DJ WICKES GROUP PLC: Interim Results 2021
WICKES GROUP PLC (WIX) WICKES GROUP PLC: Interim Results 2021 16-Sep-2021 / 07:00 GMT/BST Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.
-----------------------------------------------------------------------------------------------------------------------
Wickes Group plc - Interim Results 2021
for the 26 weeks period to 26 June 2021
Strong first half performance driven by digitally-led, service-enabled proposition
Financial Highlights
-- Revenue growth up 33.1% on a like-for-like basis*, and 22.4% on 2019, driven by strong Core performance
-- Adjusted profit before tax increased to GBP46.5m**, ahead of guidance of around GBP45.0m
-- Reported profit before tax increased to GBP35.7m, reflecting demerger and IT separation costs
-- IFRS net debt reduced by GBP100.2m to GBP564.8m compared to the Prospectus pro-forma opening position drivenby strong trading performance and cash generation
-- Capital investment and IT separation costs are weighted to the second half of the year and workingcapital benefit will partially unwind
-- First Wickes Group plc interim dividend declared of 2.1p
-- We now expect to deliver full year adjusted profit before tax towards the upper end of marketexpectations
Operational Highlights
-- Digital strength and capability continues to underpin performance with strong retention and growth ofactive digital customers; two thirds of sales driven by digital channels
-- Further market share gains in Core across both DIY and local trade across a broad range of categories,driven by the strength of the digital proposition and supported by new ranges
-- Resilient performance in DIFM (Do-it-for-me) with showrooms closed through to 12 April and 1minteractions with our newly developed virtual showroom journey within six weeks of launch
-- Further growth in the Wickes installer base, with wider market issues driving an extension of lead timesfrom order to completion
-- Successfully navigating Covid restrictions and supply chain challenges
Summary financial results
GBPm 26 weeks to 26 Jun 21 26 weeks to 27 Jun 20 Change
Revenue 812.0 612.7 32.5%
Core 666.7 491.8 35.6%
DIFM 145.3 120.9 20.2%
Gross profit 294.8 225.9
30.5%
Gross profit % 36.3% 36.9%
Adjusted** operating profit 61.9 30.9
100.3%
Adj operating profit % 7.6% 5.0%
Adjusted** profit before tax 46.5 14.5 220.7%
Adjusted** basic earnings per share 14.6p 4.7p
Reported operating profit 51.1 10.9
368.8%
Operating profit % 6.3% 1.8%
Reported profit / (loss) before tax 35.7 (5.5)
Basic earnings / (loss) per share 13.5p (0.8)p
Interim Dividend 2.1p n/a
*Like-for-like sales analysis is explained, reconciled and calculated in note 3 of the interim financial statements
**Adjusted measures represent results on an IFRS basis and exclude adjusting items which comprise significant restructurings, significant write downs or impairments of current and non-current assets, the costs of demerging and listing the business, the associated costs of separating the business from the Travis Perkins Group's IT systems, and the effect of changes in corporation tax rates on deferred tax balances (see note 2 of the interim financial statements for a detailed explanation of these items). These measures have been explained, reconciled and calculated in note 15 of the interim financial statements.
Current Trading & Outlook
As expected, Core performance has moderated as we annualise tough 2020 comparatives, however we continue to see strong year on two year growth driven by notably buoyant demand from local trade and underpinned by our digital capability.
Following the re-opening of our DIFM showrooms on the 12 April, ordered sales grew strongly through May and June. Over the summer, DIFM orders have since settled back to be broadly in line with 2019.
The well-documented demand for installers, and in particular the builders that many wider projects are dependent upon, combined with ongoing product supply restrictions, means lead times to project completion have extended. This will result in a higher carry over order book into next year which will benefit financial year 2022.
Given the strong outlook for Core and DIFM trends, together with half year results which delivered adjusted Profit Before Tax GBP1.5m ahead of guidance, we now expect adjusted Profit Before Tax for the full year to come in towards the upper end of analyst expectations (range GBP67-GBP75m). This assumes no further significant change as a result of Covid disruption or restrictions.
David Wood, Chief Executive, commented:
"This is a strong first half performance underpinned by our attractive digitally-led, service-enabled proposition. In our first set of results since demerger, we have delivered an increase in sales and profits as we continue to help the nation feel house proud.
As a business we have responded well to the increase in demand across our three routes to market, supporting all our customers. I would like to thank each of my colleagues for their continued hard work and support.
In Core we have gained further market share driven by the strength of our proposition and DIFM has been remarkably resilient despite showrooms being closed through to April.
