Likewise Group (LSE:LIKE) — Interim results for the period ended 30th June 2021

0:02 Good morning, ladies and gentlemen, and welcome to the LIKEWISE GROUP PLC Interim Results for the Period Ending 06/30/2021 Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Please just simply type in your question and press send. The company may not be in a position to answer every question it received during the meeting itself. However, the company will review questions submitted today and provide responses. These will be available to you via your Investor Meet company dashboard, and you'll be notified

0:33 when they're ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll. And if you give your kind attention to that, we would be most grateful. And I'd now like to hand over to Tony Brewer, CEO from LIKEWISE GROUP PLC. Good morning, Tony. Thanks, Mark, very much. And welcome, everybody, and thanks for taking the time to put into this presentation. For those of you who don't know us that well, the business is floor cover and distribution. We're supplying independent retailers and floor contractors with all kinds of floor covering, carpet, residential vinyl, laminate, luxury vinyl tile, artificial grass, and commercial flooring, buying in bulk from manufacturers, UK, Western Europe, and further afield, marketing those products to the customers, and then supplying supplying their their needs on a daily basis.

1:25 So I'll just take you forward. So the board, just to introduce, Paul Bussey, his non executive chairman, has been great in guiding the business for the last couple of years and particularly, with our listing on AIM most recently. Andrew Simpson has worked with me for many years going back to our early days in MCD in the 1970s. Roy with us, in a previous business and operation on the finance side. And and then more recently, Mike Steventon has joined us, a great addition to the team given Mike's wealth of knowledge in financial and industry generally. The executive team, Tony Judge, really working on IT logistics, his knowledge of product and manufacturers, working alongside myself, and also Adrian and James on residential and commercial generally, a a wealth wealth of of experience in the floor coming industry.

2:21 And then our operational management team, you know, a younger set of people and an excellent group that have joined us and wanted to come on this journey. Fantastic to be working with them. And great. They have great industry knowledge, work from the shop floor typically, understand the business throughout the IT logistics, product, manufacturer relationship, and local customer relationships. So the kind of timeline of events. So we started the business in 2018, and we acquired two doormat businesses and then launched the business onto Tice at the beginning of twenty nineteen. Then the real step forward was acquiring HeatSeam, a factory flooring business, which kind of propelled us from a £10,000,000 sales revenue to through 30,000,000.

3:09 Following that with the acquisition of H and V and A and then establishing a number of LIKEWISE businesses around the country starting in the Southeast, North Northeast Scotland and more, near the time in the Midlands. So, the highlights really is consistent and positive performance from all of our businesses. We've gone from establishing the business and making startup losses, understandably, to now being profitable. The LIKEWISE TRADE brand, is established in most parts of The UK, and it's really encouraging that we've been recently voted distributor of the year by readers of Interiors Monthly magazine. The The Leeds Logistics Centre really supports our residential activities, and the Birmingham Centre, which is now partly operational but will be fully operational by the end of the year.

4:00 And we have consistently produced a profit falling on from the foundations laid in 2020 and obviously the successful float on AIM recently. In terms of the floor covering market, the market is about £2,000,000,000 at at, manufacturer selling price. So with that kind of 65,000,000 sales revenue, we have about 3% market share, loads to go at and opportunities to grow the business in the future. Whilst new build is obviously a part of the market, probably house moves are more significant. So in terms of our product offering, as I've said, we're selling carpet, residential vinyl, laminate, artificial grass, underlayments, luxury vinyl tile and commercial flooring. Commercial makes about 20% of the business and 80% being residential.

4:53 I think it's fair to say that Tony, myself, Adrian and James have traveled the world and got great experience with and relationship with floor covering manufacturers. So residential product being sourced from Western Europe, from Germany, from from Holland, Belgium, and then further afield, we're buying carpet and rugs from Turkey, doormats from India, artificial grass from Vietnam and China, and luxury vinyl tile from China and Korea. And then the commercial products tend to come more from The UK, where the manufacturers have established and lead the specifications of their product. So wealth of knowledge and relationship with suppliers, which has really enabled us to establish the business. The other key part for us is the excellent salespeople that we've recruited.

5:43 So there's an ongoing recruitment of people typically in their late twenties, early thirties and forties who, again, got experience in the floor covering industry and fantastic relationship with customers. And it's a combination of that management team plus our sales representatives and, of course, all the other staff that support those activities.

