Likewise Group Plc (LIKE.L) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Likewise Group Plc investor presentation. [Operator Instructions] The company may not be in a position to answer every question received during today's meeting. However, the company can review all questions submitted today and will publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation. It gives me great pleasure to hand over to CEO, Tony Brewer. Good morning, Tony.

Good morning. Thank you, Mark, and welcome, everybody, and thanks for joining this presentation. Just starting with the first slide, you'll see a pretty impressive truck and trailer there. We've had 3 of those delivered over the last 3 months, March, April and May, helping the capacity of the group, particularly on the night transfers. And then over and above that, we have 32 new trucks coming into Likewise during the course of the year and including those which we had in the second half of last year, 20 new trucks into Valley. So significant investment to improve the fleet and the delivery service to our customers. So as you know, I'm sure that the business is focused on the product development, sales, marketing and distribution of flooring to independent retailers and flooring contractors. With the additional site that we acquired in January in Plymouth, we now have 12 distribution and logistics centers, and I'll demonstrate during the course of this presentation where we have additional capacity. We now have 87 key suppliers of general flooring products, which includes, of course, carpet, residential vinyl, laminate, luxury vinyl tile, artificial glass, commercial flooring, adhesives and leveling compounds and other flooring accessories. And very importantly, 96 executives who are very much focused on our customer needs as are the rest of the employees within the business and 144 delivery vehicles offering that next-day service to our customers. We've now increased to 545 staff and a huge majority of those, of course, the management, the sales teams, the internal sales, warehouse staff delivery drivers, many of which have long-standing floor covering experience. And we continue to increase our market presence with displays and sampling going into retailers. And that culminates in having just over 7,000 customers across the business. And whilst we'll report sales revenue of GBP 150 million for 2024, we are heading towards that original target of getting through GBP 200 million, and we believe we can now look forward to exceeding that in future years. So in terms of the results for '24, the group has made really strong progress, particularly in the last 8 months. But overall sales revenue for '24 up 7.4% in Likewise Floors, a very substantial 15.5%. And whilst we are competitive in the marketplace, no question about that, equally, we are not buying market share, and we see a slight improvement in our gross margin, as you can see, up to 30.7%. The underlying EBITDA, which is a measurement used in some of the financial circles, up to GBP 8.8 million. Profit before tax, down slightly, but that reflects the additional investment we've made, particularly in our sales teams during the course of last year and particularly in H1. And importantly, a positive cash generation of GBP 7.2 million. So the overall dividend now has been increased to 0.375p with a final dividend of 0.25p being proposed. As I said, last 8 months, particularly, and if we take the 4 months of '25, increasing by 10.2%. But taking into account 1 less working day so far this year, the actual like-for-like increase is a very impressive 11.5%. And what's particularly important is that sales revenue now is consistently exceeding GBP 13 million and going on GBP 14 million, which is where we see an improved operational gearing and subsequent profitability. So in terms of the income statement, we've given you the key numbers. And I think probably one thing to look at is that non-underlying as the group through its formative years has been moving out of old sites, restructuring the business, incurring dilapidation costs and other restructuring costs, dual running costs, and that's why we've had to use that non-underlying column. But as the business is much more strongly positioned now, I think going forward, the only cost we'd expect to see in there is probably the setup costs in the Southwest in Plymouth and the additional marketing costs that we do to accelerate our market share and growth. On the balance sheet, I think the key numbers to pull out there are we now have including the benefit of the Plymouth site, GBP 23.5 million of freehold property with just GBP 2.3 million of debt against that. The cash and cash equivalents reducing year-on-year, but that's wholly to do with the GBP 4.3 million deferred consideration on the acquisitions of Valley and of Delta. So overall, the cash generation is positive. And I think a very solid balance sheet and gives us the foundation to continue to grow the business. The sales line, as you look at that blue line for 2024, very consistent and solid performance from January through to August. But there after that, you can see in September, October, November, the business really starting to accelerate with some pretty positive increases with the final quarter being 10.2% up as against the total year, 7.4%. And then you can see clearly going into 2025, that acceleration continuing with some strong performances. And actually, the growth has accelerated each month from January, February, March and April, with April being 14.2% up. So a very strong performance. Obviously, it's not all about the sales, of course, but it's that key volume that then creates that operational gearing and the improved profitability we've seen, which gives us confidence in the market forecast for 2025 being a real step change in the overall performance of the business. And I guess this is a pretty impressive slide of our management team. There's a cross-section there and a balance of experience, but also some really good young people taking management positions literally in their 20s, 30s and 40s, plenty of experience being gathered, but really exciting careers ahead for this team of people. And then I touched on our sales team. There's 25 management who are very much product and customer focused, the 71 external salespeople literally visiting our customers on a daily basis, positioning new product and point of sale and they're supported by the 50 internal people with a wealth of experience and appreciating very much our customer needs. In terms of the point of sale and market presence, a myriad of displays there you can see the