Earnings Call: H1 2020

Nov 12, 2019

Good morning, ladies and gentlemen, and welcome to the Electro Components PLC Intrum Results ended the 30th September 2019. I'm David Eagan, the CFO for the group. Joining me here today to help present his Debbie Lentz, our president of supply chain and Mike England, our president of EMEA, our largest region. In the audience here in London, we are joined by our Chairman, Peter Johnson, and several members of our senior leadership team. These include Debbie Bowring, our President of Ariisa, Guy McGrath, our Head of Digital and our single board computing division Simon Rams School, our Chief Technology Officer Michael Cram, our Head of Corporate Development. And if you have a moment after the presentation, we certainly encourage you to get to know and chat to some of our team, please. Before I go any further, I want to say a few words about Linsley, and the announcement that we made yesterday. Lindsey has achieved a huge amount since he took over as CEO in April 2015. And the business has come a long way under his leadership. As we said in our statement yesterday, he needs to take some time out to receive treatment for a medical condition. Out of respect for his privacy, we will not be discussing further details and most importantly, expect him to return to his position following a short period of recovery in the new year. We look forward to Lynn's lease return. In the meantime, I and the leadership team are focused on business as usual. And ensuring continued delivery, execution and outperforming versus our end market is our number one priority. So let's now take a look at our results. We're pleased by our performance in the first half. We continue to drive growth and share gains despite a tough market backdrop. All three regions saw revenue growth and share gains. RS Pro, our own branded products, continued to outperform and show share growth. We accelerated investment on strategic initiatives and continued the important steps to set our business up for longer term success. This investment included both operating investment as well as capital investment, and we'll cover those shortly. Higher strategic operating investment led to a broadly flat profit performance in the first half. We are managing our operating costs actively and keeping But I would like to be clear that we will not short term this business. Now is the right time to be investing whilst others are pulling back. These investments will be key to drive differentiation and outperformance over the medium term. So the agenda for today, first, I'll run through the financial results, the regional performance and as well our current trading. Then I will turn to focus on how we are investing in our business so that we can continue will talk about the progress we're making to offer our customers more and broaden our value added solutions proposition. And then Debbie Lentz will update you on the work we're doing to build a truly customer centric lean and scalable supply chain. Before we talk through today's results a couple of housekeeping points First, we've adopted IFRS 16 for the first time in these results. Our prior year comparatives have not been restated for this change. IFRS 16 has had minimal impact on the group profit, but a more meaningful impact on the balance sheet. And full details are provided in the appendix of your packs. And second, with our increased emphasis on new product introduction, particularly around electronics, we've updated our inventory provision methodology to better reflect commercial reality. The effect on these results in year was not material. Group like for like revenue growth was 4.5 percent, a continued outperformance versus the market. We saw good growth in industrial revenue offsetting weakness in electronics. Digital revenue grew broadly in line with group revenue, but RS probe outperformed with 9.7 percent like for like revenue growth. Gross margin fell 70 basis points on both a like for like and reported basis to 43.7% and this was primarily due to product mix. Adjusted operating profit fell 2.1 percent on a like for like basis as we accelerated our spend on the strategic initiatives. Adjusted EPS was broadly stable at 17.8p. The interim dividend rose to 5.9p and we remain committed to pursuing a progressive dividend policy. Now I'd like to update you on the progress we're making to drive operational excellence and higher operating profit margin over the medium term. Group gross margin fell 70 basis points to 43.7 on a like for like and reported basis, This reduction was driven by product mix and related to two areas: lower growth in higher margin product areas such as connectors and electromechanical. And secondly, the repositioning of our electronics portfolio coupled with the launch of our okay due products. Going forward, we expect a more modest year on year decline in the second half gross margin with growth in okay due, partially offset by purchasing and pricing actions. Over the past 3 years, we stabilized gross margin and after many years after many years of decline. And we have a number of initiatives which we will be supportive of our gross margin going forward. We will continue to grow RS Pro as a percentage of group revenue. We'll focus on driving smarter purchasing and dynamic pricing across the group. We'll improve product mix, and pricing in the Americas. And finally, we will continue to expand OkDo into higher margin areas such as accessories, software and kitting. And for those of you who didn't get a chance to talk to the Okay Duke team earlier, they will be available after this presentation. These gross margin initiatives will enable us to continue to expand into new faster growing areas such as single ball computing that may come at a lower gross margin, but can actually be accretive to operating profit margin over time. Taking all this together, this will ensure that we continue to drive towards our aspiration of a mid teen adjusted operating profit margin. Over the last four years, we have consistently increased efficiency and simplified our model so that we can convert a higher proportion of gross profit into operating profit. Our medium term strategy will further accelerate this by driving scale and efficiency in areas such as IT and supply chain. And Debbie will cover some of this shortly. Overall, adjusted operating costs as a