Likewise Group Plc (LIKE) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Likewise Group Plc Final Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However the company can review all questions submitted today and publish responses where appropriate to do so. So before we begin, we'd like to submit the following poll. I'd now like to hand you over to Tony Brewer, CEO. Good afternoon, sir.

Thank you, Paul. Thank you, and welcome, everybody, and thank you for joining this presentation this afternoon. So first of all, the picture you can see on the slide is our lead distribution center, which we moved into in 2021. And really, that was the foundation to accelerate the development of Likewise stores. And you can see the trucks outside that building and that transfer trucks literally around the U.K. trucks going to Glasgow, to Newcastle, to Manchester, Birmingham, to Sidcup in London and to Sudbury. And the development of that business, as I said, was really the foundation to progress Likewise Floors. So we now have 13 distribution centers around the U.K. with the addition of the building we announced last week that we've acquired a second distribution hub in Leeds. We have 87 suppliers across our various product categories, whereby that carpet, residential vinyl, artificial grass, laminate, luxury vinyl tar, underlayments for residential carpet, adhesive leveling compound, commercial flooring and rugs and mats. And those are sold to our 108 management and sales executives across the country. And we are increasing our delivery fleet. And during the course of this year, that will certainly exceed 160 vehicles. And our 580 staff, a huge proportion of them, have long-standing experience in the flooring industry. And we continue to develop our presence in the marketplace with point of sale and new products making sure the independent retailer and foreign contractor is at the forefront of all floor covering products and that's through over 7,000 customers. And we're rapidly approaching that GBP 200 million sales revenue target that we set ourselves. And I think now we've got an infrastructure that can take us towards GBP 250 million and beyond. In terms of the results we've announced this morning, our sales revenue up 9% to GBP 163 million, a slight improvement in the gross margin of 0.4%, EBITDA increasing from GBP 8.8 million to GBP 10.4 million. And most importantly, profit before tax up 56% to GBP 3.1 million. On the back of that, we've proposed to increase the final dividend by 10%, which increased the total dividend similarly by 10%. And the current trading in the January to March, up 15% with April, very much maintaining a similar momentum and the key figure in the balance sheet is the improving asset base with now property assets of GBP 31.6 million, with just GBP 5.1 million of fixed borrowing. We've said for a number of years as we've developed this management team, this is the key to how the business has developed and gives us the foundations for growth in the future. We've got really good people, young people coming through the business, learning and understanding all the dynamics of the logistics, the IT, product, having supplier relations, customer relations. And what's even more encouraging is we've got many other really good young people that are challenging to be on this page and certainly will be in the future. And that gives very much the future of the business. And as I say, each of those people effectively undertook an apprenticeship in the flooring industry, understanding all aspects of the business and creating excellent teams around the U.K. In terms of our supplier base, the largest producers from Holland followed by the U.K., particularly in the commercial sector, product from Belgium, from Turkey, Germany and across into the Far East and probably appreciate, obviously, with the awful war in Iran currently that there is inevitably going to be price increases due to increases in raw materials. We're discussing that with our suppliers and are positioning our product to be increased from the first of May, but we're very careful in securing our supply chain through the relationship we have had with suppliers over many years. And our excellent sales team of 108 people who are positioning those products into our retail and commercial customers on a daily basis, making sure our customers very much at the forefront of all new flooring products. And this just gives an indication of the different products through Likewise Floors, and that's engineered wood, artificial grass, various types of luxury vinyl tile and laminate products, sheet vinyl and of course, carpet being the biggest individual proportion of our business. And through Valley Wholesale Carpets, traditionally a carpet business, but now residential vinyl, laminate and we'll soon be launching luxury vinyl tile into the Valley business. That gives you the proportion where, as I said, carpet is the biggest individual part of the business. But across all those flooring sectors of residential vinyl, underlay, residential carpet, laminate, luxury vinyl tile, artificial grass, rugs and mats and of course, commercial flooring and adhesives and leveling compounds. Business-to-business website, which we launched in 2022 is very important to us. That allows our customers, our trade customers with the user name and password to access our stockpiles at any time during the day and place orders. And it's a very important service we provide to our customer base. And also, we've now launched a product information website given the profile of Likewise with our delivery trucks, the public company, our PR and social media, this means that consumers can come on to the website, can search products. There's, of course, no pricing, there's no contractors. It wholly pushes the consumer to the individual retailer that's closest to them, that has a display stand of the particular product that, that consumer is looking for that just helps provide a channel of business to our retail customer base. You can see from the sales revenue, as we've said, 9% up last year. You can see the crimson line for 2025. Strong spring, slightly softer in the summer months, but still year-on-year increases where we had that particularly hot summer and that crescendo towards the end of the year, October, November being the busiest trading period. And you see from the orange line at the top that the year has started well, as we said, 15% up in the first 4 months. So a very strong start. And we're very optimistic, notwithstanding the challenge ahead of us with the worldwide uncertainty, but we believe we are very well placed to navigate those challenging months ahead. And then our property, as I mentioned, we acquired an additional site in Leeds last week, which is principally to hold incoming containers and pallets of luxury vinyl tile and also from the Far East and also laminate from Europe. That helps our supply chain management very importantly, to funnel those containers and pilots into our network. You can see from the date demonstrated here that with the exception of the business and building we acquired in 2018 that our whole infrastructure has been put together since 2021 when we moved into that distribution center in Leeds. And we now have 6 freehold properties valued at GBP 31.6 million with just GBP 5.1 million of fixed debt, which gives us opportunities to extend that footprint of properties. We have an investment potentially in East Midlands, where we've agreed to acquire a site, and we're just progressing that through the legal channels, but we would again look to own the freehold of that site to give us a strengthening balance sheet and allows for future investment. That really demonstrates that network throughout the U.K. from those sites with that center in Birmingham. And if we can deflect some of that activity away into the East Midlands, we believe the business can go from the run rate that we currently are towards GBP 200 million towards GBP 250 million sales revenue and further on to GBP 300 million. And this is the network through Valley Wholesale Carpets with their main distribution hub being in Erith in Southeast London and then servicing the Midlands and the North through the distribution center in Derby. And that really demonstrates our overall coverage and comprehensive coverage now of the U.K. market. This slide really is important in terms of showing our cutting capacity. So we launched a second shift into our Glasgow distribution center last year. We invested in a new cutting machine in Leeds, which was installed during the Christmas break and New Year break. We have capacity with the additional cutting table in Derby. The Newport extension is very much on schedule to be operational in Q3 of this year. And as I've mentioned, that new investment in the East Midlands to be operational realistically into Q4. This demonstrates the Newport extension, which currently is 35,000 square feet, extending to 55,000 square feet. So I think the key for us is that we have excellent operational management, sales teams and staff throughout our businesses. We are, as I said, carefully discussing and negotiating with our suppliers, what we need to do with prices into the spring, but there will be price increases from the first of May. But we believe we've got very long-standing and strong supplier relationships and also very importantly, with our customers as well. As I said, the extra capacity that we have in Leeds, Newport and Derby can certainly take us towards GBP 250 million sales revenue and we're looking at that future investment opportunity as we continue to take market share. I think we are very much poised to get towards GBP 250 million sales and that operational gearing and subsequent return on sales that will deliver. Many thanks.

