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.

Thank you. Right. Thank you, Steve. I'll pick up from there then and take us on to have a look at some of the highlights of our sort of slightly broader business review and indeed some of the progress we're making under our four strategic pillars. I'm on slide 13 now. Those of you that, hopefully some of you that joined us last time, you realise I spent a fair amount of time talking about the fact that we've recently refreshed our purpose to getting everyone fishing. Paraphrase slightly, it is all about getting everyone fishing. We've restated our ambition to become Europe's first choice omnichannel fishing tackle destination. And indeed, we've also refreshed our strategy recently with all of our activity being summarized under four key strategic pillars. And that was about product authority. That was about exceptional customer experience. It was about inspiration and advice and indeed about acting responsibility within our communities. I don't want to spend too much time dwelling on those now. you will find in our annual report and indeed this presentation that came out of the prelims in May, a lot more information there. What I did do in May though was also set out what I felt were our key priorities for FY22 and I wanted to take the opportunity now on this page just to reflect on some of the progress, what I think is quite considerable progress, on some of the things we've set out to do in this financial year. Starting with digital capability, I'm not going to read all of these out. Again, there's quite a bit on here, but I think certainly worth pulling a few of these out. We launched a paid priority delivery subscription service, known as AD Plus, in March this year. We now have 6,000 subscribers who pay £10 a year and automatically upgrade to priority delivery. That's 16% of all of our UK online orders. We believe this is driving loyalty to the site, to Angling Direct and indeed frequency of repurchase. One of the things, the second bullet here under digital capability that we're really excited about, we have spent some time developing a mobile app. It's certainly unique in the UK and quite possibly we believe it will be the first fishing tackle mobile app across Europe. That has finished its testing now. It's with the App Store at the moment. their approval and we should see that launched uh in the next week or two and i think when you combine the opportunities that the app bring us with the subscription service of aiding plus i think that's a really new and exciting and unique offering to our customers an awful lot of our customers um not surprisingly shop from the riverbank or from the from the from the lakeside uh over 50 of our online orders come through mobile devices and the opportunity to be able to deliver that in the form of an app with all of the associated digital advice and inspiration and content that we're increasingly becoming well known for, I think is really, really exciting. And of course, any trade through the MyBile app doesn't attract Google ad fees, for example, and therefore the return on our advertising spend should only get better. The third point under digital was some of the artificial intelligence based search enhancements that we deployed. We now work with Algolia to help support our search technology. We launched this quite late in this particular period, and we're really quite excited about what this brings. It's much, much faster search. It's much more importantly, more relevant search for our customers. And it's certainly making a contribution towards driving our UK conversion rate to 6.3%, an increase of 80 basis points in the period. Under stores, We recently launched within our commercial team some classical category management structure, which is focused on arranging and promoting for specific customer types within specific fishing disciplines. We're very pleased with the progress that that relatively new team is making. They've commenced the process of reviewing the ranges and the space allocation store by store. They're probably about a third of the way through that exercise. And again, this work we're very happy to report has contributed to a gross margin improvement in stores of 220 basis points in the period. We're a little bit about new stores. We only actually opened one new store in this period fairly early on in the financial year in Redditch. We did recite a store. We have a store in Sittingbourne that we weren't very proud of, that was certainly not fulfilling its potential. We moved it about half a mile up the road, relaunched it, and very pleased to report that that store, through offering a much, much better offer to its customers, is now trading at over 50% ahead of where it was this time last year. When I'm asked, I tend to talk about the potential for around four to five new stores in the UK each year. There's definitely been, I think, pandemic-driven a little bit of hesitancy and a little bit of halting in the property pipeline as the types of properties that we tend to go for are usually in fairly tertiary locations. They require a certain amount of repurposing, a certain amount of redevelopment, and I think developers have been quite hesitant. I'm very happy to report that confidence seems to have come back and we do have a much, much healthier product pipeline now, particularly pleasingly in the catchments that we tend to be underserved on. So the ones I've talked about in the past, we've reached agreement for a new store up in the northeast. I hope to sign a lease very shortly for a store down on the south coast. We signed a lease for a new store in Ipswich last week. and so we're confident that we'll do at least two more new