TheWorks.co.uk plc

Good afternoon and welcome to the works.co.uk PLC FY25 preliminary results presentation. Throughout this quarter presentation, investors will be in listen-only mode. Questions are encouraged and they can be submitted at any time by the Q&A tab situated in the right corner of your screen. Just 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 up to CEO Gavin Peck. Good afternoon, sir.

Thank you, Alessandro. Good afternoon, all, and thanks for joining us today. Rosie and I look forward to updating you on the great financial and strategic progress that we've made in the past 12 months and the strong momentum that we've carried forward into FY26. I've got plenty of time at the end to answer any questions that you may have. So in summary, it's been a year of significant progress operationally, financially and strategically. Excitingly, we launched our new strategy to elevate the works in January this year. That starts with a clear ambition that supports our new brand position, which is to be the favourite destination for affordable, screen-free activities for the whole family. We've got clear plans that underpin bringing our ambition to life. We are already delivering tangible progress with momentum building. Delivery of those plans will step change financial performance over the next five years. We'll deliver over £375 million of sales and EBITDA margin in excess of 6%. We're embarking on delivery of that strategy from a solid foundation, having delivered a strong financial performance in FY25. Pleased to have delivered like-for-like sales growth ahead of the wider sector and in a fragile consumer environment. That's particularly strong performance in our stores, which remain the lifeblood of our business and over 90% of our sales. We're really encouraged by the acceleration of like-for-likes in Q4 as we started to deliver on our strategy and build momentum from it. The like-for-like sales growth together with significant margin growth and cost reductions means we've offset the cost headwinds faced and significantly improved profitability with EBITDA of £9.5 million for the year, which is significantly up from £6 million in the previous year and ahead of previous market expectations of £8.5 million. We're confident in the outlook for our year ahead and expect further profit growth during it. Further delivery on our Elevating the Work strategy will drive sales growth, margin improvement and cost savings, offsetting further cost headwinds that we face, primarily from the government's autumn budget. We've already made a strong start to FY26 with like-for-like sales growth of 5% in the first 11 weeks. We're also seeing strong margin growth year-on-year and we're delivering further cost savings. And all of that means we're comfortable with recently upgraded market expectations for 11 million EBITDA in FY26. I'll talk more about the strategic progress that we've made later, but for now, I'll hand over to Rosie to take you through the financial review.

