Dr. Martens plc

Good morning and welcome to our FY24 results presentation, both here in the room and on the webcast. I'm absolutely delighted to be joined this morning by Giles Wilson, our new CFO, who joined us three weeks ago. Also in the room from Dr. Martens, we have Paul Mason, our chairman, and also E.J. Wakode, who's our chief brand officer and who will also succeed me as CEO later in this financial year. And also Bethany Barnes, our head of investor relations. So our agenda for today, I'm going to provide a very short overview of what we're going to talk about, and then I'm going to hand over to Giles, who will take us through our financial results for the last year. And then I'll return to provide a business update. So FY24, as you'll hear from Giles, our FY24 results were in line with our guidance. However, our USA performance was disappointing, which dragged down overall group performance. FY25 is going to be a year of action, where we will focus on our USA action plans, on marketing, and on driving savings. And I'll cover this in detail later. Then in FY26, we will have Dr. Martens back into growth. With that, I'd like to hand over to Giles, who will take us through the numbers.

Thank you, Kenny. And good morning, everyone here in the room and on the webcast. It is great to have joined Dr. Martens. I very much look forward to working with the team and getting to know you all over the coming weeks and months. Before I run through the financial results, I thought it would be worth me giving you my first impressions from my first three weeks and what attracted me to joining Dr. Martens PLC. I have split this into three key areas. Firstly, looking at the product and what an iconic product and brand Dr. Martens is. A brand that has more than stood the test of time and is so close to so many people's hearts. When I told my friends and my family that I'd be joining Dr. Martens, without exception, an instant reaction was a smile on their face, showing the strength of the brand. Many people telling me about the pair they owned, had owned, or were now going to buy again. And what really stood out to me when doing my research was the depth and the breadth of the people that the band appealed to. Having worked in a premium and luxury goods company for the past few years, the absolute key ingredient to the long-term success of any premium brand is foremost its quality. And the reputation and the quality of Dr. Martin's products are exceptional. Secondly, the opportunity. Even following the historical growth rate of the past 10 years, the depth and the breadth of the opportunity remains significant across three main areas. The room for growth in the key markets and products where the brand is already strong. The headroom for growth, to grow, sorry, in our diversified portfolio range in those markets remains compelling. And then beyond current opportunities and looking to the longer term, there's still both untapped markets and new categories to grow into. And finally, the financials. The core gross margin of Dr. Martens is really strong. which is, in any business, gives a great underlying base to build from. This cannot easily be started from scratch, and this leads to a highly cash-generative business. But the downside can be where the top line declines. As we're currently seeing, there is a significant deleverage impact to the bottom line. This is particularly pronounced for us in Fall Year 25 and Fall Year 24, as the cost base was built in anticipation of a much larger business. Therefore, it is right we now scrutinize our cost base and drive efficiencies where we can. And I'll set that out on a slide later. As I said at the beginning, this is only my third week. However, I believe you'll see in the coming finance slides, I've started to introduce some more clarity in the financial information and some use to more traditional metrics. So turning to the summary financials of full year 24 and focusing on the key takeaways. Although total pairs are down 16.7%, due to the better D to C mix, which can be seen in the increase in gross margin rate, the revenue decline is just under 10% on a constant currency basis. As I'll explain later, most of this decline comes from US wholesale. Even though operating costs are relatively flat in year, the operational deleverage can clearly be seen with EBITDA dropping 19% year on year. I've introduced EBIT on this slide, which I'll focus on more than EBITDA. This allows you to assess the full operating performance of the business, including the impact of depreciation. As I set out on the next slide, the impact of store estate expansion and our new distribution centres increases depreciation, and that coupled with the shortfall of revenue leads to a year-on-year drop of EBIT of 31%. Finally, PBT before the FX impact of our accounts receivables and payables, as well as our Euro debt, which leads to a net 4.2 million P&L charge at the end of the year. Given the increasing impact of depreciation has on the overall profitability, and