TheWorks.co.uk plc

Good afternoon and welcome to the works.co.uk plc fy26 results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and they can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. Before we begin, I would like to submit the following poll and I would now like to hand you over to CEO Gavin Peck. Good afternoon to you.

Good afternoon. Good afternoon, everyone. Thanks for joining us. Rosie and I look forward to updating you on the great strategic progress that we've made in the last 12 months and the step change that that has delivered in our financial performance and the momentum that we've taken forward into FY27. We'll have plenty of time at the end to answer questions. Just before I get into the results just wanted to spend a few minutes recapping the background to The Works which I appreciate some would have heard before but I think it's important context to the story. So The Works was originally established as a high street presence 45 years ago initially as a discount book chain called Remainders Limited selling clearance books and over the next 45 years we've evolved into the proposition that we've got today which is a value retailer focused on selling for key product categories being books, arts and crafts, stationery and toys and games. And we have been bringing that proposition together under affordable screen free activities for the whole family for the last 18 months. And really, it's all about connecting people with feel good ways to spend their time away from screens, something that we call time well spent, and I'll come to talk about later, usually relevant when concerns arising around too much screen time, particularly amongst children. As well as a fantastic proposition, we've got a great culture. We're regularly ranked one of the best places to work in the UK, recently placed in the Sunday Times Best Places to Work Very Big Organization category. And our colleagues are on with delivering against our new five-year strategy that we launched in January 2025, which gives us a great opportunity to transform our brand, our operations, and our financial performance. We're already delivering great results just through the first year. and really delivery of this will bring to life one of the UK's best kept retail secrets. Our proposition is delivered through our profitable and growing store portfolio. That is the lifeblood of our business. We have over 500 stores across a range of formats in the UK and Ireland, playing an important role in the local communities, be it as the local bookshop, stationers, pocket money store or providing art and craft essentials. The store estate is profitable with over 98% of stores generating a contribution and that's supported by consistent like for like sales growth ahead of the wider market. It's flexible in terms of having around about one and a half years to the next break or expiry point on leases, which means we can be agile and move, reduce rents or leave where the pitch changes. we've got an opportunity for a further 100 additional stores over the medium term we've got a net 60 to add in the current strategy we added five last year we'll add a net 10 this year and we're still seeing strong payback of less than two years on new store openings and our stores are now our sole trading channel. We closed our transactional website in March this year and that followed a thorough review by the board which took into consideration that sales online were less than 10% of the whole business. It was an unprofitable channel and it experienced fulfillment challenges with two different third-party providers in the last two peak trading periods which had negatively impacted our financials and customer experience. having made the decision we've now got huge benefits as a business we have simplified the business we can now all focus our time money and energy on our stores and the website now becomes a shop window to our Brandon stores we've got encouraging early signs only four months into it but it's definitely been a contributor to the improved like for likes in recent months has been the footfall benefit from customers who would have shopped online now shopping in stores and that online website now acting as a shop window to the brand and driving further footfall to stores as well. As a side point to this and reflecting this change, we plan to change our corporate name and drop the .co.uk to move from the works.co.uk plc to the works plc at the upcoming AGM. So moving on to the results update. In summary, FY26 was a pivotal year here at the Works. We're seizing the opportunity to transform our brand operations and financial performance, made really strong progress in the first full year delivering on our transformational elevating the work strategy. We've strengthened the screen-free proposition. We've grown our store estates and improved operational execution and efficiency. That's delivering improved customer experience and improved profitability. That's translated into significant financial performance improvements, delivered like-for-like sales of 3.3%, which is well ahead of the non-food retail market and reflects the increased relevance and strength of our proposition. Pre-IFRS 6 dealership EBITDA increased 47% to 14 million, which puts us well on track for our FY30 target of EBITDA of at least 22.5 million. We saw strong momentum at the end of Q4 with like-for-likes of plus 5.3 and that's continued into the start of FY27 where like-for-likes sales in the first 11 weeks are plus 8.8% on top of a strong comp of plus 7%. And that really underpins the confidence in our recently upgraded FY27 market expectations for pre-IFRS 16 adjusted EBITDA of 15 million. so overall really proud of what we have achieved and delivered in the last 12 months but it is only year one of a five-year plan we've got lots more exciting opportunities ahead of us I'll talk more about that later but for now I will hand over to Rosie to talk through the financials thanks Gavin and hi everybody I'll start by taking you through the highlights and then we'll get into the detail