stores before the end of this year with perhaps another few slightly behind that which will give us a good start in the year ahead. I'm going to skip over international growth. We've got a couple of pages specifically dedicated to our European project which we'll come to in a moment. Under commercial development We have actually appointed a new commercial director in the period. His predecessor did an excellent job in growing the business very, very rapidly. But as we now get very much focused on not only growing rapidly, but also demonstrating some sustainable quality EBITDA growth, I found it important actually to appoint a new individual It sent a strong signal to our suppliers about the changing nature of the relationship between Angving Direct and also what is really, really pleasing, we are getting significant support from both our existing UK suppliers and indeed new European suppliers for our plans for European expansion and this individual plays a great role in that. We also in the period appointed a new head of own brand product development, an individual that brings genuine, tangible track record of growing own brand ranges with other businesses. Again, he's also got off to a great start. We're very excited about some of the range extensions that we will be making to our Advanta range, targeted at specific customers. Advanta, we believe, is a really good quality product. We've grown it quite substantially in the last 18 months or so by backing it with stock. The time now is to actually look at expanding that range, rebranding, more contemporising the brand, re-crackaging the product. And we also believe there's an opportunity now for a second own brand range to sit alongside Advanta, which will just allow us to position the two brands far more clearly for our customers going forward. We continue to work hard under our leg of responsibility in terms of our communities and creating a sustainable organisation. We've continued to work with the Angling Trust, with the Angling Trades Association, sponsoring their respective Get Fishing campaigns and indeed National Fishing Month. We're particularly excited about some academic research that we've commissioned in partnership with Anglia Ruskin University's Public Health Department. They are carrying out a bit of genuine academic, scientifically-based research that will be peer-reviewed that it actually will be the first comprehensive source of evidence about the genuine wellbeing benefits of angling to its participants. There's a lot of information around at the moment about the benefits of blue spaces and the benefits of green spaces, to people's mental health. And clearly, with fishing, you get benefits from both of those. So we believe actually doing some proper scientific research, of course, will be the key then to unlocking the opportunity for NHS commissioning groups to actually socially subscribe angling going forward, which has got to be absolutely good for angling in general. Over the page then we have our digital metrics, strong double digit UK sales growth as it says there. On the left hand side towards the top you can see the impact of this changing channel shift between half one in this period and half one in the prior year as we spoke about the very different natures lockdown that, you know, as we anticipated and fully expected, had an impact on website visits, had an impact on actually unique customers. You can see the UK conversion rate, as I've mentioned before, has gone up 80 basis points. And indeed, just beneath, you can see the European conversion rate actually dropped by 90 basis points in the period. And that's illustrated in the graph on the bottom right-hand side. You can see the black line there is the UK online conversion rate, which is trending upwards. the gold line, the European conversion rate, which up until sort of the midpoint of the horizontal axis was starting to close. We very much have a strategy of applying what we do well in the UK to our European sites and watching those metrics close. You can see the conversion Around sort of October, November 20 was getting very close to UK levels and then quite literally drops off a cliff after Brexit at the end of the year as those customs delays meant that in certain parts of Europe, it was taking four to five weeks to get a parcel, which would have previously perhaps taken us two or three days. We did have to make some changes to our free delivery thresholds and indeed to the cost of delivery into Europe in order to protect the profitability of that business and indeed a lot of European customers are very keen to get hold of UK bait which has a good reputation for being sort of technically very good and unfortunately because of the veterinary certificates that now have to be provided even for one small bag of bait, we were unable to send bait into Europe. And you can see the impact that that had on conversion rates post January 21. They dropped down, they did recover slightly sort of towards March, April as the customs, new customs and border processes started to calm down a little bit and people got used to new ways of working. flattened out towards the end of the period, but I'm sort of pleased to report actually it's started to improve as we've now started to reinvest in delivery costs, delivery thresholds, and indeed our European market as we rev up towards the European project. Over the page on slide 15 is a little bit more about the stores. We've spoken, you can see the store locator map on the right hand side there. We've spoken a little bit about the store pipeline in terms of our existing stores, as well as the rearranging work. I mentioned that the category management teams have been busy with. We've also