there is a particular jump up this year, I felt it was worthy of more analysis. This slide shows the three main categories of depreciation and amortization. The top line shows the amortization, which reflects the IT projects, and this figure has grown through time as projects have come online. Depreciation mainly reflects fixtures and fittings in our stores, and as store numbers increase and are refurbished, this line reflects that investment. Finally, the largest figure is IFRS 16 depreciation, which is made up of three areas. Circa 55% relates to our stores. Circa 35% is distribution centres, and the remaining 10% is made up the rest, for example, our offices and our showrooms. The £19 million increase from full year 23 is particularly pronounced this year with around 70% due to distribution centres, reflecting the full year impact of these centres as they only came online during 23, as well as a catch up from full year 23. New stores IFRS 16 depreciation year on year accounts for circa 6 million, reflecting the impact of the 35 new stores in year. Looking forward, we expect the year on year increases to be significantly less and only really reflecting new stores or IT projects coming online. And as we show in our guidance later for full year 25, this is expected to be between 75 million and 80 million. This slide shows the revenue by channel and I'll go into more detail bridge on the next slide. However, key to pull out here is the growth in retail stores revenue still reflecting post-COVID recovery, as well as new and maturing stores. Underlying like-for-like retail stores growth is negative, which is more reflective of the overall challenging market conditions. E-commerce remains broadly flat, and therefore overall DTC growth was 5% on a constant currency basis. The overall group revenue year-on-year decline is all about wholesale, mainly the US, but also some strategic decisions across Europe and APAC. Albeit of a lower base, the D to C mix of 61% is much more the shape of the revenue that the business is looking for in the long term. I found this really helpful in my first three weeks to really understand the reasons behind the revenue decline. The boxes in the bridge set out the key movements by channel and market. It can clearly be seen that America's, and particularly America's wholesales, accounts for the vast majority of the year-on-year decline. Over 100 million of the group's 123 decline is America's, with 80 million of that being America's wholesale. This reflects the overall weak consumer spending and challenging boot market, which Kenny will pick up in more detail later. EMEA and APAC both show wholesale going backwards, but this is predominantly due to strategic decisions to reduce volumes in e-tailers in EMEA, the transfer of some Japanese franchise stores, and the exit of the China distributor. Though reduced volume in the short term, these decisions to exit wholesale accounts is the right thing to do for the long term of the business. On a more positive note is the performance from both EMEA and APAC D2Cs showing year-on-year growth, as reflected by the two yellow boxes. The numbers are slightly benefited in EMEA with the timing of Easter. However, given the overall market conditions, the performances for both EMEA and APAC showed good resilience in full year 24. A new slide for this year showing the key year-on-year movements in EBIT. Just to explain this slide in a bit more detail, the hatch boxes is the reported EBIT each year, and to show true movements, I've stripped out the impact of FX charge, as I explained earlier. The underlying EBIT drops from 186.9 million in full year 23 to 126.4 million in full year 24, driven by 99 million from the impact of volume at a standard gross margin. the impact of better D to C mix and price offset this by 39 million. The continued focus on our costs in our supply chain delivers a further 18 million of upside. Overall operating costs are held to be slightly negative at 5 million. And as already explained, the increased 18 million year on year on depreciation and amortization charge. And all other items circa 5 million. Therefore, the total decline in EBIT is 60 million, again showing the significant impact of deleverage from the volume loss. Turning now to cash flow, a key focus of mine as I take on my new role. The grey boxes are the net bank debt, being bank debt less cash, and the red boxes show the lease liabilities. The first four boxes in the bridge reflect the net cash flow generation from the operations of 88 million, being 198 million from EBITDA offset by lease payments, working capital movements, and interest and tax payments. From this 88 million of cash generation, 28 million was spent on CapEx, and 108 million was paid out to shareholders through a 50 million pound share buyback and 58 million pounds of dividends. With a small positive movement in the FX, the net bank debt increased year on year by circa 40 million and the new lease liabilities adding a further 30 million