Angling Direct (LSE:ANG) — Interim results for the six months ended 31 July 2021

0:01 Good morning, ladies and gentlemen. Welcome to the ANGLING DIRECT PLC Investor Presentation for the Interim Results for the Six Month Ended 07/31/2021. Throughout this presentation, investors are being in listen only mode. Questions are encouraged. It could be submitted anytime via the q and a tab situated in the right hand corner of your screen. Just click q and a, scroll to the bottom, type your question, and press send. Company may not be in a position to answer every question received during the meeting itself. Have the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via Investor Meet company dashboard, and you'll be notified once they're ready for your review. Also, I'd to remind you that this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Andy Torrance, CEO and Steve Crow, CFO of ANGLING DIRECT PLC. Good morning. Good morning. Good morning, everybody. Thank you for taking the time to join us this morning.

0:51 We're very pleased this morning to present what we believe is another strong set of results for half one of ANGLING DIRECT's financial year '22, the year that ends on the 01/31/2022 next year. We're about to take you through our presentation deck. It has been published on the investor section of our website. Hopefully, everybody's got it. Two key takeaways for us, really, for this presentation. We have continued to grow the business both in line online and in store. Very pleased that we continue to grow in both channels. We're particularly pleased to be able to report strong margin accretion in the period and coupled with the continuing embedding of our supply chain efficiencies, we're very pleased to be able to upgrade our forecast for pre IFRS 16 EBITDA for the year with a 25% upgrade to EBITDA now no less than £5,000,000 in the full year period.

1:58 The second key takeaway really that we wanted to leave you with today, we are now very much deeply into the execution phase of our plan to establish in region European online fulfillment with a good proportion of the costs associated with setting that up included within the full year, the revised and upgraded full year forecast. Those of you that joined us last time will be aware that we are very confident that unlocking European fulfillment and allowing us to properly access the huge market opportunity there is a significant opportunity for future profitable growth for ANGLING DIRECT.

2:41 Just moving the slides on. Slide two in the deck is our half year '22 overview. Quite a wordy slide. It's taken directly from the r and s as usual. I'm gonna hand over to Steve shortly. We've had quite a few quite financially based questions this time. So I'll hand over to Steve who's gonna go straight into the financial review in a moment. But there are just a couple of things I'd like to pick out off off this slide. 90% total growth for the business in this first half, as I said, across both channels, 40% growth in store, which was a like for like performance of 32%. But we're particularly pleased in the period to have grown our online sales by 3.2% given the very different nature of the two lockdown periods that we we we've annualized lockdown one during this period with lockdown three, but really quite different types of of of lockdown. If you cast your mind back to the dark days of the first COVID nineteen lockdown, the only place you could shop in that period for anything other than essential groceries was indeed online. That caused a huge channel shift towards our online offering, which we're particularly pleased with.

4:05 And therefore, given that, we're very pleased to be able to grow our online performance in this period on top of that. Our UK growth in the period was just over 15% online, and that's been mixed down slightly given that as well as annualizing these two periods of lockdown, we've also had to overlay this year the impact of of Brexit, of The UK leaving the European Union. That has had quite a considerable impact on our native language sites. Steve's gonna go into that in a little bit more detail. But, essentially, the sort of well reported and completely out of our control disruption of customs, additional customs administration charges that we now incur for all of our b to c parcels.

4:57 And indeed, the fact that we're no longer to actually allow to distribute bait from our UK distribution center here out to Europe has had some quite significant knock on effects on our European business to the tune of our native language sites going backwards in the periods by by 34%, although that has started to improve. And we're we're very confident and positive about the future there, which we'll come on to when we talk a bit later in the presentation more about Europe. The other point on this slide, three ninety basis points of margin accretion. That's a combination of of pricing, continued improvements in shrinkage, a little bit of ranging, a little bit of mix. Steve's got

5:43 a lot more detail, and that was one of the questions specifically, as we go through the deck. We've also had some slides in this presentation about our operational highlights. And and, again, for me, that's really very pleasing from my position as the CEO. We're a fairly modest sized organization, and an awful lot of our resource and management time is being, quite rightly, dedicated to our European project at the moment. We're also, not surprisingly, perhaps spending an awful lot of time managing our stock levels, stock availability, stock investment really quite carefully. But, actually, beneath those two things, it's really pleasing to be able to report that we've made considerable progress developing the business and driving forward our underlying strategy with operational improvements right across all aspects of our business, and we'll we'll we'll cover those in a little bit more detail as we go on through the deck. I'm gonna hand over to Steve now, who'll start to take you through the financial overview.

6:47 Thanks, Andy. I'm on Slide number four, which I've now put up on the screen. The left hand side is the sales progression Andy's talked about in terms of the half year performance. I think a couple of overlays on that is worth pointing out that we in the RNS, we disclosed what our year on two year performance look like. And I think underlying The UK online performance was over 80% progression year on two year, which was sort of attempting to demonstrate that absent the pandemic that the progress we've really made in that online business on The UK site. And then pleasingly in the store portfolio also the year on two year progression from a like for like sales perspective was a 2% growth rate.

7:35 So even in a period where we had locked down 3%, we're still able to demonstrate from those portfolio of stores, which are our legacy stores that we've generated some growth in that period. The bottom left hand graph is the overlay of the native language website impact. So as Andy said, 34% regression in the half, primarily the incremental duty that is incurred in terms of exporting goods post Brexit, longer lead times for customer deliveries, etcetera, has really impacted the sales progression. In the first quarter, we were 43% down. In the second quarter, we were 23% down. And that softened further in the quarter three, which is about 18% down as we stand today.

8:24 Overall, from a year on two year for the native sites, we're broadly flat. So it really does show the impact of Brexit, hence the need to accelerate the in country fulfillment aspect that ANGLING will talk about later on in the presentation. The middle leg of the graph, the profitability aspects at the top, the gross margin progression, so the three ninety basis points in terms of how that played through to the bottom box. So you can see the EBITDA pre IFRS 16 progression, so increasing GBP 2,300,000 year on year. Worth noting in terms of that progression, the gross margin pound notes was a contributory factor of about GBP 3,600,000 increment. So the percentage increase around GBP 1,000,000 of that increment. So it shows the strength of how we've traded the business to deliver that 37.4%.

