Procook Group (LSE:PROC) — Annual Results

0:00 Good morning, and welcome to the PROCOOK GROUP PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time by the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Lee Tapadin, CEO. Good morning, sir.

0:31 Great. Thank you very much for the introduction. Welcome, everybody. Welcome to our FY twenty five annual results. I'm Lee Tappan, and I I lead our business at PROCOOK and I'm joined by Dan Walden, our CFO. So straight into the agenda for today, Dan and I are going to talk to you for about twenty minutes, trying to leave some time for q and a at the end. I will give a brief overview of the highlights from FY twenty five. Dan will go into much more detail around the financial performance. I will look back at our strategy that we set out last year and give you some updates of how we performed. And then Dan will finish on our current trade in over Q1 and our outlook for the balance of FY '26. So last year, twelve months ago, we set out a very clear medium term strategy to open 100 stores in The UK, to deliver 100,000,000 in sales revenue, and deliver operating profit of 10%.

1:22 I'll give you a few highlights now of how we performed against that strategy. We're really pleased with our trading momentum. We delivered record sales last year of £69,500,000 which is up 11% year on year, plus 4.9% like for like. That sales performance translated into an outperformance against the market, and gave us quite significant market share gains. At the outset of the year, our clear strategy was to increase our customer acquisition, and both from a record new customer acquisition and live last twelve months active customers, we've seen up 78% respectively. I won't talk in too much detail about profit, just to say that our gross margin percent has remained very, very consistent over the year, has improved towards the tail end, and our cost discipline has been very good, and Dan will cover that in more detail.

2:13 We've delivered on our strategic objectives, and I will give you a deeper dive into a few of those in coming slides. Some of you will be very familiar, but I will touch on this just very quickly around the PROCOOK business model, given that it is pretty unique. We are 100% PROCOOK owned brand products. We direct source all of our products, so no middlemen included. And what that offers us is the ability to drive incredible value, own the quality agenda, and as such, very healthy gross margin position. We operate our own stores and our own website, which enables us to own end to end everything that PROCOOK does and how we show up to our customers. We've managed to maintain a very high rating on Trustpilot, which we're very proud of at 4.8 and over 135,005 star plus reviews.

3:05 We're building awareness through the new store opening program, which we'll talk about in-depth, as well as a different approach to our marketing campaigns. We're a B Corp certified business, and we've been recognized as a great place to work over the last year. So, a lot of great things happen in the business. I thought it was just useful to level set on what our business model is. With that, I'll hand over to Dan, who's

3:27 going to give you a bit more detail about our financials last year. Thank you, Lee, and good morning, everyone. So we've delivered strong results and improved trading momentum in the first year of executing our refreshed strategic plan. Together with our continued focus on cost discipline and operational efficiency, we've improved profitability and strengthened our balance sheet while self funding significant capital investments to expand our store estate. Across key financial metrics, we're in a stronger place with revenue growth, improved gross margin, improved EBITDA and robust cash management throughout the year, we've delivered a second year of positive free cash flow, leading to a net cash position at year end.

4:14 Our revenue grew by 11% year on year to a new record level of $69,500,000 with growth positive across both channels and a like for like of 4.9%. Like for like retail stores grew by 1.5%, reflecting seven quarters of positive and consecutive like for like growth driven by improved conversion, which was up three ninety basis points year on year and growth in ATV, which was up 40 basis points, partly offset by a small decline in footfall year on year. The addition of new stores during the year, the 12 new stores that we opened during the year, added a further 8.8 percentage points of retail channel growth, taking total revenue during the year up to 10.3% in our retail channel, with further full year annualization benefits and maturity benefits expected to follow in a couple of years ahead.

5:07 Online, our website sales grew by 10.3%, recovering and returning to positive momentum on a two year basis from the disruption that we incurred last year as we migrated to a new web platform. Growth was driven by a recovery in traffic of 6.5%, including the benefit of new social media acquisition channel, which we've developed during the year, whilst conversion improved by 160 basis points. We began trading on Amazon UK again at the end of Q1 last year, offering a small curated range, which has been successful in adding incremental and profitable sales this year. This has contributed further two percentage points of sales growth to the e commerce channel for customers who prefer to shop this way.

