Wickes Group plc

And thank you for taking the time to join us this morning. And I'd like to also welcome everyone who is watching via the webcast. I'm here with our new CFO, Mark George, who joined the business in July. Mike and I are delighted to share with you our half-year results for the business for the six months to the end of June. We will spend the next half an hour or so taking you through the performance of the business as well as highlighting the great progress we are making on our growth levers and sharing our outlook for the rest of the year. I'm pleased to report we've had record first half sales as we continue to gain market share. As you know, our balanced business model spans three distinctive customer propositions of local trade, our do it for me showrooms, and DIY. With both local trade and do it for me driving our strong performance in the first half as the DIY market moderates following its COVID heights. The power of our Digital TradePro scheme means we have seen unprecedented growth in sign-ups as local traders switch to Wix for great value, convenience and confidence in product availability. The cornerstones of helping them save time and money every day. We have seen strong delivered sales in our Do It For Me showroom business as we work through the elevated order book from the end of last year. and we are attracting customers with innovative new kitchen and bathroom ranges and our unique installation proposition. Given our record sales performance and continued growth in market share, we are more confident than ever that our highly distinctive business model is working and affords us tremendous opportunity in the UK's large home improvement market. Given a more challenging operating environment, I am pleased with the agility of our operating model in the first half, driving efficiencies within the business to protect profits in the face of lower volumes. We are a cash-generative business with a strong balance sheet that gives us the flexibility to both invest in our distinct levers for growth, deliver innovative new products, services and stores to our customers, as well as reward our shareholders. And we have today announced that we will be maintaining our full year cash dividend at 10.9 pence. More on this from Mark as he now walks us through the financial review.

Thank you, David, and good morning, everyone. First of all, I just wanted to say how pleased I am to be here to have joined Wix in July. It's a fantastic business, and I'm thoroughly enjoying working with David and the rest of the Wix team. So it's great to be here for my first set of results with David. So as David said, the first half was a strong performance. We've got some of the headlines here, as you can see. Sales were up slightly, which was a really good performance on lapping a period last year when we had an absolute peak and a record performance. Crucially, on a three-year basis, when we compare to pre-COVID periods, you can see here that like-for-like sales for the business overall were 23.4% up. And that really reflects substantial progress in that period, particularly in the core business, which as you can see is 36.3% up on a three-year basis. Now, our margin was 70 basis points lower, and that really was driven by the inflationary environment that we're in, and I'll talk a bit about that in a moment. And overall, we delivered 45.6 million of PBT, which was broadly similar year on year, a resilient performance. Now, our profitable cash generative model means that we've got a very strong balance sheet, and we ended the year with, sorry, ended the half with 167 million of cash. And it's that balance sheet position and strength and the confidence that we have in the business going forward that has enabled us to confirm that we'll maintain the cash dividend for this year, as David mentioned, despite the lower PBT that we've recently guided to. So let's just look at the P&L in a little bit more detail. So you can see here, this has been a resilient profit performance, particularly in light of inflation. So the product inflation that we have through our business is around 15% in the first half. Now, one of the effects of that is of real pressure on percentage margin, because our strategy for dealing with that is to pass through the cost increases to our customers on a cash basis. So that dilutes the profit margin percentage slightly. Another factor that's driving that is that we are selling more of our sales in TradePro. And as you know, TradePro customers get 10% discount. So those two effects together are both dilutive to percentage margin. Now, if you look at operating costs there, they're up slightly year-on-year, just over 1%. Again, that's a good result in this inflationary environment. But what it also reflects is our ability to take out some cost as volumes decline, and more on that in a moment. So overall, that's delivered an adjusted operating profit of £56.3 million, which is down 9% year-on-year. Below operating profit, we have our interest, which is principally IFRS 16 interest payments, but also foreign exchange. Now we've had a 4 million benefit in unrealized FX gains in this half. That's a 3.8 uplift versus last year. Now