RS Group plc (RS1) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the RS Group's results for the year ended the 31st of March 2022. I'm David Egan. I'm the CFO of RS Group, and I will be hosting the call today. Unfortunately, as we advised last night, Lindsley Ruth, our CEO, has contracted COVID and is unable to join us today. But we did receive a video from Lindsley overnight, and so we'd like to roll the tape.

Good morning. Hello, everyone. Welcome to RS Group and our 2022 preliminary results. It's been a great year with very strong outperformance, which I thank all of our people for their hard work, efforts around the world. Unfortunately, I'm really sorry, I can't join you in person today. But unfortunately, I've been struck down with COVID. I was on a flight coming to London last week, and there was somebody next to me that was really sick. And the last thing I want to do is do that to somebody else. And if that didn't happen to my father, he'd probably still be here today. So I take it very seriously. For us as a company, we always put the health, well-being and safety of our people first, including all of our stakeholders, it's a top priority for us. So I'm staying at home and doing the right thing. I just, unfortunately, moved into a new home in London, a new flat, which should be exciting, although it appears to be in a mobile dead spot, I haven't been able to get Wi-Fi set up yet, as no one can come, and as you can imagine, not ideal for hosting the virtual presentation. So today, I'm going to leave the presentation to David, as I know you will do a great job in explaining our results and opportunities. And as most of you heard at our investor event in March, I'm extremely excited about our journey to greatness. We have a great team. We're well positioned for the changing market, we are differentiated, and many of the levers to pull to drive stronger revenue and high-quality profitable growth are defined by us and we're executing. There is so much more upside. So with that, I'm going to pass you to David. But first, I'd like to go unscripted. I just wanted to say, in the slides in the presentation, you'll see Asia Pacific -- all the regions did well, but in particular, Asia Pacific delivered double-digit operating profit. And I remember 3, 4 years ago people saying, "Gosh, we're losing so much money in Asia, we're losing more than 10%." And you're in Asia, people said, why would you even do business there? I believed in our team, and I thought we could turn it around. And our team has turned it around, and I think there's more upside to come. As far as the big question of the day is, I think, what is our outlook on the market. I'll tell you, I mean we can't predict the future, but I'll tell you, I couldn't be more proud of the people we have within this company, the culture that we're developing. I think it gives us a competitive advantage. And I can assure you all of our investors that what you will see from us is a best effort in everything that we do. The shortages are starting to slow. So we're seeing less of those. Lead times are starting to come down again. They're still not where they used to be. So I think there'll still be some volatility in the market ahead. But for us, I think everything we have today is within our control. So with that, I'll turn you to David. I'm always available for anybody. And if anybody wants to visit me, in a mask and outside the door, I'd be more than be with you. So have a great day.