percentage of revenue remains broadly stable year on year at 32.9%. During the first half, we've made continued progress on driving underlying operating efficiency, while significantly stepping up strategic operating expenditure by around CHF 8,000,000 in the first half. Total adjusted operating costs grew broadly in line with revenue at 4.6% on a like for like basis. Stripping out the impact of the higher strategic operating expenditure, cost growth was much lower as continued operating efficiencies largely off said, increases in costs related to higher volumes, wage inflation and higher digital advertising. So now moving on to the summary income slide. Adjusted profit before tax was 103,400,000 and was down 0 point 4 percent on a like for like basis. Excluded from the adjusted profit are charges of CHF 14,400,000, which relate to asset write downs relating to British Steel, amortization of intangible assets and a small amount on restructuring costs. The adjusted tax From a cash flow perspective, This was down year on year due to higher tax payments, inventory investments and higher CapEx. We had an additional tax payment due to changes in the timing launch OkDo and to support service levels around Brexit. Our net CapEx rose to 37,200,000, with over 2 thirds of this spend on strategic initiatives to transform our supply chain. And our technology. And this was so that we can scale our business and drive faster market share gains over the medium term. We're making great progress here, and more of this will be covered shortly by Debbie. CapEx to depreciation was 2.6 times, in the first half and we continue to expect the full year to be around 2.7 times. We continue to have a very healthy balance sheet and during the first half, we signed a successful private placement. Our net debt to adjusted EBITDA ratio remains low at 0.9 times. And finally, we've included some guidance in the appendix of your pack. This covers the normal points as well as some So just taking a quick look at our regions. Starting with EMEA. EMEA starts at accounts for 63% of the group revenue and delivered 5.4% like for like revenue growth during the first half. We believe that this growth and net promoter score was up 5% in the first half. All three key subregions saw positive like for like revenue growth trends. Northern Europe, continued to see 5.2% growth, aided by strong growth in value added solutions, Southern Europe saw like for like growth of 4.7%, driven by continued outperformance in France And Central Europe saw 2.1% like for like growth, with strong growth in some of the smaller markets, offsetting a slower performance in Germany. Which continues to remain challenging. And to sell more to existing customers via sales effectiveness and enhancements to our value added solutions propositions, and Mike will cover this shortly. Good growth in revenue and tight cost control more than offset slightly lower gross margin, leading to a 7.5% like for like growth in operating profit. And a further improvement in operating profit Moving on to the Americas, which represents 26 percent of group revenue. We saw 3.4% like for like revenue growth the Americas. We believe approximately half of this growth was driven by market share gains. We've seen some volatility in the market from month to month, which appears to be driven by uncertainty over the outcome of tariff negotiations. In quarter 1, we saw some destocking or just in time ordering. This appeared to ease in quarter 2, but has reemerged in October with speculation over an easing of tariffs increasing. That all being said, in the US, we do have an order book due to the type of customer and product range that we offer. Our order intake in the US remains strong and it is clear that the actions we took in the first half to refocus and reinvest in our sales force mean we continue to drive outperformance in our Americas business. During the first half, we appointed Ken Bradley who has spent the last 2 years on the leadership team here in Europe to lead the Americas. He's already set out a clear direction and is making great progress. The first steps to reinvigorate our sales team drive sales force effectiveness and improve our marketing are now well underway. We will continue to broaden the range in the Americas, and improve our offer with a focus on RS Pro and value added solutions. Gross margin in the Americas reduced in the 1st half primarily due to product mix. Lower gross margin and the increased investment in our sales force has led to a 7.1 percent like for like reduction in operating profit to 31,300,000 And then finally, Asia Pacific in terms of our regions. Asia Pacific accounts for 10% of revenue and is made up of 4 similarly sized subregions. Overall, APAC saw like for like revenue growth of 1.7%. We saw strong growth and market share gains in both Australia, New Zealand And Southeast Asia. However, our performance in Japan has been impacted by a high exposure to board level electronics, while China continues to be impacted by our go to market offer and digital capabilities. We continue to make progress on both improving the customer service and efficiency within the region. However, we still have work to do to build the right local During the first half, we increased investment to build the right talent and capabilities in digital and inventory to take us on that journey. Despite this higher investment the region remains profitable. We'll continue to focus on driving scale to improve profitability over the medium term. Current trading, Over the 1st 6 weeks of the second half, we've continued to deliver good outperformance and modest growth despite weakness in some of our key underlying and strong growth in RS Pro which were largely offset by ongoing softness in electronics. We are continuing to invest in supply chain and technology to drive further differentiation and share gains whilst accelerating cost actions to support near term performance. Overall, we are well positioned to deliver good progress. Moving on now in terms of how we can continue to disrupt and accelerate our performance. So what are we doing? We have numerous actions going on right across our business, and that will continue. Digital and mobile remain at the front of our agenda, and we continue to advance our mobile first approach. We've made good progress in electronics with some important