Half-year Report

RNS Number : 7379E

Electrocomponents PLC

10 November 2020

10 November 2020, 7.00 am

ELECTROCOMPONENTS PLC

RESULTS FOR THE HALF YEAR ENDED 30 SEPTEMBER 2020

RESILIENT PERFORMANCE, MARKET SHARE GROWTH AND IMPROVING MOMENTUM

LINDSLEY RUTH, CHIEF EXECUTIVE OFFICER, COMMENTED:

" Electrocomponents has delivered a resilient performance with significant market share gains and robust cash generation despite the challenges our suppliers, customers and teams have faced whilst keeping safe. Over the last five years we have repositioned Electrocomponents to become a omni-channel and service-led solutions provider of a wide range of quality products and services. We are simplifying our business further and accelerating efficiency gains, enabling the Group to grow faster.

We are in difficult and uncertain times and we remain cautious about the economic outlook. However, what has become clear, especially over recent months, is that our value-added solutions offer provides competitive advantage, gross margin support and customer engagement that ensures customers are won and retained. Meanwhile our industry-leading omni-channel proposition positions us well versus peers. The operational building blocks and financial strength are in place for Electrocomponents to accelerate future growth and deliver ongoing outperformance."

Highlights	H1 2021	H1 2020	Change	Like-for-like¹ change
Revenue	£908.9m	£978.7m	(7.1)%	(7.3)%
Adjusted² operating profit	£77.6m	£105.6m	(26.5)%	(26.5)%
Adjusted² operating profit margin	8.5%	10.8%	(2.3) pts	(2.3) pts
Adjusted² profit before tax³	£74.3m	£103.4m	(28.1)%	(28.1)%
Adjusted² earnings per share	12.8p	17.8p	(28.1)%	(28.1)%
Operating profit	£58.9m	£91.2m	(35.4)%
Profit before tax	£55.6m	£89.0m	(37.5)%
Earnings per share	9.5p	15.2p	(37.5)%
Interim dividend	6.1p	5.9p	3.4%
Additional 2020 interim dividend	9.5p
Adjusted² free cash flow	£85.0m	£13.9m	511.4%
Net debt	£114.8m	£220.7m
Net debt to adjusted² EBITDA	0.5x	0.9x

Resilient performance driven by service-led proposition to deliver market share gains

· Continuing focus on our employee physical and emotional wellbeing

· Significant market share gains

· Momentum continued to build in all regions in H1

· Ongoing outperformance from RS PRO which now accounts for c. 14% of revenue

· Digital, which accounts for c. 62% of revenue, performed in line with the Group, but outperformed in Q2

· Ongoing emphasis on best-in-class customer experience - Group Net Promoter Score (NPS)⁴ rose 2.9% to 56.3

Strong operational improvements more than offset by COVID-19 costs

· Gross margin of 43.2%, down 0.5 pts; underlying gains offset by COVID-19 freight costs and inventory provisions

· Additional £8.8 million of outbound freight and labour operating costs due to COVID-19

· Adjusted operating profit margin down 2.3 pts to 8.5%; adjusted operating profit conversion of 19.8% (-4.9 pts)

We are simplifying the business further to accelerate Destination 2025 and position the Group for faster growth

· Simplifying and flattening the operating model further to serve our customers and suppliers better

· Increased focus on sales mix and cost efficiencies to deliver our mid-teens adjusted operating profit margin target

· Strengthening and empowering the Group to take advantage of future growth opportunities

· Expect to achieve £25 million of net operational savings within two years; £22 million of associated costs

Dividend reinstated supported by strong free cash flow generation

· Dividend payments resumed given increased confidence in business model and financial strength

· Previously deferred 2020 final dividend of 9.5p will be paid as an additional interim dividend

· Interim dividend of 6.1p for H1 2021, in line with normal Group policy

· Strong cash flow control delivered adjusted free cash flow of £85.0 million (H1 2020: £13.9 million)

Well positioned for future opportunities with significant balance sheet headroom and liquidity

· Emerging stronger from the crisis to take advantage of, and accelerate, our growth ambitions

· Net debt of £114.8 million (H1 2020: £220.7 million) and net debt to adjusted EBITDA of 0.5x

· Sufficient liquidity with £446.0 million of committed facilities, of which £289.1 million are undrawn

Current Trading

Over the first five weeks of H2 we have continued to see momentum across all regions. We saw market share gains in Industrial and continued positive growth in RS PRO. However, we remain acutely aware of the challenges and uncertainty we all face as we navigate through this global pandemic, with further lockdown restrictions in some of our key markets meaning COVID-19 related costs are unlikely to ease slightly as previously hoped. Thus, although we are confident about the strength of our business, we remain cautious about the economic backdrop and short-term uncertainties.

(1) Like-for-like change excludes the impact of acquisitions and the effects of changes in exchange rates on translation of overseas operating results, with 2020 converted at 2021 average exchange rates for the period. Revenue is also adjusted to eliminate the impact of trading days year on year. Acquisitions are only included once they have been owned for a year, at which point they start to be included in both the current and comparative periods for the same number of months. All acquisitions had been owned for more than a year at 1 April 2020. Currency movements decreased revenue by £1.7 million, extra trading days increased revenue by £3.7 million during the period.

(2) Adjusted excludes amortisation of intangible assets arising on acquisition of businesses, substantial reorganisation costs, substantial asset write-downs, one-off pension credits or costs, significant tax rate changes and associated income tax (see Note 12 on pages 27 to 30 for reconciliations).

(3) Currency movements decreased adjusted profit before tax by £0.1 million.

(4) Rolling 12-month NPS is a measure of customer satisfaction.

LEI: 549300KVXDURRKVW7R37

Enquiries:

David Egan, Chief Financial Officer	Electrocomponents plc	020 7239 8400
Lucy Sharma, VP Investor Relations	Electrocomponents plc	020 7239 8427
Martin Robinson / Olivia Peters	Tulchan Communications	020 7353 4200

There will be a virtual analyst presentation today at 10.30am GMT. We will provide an audio webcast, which can be accessed live, and later as a recording, on the Electrocomponents website at www.electrocomponents.com .

Notes to editors:

Electrocomponents plc is a global omni-channel partner for industrial customers and suppliers who are involved in designing, building or maintaining industrial equipment and facilities. We aim to offer our customers unrivalled choice of product technologies, solve problems with innovative solutions and deliver a world-class customer experience, making it easy to do business with us.

We stock more than 500,000 industrial and electronic products, sourced from over 2,500 leading suppliers. We solve problems and provide a wide range of value-added solutions to over one million customers. With operations in 32 countries, we trade through multiple channels and ship over 50,000 parcels a day.

Electrocomponents plc is listed on the London Stock Exchange and in the last financial year ended 31 March 2020 reported revenue of £1.95 billion. Electrocomponents plc has six operating brands; RS Components, Allied Electronics & Automation, RS PRO, OKdo, DesignSpark and IESA.

COVID-19

We responded quickly and decisively to the COVID-19 crisis and continue to support the needs of all our stakeholders. However, the situation around the pandemic remains fluid, volatile and uncertain in all geographic regions and thus we do all we can to maintain our high levels of safety, service and care to all. We have moved from crisis to 'business as usual', albeit at COVID-19 compliant levels. We are taking the following actions:

· Ensuring the health and safety of our people: Our distribution centres (DCs) and offices operate with social distancing and safety measures in place with appropriate personal protective equipment (PPE) and sanitisation for employees. Where possible, our office-based employees are working from home while our 'Keep Connected' website delivers important wellbeing and communication resources to keep everyone in touch wherever they may be. Our Group crisis management team continues to develop and adjust business continuity plans on an ongoing basis.

· Maintaining our high service level to our customers and supporting our suppliers: We continue to provide a reliable service and supply chain continuity for our customers and suppliers, supported considerably by our strong digital proposition. We remain committed to paying our suppliers to agreed terms and have continued to offer our best-in-class service.

· Supporting our communities: We have played a key role in our local communities and will continue to do so. This has to date included providing technical resource to build supply chains for the manufacture of ventilators and other medical devices; 3D printing and distribution of PPE; launching 'Kits for Kids' to support home schooling; and launching a global distributor support line to continue to supply critical parts during the crisis.

· Delivering value for our shareholders: We continue to focus on business performance and take appropriate actions to protect profit, conserve cash, improve liquidity and strengthen our balance sheet whilst continuing to invest for the future. Given the resilience of our business we have not taken UK government furlough support for our employees.

RISE

Destination 2025, launched in June 2019, identified a number of key initiatives to become the first choice for our customers, suppliers, people and shareholders. Our objective was to deliver this through our purpose of 'making amazing happen'.

Prior to COVID-19, we began to look at ways to accelerate the delivery of Destination 2025, enhance returns and strengthen our execution capabilities for both organic and inorganic growth. The experiences through COVID-19 have been invaluable to ensure that we are best aligned to the new norms, capturing new opportunities, ensuring we remain relevant, agile, innovative and able to RISE to the future and become first choice.

The RISE programme will focus the business further by streamlining and simplifying the model to build a lean and scalable operation capable of delivering accelerating growth and higher returns, focusing on three key areas:

· Simplify the way we operate, enabling us to go faster

o Implement a consistent go-to-market approach and proposition across our three regions.

o Flatten the structure in EMEA and remove the sub-regions.

o Integrate Group and local teams in Marketing, Digital, Innovation and Product and Supplier Management supporting our three regions.

o Evolve our culture, develop our leadership model and unleash our talent.

· Identify ways to improve gross margin

o Identifying the opportunities to increase the sales mix and find ways of reducing the cost of what we sell.

· Identify ways we can operate for less

o Running our business in a more effective and efficient way, leveraging scale.

Our longer-term aim remains to generate a mid-teen adjusted operating profit margin and drive an adjusted operating profit conversion of 30%.

The implementation of this proposed programme is progressing well.

Our primary goal is to set the business up for continued growth and success. One output of these initiatives in generating a simpler, more efficient operating model is the delivery of cost savings. These are expected to total c. 25 million of net benefit through labour and non-labour operational improvements. These benefits will be delivered over a two-year period with the majority expected in 2022 (expected phasing of £7 million in 2021, £15 million in 2022 and £3 million in 2023). The total cost of implementing the changes will be c. £22 million (estimated to be £20 million in 2021 and £2 million in 2022).

DIGITAL

Digital, which accounts for c. 62% of Group revenue, performed in line with the Group trend over H1. Performance was affected at the start of COVID-19 due to a fall in corporate customer demand which temporarily affected eProcurement and RS PurchasingManager^TM revenue. Despite this, we saw good growth in both website visits and new business-to-business (B2B) and business-to-consumer (B2C) customers; an uptick in the latter driven by searches for health and safety, and PPE products. This change in sales mix led to lower conversion rates and lower average order value (AOV).

In the second quarter, we have seen a return of our more normal customer base, in line with industry and the manufacturing sector returning to work, and a corresponding recovery in key metrics. Q2 digital revenue outperformed the Group trend by 1.4 pts as momentum improved during the quarter. EMEA exited the first half with year-on-year growth in eProcurement revenue and paid visits. Asia Pacific and the Americas lag EMEA due to lower digital penetration, but momentum remains positive and on an upward trend.

Our digital offer is backed up by our core operational capability in terms of strength of supply ensuring
industry-leading availability for our broad product range while our logistics and DC network has ensured continuity of deliveries to our customers. The strength of the Group's omni-channel offer, with digital allowing ease of ordering and our salesforce providing specialist customer service, allows us to continue to take market share as customers increasingly consolidate supply leading to higher AOV.

BREXIT

Our Brexit working group continues to assess and plan to mitigate the key business risks as the transition period post the UK's exit from the European Union (EU) finishes on 31 December 2020. Our key activities have focused on:

· Communicating and working very closely with customers and suppliers.