6:04 So in terms of our market presence, you'll see the colored in areas where we've got a presence, in some cases, a fledgling, in the uncolored areas, opportunities to grow the business. And you'll see both through the LIKEWISE brand and also through ANA and H and B, which we expect to extend their geographical territory, that lots of opportunity to grow this business. As I've mentioned, winning the Interiors Monthly Award as the best, wholesale distributor is a fantastic claim after just a short such a short period for LIKEWISE to be in the floor covering market. And this is the Harrogate exhibition, which was a couple of weeks ago. And perhaps whilst I'm a little bit biased, I think we had the best and the busiest stand in the exhibition against all of the established market leaders.

6:54 This is our distribution center in Leeds, which was a step forward when we exited to leasehold warehouses in Dewsbury. We're able in Leeds to handle material correctly, and it's very much a residential hub for the rest of our business. And this is the distribution center in Sudbury where the business owns the freehold, and we do have an opportunity to extend this. We're just currently applying for planning permission to do so to give us even more capacity. And then the Birmingham Centre, as I've said, it starts to be operational. We're shipping goods at the moment from Leeds overnight to Birmingham and then onwards to our customers. But the racking is on order, the cutting tables, and this will be properly operational by the end of the year.

7:44 So in terms of our logistics network, as I've said, the the residential product typically is housed in Leeds, and we're shipping via trunkers overnight to Glasgow, Newcastle, Sudbury, Peckham, and now Birmingham from with delivery to our customers. So it means that a customer in the Southeast Of England or in Newcastle or in Scotland can order goods today today and be delivered the following day seamlessly. And we're running that through 53 delivery vehicles, and we have more vehicles on order to help expand the fleet and give an ever improving service to our customers. And you'll note ANA in Manchester have done fantastically well since we acquired the business. We want to rehire them. We're at the early stages of negotiating that, and, ultimately, we'd like to move them into bigger premises.

8:32 You see here the sales growth, continually going upwards. And with the the busier autumn selling period ahead of us and also recruitment of additional sales representatives, very much expect that yellow line to continue to to go north. So in terms of the numbers, see, it's heartening that we're now profitable and consistently so. I see a positive increase in sales revenue, significant improvement in the gross margin through a better mix of product, costs going up but not at the same rate as sales revenue, so operational gearing kicking in.

9:09 And then Overleaf on the the balance sheet, already a strong balance sheet, but obviously further enhanced by the 10,000,000 fund raise we've had recently, which is not reflected in these numbers. In terms of the cash flow and working capital, generally, business is cash positive. Obviously, there is a period of time as we're growing the business where we're investing in working capital. But underlying, given our trading terms, generally, the cash the business can be cash generative. And you'll see there that we're stuck with a net cash position of just under 6,000,000 currently. So in terms of the growth strategy, we've established the distribution hub in Leeds. I think Birmingham coming on board actually releases more capacity into Leeds.

9:58 We need to relocate ANA in Manchester.

10:02 As I've said, we want to extend and increase the capacity in the Sudbury distribution center and overall, expansion of further, leasehold and, if possible, freehold premises. There is also this ongoing recruitment of salespeople, which is vital to our growth. Whilst we're looking very much at organic growth, there is an opportunity with acquisitions if they really bring something, and strategically enhance the business. And perhaps if I could just go back a few pages, I'll just maybe say that, in terms of our logistics network, we we are looking to expand that. We obviously need a site on the M 4 Corridor, somewhere Newbury or thereabouts to service London, Bristol, the South Coast. And then as we expand further, we look for further sites in Bristol and South Wales, but that maybe is a couple of years away.

11:03 Okay. So then just summarizing that we believe, you know, we've got the team that can build a business. We're at kind of 65,000,000 annualized sales revenue today. We can go forward through that 100,000,000 and towards 200,000,000 and beyond. We certainly have the supplier and customer relationships to be able to achieve that. In terms of operating margin, we've put a target there of 5%. That is achievable, and I think we can exceed that over time. And again, you know, a very good team both in the executive management, but also very much the excellent operational management we have as well. And as we've stated, we do intend, to declare a dividend, in '22 for the '21 trading year.

11:53 Okay. So very much for listening, and hope we've covered all the points. And I'd be pleased to take any questions. Tony, thank you very much indeed for your update this morning. Ladies and gentlemen, please do continue to submit your questions using the Q Q and and A A tab tab situated on the right hand corner of your screen. But just while the company take a few moments to review those investor questions submitted already, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard, you'll get notified when they're ready for your review. I'd also like to remind you that your feedback is important to the company. And immediately after this presentation has ended, we'll redirect you for the opportunity to provide feedback in order that the company can really better understand your views and expectations. Tony, I know I haven't given you a long time to perhaps take a look at some of these questions that have come in through the live event. But there were a couple that perhaps I could verbally ask you, if I may, just to start off the Q and A that were entered pre event. The first one reads as follows. How many retailers can one sales representative cover? Plus how many sales representatives do you have now and how many do you need to fully cover The UK?