that's non-cash, that will unwind. So just bear that in mind, worth pointing that out. But overall, a very resilient performance against record profits in the first half last year. So this next slide takes us through how our uniquely balanced model really works in a period of quite disruptive consumer environment that we've had in the last three years. The year on year comparisons, you can see here that there's been some normalization in our core business. It's down 5.5% on a light for light basis. There's a very strong performance last year when we were in the midst of the pandemic. And then in Do It For Me, that business is recovering nicely. So you'll remember in the first half of last year, for a period, our showrooms were closed. We're now bouncing back from that, as you can see in the year-on-year comparison, up 29.7%. But on a three-year comparison, which takes us back to pre-COVID levels, you can really see the progress we've made in our core business there, 36.3%. Now, this is a combination of some market growth, but actually substantial market share growth, where we've been outperforming the market with our very strong model. With Do It For Me, our showroom business, that is still to recover to 2019 levels, as you can see, but that's an opportunity for us. We're very confident we will get back to 2019 levels and beyond in due course. So overall, what we've shown over this period of three years is that we've moved forward on a like-for-like basis by 23.4% in terms of the overall business, with a substantial part of our business, our Do It For Me showroom business, still to recover back to those pre-COVID levels. So the shape of our sales mix year on year is really reflected also in this profit bridge. And what you can see is that versus H1 last year, our gross profit has decreased in core as the sales have come off there, but increase in our do it for me business, which has been recovering. And you can see the two are almost offsetting there. And within the rest of the cost movements, the first thing is marketing, which we've shown there is 2.2 million higher in the first half of this year. For the year as a whole, we expect that to be the same as last year. The phasing is slightly different because if you remember last year with showrooms closed in the first half, it just changed the pattern about marketing spend. So that should be similar year on year by the time we get to December. But the next two bars show the interplay between costs and volumes and inflation. And you can see that there's been some inflation in our cost base, but there's also been an opportunity to take cost out. We have some of our costs in our business that are variable, and I'm going to touch on that in a moment, and performance and volume related. But that has managed to broadly offset the inflation that we've seen in the business. And then the last two are FX and interest, which we touched on a moment ago. So just a bit more on that cost base then. So what we see here in the bar on the left is a diagram of our overall cost base. Now, the first thing to say here is that ordinarily distribution costs are presented as part of gross profit. And on the previous slide, they would have been in those first two bars for Do It For Me and for Core. Here though, we've just taken them out just to give you the full range of what our operational costs are. And obviously no numbers here, but they are in proportion, those boxes. So the first thing to say is that about a third of our cost base is fixed in property-related costs. The biggest proportion, of course, is rent. Now, what we're seeing with rent, most of our leases are renewed on an open market value basis, and we're not seeing any upward pressure in rents when we're coming to renewal and changing the lease payments. really zero inflation in rent. At the moment, rates also are temporarily protected from inflation. And of course, depreciation and amortization are more a function of previous capex, but in the short term, also fixed. So a good proportion of our base really not inflating at all. Then you can also see the next biggest part from our semi-variable costs are store wages. Now, there we have a certain degree that's fixed around our management structure. They're on relatively, you can see there, 2022, the pay award that we gave. But then we have a large proportion of our wages in stores that are hourly wages paid to our staff, where that's dictated really by national minimum wage, which was 6.6% in April. Now, that's an area where we can flex the hours according to volume. So there is an opportunity there as volumes come down in the business to bring costs down as well. Within distribution, there's a number of components. So some of these are in-house costs that we have for our own warehouse and our own staff. But then we also have outsourced operations for transport and last mile delivery. And it's particularly those outsourced operations that are more variable, more volume related, where as volumes come down, we can take some cost out and have done so. But overall, the inflationary effects here in distribution are around 4%. And then you can see support centre and marketing as well, also reasonable