Watches of Switzerland Group plc

Good morning, everyone. Thank you for joining our webcast and call on the results of the Watches of Switzerland group for the half year to October 23. We have previously reported Q2 and H1 revenues to the market, and we've presented the status of the company and plans for our group with our LRP. And therefore, this presentation is reasonably concise, allowing more time for Q&A. Our agenda this morning, I'll present an overview of the group's performance, Anders Romberg, our CFO, will then present the financials. Then we will present a summary of our LRP headlines and numbers together, following which we'll open the lines for Q&A. We are very pleased with our strong first half performance in the UK and the US, despite a challenging economic environment. Group revenue growth of 2% at constant currency, flat at reported rates. Strong US revenue growth of plus 11% at constant currency. Adjusted EBITDA of $94 million was 8% down at constant currency, 10% at reported rates. EBIT of 73 million, achieving a margin of 9.6%, which was down 170 bps versus last year, due predominantly to a reduction in net margin for product mix and interest-free credit costs. Net cash of 60 million compares to 26 million borrowing at half one last year, with cash conversion of 60%, 700 bps higher than last year. We've now completed the acquisition of the luxury showrooms from Ernest Jones. These stores had a combined LTM sales of around 45 million pounds. We have successfully launched Rolex certified pre-owned in both the UK and the US. We communicated our LRP through to FY28 on the 7th of November. Our FY28 goals in the LRP represent a more than doubling of our sales and profits. Looking here at the sales mix in more detail, the rapid growth of our US business means that US sales and a half are now 43% of the group total, compared to fiscal year 2019, a total year of 24%. We see the US market as underdeveloped and we are very pleased with our growth and momentum in the US. Our group sales and a half were 95% to domestic clients and this compares to 67% in fiscal year 19. International sales have been hugely impacted by the removal of VAT-free shopping in the UK following Brexit. We have more than compensated for this market loss with a successful increased focus on the domestic client. I'm very pleased to confirm the completion of the asset purchase of a group of 15 showrooms from Ernest Jones in the UK. This was previously reported at 19, however, four monobrand stores have been sold separately. Ernest Jones is part of the Signet Group, which is predominantly a US-based group focused on diamond jewelry. Ernest Jones ceased partnering with Rolex in 2012, but continued the relationship with most other luxury watch brands. The showrooms that we are acquiring include a total of 76 luxury watch brand agencies, including Omega, Cartier, Breitling, Tudor and Tag Heuer. These showrooms are very much in our space with great potential for growth, all in good geographical locations complementary to our current estate with good teams, locations and clients. The focus immediately is to rebrand the stores, leverage our group systems, implement our client service and merchandising, and of course the training and support of our new colleagues. The pre-owned market is huge, particularly in the US, and represents a major opportunity for the Watches of Switzerland group. We have now launched Rolex CPO in the US and UK to add to our already successful analogue shift business in the US and UK pre-owned. We launched Rolex CPO in seven showrooms in the US in July, we're now in 14 and in five showrooms in the UK in September and we're now in 10 with Metro Centre effectively launching this week. Half One has been our busiest on record for developments with new showrooms in all markets, including the transformation of a number of large turnover showrooms in the UK, which we have now reopened across November and early December to maximise trade in the holiday season. We have a healthy pipeline into fiscal year 25, including the opening of the flagship Rolex boutique on Old Bond Street in autumn 2024. We continue to invest in our Goldsmith luxury designs with expanded and elevated showrooms providing dedicated space for luxury watch brands, increased space for luxury jewellery brands and new areas of hospitality and client service. In September we completed the most significant and largest transformation for Goldsmiths in Liverpool city centre, six and a half thousand square feet across two floors of luxury watches, luxury jewellery including a 1200 square feet Rolex room and a 500 square feet Cartier room. We've also introduced many new jewellery brands including Pomolato and Fred. Since a half year we have opened a relocated Rolex boutique in Orlando, Florida and completed Goldsmith luxury transformations in Birmingham Bullring, Manchester Trafford Centre and Newcastle Metro Centre. We have also successfully developed a new design for Mappin & Webb focused on a more modern contemporary look whilst respecting the great heritage of the brand. We have opened in York, Guernsey, Glasgow and Bluewater. You can see here opens next week. We are delighted with the success of Soho and Hudson Yards in our New York flagships. These showrooms continue to grow in sales and we believe we can continue to grow in Manhattan and the tri-state area. American Dream, New Jersey, opened firstly in May, anchored by Rolex. One Vanderbilt will be our next Manhattan flagship, located next to Grand Central Terminal, at the base of arguably the premium office tower in New York City. This building is host to the first Amex Centurion lounge, which spans a full floor of the building. The boutique is anchored by Cartier and Omega, and will open in Q4 of this fiscal year. Branded jewellery is a market we have highlighted to apply our winning model. Mapping & Web Manchester, a new store concept, will open in autumn 2024 with an impressive line-up of international luxury jewellery brands that will be regionally exclusive and also designer brands, men's jewellery and Mapping & Web jewellery. The Mall of Netherlands near The Hague will be our first multi-brand location in Europe and the first entry to the market for the watches of Switzerland brand. We have a great lineup of brands including Cartier, Omega, Breitling, Tudor and Tag Heuer and the showroom is due to open by October 2024. E-commerce continues to be a key area of focus, not just in driving sales through this channel, but supporting client journeys ahead of visiting our showrooms. Sales were down 3% at constant currency for the half, reflecting tough comparatives and a higher mix of jewellery through this channel. We continue to invest in the customer journey both online and through our virtual boutique to ensure each client gets a journey that meets their needs. I'll join you again shortly, but now I'll pass over to our CFO, Anders Romberg.

