N Brown Group plc

Hello and welcome to the Ambron interim results call. My name is Laura and I will be your coordinator for today's event. Please note this call is being recorded and for the duration of the call your lines will be unlisted and limit. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to see a question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Steve Johnson, Interim Executive Chair and Chief Executive Officer to begin today's conference. Thank you.

Good morning everybody and welcome to Ambron's interim results for the 26 weeks ended the 31st of August 2024. I'm joined by Dominic Appleton, our Chief Finance Officer. Let's turn to the agenda for today. First, I'll give you an update on our highlights of the half. Then I will hand over to Dominic who will take you through the financial performance and the outlook for the full year FY25. I will then return to talk in a little more detail about our strategic progress, our KPIs and the marketing activity underway in H2 as we look to make continued progress in the product revenue trajectory. After that, we'll open up for Q&A. We're pleased to be able to talk to you today about another good half of progress at Ambron. Last year we returned to profits and our customers are benefiting from our transformational priorities we've invested in. We followed this up in H1 with year on year profit growth and we've continued the momentum with strategic progress. Our profit performance has been achieved in a continued soft market through a focus on profitable sales with improving margin and cost discipline. Adjusted EBITDA of $18.8 million is up from $17.5 million last year and adjusted PBT of $3.6 million is up from $0.1 million last year. Capital expenditure stepped up to $14.5 million aligned to our transformational priorities. JD Williams mobile first website successfully launched following the previous launches on Simply B and Giacomo. Following the launch at the end of FY24 of our product information management system, otherwise referred to as PIM, we have now rolled this out on all strategic brands and our new financial services platform is making good progress and is now in testing. After the higher capital expenditure, we have remained cash generative and continue to have a strong balance sheet with total accessible liquidity in excess of $150 million. This provides a solid base for the continued investment in our priorities and our customer receivables but continues to significantly exceed our adjusted net debt and we have no unsecured borrowings. Our full year adjusted EBITDA outlook is unchanged and the product revenue trend at the start of Q3 is showing encouraging progress. We commenced rebalancing the cost base into marketing in H1 and brand building activity is underway at the start of Q3 as we anticipate a continued improvement in the product revenue trajectory in H2. I'll

now hand you over to Dominic to talk you through the financial results. Thank you Steve. Let me start with giving you a summary of the group's

financial performance in the half. Overall, the continued challenging market saw group revenue down circa £20 million including softer product revenue and lower financial services income with the latter reflecting the smaller customer debt abut from the start of the year and a flow through from product revenue. Adjusted gross profit margin has increased by 160 basis points driven by the progression across both product and financial services gross margin. I'll talk in more detail about this later. Our adjusted operating costs the sales ratio has increased driven by the impact of lower operational leverage. This is the management initiatives driving absolute costs £6 million lower in prior year. The lower costs more than offset the impact of product volumes on gross profit leading to an adjusted EBITDA of £18.8 million, progressing by £1.3 million over prior year. Below EBITDA, appreciation and amortization was broadly flat on the year whilst net finance costs were £2.3 million lower giving an adjusted profit before tax of £3.6 million, up £3.5 million on the prior year. Unsecured net cash was up £17 million on the year at £66 million reflecting the strong cash generation over the last 12 months. This is after a step up in capital expenditure of £14 million as part of the continued investment into the transformation of the business. The balance sheet continues to be robust with total accessible liquidity of over £150 million. Finally, adjusted EPS at 0.61p increasing from 0.15p in prior year reflects the positive profit performance during the half. You'll see from this slide how EBITDA has increased by £1.3 million. Stronger gross profit margins and management of the cost base have more than offset lower revenues in the half. In the first two bridging items, revenue is lower across product and financial services but each reflect an improvement in trajectory. Better margin rates shown in the third bridging item reflects improvement across both product and financial services. Whilst the management of the cost base has driven a reduction in costs of £6 million, shown in the fourth bridging item. Although there has been improvement in macroeconomic indicators, the online pure play market remained weak in the half, declining by 6% according to IMRG and we saw unseasonal weather conditions during the period. We also made progress in utilising promotional investments more efficiently as we focused on profitable sales. Product revenue declined by .9% in the half but this does reflect an improvement in trend. The strategic and heritage portfolios each reported a similar performance in the half which includes significant moderation in heritage brands' rate of decline where we continue to seek opportunities to maximise value. A lower opening debt book position and lower product revenue saw FS revenue reduced by 4.6%. This is an improvement in the rate of decline as we guided. FS revenue performance has been better than the debt book decline of 9%. Reflecting a better yield including through APR increases applied since the comparative period. So, after mitigating the lower volumes, adjusted growth profit margin has improved at 160 basis points in the half. This progression continues to be part of the seeded change in the business where we have focused on delivering margin and profitability improvements rather than volume growth at any cost. Looking at what has driven that, Firstly, positive impact from trading of around 150 basis points through good retail disciplines including a significantly cleaner year

