TIDMWOSG
RNS Number : 0455V
Watches of Switzerland Group PLC
09 December 2021
Watches of Switzerland Group PLC
H1 FY22 Results
for the 26 weeks to 31 October 2021 (H1 FY22)
Strong performance underpinning recently upgraded guidance
US expansion strategy advanced with acquisitions of five stores
now completed
Watches of Switzerland Group PLC ('the Group') today provides
the following financial results relating to the 26 weeks ending 31
October 2021.
Strong, broad-based sales performance resulting in significant
growth in H1 FY22 profit
-- Group revenue GBP586.2 million (H1 FY21: GBP414.3 million),
+44.6% vs H1 FY21 and +40.8% vs H1 FY20 (both in constant
currency(2) )
o Continued strong demand for luxury watches and jewellery, with
growth led by a significant increase in volumes of non-supply
constrained brands
o Each individual brand showed positive average selling price
(ASP) growth
o Group ecommerce sales(1) grew +28.7% on last year
-- Adjusted EBITDA(2) +58.8% to GBP82.8 million (H1 FY21: GBP52.2 million)
o Adjusted EBITDA margin(2) of 14.1% (H1 FY21: 12.6%)
-- Adjusted EBIT(2) +62.7% to GBP67.5 million (H1 FY21: GBP41.5 million)
-- Statutory operating profit +58.6% to GBP72.3 million (H1 FY21: GBP45.6 million)
-- Statutory profit before tax GBP64.7 million (H1 FY21: GBP36.2 million)
-- Expansionary capital expenditure(3) of GBP19.1 million (H1
FY21: GBP9.1 million) with eight new stores
opened, two stores acquired, three stores expanded, and five stores refurbished
-- Free cashflow(2) of GBP102.3 million (H1 FY21: GBP116.1 million) with conversion of 123.6%
-- Return on capital employed(2) increased to 23.1% (H1 FY21: 17.2%)
-- Net cash(2) of GBP30.0 million as at 31 October 2021 (25
October 2020: net debt(2) of GBP22.7 million)
Operating highlights
-- Growth achieved through consistent investment in marketing, stores, systems and people
-- Following a period of destocking during Q1 FY22, in Q2 FY22
the Group actively re-built store stock for Rolex in the US and the
UK to enhance brand representation
o Change in management of Rolex store stock to be
exhibition-only
-- Outstanding US performance delivered with revenue GBP167.6
million, +50.2% vs H1 FY21 and +66.7% vs H1 FY20 (both in constant
currency)
o Expansion strategy advanced with previously announced
agreements to purchase five stores in Plano (Dallas), Vail, Aspen,
Greenwich and Minneapolis. The combined Last Twelve Months revenue
for these stores was approximately US$100.0 million and future
profitability is expected to be in line with the Group's US
average
-- Robust UK performance continues to be generated by a thriving
domestic clientele, with revenue GBP418.6 million +42.3% vs H1
FY21
o Revenue +31.8% vs H1 FY20 when 33.6% of Group sales were
generated by tourists(3) and airports (all in the UK) vs negligible
tourist and significantly reduced airport business in H1 FY22
-- Continued investment in store network across both the UK and
the US with several important projects completed:
o Opening of enhanced Rolex dedicated space within Mayors
Aventura, Phase I of the store's refurbishment plan
o Introduction of Goldsmiths Luxury concept in two stores
(Canterbury and Reading)
o Refurbishment of a further five stores in the UK
o Opening of a mono-brand boutique in Trafford Centre
o Opening of one Goldsmiths store and two mono-brand boutiques
in Edinburgh St James
o Opening of three mono-brand boutiques in Plymouth
Current trading and outlook
-- Q3 trading to date supports full year guidance upgraded on 9 November 2021
-- Well-stocked for Holiday trading period
-- Since the end of H1 FY22, we have opened our first Bvlgari
mono-brand boutique in Mayors Aventura, completed the refurbishment
of a further three stores in the Goldsmiths Luxury format, acquired
a further three stores in the US, and opened an additional two
mono-brand boutiques in the UK
-- The Group has an exciting pipeline of store projects planned:
o Continued investment in the Mayors network in Florida and
Georgia
-- Opening of refurbished stores in Aventura Phase II, Florida
and Boca Raton, Florida
o Further expansion of Watches of Switzerland stores in the
US:
-- Opening of new stores in American Dream, New Jersey and in
Kenwood Towne Centre, Cincinnati
o Opening of refurbished Rolex boutique in Wynn Resort, Las
Vegas
o Further mono-brand activity in the UK and the US
o Opening of new Watches of Switzerland store in Battersea
o Roll out of Goldsmiths Luxury elevated store formats
-- Our guidance reflects visibility of supply of key brands. The
Group does not expect the return of tourism and airport business to
pre-pandemic levels during the year
-- As announced on 9 November 2021, we upgraded our guidance for
FY22 as follows (on a 52-week, pre-IFRS 16 basis):
o Revenue: GBP1.15 billion to GBP1.20 billion (previous guidance
GBP1.05 billion to GBP1.10 billion)
o EBITDA and Adjusted EBITDA margin %: +1.0% to +1.5% vs last
year (previous guidance flat to +0.5% vs last year)
o Depreciation, amortisation, impairment and profit/loss on
disposal of fixed assets: GBP30.0 million to GBP32.0 million (no
change vs previous guidance)
o Total finance costs: GBP4.0 million to GBP4.5 million (no
change vs previous guidance)
o Underlying tax rate: 21.0% to 22.5% (no change vs previous
guidance)
o Capex: GBP45.0 million to GBP50.0 million (previously GBP40.0
million to GBP45.0 million)
o Net debt: GBP10.0 million to GBP20.0 million (previously
GBP20.0 million to GBP30.0 million)
o Average USD/GBP full year rate of $1.40
Brian Duffy, Chief Executive Officer, said:
"I am delighted with our excellent first half year performance.
We introduced several initiatives and enhancements during difficult
trading circumstances last year which have become permanent
features of the business, enabling us to continue to maintain high
engagement levels with our customers whilst providing an
exceptional experience and delivering attractive returns. Our
success in both the UK and the US has been testament to our robust
multichannel business model, the enthusiasm and commitment of our
people, and the attractive dynamics of our category where demand
continues to outpace supply.
We have started the third quarter with continued strong momentum
and are well positioned heading into the Holiday period.
Through a consistent investment programme, we have further
strengthened the business, paving the way for continued success as
we advance our Long Range Plan objectives to strengthen our luxury
watch leadership in the UK, become the clear market leader in the
US and capitalise on the growth potential in the EU market."
H1 FY22 Revenue performance by geography
H1 FY22 H1 FY21 H1 FY22 vs H1 H1 FY22 vs H1
FY21 FY20
----------------
26 weeks 26 weeks 2-year
to to Constant 2-year constant
31 Oct 25 Oct Reported currency Reported currency
(GBPmillion) 2021 2020 YoY % YoY % YoY % YoY %
--------- --------- --------- ----------- ---------- -----------
UK 418.6 294.2 42.3% 42.3% 31.8% 31.8%
--------- --------- --------- ----------- ---------- -----------
US 167.6 120.1 39.5% 50.2% 50.9% 66.7%
--------- --------- --------- ----------- ---------- -----------
Group Revenue 586.2 414.3 41.5% 44.6% 36.7% 40.8%
--------- --------- --------- ----------- ---------- -----------
H1 FY22 Revenue performance by category
H1
------------------
26 weeks 26 weeks
(GBPmillion) to to
31 Oct 25 Oct Reported
2021 2020 YoY %
--------- --------- ---------
Luxury watches 508.8 362.1 40.5%
--------- --------- ---------
Luxury jewellery 40.8 26.3 54.9%
--------- --------- ---------
Other 36.6 25.9 41.6%
--------- --------- ---------
Group Revenue 586.2 414.3 41.5%
--------- --------- ---------
H1 FY22 Results Conference call
A webcast conference call for analysts and investors will be
held at 9.00am (UK time) today. To access the webcast, please use
the following details:
Webcast link: https://webcasting.brrmedia.co.uk/broadcast/615ad0594e29f55a9419010f
Participant Access Code: 8698080
The presentation will be followed by a live Q&A for analysts
and investors, who will be able to ask questions via the following
telephone details:
United Kingdom (Local): +44 (0)330 336 9125
Participant Access Code: 8698080
___________________________________________________________________________________________
1 Ecommerce sales are sales which are transacted online
2 This is an Alternative Performance Measure and is shown on a
pre-IFRS 16 basis. Refer to the Glossary for definition, purpose
and reconciliation to statutory measures where relevant
3 Refer to the Glossary for definition
Contacts
The Watches of Switzerland Group
Anders Romberg, CFO +44 (0) 116 2817 401
Allegra Perry, Investor Relations +44 (0) 20 7317 4600
Caroline Browne, Group Finance Director +44 (0) 116 2817 420
investor.relations@thewosgroup.com
Headland
Lucy Legh / Rob Walker +44 (0) 20 3805 4822
wos@headlandconsultancy.com
About the Watches of Switzerland Group
The Watches of Switzerland Group is the UK's largest luxury
watch retailer, operating in both the UK and US, comprising four
prestigious brands; Watches of Switzerland (UK and US), Mappin
& Webb (UK), Goldsmiths (UK) and Mayors (US), with
complementary jewellery offering.
As at 31 October 2021, the Watches of Switzerland Group has 163
stores across the UK and US including 46 dedicated mono-brand
boutiques in these two markets in partnership with Rolex, TAG
Heuer, OMEGA, Breitling, Audemars Piguet, Tudor, Grand Seiko and
FOPE and has a leading presence in Heathrow Airport with
representation in Terminals 2, 3, 4 and 5 as well as six
transactional websites.
The Watches of Switzerland Group is proud to be the UK's largest
retailer for Rolex, Cartier, OMEGA, TAG Heuer and Breitling
watches.