laminate, engineered wood, various derivatives of luxury vinyl tile, residential vinyl and, of course, various carpet ranges. Important strategic moves that we made in the autumn of last year with 2 key suppliers now, one associated Weavers in carpet and Unilin in laminate. And we've had very good relationship with these suppliers for many years, not done business within Likewise for a variety of reasons, but now the timing is right in the autumn to launch product, and we're experiencing a lot of success even in the formative months on those products. And then just literally last week, we've launched our sales team a product from Karndean. Interestingly, Karndean came to us asking us to distribute this product in conjunction with themselves. So we've just launched the Palio product and really good feedback from our customers with the number of display stands we're already getting commitment for. And then the Lewis Abbott premium carpet products we launched again in quarter 4 last year, getting some good traction on a number of the products, and that's an exciting part of our future in that premium end of the carpet market. And 2 other key products here on the left-hand side from a new partner, Krono Swiss, a laminate product, but also excitingly, the engineered wood that we've now launched and again, good traction to begin with on that product. That's a completely new product category for Likewise. And then in Valley, historically, Valley relied on sample books and been very successful with it, but we've now put hardware in the -- particularly in the second half of last year with lectern, 8-bay stand and just about to be launched the laminate stands to expand the Valley business. In terms of the infrastructure, I think this is a very important slide in how we've put the business together. So we started in 2018 when we acquired what is now Likewise Matting based in Sudbury. But thereafter, as you can see from the dates on that slide, everything else has been achieved since the beginning of '21 when we moved into the new distribution center in Leeds. We followed that up with Glasgow in the spring of '23 from small premises just around the corner from the large facility we have now. Newcastle beginning of '22. Manchester, we moved in the summer of last year, '24. Birmingham was operational during 2022, Sidcup at the beginning of '23 and Newbury the summer of '22. And of course, the acquisition of Valley in January '22 with their 3 locations and then more recently, Plymouth completing our full coverage of the U.K. But I emphasize, there's GBP 23.5 million worth of freehold property there with just GBP 2.3 million of debt, 50% of our capacity given some of the larger centers that we own, and it just gives us a very firm position on our balance sheet and opportunity to expand the business for the future. And this is the network that we now have within Likewise Floors with the 3 main hubs being in Birmingham, Leeds and Glasgow, where carpet residential vinyl and artificial grass are stopped and then distributed and each of those lines represent overnight movement of trucks for then unloaded in the early hours of the morning, loaded on to our outgoing delivery trucks, therefore, giving our customers a next-day delivery service. And similarly, the network within Valley, where currently, the main cutting is done in Erith in Southeast London, but we're just about to start cutting in Derby as well to give us more capacity within the Valley business. And that just really demonstrates the overall network and the geographical coverage that the group has. Just a simple chart just to show where our capacity is. We've just started the second shift within the Glasgow business literally in April, giving us extra capacity. Leeds further capacity, and we've literally just ordered a new cutting machine for the Leeds business. That's a large 5-meter wide carpet and vinyl cutting machine. In Derby, as I've said, we're about to start cutting there an opportunity to start one shift and follow with the second shift as volumes require. And then Newport, we're just in the process and hopefully at the later stages of obtaining planning permission to be able to extend that facility. And again, we've ordered the cutting table. We're soon to order the racking, and that would be planned to be operational realistically in quarter 2 next year. Just a simple diagram of the Newport extension. You can see on the left-hand side, the lighter gray is the existing facility, which is 35,000 square feet with the top part being the planned extension and we raised loading base to give much better material handling, and that's a 60% increase in capacity within the Newport facility. Then geographical coverage, I think it's fair to say that Likewise is now pretty well covered across the whole of the U.K. Plymouth literally became operational earlier this morning to cover the Southwest. And similarly in Valley, extending out, and we'll just cover those areas just in the mid and the south over the coming months. I just thought I'd bring you back to that sales graph because I think it is so important that again, you can see through '24, a good performance, the seasonality quite consistent and nice growth year-on-year, but really accelerating through that September, October, November and then very much carried forward into the early part of this year with a very strong performance in the first 4 months, which pleased to say is continuing in May as well. So just summarizing, I think we made significant progress since -- really since 2021. We're moving into the Leeds facility being the real start of Likewise Floors accelerating forward. And I think we're benefiting in the last 8 months from all the foundations we've laid over the previous 4 years. Whilst the sales are accelerating quickly, we have logistics capacity to cope with that, as I've demonstrated, we have excellent management teams across the country in our various operations. And I think it's fair to say really significant support from our suppliers and obviously, our customers are extremely important. And we believe there are lots of opportunities within the U.K. flooring industry to continue to grow our business. We're not there yet, but we believe that GBP 200 million is well in sight. And certainly, the infrastructure that we have, particularly with the additions of what I've talked about in Glasgow, Derby and Newport, notwithstanding the other operations, we can certainly go through GBP 200 million. And I think now the Board is looking to say what do we need to do to invest to get through that GBP 250 million and beyond. Thank you.