to deliver an overall net debt of 358 million. At the end of the year, the 200 million pound revolver remains undrawn. This slide is part of the additional clarity of information that I referenced at the start. This is intended to be the background to the cost action plan, which I'll explain on the next slide. The bar sets out how full year 24 total group cost base totaling 750 million is split down to EBIT. Firstly, 40% of our cost base is cost of goods, which is a very well-controlled cost following the continued execution of the group's successful supply chain strategy. The next section is regional support costs, which includes the stores and the distribution centres. So in full year 26, we'll benefit from the unwind of the excess US inventory storage costs, and also includes the royalties, which are a fixed percentage of revenue. The group support is flattered in full year 24 results, as there's no incentivisation cost, and therefore in a more normal year would be slightly higher. and explains part of the full year 25 headwinds. Marketing equates for around 7% of the cost base with depreciation and amortization making up the remaining 10. The action plan which I'll discuss on the next slide is really to focus on the middle two boxes. So total cost base of circa 320 million. As announced in the statement today, the group has embarked on a cost efficiency action plan to target between 20 and 25 million pounds of cost savings. This action plan will focus on all costs, but predominantly on regional and central support costs, and looks at ways of driving more efficient organisational design, I focus on the way we buy through better procurement and use the skills employed in our supply chain purchasing and also look where possible to streamline internal processes without cutting into the muscle of the business. This programme has the full buy-in of the global leadership team and will be led by myself. We are not expecting any net benefit in full year 25. However, we expect to see the full benefit in full year 26. The new savings target gives a high single digit percentage on the full year cost as I set out on the previous slide. As I'm sure you can imagine, three weeks in, it is difficult to give much more detail than this. However, this is a committed project, has started. We need to carefully manage the execution and I will give more thorough updates in the November results. Hopefully over the last few slides have given you some more clarity, detail behind our full year 24 numbers and the shape of the business. Now looking forward and our outlook. As stated in the announcement, we are not changing overall trading guidance for full year 25. However, this slide sets out some more detail on the guidance as well as some half-won thoughts and some key targets by which to measure our success in full year 25, as well as set us up for full year 26. So outside the usual financials, we expect to see USA D2C growth in H2 full year 25 positive, the impact of which will have a knock-on effect on the autumn-winter 25 wholesale orders in full year 26. Kenny will set out more detail, the clear action plans to deliver this. As I said earlier, cash is going to be a key focus of mine, and with that in mind, we want to see inventory decline by 40 million and turn that into cash. Adding this impact to other cash focus, we expect to see our net debt to be between 310 and 330 million. Now looking at the half year results, as we've already indicated, we expect full year 25 to be more second half weighted. This is due to, in the first half, the overall declines in group revenue, circa 20% year on year, predominantly driven by wholesale, which we expect to be down by a third. as we increase our demand generation spend year on year in the first half to drive interest ahead of autumn winter 24 season and the impact of the incremental cost being evenly spread throughout the year. The overall impact of operational deleverage will be more pronounced in the first half. This will lead to a loss at profit before tax in the first half, albeit we still generate a positive cash EBITDA. Finally, the box on the right gives some more guidance of specific items for 25. Now, before I hand back to Kenny, I'd like to update you on the position in regards to the dividend. The board has decided to propose a 0.99p final dividend, which means a total dividend of 2.55p. equating to 35% the full year 24 earnings in line with the policy to pay out between 25 and 35%. Looking forward, it is the intention of the board to hold the full year dividend flat in absolute terms for full year 25. The board was keen to ensure clarity over the dividend during this year of transition. In full year 26, we intend to revert back to policy of paying between 25% and 35% of earnings. Finally, we are announcing that we intend to move to a formulaic approach for interim dividends, being a third of the previous year's total dividend. With that, I shall say thank you for listening, and I shall hand back to Kenny. Thank you.

