Angling Direct PLC

Good morning and welcome to the Angling Direct PLC half-year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time by the Q&A tab situated in the right-hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it received in the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Andy Torrance, CEO. Good morning to you, sir.

Good morning, everybody. Thank you for taking the time to join us today. Given the current trading environment, we have put together quite a full presentation deck. It will be available on our website. It's up there on our screen. We probably haven't got enough time this morning to go through every page in detail, but between myself and our CFO, Steve Crow, we will obviously pick out the salient points and be very happy to pick up questions, try and leave enough time for your questions towards the end of the presentation. The first couple of slides in the deck in terms of financial highlights and operational highlights are picked, they're lifted directly from our R&S. There's a few things I'd just like to pull out here, though, to emphasise. Despite all the very difficult consumer news and very low consumer confidence at the moment, the macroeconomic environment we find ourselves in, We are as a group very pleased to have actually grown our revenues by 1.3% in the first half. All of the information we received from our suppliers and our own market and competitor intelligence suggests that as a group, we do continue to take share. There isn't unfortunately any audited market share information I can share with you around the fish and tackle market. But as I say, based on the ever increasingly close relationships we get with our key suppliers and from what we observe in the market ourselves and various bits of intelligence, it does suggest that our strategy of being the very best we can in terms of our customer offer, in terms of the way we approach the market commercially, in terms of value for money for our customers, suggests that whilst we are clearly finding trade tough at the moment, it's as tough, if not tougher for our competitors, which gives the board confidence that we continue to take share in the UK. We're clearly starting from a very low base, but taking share within Europe. all of which suggests that our strategy remains strong indeed and that is something we'll continue to invest in given the strength of our balance sheet and our healthy cash balance. You can see there that stores remain pivotal to our omnichannel growth. The mantra in store at the moment in terms of local markets is to be the best in town. Our store team is all very focused on being the best in town and taking share locally. Total store sales growth of 9.8%, like-for-like store growth in the period of 4.6%. Our online sales did decrease in the period by 7.9%. However, our UK business with sales of 15.3 million, just to illustrate how that's transformed in the last three years, are 61% now above pre-COVID levels. There was a slight channel switch. in the period, recognising in the prior year, our stores were partially closed on the tail end of lockdown three. European sales grew by 36.9%. Although within our target key European territories that are served by our German, French and Dutch websites, they grew by 55%. That is growing, admittedly not growing by as fast as we'd have initially hoped for. However, all these macroeconomic difficulties that we're experiencing here in the UK are clearly at least as bad, and if not, certainly in the territories from Germany and perhaps a bit further east, even more influencing on the state of trade out there at the moment. A gross margin did decrease by 200 basis points in the period. Steve will elaborate on the reasons behind that in a bit more, but that was partially anticipated because of our desire to remain price competitive. It is a key one of our strategic pillars is to make sure that our customers can be certain of getting the very best value. in the marketplace from Angling Direct, it is important as market leaders in a consolidated market that we don't hesitate to invest margin to make sure we protect that position. Positive cash flow, operating cash flow in the period of 2.4 million pounds, a strong balance sheet with net cash at the end of the period of 17.1 million, I think says that despite the pandemic, despite Brexit, and even though we're obviously facing some challenges beyond our ability to influence at the moment, the business is actually in pretty good shape and certainly the very best placed in its marketplace to continue to take share. Over the page, in terms of operational highlights, we have been dispatching parcels to the EU since the 1st of March. to our new or from our new Dutch distribution center. It's been fully operational. It opened, it sounds a bit corny, but it opened on time and it opened to budget. We have no operational difficulties in Europe at all now. That was a very big project for a business of our size and we're very pleased to have got it successfully opened. In terms of our own brand sales, something we regularly talk about, they grew by a very pleasing 34.6%. We did have the opportunity because of the margin of our own brand products being considerably more than the average margin for our branded offering. It does give us the opportunity to trade those quite aggressively, promote those products and achieve at least the average. 