Mappin & Webb holds Royal warrants as goldsmiths,
silversmiths and jeweller to Her Majesty The Queen and silversmiths
to His Royal Highness The Prince of Wales. The Mappin & Webb
master jeweller has been Crown Jeweller, custodian of the Crown
Jewels of Her Majesty The Queen since 2012.
https://www.thewosgroupplc.com
Cautionary note regarding forward-looking statements
This announcement has been prepared by Watches of Switzerland
Group PLC (the 'Company'). It includes statements that are, or may
be deemed to be, "forward-looking statements". These
forward-looking statements can be identified by the use of
forward-looking terminology, including the terms "believes",
"estimates", "anticipates", "expects", "intends", "plans", "goal",
"target", "aim", "may", "will", "would", "could" or "should" or, in
each case, their negative or other variations or comparable
terminology. They appear in a number of places throughout this
announcement and the information incorporated by reference into
this announcement and may include statements regarding the
intentions, beliefs or current expectations of the Company
Directors or the Group concerning, amongst other things: (i) future
capital expenditures, expenses, revenues, earnings, synergies,
economic performance, indebtedness, financial condition, dividend
policy and future prospects; (ii) business and management
strategies, the expansion and growth of the Group's business
operations; and (iii) the effects of government regulation and
industry changes on the business of the Company or the Group.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future and may be
beyond the Company's ability to control or predict. Forward-looking
statements are not guarantees of future performance. The Group's
actual results of operations, financial condition, liquidity, and
the development of the industry in which it operates may differ
materially from the impression created by the forward-looking
statements contained in this announcement and/or the information
incorporated by reference into this presentation.
Any forward-looking statements made by or on behalf of the
Company or the Group speak only as of the date they are made and
are based upon the knowledge and information available to the
Directors on the date of this announcement, and are subject to
risks relating to future events, other risks, uncertainties and
assumptions relating to the Company's operations and growth
strategy, and a number of factors that could cause actual results
and developments to differ materially from those expressed or
implied by the forward-looking statements. Undue reliance should
not be placed on any forward-looking statements.
Before making any investment decision in relation to the Company
you should specifically consider the factors identified in this
document, in addition to the risk factors that may affect the
Company or the Group's operations which are described in the Annual
Report and Accounts 2021 in Risk Management and Principal Risks and
Uncertainties.
Chief Executive Officer's Review
Our Group has reached new heights during the first half of the
financial year, with a further strengthening of the business in our
existing markets of the UK and the US. We delivered a strong
increase in first half year profit, driven by margin enhancing and
broad-based growth, as we progressed on our Long Range Plan
objectives.
Luxury watches continue to benefit from a strong demand
environment and we have seen growth in the period led by a
significant increase in volumes of non-supply constrained brands.
Luxury jewellery has also experienced robust growth, with sales in
the category +54.9% vs last year.
Our robust UK performance has been generated by a thriving
domestic clientele. Despite negligible tourist and much reduced
airport business, UK revenue in the first half grew by +42.3% vs H1
FY21 and +31.8% vs H1 FY20, when 33.6% of the business was
generated by tourists and airports. We continue to invest in our
stores, where we further expanded and elevated the network. We
generated strong growth from our ecommerce business despite stores
being fully opened this year and having been partially closed in
the prior year period.
In the US, we are continuing to make strides in further
establishing a strong presence in the market. US revenue increased
by +50.2% vs H1 FY21 and +66.7% vs H1 FY20 (both in constant
currency). We continue to enhance the Mayors network with phase I
of the Aventura store elevation complete. We also advanced our
expansion strategy through the agreement to acquire five stores in
four new states for the Group, broadening our representation in the
market to a total of 36 stores (22 multi-brand, 14 mono-brand
boutiques).
We have introduced the new customer experience initiative,
Xenia, in our business in the UK and in the US and will continue to
develop and enhance this in coming months.
I would like to thank our teams who have been remarkable in
embracing new ways of engaging with our customers and adapting to
new challenges, particularly during the last eighteen months. Their
resilience and commitment have enabled the Group to be
successful.
As announced, we are very excited to have Bill Floydd join us as
CFO on 1 January 2022. Anders Romberg, the current CFO, will be
stepping down and will retire from the Group following a suitable
handover period with Bill. I want to thank Anders for all his help
and support over the past seven years and he goes with our best
wishes for the future.
I am proud of the progress we are making on ESG. We held the
inaugural meeting of The Watches of Switzerland Group Foundation
during the period and have many exciting plans for this initiative
in coming months. The recently established ESG Committee has also
begun its work in advancing our priorities in this area.
Looking ahead, we will continue to invest in our business in
order to deliver on our Long Range Plan objectives. I am confident
that our Group is stronger than ever and well positioned for
growth.
Group Strategy Delivering Outstanding Results
The Group delivered an outstanding sales and profit performance
during H1 FY22, advancing on the strategic priorities laid out in
the Long Range Plan to FY26.
To recognise the importance of our Environmental Social and
Governance (ESG) programme, this workstream has been added to the
Group's strategic priorities.
Within the framework of its seven strategic priorities, the
Group made significant progress through continued elevated levels
of investment and focus on further developing a customer-centric
business model.
1) Grow revenue, profit and return on capital employed
Against a backdrop of more normalised trading patterns with our
store network being open throughout the first half year period, we
continued to invest in further enhancing and building our
portfolio, both in the UK and the US. Significant progress has been
delivered during the half year period including:
UK
-- Introduction of Goldsmiths Luxury concept in two stores (Canterbury and Reading)
-- Opening of three mono-brand boutiques (OMEGA, TAG Heuer, Breitling) in Plymouth
-- Opening of a new Goldsmiths store and two new mono-brand
boutiques (OMEGA, Breitling) in Edinburgh and one new TAG Heuer
mono-brand boutique in Manchester
-- Further development of store network with five refurbishments across the estate
US
-- Opening of enhanced Rolex dedicated space within Mayors
Aventura, Phase I of the store's refurbishment plan
-- Eight mono-brand boutiques recently opened are performing strongly and gathering pace
-- Purchase of five stores (three of which completed on 1
December 2021) leading to the entrance of the Group in four new
states with locations in Plano (Dallas), Texas; Vail and Aspen,
Colorado; Greenwich, Connecticut and Minneapolis, Minnesota
We will continue to invest in our store portfolio and have an
exciting pipeline for future store projects across both the UK and
the US including several new mono-brand boutiques, the continued
elevation of the Mayors estate in Florida and Georgia, as well as
the ongoing upgrade and modernisation of the core store portfolio
in the UK, with the continued roll out of Goldsmiths Luxury.
2) Enhance strong brand partnerships
Our strong and long-standing relationships with the most
recognised and prestigious luxury watch brands have remained a
point of distinction and have further strengthened during this
period.
In the US, we debuted a ground-breaking advertising film which
served as the most extensive multi-branded timepiece campaign the
industry has ever seen. Featuring eight leading brand partners
including Grand Seiko, TAG Heuer, OMEGA, Breitling, MB&F and
Ulysse Nardin and entitled 'Anytime. Anywhere.', it was produced in
partnership with Creative Director and Photographer, Jay Gullion.
The film is an unprecedented artistic undertaking that speaks
directly to today's watch connoisseurs. It imagines a life
well-lived, marking exceptional moments with a curated selection of
world-class timepieces, worn by industry changemakers in
spectacular settings set across the United States.
The mono-brand boutique channel has been further developed in
both the UK and the US with several new openings and some
enhancements. This includes several mono-brand boutiques in new
markets in the UK across the OMEGA, TAG Heuer and Breitling brands,
the enhanced Rolex boutique in Mayors Aventura as well as our first
Bvlgari boutique, also in Mayors Aventura. Further mono-brand
boutique openings are planned in both the UK and the US going
forward.
We are also proud to have launched exclusive timepieces with key
partners brands, further distinguishing our competitive advantage
in both the UK and US.
3) Deliver an exceptional customer experience
Our first half saw the global launch of 'Xenia' our new customer
experience programme, with retail led training to set new industry
standards in client hospitality, with over 250 of our team
colleagues in attendance at launch events held in the UK and the
US.
We continued our core focus of 'experience', resuming in person,
live events. Over 70 events were held in the UK, entertaining over
3,800 clients in localised, private, intimate client appreciation
dinners and receptions, or instore exhibitions, the first time
since pre-pandemic. In the US, the Summer Watches of Switzerland
'Airstream' event included a 100-person private event for the Doxa
brand, where the Group is the exclusive distributor. VIP guests
included designer Cynthia Rowley and Dave Guy of the Roots. This
culminated in the Group hosting the Hamptons Classic Horse Show in
partnership with long time event sponsor, Longines. The mobile
retail unit was on site to greet the 25,000 spectators throughout
the week. Watches of Switzerland hosted 20 VIP guests for a Grand
Prix luncheon celebrating the best in show jumping and awarding the
winner with a Longines timepiece.
In the UK, we continued to develop and enhance our customer
experience through our online appointment system, 'By Personal
Appointment' accounting for approximately 40% of our UK sales
during the period. We also invested in our Virtual Luxury Boutique
and expanded our in-house photography team to ensure we provide the
very best experience to all customers online.
CRM and clienteling remained a core focus with over 30 guides
produced in support of new product launches, trends, gift guides
and specialist timepieces.
4) Drive customer awareness and brand image through multimedia
with bold, impactful marketing
Investment in our digital marketing channels and campaigns has
continued to be a core pillar and has grown from strength to
strength.
At the beginning of the financial year, we refreshed our digital
display first campaign globally, continuing to focus on
communicating the breadth of range available to a highly targeted
luxury audience, combining our Search & Shopping strategy with
YouTube, Display and Paid Social.
In the first half year in the UK, we achieved an average monthly
digital social media reach of 40.1 million and a total of 2.9
billion digital impressions. In the US, we delivered 400 million
impressions and had an average social media reach of 6 million, in
addition to generating over 2.4 billion PR impressions.
We also transitioned 'Calibre', our online platform for all
luxury watch knowledge and expertise, to our core websites to
benefit from higher traffic.
We launched our new Goldsmiths Luxury stores in the UK with two
stores converted to the new concept during H1 FY22. We introduced
dedicated launch plans across PR, social media, events and email to
support each store, along with a new local advertising campaign and
localised sponsorships to elevate the brand awareness locally. To
kick start the launch, we held a press lunch in July, hosting over
35 key UK journalists from a range of national and local media
titles.
We continue to partner with key brands on co-operative marketing
activities with increased investment across both digital and
traditional marketing, including new national and local advertising
plans to support our core brands and mono-brand boutique
business.
The first half has seen us launch seven new mono-brand boutiques
globally, six in the UK and one in the US, each with their own
local marketing support plan to create localised awareness. Since
the end of the period, we have opened the first Bvlgari mono-brand
boutique globally, located in Mayors Aventura.
5) Leverage best in class operations
Merchandising
Our merchandising function is a key customer-focused driver of
product availability and access and provides a unique point of
difference in the way we run our stores.
