Electrocomponents PLC

LSE:ECM

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Electrocomponents' Trading Update Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Wednesday, 3rd of July 2019. And I would now like to hand the conference over to your speaker today, Lindsley Ruth. Please go ahead.

[Lindsley Ruth, CEO & Director]

Thank you very much, Bernard, and good morning, everyone. This is Lindsley Ruth, the CEO. And I'm joined here by David Egan, the Group CFO of Electrocomponents plc. This is a trading statement covering the first quarter of our financial year till March of 2020. We're coming to you this morning from a beautiful morning in downtown London.So overall, the market environment remains uncertain, but we continue to build momentum particularly in our largest region, EMEA, where we continue to outperform the market. In recent years, we have demonstrated an ability to grow market share with a sharper focus on the customer and best-in-class capabilities within this region. Regardless of the economy, our opportunity remains significant, and we believe the investments we are making in scalable infrastructure will deliver another step-change in our performance over time. At the same time, we're very focused on delivering short-term results by continuing to tightly manage our operating costs, and we continue to make good progress.While looking at the first quarter in more detail, overall, we have seen 4% like-for-like revenue growth during Q1 with continued strong growth in our industrial products more than offsetting some anticipated weakness in our electronics products.Looking at the monthly trends, as we announced back in May, we saw a slow start to the quarter with April seeing low single-digit revenue growth, impacted by the timing of holidays. The group growth rate was stronger however in both May and June.RS Pro has continued to be a positive feature during the first quarter, significantly outperforming the group with growth of 9%. And digital has also seen outperformance of the group with growth of 5%. We've seen slightly lower Raspberry Pi revenue during the quarter, ahead of the widely anticipated Pi 4 launch, and this had a 1% drag on the group growth rate in the quarter. The new Pi will prove popular, and we expect to see a positive revenue impact from this as product availability improves during the second half of the year.Looking regionally. EMEA, which accounts for around 64% of revenue, saw 5% like-for-like revenue growth driven by market share gains from customers buying more products. We're seeing the greatest upside in Northern Europe, where initiatives to broaden our offer and rollout value-added solutions are most advanced. And we continue to focus on extending these initiatives further across the group.Looking forward, we expect to continue to outperform with a focus on areas such as digital, value-added solutions and a continued focus on RS Pro driving growth.Our Americas business, which accounts for 26% of revenues, saw flat revenue trends during the period, reflecting some softness in U.S. manufacturing in particular related to the U.S.-China trade war. Performing closer in line with more challenging markets is disappointing given the size of the opportunity available. So not a terrible performance, but we know we can do a lot better.As I mentioned back in May, I'll be spending a lot more time in the U.S. from August to help accelerate initiatives to drive improved performance. We know what is required to outperform the market given our experience in outperformance in Europe. Our immediate focus will be on driving new customer growth, expanding our SKU count, expanding our inventory. We've got to offer our customers more similar to what we do in Europe. And finally, value-added solutions. We'll be rolling out more of the value-added solutions we offer today in EMEA, moving the customer conversation from cost to price to value in the Americas and bringing in additional revenue streams at an enhanced profit level. With the right level of aspiration and real focus to our execution, we can seize the opportunities created by the current market to take share in this market.Finally, in Asia Pacific, which represents around 10% of our revenue, we saw 1% like-for-like revenue growth during Q1. Trends across the subregions were similar to that of Q4.Now moving on to gross margin and cost. So firstly, on gross margin. We reported at the preliminary results our plans to use the current weakness in the electronics market as an opportunity to begin to build inventory and strengthen our electronic components offer so we're better positioned for the next cycle. We began this initiative during the second half of 2019, so fiscal year 2019, and during the first half of fiscal year 2020, we'll continue to strengthen our franchise position. This initiative will lead to a higher inventory provision during the first half of 2020, which will negatively impact our first half gross margin. However, we do see a broadly stable gross margin for the full year. And just let me add that, in the past, we did have provisions impact cost of sales and not gross margins. We made that change a few years ago. So historically, it wasn't in the gross margin.Secondly, on cost. We're focused on keeping a tight rein on operating costs. We have levers we can pull, and we'll do what we need to do to ensure our cost base is actively managed. So we're staying tightly focused on cost as we continue to invest in the strategic initiatives, which will be key to driving long-term sustainable growth and improved returns.The phasing of some of these costs and the shape of our gross margin trajectory across the year means we do expect to see a higher weighting of profit to the second half this year. So taking all this together in the current environment, we remain extremely focused on driving our own performance and growing our market share. Today, we've got some good momentum across around 70% of the business, including EMEA, as we've discussed, but also not limited to EMEA. Southeast Asia continues to outperform. Australia, New Zealand continue to outperform. And there are various countries around the world that are putting in great performance as well. So -- and we, as a management team, will continue to drive results in these regions while focusing increasingly our activity to improve performance in other regions. We will ensure our cost base is appropriately managed while we invest to drive sustained growth and improved returns over the longer term. And as we often say, we've got one eye focused on the next quarter, but we have the other eye focused on the next 5 years and the strategic horizon to make sure we're investing in the right areas to drive sustained growth over time. So overall, we remain well positioned to make good progress during this current year and in years to come. So Bernard, we'll now open it up to Q&A, please?