on year stock position. Secondly, we have seen a headwind in FX

impacting gross margin by around 100 basis points largely reflecting the FX hedging position which this half annualised against. Thirdly, we have claimed back a lower amount of VAT by debt relief on write-offs in financial services due to lower write-offs having taken place this year. We credit that to the product growth margin as we can only reclaim it due to the benefit of being a combined retail and credit provider.

This

reduced gross margin

by around 50 basis points. Finally, there was a 150 basis

point benefit from FS margin reflecting a better yield which includes the APR increases and lower write-offs. As I just talked to, all year adjusted gross margin improved by 160 basis points. As I showed on the EBITDA bridge earlier, we have reduced our adjusted operating costs by £6 million against last year. This reflects planned management actions and flexing within the variable components of our model with a lower volume. As a result of operational gearing with lower revenue impacts in the cost ratio for a fixed cost, the adjusted operating cost ratio has increased by 80 basis points partially offsetting gross margin improvement. Looking at the individual areas, warehouse and film and costs have slightly increased as a proportion of revenue reflecting a headwind from inflationary price impacts and carrier and resource costs of circa £1 million. Marketing and production costs have increased by around £1 million or a percentage point of revenue as we have chosen to invest more in the half. Admin and payroll costs were £6 million lower reflecting nearly one percentage point of revenue through planned management action. You'll see the graph on the right hand side which shows year on year movements in marketing and admin costs over the last three halves. As we set out our year end results in June, admin and payroll costs had increased over time as a proportion of revenue while the opposite was true in marketing and production costs. We said that as we looked to turn the business to growth, scaling investment into marketing is a focus and the graph shows the start of this rebalancing with our intent and admin and payroll costs and marketing and production costs being reflected in the direction of these numbers in the half. Just touching on adjusting items, we've not included a slide on these due to the quantum and relative consistency against the first half of last year. Adjusting items at £2.8 million in H1 of this year are slightly lower than last year's restated figure of £3.2 million with a cost reflecting the restructuring relating to operations and head office. This slide shows a number of our key cash and liquidity measures. Our self-funded capital investment of £14 million and a half is a significant increase over the prior year and reflects a business now making change faster as part of our ongoing transformation. After this investment, cash generations remain positive at £1 million. Included within this performance, we have kept strong control over our stock balance following all of the work which was done last year when stock was reduced by £20 million. We exit the year with a cleaner stock position. Cash inflow is also stated after a cash out flow from adjusting items to £2 million restructuring costs as we right-size the cost base. A cash generation means that we close the half with £66 million of unsecured net cash. Combined with the undrawn revolving credit facility of £75 million and overdraft facility £12.5 million is a total accessible liquidity position in excess of £150

million. Finally, our adjusted net debt position reduced to £211

million which reflects the £66 million of unsecured net cash and securitisation borrowings £278 million which we continue to use to prudently an element of our customer balances. The securitisation borrowings are lower than prior year aligned to the size of the debtor book. The adjusted net debt continues to be a well controlled position with securitisation borrowings and net debt well placed to be able to grow in the future according to debtor book growth. We have significant customer balances on our balance which support the securitisation and adjusted net debt position with our end of half gross customer receivables being £480 million. So, in summary, we're happy with the level of investment we've been able to execute in the period while still growing our liquidity position and we remain very comfortable with our adjusted net debt and the level of gross customer receivables which provide strong backing to this position. Now, turning to current trading and FY 25 outlook, trading during the first five weeks of Q3 has been encouraging with the product revenue trajectory improving to minus 2% against prior year. We are expecting a continued improvement in the product revenue trajectory in H2 supported by delivery of our strategic initiatives and the additional marketing spend which we talked to in the guidance we gave at the start of the year. FY 25 adjusted EBITDA is expected to be in line with management expectations. The management team will continue to focus on margin rates and operating cost efficiencies. Strategic investment will continue to be self-funded through carefully managed cash flows. The board has continued confidence that the progress made against Group's strategic transformation plans and its differentiated brands will be well positioned to deliver future sustainable growth. So with that, and now, and you're back to Steve, talk you through the progress on our strategy.

