Dunelm Group plc

So good morning and welcome. Good morning and welcome to the Dunelm Interims presentation covering the first half of our financial year 2022. My name is Nick Wilkinson and this morning Laura Carr and I are in person and live from the offices of Peel Hunt in London. I trust that wherever you are, you are safe and well and feel connected with us on the continuing story of our business. Thank you for your interest and let's get started. Here's our running order this morning, nice and simple. I'll shortly hand over to Laura, who'll take you through the first half financials, and then I'll be back to talk through our plans for the future. I'll also give you a longer-term perspective on our growth, what's driving it, how are we compounding our sales, which parts of our plan and our strategy are driving growth, and what's to come. But that's for later. Let's get started. So with a spring in our step and a photograph from our gorgeous spring collections, onwards. It's another clean sweep in terms of our financial metrics. So no lockdown closures in these six months against the prior period when we had those rolling circuit breaker lockdowns. But plenty of market wide headwinds in this period to navigate in terms of supply and supply chain operations. So I'm delighted with how we've done on the top line. Customer numbers looking strong and up over 6% and drop through into profit and cash also very good. The strength of our balance sheet allows us to pay both an interim and a special dividend as we move back into our leverage range once again. As ever, our focus is on growth with good operational grip. So let me just give a very brief summary of what's been going on in the half and then I'll hand over to Laura. The graph on the right shows 12-month rolling sales. So the 12 months to the end of half one is basically calendar year 2021 at £1.4 billion turnover. But that includes the lockdown periods that were taking place this time last year from January until the middle of April when our stores were closed. So rather cheekily, we've extended the line based on our current trajectory, as you can see on that graph. And looking across that turbulence of the lockdowns, you can see we're both a bigger business and that we're growing strongly. was driven in the half by executing the plans we have to continue digitizing our business our digital platform extends our reach which grows our brand and allows our product offer to broaden because we can list promote and sell a wider choice of lines this in turn encourages us to invest in further improving those products in terms of design development and supply capabilities and at the same time our physical shopping experience is also moving forward Digital investments like Click and Click, which was over 10% of our store sales in December and January, but also non-digital investments, so investing in new stores and refits. Our stores feel strong and increasingly they differentiate us from competitors, whether pure plays or legacy physical retailers. Finally, I'd highlight in the half a successful addition to our fulfilment capacity at two sites through own and partner operations, which will be important to future growth. So after another good half of growth and progress, we're a bigger and a better business. And we remain extremely ambitious. Our goal is to be the first choice for home for more and more UK home lovers. I'll be back to talk about that later, but now on to the numbers, and I'm delighted to introduce you to Laura.