Throughout this period, our strong relationships with suppliers means that we have navigated inflationary pressures and raw material constraints well - and this remains the case. We continue to provide customers with the products and services they need at the best possible value.
Turning to the wider home improvement market, external factors continue to indicate strong growth opportunities. An ageing housing stock, continued property transactions and growing consumer confidence are all driving customers to improve their homes. In addition, the increased time spent at home has fuelled the desire to renovate and refurbish - not only from homeowners - but also amongst rental tenants and the millennial generation.
While the immediate external environment remains volatile, we look to the future with confidence. We expect to deliver a full year adjusted Profit Before Tax towards the upper end of expectations, and beyond that, we have the right business model to win over more customers and capitalise on the growth opportunities within a large and growing home improvement market."
Investor & Analyst meeting
A webcast for investors and analysts will be available today at 9.00am (UK time), followed by a live Q & A with the Wickes management team. The webcast be accessed at: https://webcasting.brrmedia.co.uk/broadcast/ 612f98e812f0cb436ea68dc1
A recording of the webcast will be available on the Wickes Group plc website later today: https://wickesplc.co.uk
Contacts
Wickes Headland +44 (0) 0203 805 4822
Investor Relations PR Adviser to Wickes
Andy Hughes +44 (0) 776 736 5360 Lucy Legh, Will Smith, Charlie Twigg
investorrelations@wickes.co.uk wickes@headlandconsultancy.com
About Wickes
Wickes is a digitally-led, service-enabled home improvement retailer, delivering choice, convenience, value and best-in-class service to customers across the United Kingdom making it well placed to outperform its growing markets. In response to gradual structural shifts in its markets over recent years, Wickes has a balanced business focusing on three key customer journeys - Local Trade, DIY (together "Core") and Do-it-for-me ("DIFM").
Wickes operates from its network of 232 right-sized stores, which support nationwide fulfilment from convenient locations throughout the United Kingdom, and through its digital channels including its website and TradePro mobile app for trade members. These digital channels allow customers to research and order an extended range of Wickes products and services, arrange virtual and in-person design consultations, and organise convenient home delivery or click-and-collect.
Forward looking statements
This announcement may include statements that are, or may be deemed to be, forward-looking statements. By their nature forward-looking statements involve opportunity, risk and uncertainty since they relate to future events and circumstances, and actual results may differ materially. Any forward-looking statements in this announcement reflect management's view with respect to future events as at the date of this announcement.
Operational and strategic review
Wickes has performed strongly in the first half of 2021 supported by our digitally-led, service-enabled proposition. Two thirds of our sales were driven from digital channels in the first half of 2021, whilst retention and growth of our digital shopper base was strong having grown substantially in 2020, influenced by the pandemic.
Wickes continued to be recognised independently, winning DIY Retailer of the year at the DIY Week Awards 2021 and ranking as a top 10 UK retailer in the Financial Times Global Diversity Leaders 2021 reflecting employees' views on diversity and inclusion.
Market
The home improvement market continues to show good growth, underpinned by an ageing housing stock, property transactions and consumer confidence, driving customers to improve and invest in their homes.
(MORE TO FOLLOW) Dow Jones Newswires
September 16, 2021 02:00 ET (06:00 GMT)
DJ WICKES GROUP PLC: Interim Results 2021 -2-
Covid restrictions have further amplified this market through changes in working habits, resulting in more time spent in the home, fuelling further desire to renovate and refurbish. We have also seen increased appetite from rental tenants to invest in their properties, interest from the millennial generation in DIY, combined with a higher level of savings which supports pent up demand. When taken together these factors continue to indicate strong growth opportunities in the home improvement market.
The appetite to invest in home improvement played out strongly in the first half of 2021 as customers sought to complete projects either through DIY, employing a local tradesman or seeking concept to completion services on projects such as a kitchen or bathroom installation. The Wickes proposition continues to have broad appeal irrespective of how a customer chooses to complete their home improvement project.
Operational progress
Wickes continued to be classed as an 'essential' retailer through Covid restrictions in the first half of the year, with stores remaining partially open until 12 April 2021 and fully open thereafter.
During this period, both our store and distribution environments handled record levels of throughput, driving strong operational leverage in challenging circumstances by continuing to develop and refine working practices whilst delivering improvement in customer satisfaction measures. Investment and innovations in this area included new in-store digital handheld terminal picking capability, 'park and collect' allowing customers to remain in their vehicles when collecting goods from store and continued investment to develop in-store fulfillment space to maximise multi channel capacity. We have also seen an increase in assisted selling as customer proximity and service has returned. Throughout the first half we continued to invest in areas such as cleaning, social distancing and marshalling, to ensure that our operational environments remained safe for colleagues and customers.
