Angling Direct PLC

Good afternoon and welcome to the Angling Direct PLC 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. Simply type in your questions and press send. Due to the significant attendance on today's call, the company will not be in a position to answer every question it receives from 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 CEO, Steve Crowe. Good afternoon, sir.

Good afternoon, everyone. Welcome to the Anglin Direct's half-year results. Delighted to present these, my first as the CEO of the organisation, having spent around three years as the CFO. I'd also like to introduce my colleague, Sam Coatman, who joined us back in June as the new CFO of the business. I'll let Sam introduce himself formally later on as we go through the presentation. I'll take everyone through the formal presentation that we've put up on the investor side. I won't really verbatim. I'll draw out the key points for everyone as we move through those slides. The first slide is a direct lift from the R&S. I think there's four points I really want to sort of leave investors with today. The first one is after a pretty soft half two in the UK in the financial year 23 to January 23, We only grew in the second half last year in the UK around 3.3%, 3.4%. We have traded the business in the UK very strongly in the first half of this year, double digit growth in the UK. And the strength of the growth was across both channels. So we grew over 11% in the store portfolio. And at the same time, we grew the digital footprint by about 8.3% as well. Against that, we continue to trade the business on a pretty lean cost footprint despite the inflationary cost challenges, and we were delighted for that sales progression to drop through to the EBITDA line. I'll give you some more colour on that in the next slide. Alongside that, we have stepped back into a customer loyalty scheme, having previously closed down the prior scheme around three years ago, where that simply was eroding our gross margins, not driving repeat custom, not driving loyalty, and frankly not giving us the data points or the insights that we could use within the business. We moved back into that. We launched that in June. And as we sat at the half year, we had 110,000 unique members of that loyalty scheme. And the early data points on that are encouraging. And we're leveraging those insights around repeat custom progression in our items per basket and how we then promote and use that scheme to get customers to buy in what we have to offer. Thirdly, in the European territory, whilst we've grown the business close to 40% in the period, the European landscape remains much tougher than it does in the UK. We've seen price intensity grow in the first half as the consumer landscape is increasingly tough. We continue to balance, looking to increase our number of customers that we're reaching in Europe alongside managing those losses that we are incurring in the startup phase of the project. We're still committed to Europe. We've got a view that it is still an attractive market, particularly France, Germany and the Netherlands. And we believe there is value to be extracted from that market in the medium term. I'll talk more later on about how we are looking to test that further with a different proposition as we move into next year. Lastly, the cash balance remains strong. has given has given shareholders some comfort in terms of the vulnerability of the business trading through some difficult consumer landscape notwithstanding that management is conscious of the need to deploy that capital as our competitive advantage increases and the consumer landscape is potentially next year forecast to be slightly easier we have found it quite challenging to deploy that into acquisition. Prices remained high using COVID results and unrealistic multiples. Certainly, the market is seeing a softening of those pricing expectations, which makes doing accretive deals more possible. Notwithstanding that, our own share price and the multiple we trade on clearly is something that challenges us as we're looking at those opportunities. We move over to the page. Here we present the results in terms of the headline for the full group. So as I said, strong sales progression. But alongside that, we've managed to increment the gross margin. So whilst we continue to grow and take share, at the same time, we are looking at how we range the business, how we optimize those supplier relationships. And we were particularly pleased with delivering gross margin progression alongside very strong sales progression. On the next slide, we'll give some derivation of that and I'll let Sam talk through the key items of the margin bridge later on. From an overall perspective, organization has optimized its inventory depth how we've how we've built that stock ahead of the season and how we've seen competitors having a much more challenging landscape in terms of managing their working capital demands of the business moving into the peak season That alongside the operational store focus that we've put in that I'll talk a bit more later on about how we have used new on-shelf technology labelling, our persistent approach to our colleague assisted selling model and some other technology we've deployed to try and drive those operational improvements within the store footprint. And then from an EBITDA perspective, the headline is we've grown that 26.6%. If you actually exclude the cyber claim, we suffered a particularly malicious cyber claim back in the year for January 22 full year, which, sorry, the numbers fell into January 22, but it was in the prior period. If they were excluded, the headline improvement would be even stronger at 45.7%. Over the page, we've split the UK and the Europe segments of the business, so it gets a clearer read in terms of the operational performance there. As you can see, the UK business double digit growth alongside that 40 basis point improvement in the gross margin. From a sort of an units economics perspective, we'd always signposted that we believe we needed a minimum of 36% margin within the UK to deliver a sort of an economically compelling business model. We are creeping closer towards back towards that medium term target. um with the cost inflation pressures outside of that clearly 36 is not going to be sufficient to deliver those those metrics as we stand we we continue to work on and optimize our approach to that where we're looking to deliver value beyond that 36 percent gross margin in the uk Across on the right-hand side, you