TheWorks.co.uk plc

Good afternoon and welcome to the works.co.uk plc investor 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 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 morning to you, sir.

Good afternoon, good afternoon everyone and thanks for joining us today. Rosie and I look forward to updating you on the significant financial and strategic progress we've made in the first half of FY26 and the robust store performance we've delivered through peak trading. We'll have plenty of time to answer questions at the end. So in summary we've had a significant strategic progress in the first half with strong store performance and improved profitability. We're fulfilling our mission to become the favourite destination for affordable screen-free activities for the whole family and that mission is something that is increasingly relevant given the growing desire from people wanting to reduce the time they spend on screens and research highlighting the negative impact of too much screen time, particularly amongst children. Our continued execution of our elevating the work strategy which we launched a year ago is focused on us delivering on that mission and we've made good progress across all three pillars of that strategy, growing our brand fame, improving customer convenience and being a lean and efficient operator. That strategic progress is translating into a further improvement in our financial performance with a significant improvement in first half profitability. We've seen strong store like for like sales growth of 4% which is well ahead of the wider non-food market, sustained product margin growth and ongoing cost savings which more than offset the headwinds of cost inflation such as national minimum and living wages and employers NI and the impact of the fulfilment challenges we've experienced online. Our trading in the second half today is in line with expectations we've delivered a bus store like for likes of plus 1.2 percent again ahead of the wider non-food markets which was in decline during the period online to continue to be constrained by the fulfillment challenges as expected when we updated in November and we continue to deliver product margin growth and further cost savings as such are on track to meet FY26 market expectations for 11 million EBITDA up from nine and a half million last year and deliver further sales and profit growth in FY27. I'll talk about the strategic progress we're making later but for now I'll hand over to Rosie to take you through the financial review, trading updates and an outlook for the year to go and into FY27.

