Procook Group (LSE:PROC) — Annual Results

0:00 Good afternoon, and welcome to the PROCOOK GROUP PLC Annual Results Investor Presentation. Throughout this recording meeting, investors will be in listen only mode. Questions can be submitted at any time by the Q and A tab situated on the right hand corner of your screen. Just type in your question and press send. Company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Lee Tappenden CEO. Good afternoon, sir. Thank you, Paul. Welcome, everybody. Thank you for joining us. I'm joined here by Dan Walden, our CFO. We're gonna walk through a presentation about thirty minutes and aim to leave fifteen minutes at the end for questions. So we're going to cover five key areas today. I'll talk through our highlights of our FY 2026 performance, give an update on some of the strategic areas we've been working on over the last year, Dan will give a deep dive on our financial performance and also provide an outlook of the most recent Q1, which ended just this last Sunday.

1:04 In terms of our highlights for FY 2026, really pleased to share our numbers with you. We had a record year of sales at $85,500,000 That was up 23% on last year and importantly, up 11.8% like for like. That like for like performance has continued to build up on last year, so a two year stack of like for like of 17.3%. On the back of those sales, we've outperformed the kitchenware market in The UK by 20%, so very pleasing results. We continued on our journey of opening new stores. I'll talk about that in more detail later on. We've opened 13 new stores last year. We're making good inroads in terms of operating profit improvements, and Dan will talk in more detail around both our gross margin and our delivery of profit.

1:56 All of this performance was in support of our medium term strategy we set out in June 2024, which is to get to 100 UK stores, $100,000,000 revenue and 10% operating profit margin. And we talked to how we would make progress against those three throughout the deck. Just as a refresh for those of you familiar with PROCOOK or an introduction, PROCOOK has quite a unique business model. Our model is such that we sell only our own 100% own brand PROCOOK products. We source it directly from factories, enabling us to control both the value and the quality. Now PROCOOK operates in a very fragmented market. The market to market in The UK is around £5,000,000,000.

2:42 It's very fragmented, as I say, quite stable. And within that market, we only actually operate at about a 2% market share. So it gives you some idea of the size of the market and where we play as a kitchenware specialist. So recent product endorsements around our quality are very encouraging. We're getting more endorsements from kind of companies such as Witch, Ideal Home, and Good Housekeeping that really give us those quality credentials of our products across all of our ranges. As a business, we're extremely passionate about listening to our customer feedback. I'm very proud to share that we've maintained a 4.8 score in Trustpilot with over a 150,005 star reviews. And in terms of being a responsible retailer, I'll talk again later, but we managed to be recertified as a b corp organization.

3:39 So now just quickly at the strategy. We set this out a couple of years ago. Go to the next slide, Dan. Thank you. So four key pillars to our strategy. One, to accelerate our profitable sales growth. And as I saw from the headlines earlier, we had a very good year in driving sales. In doing so, we want to make sure we drive efficiency in our business, and we've made good inroads in driving improvements to our EBITDA over this period. Although we've sought to drive a much more performance culture in the business, we still have very high engagement across all teams in PROCOOK. And finally, as I said, operating as a force for good, doing this always in the right way that are being reinforced by our B Corp certification I mentioned.

4:25 So the first pillar I'm going to talk about is expanding our store estate. It's a journey we've been on now for a couple of years. Last year, we opened 13 new stores on the back of 12 the previous year. With a handful of closures over that period, it means we've opened next 21 new stores over the last two years. The new stores alone last year give us on a mature basis sales expectation of around GBP 10,000,000. And you can see there with over 200,000,000 visitors to the centers we've opened in, a huge opportunity to get appropriate brands in front of far more customers. Given our investment model, we're still targeting a payback of around two years. We're currently working on the FY 2027 new store pipeline and we're working on, at this moment in time, net around five to eight new stores.

5:19 Next, let's talk about the new store format. Within that 13 stores last year, eight of them within this new store format. And the images go some way to telling the story, but in person, it's it's actually more impressive. Our objectives on designing the new look and feel for the store were to, a, make it more contemporary, much more warmer, so much more warm lighting in the store. We've reduced the height of our fixtures to improve all of the sidelines and improve the category visibility. And ultimately, we want it to be a store where customers would feel happy and want to spend more dwell time. In the eight stores we opened last year, all stores are ahead of our business case economics, so we're very encouraged by the initial results. And today, this Q1, we've opened two more stores with exactly the same package in Brighton and Maidstone.