9:21 It's worth just noting on the EBITDA number that, that is the recipient of some direct government support in the half. So for the half year 2022, around 900,000 of direct government support and that compares to the half year 2021 where with the recipient of CHF1.5 million. So a reduction of CHF0.6 million half to half and so we went for the 111% inclusive of that CHF600,000 From the margin percentage progression, so Andy talked about some facets there. The key aspect was in terms of how we bought and then price. So historically, of you may be aware that we've used a technology called price checker where we're able to scrape the market for availability of stock and pricing from competitors.

10:11 We've actually broken from that model slightly and that we have because of the way we were able to leverage our balance sheet and increase the respective level of and depth of stock. We've been able to sort of generate around 300 basis points of the increment from that leading the market pricing. And that's the challenge remains how much of that are we able to sustain as stock becomes more widely available, notwithstanding we're not seeing any huge pressure on that at this point in time. Mix was about 40 basis points as a result of being able to fishing be more widely available in lockdown three than it was in one. So the element of bait and consumable products, which are higher margin was a bigger proportion of the basket.

10:56 Shrinkage, historically, the business has had a fairly acute shrinkage problem back in financial year 2020. We've made some strong progress again on that in the half and the margin benefited from a further 40 basis points as a result of that improving shrink picture. And then overlaid on that, there is some rebates where we've taken a more prudent approach to rebates as hitting certain volumes with certain suppliers more challenging in a short stock environment. On the right hand side of the website, so we're demonstrating there The UK web traffic has reduced half to half fully expected given the level of browsing activity in this half versus last because of the lockdown nature. In terms of how we've converted those customers, visitors, you can see in the bottom right hand box, the progression of the conversion rate particularly pleasing as our relative depth of stock and how we've leveraged the stock far more widely across the business is playing out in that conversion rate. And the year on two, you can see the 6.3% versus the 5.7%, we think is a strong reflection of how we are continuing to evolve the front end website for The UK business.

12:14 Over on Slide five, we've set out the year on year and the year on two year in the graphs on the left hand side that I briefly just touched on. And if you look at the left bottom left hand graph, you'll see the blue line for the online business. So despite us having poorer like for like comps in the online business in the year on two year basis, we're still progressing sort of 30% in June and still double digit in July, which sort of demonstrates the strength of the offering on The UK online business. The right hand side is a little bit more information of just relative to the EBITDA absent the direct government support that I just referenced previously. And you can see how that translates in the bottom graph to an EBITDA ratio absent that direct government support. So seven thirty basis points excluding the government support progression half on that.

13:15 Over on Slide six, this is our sort of suite of near standards for KPIs that we continue to present. I think two points I'll pull out from this. So the native language website, you'll see third bullet on the right hand side. We've made a modest loss in the half of around GBP 100,000 trading loss. This time last year, we were broadly breakeven for the European business at the half. That GBP 100,000 is a combination of how we've had to trade the sites as we've become increasingly more confident in the European business case, which ANGLING will talk about later on. So the balance between incurring the frictional duty costs, administration charges and balancing that with customer free baskets and carriage costs and balancing that against retaining customers as well.

14:05 The own brand sales progression, so the fourth down on the left hand side, the percentage of the sales reduced by 50 basis points in the half down to 5.2% from 5.7%. The business has set itself a target of delivering 7% for the full year 2022, and we remain on course to do that. We were fully anticipating the like for likes 5.7% versus the 5.2% to dip as in second quarter last year, the dearth of branded stock really did sort of catapult forward the own brand sales in that first in that second quarter last year. Over on Slide eight, it's the income statement.

14:52 This is on a post IFRS 16 basis, the basis of presentation. So you'll see there the 14% EBITDA margin relative to the 11.5% on a pre IFRS 16 basis. The key standout is gross profit progression. So the GBP 14,400,000 number where I've talked briefly about the key bridging points from margin progression from the GBP 33,500,000 up to GBP 37,400,000. Pleasingly, for the first time, the net profit line doesn't have any brackets around any of the columns. So the business is starting to demonstrate some sustainability in the profit it's able to generate. And I think just playing that through for the full year, we remain confident of delivering an EBITDA number on a pre IFRS 16 basis of GBP 5,000,000. That translates to a post IFRS 16 number of around GBP 6,900,000.

15:57 Over on Slide eight, demonstrated here how the business has grown from the half year 2020 to where we are today at the 11.5%. So the journey of 2.8% up to 11.5% for the group. And we presented that in the bottom left hand graph on a year on year on two year basis to show the components that build up that growth. And Andy referred to in his opening remarks, the gross margin and the direct costs, how we're leveraging those investments previously made by the business as well as building that margin being the key component parts of that growth. On the right hand side, we've given the segments of online and stores. Both of those are presented pre group overheads, but that's the way we view the business in terms of what can each channel contribute against a fixed overhead from the group. You can see both of the channels are delivering in the mid teens, which is a particularly pleasing progression from where the online business started back in half year twenty twenty, where it really was the poor relation of the business.

17:08 Worth just noting that neither of the channels have any direct government support in them. We've consciously held the government support outside of the channel. So clear how we're continuing to develop the underlying profitability of each of the channels. Over on nine, everyone's favorite slide, the IFRS 16 reconciliation pre to post, that the key takeaway here is at this point in time, it's broadly neutral from a profit before tax aspect as the portfolio of leases, its relative sort of depth of where we are in the lease, the interest cost and depreciation relative to rental charges are broadly in balance. As we move through the lease portfolio's life cycle, the interest charge will reduce.

