Likewise Group Plc (LIKE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Likewise Plc Interim Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation. I'd now like to hand over to Tony Brewer, CEO. Tony, good morning.

Good morning. Thank you, Mark. I'm also joined this morning by Ben, who's Head of Finance at Likewise, and thanks, everybody, for joining this presentation. So I think the first slide, you can see our new Corby distribution hub, where we acquired the freehold a few weeks ago. We're now undertaking the fit out of that with racking and cutting tables and other establishment costs to make that building operational from the beginning of next year, which is the timetable we always realized. In terms of when we had the fundraise again a few weeks ago, we stated there are many opportunities in the U.K. flooring market. The reason for the fundraise was to create us loads of flexibility to take advantage of all those opportunities and make sure we have capacity to take the business forward. So in terms of the business, and many of you are very familiar with this, we now have 14 distribution centers across the U.K., 72 suppliers across the key flooring products of carpet, residential vinyl, laminate, luxury vinyl tile, commercial products, adhesives, leveling compound, doormats and rugs. And to sell those products into our customers who are typically independent retailers and flooring contractors, we have 109 very customer-focused management and sales executives. Continuing to increase the fleet as our sales grow, obviously, we need the capacity to be able to deliver those goods efficiently on a next-day basis. And our 608 staff have got long-standing experience in the flooring industry. Important to our sales teams, we continue to maximize getting point of sale into our customer base. And now we have over -- sorry, over 9,000 independent customers. And then sales revenue currently heading towards GBP 200 million, but with aspiration and the capacity to take us to GBP 300 million.

Thank you, Tony. I'll now give you the overview for the financial highlights for H1 '26. I guess the key takeaway is there at the top. So revenue growth of over 15% to just shy of GBP 90 million for the first half of '26. As Tony will demonstrate in a moment, we've seen strong momentum throughout the period. And further down on that slide, you'll see that Q3 sales have increased 29.1%, strengthening the year-to-date revenue increase year-on-year. Importantly, that growth has been sustainable. As you'll see, there's obviously a margin improvement at both top line gross margin and the underlying profit before tax increasing to GBP 1.3 million in that first half. And fundamentally, that gives obviously the confidence, as Tony just said, in that revised and renewed target of GBP 300 million of where we believe we can grow this business to. But also in line with that, with our commitment to a progressive dividend policy, we're pleased to announce an increase of 20% to the interim dividend GBP 0.00165 per share payable in November this year.

Okay. And then as we've said many times in these presentations, key to our development and the overall positive trend of the business is our management team supported by staff throughout the business. These management a very thorough understanding of learned the business from the shop floor, understand how the IT and logistics work, have a feel of the product and understand the dynamics of that across our various product sectors and of course, very much have relationships with our key suppliers and across our customer base. And I think what's really encouraging is there's a number of young people on that slide who have got many years ahead of them and developing their career and also a number of people that are challenging to be on that slide in the not-too-distant future. In terms of our supplier base, obviously, a significant proportion from the U.K., particularly in the commercial sector, but then from Western Europe as well. We all understand what's been going on in the wider worldwide economy and the crisis in Iran and the Middle East. Whilst we only buy a relatively small proportion of finished product from Turkey, that dot in the east side of Turkey is very important in terms of the extrusion of polypropylene yarn and polyester yarn for the manufacture of carpet. So we're managing that supply chain very carefully. We have seen price increases come through. There were some in the first quarter followed by May and then July because of the increased cost of raw material. And we thought it's really important that we managed that supply chain with our key manufacturing partners, and we've successfully achieved that. In terms of our sales team, as we mentioned, 109, those 84 external salespeople literally with our customers day in day out, launching new products, servicing the customers' needs, putting point of sale into those retailers. And that just gives a cross-section of the various different products from the left-hand side, artificial grass, LVT in the forefront [indiscernible], Vitality laminate in the rear, Cotswold engineered wood, various types of LVT and sheet vinyl across the back wall and then equally array of carpet products on those lecterns. And similarly, in Valley Wholesale Carpets, which we acquired in 2022, primarily a carpet business as the name suggests through thousands and thousands of pattern books, but we've now increased their market presence with these display stands of both carpet, residential vinyl on the left-hand side, laminate, which was a new product [indiscernible] 18 months ago on the right-hand side and more recently, luxury vinyl tile in the background. In terms of the proportion, carpet is the biggest single part, but I'm sure you'll appreciate that the business is very much floor-covering distribution across all of those key product sectors, both in residential and commercial flooring.