Government restrictions required our DIFM showrooms within stores, which showcase our kitchen and bathroom ranges, to remain closed from January 2021 through to 12 April 2021. DIFM activity therefore relied entirely on our newly developed virtual showroom journey which was rolled out in Q4 2020. Our virtual showroom tour saw over 1m interactions within six weeks of launch, delivering a resilient level of sales despite showroom closures through our critical winter sale period.
Despite an industry-wide shortage of installers, we have continued to offer customers the best available lead times in the market and have retained our 'distinction' level of service from the Institute of Customer Service in challenging circumstances. We continue to grow our installer network with over 350 new installation teams approved in the first half of the year, strengthening the capacity and quality of our installation capability. Additionally, we continue to progress our installer apprenticeship programme with the initial cohort completing their training in the first half of the year.
Our store network remained open throughout the first half (which compares to 2020, when our stores remained closed for a number of weeks), and as a result we have seen changes in participation through our customer fulfilment channels. Participation has strengthened in self-serve, whilst click & collect has reduced. Home delivery has maintained high levels of participation following strong growth in 2020, indicating an underlying change in customer behaviour. To support this underlying change we are building out broader partnerships with carriers to service the increase in demand whilst also giving customers the best possible experience.
Availability challenges in certain categories have been widely discussed. Whilst we are not immune to these challenges, we consider our strong supplier relationships, curated range and operational agility have served us well to continue to provide customers with the products they need through this period. This is evidenced by a consistently strong and resilient Core performance through the first half of the year, and we expect to maintain a strong focus on availability to ensure we are best placed to mitigate any impact. We will also maintain a good dialogue with customers to manage expectations where supply shortages or project delays are unavoidable.
Issues on cost price inflation being experienced across the industry have been well-flagged, particularly in key commodity driven areas such as timber. We are managing through these transitory pressures by working closely with our suppliers, adjusting prices where necessary whilst maintaining a competitive price position to provide customers with the best possible value.
Winning for Trade
We have continued to grow our TradePro membership, enrolling over 50,000 new local trade customers, bringing total membership to over 600,000. Our local trade customers indicate that they have a strong pipeline of work and this has translated into increased transactions and spend, supporting our Core performance through the first half.
We continue to evolve our digital capability during the half, with more personalisation introduced in the TradePro app together with the ability to target promotional offers and give early visibility of these offers to drive loyalty. We continue to develop our Mission Motivation Engine, with an initial focus on local trade, to help us identify which missions our customers are on - leading to more relevant personalised communication across all channels. In addition, our new digital picking capability in stores enables prioritisation of the trade customer orders to ensure we can better deliver on the need to 'save me time, save me money.'
Accelerating DIFM
We believe digital development and product innovation will drive the acceleration of growth within DIFM. As such, this remained a core area of focus and investment during the half. Throughout the period the virtual showroom journey and virtual tour functionality have enabled us to continue to engage with customers and take them through the design and sales process entirely remotely, supported by our experienced design consultants.
We have continued to invest in product innovation in line with changing customer demands and needs, including a major refresh of the kitchen range, a completely new bathroom range together with a standalone home office proposition, all of which are indicating encouraging levels of interest from customers. The home office proposition notably demonstrates our agility to respond to changing consumer behaviour and leverages our existing design and installation capability. Our kitchen and bathroom ranges are being progressively introduced into our showroom displays, and will be completed in the second half of the year. We also took our new Bathroom range above the line, launching our first ever bathroom TV ad.
We continue to see high attachment rates of tiling and flooring sales to kitchen and bathroom projects, confirming the opportunity to grow adjacent categories and increase overall project spend. Installation solutions for new categories are progressing well with pilots expected to commence later this year.
Digital development has delivered improved imaging, features and pricing illustrations for DIFM projects, together with new video content supporting flooring and tiling.
DIY Category Wins
Our highly curated range continues to work well, supporting strong levels of Core sales growth and market share improvement through the first half, with extended ranges available through our in-store online terminals (OLI) and through our website.
As part of our strategy to capture market share in underweight categories, range reviews were completed in garden maintenance, flooring, timber & sheet materials and own brand power tools, delivering strong sales growth, improved availability and stockturn with an average 20% in-store SKU range reduction supported by an extended range online. Further range reviews are planned for the second half of the year.
Store Refits/Enhanced store service model
During the first half of the year, three store refits were completed in Dundee, Ruislip and Stockport together with a refresh in Taunton and a relocation in Sunderland. The sales uplifts from these investments continue to deliver strong returns on investment and we expect to accelerate this programme of investment moving into the second half of the year.