Thank you, Dominic. I'll now talk about some of the transformational progress in further detail. We've continued to make good progress across each of our strategic pillars in the year and are executing this on a self-funded basis. Within build a differentiated brand portfolio, as Dominic referred to, we have commenced the rebalancing of spend into marketing. I'll talk later on about some of the activity which we've recently launched as we progress through evolving our creative and marketing platforms and continue to concentrate on our target brand positioning. Within this pillar, we've also seen success in moderating the decline seen in revenue the Heritage Brands portfolio, as Dominic referred to earlier. Now moving on to elevate the fashion and syntax proposition. Within women's brands, we continue to evolve our portfolio for JD Williams, expanding our offering with brands which resonate most with our customers and phasing out those that do not. Notably, Adidas and Under Armour have shown particularly strong progress in H1. Looking ahead to H2, we are excited to launch Sweaty Betty on JD Williams at the end of October, further enhancing our successful sportswear branded offerings. In line with one of our transformational priorities, our new financial services platform has progressed with good momentum. The platform is in testing and we have a roadmap of further internal testing planned. We remain on track to commence the external minimum viable product rollout in FY26, providing a modern market standard credit proposition. Now on to transform the customer experience. Progress in transforming the customer experience has built on the momentum gained in FY24. The launch of our new mobile first website for JD Williams marked a significant milestone in transformation, being the last of our strategic brands to launch. With the experience and learnings gained from the Simply Be and Giacomo releases, we were able to deliver the fastest rollout to date, despite JD Williams being the most complex site due to its wide product categories. The efficient delivery of the new site is testament to the level of collaboration which our agile ways of working have unlocked. Following on from FY24's successful launch of Pym on our first strategic brand, Simply Be, progress has continued with Pym sequentially launched on Giacomo and JD Williams during H1. This marks the completion of delivery across all of our strategic brands. The Retail Systems Award recognized the key milestone in one of our transformational priorities by awarding Pym the Technology Project of the Year Award in June this year. Pym is now enabling us to provide better product descriptions, including information on sizing, fit and fabric. Greater consistency and accuracy in our pre-purchase communications is improving the experience of customers. Within win with our target customer, we continue to increase the focus on our target customer. We've identified a series of virtues unique to each brand, which align with our most valuable customers. We've ensured our marketing channels align with these virtues, which will allow each brand to be more targeted and personalized in communication, which we believe is ever more important in a challenging consumer market. One of these virtues shared by both Simply Be and JD Williams is being a member of the loyalty schemes. The loyalty program across the group has shown significant growth in H1. The number of engaged accounts increased by 45% during this period, which has increased our reach and highlighted our ability to attract high-value customers. In establishing data as an asset to win, we have successfully transitioned from Google Analytics 3 to Google Analytics 4, which significantly enhances our data analytics capabilities. The transition was a critical piece of work to continue to establish data as an asset to win via our data culture strategy, resulting in a notable increase in colleagues accessing our data estate and a reduction of interactions with our legacy data estate. The completion of GA4 was also pivotal for our shift from third-party cookies to first-party data collection, ensuring compliance with upcoming UK privacy law changes. Additionally, it serves as a gateway to future transition to a cloud-native analytics platform, which consolidates data, accelerates analytics, facilitates self-service use cases, and mitigates compliance risks. Now looking at what that looks like against the transformational priorities we've set ourselves. Firstly, looking at the two items flagged green on the slide, we said we would complete the job of moving all of our strategic brands to new customer-facing mobile-first websites. And in launching the JD Williams site in H1, this is what we have done. Having launched our new product information management system on Simply B, we said we would roll this out to other strategic brands. Again, that's what we've done during H1. And go-progress has been made against each of the other three priorities. As I mentioned earlier, the minimum viable product has been built for our FS platform, and is in testing. We're excited about what this will provide to customers when it launches in FY26. Against the data culture priority, I talked about the transitioning to Google Analytics 4, which has taken place. And we've continued to embed a data culture as colleagues are empowered to meaningfully engage with data to identify and leverage analytical opportunities, which will allow us to make better informed decisions to enrich the customer experience. Finally, good progress continues to be made with the shift to our new agile ways of working model in our head office, with the anticipated efficiency and operational improvements coming through. We expect 80% of the retail business function to be fully embedded in these ways of working by the end of Q3. Consistent with the broader market, which has remained soft, we've seen this certain KPIs. However, we are reporting some improvements in trends. A growth in average item value and net promoter score and arrears each continue to perform strongly.