Tony, that's great. Thank you very much indeed for updating investors this morning.

Tony, we've had a number of questions from investors, both ahead of today's meeting and during your presentation. So firstly, thank you to everybody for your engagement today. Let's just start off with the first question. Do you think that joining the main market from AIM would increase exposure to institutional investors? And is there any future ambition to do so?

There isn't any -- is not any plans to do that. I think the benefit on AIM, of course, with IHT is particularly helpful and believe that it's all about in terms of our rating, in terms of improving the profitability, which we're setting to do, and we believe the objectives before us for this year and the analyst forecast are deliverable. And I think if we can do that and obviously, the signs so far are very good, then our rating will improve subsequently.

Great. There's a number of questions both ahead of today's event and during the live presentation around what you're going to do with the free cash flow. Would it be debt reduction, perhaps further share buybacks, dividends, acquisitions? How do you see that shaping out?

Okay. Well, we've launched a share buyback this morning, committing GBP 0.25 million. So that will unfold over the coming days, weeks, and we'll just keep that under review for future share buyback. And as we've said, in terms of the investment in Plymouth, where we've acquired the freehold and the fitting out of that, that's done through our own cash resources. Similarly, the plan is with the Newport extension, and that's within our budgeted cash flow to fund that. And at some point, we'll make further step change, I guess, in how we invest in the business and deploy that cash generation. In terms of acquisitions, we can never say never, my phone ran this morning, not with an acquisition but talking about M&A and what we're planning to do. I think we would consider the right acquisition. If we go back, obviously, we had the original acquisition of William Arms and created Likewise Matting. Heating and factory flooring was a step change for us with acquiring that business in Dewsbury in 2019 and then moving, of course, to the Leeds facility in '21. And of course, Valley was a massive move for us to establish that. I think it's fair to say, would we pay lots of goodwill to build the group? No, I don't believe we would. I think if we had opportunities for asset-backed acquisitions, we would, of course consider that or anything else we felt was of a strategic benefit. But our focus is very much on continuing to grow the business and invest in the sales team. We've added 18 new sales execs in the last -- well, since the beginning of '24, so in the last 16 months or so. And we continue to consider opportunities to invest in additional people, but not pay huge amounts of goodwill.

Great. Thank you, Tony. With the addition of supplying Karndean ranges, do you have any other leading flooring brands to be added to the portfolio such as perhaps Quick-Step or are there any other brands?

Well, interestingly, we -- the Vitality product that we launched in the fourth quarter of last year is from Unilin, who are the manufacturer of Quick-Step. So there's not any immediate plans. I think we're doing really well with Vitality, and we'll continue to build on that. There's nothing specific -- I think having taken associated Weavers and Vitality from Unilin and Karndean, that was 3 key players that for the variety of reasons we were previously working with that we now are.

Obviously, I know you touched on the GBP 200 million of sales target, but how realistic would it be to hit that milestone within the year of 2026 were being asked?