5:54 As you can see, we're rightly pleased with the trading momentum that we've established over the recent months. With both channels performing well, it's particularly encouraging as we look ahead. We've accelerated top line revenue performance throughout the FY 2025 year, having now delivered six consecutive quarters of top line revenue growth.

6:17 Importantly, we've also improved gross margins through the year. We held lower prices during the early part of the year, and we absorbed the impact of higher shipping costs due to the Red Sea closure, which peaked at around $8,000 per container, with the impact on margins being most pronounced during our peak trading period in Q3. As these cost pressures subsided in the later part of the year and FX gains provided some year on year support, we also optimized pricing across a number of core ranges. We, therefore, improved margins back towards our target range with gross margin reaching 67.4% during the final quarter. We continue to act with a high degree of discipline around costs, managing our operational activities prudently and carefully as we identify areas where we can improve efficiency to help mitigate inflationary pressures.

7:10 This focus is improving is supporting improved profit margins with EBITDA margin increasing from 10.9% to 12.8% during the year. We remain committed to paying all colleagues at least the real living wage. And our last year, our average pay inflation for colleagues was 8.3%. We've also returned to paying colleagues a more meaningful bonus this year end to provide added motivation and to incentivize the high performance culture that we're embedding after a number of years of lower rewards. As planned, we didn't repeat the top of funnel brand campaigns this year, instead focusing on developing our paid media strategy where we've made strong progress in the year. This is not only helping us attract more customers to shop with us and build brand awareness, but it's also improving marketing efficiency, reducing our total marketing spend by 1,400,000 year on year as we improve our paid media mix and reduce reliance on bottom of funnel Google Ads.

8:11 We continue to work on central overheads and reducing cost wherever possible. This year, we identified and delivered a further 300,000 year on year of cost savings on top of the cost savings we've already implemented over the last couple of years, particularly focused within technology costs. We'll look a little later in the presentation that as we scale the top line, we're already starting to see some benefit in central overhead costs coming through to support improved operating and EBITDA margins.

8:43 Our underlying operating profit and PBT both increased by 51% year on year. We delivered $4,600,000 more gross profit this year, driven by sales growth. Our operating cost base increased by $3,500,000 year on year, and this was driven by incremental store costs, including the new store openings, the pay inflation and reward that I just mentioned, volume related costs associated with e commerce volume growth and partly offset by the marketing efficiency that I just described.

9:13 On a like for like basis, our operating expenses increased by 1.4% compared to like for like revenue growth of 4.9%, and that cost increase is after the impact of inflation. Foreign exchange losses have been volatile, particularly at the end of the year. And as we came into Q4, we experienced a sharp downward adjustment in the mark to market valuations of our foreign exchange trades as the dollar weakened as a result of The U. S. Tariff policy. This resulted in noncash foreign exchange loss of $300,000 unrealized loss of $300,000 across the year as a whole and a $400,000 adverse swing year on year. Opening new stores is a key component of our strategy, and we're confident that we have a compelling route to drive profitable sales growth.

10:06 In the year, we successfully accelerated our plans, opened 12 stores with a cautiously anticipated average mature sales expectation of $900,000 per store. We project to achieve 24% EBITDA margin at maturity, which typically takes two to three years to achieve. In the year, success sorry, two, three years with 300 k CapEx investment per store, our average payback net of incentives is just two years. We also measure the halo effect of new stores on our website sales. For every £100 spent by customers in a new retail store, we see an incremental £7 being spent on a website by customers who live within a 10 mile radius of a new store. This strengthens the investment case further.

10:58 The nature of accounting and rent free periods mean that opening new stores have different impacts on EBITDA and OP operating profit over time. EBITDA increases dramatically as soon as the store opens, benefiting from lease incentives that typically are in the form of rent free periods. And then it begins to grow but at a slower pace as the store matures. Operating profit, however, grows more steadily with the lease incentives moved over the lease length and fit out cost depreciation spread straight line over a typical five year period. It means that in year one, there's a dilutive effect of new store openings on operating profit margins, where we see an operating profit of just 8%, improving to 18% in year two and up to over 20% in year three onwards as the store matures.

