Angling Direct PLC

Good morning and welcome to the Angling Direct PLC final results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time 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 appropriate to do so. 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 Crowe, CFO. Good morning.

Hi, good morning, everybody. Thank you for taking the time to join us this morning. We're very pleased to present another strong set of results for Angling Direct, particularly the fact that we've continued to grow both sales and margin, having annualized what was very much a boom year globally for fishing and angling, periods of prolonged furlough, the socially distanced benefits and general increasing understanding of the wellbeing benefits of angling have certainly been a boom in our trade in the past couple of years. And to have actually annualised what was across the world a bumper year for angling, we're really very pleased to be able to report both sales and gross margin growth in this FY22 period. Strategically, in the year we made very significant progress with the successful opening of our European distribution centre ahead of this spring season, allowing us to dramatically improve the quality of the service that we can deliver to our customers in mainland Europe, which is a large, equally fragmented and equally unsophisticated trading opportunity for us to take, share and ramp up our business in mainland Europe in the months ahead. So very good to be able to report that that distribution centre went live and has been dispatching parcels to customers since the 1st of March. And thirdly, the third big point we'd like to stress this morning is we have been proactively using our market leadership to leverage our relationship with suppliers in order to build stock ahead. of this coming summer fishing season, which will give us some comfort and indeed some confidence that we'll be able to support all channels with further growth, be it in the UK or in Europe, be it bricks and mortar or online. On slide two, So our overview of our year is lifted from our R&S and we'll cover a lot more of this in more detail as we go through the pack. But just a few things for me to pull out initially. 7.2% sales growth with a good strong performance from our stores. as there's clearly been lockdown, COVID-restricted store closures in this year, as there was indeed in the prior year, but there have been different durations and indeed different times within the fishing season. So quite difficult to actually pull out and understand exactly what did happen, but clearly it's great to see customers back in our stores as they've had the opportunity to get back onto the high street. Our stores growing by just short of 20% and just over 14% from the like for like estate. Not surprisingly with that channel shift, our online revenues did reduce by 4.3% given the channel shift and indeed the post Brexit drag on our European business, which we'll come back to in a moment. However, that slight decline in total online business masks the fact that very pleasingly, despite there being few lost trading days in stores in FY22, our UK online business grew by 2.7%, with a very encouraging improvement in online conversion by a further 45 basis points increase in online conversion in the UK. A 250 basis point improvement in gross margin, which was a combination of pricing, some improvements in terms, further improvements in shrink and indeed continued further 25% growth in our Advanta own brand product range. When you add our sales growth, combine our sales growth with that improvement in gross margin, and indeed some further underlying gains in cost efficiencies. Our EBITDA increased pre-IFRS16 EBITDA increased by just over 30% to 5.2 million pounds, slightly ahead of the analysts' expectation. In terms of operational highlights, three big things. The European Distribution Centre, as I've just mentioned. We have launched our Fishing Tackle app, the first trading app that we're aware of in the UK and Europe. And indeed, we opened four new stores within the UK. On the next slide, we've just sought to illustrate some of those points. Graphically, on the left-hand side, you can see total revenue progression there to 72.5 million. The bottom left-hand side does, though, show the European post Brexit drag on that total number. Our total European business went back by just over 39%. As a result of Brexit port disruption, some of our lead times into Europe went up from sort of three days to, in some cases, as much as four weeks at one point with the ports and customs disruption. We were unable to dispatch much sought after UK bait brands into Europe post Brexit. because they now cluster as animal feeds and need at least two veterinary certificates even for a small pack of bait. All of our European dispatches are now, or did until the distribution centre opened, come with a six euro per parcel admin fee charged by our carriers, could argue a cartel carriers and unavoidable admin fee we've had to pay on all parcels. So as a result of that, our European conversion rate fell away quite sharply, minus 39%. But we