Fantastic. Thank you very much indeed for the presentation. Tony, of course.

[Operator Instructions] I just want to take a moment to review those questions we've had in today. Of course, just to remind you that recording the presentation, along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. Tony, as you can see, we had a number of questions throughout today's presentation. Thank you very much for submitting those. Perhaps we can start with the first one. Well, it's probably two actually, I can tie together here. Question really is, there's a lot going on in your market. How do you look to take further market share? And a question that's kind of tied into that from Mark as well. What proportion of the 15% growth in 2026 come from your competitors divested unprofitable customers. How do you see that impacting profitability?

Okay. Well, I think it's the whole spectrum of how we take market share and how we develop the business. It's, first of all, having that strong relationship with the suppliers. We as a team, Adrian, John and myself, particularly working with our suppliers within Likewise Floors and Simon within the Valley business, working very closely with our suppliers to make sure we're agreeing new products and we're getting those product launched in a timely manner. We have them well merchandised throughout the business. And those sales teams who invested now 108 people, making sure those products are taken to our customers and display stands are installed and we have the correct vehicle to be able to sell to the consumer. It's all of those factors. We are not targeting any particular one part of the market. It's making sure we have bigger and better presence in independent retailers and flooring contractors.

A question here as well. Obviously, you've talked about GBP 200 million, GBP 250 million for that revenue target. Now in the current environment, what gives you that real confidence in achieving that and exceeding it.

I think there's obviously some uncertainties in the market as we speak and then the bigger worldwide issues, of course, and what effect that has on consumer confidence and consumer spending is difficult to predict in the short term. What we are wholly confident in is we're putting -- we have the right people, we have the infrastructure, the right suppliers and customers to be able to continue to develop our business. So there may be some short-term hurdles to overcome, but we're in a good position to be able to do that for the medium to long term, we will be a continually increasing player in the U.K. flooring market.

Question around the property here. With a large property base, how do you look to release value from that? I guess it's really just looking at the balance between fixed assets and operating.

I think with the cost of leasehold property, we would much prefer to own our properties. It's far more cost effective, we believe. And it's about putting capacity in for the future developments of the business. So I think where we've bought the property recently, we've agreed to buy a further property, as I said, in the East Midlands, and we're considering other investments. But we have the support of our principal bankers to be able to do that. And we believe it strengthens our balance sheet rather than have the operating leases, which are extremely expensive.

Question around AI. Are you using that in the business, how are you looking at utilizing that and making things, I guess, more efficient?