Thanks, Nick. And morning, everybody. I'm now going to take you through the financial results for the 26 weeks ended the 25th of December 2021. As Nick has already said, we delivered a very good performance in the first half across all of our key financial metrics. Strong top-line growth, accompanied by continued gross margin improvement and good leverage of our operating cost base led to profit before tax of £140.8 million, up 25% compared to the same period last year. If we compare the profit before tax to the same period in FY20, which was a pre-COVID time period, our first half PBT is up £57 million, or 68%. Our strong profit performance translated into cash, with free cash flow conversion of 74%, and we ended the period with £48 million of cash on the balance sheet. Given the strong trading performance, strong balance sheet and our confidence in the future, the Board has declared an interim ordinary dividend of 14 pence per share and a further special dividend of 37 pence per share. Total sales of 795.6 million pounds were up 10.6% versus last year and up 36% compared to the same period two years ago. Digital sales made up 33% of the sales in the half and have more than doubled since the comparative period in FY20. As Nick has already mentioned, the comparative period included store closures, including the regional lockdowns which impact both the digital and the non-digital sales penetration comparatives. With our total offer open throughout this half, we've been especially pleased with the strong performance in stores, demonstrating our customers' commitment to our friendly and convenient service. We saw growth across most of our product categories with strong performances in furniture, which grew over 30% in areas such as dining chairs and beds, driven by improved availability and new ranges. And a good sell-through in our Christmas gifting and decorative products also helped our seasonal ranges. We continue to gain market share during the period and using our weekly GfK analysis, we outperformed the homewares panel of retailers by 14 percentage points during the half. Additionally, our GfK data for furniture categories shows that we also continue to outperform the furniture market and gain market share. Gross margin was 52.8% during the half, up 80 basis points compared to the same period last year. This strong result was driven by a high sell-through of our seasonal ranges and the effective provisions that we took in the comparative period last year relating to the stores being closed as we entered our winter sale period. This was partially offset by the impact of the summer sale in Q1 of this year. We expect that the second half margin rate will be significantly lower than the first half in line with our historical trends as we will likely have two sale events during this time period, both our winter and our summer sale, which we expect to revert to its normal timing in Q4. We estimate the impact of these events to lead to full year FY22 gross margin being around 30 to 50 basis points lower than in FY21. As expected, inflation on commodity prices and freight rates is now impacting the cost of stock purchases. We are closely collaborating with our committed suppliers to create sourcing benefits, managing the mix of products across price bands and, where appropriate, increasing retail prices. Due to our stockholding levels, we expect the impact of these pressures to grow as we move into FY23. We remain committed to providing great value for money for our customers and feel confident that we will maintain margins in line with our financial model. Operating costs increased to £277 million, an increase of 8.4%. The operating cost to sales ratio of 34.8% was better than expected as a result of the strong performance in stores, where the additional sales dropped through at a very high contribution rate. Compared to the prior year, the net impact of the reintroduction of business rates, offset by the repayment of JRS monies, was to reduce operating costs by £3 million in the period. Costs grew by £8 million as a result of the additional volumes, and there was a £4 million higher accrual for incentive schemes in the period, reflecting the more positive outlook for performance compared to the same period last year when our stores were closed and the four-year outlook was very uncertain. We invested an additional £5 million in supply chain, including the new e-commerce and furniture sites which came on stream at the end of the period and will enable our future growth. This number also included additional storage costs relating to our decision to hold higher inventory levels to mitigate the ongoing global supply chain disruption. Also in line with our ambitious growth plans, we invested a further £7 million in growing our capabilities, including £5 million in digital and tech, mainly relating to additional headcount in our digital engineering crews, and £2 million in product development and supply. These investments are already contributing to our growth and will support further development of our proposition, enabling better decision-making and optimising efficiency in the future. Looking at the interest line in the P&L, interest expense was £4 million lower than last year, mainly due to the movement in foreign exchange gains and losses on dollar-denominated bank balances. The effective tax rate was 19.5%, slightly ahead of the headline rate due to a level of non-deductibles and the higher availability of capital allowances. Diluted earnings per share were 55.4 pence per share, up 25.6% compared to last year. Cash generation remains a key strength of our business model. We delivered £106.3 million of free cash flow during the period, a free cash flow conversion of 74% of operating profits. Cash from operating profits increased due to the improved profitability and we had a £21 million working capital outflow, mainly driven by the increase in inventory levels. Net tax paid was slightly lower than last year as we received some tax rebates for R&D claims during the period, and capex was £14.2 million, including a significant proportion of the two new supply chain warehouse fit-outs, plus the one new store in the period and the multiple refits as part of our ongoing refit programme. We ended the period with £47.7 million of cash on the balance sheet, even though we'd paid out £179 million of dividends during the half. And in December, we announced that we had successfully refinanced our evolving credit facility and were delighted to have put in place a new sustainability-linked RCF facility, which closely ties our sustainability ambitions into our bank facilities. Given our strong financial performance in the period and the confidence in the future outlook, the Board has declared an interim dividend of 14p per share, up 2p or 16.7% on the equivalent amount last year. Additionally, we are pleased to announce a further special dividend of 37p per share, which will be paid in March. This special dividend will again take us to the minimum target leverage range. We're retaining a level of prudence in the balance sheet given the uncertain macroeconomic outlook, but note that the business remains highly cash generative and that we are committed to our published capital policies. As usual, I've pulled together the guidance points for the remainder of FY22. It is worth noting that the second half comparatives to FY21 are impacted by both the extended store closure period that we had in the third quarter last year and the strong reopening that we had from April. You would need to go back to FY19 to get a clean comparative period for the second half, and as that was before we did our digital re-platform, the business is now on a different scale. Beyond the noise in the comparatives, we expect to show continued strong growth and market share gains. We expect that the full year operating cost to sales ratio will be slightly lower than our medium term guidance model of 38% given the strong performance in the first half. Investments in the second half will be slightly higher than the first half as we continue to invest in our capabilities to underpin the development of our proposition. Turning to cash, and we noted in our second quarter trading update that we continue to build inventory levels to mitigate the ongoing disruption from supply chain. We expect our full year capex spend to be around £30 million, with two new smaller format stores being opened towards the end of the half, and we'll be continuing on with our store refit programme. And finally, just a note to highlight that this year we'll be reporting a 53rd week for statutory purposes, and we will provide a full 52-week equivalent information on the P&L, but it may have a small favourable impact on the year-end cash position. That concludes my summary of the first half results. And I'm now going to hand back to Nick, who's going to talk us through how we're moving forward as a business and how purpose is impacting everything that we do. But before we do that, we thought you might like to see our latest advertising campaign. So if the tech works, I'm going to run VT. Thank you.

It's all about how splendid. We don't want to stand out too much. You're just like everybody else. Being the same.