· Increasing the level of inventory as a business continuity contingency plan. We expect this to be c. £15 million of additional inventory to take the Group past the end of the Brexit transition period, but for this to have been largely utilised by our year end.

· Our technology teams are working hard to ensure that all systems and processes are updated, working and compliant when the transition comes to an end.

· We are working with our transport partners to ensure an as-seamless-as-possible flow of goods and services across borders.

· The extension of our Germany DC, to be completed during the summer of 2021, will provide a more substantial distribution platform for the future as we grow further in Continental Europe.

We will remain flexible and agile in planning our mitigating actions to address any changing requirements that could arise close to the end of the transition period.

ESG

We are committed to ensuring that the Group sustains the highest standards of corporate governance and is socially and environmentally responsible. Our environmental, social and governance (ESG) plan helps ensure we deliver economic, environmental and social value to our stakeholders with an approach that aligns with six of the United Nations Sustainable Development Goals.

Our Chief Executive Officer is responsible for corporate responsibility matters. We have a Group-wide ESG team, led by our President, Global Supply Chain, which has developed a robust implementation programme to ensure ongoing delivery of our ESG plan across all brands and functions within the Group. Targets and non-financial key performance indicators (KPIs) are in place to monitor progress across our four ESG pillars: environment; people and health & safety; customers and suppliers; and community. Our ESG plan is being integrated within our Destination 2025 strategy. We are also working to implement further ESG performance opportunities and to develop net-zero targets for CO₂ emissions.

OVERALL RESULTS

	H1 2021	H1 2020	Change	Like-for-like¹ change
Revenue	£908.9m	£978.7m	(7.1)%	(7.3)%
Gross margin	43.2%	43.7%	(0.5) pts	(0.5) pts
Operating profit	£58.9m	£91.2m	(35.4)%	(35.4)%
Adjusted² operating profit	£77.6m	£105.6m	(26.5)%	(26.5)%
Adjusted² operating profit margin	8.5%	10.8%	(2.3) pts	(2.3) pts
Adjusted² operating profit conversion	19.8%	24.7%	(4.9) pts	(4.9) pts

(2) Adjusted excludes amortisation of intangible assets arising on acquisition of businesses, substantial reorganisation costs, substantial asset write-downs and one-off pension credits or costs (see Note 12 on pages 27 to 30 for reconciliations).

Revenue

Group revenue in H1 2021 was £908.9 million (H1 2020: £978.7 million), a decline of 7.1%. During the first half the Group saw a positive impact of £3.7 million from additional trading days and a negative £1.7 million from foreign exchange movements, resulting in like-for-like revenue falling by 7.3%. Trading was significantly impacted by the COVID-19 pandemic, with many customers reducing output, or even closing temporarily, during regional lockdowns. As restrictions have eased, we have seen an improvement in trading momentum delivering a 4.0% like-for-like decline in Q2 after a 10.8% like-for-like decline in Q1.

We have continued to outperform the market in our key product categories and drive market share gains as our customers have relied on our product availability, breadth of range and experienced team to deliver products and services in time and ensure their trading continuity. Our trading performance has not benefited from health and safety, and PPE products; which account for less than 3% of our total revenue. The Group outperformed the market in Industrial, with a single digit decline, and maintained share in Electronics.

All three geographic regions - EMEA, the Americas and Asia Pacific - showed improving momentum through the first half, with EMEA and Asia Pacific exiting the half year in positive growth, excluding OKdo.

Digital performed in line with the Group as a whole in H1, but worse in Q1. This was due to a significant reduction in corporate customer activity, which accounts for c. 20% of digital revenue, as we entered lockdown and businesses pulled back production. Trading improved in Q2 with good growth in both website visits and new B2B and B2C customers.

Our own-brand range, RS PRO, outperformed the Group with like-for-like revenue growth of 2.3%. Its performance improved throughout the period, delivering 7.9% growth in Q2 and now accounts for c. 14% of Group revenue. OKdo, the Group's single-board computing (SBC) and Internet of Things (IoT) business, which accounts for c. 4% of revenue, continues to move away from lower margin business and thus was a small drag on Group like-for-like revenue.

Gross margin

Group gross margin declined by 0.5 pts to 43.2% (H1 2020: 43.7%) on both a reported and like-for-like basis as the foreign exchange impact was broadly neutral. Excluding COVID-19 impacts, gross margin saw an improvement, driven by pricing initiatives, discount discipline and mix benefits. This improvement was more than offset by two pressures that related to COVID-19:

· additional inventory provisions due to changes in customer ordering patterns leading to some slower moving inventory and price declines of certain PPE products now that supply is more plentiful.

· higher inbound freight costs from suppliers and between our DCs globally as air freight prices have escalated.

Given COVID-19 lockdowns have returned in some countries recently we see less likelihood of these associated costs easing in the second half as previously hoped.

We remain focused on improving gross margin through better buying, more focused pricing, sourcing initiatives and ongoing mix benefits, including the growth in contribution from RS PRO and value-added solutions. The latter is a differentiator with much of our competition and it improves our service to customers, increases demand for our suppliers, raises the product margin, increases customer retention and drives economies of scale. Growth in OKdo will continue to have a slightly dilutive effect.

Operating costs

The Group continues to simplify its operating model in order to improve efficiencies and drive higher conversion of gross profit into operating profit. We recently launched RISE which will take this further and deliver operating cost benefits going forward.

During the first half total operating costs, which include regional and central costs, fell by 0.9%. Excluding substantial reorganisation costs, amortisation of acquired intangibles and 2020's substantial asset write-downs, total adjusted operating costs fell by 2.3%, 2.1% on a like-for-like basis, to £314.7 million (H1 2020: £322.1 million). This tight cost control was driven by lower volumes, labour savings, digital advertising efficiencies and lower regional offline marketing. The Group did not make any furlough claims in the UK. Overheads remain under control and we continue to generate underlying efficiencies within all regions.

Additionally, we incurred £8.8 million of COVID-19 related costs which relate to:

· increased outbound freight costs when delivering product to customers.

· labour inefficiencies as we adhered to social distancing within our DCs and offices.

· additional operational costs to support our remote working.

These extra costs, while relating completely to COVID-19, may take time to unwind naturally depending on how quickly the pandemic passes and how the environment changes going forward. There are several actions we are taking internally to mitigate some of these pressures, such as increasing sea transportation versus air freight and sourcing more locally. Our supply chain is working hard to ensure that this does not disrupt deliveries to customers and requires minimal inventory investment.

Despite COVID-19 disrupting customer demand, we continue to invest in areas such as technology, software, IT and people to ensure the business remains strong with a well-built core operational base and so able to take advantage of any growth and strategic opportunities.

Given the challenges presented by COVID-19 and additional cost measures, our adjusted operating profit conversion decreased by 4.9 pts to 19.8% (H1 2020: 24.7%). We expect this to improve going forward as trading momentum resumes. Over the medium term we remain highly focused on continuing to improve our adjusted operating profit conversion in order to achieve our aspiration of a mid-teen adjusted operating profit margin.

Adjusted operating costs as a percentage of revenue increased by 1.7 pts to 34.6% (H1 2020: 32.9%). We expect RISE to improve efficiency measures throughout the business and deliver significant cost savings, some of which will support our continued strategic investments.

Substantial reorganisation costs

The Group incurred substantial reorganisation costs of £16.0 million (H1 2020: £1.3 million) in relation to the RISE programme, which were mainly provisions for labour-related restructuring costs.

Amortisation of acquired intangibles

Amortisation of acquired intangibles was £2.7 million (H1 2020: £2.7 million) and relates to the intangible assets arising on the acquisitions of IESA and Monition.

Operating profit

Operating profit declined 35.4% to £58.9 million (H1 2020: £91.2 million). Excluding substantial reorganisation costs, amortisation of acquired intangibles and 2020's substantial asset write-downs, adjusted operating profit decreased by 26.5% to £77.6 million (H1 2020: £105.6 million), in line with like-for-like performance as there was no impact from acquisitions and currency movements. Adjusted operating profit margin decreased by 2.3 pts to 8.5% (H1 2020: 10.8%).

Regional performance

The Group has proved resilient throughout all regions despite the uncertain times and logistical challenges that COVID-19 presented, with trading performance and market share continuing to improve. This is a testament to the strength of our management and people as geographic, product and vertical teams have worked together in dealing with these challenges in keeping DCs open.

The focus on value-added solutions provides the real differentiation from our peers and has driven stronger client relationships and contract wins during these challenging times, as we have seen at IESA which is our value-added solutions business.

During H1 we continued to make strong progress in improving customer satisfaction. Our Group rolling 12-month Net Promoter Score (NPS) rose a further 2.9% to 56.3 (H1 2020: 54.7) with improvement driven by our diligent focus on customer experience. We believe that this continues to be a driving constituent underpinning our market share growth.

The RISE initiative will continue our journey of simplifying the operational structure of the business, speeding up management decisions and driving operational efficiencies. We see this as allowing us to accelerate our market share growth and take advantage of further strategic opportunities as we continue in our transformation from a product-led catalogue distributor to an omni-channel provider of solutions.

IESA has seen increased customer engagement and client wins during H1, as customers have increasingly searched for more help to source and procure their supply needs more simply and efficiently. There is a strong pipeline of new customer contracts including some major multinationals. We are very encouraged by the opportunities at IESA.

DesignSpark, our online design community offering free software design tools, had more than one million members at the end of September. Popularity of the community has accelerated with membership more than doubling in the past three years, data from the libraries downloaded every 12 seconds and a piece of content being viewed every four seconds.

OKdo is partnering with Micro:bit Educational Foundation to support the launch of the new BBC micro:bit pocket-sized microcomputer. The micro:bit was previously distributed exclusively through Farnell / Avnet with OKdo added to help the Foundation break into new markets and offer new propositions.

EMEA

EMEA accounts for 62% of Group revenue and breaks down into four sub-regions: Northern Europe, Southern Europe, Central Europe and our emerging market operations. RS, RS PRO and IESA are our key trading brands in EMEA. We have increased market share as, especially during the uncertainty presented by COVID-19, the security of our offer, in terms of product availability and financial strength, has resonated with customers. We have provided continuity of supply with strong inventory availability, minimal disruption to our offer and service, a cohesive omni-channel offer and knowledgeable people which have all maintained service at a time when customer ordering patterns have altered.

Our value-added solutions businesses, the largest of which is IESA, have differentiated our offer from the competition. We are on track to roll out next year an RS Plus offer which will allow our smaller clients to have an IESA-like solution to consolidate their supply needs and associated charges.

	H1 2021	H1 2020	Change	Like-for-like¹ change
Revenue	£567.5m	£615.0m	(7.7)%	(8.0)%
Operating profit²	£75.0m	£96.8m	(22.5)%	(22.8)%
Operating profit margin	13.2%	15.7%	(2.5) pts	(2.6) pts

(1) Like-for-like adjusted for currency; revenue also adjusted for trading days.

(2) See Note 2 on pages 22 and 23 for reconciliation to Group operating profit.

· Overall, EMEA revenue decreased by 7.7%, a decline of 8.0% on a like-for-like basis, to £567.5 million (H1 2020: £615.0 million). We grew market share in all sub-regions within the difficult economic backdrop. Trading improved throughout the period as territories came out of lockdown, with like-for-like revenue down by 3.3% in Q2, after a 12.8% decline in Q1 when COVID-19 first took effect. Excluding OKdo, we exited Q2 in positive growth.

· EMEA rolling 12-month NPS rose by 2.5% to 57.7 as online customer experience continued to be a focus and illustrates the strength of our value-added and efficient solutions offer.

