Angling Direct PLC

Good morning, ladies and gentlemen, and welcome to the Angling Direct PLC interim results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish those responses where it's appropriate to do so. And before we begin, as usual, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Angling Direct PLC. Steve, good morning, sir.

Good morning. Good morning, everybody. Welcome to Angling Direct's interim results for the year ended January 25. We'll take you through a short presentation and then take some questions later on and look to use the full hour if we can. we move on to our FYI, half year 25 overview. So this is the extract from the R&S that we published last week. I think thematically, continued strategic progress for us in the six months to July, margin and revenue progression and underpinned by some strong EBITDA growth outstripping our sales growth. Alongside that, some key operational changes, both in UK and Europe, which I'll cover as we go through the slides later on. Here we've set out a reminder of our purpose, our ambition and our medium term objectives. We set these objectives out around four and a half months ago for our final year results for January 24. And just a reminder of those six medium term objectives for those who've not seen these before. We've said that we'll deliver a UK business with 100 million of revenues in the medium term and associated with that 100 million pounds. The second objective is an adjusted EBITDA delivery of over six million pounds Underpinning that, we will create Europe's largest fishing club, MyAD, and leverage its value. We're a year on from starting that, and I'll cover in more detail later on how we're progressing. Fourthly, a sustainable European business. We're a couple of years into our European journey from in-country fulfillment, and we're starting to get increasing confidence that we can move that through to a sustainable business that isn't consuming capital within the overall group. Fifth, we've got a very strong balance sheet with some surplus liquidity. We have ambitions to deploy that liquidity to deliver earnings and revenues above the 6 million and the 100 million in the UK, respectively. And sixth, we do take our wider responsibilities very importantly. And again, we've made some strong progress in some of those areas, which I'll set out later on. Slide five, we've set out how we're tracking against those objectives for the first time in terms of the progress we've made in the first six months since we set out those objectives. The UK business on a flight path for 100 million, despite a very soggy start to the year with a wet first quarter of the year, six wettest on record, I believe. We've made some good progress in the UK, both in terms of our underlying business with growth from our like-for-like estate and digital business, alongside adding new space and accelerating the growth of that new space. We've set out for the first time where we believe we'll hit that 100 million target. And based on our delivery in the first six months, we believe that by financial year 28, we'll have achieved that 100 million pound target. Aligned with that, the 6 million earnings. So again, we've sort of delivered 12.7% increase in the EBITDA in the UK, outstripping the sales growth by about two times. When we put those two together, you know, with strengthening gross margins and leveraging our fixed cost space, we believe that sort of cocktail brings us to, again, on a flight path to financial year 28 for delivery of the 6 million. And again, that's the first time we've set out where we believe we're pacing to deliver those earnings my ad from a standing start in june last year we're now up to around 330 000 members and we continue to scale that out of the season at the end of september we were around 368 000 members and around 75 of our revenues are now being transacted through that sort of loyalty and repeat purchase scheme We're increasingly building insights from that. And we've got a flight path on how we develop that further. And I'll set that out over the page, some thoughts about how we do that further in the second half. Europe, you can see from the RAG status on there, we are making progress in Europe. We've reduced the like-for-like losses by about 20%, just over. And for the first time, we've reached a basket contribution, i.e. the cost of the product, the sales, less the cost of the products, less the variable costs of shipping, carriage, and colleague cost to picket. It's the first time we've moved that through to a positive contribution. We've opened our first store in Utrecht in the Netherlands to trial our omnichannel proposition. And that's 18 weeks since we opened that and that's continuing to scale and grow. We'll learn at pace from that. Deployment of liquidity. So at the half, we've got around 17 million pounds. Clearly, that is in excess of the liquidity the business needs to run in a way that deploys working capital in a sensible way. We have set out a strategy four and a half months ago that we will increasingly move into M&A to spend that surplus liquidity where those deals make sense and those deals will accrete the earnings above the 6 million and above the 100 million that we've set out in the first two boxes, first two objectives at the top of this slide. We made some good progress in the first half on