11:48 This effect will benefit growth in operating margins over time as our stake matures. We have again delivered a healthy and positive free cash flow in the year of $1,700,000 improving our net debt position at year end to £1,100,000 net cash position. Our improved profitability has enabled the self funding of capital expenditure, pounds 4,100,000 of total CapEx, of which £3,800,000 was related to new stores. And we've improved payables terms with key suppliers, which has more than offset our investment in inventory to support sales growth. At this point, I hand back to you, Leigh. Thank you, Dan. I'll now take a few minutes to walk through an update around some of our strategic plans we set out a year ago in four distinct buckets around accelerating our profitable sales growth, improving our operating efficiency, and internally creating a great place to work for our colleagues, and more externally looking at how we are a force for good in PROCOOK.

12:49 I'll start with the new stores that Stan talked on. We've been very, pleased with our progress over the last twelve months. We set out an ambitious plan to open 10 new stores. We over delivered on that, goal and opened 12 new stores, equating to a net new nine stores, closing three of our smaller stores that we didn't fit or feel were fit for our longer term brand proposition. As Dan alluded to, these 12 stores on a mature full year basis equates to about £10,000,000 in annualized sales. We're confident of the two year anticipated payback based on the experience we've had the last twelve months. This success is continuing into next year already with three stores opening in q one. Those stores in Hereford, Southampton, Reading. Really pleased out of the gate with how those stores are performing.

13:36 We expect to open five to 10 net new stores for the balance for the full year of FY '26. Excitingly, we're also looking at a change to our design package, a store concept and format feel. We plan to launch a new store look and feel in end of q two this year with two new stores. We'd also refit the program into a couple of existing stores to test customer reaction and also the sales metrics and improvements as a result of that. It's an exciting time for us to be opening more stores based on learnings last year, and this new format will just build on that success. In terms of also driving our sales, our product offer is continuing to evolve. We talked, before last year around the launch of electricals, continuing to prove very successful.

14:24 Electricals today represents about 5% of our sales. I'll talk a minute about our coffee launch in particular, which is a real success.

14:31 We've also introduced some more premium ranges within our heritage cookware and knife categories, are performing very well equally. Seasonality is important for us. We were not really showing up in a great way around seasonality. Last Christmas was our first Christmas dedicated range. We treated our Black Friday campaign in a different way and proved very successful. And we're seeing changes coming through in summer this year, and we'll double down even further on a more comprehensive Christmas package for this coming year. With regards to improving our buying terms, we've rationalized our supply base in the last twelve months by about 20%, and we see more work to be done here, reduce complexity, improve our buying terms, and our payment terms as well.

15:18 I mentioned coffee. This was a great success launching in q four, and you can see on this it ranges across four different products from an entry level pod machine all the way up to a barista style 599 pound bean to cup model. The the reaction around, the quality, the value from both PR media has been incredible as one example there listed. And what we thought was initial buyer five to six months actually sold out in about eight weeks. I'm pleased to say that we're back in stock as of this weekend and and look to see this business growing from strength to strength, within the coffee category. In terms of our omnichannel service, we we really want to separate ourselves out from big box retailer and offer a more tailored personalized service.

16:04 We're really proud of our Trustpilot excellent rating, still standing at 4.8. And we're doing a lot of work around retail in particular. We've got a new retail director who's joined us three months ago, Joe Pennington from Charles Tyritt. And we've also introduced field based regional trainers to double down on product knowledge and training and customer service. They're also supporting our new store opening programs, and they've been invaluable the last few months. In ecom, it's a continual, improvement approach around our navigation and creating less friction for our customers. And we're trying to think more and more around how our stores and our ecom business are joined as an omnichannel approach. And one example here is how we're looking at gift cards and refund processes. Growing our brand awareness was a a really important opportunity and strategic focus last year. We're growing our customers, and we've looked at social media in a very different way going forward.

17:02 We've seen social media play an important role with expanding reach over a 130% year on year. We're creating far more content internally, and this is a will be a real focus for us going forward in the coming year with a 70 odd percent increase in internally produced content, looking back twelve months. Our organic reach is up over a 150% at over 20,000,000, and we're seeing real traction around increased focus on meta and really early days of using TikTok as well. Improving our cost and operating efficiency has been a major focus. I think it's important to say that with a like for like operating expense increase of only 1.4% year on year in the context of a like for like revenue increase of 4.9. We're trying to drive real leverage across the business.