Today, I'll talk through four of the KPIs.

Firstly, total orders down 8% represents a significant improvement against the prior year trajectory, driven by a better trend in website sessions, which is benefiting from additional marketing spend. The softer conversion rate includes the impact of cautious customer behavior and a higher sessions mix within paid traffic, which has a naturally low conversion rate. Secondly, our active customers down 10% masks a significant moderation seen in the last six months with about three quarters of that decline seen in H2 of FY24 and a quarter in the first half of FY25, reflecting better retention rates. Scaling the marketing spend in H2 on top of our strategic execution achieved is really important as we look to further improve the active customers trajectory. Thirdly, our arrears rates, excluding the impact of holding a lower level of insolvent accounts, are up 0.5 percentage points due to the greater mix of payment arrangements held at the end of the half. This greater mix reflects a different debt style timing with a sale not taking place at the end of the half, unlike in the prior year. Fourthly, our net promoter score progresses significantly last year and has remained strong in the half. The slight reduction includes a greater net profit. We've been busy at the start of H2 launching new campaigns as we rebalance spend into marketing. Each of these are highly relevant to the positioning of our three strategic brands and I'm really proud of the quality of the creative which our teams have delivered, some of which you will see here. JD Williams, the brand has once again been the headline sponsor for ITV's popular relationship show, My Mum, Your Dad. Gok Wan was introduced as the new brand ambassador, a collaboration which is further connecting with and inspiring our customers and we saw a significant increase in brand consideration pre to post the show's airing. This partnership aligns perfectly with JD Williams commitment to celebrating midlife and will continue to engage with its core audience through this platform. Over at Simply B, as previously outlined in our focus areas for the year, H1 has been spent refining the proposition. At the start of H2, we saw the launch of the brand's latest campaign, Find That Feeling. The campaign showcases a diverse cast of women, highlighting how passion can evoke powerful feelings. It is showing up on a variety of places where Simply B target customers spend their time, including mobile streaming services and terrestrial TV. And at Giacomo, the partnership with Labbible has continued to captivate the target consumer with 38 million views of campaign content and the receipt of a nomination for the upcoming Retail Gazette Awards for the Marketing Gamechanger. In late September, Giacomo launched its Men's Style Sorted campaign to showcase this year's autumn winter collection. The campaign aimed at redefining men's fashion for the season is being displayed across multiple platforms, including billboards, YouTube, Sky Sports, and various social media platforms. I'm confident in our plans for the second half and the performance scene at the start of Q3 has been promising. We've made further tangible, self-funded strategic progress in the half, building on last year and which our customers will benefit from. We've reported -on-year growth and profit as we've focused on profitable sales with improving margins and cost discipline in a market which has remained soft. Our transformational plans are on track and we increased capital expenditure in the half. What we've delivered to date against our clear sets of priorities means that we are well set for the 2024 peak trading period. After the increased capital investment, we've continued to generate cash and which further builds balance sheet resilience. Our full year adjusted EBITDA outlook is unchanged and the product revenue trend at the start of Q3 is showing encouraging progress. We'll now turn to Q&A, so if you're not already dialed into the conference call, please do so now

and we'll take your questions in a moment. Thank you.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. We'll pause for just a moment while waiting for MTQ for questions. Thank you. We will now take our first question from Clive Black from Shaw Capital Markets. Your line is open. Please go ahead.