Just a bit more detail then on to the income statement. So as I said, revenue up over 15%. And just to put some color on that, as Tony said, we did see some price inflation from suppliers, which is inevitably featured into that top line number. There's been very little kind of price inflation over the last few years, and we've been very cognizant that we obviously have been striving to and needed to have increased our gross margin, which has inadvertently helped with our positioning of those price increases that we had already planned for this year ahead of the war in the Middle East. Importantly, that margin impact as we continue to scale doesn't purely just come from price increases. We obviously like to think we buy sharply, but naturally, as the business develops and grows, there's always some benefits we can realize from our suppliers, which is obviously featuring into that gross margin performance. On the overhead side, naturally, as we've continued to invest in the growth of the business, obviously, the overheads increased. But importantly, we are seeing more of that profitability from the top drop down into the bottom line as we continue to scale and use that infrastructure that we've developed and increase our operational gearing. I think kind of as a direct consequence of the Middle East, as aside from the product pricing, we've had direct cost impact headwinds of GBP 200,000 in the round on these numbers here to June, purely as a result of fuel, which is naturally a significant cost as a distributor. And that was further exacerbated into Q3. So obviously, that impact was really just Q2 in the first half numbers. And equally, as you'd have seen in the media, that rate has continued to increase. We continue to monitor that. However, we are obviously very pleased with where we're at and the performance of the business that we are absorbing these cost headwinds and important to stress that despite those, we still have the confidence both in the long-term target, but also in the market upgrade that you'd have seen this morning. Over on to the balance sheet. As I said, it's probably important just to point out and remind you that this is as of 30th of June, so pre-raise. So obviously, a very different balance sheet strengthened further post the equity raise we did in August. But we had -- in terms of continuing to invest in the infrastructure on the top line there in fixed assets, we had both the Howley Park purchase in April for the spring, which has been a great addition to the group, circa GBP 3 million addition to that line there that has really helped streamline the supply chain management of palletized goods from the Far East, as Tony will touch on in due course. And equally, with the Newport distribution hub coming on stream, which obviously we've communicated throughout, a significant proportion of those costs were incurred in the January to June period with obviously the distribution hub then going operational and live in July, and we're starting to see real benefits from those. Right-of-use assets, obviously lease liabilities linked are coming down purely as a reflection of the fact that we're now purchasing our fleet of vehicles as opposed to leasing as we have done historically. And that trajectory will continue here on in. On to working capital, it's a bit of a mismatch here looking at December, where we're coming off the busiest trading period and therefore, inventory reducing and obviously then June position where we're gearing up for that busy autumn period ahead, plus obviously the underlying growth in the business. Similarly, on trade receivables, you've seen with the upturn in that revenue, naturally a significant increase in that debtor base, but we continue to use invoice financing in the group to support that. On the inventory side, you'll see that we have more than sufficient credit to cover further down within trade and other liabilities on the back of the payment terms that we've well negotiated with suppliers over the years. And I think the last comment on there is around the loans and borrowings. So on the Howley Park purchase in Leeds, that was backed by a mortgage from NatWest. Again, not to overstretch the balance sheet. We feel we have good rates. And as such, we had a loan against that property secured, explaining the increase there. So overall, strong net asset position. The business is a strengthened balance sheet, underpinned by the property, notwithstanding obviously further covered by the equity raise post period end that really will allow us to capitalize on the market opportunities ahead as they develop.

Thanks, Ben. In terms of the sales growth, you can see that trajectory through the early part of the year and into the spring. But then in the summer months, really accelerating and progressively June, July, August and September being really strong and puts us in a particularly good position for that busy autumn period through October, November. So a very, very strong sales profile, as you can see. Then in terms of the infrastructure to be able to support those increasing sales, that we acquired the business in Sudbury in 2018, but everything else on that slide has been achieved since 2021. So we did the whole infrastructure in the last 5 years. As Ben mentioned, the new Leeds site at Howley Park, there's been a real benefit in our supply chain management of palletized goods, particularly from the Far East, but also certain suppliers in Western Europe as well. And Corby, we mentioned, obviously completed on that a few weeks ago and will be operational at the beginning of next year. The Newport extension, where we had a disused yard at the back of the site, which we owned, so a cost-effective extension to create Newport from being a basic warehouse into being a distribution hub. And then the new Manchester site where we are heads of terms, and we'd expect to complete that realistically within the next 6 weeks, and that will again become a cutting center and a main distribution hub for the Northwest of England. So a significant amount we've done there. These properties, excluding Manchester valued at GBP 42 million with a limited amount of fixed debt against them. Whilst it's 7 of the current 14 sites, it's actually over 60% of our capacity is now owned. And then in terms of cutting capacity, as we've said previously, it's fairly easy to gear up with palletized picking where it's a piece of machinery, it's a warehouse operative. But in cutting, we need the space. We need the large investment in the cutting machines. In our existing sites in Glasgow, Leeds and Birmingham, working 2 shifts each, we can cut 1,800 cut of carpet, vinyl and artificial grass per day. And similarly, where there are 3 tables in Erith. With the further investment in Newport, which is now operational, Corby at the beginning of next year. Manchester realistically at the end of the first quarter to be cutting first quarter of next year. And with Derby, we already have one shift cutting and we're now going to a second shift. That quite clearly demonstrates that's over 50% more capacity than that which we have in the first half of the year. And then in terms of the logistics network for Likewise Floors, each of those lines, you know from previous presentations, represent overnight movements of goods, typically taking cut lengths of carpet and vinyl from the main hubs in Birmingham, Leeds and Glasgow and now Newport to the other centers from the delivery to customers. And historically -- so currently, there's a huge amount going through Birmingham. But with Corby coming operational, that will allow trunkers from Leeds going to Sudbury and Sidcup to pass through Corby rather than Birmingham, therefore, releasing capacity in the Birmingham distribution center. So it's a big step change. Of course, Manchester coming on stream as well will release capacity from Glasgow. And then the overall network, including Valley, as you'll appreciate, we keep Valley Wholesale Carpets very separate from a product sales and marketing and logistics perspective, but it just demonstrates the overall footprint we've got across the U.K. market. And that's just an insight into the Corby distribution hub, which is 12 meters of high bay warehousing and gives us plenty of capacity to develop that business. And then the new Manchester Hub, as I mentioned, we are heads of terms position, just going through the legal process, but expect to get that completed in the next 6 weeks. And of course, the fundraise allows us to acquire the freehold of that without overstretching the balance sheet in terms of borrowing. And interestingly, we said about having a 5-year plan recently, and it's very much in play that the Morley distribution center in Leeds is just over halfway through a 10-year lease. We've appointed a property specialist to identify land to be able to find that we can develop a new building. This is one particular instance. It's not a done deal at this stage, but it just shows that we are progressing that 5-year plan and looking at what we need to do to replace the existing leasehold site that we have in Leeds. So in terms of the overall business, we believe we've got excellent management across the businesses, combined with sales teams and all our staff, the excellent and long-term relationship we have with suppliers, of course, customers is really important, and extra capacity in Leeds, Newport, Derby and coming on stream Corby and Manchester. We've put the funds in place with the support of both existing and new shareholders to give us loads of flexibility. You can see quite clearly our gains in market share are accelerating quite quickly. And the market has upgraded this morning that we will make less -- not less than GBP 5 million this year. And I think that GBP 200 million of sales is quite rapidly heading towards GBP 300 million. And of course, there, we'd expect with the benefit of that capacity and volume, the operational gearing that we'd achieve our aspired return on sales.