· Digital, which accounts for 74% of the region's revenue, outperformed the business by 1.9 pts with a like-for-like revenue decline of 6.1%. Performance was heavily impacted in Q1 by the reduction of corporate business which is largely transacted online but returned to positive growth in September as customer orders resumed. New customer acquisition was strong during the half year, especially within standard customers (small business customers), due to our product availability and distribution capabilities. Additional resource has been directed to eProcurement sales to accelerate targeted onboarding and increase technical capacity.

· RS PRO, which accounts for 19% of the region's revenue, also significantly outperformed with 1.9% like-for-like revenue growth, again with momentum improving from Q1 to Q2.

· EMEA gross margin saw a year-on-year decline in H1, with an underlying gross margin gain reflecting improved product pricing and tighter discounting more than offset by higher inventory provisions from a change in customer ordering patterns, some PPE products and slower moving inventory due to COVID-19 and higher inbound freight costs.

· Operating profit margin fell 2.5 pts, 2.6 pts on a like-for-like basis, to 13.2% (H1 2020: 15.7%) as a result of the lower revenue. Direct costs continue to be well controlled.

· Operating profit declined 22.5%, a fall of 22.8% on a like-for-like basis, to £75.0 million (H1 2020: £96.8 million).

EMEA sub-regional revenue performance

	H1 2021	H1 2020	Change	Like-for-like¹ change
Northern Europe	£249.3m	£273.9m	(9.0)%	(8.9)%
Southern Europe	£175.0m	£181.6m	(3.6)%	(5.0)%
Central Europe	£119.4m	£130.3m	(8.4)%	(8.8)%
Emerging markets	£23.8m	£29.2m	(18.5)%	(14.6)%
Total EMEA revenue	£567.5m	£615.0m	(7.7)%	(8.0)%

(1) Like-for-like adjusted for currency and trading days.

All the sub-regions within EMEA saw market share gains during the first half:

· Northern Europe (44% of EMEA revenue) is the largest sub-region within EMEA and consists of the UK, Ireland and Scandinavia. The UK is the main market in this sub-region, accounting for around 90% of the revenue. Northern Europe's revenue decreased by 8.9% on a like-for-like basis, to £249.3 million (H1 2020: £273.9 million) improving from Q1 (-14.7%) to Q2 (-3.3%). The UK has remained relatively resilient with a significant improvement in momentum into Q2 as some industries increased production and businesses returned to work. The strongest growth has been seen with small-medium customers, which includes B2C, due to our strong digital proposition. Ireland has been the most resilient country in EMEA, returning to growth the earliest as customer numbers grew amid weaker competition. We have taken significant market share, partly due to the confidence our customers have in the strength of our supplier relationships and delivery promises, but also due to the higher proportion of value-added solutions integrated in our offer.

IESA has a large proportion of customers which are highly aligned to the automotive and aerospace sectors that have suffered significant pressure on their trading, thus affecting IESA's revenue. However, the team has managed costs well with profit in line with reduced targets. Additionally, we have seen existing customers spend more, a strong pipeline of new client wins including international contracts, an expanded supplier base and an enlarged product offer.

· Southern Europe (31% of EMEA revenue) consists of our operations in France, Italy and Iberia (Spain and Portugal). France is the main market in the sub-region accounting for approximately two-thirds of its revenue. Southern Europe's revenue decreased by 5.0% on a like-for-like basis with growth significantly improving from Q1 (-13.3%) to Q2 (+4.0%) as the most severe lockdown restrictions in April unwound leading to a strong recovery. We continue to grow market share in all markets aided by the prior and ongoing investment in talent, the salesforce, value-led selling and sales effectiveness. This has led to an improvement in RS PRO participation and gross margin enhancement.

· Central Europe (21% of EMEA revenue) consists of our operations in Germany, Austria, Benelux, Switzerland and Eastern Europe. Germany is the main market in the sub-region accounting for approximately 60% of the revenue. Overall, Central Europe saw 8.8% like-for-like revenue decline with a small improvement from Q1
(-10.0%) to Q2 (-7.6%). Our German business is heavily focused on the original equipment manufacturer (OEM), automotive and electronic subcontractor segments, areas of the market that have been significantly impacted by reduced capital budgets. Thus, during H1, Germany underperformed the sub-region with minimal improvement in momentum seen. We continue to make changes within the business and have invested in the salesforce to build a higher contribution from value-added solutions. The extension of our German DC is on track for the summer of 2021. This will allow us to broaden our product range, increase the proportion of value-added sales and increase automation to improve efficiency. Additionally, it also provides the Group with a more substantial distribution platform for Continental Europe in the post-Brexit world.

· Emerging market operations (4% of EMEA revenue) has operations in South Africa and third-party distributors in other territories. Like-for-like revenue fell by 14.6% during H1 with trading materially lower in Q2 than Q1 due to the later timing of lockdown in our main territory in the sub-region, South Africa.

Americas

The Americas accounts for 27% of Group revenue. Allied Electronics & Automation (Allied) is our main trading brand in the Americas, where we have operations in the US, together with smaller operations in Canada, Mexico and Chile. Automation and Control continues to play a significant role in the Allied value proposition, an area driven by large capital expenditure programmes which were initially postponed or even cut as COVID-19 took hold. We have made internal adjustments to begin significantly expanding our offer, implemented a field sales transformation programme and made step change investments in digital, whilst continuing to enhance talent across the organisation.

	H1 2021	H1 2020	Change	Like-for-like¹ change
Revenue	£243.3m	£263.7m	(7.7)%	(7.8)%
Operating profit²	£22.7m	£31.3m	(27.5)%	(27.0)%
Operating profit margin	9.3%	11.9%	(2.6) pts	(2.6) pts

(1) Like-for-like adjusted for currency; revenue also adjusted for trading days.

(2) See Note 2 on pages 22 and 23 for reconciliation to Group operating profit.

· The Americas revenue fell by 7.7% to £243.3 million (H1 2020: £263.7 million), with like-for-like revenue down 7.8%. Like-for-like revenue recovered slightly in Q2 to a decline of 7.0% from the decline of 8.7% seen in Q1. This was a function of initial re-ordering by customers, although customers continue to operate with some degree of caution about the future and are ordering closer to requirements. The situation regarding COVID-19 differs on a state-by-state basis, but all areas saw improving trends as we exited the half year. We remain designated as a critical industry in the Americas and, as such, our DC remains open and operating with enhanced safety measures in place.

· We continue to invest in our salesforce and as part of our sales transformation we have better aligned our teams to revenue and gross margin growth. We have deployed a central customer service team to free up time for field teams to focus more on customer acquisition and retention and drive value-added sales.

· The Americas DC expansion was completed in July. This highly automated DC has doubled available capacity and will allow the region to, in time, triple capacity and drive scale at lower cost. This is a milestone as part of the region's ambition and will allow for both range and brand expansion whilst improving efficiencies.

· Despite the challenges of lockdown, the Americas rolling 12-month NPS score rose to 72.4, growing 2.1%. This remains significantly higher than our other two regions as the team continues to deliver a strong customer experience.

· RS PRO only accounts for under 1% of the region's revenue but has grown significantly. RS PRO is expected to be a key beneficiary of the extended DC and new sales incentive programme. This will drive revenue and gross margin enhancement.

· Digital revenue accounted for 38% of revenue in the region, slightly less than last year due to a smaller contribution from eProcurement orders as corporate clients pulled back going into COVID-19. Thus, digital underperformed total revenue in the Americas by 6.2 pts in Q1, although as Q2 progressed this started unwinding and the gap narrowed. Pure web revenue outperformed the region in Q2. We continue to invest in our digital platform with improving page load times and increased paid sales.

· Gross margin was broadly flat during H1. Increased inbound freight costs were offset by continued stability of the product margin combined with additional focus on discounting and resale price optimisation.

· Operating costs increased 3.3%, partly due to increased labour charges which, on a lower revenue performance, led to a 2.6 pts decline in the operating profit margin to 9.3%.

· Operating profit fell 27.0% on a like-for-like basis, to £22.7 million (H1 2020: £31.3 million).

Asia Pacific

Asia Pacific accounts for 11% of Group revenue and consists of Australia and New Zealand (ANZ), Greater China, Japan and South East Asia. RS and RS PRO are our key trading brands in Asia Pacific. Our broadening product offer, strong technical expertise, omni-channel service and a growing range of value-added solutions underpin our market share growth. This allows us to increasingly become a one-stop-shop partner of choice for our industrial customers.

	H1 2021	H1 2020	Change	Like-for-like¹ change
Revenue	£98.1m	£100.0m	(1.9)%	(2.0)%
Operating profit²	£0.1m	£0.1m	-	n/m
Operating profit margin	0.1%	0.1%	-	0.1 pts

(1) Like-for-like adjusted for currency; revenue also adjusted for trading days.

(2) See Note 2 on pages 22 and 23 for reconciliation to Group operating profit.

· Asia Pacific revenue decreased 1.9%, a 2.0% decline on a like-for-like basis. Trading momentum has improved with Q2 delivering a 0.7% decline in like-for-like revenue after the 3.5% decrease in Q1. Performance has been mixed and varies by country and the various COVID-19 related lockdown measures. Industry data suggests strong market share gains in our industrial markets, particularly in ANZ, Greater China and most of South East Asia. Greater China, excluding OKdo, has seen growth every month, even during the height of COVID-19, as it benefited from last year's leadership change and a more focused salesforce. Meanwhile Japan has struggled due to its electronic exposure and low brand recognition and South East Asia suffered from a difficult lockdown situation in the Philippines.

· OKdo revenue fell by 1.3% during the period. This was due to limited inventory availability of Raspberry Pi in Greater China. This should start to unwind as new Raspberry Pi inventory is due to be delivered in coming months.

· We continue to focus on improving our customer experience and saw a 3.5% increase in our rolling 12-month NPS score in H1 to 38.0. This is being driven by a more focused salesforce across the region, especially in Greater China, which brought a significant improvement.

· Digital revenue, which accounts for 56% of revenue in the region, was down 4.9% on a like-for-like basis, partly a function of a large corporate order being booked offline.

· RS PRO revenue, which accounts for 13% of revenue in the region, grew 1.9% on a like-for-like basis during the first half, outperforming the region. This increase was driven by work within the region to increase penetration through distribution agreements with local resellers in ANZ and strong and successful marketing campaigns (especially in Thailand and the Philippines) driving higher margin product.

· The underlying gross margin increased driven by product mix delivering positive contributions, but this was more than offset by additional customs and duties and negative foreign exchange movements.

· Operating profit was £0.1 million (H1 2020: £0.1 million). Reduced labour costs and overheads were offset by higher freight costs and customs duties due to COVID-19.

Central Costs

Central costs are Group head office costs and include Board, Group Finance, Group Professional Services & People that cannot be attributed to region-specific activity.

	H1 2021	H1 2020	Change	Like-for-like¹ change
Central costs	£(20.2)m	£(22.6)m	10.6%	11.0%

(1) Like-for-like adjusted for currency.

· Central costs decreased 10.6%, 11.0% on a like-for-like basis to £20.2 million (H1 2020: £22.6 million). Tighter cost control of overheads and no recurrence of the OKdo launch costs incurred last year were partly offset by higher performance related incentives.

· We expect central costs in H2 2021 to be similar to H2 2020.

FINANCIAL REVIEW

Net finance costs

Net finance costs in H1 increased to £3.4 million (H1 2020: £2.3 million) with lower interest receivable on our cash and short-term deposits as interest rates have fallen significantly compared with the first half of last year.

Profit before tax

Profit before tax was down 37.5% to £55.6 million (H1 2020: £89.0 million). Excluding substantial reorganisation costs, amortisation of acquired intangibles and 2020's substantial asset write-downs, adjusted profit before tax was down 28.1% to £74.3 million (H1 2020: £103.4 million), also down 28.1% on a like-for-like basis.