[Operator]

[Operator Instructions] Your first question comes from the line of Rory McKenzie.

[Rory Edward McKenzie, European Support Services Analyst]

It's Rory here from UBS. So trends line quite volatile at the moment. Can you give us a bit more about what's changing? Is the uncertainty mean, meaning that fewer customers are logging on [ quite versatile ]? Or are you seeing low order values and kind of down trading?And then secondly, good as is to see the U.K. outperforming the U.S., particularly after last night. What are the plans to get the Americas to accelerate share gains? Can you maybe give us more sense as which initiatives from the U.K. have already been rolled out in the U.S. and which ones you think need to be pushed more? And what initiatives just haven't started in the U.S. yet, given that U.K. is clearly performing well on share gains?

[Lindsley Ruth, CEO & Director]

Yes. So let's start by talking about the general market and then we can get into the Americas. We -- the only word of caution, and I was saying this yesterday to our President of Europe, the only word of caution I'd put on Europe versus the Americas is we tend to react and respond based on short-term data and feedback. So if the Americas isn't performing up to expectations in our world, we tend to think, well, what's wrong there and we're doing something right on the other side. If it was the reverse and the Americas was outperforming and Europe was underperforming to our expectations, we might be saying what is it we're doing in the Americas that we should be doing in Europe. And who knows in the future could have those conversations years from now or months. So I think we've got to be balanced in looking at what we've done consistently over the last couple of years in the Americas, which is actually quite good. So as I often say, operating profit of 12.8% last fiscal year. The Americas is probably in the top 2% of all distribution companies in the Americas, but it's not where we'd like to be. We'd like to be #1. And so our goals and our expectations are much, much greater than maybe prior leadership teams in this company and in the industry. So with that, there's a lot we're doing well in the Americas. I think as it relates to the market, we're actually seeing an increase in customers visiting our websites. So from a digital perspective, we saw growth of 5% during the quarter, which obviously was much greater than the average growth of the company. We've seen that across-the-board. We continue to see that. We have great momentum in regards to digital.And our private label products, we continue to see momentum growing at 2x the average growth in the company. We're slightly above that for the organization, and we continue to accelerate growth in the Americas as well. I think -- so as you look at the market, the general trends for us are quite positive. And it's all a matter of reflecting back to where we've come from. But if we were to go back 3 years ago and take the past quarter as a quarter, we would have said that was phenomenal performance. But because of our track record of success, we tend to look back and say maybe that's not as good at it was or could have been. But I have to say, I think the performance in the quarter was quite good. And we look at the Americas, and I referenced it in the opening statement, the U.S.-China trade war has had an impact on the Americas to the manufacturing sector. I think it has -- it had an indirect impact to our business, Rory, from the standpoint of customers are still ordering the same products, however, they're buying a little bit less. I think you've got customers, because they're impacted maybe not by duties and tariffs in our particular products, they are impacted on their builds which causes them to buy less and to stock less and to build more to order. And I think we're going to start to see that throughout manufacturing in the U.S. as we see PMI's forthcoming and as we see results as we move into the second half of the year in the U.S. I think we're going to start to see that impact in manufacturing sector. And I do think the U.S. economy now is really about the tale of 2 sectors. You've got services, constructions that are