Angling Direct PLC

Good morning, ladies and gentlemen, and welcome to the Angling Direct PLC four-year results investor presentation. And my apologies for the slight delay in this morning's meeting. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time using the Q&A tab, just situated on the right-hand corner of your screen. Type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. It gives me great pleasure to hand over to CEO Andy Torrance. Good morning.

uh good morning good morning everybody thank you for joining us today um we're going to work through our um prelims results uh deck this morning it is available up on our website for those of you that haven't had a chance um to look i'll make a start and then hand over to my colleague uh steve crow our cfo um as and when necessary Given that Anglin was clearly one of those sectors that benefited from the pandemic, which is quite a strange thing to sort of reflect on, but clearly given the nature of lockdowns and extended furlough and what have you, Anglin did go through a couple of boom years. And in that context, we're very pleased in this first full year without any restrictions to have continued to grow the group with total growth growth in sales revenues of 2.2%. We believe we've taken share in this time, which is very encouraging. Our total business transactions in the UK were up 7% during the period. And based on the feedback that we received from various suppliers and across the industry, we're very confident that Anglin Direct continues to take market share during what's obviously quite a difficult time in the consumer landscape. With that in mind, it's been a very difficult year for us to forecast. We are encouraging existing investors and indeed potentially investors to look slightly beyond the headlines because there's been an awful lot going on within the dynamics of the financial results in this past year. As an example, during quarter one, we did see quite a significant channel shift away from online back to our retail stores. That reflects that in the prior year, we were actually annualising the final lockdown, lockdown three, which saw Our stores closed for the final time. Obviously, they were fully open in this period, and that saw some quite natural shift back into stores. During quarter two, we had a very difficult May, as the very tragic situation in Ukraine quite clearly ramped up and became more and more serious, not least for our consumers in Central and Eastern Europe. Energy bills and what felt like a continual adverse news flow for our customers in terms of inflation, the potential for energy costs during the winter we've just gone through, actually meant that Q2 with May in particular was quite a difficult time for us. The other factor that's been at play during the year was a very, very dry August, which particularly affects angling. We don't like to reflect on the weather particularly, but certainly during August, for those of you that remember, water levels became very low, which does affect the quality of fishing and obviously the quality, therefore, of our business in that period. There's been quite a significant recovery in the fishing tackle supply chain during this 12-month period. We don't believe it's fully recovered. We believe it's still really quite choppy, but quite a significant glut of stock post the pandemic, as obviously Far East factories all got back to work and supply chains started to recover, saw a significant glut of stock hit the market. That had quite an impact from the sort of summer into our quieter into autumn and winter period. And whilst it was good news for Angling Direct as we have the best quality stock file we've had for some time and indeed record-breaking levels of product availability as we go into this new season. What we did see in the winter was an awful lot of our competitors seeking to liquidate stock in order to generate cash. That causes discounting in the marketplace and obviously angling direct. We do make a virtue of, as well as having the best ranges and the best service and the best websites, the best stores, we also have the best prices. And it's clearly important that we maintain that position we did say that we would invest margin in order to continue to consolidate the market in order to continue to take share and indeed we've done that and we'll come back to a little bit more detail on that as we go through the deck The other factor, I think, just to bear in mind as you're reviewing the results, we've seen a complete unwind of any government COVID support. And that is illustrated in the deck, particularly its impact on EBITDA and also a greater than anticipated year one startup loss within Europe. We always plan to make a loss. But given the pressure on the consumers was at least as great, if not more adverse to our customers in Europe, we didn't get as far of the growth curve as we anticipated. And again, we'll come back to that in a little bit more detail as we get through the deck, all of those factors impacting on the show's results. Over the page then on the next slide, if we could, please. The FY23 overview is taken from the R&S. As we said, total group sales of 2.2%. We saw strong store sales of 6.8%, driven in the main by new space. This is encouraging on one hand in the sense that the three new stores we opened were clearly in unserved catchments. They got off to a very good start. We opened a couple of stores up in the North East. in Washington, Stockton-on-Tees. We finally got a good site that we're really encouraged by in Coventry. And indeed, since the period end, we've also opened our first store outside of England, albeit in Cardiff, our first store in Wales. We're on site at the moment in Goul, which is a store we hope to get open or we will get open in time for this forthcoming Springbank holiday weekend. So 6.8% growth in sales, flat like for like store growth, which was a reflection of perhaps a reduced frequency of angling during obviously some quite difficult times in terms of the pounds in people's pockets. A reduction in footfall, though, more than made up by some really, really strong conversion in store. as all the work that the store teams have done on rotoring, selling skills, and indeed helped by, as I said, really record on-shelf availability, all helps to convert footfall into our stores, into transactions, which is very, very encouraging. Our online sales did decrease across the whole year, partly