Thank you. Thank you, Stephen, Dominic, for a really interesting and positive outlook, actually. There are three questions, if I may. Firstly, Dominic, you mentioned the word taste in your financial review. I just wondered, could you give us a little bit more color as to how taste is manifested in the operations of the business? Most evidently, maybe going forward too. Secondly, it's great to see progress with the financial services re-platforming and the fact that that's actually started. What does that actually mean, though, for customers when it's fully implemented? And then lastly, good to see you've got the confidence to up the rate of marketing. You've talked about some various sponsorships, but what's the magnitude of marketing change in the second half, maybe also going into the first half of next year? How would you like us to measure that marketing impact apart from the obvious of hopefully right improvement sales trend? Thank you.

Hi, Clive. Thank you very much for the questions. We'll take the marketing side of things first of all. Predominantly looking to increase the cost of that marketing, we need to see how we navigate through the second half. The first thing I would say is that it definitely will be up. That is absolutely our intention. We would like for it to be up 20-25%, but we need to see how the customer responds through the period. I think that's quite important. But we are moving in that direction. We're moving in that direction because we're feeling reasonably confident on the back of strategic change delivery that we've made. Customers are starting to really experience something that we've been trying to create in the organization, and we are seeing that the customers are responding well to it. When we think about the revenue trends that the business has been on, broadly minus seven point something this time last year, broadly minus seven point something in the first half, and so far in this half, minus two is what we've referenced in the R&S. I think that's giving us the confidence effectively to try and push on.

We

hope that will push us through into revenue growth, but we are only five weeks into the second half. Hopefully that answers the first bit of it. The second bit in terms of how do you measure it? Again, the business has gone through a lot of change and investment into improving the customer experience. We would hope to see that translate into sales, frankly, as we move through. As we move into Q4 particularly, there's a few things that I would say go in our favor a little bit. The first point is that the comparators are a little bit softer on last year, so I think we should recognize that. The second thing is the momentum that I've spoken to, and also in the presentation, the customer file starting to stabilize with three quarters of the decline in FY24 and a quarter in FY25. Then the third thing is we are intending to spend more money on marketing, so we should get something back for it. I feel like the answer to the third question is hopefully we'll start to see the business push through and move towards Q4 for that and we'll hope for a good peak. On the second question in relation to the financial services platform, we're a business that effectively has been born out of a catalog organization. Our current financial services product, whilst we've enhanced it significantly and is doing a great job, it's effectively something that's been enhanced from a catalog proposition. This financial services platform that we've been building will enable us to effectively create different payment options for our customers and improve the user experience. When I say user experience, that ranges from the site experience to the experience in relation to things like my account, etc., and how many payment customers have to make within the cycle of the year as well. There are huge opportunities to create a more engaged customer through this platform. We retain our element of excitement about how this can help the organization and our customers in the future. We built it in MVP. The minimum viable product has been in the market for a long time. We're about 70% through that testing and we're not seeing showstoppers, we're seeing defects. We would expect that, but there are no showstoppers and we're 70% through it. With a fair wind, we'll continue going through that testing. With a fair wind, we'll get it live to customers in FY26. As soon as I can get it live for customers, I will do. Hopefully that answers the first two questions. The first one you asked

was

from Dominic. I'm going to hand over to Dominic, if that's okay, given the direct question was this. Thanks,

Clive. Yes, we did talk about pace and velocity, specifically in terms of pace of change and our transformation. You can see it in our investment of capex. It's substantially up year and year. That's reflected in our three strategic brands now being on new mobile first websites. All three of those brands now have a product information management system. That's a single place where we can collect, manage, and enrich our product data.

Steve

has just pointed out, we've built our FS platform and that's now in testing. The pace is all around our pace of transformation. I'm putting improving the customer experience.

Thank you for that. I could just come back, Steve. Do you have a rough start as to when the FS platform goes live in FY26? Is it something first half, second half? I guess what you're saying then, just to be clear, is the full benefit of that is March 27th, an annualized date.

Yeah, sure. The question, because of the way we work, is always a little tricky because I don't really give definitive dates based off the agile methodology that we apply in that we go into testing, we understand the level of testing. As I say, there's no showstoppers. If it continues as it is, I would hope, and if I'm allowed to give you a view rather than a definitive, I would hope to get this live towards the back end of the first half of FY26. Our current plan, and I'll just share the current plan rather than it's a definitive plan, would be to start with Jacamo.

