Good morning, everyone, and welcome to the RS Group Q3 results. My name is Drew, and I'll be the operator for today's call. During today, we will have a Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. To withdraw your question, it's star followed by two. If you are on the webcast and would like to submit a written question, please click the question box and type out your question. Lastly, please limit yourself to one question and one follow-up. It's now my pleasure to hand over to Simon Pryce, Chief Executive Officer, to begin. Please go ahead.
Good morning, everybody, and thanks for joining us this morning, and welcome to this Q&A after the release of our trading update earlier today. In brief, as you might have expected, weakening Q3 industrial production and PMI data, mainly in Europe and particularly in the U.K., together with a weak two weeks at the end of December, means that our Q3 trading was a bit softer than anticipated. Whilst we've seen trading recover in January, in line with our revised expectations, we don't think we're actually going to catch back up the weaker Q3 trading with only two months of the year left, and therefore we're guiding to full-year profit before tax being around the bottom end of the current consensus range.
More importantly, as I look across the business, I'm really pleased with the progress we continue to make as we drive efficiency, execute better, and continue to deliver share gains even in these challenging markets. And whilst PMIs have softened, we continue to manage our cost base effectively, whilst maintaining our investment in a controlled way to further strengthen our already differentiated proposition and to better position us to generate stronger and more sustainable returns in the future, which will accelerate when markets return to growth. So with that, I'll hand it back to Drew, who will facilitate the Q&A session. Drew, over to you.
Thank you very much. If you would like to ask a question today, please press star followed by one on your telephone keypad. To withdraw your question, please press star followed by two, and if you are on the webcast, you can ask a question by clicking the question box and typing in your question. As a reminder, that is star followed by one on your telephone keypad. Our first question today comes from James Rose from Barclays. Your line is now open. Please go ahead.
Hi there. Thanks for taking my questions. I've got two, please. The first is for the UK, specifically within EMEA . Could you perhaps give us a number for how that business has traded? Secondly, is there a view on a sort of exit rate that you could talk to? You sort of mentioned January, perhaps that's a bit more stable, but I mean, how would you think about EMEA for the fourth quarter? And then thirdly, if we think about the level of OpEx inflation still running in the business in both FY25, FY26, what's your latest thoughts there? Thank you.
Thanks, James. We're not going to get down into country-level quarter-on-quarter detail, but just to re-emphasize what I said both in the announcement and in my introduction, we did see PMI data soften in EMEA in Q3 and particularly in the UK from November, and that is the principal area where trading was weaker than we anticipated. The exit rate is alluded to, and I'll come into comment about January trading being in line with expectations, and we're comfortable that markets have stabilized, but PMI data has yet to demonstrate a sustained recovery, and so it's still quite challenging out there. And costs, Kate, for 2025 and 2026?
Inflation costs in 2025 will be ordered around 3-ish%. Just to kind of remind you as to how inflation works within RS, our salary increases go in June every year. With regards to next year, clearly we're still working through our budget numbers, but in our markets, weighted inflation is sitting at around 3-4%. That includes the MW increases that came out of the UK Budget.
I think just to sort of conclude on next year, James, I don't know what people are going to do after this call, but our view is it makes most sense for us to continue to plan for relatively low growth and soft markets until we see a more sustained improvement in PMI data.
Thanks . Thank you.
As a reminder, if you would like to ask a question on the conference side, please press star followed by one. And if you would like to submit a written question on the webcast, please click the question box and type in your question. Our next question comes from Karin So from JP Morgan. Your line is now open. Please go ahead.
Thank you. Morning Simon and morning Kate. Just around the tariffs, maybe on that basis, how should you mention around?
Hey, Karin. Unfortunately, I can't hear you. You keep cutting out. Is there a way you could use the chat box or find a clearer line?
Yeah. Sorry, can you hear me now, or is this better?
That is better.
Yeah. So my question is around the tariffs. Maybe if you could remind us about your exposure there in Mexico and China as well. Based, how should we read the strength in Mexico and the strength in Americas? How much of that do you see as clients pulling forward? Hopefully, that went through.
I think, sorry, you kept cutting out, Karen, but I'll try. I think it was a question about tariffs. It's still too early to understand what is going on in reality on tariffs versus what is political positioning. Importantly, though, we need to think about tariffs in two or three different ways. Firstly, it's the tariffs on goods that we import into our central and regional distribution centers where that's sourced out of Mexico and China. That's principally an issue for our suppliers, and most of them have been busy working on managing their supply chain for a number of years. So we don't see a major issue with suppliers supplying from high-tariff areas and being unable to find an alternative. Second, we don't do much cross-border trading into the U.S. from Mexico, from China, or indeed from Europe. So that's not really an issue for us.
Thirdly, tariffs, because we have pricing power, generally are passed on in the cost price or as a separate line item to customers. And fourthly, because we're a broad-range electrical and industrial automation MRO provider, we carry a broad range of brands and product alternatives. So if you go back and take a look at, we've also experienced the first version of tariffs under the last Republican administration. And if you go back, you'll see we were able to weather that without really any material impact and indeed a little bit of benefit.
Great. Thank you.