6:13 Next, let's turn our size to PROCUCT. We are primarily a product business, and this is an area where probably the most significant improvements have made over the last eighteen months. The commercial team has done an amazing job of looking at our products and reinventing some core ranges, but also introducing a lot of seasonality. And I'll talk a lot more about that on the next slide. So the team have delivered a major refresh to core product ranges in tableware, kitchen utensils, and range extensions in a couple of categories where we typically have not been strong, such as baking and storage. If I pass my mind back to twenty twenty four Christmas, it was our first opportunity to talk to actually trade in seasonal products.

6:59 We built on that last few with a much more enhanced 2025 Black Friday and Christmas offer with great success. I'm pleased to say that we've actually built upon that for this upcoming year, and the Christmas buys and Black Friday buys are complete, and there's even more expanded ranges coming for this Christmas. The success of seasonal products is very important to our business, and spring summer ranges at the moment are proving a great hit with our customers launching earlier in the spring than normal around late March and driving the business into the early summer period. The final point to cover here is the commercial discipline that the team have been doing and driving in these product range extensions and changes, Working very, very clearly on a much, more progressive commercial trade plan, looking at intake and freight management and pricing promotions, they've managed to drive significant improvements to gross margin that's been enhanced by some FX gains that Dan will talk about.

8:04 Looking at the next slide, some details of products that have come into our business. As I say, tableware has been a major core range refresh. It's just a lot of color in our business now that we didn't have a year ago. Tableware, for example, in that market share I talked about, tableware is one of the biggest categories in kitchenware in The UK. It's about 40% of kitchenware, and it's a business actually we have less than a 1% share. We have a point 9% market share in tableware. So it's a massive opportunity. Tableware incorporates sort of glassware, you know, tabletop, cutlery, linen, textiles. So the team have made a huge step forward in improving our offer. And just as an example, the other top right, the green lovely product there is our quarter range that's been developed and manufactured in Portugal.

8:59 Moving now to our stores. We have a very clear objective to differentiate ourselves from large box retail. We want our customers to be able to go into our stores and engage with our colleagues and spend time talking about products with knowledge. So we've reinvested in a whole new service and selling model that was retrained across all of the regions of the country with our two field based regional trainers. We've driven some significant improvements in like for like ATV, up nearly 2% and like for like conversion up 1.5%. At the same time, at the start of last year, we introduced a new incentive program for store managers and all of the colleagues.

9:44 All of our colleagues in stores are entitled to receive a bonus on a quarterly basis now. We simplify the metrics within the business, and every store is very laser focused on five top KPIs, driving sales, ATV, conversion, email capture, and payroll management. So a real focus on driving consistency across all of our stores in terms of customer service. Moving now to ecommerce and our customer service team. We had a lot of improvements around ecommerce in twelve months. I'll call out just a couple here today. We've launched personalized product recommendations at the point of checkout, which we did not have a year ago.

10:30 We've launched AI facial recognition for age based verification on knife purchase online, making the customer experience much more seamless. And we've also introduced parent and child configuration online to improve the shopping experience. And in terms of our customer service team, this is the team here on the right getting recognized at the national retail event as a customer service team of the year. They've made incredible improvements in reducing the customer service wait time, And we're now in the midst of launching a new technology system in our customer service team to give them much better visibility of the customer end to end with their shot online in our stores. So it's really going to simplify both their workload, but also enable them to help our customers in a much more seamless way.

11:22 A couple of years ago, we talked about one of our opportunities and challenges at the same time, which is our unprompted brand awareness still is very low at around 9% or 10%. We've seen significant increases in both new customers acquired and active customers over the last year. This is a five year time line where you can see the hockey stick effect over the last year with both customers acquired and active customers up around 24% year on year. So how have we done that? Three key levers to pull. One, first and foremost is the opening of so many stores over the last twelve, twenty four months. So in the last twelve months, around just over 200,000 new customers have been introduced to PROCOOK through the new store openings.