have invested to protect the trade in our native language sites. We have a Dutch, German and French native language site. and protected the trade on there to the point that the native language sites went backwards by 22% post-Brexit. And I'll obviously talk a lot more about Europe as we go through, having overcome all of those obstacles with the opening of the new distribution sector. Profitability in the central block there, you can see our gross margin moving forward by 250 bps. Steve will give a bit more detail on that later on in the presentation. You can see our EBITDA, bottom center there, moving forward to 5.2 million pounds. Top right, the channel switch, good to see some light for light growth back into our UK store estate where we now have 42 stores. And bottom right-hand side, UK web conversion moving up from 5.9% to 6.4%. A combination of improved site speed, improved search relevance. We've been working hard to use AI to improve relevance, but also an improvement as the year went on in terms of product availability, range availability of customers, all contributing to an improvement in web conversion. On the left-hand side on the following page, we thought it useful to show some year-on-two-year growth trends. You can see both store and total online sales. Store sales going forward, 38.4% year-on-two-years. and indeed our total online revenue year-on-year on FY20 by 33.9%. On the right-hand side, again, we just thought it would be useful for investors just to have a look at the underlying profitability of the business as that's progressed forward, excluding any government support. We're not anticipating any government support in our current trading year now, And the year we're reporting on here, government support actually reduced by 600,000 pounds in a year. So we thought it important actually just to show that both in terms of the actual EBITDA and the EBITDA ratio on those two graphs. Over the page on slides five and slides six, I could talk about these all day. We have a fairly limited time. We seek here to try and update yourselves on the strategic progress we've made against the priorities that we actually outlined when we met investors 12 months ago in May last year. At the top there, in terms of international growth, this is a major growth opportunity for us. Just as a reminder, we believe the easily addressable European market in our five target territories of Germany, France, the Netherlands, Austria and Belgium is at least three times the size of the UK market. We have a very low share there. We have an even lower share with that post-Brexit drag. Opening the new distribution center, which is owned by a new subsidiary that we incorporated last year, ADNL BV, allows us to dramatically improve the customer experience in that we can now, for the first time ever, actually do express delivery to the whole of Germany, the whole of the Netherlands, Belgium, and the vast majority of France, and indeed several other. We now distribute to 23 European countries, but with a focus on those five key markets. We've been able to now start to deliver bait again, which is really important to our customers in terms of completing the basket. We have 18,000 Chigus in stock in the Dutch distribution center. About a third of those are actually new from 12 new suppliers and very much focused upon the slight variance in the style of fishing, particularly in Central Europe and Eastern Europe. Anglers are very keen on predator fishing. So again, for the first time, we've been able to stock products that we don't stock here in the UK and actually target those to specific European markets. Or when you look at that reduced lead time, and reduce costs. So we now have a much lower free delivery threshold. We have a much lower delivery charge for those customers that don't hit that threshold because we no longer, of course, pay those export administration costs. So we're very excited about this. It was a huge project for a business of our size. We're still quite a modestly resourced business. And despite COVID restrictions, which lingered some time in the Netherlands, actually, we we weren't able to travel freely to the Netherlands when we took this distribution centre on. And indeed, most of you will be aware, we suffered an unfortunate cyber attack last November, just as our systems team were at the peak of the development requirements for this distribution centre. I was very pleased to be able to get that open well ahead of the season. It's now fully operational and has been dispatching since the 1st of March and is already achieving pre-Brexit volumes through that distribution centre. In terms of digital, As I mentioned, it is important to us that we continue to have market leading omnichannel digital capabilities. We're very happy for our customers to move between our websites and our stores as they wish, as well as being able to trade in what is five websites now, because we also have a .eu site. It's really important that our customers can access some really rich digital content, inspiration, advice, learning articles, the blog and what have you. That is all