steps to broaden our franchise position, and completed and with more to follow in terms of those opportunities. We've launched OkDo and built an exciting roadmap of new partnerships and franchises in the fast growing single board computing and IoT market. We do have a strong leadership team that has continued to perform despite the external challenges. And so we thought today that it would be good to bring Mike and Debbie up to talk about 2 of our key strategic initiatives. One, to improve our offer and roll out value added solutions, which Mike will cover, and then secondly, how are we going to build a truly centric lean and scalable supply chain model, which Debbie will cover. And so with that, I'll hand over to Mike, who will cover the first topic. Thank you, David. So, yes, Mike England, been with the business now for 4 years this Friday. It's been a really exciting journey. I've been in this industry for 23 years, and it's been a real privilege to be part of the electric components team and to be supporting the transformation of the business. We really are at the start of our journey. We've built some very strong foundations over the last number of years We've put a real focus right across the business around driving the right culture and behaviors in the organization something that I know that Linsley and the whole of the leadership team have been incredibly passionate about and underpinning that and intensive focus around our customers and making sure that everything we do is focused on what the customer needs and ultimately as well as a distributor making sure at the same time that we support our suppliers and are able to take to market the offerings that our suppliers are looking for. So on that note, just worth reflecting on the size of the market, because whilst we have had some good progress, our market remains enormous for us. And in fact, in all of the markets we operate, we have less than 5% market share. And as I would regularly say to all commercial leaders in the business, that means that there's a 95% growth opportunity to go after. And whatever is happening in the external world, we have to remain confident that if we build the right capabilities and we drive through on our strategy, we can succeed. But this is an important point for us as as David has mentioned about investing also for the midterm and the long term. So some of the things that I'll just bring to the table now for you some of the investments we're making. And I'll also just spend some time talking about why we're doing what we're doing and what that means for our customers as well. So you'll see here, a pyramid, which effectively is a summation of how we view, our markets. We segment our customers, over on the left hand side into 3 categories. We have our standard customers, which tend to be small, medium sized enterprises are looking for a transactional relationship with us and really just wants to come on to our website and buy products. And have a great customer experience. We have our key customers, which are mid sized, organizations, mainly based within one market and they have a medium spend potential with us, but are also looking for a high level of value and they're looking to consolidate more of their purchases to fewer suppliers. And at the top of the pyramid, we have our corporate customers, who are, often international or they're national, they have multiple site locations, often have central procurement, and they have a significant spend in many instances, where they're looking to consolidate a lot of their indirect spend and also their direct spend, to fewer suppliers on that consolidation journey. Beneath that, we work very hard to look at the vertical industry segments that we're we're wanting to target, making sure that we're focusing on, highly profitable growth areas and also moving, more into those non cyclical industry segments, which give us a great sustainable business. And then finally, right down to the customer persona, There are many different types of customer within, our, our overall customers that we serve and we need to make sure that we create differentiated offers that are that talk to and service the needs of those individuals within those within those companies. So if we just break that down and just as an example for Europe, we see Europe and EMEA as a 100,000,000,000 marketplace. And whilst we always will know that there is a higher number of standard customers to go after. Actually, when we break down the spend opportunity or the potential opportunity, we see a third in corporate, a third in key and a third in standard. So we want to make sure that we build out our capabilities as an organization to service the needs of those 3 customer segments. Let me move over on to the right hand side to explain a little bit more about the areas that we're focusing on and the areas that we're investing in. Certainly, for all of our customers, as David has called out, we'll continue to invest in our user experience, our digital user experience. Mobile first is a critical enabler and whilst we have built good capability, we're very excited of the work that's happening at the moment enable us to enhance our responsive website capability as we go into the start of our next financial year. And this is very important to make sure that we're always creating that ease of experience for our for our smaller customers as well as for our larger customers. But as we move into our corporate and key customer base, These are customers that are seeking much more value from our organization. And so when we talk about value added solutions, We really do see that there are 4 areas of focus for us and a typical customer, it could be a large corporate customer or a key account customer would certainly be looking to reduce their total cost of procurement, not just the reduction of the price of a product, but certainly the total cost associated with the procurement of products. And B2B companies in in the product ranges that we supply would have an average order value of about £150 and as SIPs will tell us, the chartered Institute of Purchasing And Supply, typically costs of GBP 90 to raise that purchase order. So anything we can provide as an organization through our e procurement platforms, enhanced opportunity for us to help customers to consolidate through digital media is certainly going to meet