because of that channel shift in Q1. Worth remembering, though, that our UK business is now 57% greater than it was three years ago pre-COVID. Our EU sales grew by 32%. We slowed that down slightly in half, too, in order to make sure that any future growth was working from a good, profitable foundation. We spent a lot of time in the winter working on the range, working on our pricing strategy, working on our supplier strategy, and we're very encouraged by the start that we've gone off to We'll come back to that in a short while, but a very encouraging start, both in terms of growth and indeed an improvement in gross margin in Europe as the fishing season has gone off to a good start over there this spring. We invested gross margin, as we said. Steve will come back and give a bit of a breakdown as to quite how that was all spent in a short while. Positive operating cash flow means we have been able to invest, but we've also been able to protect our balance sheet with a good, strong net cash position of £14.1 million at the period end. Operationally, we opened our new distribution center in Venlo, a big project for an organization of our size. It opened on the 1st of March, and all of our EU business has been dispatching from there in the southern part of the Netherlands since. We do need to work on the profitability and the growth acceleration in there, which is is the key to unlocking some very, very attractive markets. We're making good progress there. We'll come back to it. Three new stores I've mentioned. Our own brand sales in advance. Growth in that range continues, as it has done in the last few years, to outpace the growth of the company. 24% increase in our brand sales, with penetration now at 6.8% of total, which is 120 basis sales. points improvement year on year. We've almost certainly come back to it, but we now have over 55,000 downloads of our app. This is a unique trading app, unique in the tackle market. We don't believe anybody else has one either in the UK or indeed across Europe. Lots more exciting developments on that to come in the next couple of months. At one point, orders through the app were peaking at around 11% of the total online order bank, which is very encouraging. Not only is that a great innovation for our customers, but it also allows us to avoid Google ad costs as well. transactions directly through the app don't attract those. The final point there on that page, we have been successful in our search for a new CFO. Sam Coatman joins the company on the 5th of June. We're very excited to have him on board. He's a very capable, versatile individual, lots of relevant experience, both in the private sector and the public sector, both in the UK and internationally, and he's worked in some very challenging circumstances. So, absolutely convinced he'll make a great addition to the team and we plan to appoint him onto the board at the conclusion of the company's AGM on the 22nd of June. Over the page We have graphs, which I think speak for themselves. You can see in the top left-hand corner, continued growth trajectory for the whole group, 74.1 million of sales there. We've also tried to illustrate through the various EBITDA graphs on there that the core UK business, and especially their net of the unwinding of any government COVID support, is clearly... built on solid foundations and indeed more than capable of supporting the EU startup losses, some of which were anticipated, some of which we are making good progress on fixing. A little bit on strategic progress over the page on slide four. These are the priorities we set out and indeed shared on this forum 12 months ago. International growth, a major strategic step for the business and a significant growth opportunity. The distribution centre is now open and obviously we're starting to see improving efficiencies on the utilisation of that asset volume continues to grow. positive margin accretion. We're now trading on approximately between 400 and 500 basis points improvements as we started this season versus the period just gone by. That's been as a result of changing the way we market to customers, working on our pricing strategies, working very closely with our suppliers both here in the UK and indeed their peers in Europe to make sure that we have a good structural foundation for the profitable growth that we're very much looking forward to. Quarter one in this new period, we've grown in our target territories by over 60%, which again is very encouraging. We worked hard to evaluate omnichannel opportunities, bricks and mortar stores to complement our existing websites. We're very clear that we have some more work to do on the profitability of the online business. As I say, that's making really good progress. The Angling Direct offer will only be at its best for our customers when that's complemented by bricks and mortar stores. We do intend to trial the economics of a bricks and mortar offering and we should hope to announce that in the not too distant future by opening at least one, maybe two stores in the next few months over in the EU. In terms of digital, we mentioned the 55,000 downloads. We're now making significant progress in the development of our web trading team. It's a multi-country web trading team, very data-led. We've invested in some software that allows us to look very closely at our competitors and indeed just make sure that in very real time we maintain the competitive advantages that a business the size of only direct with its digital capability brings to market. My ID is something that launches on the first week of June this year. It is an omni-channel customer loyalty app-based account based offering to our customers. Very much in development in this year gone by. I'll say a little bit more about it when we come to look at the priorities for the year ahead. In terms of stores, three new stores, as I've mentioned, all got off to a very good start, all in unserved catchments. It shows us that there are still opportunities to be had there. We've seen very much, very encouraging growth in conversion. The conversion of footfall into transactions in store as the benefits of our assisted selling program, which all of our store colleagues have gone through and went through at the beginning of the year. The work that we've done on daily rotoring and indeed the work we've done on shelf availability within our supply chain, all paying big benefits there. We have