can see the EBITDA progression there at 12.3%. Again, that is incremented to 24.1% if the cyber monies were excluded. So on a like-for-like basis, we continue to look at how we ensure that we leverage the cost base and leverage that gross margin journey to make sure the sales growth is coming through strongly to the EBITDA line. The European business at the bottom, again, pointed earlier on to a strong sales performance that is balancing, as I said, the challenges of the price intensity and how that dropped their unit economics within the European business dropped through to losses. We made some very strong progress in the period in terms of delivering a 510 basis point improvement in the gross margin. You can see in that middle slice of the slide, whilst that 510 was a standout number, it still isn't to the level where we'd seen back in 22, where it was a more even pricing landscape against that we see within the UK. On the right hand side, you can see we've improved the European losses by 27% in the period. And I'll let Sam comment later on in terms of how we've seen sufficient progress in the period to encourage us that we are starting to travel materially in a direction that points towards extracting some value medium term. On the slide here, I've given a number of updates on where we are on our strategic progress. I'll pull out one or two for each of the themes down the left-hand side. From the UK retail perspective, the key development from our side is that we are and are increasingly confident of seeing an opportunity in a small store concept footprint across the UK. Historically, the business has targeted catchments that are capable of delivering a million pounds from each individual site. That would be traditionally from around a sort of 4,000 square feet plus unit. revisited that and we've looked at the number of catchments and where we believe there are sufficient angling license sales and license data points that point us to where we believe there's 30 in excess of 30 catchments that are around half a million to 750,000 of sales that we can increasingly be confident to step into. That could be a cocktail of both greenfield sites and potentially small-scale acquisitions. The first half of this year has seen a particularly challenging environment for some of our smaller competitors, and we are seeing an increasing rate of smaller competitors looking to close down their business to mitigate some of those cost pressures, particularly from the living wage, from energy, and the increasing volatility in their working capital. requirements of their businesses. UK Digital, the standout is really how we're looking to deploy MyAD, which is the loyalty programme I referred to earlier. We attracted 110,000 members from a standing start in June, as we sit here at the end of September. I was going to say the end of September, the end of October. At the end of September, we had around 160,000 members. So we were continuing to grow that at a pretty impressive rate of knots as we move through its early journey. The data points continue to be encouraging, both in terms of the average spend of a MyAD customer and the insights we can drive from that. We're seeing about a crossover between our web customer and our store customer in the early stages of around 30%, which gives us increasing confidence of stepping into some catchments where we are seeing people who are still just enjoying a physical retailing experience. On Europe, I've sort of briefly talked about the in-period performance. Our sort of diligence across the market points very much towards that folks are making money out of physical retailing rather than online retailing. We'd always approach the European market from an online and digital perspective from a risk profile in terms of the amount of capital that needed to be deployed into that market. We're around one and a half years into an in-country strategy with that online offering. We've got a lease that has a five-year term for our distribution center within Venlo. And we've remodeled the physical store opportunity and believe given the profile of our lease expiry on the distribution centre and our belief that there is money to be extracted from a physical footprint now is the right time to trial a single site bricks and mortar opportunity within Europe. I'll let Sam talk later on around the risk capital deployment for that, but it is relatively modest in comparison to perhaps what we deploy in some of our largest store footprints within the UK. On the commercial front, the discussions with the supply base continue to be sort of increasingly fruitful. We have moved much more into a structured environment around how we're looking to work with our key partners. And one of the successes this year is we have deployed a commercial marketing model whereby we're increasingly extracting value from suppliers where they can use our reach both our physical space and our digital space to buy into that to enable them to have the optimum presentation of their product in the right place at the right time we're on a run rate for that to be just over a hundred thousand pounds for this financial year with the capability to grow that offer further as we move into next year Organisational capability, clearly we refocused and changed the board, which we announced back in February. Those changes are now fully embedded and with a positive transition and no material faltering of the business as we made those changes. From an investment perspective, we have continued to invest in our IT folk. We needed to do that. We've got some modest IT change to deliver around moving to cloud-based Infrastructure as opposed to physical on-premise infrastructure. Now is the right time to do that. We've got a point upgrade of our ERP to do. Again, we want to make sure we've got the most contemporary and appropriate skill sets in the organisation to do that. And we'll look to sort of balance that as we move beyond the execution phase. Communities and sustainability obviously remains a key part of our strategy. We are an organisation that is dependent upon the natural environment thriving. We've made some good progress under our key banners of carbon reduction, recycling ambition, packaging reduction and fisheries protection. And we are increasingly seeing our colleagues engaging in that and actually seeing it as a core component of the business rather than something that sits on the side of their desk. At that point, I'll take a break and hand over to Sam to take you through the financial overview.