17:54 And on a post IFRS 16 basis, we should anticipate that PBT number going ahead of the pre IFRS 16 PBT. On 11, the balance sheet. The two key aspects of the balance sheet being the inventory position of GBP 15,700,000. So 15.7% is certainly ahead of in a normal supply market where we've anticipated stocking the business to. This comes back to the margin development where we've consciously placed deeper and longer bets with certain key supplier on certain line items. We believe that gives us good insulation against any sort of near term supply issues, notwithstanding we have been through our peak sales period and sort of the autumn and the winter representing the relatively lower level of sale environment in comparison to other retailers.

18:50 The other standout is the cash position. This time last year, were sort of two to three months after the raise. We've continued to manage the cash position of the business well. And that's given us the flexibility in terms of how we intend to enter the European market, which Andy will describe later on. But certainly, we still have a run for liquidity beyond that investment that puts the business in a good position to consider any other tactical M and A or investment opportunities.

19:21 On to Slide 11, the cash flow. So we finished the period with 19,600,000, as I was pointed out on the previous slide, linked two aspects here. The working capital in the half is a positive impact. We fully expect that as it ordinarily does to reverse in the second half with an expectation of that being a full year drain from working capital of around GBP 1,000,000. That 1,000,000 represents further investments in the store portfolio pipeline that we're anticipating in the second half, gladly briefly touch upon. On the capital expenditure, you can see relatively modest investment in the first half. We've got a much richer second half to come. The European project will be around sort of £100,000 of capital that we'll invest in the second half plus the further rollout of the store portfolio, which again, Andy will allude to in his next few slides.

20:20 Thank you. Right. Thank you, Steve. I'll pick up from there then and take us on to have a look at some of the highlights of our sort of slightly broader business review and indeed some of the progress we're making under our four strategic pillars. I'm on slide 13 now. Those of you that hopefully, some of you that joined us last time, realized I spent a fair amount of time talking about the fact that we've recently refreshed our purpose to getting everyone fishing, paraphrase slightly. It is all about getting everyone fishing. We've restated our ambition to become Europe's first choice omnichannel fishing tackle destination. And indeed, we've also refreshed our strategy recently with all of our activity being summarized under four key strategic pillars, and that was about product authority.

21:13 That was about exceptional customer experience. It was about inspiration and advice and indeed about acting responsibility within our out with our communities. I don't want to spend too much time dwelling on those now. You will find in our annual report and indeed this presentation from that came out of the prelims in May, a lot more information there. What I did do in May, though, was also set out what I felt were our key priorities for FY '22, and I wanted to take the opportunity to now on this page just to reflect on some of the progress, what I think is quite considerable progress on some of the things we've set out to do in this financial year. Starting with digital capability, I'm not gonna read all of these out because, again, there's quite a bit on here, But I think certainly worth pulling a few of these out. We launched a paid priority delivery subscription service known as AD plus in March this year. We now have 6,000 subscribers who pay £10 a year and automatically upgrade to priority delivery. That's 16% of all of our UK online orders.

22:21 We believe this is driving loyalty to the site, to ANGLING DIRECT, and indeed frequency of repurchase. One of the things, the second bullet here under digital capability that we're really excited about is we have spent some time, developing a mobile app. It's certainly unique, in in The UK, and and quite possibly, we believe it will be the first fishing tackle mobile app, across Europe. That has finished its testing now. It's with the App Store at the moment for their approval, and we should see that launched, in the next week or two. And I think when you combine the opportunities that the app bring us with the subscription service of AD plus, I think that's a really new and exciting and unique offering to our customers. An awful lot of our customers, not surprisingly, shop from the riverbank or from the the from the lakeside.

23:12 Over 50% of our online orders come through mobile devices, and the opportunity to be able to deliver that in the form of an app with all of the associated digital advice and inspiration and content that we're increasingly becoming well known for, I think, is is is really, really exciting. And,

23:30 of course, any trade through the mobile app doesn't attract Google ad fees, for example, and therefore, the return on our advertising spend, should only get better. The third point under digital was, some of the, artificial intelligence based search enhancements that we deployed. We now work with Algolia to help support our search technology. We launched this quite late in this particular period, and we're really quite excited about what this brings. It's much, much faster search. It's much more importantly, more relevant search for our customers, and it's certainly making a contribution towards driving our UK conversion rate to 6.3%, an increase of 80 basis points in the period. Under stores, we recently launched within our commercial team some classical category management structure, which is focused on ranging and promoting for specific customer types within specific fishing disciplines.

24:31 We're very pleased with the progress that that relatively new team is making. They've commenced the process of reviewing the ranges and the space allocation store by store. They're probably about a third of the way through that exercise. And and, again, this work, we're we're very happy to report, contributed to a gross margin improvement in stores of 220 basis points in in the period. With a little bit about new stores, we only actually opened one new store in in in this period fairly early on in the financial year in Redditch. We did recite a store. We have a store in Sittingbourne that we weren't very proud of, that was certainly not fulfilling its potential. We moved it about half a mile up the road, relaunched it, and very pleased to report that that store is through offering a much, much better offer to its to its customers is is now trading at over 50% ahead of where it was this time last year. When I'm asked, they tend to talk about the potential for around four to five new stores in The UK each year. There's definitely been, I think, pandemic driven, a little bit of hesitancy and a little bit of halting in the in the property pipeline as as the types of properties that we tend to go for are usually in fairly tertiary locations. They they require a certain amount of repurposing, a certain amount of redevelopment. So I think developers have been quite hesitant. So I'm very happy to report that confidence seems to have come back, and we do have a much, much healthier

26:03 product pipeline now. Particularly pleasingly in the catchments that we tend to be underserved on, so the ones I've talked about in the past, we've we've reached agreement for a new store up in the Northeast. I hope to sign a lease very shortly for a store down on the South Coast. We signed a lease for a new store in Ipswich last week, And so we're confident that we'll do at least two more new stores before the end of this year with perhaps another few slightly behind that, which will give us a good start in the year ahead. I'm gonna skip over international growth. We've got a couple of pages specifically dedicated to our European project, which we'll come to in a moment. Under commercial development, we have actually appointed a new commercial director in the period.