those needs. So we're investing to enhance our e procurement offerings. We've launched recently in the UK market, a new service called Connectpoint, which is a digital kiosk which we've launched out into number of customers and there's quite a lot of excitement about that. And for the very large customers, right at the top of the pyramid, actually those that are mature enough to want to outsource all of their indirect material requirements to our to Ayesa through the out through the business process outsourcing model and their business offers. The second area is around inventory and, yeah, most of our customers, whether they're building or whether they're maintaining, are carrying a high level of inventory spare parts or production parts, and they're carrying working capital and they're carrying cash. And certainly, there is a real drive from our customers for us to provide solutions that helps them to reduce the costs associated with their inventory and we've been very excited in our Northern European market to be the leaders in some new solutions, some open bin stocks solutions called Scanstock, which been rolling out to a to a wide range of customers in the UK and Northern Europe market. We're piloting industrial vending and again for those very large customers that are looking to outsource the complexity of that inventory management have the opportunity for the AISSA platform to provide a complete outsourced storage solution for those large manufacturing companies So building that portfolio of inventory solutions is very high on our agenda. For those companies that are in the maintenance environment, we're seeing a very big pull around the industrial internet of things and industry 4.0 and companies are really wanting to partner with the innovative suppliers that can help them on that journey towards connected factory and connected buildings. Our acquisition of a small business in the UK, Munition has enabled us to provide a platform which we believe is scalable and to take across the world. On the on on the other side, working with our suppliers to look at solutions that can provide cost savings for customers around products that can last longer and be more efficient is very, very critical. And then finally, we talk about design and innovation solutions and really this, this talks to all of our customers up and down the pyramid And we have a, a fantastic community called Design Spark where we have 850,000 members worldwide and that use this community to come and find new product innovation. They come and use this to learn about new technical innovation in the market as well as downloading free software that we believe is really adding value in the design phase. And then the emergence of okay doing single board computing is a key channel along with the electronic solutions that we're developing, along that design and innovation area. So these four areas for us are critical. And without them, we can't attack all of the market because certain customers demand that we provide these, we have some great solutions in place in some of our mature markets like Northern Europe and our our goal now is to lift and shift those solutions and we take them across our markets around the world as well as leaving our regions to be able to create their own solutions relevant for their markets, and also take some experiences from Asia Pac and the US and bring that back into Europe. 2nd area is around full range supply and product which I'm going to come on to and the 3rd area ultimately is about how do we go out then and market and sell the solutions and the offer as we move forward. So on that note, I'll move forward We've done quite a lot of, assessment, around the the product categories that our customers are ultimately looking to consolidate. And really assessing where we are today in relation to our product range fulfillment for those customers, but also where we sit alongside some of our larger more mature competitors. The good news, for us as an organization is that we already have a very, very broad range of products. Across the categories that our customers are looking to consolidate. What we now want to do is we want to accelerate the completion of those ranges and we want to ensure that we can provide that end to end solution to our customers underpinned by the value added solutions that I talked about. We can see that in some areas, we don't have a completed ball. We are targeting some areas where we know we can, we can accelerate our growth and also in other areas where we need to build our capability and we need to build our technical capability and expertise, this also helps us and leads us around our inorganic targeting as well. And needless to say that our private label business RS Pro, which is currently at 12% of our total business is a key area of focus here around how we accelerate. Now the enabler here to ensure that that happens is an investment in new technology. We've kicked off a new program, which we call products and content excellence in our world, it's called PACE, in April, which consists of 2 things really, consists of a new document management system to allow us to, to manage the technical data that our customers are looking for more effectively within our systems We've launched that last month, some great work by our teams and that's enabling us to move from 500 technical data sheets a week to thousands a day. So it really has transformed the way in which we're able to operate in that space then the secondary which is which is more significant is around the new product information management system. This new system is currently in a test phase at this point in time, we're starting to build out the capability and what this will enable us to do is 3 things. 