Angling Direct PLC

Good morning, ladies and gentlemen. Welcome to the Angling Direct PRC investor presentation for the interim results for the six-month ended 31st of July 2021. Throughout this presentation, investors will be in listen-only mode. Questions are encouraged. It could be submitted anytime via the Q&A tab situated in the right-hand corner of your screen. Just click Q&A, scroll to the bottom, type your question and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via Invest to Meet company dashboard and you'll be notified once they're ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Andy Torrance, CEO and Steve Crow, CFO of Angling Direct PLC. Good morning.

Good morning. Good morning, everybody. Thank you for taking the time to join us this morning. We're very pleased this morning to present what we believe is another strong set of results for Half one of Angling Direct's financial year 22, the year that ends on the 31st of January 2022 next year. We're about to take you through our presentation deck. It has been published on the investor section of our website. Hopefully everybody's got it. Two key takeaways for us really for this presentation. We have continued to grow the business both online and in store. Very pleased that we continue to grow in both channels. We're particularly pleased to be able to report strong margin accretion in the period and coupled with the continuing embedding of our supply chain efficiencies, we're very pleased to be able to upgrade our forecasts for pre IFRS 16 EBITDA for the year with a 25% upgrade to EBITDA now no less than five million pounds in the full year period. The second key takeaway really that we wanted to leave you with today, we are now very much deeply into the execution phase of our plan to establish in-region European online fulfillment with a good proportion of the costs associated with setting that up included within the full year, the revised and upgraded full year forecast. Those of you that joined us last time will be aware that we are very confident that unlocking European fulfillment and allowing us to properly access the huge market opportunity there is a significant opportunity for future profitable growth for Angling Direct. Just moving the slides on. Slide two in the deck is our half year 22 overview. Quite a wordy slide. It's taken directly from the R&S as usual. I'm going to hand over to Steve shortly. We've had quite a few quite financially based questions this time. So I'll hand over to Steve who's going to go straight into the financial review in a moment. But there are just a couple of things I'd like to pick out off this slide. 19% total growth for the business in this first half. As I said, across both channels. 40% growth in store, which was a light for light performance of 32%. But we're particularly pleased in the period to have grown our online sales by 3.2%, given the very different nature of the two lockdown periods that we've annualized. Lockdown one during this period with lockdown three, but really quite different types of lockdown. If you cast your mind back to the dark days of the first, COVID-19 lockdown, the only place you could shop in that period for anything other than essential groceries was indeed online. That caused a huge channel shift towards our online offering, which we're particularly pleased with. And therefore, given that, we're very pleased to be able to grow our online performance in this period on top of that. Our UK growth in the period was just over 15% online, And that's been mixed down slightly, given that as well as annualising these two periods of lockdown, we've also had to overlay this year the impact of Brexit, of the UK leaving the European Union. That has had quite a considerable impact on our native language sites. Steve's going to go into that in a little bit more detail. But essentially, the sort of well-reported and completely out of our control disruption at customs, additional customs administration charges that we now incur for all of our B2C parcels. And indeed, the fact that we're no longer actually allowed to distribute bait from our UK distribution center here out to Europe has had some quite significant knock-on effects on our European business to the tune of our native language sites going backwards in the periods by. by 34%, although that has started to improve and we are very confident and positive about the future there, which we'll come on to when we talk a bit later in the presentation more about Europe. The other point on this slide, 390 basis points of margin accretion, that's a combination of pricing, continued improvements in shrinkage, a little bit of ranging, a little bit of mix. Steve's got a lot more detail and that was one of the questions specifically as we go through the deck. We've also some slides in this presentation about our operational highlights. And again, for me, that's really very pleasing from my position as the CEO. We're a fairly modest sized organisation and an awful lot of our resource and management time is being quite rightly dedicated to our European project at the moment. We're also not surprisingly perhaps spending an awful lot of time managing our stock levels, stock availability, stock investment really quite carefully. But actually beneath those two things, it's really pleasing to be able to report that we've made considerable progress developing the business and driving forward our underlying strategy. with operational improvements right across all aspects of our business. And we'll cover those in a little bit more detail as we go on through the deck. I'm going to hand over to Steve now, who'll start to take you through the financial overview.