Taxation

The Group's income tax charge was £13.2 million (H1 2020: £21.4 million). The adjusted income tax charge, which excludes the impact of tax relief on substantial reorganisation costs, amortisation of acquired intangibles and 2020's substantial asset write-downs, was £17.1 million (H1 2020: £24.1 million), resulting in an effective tax rate of 23.0% on adjusted profit before tax (2020: 23.3%).

Earnings per share

Earnings per share was down 37.5% to 9.5p (H1 2020: 15.2p). Excluding substantial reorganisation costs, amortisation of acquired intangibles, 2020's substantial asset write-downs and associated income tax effects, adjusted earnings per share of 12.8p (H1 2020: 17.8p) was down 28.1%.

Cash flow

£m	H1 2021	H1 2020
Operating profit	58.9	91.2
Add back depreciation and amortisation	27.1	24.5
EBITDA	86.0	115.7
Movement in working capital	23.5	(38.2)
Movement in provisions	12.1	(3.1)
Other	2.7	3.4
Cash generated from operations	124.3	77.8
Net interest paid	(3.5)	(2.7)
Income tax paid	(14.3)	(28.1)
Net cash from operating activities	106.5	47.0
Net capital expenditure	(25.5)	(37.2)
Free cash flow	81.0	9.8
Add back cash effect of adjustments¹	4.0	4.1
Adjusted¹ free cash flow	85.0	13.9

(1) Adjusted excludes the impact of substantial reorganisation cash flows.

Cash generated from operations increased to £124.3 million (H1 2020: £77.8 million) as we continue to take actions to conserve cash due to the uncertainties caused by COVID-19. Our lower EBITDA was more than offset by a reduction in working capital.

Net interest paid increased to £3.5 million (H1 2020: £2.7 million). Income tax paid fell to £14.3 million (H1 2020: £28.1 million) as in the first half of this year we utilised some overpayments from 2020, plus we paid an additional £11.5 million of tax in the first half of last year due to changes in the timing of UK income tax payments.

Net capital expenditure decreased to £25.5 million (H1 2020: £37.2 million) as we deferred some projects to conserve cash while ensuring that these delays would not impact the delivery of our long-term strategy. Our newly expanded and highly automated DC in the Americas is now operational and our Germany DC expansion remains on track for completion in summer 2021. We also continued to invest in our technology platforms including our new RS
mobile-first responsive website and other enhancements to our systems. Capital expenditure fell to 2.1 times depreciation (H1 2020: 2.6 times) but is still well above our typical maintenance capital expenditure levels of closer to 1.0 - 1.5 times depreciation as we continue to invest in our Destination 2025 strategic initiatives. We continue to expect capital expenditure for the full year to be around £60 million, with a similar amount in 2022.

Given our focus on conserving cash, free cash flow increased to £81.0 million (H1 2020: £9.8 million). Adjusted free cash flow was £85.0 million (H1 2020: £13.9 million) and excludes a net cash outflow related to substantial reorganisation activities of £4.0 million (H1 2020: £4.1 million), which largely relates to labour restructuring charges. Adjusted operating cash flow conversion, which is defined as adjusted free cash flow before income tax and net interest paid as a percentage of adjusted operating profit and is one of our six financial KPIs, was 132.5% (H1 2020: 42.3%).

Working capital

Working capital as a percentage of revenue decreased by 0.9 pts to 23.0% (H1 2020: 23.9%) as we actively managed our working capital position.

We have had a particular focus on receivables collection, which remains our greatest short-term liquidity sensitivity. We took action to limit our exposure by tightening our credit policies, including short payment terms and low credit limits for new customers and seeking payment commitments for overdue balances before releasing new orders to existing customers. So far, we have seen limited adverse impact from the COVID-19 crisis on our receivables collection, however, we continue to closely monitor collection metrics. Gross trade receivables reduced to £326.7 million from £355.5 million at 31 March 2020, mainly as a result of this focus on receivables collection. Our trade receivables impairment allowance remained at £6.9 million due to a slight change in ageing profile.

Gross inventories increased by £17.3 million to £463.9 million (31 March 2020: £446.6 million) as we continue to ensure we have appropriate inventory to ensure continuation of service and a best-in-class proposition for our customers. This included starting to add inventory into our newly operational expanded Americas DC. As a result, annualised inventory turn was 2.5 times (H1 2020: 2.5 times; 2020: 2.6 times). Inventory provisions increased to £32.7 million (31 March 2020: £27.6 million) due to changing market demand, some slower moving inventory and price point changes in some of our PPE range.

Overall trade and other payables increased to £380.1 million from £358.7 million at 31 March 2020. Trade payables reduced slightly to £238.7 million (31 March 2020: £241.1 million), while other payables have increased mainly in accruals due to timing of invoicing for capital expenditure and other costs.

Looking forward to the rest of the year, we will continue to actively manage our working capital position, particularly focusing on receivables collection. On payables we remain committed to paying to terms, while working with some of our larger suppliers to improve terms where possible. We will also continue to actively manage our inventory position to reduce excess wherever possible, while ensuring we are well positioned to maintain service levels and continue to focus on opportunities as our markets recover. We are building up c. £15 million of additional inventory in fast-moving product lines in the UK and Continental Europe to help protect our service levels in the event of any potential disruption when the Brexit transition period ends in December. We expect most of this additional inventory will have been sold by the end of our year.

Return on Capital Employed (ROCE)

Net assets at the end of the first half were £754.2 million (30 September 2019: £662.6 million) with the significantly lower net debt and increased strategic investment in inventories, technology and DC infrastructure only partly offset by the improvements in receivables and payables over the last 12 months. ROCE, calculated using adjusted operating profit for the 12 months ended 30 September 2020 and period-end net assets excluding net debt and retirement benefit net obligations, fell to 20.7% (H1 2020: 23.5%). This decrease is due to the decline in annualised adjusted operating profit because of COVID-19.

Net debt

During this period of uncertainty, our cash generative business model has enabled us to maintain a strong financial position.

At 30 September 2020, net debt was £114.8 million. This was £75.0 million lower than at 31 March 2020 and £105.9 million lower than at 30 September 2019 due to the improved free cash flow and no final dividend for the year ended 31 March 2020 being paid. Net debt comprised gross borrowings of £358.8 million (31 March 2020: £391.6 million; 30 September 2019: £317.1 million), including lease liabilities of £57.9 million (31 March 2020: £56.3 million; 30 September 2019: £59.6 million), offset by cash and short-term deposits of £242.6 million (31 March 2020: £200.8 million; 30 September 2019: £93.7 million) and interest rate swaps with a fair value of £1.4 million (31 March 2020: £1.0 million; 30 September 2019: £2.7 million).

At 30 September 2020, the Group had committed debt facilities and loans (excluding lease liabilities) of £446.0 million, of which £289.1 million was undrawn. These debt facilities comprise of:

· £189.1 million syndicated multi-currency bank facility which has a maturity of August 2022.

· £156.9 million of private placement loan notes with maturities ranging between October 2026 and October 2031.

· £100.0 million liquidity buffer bank facility signed on 2 June 2020 for a 12-month term plus six months.

In May 2020, we secured eligibility to participate in the Bank of England Covid Corporate Financing Facility (CCFF), now subject to meeting the October 2020 enhanced process. We have no current intention to draw on either the CCFF or the £100 million liquidity buffer bank facility and so they are not included in our going concern modelling.

The Group's financial metrics remain strong, with net debt to adjusted EBITDA of 0.5x and EBITA to interest of 25.3x. This leaves significant headroom to the Group's banking covenants of net debt to adjusted EBITDA less than 3.25 times and EBITA to interest of greater than 3 times, which are measured on a rolling 12-month basis at half year and year end.

Retirement benefit obligations

The Group has defined benefit pension schemes in the UK and Europe, with the UK scheme being by far the largest. All these schemes are closed to new entrants and in Germany and Ireland the pension schemes are closed to accrual for future service.

Overall, the accounting deficit of the Group's defined benefit schemes at 30 September 2020 was £60.5 million compared to £55.8 million at 31 March 2020 and £59.9 million at 30 September 2019.

The UK defined benefit scheme had an accounting deficit of £47.5 million. At 31 March 2020 it had a small accounting deficit of £2.1 million plus an additional liability of £41.2 million recognised as the present value of the agreed future contributions under the recovery plan was greater than the funded status; and at 30 September 2019 it had a deficit of £45.3 million. The increase in the UK scheme's deficit since March was principally due to an increase in liabilities caused by a decrease in the discount rate falling by 0.7% from 2.4% to 1.7% and an increase in inflation-linked assumptions, partly offset by an increase in the value of the assets.

The triennial funding valuation of the UK scheme at 31 March 2019 showed a deficit of £44.7 million on a statutory technical provisions basis. A new recovery plan was agreed with the trustee of the UK scheme with deficit contributions paid with the aim that the scheme is fully funded on a technical provisions basis by March 2022. These deficit contributions started in 2020 and consist of an annual contribution of at least £10 million, increased each 1 April by the increase in the Retail Prices Index (RPI) for the year to the preceding December, plus an additional contribution of £25 million. This additional contribution can be paid in instalments and paid as and when we deem appropriate, provided the total additional contribution has been paid no later than 31 March 2022.

Dividend

As highlighted in the 2020 Annual Report and Accounts, the Board deferred the decision on the final dividend for the year ended 31 March 2020 until the impact of COVID-19 on activity levels and cash generation in the Group's key markets had become clearer. We stated that the Board recognised the importance of its progressive dividend policy to its shareholders and would therefore review making an additional interim dividend payment related to the year ended 31 March 2020 at the Group's half-year results in November 2020.

As a result of the resilience the Group has shown over the past months during the COVID-19 pandemic, our robust trading position and strong balance sheet, after due care and consideration the Board has decided to pay a final dividend for the year ended 31 March 2020 at the same level as the March 2019 final dividend of 9.5p per share. As it is no longer possible for this dividend to be approved by shareholders at the Annual General Meeting, it will be paid as an additional interim dividend for the year ended 31 March 2020 on 18 December 2020 to shareholders on the register on 20 November 2020.

In the normal course, the interim dividend is equivalent to approximately 40% of the prior year full-year dividend. As such, the Board proposes an interim dividend for the year ending 31 March 2021 of 6.1p per share. This will be paid on 29 January 2021 to shareholders on the register on 8 January 2021.

Foreign exchange risk

The Group does not hedge translation exposure on the income statements of overseas subsidiaries. Based on the mix of non-sterling denominated revenue and adjusted operating profit, a one cent movement in the euro would impact annual adjusted profit before tax by £1.4 million and a one cent movement in the US dollar would impact annual adjusted profit before tax by £0.5 million.

The Group is also exposed to foreign currency transactional risk because most operating companies have some level of payables in currencies other than their functional currency. Some operating companies also have receivables in currencies other than their functional currency. Group Treasury maintains three to seven month hedging against freely tradable currencies to smooth the impact of fluctuations in currency. The Group's largest exposures relate to euros and US dollars.

RISKS AND UNCERTAINTIES

The Group's risk management process identifies, evaluates and manages the Group's principal risks and uncertainties. Risks are identified through a variety of sources, both external, to ensure that developing risk themes (emerging risks) are considered, and from within the Group, including the Board, senior, regional and country management teams.

These risks are reviewed by both the Group's Senior Management Team Risk Committee and the Board.