Thank you, Lindsley. We certainly wish you a speedy recovery, and we're very sorry that you're not here with us today. As Lindsley said, the well-being and health of our people remains our #1 priority. It really is very, very important. Welcome to our 2021-2022 full year results presentation. We are extremely excited and delighted that our rebranding has begun and that our new corporate name, RS Group, is live. The rebranding reflects our strong RS brand, which is recognized by engineers around the world. We're bringing our businesses together under 1 strong unified brand united behind our strong purpose of making amazing happen for a better world. As Lindsley said, we've had an outstanding year. Sorry. As Lindsley said, and as I'm saying, we've had an outstanding year. Our revenue has grown by over a quarter with increased margins in all regions. We've generated strong free cash flow despite a significant inventory reinvestment. We delivered 29% return on capital employed with a strong balance sheet that supports growth investment and capital return to our shareholders. We have proposed a final dividend of 11.6p, that's up 18%, giving a full year dividend of 18p. And we're making good progress on our 2030 ESG action plan for a better world. Our outperformance is seen in this chart, which shows our revenue growth versus nominal industrial production growth. And this is illustrating our market share gains and our resilience even during more difficult times. All this is being driven by our talented and skilled people who work hard, share our purpose and vision and have fun despite all of the challenges. We've delivered and will continue to deliver a change in culture by investing in talent, empowering our leaders and incentivizing our teams, and we talked a lot about that in our Investor Day recently. And we've demonstrated our ability to adapt to the significant external challenges that we have faced. We are controlling our own future through anticipating and adapting to the changes that are occurring around us. And we are incredibly proud of our people and all that they do for RS group around the world. So let's go through the results for the year ended 31st of March 2022, and also the outlook as we see it today. In summary, we have delivered very strong revenue growth on a 1 and also a 2-year basis. On a 1-year basis, our adjusted operating margins grew by over 3 percentage points to 12.5%. Our adjusted operating profit conversion is over 28%, and our return on capital employed is nearly 29%. We have 8 nonfinancial KPIs, which are detailed in the appendix of your packs. I've pulled out 3 that are linked directly to our GBP 300 million sustainability loan, and as you can see, ESG is integrated throughout our group. Scope 1 and 2 carbon emissions decreased by 20% during the year, and 88% of our electricity is from renewable resources. Our packaging intensity fell by 16% from 2020 to '21 and 13% in the year just gone. And we were ranked in the top 3 of the FTSE 100 ranking 2021 Women on Boards and Leadership. So looking at the income statement. During the year, our revenue grew by 28% to GBP 2.5 billion, and our adjusted PBT grew by 73% to GBP 314 million. Our adjusted effective tax rate grew 1 percentage point to 23%, reflecting the U.K. corporate income tax rate changes. Our revenue growth was due to increased order volumes, growth in the average order size due to more products in each basket, circa 7% price inflation over the course of the year, our 2021 acquisitions of Synovos, Needlers, and Liscombe, and there was a GBP 63 million headwind resulting from foreign exchange. As outlined previously, we are focusing attention on higher-margin customers, such as our key and corporate customers. They account for circa 10% of customer numbers, but roughly 3/4 of our revenue, so critical for our future successes. Our average order value increased by 10% to GBP 211, helped by more product in our customers' baskets and our focus on higher-value transactions. Our rolling 12-month Net Promoter Score, which is a KPI for all employees, decreased to 50.6, mostly due to external product availability challenges. We're not happy with this score. However, our customer metrics and conversations suggest that we are outperforming our peers within the difficult markets with very strong product availability. Please note that going forward, we will be slightly modifying our NPS measurement approach, and the details of this are included in the appendix of your pack. Our adjusted operating profit margin grew to 12.5%, largely driven by revenue through volume growth. Our gross margin increased 1.5 points to 44.2%, which included 60 basis point recovery from last year's PPE provisions and a 1.1 percentage point benefit from better pricing and more detailed price management work. Operating costs were impacted by freight, labor and energy inflation. Many of the cost pressures show no signs of abating and are not expected to unwind any time soon. However, we are mitigating some of these pressures by reengineering our transportation routes, increasing automation, and seeing improving labor productivity. Our RISE program is nearing completion and delivered GBP 15 million of benefit in the year. Our people have worked hard and driven our outperformance. And so we awarded a real pay increase and a one-off 'thank you' bonus during the year. Despite all of these cost challenges, our adjusted operating profit conversion margin grew over 6 percentage points to 28.4%. Looking at the regions. All 3 regions delivered material improvements in adjusted operating profit, and they did this through volume growth, improved margins, operational efficiencies and leverage, and from being a more streamlined and agile business. This was despite some headwinds of limited inventory with OKdo, reduced trading at some of our major heavy industry customers within IESA, and lower revenue from existing customers and operational investments in Synovos. Ongoing investments in our operating model to strengthen our expertise, our technical capabilities, and product and service capacity. In EMEA, our operating profit