Great. Thank you very much, Giles. So Giles has covered FY24 in some detail. We're now into FY25, and I just wanted to make some key points around the year ahead. As we told you in April, we expect USA Wholesale to be down double-digit year-on-year. Also, we have assumed no meaningful in-season reorders in USA Wholesale in our forecast. We will be shifting the focus of our marketing to product marketing in the year ahead. We also have a clear action plan in place for the USA direct to consumer business. As you've heard from Giles, we will deliver growth in the second half in USA DTC. Also, as Giles has told you, we're taking action to reduce our costs and our boots action plans will reduce our inventories in the second half. Then in FY26, Dr. Martens will return to growth, driven by Boots and a growing USA business. We will have lowered our cost base, and the key IT systems we have been investing in will start to deliver results. Starting first with our EMEA region, our conversion markets continue to be a growth engine in the medium term. Germany, Italy, and Spain all delivered strong double-digit direct-to-consumer growth, and the UK also delivered DTC growth, though at a lower level. This year, total revenue in Italy grew, but overall revenue in Germany declined slightly, and this was driven by our decision to reduce e-tailer volume. Our brand awareness remains strong across the EMEA region, and we grew awareness across all of our key conversion markets by between 2% and 3%. And by the end of FY24, we had 19 stores in Germany and 12 in Italy. Moving to Asia Pacific, Japan continues to be our most important market in APAC. The revenue in EBITDA of this business has accelerated since we completed our successful franchise take back in the cities of Tokyo and Osaka. Today, more than 60% of our company-owned stores are in these two cities. We have significant growth opportunities ahead of us in Japan as we expand the brand across the rest of the country. Brand awareness is growing, but we are still at low levels in Japan relative to other markets. And in Tokyo, where we have a larger retail presence, we have higher awareness. Moving to our product strategy, which is about boots and shoes and sandals. In financial year 24, direct-to-consumer pairs of shoes and sandals grew more than 20% year on year. However, our boots saw a small decline. As I'm going to show you in a few minutes, our key goal in FY25 is to drive desire and demand for our boots globally. Turning to the more difficult market, the United States. In FY24, the boots market in the USA was particularly challenging. As this data on the slide shows from Cercana, previously we've talked about them as NPD, shows, boots were down 17% year on year. This weakness resulted in our wholesale customers buying less boots from us across the year. However, as we've previously communicated, we believe our implementation in the USA market could also have been better. And now we've put in place clear action plans which will improve this performance in the year ahead. Where is that key focus in the United States? Well, the major area of focus in the next 12 months will be with those people who know our brand in the United States, but they haven't purchased yet. If you look at net consideration of our brand, it's up 5% amongst those who have purchased before. So that says we're retaining consumers. However, consideration amongst non-buyers is down 8%. And therefore, we need to change our approach. So what's going to be different this year versus last year? Well firstly, I wanted to talk about what we're going to do differently in all markets before turning my attention specifically to the United States. In the last four months since he joined the business, EJ has refocused our marketing on product marketing. We will talk specifically about our product rather than talking about our brand. And in autumn-winter 24, we will lead with boots. Our focus will be showing consumers that we have product for them, thus broadening appeal. And we will lead with our icons, but we will support our innovation. Moving specifically to the United States, our USA action plan will focus on three areas, on marketing, on digital, and on wholesale. We will be increasing our marketing investment as a percentage of revenue in the year ahead in the USA, whilst ensuring we maximize the return and the efficiency of the spend. Our marketing focus in the US will be on icons and four key concepts, and we will be focusing on product marketing to drive consideration. And social media will be a key component of our plan. In digital, we will improve the quality of our product detail pages, and we will drive more qualified traffic and optimize our current checkout process to improve conversion. We will also implement order in store, which we already have in our EMEA business. In wholesale, our focus is clearly on driving sell-through with our key partners so that we stimulate reorders, as Giles has said, for FY26. So how does this look on a calendar if you look at that in the United States? Our USA marketing efforts will be product focused, as I said. It's all about driving consideration. We're going to support our icons across the whole of the autumn winter season with icons always on. And there'll be a focal point in October ahead of the key holiday season of Thanksgiving and Christmas. All of our marketing in the United States will support boots, with soft leathers in July, with the rigor boot in August, with square toe in September, and then obviously winterized in November. Throughout the second half of this year, USA consumers will hear a clear boots message from the Dr. Martin's brand. So in summary, FY25 is going to be a year of transition for Dr. Martens. However, we will drive a focus on product marketing. We will deliver clear action plan for USA DTC improvement. We will lower our cost base and we will reduce our inventories. What that then does is give us the platform to return the business and the brand to growth in FY26. Thank you so much for your attention. Giles and I will now be very happy to take questions first here in the room, and then also for those of you who are on the webcast. It would be really helpful, given Giles is new, that if you just give us your name and who you work for, that would be super helpful. Thank you very much.