170 basis point increase in penetration. Our own brand products now accounted for 6.9, nearly 7% of overall sales. Probably worth mentioning that we're very pleased with the progress our store teams are making with our assisted selling model. Bates, this is an approach that we took the opportunity to train all of our store colleagues in towards the end of the last financial year. it is all about making sure that customers get very bespoke and specific sales and service advice for their own fishing objectives to make sure that what they do buy for us actually does achieve those objectives and get the most out of their fishing. It's not hard sell, but we do find that it grows, it improves conversion, it grows the basket, and importantly, encourages our customers to recommend to their friends and family. We've opened three stores recently, only one in this period, and it was actually in the last week of the period up in Washington. It's our most northerly store. We've opened since then at the very beginning of half two in both Coventry in August, another site we've been very keen to get into for some time, and indeed Stockton on Tees, another fairly northerly store. All three of those are catchments where Angling Direct currently isn't represented, Briggs and Mortarwise, and all three have got off to a really good start. I would have liked to have got them opened earlier in the year, but unfortunately, planning regulations and the occasional legal issues held that up. But I'm very pleased that we've got those three open so early in the second half, and they're all getting off to a pretty good start. The only other point I think to pull out at this stage on this slide is we did launch in late FY22 the tackle industry's first web trading app. We've subsequently deployed our second phase of app development, which has given us the confidence to now start actively incentivizing the download and use of the app. We started that early in the half. App usage just sort of peaked at around 8% while we were incentivizing downloads. When we've taken the incentive away, that's sort of running at a steady state now of about 5% of all web sales, which for a new launch, we're very pleased with. We hope to push that up to over into low double digits in the not too distant future. And whilst that's a great point of differentiation from our competitors in that it allows our customers to take all of our digital capability directly onto the bank. with them as they are actually there phishing. It also provides some opportunity to refine even further our advertising ratios because obviously any transactions through our web app don't attract Google ad or any sort of digital advertising spend. I'll hand over now. Steve's got a section here on the financial overview with a bit more detail as he goes through.

Thanks, Andy. Happy to take any questions, put them in the comments field and I'll pick that up as we go along. As Andy said, on the sales front, we did grow in the period 1.3%. That was a relative contrast between the quarters. So Q1 was a 5.4% growth with a mild reduction of around just over 1.5% in the second quarter. That second quarter had obviously some sort of some consumer news dynamics in it and a little bit of a channel mix, which I'll talk about later on as we come to one of the latest slides. The gross margin point there, you can see we went back to 34.6, so a 280 basis point reduction half on half. There's around 40 basis points of gearing from our Europe startup business, which again, I'll touch on over the page. We've given more segmental information for investors for the first time around. Now we're formally running Europe as a standalone business. On the right hand side is the pre IFRS 16 EBITDA. You can see there is a 58% reduction that has got two sort of major legs to that reduction. One of them being a removal of any direct government support that was received during the pandemic. That was around 900,000 primarily relating to property restart grants that didn't persist into 23. And also around the Europe EBITDA loss is about a £500,000 drag, half on the half. Over the page, we've given the segmental analysis I've said, so you can see the UK in the top left-hand corner. We did very modestly grow the UK in the period, and I'll talk about a channel switch in a moment. The European growth, you can see there, 36.9% at the bottom left as we started to grow back towards where we were on a pre-Brexit basis. Again, the margin in the central column, the UK at 35.1. So we've always set out that we've got a medium term target of a minimum of 36% for the UK. So there was some anticipated drag in the margin year on year. We still managed to hold that margin north of 35%. The European margin below, you can see 23, reflects the aggressive nature of the trading we set about doing as we started up the business around March time. And that sort of margin has gradually improved as we've moved through the half, dipped at 19%, starting to recover. You know, we short-term target on that, getting it back to 30% broadly gets us to a neutral position against our variable costs for that operation. EBITDA on the right hand side, you can see the UK business and then just setting out the drag from the European business. So the UK business that does reflect all group central costs. So is reflective of the sort of the ongoing operation. Europe is only those costs that are fully discreet to the European operation. We'll come on to talk about other profit measures as we go through onto the next couple of slides. Seven, this is where we sort of, I'll touch on the channel switch. So if you look at the bottom left-hand corner on the graph, you can see the dynamic in terms of how the whole UK business moved through the half, where we started off the period where we were annualising against lockdown periods, where the stores were only able to trade on a call and collect basis. Notwithstanding that, you can see obviously that the transaction volumes were higher. We were able to fully trade the shops, the stores. As we moved into April, the comparative was more of a light for light with May being a very difficult month from a consumer news flow and a quite tough comp. So we bottomed out in May in terms of negative ATV growth bordering on negative transaction growth and obviously the sales value being