Dr. Martens plc

Good morning everyone and welcome to our FY25 half one results presentation. I'm joined today by Giles Wilson, our Chief Financial Officer and EJ Wakodi, our Chief Brand Officer. So our agenda for today, I'm going to provide a short introduction before handing over to Giles who will walk us through our half one financial results. Then I'll provide a business update before EJ informs us on our brand and how we are refocusing it. Our first half performance is in line with our expectations. Back in May, we communicated four key objectives for this year, and I'm pleased to say that we are making good progress on all of them. The action plan we are executing in the USA direct-to-consumer business is working and will return this business to growth in the second half. We've pivoted our marketing to relentlessly focus on our product, and EJ will pick up on this in detail. We've reduced our operating cost base ahead of schedule and Giles will walk through this. And we have strengthened our balance sheet while delivering on the reduction in inventory that we promised. We said that FY25 would be a year of action and we are taking focused action. Now over to Giles, who will now walk us through the results.

Thank you, Kenny, and good morning, everyone. As Kenny has set out, our first half has been about delivering on our plan, setting the foundations for the key peak trading period. Before I run through the financial results, I would like to highlight four key areas. I set out back in May that we would take out 20 to 25 million of costs from the business on a four year basis with the full benefit in FY26. I am pleased to report we have delivered at the upper end of that range at 25 million of annualized savings. We have reduced inventory through reduced purchases and are on track with our target. Last week, we successfully completed the refinance of the group's banking facilities. During this process, we use excess cash generated from the reduction in inventory to pay down the term loan by circa 40 million and reduce the level of the rolling credit facilities to be aligned with future liquidity requirements. We are on track to deliver our financial results for the full year with our key trading months still ahead of us. The swift action taken on the cost plan and the tight cost management helps underpin our full year results. I said at the full year, I would focus on delivering more clarity in our financial results presentation. At this half year and going forward, we will set out our financial results both on the reported currency and a constant currency basis versus the prior year. This will allow us to show the true impact of underlying trading, taking out the impact of foreign translation on our reported numbers. For this year, we have also introduced adjusted profit metrics, due to the one-off costs largely related to delivering the cost action program. Turning to the financials themselves, in later slides I will give more detailed explanations of the key financial metrics. Our key financial headlines are as follows. Total payers are down 20%. However, due to better D2C mix, revenue is only down 16% at $332 million. on a constant currency basis and in line with our expectations. Gross margin is down in line with revenue with gross margin rate broadly flat year on year. Operating costs have been well controlled with strong cost management allowing for extra investment in demand generation to support the brand as we head into the busy peak period. Overall adjusted EBIT is a loss of 2.4 million and adjusted PBT loss of 16.1 million, both significantly back on last year, but in line with our expectations. During the period, we incurred 9.3 million of exceptional costs, mainly related to the Cost Action Programme, and 1.6 million due to the currency gains and losses impact on our accounts receivables and payables and our Euro debt. At the EPS level, there is a loss at adjusted EPS of 1.1 pence. Dividend is set at one-third of the previous year's total dividend, in line with our guidance in May. Turning to revenue by channel. As explained on the previous slide, we are showing constant currency for year-on-year comparison. We guided at the four-year results that wholesale revenue would be down by about a third. with actual results slightly better than guidance, delivering 27% or $55 million down on year-on-year. D2C revenue is down by 5% or $9 million, with total revenue down 16% or $63 million on a constant currency basis, in line with guidance given in May. I'll explain the movements on the next slide. Our D2C mix improved, driven by fallback and wholesale, The owned store estate increased by 13 stores year on year and was broadly flat in the half. I introduced this slide at the full year. The boxes in the bridge set out the key movements by channel and market. Starting with Americas, the key driver in the revenue decline was £27 million of wholesale, as expected. Kenny will pick up later the time lag on wholesale recovery. American's DTC was marginally down by 3 million, driven by weak retail footfall offset by slightly better performing e-commerce, all again in line with our expectations. Turning to EMEA, wholesale was again in line with our expectations and partly impacted by shipment timing differences due to the timing of Easter. EMEA DTC, as indicated in May, was also impacted by the timing of Easter and sale. together with weaker sandal performance in the summer, particularly in retail, delivered a 7 million year-on-year decline. However, as we entered the boot season towards the end of quarter two, we saw DTC performance improve to be back in positive territory in both Americas and EMEA. Finally, in APAC, the slight decline in wholesale is as planned, and in DTC, we saw continued year-on-year growth in Japan, partially offset by weaker performance in Hong Kong and South Korea. Overall, our regional and channel performance was in line with our expectations. Our DCC revenue performance was better in second quarter, with retail in quarter one generally weak across the group. The underlying EBIT drops from 39.7 million H1 last year to a 2.4 million loss on an adjusted basis this year. Stepping through the bridge, 50.1 million reduction from the impact of volume at standard gross margin, predominantly due to the decline in wholesale revenue as explained. The impact of better DTC mix and price adding 8.3 million. As indicated at the full year results, we increased support behind our brand by 1.8 million. We tidy control costs even before the impact of the cost action program. delivering 2.3 million reduction in operating costs. A small increase in depreciation due to the increase in stores. The exceptional costs and FX translation, as I explained earlier. A key area of focus has been reducing