levels of inflation. So overall, what we're seeing at the moment in our operating cost base is around 3%, which is obviously very different from the kind of inflation we're seeing in the products that we're selling at nearer 15%. And we wanted to just set this out to make that distinction. One final thing on this slide, as you can see in that bottom sliver, of other, that includes our utilities costs, which at the moment are less than 1% of revenue. We are locked into a position until end of Q1 next year in terms of our energy hedging, and we have an attractive rate. So that is going to go up when we're exposed to the market later in 2023. It's not possible at this stage to say what that is going to be. It's a function of both the market and also what government support there may be beyond the initial six-month cap that the government has talked about for businesses. So as we get more visibility of that, we'll, of course, update you. But it will be going up in 2023, as you would expect. So I just wanted to touch on balance sheets and cash flow now. So Wix is obviously a cash-generative business. And what we've tried to do in this cash flow is, in the cash flow waterfall, is describe what's operational, what's timing, and what's non-underlying and one-off. So you can see there the core operational cash flow that we've delivered in the first half is 50 million pounds, a very strong cash-generating business. We then have a working capital benefit of around £45 million. Now, that is timing. You'll remember from previous presentations we've done, our first half is where we get the positive working capital in the cycle. It comes off and will unwind in the second half, and you should expect that again. We then have our investments in capex, new stores, IT, refits, and then the dividend, of course. We then have some cash outflows that won't continue for much longer. These are the separation costs we have as we separate from Travis Perkins. They will continue through 2022. There'll be a small number in 2023, and then that will be over after that. So we're showing those as non-underlying to try and give you a good picture of what the true operational cash generation of the business is. And then in the table on the top left, you can see the overall leverage position, including our IFRS 16 lease liabilities. And as you know, the way we prefer to quote our leverage is net debt to EBITDA using the IFRS 16 basis. And as you can see in June, we've reached 2.6 times on that basis. So you'll remember in March that we outlined our capital allocation policy, and here is a reminder of that. So the first thing is our policy is that we want to be consistently below 2.75 times on a net debt to EBITDA leverage basis, including IFRS 16 leases. We'll invest in projects that will deliver strong returns, and that will be store refits and new stores, as well as small internal projects. We will pay out 40% of profit after tax in the form of dividend, and then excess cash we will return to shareholders in the form of special dividends or buybacks. So you'll notice from the previous slide that we have now reached the point when we have gone below 2.75 times. We're at 2.6 times. But very important to remember that this is at the optimal point in the cycle for us for a year in terms of working capital. And our expectation is that leverage will be higher on this basis at the year end. So we won't be doing anything on buybacks or dividends at least until that point. However, one of the things we do want to do, as we mentioned earlier, is maintain the cash dividend. So our policy is 40% profit after tax. We've indicated that profit will be coming slightly down year on year, but actually we're going to keep the cash dividend, which means the payout ratio will be slightly higher than 40% this year. So I'll finish with some words on outlook and guidance. And really, the outlook that we have is very similar to what we said at a trading statement at the end of July. We are seeing some softening really in the DIY market only. And that just reflects the wider economic uncertainty that consumers are facing at the moment. But much of our business is trading very well. Now, although we are going through that slightly more uncertain period, we are very confident in our model and our ability to not only deliver market share growth, but also we're reaffirming the target of 72 to 82 million PBT range that we gave at that trading statement. We've also got some technical guidance, which we've put up there. I'm not going to read that out, but that's broadly the same as what we set out at the beginning of the year for those factors. The only slight difference is that where previously we had capex at 45 for the year, it's now 40 to 45 as we get closer to the year end. So in summary, this has been a very strong first half performance for the business, both in terms of sales and profit, and of course, cashflow. Now we're entering a less certain period of trading at the moment in the next few months, but we go into that period with a very strong customer proposition, a growing market share, and a very strong balance sheet. So with that, I'd like to hand back to David for a business update.