Our merchandising capabilities utilise a customer-centric
approach and best in class systems to optimise stock availability,
enhance store productivity and allow for nationwide coverage. Our
advanced market analysis is run on SAP software which enables
extensive store profiling, productivity and trend analyses, and
sales and inventory forecasting.
Retail operations
As an integral part of our multi-channel model, each of our
stores is run to be profitable. This is achieved through
maintaining a high level of accountability and performance
management in running our retail network.
Our programme of continued investment has enabled us to further
drive productivity in both the UK and the US platforms. In the UK
we introduced Goldsmiths Luxury to two stores in the period, and
completed a further three stores in this format after the period
end. In the US, we are focused on generating high returns from
refurbishing and upgrading the remaining stores in the Mayors
network which have not yet been modernised.
The Group's store base is largely run via fixed rent agreements,
having successfully renegotiated certain contracts and transitioned
from turnover rent to fixed rent agreements in the prior year
period. We have also renegotiated the contracts for our stores in
Heathrow Airport on revised terms.
IT Systems
Our leading-edge IT systems have continued to be a fundamental
competitive advantage for the Group. Our systems comprise a single
and shared SAP instance for ERP, ecommerce and business
intelligence. This SAP core is supported by a specialist
point-of-sale and CRM front-end, served on mobile tablets across
all our stores. Our single IT template has been deployed across the
Group and can support further expansion as required. Our retail
payment partner Adyen equips us with a fully featured, mobile and
international payment platform across all sales channels, and both
stores and ecommerce benefit from a shared inventory, shared
digital assets, and click and collect capabilities.
We continue to refresh and expand our in-store technology,
ensuring store teams have the best technology to hand in support of
every customer transaction.
We continue to work on further developing and enhancing CRM and
sales support technology, with updates planned in coming
months.
6) Expand multi-channel leadership
Our multi-channel business model is a key competitive advantage
and underscores our ability to react with speed and agility to a
rapidly evolving consumer environment whilst offering our customers
an exceptional experience. We continue to invest in expanding and
enhancing our platform, consisting of multi-brand stores, online,
travel retail and mono-brand boutiques.
Multi-brand stores
Our multi-brand store network has nationwide scale in the UK and
is continuing to build at pace in the US, where we have an
established presence in Florida, Georgia, New York and Las Vegas
and recently entered the new markets of Cincinnati, Minneapolis,
Plano (Dallas), Vail, Aspen and Greenwich.
Our modern and welcoming store environments showcase a selection
of the world's finest watches whilst inviting our customers to have
an exceptional experience. Our investment programme continues to
focus on elevating and upgrading the existing network as well as
opening in new, strategic locations.
Online
We continue to leverage our position as the authorised luxury
watch and jewellery partner of choice, significantly building on
the largest portfolio of luxury watch brands in the UK. We have a
competitive advantage in the volume of traffic generated via our
technically advanced Artificial Intelligence (AI)-driven marketing
approach and further expanded our always-on digital performance
marketing campaigns with refreshed creative and further
optimisation through automation.
Due to the continued changing retail landscape, we continue to
focus on offering the widest array of shopping opportunities,
allowing our customers to reach out to local store expertise
remotely through video, voice or in-person utilising our 'By
Personal Appointment' booking system, alongside our centralised
Luxury Watch and Jewellery Virtual Boutique, which we have
significantly expanded due to the continued customer demand of this
channel.
Following our user experience audits with Baymard, Google and
SAP we made several enhancements to our platform to improve both
customer experience and improve conversion.
We expanded our payment options to offer more consumer choice
and enhance the checkout process experience.
Our web-enabled store platform has been further improved and
provides our customers access to shop the full online catalogue
whilst in our stores.
Working collaboratively with key partners such as Google
(digital marketing), Vee24 (video and text concierge) and DPD
(direct delivery), we use the most efficient, cutting-edge digital
marketing while offering a best in class, harmonised omni-channel
shopping experience. We have dedicated inventory for our luxury
watches across our websites, which allows us to offer a next day
delivery service until 9pm seven days a week.
Our online business had an exceptional half year, with Group
ecommerce sales +28.7% versus last year.
Mono-brand boutiques
We have further developed and enhanced our mono-brand boutique
channel. During the half year period, we opened four new mono-brand
boutiques, bringing our global network to a total of 46 boutiques
(UK: 32, US: 14) as at 31 October 2021.
During the first half, our UK network saw the opening of six new
mono-brand boutiques, including three in Plymouth, a new location
for the Group. In the US we opened two enhanced Rolex boutiques,
one in Mayors Aventura as Phase I of the store's refurbishment
programme, and one in Wynn Resort, Las Vegas. We opened our first
Bvlgari mono-brand boutique, also in Mayors Aventura, after the
half year end.
We will continue to work closely with our brand partners to
further develop and enhance our mono-brand boutique network with a
strong pipeline of projects planned.
Travel retail
Travel retail has started to show encouraging signs of a post
COVID-19 recovery, although passenger numbers and global travel
remains below pre-pandemic levels. The Group does not expect the
return of tourism and airport business to pre-pandemic levels
during the year but believes the channel offers a significant
medium and long-term growth opportunity for the business, with
visibility in prominent locations providing access to the
international customer base. Our network is well positioned for
improved industry trends.
We renegotiated the contracts for our stores in Heathrow Airport
on revised terms.
7) Continue to advance the ESG agenda
We have always prided ourselves on operating a responsible
business and upholding our core value to 'do the right thing',
which is reflected in our ESG programme.
As part of our commitment to continuous improvement, we have
formalised our approach to ensure ESG priorities are governed at
the highest level of our business.
We have appointed a Head of ESG and established an ESG Committee
as a sub-Committee of our Board, which is Chaired by our
Non-Executive Director, Rosa Monckton, MBE.
With the full support of our Board, we are in the process of
developing a sustainability and social impact strategy, which puts
positive social purpose at its core. This includes:
-- Rejuvenating our purpose, vision, values and culture to align
with our commitment to help maintain a robust economy, protect our
planet and support a stronger society
-- Further enhancing stakeholder engagement to enable us to make highly informed decisions
-- Delivering on our pledge to achieve decarbonisation across our Group before 2040
-- Contributing to a more circular economy by striving to keep
products, components and materials at their highest utilisation and
value throughout their lifecycles
-- Pledging GBP3.0 million through our Watches of Switzerland
Foundation to support a number of causes, with an emphasis on
helping poor and vulnerable people out of poverty
We plan to continue to further enhance our ESG programme going
forward, recognising the importance these areas have in the way we
do business.
Chief Financial Officer's Review
The Group's Statutory Income Statement is shown below which
includes IFRS 16 adjustments and exceptional items.
26 weeks to 26 weeks to
Statutory Income Statement (GBPmillion) 31 October 2021 25 October 2020 YoY variance
Revenue 586.2 414.3 41.5%
---------------- ---------------- --------------
Operating profit 72.3 45.6 58.6%
---------------- ---------------- --------------
Net finance costs (7.6) (9.4) 19.5%
---------------- ---------------- --------------
Profit before tax 64.7 36.2 79.0%
---------------- ---------------- --------------
Tax (13.1) (7.3) -79.4%
---------------- ---------------- --------------
Profit after tax 51.6 28.9 78.9%
---------------- ---------------- --------------
Basic Earnings Per Share 21.6p 12.0p 80.0%
---------------- ---------------- --------------
Management monitors and assesses the business performance on a
pre-IFRS 16 and pre-exceptional items basis, which is shown below.
This aligns to the reporting used to inform business decisions,
investment appraisals, incentive schemes and debt covenants. A full
reconciliation between the pre- and post-IFRS 16 results are shown
in the Glossary. It should be noted that IFRS 16 is not material to
profit before tax, the total adjustments increased profit before
tax by GBP0.8 million in H1 FY22 (H1 FY21: reduced by GBP0.3
million).
We have also provided a comparison to FY20, which is more
comparable due to the impact of COVID-19 during FY21.
Income Statement - pre 26 weeks to 27 October
IFRS 16 and exceptional 26 weeks to 26 weeks to 2019
items (GBPmillion) 31 October 2021 25 October 2020 YoY variance 2-year variance
Revenue 586.2 414.3 41.5% 428.7 36.7%
---------------- ---------------- -------------- ----------------------- ---------------
Net margin(2) 220.5 150.5 46.5% 160.6 37.3%
---------------- ---------------- -------------- ----------------------- ---------------
Store costs (100.2) (72.1) -39.0% (93.1) -7.6%
---------------- ---------------- -------------- ----------------------- ---------------
4-Wall EBITDA(2) 120.3 78.4 53.5% 67.5 78.3%
---------------- ---------------- -------------- ----------------------- ---------------
Overheads (33.1) (24.3) -36.5% (23.8) -39.6%
---------------- ---------------- -------------- ----------------------- ---------------
EBITDA(2) 87.2 54.1 61.1% 43.7 99.2%
---------------- ---------------- -------------- ----------------------- ---------------
Store opening and
closing costs (4.4) (1.9) -120.6% (2.5) -71.4%
---------------- ---------------- -------------- ----------------------- ---------------
Adjusted EBITDA 82.8 52.2 58.8% 41.2 100.9%
---------------- ---------------- -------------- ----------------------- ---------------
Depreciation,
amortisation and loss
on disposal of fixed
assets (15.3) (10.7) -43.7% (10.1) -52.5%
---------------- ---------------- -------------- ----------------------- ---------------
Adjusted EBIT (Segment
profit) 67.5 41.5 62.7% 31.1 116.7%
---------------- ---------------- -------------- ----------------------- ---------------
Net finance costs (1.8) (3.2) 44.5% (4.6) 62.1%
---------------- ---------------- -------------- ----------------------- ---------------
Adjusted profit before
tax(2) 65.7 38.3 71.6% 26.5 148.0%
---------------- ---------------- -------------- ----------------------- ---------------
Adjusted basic Earnings
Per Share(2) 21.8p 12.6p 73.0% 9.3p 134.4%
---------------- ---------------- -------------- ----------------------- ---------------
Revenue
Group revenue increased by +41.5% to GBP586.2 million in the
first half of the year, +44.6% in constant currency(2) . The prior
year was impacted by COVID-19 lockdowns, and on a two-year basis,
revenue increased by +36.7%, +40.8% in constant currency.