our inventory. This slide sets out the planned inventory reductions over the two years, split into the two halves. The chart starts at FY23 with inventory at 258 million. During the first half of FY24, we built up levels to 315 million. And then during the second half of FY24, we used that inventory to sell during peak period, closing the year with 255 million of inventory. As we entered FY25, The reduced plan purchases can be seen on the chart with the half year inventory position slightly down versus the FY24 year end. And as we enter the second half of FY25, we sell down inventory during our peak period. For the avoidance of doubt, our plan reduction in inventory is part of an organized reduction of purchases of core product in FY25. not through significant discounting or selling stock below cost. We remain on track to deliver our year-on-year target for a decrease of 40 million. We will continue the inventory reduction into FY26, with purchases planned to again be below our forecasted sales. Turning now to cash flow. there has been a significant positive reduction in both net bank debt and total debt year on year. The grey boxes are the net bank debt, being the bank debt less cash, and the red boxes show the lease liabilities. Total debt drops from £479 million at the end of H1 FY24, as shown in the column on the far left, to £349 million, as shown on the column on the far right. a total of $130 million reduction year-on-year, split $85 million decline in net bank debt from cash generation and $45 million decline in IFRS 16 debt. The bridge sets out the cash flow from FY24 year-end position. Starting with the second column, which is the net debt at FY24 close, the next four boxes show underlying operating cash movement in period, We've tightly managed our cash position this period with a particular focus on bringing down inventory, as I have just talked through. Overall, the impact of EBITDA and working capital movements deliver 39 million cash inflow. This is then offset by lease payments of 28 million and interest and tax payments of 13 million. CapEx accounts for 11 million, and with a positive impact of FX on our Euro debt, sees overall net debt marginally increase by 9 million since the full year. As I explained on the previous slide, we would normally expect to see a larger inventory purchase in H1 in advance of peak, which would see our net debt increase significantly from the prior full year position. However, this is not the case this half, given the plan reduction in purchases. Our net debt to EBITDA finished the half at 2.3 times, well below our bank covenants, leaving significant headroom. Finally, some new metrics on this slide showing our average lease term to break across past store and distribution center portfolio. As explained in previous results, the group tightly manages its store portfolio with all leases having no longer than five years before the first break. For H1, the average lease exposure to break was 2.8 years, marginally down on the full year average. Overall, as I set out at the full year results, cash flow is a key focus and we have significantly decreased net debt year on year, predominantly driven by our strategy to turn inventory into cash. At the full year results, we said we would deliver between 20 and 25 million of cost savings. we undertook a detailed and swift process to tackle our cost base. The key process and principles we adopted were as follows. A detailed analysis of FY24 costs were carried out versus prior years, by function, by region and cost line. Each global leader was then tasked to identify savings against these FY24 costs. Direct demand generating marketing costs and frontline retail teams were not included in the project. The focus was predominantly on support, operational and back office costs. Cost saving targets were not against future or uncommitted costs and therefore had to be true reductions from actual costs. Headcount reduction took place across all levels in the organization. There was an establishment of a steering committee with a dedicated team to support the cost action plan. This also aided the speed of execution. Programs were put in place to exit levers on a fair basis and also support the teams going forward. And finally, during the first half, certain guardrails around recruitment, discretionary operational spend, and capital spend were put in place over and above the normal controls. The process was effective and completed in advance of our peak period. The outcome of this swift, detailed, and well-controlled process is the Cost Action Programme was completed with the savings at the top end of the range of £25 million in FY26. The make-up of these savings are approximately two-thirds through headcount reduction, leading to an exceptional charge but to the half-year of circa £7 million, as explained earlier. The remaining third will be through efficiency and procurement savings. I'm pleased to share that on the 19th of November, we've refinanced the group, with a new facility of 250 million term loan replacing the existing 337 million Euro term loan and 126 million and a half rolling credit facility replacing our previous 200 million rolling credit facility. Our previous facilities were due to expire in early 2026 and therefore I felt it was sensible to secure the new funding facilities slightly ahead of time to give certainty as we go into FY26 and return to growth. The key features are as follows. An initial term of three years with the option to extend both facilities by two additional one-year term subject to lender approval. An interest rate ratchet relating to key net debt to EBITDA ratios. A maximum government of three times net debt to EBITDA We have 12 banks in the facilities made up of a mix of existing and new banks. The facility is structured to meet the future liquidity requirements of the group, and it was clear with the planned inventory reductions that there was excess funds to allow us to reduce the term loan to $250 million. In addition, the rolling credit facility, which has only been used a couple of times since the IPO, has also been reduced from $200 million to $126.5 million. The new facility gives us more than enough liquidity to meet the group's future requirements. We don't foresee any changes to net finance costs compared to consensus expectations as a result of the refinances. So to conclude, overall, the first half has been about delivering what we said we would do. We have delivered in line with our expectations. We have focused on our cost base and delivered our cost action plan. We have managed cash tightly and seen inventory and net debt significantly reduce year on year. Finally, we are pleased to have successfully refinanced the group's borrowing facilities. I will now hand over to Kenny.