multilingual. We have a policy of everything that happens in the UK. It's followed up very quickly on all of our international sites. We're particularly pleased to launch this first in-tackle market mobile app, which allows our customers to take all that digital content and indeed be able to trade from the riverbank, from the fishery. We released it in November last year, and unfortunately that did coincide with the cyber attack. It was a good app, but it wasn't good enough, I felt, to be able to really start to push it. We put the development on hold in order to concentrate on the international project, especially with the pressures that the cyber attack And that meant that phase two of our app development wasn't actually released until April this year. So just to give you some sort of context to that, between launch last November and the end of March this year, we had about a thousand downloads. That was very much a soft launch. We're now starting to actively market the app since phase two has been released. And we've gone from having a good app to what I think is a very good app. And as of this weekend, we now have around 10,000 downloads. some very good reviews, and we're already at sort of low to mid single digit participation of our online business in the UK is already going through the app. That's really good for our customers. It's actually very good for us in that our customers that interact with us through the app, we avoid all those sort of Google ad charges which are associated through clicking through on the main website. Very pleased to be able to make some progress there. Phase three development is underway and we're very excited with the opportunities that phase three brings us to allow us to merge the app content with our, we have a priority subscription model. We have nearly 9,500 subscribers now who pay an annual fee for free express delivery. It's about 15% of our monthly orders. The opportunity to merge that subscription model with our app to start also to drive some user-generated content, some community content, we're very excited about that forming a really good and solid bridge between our stores and our web content. Moving on to stores. Our new store operations director has been with us just over a year now, making really good progress professionalizing our store operation. He's restructured his team. We have a much better balance now of retailers that fish and anglers that work in a retail business. And we need both, and that's a really important blend. But the contemporizing of our store operation, It means that our customers are getting even better service and the contribution that our stores make overall to the businesses is also significantly improved. Store EBITDA margin has gone up by 420 bits to 13.8% of their sales pre-group overheads. We've actually installed in all of our stores now footfall counters, which allows us to We've commenced a deployment project, which allows us to ensure our store colleagues are in store when our customers need them to be. And the store team are very focused on assisted selling, making sure they get the service that they deserve when they're in store. I think there's an awful lot more to come from that team in the years ahead. Over the page on slide six, Our commercial team, we changed our commercial director partway through the year. The new incumbent has made a great job really getting behind our customer focused category management processes. We've also strengthened our commercial team. We've been very lucky to take on a very experienced European commercial manager. He used to be the director of sales of one of Europe's largest fishing tackle brands. He comes to us with a wealth of knowledge and a really rich and useful network over there in Europe. We've also taken on a head of own brands who's doing a great job developing our Advanta range Advanta sales, this is our own brand range. Sales went ahead by just shy of 25% in the year, which we're pretty pleased with in the context of overall company growth of 7.2. That's a 5.6% penetration of total sales up from 4.8 in the prior year and indeed only 2.8 two years ago. So we've roughly double penetration within two years. We've done a lot of work to rebrand and contemporize the Advanta range. One of the biggest frustrations from our perspective of supply chain disruption has been less about our ability to get hold of stock, but actually the fact that this doesn't get talked about so much. I don't think product development lead times have increased. So our ability to, these are factories we still can't visit, largely in China, and indeed the lead times given demands on factory capacity for new products is pushed right out. we had hoped to launch the new advancer range extension this spring and also advancer pro which is a slightly more technical higher spec uh range of products and that the the differentiation between the two allows us just to pitch more appropriately to different sorts of customers we'd hope to fully launch those uh this spring uh unfortunately some of those lines won't be with us until later on in fact getting onto the autumn so that