Hi, good afternoon, everybody. As Steve said, I'm Sam Coatman, and I'm delighted to have joined Angling Direct as CFO back in early June. And I'm pleased to be here today to present to you all the interim results along with Steve. Just as a quick overview of my background, I've worked as a CFO in a variety of private equity backed and owned and managed businesses across a range of sectors and industries where each has delivered an ambitious plan. So I'm looking forward to working with Steve and the team the exciting anchoring direct journey. So before I just get into the financial overview of the half year, I'm just hoping that some of the strong things that will come out over the next couple of slides will kind of resonate with what you've probably already seen in both the interim statements and through the investor deck that's already up on the investor website, with these being around the strong revenue growth, the good progression on gross margin and EBITDA margin, as well as continuing to maintain a strong cash position. So moving on to start with the consolidated income statement. And I'll run through this segmentally in a bit more detail over the next couple of slides. But overall, you can see sales are up 11.4% at 43.3 million with growth across all of the segments, particularly UK business at 10.1%. And again, continued growth in European business at 39.9%. Gross margins have improved by 50 bps to 35.1%, and that's primarily driven by the strong UK performance at plus 40 bps to 35.5%, as well as significant progression in Europe, which is up 510 bps to 27.4%. That gross profit then sits alongside a lean cost base. So despite the inflationary crossed environment, this has led to a 20.5% improvement in EBITDA on a post IFRS 16 basis. But we continue to manage our basis on a pre IFRS 16 basis where EBITDA grew by 26.6% to 2.3 million. And just to reiterate a point that Steve raised before as well, if we exclude the cyber claim that was reported in the HY23 numbers, but that was actually an FY22 event, then the pre-IFRS 16 EBITDA growth is 45.7% on a like-for-like basis. So this then also results in a 60 BIPs improvement in the EBITDA margin to 5.4% or 130 BIPs increase if we again exclude the cyber claim. And it's also just worth noting here as well that the EBITDA and EBITDA margins across all the trading segments have also improved, which again I'll come on to on the next couple of slides. Then at a profit before tax level, we're again ahead of the prior year, up 52.4% at 1.7 million, with modestly higher depreciation costs offset by lower net finance costs, primarily driven by the higher interest rate income, reflected the strong cash position and the more beneficial interest rate environment. And then net profit reflects the effective tax rates in line with the headline corporation tax rates, resulting in net profit being up 50.5% at 1.3 million with a 70 bps improvement in the net profit margin to 3.0%. So looking at the income statement in a bit more detail, UK retail delivered strong sales growth at 11.3%, and then the like for like store estate at plus 4.9%. And this was primarily driven through stronger conversion, which was through new on-shelf labeling technology deployed in stores. Also through optimized colleague rostering, which was utilizing the footfall technology deployed in store, continuing with Bates in-house assisted sales program and some of the early benefits of MyAD. UK Digital also delivered strong sales growth of 8.3%, with this primarily driven by average transaction value, which was through both improved items per basket and through customers trading up to higher price points over a similar category mix. In terms of then the UK gross margin, you can see there that this grew 40 bits to 35.5. And there were four key components to this. Firstly, the increased penetration on our own brand products added 40 bits to the margin. And we also had a better optimization in terms of the sell-through of non-core and discontinued product lines, adding another 30 bits. With this combined 70 bps upside then being eroded partially by negative price inflation not being fully offset by improved supply terms at minus 10 bps and also partially offset by higher levels of shrink at minus 20 bps, where like many retailers, we are also seeing increased deft but taking pro-action to manage this risk. Europe continues to see strong sales progression across all the target territories at 39.9%, driven by growing numbers of visitors to our European websites and also through higher conversion as we continue to increase active unique customers. There's also been good, strong gross margin progression at plus 510 bps, and that's primarily through price and range optimisation, but also to a lesser extent through a more gross margin favourable sales mix and by improving our buying economics through direct buying rather than via the UK. And finally, just on this slide then, own brand continues to form well with Advanta range continuing to build momentum, but now further supported by the launch of the entry-level Discover brand that sits below Advanta in our brand stack. And this has been, as you can see, growing profit both on a pound note basis and in terms of the overall gross profit penetration, which continues to then enhance both gross margins and continue to offer us promotional flexibility. In terms of then the EBITDA outturn on a segmental basis, you can see their UK retail growth at 18.3% as outstripped sales growth at 11.3%, resulting in an 80 BIPs improvement in the EBITDA margin to 14.4. And this reflects both the progress made in the gross margin, but also shows the contribution from the variable and fixed costs below the margin within the segment despite the inflationary cost pressures. UK Digital sees a similar dynamic with EBITDA growth, again, outstripping the sales growth, resulting in the EBITDA margin ground by 20 bps to 12.2%, with this again reflecting the gross margin progression and the contribution from the variable and fixed costs, again, despite the inflationary cost pressures and also due to the intensifying paid search landscape. Europe's EBITDA improved by 1,880 BIPs to minus 20.4%, which again reduces the losses and ensuring that the European EBITDA losses continue to form a declining ratio of the overall group EBITDA picture. The improved EBITDA margin was driven, again, by those margin gains I've already touched upon, but also through the optimization of the variable cost base and by leveraging the existing fixed cost base over the greater level of sales activity. The Europe segment continues to run an operating, negative operating margin at minus 13.9. But again, that is a 1,240 bps improvement versus HY23. And finally, just on UK head office costs, when again backing out the cyber recovery reported in FY23, but relating