done an awful lot of work in terms of the prominence of on shelf pricing, how we promote new products, how we promote exclusive products and generally how we get much better promotional standout and add-on impulse type sales. Overall, average transaction values within stores increased by a very pleasing 3.8% in the period. I did report at the prelims, we've appointed a new operations transformation director. He's got off to a great start. He's more recently restructured his field and area management that now has a far more appropriate, I feel, balance between really, really enthusiastic and capable anglers, but also dyed in the wool, very experienced specialist retail field managers. So an awful lot more to come, I think, from the stores, but very pleased to report we're making great progress there. Slide 16, that is the first of two in terms of what we've been up to internationally. This first page of slide 16 is a little bit of a recap, which I think is worth doing from what we talked about last time. Our international opportunity is, I think, really very compelling. The markets, especially in northwestern Europe, are large. They're as equally as fragmented and as equally as unsophisticated as here in the UK, and the opportunity for Angling Direct to take some considerable share there is really very compelling. In-region fulfillment, we believe, is the vital next step towards facilitating the full angling direct online offer. That will allow us to start selling bait again. It will allow us to start offering next day delivery to the vast majority of Germany, all of the Netherlands, the vast majority of France, Austria, Belgium, which make up our five key territories. It'll also allow us, of course, to avoid really quite onerous customs administration charges, which the UK to EU parcel carriers are imposing on us at the moment. Crucially also, whilst what attracts us to those markets is that the type of angling is very similar to what happens here in the UK, there are some local differences. There are some local European brands that we don't list currently on our sites and we don't reach out here in the UK. Having a European base, as it says here, does allow us to tailor ranges somewhat. And importantly, I think, unlocks the potential for complementary follow-on bricks and mortar offerings at the appropriate time and in the appropriate way. We don't believe there's any contemporary material competitors to Rival Angling Direct in the sense of it's really quite unique you know 50 of our sales comes through bricks and mortar 50 approximately comes online to us here in the uk and whilst there are some reasonable sized bricks and mortar competitors they don't tend to have a particularly contemporary good digital offering and while there are some online competitors they don't really do bricks and mortar so i think the unique combination, the unique omnichannel nature of Angling Direct, again, gives us a lot of things to be confident about and encouraged by in this area. On the following slide then, so what have we actually been up to? There were two ways of us achieving, of course, European fulfillment. One was through acquisition, one was to set up our own facility. We did have some and continue to have some quite meaningful discussions in terms of acquisition, but we are not in a position where we found some potential targets whose valuations we believe are realistic and appropriate for us to invest in. So we took the decision to accelerate our sort of twin track approach of looking to establish our own our own fulfillment facility. We've chosen to establish that, we've chosen to establish it ourselves, and we will run it ourselves. Quite a large proportion, nearly 50% of our parcels are what the logistics trade term is ugly, either in the sense that they're quite big and bulky, so big oaks, for example, big bed chairs, or indeed they're, as you can imagine, long, thin packages made up of either fishing rods or fishing poles. The type of nature of product which the big third-party providers tend to shy away from, and we've got an awful lot of experience of doing that specifically here. So we have been set about establishing our own distribution centre. We've incorporated a new wholly owned Dutch subsidiary ADNLB is now fully incorporated. It's taken on its first employee. We now have a very experienced European commercial manager who comes to us with a really good track record of working with some of the key suppliers in Europe, building those businesses out really quite tangibly, a great track record, a lot of credibility, a very good network. And again, that has helped us in our discussions and sort of obtaining support for what we're doing out there with local suppliers. We've agreed terms on a 3,900 square metre distribution centre just outside the city of Venlo in the southern part of the Netherlands, which is ideally placed sort of within the centre of gravity of our key territories. We're about 30 minutes from the German border. which will allow us to move things directly from that distribution centre into the big German distribution hubs, which are sort of so efficiently set up to deliver out to our customers really quite quickly. Very pleasing that a good proportion of the set-up costs, both in terms of OPEX and CAPEX, are included within this newly revised FY22 forecast. I think Steve mentioned some of the working capital involved in setting up this distribution centre will be scheduled to land within our FY23 financial year, albeit we will take the opportunity to balance some stock from the distribution center here in the UK at the same time. We will have this distribution center opening time for the spring season. It will give us capacity