launched our AD coaching appointments process whereby our customers, be they beginners or indeed very competent and capable anglers, can make an appointment to spend some one-to-one time in store with our angling trust qualified coaches, of which we have two in each store, which again is a unique experience. thing for Angling Direct. We're also very excited by some of the paid for services that we've launched and indeed we see some good opportunity for those going forward which we'll cover off again as we go through the presentation. Over the page, if we could have the next slide, in terms of our commercial team, we introduced category management to this team a couple of years ago, and we're very much now getting into this as part of the rhythm and routine within the category and trading teams within Direct. We're continually deepening the retail experience and expertise within that team, and our promotional planning and execution programmes are far more smooth, far more real-time, far more relevant to our customers, and we're definitely starting to see the benefits there. Supply team have been focused on product availability and on ensuring we get efficient use of our working capital. Really, really good, record-breaking availability for our customers as we started this new season and indeed the quality of our stock file, the proportion of our supply and product depth that is The proportion of our stock holding to which the upper quartile of our sales is in a higher proportion than we've ever seen. The cost of obsolescence is going down all the time. And indeed, we're recovering more and more on the fairly modest amount of customer returns that we get. In terms of organisational capability, most of our efforts have been concentrated on speed, resilience, efficiency. We are facing some real cost challenges which are not dissimilar to anybody in the retail space at the moment. It becomes more important than ever for us to focus on spending to save by straightening out our systems and our processes. And we've made some good progress there. And in terms of organisational capability, in terms of corporate governance, two new independent non-exec directors joined the board during this period. Chris Keane, a very accomplished, very experienced Group CFO, is also now the chair of our audit committee. And slightly later in the year, Nicky Murphy, again, who owns, founded and owns a very successful multi-agency, multi-discipline marketing agency. Again, very active and making a great contribution to the board. um sam coteman i've mentioned in terms of communities and sustainability we're very proud of our ongoing support of the tackling minds a mental health charity that provides angling as a therapy on prescription from the nhs they are they have grown dramatically not surprisingly in the last 12 to 18 months and angling direct has been a partner with that organization since the very beginning and very very proud to continue with that we've also made significant progress in terms of how we track our carbon reduction waste reduction and indeed recycling hubs throughout of our stores there's a lot more information in the appendices for you to see there in terms of sustainability progress. The next section is the financial review, the numbers which I'll hand over to Steve.

Thanks Andy. I'll do my best not to repeat anything Andy's already covered in his thorough overview. So the P&L account is there on the left and Worth pointing out sort of the UK business on its own grew just over 1.5%, 1.6% growth in the UK business. And the one I wanted to touch on most is the gross profit. So you can see there 34.8 is a 190 basis points reduction year on year. The UK on its own was 170 basis points reduction. So Europe had a minor gearing on that. you'd expect with the overall lower gross margin that comes through that European online business for the year to 23. The characterisation of that UK degradation in the margin was around sort of 100 basis points of cost of goods inflation from suppliers that we weren't able to successfully negotiate away. We think, you know, 100 basis points is actually a a pretty decent job in terms of what we were able to do as stock came back into the market in terms of our scale and ability to negotiate that away. Offsetting that 100 bps of headwind on cost of goods, we did some good work in terms of our optimisation of our sell-through of discontinued lines Andy alluded to, that was worth about 30 basis points positively. The digitisation of our returns process last year paid dividends Another 35 basis points accretion from that. Around 10 basis points from Advanta. Historically, we'd always talked about that being sort of 10 to 20 basis points. As we went through the summer, we were able to use the Advanta brand more as a promotional opportunity than we had done historically as pressure was on sort of wider branded margin that help us drove the 24% growth but similarly we were still able to maintain a very healthy differentiation in terms of branded product versus our own brand where we sort of kept that broadly around the 10% mark difference between the two products. Outside of those, there was a little bit of mixed benefit around 20 basis points and some other odds and ends, which leaves us broadly as 150 basis points of drag from pure price investment that we consciously made back into the UK. That left the UK margin sitting around 35.3. We've always talked as a management team about having a medium term target of the UK of 36. 