to the actual event in FY22, this has reduced the UK spend on group office costs as a percentage of UK sales by 20 bps and by group sales by 30 bps. Again, despite the inflationary cost pressures and buyers continuing to run a lean cost base, and continuing to leverage those costs as we grow the business. Moving on to the balance sheet, you can see that we continue to run with a strong balance sheet with cash at 17.6 at the half. And I'll talk a bit more about our cash flight path on the next slide. In terms of the two key working capital movements on the balance sheet, firstly, with stock, we've got an additional 2.4 million of stock at the half versus the previous year. And that's driven by four components. So firstly, the investment in the new stores, which adds around half a million pounds of stock into the business. There's also a timing impact of forward orders to ensure we've got record availability during this summer seasonal peak, which adds in around about 1.8 million pounds, with the majority of that here in the UK distribution centre rather than in the stores. Modest additional stock investment into Europe to support the key sellers we've had over there, which had about another 0.3 million. And then that increase is then partially offset by an underlying improvement in our stock management, which lowers our stock by around 200K. And that's something we're continuing to focus across H2 to improve our overall working capital efficiency. And the second key working capital movement highlighted on the slide you can see there is with the creditors, where the highest stock holding was offset by higher creditors at the half, largely driven by the replenishment cycle, payment terms and supply mix timing, resulting in the highest stock having a neutral working capital impact across H1. On cash flow, we were cash generative over that half at plus 3.5 million, building cash from 14.1 to 17.6. In terms of the key cash movements, just to pull out on the slide there. Firstly, with the working capital, we had an inflow of 1.9 million, which based on a normal replenishment cycle, we'd expect about three and a half million pounds inflow around this point in the year. This inflow was then being partially offset to leave us with the result in 1.9 million. And that 1.6 million offset was driven by broadly similar components to what I explained on the balance sheet. Again, most of which are timing and investment impacts. And so firstly, with the investment in new stock for new stores, being around 0.3 million investment into working capital, the timing impact, again, of securing record availability in the seasonal peak, impacting working cap by 1.3 million, and again, ensuring the robust debt for key sellers, another 0.2 million, but again, benefiting from this same underlying improvement in our stock management, improving that working capital position by around about 0.2 million. And the second key cash movement highlight is on the CapEx, where you can see we're continuing to deploy CapEx, with the most material investment in H1 being on the two new stores in Gould and Cardiff, and on the resite refit of an existing store in Guildford. So that brings me to the end of the financial overview slides. So I hope you can see we've had a good H1 in terms of strong revenue growth, good progression on the gross margin and EBITDA margins and continuing to maintain a strong cash position. With that, I'll hand back to Steve for the business review.

Thanks, Sam. Go over the page onto the stores. First up, I'll take the stores. I think that, you know, the headline at the top of the page, they're integral to our omni-channel offering, you know, I think the performance in the half has reinforced our belief that they will play an increasingly important role in the offer that Anglin Direct has in the UK and potentially in the future in Europe. This slide itself is focused on the UK estate as it stands. We've moved to 47 stores at the end of the period. I think we've always been clear that there's around 50 locations we believe can stand a one million sale from that store location. We're edging towards that ambition. However, I think the insights from the MyAD proposition in terms of that digital and physical crossover alongside what we're seeing more widely in the marketplace that we do believe there is that um capability to deploy those sort of 30 smaller sites in unserved catchments as we stand today um on on the slide here we've presented just some some illustrations of how we've been using that uh technology proposition to drive our on-shelf labeling conversion has been a real sort of key facet of the progression in the half you know Clearly, there is a ceiling on conversion. We are increasingly focusing on what drives additional footfall into our stores. One of those pieces that we've looked at is we did launch in the period a service model for spooling of reels and pole elastication. That's proved hugely popular with our customer base and delivered around 60,000 of incremental revenues at the half. Average transaction value was broadly flat. Again, we see MyAD as one of the key levers to drive that average transaction value up. Inflation within the actual basket itself, the environment more generally has not been helpful in terms of pushing inflation into the basket. We, as a model, continue to follow the market rather than set the market price. We see the UK market still having a propensity to discount. We have had much more success in carrying inflation in our smaller item smaller value, smaller items, smaller value proposition. That's been increasingly difficult in terms of the higher priced capital items. Finally, on the stores, just to pull out, Sam did reference the increased level of shrinkage, you know, loss that we're experiencing in the stores. That's been widely publicised. In the media, we are not immune from that. We had in prior years made some really strong strides forward in terms of mitigating that through change in process, focus. We've sort of doubled down on our efforts to reduce that. The level of organisation and the level of planning in some of the theft is quite staggering. We continue to think about how we're going to address that through looking at other contemporary retailers in terms of the types of activities that they deploy. Over on the next slide. So this is the UK digital business. Website visitors grew. We were not expecting website visitors to grow. We had a belief that actually they would be relatively flat in the more challenging consumer landscape. You get a much higher price point on the web as folks tend to shop for the more higher value capital items on the web. a rule of thumb we use internally is roughly 40p in the pound in a store is a bait and consumables in the store basket and around 20 pence in the in the digital business