until at least FY27. We're initially going to open the distribution center without any automation. We do have some automation here in the UK facility, but I'm very conscious that we need to do this well. We don't want to overcomplicate it. So in order to de-risk the project, we took the decision not to put automation in from the beginning. We're targeting automation around FY24, 25. That will extend this capacity of this facility on well beyond 27. We believe it will be earnings positive. Well, I say by the latest, but we will be earnings positive from FY25 onwards. Significant supplier support we've mentioned, and importantly, probably worth just labouring the point here slightly, having a European entity that allows us to do nice frictionless EU to EU trade, having a distribution centre that's got significant capacity, having a European-employed and European-based commercial team, I think really does give us the opportunity to now facilitate the move to the full omnichannel EU offering. Angling Direct, we're very much committed to having really superb digital capabilities and online offerings for our customers, but they work in complement with bricks and mortar. And until we achieve bricks and mortar in Europe, our customers out there won't be getting the full Angling Direct. experience. A lot of our customers enjoy shopping in either channel as it suits them, but fishing is very much a sort of pastime where anglers like to mix. They like to talk to enthusiastic, well-informed, confident anglers in the form of our store colleagues and, indeed, immerse them in the sort of category-killing ranges that our stores have there for our customers to put their hands on. We're absolutely focused on getting this distribution centre open in good time and well. We will, as part of next year's development plans, move on and start to progress our bricks and mortar offering. And that, of course, could involve acquisition, of which we have ample experience up here in the UK, but it could equally, as we have more recently been very successful, involve us opening stores from scratch ourselves. Slide 18, in summary, I think speaks for itself. We still have very clear significant growth opportunities to be had both online and in store, both in the UK and indeed in Europe. Unlocking Europe is why we're pressing ahead at full speed with the European Distribution Centre, and it's really pleasing that a good proportion of those costs are in this year. We are very well placed, I believe, in stock wise as we approach the next season. I think it's important, especially with the amount of news flow at the moment about disruption at ports with ships being diverted from Felixstowe to Rotterdam, et cetera, et cetera. That really doesn't affect us. Christmas is not particularly important to us. We've had our peak trading period, the bulk of which is included in the results we're talking about today. Black Friday is not, it's a massive significance to the tackle trade either. Having said that, we're quite optimistic about Black Friday and Black Friday month this year, because of course, in November last year, all of our bricks and mortar stores were closed and we locked down too, and Black Friday was entirely online. We've included a slide, and again, some of your questions alluded to this about current trading and outlook. Again, this is slightly paraphrased from the words in the statement, but essentially, sales in Q3 are anticipated to decline. We've been very clear about that for the past 12 months or so, given the way that last year's fishing season was condensed and skewed into quarter three by the nature of the first lockdowns. For a large part of the first half of last year, you weren't allowed to fish. You know, we fully anticipate trade in Q3 to be down on the prior year. And indeed, August was tough. August is our biggest month. September was slightly less tough. And October, you know, we're feeling sort of pretty positive about. Q4 in terms of sales has a certain amount of uncertainty in it because we will annualize lockdown to November, as I mentioned, where all the stores were closed. We reopened those stores briefly for the month of December, and then everything closed down again in the final month of our financial year when we closed at the start of lockdown three for the whole of January. We haven't experienced any material impact from supply chain disruption, as I said. We're not immune from raw material and freight cost increases. Having said that, given the margin progression we've been able to make, We're largely mitigating what we're seeing there in terms of increasing cost prices. But I think it's important that I sort of really do stress that the reason why Angling Direct is growing as quickly as it can, the reason why Angling Direct is making market share gains that it is, is because not only do we have the highest product authority without some category killing ranges, not only do we have the best customer experience, but we're also committed to sharp prices. And we will, if necessary, we're very conscious of maintaining that position and we will invest margin going forward if necessary to maintain that. because combined with those other two elements, that is what is driving the consolidation of the market, which is sort of what to some extent is driving Angling Direct's growth. As I said, we were delighted to be able to upgrade our EBITDA pre IFRS 16 for the year end up to £5 million. And I think we're quite rightfully very sort of confident and excited that we're in a great place Looking forward to the start of the new angling season next spring. And I think that probably leaves us with a reasonable amount of time to go through some of your questions.