35.3 is sort of levelling out as where we believe the sort of the bottom of that is right now. And we've seen some green shoots early in 24 in terms of that stabilising as there is less irrational behaviour in the market around discounting being prevalent in Q1. Outside of that, I'll talk at a headline and we'll come on to the segment analysis. We have given some more comprehensive segmental analysis this time in the statements. So folks are able to see how the European business and the UK business indeed is cut up both at a profit before tax and EBITDA pre and post IFRS 16 basis. So you'll see there on a post IFRS 16 basis, our EBITDA margin went down from 10.1 to 6.2. And on a pre IFRS 16 basis down from 7.2 to 3. We've discussed one of the key drivers being the UK margin in terms of that 170 basis points degradation on around 71 million of sales. And then outside of that, as Andy touched on earlier, The increased European loss is around sort of 450,000 year on year, as well as the reduced direct government support, which is where we were the recipients of some property grants and some modest amount of furlough income in the prior year. That took us down to a PBT level where we are still positive at a PBT level despite the investment in those European losses and the tax charges as you would expect as moderated and coming back more in line with what folks would perhaps expect to see in terms of a percentage basis of profit. Earnings per share, as you can see, again, dropped away in line broadly where we've gone on a net profit basis also. Over the page. Thank you. At the top there, you'll see sort of the UK, the UK 1.6%. I talked about in terms of the, what we've called there, the native website countryside, which are our target markets of Germany, France, and the Netherlands. We had some, some, some, some, different experiences in terms of growth rate. Germany was around a 29% growth rate, France around 10%, and the Netherlands around 120%. Germany remains our key focus. That is the most sort of accessible market, and we believe that to have a market size of around £800 million sterling. Further down, you'll see in the green box, the own brand sales, which Andy touched on earlier. And again, you can see the penetration rate increased to 6.8%. We as a team believe that's still got potential to be a mid-teens penetration number as we throw ourselves forward to the medium term. Over the page on nine, we can... So the gross margin, I've talked about the UK gross margin and the reduction down to the 35.3. The European margin at 23.3 reflects the startup of the European business. So it's not a light for light comparison with 22. The 23 margin is 11 months worth of what we'd call the curated range for Europe, which is still evolving and reflects some pretty aggressive pricing, particularly in half one as we look to get up the growth curve. And as Andy said, we moderated that in half two as we look to sort of more finely balanced margin versus the pace of the scaling of the turnover line. Overall, the group gross margin 34.8. We've always said as a management team, we believe 36 to be the medium term target. I think reflecting on that, that has now got more pressure on it given where we are with costs, particularly cost pressures from inflation, particularly around the living wage, which was around nearly 7% for the year to 23 and is close to 10% for the year to January 24. Looking further down, you'll see there in terms of the... I've split the UK stores EBITDA out and the UK online EBITDA out. Both of those remain double-digit channels in terms of EBITDA percents. It's important to frame that. We still need those to grow by a couple of hundred basis points respectively each. However, we've always said we trade what we call the head office costs at around 7% of turnover. So bang on 5 million. They got to that level. I think the challenge is to sort of protect that ratio as we see more pressure coming through the cost line outside of the head office and in particular in terms of where we can take the margin growth. Overall, the UK EBITDA still above 3 million at 3.1 million, having come down from five. And again, we've split out there the European journey where we've invested year on year in those losses, as Andy said, heavier than we anticipated as we started it out and bridge back down to the 2.2 that we talked about as the headline number. Over the page, the balance sheet, net assets are 37.3. You know, it would have As of this morning, we're trading at a discount of 32% of market cap versus our cash and stock balance. It's a very robust balance sheet relative to the valuation. The cash balance there of 14.1%. We've worked hard to sort of protect that to give investors confidence that we are resilient, we are sustainable. I think conflating that with what are our plans to do with that? We've got it pretty clear in our mind around the UK market consolidation. There are still opportunities, particularly in the physical bricks and mortar space. We've always said there's about 50 catchments that can stand a £1 million Angling Direct store. And we've also sort of done some more research into, we believe there's around 30 catchments that can stand north of a £700,000 turnover store, which gives us some good optionality in terms of deploying that cash relative to the sort of the trial that we're going to put in in Europe that Andy alluded to earlier on. On the inventory line, that has progressed up to 17.8. It's worth noting on that, that has got 2.3 million in it for our European distribution centre. We had around 300,000, I call it on the water, at the year end last year on its way over to Venlo. So it's about a 2 million build in terms of that gross stock value year on year. And the UK has actually come down half a million pounds despite us putting the three new stores in. as we've worked harder on optimising, particularly in store, our ranges and the depth and the optimisation of that inventory. And there is still some more material value to go at in the year to 24 in terms of that working capital optimisation. Over the pay, the cash flow, just to give a flavour of how we took our 16.6 down to our 14.1. It is worth noting the first bullet point, excluding the European EBITDA losses and the European working capital investment, we would have been cash generative. So whilst the UK result in itself was a material drop year on year, that is still a cash generative segment. The 2.5 million we consumed in terms of cash, we've set it out there. You can see the UK working capital blob, the 466, was actually very modest. And had sales been slightly richer in Q4, we'd have negated some of that with a bit of trade creditor coverage. We'd had a higher replenishment rating, quarter four. I think that gives us the confidence that we can take that forward into 24 with some more value to come from that. The European working cap point is the point I made on the previous slide. You can see obviously that doesn't persist again into 24. We've ranged that operation to stand around sort of 9 to 10 million of sales annually. as it stands currently. And then outside of that, the capital expenditure, we've said it out there, what our spend rate was on. And in terms of how we're thinking about the current year, we would expect a number broadly similar, if not slightly reduced, on what we're presenting in the year to 23.