The principal risks and mitigations and emerging risk are disclosed in the 2020 Annual Report and Accounts (pages 36 to 42). These are:

Principal risks and uncertainties

1. Consequences of the COVID-19 pandemic

2. Consequences of the UK exit from the EU

3. Failure to respond to strategic market shifts e.g. changes in customer demands / competitor activity and related stakeholder requirements

4. The Group's revenue and profit growth initiatives are not successfully implemented

5. Failure to comply with international and local legal / regulatory requirements

6. Failure in business's critical infrastructure

7. Prolonged system outage

8. Information loss / cyber breach

9. UK defined benefit pension scheme cash requirements are in excess of cash available

10. People resources unable to support the existing and future growth of the business

11. Impact on the business if the macroeconomic environment deteriorates

Emerging Risks

Effects of climate change on the business's operations and its customers and supply chain

These risks have not changed materially since they were reported in the 2020 Annual Report and Accounts. Nonetheless, we have provided an update on two of the Group's principal risks: consequences of the COVID-19 pandemic and the UK's exit from the EU.

Consequences of the COVID-19 pandemic

The Group continues to respond well to the evolving situation around the world. Whilst we are experiencing stability across our organisation, the spread and effects of the pandemic are changing and most notably in the northern hemisphere, which includes our Europe and North American markets, as it moves into winter with greater risk of virus transmission. As a result, we are taking the appropriate actions, in line with respective national guidance, when our markets are subject to more recent and publicised national lockdowns. We will continue to adapt to ensure compliance and manage the associated effects and we do not see any significant change to this risk for the remainder of our year.

The Group's crisis management and business continuity teams continue to monitor the situation and, where necessary, implement additional measures. Our focus has been on the following areas:

· People: the health, safety and wellbeing of our people whether they work within our DCs, offices or from home.

· Global DC network: our DCs are open and operating normally and in line with Group and national guidance with social distancing and PPE where needed. The DCs continue to support our customers' high-level service requirements.

· Technology: our IT systems have remained stable and enable our teams to meet the needs of our customers.

· Suppliers: our supply chain has remained resilient, with most of our suppliers, to date, open and operating at near pre-pandemic levels. Given the consequential reduction in air travel, there are ongoing challenges around capacity for air freight particularly to and from the Asia Pacific region. We have mitigated this by managing inventory levels at our Asia Pacific DCs, identifying alternative air routes where there is available capacity and switching to sea routes.

· Financial management: an ongoing focus on cost control and maintaining cash flow.

Consequences of the UK exit from the EU

The UK formally left the EU on 31 January 2020 and has entered an 11-month transitionary period until 31 December 2020. The UK government and EU are currently negotiating the future trading relationship after 31 December 2020. Currently it is not clear what the trading relationship may be, and the UK may revert to trading with the EU and other countries under World Trade Organisation rules.

Main risk areas and mitigating actions

The key risks to our business from the UK exiting the EU without a trade agreement are across four areas.

1. Reduced free movement of products, goods and services across the UK / EU border could slow delivery times, impacting customer service.

Mitigating actions:

· We are investing in additional fast-moving inventory across our European network in the short term to lessen the customer service impact of potential delays.

· We have Customs Freight Simplified Procedures status which will aid the faster release of our goods from customs at ports and borders.

2. Increased tariff and duty costs on goods moving between the UK and EU and other areas in the world. At this stage the exact impact of tariffs is difficult to assess.

Mitigating actions:

· Our international distribution network means that the vast majority of inventory needed to meet our EU customers' needs could be sourced and retained directly within the EU.

· Our enlarged German DC is scheduled to be operational in the summer of 2021; this will more than double our current Continental European storage capacity.

· We are applying for our UK DCs to have bonded status to mitigate the tax and duty impact of moving products between the EU and UK.

· Where tax and duty charges are unavoidable we will look to pass on these additional costs as price increases.

3. Increased administration to process the required cross border data flows; there could also be additional costs for customs clearance charges.

Mitigating actions:

· We are introducing a paperless trading solution to aid the transfer of customs clearances data and reduce administration fees.

· We will recruit and train additional resource to our existing export teams.

· We will optimise our product flows across our network to minimise the movement of goods across the UK / EU border and minimise the increased administrative requirement.

4. Material movement in the value of sterling.

Mitigating actions:

· To hedge against transactional foreign exchange risk, we currently maintain three to seven months of cover against freely tradable currencies to smooth the impact of fluctuations in currency. We will maintain our existing hedging strategy to mitigate against any immediate devaluation in sterling.

· Our global trading mix and product sourcing arrangements mean that we have had a natural gross margin hedge against a depreciation in sterling at a Group level.

GOING CONCERN

Overview

In adopting the going concern basis for preparing these condensed Group accounts, the Directors have considered the Group's future trading prospects; the Group's available liquidity, the maturity of its debt facilities and obligations under its debt covenants; and the Group's principal risks as summarised on page 14.

As described in more detail in the Viability Statement in the 2020 Annual Report and Accounts, our business model is structured so that the Group has a global network of 12 DCs; a strong digital presence; a very broad spread of customers both in terms of industry sector and geography and is not reliant on one particular group of customers or suppliers; and a broad range of products and value-added solutions capabilities. This has enabled our trading performance over the six months ended 30 September 2020 to remain resilient despite the impact of the COVID-19 pandemic, with like-for-like revenue declining by 7.3% and an improving trend throughout our second quarter. We continued to see momentum across all our regions over the first five weeks of H2, although we remain cautious about the economic backdrop.

Financial position, liquidity and debt covenants

Our capital position is supported by regular reviews of the Group's funding facilities and debt covenants' headroom, through the Board's Treasury Committee. The weekly cash forecasting process and review has continued to enable us to closely track our net debt position under the COVID-19 pandemic, so we can take any necessary actions on a timely basis.

The Group's net debt at 30 September 2020 was £114.8 million (31 March 2020: £189.8 million). Our committed debt facilities and loans were £446.0 million, of which £289.1 million were undrawn (see page 13 for more details of our committed facilities). These facilities include a £100 million liquidity buffer bank facility signed on 2 June 2020 for a
12-month term plus six months. In May 2020, we secured eligibility to participate in the Bank of England CCFF, now subject to meeting the October 2020 enhanced CCFF process. We obtained the CCFF eligibility and the liquidity buffer bank facility as safety nets in case the macroeconomic environment deteriorates more than our worst-case modelling assumes. We have no current intention to draw on either and so have excluded these from all our modelling. Excluding the liquidity buffer bank facility, the earliest facility expiring is the Group's syndicated multi-currency facility for US$75 million, £85 million and €50 million in August 2022.

The Group's debt covenants are EBITA to interest to be greater than 3:1 and net debt to adjusted EBITDA to be less than 3.25:1, which are measured on a rolling 12-month basis at half year and year end. At 30 September 2020, EBITA to interest was 25.3x (31 March 2020: 33.6x) and net debt to adjusted EBITDA was 0.5x (31 March 2020: 0.7x) (see Note 12 on pages 27 to 30 for reconciliations).

Financial modelling

Towards the end of March 2020, we modelled a range of potential scenarios for different durations and severities of the COVID-19 pandemic for each month of the year ending 31 March 2021. These scenarios now also include each month of the year ending 31 March 2022 and have continued to be regularly updated to reflect latest trading trends and changes to our expectations. These are regularly reviewed, and the assumptions approved, by the Board. The Board also discuss and approve the various mitigating actions the Group should take for each scenario.

The main scenario is an updated "U" shaped scenario. This scenario assumes the current increases in COVID-19 cases, increasing restrictions and lockdowns in a rising number of countries do not result in the same level of interruption to businesses as the initial lockdowns in spring and early summer of 2020. As a result, it assumes the Group continues to see a slow recovery in like-for-like revenue for the rest of the year ending 31 March 2021. In the year ending 31 March 2022, it assumes no further pandemics or recurrences of COVID-19 and a return to strong like-for-like revenue growth as the year progresses. It assumes various cost mitigations are taken to protect profit, an additional impairment allowance against 2021 trade receivables, dividends continue to be paid and capital expenditure of around £60 million. Under this scenario our debt covenants and liquidity requirements are comfortably met without drawing on our liquidity buffer bank facility or accessing the CCFF.

This scenario has been stress tested by also modelling a downside case in which a more serious worldwide recurrence of COVID-19 during the second half of our year ending 31 March 2021, a "W" shape, results in interruptions to businesses like those seen in spring and early summer of 2020. This is assumed to lead to a decline in our like-for-like revenue during this significant winter business interruption period in line with what was seen in our first quarter and higher impairment allowances against 2021 trade receivables. It assumes further reductions in discretionary spend and that other interventions and mitigations will be taken as and when we see fit, although dividends continue to be paid and capital expenditure remains around £60 million. A slow recovery is assumed to start towards the end of the year ending 31 March 2021 with no further pandemics or recurrences of COVID-19 in the following year, leading to mid single digit like-for-like revenue growth in 2022. Under this scenario our debt covenants and liquidity requirements are also comfortably met without drawing on our liquidity buffer or accessing the CCFF.

Reverse stress tests were also undertaken, covering further declines in like-for-like revenue, further declines in gross margin, and cash collection from trade receivables further deteriorating, to assess the circumstances that would threaten the Group's current financing arrangements and the Directors consider the risk of these circumstances occurring to be remote.

Going concern basis

Based on the assessment outlined above, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to 31 March 2022.Therefore, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing these condensed Group accounts.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF-YEAR FINANCIAL REPORT

The Directors confirm that these condensed Group accounts have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the EU and that the interim management report includes a fair review of the information required by Disclosure and Transparency Rules (DTR) 4.2.7 and DTR 4.2.8, namely:

· An indication of important events that have occurred during the first six months and their impact on the condensed set of accounts, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· Material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

The Directors of Electrocomponents plc are listed in the Electrocomponents Annual Report and Accounts for the year ended 31 March 2020. A list of current Directors is maintained on the Electrocomponents plc website: www.electrocomponents.com.

David Egan, Chief Financial Officer

9 November 2020

SAFE HARBOUR

This financial report contains certain statements, statistics and projections that are or may be forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial position, strategy, projected costs, plans and objectives for the management of future operations of Electrocomponents plc and its subsidiaries is not warranted or guaranteed. These statements typically contain words such as "intends", "expects", "anticipates", "estimates" and words of similar import. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Although Electrocomponents plc believes that the expectations reflected in such statements are reasonable, no assurance can be given that such expectations will prove to be correct. There are a number of factors, which may be beyond the control of Electrocomponents plc, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. Other than as required by applicable law or the applicable rules of any exchange on which our securities may be listed, Electrocomponents plc has no intention or obligation to update forward-looking statements contained herein.