17:56 Supply chain is a major focus looking end to end between our warehouse and our stores, and we're thinking very differently around how we deliver product to stores. And we now have over 80% of our stores serviced by a new delivery partner servicing the cages versus pallets, which is a really, really a real step change on improving damage, shrinkage, and basically product availability through increased frequency of drops.

18:21 We continue to do lot around technology and working between our tech and our e com teams on constant website AB testing. We've also launched an age verification facial recognition tool on AI as part of our online purchase of knives, which has taken out a lot of inefficiencies within our business, but also made the experience with customers so much better. Retail handheld terminals have been launched in all of our stores, improving the ability to actually recognize product deliveries from our warehouse, but also do perpetual inventory checks versus cumbersome year end stock takes. Finally, in terms of cost discipline, I'll call a couple out here in particular.

19:06 Our marketing efficiency last year improved by about 20%, and we're continuing to see increasing improvements going through into the start of this year. And finally, we've managed to negotiate improved terms with our delivery partners as part of ecom.

19:24 Finally, internally, with all this change, a massive change agenda, I'm really pleased to say that we had a record customer engagement with our colleagues of up to 77%. And we ranked 61 across The UK best places to work in the large company category, which is our best performance. As Dan mentioned, we continue to support real living wage, over the last five years, that represents about a 40% increase in the payment to our colleagues per hour.

19:52 In terms of being a force for good, we are in the process of a b corp recertification, and we've managed to achieve 100% green energy over the last twelve months. So some really big moves forward around our sustainability and ESG agenda. With that, I'll hand back to Dan to talk about current trading and FY 2026 outlook. Thanks, Lee. So we're pleased to report another strong performance in Q1 and a good start to the new financial year. Total revenue sorry, we've gone too far. Total revenue grew by 13.7% year on year, building on the momentum that we've established. We've delivered total like for like sales growth of 2%, marking the sixth consecutive quarter of total like for like growth, with retail up 0.3% on a like for like basis, impacted by lower footfall due to the warm weather and e com up 4.9% like for like year on year.

20:48 During the first quarter, we opened three new stores, including Southampton, Hereford and Reading. And we also closed one in Central London where the, economics were not attractive. Our retail estate now stands at 68 stores today, and our total retail revenue growth during the quarter was 16.9% year on year.

21:10 Including the impact of the Amazon channel relaunch, which delivered 3.2 percentage points of growth, our total e commerce revenue grew by 8.2%. Margin remains in a positive territory year on year as we expected, and our cost base is in line with where we expect it to be over the first quarter. As we look ahead, we expect to open five to 10 net new stores this year as we progress towards our target of 100 new stores. The new stores that we opened last year will continue to provide annualization benefits this year as well as the maturity benefits, which will come through over the next couple of years. And this will add incremental sales, and these will support improved operating profits over time.

21:58 We expect to deliver low single digit revenue growth, primarily driven by product, service and brand awareness improvements and weighted slightly more towards e commerce. From a gross margin perspective, we anticipate a step up year on year, as we've discussed, 50 to 100 basis points towards our target levels of approximately 67% over time. Whilst we still face inflationary pressures, including wage inflation and, of course, national insurance, we anticipate that these that that cost efficiencies that we will secure will will provide sufficient mitigation to fully offset these pressures. It's worth noting again that our typical h one weighting means that sales in the first half are around 40% of the full year, and we do expect the first half to still be loss making.

22:52 Cash flow. We expect to invest more in inventory to support sales growth. However, this will be partly offset by increased trade payables. As we open more stores, we expect it to continue with growth CapEx, with each new store costing approximately 300 ks. And finally, with respect to corporation tax, we hold a deferred tax asset on the balance sheet, and this will provide the ability to mitigate corporation tax cash payments during FY 2026. Looking out to the medium term, our targets of 100 new stores 100 stores in The UK, 100,000,000 revenue and 10% operating profit margin and the route to get there from a sales perspective are unchanged. I've set out a guide on this slide of how we see operating margin progressing with time, driven by the gross margin improvements, retail maturity, e commerce efficiency due to marketing that we've already discussed.

