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.