The UK business was impacted more by COVID-19 lockdowns in the
prior year than the US. UK stores were closed for a seven-week
period from the start of the year until 15 June 2020. In the US,
stores began to re-open in early May 2020, with Hudson Yards being
the last store to open in September 2020. As disclosed during FY21,
we estimate that the Group lost approximately GBP80.0 million of
sales in H1 FY21 as a result of COVID-19.
Group ecommerce sales, grew +28.7% on last year, despite stores
having been fully opened in H1 FY22, showing the continuing
strength of our online proposition.
Q1 and Q2 of FY22 were impacted by a number of factors which
influenced the timing of sales.
In Q1 FY22 the Group sold more supply-constrained product than
intake, which increased sales but reduced stock levels. This led to
store displays being significantly depleted, particularly of Rolex
product. In Q2 FY22, the Group agreed with Rolex to implement a
minimal level of display stock within all stores in the UK and US.
This allows the business to appropriately represent the Rolex range
and provide customers with the ability to view product. This
display product is not for sale and is displayed as 'For Exhibition
Only' within the stores. As such, the Group went through a
re-stocking process in Q2 FY22 which reduced possible sales within
that quarter. The correct level of display stock is now in place,
therefore the re-stocking can be considered a one-off event in Q2
FY22.
Revenue by category
26 weeks to 31
Oct 21
(GBPmillion) UK US Total Mix
Luxury watches 353.4 155.4 508.8 86.8%
------ ------ ------ -------
Luxury jewellery 32.2 8.6 40.8 7.0%
------ ------ ------ -------
Other 33.0 3.6 36.6 6.2%
------ ------ ------ -------
Group revenue 418.6 167.6 586.2 100.0%
------ ------ ------ -------
26 weeks to 25
Oct 20
(GBPmillion) UK US Total Mix
Luxury watches 249.9 112.2 362.1 87.4%
------ ------ ------ -------
Luxury jewellery 20.5 5.8 26.3 6.4%
------ ------ ------ -------
Other 23.8 2.1 25.9 6.2%
------ ------ ------ -------
Group revenue 294.2 120.1 414.3 100.0%
------ ------ ------ -------
We saw continued strong demand for luxury watches, for which
sales grew by +40.5% in the first half of the year, making up 86.8%
of the mix. We were particularly pleased with the performance of
non-supply constrained brands during the period. Rolex sales grew
by mid-teens, whilst the overall growth in luxury watches was
+40.5%. Non-supply constrained brand sales more than doubled
compared the prior year period and made up 28.2% of the total sales
mix compared to 18.5% in H1 FY21. This demonstrates that revenue
growth was transaction-led, rather than being driven by ASP. ASP
increased by individual watch brand but reduced in total due to
brand mix.
Jewellery has performed exceptionally well, increasing by
+54.9%, ahead of the Group total sales increase. Demand for bridal
and diamond jewellery has been particularly strong, with the
reintroduction of weddings post COVID-19 restrictions.
Other revenue consists of servicing, repairs and insurance
services and the sale of fashion and classic watches and jewellery.
Sales of fashion and classic watches and jewellery now make up 3.0%
of Group sales.
Sales by region
The UK performance continues to be robust, with sales +42.3% vs
H1 FY21 to GBP418.6 million. This has been delivered through a
thriving domestic clientele.
The table below shows the proportion of airport and tourist
sales compared to total Group sales.
26 weeks to 26 weeks to 26 weeks to 27 October 2019
31 October 2021 25 October 2020
Tourist and airport sales as a percentage of total
revenue 1.7% 7.4% 33.6%
---------------- ---------------- ---------------------------
The tourist customer demographic has been replaced with domestic
clientele, with the domestic business in the UK doubling from H1
FY20. With the UK Government's decision to end the VAT-free
shopping scheme for tourists, we do not expect tourist shopping to
come back to FY20 levels. Four stores at Heathrow are now
operating, whilst two stores at Terminal 4 remain closed. Passenger
numbers within the airports are increasing, and during the first
half of the year we renegotiated terms with Heathrow Airport.
The Group has continued to progress its mono-brand boutique
strategy by opening seven mono-brand boutiques during the 26 week
period. The Group also completed the refurbishment of the ex-Fraser
Hart stores at Stratford, Brent Cross and Kingston along with the
commencement of the Goldsmith Luxury roll-out with Reading and
Canterbury.
Strong momentum in the US has continued, with revenue of
GBP167.6 million up by +39.5% on the prior year and +50.2% in
constant currency. On a two-year basis sales were +50.9% and +66.7%
in constant currency.
Q3 FY22 will see the annualisation of the US mono-brand
boutiques opened last year, along with the opening of the Grand
Seiko boutique in Manhattan, New York. We are pleased with the
performance of these stores to date.
Profitability
26 weeks to 26 weeks to 26 weeks to
Profitability as a % of sales 31 October 2021 25 October 2020 27 October 2019
Net margin 37.6% 36.3% 37.5%
---------------- ---------------- ----------------
Store costs 17.1% 17.4% 21.7%
---------------- ---------------- ----------------
4-Wall EBITDA 20.5% 18.9% 15.7%
---------------- ---------------- ----------------
EBITDA 14.9% 13.1% 10.2%
---------------- ---------------- ----------------
Adjusted EBITDA 14.1% 12.6% 9.6%
---------------- ---------------- ----------------
Adjusted EBIT 11.5% 10.0% 7.3%
---------------- ---------------- ----------------
Net margin % increased by 130 bps as a result of product mix.
The increase in mix of non-supply constrained brands in H1 FY22
improved the margin mix along with the higher proportion of
jewellery sales. The net margin is now more in line with pre-COVID
levels as can be seen in the table above.
Store costs increased by GBP28.1 million (+39.0%) from the prior
year, to GBP100.2 million. GBP8.5m of the increase relates to
COVID-19 one-offs recognised in the prior year. This included
GBP3.5 million under the US Government's Paycheck Protection
Program, GBP2.8 million from the UK Government's Furlough Scheme
and incremental rates relief of GBP2.2 million. In the second half
of FY21 an accrual was made for the repayment of UK furlough
funding received (and the payment subsequently made in H1 FY22).
The further increase in store costs comes from variable costs and
investment in new stores, performance marketing, and our newly
launched Xenia project. Despite the reduction in Government support
in H1 FY22, the Group managed to leverage store costs further, with
a decrease in store costs as a percentage of sales of 30 bps.
Overheads increased by GBP8.8 million (+36.5%) through the
investment in marketing, people (including incentives) and a
further commitment of GBP1.5 million accrued to the Watches of
Switzerland Group Foundation. Overheads also benefited from GBP0.9
million of furlough/PPP funding in the prior year.
Store opening and closure costs
Store opening and closing costs include the cost of rent
(pre-IFRS 16), rates and payroll, prior to the opening or closing
of stores, normally during the period of fit out and includes
periods of refurbishment. This cost will vary annually depending on
the scale of expansion in the period.
Exceptional administrative items
Exceptional items are defined by the Group as those which are
significant in magnitude and are linked to one-off, non-recurring
events. These items are detailed in the table below and are shown
post-IFRS 16.
Exceptional items (GBPmillion) 26 weeks to 26 weeks to
31 October 2021 27 October 2020
IPO costs 1.5 2.1
---------------- ----------------
Acquisition costs 0.4 -
---------------- ----------------
Reversal of expected credit losses - (0.2)
---------------- ----------------
Reversal of impairment of right-of-use assets - (0.1)
---------------- ----------------
Total 1.8 1.8
---------------- ----------------
The IPO costs of GBP1.5 million in the current year relate to
IPO-linked share-based payments (H1 FY21: GBP2.1 million), these
options vested in June 2021 and there will be no further expense in
relation to these in future periods.
The acquisition costs relate to legal and professional expenses
incurred on business acquisitions.
The prior year reversal of expected credit losses and impairment
of right-of-use assets reflected the updated review of prior year
COVID-19 related provisions.
Finance costs
Net finance costs (GBPmillion) 26 weeks to 26 weeks to
31 October 2021 25 October 2020
Interest payable on borrowings 1.3 2.3
---------------- ----------------
Amortisation of capitalised transaction costs 0.4 0.5
---------------- ----------------
Other 0.1 0.5
---------------- ----------------
IFRS 16 interest on lease liabilities 5.8 6.3
---------------- ----------------
Interest receivable - (0.2)
---------------- ----------------
Total 7.6 9.4
---------------- ----------------
Interest on borrowings reduced by GBP1.0 million due to the
lower level of debt in the current year. Interest was limited to
the non-current term loan, and the margin on that loan has reduced
in line with the more favourable leverage of the Group.
Interest on IFRS 16 liabilities has reduced by GBP0.5m as a
result of the average remaining life on leased assets reducing.
Taxation
The overall Effective Tax Rate (ETR) for the period was 20.7%
after IFRS 16 adjustments and 20.3% before these adjustments. The
ETR is higher than the UK rate of 19% as it incorporates a US ETR
of 27.3% on US profits for the period.
The UK rate is 18.5%, which is lower than the standard UK rate
of 19% largely due to the additional capital allowance deductions
available in the period (the super deductions), which more than
offset the permanent disallowances that usually drive the rate
above 19%.
The US rate reflects the federal rate of 21% plus state taxes
due in the region of 6.5%.
Earnings Per Share
Adjusted basic EPS from continuing operations increased by 9.2p
to 21.8p in the current half year and has been calculated as
follows:
Adjusted EPS (before exceptional items and IFRS 16
26 weeks to 31 October 2021 adjustments) Statutory EPS
Profit after tax GBP52.1 million GBP51.6 million
-------------------------------------------------------- ---------------
Weighted average number of ordinary shares 239,456,000 239,456,000
-------------------------------------------------------- ---------------
EPS 21.8p 21.6p
-------------------------------------------------------- ---------------
Adjusted EPS (before exceptional items and IFRS 16
26 weeks to 25 October 2020 adjustments) Statutory EPS
Profit after tax GBP30.2 million GBP28.9 million
-------------------------------------------------------- ---------------
Weighted average number of ordinary shares 239,456,000 239,456,000
-------------------------------------------------------- ---------------
EPS 12.6p 12.0p
-------------------------------------------------------- ---------------
Acquisitions
Two acquisitions for the trade and assets of two stores were
completed at the end of Q2 FY22. One store opened to the public on
13 September 2021 at Mall of America in Minneapolis, Minnesota
followed by one further on 25 October 2021 in Plano (Dallas),
Texas.