26:52 He the his predecessor did an excellent job in growing the business very, very rapidly. But as we now get very much focused on not only growing rapidly, but also demonstrating some sustainable quality EBITDA growth, It it's I found it important actually to to appoint a new individual into this role. They've got off to a really good start. It sent a strong signal to our suppliers about the changing nature of the relationship between ANGLING DIRECT.

27:20 And also what is really, really pleasing, we are getting significant support from both our existing UK suppliers and indeed new European suppliers for our plans for European expansion, and this individual plays a great role in that. We also, in the period, appointed a new head of own brand product development, an individual that brings genuine tangible track record of growing our brand ranges with with other businesses. Again, he's also got off to a great start. We're very excited about some of the range extensions that we will be making to our Advanta range targeted at specific customers. Advanta, we believe, is a is a really good quality product. We've grown it quite substantially in the last eighteen months or so by backing it with stock. The time now is to actually look at expanding that range, rebranding more contemporizing the brand, repackaging the product.

28:16 And we also believe there's an opportunity now for a second own brand range to sit alongside, ADVANTA, which will just allow us to position the two brands far more clearly for our customers, going forward. We continue to work hard under our our leg of responsibility in terms of our communities and and creating a sustainable organization. We've continued to work with the ANGLING Trust, with the ANGLING Trades Association, sponsoring their respectively get fishing campaigns and indeed national fishing month. We're particularly excited about some academic research that we've commissioned in partnership with Anglia Ruskin University's public health department. They are carrying out a bit of genuine academic scientifically based research that will be peer reviewed that is actually will be the first comprehensive source of evidence about the genuine well-being benefits of ANGLING to to its participants. There's a lot of information around at the moment about the benefits of blue spaces and the benefits of green spaces, particularly to people's mental health. And and clearly with fishing, you get benefits from both of those.

29:28 So we believe actually doing some proper scientific research, of course, will be the key then to unlocking the opportunity for NHS commissioning groups to actually socially subscribe ANGLING going forward, which has got to be absolutely good for ANGLING in general. Over the page then, we have our digital metrics, strong double digit UK sales growth as it as it says there. On the left hand side towards the top, you can see the impact of this changing channel shift half one in this period and and half one in in the prior year as as we spoke about the very different natures

30:11 of lockdown that, you know, as we anticipated and fully expected, had an impact on website visits, had a whips an impact on actual unique customers. You can see The UK conversion rate, as I've mentioned before, has gone up 80 basis points. And indeed, just beneath, you can see the European conversion rate actually dropped by 90 basis points in the period, and that's illustrated in the graph on the bottom right hand side. You can see the the black line there is The UK online conversion rate, which is trending upwards. The gold line, the European conversion rate, which up until sort of the midpoint of the horizontal access was was starting to close. We very much have a strategy of applying what we do well in The UK to our European sites and and watching those metrics close. You can see the conversion around sort of October, November 20 was getting very close to UK levels, and then quite literally drops off a cliff after Brexit at the end of the year as those customs delays meant that in certain parts of Europe, it was taking four to five weeks to get a parcel, which would have previously perhaps taken us two or three days.

31:21 We did have to make some changes to our free delivery thresholds and indeed to the cost of delivery into Europe in order to protect the profitability of that business. And indeed, a lot of European customers are very keen to get hold of UK bait, which is has a good reputation for being sort of technically very good. And, unfortunately, because of the veterinary certificates that now have to be provided even for one small bag of bait, we we're unable to send bait into Europe. And you can see the impact that that had on conversion rates post January 21. They dropped down. They had they did recover slightly sort of towards March, April as the customs new customs and border processes started to calm down a little bit, and people got used to new ways of working.

32:11 Flattened out towards the end of the period, but I'm sort of pleased to report actually it started to improve as as we we've now started to reinvest in

32:21 delivery car costs, delivery thresholds, and indeed our European market as we rev up, towards the European, project. Over the page on slide 15, is a little bit more about the stores. We've spoken you can see the the store locator map on the right hand side there. We've spoken a little bit about the store pipeline. In terms of our existing stores as well as the rearranging work I mentioned that the category management teams have been busy with, We've also done an awful lot of work in terms of the prominence of on shelf pricing, how we promote new products, how we promote exclusive products, and generally how we get much better promotional, stand out and add on impulse type sales.

33:07 Overall, average transaction values within the stores increased by a very pleasing 3.8%, in the period. We did I did report at the prelims. We've, appointed a new, operations, transformation director. He's got off to a great start. He's more recently restructured his field and area management that now has a far more appropriate, I feel, balance between really, really enthusiastic and cable anglers, but also

33:37 diving the wall very experienced specialist retail field managers. So an awful lot more to come, I think, from the stores, but very pleased to report we're making great progress there. Slide 16 then is the first of two in terms of what we've been up to internationally. The this first page of slide 16 is a little bit of a recap, which I think is worth doing from what we talked about last time. It's our international opportunity is is is, I think, really very compelling. The markets, especially in Northwestern Europe, are large. They're as equally as fragmented and as equally as unsophisticated as here in in in The UK, and the opportunity for for ANGLING DIRECT to take some considerable share there is is is really very compelling.

34:32 In region fulfillment, we believe is the vital next step towards facilitating the full ANGLING DIRECT online offer. That will allow us to start selling beta game. It will allow us to start offering next day delivery to, you know, the vast majority of Germany, all of The Netherlands, the vast majority of of France, Austria, Belgium, which make up our five key key territories. It'll also allow us, of course, to avoid really quite onerous administration customs administration charges, which The UK to EU parcel carriers are imposing on us at the moment. Crucially, also, whilst what attracts us to those markets is that the type of angling is very similar to what happens here in The UK. There are some local differences. There are some local European brands that we don't list currently on our side, so we don't retail here in The UK.

