ProCook Group plc (PROC) Earnings Call Transcript & Summary

Yes. Thanks, Daniel. All right. So we've developed a really clear plan to deliver GBP 3 million in annualized savings for FY '24 onwards, of which we expect to deliver GBP 0.5 million this financial year. They span the key operational and overhead costs within our business. So picking up the first one, the opening of our new distribution center and head office is something that we're really looking forward to in the coming months. We're on track with the build and the internal fit-out -- this is important because it will help us reduce the cost to transport between our sites. We currently have 2 warehouses and external storage, and it will allow us to reduce our cost per pick. Having one stockpile equally will allow us to better manage stock and create efficiencies within the operations. Secondly, we'll be reviewing our retail costs, including our colleague scheduling and structures, and we anticipate delivering efficiencies to help offset inflationary pressures. We've recently implemented new technology to help us switch careers for different parcels, different locations and so on. By optimizing the use of couriers, we'll reduce our cost in this area. With respect to the Board, we agreed to reduce the size of the Board following the announcement of Steve Sanders Retirement in spring next year. The Board will still comprise 3 non-exec directors, including the Chairman and 2 executive directors. Additionally, the Board have all agreed to a reduction in remuneration in this current challenging climate. Finally, we've identified a range of procurement and cost discipline areas that we can start to tackle. A number of these are underway and will generate savings of approximately GBP 0.6 million across the next financial year. This initial plan will reduce our current cost base by around 8% in FY compared to current costs. However, we'll obviously continue to identify new initiatives and new areas where we can improve our operational leverage.

Thanks, Dan. So looking at the chart, you can see all of FY '22 and the year-to-date for FY '23. As we can see, the market in the dark blue line has been in decline from week of FY '22, up until week 23 of FY '23, where we can see it return to growth, although the kitchenware sector typically only grows at a modest 2% to 3% a year. We can also see on the chart the exceptional growth ProCook enjoyed in FY '22. This was on top of the similar performance of the previous year. As we entered FY '23, the migration away from the web back to retail did take us and the market by surprise. Compared to our competitors, we have a much smaller retail footprint. We're in 55 -- we were in 55 locations then. We're in 57 now. The Cruise and T-fal will be in hundreds, if not thousands of retail locations. Looking at week 24 in FY '23, we can see from this point, the market started to trade above last year and that we have started to outperform the market, albeit modestly at around 1%. We look forward to building on this.

I'll run through the financials for the first half. As alluded to already, performance in the first half has been challenging. Our revenue declined by 14.5% year-on-year, although remained up 119% on pre-pandemic levels. Our gross profits were significantly lower year-on-year, largely driven by the timing of product sell-through with higher shipping costs associated to it over the last year. I'll talk through this in a bit more detail in just a moment. Underlying losses of GBP 2.8 million reflect these challenges for the first half. We finished the half reducing our net debt to GBP 1.3 million from GBP 1.8 million at year-end, and we have liquidity availability of GBP 14.7 million. During the first half, our website revenues declined by 13.6% against strong comps and in light of the consumer backdrop. We maintained good traffic levels. However, there was more browsing and lower conversion, which was down 9% year-on-year compared to last year. Our ATVs remained similar year-on-year. Our total e-commerce business was down 24.5% year-on-year, including the 15 percentage point impact of exiting Amazon marketplaces, which historically generated negligible contributions. Retail was down 5.6% in the first half, with like-for-like down 18%, up against the post-covid pent-up demand period last year and also significantly impacted by the long record-breaking hot summer that we had this financial year, which reduced footfall to our destination located stores. Retail conversion has been minus 12% year-on-year and ATV was minus 4% in the first half. The 560 basis point reduction in gross margin year-on-year was primarily driven by the known impact of the additional shipping costs, which impact H1 more significantly as we sell through products purchased with these higher costs. Shipping rates have fallen back since summer from a peak of around $16,000 to now sub $3,000. And as we replenish our stockpile, we will start to benefit in H2 and onwards for margins reducing -- our margins improving. We anticipate we anticipated lift in selling prices over the course of this year, and we have done so. However, the market has not lifted prices as much as would be needed to fully offset the shipping costs. This meant has had to be absorbed whilst we maintain our value proposition compared to our competitors. We have, however, benefited from around 60 basis points improvement from these price impacts in the first half. Additionally, we've increased promotional activity, as mentioned earlier, to help convert sales. It had a small impact in the first half, although this is likely to grow a letter than the second. As the dollar rate dropped significantly from last year, at the beginning of the year, it was around 135 dropped right down to 103 before partially recovering after the first half. We've had foreign exchange impacts on cost of goods of 80 basis points in the first half. Our underlying operating loss of GBP 2.4 million in the first half reflects the lower sales and gross margin combined with mostly anticipated cost increases year-on-year. We spent GBP 0.8 million more to acquire new customers in the first half, our cost per acquisition increasing significantly year-on-year. It was still low last year post COVID compared to the historical levels. Cost savings from our exit of Amazon are in the region of GBP 0.6 million. In retail, our cost base has increased as expected by GBP 1.9 million overall, driven by the ending of rates relief, which was GBP 0.9 million in the first half and the new stores impact, which were GBP 1.4 million across e-com and retail, we've reported combined volume and efficiency savings of GBP 2 million. Our central overhead costs, GBP 0.3 million higher year-on-year, reflecting the annualization of the PLC costs post the IPO in November last year and partially offset by lower brand marketing year-on-year, which also partially offsets the cost per acquisition increases within e-commerce. We've improved free cash flow year-on-year, benefiting from a GBP 4 million reduction in our inventory -- the inventory position from year-end. Our availability remains strong. CapEx reflects new stores in the first half and the early part of the new distribution center, most of which the cost is weighted to the second half. Our net debt improved to GBP 1.3 million since year-end. We paid the final dividend in September, and this was waived by the O'Neill family to help preserve cash in the business during these uncertain times. Available liquidity remains strong. We're comfortable with liquidity in our current facilities. We remain covenant compliant under our base case scenario. And although this becomes more challenging under the downside scenarios. We have a long-standing and positive relationship with HSBC, who we remain in frequent dialogue with. Looking to the last 8 weeks, sales have been stronger than the first half, however, not as strong as we anticipated. Black Friday was weaker year-on-year. Our website sales were 6% down year-on-year compared to the first half being 13.6% down. E-commerce as a whole was minus 12.6%, including Amazon impact of GBP 0.5 million. In retail, we were plus 0.7% compared to a first half of minus 5.6%. We're pleased to have returned to modest market share growth following a difficult summer, and we look forward to improving on this. So as I already noted, we now expect revenue to be GBP 60 million to GBP 65 million for the full year. We anticipate gross margins will partially recover in the second half, our shipping impacts subside. Combined with the cost actions that we're taking, we expect underlying PBT to be broadly approximately breakeven over the full year. Non-underlying costs of GBP 2 million for the full year include our IPO share-based awards and preopening costs in relation to the new distribution center and head office. From a cash perspective, we expect full year CapEx to be approximately GBP 6 million. We do not expect to make any corporate tax payments this year, and there will be no interim dividend this year. Back to you, Daniel.