so you can see the difference in terms of the basket makeup that the growth in that traffic sort of evidence that there were more folks looking harder to find that right deal at the right price point. Against that, our conversion rate moderated about 82 bps, but actually still remained a very healthy 5.1% on a conversion. The real sort of standout was the way we developed the average basket. So whilst we weren't being helped with the inflationary environment in terms of that feeding through to the retail price, we we did demonstrate really strong progression both in terms of trading people up within a category through our inventory ranging and optimization as well as more latterly my ad supporting us growing our average items per basket which is translated into that sort of 16 growth in the average basket year on year. From an infrastructure perspective, we have upgraded Magento, which is our front end platform. That gives us much more capability in terms of site speed, security features, how we can work with merchants on the checkout functionality, and indeed gives us a platform to play for in the second half of the year around how we look at optimizing recommends and also bouts for customer baskets. My AD, we're on a journey for that. Again, we're delighted with 110,000 members, 160 as we see it in September. We have a flight path for over 200 by the end of the year, and we're looking forward to giving an update to investors later in the year as we develop that proposition. Europe. Again, you know, web traffic up and through joining that up with our key, what we'd call trading metrics, particularly in Germany, which is our sort of key target territory, are at or in Germany's case, surpassing many of the UK metrics. So our proposition to the customer and our strength of our digital platform is as strong, if not stronger than the UK. This isn't about a credibility factor in terms of what we have to offer. The challenge is in the retail pricing in Europe. The margin in each individual basket remains very difficult. From a competitor landscape, there are very few truly omni-channel businesses. In Germany, it tends to be an online landscape. There's one or two who have a smattering of shops that sit alongside their digital presence, but they're primarily digital players. About 80% of the digital market is in about 10 players in Germany. It is fragmented, which is intensifying that price competition. France is a more mature Omni model with one key particular player in the Omni space. Price intensity is softer in France, but the advertising dynamics and the carriage dynamics remain tougher than the sort of closer territories of the Netherlands and Germany, which sort of negates that margin accretion that we're seeing in France relative to Germany. We're looking at how we leverage our supplier relationships in Europe. Clearly, we are increasingly trying to join up our relationships between the UK and Europe. That is being met with some resistance from the suppliers who tend not to organize themselves on a sort of a European territory basis, but more on a country by country basis. That makes it more challenging to join up the UK and leverage our scale from the UK. That's not to say we are not continuing to push at that door to enable us to leverage some more value. The key point I'll reiterate that I raised at the start of the presentation is we do believe now is the right time to try on a small scale a bricks and mortar offer in Europe. We will be able to mitigate the capital risk on that. We have already decent stock depth in our online distribution center. We can pull some of that across into the trial store. We are going to do that where the geography is relatively tight to our distribution center. And also there is a bit of relief in terms of the pounds or the euros per square foot you pay in Europe is actually cheaper than the UK. which gives us a little bit of comfort against that softer gross margin dynamic and we we've done a lot of thinking about our range architecture in terms of what we list in the store versus what we list digitally so we don't um drag down our physical pricing if we continue to honor our price match and our our joining up of our pricing on the web and in the stores That takes us to the outlook is crossover on that Sam so what what about what are our priorities. The rest of the 20 for the rest of this year, you know that that customer in store engage with my ID that are briefly just touched on a moment ago. In terms of looking at how we can augment footfall and or items per basket using my ad. Clearly, again, the new catchments, reduced footprint, margin intent, range model, those 30 stores I referenced is front and center of mind. We need to develop a pipeline, a stronger pipeline on those as we move through the second half. We have got two of those in legals at present and could well be executing those within this half. Finally, on the retail point there, the Tory party conference signposted a new living wage of at least £11. The low pay commission is currently sitting about £11.16. All up, that's another 7% increase in the living wage against the backdrop of 10% in the prior year and 7% a year before that. So that represents a headwind for the business once again. We're already thinking about levers we've got to mitigate that in terms of using our footfall technology, how we can change task and process within store. Clearly, we're not going to mitigate all of that, but we're looking carefully about how we can try and take the lion's share of that away in terms of a cost pressure next year. UK Digital, the MyAD landscape are joining that back up with the changes we've made to Magento. They also bought the Recommend, more work on that, leveraging that increased average transaction value, again, is foremost for us in the second half of the year. Europe, the second bullet in terms of evaluating technology to join up real time pricing where where we are seeing increasing price competition we've got to look at how we join the triangles up of. What we pay for paid advertising relative to what the margin of the product is relative how we believe that Google will represent our offer on its page where it will rank us. based on what we pay them, what our price point is and the quality of our website. There are some organisations around who have started to move into that space. We're looking to partner with one such of those organisations to try and move on our ability to join up those three strands and steal a march in terms of trying to drive a bit more value out of that digital proposition. Bricks and mortar I've mentioned a couple of times now that will be a focus of half two and looking to execute that ahead of the fishing season for the 24 calendar year. And we're pretty confident based on our UK experience we will know within the first year or not whether that has the capability to deliver value given we have a very few number of stores in the UK that don't make a positive contribution to group costs And sort of around half of those are ones that we opened this year. Finally, just on this page, the commercial model, the first bullet, intensify the focus on gross margin development. We've got to sort of up the ante in terms of our relationship with suppliers. We're very happy to partner with organisations. We need to see some reciprocity in some of the relationships. Historically, we probably haven't been able to leverage the results that we need and deserve based on our scale. We're looking to, in a structured and professional manner, represent to suppliers the value we believe we bring to them and actually drive some reciprocity back into the relationship. 