On 1 December 2021, the Group completed the acquisition of three
further stores in Greenwich, Connecticut, Vail and Aspen,
Colorado.
The combined Last Twelve Months revenue for these stores was
approximately US$100.0 million and we expect profitability to be in
line with the US average.
Balance sheet
GBPmillion 31 October 2021 25 October 2020 2 May 2021
Goodwill and intangibles 155.9 151.8 150.6
----------------- ----------------- ----------
Property, plant and equipment 99.8 99.0 93.7
----------------- ----------------- ----------
IFRS 16 right-of-use assets 256.2 256.8 253.7
----------------- ----------------- ----------
Inventories 240.8 221.9 226.4
----------------- ----------------- ----------
Trade and other receivables 13.9 11.7 10.4
----------------- ----------------- ----------
Trade and other payables (190.4) (190.8) (151.8)
----------------- ----------------- ----------
IFRS 16 lease liabilities (303.1) (311.1) (301.4)
----------------- ----------------- ----------
Net cash/(debt) 30.0 (22.7) (43.9)
----------------- ----------------- ----------
Other 4.8 9.6 12.6
----------------- ----------------- ----------
Net assets 307.9 226.2 250.3
----------------- ----------------- ----------
Goodwill and intangibles increased as a result of the two US
acquisitions in the period.
Property, plant and equipment increased by GBP6.1 million in the
period. Additions of GBP19.6 million were offset by depreciation of
GBP13.1 million, loss on disposal of GBP1.0 million (following a
store fire), and a favourable foreign exchange impact of GBP0.4
million.
Including software costs, which are disclosed as intangibles,
total capital additions were GBP19.9 million (H1 FY21: GBP9.4
million) of which GBP19.1 million was expansionary (H1 FY21: GBP9.1
million). Expansionary capex relates to new stores, relocations or
major refurbishments (defined as costing over GBP250,000). In the
period, the Group opened eight new stores, acquired two stores,
expanded three, and refurbished five stores. Investment in our
store portfolio is paramount to our strategy and the Group follows
a disciplined payback policy when making capital investment
decisions.
Lease right-of-use assets have increased since 2 May 2021 by
GBP2.5 million to GBP256.2 million. Additions to the lease
portfolio along with lease renewals or other lease changes have
increased the balance by GBP21.0 million. This has been offset by
depreciation of GBP19.4 million, and a favourable foreign exchange
impact of GBP0.9 million.
Lease liabilities have increased by GBP1.7 million. The
portfolio changes noted above increased the lease liability by
GBP20.1 million. Interest charged on the lease liability also
increased the balance by GBP5.8 million, in addition to a negative
foreign exchange impact of GBP1.2 million. Lease payments have
reduced the balance by GBP25.3 million, giving a lease liability
balance of GBP303.1 million. This means that the net lease
liability on 31 October 2021 was GBP46.9 million, compared to
GBP47.7 million at the FY21 year end.
On an IFRS 16 basis our leases are generally recognised to the
end of the lease term, regardless of whether a break clause is in
place. The average lease lengths were as follows:
Weighted Average Lease length (years) 31 October 2021 25 October 2020
Nearest break clause 3.8 4.6
--------------- ---------------
End of the lease 5.6 6.0
--------------- ---------------
Inventory levels increased by GBP14.4 million in the period to
GBP240.8 million (H1 FY21: GBP221.9 million). The increase is as a
result of higher levels of Rolex to deliver optimal display
capacity, along with deep purchasing of non-supply constrained
brands ahead of Christmas trading.
Trade and other receivables were GBP13.9 million (H1 FY21:
GBP11.7 million), increasing by GBP3.5 million from 2 May 2021. The
increase in the period reflects the higher trading activity, in
addition to the timing of a number of prepaid balances.
Trade and other payables were GBP190.4 million (H1 FY21:
GBP190.8 million), increasing by GBP38.6 million from 2 May 2021.
The increase in the period is principally as a result of our
increased stock intake. This is partly offset by the GBP6.8 million
repayment of the UK furlough monies which were accrued at the FY21
year end. Trade payables includes an accrual for the Foundation of
GBP3.0 million.
The main components of 'Other' are taxation assets of GBP9.1
million (H1 FY21: GBP14.2 million), the defined benefit pension
obligation of GBP2.2 million (H1 FY21: GBP4.9 million), and
capitalised transaction costs. The taxation asset has reduced
following utilisation of US tax losses in the period.
Net debt/cash and financing
At 31 October 2021, the Group was in a net cash position of
GBP30.0 million. Net debt reduced by GBP73.9 million in the
six-month period driven by strong cash flow. Movements of GBP73.1
million are detailed in the cashflow below, in addition to a
favourable foreign exchange impact of GBP0.8 million.
Year-end net debt is expected to be between GBP10.0 million and
GBP20.0 million. The outlook includes the cash acquisition of the
five US stores announced within the Q2 FY22 trading update. Capex
and tax expenditure are also expected to be higher in the second
half of the year.
At 31 October 2021, the Group had a total of GBP213.9 million of
available committed facilities as follows:
Facility Expiring Amount (million)
UK Term Loan - UK LIBOR +1.75% June 2024 GBP120.0
----------- ----------------
UK Revolving Credit Facility - UK LIBOR +1.5% June 2024 GBP50.0
----------- ----------------
US Asset Backed Facility - US LIBOR +1.25% to +1.75% April 2023 $60.0
----------- ----------------
At 31 October 2021, only the GBP120.0 million of the UK Term
Loan was drawn down. Liquidity headroom (defined as unrestricted
cash plus undrawn available facilities) was GBP235.8 million.
The debt facility is subject to a six-monthly financial covenant
test on leverage and fixed charge cover ratio. These tests are
based on pre-IFRS 16 measures. On 18 June 2020, the covenant tests
of the Group's facilities were replaced with a monthly minimum
liquidity headroom covenant of GBP20.0 million for the period of
June 2020 to September 2021. The Directors sought the replacement
of covenants to provide further flexibility to deal with any
unexpected circumstances during that period. Both sets of covenants
were comfortably satisfied throughout the financial period.
Cash flow
26 weeks to 26 weeks to
GBPmillion 31 October 2021 25 October 2020
Adjusted EBITDA 82.8 52.2
---------------- ----------------
Share-based payments 0.1 1.6
---------------- ----------------
Working capital 24.8 69.9
---------------- ----------------
Pension contributions (0.3) (0.3)
---------------- ----------------
Tax (3.0) (4.3)
---------------- ----------------
Cash generated from operating activities 104.4 119.1
---------------- ----------------
Maintenance capex 3 (0.8) (0.4)
---------------- ----------------
Interest (1.3) (2.6)
---------------- ----------------
Free cash flow 102.3 116.1
---------------- ----------------
Free cash flow conversion 123.6% 222.6%
---------------- ----------------
Expansionary capex (19.9) (8.6)
---------------- ----------------
Acquisitions (9.0) (0.1)
---------------- ----------------
Exceptional costs (0.3) -
---------------- ----------------
Financing activities - (59.7)
---------------- ----------------
Cash flow 73.1 47.7
---------------- ----------------
The Group generated GBP102.3 million of free cash flow with a
free cash flow conversion of 123.6% in H1 FY22. This strong result
was driven by Adjusted EBITDA of GBP82.8 million in addition to
favourable working capital movements. Due to the seasonality of the
Group, working capital is generally positive in the first half
before normalising in the second half of the year. The prior period
comparison contained higher working capital benefits due to the
impact of store closures on the timing of inventory payments, and
other one off COVID-19 impacts including government grants received
of GBP8.9 million relating to the UK furlough scheme and US
PPP.
Interest payments have reduced by GBP1.3 million. As a result of
the Group's strong cash position, borrowing has been limited to the
non-current UK Term Loan. In the prior year, the Revolving Credit
Facility and US Asset Backed Loan were fully drawn and held in cash
to provide additional flexibility during the COVID-19 lockdown
period.
Expansionary capex of GBP19.9 million (after taking into account
the associated creditors movement) was higher than the prior year
due to the timing of capital projects, both in relation to new
stores and the refurbishment of existing stores. In the prior year,
several projects were delayed until FY22 due to COVID-19.
Return on Capital Employed (ROCE) (2)
LTM to LTM to LTM to
31 October 2021 25 October 2020 2 May 2021
ROCE 23.1% 17.2% 19.7%
---------------- ---------------- -----------
ROCE, which is calculated on a Last Twelve Months (LTM) basis,
has increased by 340 bps to 23.1% in the period demonstrating
improved capital efficiency. This is as consequence of annualised
Adjusted EBIT increasing by 33.5%, compared to the increase in
average capital employed of 13.9%.
Risks and uncertainties
The Group is exposed to a number of risks and uncertainties in
its business which could impact its ability to effectively execute
its strategy over the remaining six months of the financial year
and cause actual results to differ materially from expected and/or
historical results.
The Board has considered the principal risks and uncertainties
for the first half and the remaining half of the financial year and
determined that the risks presented in the 2021 Annual Report and
Accounts, described as follows, remain unchanged Business strategy
execution and development; Key suppliers and supply chain; Customer
experience and market risks; Colleague talent and capability;
Business interruption and IT infrastructure; Data protection and
cyber security; Regulatory and compliance; Economic and political;
Brand and reputational damage; and Financial and treasury. These
are detailed on pages 105 to 113 of the 2021 Annual Report, a copy
of which is available on the Watches of Switzerland Group PLC (the
'Company') website at www.thewosgroupplc.com .