Thank you, Mark. Okay, so look, I make no apologies for sharing this slide again, as the long-term structural fundamentals of the UK's home improvement market have not materially changed since I last presented it back in March. 65% of the UK's housing stock is owner-occupied, and the lion's share of which is well over 50 years old, generating an ongoing need for repair and maintenance. We continue to experience high levels of housing transactions. And as you can see from the chart on the top right, the green bar represents the half year position. And we are pacing well over half of the 10 year average at this point in the year. The boost in 2021 was driven by the COVID-related stamp duty relief. When people move house, they tend to seek to improve and in particular invest in larger ticket projects such as a new extension, kitchen or bathroom. Alongside this, one of the legacies of the pandemic is that we are spending more time at home and want our homes and gardens to better reflect the way we're living and working today. And this is encouraging people to invest in their living space. The chart on the bottom right shows that older people who tend to spend more money on their homes will typically use tradespeople or installation services to help them with their home improvement projects. This benefits the local trade and do it for me parts of our business where we have an older, more affluent customer profile. Now, what has changed since March is that the cost of energy has materially increased, with broad inflation impacting consumers. And despite the welcome announcement from the government last week, the nation still faces a huge challenge. There is even more imperative for consumers to reduce their energy consumption and costs, whether that's by fitting better insulation or investing in newer technologies such as solar or air source heat pumps. Add to that the government's target to reach net zero by 2050 and the fact that around 40% of the UK's carbon emissions come from the residential sector, there will be an increasingly urgent need to decarbonise the UK's housing stock by making our homes more energy efficient, which presents a tremendous long-term growth opportunity for us, not least given our unique installation capability. So look, in summary, despite the short term noise, the cornerstones of this market remain in good health and underpin future growth. Now, of course, we also keep a watchful eye on more immediate trends through our monthly Mood of the Nation consumer research. This gives us great insight into the home improvement trends through the lens of our three customer propositions. From our most recent survey, we can see that local trade and Do It For Me remain relatively stable month on month. Where we are seeing consumer behaviour changing is in DIY, when they began altering their general spending habits from June onwards, post the Jubilee bank holiday weekend. But the local trade story remains very positive. Our trade customers continue to tell us that their pipelines are in good shape. One in four tradespeople have work lined up for 12 months or more, with close to 60% having a solid pipeline of work over the next three months, both broadly unchanged since early 2022. And two thirds of tradespeople have not seen any jobs being cancelled or postponed. And if they do get postponed, most rebook within the next month. Turning to Do It For Me, as we look forward at our own leads, conversion and average order value, we don't see any significant changes and cancellations remain at a very low level. However, as we mentioned at our Q2 trading statement, what we are seeing is that customers are just taking longer to get through the journey from order to completion. They're being a lot more considered and thoughtful around their purchase. Now, we are taking proactive steps to get customers through this journey quicker. So now, as soon as a customer has accepted our quote, our design consultants are booking in the delivery to create further certainty that the purchase will go through to completion. But we're also responding to the current consumer environment and helping customers purchase their dream kitchen or bathroom with the introduction of a new lower financing rate at 3.9% APR. We're simply making it more affordable so they don't have to compromise on what they want. As distinct from local trade, and do it for me, there is a different story in our DIY business. As Mark guided in our outlook statement, we are seeing some softening in DIY as we come off the COVID highs and consumers are more mindful of the economic environment. And whilst we are still seeing high levels of engagement in DIY, with nine out of 10 households taking on a DIY project, there is some evidence of people cancelling projects. And our latest survey suggests that that is around one in 10. Now whilst we can't predict future sales levels, what we are confident about is that we will continue to perform better than the market and be a relative winner. Our uniquely balanced business model leaves us well positioned with greater resilience to consumer trends and our distinctive customer propositions mean we can support all customers with their home improvement plans during a period when their household costs are rising. As I've already mentioned, customers across our local Trade and Do It For Me channels are generally older and wealthier homeowners with high levels of savings and a need to invest in their ageing housing stock. We have a market-leading proposition and a highly efficient model that is based on a curated product range that means we can have a laser-sharp focus on providing the lines that matter most at the best possible value. This is especially important to local trade, who are increasingly seeking value to be able to mitigate rising costs for their customers. One in two local trades are doing more price research than normal and turning to Wix products more frequently as a result. As you can see from this chart on the top right, our price index versus our main competitors remains strong. Our well-regarded own brand has strong brand recognition and has built up half a century of goodwill with our most valuable customers. Two thirds of our sales come from great value Wix own brand products. Critically, our focus on making sure we are always innovating with new products and services that customers love is a key factor in driving demand and market share gains. And finally, as households look for ways to reduce their energy costs this winter, we are well placed to help them with