19 this was a slide we introduced at the full year results last year you know this is what we see ours you know as the key the key facets of our investment case i think you know the bit to draw out from this is the cost pressures in terms of living wage and energy are not going away we did enjoy a energy deal that expired in September this year, that is a headwind for us next year. Clearly new space is one of the key levers we've got to mitigate some of those cost pressures driving incremental profits in, which is why we see the increasing importance of building that store portfolio. We are of the belief we can deliver a UK business making out you know delivering 100 million of revenue from the uk and that and that being split sort of 60 store portfolio 40 digital portfolio and then a you know a group overhead off that 100 million of less than seven percent looking to um generate a pre ifrs 16 ebitda north of you know north of six seven percent in the uk Europe remains a material market that we believe we can extract value from. We continue to test that. We've been fairly open with our disclosure in terms of where we are in terms of that journey and how we see we can leverage some value there and indeed what our timeline is in terms of where we are on our respective release commitments within that market. Over on 20, So trading and outlook, August and September, we were 13.9% up year on year for the group in terms of sales. Clearly that out-competed our first half performance. It is worth noting there, August in the prior year, was subject to some very extreme temperatures. Angling activity was substantially down in the prior year. It clearly was an opportunity month for us. So that 13.9, whilst is a standout figure, it was broadly in line with our expectations in terms of what we were expecting. August was better than September. September was softer than we were expecting. The consumer news flow doesn't continue to support a very even keel in terms of what we see week on week. It's quite a challenging read as we move through every month. In terms of where we are on numbers, we remain committed to the numbers that we have our covering analysts has put out there, which is a revenue number just above the 80 million mark, but with a pre IFRS 16 profit of 2.7 million. The UK business is exceeding expectations as we see it, but as you can clearly see, the European business is proving more of a drag. Those two facets are competing at each other out and we remain on target for the 2.7. That concludes the formal presentation. We've now got a number of questions both returned during the session and pre-submitted. We'll just take a quick break and then we'll come back and answer those questions.

Perfect, Steve. Sam, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab, which is situated on the top right-hand corner of your screen. But just while the company take a few moments to review those questions that have been submitted today, I'd like to remind you that recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. As you can see, we've received a number of questions throughout today's presentation. And if I could just ask you to read out those questions and give responses where it's appropriate to do so, I'll pick up from you at the end.

OK, sure. Thank you. We've got 15 minutes. We'll attempt to take as many as we can in that 15 minutes. So I'll try and keep them as snappy and as waffle free as possible. So question one, when do you expect to pay a dividend and when would you expect to be? I think that's the top. Would you expect to be debt free? I think the question is right now the board. obviously has reviewed whether we want to be in a dividend paying situation we are still of the belief there is enough to go out in the uk particularly around that store estate as well as some investment opportunities we've got in the distribution center in terms of trying to mitigate some of those living wage headwinds that we've got sufficient capital projects within the near term alongside a softening sort of valuation expectation in the market for potential acquisition opportunities that we believe the better deployment of capital is back into the business rather than returning it to shareholders at this point. And from a debt perspective, we don't carry any form of external debt except our IFRS 16 leases. We continue to manage that portfolio carefully. Our traditional model is take a 10-year lease with a five-year break in the UK. Certainly in Europe, we'll be looking to slice that down significantly so we reduce the risk profile of any more physical estate in Europe. Next one, could you talk about the competition in the industry landscape, e.g. Germany and Netherlands? Is it a consolidated market or what do you see for the opportunities? In Germany, as I said, primarily the competition that is of scale is digital. As I said, there's around 10 who make up 80% of the digital market. Whilst that is relatively fragmented, it is not helping the pricing discipline in the market. From a physical perspective, there is one large chain within Germany. There are a mix of owned and franchise stores within that footprint. that they're a real mix in terms of the profitability of their various locations from what we can see from what they disclose. And the valuation of that business has historically been sort of outside of our appetite in terms of wanting to deploy capital into that. The Netherlands had much more concentration in terms of its landscape. Its number two player, Raven, did go into administration around Christmas time. That was both a digital presence and it had four physical stores. They were quite large stores north of 10,000 square feet. We looked at that business quite carefully. It was making financial returns in the physical estate, not as compelling as we make in the UK, but its digital offer was losing a substantial amount of money. It wasn't persuasive in terms of acquiring further digital capability. nor the scale of