35:33 Having a European base, as it says here, does allow us to tailor ranges somewhat. And importantly, I think, unlocks the potential for complementary follow on bricks and mortar offerings at the appropriate time and in the appropriate way. Though we don't believe there's any contemporary material competitors to rival ANGLING DIRECT ANGLING DIRECT in the sense that it's really quite unique. You know, 50% of our our sales comes through bricks and mortar. 50% approximately comes online to us here in The UK. And whilst there are some reasonable sized bricks and mortar competitors, they don't tend to have a particularly contemporary good digital offering. And while there are some online competitors, they don't really do bricks and mortar. So I think the unique combination, the unique omnichannel nature, abandoning DIRECT, again, gives us a lot of things to be confident about and and encouraged by in this area.

36:33 On the following slide then, so what have we what what have we actually been up to? We there were there were two ways of us achieving, of course, European fulfillment. One was through acquisition. One was to set up our own facility. We did have some and continue to have some quite meaningful discussions in terms of acquisition, but we we are not in a position where we find some potential targets whose valuations we believe are realistic and appropriate for us to invest in. So we took the decision to accelerate our sort of twin track approach of looking establish our own our own fulfillment facility. We've chosen to establish that. We've chosen to establish it ourselves, and we will run it ourselves. Quite a quite a large proportion, nearly 50% of our parcels of what the logistics trade term is ugly, either they in the sense that they're quite big and bulky, so big oaks, for example, big bench chairs, beds, or indeed they're, as you can imagine, long, thin packages made up of either fishing rods or or or fishing poles.

37:42 The type of nature of product which the the big third party providers tend to tend to shy away from, and and we've got an awful lot of experience of doing that specifically here. So we have been set about establishing our own distribution center. We've incorporated a new wholly owned Dutch subsidiary, a d n l b b. It's now fully incorporated. It's taken on its first employee. We we now have a very experienced European commercial manager who comes to us with a really good track record of working with some of the key suppliers in Europe, building those businesses out really quite tangibly, a great track record, lot of credibility, a very good network.

38:27 And, again, that has helped us in our discussions and and some obtaining support for what we're doing out there with local suppliers. We've agreed terms on a 3,900 square meter distribution center just outside the city of Benlow in the southern part of The Netherlands, which is ideally placed sort of within the center of gravity of our key territories. We're about thirty minutes from the German border, which would allow us to move things directly from that distribution center into the big German distribution hubs, which are sort of so efficiently set up to deliver out to our customers really quite quickly. Very pleasing that a good proportion of the set of costs both in terms of OpEx and CapEx are included within this newly revised FY twenty two forecast. I think Steve mentioned some of the working capital involved in setting up this distribution center will be scheduled to land within our FY twenty three financial year, albeit we will take the opportunity to balance some stock from the distribution center here in in The UK at the same time.

39:34 We will have this distribution center opening time for the spring season. It'll have give us capacity until at least f y twenty seven. We're initially going to open the distribution center without any automation. We do have some automation here in The UK facility, but I'm very conscious that we need to do this well. We don't want to overcomplicate it. So in order to derisk the project, we took the decision not to put automation in from the beginning. We're targeting automation around FY twenty four, twenty five. That would extend this capacity of this facility on well beyond '27. We believe it'll be earnings positive, but what I say by the latest, but but we will be earnings positive from f y twenty five onwards.

40:21 Significant supplier support we've mentioned. And importantly, probably worth just laboring the point here slightly, having a European entity and that that allows us to do nice frictionless EU to EU trade, having a distribution center that's got significant capacity, having a European employed and European based commercial team, I think, really does give us the opportunity to to now facilitate the move to the full omnichannel EU offering. ANGLING DIRECT, we're very much committed to having a really superb digital capabilities and and online offerings for our customers, but they work in complement with with bricks and mortar. And until we achieve bricks and mortar in Europe, our customers out there won't be getting the full ANGLING DIRECT experience. A lot of our customers enjoy shopping in either channel as it suits them, but but fishing is very much the sort of pastime where anglers like to mix. They like to talk to enthusiastic, well informed, confident anglers in the form of our store colleagues and indeed immerse them in the sort of category killing ranges that our our stores have there for our customers to put their hands on. So whilst we're absolutely focused on getting this distribution center open in in good time and well, we will, as part of next year's development

41:51 plans, move on and start to progress our bricks and mortar offering. And that, of course, could involve acquisition, of which we have ample experience up here in The UK, but it could equally, as we have more recently, been very successful in involve us opening stores from scratch ourselves. Slide 18, in summary, I think, speaks for itself. We we still have, I mean, very clear significant growth opportunities to be had both online and in store both in The UK and indeed in Europe. Unlocking Europe is why we're we're pressing ahead at full speed with the European distribution center, and it's really pleasing that a a good proportion of those costs are in this year. We are very well placed, I believe, in stock wise as we approach the next season. I think it's important, especially with the amount of news flow at the moment about disruption at ports with ships being diverted from Felixstowe to Rotterdam, etcetera, etcetera. That that really doesn't affect us. Christmas is not particularly important to us. We've had a happy trading period, the bulk of which is included in the results we're talking about today.

43:08 Friday is not it's a a massive significance to the tackle trade either. Having said that, we're quite optimistic about Black Friday and Black Friday month this year because, of course, in November last year, all of our bricks and mortar stores were closed. And and so we locked down too, and and Black Friday was entirely online. We've included a slide, and, again, some of your questions alluded to this about current trading and outlook. Again, these this is slightly paraphrased from from the words in the statement. But, essentially, you know, sales in q three are anticipated to decline. We we've been very clear about that for the past twelve months or so given the way that last year's fishing season was condensed and skewed into into quarter three by the nature of the first lockdown. So, you know, for a large part of of the first half of last year, you weren't allowed to fish.