Fantastic. Andy, Steve, thank you very much indeed for the presentation. Ladies and gentlemen, do please continue submitting your questions using the Q&A tab situated in the right-hand corner of your screen. But just while the team take a few moments to review those investor questions submitted already, I'd like to remind you that recording this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard on the InvestorMeet company platform. I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations. Andy, Steve, we did receive a number of pre-submitted questions from investors and perhaps I could start off the Q&A session with these. And Steve, if I might just address the first few to you as they're more financial focused. The first one reads as follows. Please can you discuss the gross margin performance in H1 2022? Do you believe this is a baseline for the business going forwards? Do you believe you can offset any startup costs relating to the European distribution by leveraging higher margin owned brand sales?

Sure. So in terms of the first half, I think I commented on the 37.4, what were the building blocks of that? I think as a business, we've always said we remain committed to a north of 36% gross margin. We believe that's the level we need to sustain at to deliver pre IFRS 16 EBITDA margin, a minimum of 7%. We remain committed to that 36%. I think the gains we've made in the first half, some of which I commented on were around tactically using our buying power, et cetera. And I'll briefly mention to the extent we hang on to those remains sort of slightly open, but that gives us a good foundation to maintain that 36. So our covering analyst has us with that level. In terms of the own brand penetration for Europe, undoubtedly Europe is a market that has a stronger bias towards own brand penetration. We've always been consistent in saying we believe sort of mid-teens is the right level in terms of where we can get the UK business to. And on that journey, the own brand should be worth around sort of 20 basis points a year. terms of how we develop that penetration rate that said in the european business case we've got stronger ambitions you know ultimately medium term north of the 15 but but but not into the 40 50 that we've seen some european businesses try to deliver and arguably fail upon in terms of alienating alienating their customer base on the setup cost specifically we've got around our covering analysts has put us in for 400 000 of EBITDA set up costs for Europe for this year. That remains within a tolerance of where we believe we will be. I think it's important to stress the timing. We have not yet signed the lease. And so the timing of when we sign that lease and when we can operationalize it will impact the full extent of the set up costs that we incur up to the point we open. So to the extent it hits 23 remains a small unknown at this point in time.