margin was 15.4% despite increased cost to serve after Brexit and not yet fully leveraging the benefit of our DC expansion in Germany. In the Americas, the operating profit margin grew to 13.8%, driven by operational leverage from the much higher volumes. And then finally, Asia Pacific, delivered a 11.5% operating profit margin this year, a function of focusing on more commercial and profitable opportunities. There's more details around each of the regions in the appendix of your packs. Moving on to cash. We remain a robust cash-generative business with an adjusted operating cash flow conversion of 72%. This included an additional GBP 100 million of inventory as we mitigated some of the industry supply constraints that supported our growth, and we increased product within our newly expanded Americas distribution center in Fort Worth, Texas. Our working capital to revenue ratio was at 21%, and we continue to monitor our receivables collections very closely. Our capital expenditure was a little lower than last 2 years as we completed our U.S. and German DC expansions. And we also held back on a couple of smaller projects as we modeled and prioritized the importance of those over the medium term. We expect CapEx to return to between GBP 50 million to GBP 60 million as we move into FY '23. Given our strong cash generation, and no acquisitions during the period despite a lot of effort and a strong pipeline, our net debt fell to GBP 42 million. Our return on capital employed, which is an underpin of our incentive plans, increased by over 9 percentage points to 28.7%. Turning to capital allocation. As I said before, we have a strong balance sheet and we target net debt to EBITDA around 2x. We are prioritizing investments into growth opportunities. Firstly, to drive stronger organic growth through ongoing investments into our operating model and our inventory positions. And secondly, through strategic acquisitions. With regards to acquisitions, we see many exciting opportunities to accelerate our organic growth. As outlined at our March investor event, we know of over GBP 2 billion of EBITDA coming to the market over the next 18 months, which we believe, from an outside-in looking perspective, could fit our strategic aspirations. While our teams are very busy, we remain super disciplined on cultural, strategic and financial criteria. We see the greatest opportunity in the Americas given a more liquid M&A market, but we also see significant opportunity in our solutions proposition across multiple countries around the world. On to current trading. We've seen strong growth over the first 7 weeks of FY '23. Uncertainties remain, and we are mindful of the ongoing difficulties many are experiencing and the external headwinds our group could face. However, we have continued to invest in our operations and continue to develop our proposition, meaning we are well positioned to drive stronger revenue and high-quality profitable growth to deliver significant sustainable value. So now let's recap a little bit on our journey to greatness, and the progress that's being made and will be made over the next little while. As we said at the beginning, we're very pleased with the progress that we made in FY '22. We have become a good company, but we're not satisfied, because we want to be a great company. And we believe that we can generate significantly more value over the medium and long term. We outlined at our investor event, to be great, we need to benchmark our business versus the best. And we need to deliver best-in-class growth and returns within our core competitive strengths. We can do this by galvanizing a high-performance, purpose-led culture, realizing a world-class customer experience, extending our wisdom, insight and data, and capitalizing on the amount of data that we have, accelerating to a solutions-led innovative business and transforming our executional capabilities. These are all powered by systems, processes, technology, and brilliant people. We are planning, executing and delivering this through a scorecard that covers 3 key areas: cultural transformation, operational efficiency, and our growth accelerators. And all of this drives stronger revenue and higher quality profitable growth. So let me just go through those briefly to give you a little bit more color. We are developing a purpose-led culture. And hopefully, you heard and saw and experienced firsthand that culture in action at the investor event in March. We put our people first. They are the most important asset and that they differentiate us from the competition. We've invested and continue to invest in our people. We have simplified our management structure and we'll continue to simplify our structure, and we are rewarding high performance. We have a retention rate of 90%, and we have seen our employee engagement scores continue to increase. And we believe that our purpose-driven culture is key in driving a strong ESG approach embedded into all that we do. We launched our 2030 ESG action plan for a better world in November 2021 and have updated investors twice over the last 6 months. It is fundamental to our purpose. And further update on our progress is in the appendix, and there is a summary presentation and video from Andrea, our VP of ESG and Sustainability on our website launched today. But we also see the opportunity from supporting all our stakeholders as they become more sustainable. For example, providing design tools for innovative engineers, monitoring energy usage and offering products and services solutions to reduce carbon emissions, developing predictive maintenance solutions, reengineering supply chains to reduce Scope 1, 2 and 3 emissions, and consolidating supply chains and deliveries through our integrated supply solution. We are well positioned to become a sustainability partner for all of our stakeholders. On the operational efficiency side, we are continuing to invest and drive a world-class execution and scalability evidenced through the work that we've done in Asia Pacific, turning the business around. Across the group, utilizing our insight and data through group shared