[Operator Instructions] I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q&A will be available via your Investor Meet Company dashboard. You have got a number of questions here. I'm afraid that a lot to go through. So thank you to everybody for your engagement this morning. But perhaps, Tony, I could start with the first one. As we expand our logistics network, including the new Corby hub, how do you ensure that the rising overhead and fixed costs don't outpace the actual growth sales?

Okay. Well, I think the first thing is we're buying the freehold of these properties and that obviously avoids having a significant rent and potential rent reviews. So that keeps the overhead to a minimum and obviously utilizing equity to keep those costs down, particularly on rent. In terms of gearing up the capacity, we'll do that at a certain pace. Yes, if we have a cutting crew of 6 people, that's GBP 0.25 million on cost, but we'll measure that very carefully. And also if we take Corby as a good example, we're making some of the delivery runs currently out of Leeds, Birmingham and Sudbury far more efficient and what we call the stem mileage, which is the distance the truck needs to travel before its first deliveries will be significantly reduced. So we're actually moving trucks in January from those other 3 sites to operate out of Corby to mean that's not a complete step cost. If we take Manchester, we, of course, already have an operation there. So again, there won't be a significant cost increase. And again, with the benefit that we're acquiring the freehold, we're avoiding those rapidly increasing rents that we see across the market.

A question here around maybe plans and products. Do you plan to move beyond carpets and rugs?

That's an interesting question, of course. I mean, back in the day, we were a carpet distributor, of course, in our previous life, but we're far away from that now. You saw the proportion earlier in the slide that carpet represents of the business. Yes, it is the biggest individual part, but we're very much a floor covering distributor across residential vinyl, laminate, luxury vinyl tile, artificial grass, commercial products across the various slices, adhesives, leveling compound and then, of course, rugs and mats as well, which, of course, was the original business, but we've expanded significantly away from that have a very good cross-section of the various flooring products in the U.K.

Great. Question here relating to dividends. How would the extra shares in circulation affect the company's ability to offer future dividends?

Well, we've announced this morning a 20% increase in the interim dividend, and we'd expect to continue that for the full year. So we don't see that diluting the dividend growth at all.

Okay. Talking around representatives, sales reps, do you feel that there's a likely requirement to increase this number of sales reps on the road in particular with the Likewise brand?

We will do very carefully. We've been investing in salespeople across our various businesses, Likewise Floors particularly, but also in Valley Wholesale Carpets, we've increased the number of sales representatives. And equally in the likes of A&A and Delta, H&V, Floors by Lewis Abbott, all of those individual businesses, we would look to continue to invest in our salespeople.

And I think an extension of that, Martin asks, there's still a lot of potential customers with whom you're not trading. If so, how do you intend to embrace that opportunity?

I think it's a key area for each of our businesses, both in terms of low trading accounts, nontrading accounts with the sales management on that regularly in terms of making sure we're improving our performance with those smaller customers, which have potential to be much bigger. And of course, we continue to open new accounts across the U.K.