Second half of FY26, that should be feeding in and then you get a full year benefit in FY27 then?

That is what we're hoping for, yes.

Sorry for holding the mic so long. Thank you very much for the comprehensive answers.

Perfectly fine. Nice to have the questions. Thanks, Gus.

Thanks, Todd.

Thank you. There are no further questions in queue. I will now hand it back to Steve for

closing remarks. Thank you. Sorry. Pardon me. There's one just popped up. I'm so sorry. We'll now take our next question from Darren Shirley of Shore Capital. Your line is open. Please go ahead.

Yeah, sorry. Sorry, Jen. It's another one from Shore, but I just thought I'd take the chance while I'm here. It's nice to see that sort of improvement trajectory, you know, in Q3, at minus two or thereabouts. Do you get a sense whether that's just a function of a better marketplace that you're operating in, benefiting from sort of a bit more inclement weather, or do you get a sense in terms of whether your relative performance is improving in that order, or is it a bit too early to say?

Yeah, look, I mean, there's no doubting that the weather is actually favorable to a business that sells clothes, and we've been able to sell our new season stock and transitional stock pretty well, actually. But I also believe that that's because we were set up to try and push the business from the second half. That's something I stated six months ago when we last went through this process. So it was all geared towards it, and we've started increasing the marketing spend. And so whilst on one hand we are getting some favorable weather benefits, let's say, as we moved into transitional clothing products, we're also, you know, seeing the underlying trends, which are for us proof points to enable us to sort of start to increase the marketing spend. And whilst a lot of it is brand building and investment for the future, we would have expected to have seen some return from it. And that's what we're seeing. So, you know, all I can really say is it's five weeks into a 26 week period. The golden course is important to every retailer. You know, for us, we'll see how we get through it. But we've started positively. We believe that that's because of the actions that we're taking. We may have had some benefit from weather, but fundamentally, you know, momentum continues. And, you know, it's a good path for us to be on.

And in terms of, not just for Q3, but also sort of the first half of the year, there's different pockets of your business in terms of your product. There's obviously a parallel, there's a big bucket, but there's also sort of broader general merchandise type stuff. But are they sort of moving in sync or is there any differential in performance in them you should be aware of?

I don't think there's anything substantive that you should be aware of, Darren. We would have pulled that out. You know, we're predominantly a clothing and footwear business. We want to maintain our focus on clothing and footwear. We're very happy to service our customers with homewares and tech as well in terms of different categories. But the business is majority clothing and footwear. And our job is to make our customers look and feel amazing. And we like designing clothes for our customers and selling them to

them. Thanks, Steve. And then just one last one, if you don't mind. Because, I mean, it's great to see Mobile First is now up across your strategic brands and Pym is also up and running there. How should we look at signs that those initiatives are starting to bear fruit? Is there any sort of KP, any particular ones of the KPIs we should be looking for moving forward?

Yeah, that's a great question, Darren. I think what we're hoping is to create the best user experience, which effectively therefore starts to flow into customers being more engaged, which therefore flows into customers effectively shopping more with us. And we're focused on higher value customers. And I think if you look at the KPIs as well, some of them have gone backwards. There is some sign that baskets are getting a bit bigger. And average item values are getting a bit bigger as well. And that for us means we can be a little bit more confident that our customer proposition that we're building here, which is, you know, something that does need some level of consideration from our customers in purchasing, is playing through and we're seeing our customers put more in the basket and spend a bit more and come back a bit more. And I think, you know, from my perspective, that's what we're trying to do over the medium to longer term. I just sort of set the tone that we're not expecting to see significant changes in the short to medium term there. But over the medium to longer term, that's focused. Okay. I'll keep one to

keep an eye out.

Thanks a lot,

Steve. Thanks, Dominic. Yeah, thank you.

That's all the questions we had. I will now hand it

back to Steve for closing remarks. Thank you.

Thank you. So, listen, thanks for joining. Thanks for listening. Thanks for the questions. We're a business that feels like it's going in the right direction. We're very pleased with the progress business has made and we're looking forward to hopefully a successful golden quarter and we'll update you further after that. So have a good day. Thank you very much.