that, completing three small scale acquisitions with a strengthening pipeline. And again, we'll continue to work on that and deliver on that in the second half of the year. We've also committed some additional capital in terms of opening an own brand only logistics facility up in the West Midlands. And again, we're looking at further CapEx projects in the second half, which Sam will cover later on in the deck. Finally, our six objectives about responsible employment. We're increasingly working with the Angling Trust where we're looking at water quality testing. We've done some early work in the first half of the year, put some publicity out around that, and we're trying to tighten our grip on contributing towards actually the health of the sport in terms of water quality and what it means for fish and fisheries. alongside that in our eye line as we roll out new space we are conscious of how much waste we potentially create and we're looking to beat the government target of five less than five percent to landfill and we've made a really strong start in the year with less than one percent of our waste going to landfill in the first half myad so for those who aren't familiar with what myad is myad is our sort of repeat purchase and loyalty scheme that we launched last june it it's a free to join membership scheme and it has a number of components around daily deals money can't buy prizes and my myad exclusive deals and bundles We are building out the offering and continue to see some good underlying metrics as a result of this scheme. So, for instance, you can see in the middle of the page there, 35% higher average transaction value for a MyAD customer. And indeed, that's underpinned by 27% higher items per basket. As we've annualized the June launch last year, we're getting increasing insights in terms of customer behavior. And our challenge as set out the bottom of the slide is to sort of in the second half of the year, develop our year round member benefits package alongside building some personalized offers that sit alongside that. So we can target individuals based on their buying and engagement behavior. Onto the business review. So again, there's some slides here setting out the sort of the key aspects of the business development in the first half. I won't cover every point on the slide. I'll sort of pick out the key highlights that I've not covered previously. So if we start with UK customer, sort of the bottom, if we step past my ad the bottom bullet there's something called shop the range technology that's a piece of technology we've built in store which is a tablet based technology that enables a store customer to get out the whole of our range that angling direct has to offer and have that delivered either in store or to their home the next day um you know traditionally in a store we'd range about six thousand skews you know our digital offer is well in excess of twenty thousand skews we've trialed that in one store uh late in the first half of the year and we've got plans to roll that out more widely as we take the learnings from looking at average transaction value customer engagement on on repeat purchase etc that's a modest capex commitment of around a hundred thousand pound that could see us enhance our customer baskets in store and take folks away from leaving the store and hitting their Google bar to transact digitally. UK retail, the middle block, the top bullet, the accelerated store openings is something I wanted to highlight. Historically, this business has done around two new locations a year. We see the pace of consolidation in this UK market increasing. There is wider competitive failure in terms of small one man, one site operations. We're looking to leverage that, deploy our working capital model, deploy our range, deploy our operational model and turn those catchments into a success. And we've done three acquisitions in the first half. one location which was an existing site where we simply took the lease from the landlord and then rearranged and refitted and one which was a greenfield space which has been the traditional model for the last three or four years of Anglin Direct. Over on the right hand side UK Digital What we're doing is increasingly using technology to enhance the sophistication of our digital bidding landscape. Amazon and Timu continue to push up the cost of digital marketing spend, and we've got to react to that with looking at more innovative and contemporary ways. of differentiating our bidding and differentiating the specificity of what we're prepared to bid for. We've made some modest investment in the first half of the year around £50,000 and we're seeing that sort of yielding us results that are maintaining our ability to bid and competitively acquire customers. Alongside that, we're deploying increasing technology on the actual website where conversion against that digital pay landscape is increasingly important, whereby if you've paid for the click, you need to actually leverage the traffic. Again, you'll see later on in the pack, there is some very good progression around conversion stats in the first half. And that's largely attributable to some technology, some on-site technology we've deployed around looking at also bought some recommended items. Into Europe. We continue to try and balance growth with reducing the losses. The competitive landscape