44:09 You know, we we fully anticipate trade in in q three to be down on the prior year. And indeed, August was tough. August is our biggest month. September was slightly less tough, and October, you know, we're feeling sort of pretty, pretty positive about. Q four in terms of sales has a certain amount of uncertainty in it because we will annualize lockdown two November, as I mentioned, where all the stores were closed. We reopened those stores briefly for the month of December, and then everything closed down again in the final month of our financial year when we were closed at the start of lockdown three for the for the whole of January. We haven't experienced any material impact from supply chain disruption, as I said. We're not immune from raw material and and freight cost increases.

45:00 Having said that, given the margin progression we've been able to make, we're we're largely mitigating what what we're seeing there in terms of increasing cost prices. But I think it's important that I sort of really do stress that the reason why ANGLING DIRECT is growing as quickly as it can, reason why ANGLING DIRECT is making market share gains than it is is because not only do we have the highest product authority without some category killing ranges, not only do we have the best customer experience, but we're also committed to sharp prices. And we will we we will if necessary, we will we were very conscious of maintaining that position, and we will invest margin going forward if necessary to to maintain that because combined with those other two elements, that is what is driving the consolidation of the market, which is sort of what what to some extent is driving ANGLING DIRECT's growth. As I said, we were delighted to be able to upgrade our EBITDA pre IFRS 16 for the year end up to £5,000,000.

46:09 And we're quite rightfully very sort of confident and excited that we're in a great place. Looking forward to the start of the new angling season next spring. And I think that probably leaves us with a a reasonable amount of time to go through some of your questions. Fantastic. Andy, Steve, thank you very much indeed for the presentation. And ladies and gentlemen, do please continue submitting your questions using the q and a tab situated in the right hand corner of your screen? But just want the team to take a few moments to review those investor questions submitted already. I'd like to remind you the recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard on the Investor Meet company platform. I'd also like to remind you that your feedback is important to the company.

46:54 Immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations. Andy, Steve, we did receive a number of pre submitted questions from investors, and perhaps I could start off the Q and A session with these. And Steve, if I may just address the first few to you as they're more financial focused. The first one reads as follows. Please can you discuss the gross margin performance in H1 twenty twenty two? Do you believe this is a baseline for the business going forwards? Do you believe you can offset any start up costs relating to the European distribution by leveraging higher margin owned brand sales? Sure. So in terms of the first half, I think I commented on the 37.4%, what were the building blocks of that. I think as a business, we've always said we remain committed to a north of 36% gross margin. We believe that's the level we need to sustain at to deliver a pre IFRS 16 EBITDA margin, a minimum of 7%.

47:52 We remain committed to that 36%. I think the gains we've made in the first half, some of which I commented on were around tactically using our buying power, etcetera. And I'll briefly mention, to the extent we hang on to those remains sort of slightly open, but gives us a good foundation to maintain that 36%. So our covering analyst has us north of 36, 36.4% for the full year. And as a team, we're not uncomfortable with that level. In terms of the own brand penetration for Europe, undoubtedly, is a market that has a stronger bias towards own brand penetration. We've always been consistent in saying we believe sort of mid teens is the right level in terms of where we can get The UK business to. And on that journey, the own brand should be around worth around sort of 20 basis points a year in terms of how we develop that penetration rate. That said, in the European business case, we've got stronger ambitions, ultimately medium term north of the 15%, but not into the 40%, 50% that we've seen some European businesses try to deliver and arguably fail upon in terms of alienating their customer base. On the setup costs specifically, we've got around sort of our covering analysts has put us in for 400,000 of EBITDA setup costs for Europe for this year. That

49:22 remains within a tolerance of where we believe we will be. I think it's important to stress the timing. We have not yet signed the lease. And so the timing of when we sign that lease and when we can operationalize it will impact the full extent of the setup costs that we incur up to the point we open. So to the extent it hits 23 remains a small unknown at this point in time. Fantastic. Thank you very much indeed. So the next question we've got here is, you mentioned you expect a working capital reversal in H2 twenty twenty two. Please can you disclose the size of this? Yes, I think I've briefly touched on that in presentation. So again, somewhere around GBP 1,000,000 is a negative for the full year working capital would be around where we're anticipating based on the sales run rate. That is subject though to how we deal with the European working capital aspect. So we are assuming that it's around GBP 3,000,000 working cap injection at the sort of at the more ambitious end of what we want to stop the DC with as we start up the business. We are assuming that GBP 3,000,000 largely falls into FY 2023.

50:38 If we've got the opportunity based on signing the lease to bring that forward, we may well bring some of that into 2022. As I've said, the liquidity position gives us the flexibility to do that. That's great. Thank you very much indeed. The next question we have here is the latest forecast of EPS of 3.4 in full year 2022 falling to 2.6% in full year 2023. Previously, it was 2.8% in 2023. Could you just explain a little more around why, please? Yes. I think the dynamic of how the covering analyst is looking at this. So it's worth remembering, as I sort of pointed out in the presentation, that we are the direct recipient of 900,000 of government support, which won't repeat in FY 2023.

51:27 And we're also the recipient of some indirect government support, either rates relief we're receiving on some of our property portfolio this year. So you've got GBP 900,000 plus around sort of GBP 300,000 slightly north GBP 300,000 on the rates relief, which then sort of puts us in a position that we're automatically going backwards by about GBP 1.3 absent that government support year on year. Notwithstanding, we've also got in 2023, if it's consideration of how those European setup costs play out, I. E, can we kick start the operation on the February 1 and avoid any further setup headwind in 2023. The covering analysts I think has progressed their EBITDA forecast, but then as he knows prudently held his PBT back to a previous level.

52:17 So there is a slight amount of prudency built in between EBITDA and PBT. That's great. Thanks, Steve. The next question, I think you've actually pretty much covered off just in obviously the presentation, but just in case there isn't any further things to add, what is the cost of building the European distribution center? And is the cost the reason why you're guiding H2 EBITDA so low? And as I say, think you've pretty much covered it off, but just in case. So just for clarity, CapEx requirement is around GBP 300,000. The P and L impact for 2022, the analysts got us in for GBP 400,000. So GBP 700,000, if you like, of resources split with that 400,000,300,000 split between CapEx and EBITDA. That's great. And the final one, I think, for you actually, Steve, please can discuss the European rollout in more depth. Given the sizable commitment to distribution capacity, can you provide revenue targets and likely costs related to this? Similarly, can you discuss the working capital and CapEx need for the site for 2022, '23 and '24?