beneath the prior year. And then that trend reversing back in June and July as some of the consumer news softened. On the right hand side, we've drawn out in particular what went on in the online business where you can see as we were going through June and July, the UK business was doing sort of mid double digit growth in terms of unique customers as well as transaction volume. So a much more buoyant middle of the year, which we'll talk about August and September later on when we come to the outlook statement. Trading KPI, so there's full suite here. for folks to analyse. I think the two pieces I'd draw out, so the UK margin, which you can see there, the 35.1 I talked about, that's got a number of facets within it. So competitive pricing, we have seen a landscape whereby cost rises from suppliers on capital items has proved much more challenging to push through into the retail price we've had much more success in terms of the smaller consumable items but the the gearing of the capital items has had a relatively moderate or a reasonably sizable drag on the margin in the period um and also we have had small amount of range change clearance that we've pushed through those those have been offset to some degree by obviously some positive impact from the own brand penetration story that Andy referenced, as well as we've started to see some progress on terms from our suppliers. The other one I'll just draw out is the employee numbers. So we have increased, you can see, around 20 folks. That's largely what is all in the new stores that we've deployed. Our people cost and percentage of sales has incremented as we've not been able to fully offset the wage inflation pressures from some of the initiatives we've deployed around, particularly re-rotering in stores where we've used our new footfall counter technology to look at when we've got most customer intensity to deploy colleagues against those times. The income statement there, you can see from a net profit basis, we remain positive despite the drag set out previously. From a sector perspective, the PBT for stores remained just shy of 12% and the PBT for the UK online business around 12%. The two channels in the UK, both being double digit PBT ratio, both being broadly proximate in terms of when you put those capital charges through. You can see the depreciation amortization charge on a post IFRS 16 basis continues to scale and that reflects largely the rollout of the store operation. a modest amount relating to Europe from the new distribution centre that we've put in place. We have in the statements, as folks will see, have given segment analysis, both at an EBITDA level and a PBT level, so folks can see the relative gearing of those depreciation charges across the channels. That's everyone's favorite subject, IFRS 16 reconciliation. I think the key takeaway from that is it remains a relatively immaterial adjustment at the PBT level. So we've got it on a pre and a post basis around the 1.1, 1.2 mark. 11, I've just set out more clearly here what's going on with the various segments. It is worth noting that the group costs in the segment analysis in the statements includes the government grants, so the read through is slightly more difficult. I've presented here how those group costs are excluding those government grants. So you can see the group costs, we've held those like for like on a year basis against a drop off in that headline profitability. You can see the UK stores and the UK online business still, 4.9, nearly 5 million pounds. So we're able to absorb those European losses with a still very sort of a relatively strong UK position against a pre-COVID position where we were only generating 2.2 from those two channels. On the right hand side is just the reconciliation again. So it's able to see how the 4.4 drops through to the 1.9. I talked about the two, the facets of the government support and the European loss drag. There is a green blob there for the cyber claim. We did have a cyber attack in November 2021. In the period we were successful with our business interruption claim with our insurers and the cash for that was settled after the half year. The balance sheet on 12. Half on half, the inventory has grown to shy of 2 million. It is worth noting on that at the half last year, we had no inventory in Europe. We are carrying just over 2 million. in our European distribution center right now. So on a light for light basis, we are managing that inventory more tightly in terms of the UK position, and we'll examine the working cap drag over the page. So on a face value, a much higher level of inventory, but that does reflect a broader operational footprint from that that we had both at the half year last year and at the full year. So in January 22, there was only around 300,000 pounds of stock that related to the European business. We're more confident the quality of our stock and the availability of our stock is improving as we've moved through 22. From a cash perspective, we've got 17.1 in the balance sheet at the end of July. Our current market guided cash number for the year end is around 14 million. There is a negative working capital drag in the second half, as folks would expect, as we are a seasonal business where May, June, July and August are our strongest months. the cash flow so this bridge is from the year-end position so the 16.6 so a modest increment over the half largely driven by this is on a post IFRS 16 basis you can see there the EBITDA outstripping the work the modest working cap consumption the two facets of that being a further circa two two million investment into europe net of a positive um position in the uk stock file capex the right hand box largely focused on our continuing store rollout with three stores um being in the fixed assets additions for the first half and i will hand back to andy for the business report