1, it will allow us to significantly increase the product range that we have today, doubling our, our stocked offer and significantly increasing our non stocked offer as well as our private label range. Because today we have limitations in our existing PIM around the capacity for the products that we can we can house. Secondly, the ingestion of content and the ingestion of customer of supplier information into our website today is not as fast as we want it to be. The new pin will make this days and this is really critical to our suppliers. And finally, this will significantly improve the user experience. It'll give customers a quicker search It'll allow them to have a better journey when they're looking for products and we can tag value added solutions from the product pages that they may be interested in purchasing. So all of this is designed to target the key, the corporate, the standard customer and it's all about helping us to accelerate share of wallet. And that's the, the investment that we're making here. And then finally, just a word on, on what, what, we actually call the boot camp but this is really about how we've kicked off a value led selling effectiveness program across the world to ensure that we properly equip our marketing, our sales and our technical organizations so that they can take these solutions and these enhanced product offerings to market in a very effective September, end of September, early October, 60 of our commercial leaders, our country managers, our sales directors, our marketing directors, into Frankfurt. We had, Ken and Ken's team from the US and we have, the team from Asia Pac, come over as well as the European leaders which was a great opportunity to kick start this program and to get everybody aligned on a consistent value proposition an aligned way of going to market and importantly sharing best practice across the group to take where we've really driven hard our value selling effectiveness program in some of our mature markets where we can see real success and start the journey to roll that out into our other markets. It's also important to build the roadmap of how we're rolling out value added services and solutions across the world because this isn't just a case of building a sales capability but we need a sales to service delivery capability, which this is also kick started. So just in terms of the summary then of three areas. Number 1, building out a value added solutions portfolio and rolling that out across our markets. We're making very good progress and we look to see a an acceleration of rolling those out into our other markets certainly in the next 6 to 12 months and we're moving at pace to do that, kicked off by the value selling boot camp that we've recently done. Secondly, in terms of our product range expansion, And for us this is a 2 year journey and but we're going to be looking to see how we can extract, extract commercial leverage as we go as we embark on that program working with suppliers where we believe that we can go faster and we can accelerate market share gain. And thirdly, you know, we have a a really important differentiator in our business which is that we have a great digital capability and a great supply chain that Debbie is going to talk about. But actually for our key and corporate customers, They do value the human touch. They value an account manager. They value technical knowledge and support, and they they demand value and expertise. So if we can upskill our customer facing people to be far more value focused and we believe this is going to put us in good stead to win both short, medium, and long term. Our purpose in our organization is about making amazing happen to inspire, to innovate, and to deliver On that on that notion, I'll pass over to Debbie, who's going to talk to you about our supply chain. Thank you, Mike, and good morning, everyone. I'm Debbie Lynn's president of Global Supply Chain. I too have an anniversary this week. Didn't know that about you, Mike. So I joined the company 2 years ago tomorrow. So what an amazing journey I've had and having a lot of fun while I'm doing it. So what have I been doing for the last 2 years? Well, firstly, started with revamping our strategy. And our supply chain strategy, we're very, very proud of and actually quite transformational. So historically, we're very, very focused on costs. And yes, that's an important thing since we are accountable for the majority of the costs of the company. But it needs to be very customer focused. That customer needs to be in the heart of everything we do and we have to make sure that that is our priority first. So delight that customer and do that effectively and efficiently. The other say things that I'd like to share about our strategy is certainly that first bucket customer first is 1st and foremost, as I said, but it's also about building a high performance team within supply chain and joining the rest of the company. Both supply chain expertise and those leadership abilities. We do own costs for the company, the majority of which as well as inventory. I also have responsibility for pricing, so I dabble in gross margin a little bit as well. So I'll focus on cost savings, inventory savings, gross margin, and make sure making sure our inventory is available for our customers when where they want it. The 4th bucket is end to end processes and doing that with continuous improvement and lean, and we've rolled that out operationally across supply chain as well as the company. And then lastly, innovation in supply chain. What is the automation what are what is the technology and the systems that we need to be innovative in the industry? With that, I brought along a little bit of a little video that might give you a snippet of what we're doing. Could you roll that video, please? Electro Components lead the world in supplying industrial and electronic products. 1st choice means getting products to our customers when and where they need them on time every time. In many sectors, we are crucial in making sure our customers and partners can deliver their service our product efficiently, competitively and reliably. We are taking our supply chain on an exciting journey improving our service, flexibility and value powered by the exciting new technologies of digital transformation a journey which will ensure that electric components remain first choice. We've assembled 1 of the world's most experienced talented supply chain teams using the latest technologies we are transforming our global end to end systems. By mapping our processes and systems outside in from the customer view, we will deliver a constantly improving customer experience seamlessly integrating with both our customer and supplier systems to drive out inefficiencies and drive up reliability. Plus introducing tracking and dashboards so customers know the real time status of delivery, allowing us to offer a personalized choice for our customers. This transformation allows our staff to deliver