GROUP INCOME STATEMENT

For the six months ended 30 September 2020

		Six months ended		Year ended
		30.9.2020	30.9.2019	31.3.2020
	Notes	£m	£m	£m
Revenue	2	908.9	978.7	1,953.8
Cost of sales		(516.6)	(551.0)	(1,099.1)
Gross profit		392.3	427.7	854.7
Distribution and marketing expenses		(294.4)	(298.8)	(596.2)
Administrative expenses		(39.0)	(37.7)	(53.2)
Operating profit	2	58.9	91.2	205.3
Finance income		1.0	2.2	3.3
Finance costs		(4.4)	(4.5)	(9.2)
Share of profit of joint venture		0.1	0.1	0.2
Profit before tax	2	55.6	89.0	199.6
Income tax expense		(13.2)	(21.4)	(44.9)
Profit for the period attributable to owners of the Company		42.4	67.6	154.7

Earnings per share - Basic	4	9.5p	15.2p	34.7p
Earnings per share - Diluted	4	9.5p	15.2p	34.6p

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 September 2020

	Six months ended		Year ended
	30.9.2020	30.9.2019	31.3.2020
	£m	£m	£m
Profit for the period	42.4	67.6	154.7

Other comprehensive income
Items that will not be reclassified subsequently to the income statement
Remeasurement of retirement benefit obligations	(8.9)	22.0	21.1
Income tax on items that will not be reclassified to the income statement	1.7	(3.7)	(1.9)

Items that may be reclassified subsequently to the income statement
Foreign exchange translation differences of joint venture	-	0.1	(0.1)
Foreign exchange translation differences	(6.7)	24.7	20.5
Movement in cash flow hedges	(0.4)	3.1	4.3
Income tax on items that may be reclassified to the income statement	0.1	(1.3)	(0.5)
Other comprehensive (expense) / income for the period	(14.2)	44.9	43.4
Total comprehensive income for the period attributable to owners of the Company	28.2	112.5	198.1

GROUPBALANCE SHEET

As at 30 September 2020

		30.9.2020	30.9.2019	31.3.2020
			represented*
	Notes	£m	£m	£m
Non-current assets
Intangible assets		323.1	332.5	329.6
Property, plant and equipment		181.7	143.9	167.5
Right-of-use assets		55.4	58.1	54.4
Investment in joint venture		1.1	1.1	1.0
Other receivables		1.1	1.3	0.9
Interest rate swaps	8	1.4	-	1.0
Fair value hedged firm commitment	8	-	0.1	-
Retirement benefit net assets	10	1.9	0.4	1.9
Deferred tax assets		20.3	19.7	17.1
Total non-current assets		586.0	557.1	573.4
Current assets
Inventories	6	431.2	428.3	419.0
Trade and other receivables	7	381.6	396.6	406.6
Cash and cash equivalents - cash and short-term deposits	8	242.6	93.7	200.8
Interest rate swap	8	-	2.8	-
Other derivative assets		1.0	4.5	4.3
Current income tax receivables		15.5	12.8	13.6
Total current assets		1,071.9	938.7	1,044.3
Total assets		1,657.9	1,495.8	1,617.7
Current liabilities
Trade and other payables		(380.1)	(358.5)	(358.7)
Cash and cash equivalents - bank overdrafts	8	(142.6)	(50.2)	(166.0)
Other borrowings	8	-	(156.3)	(7.5)
Lease liabilities	8	(15.0)	(16.0)	(15.0)
Other derivative liabilities		(1.7)	(0.6)	(2.4)
Provisions		(13.7)	(4.6)	(2.6)
Current income tax liabilities		(19.6)	(20.5)	(18.2)
Total current liabilities		(572.7)	(606.7)	(570.4)
Non-current liabilities
Other payables		(6.1)	(7.8)	(5.8)
Retirement benefit obligations	10	(62.4)	(60.3)	(57.7)
Borrowings	8	(158.3)	(51.1)	(161.8)
Lease liabilities	8	(42.9)	(43.6)	(41.3)
Interest rate swaps	8	-	(0.1)	-
Provisions		(2.8)	(1.0)	(1.5)
Deferred tax liabilities		(58.5)	(62.6)	(59.3)
Total non-current liabilities		(331.0)	(226.5)	(327.4)
Total liabilities		(903.7)	(833.2)	(897.8)
Net assets		754.2	662.6	719.9
Equity
Share capital		44.8	44.6	44.6
Share premium account		53.8	50.9	51.4
Hedging reserve		0.3	1.5	-
Own shares held by Employee Benefit Trust (EBT)		-	-	(0.7)
Cumulative translation reserve		74.8	85.9	81.5
Retained earnings		580.5	479.7	543.1
Equity attributable to owners of the Company		754.2	662.6	719.9

* represented to show retirement benefit net assets separately to retirement benefit obligations.

GROUP CASH FLOW STATEMENT

For the six months ended 30 September 2020

		Six months ended		Year ended
		30.9.2020	30.9.2019	31.3.2020
	Notes	£m	£m	£m
Cash flows from operating activities
Profit before tax		55.6	89.0	199.6
Depreciation and amortisation		27.1	24.5	50.9
Loss on disposal of non-current assets		-	-	0.1
Equity-settled share-based payments		2.7	3.4	3.4
Net finance costs		3.4	2.3	5.9
Share of profit of and dividends received from joint venture		(0.1)	(0.1)	(0.2)
Increase in inventories		(12.9)	(32.3)	(25.2)
Decrease in trade and other receivables		32.2	26.5	10.0
Increase / (decrease) in trade and other payables		4.2	(32.4)	(36.0)
Increase / (decrease) in provisions		12.1	(3.1)	(5.3)
Cash generated from operations		124.3	77.8	203.2
Interest received		1.0	2.3	3.4
Interest paid		(4.5)	(5.0)	(9.6)
Income tax paid		(14.3)	(28.1)	(49.9)
Net cash from operating activities		106.5	47.0	147.1

Cash flows from investing activities
Acquisition of businesses		-	(0.2)	(0.2)
Purchase of intangible assets, property, plant and equipment		(25.5)	(37.2)	(74.7)
Net cash used in investing activities		(25.5)	(37.4)	(74.9)

Cash flows from financing activities
Proceeds from the issue of share capital		2.6	1.5	2.0
Purchase of own shares by EBT		(0.1)	(0.2)	(0.9)
Loans drawn down	8	-	27.3	162.7
Loans repaid	8	(8.0)	-	(178.6)
Settlement of interest rate swap		-	-	2.6
Payment of lease liabilities	8	(8.1)	(7.0)	(14.8)
Dividends paid	5	-	(42.1)	(68.5)
Net cash used in financing activities		(13.6)	(20.5)	(95.5)

Net increase / (decrease) in cash and cash equivalents		67.4	(10.9)	(23.3)
Cash and cash equivalents at the beginning of the period		34.8	51.1	51.1
Effects of exchange rate changes		(2.2)	3.3	7.0
Cash and cash equivalents at the end of the period	8	100.0	43.5	34.8

GROUP STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 September 2020

	Share capital	Share premium account	Hedging reserve	Own shares held by EBT	Cumulative translation reserve	Retained earnings	Total
	£m	£m	£m	£m	£m	£m	£m
At 1 April 2019	44.4	49.6	0.2	(1.2)	61.1	434.8	588.9
Profit for the period	-	-	-	-	-	67.6	67.6
Remeasurement of retirement benefit obligations	-	-	-	-	-	22.0	22.0
Foreign exchange translation differences	-	-	-	-	24.8	-	24.8
Net gain on cash flow hedges	-	-	3.1	-	-	-	3.1
Taxation on other comprehensive income	-	-	(1.3)	-	-	(3.7)	(5.0)
Total comprehensive income	-	-	1.8	-	24.8	85.9	112.5
Cash flow hedging gains transferred to inventories	-	-	(1.0)	-	-	-	(1.0)
Tax on cash flow hedging gains transferred to inventories	-	-	0.5	-	-	-	0.5
Dividends (Note 5)	-	-	-	-	-	(42.1)	(42.1)
Equity-settled share-based payments	-	-	-	-	-	3.4	3.4
Settlement of share awards	0.2	1.3	-	1.4	-	(1.4)	1.5
Purchase of own shares by EBT	-	-	-	(0.2)	-	-	(0.2)
Tax on equity-settled share-based payments	-	-	-	-	-	(0.9)	(0.9)
At 30 September 2019	44.6	50.9	1.5	-	85.9	479.7	662.6
Profit for the period	-	-	-	-	-	87.1	87.1
Remeasurement of retirement benefit obligations	-	-	-	-	-	(0.9)	(0.9)
Foreign exchange translation differences	-	-	-	-	(4.4)	-	(4.4)
Net gain on cash flow hedges	-	-	1.2	-	-	-	1.2
Taxation on other comprehensive income	-	-	0.8	-	-	1.8	2.6
Total comprehensive income / (expense)	-	-	2.0	-	(4.4)	88.0	85.6
Cash flow hedging gains transferred to inventories	-	-	(4.0)	-	-	-	(4.0)
Tax on cash flow hedging gains transferred to inventories	-	-	0.5	-	-	-	0.5
Dividends (Note 5)	-	-	-	-	-	(26.4)	(26.4)
Settlement of share awards	-	0.5	-	-	-	-	0.5
Purchase of own shares by EBT	-	-	-	(0.7)	-	-	(0.7)
Tax on equity-settled share-based payments	-	-	-	-	-	1.8	1.8
At 31 March 2020	44.6	51.4	-	(0.7)	81.5	543.1	719.9
Profit for the period	-	-	-	-	-	42.4	42.4
Remeasurement of retirement benefit obligations	-	-	-	-	-	(8.9)	(8.9)
Foreign exchange translation differences	-	-	-	-	(6.7)	-	(6.7)
Net loss on cash flow hedges	-	-	(0.4)	-	-	-	(0.4)
Taxation on other comprehensive income	-	-	0.1	-	-	1.7	1.8
Total comprehensive (expense) / income	-	-	(0.3)	-	(6.7)	35.2	28.2
Cash flow hedging losses transferred to inventories	-	-	0.7	-	-	-	0.7
Tax on cash flow hedging losses transferred to inventories	-	-	(0.1)	-	-	-	(0.1)
Equity-settled share-based payments	-	-	-	-	-	2.7	2.7
Settlement of share awards	0.2	2.4	-	0.8	-	(0.8)	2.6
Purchase of own shares by EBT	-	-	-	(0.1)	-	-	(0.1)
Tax on equity-settled share-based payments	-	-	-	-	-	0.3	0.3
At 30 September 2020	44.8	53.8	0.3	-	74.8	580.5	754.2

NOTES TO THE CONDENSED GROUP ACCOUNTS

1. Basis of preparation

These condensed Group accounts were approved by the Board of Directors on 9 November 2020 and are unaudited but have been reviewed by the auditor. They do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006, but have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the EU and the Disclosure and Transparency Rules of the UK's Financial Conduct Authority. As outlined on pages 16 and 17, the Directors consider it appropriate to continue to adopt the going concern basis in preparing these condensed Group accounts. They have been prepared on the basis of the accounting policies set out in the Annual Report and Accounts for the year ended 31 March 2020, which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain any statement under section 498(2) or 498(3) of the Companies Act 2006.

The significant judgements made by the Group in applying its accounting policies and the key sources of estimation uncertainty were the same as those applied to the Group accounts for the year ended 31 March 2020, although the assumptions used in the judgements involved in estimations have been updated to take account of the Group's latest expectations of the likely impact of the COVID-19 pandemic.

2. Segmental reporting

The Group's operating segments comprise three regions: EMEA, the Americas and Asia Pacific.

	EMEA	Americas	Asia Pacific	Group
	£m	£m	£m	£m
Six months ended 30 September 2020
Revenue from external customers	567.5	243.3	98.1	908.9
Segmental operating profit	75.0	22.7	0.1	97.8
Central costs				(20.2)
Adjusted operating profit				77.6
Amortisation of acquired intangibles				(2.7)
Substantial reorganisation costs (Note 3)				(16.0)
Operating profit				58.9
Net finance costs				(3.4)
Share of profit of joint venture				0.1
Profit before tax				55.6

Six months ended 30 September 2019
Revenue from external customers	615.0	263.7	100.0	978.7
Segmental operating profit	96.8	31.3	0.1	128.2
Central costs				(22.6)
Adjusted operating profit				105.6
Amortisation of acquired intangibles				(2.7)
Substantial asset write-downs (Notes 6 and 7)				(10.4)
Substantial reorganisation costs (Note 3)				(1.3)
Operating profit				91.2
Net finance costs				(2.3)
Share of profit of joint venture				0.1
Profit before tax				89.0

2. Segmental reporting (continued)

	EMEA	Americas	Asia Pacific	Group
	£m	£m	£m	£m
Year ended 31 March 2020
Revenue from external customers	1,239.8	515.7	198.3	1,953.8
Segmental operating profit	197.0	57.8	3.7	258.5
Central costs				(37.8)
Adjusted operating profit				220.7
Amortisation of acquired intangibles				(5.4)
Substantial asset write-downs (Note 7)				(7.3)
Substantial reorganisation costs (Note 3)				(2.7)
Operating profit				205.3
Net finance costs				(5.9)
Share of profit of joint venture				0.2
Profit before tax				199.6

In the table below, revenue is disaggregated by major products / services and sales channels. Of Electronic products / services' revenue £163.7 million is recognised at a point in time and £0.5 million over time (six months ended 30 September 2019: £184.3 million at a point in time and £0.6 million over time; year ended 31 March 2020: £360.1 million at a point in time and £1.2 million over time). Of Industrial products / services' revenue £736.6 million is recognised at a point in time and £8.1 million over time (six months ended 30 September 2019: £785.2 million at a point in time and £8.6 million over time; year ended 31 March 2020: £1,575.8 million at a point in time and £16.7 million over time).