that task. As we step into autumn, we are focused on our trading and pricing plans on making energy efficient products more affordable to support customers in the challenges around the cost of living crisis, with a focus on how they can lower their household energy consumption. We're selling numerous energy-saving products from LED light bulbs to draught excluders to insulation. Indeed, in recent weeks, we have seen sales volumes of insulation up by as much as 85% on a three-year basis. And we've also updated our energy-saving advice pages on our website where customers can find great tips on how to make their homes more energy-efficient. This slide will be familiar to all of you now. It outlines the strong portfolio of growth levers that we have to win in the market. We've made great progress on these growth levers in the first half, and I'd just like to share a few highlights. Our strong balance sheet gives us real advantage, and while others may not have the funds to invest, we do and they are driving good returns. Our TradePro scheme goes from strength to strength. Sales up 20% in the first half, driven by an 18% increase in new members, taking the customer base now to well over 700,000. That's around 70,000 new members in the first half of this year alone, compared to 80,000 in the whole of last year. So we're well on our way to hitting our target of a million TradePro members. We've been doing some exciting work and I do it for me business with the introduction of new bathroom and kitchen ranges which are performing really well and already contributing 15% of all showroom sales. It's vital that we're able to provide our customers the very best installer service backed up by our guarantee of great workmanship. This is a real point of difference for us and we're delighted to have added a further 200 installer teams to our network of Wixt approved installers. We now have over 2,800 teams spread far and wide across the country and on track to have 3,000 by the year end. More than 60% of our kitchen and bathroom installations have a tiling or flooring project attached and following the continued success of our tiling and flooring installation service, we have launched internal joinery nationally this year. We're also exploring the opportunity to broaden the reach of our kitchen proposition and have introduced six new ranges of ready-to-fit kitchens tailored to the budget end of the market. In DIY, we have conducted a number of range reviews in the first half, including our garden maintenance and buildings categories, which has resulted in a 75% uplift in sales since 2019. The bedrock of DIY is painting and decorating, and in this category, we have seen strong market share gains in the first half and have new ranges landing in the second. An enduring legacy of the pandemic was the introduction of a younger generation to DIY, including more women trying their hand at home improvement projects. We have seen a 20% growth in female customers since the pandemic, and women now account for over 70% of our followers on our DIY Instagram pages. We're making super progress on our store refit program with six out of the 11 stores for 2022 already completed and the rest on track to be done by the end of this year. Our refitted stores continue to see an average sales uplift from Rokey of around 25%. In March, I announced our plans to open on average around four to five new stores each year over the next five years from 2023. I'm delighted to say we've brought forward the opening of one of those new stores and we'll be welcoming customers through the doors of our new Bolton store in Q4 of this year. Within our stores, we continue to invest enhancing our service model. We have increased the square footage of order fulfillment in a further 30 stores, taking the total to just shy of 70 and growing our overall home delivery capacity by over 10%. We have also rolled out the new digital handheld devices so our store teams can swiftly pick customer orders, resulting in us launching a new reduced 30 minute click and collect window. So customers can now order what they need online or via the app and have their order picked, packed and ready for them in store in just 30 minutes. Finally, on this slide, we continue to make great strides in our digital capabilities. The number of sales starting online are up year on year despite lapping COVID comparatives. And in the first half, we launched a range of Wix products on eBay with the intention of growing our customer base and reaching customers who might not have shopped with us before. We are making positive progress on all our responsible business pillars. I won't go through each of these, but just pick some highlights in the first half. These include a phenomenal response to the launch of our Wix community programme. We've helped over 130 community projects in the form of product donations and volunteer support from over 90 stores, with more and more stores getting on board. We've implemented a new energy management platform across the estate alongside the launch of an energy efficiency drive with a focus on reducing store electricity and gas consumption. In our homes pillar, selling sustainable products and services will be central to our business strategy over the coming years. We have spent the first half of this year mapping out the sustainability credentials of all of our products and are working on a taxonomy and labelling strategy that will help customers make informed decisions about the products they purchase and their environmental impact. And just to conclude on this slide, we are submitting our science-based targets next week. So more on that in the year to come. So to wrap up, we've had a strong first half, record levels of sales, record market share, successfully maintained profit, and made good progress across our growth levers. Our distinctive business model and strong value proposition is standing us in good stead, and we continue to outperform the market despite the challenging environment with the local trade and do it for me parts of our business in good health, although signs of softening in DIY. We have an agile model focused on efficiency of the cost base and remain confident in our ability to be a relative winner in this market. We are well placed to capitalise on the long-term structural home improvement trends. Our strong balance sheet and cash generation supports continued investment in our growth levers and delivering shareholder returns. So thank you for listening. Mark and I would now be happy to answer any questions.