doing quite well, and you have manufacturing that's starting to slow. And then there's quite a delta between those 2.So I think in general, the volatility that we're seeing, I mean the volatility across Europe with Germany reporting PMIs this weak at 45.1 with most of Europe now being in a contractory position with the exception of Greece, but I'm still not sure what they're manufacturing in Greece. But overall, I think in general, we see a market that creates opportunity. And I think in the chaos, I mean, uncertainty -- I'm as excited as I've ever been, Rory, because I think when you see chaos, uncertainty, it presents opportunity, and it's our opportunity now as leaders to step up and to go attack the market and to look at opportunities where we really can gain share.So as far as activity is in the Americas, one of which that we're pursuing now is more sales effectiveness-oriented. So if we look at what we've been able to do within Europe with our sales force in Europe, we've done a lot more in terms of focusing and then on what we call spot the winners and really focusing in on share of wallet and getting the greatest return for our investment from a sales effort perspective. So we're implementing similar programs and are in the process of doing that in the U.S. Value-added solutions, our leader for sales in the Americas did some calls in the U.K. recently, and he said he was really impressed and that he went on one call with a gentleman in London and he said he visited 4 customers, and not once did cost come up or price come up in any of the discussions. It was all around value. And he said it will be nice to have a similar situation in the Americas with our business. I mean that's exactly what we want to do. We want customers to understand the value proposition, and through that, you can also start to get more of a premium and you can enhance your margin as well. So value-added solutions and being able to sell value, position value, it's really important. And we've got a whole suite of value-added solutions from design to inventory to procurement to maintenance that we'll be rolling out in the Americas. And it will take time. It won't happen in 12 weeks. But over the course of 2 to 3 quarters, you'll see an impact from that. The expansion, as I mentioned of, the inventory is critical as our new warehouse -- our expanded warehouse will be open in June of next year. We're slightly ahead of schedule, so a couple of weeks ahead of schedule right now. We will not have that warehouse completely full from day 1 as you would expect. We'll gradually be building up the inventory based on sales of those products over time, so we'll do that in a wise fashion without taking our inventory turns. It's very important in terms of how we expand the SKU count in the Americas, but we will be offering customers more products. And then we'll do quite a bit more on the digital front to really expand what we're doing from a digital perspective. And there's a whole host of other things we'll be doing in the Americas that we haven't announced internally yet, so I want to be careful in terms of what I say on that front. But we will be doing a lot more certainly in terms of a centralization of some decisions and scaling that business to make sure we have the right infrastructure in place for the future.

[Operator]

Your next question comes from the line of Kean Marden.

[Kean Marden, Equity Analyst]

First of all, would you just mind running through the impressive RS Pro growth rates in a bit more detail, so which territories have -- I presume probably not the U.S. penetration still quite low there and you need a distributions center to expand in order to sort of get a step-change to penetration rates in that territory.And then just touch on the value-added services, so you're running over the next 2 to 3 quarters. Are there any cultural differences that might affect the uptake of those services in the States relative to what you've seen in the U.K. and Europe?And then thirdly, could you give us some examples vis-à-vis SG&A control that you have at the moment? So how much flexibility do you have to sort of fine-tune the SG&A in response to short-term fluctuations in the top line?