business services and investing in our distribution centers to improve automation, efficiency, sustainability. Our experience and expertise has allowed us to identify supply chain issues in the market early. Hence, the investments we made in inventory during the course of the year. Working closely with our suppliers to secure and invest appropriately in greater levels of inventory provided strength in availability and drove performance of the top line. You can see in the chart that incoming supply deliveries have seen a material reduction in performance. That is the black line, whereas our availability, our on time to promise the red line has dropped slightly. We are delivering industry-leading availability despite the significant and serious supply chain constraints across the world. Now on to the growth accelerators, and we have 3 of these: product choice, solutions, and being easy to do business with through an omnichannel. First, our differentiated product offer. We are a leading specialist distributor for industrial customers. Our data and insight shapes our product offer. We have a wide range, including many products with a low inventory turn that are critical in keeping businesses running. Our own brand, RS Pro, offers a value alternative, and many of our products deliver improved efficiency and lower carbon emissions. We're driving growth in total product numbers and new product development. Our second growth driver is solutions. We solve customers' problems and unlock new opportunities for our customers, suppliers and RS group. Our product and services solutions, many of which are innovative and digitally led, deliver efficiencies across the asset life cycle. We are driving an increase in customer lifetime value through stronger partnerships, which can generate additional and more sustainable revenue. Solutions now account for circa 23% of group revenue and is moving us from a more transactional side of distribution towards developing strategic relationships. And the key for us here is leading with solutions that then pull through products, and that drives additional value for our group. One of our highest value-add solutions offer is our business process outsourcing business, IESA and Synovos, which will become RS Integrated Supply. We are the only integrated supply provider globally, and we have seen strong demand for our offer. We have won many new contracts over the last year, many in lighter industry sectors, which are less cyclical, including 2 large global multinationals with combined pass-through of over GBP 100 million. We're also expanding our work with existing customers, as they roll out into their European locations. There is also additional value from offering integrated supply customers of IESA and Synovos, the RS range, RS PRO products, and we're also trialing an integrated supply light offer that we call RS Plus to our core RS customers. We're really excited about the opportunities, the demand and the value that RS Integrated Supply brings to our group. And lastly, the third growth accelerator is being easy to do business with. We are truly omnichannel. Although over 95% of our new customer journeys start online, customers want knowledge, experience and expertise. They want to speak to someone that understands their business and knows what product or solution they may need, meaning the human interaction is key. 38% of our revenue is generated offline. So providing that omnichannel, again, is a key differentiator and a growth driver for us. We are bringing and continue to bring a B2C experience to B2B customers by hiring digital specialists, improving website functionality and using our insight to spend our marketing more wisely. Ultimately, this is driving improving returns. The building blocks of our strategy remain unchanged, but we see greater opportunity within our journey to greatness through growing volumes to increase the share of customers' wallet, driving better operational efficiency, improving our pricing and procurement capabilities, and developing our solutions offer, all outlined in our strategic plan to drive stronger revenue and high-quality profitable growth. However, the environment that we operate in today is uncertain, with inflation, supply and economic pressures. But we have a long history of resilience and believe that challenges can become opportunities. On inflation, we see the opportunity to drive margin benefits through utilizing detailed pricing tools and using product elasticity models. On the cost side, we are reengineering our supply routes to offset some of the freight inflation, and our improving labor productivity is helping offset some of the labor pressures. We have shown over the last 2 years that our experience can help offset many of the global supply challenges. We are leveraging our supplier relationships, bringing forward supply orders, increasing safety stocks, offering alternatives where possible, and utilizing our global DC network to source, store and deliver to our customers. The economic headwinds are unhelpful, However, we believe that we have a history of resilience, great people that can continue to drive outperformance. So in summary, we are proud of what we have delivered to date. But as we said in March and we say today, we are not satisfied. We see plenty more to come on our journey to greatness. We have significant market share opportunity. We have a differentiated business model, but we can be great through focusing on our culture, customer experience, data and insight, solutions, and by executing brilliantly. We have a purpose-driven culture and vision with ESG embedded in all that we do, and we will target acquisitions carefully under strict criteria to accelerate the organic growth agenda. Our journey to greatness will deliver stronger revenue and higher quality profitable growth. And with that, I'd like to invite you to ask your questions. I do have some members of our team in the audience. And so if I am not capable of answering the questions, I'm sure they will be. I think we'll start with questions in the room, and then we'll go for questions for people on the line.