We continue to evolve our store service model and have recently re-launched our Dunstable store following a refit, to represent the current best in class store service proposition.
ESG
At the start of the year, we laid out our ESG focus areas together with our ambition to grow a responsible, sustainable business supported by a board level ESG committee.
In the first half of this year we have continued to strengthen our colleague networks. We have grown our LGBT+ allies, delivered disability smart training, extended our mental health first aiders, and seen over 380 managers taking part in our Race, Ethnicity and Identity programme. We also launched a partnership with Peppy Health, supporting our colleagues with menopause and fertility services.
Wickes continues to focus on supporting young people across our communities. We have launched our first to market 'Installer Apprenticeship' scheme, as well as supporting Kick Start. We have now raised over GBP1m for Young Minds, our charity partner, after strong fundraising in the first half of this year. Following a trial of our new Store Community Programme, which supported over 50 charity partners and schools across four regions, this programme is now being extended across our store estate.
(MORE TO FOLLOW) Dow Jones Newswires
September 16, 2021 02:00 ET (06:00 GMT)
DJ WICKES GROUP PLC: Interim Results 2021 -3-
Wickes has been working hard to integrate environmental and social considerations into our supply chain and partnerships, completing our first supply chain scope 3 carbon emissions assessment. We continue our Sedex membership, one of the world's leading ethical trade membership organisations, and will continue to ensure all factories supplying Wickes branded products undergo a periodic ethical audit using the SMETA format. All of our imported timber supply chains have been mapped to ensure products continue to come from legal, verified sources, we have introduced a Wickes branded Peat-free multi-purpose compost and have been working on the removal of chromium VI (Cr6) from all Wickes branded products.
We continue to improve our products and packaging, developing a packaging portal for launch this year, that will consolidate all of our packaging data into a single database to allow for improved visibility and management.
We have used the first half of this year to review our environmental impact and to understand where we can make improvements to our strategy and data to continue our work of reducing our emissions and waste across the business. We have set about developing emissions reduction targets that are aligned with the latest climate science, with ambition to set these targets in early 2022.
IT separation
Following the decision by the Board of Travis Perkins plc to progress with the demerger of Wickes, the IT separation programme was fully re-mobilised during the first half, having been considerably reduced in scope in 2020. We are currently on track to complete separation of the IT infrastructure away from Travis Perkins within two years of the demerger with an associated 'one off' separation cost of around GBP40m.
Financial review
Revenue
Revenue in the first half of 2021 was GBP812.0m, up 32.5% on 2020 comprising Core revenue of GBP666.7m up 35.6% and DIFM revenue of GBP145.3m up 20.2%.
Core revenue performance remained strong throughout the first half with like-for-like sales growth of 36.2% (44.2% compared to H1 2019). Of this growth, c3% reflects price inflation, with commodity cost increases being passed on to consumers through price in the latter part of the first half. Growth was predominantly driven through a higher number of transactions across a broad range of categories, supported by both Local Trade and DIY. As anticipated, Core growth moderated in June on a year on year basis as we annualised the full re-opening of stores following the first lockdown in 2020, remaining strong on a two year basis.
Showrooms in all of our stores remained closed through to mid April, with customer interaction supported by our newly developed virtual showroom journey. DIFM revenue performance has been remarkably resilient with like-for-like sales growth of 20.5% (down (27.9)% compared to H1 2019). There has been notably strong performance from our Bathroom category following a full range review late last year, and installation participation continues to strengthen supporting increasing customer demand for this service.
Gross Profit
Gross profit in the first half was GBP294.8m (36.3% of revenue), up 30.5% on 2020 at GBP225.9m (36.9% of revenue), a 60 basis point decline in gross profit rate.
As expected the first half of 2021 saw a return to more normalised trading conditions in Core, with promotional activity re-introduced and local trade performing strongly at correspondingly lower levels of margin. The latter part of the period saw cost price inflation passed onto customers to recover value, rather than maintaining gross profit %. Within DIFM, margin reduced, reflecting strong bathroom sales performance from new ranges and increased participation of installation, both of which carry a lower level of margin return than kitchens. Customer delivery participation remained broadly consistent with the prior year against a backdrop of continued Covid restrictions and changing consumer habits; this was partially offset by operating cost leverage through our own distribution channels.
Adjusted Operating Profit
Adjusted operating profit in the first half was GBP61.9m, up from GBP30.9m in 2020. The current year does not include any government support whilst the prior year comparative includes GBP17.3m of support (note 5) which was subsequently repaid.
The strong underlying performance is primarily driven by Core sales growth together with operational cost leverage. This was partially offset by a reduction in gross profit margin, additional costs of GBP1.6m incurred to keep colleagues and customers safe and new ongoing plc costs of GBP1.9m reflecting partial impact of the demerger.