even better customer service. We're giving them the skills, tools, and automated processes to free them up and we motivate them. Global supply chain services and solutions secure and robust packing with a goal to be 50% more sustainable by 2025. Collecting buying and receiving products will be easier, simpler, quicker, and more intuitive. We work with world class leading suppliers and partners globally, making it easy for them to reach our customers with consistent exceptional service, And by integrating our new supply chain systems with bears, we produce a seamless frictionless system that delivers first time every time by leading the world in supply chain transformation, we will continue to be first choice for our customers, our suppliers, partners and our service delivery team, electrocomponents, 1st choice in global supply chain. So as you can see, much more customer focused and all about that delivery, speed, quality, meeting our customers' expectations, but at the same time, reducing costs and doing that efficiently. So all about the tagline and the video delivering products when and where they need it on time every time, and we're very proud of that. So I wanna talk a bit about infrastructure and about some of the initiatives, some other initiatives that we've done in addition to that. Center network and actually doing more than looking at it and really evaluating the right locations to meet our customers' need to focus on that speed, but at the same time locating those distribution centers in the right place from a cost effectiveness. So we did we spent several months studying that, and we ended up deciding to expand our existing distribution center in Fort Worth, Texas in the United States and our existing distribution center in bed, Hertzfeld, Germany. It's about an hour a half drive north of Frankfurt. And we did that again. Because those are positioned in the right places to support our growth, to enable speed and delivery, but also quite cost effective from an efficiency and a transport perspective. I'll get into that in a bit a little bit more. I've got some pictures for you. So what are we doing? So we're expanding both facilities We're leveraging automation. We've put in quite a bit of mid level robotics, and we're upscaling our warehouse management systems to make them more efficient and very innovative. Certainly, we're building them for the future. And to support our strategy destination 2025. And you'll hear a bit about that later. We also kicked off a transport optimization initiative. What does that mean? Well, frankly, we have had a lot of complexity. We're kind of in the middle of it right now. Over 30 carriers globally, very suboptimized, and transportation is all about shipping the truck full in all directions. And how do you make sure that happens? Working along with carriers but less carriers in a consolidated way. So we're stepping that up. I would say we've barely managed transportation in the past. And so we've got a a key focus on that and managing that much more effectively. Again, not losing sight of our customers, delivering on time every time. And then thirdly, we've opened shared services. Across the globe and have specifically open center of excellent offices in 3 of our regions, our our 3 regions. So in APAC, we've opened a center of Excellence COE in Foshan, China. In Corby, which is a pretty big operating center for us, Corby, in the UK. And we're just about to open one in our Fort Worth Facility in the United States. And those shared services are all about streamlining processes, simplifying those processes and leveraging our scale around the globe. We're focused on those transactions, streamlining those end to end, and also putting some automatic robotics in that can address automatically those transactions and repetitive things that happen in the backroom from an administration perspective. So we're working on accelerating that. We've started that in our our China facility. So just a key point in in summarizing this slide. We're all about customer first. The customer is in the center of everything we do. We've transformed our strategy. And yes, we've got to be efficient, we've gotta reduce costs, but that customer is is delighting that customer is that main goal and doing that in efficient way. Because we have the advantage of our distribution center locations and the automation we've put in, our transport in our shared services. We do anticipate a reduction of our costs by 1 to 2% of cost of of a percent of revenue. That's over the midterm, and we're very, very excited about that. So delighting that customer and taking significant costs out is something that I'm very, very proud of. So just a bit more on our distribution centers. I thought it would be helpful to see a few pictures. So here's our facility in the Americas. Again, Fort Worth, Texas, and that is planned to be completed by June, actually up and running and fully operational by June 2020. And as you can see, we've got a building and actually inside that building, most of our automation is installed and we're in the midst of putting in our our upgraded warehouse management system and and preparing our product plan for that inventory that will go in there. So that, as I said, will be operational in June 2020. Our distribution center in Bedd Hertzfeld is exactly the same plan, but a year later. So talking about scale, exactly the same plan, a year later. We just about have the building. This this picture is actually a week or so old. So that roof is now finished. We've got most of the walls up and we'll be getting pouring the floor, putting the automation in. And then there we've significantly upgraded our warehouse management system, and we will be starting that. Next year. So very, very exciting. This will enable us to have two times the capacity both from a storage perspective and a throughput perspective, doing that in a much more productive way. They're in the right locations in terms of delivering that delivering WIS Speed to our customers, but also efficiently from a transport and a location perspective. Most importantly, it is a strategic investment to support our growth going forward. And that's out the next 5 to 8 years. So a significant investment which will which will enable us to double the size nearly more than double the size of our capacity and more than double our