First 1 is just in terms of the current trading. One would expect growth to [indiscernible] are very difficult Q1 of last year. I'm just wondering if you could just touch on if you're able to sort of talk to the base rate and how [indiscernible]. That's the first question.

Sure. So just on current trading, as we said in the statement, for the first 7 weeks of FY '23, we've seen strong current trading across our 3 regions. Please bear in mind that our visibility remains very limited. We don't ordinarily have an order book. So we've seen good progress, good momentum coming off the back of Q4. We've seen a slight continuation uptick in terms of the price effect, but still very strong volume growth during the course of the first 7 weeks. That is pretty consistent across the 3 regions. The only 1 that I would call out that's seen a slight moderation has been in Asia Pacific, and that's been largely due to the temporary disruptions that we've experienced with our distribution center based in Shanghai, China. But otherwise, I think current trading for us, momentum continuing and a good mix between price and volume growth.

Second question just relates to inventory. I know this is a [indiscernible].

So in terms of the metrics, we have seen -- from a supplier metric, we certainly saw a deterioration during the course of the year. I think we're sort of starting probably at the bottom of that. I wouldn't say it's materially improved, but at the same time it hasn't ordinarily gotten particularly worse. From our own time to promise -- our promise to the customer, again, we saw a deterioration of that metric during the course of the year. We've seen some early bright shoots in the course of March and April where we're starting to turn the corner. So we're still in the 80s, the high 80s in terms of OTTP and we certainly want to see that well into the 90s over time. In terms of inventory investment for FY '23, it won't be at the same level of GBP 100 million, but we certainly are putting more inventory into the business, which is probably less than 100, but more than 50.

And then the final question just relates to integrated supply. One would imagine this is the perfect environment to sell the integrated supply solutions that you have given the cost pressures that are sort of prevalent globally across all industries. Can you just talk about how the inquiry pipeline is developing for [indiscernible] respectively?

Sure. So both businesses have a strong pipeline. The time that it takes from inquiry to defining and then execution and implementation is long. Our objective is to try and shorten that pipeline as best we can. But both businesses have very strong pipelines. Both businesses have seen customer wins during the course of the year, some smaller, but also some larger. Our key focus now is to bring the 2 businesses together under the RS Integrated Supply brand with common platforms, common process and an integrated leadership team.

Sanjay Vidyarthi at Liberum. Just 1 question for me. It's good to see the operating margins by region, the gap between them starting to narrow. Just wanting to understand a little bit about, say, I think historically, the North America gross margin has been lower, if that is changing and if that is part of the reason for the margin improvement? Or is it just about operating leverage? I guess just trying to understand, longer term, can we see, say, North America get to a similar level to EMEA?

I'll say a couple of words and I'll hand it over to Mike England, our COO. So the margin in the Americas is lower. It's typically in the 30s, whereas the group's gross margin sits in the 40s. If you look at the operating margin, the Americas has always had a very strong operating margin. So it's had a lower cost to serve. Now typically, that's because they operate with higher order values and they can operate with a lower cost to serve in which to deliver that. We would say that our objective is to improve the gross margin. There has been improvement in the gross margin and that has driven an improvement in the operating margin. But maybe, Mike, you can just cover sort of what are the 3 or 4 things that will move it forward further.

So over and above actions that we're taking around dealing with inflation on price, but also better controls around discounting that David talked to. There's 2 areas that I would really call out. The first is product mix and the second is customer mix. And both are intellect. So I'm being told to stand up. I'll just stand up. So on product mix, as we discussed at the Investor Day, our Americas business has operated in a more narrow product sphere, more around automation and control and the upper end of electronics and interconnect electromechanical. Our objective is to expand the product range more into the maintenance, repair and operations space. This year, we've increased our product portfolio quite significantly, and we continue to do so, that with it attracts a higher margin opportunity. Equally, we are still not at the momentum that we would like around our own brand and RS PRP, lots of really good work happening. But again, that's all part of that margin accretive product range expansion activity that we're driving. On the customer mix, we can see a slightly different shape in terms of digital share within the Americas. So typically, now we're up to around 40% of our share is through digital channel, 6% offline. We've seen an enormous acceleration of our digital channel, particularly the website within the Americas, which is very encouraging for us. That means that we're attracting a much broader spirit of customers. Typically, we've operated more at the upper end of the customers, around the larger customers. We're actually attracting also a broader range of smaller customers. And as the product range expands and our digital experience continues to improve, which we're making investments around, then combinations of those 2, we believe, will improve our margin, but also accelerate our revenue growth as well.