Thanks Gavin. So first I'll start by taking you through the highlights of the half year. We've delivered revenue of 123.8 million, 0.3% lower than last year, and this was as a result of the timing of store openings and closures, with closures falling early in the period, whereas openings were weighted towards the end. Positive total company like-for-likes of 0.3% reflect strong store like-for-likes of plus 4%, and negative online like-for-likes sales of minus 36%. Our continued focus on sustainable product margins has seen significant margin growth of 330 bits. We've made great progress against our 2 million cost reduction programme and because of these two areas, profit has significantly improved with a pre-IFRS 16 EBITDA loss of 1 million compared to a 2.8 million loss last year. Improved net debt position of 5.3 million is compared to an 8.5 million net debt this time last year. It's worth reminding you that we typically make a loss in H1 ahead of our peak trading period in the golden quarter. So let's take a look at our sales performance against the external market dynamics. In a really tough retail environment we've delivered strong store like for likes. Consumer confidence remained weak throughout the period with continued cost of living pressures and as we approach the autumn budget the uncertainty around tax rises. Inflation rates remained high throughout the period, with CPI at its highest since January 24, and the retail sector footfall was down year on year for each month of the period. In a challenging external market, with the BRC reporting non-food like-for-like growth of 0.6%, we're extremely proud of our strong store like-for-like sales performance of 4%. The positive performance reflects growth in our existing stores as a result of the delivery of strategic initiatives, including strengthening our brand marketing and launching new products. Gavin will talk more about these initiatives shortly. The online sales decline of 36.1% reflected the significant fulfillment challenges experienced from the move to our new third-party fulfillment provider in early September. A number of material interventions were made to the customer offer to dampen customer demand and preserve the experience for those customers who continue to shop this channel. So let's take a look at our progress on product margin. Our continued focus on sustainable product margins resulted in strong margin rate growth year on year, increasing by 330 bits to 62.6%. We achieved significant margin growth of 270 bits from a combination of better buying within which entailed stronger negotiations with suppliers and improved control of product mix and we continue to focus on reduced markdown and better stock management and we targeted selected price increases in the period. The hedged FX rate gave a small margin uplift on payments made in US dollars with a rate of 1.28 versus 1.26 in the prior period and favorable container rates created a further tailwind of approximately 20 bps during the period with average container rates at $2,600 versus $2,900 in H1 last year. This growth in product margins along with the cost savings drove significant improvement in profitability for the period. Heading into FY26, we faced significant cost headwinds coming out of the autumn 24 budget from 6.7% higher national living and minimum wage rises, business rates and the increase to 15% national insurance contribution rate which impacted us from April 25 onwards and the combination of this for a full year of FY26 gave us a headwind of £6.5 million. That strong product margin growth I've just talked about improved profits in H1 year on year by £4 million helping to mitigate some of these significant cost headwinds. Amidst the online fulfilment challenges, tactical control of online marketing spend to constrain demand benefited variable web running costs by £1.2 million. with store payroll costs increased by 2.4 million reflecting the H1 impact of those autumn 24 budget increases. Year-on-year savings in our distribution costs were made as a result of the investment in a new mezzanine floor at our retail distribution centre. This reduced third-party storage and increased efficiencies internally. Brand marketing costs increased reflecting investment in activity to grow brand awareness with a focus on campaigns supporting families to spend quality time together away from the screens. We've made really good progress in H1 against the 2 million cost reduction programme with savings across central and administrative costs. An action was taken helped more than offset the headwinds faced in H1 to deliver an improved EBITDA position for H1 versus last year. So let's look at the changes to our store estate. We continued to optimise our store estate. We traded from a smaller, more profitable estate during H1 compared to H1 last year. This did result in a small decline in revenue, as I've mentioned, but we've now got a more profitable store estate with over 98% of the estate profitable. And we ended H1 with a net increase in our store estate trading from 505 stores at the end of the period with a net two new stores in H1 for up from 503 at the year end. We've increased capital investment in H1 and improved the net debt position. The increased investment in the year reflects new stores and relocations with seven new stores opening and one relocation in H1 compared to three new stores and two relocations in the previous period. We've invested 0.6 million with the introduction of the mezzanine floor I mentioned, which has increased the storage capacity and enhanced our efficiencies. The operating cycle of the business causes our maximum stock levels to occur prior to Christmas sales peak, and therefore stock levels at the end of H1 are generally higher than at the year end. Gross stock levels at H1 period end reflect the lower than anticipated online sales, and we plan for certain stock lines to come in earlier than the prior year. So I'm now going to give you a bit more detail of the online challenges that we faced. As you may recall, online fulfillment issues with our previous third party provider in Christmas 24, along with their lack of openness when addressing those issues, led to the decision to move to a new fulfillment provider which we selected in Q125 after a comprehensive tender process. The new third party provider was selected with a good strong cultural fit and a proposed solution based on proven technology. However, the transition to the new provider in September met with issues from day one. Failures from planning through to implementation have been recognised by our third party. We've worked extremely closely with them to minimise the impact of our customers and our profitability, particularly over our peak trading period. However, a lot of these issues could not be resolved in a live operational environment, and this led to significant capacity constraints over 66% lower than through peak and an inefficient and inaccurate operation, which resulted in poor customer service, significantly lower sales, increased fulfilment costs and increased customer refunds. The new provider is open and honest regarding these shortcomings and remain committed to resolving issues and as such we're working together to find a long-term solution. We'll update further alongside the full year trading update in May 26. So let's take a look at H2 and how it started to perform. Strong store performance and product margin growth are driving profitability over peak. For the 11 weeks ended the 18th of January, we delivered positive store like for likes of 1.2%, which is well ahead of the BRC's non-food retail sector like for like decline of 0.4%. Online challenges resulted in negative sales of 51.8%, which resulted in the overall total like for likes of minus 4.2%. Our focus on product margin resulted in a 200 bps growth in margin over peak, which reflected our planned investment in Black Friday promotions and into the January sale. So looking ahead at our full year outturn, we're on track to meet external expectations of EBITDA growth in FY26. We've delivered a good peak trading period in stores, and with this key trading period behind us, we have good visibility of our full year outturn. and we will deliver profit growth to 11 million EBITDA compared to 9.5 million last year. Cash is expected to be broadly in line with the prior year, reflecting the increased capital investment. We're expecting to spend approximately seven million pounds, which includes these five net new stores for the year. So looking ahead at FY27, we're well positioned to deliver further operational progress and profit growth in FY27. We're continuing to drive sales growth through our strategic initiatives and as previously mentioned we're working through a resolution for online. We'll make further cost savings across central and operational costs and along with a continued focus on delivering strong product margin through ongoing supply negotiations, careful product mix and stock management. We'll continue to grow our store estate adding a net 10 new stores to the portfolio and all of these actions will help mitigate the national living minimum wage headwind and drive significant EBITDA growth for the year. Thanks for listening. I'll now hand you back to Gavin to take you through the strategy.