is all still opportunity um to come The products that we have had, particularly our new reels, which are obviously quite small cube, high value, and all the benefits that that brings, have sold really well with really good feedback from both our customers and colleagues alike. In terms of communities and sustainability, our purpose is to get everyone fishing, so not surprisingly, We're working very hard on engagement, inclusivity, sustainability within fishing. We're in the second year of our partnership, our exclusive partnership with the Angling Trust. We're a key supporter and indeed have now adopted Tackling Minds, the mental health charity, as our national charity there. They're at the forefront of NHS social prescribing of fishing for mainly mental health, but also more broader wellbeing benefits. We've had an exceptional response to a wellbeing survey that we've done in conjunction with Anglia Ruskin University. The output from that survey is currently being academically and peer reviewed, which will mean indeed that will be the first large scale peer reviewed survey about the benefits of Anglia and we're very excited about the opportunities for grants for quite large-scale public health interventions to improve the participation in angling for the sort of general wellbeing in coming years. In terms of organisational capability, an awful lot of work on our IT infrastructure and resilience. Our new European entity, of course, needed new trading systems, new supply chain systems, new accounting systems. And that has been the main use of our development teams in the year gone by. And I think they've done a cracking job. We were distracted by cyber attack in November. A couple of very quick points to make about that. It was in November, one of our quietest trading months, which was the best thing about it, really. We avoided peak trading. It was unfortunate that the timing was around the development time for the distribution, so the new distributions went around for the app. So the app development did suffer as a result of that. We lost about eight days trade on our websites and about half, three-quarters of the day in store. Thankfully, we were well insured. We'd actually increased our insurance coverage during the prior year. All of our direct costs associated with legal costs, recovery costs, forensic, cyber security analysis and post reviews have all been directly covered by our insurer. It's credit to our teams and the work they did on the IT infrastructure that actually allowed them to rebuild, particularly our web systems post the attack. It was very destructive attack in its nature. There was a very candid request for a ransom, which on the advice we were given didn't appear to be a credible request given the destructive nature of the attack. We didn't actually pay the perpetrator any money at all. Our biggest issue was regaining control of our public facing side of our websites and our social media. That was sort of really quite unfortunate. really quite difficult to do. We were we were let down, I have to use more words quite carefully, by a third party providers security, and we became the victim of an eSIM swap, which allowed the perpetrator then to gain access to our systems, despite us having what we'd been advised, very appropriate multifactor authentication on all of our systems. So I should expect that's all been thoroughly reviewed. and learn from. And whilst I don't believe any, if you look at the number of businesses that are getting these sort of attacks now, nobody's immune at all from this. I think we are now having learned some important lessons in a far better state post attack than pre. In terms of our board, our governance and effectiveness of our board continues to strengthen. We have appointed post-period end Chris Keane to the board. Chris will also join our audit comm. He's a very experienced group financial officer, group chief financial officer, with a very high and impressive pedigree in specialist retailing, both online and in digital, both in the UK and abroad. Recently, you'll have also seen that Dilys Maltby, one of our existing non-execs, has signalled that she'd like to step down from the board at our forthcoming AGM. Dilys has been on the board for a couple of years now. She specialises in helping and consulting with businesses on their purpose and helping businesses codify their purpose into their strategy. Dilys has helped us tremendously with that. She's very busy. Her business is much in demand and I think in terms of her She demands on her time personally. She's decided this is a good time to step away. So we thank her very much for the effort that she's put in and we part on very good terms. We're very much advanced in appointing Dilys's replacement. I hope to be able to announce that shortly. We're very focused on and very excited about some of the specific skill sets that that individual brings to the board, especially in the context of where Angling Direct is at the moment in its life cycle. I'll hand over now to Steve, who's going to just go through the financial overview section in a little bit more detail.

