Likewise Group (LSE:LIKE) — Investor Update

0:00 Good afternoon, and welcome to the LIKEWISE GROUP PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time by the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses when 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 Tony Brewer, CEO. Good afternoon, sir. Many thanks, and, thanks everybody for joining this presentation this afternoon. And I guess he's relatively short notice. I think, key features of this are that, as you know, the business was formed in 2018. We listed on Tice in 2019, acquired Heat Seam Factory Flooring in the spring of twenty nineteen, followed by the acquisition of Valley Wholesale Carpets at the beginning of twenty two and also the listing in on AIM in the autumn of twenty one. But I guess, notwithstanding all those events, this is probably the most important day in our history, because this really allows us to propel forward and take the business to a completely different level.

1:12 The picture you can see in front of you is the the Corby distribution hub, which we're getting quite close now to exchange and completion on that, and I'll explain how that affects our logistics network as we go through the presentation. So why the raise? I think it's fair to say there are lots of opportunities. We've developed a business which is towards 200,000,000 now annualized turnover. We can see opportunities to take the business to 300,000,000 beyond and have the appropriate return on sales at a PBT level, which will also allow us to make further investment in the future to create a really strong floor covering business in The UK. So as I said, one of the key features of this is the acquisition of the freehold distribution hub in Corby.

2:02 The initial intention was to raise 20,000,000, and we also have support from NatWest, our principal banker. I think the appetite from the market, and as you've seen from the numbers today, takes us more towards 30,000,000 raise, and that really allows us to develop the business from a very strong foundation. I think I was always taught, many of you will remember Graham Waldron. I think he taught me certain business principles. One was to have liquidity and retain your liquidity. Secondly, was to have plenty of banking facility and cash available. And thirdly, it was very importantly to look after the business. Because I think if you look after the business, you ultimately look after all the staff, the shareholders, and all stakeholders.

2:49 So I think that's a number of lessons learned, and that's why, if asked why, we took more than the original 20,000,000. In terms of the sales profile, very encouraging start to the year. Positive performance, through the spring and into the summer. We all appreciate in the flooring industry that, hot weather is not favorable to us, but you can see there in June and July a very good performance on the sales side, and that will give us some operational gearing, certainly to strengthen further into the autumn. In terms of our property infrastructure, currently four sorry, 13 sites, two to become fourteen, six of which are freehold. And, of course, Colby will also be freehold.

3:34 Currently, £33,000,000 value with just 5,000,000 of fixed debt. As you'll appreciate, that's been developed principally since 2021 when we moved into the Leeds Distribution Center, and all of that infrastructure has been built in the last five years. I guess two key points on that particular slide are the new Leeds center, which we acquired earlier in the year, and again, the freehold of that site. And that was primarily to be able to facilitate much better supply chain management of containers coming from the Far East and also from Europe, and then feeding into the LIKEWISE network. And then you'll note that picture at the bottom of Newport, where that extension was under construction when that photograph was taken. And now overleaf, you'll see a pretty impressive, fully wrapped out extension. The cutting table started to be assembled on Monday of this week, will be completed next week. So by the middle of August, very much completely operational and becomes the fourth hub for LIKEWISE floors.

4:39 So in Corby, as you've seen that picture at the start of the presentation, £9,000,000, total consideration plus, an eye watering 440,000 of stamp duty and to follow with that £2,000,000 of capital expenditure, which I'll go through a bit more detail on that in a moment, but an important part of the, likewise, overall logistics network. And you can see from this chart, it's a, 12 meter high high bay warehouse. Those of you who have visited the Birmingham distribution center, Colby is very similar to that, but actually two meters higher, which, of course, gives us a great cubic capacity. Now you'll see the layout. And again, those of you who familiar with our distribution centers, the cutting table on the left hand side, able to cut carpet and vinyl and artificial grass up to five meters wide. The racking systems and then the palletized racking, very vengeful layout that we're very used to doing.

5:39 And as I've said, that's a 2,000,000 pound fit out in terms of the the racking, the cutting table, the forklifts to to operate within that, distribution hub. I guess this is one of the key slides, to be fair. So, with cutting carpet, we have those large cutting machines, the capital expenditure which goes with those, which is between 350,450 thousand pounds. They take up quite a lot of space. They take a team of six people to operate them. And typically, what we call a cutting shift, that's those six people, they can do 300 cuts per day. Okay? So if you think then of the sites in in in the cutting tables in Glasgow, Leeds and Birmingham, each working two shifts, that's 1,800 cuts per day. And we do have some capacity there today. And similarly with Valley Wholesale Carpets, we have three large cutting tables in Nerith, again working two shifts, 1,800 cuts per day. So if you then think about annualized run rate currently of 200,000,000, that really justifies that with Newport, Corby And Derby becoming fully operational from a cutting perspective, we can gear up to more than 50% that we have currently. So again, that translates taking that 200,000,000 sales revenue up to 300,000,000.