Fantastic. Thank you very much indeed. So the next question we've got here is, you mentioned you expect a working capital reversal in H2 2022. Please, can you disclose the size of this?

Yeah, I think I briefly touched on that in the presentation. So, you know, again, somewhere around a million pound as a negative for the full year working capital would be around where we're anticipating based on the sales run rate. That is subject, though, to how we deal with the European working capital aspect. So we are assuming that it's around a three million pound working cap injection at the sort of the the more ambitious end of what we want to stop the DC with as we start up the business. We are assuming that 3 million largely falls into FY23. If we've got the opportunity based on signing the lease to bring that forward, we may well bring some of that into 22. As I've said, the liquidity position gives us the flexibility to do that.

That's great. Thank you very much indeed. The next question we have here is the latest forecasts are for EPS of 3.4 in fall year 2022 falling to 2.6 in fall year 23. Previously, it was 2.8 in 23. Could you just explain a little more around why, please?

Yeah, I think the dynamic of how the covering analyst is looking at this. So it's worth remembering, as I sort of pointed out in the presentation, that we are the direct recipient of 900,000 of government support, which won't repeat in FY23. And we're also the recipient of some indirect government support, i.e. the rates relief we're receiving on some of our property portfolio this year. So you've got 900,000 plus around sort of 300, slightly north of 300,000 on the rates relief which then sort of puts us in a position that we're automatically going backwards by about 1.3, absent that government support year on year. Notwithstanding, we've also got in 23 a consideration of how those European setup costs play out, i.e. can we kickstart the operation on the 1st of February and avoid any further set up headwind in 23. The covering analyst, I think, has progressed their EBITDA forecast, but then, as he notes, prudently held his PVT back to a previous level. So there is a slight amount of prudence he's built in between EBITDA and PVT. That's great. Thanks, Steve.

The next question, I think you've actually pretty much covered off just in, obviously, the presentation, but just in case there is any further things to add, And what is the cost of building the European Distribution Centre? And is the cost the reason why you're guiding H2 EBITDA so low? And as I say, I think you've pretty much covered it off, but just in case.

So just for clarity, the CAPEX requirement is around £300,000. The P&L impact for 2022, the analysts got us in for £400,000. So £700,000, if you like, of resources split with that £400,000, £300,000 split between CAPEX and EBITDA.

That's great. And the final one, I think, for you actually, Steve, is please can you discuss the European rollout in more depth? Given the sizeable commitment to distribution capacity, can you provide revenue targets and likely costs related to this? Similarly, can you discuss the working capital and capex need for the site for 22, 3, and 4? Thank you.

Yeah. So in terms of we're not giving sales targets by year. I think we're confident that we can 20 million pounds that that sits against a fixed cost base of around a million a year the ambition being to be in 25 sort of moving moving into that positive territory as andy's reference from a cash perspective the key outflow is the three million working cap investment that arguably gives us based on a coverage rate sort of about two years cover on any further working cat burn so beyond Beyond 24, it's modest working cap consumption as we move towards that revenue to earnings positive status. How quickly we can grow beyond 25 obviously then plays back into what working cap requirement is there. Again, we're well-placed to fund that from existing liquidity. And then, as I mentioned before, the capex cost is largely considered within the FY22 now.

That's great. Thank you very much indeed, Steve. That covers off your questions. Andy, perhaps if I could just turn to you. As I say, we've probably got about five minutes. We're grateful we can get through some of these and some of the other questions we've got come through. But the first one reads here as follows. Sales via the three native language websites fell by 34.2%. In that context, how risky is the planned expansion into the European market?

Sure. I mean, just on the question point, if it's okay with the host, I think we can overrun just a few minutes because it would be good to answer as many of the questions as we can. We're very grateful for the questions. In terms of European risk, I think I'd refer to the fact that, you know, our German site is about three years old now, our French and Dutch native language sites about two years. And they were growing like Billio, for want of a better phrase, to be quite honest. So that pre-Brexit gave us an awful lot of confidence that our customer offerings, some of the UK brands, the UK baits, as I mentioned, some of our very contemporary online capabilities, I think, are very attractive to European customers. So we don't see anything as things stand at the moment to make us feel any less confident that when we can get around those key largely Brexit driven issues with this in region, EU to EU fulfilment, we're very confident that we can regain that position very quickly and indeed sort of quite materially overtake it. So no, I don't believe so.

That's great. Thank you, Andy. The next one we've got here is, please, can you discuss your priorities for use of cash given strong cash generation, net cash balance? Should we be expecting bolt on M&A or will you consider a modest dividend?