12:13 We've also spent quite a bit of time and talked about this last year at the results around increasing our reach through social media. And through social channels in the last twelve months, we've introduced close to 60 new customers to PROCOOK. And through our email campaigns and our email capture and our whole paid media efforts, we've now increased our contactable email database by over 20% on last year. Social media remains a real focus for us, and I believe we are very early days into a very compelling story around the benefits here. So our investments in paid social marketing delivered really good results last year with attributed revenue up over 9093% year on year. And at the same time, we've done that with a real eye on costs and margin efficiency with our cost per acquisition coming down by 7.4%.

13:07 Organic social continues to drive engagement, and our new internal content creation team is creating far more content that's actually going to be seen very, very clearly on Meta. We're getting great engagement combined with and complemented by us using user generated content from influencers. As I mentioned earlier, our efforts both in stores and online and across the whole business mean we're driving a more performance culture. That said, we've managed to maintain really high engagement in the business of 77%, which we're super proud of, and that enabled us to get ranked seventieth in The UK, UK best places to work in the large business category.

13:54 And finally, I would call out our B Corp recertification that I mentioned earlier. It's a huge amount of work to achieve B Corp certification, but we can get recertified, and we achieved a 16% increase with a score of 93%, something we're extremely proud of across all of PROCOOK. Five key initiatives that were launched in the latter half of last year and that will see us accelerate the business into the future. In terms of content creation, we have our own internal team I talked about, but also we acquired last year a content library of around 9,000 digital assets of recipes and how to guides, which will be a massive asset for us going forward in how we talk to customers.

14:42 We're going to continue to reinvest in customer acquisition as we did last year. But there's three I want to call out here, which we talk about in more detail involved, which is a technology change program, a warehouse operation transition, and then finally, a store refit trial. Firstly, the technology road map. We spent a long time considering what we need to do for the future of the business and to build a technology platform and foundation in SOLIF for the long term. So we're embarking on a three year journey, and Dan will talk a bit more about the numbers on this later on. This involves us going to a Microsoft based ERP system as well as every all of Microsoft systems around our reporting.

15:29 Coming to that, we are looking to introduce new POS systems across all of our stores over this summer period. Our current retail POS systems are close to twenty years old. The reinvention of this through very standard off the shelf solutions will enable us to get much more flexibility, improve the customer interaction, and enable us to have mobile POS in our stores at peak trading periods. Very importantly, we're looking to go on a journey to introduce Shopify Plus as our new replatform for our ecommerce business. This will give us a lot of benefits in terms of SEO, shop pay in terms of the general population of The UK usage today and potential opportunities around marketplace integrations.

16:18 Finally, this full end to end tech reinvention over this period of time will enable us to unlock the opportunity with click and collect in our stores. Secondly, our supply chain transformation and our next phase of how we actually make sure we can grow and maximize the real capacity and scalability for the future. After a long process, we've decided to partner with DHL. In this transition, DHL will operate out of our single warehouse facility today in Gloucester, where we will remain and our existing colleagues will transition to DHL to keep that continuity. The next, two to three months will see that transition complete ahead of peak, but we will defer the warehouse management system transition until February, March of next year to ensure that we have seen this trading period through peak.

17:15 This transition and this partnership will allow us to fuel further growth beyond the next one to two years. Finally, I'll talk about the refit trials. As I said, we're very pleased with the new format. The initial results were encouraging and ahead of our business case, as I said earlier. That said, we have a lot of our stores in older generation look and feel, some very, very significantly old and tired, which we want to address. And in that process, as an example, we're currently relocating two of our stores as we speak in Lewis and Harrowgate to better town locations with a new format, and they're both over and in respect to them on July 3 and July 10. So they're great indication for us of how that will perform.

18:02 That said, we have some lower volume stores where we can't justify the full package expenditure of a full refit. So some some stores would justify a full refit. Others will go for a hybrid lower cost approach. This gives us the benefit of the look and feel I talked about and also the benefit of getting our brand consistency across all our stores over a period of some time after we reevaluate and evaluate the results of this refit trial in FY 2027. So with that, I'll pause and I'll hand over to Dan to give you a deep dive on the financials. Thanks, Leigh. So as Leigh said, we're very pleased with our performance, again this year, another year of excellent progress, driving improved financial performance and a stronger balance sheet.