Thank you, Brian, and good morning, everyone. I'm Anders Romberg, CFO for the group, and I'll now take you through the financials. This is presented on a pre-IFRS 16 basis and exclude exceptional items. The reconciliation through the statutory numbers are included in the R&S. Revenue growth for the half was plus 2% on a constant currency basis and flat on a reported basis. Growth was driven primarily through luxury watches with the jewellery market softer. The US has continued strong growth with sales of plus 11% on a constant currency basis. In the UK and Europe sales declined by 4% with Q1 impacted by timing of supply. We're confident that we're continuing to take market share in both regions. Net margin for the half was 80 basis points down versus last year, reflecting adverse product mix and impact of interest-free credit cost. Adjusted EBITDA declined by 8% on a constant currency basis or 10% on a reported basis to 94 million. Adjusted EBIT declined by 15% to 73 million, which I'll talk you through on a subsequent slide. Financing costs decreased by 800,000 as higher market lending rates were offset by savings made as a result of the refinancing in May 23, lower level of drawdowns and increased interest income and cash balances. The effective tax rate was 29% for the half, exceeding the standard UK rate due to higher chargeable taxes on US profits. For the full year, I expect the effective tax rate to be around 27-28%. Adjusted EPS for the half was 21.5 p, decline of 23%. The profit reduction for the half was primarily driven by reduction in margin rate from product mix and higher interest-free credit costs. Our cost base increased from opening of new showrooms, but was partially offset by management of our existing cost base. Depreciation increased by 3 million, reflecting the increase in capital, and an adverse year-on-year exchange rate impacted EBIT by 2 million. Moving to the balance sheet, the increase in PPE results from our ongoing showroom investment program and the increase in right-of-use assets and lease liabilities due to expansion of our showroom network. Inventory increased to 400 million, 5% higher than the first half of 23, driven by an increase in number of showrooms and the increase in the unit value of our stock from pricing. This was mitigated by strong management of stock holding in other areas of our business. It is important to remember that there is really no obsolescence in our inventory. Net cash was in line with year end at 16 million and 42 million ahead of prior year. On the cash flow, adjusted EBITDA was 94 million. The working capital outflow of 8 million represents the inventory bill for new showrooms, less an associated offset in trade payables. The increase in tax payments reflects the higher rate of UK corporation tax versus last year. Free cash flow conversion of 60% was 700 basis points favorable to last year. We continue to invest in the showroom expansion and refurbishment program with multiple new showrooms delivered across all regions. Our expansion plan has been more front end weighted and we expect capital spend to be lower in the second half reflecting full year guidance of 80 million. Net cash was in line with year end at 16 million. 50 million of our lending facility was also paid down in the half as we manage cash and interest costs tightly. Post half year, we completed the Ernest Jones transaction at a consideration of 44 million. Today, we are reiterating the guidance that we gave last month when we released our Q2 trading update. Guidance is based on visibility of supply of key brands, reflects confirmed showroom openings, it excludes M&A, and is based on a second half average rate of $1.25 to the pound. With that, I'll hand you back to Ryan.

Thanks Anders. We were delighted to share our updated long-range plan on the 7th of November. Our performance tracks significantly ahead of our previous LRP and we are confident of significant growth over the next five years. This plan has been built in granular detail with key building blocks shown on the slide. All of our capital investments work delivering strong ROIs and paybacks. Looking firstly at showroom investment, this is by no means just refurbishment. These projects in most cases involve showroom expansion, will always include additional brand distribution and can often be a showroom relocation. Our cash payback, which we review ongoing, is between two and three years. Investing in our showrooms is a key driver of profitable growth and we have the clearest visibility and most exciting investment programme in our LRP. The pre-owned market represents a major opportunity for the Watches of Switzerland group. We have now launched Rolex CPO in the US and UK to add to our already successful analogue shift and UK pre-owned businesses. We will progressively expand distribution of our CPO to all Rolex agencies, UK and US, and we will rebrand non-Rolex CPO to Analog Shift in the UK. We will increase distribution of Analog Shift in both markets, and we will support the business with in-store presentation and marketing and develop the online sector. Branded luxury jewellery is a significant opportunity for the group. We have success and credibility through our growth in luxury watches. We have learnt a great deal about luxury branded jewellery from recent acquisitions of better age and mayors in the US. And we have decades of heritage in jewellery here in the UK. We are now ready to focus on this category. We will open a new concept store dedicated to luxury branded jewellery in the centre of Manchester. This showroom will include many brands available for the first time outside of London, including a De Beers boutique. We will introduce prestigious luxury jewellery brands to our multi-brand luxury showrooms in both the UK and US and online. Our new store developments all include expanded space for luxury jewellery and lounge and hospitality areas conducive to jewellery selling. We will support these plans with a full marketing programme of advertising, PR and events. Online is a major growth opportunity and our size and scale is going to help us grow ahead of the market. We will continue to add luxury watch brands along with developing the online success of Rolex Certified Pre-Owned and our own Analogue Shift Pre-Owned, as well as developing a strong luxury jewellery branded proposition. We've had great success in driving growth through acquisitions such as Mayors, Betteridge and Wynne and identifying new projects and opportunities in underserved markets such as Hudson Yards and Soho in New York. We believe there is significant opportunity for growth in these areas and we have projected significant investment to deliver the growth potential. And I will now pass over again to Anders to give you the financial summaries of our LRP.