WATCHES OF SWITZERLAND GROUP PLC
UNAUDITED INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT
26 week period ended 31 October 2021 26 week period ended 25 October 2020
Pre-exceptional Exceptional Total Pre-exceptional Exceptional Total
items items items items
GBP'000 (note 4) GBP'000 GBP'000 (note 4) GBP'000
Note GBP'000 GBP'000
---------------- ----- ---------------- ------------ ---------- ---------------- ------------ ----------
Revenue 2,3 586,211 - 586,211 414,279 - 414,279
Cost of sales (494,022) - (494,022) (353,208) 233 (352,975)
Gross profit 92,189 - 92,189 61,071 233 61,304
Administrative
expenses (18,055) (1,819) (19,874) (13,737) (1,985) (15,722)
Operating
profit 74,134 (1,819) 72,315 47,334 (1,752) 45,582
Finance costs 5 (7,584) - (7,584) (9,574) - (9,574)
Finance income 5 10 - 10 164 - 164
------------ ---------- ---------------- ------------
Net finance
cost (7,574) - (7,574) (9,410) - (9,410)
Profit before
taxation 66,560 (1,819) 64,741 37,924 (1,752) 36,172
Taxation 6 (13,480) 347 (13,133) (7,781) 459 (7,322)
---------------- ----- ---------------- ------------ ---------- ---------------- ------------ ----------
Profit for the
financial
period 53,080 (1,472) 51,608 30,143 (1,293) 28,850
---------------- ----- ---------------- ------------ ---------- ---------------- ------------ ----------
Earnings Per
Share 7
Basic 22.2p 21.6p 12.6p 12.0p
Diluted 22.2p 21.6p 12.6p 12.0p
WATCHES OF SWITZERLAND GROUP PLC
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
26 week period ended 26 week period ended
31 October 2021 25 October 2020
Note GBP'000 GBP'000
-------------------------------------- ---------------- --------------------- ---------------------
Profit for the financial period 51,608 28,850
Other comprehensive income/(expense):
Items that will be reclassified to
profit or loss
Foreign exchange gain/(loss) on
translation of foreign operations 1,277 (4,743)
Related tax movements (168) 828
-------------------------------------- ---------------- --------------------- ---------------------
1,109 (3,915)
Items that will not be reclassified
to profit or loss
Actuarial gains/(losses) on defined
benefit pension scheme 13 184 (2,417)
Related tax movements (35) 459
-------------------------------------- ---------------- --------------------- ---------------------
149 (1,958)
Other comprehensive income/(expense) for the period net
of tax 1,258 (5,873)
-------------------------------------------------------- --------------------- ---------------------
Total comprehensive profit for the period net of tax 52,886 22,977
-------------------------------------------------------- --------------------- ---------------------
WATCHES OF SWITZERLAND GROUP PLC
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEET
31 October 2021 25 October 2020 2 May 2021
Note GBP'000 GBP'000 GBP'000
--------------------------- -------- ---------------- --------------------- ---------------------------
Assets
Non-current assets
Goodwill 8 141,389 135,794 135,440
Intangible assets 8 14,495 15,969 15,196
Property, plant and
equipment 9 99,812 98,985 93,682
Right-of-use assets 10 256,173 256,823 253,709
Deferred tax assets 9,973 12,111 14,413
Trade and other receivables 2,715 825 606
---------------------------- -------- ---------------- --------------------- ---------------------------
524,557 520,507 513,046
--------------------------- -------- ---------------- --------------------- ---------------------------
Current assets
Inventories - finished
goods 240,821 221,859 226,403
Current tax asset - 2,100 1,884
Trade and other receivables 11,220 10,845 9,746
Cash and cash equivalents 12 150,042 119,814 76,076
---------------------------- -------- ---------------- --------------------- ---------------------------
402,083 354,618 314,109
--------------------------- -------- ---------------- --------------------- ---------------------------
Total assets 926,640 875,125 827,155
---------------------------- -------- ---------------- --------------------- ---------------------------
Liabilities
Current liabilities
Trade and other payables (188,957) (189,601) (149,604)
Current tax liability (888) - -
Lease liabilities 10 (42,539) (52,744) (38,383)
Government grants 11 - (74) -
Provisions (867) (694) (800)
---------------------------- -------- ---------------- --------------------- ---------------------------
(233,251) (243,113) (188,787)
--------------------------- -------- ---------------- --------------------- ---------------------------
Non-current liabilities
Trade and other payables (1,443) (1,170) (2,153)
Lease liabilities 10 (260,578) (258,366) (262,983)
Borrowings 12 (118,252) (139,714) (117,885)
Post-employment benefit
obligations 13 (2,159) (4,860) (2,570)
Provisions (3,027) (1,737) (2,460)
---------------------------- -------- ---------------- --------------------- ---------------------------
(385,459) (405,847) (388,051)
--------------------------- -------- ---------------- --------------------- ---------------------------
Total liabilities (618,710) (648,960) (576,838)
---------------------------- -------- ---------------- --------------------- ---------------------------
Net assets 307,930 226,165 250,317
---------------------------- -------- ---------------- --------------------- ---------------------------
Equity
Share capital 2,993 2,993 2,993
Share premium 147,122 147,122 147,122
Merger reserve (2,209) (2,209) (2,209)
Retained earnings 162,963 77,977 106,459
Foreign exchange reserve (2,939) 282 (4,048)
---------------------------- -------- ---------------- --------------------- ---------------------------
Total equity 307,930 226,165 250,317
---------------------------- -------- ---------------- --------------------- ---------------------------
WATCHES OF SWITZERLAND GROUP PLC
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Total equity
Retained Foreign exchange attributable
Share capital Share premium Merger reserve earnings reserve to owners
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------------- -------------- --------------- ---------- ----------------- --------------
Balance at 26 April
2020 2,993 147,122 (2,209) 47,438 4,197 199,541
Profit for the
financial
period - - - 28,850 - 28,850
Other
comprehensive
expense - - - (2,417) (4,743) (7,160)
Tax relating to
components
of other
comprehensive
income - - - 459 828 1,287
---------------------- -------------- -------------- --------------- ---------- ----------------- --------------
Total comprehensive
income/(loss) - - - 26,892 (3,915) 22,977
---------------------- -------------- -------------- --------------- ---------- ----------------- --------------
Transactions with
owners
Share-based
payment charge - - - 3,119 - 3,119
Tax on items
credited
to equity - - - 528 - 528
Balance at 25 October
2020 2,993 147,122 (2,209) 77,977 282 226,165
---------------------- -------------- -------------- --------------- ---------- ----------------- --------------
Balance at 2 May 2021 2,993 147,122 (2,209) 106,459 (4,048) 250,317
Profit for the
financial
period - - - 51,608 - 51,608
Other
comprehensive
income - - - 184 1,277 1,461
Tax relating to
components
of other
comprehensive
income - - - (35) (168) (203)
---------------------- -------------- -------------- --------------- ---------- ----------------- --------------
Total comprehensive
income - - - 51,757 1,109 52,866
Transactions with
owners
Share-based
payment charge - - - 1,620 - 1,620
Tax on items
credited
to equity - - - 3,127 - 3,127
Balance at 31 October
2021 2,993 147,122 (2,209) 162,963 (2,939) 307,930
---------------------- -------------- -------------- --------------- ---------- ----------------- --------------
WATCHES OF SWITZERLAND GROUP PLC
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS
26 week period ended 26 week period ended
31 October 2021 25 October 2020
Note GBP'000 GBP'000
--------------------------------------------------------------- ----- --------------------- ---------------------
Cash flows from operating activities
Profit for the period 51,608 28,850
Adjustments for:
Depreciation of property, plant and equipment 9 13,129 9,200
Depreciation of right-of-use assets 10 19,424 19,011
Amortisation of intangible assets 8 1,177 1,410
Share-based payment charge 1,620 3,119
Finance income 5 (10) (164)
Finance costs 5 7,584 9,574
Impairment reversal of right-of-use assets and associated
property, plant and equipment - (139)
Gain on lease disposal 10 (94) (94)
Lease modifications and renewals (157) -
Loss on disposal of property, plant and equipment 9 997 232
Government grant income 11 - (7,405)
Taxation 13,133 7,322
(Increase)/decrease in inventories (10,960) 18,032
(Increase) in debtors (2,641) (2,263)
Increase in creditors, provisions, government grants and
pensions 37,209 54,012
--------------------------------------------------------------- ----- --------------------- ---------------------
Cash generated from operations 132,019 140,697
Pension scheme contributions 13 (340) (349)
Tax paid (3,006) (4,305)
Receipt of government grants 11 - 8,924
--------------------------------------------------------------- ----- --------------------- ---------------------
Total net cash generated from operating activities 128,673 144,967
--------------------------------------------------------------- ----- --------------------- ---------------------
Cash flows from investing activities
Purchase of non-current assets
Purchase of property, plant and equipment 9 (19,607) (9,068)
Purchase of intangible assets (334) (301)
Movement on capital expenditure accrual 92 353
--------------------------------------------------------------- ----- --------------------- ---------------------
Cash outflow from purchase of non-current assets (19,849) (9,016)
Acquisition of subsidiaries net of cash 14 (9,004) (77)
Interest received - 77
Total net cash outflow from investing activities (28,853) (9,016)
--------------------------------------------------------------- ----- --------------------- ---------------------
Cash flows from financing activities
Net proceeds from term loan - 22,500
Net repayment of short-term borrowings - (81,797)
Costs directly attributable to raising finance - (377)
Payment of capital element of leases 10 (19,507) (19,593)
Payment of interest element of leases 10 (5,833) (6,342)
Interest paid (1,347) (2,656)
--------------------------------------------------------------- ----- --------------------- ---------------------
Net cash outflow from financing activities (26,687) (88,265)
--------------------------------------------------------------- ----- --------------------- ---------------------
Net increase in cash and cash equivalents 73,133 47,686
Cash and cash equivalents at the beginning of the period 76,076 72,927
Exchange losses on cash and cash equivalents 833 (799)
--------------------------------------------------------------- ----- --------------------- ---------------------
Cash and cash equivalents at the end of period 12 150,042 119,814
--------------------------------------------------------------- ----- --------------------- ---------------------
Comprised of:
Cash at bank and in hand 136,471 109,466
Cash in transit 13,571 10,348
--------------------------------------------------------------- ----- --------------------- ---------------------
Cash and cash equivalents at end of period 12 150,042 119,814
--------------------------------------------------------------- ----- --------------------- ---------------------
1. General information and basis of preparation
Basis of preparation
The Group's condensed set of interim financial statements for
the 26 weeks to 31 October 2021 (prior year: 26 weeks to 25 October
2020) were approved by the Board of Directors on 8 December 2021
and have been prepared in accordance with UK adopted International
Accounting Standard 34.
The results for the 26 weeks to 31 October 2021 have been
reviewed by Ernst & Young LLP and a copy of their review report
appears at the end of this interim report. The condensed set of
interim financial statements has not been audited by the auditor
and does not comprise statutory accounts within the meaning of
section 434 of the Companies Act 2006. The comparative information
for the half year to or as at 25 October 2020 has been reviewed by
Ernst & Young LLP but has not been audited.