[Lindsley Ruth, CEO & Director]

Okay. Thanks, Kean. So I'll take the first 2, then David can comment on SG&A and I'll throw a comment in there on cost in general. But if we look at RS Pro, you're right. I mean the growth percentage in the Americas is pretty substantial. But as I told them, you can't look at percentages when you're coming from such a small base. You got to look at absolute numbers. So they're still a few years away to where I think it has a significant impact to the group level.Europe and Asia are obviously the -- it's widespread, so it's not limited to one particular country, one particular region. There are some that are doing better than others, but it's -- I would say, there's a complete buy-in across-the-board even in the Americas, a complete buy-in across every single salesperson. Now some salespeople are performing better than others and some need to significantly improve their performance. But you got to break it down into granularity because it's attention to detail in this business that makes the difference, and I think we do have buy-in from the sales force now across the globe to RS Pro. We certainly have buy-in from the management team because it's a key part of their incentive plan. And we've got, I think, some real passion within the leadership of that organization. And we've changed up our sourcing organization, and we've done some creative things around sourcing leadership, new positioning and some things with our suppliers. So we're just getting started, I think, in that area with renewed focus. We haven't substantially increased our product portfolio through more than 10,000 parts for the year, but I think, over time, you'll see us go from the 70,000 level to the 200,000-plus level. In private label, we're looking at areas like safety products, mechanical products and gaps as we've talked about in our last announcement. And we put up a chart around Europe as an example where we have gaps in our portfolio that could possibly be filled by other franchise as well as around private label. So very happy in general with our performance, but we can't become complacent in that area. So we got to keep charging ahead. But it's really across-the-board teaming on that front. As far as value-added services, cultural differences. I think there are significant cultural differences or behavioral differences from a customer perspective. If anything, they're more significant. I think there's a greater focus on value-added services now from our suppliers in the Americas than there's ever been. I was with the Head of Sales for one of the major automation companies in the Americas yesterday in Northern Europe, and he was talking about how technology and automation has become somewhat of an even playing field amongst competitors. And where they're really having to differentiate today is around servicing software, and that's one of the largest automation companies. It is the large automation company in the Americas, one of the largest in the world, and that ties in well with our strategy. And I think there's great opportunity for us to work with suppliers. So if anything, suppliers from a cultural standpoint are putting a greater emphasis. So then that gets to our own team. And I think there are some cultural differences based on experience. I think our team in Europe has a lot more experience and positioning in selling value-added programs than our team in the Americas. Our team in the Americas has the capability to do it. They have the aptitude to do it, they've got to have the attitude to do it, and that will -- perhaps that's a priority that I'll be working on with the team to make sure that they're incentivized appropriately at a leadership level to go drive performance around value-added solutions and services, one; two, that they understand what the capabilities are; and three, they understand how to present and how to position and how to sell it. And if you do that with the leadership team, you get the right behaviors and you get the right leadership and the right examples, then you can do it for the sales team and you can multiply your impact.So I mean, in general, there are significant cultural differences that would work against us. If anything, they provide a tailwind from the supply side for us to accelerate those programs in the Americas. And we're not talking a lot of cost here. So when we talk about investments, this is more time and resource and not cost in developing capabilities. Because we have them, it's more copy and paste those capabilities than anything. So just take -- they take time. And as far as costs, I mean this is the nature of our business. When things are good, everybody wants to spend. And when things are bad then we cut, and we've got to be consistent across cycles. And we've always got to have a discipline and mentality around operating for less, doing things from an affordability perspective and living within our means, and that has not changed. We've been saying that every quarter for quite some time. David could comment on maybe variable versus fixed. But we do know and we have been looking for several years now at what are those levers that we could pull at the moment's notice to reduce cost substantially. What are the ones that we could pull that we don't want to pull? Because if you say, okay, regardless of what happens in the market and there's uncertainty, I can guarantee one thing, there's nobody on this call and nobody reading this transcript that 4 years from now, they're going to go back and say, "You remember that call on July 3, 2019, where they talked about market volatility?" And so we tend to talk about the here and now. But 5 years from now, we'll be looking at the investments we make today over the next 2 years that positioned us to substantially accelerate our profitable growth and to substantially change the position of ourselves in the industry and how we transform and how we disrupt, differentiate and deliver value-added solutions to the market.So I think cost, we've got to be balanced, and we can't suffer from short term-itis where we say, at all costs, let's just go reduce and whack and do all these things only to bring it back in 6 months, 9 months, 12 months from now. So we've got to be disciplined in terms of how we approach that. David can add to it.