the store opportunity relative to the working capital deployment you would need and the return it was making wasn't attractive based on the sites that they had. France, as I said, is a bit more of a contemporary landscape. It has got more structured retailers. That is a bit more concentrated in two main players, Pecheur and Pacific Peche. The margin discipline is much, much improved there. Again, It tends to be physical retailing that's taking the lion's share of the money and is making the lion's share of the actual returns. which joining all that back up together is why we see we need to try physical retailing right now to prove point that actually there is value within that market and it continues to be in physical retailing, joining that back up with the digital offering. It's worth noting, back in January 20, the UK online business was only making a 29% margin and was wrestling with its sort of EBITDA and unit economics. So there is a journey to go on in that market. Next question. How do we view the competitive advantages that we have in the market? What's the most important for you to continue to grow and win market share? I think the omni-channel offer It is clearly our standout point of difference. Alongside that, our inventory depth. As Sam pointed out, £20 million a stock, to call it 2.4 of that is in Europe, but the rump of it is in the UK. it for someone to come and compete on the scale that we're operating is a sizable check somebody needs to write to come in and play against us on that and in terms of that sort of customer advocacy and the joined up nature of what we've built again we see that as a key differentiator The UK competitive landscape, there are folks coming into the market in terms of trying some physical retail and trying to join that up with some lower level digital offer. We're not complacent enough to say that isn't hurting us, but obviously we've got one eye on that all of the time. And I think those competitors are finding it potentially tougher than they were expecting having come into the market.

We've got a question here. What does the unit economics look like for your European online sales? I'm just going to flick to one of the charts in the appendix here. So you can see at the moment, so at gross margin level in Europe, we're at the half. Using H1 as our reference point, we're at 27.4% as a gross margin, which obviously sits below where our UK online business is. And that's a cocktail of several things. It's partly due to the pricing competition, which Steve's already talked about. And, you know, just as a reference point there, so for a similar item in Europe versus the same item in the UK, it was exactly the same item. There is on average about a 6% selling price difference between the two. So that's kind of just to give you a flavor of what's driving that difference in the margin, as well as then, as I said, in the main presentation around sales. The buying economics for us are changing in terms of buying more direct into Europe rather than through the UK. We've optimized the range. We've optimized some of the pricing, the way we price the products online, which has effectively increased that margin, as you can see on that chart there, by 510 bps to 5.1%. Then at a contribution level, so after the variable operating costs, so this is where after we've paid for the carriage, the paid advertising element, again, you can see there, this is at the point in here where we're now, we're kind of effectively losing money for every basket that goes out the door, but at minus 5%, what we call the contribution level, But as you can see on there, we're 990 bps better than we were in the previous half as we kind of optimize some of the unit economics in there as our number of packages grows. And we focus on Germany in particular, which just from a carriage point of view is more favorable for us than, say, France, which is obviously a much bigger geographic area which plays into the variable costs. And then in terms of then just the final piece in there, in terms of then to get us what we call the operating margins, that's after the fixed operating costs of the channel. So the distribution center running costs, essentially. Again, you can see there, we're now kind of at... as we sit here at the moment at the end of the half, we're losing 13.9% of that level. But you can see there on the slide there, we have improved that again by the 1,240 bps. So we are still losing money at a basket level in Europe, but you can see there with the green slices on the waterfall, we are making progress and made some good progress in the half. And since the half continued to kind of make some progress as well.

Thanks Sam and another question, how does the board balance resources between the strong UK business and the evidently weaker European business. I think that that has been my biggest challenge since taking on the role you know. We we clearly see there is an opportunity in the UK to scale, you know I talked about the hundred million pound business that is eminently achievable. However, we need a growth leg that goes beyond the UK. We need an equity story. This isn't about just taking it to £100 million and that's mission accomplished. Europe does take a disproportionate amount of time. We believe right now it is the right time to be making that disproportionate judgment, given the landscape of having made the leap on the European distribution centre. we continue to review that carefully you know as i said there is only three and three years just over three years left on the distribution center clearly that comes into increasing focus as we move through the timeline left on that lease um conscious of time uh what has the board what has got the board comfortable it can grow profitably in europe and when will this happen when did this strategy start was it under the previous management um just perhaps sort of setting out that um the business always had a european business um you know post flow it had uh three native language websites it fulfilled its european customer base from the uk Brexit was the game changer in terms of needing to establish in-country fulfilment to negate the border charges in terms of duty and in terms of the clearing customers and all of the logistical challenges that brought with it. So, the European strategy has been around for a number of years. The in-country fulfilment was brought upon by the change in landscape brought on from Brexit. In terms of the price competition, pre-Brexit, it was less intense, much less intense. That has sort of developed over the last 18 months. coinciding with the sort of the tougher consumer landscape. On average, the same product in Europe, common currency with the UK would trade at 6% below what we're seeing in the UK. That certainly wasn't the case 18 months ago and prior to that.