Sylvia Barker from JPMorgan. Three quick questions from me as well, please. Firstly, on CapEx, could you just talk about kind of how much of the GBP 50 million to GBP 60 million is DC related, how much might be IT as well? Secondly, on the basket size increasing, could you share any details on which regions and/or customer types drove that and where you see that going forward? And then finally, on the NPS score, was the reduction driven by B2C, or was it on the B2B side?

Great. Thank you. So on the CapEx. During the course of FY '22, there was a portion of CapEx that was DC related, predominantly going into Germany. The balance was keep the lights on and technology related CapEx. As we look forward, the bias will be more focused on systems, process, and keeping the lights on investments; less on the distribution expansions. They'll be more on the automation going into the distribution centers, not necessarily on expansion programs. With regards to the basket size, the overall average order value now is GBP 211. We have seen that improve across the 3 regions relatively consistently. There is no magic number in terms of what should it be, what could it be. But ultimately, we want to give the customer a brilliant experience and the more product and solutions they put in their basket, then we would see that, that also then drives margin opportunity, because it then creates a lower cost to serve those customers. And then with regards to NPS. NPS was driven largely by external factors, and it really came down to product or lack of product availability, not meeting customers' expectations. Despite us having very strong availability versus the competition, we didn't meet the customers' expectations, and hence, we have seen a deterioration of our NPS score during the course of the year. We have seen finally a couple of bright shoots -- I won't say bright, maybe sort of emerging shoots, certainly not dark clouds or moon, but it's moving in the right direction in the course of both the month of March and April, but it's early days. Any more questions in the room? Are there any questions on the phone?

[Operator Instructions] We have a question on the telephone from Rory McKenzie from UBS.

It's Rory from UBS here. Just to say, I'm not being too lazy to walk upstairs in UBS. I'm actually working from home in a solidarity with Lindsley. Firstly, on the physical risks. You've said you're seeing strong growth overall despite the Shanghai lockdown. But are there any customer segments or product segments where you are seeing activity slow? And maybe just talk through which indicators you're watching very carefully at the moment. Then secondly, on the market share gains, can you break down the 19% volume mix growth in the past year in terms of customer numbers and wallet share gain, I guess, for the remainder within those customers? And at the Investor Day, you talked a lot about kind of upselling. What are the kind of key accounts and explain those relationships. Just keen to hear how those are progressing and your thoughts for this year in this environment?

Thanks, Rory. So I'll take the first 2. Mike, if you can take the third 1 on the upselling? So in terms of the outlook, as we said in the statement, for the first 7 weeks, the growth has remained strong. We have seen a slight tick up with regards to the price effect within those growth numbers, but still delivering very strong volume growth. We haven't seen any sort of material sort of differentiation across the countries. There's always going to be ups and downs in the different end markets that our countries are focused on. But overall, at this point in time, we're cautiously optimistic in terms of what we're seeing and how we're performing in those markets and believe that we are continuing to differentiate ourselves and our performance. What are we watching? I think we're watching as much as we possibly can, talking to customers, talking to suppliers quite a lot. We're also looking at various metrics within the markets. But overall, I think we're cautiously optimistic in terms of what we see. But I think also we have agility within our model. So if we do start to see things that are going a little bit off beat, then we will take action and be as agile and nimble as we possibly can to ensure that we keep pointing in the right direction and drive future value. In terms of the market share, I guess our market share has been split. We delivered 26%, around 6%, 7% of that was price. The balance 19% was a mix of volume and mix. And it was more biased towards volume than mix. Again, that was pretty consistent across the regions, a little bit more biased with stronger volume coming out of the Americas, but overall, I think at the group level, strong volume growth than price than mix. Mike?