product range, which Mike and David mentioned earlier. So we're very proud of what we're doing. This is only a few things. But it's all about becoming 1st choice, supporting our destination 2025, And I've gotta add a little bit of a supply chain tagline on here to be the 1st choice supply chain delivering excellence Across the globe. And with that, I will hand it over to David. Thanks, Debbie. Thanks, Mike. So let's pull all of this together. So pulling this all together, we continue to believe that we remain uniquely positioned in this large marketplace. We've got a strong team and a clear strategy in which we are making good progress at executing. We'll continue to use uncertainty in our markets as an opportunity to invest to drive greater differentiation so that we can continue We will continue to invest the cash wisely, whether it be organically, or through digestible bolt on acquisitions to further accelerate the delivery of our strategy. We will focus on our strategic investments and the superior returns that these will deliver over the medium term. And finally, I really believe that we've got a leadership team that remains extremely excited by the significant opportunities that we've got out there. And we will continue Good morning, excuse me, it's Henry Carver from Peel Hunt. Just one actually from me. A reminder on the Net Promoter Scores across the group, obviously they're up which is good news, but I just wanted to feel for what the sort of high watermark is and what needs to be done still in in Asia, I guess? Sure. I guess, the best, the best NPS that we have across the group is in the 70s, in the low 70s. And I guess from an external perspective, world class or very good best in class is certainly in the 70s. And so whilst we haven't set a ceiling or, you know, it's sort of one step at a time for us, you know, so the group is in the, in the 50s, Our allied business or our North American business is in the high 60s. So we have our own internal aspirations that we certainly like to drive the NPS scores forward in all markets. And that's Europe and the Americas. We still think there's opportunities in the Americas. Certainly, the low watermark for us is APAC, but we still need to get some of the basics in place there before we can continue to see significant step forward progress in that market. It's a high priority. It's part of our leadership incentives, and so we want to really delight our customers, put customer first where a long way from where we think we can be over the medium to long term. Hi. Sorry. Sorry. Sorry. Sorry. Sanjay Vardi at Liberum. A couple of areas for questioning, please. First, in terms of supply chain costs and that 1 to 2 percentage points of savings versus sales, are you able to give any idea of what proportion of sales supply chain costs are. And within that, can you separate out or give some idea of the actual kind of DC costs versus delivery costs? And within delivery costs, are there any kind of initiatives you're looking at in terms of, obviously, you have kind of free next day delivery, but you're looking at the 60 of demand, as to how you can kind of manage that in terms of, premium propositions for delivery? When I start there, David, and you can talk through some of the numbers as well. So our our total cost of percent of sales from a supply chain perspective is 9 a half percent. Now, we've got some things in there like facilities, including offices. So, so it's got some unusual things in there, if you will. You asked about freight. That's 3 a half to 4 circa circa 3 a half to 4% part of that. In terms of premium delivery, it's about premium delivery to certain regions. So, for the vast majority of Europe, we are overnight. We're within 24 hours of delivery, which is best in class. We also offer same day delivery. Where we need some work is in APAC. And then in the United States, the vast majority of the states are reached within 24 hours, but not the outliers. Like Portland, Oregon, and Alaska, and those sort of things, and working on that as well. And in terms of the ficity. I think sort of the first step for us is to get the 2 DCs up and running. We will gradually bring in the new inventory into that, again, sort of a gradual introduction. We're not just going to flood these DCs and trash the inventory turn or sorry, reduce the inventory turn materially, but we're looking to it's very much a planned introduction of new inventory as we then scale up those two facilities, we will certainly get some leverage, which is part of the the operating efficiencies that Debbie referred to earlier. Okay, thanks. And one other question. On the strategic investment OpEx, and the 1,000,000 in the first half. I think you've talked in the second half about some mitigation from efficiencies, but can you give some idea of what the strategic investment is likely to be in the second half? It will be, we will offset some of it with the savings initiatives that we've got underway so it certainly won't be equivalent to the 8,000,000 in the second half. It will be a smaller number than that. Sorry. Many mics around. It's Rory Mackenzie from UBS. And ask them first question to another mic. You mentioned how now is the time to invest as customers feel the pressure, and maybe your competitors do as well. You're growing shale already, but which areas of that pyramid you talked about? Do you see the biggest chance of disruption and gaining share? I guess it's not quite like the high street where, you know, CVAs capacity. So how is that actually playing out in reality at the moment? And then, David and then maybe Debbie actually on the gross margin. It sounds that you still expect the same dilution from mix through H2. You've mentioned price initiatives. Can you give more detail about which areas you can push on that and what we should expect Thank you. So the answer to the first is that, we actually want to win in all three. And actually the initiatives that we're driving when I talked about the user experience, and looking at how we want to really drive that mobile first capability as well as improving the overall end to end web experience. Whilst that's highly targeted at the standard customers, the small customers, and we want to bring much more visitors into the shop. At the same time, that capability will also assist us in building out the value added solutions