RS Group PLC (LSE:RS1) was the biggest faller in the FTSE 350 on Tuesday as its half-year revenues and profits shrank, with cash flow well below expectations.
The electronic, electrical and industrial distributor, formerly known as Electrocomponents, reported £1.45 billion of revenue for the six months to 30 September, down 8% on a like-for-like basis, while pre-tax profits plunged 30% to £126 million. Earnings per share of 19.5p were 8% below the Bloomberg consensus.
Adjusted free cash flow crumpled 77% to £26 million, with cash generated from operations down 43% to £104 million.
The balance sheet flipped to a net debt position of £502 million from net cash of £3 million a year ago.
Adjusted free cash flow was impacted by the easing of supply chain constraints, it said, and is “expected to normalise” in the second half.
Chief executive Simon Pryce called it a “resilient performance in difficult markets, which have been more challenging than anticipated at the beginning of the year”.
He said industrial revenue has been “robust” despite the challenging macro and geopolitical environment but “cyclical weakness in electronics has been exasperated by customer de-stocking”.
Looking forward, he said markets “remain difficult in the short term, [but] the medium and longer-term growth characteristics are attractive”.
Costs are being managed “more appropriately” while investment in key strategic areas continues, which he said is “positioning the group very effectively to benefit when our markets return to growth”.
Broker Shore Capital downgraded its adjusted EPS forecast by 13% to 46.3p, mainly driven by a weaker-than-expected operating margin.
“With very short leads times, the company has limited visibility and management has noted a more uncertain economic environment,” analyst Tom Fraine said in a note.
“The company had previously played down the risk of destocking, highlighting how customers rarely stock the products they sell. However, destocking was attributed as a reason for weakness in H1.”
He said he expects to maintain his 'hold' recommendation, seeing Amazon's Business procutement service as “a threat to potential future market share gains, due to its scale and ability to deliver products very quickly, an important offering for RS Group”.