18:54 Our results demonstrate, the significant momentum and the substantial step change that we've delivered as a result of the initiatives that we've pursued. Revenue is up 23%. Gross profit is up 26%, supported by improved margins. EBITDA, operating profit and PBT are all up year on year, demonstrating the early impacts of the strategy that was set on in June 24. And net cash increased to GBP 4,400,000, reflecting a free cash flow of GBP 3,500,000 after GBP 5,100,000 of capital investment. The momentum in our sales performance is strong and is supported by the growth in our customer base, which increased by 25%.

19:46 We've delivered 10 consecutive quarters of revenue growth. And with two record years achieved back to back, we've reached 85,500,000 and, importantly, 11.8% like for like. From a channel perspective, the performance is equally encouraging in both retail and ecommerce, both up 23% and therefore retaining our e commerce mix of sales of 37% despite the significant growth in our retail estate. In our retail stores, our focus on service excellence, availability and improvements to our product offer resulted in a 5.7% like for like growth.

20:32 After investing in new stores, both last year and this year, we added another £8,000,000 of revenue to reach to our retail channel year on year. In e commerce, like for like growth was 21.2% driven by customer experience improvements, average order value growth, the halo effect of new stores, which typically runs 6% to 7% and digital marketing initiatives, including our drive to scale paid social revenue. Our relaunch on Amazon UK continues to support revenue growth in e commerce. As we anticipated, gross margins improved year on year. And with the increase at 170 basis points, this was a little higher than the 50 to 100 basis points we originally cautiously projected for FY '26.

21:29 The key drivers were selected price improvements as well as landed cost reductions. Factory gate cost pressures were offset by foreign exchange and freight benefits. The cost of distribution to retail stores increased a little, driven by volume, labor and fuel costs as well as a conscious decision to increase delivery frequency to support improved product availability for customers to shop. Our operating profit margins have begun stepping up. And for the second year in a row, we've increased the margins from 4.6% to 5.7%. In the year, of course, we had an additional slug of cost relating to our new stores.

22:19 We increased our e com volumes significantly, however, partly mitigated that effect by improving digital marketing activity becoming more efficient. In terms of investment, we consciously chose to spend an additional million pound on initiatives which would support future growth beyond our current medium term plans. These include content creation, technology change, and customer acquisition, as Lee's already explained. Just wanna take a moment to touch on the impact of the new store impact on our p and l.

23:05 Our current, new stores mean that we achieve maturity within about three years. In year one, revenue represents about 80% of third year mature sales. And in year two, that increases to 90%. From an operating profit perspective, the growth is slower, but has actually climbed more quickly in years two and three. So in year one, we make around about 5% operating margin in the first full year of trading, increasing to 15% and then 20% in the third year. That holds relatively steady until year six. Assuming we do not break the lease at that point, the store fixtures as a result of our prudent depreciation policy would be fully depreciated, and therefore, we'll see a step up in operating profit margins from year six onwards.

24:00 The EBITDA margin, which I'll just touch on also, steps up more quickly than operating profit margin. So it's a better indicator of the future productivity of our retail stores, and you can see that our EBITDA margin increased. Our EBITDA increased from 8,900,000 to 12,500,000 this year. So 25% is the norm that we see in year one increasing to 35% in year three. And the result of this is that we see significant dilution in our operating profit as a result of these new store openings. Indeed, you can see that the retail, channel operating profit margin on the right hand side drops from 20% last year to 17.3% this year as a result of that dilution, whilst our retail like for like stores increases from 22.9% to 23.6% circled there in red, giving us confidence that our underlying core estate is performing well and that we will see continued benefits from maturity of the new stores.

25:09 On the left hand side, you can see the fuller P and L. And indeed, the key points called out there is that PBT on an underlying basis increased by 64.5% year after year year over year. And that was after a 800,000, foreign exchange impact, which is an additional 500,000 of impact year on year. As I mentioned earlier, free cash flow improved more than doubling, year on year from GBP 1.7 to GBP 3,500,000. Working capital, actually was a net cash inflow for the second year in a row despite increased inventory investment to support a larger business.