[David John Egan, CFO & Director]

Yes. So Kean, we focus on couple of areas. One is labor, the second is nonlabor variable and then the third one is nonlabor fixed. And for us, it's about making sure that we all sort of acting like owners within the company. From a people perspective, it's also taking the approach where we grow or deliver and then add as opposed to add and then hope for delivery. So we're focused very much on the people front. We're focused on the nonlabor variable elements. So freight is an example where we're focused on. We're also spending a lot of time on automation and trying to eliminate some of the costs through automation whether that be through robotics or whether that be through continuous improvement. So there's no one silver bullet. There's a whole lot of little activities that all add up.

[Operator]

Your next question comes from the line of Henry Carver.

[Henry Carver, Analyst]

Just a quick one on Asia Pacific and profitability there. Obviously, it is a bit slower than it was. It's unclear as to which direction it will go in the next few months, but where are we on sort of profitability there? Do we expect to keep -- essentially making profit this year?

[David John Egan, CFO & Director]

Yes. Henry, for us, I think Asia Pacific in Q1 is really no change to what we said at year-end. The tale of 2 halves, Southern Asia, which is Southeast Asia and Australia, New Zealand, is doing well, taking market share and growing double digit; Northern Asia, which is principally Japan and China or Greater China and Japan, we've got some things that we're working on there. It's not growing, and we're sort of focused on the customer experience there. So it's more around the digital side of things still work in progress.In terms of profitability, we haven't given specific guidance. We made a small profit. Certainly, our expectations is it will continue to make profit, but we still got to address sort of the Northern China customer -- Northern Asia customer experience. We've made first steps in terms of that. We have a team in China. We've just gone live with giving them the ability to update and be able to update the user -- the homepage within the digital experience, and so it's very much work in progress.So I think sort of for us, FY '20 will be a more of a year of consolidation as we then give ourselves the capability to grow the top line once we improve that experience.

[Lindsley Ruth, CEO & Director]

Yes. And let me add to that, Henry, I think, with APAC. APAC, so first of all, when we look at profitability of APAC, we set this -- I think we've set this fiscal year 1.7% operating profit this past fiscal year. And that's really okay, great, you're profitable. We lost ton of money in the past, but we're not going to celebrate that where we've got a goal, which is how quickly can we get to 10% operating profit in APAC. To do that, we know we have to scale APAC, and in particular, we've got to be successful in China, otherwise, why focus on China. And to be a global partner and distribution partner, meeting our suppliers, we've got to have a presence in China. So China is important. So we're not going to walk away from China. We're doing things in China today around the website and the digital experience to localize. It will take time to become established within the market and get our brand up and accepted in the market. But we've got to scale to get to where we want to be, and is that 50% increase in revenue overall to get to that level? Probably somewhere around that or North, but it's not a 3x the overall number of APAC. I think if you look at what David commented on, so we've got to continue to invest, like he said, in areas where we're performing. So it's not let's go invest in areas where we're not performing and hope that we'll be successful, right? Let's be successful and then invest.So Australia, New Zealand and Southeast Asia are doing really well for us right now. Now if you say, APAC only grew 1%, that then means Japan and China were not so good and that would be an understatement. So I think, overall, we look at Japan opportunistically. We look at Australia, New Zealand and Southeast Asia as markets we want to invest in right now. And we look at -- and that doesn't mean we're quitting and giving up in Japan. It's more electronics were in, and we view it more opportunistically and we've got opportunity there for sure. But China long term is the prize in Asia Pac, and we've got to make sure that we're well positioned there. We have the right strategy, the right leadership, which is where it all starts with and then we execute. So we will get there. It's a matter of time, not if we will, but it will take some time. We're on the right path. We have the right leadership in place today across Asia. So we still have some gaps in some areas. But overall, we have a great leadership team, and we're heading in the right direction.