remains as challenging. And again, it's displaying as a market the characteristics that the UK displayed around five years ago. Five years ago, the UK digital business was making margins less than 30% and incurring incremental losses. That was a result of predominantly pure play retailers with single site store operations looking to garner market share through deploying pricing that isn't sustainable for a number of the key brands. That's playing itself out in Europe now. And we're increasingly confident that the market will follow the course of the UK, whereby those who can deploy working capital discipline, operational discipline and pricing discipline will ultimately win. We made a number of other changes in Europe. One of the key operational changes is we have now secured a third party logistics operation for our parcel picking and shipping. That takes a rump of fixed cost out of our operation and gives us some flexibility in terms of the remain or progress decision in Europe as we look to learn from how we've deployed the omni-channel model with our first store in Utrecht. Onto the commercial leg, own brand. We've always talked in this business about own brand needing to play a larger role. We've been particularly successful this first half. We were braver with our ranging decisions. We were braver with our pricing decisions. And those have proved to be successful with own brand coming up considerably in terms of over 40% gross margin progression in terms of the pound notes it contributes year on year. Alongside that, we've used increasing data analytics around how we make our availability decisions and our ranging decisions. And as we've traded through the peak season, we've run with availability around 100 basis points above we've seen in the prior year. And that's largely due to the way that we're increasingly using that sophistication of data evaluation to drive our buying. And finally, on the right-hand side, communities and sustainability. One closest to my heart is around the water quality and how we ensure that the lifeblood of fisheries, the quality of the water is appropriate and sustainable. And as I said, we're working increasingly with the Angling Trust and looking to help over the 200 fishing clubs that are currently taking water samples and submitting those to the Environment Agency so we can get more contemporary data points and better understanding of

of where the challenges lie on that note i'll hand over to sam on the financial review morning everybody so just a summary slide to start off with here and i won't dwell on this one too long as we'll get into some more of the segmental detail on the next couple of slides But from a revenue perspective, as Steve said, revenue continues to grow and is pacing in line with delivering the medium-term objective in FY28. And that obviously sits alongside European sales being broadly flat, but that's as we focus on earnings accretive revenue streams in Europe. From an EBITDA perspective, again, strengthening EBITDA margins with EBITDA growth over indexing against sales growth at the rate we need to deliver the medium term objective of 6 million EBITDA. And the two key building blocks being the gross margin and continuing to leverage the cost base, both of which we'll come on to in more detail. But those two being the building blocks to delivering the 6 million in the UK in the medium term, we continue to make progress there. And the like-for-like European EBITDA loss has been improved 20% year on year. Again, focusing on those. Earnings are creative revenue streams, but also again, building towards a sustainable European business within the medium term. And then just finally on cash, net cash generation, H1 is down over 60% year on year as we accelerate the store rollout program and invest and commit capital in scaling both the capacity of our web operation and our own brand offering. So moving into a bit more of the segmental detail, starting with the UK. So H1 delivered UK revenue growth of 6.2. As Steve said, we had a stronger Q2 than Q1, with Q2 also being slightly dampened by the European Football Championships. And the store growth was primarily driven by new space with a light for light growth being underpinned by both footfall and average transaction value, which was underpinned by items per basket. Online in the UK, the growth was really underpinned by conversion as we continue to invest in technology, particularly around recommend functionality. And then that then resulted in the gross margin seeing 160 basis points of progression in the half year on year with five kind of key components in there. The first one being on own brand where the margin that's 50 basis points of the 160 bps. And we've taken a stronger position across a number of the key categories in there, which has helped us grow our overall gross profit on our own brand by 40% year on year. The second component being improved terms, adding on a further 50 basis points. And this just reflects the increasingly strong partnerships we're building with the supply chain and the key brands as we kind of, I guess, look to work more closely with a select group of suppliers. We've also got a 30 basis point contribution from lower promotional activity. Again, as we continue to optimize the stock file and manage the tail. We also continue to see some upside from the two