25:56 And net capital expenditure also increased year on year to £5,100,000 meaning that we are fully funding our investment for growth both in new stores and in operating expenses. During the just shortly after the year, we concluded an amend and extend agreement to our committed, revolving credit facility. We increased it to £15,000,000 from 10,000,000, and we extended it to April 2029 with two one year extension options available to us. Looking at current trading, q one just finished on Sunday, And so we're pleased to report that our momentum in q one continues in line with the performance across the last year as a whole despite what has been a soft market backdrop, particularly during the period of significant macroeconomic uncertainty earlier on in the quarter.

26:59 Revenue was up 21.5%. Like for like revenue was up 11.5%. And retail like for like's positive new stores adding to the revenue channel growth. We've opened two new stores during the quarter, and we've closed one. We've opened one new refit trial store, and we got one more underfit currently opening in the next couple of weeks. And we've got two relocation stores that are now in fit out, which will benefit from the new format, as Lee said. Our ecommerce like for like accelerated again to 27.9% year on year driven by growth in traffic and AOV improvements. Importantly, the market was softer, as I say, but our performance held strong, and we outperformed the market by an even greater 31 percentage points during the first quarter of this financial year.

27:57 Looking ahead to the full FY 2027 financial year, we expect to make continued strong progress towards our medium term ambition and set the foundations for the period beyond that. We anticipate opening five to eight net new stores, plus receiving the benefits of annualization on the maturity of the new stores that we opened in the last couple of years. We anticipate like for like like for like revenue growth will be mid single digit and weighted towards ecommerce. We anticipate gross margin will remain broadly flat year on year. And with regards to the TAP program that we launched last year, we spent $200,000 last year, FY 'twenty six, absorbed in our numbers.

28:46 Dollars 600,000 will be in FY 'twenty seven, which, again, is absorbed in the existing consensus and OpEx guidance and then the remaining $200,000 in FY 'twenty eight, taking the total to £1,000,000 investment there. As a recap, H1 is typically around 14% of our full year sales, and it is loss making still, albeit over time, we anticipate that the seasonality improvements that we're driving will support improved profitability, but we're not there yet. In the fifty third week, which we have every few years and arises in FY '27, we will have one extra week's revenue in our full year numbers, but there will be an immaterial profit impact from that extra week. We will set up fifty two week comparatives for ease of understanding.

29:38 And finally, touching on cash flow. Our working capital, we do anticipate will increase by £1,000,000, as a result of investment in inventory. The last couple of years, our investment in inventory has been offset by favorable improvements in the trade payables position resulting in net capital inflows. This year, we expect actually to be an outflow. From a CapEx perspective, we forecast to continue to spend around £300,000 per new store, and we are planning to extend our distribution center racking to provide more capacity for product as we grow in the year ahead. And finally, deferred tax, as it says on the page, we do not anticipate, any cash tax payments in this financial year.

30:31 I'll hand that to Lee. Oh, I'll do one more. As you can see from this slide, we've just shown the step change already delivered in our revenue, against our target to achieve a 100,000,000. So we've gone from 63 to 86,000,000, and we really see the balance of that remaining 14,000,000 to come from new store, performance, both new stores that we opened and annualization of new stores from the last year, plus then some like for like growth driven by product, service, brand and availability improvements. From an operating margin perspective, we've stepped up already from 3.4 to 5.7. We always projected that the growth would come through in the last part of the plan in terms of operating profitability, particularly as a result of the effect of the maturity of those new stores that I just went through earlier and the resulting impact of our leverage of our fixed cost to our central overheads.

31:32 So that's the journey that we're on. We're making very good progress. Okay. Thank you, Dan. So just to quickly summarize, as Dan mentioned, we set this out in 2024. We're on track to deliver that medium term ambition. And actually, we believe there's an opportunity to accelerate beyond that point in the coming years. So in summary, you know, we're really confident in our customer proposition. It's resonating extremely well. We have excellent trading momentum at the moment at the top line, and we've delivered significant improvement to our financial performance on the bottom line as well. We see profitable growth acceleration beyond our current plans. And finally, the point I would mention is that through the initiatives I talked about earlier, which would be the technology investment, the supply chain work around the warehouse transition to DHL, and the opportunity with both new stores and the refit program, which we're testing going into this year, we are aiming to prime the business for future growth beyond this point.