So as Gavin's mentioned, following the closure of the transactional website in the year, we're going to be recognizing the performance of the website as discontinued throughout these results. So unless you see stated otherwise, these are on a continuing basis. We delivered revenue of 260 million, reflecting those strong likes of 3.3%, which significantly outperform the market. Overall revenue grew 3.1% and this reflected a 0.2% sales headwind from the timing of store openings and closures. However, FY27 will see a positive sales impact from the net store portfolio activity. Our continued focus on sustainable product margins has seen a significant margin growth of 240 basis points to 62% in the year. and we delivered against our 2 million cost reduction programme that we set at the start of the financial year. These combined have resulted in the year-on-year profit growth of 47% with a pre-IFRS 16 adjusted EBITDA of 14 million. Adjusted profit before tax grew 44% to $7.2 million. And on a statutory basis, profit before tax was down $2.7 million to $6.8 million. And this reflected the prior year impairment reversal, which resulted in a net credit to adjusting items of $4.5 million in FY25. This compares to the $0.5 million charge this year. which reflects 0.3 million of store impairment and 0.2 million of exceptional system transformation costs as we commenced our systems transformation program that Gavin's going to talk about later. Net cash was marginally down year on year reflecting a net cash inflow from continuing operations offset by the discontinued operations cash outflow. So let's take a look at the impact on the financials of discontinued operations. Due to the proactive action that we took during the year, we were able to minimize the impact of the operational challenges at our third party fulfillment center. However, it still resulted in a 4.8 million loss before tax from discontinued operations. This included 2.5 million operating loss as a result of the significantly inflated third party fulfillment costs on a lower revenue basis. And we also had 2.3 million of adjusting items reflecting 0.8 million of H1 transition costs to the new provider and 1.5 million of exceptional closure costs, including owner's contracts and redundancies. Given the issues we face, the channel's relatively small revenue contribution and the fact that it continues to be loss making, the transactional website is no longer sustainable. But as Gavin's mentioned, now gives us the chance to fully focus on our profitable store estate. So let's get back to understanding the great store performance. Full year like-for-like growth of 3.3% compares to the British Retail Consortium's non-food like-for-like decline of 0.1%. So we've performed really, really well in a tough retail environment. We've increased focus on year-round appeal, resulting in strong like-for-like performance outside of peak. Thank you very much. Our outperformance reflects the growth in the existing stores resulting from the great progress against our strategic initiatives, including strengthening our brand marketing to support our unique screen-free proposition. Gavin will talk more about that shortly. So let's look at product margin. We achieved this significant product margin growth of 240 basis points from a combination of better buying with stronger supplier negotiations and improved control of product mix. We continue to focus on managing markdown and targeted selective price increases at the start of the year. FX and container freight rates supported margin improvement, with the hedged FX rate of 128 versus 126 in the prior period. And average container rates in FY26 were $2,200 per container, half those that we saw in FY25, resulting in a 90 basis points improvement in margin. We've made really great progress in growing product margin over the last two years, and we now believe we're operating at a sustainable margin rate. Going forward, we don't expect to see the same level of step change and improvement in margin. However, we continue to actively manage the balance of supplier negotiations, product mix, customer demand and markdowns to protect margin and to mitigate against any headwinds that we face. So moving on to our profit bridge. With pre-IFR16 adjusted EBITDA increasing from 9.5 million to 14 million, the largest driver was increased product margin, which contributed 11 million of incremental profit through a combination of sales growth and that stronger product margin rate. Importantly, these gains more than offset the 6 million headwind from national minimum living wage and the increase in the higher national insurance costs. we delivered against our 2 million cost reduction program and continue to invest in the business including that strategic investment in brand marketing which now has a clearer focus on amplifying our time well spent message our product margin growth demonstrates the increasing resilience and scalability of our model we're not simply benefiting from sales growth we're improving the quality of earnings through better product margins disciplined cost management and targeted investment, creating a stronger foundation for our future growth. So turning to look at our balance sheet. During FY26, continuing operations generated 4.3 million cash, more than double the prior year. This reflects the combination of that increased profitability, improved product margins and that disciplined cost focus mindset, along with disciplined working capital management. Importantly, cash generation enabled us to fund 5.9 million of capital investment across new stores, refits, our distribution centre and the technology transformation programme. We finished the year with 3.6 million of net cash and have successfully refinanced our banking facility, securing a new 20 million RCF through to November 2029. This provides a significant liquidity and flexibility to support seasonal working capital requirements and future strategic opportunities. So as we look ahead, we formalized our capital allocation framework. We'll continue to balance investment and growth, maintaining financial resilience and supporting those future shareholder distributions. So as we enter FY27 with an increasingly cash-generative business, a strong balance sheet and financial capacity to continue investing in the next phase of growth of our strategy. So let's take a look at our transformational profit growth. FY26 represents another significant step forward in the transformation of the works. The 47% year-on-year increase to pre-RFS16 adjusted EBITDA of 14 million reflects a doubling of the EBITDA we would recognise in FY24 of 6 million. The improvement has been driven by stronger product margins, disciplined cost management and continued strategic progress against the business. And importantly, we view FY26 as a milestone and not a destination. So looking ahead, we expect further progress with pre-R16 adjusted EBITDA increasing to 15 million. And beyond FY27, our five-year plan outlines a clear path to further value, with EBITDA growing to approximately 22.5 million by FY30, representing 137% growth versus FY25. This growth is supported by targeted investment in our strategic initiatives whilst maintaining disciplined capital allocation. Improving this profit is expected to be accompanied by strong cash generation and a robust balance sheet. This gives us the flexibility to invest for growth while continuing to create value for shareholders, which will support future shareholder distributions. So thank you everybody for listening. I'll now hand you over to Gavin.