Thanks, Andy. I'll bounce through a few of the key points. I think we've got some pre-submitted questions later where I can take some more detail. On slide eight, there's three things I'd sort of draw out. Top left hand, you will notice the UK sales growth rate still over double digit, despite annualising against a very challenging comp year where we had the benefits of folks on furlough, the staycation type environment. So particularly pleasing to deliver that 10.5% growth. And that's around 45% on a two year basis. The gross margin drawn out in sort of the red dots further down the page. So your 250 basis points progression made up of around 130 basis points pricing and buying. The strength of our stock position, strength of our relationships enabled us to trade quite hard in terms of securing a disproportionate share of the market stock and then use our multi-channel approach to price that accordingly. Around 30 basis points in terms, that is largely linked to volume progression. So in a short market stock, the opportunity to really sort of change what I'd call fundamental base prices was challenging, but the team were successful in terms of leveraging that stock positioning and leveraging that volume arena to deliver 30 basis points there. Around 20 points from Advanta, so growth of own brand, broadly maintaining the differential in margin between the two, little bit of pressure because of the carriage costs in terms of container costs coming out of the Far East. And 20 basis points further on shrinkage, where we continue to sort of improve and challenge our internal processes around compliance. There's a bit more in terms of mix, a reduction in our previous annual AD rewards card, et cetera. But broadly, those are the four key facets of that. I think it's worth noting the 36.7, the half and half split. We were up in the 37s in the first half, that moderated in the second where we were just a smidge below 36. So plays out for the full year at 36.7. On a half-two basis, we were nudging slightly beneath that 36. Final point I'll make, just bottom left-hand corner, the European EBITDA, that is a pre-IFRS 16 EBITDA, so it's comparable with 5.2. And he quoted earlier that's made up of two facets. So it's got a what I call a direct trading loss around three hundred thousand. which is a response to the admin cost, the export cost, the increase, customer basket, the change in mix of the basket, and around 400,000 of setup costs, i.e. costs that directly hit the income statement that related to legal professional consultancy, startup costs relative to the premises and the people that we've employed in Europe. Over the page on nine, it's the income statement. So on eight, this is presented as you'll see it under an IFRS basis. So the EBITDA on an IFRS basis is 10.1%. So healthy double digit performance there at 160 basis points progression. The other aspect there is again, some reasonable progress on net profit and earnings per share. that level of progression is below the progression at the EBITDA level, primarily because of the tax charge. So we're now the beneficiary of our deferred tax balances looking to reverse at 25%. So there's quite a drag on the in-year relative tax rate. So if you refer to the R&S, there's more in my CFO statement about bridging that effective tax rate. On page 10, That's just the IFRS 16 reconciliation. So folks can see the difference between the pre and post basis. Obviously that's a cocktail of the maturity of the lease relative the interest charge relative to the depreciation and also the restoration provision. basis of accounting versus the pre IFRS 16 dilapidations. We expect that to sort of normalise more around the sort of the 100,000 mark moving forward, but again, not a material difference to that profit before tax level. On 17 on the balance sheet, two key points here. So the capital expenditure in the year, both on tangible and intangibles, cumulatively was around 2.2 million. That 2.2 million had a couple of one offs in it. So it had around 300,000 pounds for the fit out of the European distribution center. And it also had around 300,000 pounds where we took the opportunity to accelerate and settle the leases for our semi-automated picking system in our UK distribution centre. So hence they now become a owned asset rather than a right of use asset. So net of those two is about 1.6 of around which 1.2 was broadly on the store estate. The working cap position, you'll notice they're around a 30%. Increase in the inventory value. I think Andy sort of referenced our approach to stock is worth referencing around 1.2 million of that growth is for our own brand stock investment. We tend to stock up earlier and own brand Chinese New Year makes it sort of an imperative to get things on the sea before Chinese New Year. So further, deeper investment there. And we only had around 300,000 relating to the European distribution center that we were in the process of starting to build those stock levels. So post the year end, we've had about a further 2.2 million investment into European working capital, which isn't reflected in this balance sheet number of 16.3, you'll see there. You'll note the cash balance is 16.6. Again, in the R&S, we've referenced the April position that is lower, reflecting the now settlement of that investment into the European working cap position. Over on 12, the cash flow. So again, highlighting there the strong EBITDA performance, giving us a strong building point for the cash position. Then the investment into working cap, primarily being the stock dynamic I've just referenced on the previous slide. The only other feature just to reference is of the 2.2 million of CapEx that we have capitalised on the balance sheet in the year, around 400,000 that is going to be settled in cash this year. Hence the cash flow in 23 will be sort of north of 2 million pounds, reflecting that overhang of around 400,000. Still a very, very healthy cash position as I referenced. That is pre the investment into European working cap, which we'll obviously see the impact of as we go through the current year. I'll hand back to Andy for the business.