	EMEA	Americas	Asia Pacific	Group
	£m	£m	£m	£m
Six months ended 30 September 2020
Major products / services lines
Industrial products / services	470.6	206.1	68.0	744.7
Electronic products / services	96.9	37.2	30.1	164.2
Group	567.5	243.3	98.1	908.9

Sales channel
Digital	418.5	92.6	55.2	566.3
Offline	149.0	150.7	42.9	342.6
Group	567.5	243.3	98.1	908.9

Six months ended 30 September 2019
Major products / services lines
Industrial products / services	501.6	222.9	69.3	793.8
Electronic products / services	113.4	40.8	30.7	184.9
Group	615.0	263.7	100.0	978.7

Sales channel
Digital	444.8	107.6	57.9	610.3
Offline	170.2	156.1	42.1	368.4
Group	615.0	263.7	100.0	978.7

Year ended 31 March 2020
Major products / services lines
Industrial products / services	1,019.7	436.6	136.2	1,592.5
Electronic products / services	220.1	79.1	62.1	361.3
Group	1,239.8	515.7	198.3	1,953.8

Sales channel
Digital	906.5	210.4	112.8	1,229.7
Offline	333.3	305.3	85.5	724.1
Group	1,239.8	515.7	198.3	1,953.8

3. Substantial reorganisation costs

In September 2020 the Group launched RISE to enable it to move faster to accelerate the delivery of its Destination 2025 strategy. Some small elements, which did not require consultation with collective bodies such as the Group's European Works Council, were initiated before then. This initiative is a two-year evolutionary programme to simplify the Group's operating model, make interventions for less and to optimise gross margin. The expected benefits will be £7 million in the year ending 31 March 2021, a further £15 million in the year ending 31 March 2022 and a further £3 million in the year ending 31 March 2023. The total costs are expected to be about £22 million, of which redundancy and associated costs of £2.4 million have already been spent and a further £13.6 million provided for in the six months ended 30 September 2020. These costs have been excluded from adjusted performance measures.

The conclusion of the second phase of the Performance Improvement Plan gave rise to substantial reorganisation costs of £1.3 million in the six months ended 30 September 2019 and £2.7 million in the year ended 31 March 2020 which were excluded from adjusted performance measures.

4. Earnings per share

	Six months ended		Year ended
	30.9.2020	30.9.2019	31.3.2020
	m	m	m
Weighted average number of shares	446.9	444.4	445.3
Dilutive effect of share-based payments	1.3	1.7	2.3
Diluted weighted average number of shares	448.2	446.1	447.6

Basic earnings per share	9.5p	15.2p	34.7p
Diluted earnings per share	9.5p	15.2p	34.6p

5. Dividends

	Six months ended		Year ended
	30.9.2020	30.9.2019	31.3.2020
	£m	£m	£m
Final dividend for the year ended 31 March 2019: 9.5p	-	42.1	42.1
Interim dividend for the year ended 31 March 2020: 5.9p	-	-	26.4
	-	42.1	68.5

An additional interim dividend for the year ended 31 March 2020 of 9.5p, to replace the deferred final dividend will be paid on 18 December 2020 to shareholders on the register on 20 November 2020 with an ex-dividend date of 19 November 2020. The estimated amount to be paid of £42.6 million has not been included as a liability in these accounts

An interim dividend for the year ending 31 March 2021 of 6.1p will be paid on 29 January 2021 to shareholders on the register on 8 January 2021 with an ex-dividend date of 7 January 2021 and the estimated amount to be paid of £27.3 million has not been included as a liability in these accounts.

6. Inventories

	30.9.2020	30.9.2019	31.3.2020
	£m	£m	£m
Gross inventories	463.9	459.4	446.6
Inventory provisions	(32.7)	(31.1)	(27.6)
Net inventories	431.2	428.3	419.0

During the six months ended 30 September 2020 £8.4 million (six months ended 30 September 2019: £5.5 million (including the substantial asset write-down of £3.2 million related to British Steel Limited which was reversed in the second half of the year ended 31 March 2020 following British Steel's change in ownership); year ended 31 March 2020: £6.4 million) was recognised as an expense relating to the write-down of inventories to net realisable value.

Currently the Group does not expect the COVID-19 pandemic to have a material impact on the net realisable value of inventories.

7. Trade and other receivables

	30.9.2020	30.9.2019	31.3.2020
	£m	£m	£m
Gross trade receivables	326.7	342.9	355.5
Impairment allowance	(6.9)	(11.2)	(6.9)
Net trade receivables	319.8	331.7	348.6
Other receivables (including prepayments and accrued income)	61.8	64.9	58.0
Trade and other receivables	381.6	396.6	406.6

Trade receivables are written off when there is no reasonable expectation of recovery. Except for the British Steel Limited debt impaired at 30 September 2019 and written off during the second half of the year ended 31 March 2020 of £7.3 million, which was treated as a substantial asset write-down and excluded from adjusted performance measures, the Group has historically experienced very low levels of trade receivables not being recovered, including those significantly past due.

At 31 March 2020, the Group increased its expected loss rates for those markets and industries that were most affected by the worsening macroeconomic environment due to COVID-19, which resulted in the trade receivables impairment allowance increasing. The Group took action to limit its exposure by tightening its credit policies, including short payment terms and low credit limits for new customers and seeking payment commitments for overdue balances before releasing new orders to existing customers.

During the six months ended 30 September 2020, the Group continued to experience low levels of trade receivables not being recovered. With the changing macroeconomic environment due to COVID-19 at 30 September 2020, the Group has reviewed and updated where relevant its expected loss rates where the impact on markets and industries has changed.

8. Net debt

	30.9.2020	30.9.2019	31.3.2020
	£m	£m	£m
Cash and short-term deposits	242.6	93.7	200.8
Bank overdrafts	(142.6)	(50.2)	(166.0)
Cash and cash equivalents	100.0	43.5	34.8
Bank facilities repayable within one year	-	(75.0)	-
Bank facilities repayable after more than one year	-	(51.1)	(0.4)
Private placement loan notes repayable within one year	-	(81.3)	-
Private placement loan notes repayable after more than one year	(158.3)	-	(161.4)
Interest rate swap - fair value hedges - current asset	-	2.8	-
Interest rate swaps - fair value hedges - non-current assets	1.4	-	1.0
Interest rate swaps - fair value hedges - non-current liabilities	-	(0.1)	-
Fair value hedged firm commitment	-	0.1	-
Money market loans repayable within one year	-	-	(7.5)
Current lease liabilities	(15.0)	(16.0)	(15.0)
Non-current lease liabilities	(42.9)	(43.6)	(41.3)
Net debt	(114.8)	(220.7)	(189.8)

8. Net debt (continued)

Movements in net debt were:

	Borrowings	Lease liabilities	Total liabilities from financing activities	Fair value hedged firm commitment and interest rate swaps	Cash and cash equivalents	Net debt
	£m	£m	£m	£m	£m	£m
Net debt at 1 April 2019	(175.3)	(53.3)	(228.6)	1.8	51.1	(175.7)
Cash flows	(27.3)	7.0	(20.3)	-	(10.9)	(31.2)
Net lease additions	-	(13.3)	(13.3)	-	-	(13.3)
(Loss) / gain in fair value in period	(1.0)	-	(1.0)	1.0	-	-
Translation differences	(3.8)	-	(3.8)	-	3.3	(0.5)
Net debt at 30 September 2019	(207.4)	(59.6)	(267.0)	2.8	43.5	(220.7)
Cash flows	43.2	7.8	51.0	(2.6)	(12.4)	36.0
Net lease additions	-	(4.4)	(4.4)	-	-	(4.4)
(Loss) / gain in fair value in period	(0.8)	-	(0.8)	0.8	-	-
Translation differences	(4.3)	(0.1)	(4.4)	-	3.7	(0.7)
Net debt at 31 March 2020	(169.3)	(56.3)	(225.6)	1.0	34.8	(189.8)
Cash flows	8.0	8.1	16.1	-	67.4	83.5
Net lease additions	-	(8.7)	(8.7)	-	-	(8.7)
(Loss) / gain in fair value in period	(0.4)	-	(0.4)	0.4	-	-
Translation differences	3.4	(1.0)	2.4	-	(2.2)	0.2
Net debt at 30 September 2020	(158.3)	(57.9)	(216.2)	1.4	100.0	(114.8)

9. Fair values of financial instruments

For all financial assets and liabilities, fair value approximates the carrying amounts shown in the balance sheet except for the following:

	30.9.2020		30.9.2019		31.3.2020
	Carrying amounts	Fair value	Carrying amounts	Fair value	Carrying amounts	Fair value
	£m	£m	£m	£m	£m	£m
Private placement loan notes	(158.3)	(161.7)	(81.3)	(81.3)	(161.4)	(166.4)

The other derivatives, interest rate swaps and the fair value of the private placement loan notes and firm commitment they are hedging are measured at fair value using Level 2 inputs. These are estimated by discounting future cash flows using appropriate market-sourced data at the balance sheet date.

10. Retirement benefit obligations

The Group operates defined benefit schemes in the United Kingdom and Europe.

	30.9.2020	30.9.2019	31.3.2020
	£m	£m	£m
Fair value of scheme assets	600.6	596.9	542.4
Present value of defined benefit obligations	(661.1)	(655.7)	(557.0)
Effect of asset ceiling / onerous liability	-	(1.1)	(41.2)
Retirement benefit net obligations	(60.5)	(59.9)	(55.8)
Amount recognised on the balance sheet - liability	(62.4)	(60.3)	(57.7)
Amount recognised on the balance sheet - asset	1.9	0.4	1.9

11. Principal exchange rates

The principal exchange rates applied in preparing the Group accounts are:

	Average for six months ended		Closing
	30.9.2020	30.9.2019	30.9.2020	30.9.2019
US dollar	1.27	1.26	1.28	1.23
Euro	1.12	1.13	1.10	1.13

12. Alternative Performance Measures (APMs)

The Group uses a number of APMs in addition to those measures reported in accordance with IFRS. Such APMs are not defined terms under IFRS and are not intended to be a substitute for any IFRS measure. The Directors believe that the APMs are important when assessing the underlying financial and operating performance of the Group. The APMs are used internally for performance analysis and in employee incentive arrangements, as well as in discussions with the investment analyst community.

The APMs improve the comparability of information between reporting periods by adjusting for factors such as fluctuations in foreign exchange rates, number of trading days and items, such as reorganisation costs, that are substantial in scope and impact and do not form part of operational or management activities that the Directors would consider part of underlying performance. The Directors also believe that excluding recent acquisitions and acquisition-related items aid comparison of the underlying performance between reporting periods and between businesses with similar assets that were internally generated.

Base business

The Group's base business excludes acquisitions in the relevant periods until they have been owned for a year, at which point they start to be included in both the current and comparative periods for the same number of months. All acquisitions had been owned for more than a year at 1 April 2020.