32:41 So with that, I'll pause. We have a few questions that have come in ready. First question we have from Gary. Maybe this was early on, Gary, so maybe we've covered this some of this in the presentation. How has the customer acquisition costs and repeat purchase behavior evolved in the last couple of years? So I would say on the costs of acquisition, I think I said on my slide, it's down 7.4% year on year. So where we've been very mindful around the marketing efficiency of customer acquisition, I believe there's more opportunity to go there. And then in terms of repeat rate, I think basically our repeat purchase behavior is flat lined around 20%. It did two years ago. We've managed to get it back to about 20.5%.

33:27 So stabilized, I think it is a definite opportunity for us to leverage going forward, and that's part of the work that we'll be focused on through our paid media investment. Second question after this. What metrics do you focus on a weekly basis? And with the technology program and social expansion, how do you see balance between online and stores in terms of sales? So as you can imagine, on a weekly basis, we've got a huge amount of data in our business, both in our store metrics, as I talked about, and online. We have really diligent focus around our cost base on a weekly basis as well. So there's a huge amount of trade detail that goes into every Monday discussion. And even to your second point, the second question there, even with the expansion of new stores, we are seeing online sales still stay at around 36, 37 percent of our sales.

34:25 Actually, we see that maintaining over the next year for sure and potentially beyond that right time horizon as well. So we expect e commerce to continue to accelerate and have the growth it's had over the previous years in line to 37% sales participation. What else do have from Paul here? Do want to take this one, some that of that, Dan? So a question from, Paul. Thank you, Paul. Why don't you start paying a tap? There's a few questions there. I'll cover them in turn. Why don't you start paying a dividend? We I'll I'll cover that first first up this year. The board hasn't recommended a dividend as we continue to invest invest significant CapEx into growth as we've just discussed. So that's that's for this last financial year.

35:12 We haven't yet commented on future years. So that's one for future discussion. But with a cash position that we have at year end strengthening, what we need to do, that's good news, but we need to make sure that we have adequate funding and resources and headroom available to support our business, hence the decision this year end. When do you think he'll achieve a 100,100 10 target? Hopefully, we have covered that off in terms of the progress made. And I hope that we've covered off the question around the extraordinary the increase in in in profit margins up to 10%. I hope we've given you some confidence in our response there. And, actually, that's a very similar question next from from Ashton. Thank you again for your question.

36:02 Is the target still achievable as in 10% operating profit margin? We're absolutely working towards that target and beyond. As we've said a few times, that was a medium term target. What we are absolutely committed to do is strengthening this business both in terms of performance, profitability, balance sheet, it should create a a strong sustainable business that is cash generative for the benefit of all stakeholders. So that's what we're working towards, and we we're we're very confident that that is is is the direction of travel. Okay. We don't appear to have any more questions. If there's a last question, we have literally two or three more minutes before we wrap up. Any other questions?

36:52 We'll just give that a couple of seconds, guys, as they come through. But just while we do that, I'd like just to remind all the attendees that a copy of the presentation along with the recording of the slides will be available on the Investor Meet company platform. If we don't have any further questions coming through, Lee, perhaps if I could just ask you for a few closing comments, if I may. Yes. Thank you, Paul. First of thank you to everybody for attending. Closing a few words. We're very pleased with last year building on a solid previous year, so two year stack now of strong financial performance. We feel very confident in the momentum of the business. We believe the strategic focus is correct. And the additional three elements I talked about at the end there around technology, supply chain transformation, and the store refits, we believe are that even add further to the fuel to drive the business. So we're confident in the year ahead and the trajectory we're on. So thank you very much for all of your interest. Thank you. Thank you both for updating investors today. Can I please ask investors not to close this session? To be automatically redirected to provide your feedback, nor do the team can better understand your views and expectations.

38:00 It only takes a few moments to complete, and it's greatly valued by the company. On behalf of the management team of PROCOOK GROUP PLC, we'd like to thank you for attending today's presentation. That concludes today's session, and good afternoon to you all.