What's my page? So we've got a question here. It feels like you're getting closer to launching a bricks and mortar presence on the continent. What is a realistic estimate for the number of stores you would consider launching in an initial phase? How large would the initial losses be? How much cash will be absorbed into inventory and fit out? And how large would a typical lease liability be for a continental store? That's quite a lot to unpack there. As Steve said, we are getting very close. We've been through a very careful selection progress where we've decided, as Steve said, we're going to do one trial store. And we have turned down some others just where we couldn't get the economics to work because we just want to be, you know, we're committed to making sure we find the right store, but one that contributes towards the fixed cost base. So makes a positive contribution. So it will only be an initial one in the first phase. How much cash would be absorbed? Well, we think in our current model, our risk capital is probably about the same as an average store in the UK. So that would be less than half a million euros in this particular case in terms of the fit-out costs. and the initial stock. On the initial stock, we're hoping we can probably reduce that potentially further by taking some of the stock out of Venlo to just optimize the crossover between the Venlo in terms of our online offering versus our shop offering, just to minimize the crossover in terms of the impact between our single price file between online and retail pricing. And we will expect to make a lower margin in the stores in Europe as compared to the UK in a similar way as we do online. But we will be able to offset some of that by the lower rent costs in Europe. So the site we're looking at is probably about 30% lower than what our typical ideal rate would be in the UK on a per square foot basis. with all that kind of added in we think we can still get the payback of around about four years plus or minus which is what we target in the uk to also work in europe do you want to take the next one yes um So we've got one here about inventory. I won't read it all out because it's a really long question, but it's essentially asking about what's our optimal stock term and how do we manage our stock to achieve discounts? So I think the holy grail for our business is to get a four-time stock term. in again using h1 as a reference point in our online uk online business we've achieved four give or take in the first half i think we were 3.9 so we're there or thereabouts stores runs at between two four two five and a half so that's really where our effort is to um get to that holy ground of four in terms of the stores um increasing the stock term there so that's that's a focus area And in terms of then how do we manage our stock to achieve discounts? Well, we don't buy stock to achieve a discount level or buy the right stock. We think we need to kind of manage the range in the most optimized way. So we wouldn't go deep into something just to trigger a discount.

Okay, how many minutes we got? Two minutes. So next question, have you considered a vertical backward integration to acquire within your supply chain to increase your scale and support your domestic and European expansion? The short answer is yes, we have considered it. We are not ruling it out. We have had a look at a couple of bits and pieces in that space. Pricing has precluded us moving forward on that with value expectation from vendors, notwithstanding that they were modestly sized deals. We continue to keep that under review. Can you please provide some clarity on the capital allocation for the next three to five years? The underlying business is completely performing well, but with the firepower you have to grow, surely this capital can be put to use to accelerate your plans. The feeling for me is management lack ambition. I think folks should sort of take away from this call, it isn't a lack of ambition that's been impacting the capital deployment. It's about returning the right value against the opportunity. That landscape in terms of vendor pricing and or how we're seeing those smaller scale site opportunities gives us a landscape that makes it clearer on how we can deploy that capital as you'll have heard today the the european journey continues the main focus in the uk is driving towards that 100 million pound business uh with with one minute to go uh do you want to yes you've just got one question there's quite a lot on this subject so i'll i'll boil this down into a generic one around um our cash pile and interest rates

um so just just to talk a bit around what you'd have seen in the statements in terms of our h1 interest so i think uh there's some questions in here about kind of working out an effective interest rate um so just wanted to kind of highlight that we didn't have the full 17.6 million we had at the end of the half available through h1 to earn interest and that's primarily driven by the working capital cycle where we invest heavily in the working capital early in the financial year to make sure we've got availability of the right stock as we head into the seasonal peak And then the other factor in there driving in the interest rate in terms of the interest income returns we're seeing. The upside in the interest rate environment, we're only really starting to see coming into savings rates in the back end of the half in terms of that being passed on through the different accounts and treasury accounts we hold. So therefore, as we go into H2, which is what we're seeing now, as a result of our working capital then kind of freeing up and us having a higher level of cash to kind of put on deposit, in combination with now achieving some of those higher rates and also pushing hard with our bank, et cetera, to make sure we're getting the best returns, we should see a better effective interest rate return over H2 versus H1.

Thanks, Sam. That takes us right up to three o'clock. So thanks for all those submitted questions. We'll have a look at those on the screen we haven't managed to get to and where it's appropriate, we'll provide an answer.

Perfect. Steve, Sam, thank you very much for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will then take a few moments to complete, but I'm sure it will be greatly valued by the company. on behalf of the management team of Angling Direct PLC, we'd like to thank you for attending today's presentation and good afternoon to you all.