Like-for-like revenue change

Like-for-like revenue change is change in revenue adjusted to eliminate the impact of acquisitions and changes in exchange rates and trading days year on year. It is calculated by comparing the revenue of the base business for the current period with the prior period converted at the current period's average exchange rates and pro-rated for the same number of trading days as the current period. This measure enables management and investors to track more easily, and consistently, the underlying revenue performance.

	Six months ended		H1 2020 at H1 2021 rates and	Like-for-like
	30.9.2020	30.9.2019	trading days	change
	£m	£m	£m	%
EMEA	567.5	615.0	616.7	(8.0)%
Americas	243.3	263.7	263.9	(7.8)%
Asia Pacific	98.1	100.0	100.1	(2.0)%
Group	908.9	978.7	980.7	(7.3)%

				£m
Revenue for H1 2020				978.7
Effect of exchange rates				(1.7)
Effect of trading days				3.7
Revenue for H1 2020 at H1 2021 rates and trading days				980.7

Gross margin and like-for-like gross margin change

Gross margin is gross profit divided by revenue. Like-for-like change in gross margin is calculated by taking the difference between gross margin for the base business for the current period and gross margin for the prior period with revenue and gross profit converted at the current period's average exchange rates.

	Six months ended		H1 2020 at H1	Like-for-like
	30.9.2020	30.9.2019	2021 rates	change
	£m	£m	£m	pts
Revenue	908.9	978.7	977.0
Gross profit	392.3	427.7	427.1
Gross margin	43.2%	43.7%	43.7%	(0.5) pts

12. Alternative Performance Measures (APMs) (continued)

Adjusted profit measures

These are the equivalent IFRS measures adjusted to exclude amortisation of intangible assets arising on acquisition of businesses, substantial reorganisation costs, substantial asset write-downs, one-off pension credits or costs, significant tax rate changes and, where relevant, associated tax effects.

	Operating costs¹	Operating profit	Operating profit margin²	Operating profit conversion³	Profit before tax	Profit for the period	Basic earnings per share	Diluted earnings per share
	£m	£m	%	%	£m	£m	p	p
Six months ended 30 September 2020
Reported	(333.4)	58.9	6.5%	15.0%	55.6	42.4	9.5p	9.5p
Amortisation of acquired intangibles	2.7	2.7			2.7	2.2	0.5p	0.5p
Substantial reorganisation costs (Note 3)	16.0	16.0			16.0	12.6	2.8p	2.8p
Adjusted	(314.7)	77.6	8.5%	19.8%	74.3	57.2	12.8p	12.8p

Six months ended 30 September 2019
Reported	(336.5)	91.2	9.3%	21.3%	89.0	67.6	15.2p	15.2p
Amortisation of acquired intangibles	2.7	2.7			2.7	2.2	0.5p	0.5p
Substantial asset write-downs (Notes 6, 7)	10.4	10.4			10.4	8.4	1.9p	1.9p
Substantial reorganisation costs (Note 3)	1.3	1.3			1.3	1.1	0.2p	0.2p
Adjusted	(322.1)	105.6	10.8%	24.7%	103.4	79.3	17.8p	17.8p

⁽¹⁾Operating costs are distribution and marketing expenses plus administrative expenses.

⁽²⁾Operating profit margin is operating profit expressed as a percentage of revenue.

⁽³⁾Operating profit conversion is operating profit expressed as a percentage of gross profit.

Like-for-like profit change

Like-for-like change in profit is adjusted to exclude the effects of changes in exchange rates on translation of overseas profits. The change is calculated by comparing the base business for the current period with the prior period converted at the current period's average exchange rates.

		Six months ended		H1 2020 at	Like-for-like
		30.9.2020	30.9.2019	H1 2021 rates	change
		£m	£m	£m	%
Segmental operating profit
	EMEA	75.0	96.8	97.2	(22.8)%
	Americas	22.7	31.3	31.1	(27.0)%
	Asia Pacific	0.1	0.1	-	n/m
Segmental operating profit		97.8	128.2	128.3	(23.8)%
Central costs		(20.2)	(22.6)	(22.7)	11.0%
Adjusted operating profit		77.6	105.6	105.6	(26.5)%
Adjusted profit before tax		74.3	103.4	103.3	(28.1)%
Adjusted earnings per share		12.8p	17.8p	17.8p	(28.1)%

Working capital as a percentage of revenue

Working capital is inventories, current trade and other receivables and current trade and other payables. Working capital as a percentage of revenue is working capital expressed as a percentage of annualised revenue.

	30.9.2020	30.9.2019	31.3.2020
	£m	£m	£m
Inventories	431.2	428.3	419.0
Current trade and other receivables	381.6	396.6	406.6
Current trade and other payables	(380.1)	(358.5)	(358.7)
Working capital	432.7	466.4	466.9
Revenue for this period	908.9	978.7	1,953.8
Revenue for prior year	1,953.8	1,884.4
Less: revenue for prior first half	(978.7)	(911.8)
Annualised revenue	1,884.0	1,951.3	1,953.8
Working capital as a percentage of revenue	23.0%	23.9%	23.9%

12. Alternative Performance Measures (APMs) (continued)

Earnings before interest, tax, depreciation and amortisation (EBITDA) and net debt to adjusted EBITDA

EBITDA is operating profit excluding depreciation and amortisation. Net debt to adjusted EBITDA is the ratio of net debt to EBITDA excluding one-off pension costs, substantial asset write-downs and substantial reorganisation costs for the preceding twelve-month period.

	30.9.2020	30.9.2019	31.3.2020
	£m	£m	£m
Operating profit	58.9	91.2	205.3
Add back: depreciation and amortisation	27.1	24.5	50.9
EBITDA	86.0	115.7	256.2
Add back: substantial asset write-downs	-	10.4	7.3
Add back: substantial reorganisation costs	16.0	1.3	2.7
Adjusted EBITDA for this period	102.0	127.4	266.2
Adjusted EBITDA for prior year	266.2	247.8
Less: adjusted EBITDA for prior first half	(127.4)	(117.2)
Annualised adjusted EBITDA	240.8	258.0	266.2
Net debt (Note 8)	114.8	220.7	189.8
Net debt to adjusted EBITDA	0.5x	0.9x	0.7x

Earnings before interest, tax and amortisation (EBITA) and EBITA to interest

EBITA is adjusted EBITDA after depreciation. EBITA to interest is the ratio of EBITA to finance costs including capitalised interest less finance income for the preceding twelve-month period.

	30.9.2020	30.9.2019	31.3.2020
	£m	£m	£m
Adjusted EBITDA for this period	102.0	127.4	266.2
Less: depreciation	(15.9)	(13.1)	(27.6)
EBITA for this period	86.1	114.3	238.6
EBITA for prior year	238.6	237.2
Less: EBITA for prior first half	(114.3)	(112.1)
Annualised adjusted EBITA	210.4	239.4	238.6
Finance costs	4.4	4.5	9.2
Less: finance income	(1.0)	(2.2)	(3.3)
Add back: capitalised interest	0.5	0.4	1.2
Interest (per debt covenants) for this period	3.9	2.7	7.1
Interest (per debt covenants) for prior year	7.1	6.3
Less: interest (per debt covenants) for prior first half	(2.7)	(3.9)
Annualised interest (per debt covenants)	8.3	5.1	7.1
EBITA to interest	25.3x	46.9x	33.6x

Return on capital employed (ROCE)

ROCE is annualised adjusted operating profit expressed as a percentage of net assets excluding net debt and retirement benefit net obligations.

	30.9.2020	30.9.2019	31.3.2020
	£m	£m	£m
Net assets	754.2	662.6	719.9
Add back: net debt	114.8	220.7	189.8
Add back: retirement benefit net obligations	60.5	59.9	55.8
Capital employed	929.5	943.2	965.5
Adjusted operating profit for this period	77.6	105.6	220.7
Adjusted operating profit for prior year	220.7	220.3
Less: adjusted operating profit for prior first half	(105.6)	(104.0)
Annualised adjusted operating profit	192.7	221.9	220.7
ROCE	20.7%	23.5%	22.9%

12. Alternative Performance Measures (APMs) (continued)

Free cash flow, adjusted free cash flow and adjusted operating cash flow conversion

Free cash flow is the net movement in cash and cash equivalents before net cash used in financing activities, acquisition of businesses and cash and cash equivalents acquired with businesses. Adjusted free cash flow is free cash flow adjusted for the impact of substantial reorganisation cash flows. Adjusted operating cash flow conversion is adjusted free cash flow before income tax and net interest paid, expressed as a percentage of adjusted operating profit.

	Six months ended		Year ended
	30.9.2020	30.9.2019	31.3.2020
	£m	£m	£m
Net increase / (decrease) in cash and cash equivalents	67.4	(10.9)	(23.3)
Add back: cash used in financing activities	13.6	20.5	95.5
Add back: cash used in acquisition of businesses	-	0.2	0.2
Less: cash and cash equivalents acquired with businesses	-	-	-
Free cash flow	81.0	9.8	72.4
Add back: impact of substantial reorganisation cash flows	4.0	4.1	8.5
Adjusted free cash flow	85.0	13.9	80.9
Add back: income tax paid	14.3	28.1	49.9
Add back: net interest paid	3.5	2.7	6.2
Adjusted free cash flow before income tax and net interest paid	102.8	44.7	137.0
Adjusted operating profit	77.6	105.6	220.7
Adjusted operating cash flow conversion	132.5%	42.3%	62.1%

Ratio of capital expenditure to depreciation

Ratio of capital expenditure to depreciation is capital expenditure divided by depreciation and amortisation excluding amortisation of acquired intangibles and depreciation of right-of-use assets.

	Six months ended		Year ended
	30.9.2020	30.9.2019	31.3.2020
	£m	£m	£m
Depreciation and amortisation	27.1	24.5	50.9
Less: amortisation of acquired intangibles	(2.7)	(2.7)	(5.4)
Less: depreciation of right-of-use assets	(8.5)	(7.4)	(15.6)
Adjusted depreciation and amortisation	15.9	14.4	29.9
Capital expenditure	33.2	37.1	78.6
Ratio of capital expenditure to depreciation	2.1 times	2.6 times	2.6 times

Inventory turn

Inventory turn is annualised cost of sales divided by inventories.

	30.9.2020	30.9.2019	31.3.2020
	£m	£m	£m
Cost of sales for this period	516.6	551.0	1,099.1
Cost of sales for prior year	1,099.1	1,045.8
Less: cost of sales for prior first half	(551.0)	(507.0)
Annualised cost of sales	1,064.7	1,089.8	1,099.1
Inventories	431.2	428.3	419.0
Inventory turn	2.5	2.5	2.6

13. Related party transactions

There has been no material change in related party relationships in the six months ended 30 September 2020. There were no significant related party transactions which have materially affected the financial position or performance of the Group during that period.

14. Capital commitments

As at 30 September 2020, the Group is contractually committed to, but has not provided for, future capital expenditure of £11.5 million (30 September 2019: £27.7 million; 31 March 2020: £27.2 million).

INDEPENDENT REVIEW REPORT TO ELECTROCOMPONENTS PLC

Report on the condensed Group accounts

Our conclusion

We have reviewed Electrocomponents plc's condensed Group accounts (the 'interim financial statements') in the
half-yearly report of Electrocomponents plc for the six month period ended 30 September 2020. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

· the Group balance sheet as at 30 September 2020;

· the Group income statement and Group statement of comprehensive income for the period then ended;

· the Group cash flow statement for the period then ended;

· the Group statement of changes in equity for the period then ended; and

· the explanatory notes to the interim financial statements.

The interim financial statements included in the half-yearly report have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the Directors

The half-yearly report, including the interim financial statements, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the half-yearly report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

9 November 2020

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