Net finance costs
Finance costs in the first half were GBP15.4m, reduced from GBP16.4m in 2020 principally reflecting interest on lease liabilities.
Adjusting Items
Pre-tax adjusting items in the first half were GBP10.8m, reduced from GBP20.0m in 2020. Costs directly attributable to the demerger of GBP5.4m were incurred in the first half together with GBP5.4m of IT separation costs to migrate systems away from the Travis Perkins infrastructure. The IT separation project will scale up in the second half with a two year cost of cGBP40m, which will enable the business to step away from the transitional services agreement in place with Travis Perkins.
Tax on adjusting items includes a credit of GBP6.8m arising from the increase in the rate of UK corporation tax effective from 1 April 2023 from 19% to 25%. The legislation enacting this rate increase was substantively enacted prior to 26 June 2021. The rate change recognised at 27 June 2020 (GBP2.4m) and 26 December 2020 (GBP2.4m) represents the increase in the rate of UK corporation tax effective from 1 April 2020 from 17% to 19%.
Profit before tax
Profit before tax in the first half was GBP35.7m compared with a loss of GBP5.5m in the prior year. This improvement in performance was primarily driven by the strong trading results together with a lower level of adjusting items, noting that the prior year benefitted from GBP17.3m of government support (note 5) which was subsequently repaid.
Tax
Tax for the period is charged on profit before tax, based on the forecast effective tax rate for the full financial year. The underlying effective tax rate (before adjusting items) for the 26 weeks ended 26 June 2021 is 21.1% (26 weeks ended 27 June 2020: 17.9%, 52 weeks ended 26 December 2020: 18.0%).
Capital Investment
Capital investment in the first half totalled GBP8.7m comprising GBP4.5m of investment in our store estate, GBP1.4m supporting range review activity, GBP1.7m of investment in our digital IT capability together with GBP1.1m supporting IT separation. Capital investment will accelerate in the second half as we scale up investment in our levers for growth with a full year investment expected of around GBP30m.
Net debt / Cash flow / Working capital
Net debt reduced to GBP564.8m and includes the impact of the capital restructure to support demerger from the Travis Perkins Group, which cleared down intercompany balances delivering a prospectus pro-forma opening net debt position of GBP665.0m (being the pro forma cash in the prospectus of GBP125.0m less the pro forma lease liabilities of GBP790.0m).
The net cash position of GBP204.2m was supported by strong operating cash flow, a favourable working capital position together with an inflow of GBP123.5m relating to the capital restructure on demerger. Capital and IT separation investment is weighted to the second half supporting the improvement in net cash in the first half of the year and working capital benefit will partially unwind.
Stock at the half year was GBP162.4m compared with GBP128.7m in the prior year which was notably temporarily impacted by COVID supply chain disruption. Despite this increase, stock turn strengthened further to 5.6x reflecting the buoyant core trading environment and efficient management of stockholding.
Dividend
The first Wickes Group plc interim dividend of 2.1p is proposed in respect of the 53 weeks ending 1 January 2022.
Updated technical guidance
The following represents second half and full year guidance:
-- Incremental plc and share-based costs of GBP7m on a full year basis;
-- Profit impact of 53rd week neutral;
-- Full year interest charge of GBP31m;
-- Full year adjusted tax rate c21%;
-- IT separation costs still expected to be cGBP40m over two years (within adjusting items, H1 21 GBP5.4m);
-- FY21 dividend cash cost cGBP5.5m.
Risks & Uncertainties
The Board has considered the risks and uncertainties for the remaining 27 week period to 1 January 2022 and has determined that the risks presented in the Wickes Group plc Prospectus dated March 2021 remain relevant.
Against a backdrop of ongoing Covid disruption combined with high levels of customer demand across our market, key areas of focus include:
-- Management and response to Covid restrictions and the risk that this may impact our ability to trade toour full potential
-- Assurance of a safe operating environment for our colleagues and customers
-- Disruption to product supply whereby proactive management of the supply chain and maintenance of strongrelationships with our suppliers is key
-- Monitoring and management of cost inflation, notably passing CPI through into consumer pricing to protectprofitability
-- Protection and growth of our third party installer network
-- Proactive management and retention of key elements of our workforce such as drivers to assure appropriateresources remain in place to support the business
-- Continued focus on cyber security risk
A robust framework of monitoring and managing risk has been established following demerger which reports through the Audit & Risk Committee.
(MORE TO FOLLOW) Dow Jones Newswires
September 16, 2021 02:00 ET (06:00 GMT)
