Likewise Group Plc (LIKE) Earnings Call Transcript

Good afternoon, and welcome to the Likewise Group plc investor presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Tony Brewer, CEO. Good afternoon, sir.

Many thanks, and thanks, everybody, for joining this presentation this afternoon. And I guess is relatively short notice. I think key features of this are that, as you know, the business was formed in 2018. We listed on TISE in 2019, acquired Heatseam Factory Flooring in the Spring of '19 followed by the acquisition of Valley Wholesale Carpets at the beginning of '22 and also the listing on AIM in the autumn of '21. But I guess notwithstanding all those events, this is probably the most important day in our history because this really allow us to propel forward and take the business to a completely different level. The picture you can see in front of you is the Corby distribution hub, which we're getting quite close there now to exchange and completion on that. And I'll explain how that affects our logistics network as we go through the presentation. So why the raise? I think it's fair to say there are lots of opportunities. We've developed a business which is towards GBP 200 million now annualized turnover. We can see opportunities to take the business to GBP 300 million beyond and have the appropriate return on sales at a PBT level, which will also allow us to make further investment in the future to create a really strong floor covering business in the U.K. So the -- as I said, one of the key features of this is the acquisition of the freehold distribution hub in Corby. And the initial intention was to raise GBP 20 million, and we also have support from NatWest, our principal banker. I think the appetite from the market, and as you've seen from the numbers today, takes us more towards GBP 30 million raise, and that really allows us to develop the business from a very strong foundation. I was always taught, and many of you will remember Graham Waldron, I think he taught me certain business principles. One was to have liquidity and retain the liquidity. Secondly, was to have plenty of banking facility and cash available. And thirdly, it was very importantly to look after the business. I think if you look after the business, you ultimately look after all the staff, the shareholders and all stakeholders. So I think a number of lessons learned, and that's why if that's why we took more than the original GBP 20 million. In terms of the sales profile, very encouraging start to the year, positive performance through the spring and into the summer. We all appreciate in the flooring industry that hot weather is not favorable to us. But you can see there in June and July, a very good performance on the sales side, and that will give us some operational gearing, certainly to strengthen further into the autumn. In terms of our property infrastructure, currently -- sorry, 13 sites soon to become 14, 6 of which are freehold. And of course, Corby will also be freehold. Currently GBP 33 million value with just GBP 5 million of fixed debt. As you'll appreciate, that's been developed principally since 2021 when we moved into the Leeds distribution center and all of that infrastructure has been built in the last 5 years. I guess 2 key points on that particular slide are the new lead center, which we acquired earlier in the year and again, the freehold of that site. And that was primarily to be able to facilitate much better supply chain management of containers coming from the Far East and also from Europe and then feeding into the Likewise network. And then you'll note that picture at the bottom of Newport, where that extension was under construction when that photograph was taken. Now over Leeds, you'll see a pretty impressive fully wrapped out extension. The cutting table started to be assembled on Monday of this week, will be completed next week. So by the middle of August, very much completely operational and becomes the fourth hub for Likewise Floors. So in Corby, as you've seen that picture at the start of the presentation, GBP 9 million total consideration plus an eye-watering GBP 440,000 of stamp duty and to follow with that GBP 2 million of capital expenditure, which I'll go through a bit more detail on that in a moment, but an important part of the Likewise overall logistics network. And you can see from this chart, it's a 12-meter high bay warehouse. Those of you who have visited the Birmingham distribution center, Corby is very similar to that, but actually 2 meters higher, which, of course, gives us greater cubic capacity. Now you've seen the layout. And again, those of you who are familiar with our distribution centers, the cutting table on the left-hand side, able to cut carpet and vinyl and artificial grass up to 5 meters wide, the racking systems and then the palletized racking, very eventual layout that we're very used to doing. And as I said, that's a GBP 2 million fit out in terms of the racking, the cutting table, the forklifts to operate within that distribution hub. I guess this is one of the key slides to be fair. So with cutting carpet, we have those large cutting machines, the capital expenditure, which goes with those, which is between GBP 350,000 and GBP 450,000. The take up quite a lot of space. They take a team of 6 people to operate them. And typically, what we call a cutting shift, that's those 6 people, they can do 300 cuts per day, okay? So if you think then of the sites and the cutting tables in Glasgow, Leeds and Birmingham, each working 2 shifts, that's 1,800 cuts per