53:19 Thank you. Yes. So in terms of we're not giving sales targets by year. I think we're confident that we can get to FY 2025 with a business north of GBP 20,000,000. That sits against a fixed cost base of around GBP 1,000,000 a year. The ambition being to be in GBP $2,025,000,000 sort of moving into that positive territory as Andy's referenced. From a cash perspective, the key outflow is the 3,000,000 working cap investment. That arguably gives us, based on a coverage rate, sort of about two years cover on any further working cap burn. So beyond GBP 24,000,000, it's modest working cap consumption as we move towards that revenue so earnings positive status.

54:07 How much how quickly we can grow beyond 25%, obviously, then plays back into what working cap requirement is there. Again, we're well placed upon that from existing liquidity. And then as I mentioned before, the CapEx cost is largely considered within the FY 2022 numbers. That's great. Thank you very much indeed, Steve. That comes off your questions. Andy, perhaps if I could just turn to you. As I say, we've probably got about five minutes. It'd be great if we can get through some of these and and some of the other questions we've got come through. But the first one reads here as follows. Sales via the three native language websites fell by 34.2%. In that context, how risky is the planned expansion into the European market? Sure. I mean, just just on the question point, if it's okay with this with the host, I think we we can overrun just a few minutes because it would be good to answer as many of the questions as we can. We're very grateful for the questions. In terms of European mix, European risk, I think I'd refer to the fact that, you know, our German site is about three years old now. Our French and Dutch native language sites are about two years, and they were growing like Billio, for want of a better phrase, to be quite honest. So that the pre Brexit gave us an awful lot of confidence that our customer offerings, some of The UK brands, The UK banks, as I mentioned, some of our very contemporary online capabilities, I think, are very attractive to European customers.

55:36 So we we don't see anything as things stand at the moment to to make us feel any less confident that when we can get around those key largely Brexit driven issues with this in region EU to EU fulfillment. We're we're very confident that that we can regain that position very quickly and indeed sort of quite materially overtake it. So so, no, I I don't believe so. That's great. Thank you, Andy. The next one we've got here is, please, can you discuss your priorities for use of cash? Given strong cash generation, net net cash balance, should we be expecting bolt on m and a? Will you consider a modest dividend? Sure. We're we're sort of we're asked this question quite a lot, and and as I'm sure many of you are aware, we did undertake a raise of £5,000,000 midway through the first lockdown, which, you know, I think was a very, very prudent thing to do at the time as we we sort of have no idea idea of how things were gonna were gonna pan out as a result of that. It does leave us in the position we're in now. If you add that to how well we traded and continue to trade with a fair amount of cash.

56:48 We are conscious of that. We're conscious of the motivation behind the question. And and and, frankly, we are we are getting on with driving this expansion, particularly into Europe, but we do continue to invest in our both our stores and our online capability here in The UK as well, which is sort of our our mothership, if you like, that we do need to keep very conscious we need to to to keep working well. In terms of mergers and acquisitions, we we, obviously, have to be sort of fairly careful what I say here, but, we continue to have and have had for some time a considerable number of, ongoing discussions and indeed approaches both proactive and otherwise, but in both directions in terms of of the potential for acquisition. I think it's important that we I I I think we've been stung slightly by acquisitions in the past that haven't been either particularly well executed.

57:48 We've learned a lot of lessons from that. And I think when we do acquire, and I'm not ruling m and a out at all, We we need to make sure we do it with eyes open. We need to make sure we do it well, and we need to make sure it absolutely aligns with with our growth strategy. So so, no, I certainly wouldn't rule it out. I think there's another question in a short while about about dividends. We don't have any plans to give to pay dividends at the moment. The sort of overwhelming sentiment from our shareholder basis as as we read it is to actually utilize that cash in order to drive, continue to drive really quite rapid growth, especially as now I think we're starting to get a track record for demonstrating that our growth is is properly underpinned with some good EBITDA generation at the same time.

58:39 Great. Thanks, Andy. And just the next one we've got here. Shares are trading unlikely under 10 times PE in 2023 and over 10% free cash flow yield. A significant discount to peers, which trade in a range of between twenty and thirty times PE in circa 5% free cash flow yield despite ANGLING DIRECT's superior growth and market opportunity. Are you willing to help investors understand ANGLING DIRECT's midterm opportunity and clear valuation disconnect by providing some more midterm targets? Gosh. Quite quite a question. I suspect the second half Sorry about that one. No. No. I think it's probably the second half of the question that that that's the most relevant. So, I mean, what I would say is we we've been very clear in in our assessment of the business sort of from when we joined that this business has clearly got a great growth potential. We have a very initially, very clear path to north of a £100,000,000 business that will be reviewed in light of what we believe the European opportunity is. You know, those five territories I mentioned is a £1,900,000,000 market share.

59:40 Depending on what numbers you believe, we have a market share in The UK of between 1214%, so there's clearly a lot to go for there. So our focus is very much on a on a business that is north of 100,000,000 with a good, at least, a 7% EBITDA to sales ratio and a and a gross margin in excess of 36%. And and nothing that we've discovered and and nothing in terms of the progress we've made in in sort of recent months in the last couple of years suggest that isn't, you know, readily achievable within the next two to three years, certainly by FY '25. And and that's where all of our focus is is is at current, if that and hopefully, that's helpful to people. That's fantastic. Thank you, Andy. Just conscious of time, but if you're happy just to take a few more, as you said, we've got one more presubmitted, and we've got a couple that we can cut through just on the live q and a as well. But this one reads, please, can you discuss your revenue commentary relating to q c and q three twenty twenty two in more depth? Should we expect growth in q four twenty twenty two year on year?