Thanks, Andy. I'm on slide number four, which I've now put up on the screen. The left-hand side is the sales progression Andy's talked about. in terms of the half-year performance. I think a couple of overlays on that it's worth pointing out that we in the R&S we disclosed what our year-on-two-year performance looked like and I think underlying the UK online performance which was over 80% progression year-on-two-year which was sort of attempting to demonstrate that absent the pandemic that the progress we've really really made in that online business on the UK site and then Pleasingly, in the store portfolio also, the year-on-two-year progression from a like-for-like sales perspective was a 2% growth rate. So even in a period where we had lockdown three, we're still able to demonstrate from those portfolio of stores, which are our legacy stores, that we've generated some growth in that period. The bottom left-hand graph is the overlay of the native language website impact. So as Andy said, 34% regression in the half, Primarily, the incremental duty that is incurred in terms of exporting goods post-Brexit, longer lead times for customer deliveries, et cetera, has really impacted the sales progression. In the first quarter, we were 43% down. In the second quarter, we were 23% down. And that softened further in the quarter three, with us about 18% down as we stand today. Overall, from a year-on-two year for the native sites, we're broadly flat, so it really does show the impact of Brexit, hence the need to accelerate the in-country fulfillment aspect that Andy will talk about later on in the presentation. The middle leg of the graph, the profitability aspects at the top, the gross margin progression, so the 390 basis points in terms of how that played through to the bottom box. You can see the EBITDA pre-IFRS 16 progression, so increasing 2.3 million year on year. Worth noting in terms of that progression. The gross margin pound notes was a contributory factor of about 3.6 million increments. So the percentage increase around a million and a half of that increments. So it shows the strength of how we've traded the business to deliver that 37.4%. It's worth just noting on the EBITDA number that that is the recipient of some direct government support in the half. So for the half year 22, around 900,000 of direct government support. And that compares to the half year 21, where we're the recipient of 1.5 million. So a net reduction of 0.6 million half to half. And so we went for the 111% inclusive of that 600,000 reduction. from the margin percentage progression. So Andy talks about some facets there. The key aspect was in terms of how we bought and then price. So historically, some of you may be aware that we've used a technology called price checker where we're able to scrape the market for availability of stock and pricing from competitors. We've actually broken from that model slightly and that we have because of the way we were able to leverage our balance sheet and increase the respective level and depth of stock. we've been able to sort of generate around 300 basis points of the increment from that leading the market pricing. And that's, the challenge remains, how much of that are we able to sustain as stock becomes more widely available? Notwithstanding, we're not seeing any huge pressure on that at this point in time. Mix was about 40 basis points as a result of being able to, fishing being more widely available in lockdown three than it was in one. So the element of bait was it was a bigger proportion of the basket shrinkage. Historically, the business has had a fairly acute shrinkage problem back in financial year 20. We've made some strong progress again on that in the half and the margin benefited from a further 40 basis points as a result of that improving shrink picture. And then overlaid on that, there is some some rebates where we've taken a more prudent approach to rebates as as in a short stock environment. On the right-hand side, the website, so demonstrating there, the UK web traffic has reduced half to half, fully expected given the level of browsing activity in this half versus last because of the lockdown nature. In terms of how we've converted those customers, visitors, you can see in the bottom right-hand box, the progression of the conversion rate, particularly pleasing as our relative depth of stock far more widely across the business is playing out in that conversion rate and and the year on two you can see the 6.3 versus the 5.7 we think is a strong reflection of how we are um continuing to evolve the front end website for the for the new cases over on uh over on slide five we've set out the the year the year on year and the year on two year in the graphs on the left hand side that i briefly just touched on blue line for the online business. So despite us having poorer like-for-like comps in the online business in the year-on-two-year basis, we're still progressing sort of 30% in June and still double-digit in July, which sort of demonstrates the strength of the offering on the UK online business. The right-hand side is a little bit more information just relative to the EBITDA apps and the direct government support that I'd just referenced previously. And you can see how that translates in the bottom graph to an EBITDA ratio absent that direct government support. So, you know, 730 basis points Over on slide six, this is our suite of near standards for