day. And we do have some capacity there today. And similarly, with Valley Wholesale Carpets, we have 3 large cutting tables in Erith, again, working 2 shifts, 1,800 cuts per day. So again think about annualized run rate currently of GBP 200 million, that really justifies that with Newport, Corby and Derby becoming fully operational from a cutting perspective, we can gear up to more than 50% that we have currently. So again, that translates taking that GBP 200 million sales revenue up to GBP 300 million. And of course, it's not just about cutting carpet, but where you have palletized goods such as laminate, luxury vinyl tile, carpet tiles, adhesives, leveling compounds, it's fairly easy to put extra capacity in with individual trucks and individual operatives at any one time. So in terms of that network, I know there's a lot going on, on that map. But if you can cast your eye to the orange lines, perhaps, the 3 hubs for Likewise Floors are Birmingham, Leeds and Glasgow and soon to become with Newport becoming the fourth. As you can see, there's a huge amount going on in those -- each of those lines represent overnight movement of trucks. And of course, Birmingham being in the center of country, there's a huge amount of cross-docking goes through Birmingham at night. And to continue to increase our volumes, we needed to deflect some volume away from Birmingham and hence, that distribution center in Corby in the East Midlands. So going forward, the Leeds to Sudbury and the Leeds to [indiscernible] trunkers will be going through Corby, releasing volume in Birmingham. Of course, alongside that, you've got the network within Valley Wholesale carpets with Erith being the main center, Derby distributing into the Midlands and North and Newport and Plymouth also through the Valley network. I think this is again an important slide in that you see we've invested GBP 12.5 million over the last 5 years in putting that infrastructure together. A lot of that is done through free cash flow, 2/3 effectively and 1/3 through asset finance. And you'll see from the right-hand slide that all of the asset finance with the exception of the new cutting table we put into leads during the Christmas, New Year break has all been paid down. So that gives us every confidence with the projects we have before us. And then in terms of current trading, I showed you the sales, but sales revenue well up, slight improvement in the gross margin, which we recognize we need to do to, again, to continue to be able to invest in the business. You'll appreciate running 160 delivery trucks, but the cost of doing that in the last 3 or 4 months has been much higher than it was before the Iran war. That's an extra GBP 0.5 million of cost at least during the course of this year, but we're still confident of achieving that original GBP 4 million PBT. So in terms of use of funds, Corby is obviously a specific. We've identified other distribution hubs that could potentially come into the network. And there are, I think, a lot of opportunities in the floor covering market generally to expand our business. Just to give you a couple of examples there, we're aware of this freehold distribution center. We're in the process of negotiating a deal on that, and that could welcome in -- that's an existing building, new build that could welcome into the network in the coming months and be operational potentially at a similar time to Corby, which will be the beginning of next year. And then alongside that, we're aware of a piece of land, which again would fit a nice 60,000 square foot distribution hub. That piece of land has planning permission. We're in preliminary discussions with the developer with that. And again, that could well come into the network to strengthen the business and take us well beyond that GBP 300 million sales revenue but with the Corby distribution center alongside the development in Newport and Derby can be achieved. So in terms of conclusion, this raise gives us a huge amount of flexibility to build the business of the future with very sound financial foundations. We can increase the operational capacity and subsequent market share. We currently have a GBP 33 million freehold property portfolio. That's inevitably going to increase over the coming months and take advantage of the many opportunities alongside, of course, all of the product sales and marketing initiatives, which are going on constantly with our 108 salespeople in the marketplace, visiting our customers, independent retailers and flooring contractors and developing business. And I think we're very much on target to achieve that GBP 300 million over the coming years, and there's every opportunity to go further than that. And of course, importantly, the further investment to achieve the right return on sales and a profit before tax level. Many thanks.

[Operator Instructions] As you can see, we have received a number of questions throughout today's presentation. And if I may just start off with the first question here, which reads as follows. Do you believe the business has potential to become one of the U.K.'s dominant national flooring distributors?

I think -- well, we're probably the best now. I think we probably will become the biggest. I don't like to say dominant because I think we're very conscious of keeping our customers competitively priced in the marketplace, servicing their needs efficiently and providing a good service to the industry overall.

The next question we have here reads, how are manufacturers and suppliers responding to your continued market share gains?