13:02 Typically, a sales representative will have about 140 accounts. They're somewhere one one thirty, one fifty, but an average of about one one hundred and forty. If you think that they're probably doing about a 160 visits per month, it allows them to see, their bigger accounts more than once a month, their medium sized accounts every month, maybe some of the smaller accounts less less, period. That's great. Thank you. A follow on question question really is, could you provide more detail on your expansion plans into Western Europe from your distribution center in Belgium?

13:37 Okay. I think we have a distribution center in Mullerbecken in Belgium, which, was part of the H and V acquisition. What we plan to do then, we're talking to a couple of overseas suppliers, is offer a distribution and logistics service for them. We're at fairly advanced discussions on one, and we're actually seeing somebody else next week with regard to an opportunity. But that being said, I don't see us in the foreseeable future having a lot of distribution centers in Europe. We will work through the one that we have in Mullerbecca. That's great, Tony. Thank you. And perhaps just finally, questions ahead of, today's event. In terms of distribution coverage, and I know you've probably touched on this a little, what areas of The UK do you not currently cover? And And how long do you think it would take you to establish a national distribution network?

14:27 I think it's mainly in the Southwest and South Wales that we don't cover and probably the North Of Scotland. We have some thoughts on each of those, but it's probably, particularly the Southwest, would probably be over the next couple of years, realistically. I think we have other priorities in large in the business in the current geographical areas. We can cover from Birmingham down to Bristol, but not much further south than that. Thank you, Tony. Well, look, that takes care of any of the pre submitted questions. Perhaps I could just ask you just to click on that q and a tab. You'll see there's a number of questions there. If I could ask, could you please read those questions out where it's appropriate to do so? Then I'll Sure. Pick up from you So at the first question is how fragmented is the market, and do you see further acquisitions in the short term? I think there is a number of, regional distributors that could be potential acquisition targets, but I think we believe we can grow the business organically by recruiting salespeople.

15:24 So this isn't a negotiation point, but I guess we don't really feel we want to pay a chunk of goodwill a small regional distributor. But if we see a meaningful strategic benefit for it, then, we would certainly consider acquisitions at the right time. Okay. The next question is, have you experienced supply chain issues and have they impacted you? Well, I guess it's fair to say, with the shortage of raw materials in many industries that applied to the floor covering industry. And no doubt, if we could have got more product, we could have sold more. But we're we are. There have been some issues, but I think we've navigated our way through them well. There's other issues, as we all be aware, of the cost of freight from the Far East particularly.

16:13 And, you know, we are incurring certainly higher costs, and unfortunately, that means we have to put that into the price of the product. But we're in the same place as any of our competitors, And that largely applies to products such as artificial grass and luxury vinyl tile. We have an ongoing challenge with working and recruiting delivery drivers. We have a relatively stable workforce there, but it's ongoing challenge for the business inevitably as, you know, and fuel, we're we're okay today. But we're in the same issue that everybody else is obviously experiencing. The next question is what is the current utilization of new distribution facility? Well, it's fair to say, really, Birmingham is not currently being utilized, again, because of, basically raw material steel. There was a delay on the racking coming in.

17:04 And that is on order and will be implemented by the end of the year. But it means we can't utilize, Birmingham fully at this stage. But for next year, we will be able to. And as I mentioned, that will release capacity in the Leeds Distribution Center as well. I think that, that about takes care of it, Tony. You've whisked through the questions, and I think you've addressed everyone that has come in. And if we do, receive any further, questions from investors, Tony, we'll make these available to you for your review after the meeting has ended. In light of the fact that we don't have any further questions, Tony, perhaps I could just hand back to you. I know investor feedback is important, and we'll shortly redirect investors to give you their thoughts and expectations. If I could just ask you for a few closing comments just to summarize and wrap up, that'd be great. Thank you, Mark. Well, I think the business has developed really well in the last fifteen months. I think we've got a really good team of people, at senior level, operating level, sales representatives and staff generally.

18:02 I think one of the reflections on that is with the staff that we 247 staff, 175 of them have committed to the SHARE SAFE scheme, which kind of says they want to be with LIKEWISE for the long term. And I think that's kind of a really positive message. And again, thank our staff and all of our suppliers and customers for their support. Thank you very much. Tony, thank you once again for taking the time and updating investors this morning. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of LIKEWISE GROUP PLC, we'd like to thank you for attending today's presentation.

18:48 That now concludes today's session, and good morning to you all.