[Operator]

Next question comes from the line of Sam Bland.

[Samuel James Bland, Research Analyst]

Sam Bland from JPMorgan. I've got 2 questions, please. The first one is can you just talk about this gross margin impact in electronics and signing up electronics customers? Is that just something that naturally happens as you sign up new customers? Or is there a mix difference, et cetera? And so linked to that, why does the margin, implicitly the gross margin then improved in the second half?And then on the revenue growth, the 4%. Obviously, you talked a lot about the investments going into the business in technology, service capacity. Is 4% revenue growth enough to offset those investments such that you can still see some operating margin progression?

[Lindsley Ruth, CEO & Director]

Okay. Thank you, Sam. So let me touch on gross margin just for a moment. Gross margin, and I've said this numerous times, it would be very easy for one to imply the market is volatile so gross margin comes under pressure. That is not the case with our business and that will not be the case as long as we are -- the size we are in the market today. And if you look at our average order value size as a company of around GBP 190, those orders cannot be under a significant amount of pricing pressure. So obviously, if all things are equal, it comes down to price. All things are not equal, we got to make sure we still have product available, we got to make sure we deliver an outstanding customer experience, which is what our business is all about. So when it gets to margin and any concerns around margin, we'll address those over time with any questions that come up. But we've said broadly, our margin will be relatively stable.And I think when it comes to the impact to margin today on electronics and provisions, so couple of comments. One, electronics and board-level electronics represents 20% or less of our total business. So let's not forget that. We said that over and over again. That doesn't mean that, and I say board level, that doesn't we don't have electronics products that are nonboard levels, so sensors and controls, et cetera, that could also be classified as electronics. But 20% would be small stuff that goes on a board that would be more surface mount related.As it relates to how we do things from an accounting perspective, we used to take provisions and put those into the cost line, cost of doing business, cost of sales. And we changed that definition a few years ago to put it into gross margin. So the impact to gross from provisions is based on accounting change a couple of years ago, and it has to do with us bringing in new products for electronic components that we do not have history in terms of selling those products.Now here's the problem with provisions. Provisions in general and distribution are a necessary evil. Obviously, we need them from an accounting perspective. We need them for good governance. You need to accrue and make sure you're protected on that front, but you cannot allow the people that manage inventory to use provisions as an out. So the best out for product, O-U-T, is selling the product to a customer. And often times, what you find is people would rather just have product written off than selling to a customer. If that sell to a customer, it's that lower gross margin that could impact their overall metric? So for us, we want to be able to sell the products. So as we bring in new product and electronic components, then we sign new franchises, which is a good thing that could, short term, have a negative impact on gross margin because we're allocating provisions. Now the hope is that we would then prove we can sell the product, and those provisions would come down over time and be released back. And then we would not have to take those provisions, and that's the goal. The goal is never to have to take a provision because we should sell the product. And if we don't, then we should be able to look on how we can negotiate returns to the supplier, but the last thing we ever want to do is have to write product off.So that's the provision impact. We don't want to discourage bringing new electronic components in, and we've started this process 6 months ago. So the difference between the first half and the second half is purely because we're bringing a lot of electronic component inventory in, in the first half, but not necessarily in the second half on new products. So we'll continue to replenish existing products to build up an inventory right now to take advantage of the down part of the cycle for electronic components. And we've been saying that now for 2 to 3 years that when there was a down cycle, we'd see it as a buying opportunity not only to potentially get better cost, but also to sign the franchises that we were not able to sign because product was not available over the last couple of years. So we're able to do that. I see it as a very positive thing, but it's got to be viewed slightly differently in terms of the margin impact. It would be great if we could have that go back to the old method but we're not going to do that in terms of how we account for it in the cost. But it is how we do things, and we just have to make sure people understand and know that it's not the market driving the margins, but it's the provisions that are taking that down.