The financial information contained in this report is condensed
and does not include all of the information and disclosures
required in the annual financial statements, and should be read in
conjunction with the Group's Annual Report and Accounts for the 53
weeks to 2 May 2021 which have been delivered to the Registrar of
Companies. The audit report for those accounts was unqualified, did
not draw attention to any matters by way of emphasis and did not
contain a statement under 498(2) or (3) of the Companies Act
2006.
The financial statements have been prepared on the historical
cost basis except for certain financial instruments, pension assets
and liabilities, and share-based payment liabilities which are
measured at fair value. Where applicable, disclosures required by
paragraph 16A of IAS 34 'Interim financial reporting' are given
either in these interim financial statements or in the accompanying
Interim Report.
Impact of COVID-19
The COVID-19 pandemic developed quickly during the first half of
the 2020 calendar year, with a significant impact upon many
countries, businesses and individuals. The impact of COVID-19 on
the Group's operations is discussed within the principal risks and
uncertainties on page 105 of the Group's Annual Report and Accounts
for the 53 weeks to 2 May 2021, as well as set out within note
1.
COVID-19 has been considered in our significant areas of
judgement and estimation, and as noted throughout the interim
financial statements, a number of balances have been impacted.
During the period and subsequent to the balance sheet date, the
Group has reviewed the trading performance of our stores and
reviewed other relevant external factors, including changes in
government policies and restrictions. This review also included
analysis of the collectability of customer debtors and the
recoverable value of store assets. Based on this review, there have
been no further impairments of right-of-use assets or property
plant and equipment.
Going concern
The Directors consider that the Group has, at the time of
approving the Group financial statements, adequate resources to
remain in operation for the foreseeable future and have therefore
continued to adopt the going concern basis in preparing the
consolidated information.
At the balance sheet date, the Group had a total of
GBP213,925,000 in available committed facilities, of which
GBP120,000,000 was drawn down. Net cash at this date was
GBP30,042,000 with liquidity headroom (defined as unrestricted cash
plus undrawn available facilities) of GBP235,831,000; this funding
matures in 2023/24.
The key covenant tests attached to the Group's facilities are a
measure of net debt to EBITDA and the Fixed Charge Cover Ratio
(FCCR) at each April and October. Net debt to EBITDA is defined as
the ratio of total net debt at the reporting date to the last 12
months Adjusted EBITDA. This ratio must not exceed 3. The FCCR is
the ratio of Adjusted EBITDA plus rent to the total finance charge
and rent for the 12 months to the reporting date. This ratio must
exceed 1.6. On 18 June 2020, the covenant tests of the Group's
facilities were replaced with a monthly minimum liquidity headroom
covenant of GBP20,000,000 for the period of June 2020 to September
2021. The Directors sought the replacement of covenants to provide
further flexibility to deal with any unexpected circumstances
during that period. The GBP20,000,000 minimum headroom covenant was
satisfied for each month end from June 2020 to September 2021. The
original waived covenant tests of net debt to EBITDA and the FCCR
were also comfortably satisfied at October 2020 and April 2021.
At the end of the covenant waiver period, 31 October 2021, the
Group satisfied the original covenant tests with net debt to EBITDA
being comfortably less than 3 and the FCCR exceeding 1.6.
In assessing whether the going concern basis of accounting is
appropriate, the Directors have reviewed various trading scenarios
for the period to 31 December 2022 from the date of this
report.
The budget and Strategic Plan approved by the Board in April 21
and the FY22 forecast approved in October 21 included the following
key assumptions:
- A continued strong luxury watch market in the UK and US
- Anticipation of some localised disruption due to COVID-19 but
assumes no further national-scale lockdowns in either the US or UK
during the period
- Lower levels of tourism in the US and UK and reduced travel
impacting our airport stores
- Sufficient luxury watch supply to support the revenue
forecast.
Under the budget and Forecast used for the going concern
assessment, the Group has significant liquidity and comfortably
complies with all covenant tests to 31 December 2022.
Reverse stress-testing of this budget was performed to determine
what level of reduced EBITDA and worst case cash outflows would
result in a breach of the liquidity or covenant tests. The
likelihood of this level of reduced EBITDA is considered
remote.
The following two severe but plausible scenarios were
tested:
1) 10% reduction in sales against the budget due to reduced
consumer confidence and lower disposable income
2) A repeat of the FY21 COVID-19 impact on the ability of stores
to trade modelled without Government support to reflect the worst
case scenario of any further lockdowns arising as a result of the
emergence of new variants
Under these scenarios, there is sufficient liquidity, and the
net debt to EBITDA and the FCCR covenants would all be complied
with.
Should trading be worse than the outlined severe but plausible
scenarios, the Group has the following mitigating actions within
management's control:
- Review of marketing spend
- Reduction in the level of stock purchases
- Restructuring of the business with headcount and store
operations savings
- Redundancies and pay freeze
- Reduce the level of planned capex and acquisition spend
As a result of the above analysis, including potential severe
but plausible scenarios, the Board believes that the Group is able
to adequately manage its financing and principal risks and that the
Group will be able to operate within the level of its facilities
and meet the required covenants for the period to 31 December 2022.
For this reason, the Board considers it appropriate for the Group
to adopt the going concern basis in preparing the financial
statements.
Accounting policies
The accounting policies adopted in the preparation of the
condensed set of interim financial statements are the same as those
set out in the Group's Annual Report and Accounts for the 53 weeks
ended 2 May 2021.
A number of amendments to, and the interpretation of, existing
accounting standards became effective during the period, none of
which have had a significant impact on the condensed interim
financial statements.
Exceptional items
The Group presents as exceptional items on the face of the
Consolidated Income Statement, those material items of income and
expense which, because of the nature or the expected infrequency of
the events giving rise to them, merit separate presentation to
provide a better understanding of the elements of financial
performance in the financial period, so as to assess trends in
financial performance. Further details on exceptional items are
given within note 4.
Alternative performance measures (APMs)
The Group has identified certain measures that it believes will
assist the understanding of the performance of the business. These
APMs are not defined or specified under the requirements of
IFRS.
The Group believes that these APMs, which are not considered to
be a substitute for, or superior to, IFRS measures, provide
stakeholders with additional useful information on the underlying
trends, performance and position of the Group and are consistent
with how business performance is measured internally. The
Alternative Performance Measures are not defined by IFRS and
therefore may not be directly comparable with other companies'
alternative performance measures.
The key APMs that the Group uses include: Net margin, Adjusted
EBITDA, Adjusted EBIT and Adjusted EPS. These APMs are set out in
the Glossary including explanations of how they are calculated and
how they are reconciled to a statutory measure where relevant.
The Group makes certain adjustments to the statutory profit
measures in order to derive many of these APMs. The Group's policy
is to exclude items that are considered non-underlying and
exceptional due to their size, nature or incidence, and are not
considered to be part of the normal operating costs of the Group.
Treatment as an adjusting item provides stakeholders with
additional useful information to assess the year-on-year trading
performance of the Group but should not be considered in isolation
of statutory measures.
Major sources of estimation uncertainty and judgement
The preparation of consolidated financial information requires
the Group to make estimates and assumptions that affect the
application of policies and reported amounts. Estimates and
judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future
events that are reasonable under the circumstances. Actual results
may differ from these estimates. The critical accounting judgements
and major sources of estimation uncertainty remain consistent with
those presented in the Group's Annual Report and Accounts for the
53 weeks ended 2 May 2021 unless otherwise stated.
2. Segment reporting
The key Group performance measures are Adjusted Earnings Before
Interest, Tax, Depreciation and Amortisation (Adjusted EBITDA) and
Adjusted Earnings Before Interest and Tax (Adjusted EBIT), both
shown pre-exceptional items, as detailed below. The segment
reporting is disclosed on a pre-IFRS 16 basis reflecting how
results are reported to the CODMs. Both Adjusted EBITDA and
Adjusted EBIT are APMs and these measures provide stakeholders with
additional useful information to assess the year-on-year trading
performance of the Group but should not be considered in isolation
of statutory measures.
The Group have created a new Corporate segment to give
management a greater focus on the trading performance of the UK and
US divisions. The Corporate segment captures central administrative
costs including Directors, the costs of being a listed Group, and
one off items such as the donation to the charitable
Foundation.
26 week period ended 31 October 2021
UK US Corporate Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- --------- ---------- ----------
Revenue 418,625 167,586 - 586,211
Net margin 155,980 64,567 - 220,547
Less:
Store costs (66,660) (33,552) - (100,212)
Overheads (19,951) (6,783) (6,407) (33,141)
Store opening and closing
costs (2,701) (1,653) - (4,354)
Intra-group management
charge 707 (2,474) 1,767 -
Adjusted EBITDA 67,375 20,105 (4,640) 82,840
---------------------------- --------- --------- ---------- ----------
Depreciation, amortisation
and loss on disposal of
assets (11,657) (3,728) - (15,385)
Segment profit* 55,718 16,377 (4,640) 67,455
---------------------------- --------- --------- ---------- ----------
IFRS 16 adjustments 6,679
Exceptional administrative
costs (note 4) (1,819)
Net other finance costs
(note 5) (7,574)
Profit before taxation
for the financial period 64,741
---------------------------- --------- --------- ---------- ----------
* Segment profit is defined as being Earnings Before Interest,
Tax, exceptional items and IFRS 16 adjustments (Adjusted EBIT).
26 week period ended 25 October 2020
UK US Corporate Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- --------- ---------- ---------
Revenue 294,163 120,116 - 414,279
Net margin 105,558 44,972 - 150,530
Less:
Store costs (49,616) (22,500) - (72,116)
Overheads (15,393) (4,714) (4,174) (24,281)
Store opening and closing
costs (1,491) (483) - (1,974)
Intra-group management
charge 644 (1,615) 971 -
Adjusted EBITDA 39,702 15,660 (3,203) 52,159
---------------------------- --------- --------- ---------- ---------
Depreciation, amortisation
and loss on disposal of
assets (7,000) (3,706) - (10,706)
Segment profit* 32,702 11,954 (3,203) 41,453
---------------------------- --------- --------- ---------- ---------
IFRS 16 adjustments 5,881
Exceptional administrative
costs (note 4) (1,752)
Net other finance costs
(note 5) (9,410)
Profit before taxation
for the financial period 36,172
---------------------------- --------- --------- ---------- ---------
* Segment profit is defined as being Earnings Before Interest,
Tax, exceptional items and IFRS 16 adjustments (Adjusted EBIT).