23:51 And additionally, we anticipate being able to better leverage our central cost base, including the store support center, which we opened in 2023 as we prepared in advance to grow our business. I'll hand back to Lee to wrap up. Thank you, Dan. So in quick summary, we're confident of delivering this medium term plan that we've talked about. But in in complete summary of the of the sessions we've had the last twenty odd minutes, you know, we're really confident in the business model we have, which is unique to PROCOOK, and we're confident in that customer proposition that it delivers. We've seen strong trading momentum throughout FY twenty five and into into q one of FY twenty six, and we've got a growing customer base. The improved financial performance that Dan talked to in detail enables us to think about this year ahead with the growth ambitions in line with our medium term strategy.

24:45 We're transitioning internally to a much more high performance culture starting with the leadership team that we fully rounded out now over the last twelve months. And we believe we now have a clear plan to accelerate profitable growth against that medium term strategy we set out twelve months ago. So with that, we wrap up the presentation. We've actually got a lot of questions that have come through. I'm conscious of time, so I'll delve straight into these, read them out, and then between Dan and I, we will cover them off separately. So the first question: With 12 new stores opened ahead of guidance, what learnings have you drawn from store performance so far, and how are they, shaping plans for new openings in FY '26? I I think, really, last year, looking back, it gives us confidence, first of all, that we can open stores in a mixture of locations where there's, you know, really high traffic, regional shopping malls, or or more affluent market towns. So we've taken a lot of learnings.

25:41 And I think as Dan covered, we've seen some of our stores with very different footprints in terms of size where we're able to tailor the offer, to those specific stores and still make them work. So it gives us a lot of confidence, going into f y twenty six. And as we mentioned, the pipeline for new stores is forming up very, very well, you know, for the the balance of the year, the next nine months. The next question, I I think Dan covered this. What percent of your proportion of our ecommerce sales in q one f y twenty six was attributable to Amazon? I think it was just over 3%, Dan. 3.2% for Amazon and 4.9% for like for like Yeah. Within the channel. Okay. And so that that one should have been covered off earlier. I've got maybe a question here for you for Dan. Mhmm.

26:28 While understandable given growth investment, under what conditions would the board consider reinstating a dividend? Yeah. So I I think it's it's a good question. We we actually have continued to discuss this at our board meetings, something that we're keeping under review. I think we're clear that we have opportunity to invest capital and allocate cash to deliver returns for shareholders over over the medium term. That said, we are cognizant that we're generating free cash flow. We'll keep that under review. And at the point where we have surplus cash, we'll be following our our capital allocation policy that's set out on our website. Thank you, Dan. Next couple, maybe more in in your camp as well if you're okay taking those. Yeah. I think the the the one around the final one. Yes.

27:17 So this question from Andrew. With the repeat purchase rate falling, how are you working to improve long term customer retention? So, yeah, we've we've seen a slight drop in repeat rates over the last twelve months for for new for customers. I think it's not a level that we are overly concerned about. That said, there are actions that we are taking and would continue to take to drive up repeat rate. Our business is not a high frequency business model. You know, our products are built to last. But that said, there are opportunities for us to improve frequency, and that's where, really, we're gonna focus. A lot of that starts with product. So expanding the range, creating more reasons to shop with us. A second element is is all around providing access to shop with us. So this is around our stores, our store estate, reducing the drive times between stores, being in locations such as shopping malls, which have higher visit frequency than an outlet center or a garden center.

28:17 These things will help us over time. Equally, we're incredibly focused on CRM as well as social media engagement. So we've got lots of things underway, and we're really focused on making sure we deliver the best possible service, best possible product and best price so that we do drive that engagement and loyalty over time. Great. Thank you, Dan. Thank you, everybody, for your time. I know we're out of time now, but just a quick wrap up. We look back at FY '25 and we're very pleased with our progress, in terms of momentum, financial performance, and actually making progress against the strategic plan we set out twelve months ago. We're confident going into this coming year that what we're working on has the right focus and that we can accelerate those plans. So thank you very much for your time and your interest, and look forward to talking to you in the future.

29:06 Lee, Dan, thanks for updating investors today. Can I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be 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, and good morning to you all.