Sure. We're asked this question quite a lot, and as I'm sure many of you are aware, we did undertake a raise of £5 million midway through the first lockdown, which I think was a very, very prudent thing to do. at the time as we sort of had no idea of how things were going to pan out as a result of that. It does leave us in the position we're in now, if you add that to how well we traded and continue to trade with a fair amount of cash. We are conscious of that. We're conscious of the motivation behind the question. And frankly, we are getting on with driving this expansion, particularly into Europe. But we do continue to invest in our both our stores and our online capability here in the UK as well, which is sort of our mothership, if you like, that we do need to keep very conscious we need to keep working well. In terms of mergers and acquisitions, we obviously have to be sort of fairly careful what I say here, but we continue to have and have had for some time a considerable number of ongoing discussions and indeed approaches, both proactive and otherwise, but in both directions in terms of the potential for acquisition. I think it's important that we, I think we've been stung slightly by acquisitions in the that haven't been either particularly well executed. We've learned a lot of lessons from that. And I think when we do acquire, and I'm not ruling M&A out at all, we need to make sure we do it with eyes open, we need to make sure we do it well, and we need to make sure it absolutely aligns with our growth strategy. So no, I certainly wouldn't rule it out. I think there's another question in a short while about, plans to pay dividends at the moment. The sort of overwhelming sentiment from our shareholder basis as we read it is to actually utilise that cash in order to drive, continue to drive really quite rapid growth, especially as now I think we're starting to get a track record for demonstrating that that growth is properly underpinned with some good EBITDA generation at the same time.

Great. Thanks, Andy. And just the next one we've got here. Shares are trading on likely under 10 times PE in 2023 and over 10% free cash flow yield. A significant discount to peers, which trade in a range of between 20 and 30 times PE and circa 5% free cash flow yield, despite Angling Direct's superior growth and market opportunity. Are you willing to help investors understand Angling Direct's midterm opportunity and clear valuation disconnect by providing some more midterm targets?

Gosh, quite a question. I suspect it's the second one. I think it's probably the second half of the question that's the most relevant. What I would say is we've been very clear in our assessment of the business when we joined that this business has clearly got a great growth potential. We have initially a very clear path to a north of £100 million business that will be reviewed in light of what we believe the European opportunities, those five territories I mentioned, is a £1.9 billion market share. Depending on what numbers you believe, we have a market share in the UK of between 12% and 14%, so there's clearly a lot to go for there. So our focus is very much on a business that is north of 100 million with a good, at least a 7% EBITDA to sales ratio and a gross margin in excess of 36%. nothing that we've discovered and nothing in terms of the progress we've made in sort of recent months and the last couple of years suggest that isn't, you know, readily achievable within the next two to three years, certainly by FY25. And that's where all of our focus is at current, and hopefully that's helpful to people.

That's fantastic. Thank you, Andy. Just conscious of time, but if you're happy just to take a few more, as you said, we've got one more pre-submitted and we've got a couple that we can cut through just on the live Q&A as well. But this one reads, please can you discuss your revenue commentary relating to Q3 2022 in more depth? Should we expect growth in Q4 2022 year on year?

Sure. I think we covered the Q3 and Q4 sort of outlook really. Q3 is undoubtedly going to be down with completed it now. Q4, some degree of uncertainty because, you know, certainly when we did the interim presentations this time last year, nobody was anticipating a lockdown in November. Now, I think we can be fairly confident we're not going to lockdown again, hopefully. But of course, we don't quite know how the comparable business is going to pan out. We're reasonably optimistic about Q4. I think the analyst, if he does help, has a sales number which implies a regression for the second half of around 4%, and we're pretty comfortable with the number that he has out there at the moment.

That's fantastic. That actually concludes the pre-submitted questions. If I may just ask you just to click on that Q&A tab there, gents, and then where appropriate to do so, if you could read out the question and give your response, that would be fantastic.