KPIs that we continue to present. I think two points I'll pull out from this. So the native language website, you'll see third bullet on the right hand side. We've made a modest loss in the half of around 100,000 trading loss. This time last year, we were broadly breakeven for the European business at the half. That 100,000 is a combination of how we've had to trade the sites as we've become increasingly more confident in the European business case, which Andy will talk about later on. So the balance between incurring the frictional duty costs administration charges and balancing that with customer free baskets and carriage costs and balancing that against retaining customers as well. The own brand sales progression, so the fourth down on the left hand side, the percentage of the sales reduced by 50 basis points in the half down to 5.2% from for the full year, 22, and we remain on course to do that. We were fully anticipating the like for likes, 5.7 versus the 5.2 to dip as in the second quarter last year, the dearth of branded stock really did sort of catapult forward the own brand sales in that second quarter last year. Over on slide eight, it's the income statement. This is on a post IFRS 16 basis, the basis of presentation. So you'll see there the 14% EBITDA margin relative to the 11 and a half on a pre IFRS 16 basis. The key standout is the gross profit progression. the margin progression from the 33 and a half up to 37.4 you know pleasingly the first time the net profit line doesn't have any brackets around any of the columns so the business is starting to demonstrate some sustainability in the profit it's able to generate and i think just um you Playing that through for the full year, we remain confident of delivering an EBITDA number on a pre-IFRS 16 basis of 5 million. That translates to a post-IFRS 16 number of around 6.9 million. Over on slide 8. Demonstrated here how the business has grown from the half year 20 to where we are today at the 11 and a half. So the journey of 2.8% up to 11 and a half percent for the group. And we presented that in the bottom left hand graph on a year on year on year on two year basis to show the components that build up that growth. as Andy referred to in his opening remarks, the gross margin and the direct costs, how we're leveraging those investments previously made by the business, as well as building that margin being the key component part of that growth. On the right-hand side, we've given the segments of online and stores. Both of those are presented pre-group overheads, but that's the way we view the business in terms of what can each channel contribute you can see both of the channels are delivering in the mid-teens, which is a particularly pleasing progression from where the online business started back in half year 20, where it really was the poor relation of the business. Worth just noting that neither of the channels have any direct government support in them. We've consciously held the government support outside of the channel, so it's clear how we're continuing to develop the underlying profitability of each of the channels. Over on nine, everyone's favourite slide, the IFRS 16 reconciliation pre to post. The key takeaway here is at this point in time, it's broadly neutral from a profit before tax aspect as the portfolio of leases, its relative depth of where we are in the lease, the interest cost and depreciation relative to the rental charges are broadly imbalanced. As we move through the lease portfolio's life cycle, the interest charge will reduce. and on a post IFRS 16 basis we should anticipate that PBT number going ahead of the pre IFRS 16 PBT. On 11, the balance sheet, the two key aspects of the balance sheet being the inventory position of 15.7. So 15.7 is certainly ahead of in a normal supply market where we've anticipated stocking the business to. This comes back to the margin development where we've consciously placed deeper and longer bets with certain key supplier on certain line items. We believe that gives us good insulation against any sort of near term supply issues. Notwithstanding, we have been through our peak sales period and sort of the autumn and the winter representing relatively lower level of sale environment in comparison to other retailers the other standouts the cash position so this time last year we were sort of two or three months after the raise we've continued to sort of manage the cash position the business well and that and that's given us the flexibility in terms of how we intend to enter the european market which andy will describe later on but On to slide 11, the cash flow. So you finished the period with 19.6 million, as I just pointed out on the previous slide. I think two aspects here, the working capital in the half is a positive impact. We fully expect that as it ordinarily does to reverse in the second half with an expectation of that being a full year drain from working capital around a million. That million represents further investments in the store portfolio pipeline that we're anticipating in the second half. Landly will briefly touch upon. On the capital expenditure, you can see relatively modest investment in the first half. We've got a much richer second half to come. The European project will be around sort of 300,000 of capital that we'll invest in the second half, plus the further rollout of the store portfolio, which again Andy will allude to in his next few slides.