TheWorks.co.uk plc

Good afternoon and welcome to the works.co.uk PLC FY25 interim results presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time just by using the Q&A tab that is situated in the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CEO, Gavin Peck. Good afternoon to you, sir.

Good afternoon and good afternoon, everyone else. Thanks for joining us today. Rosie and I look forward to updating you on the further progress we've made since we last updated in October. We'll cover our interim results, which show a strong improvement in profitability, our resilient Christmas trading, our further strategic progress made in recent months, an introduction to our new strategy, and our plenty of time at the end to answer questions. So in summary, we've made significant progress operationally, financially, and strategic in the first half. We completed our brand project, which has given us a much clearer brand identity, a new strap line in time well spent, and a new mission that underpins a new strategy that we're introducing today. We delivered broadly flat sales in a tough trading environment in the first half, reflecting resilient store performance, continuing our record of driving positive store-like products, lower online sales which were impacted by issues outside of our control our third party online fulfillment center we've driven a significant improvement in first half profitability product margins are significantly up year on year we've realized significant cost savings from actions taken in the last 12 months trading in the second half has been in line with expectations with momentum building we had a strong end to december trading and that's continued through into january The result of that is we are expecting significant improvement in profitability in FY25. We're on track for market expectations and we expect further profit growth in FY26. We're excited by the new strategy that we developed in the second half of 2024 and that we're introducing today. Delivery on that strategy will step change both the financial performance and the business in the next five years. We're targeting delivery of almost 375 million of sales and an EBITDA margin of at least 6%. There's lots to do, but we've got a really clear plan and we've already started with much of it. And I'll update more on that later. But for now, I'll hand over to Rosie to take you through the financial review.

Thanks, Gavin. And hi, everybody. I'll start by taking you through some of the highlights before we get into the detail. We've delivered revenue of £124.2 million, a 1.3% improvement on last year. Like for Likes were down 0.8%, but this reflects positive store Like for Likes of plus 0.9% and negative online Like for Likes sales of 14.7%, which I'll talk more about later. We presented our FY24 results in October and we outlined the decisive action taken in H2 last year. I'm really pleased to say that as a result, we've seen significant product margin growth and year-on-year cost savings. I'll cover both of those later, but as you can see, profit has significantly improved with a pre-IFRS 16 EBITDA loss of 2.8 million versus 8.5 million in the prior year. Net debt of 8.5 million is higher than last year because of the calendar shift bringing rent and payments into H1. And it's worth reminding you that we typically make a loss in H1 ahead of peak trading period in the golden quarter. So before we dive into performance, let's take a step back and look at the external dynamics we faced in H1. The retail environment remained tough with fragile consumer confidence and significant cost headwinds. Even when consumer confidence picked up in the early summer months, it didn't fully translate into improved spend. Consumer confidence further weakened again in the run up to the autumn budget. This didn't just impact us. Data from the British Retail Consortium showed non-food retail like-for-likes decline of 1.3% for the 26-week period. We also face significant ongoing cost headwinds in FY25 and into FY26, from higher national living and minimum wages, freight costs and business rates, along with changes to employers' national insurance contributions, which will impact us from April onwards. So let's take a look at sales. Sales performance was broadly in line with where we expected, but ahead of the wider non-food retail sector. Stores continued to drive positive sales growth overall, whilst online performance was constrained. In Q1, like-for-like sales declined 1.4%, which reflected the challenging consumer environment. The BRC reported like-for-like sales decline of 1.7% in the non-food retail sector. We also saw poor performance in our kids' books and toys and games categories, but we saw these recover in Q2. Q1 store sales declined 1.6% and online sales grew 0.4%. Q2 saw broadly flat light-for-light sales at minus 0.3% versus the BRC sector of minus 0.8%. Store like-for-like growth of 2.9% reflected our improved back-to-school offer and Halloween ranges, and we continue to see strong growth in adult fiction. We reduced our September sale activity, which adversely impacted online sales in particular, but delivered a much stronger product margin rate. Our online sales were further impacted by capacity challenges at our third-party online fulfilment provider towards the end of the quarter, although these issues have abated post-peak. We continue to focus on prioritising online profitability and this further impacted online sales growth. So overall, we're pleased with the more resilient growth delivered by our stores in the period, which were up 0.9% on a like-for-like basis. So let's take a look at product margins. We're really pleased with the action taken that has delivered strong product margin growth, increasing from 57.2% to 59.3%. Negotiations with suppliers to lower cost of goods sold has been supported by focused effort to control product mix and reduce promotional activity and has accounted for 170 bit improvement. An FX tailwind in H1 of approximately 80 bits was due to our hedged US dollar to GBP rate of 1.26 versus 1.11 last year. And this tailwind will continue in H2. There's approximately 40 bit headwind in container freight rates in H1 will continue into h2 as a result of higher average container rates over the summer of 24 due to the disruption in the red sea increasing rates another priority of ours was to reduce our cost base we've delivered a significant improvement in profit as a result of the decisive action taken we've mitigated the 9.8 national living and minimum wage headwind in h1 largely due to a result of a labour efficiency programme implemented towards the end of FY24, along with changes to our store labour model at the start of the period. Improved ways of working in our retail distribution centre, along with a strengthened management team, saw distribution costs reduced by 0.6 million. Electricity costs reduced year-on-year due to more favourable hedge contract rates, and we continued to be tough on landlords on the lease negotiations and saw good year-on-year rent savings. In January 24, we moved our third-party online fulfillment center to a more efficient facility, and this provided the savings expected outside of Peak. Admin costs had a year-on-year headwind due to a one-off release from the VAT provision last year, offset with savings and corporate costs following our move to AIM at the end of FY24. So now I'll give you a brief overview of stock and cash. We had a lower half-year stock provision versus last year due to improved ways of working. Now the merchandising function is fully embedded. Stock in transit was approximately 4 million due to higher stock on water as a result of the disruption in the Red Sea, which saw increased transit times of approximately two weeks. Our period end cash position was adversely impacted year on year by the higher stock on water balance and the timing of the period end, which meant month end payments fell within the period. But I'm pleased to say we came out of Christmas with a strong cash position of 14.7 million. We haven't declared an interim dividend, but we continue to keep capital distributions under review as profitability improves and surplus cash allows. So let's look at H2. We've had a good start to H2 trading with momentum building over the 11 weeks. Christmas trading was in line with expectations and we saw similar trends to H1. Stores had a resilient performance of plus 1% like for likes, outperforming the wider non-food sector. Online performance was impacted by our third party fulfilment challenges, as I've mentioned, and was down 14.9% year on year. We saw strong trading in December and this has continued into January. We also held our nerve in a highly promotional market with strong product margin growth of 190 bits. So looking at the full year outturn, we're well positioned to meet external expectations for FY25 with significant profit growth of 8.5 million EBITDA compared to 6 million last year. Cash is expected to be positive at around 4 million and 5 million capex spend reflects fewer new stores and lower store refits. Looking into FY26, we expect to offset significant cost headwinds and deliver profit growth. We've identified strategic initiatives to drive sales, which Gavin will talk to, and we're taking action on prices, continuing to focus on reducing COGS and controlling promotional activity, and we'll hope to create product margin improvement of 150 basis points. We're expecting to target significant cost reductions across central costs in the year. And the cost transformation project that's supported by Interpath is well underway, all of which will help offset the cost headwinds in FY26 and deliver EBITDA growth. I'll now hand you back to Gavin, who will take you through the strategy.