[David John Egan, CFO & Director]

In terms of the operating margin, 4% growth will deliver progress. The key, however, though in all of that is to ensure that we have the right balance between short-term benefit delivery and also then the long-term strategy. So again, it sort of comes back to Lindsley's first -- one of the first points in making sure we got one eye on the current and one eye on the future. So it's just making sure that we keep that -- those investments appropriately balanced to deliver the short-term benefits to then allow us to continue to progress the operating margin.

[Operator]

Next question comes from the line of Julian Cater.

[Julian Charles Cater, Analyst]

I hope you could provide a little bit more sort of context and color to the strategic investment in the electronics side, perhaps first talking about how rapidly you can bring on new franchises. Secondly, just remind us of what the sort of SKU count in electronics is and where you expect that to be by the end of the year. And then thirdly, whether there's also a sort of stock turn impact from the sort of step-change in SKU additions within electronics.

[Lindsley Ruth, CEO & Director]

Yes. Thank you, Julian. First of all, in terms of the impact of stock turns, we have said consistently and will continue to say until further notice that we're targeting turns between 2.5 and 3. So that's where we're looking to be. Now turns here are obviously a subject of how many new products we bring on because you don't have turns history, you don't have sales history in many cases that you can fall back on, but also it's a product of lead times as well. And I think there's some efficiency we can drive in our existing business on improving turns over time that I'd like to see. However, we'll offset that by expanding the SKU count. And I think you'll certainly see a greater -- over the next 3 to 5 years, a greater emphasis on industrial products than electronic products. So just to be very clear, as we double the SKU count in Europe from 0.5 million items to 1 million items over the next 3 to 5 years as we expand our Continental Europe in distribution center, as we continue to focus in on expanding the opportunities we're stocking within the U.K. warehouses as we ship inventory around, I think you will see more industrial products.As it relates to electronic products today, roughly around 1/3 of our inventory is around -- is in electronic products, in electronic components. So let's call it around 150,000, 200,000 parts that are in electronic components. We have -- I mean without getting into too much detail on the call here, a lot of those products are what we call down packs, so they're in broken packages that are -- you take a reel and you break it down into bags of 100 or 200, which is what research engineers or electronic design engineers tend to use in the research labs to design with, and so a lot of hand placements, et cetera, or through NPI types of activities. We're moving more to minimum order quantities to selling factory packages, which gives us 2 advantages. One is, when it's in a factory package, you can return it typically if you have return privileges because you haven't broken that packaging. And two, you can get a higher average order value when you sell the products. So we don't want to be doing a lot of down packing and breaking the packaging because it just adds cost to the system. So as we expand our inventory, it would be more in that area.Last year, we added around 60 new suppliers. We'll do more than that this year. In the year before, we added 62, but we'll add more than that this year. We've got a charging matrix in the ones that really move the needle. We'll be adding quite a few more in the Americas as well, not just in electronics but across-the-board. So we don't want to give a lot of detail on who those companies are for strategic reasons, but we will add quite a bit. And I think as far as the quality of products in terms of sterling, we brought in around GBP 11 million towards the end of last year, the beginning of this fiscal year in Q1. And we've got a little bit more that's coming in now, so not overly material in terms of the overall number. It's more of the SKU count because it's more of the quantity. We'll bring in more than 50,000 products this year from a SKU count perspective in electronic components. So you might have a product that's coming in that's one SKU count is GBP 100 and once SKU count is GBP 50. And so it's really more about the volume of SKUs and not the total cost of that inventory, although it adds up obviously, and that's where the provisions are where they are because we don't have the history on it. But it's more about the number of parts you're bringing in to broaden the availability of the product we have. And then as we sell it, we'll build depth of that product over time.