capability because everything that we do and everything we develop, we want, we want ultimately to be standing on the same platform so that customers can have a true only channel experience. I think the, the very valid solutions and the product range expansion that we've talked about, you know, are very much targeted at the larger customers who are very much seeking that consolidation journey. And the reason why I think that that is important for us to call out is that, the markets are consolidating and the customer markets are consolidating. So we're having a stronger demand for pan European customers that want to consolidate multiple drug, multi geography as well as global customers that are also seeking for us to be able to provide them with that opportunity worldwide. So actually they're demanding us to have a similar capability in all of our markets and be assured that we can provide those solutions, you know, where they're operating. And we're seeing already that where we have put these solutions in place and where we demonstrate that we can expand out the product portfolio. We're winning more business than we were winning before. We're gaining much more opportunity than we were gaining before. And actually, you know, if I go back to when I joined the organization 4 years ago, I think this business was seen as quite a transactional company, and perhaps seen by customers as being the 2nd supplier or the supplier they go to when their primary supplier can't service them. And I truly believe that we are changing that mindset with our customers, through that pyramid, to be an organization that is seen to truly add value. So David, I'll start a little bit on the pricing tool and then let you answer the rest of it. So, something that I did not mention, which is part of our strategy, is we've put in a new pricing tool, which we're very excited about and we're in the midst of rolling it out, so it certainly isn't all the way at its destination. But what that enables us to do is be more competitive. It scrapes does things like scrapes websites, researches automatically what our competitors are doing in marketplace, and that's overlaid by, our colleagues that work very closely with Mike's group as an example on what happening from a from a local perspective. You put that all in the tool and it enables us to be much more effective in an automated way. It also gives us an opportunity to do more dynamic pricing as we choose to do so versus what was once very laborious and manually keep punching things into a system. So we're really excited about that. From a gross margin perspective, we've guided that we do expect to see some moderation in the gross margin in the second half, but we do anticipate the margin will be the gross margin will be down for the full year, although we'd like to obviously address that, but, we are guiding for it to be down for the full year. There are a number of factors. 1 is there's pricing initiatives that we've got ongoing, but also there's the buy price as well, which we're working with our supply eyes. And so again, we're looking at this from all angles. There is some mix effect. It's both product and geographic, but we're just dealing with it as best we can and we understand the importance of gross margin our teams do, and, we'll continue to focus on it accordingly. Morning. Can I ask a question on two areas please just first of all coming back to the US? So what comfort can you provide us just regarding some of the drivers in revenue momentum over the last month or 2. So I think you dealt with pre effectively in the text, but just to confirm that the distribution center presumably is not creating any disruption for the business at this point in time. You mentioned that the order book is up. I wonder if you can give us some details on that in the past, you talked about book to bill ratio in the States. So maybe that's a thing. Might be well timed to share with us now. And secondly, if we think about tariff effect in the U. S, which parts of the business are affected by that because presumably not everything that you stock are impacted by tariffs and therefore why would that uncertainty be having an impact on the business at this point in time? And then a really easy one. Could you just compare the terms of your new USPP issue relative to the old one, please? Great. Thanks for those 4 questions. Fine. So let's start with tariff. The direct impact on tariff to us as a business in the U. S. Is minimal because the number of products that we are selling, is very small, the percentage there. The indirect impact in the supply chain is quite significant. So what we've seen is that the end customers or manufacturers at OEMs are actually trying or are taking inventory out of their supply chain so that they don't get caught with high tariffed products that then the tariff then reduces or is eliminated And so we've certainly seen a contraction in the demand and it's been sort of a bit more sort of, bit like a roller coaster. What we've seen in terms of the drivers of the revenue, we've seen a very strong order intake in the U. S. We just haven't seen the call offs during particularly the month of October. We've seen customers have then booked those call offs. And so our bookings for shipments in the month of no sorry, in the month of December are very, very strong for this point in the cycle. And so we're very we remain confident that there is certainly a changing in the dynamics in the marketplace, but the underlying mechanics or dynamics within the marketplace and not necessarily changing. It's just a timing factor. We don't there's certainly no impact from the warehouse side of it. It is segregated and so the existing warehouse has not been impacted whatsoever. The order intakes up, the tariff effect is minimal direct And then in terms of the USPP, it is longer term. So we have 7 to 12 year time periods. We have U. S. Dollars and euros, but it comes at a slightly higher interest cost but we felt that given the circumstances in the market, it was exactly the right thing to do to refinance accordingly. But we can provide full I think we have announced, but although we can provide full details certainly in terms of the terms. I think that's it. I'd just like to thank you all. As I said, we're on a journey we're committed and we'll continue to progress. So thank you for your time.