Dr. Martens plc

Hello and welcome to our FY25 results presentation. I'm joined today by Giles Wilson, our CFO. I'll do a short introduction before handing over to Giles to run through our FY25 financial results, and then I'll return with some closing comments. FY25 was a year of stabilization. At the start of the year, we laid out four key objectives, and I'm pleased to say that we delivered against all of these. We turned around our America's D2C performance with America's D2C back to growth in H2. We pivoted our marketing to relentlessly focus on product with great initial results. You heard me talk about these back in November. We have reduced our operating cost base, taking 25 million of annualized savings out of the business. And really importantly, our balance sheet is significantly strengthened with inventory and net debt bolted down significantly ahead of guidance. Over to Giles to talk you through the year's financial performance.

Thank you, EJ, and good morning, everyone. Continuing on from the four points EJ just set out, FY25 has been about stabilising our financials and delivering against our core objectives. Firstly, my focus this year has been about strengthening our balance sheet, which started with securing the refinance as announced at our half year. At the beginning of the year, we committed to reduce inventory by £40 million, and we have beaten this with our closing inventory, in fact £67 million lower, a key driver of the £95 million overall reduction in net debt. Secondly, we reset our cost base through the Cost Action Plan, delivering £25 million of cost savings, with the full benefit being seen in FY26. There was some benefit in FY25. The cost action plan helped reset the business's overall approach to cost, and we have embedded into the culture a strong cost discipline. As EJ highlighted, we have seen America's DTC return to growth, and that momentum is now building in the USA as we enter into FY26, albeit these are smaller DTC months. As well as the focus to right-size our own inventory, we saw reduced sales to our wholesale customers in EMEA and US, as they encouragingly right-sized their inventory. This sets up the markets for future growth. Overall, we have delivered on our objectives, delivered in line with market guidance, exceeded our inventory and debt reduction targets, and stabilised the business, setting ourselves up well for future growth. Following on from the half year, we are now presenting the financials in both reported and constant currency terms to show the true underlying trading. In addition, this year we have introduced adjusted performance metrics, stripping out the impact of one-off exceptional and other non-trading related items. Turning to the financials themselves, in the later slides I'll give more detailed explanations of some of these key metrics. our key financial headlines are as follows. Total pairs are down 90%. However, due to the slightly better D2C mix, revenue is only down 8% at $805 million on a constant currency basis, in line with our expectations. Gross margin is down in line with revenue, with gross margin rates slightly down year on year, mainly driven by the product mix, as the shoes and sandals increase and Boots, which has slightly higher margin, declined. In addition, in quarter four, we took the opportunity to clear some aged, discontinued and fragmented stock at reduced rates through our US B2B channel. Although, to be clear, this was still profitable to us. As highlighted on the previous slide, operating costs have been tightly controlled. With the slight increase of 2% year on year, mainly driven by the increased investment in demand generation, as highlighted at the outset of the year to support the move to product-led marketing. Overall adjusted EBIT was 67.1 million and adjusted PVT was 40.3 million, both significantly back on last year, but slightly ahead of consensus. During the period, we incurred 25.3 million of adjusting items, mainly driven by the 17.3 million of exceptional costs of which the cost action program accounted for the largest part. I will cover this in more detail on a later slide. EPS on a constant currency basis is 1.1 pence. As highlighted during the FY24 results, it was the intention of the board to keep dividends flat year on year, given this is a year of stabilization. Starting with America's, The key driver in revenues recline was wholesale, as expected, with 27 million of the 30 million recorded in the first half as our US wholesalers reduced their inventory levels. America's DTC was marginally down by £2 million, with the decline all in the first half, and as discussed, a return to DTC growth in the second half. In quarter four, we consciously pulled back on discounting over previous year, which slightly reduced our revenue in this quarter, following a good performance in the crucial quarter three as highlighted in the statement in January. Turning to EMEA, here it is the same story as with Americas for Wholesale. Of the £25 million shortfall, £23 million related to H1 and was in line with our expectations. EMEA D2C continued to be impacted by a highly promotional backdrop generally. together with weaker consumer confidence, particularly in the UK. We chose not to participate in promotional activity over and above our plans. Of the 16 million shortfall year-on-year, the majority, 80%, related to the UK. In other key markets, France was a flat year-on-year in DTC, and Germany showed growth at a total market level. Finally, in APAC, DTC saw continued strong year-on-year growth in Japan, South