[Operator]

Your next question comes from the line of [ Theran Datia ].

[Unknown Analyst]

Firstly, has there been any change in your inventory turn? And are there any particular category sort of moving slower or faster? And secondly, have you run any scenarios to test what level of economic slowdown you can offset through self-help?

[Lindsley Ruth, CEO & Director]

Yes. So I'll leave David with the self-help question. As far as the inventory, we don't break down and give guidance in terms of individual categories, which I'm sure our competitors would love for us to do on this call. But yes, there are some categories that move faster than others and the areas like single board computing that tends to have higher turns because the lead times are lower. So as I said earlier, lead times are a function. Our inventory turns should be in all business as a function of lead time. So the lower the lead time tends to lead to higher turns. Now that's skewed by mix count and where you invest and maybe at times where you might speculate, so that changes. There's not a material change in terms of our inventory turns based on where we've been historically, so we don't break that down on a quarterly basis. But to the market obviously, David and I look at it on a daily basis. But I think in general, we brought in a little bit more inventory in fiscal year Q4, calendar year Q1 for Brexit in Europe. So that was around 20 -- it was just less than GBP 30 million. We've seen good movement of those products, by the way, for what it's worth, which tells us we brought -- bought the right products which we might have needed to buy anyway, so we've been replenishing those products. So a slight downturn in turns as we guided and as we commented on at the end of the fiscal year, but not material from that perspective. As far as self-help, it's quite a bit we can do on that front.

[David John Egan, CFO & Director]

Yes. Self-help, we run multiple scenarios, and it really then just depends on what is the economic outlook and what happens to our sales lines. So it really then varies in terms of just how extreme it gets. I think our view is that we expect to continue to outperform the market whatever the market does, and then we'll take corrective action if we need to from a cost perspective to address that depending upon the scenarios that play out. So I think, for us, we've got the levers. We know what they are. We obviously don't want to pull them unless we really have to because we're looking with one eye on the current and one eye on the future.

[Lindsley Ruth, CEO & Director]

Yes. And look, I'll add one comment to that. People tend to get caught up sometimes in how much self-help and is this a self-help story. Well, if you're not practicing self-help every day in this business, you're not doing well. And so we don't sit around waiting for a report to come at the end of the month and say, "Oh my gosh, we need to take action." instead we run it every day. And every day, if we're not on top of this business on a daily basis and making the right moves to the business for the short term and long term, we're not doing our jobs and we're not providing leadership to the organization. So we've said this before, but the challenges we face outside of the macro environment, are all within our control. So we are small player in a big industry with great opportunity ahead of us. And self-help, you can say, got us to where we are, but it's going to be selectively everybody working together to our destination 2025, our 5-year plan, to get us where we want to go, and that's all within our control. And just doing the right things and executing, I don't consider it to be self-help. I mean it's just doing the right things in business, having the right leadership, the right people, the right plan, the right execution to be successful.

[Operator]

There are no further questions at this time. Please continue.

[Lindsley Ruth, CEO & Director]

Yes. So thank you, everyone, for being on the call. Just to close, good quarter, resilient, I think, in terms of the efforts overall. I would tell you this right now, 4% I think is good. It's still not where we want it to be, but I would say the same thing if it was 20%. So whatever the number is, we can always do a little bit better. And we always have to have that type of mindset within the business to continue to strive for continuous improvement, and that's what we're doing. I'm excited. I think the opportunity in front of us is substantial and significant. We've got the right team in place, and we've got to go execute. So we look very much forward to seeing many of you in November. And until then, we'll keep plugging away. And thank you for taking the time to be on the call, and have a wonderful summer ahead. Thank you, everyone. Bye for now.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all disconnect.