new revenue streams we had last year in terms of commercial marketing and the in-store services such as real spooling and real servicing, which again, we'll look to continue to grow and build upon. And then finally, to complete the bridge, we've got a 10 basis point upside from lower levels of shrink, particularly in the retail business, which is really underpinned by the proactive action we took in the second half of last year and the first half of this year to reduce the impact we're seeing there with our shrink to sales ratio falling by about 25% in H1 versus last year's full year numbers. Moving on to Europe, European digital revenues were down 3.2%. Again, as we focus on those earnings accretive revenues, but Germany did as the biggest key target market in Europe did go forwards year on year and a half. We continue to optimize the range to get that cocktail of the gross margin and the variable costs around the carriage, the pick cost, and the advertising that then, as I say, kind of reduces those losses year on year. In terms of then the new store in Europe, after four full months of trading, as we sit here now with two of those in the half, the sales flight path continues to build, momentum month on month. We've got a strong strengthening footfall trend, but we continue to optimize the range in store to deliver the gross margins we need to make that store a success. Then just moving on to the EBITDA. So, again, starting in the UK, EBITDA growth at 12.7% continues to over-index against the sales growth at 6.2%. And this feature of this over-indexing is a real key building block in the medium-term objectives. And as I said before, this is really about continuing that margin progression and leveraging the cost base. So in the UK, we've managed to deliver the leverage, the cost-based leg, particularly through the central UK group overheads, which are broadly flat on a pound note, spend year on year, despite the increase in operational pace within the business. And then in the UK stores, the EBITDA progression does have some over indexing when you adjust for the timing impact of the new space. And that's really impacted by cost pressures facing the segment in terms of national living wage and premises costs with rent and energy being the standouts within premises costs year on year. And in the UK online business, it reflects the continued investment in technology that's underpinned the growth in the conversion, as well as the more competitive landscape we're seeing around advertising ratios. But overall, as I say, UK is over indexing EBITDA versus sales growth 100%. And that's the level we really need to achieve to deliver those medium term objectives. And as I say, we're pacing towards that FY28 level at the moment. So European losses, as well as reducing 20% on a like-for-like basis, have also reduced as a percentage of group EBITDA to 14.2% from 20.8% year-on-year. And obviously in there, the key driver being the contribution in terms of getting to the profitability of the basket, that has improved £100,000 year-on-year, as Steve said, to just get into that break-even position where it now starts to contribute towards a fixed overheads. And then finally onto cash. So as I said before, half one net cash generation was 1.3 million H1, which is down 2.2 million year on year. And that's really as we now start to invest more cash in delivering those medium term objectives in terms of the new space, as well as scaling capacity and fulfillment in a web business and our own offering. And so just to talk through then the key movements in the bridge below the bits in the blue dashed boxes. So you can see they've got a net working capital inflow of half a million in the first half. So in a steady state business with a summer working capital low, you'd expect about 3 million inflow at this point in the year. So against that frame of reference, there's kind of three standouts, which reduce the three down to the half a million. So first of all, there's an extra round about 1 million in new space in terms of the stock file associated with those. There's also an additional million pounds of timing impact where we've secured stock a bit earlier in the season than what we would normally would, just to make sure we've got that availability going into August and September, which is really underpin that growth we're seeing year on year in August and September. And then additionally, there's about a half a million pounds of extra stock on the balance sheet in terms of our own brands, which again has supported that 40% year-on-year growth in the own brand gross profit. Moving across then to net interest. So whilst it shows us a zero on here, we have got broadly double the amount of interest income in the half at about £300,000. But that's then netted off in this bridge against the IFRS 16 interest charge. And then finally in the blue bracket, in the blue box, sorry, you can then see the deployment of capital here into new space in terms of the six new stores, that being the three acquisitions in the UK, the two Greenfields in the UK and the Utrecht store, as well as then the deployment of CapEx into the automated packaging line, which will come on in the next few weeks here in the Norfolk Distribution Centre. So if you can see that we're committing investing cash then into the delivery of the medium term objectives.