aggressive with suppliers on that front, but we're accurately provisioned. So obsolescence is not really a concern in our model. It's the length of time we hold the product. It's more of a concern. So it's more on new products as we add the range we might have to sit on a product for 2 years. So it's that slow moving product that we want to move and and to to get rid of and not to sit on as long. Now in our model, it's important to have the long tail of inventory. It's just the question is getting that level of inventory right. So I don't want to alarm anybody, but I think we've got a lot of obsolete inventory because we don't. It's just the nature of having, you know, a turn level of 2.6,2.7, and that range in this industry, you always have to be looking at, which translates into over 120 days of inventory. So in this business, you always always have to be looking at your inventory and the freshness of that inventory. But that's the name of the game. And that's one of the reasons distribution exists. It's the whole inventory. We've never forgotten that. And that's the value proposition of a distributor is, inventory holding. So we don't want to lose that value. But we want to be more intelligent with what we do on the inventory front and make sure that we have the right products and start and stock. So it's really all about availability and making sure that we're constantly focused on getting the balance of turns and availability right. So again, don't be alarmed over obsolescence. That's not an issue and there's been no change with COVID-nineteen in regards to the level of obsolescence up or down that we see in the industry. And then on to the improvements that we're seeing in terms of really ultimately market share gains and you had referenced industrial versus electronics. For us, we're seeing gains in both, as I referenced earlier. So it's not really a product related, although I will say industrial is slightly better than electronics. And I would say the reason for that is our private label range tends to be more industrial than electronics. So that's the benefit as our private label range is outperformed. Every other product range within our business outside of our single board computing business, okay, do which continues to do well. As far as geography versus sectors, certainly, to David's point as he went through the countries and the performance as those countries have reopened, we've seen better performance in those countries. So there is a geographic plan to it. But also at sectorsland. So we've obviously seen greater growth in food and beverage than we have facilities and maintenance. As an example, which is the category of ours. And so without getting into the specific sectors, because some of that's proprietary and But we have pivoted to those sectors that are certainly in faster growth, but I would say the greater improvement we're seeing is in the geographies that they reopen. Thank you. Any more questions, Rachel? I think we might have lost the operator, which would be a first. Well, if there aren't any further questions or, since I don't know how to operate the phone system, If you do have questions, please let Pauli know or you can email us directly and we'd be glad to answer any questions or to jump on a team's call or a Zoom call with you at any point in time. I just want to say a special thank you to all of you for being on the call today. And I wish you nothing but the greatest safe in health and, and best of luck to everyone in the post COVID world. Thank you for your time today, and we look forward to speaking to you all soon. And, certainly seeing you hopefully live in November. So talk to you soon. Bye for now. Thank you. Thank you very much.