Yes. Just on the notion of upselling. Just 5, I guess, key areas that I'll just ask you to consider as we look ahead. And what I would say, just on current trading, we continue to see the average order value strengthen, which is very positive, which means we're ultimately continuing to drive more upselling to our existing customers and also attracting new customers. Those 5 areas, a lot of focus around the world on customer lifetime value. So putting programs in place that really looks and helps our sales and marketing teams to be focusing much more on quality over quantity. And that's a really important factor for us as we're focusing and resetting the business around industrial B2B customers. Whilst we are very pleased to have a B2C channel, our primary focus is on B2B. With that, as we look ahead also, we're doing a lot of work around our customer master data. When I was at the Investor Day talking about how we realize a world-class customer experience, it really does start with the forensic understanding of our customers. I think we're now more into the insight and wisdom than ever before. We're doing a lot of resetting as it relates to the way in which we classify our customers across corporate key and standard. Just 1 example, we have resellers today sitting within corporate customers. So we're doing a lot of interrogation around our data around the world. We're also aligning our customer master data. And as I also talked about, we've done a lot of work around customer personas and defining in detail the customer personas that we believe are going to add profitable growth for us. And so that customer master data work is important. The user experience improvements within our web experience and also digital procurements, so how we continue to strengthen our e-procurement offerings to our customers. We believe that, that continues to drive and will continue to drive upselling opportunities. With that and with the improvements of customer master data over time, that also allows us to move towards being much more personalized for our customers and much more relevant. So we're putting in their hands the products and solutions that they want at point of inquiry or point of purchase. Then we've got range expansion and continue to home in our product range expansion plans relevant to those customers around a stock to nonstock capability, which we believe is going to continue to drive growth. The fifth area, as David called out, is moving from a transactional relationship with our customers to a value-based relationship with our customers. So not only selling them products, but combining the strength of products with solutions, with the overall customer experience, these 3 elements combined through solutions gives us an upsell opportunity. So we believe that we're on the journey, as David will say Lindsley continues to call out we're good today, but the opportunity for growth and profitable growth, we believe, is continuing to be extraordinary in a very fragmented market.

Thanks, Mike. And Rory, just quickly on your customer number piece of the question. We're focused very much on the value that we drive from the customer, not necessarily the absolute customer numbers. So we have seen an improving customer number position. But equally, we're looking to drive more value from the customers in which we serve. So it's more around the quality of the customer, not necessarily absolute customer number.

We have no further questions on the telephone line.

Are there any questions that have come through the web.

There are. They're very similar actually. How quickly can you pull back costs if or when things turn down. And how quickly can you unwind the supply orders?

Right. So I'll talk costs and Debbie Lentz will talk supply. So costs, we have multiple areas of costs that run through our business. Some of those are easier to stop or remove or contract than others. But we have sort of action plans, or Plan A, Plan B and Plan C. But certainly, as Lindsley says many times, "when you're in more troubled times, it's also a time to look to try and invest." You can attract some great talent that becomes available, and it's also an opportunity to make sure that you're best positioned when the world then begins to move out of challenging times into good times. So for us, we're very mindful of making sure that we continue to drive an improving operating margin, but at the same time, we also have a medium- to long-term vision here that we can drive very good value by investing appropriately. But at the same time, if we need to take some actions, we'll take actions, and those actions can happen very, very promptly. Debbie?

From a supply perspective, we continue to be in pretty good shape. So as we were growing and as we had supply disruption, we did a very good job in protecting ourselves and bringing in the right inventory, reading the market and getting in front of it. If it comes down, it's the same thing. We stay in front of it. We read the market. We work with our folks in the markets to tell us what's happening. With the great relationships we have with our suppliers, most of them, we can adjust our order books, adjust our agreements, and those sort of things. So we've got some great intelligence that enables us to flex up or down pretty dynamically.

Any more? Okay. I think that is it. So again, on behalf of Lindsley and myself, I'd like to thank you for your attendance. Thank you for those in the room, and thank you for those on the line. Lindsley and I look forward to speaking and seeing you over the course of the next few weeks. And as I said at the beginning, we wish Lindsley a speedy recovery, and I'm sure I can assure you he's on good form. And we are waiting with bated breath for his return. Thank you, and good morning.