1:00:45 Sure. I think we come into q three and q four sort of outlook, really. Q three is undoubtedly gonna be down. We've nearly completed it now. Q four, some degree of uncertainty because, you know, certainly, when we when we did the interim presentations this time last year, nobody was anticipating a lockdown in November. Now I think we can be fairly confident we're not gonna knock down again, hopefully. But, of course, we don't quite know how how the comparable business is gonna pan out. We're reasonably optimistic about q four. I think the analyst, if it does help, has a sort of sales number which implies a sort of a regression for the second half of around 4%, and we're we're we're pretty comfortable with the number that he has out there at the moment.

1:01:33 That's fantastic. That actually concludes the presubmitted questions. If I may just ask you just to click on that q and a tab there, gents, and then where appropriate to do so, if you could read out the question and give you a response, that'll be fantastic. I'm looking at about about three questions at the moment. Thank you very much. The first one is from Steve g that says, given growth potentially in Europe slash UK, both online and in store, combined with competitive advantages, should AD prioritize growth versus profitability? And I think the answer to this is is both. I mean, we're we're very clear, you know, after many years of really quite stellar growth, this organization was in danger probably two years ago ago about growing its infrastructure, outgrowing its human capability, and and and certainly capacity.

1:02:29 And I think by doing the right things to to to reinforce the foundations for what is a great business actually leads to more growth. And indeed, you sort of get the profitability as a as a as a as a bonus, if you like. We've been very clear we wanted to establish a degree of profitability. Some of our shareholders were were very keen to see that that that that good EBITDA was gonna come along. So I apologize if it sounds slightly mealy mad, but I I we're very focused on both. I think we were very clear. We want to continue to grow the business as rapidly as is as makes sense, but also demonstrate we can grow profitably as well. And the the the the impact of the pandemic, which I don't wanna dwell on too much, but it does make you know, that's why we put the year on two year slides in to try and help make sense of some of the strange comparisons, which, of course, aren't just about online and offline in The UK. We have noncomparable closures and lockdowns in our European territories as well, which also all sort of go into the mix.

1:03:38 Hopefully, that helps. Steve g, there's there's then a, say, a question from Scott m. Is there any one European country that is a focus of our resources? Where would we prefer to open our first physical store. There isn't there isn't really one country that is is a particular focus of our resources. We're very keen that all of our all of the customer facing technology and all the capability of our digital offering in The UK gets fully replicated in in all three of our native websites. That includes the mobile app, by the way. So every every we have quite reasonably sized teams of translators and technical people that do SEO and PPC directly within those countries. So we we we do spread this out. I would having said that, it's fair to say our German site is is furthest along its its its growth curve.

1:04:36 The siting of the distribution center is very near to some very, very dense, attractive population within Germany. I don't wanna be drawn about where I prefer our first physical store because we really haven't you know, all of our efforts are focused on doing a good job with the distribution center. Lots of retailers have booked up new distribution centers in The UK, let alone abroad, let alone very recently sort of post post travel restrictions. So I want to make sure we do a good job of that. We're starting in parallel then to sort of really work through what the physical store implications will be, and and we'll evaluate those thoroughly as you'd expect, and and and we'll sort of report back at at due time.

1:05:26 Perhaps that Steve finished on this last one. You happy to take this last one about single custom view and data BI and what have you? Yes. So question from Steve G is given the importance of omnichannel, are there plans to introduce a single customer view and to track profitability of different customer segments? So yes, I think the challenge here remains capturing the information from our store customer portfolio and doing that in a way such that it's not simply giving away margin capture that data. So the business got a track record where it did have a reward scheme, which effectively was introducing a 1% discount for any shopper provided you at the start, gave your sort of your electronic data points so you could track against it.

1:06:19 That what's the word gave a reasonable level of insight. There was less than a third of customers who signed up for it. I think one of the things for us one of the priorities for 2023 is to look at how we could introduce a capture point for the store such that we could conflate the store behavior with the online behavior because one of our clear gaps, as you referenced there, is understanding who is an omnichannel customer and who isn't and whether there's anything in terms of behaviorally that we would be prepared to pay away in the margin to have that richer level of data in terms of shopping behaviors. That's fantastic. Thank you so much. You've covered all the questions, Andy. So thank you again for addressing all of those. And of course, any further questions that do come through, the company will have the ability to review those and we publish responses where it's appropriate to do so. Just before we redirect the attendees to give you some feedback, Andy, perhaps I could just ask you for a closing snapshot of the business, please.

1:07:19 Yes. Thank you very much, and thank you everybody for taking the time to join us this morning. We we're we're very pleased with this set of results, as I mentioned at the start of the presentation, and particularly in the progress that ANGLING DIRECT has made in the last eighteen months in terms of contemporizing itself as an organization, investing in the future of the business, I think, has enabled us to trade very flexibly during a time of great uncertainty. I think it's enabled us to demonstrate what a resilient business we are. It's demonstrated how we're able to really start to leverage our clear market leading positions, certainly in The UK and increasingly in Europe. And we are very focused on on what we believe is a very clear purpose about getting everyone out fishing. We have a strong ambition to become Europe's first choice omnichannel fishing tackle destination.

1:08:16 And I think with our unique market leading digital and store customer offerings, we're we're ideally placed to take market share. We're very confident that we'll we'll continue to do that and to indeed grow profitably both online and in store both in The UK and increasingly across Europe. Thank you very much for your time today. That's fantastic. Andy, Steve, thanks again for updating investors today. Could I please ask investors not to close the session? It should be automatically redirected for your opportunity to provide feedback to the management team so they can better understand your views and expectations. This will only take a few moments to complete and is greatly valued by the company. On behalf of the management team of ANGLING DIRECT PLC, we'd like to thank you very much for attending today's presentation. That now concludes this today's session. Thank you and good morning.