As a reminder, if you'd like to ask a question on the conference call, please press star followed by one to submit a question and star followed by two to withdraw. If you would like to ask a question on the webcast, please click the question box and type in your question.
Drew, we have one question on the webcast. Would you like to ask, please? Given the strength in Asia-Pacific, is it fair to say electronics conditions have improved?
I wouldn't have said they've improved. I would say they're not getting materially worse. I think we have seen two years of both reducing demand and supply chain unwind, and it certainly doesn't seem to be falling at the same pace, and if anything, it's stabilizing, and indeed, even in a couple of areas, we are beginning to pick up a little bit of that share that we lost over the last couple of years as people get back to a more normal way of buying for production.
I've got another question, actually, on the webcast. Just coming back on the cost inflation for 2025, well, for 2026, actually. Given the ongoing weak PMI situation and your comment that you should continue to plan cautiously in Europe in particular, could you maybe flesh out your plans for cost mitigation rather than just allowing for the 3%-4% cost increases on a potentially stable top line? So just in terms of where we are, just as a reminder, as to the cost base dynamic that we have, about 6% of our costs are variable in relation to revenue. And we're still very much in the process of our budgeting dynamic. So, the indications of inflation are a reflection of the metrics that we're working with at the moment. And we are and intend to continue to invest in our business.
We think it's very important that we continue around the strategic actions that we talked about in CMD as they position us well for market recovery and ensuring over the long term we can have a more productive fixed cost base more sustainably. So therefore, there will be a continuation of the integration and restructuring costs into next year. We also expect more benefits to come through into next year. So I would expect the behavior of the cost base in full year 2026 to reflect those assumptions that we made, which are similar to the assumptions in 2025.
And I suppose I just tailor this question with something that I said at the introduction, which is that we're making really good underlying progress at RS, as we told you back at our Prelims last year. We do see significant opportunity by investing sensibly and in the right place to better position RS to benefit both from the existing business it does and also to accelerate share gain and our gain of market when it gets back to growth. We've made really good progress on our digital and technology platform improvements, our e-commerce capability. We're introducing major changes to our Delivery- to- Promise capability. We're improving our customer relationship management. We're beginning to use cleansed and effective data and to leverage much more analytics in the decisions we make.
And all of this is as a result of the investments that we have made and will continue to make going forward. But clearly, we're mindful of the trading environment in which we play, and we'll continue to ensure that that investment is appropriate, positions the company well for recovery, but is not excessive given that we're anticipating a flatter 2026 than we might have said a year ago.
As a final reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. And if you are on the webcast and would like to submit a written question, please click the question box and type out your question.
All right. Thank you. Yep. Okay. So no one on the webcast. Can you just elaborate on the comment that you think you're taking share? Can you please point us to where that is most evident regionally? And maybe can you quantify the numbers at all? Just remind me what measure you used for market shares, please?
Thank you. It's always an interesting question. Talking about market share, as you know, it's quite difficult to define the markets in which we play. More importantly, it's quite difficult to measure them quarter on quarter. The way we test that, whether or not we're gaining share or not, is talking to our suppliers. We have about 200 nodes. We have about 2,000 suppliers, all of which are key. But there's sort of two, just over 200 of them that will share with us on a quarter-by-quarter or half-year-by-half-year data around the growth or otherwise in the distribution channel to market, and then the growth or otherwise of the participants in that channel. And we continue to gain share in virtually all of our suppliers' channels. And that's the source of how we verify whether we're gaining share or not. I think we also look at things by product category.
And I think we're gaining share across all categories with the exception of particularly semis and passives in electronics, which we talked about a lot before. We benefited from supply chain constraints to when we had availability to deal with customers we wouldn't traditionally deal with. And in one area, connectors where we have a particular supplier issue, which we've now dealt with. So pleased with the continued share gain that we see. Our suppliers are pleased with what we continue to do. But clearly, we're doing it against the background of quite a tough market. So it's difficult to see that in our top-line numbers.
A follow-on from that is actually asking in regions or countries.
I sort of, I don't think we're going to get into talking about regional share or individual country market share, but it's pretty much across the board.
Okay. Another question online. Referencing the stability in January, does this include the UK? And does this imply a year-on-year stability?
I think we refer to stability in line with our revised expectations. I mean, it is more stable, but it's still quite challenging in the U.K. Everywhere else is actually not a bad place.
I think that's all the ones we've got on the webcast now, Drew. Any more come in? But otherwise.
We have no further questions and dialed in either. So, I'll hand back over to Simon for some closing remarks.
Great. Thanks, Drew. Thanks, everybody, for attending relatively early this morning. And I think the main message we're trying to say is that we had a weak Q3 for the reasons I've outlined. I don't think we're going to catch that up in the last two months of the year. Trading has stabilized, but we haven't seen a sustained recovery in PMIs across the globe really yet. And so we're going to be pretty conservative going into 2026. The most important thing for me is the business is performing on an underlying basis much better than it would have done a couple of years ago. We are making significant improvements in our underlying processes and infrastructure. We're continuing to gain share while we do that. And this is positioning us for much more sustained and high-quality growth and value creation, particularly when markets return to growth, which they certainly will.
Thanks for your interest.
That concludes today's call. You may now disconnect.