Thanks, Gavin. I'll start by taking you through some of the highlights before we get into the detail. We've delivered revenue of $277 million, slightly down year on year as a result of the additional trading week in the prior year, along with a focus on optimising the store estate, which I'll talk more about later. We've delivered light-for-light sales growth of 0.8%. Store sales, which represent over 90% of total sales, were the key driver behind this strong growth, with positive light-for-lights of 2.3%. This was driven by more customer focused events, new products across all categories and improved store standards and product availability. Online sales declined by 12.1%. They were impacted by the temporary capacity constraints at our third party provider during peak and also a focus on improving the profitability of this channel. The action we've taken has delivered significant product margin growth and a year-on-year cost savings which have mitigated significant cost headwinds, such as the national living and minimum wage. And as a result, we've delivered year-on-year EBITDA growth of 3.5 million, which resulted in FY25 EBITDA of 9.5 million, in line with our recently upgraded market expectations. Statutory profit before tax includes a 3.8 million credit for adjusting items. This includes net impairment reversals of IFRS 16 right of use assets of 6.5 million, which are partially offset by exceptional fulfillment costs and restructuring costs in the year. Net cash of 4.1 million is ahead of last year by 2.5 million, with improved cash flows reflecting the increased profit and a net working capital inflow. So let's take a look at sales performance. Sales performance has been ahead of the non-food retail sector. For the equivalent period of our financial year, FY25, the British Retail Consortium reported minus 0.1% like for likes for the non-food retail sector. Our comparatives are positive 0.8% at company level, which reflects plus 2.3% in stores, which make up over 90% of total sales. In Q4, which is February to April, We increased this outperformance versus the BRC as we reported plus 6.4% total like-for-likes versus the BRC's 2.1%, with stores nearly hitting 7% like-for-like growth for that period. We've seen our competitors come out with declining like-for-likes, so we're really pleased with our strong performance in the market. It demonstrates the action taken and the progress we're making against our strategy. As we mentioned during our interim results, one of the key priorities for FY25 was to improve product margins. And we're really pleased that the strategic action taken has delivered strong product margin growth, increasing from 57.3% to 59.4%. Negotiations with suppliers to lower cost of goods sold has been supported by a focused effort to control product mix and reduce promotional activity, and this has accounted for a combined 320 basis points improvement. An FX tailwind in the year of approximately 40 bps due to our hedged US dollar to GBP rate of 1.26 versus 1.11 last year. and there was an approximately 100 basis points headwind in container freight costs as a result of the higher average container rates over the year due to the disruption in the Red Sea. So let's take a look at the costs. Significant cost savings have driven an improvement in our profitability. EBITDA benefited by an increase of 5.6 million from the significantly increased product margins that I've just talked through. Focus on profitability and lower volumes through proactively optimising online sales in response to the third party challenges resulted in lower web variable costs. Through our labour efficiency programme and changes to our store labour model, we mitigated the majority of the 9.8% national living and minimum wage increase, which was a £4 million headwind in the year. Improved ways of working in our retail distribution centre, along with a strengthened management team, saw distribution costs reduced significantly. Property costs increased by 1.1 million. Savings from renegotiations of leases expiring in the year, along with favourable electricity costs, were partially offsetting cost pressures from the prior year release of 1.7 million of COVID-19 rent credits, along with an additional 0.8 million dilapidation provision in the year with respect to expected costs for planned store closures as part of our ongoing store optimisation programme. Increased admin costs of 1.3 million reflect the lower central costs due to the restructuring of the ops board and the transfer to AIM at the end of FY24. These costs were offset with bonuses payable to colleagues reflecting our improved performance year on year, as well as a headwind from one-off releases in the prior year from a VAT provision release and long-term incentive plan charges. We continue to optimize our store estate during the year. We closed 15 stores in the period, opened seven and relocated four. This resulted in a higher quality estate that is more profitable. Over the last five years, 150 stores have been newly opened, relocated or refitted, helping to improve the consistency and overall profitability of the estate, with 98% of the store estate now being profitable versus 96% last year. We focused on reducing the tail of marginal stores through negotiations with landlords to lower rents, along with making operational improvements in stores. Our average payback for new stores is around 18 months, and we've seen slightly lower contributions from landlords, which means payback has got slightly longer. We've seen great performance from our relocations in Bolton, Woking and Carlisle during the period, along with good performance in new stores such as Sale and Stafford Riverside Retail Park. So let's take a look at working capital. Stock at the year end of 35 million reflects lower shrinkage provisioning. This is due to the timing of all our stores being counted at the end of the year compared to a phasing across the year in the prior period and therefore a reduced provision of estimated shrinkage. An improved stock position with less terminal stock resulted in lower obsolescence provision year on year. And our increased growth stock levels reflect investment in new stock across strong performing ranges to support higher sales. CapEx was broadly flat year on year as we made the decision during FY24 to lower investment levels for FY25. But we were expecting to increase those CapEx investment levels next year. And I'll talk more about that next. Cash generation in the period reflects improved operating profits. supported by working capital inflow due to reduction in prepayments and improved working capital management. So we're pleased to end the year with 4.1 million cash in line with expectations and ahead of the prior year. So let's take a look at FY26. We'll deliver sales growth, offset significant cost headwinds and improve profit margins. We've identified strategic initiatives to drive sales, taking action on prices, and continue to focus on reducing cost of goods sold and controlling promotional activity, and will create further product margin improvement. Gavin will talk through some of these strategic plans next. We're targeting significant cost reduction across central costs in the year, and as a result of our transformation project in FY25, we identified over 2 million of central cost savings for FY26. All of this will offset the significant national living and minimum wage pressures of 4.5 million, along with the 2 million increase in employers' NI contributions. We'll therefore deliver EBITDA growth in line with our revised FY26 external forecast of 11 million, a year-on-year increase of over 15%. We'll look to invest in a net new five stores, along with investment in our current store estate and systems transformation, spending approximately 8 million in FY26 versus the 5 million in FY25. As a result of profit growth, good working capital management and increased capex spend, we expect to finish with cash of approximately 5.5 million. So thank you for listening. I'll now hand back to Gavin, who will take you through the strategy update.