Korea and China, with South Korea of a particular note in Q4. Our distributor in Australia and New Zealand, a nice business for both of us, and our partner showed good revenue growth. The slight decline in APAC wholesale was as planned. Overall, our regional and channel performance was in line with our expectations. Though we are disappointed in the overall EMEA DTC performance, this was in part due to a conscious decision not to participate in wider discounting. We were pleased to deliver against our objective of returning America's DTC to growth in H2. The underlying EBIT drops from $126.4 million last year to $67.1 million on an adjusted basis this year. Stepping through the bridge, 50.8 million reduction from the impact of volume at average gross margin, predominantly due to the decline in wholesale revenue as explained, again with the majority in the first half. Small impact on mix of 0.4 million with upside of DTC mix shift offset by the US B2B clearance activity. We increased our demand generation OPEX by 4.7 million to support the new product-led marketing approach. We tidied controlled costs, limiting a year-on-year increase to 1.4 million, a small increase in depreciation due to the annualization of stores, and finally adjusting items I will cover on the next slide. As highlighted at the half-year, we have incurred exceptional one-off items, These were comprised of $15.1 million as a guided relating to cost action plan $8.9 million, executive director changes and buyout related costs of $4.6 million and $1.6 million relating to the refinance. In addition, a further $2.8 million related to the setup of our new global technology centre in India, which will deliver savings in FY27 once fully established. For FY26, the double running costs offset the benefits. Retail store impairment of 4.3 million related to underperforming stores following a review of our store estate. This mainly relates to stores in the USA that have not seen traffic recoveries post-COVID, together with some in EMEA. Currency losses of 3.1 million due to the currency gains and losses impact on our accounts receivables and payable balances at balance sheet date. One of the key objectives this year was to reduce our inventory. And as I said earlier, we are really pleased to have beaten our target of 40 million, delivering a reduction of 67 million. This slide is an extension of the slide I showed at H1. As a reminder, this slide sets out the planned inventory reductions over the two years split into half years. The chart starts at FY23 with inventory at 258 million. During the first half of FY24, we build up the inventory to 300 million. And then during the second half of FY24, we use that inventory to sell during the peak period, closing the year with 255 million of inventory. As we started FY25, the reduced planned purchases can be seen on the chart, with the half-year inventory position slightly down versus FY24 year-end. Then as we enter the busy period in FY25, we utilize our inventories and stock balances full to 187 million. In addition, we also took advantage of an opportunity to sell some aged and fragmented line stock through a discount channel in the USA at reduced but profitable margin levels. For the avoidance of doubt, no deal was transacted in the year at the low cost. We have now normalised our inventory levels. Our supply and demand planning system will go live in the first half of FY26 and that will enable us to continue to effectively manage and optimise our inventory levels going forward. So finally, for this year's financial results, turning to cash flow, I'm really pleased to report our significant reduction year-on-year net debt, both in terms of net bank debt, reducing by $83.4 million to 94.1 million, and a total debt, including leases, reducing by 110 million to 249.5 million. As a reminder on this slide, the grey boxes are the net bank debt, being bank debt less cash, and the white boxes show the lease liabilities. The bridge sets out the cash flow from FY24 year-end position. The next four boxes show underlying operating cash movement in the period delivering $108 million of cash inflow, including the $67 million of inventory reduction from the previous page, and after accounting for lease payments of $56 million and interest and tax payments of $40 million. Capax accounts for $19 million and dividends in the year of $9.5 million. Finally, our net debt to EBITDA finished at 1.9 times, well below our bank covenant level of 3 times. leaving significant headroom reflecting the strong cash flow generation in the year. So to conclude, we set out an FY25 to deliver on our four key objectives, which were grow America's D2C business in H2, pivot our marketing to a product-led approach, take out of the business between 20 and 25 million of costs, and strengthen our balance sheet through the reduction of inventory. We have delivered on all four of these objectives, as well as securing new financing arrangements. We have stabilised the business and are now ready to execute on our new strategy and set us up for future growth. And as we look forward to the medium term, we expect to deliver sustainable, profitable revenue growth above the rate of the relevant footwear market. with operating leverage driving a mid to high team's EBIT margin and underpinned by strong cash generation.

This year, our single focus was to bring stability back to Dr. Martens. We're now looking forward and I'll talk in detail about how we're thinking about the business strategy and path from here in a separate presentation later today.