Thanks, Dan. So you may have seen this slide before, but fundamentally, it's core of what we do: design and source on-trend, high-quality products that we can sell at great prices, create great environment for customers to shop in or on and offer exceptional service. Our model is not complicated. Moving on, people and the environment is a big part of ProCook. Achieving B-Corp certification has been the culmination of years of hard work. At the heart of our business is having a purpose doing the right thing for all stakeholders, including our team, our customers, our community, the planet and obviously, our investors as well as achieving B-Corp status this year, we've just been recognized as a great place to work for the second year running, a testament to that commitment to our team. making sure we're ready and can maximize the next period of growth. The last 2 years have been difficult and expensive logistically. Having 2 warehouses often with external storage also has added considerably to our cost to pick and pack in order with stock being handled multiple times. This all gets simplified and a lot more efficient with the move in March next year. Likewise, our current office space has been challenging for our team. Our new home has a lot of space and lots of different types of space to maximize collaborative working, so key to our success. Looking more specifically at the second half of this year. As we said, it's not complicated and 9's our strategy, create engaging content to drive new customers to the brand, using our AI platform for pay-per-click, drive traffic and ROAs. Using the new CRM platform, drive more of our customers back online or back into store. Work with the e-com and web development teams to implement UX design to replicate the fabulous in-store experience and to implement CRO improvements to drive up conversion and ATV. We'll work with our retail teams to maximize each store visit and work with the leadership team to deliver the required cost savings. Looking further ahead, we want to accelerate the growth in market share we've seen in recent trading. We will continue to open more retail in leisure-orientated shopping destinations, subject to achieving favorable lease terms, which are starting to see softening again, which is great. In e-commerce, the plan will be to continue our H2 focus we just highlighted. Brand awareness is still high on our priority list. With less than 4% market share and only 40% prompted awareness, we're still very much at the start of our journey, and we will continue to develop marketing in this area to drive it forward. Not just consolidating into one warehouse, but with a stronger exec team, we will look to drive efficiencies across the whole business. Finally, in range extension into small kitchen and electricals, toasters and kettles, the launch planned for early in FY '24. We'll be looking for it to drive both channels forward as it creates a customer recruitment opportunity and another opportunity to drive repeat sales. So in summary, we've got a few things wrong, I think it would be fair to say we've shared with you, but we've identified them and taken action. It's been a challenging half year. The market was behind but has moved into positive territory now. In addition to the market now trending positively, we are making additional gains in market share. Gross margin is moving back to forecasted levels, and we've got a solid plan for cost reductions. We are confident in our proposition for the long term. Thanks very much for listening to us.