7:00 And of course, it's not just about cutting carpet, but where you have palletised goods such as laminate, luxury vinyl tile, carpet tiles, adhesives, levelling compounds, it's fairly easy to put extra capacity in with individual trucks and individual operatives at any one time. So in terms of that network, I know there's a lot going on on that map, but if you can cast your eye to the orange lines perhaps, the three, hubs for LIKEWISE floors are Birmingham, Leeds and Glasgow, and soon to become with Newport becoming the fourth. As you can see there, there's a huge amount going on in those each of those lines represent overnight movement of trucks. And, of course, Birmingham being in the center of country, there's a huge amount of cross docking goes through Birmingham at night. And to continue to increase our volumes, we needed to deflect some volume away from Birmingham, and hence that distribution center in Colby in the East Midlands.

8:03 So going forward, the leads to Sudbury and the leads to Syd Cup trunkers will be going through Corby releasing volume in Birmingham. Of course, alongside that, you've got the network within Valley Wholesale Carpets with Erith being the main center, Derby distributing into the Midlands and North, and Newport and Plymouth also through the the Valley network. I think it's again important slide in that you see we've invested 12,500,000 over the last five years in, putting that infrastructure together. A lot of that is done through free cash flow, two thirds effectively, and and one third through asset finance. And you'll see from the right hand slide that all of the asset finance, with the exception of the new cutting tape we put into Leeds during the, Christmas New Year break, has all been paid down. So that gives us every confidence with the projects we have before us.

9:05 And then in terms of current trading, I showed you the sales rep, but, you know, sales revenue well up. Slight improvement in the gross margin, which we recognize we need to do to, again, to continue to be able to invest in the business. You'll appreciate running a 160 delivery trucks that, the cost of doing that in the last three or four months has been much higher than it was before the Iran war. That's an extra 500,000 of cost at least during the course of this year, but we're still confident of achieving that original 4,000,000 PBT. So in terms of use of funds, Corby's obviously is a specific, we've identified other distribution hubs that could potentially come into the network.

9:52 And there are, I think, a lot of opportunities in the floor covering market generally to expand our business. And just to give you a couple of examples there, we're aware of this, freehold distribution center. We're in the process of negotiating a deal on that, and that could welcome in that's an existing building, new build, that could welcome into the network in the coming months and be operational potentially at a similar time to Corby, which will be the beginning of next year. And then alongside that, we're aware of a piece of land, which again would fit a nice 60,000 square foot distribution hub. That piece of land has planning permission. We're in preliminary discussions with the developer with that. And, that could well come into the network to strengthen the business and take us well beyond beyond that 300,000,000 sales revenue that with the the the Corby distribution center alongside the development in Newport and Derby can be achieved.

10:52 So in terms of conclusion, you know, this raise gives us a huge amount of flexibility to build the business of the future with very sound financial foundations. We can increase the operational capacity and subsequent market share. We currently have a 33,000,000 free old property portfolio. That's inevitably going to increase over the coming months and take advantage of the many opportunities alongside, of course, all of the product sales and marketing initiatives which are going on constantly with our 108 salespeople in the marketplace, visiting our customers, independent retailers and flooring contractors and developing business. And I think we're, you know, very much on target to achieve that 300,000,000 over the coming years, and there's every opportunity to go further than that. And, of course, importantly, for further investment to achieve the right return on sales at a profit before tax level.

11:52 Many thanks. That's great. Thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab situated on the right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via investor dashboard. As you can see, we have received a number of questions throughout today's presentation. And if I may just start off with the first question here, which reads as follows. Do you believe the business has potential to become one of The UK's dominant national flooring distributors? Think we can well, we're probably the best now. I think we probably will become the biggest. I don't like to say dominant because I think we're very conscious of keeping our customers competitively priced in the marketplace, servicing their needs efficiently and providing a good service to the industry overall.

12:48 Thank you. The next question we have here reads, how are manufacturers and suppliers responding to your continued market share gains? I think it's encouraged. I think from from the outset, when we started the business in 2018, as I mentioned earlier, required heat seam factory flooring in 2019, we've had a huge amount of support from manufacturers in The UK, in Western Europe, in Turkey, in the Far East. I think they saw an opportunity with the the people we had and the plans we had to build a very sound distribution business. And, of course, The UK being internationally quite a small island, but it is an Island, and I think it obviously serves well the manufacturers to channel their goods through the distribution network, and the suppliers have been fantastically supportive.

13:42 Perfect. That's great. That's all the questions that we have had come through, and and then the others we can share with you post today's meeting. So thank you for answering those questions you can. Just before we redirect investors to provide you their feedback, which is particularly important to the company, Tony, can I please just ask you for a few closing comments? Sure. And I think I said at the outset, this has been a very important day. Obviously, we've gone through a process over the last few weeks of talking to existing investors and shareholders, and we've brought a number of new shareholders onto the register, who are long term shareholders. It is a very important day in our development. And I think it gives us the financial foundations and, on with that, the operational infrastructure to really take the business forward.

14:30 That's great. Thank you for updating investors today. Can I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good afternoon to you all.