About three questions at the moment. Thank you very much. The first one is from Steve G that says, given growth potentially in Europe slash UK, both online and in-store, combined with competitive advantages, should AD prioritize growth versus profitability? And I think the answer to this is both. I mean, we're very clear, you know, After many years of really quite stellar growth, this organization was in danger probably two years ago about growing its infrastructure, outgrowing its human capability and certainly capacity. And I think by doing the right things to reinforce the foundations for what is a great business, actually leads to more growth and indeed you sort of get the profitability as a bonus, if you like. We've been very clear we wanted to establish a degree of profitability. Some of our shareholders were very keen to see that good EBITDA was going to come along. I apologize if it sounds slightly mealy mouth, but we're very focused on both. I think we've been very clear. We want to continue to grow the business as rapidly as makes sense, but also demonstrate we can grow profitably as well. And the impact of the pandemic, which I don't want to dwell on too much, but it does make, you know, that's why we put the year on two year slides in to try and help make sense of some of the strange comparisons, which of course aren't just about online and offline in the UK. We have non-comparable closures and lockdowns in our European territories as well, which also all sort of go into the mix. Hopefully that helps. Steve G. There's then a question from Scott M. Is there any one European country that is the focus of our resources? Where would we prefer to open our first physical store? There isn't really one country that is a particular focus of our resources. We're very keen that all of the customer-facing technology and all the capability of our digital offering in the UK gets fully replicated in all three of our native websites. That includes the mobile app, by the way. So we have quite reasonably sized teams of translators and technical people that do SEO and PPC directly within those countries. So we do spread it out. Having said that, it's fair to say our German site is furthest along its growth curve. The siting of the distribution center is very near to some very, very dense, attractive population within Germany. I don't want to be drawn about where I'd prefer our first physical store because we really haven't, you know, all of our efforts are focused on doing a good job with the distribution centre. Lots of retailers have looked up new distribution centres in the UK, let alone abroad, let alone very recently sort of post travel restrictions. So I want to make sure we do a good job of that. we're starting in parallel then to sort of really work through what the physical store implications will be and we'll evaluate those thoroughly as you'd expect and we'll sort of report back at due time. Perhaps let Steve finish on this last one, are you happy to take this last one about single customer view and data BI and what have you?

Yeah, so question from Steve G is given the importance of omnichannel, are there plans to introduce a single customer view and to track So I think the challenge here remains capturing the information from our store customer portfolio and doing that in a way such that it's not simply giving away margin to capture that data. So the business got a track record where it did have a reward scheme which effectively a 1% discount for any shopper, provided you at the start, gave your electronic data points so you could track against it. That, what's the word, gave a reasonable level of insight. There was less than a third of customers who signed up for it. I think one of the things for us, one of the priorities for 23 is to look at how we could introduce a capture point for the store such that we could conflate the store behavior with the online behavior because one of our clear gaps as you've referenced there is understanding who is an omni-channel customer and who isn't and whether there's anything in terms of behaviorally that we would be prepared to pay away in the margin to have that richer level of data in terms of shopping behaviors.

That's fantastic. Thank you so much. You've covered all the questions. Andy, thank you again for addressing all of those. And of course, any further questions that do come through, the company will have the ability to review those and we publish responses where it's appropriate to do so. Just before we redirect the attendees to give you some feedback, Andy, perhaps I could just ask you for a closing snapshot of the business, please.

Yes, thank you very much. And thank you, everybody, for taking the time to join us this morning. We're very pleased with this set of results, as I mentioned at the start of the presentation, and particularly in the progress that Angling Direct has made in the last 18 months in terms of contemporising itself as an organisation, investing in the future of the business, I think has enabled us to trade very flexibly during a time of great uncertainty. I think it's enabled us to demonstrate what a resilient business we are. It's demonstrated how we're able to really start to leverage our clear market leading positions, certainly in the UK and increasingly in Europe. And we are very focused on what we believe is a very clear purpose about getting everyone out fishing. We have a strong ambition to become Europe's first choice omnichannel fishing tackle destination. And I think with our unique market leading digital and store customer offerings where we're ideally placed to take market share. We're very confident that we'll continue to do that and to indeed grow profitably both online and in store both in the UK and increasingly across Europe. Thank you very much for your time today. That's fantastic.

Andy, Steve, thanks again for updating investors today. Could I please ask investors not to close the session as you'll be automatically redirected for your opportunity to provide feedback to the management team so they can better understand your views and expectations. This will only take a few moments to complete and is greatly valued by the company. On behalf of the management team of Angling Direct PLC, we'd like to thank you very much for attending today's presentation. That now concludes today's session. Thank you and good morning.