Thank you, Giles. I'm now going to talk a little more about each region before moving on to systems and product. Turning first to the USA, which is a high priority market for us. As you can see from the Circana data, the total boots market in the USA continues to be challenging with a 12% decline year on year. We're assuming that this weak backdrop will continue into the second half and as previously communicated, we expect our USA wholesale business to be down double digit year on year. However, despite the external environment, we're pleased with the progress we're seeing in our USA action plan. On the left, you see what we said we would do, and on the right, you see what we've done. In marketing, we increased our investment in the USA as a percentage of revenue. We focused on talking specifically about our products, and as you will hear from EJ, we've recently launched our Boots Like No Other campaign. We've elevated the quality of our retail windows in key cities, and we've utilized more social media to drive consideration of our brand. In digital, we have driven double digit improvements in conversion by improving the quality of our product detail pages and optimising our checkout process. And we have also implemented order in store, which we already had in our EMEA business. In wholesale, we knew this year would not be about growth. However, we've been working closely with our key wholesale partners in continuing to reduce in-market inventory and building plans for the year ahead. Since the start of Autumn Winter 24, a direct consumer business in the USA has been encouraging with improved consumer demand. As we have outlined before, there is a lag between consumer pool and wholesale orders. In the months ahead, our partners will place orders for Autumn Winter 25, and more encouraging consumer demand today should lead to a stronger USA order book for Autumn Winter 25. As product momentum continues to build next year, there is the opportunity to take in-season reorders to drive growth. Turning our attention to EMEA, we have continued to see good strategic progress in our EMEA conversion markets. Italy, Spain and the Nordic saw good growth in H1, while German revenues were flat. We remain confident in the future growth prospects of these markets. We launched our first stores in three new European countries with the opening of Stockholm, Copenhagen and Vienna. These markets provide further runways for growth. Also, we've seen real success in key cities where we've opened two stores. Some examples include Milan, Berlin and Barcelona. And we see further opportunities ahead in more markets, both in EMEA and globally. Back at our full year results in May, I shared an update on our Japanese market which continues to perform well and which remains a significant growth driver as we have high brand engagement and low penetration at only four pairs per thousand people nationwide. Japan remains our largest DTC market with 80% of revenues through our own channels and we continue to target new store openings in and around both Tokyo and Osaka. We have a healthy franchise business with great partners And this remains an important part of our growth strategy. Our franchise partners help us in extending our reach beyond Tokyo and Osaka and growing the brand across Japan. In H1, we opened three new DTC stores and two franchise stores. And we have a strong new store pipeline in H2 and the year ahead. As you're aware, we've been investing in critical systems for our future growth. And I'm pleased to say that two of our biggest projects are now live or close to final implementation. The customer data platform, which gives us a single consumer view across both direct-to-consumer channels, is now live in EMEA and the USA. And this will enable more targeted marketing and personalized journeys. The benefits from the CDP will increase over time as we gather more data. Our demand and supply planning system will be live by end H1 FY26. This will help us to improve availability whilst reducing working capital. And again, we expect the benefits to build over time. Our product performance in H1 was in line with our expectations, with direct consumer pairs down 3% on the year. As expected, boots were down 12%. and we have made changes to our marketing approach from July, which will drive boots demand in H2. Shoes performed well with pairs up 7%, driven by core product and new styles like the Lowell shoe, which is shown in the middle picture here. Sandals were flat year on year, a disappointing performance following several years of growth. This is an area for improvement in spring-summer 25. Within sandals, we saw strong performance for mules, a growing category. We have a strong product pipeline coming through, and as we called out in our statement, current trading has been driven by good DTC sales of new product supported by a product-led marketing approach. I'm now going to hand you over to EJ, who will walk us through AW24 focus today. Thank you.