The segment reporting comparative has been updated to show the
new Corporate segment.
Entity-wide revenue disclosures
26 week period 26 week period
ended ended
31 October 2021 25 October 2020
--------------------- ----------------- -----------------
GBP'000 GBP'000
UK
Luxury watches 353,396 249,882
Luxury jewellery 32,190 20,547
Other 33,039 23,734
--------------------- ----------------- -----------------
Total 418,625 294,163
--------------------- ----------------- -----------------
US
Luxury watches 155,440 112,223
Luxury jewellery 8,609 5,797
Other 3,537 2,096
--------------------- ----------------- -----------------
Total 167,586 120,116
--------------------- ----------------- -----------------
GROUP
Luxury watches 508,836 362,105
Luxury jewellery 40,799 26,344
Other 36,576 25,830
--------------------- ----------------- -----------------
Total 586,211 414,279
--------------------- ----------------- -----------------
'Other' consists of the sale of fashion and classic watches and
jewellery, the sale of gifts, servicing, repairs and insurance.
Information regarding geographical areas, including revenue from
external customers is disclosed above.
No single customer accounted for more than 10% of revenue in any
of the financial periods noted above.
Seasonality
In the 53 week period to 2 May 2021, the Group earned total
revenues of GBP905,077,000. Of these revenues, 45.8% of these were
earned in the first 26 week period to 25 October 2020 and 54.2%
were earned in the following 27 week period to 2 May 2021. However,
the first half of the prior year was impacted COVID19 related store
closures in the UK and US.
Entity-wide non-current assets disclosures
31 October
2021 2 May 2021
---------------------------------- ----------- -------------
GBP'000 GBP'000
UK
Goodwill 121,590 121,590
Intangible assets 3,767 4,428
Property, plant and equipment 65,028 62,037
Right-of-use assets 182,201 182,040
Total 372,586 370,095
---------------------------------- ----------- -------------
US
Goodwill 19,799 13,850
Intangible assets 10,728 10,768
Property, plant and equipment 34,784 31,645
Right-of-use assets 73,972 71,669
Total 139,283 127,932
---------------------------------- ----------- -------------
GROUP
Goodwill 141,389 135,440
Intangible assets 14,495 15,196
Property, plant and equipment 99,812 93,682
Right-of-use assets 256,173 253,709
Total 511,869 498,027
---------------------------------- ----------- -------------
3. Revenue
The Group's disaggregated revenue recognised under contracts
with customers relates to the following categories and operating
segments.
26 week period ended 31 October
2021
Sale of goods Rendering Total
of services
------- -------------- ------------- --------
GBP'000 GBP'000 GBP'000
UK 403,505 15,120 418,625
US 164,393 3,193 167,586
-------
Total 567,898 18,313 586,211
------- -------------- ------------- --------
26 week period ended 25 October
2020
Sale of goods Rendering Total
of services
------- -------------- ------------- --------
GBP'000 GBP'000 GBP'000
UK 283,975 10,188 294,163
US 118,228 1,888 120,116
------- -------------- ------------- --------
Total 402,203 12,076 414,279
------- -------------- ------------- --------
4. Exceptional items
Exceptional items are those that in the judgement of the
Directors need to be disclosed by virtue of their size, nature or
incidence, in order to draw the attention of the reader and to show
the underlying business performance of the Group. Such items are
included within the Income Statement caption to which they relate
and are separately disclosed on the face of the Consolidated Income
Statement.
26 week period 26 week period
ended ended
31 October 25 October
2021 2020
--------------------------------------------- --------------- ---------------
GBP'000 GBP'000
Exceptional gain on trade receivables
Expected credit losses(i) - 233
--------------------------------------------- --------------- ---------------
Total exceptional gain on trade receivables - 233
Exceptional impairment of assets
Reversal of impairment of right-of-use
assets(ii) - 139
Exceptional administrative expenses
Professional and legal expenses on (347) -
business combinations(iii)
Exceptional costs in relation to Initial
Public offering ('IPO')(iv)
Share-based payment in respect of
the Chief Executive Officer and legacy
arrangements (including employment
taxes) (1,472) (2,124)
Total exceptional administrative costs (1,819) (1,985)
Total exceptional items (1,819) (1,752)
--------------------------------------------- --------------- ---------------
Tax impact of exceptional items 347 459
--------------------------------------------- --------------- ---------------
Total exceptional items net of tax (1,472) (1,293)
--------------------------------------------- --------------- ---------------
(i) Reversal of expected credit losses
At the year ended 26 April 2020 an exceptional provision of
GBP695,000 was made against in-house credit debtors, linked to the
exceptional circumstances caused by the global COVID-19 pandemic.
On 16 September 2020, the Group made a one-time payment of $300,000
to remove all future obligations in relation to debt held on
recourse. As the Group bears no future liability, the expected
credit loss provision in relation to recourse debtors was released
and was accordingly reversed through exceptional items.
(ii) Reversal of impairment of right-of-use assets
The Group recognised an exceptional expense relating to impaired
right-of-use assets in the period ended 26 April 2020 linked to the
COVID-19 pandemic. An element of this was reversed during the 26
week period ended 25 October 2020 due to a modification of a lease
agreement following COVID-19 related negotiations.
(iii) Professional and legal expenses on business
combinations
Professional and legal expenses incurred for business
combinations have been expensed to the Consolidated Income
Statement as an exceptional cost as they are regarded as
non-trading, non-underlying costs and are considered to be material
by nature and are expected to be quantitatively material for the
full year.
(iv) Exceptional items for Initial Public Offering
On 31 May 2019, prior to the IPO, the CEO was granted a one-off
share option award by the principal selling shareholder, over a
portion of their shareholding, in recognition of his contribution
to the Company up to Admission and to ensure ongoing
incentivisation and retention in his role following the IPO. This
one-off award was contingent on the CEO's continued employment
until June 2021. The total charge in relation to this award was
recognised over the two year period ending June 2021 and is
considered exceptional as it is linked to a unique non-recurring
event, being the IPO. Following exercise of the option in the
period there will be no future charges in relation to this
item.
All of these costs are considered exceptional as they are linked
to a unique non-recurring event and do not form part of the
underlying trading of the Group.
5. Net finance costs
26 week period 26 week period
ended ended
31 October 25 October
2021 2020
------------------------------------------------- --------------- ---------------
GBP'000 GBP'000
Finance costs
Interest payable on long term borrowings (1,128) (1,537)
Interest payable on short term borrowings (198) (799)
Amortisation of capitalised transaction
costs (372) (476)
Other interest payable (29) (68)
Unwinding of discount on deferred consideration - (74)
Net foreign exchange loss on financing
activities - (249)
Interest on lease liabilities (note
10) (5,833) (6,342)
Net interest expense on net defined
benefit liabilities (note 13) (24) (29)
------------------------------------------------- --------------- ---------------
(7,584) (9,574)
Finance income
Interest income on trade receivables - 77
Other interest receivable 10 87
------------------------------------------------- --------------- ---------------
10 164
Net finance costs (7,574) (9,410)
------------------------------------------------- --------------- ---------------
Further detail of borrowing facilities in place is given in note
12 to these interim financial statements.
6. Taxation
The income tax expenses recognised in the results is based on
management's best estimate of the full-year effective tax rate
based on estimated full-year profits excluding any discrete items.
The effective tax rate at the half year is 20.3% (26 week period to
25 October 2020: 20.2%), slightly higher than the UK Corporation
tax rate of 19.0% as a result of overseas tax differentials and
non-deductible expenses.
7. Earnings Per Share (EPS)
26 week period 26 week period
ended ended
31 October 25 October
2021 2020
---------------------------------------- --------------- ---------------
Basic
EPS 21.6p 12.0p
EPS adjusted for exceptional items 22.2p 12.6p
EPS adjusted for exceptional items and
pre-IFRS 16 21.8p 12.6p
Diluted
EPS 21.6p 12.0p
EPS adjusted for exceptional items 22.2p 12.6p
EPS adjusted for exceptional items and
pre-IFRS 16 21.8p 12.6p
---------------------------------------- --------------- ---------------
Basic EPS is based on the profit for the period attributable to
the equity holders of the parent company divided by the net of the
weighted average number of shares ranking for dividend.
Diluted EPS is calculated by adjusting the weighted average
number of shares used for the calculation of basic EPS, taking into
account the dilutive effect of potential ordinary shares.
The following table reflects the profit and share data used in
the basic and diluted EPS calculations:
26 week period 26 week period
ended ended
31 October 25 October
2021 2020
----------------------------------------- --------------- ---------------
GBP'000 GBP'000
Profit after tax attributable to equity
holders of the parent company 51,608 28,850
Add back:
Exceptional administrative expenses
net of tax 1,472 1,293
Profit adjusted for exceptional items 53,080 30,143
----------------------------------------- --------------- ---------------
Pre-exceptional IFRS 16 adjustments,
net of tax (969) 15
----------------------------------------- --------------- ---------------
Profit adjusted for exceptional items
and IFRS 16 52,111 30,158
----------------------------------------- --------------- ---------------
The following table reflects the share data used in the basic
and diluted EPS calculations:
26 week period 26 week period
ended ended
31 October 25 October
2021 2020
---------------------------------------- --------------- ---------------
Weighted average number of shares: '000 '000
Weighted average number of ordinary
shares in issue 239,456 239,456
---------------------------------------- --------------- ---------------
Weighted average shares for basic
EPS 239,456 239,456
---------------------------------------- --------------- ---------------
Weighted average dilutive potential - -
shares
---------------------------------------- --------------- ---------------
Weighted average shares for diluted
EPS 239,456 239,456
---------------------------------------- --------------- ---------------
Shares granted in the period under the FY21 Deferred Bonus Plan
are anti-dilutive as at 31 October 2021.
8. Intangible assets
Goodwill Brands Agency agreement Computer software Total
------------------------------ --------- -------- ----------------- ------------------ --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net book value
At 2 May 2021 135,440 8,431 1,635 5,130 150,636
Additions - - - 334 334
Acquisitions (note 14) 5,750 - - - 5,750
Amortisation - (168) (123) (886) (1,177)
Foreign exchange differences 199 112 21 9 341
------------------------------ --------- -------- ----------------- ------------------ --------
At 31 October 2021 141,389 8,375 1,533 4,587 155,884
------------------------------ --------- -------- ----------------- ------------------ --------
9. Property, plant and equipment
Land and Fittings and equipment Total
buildings
------------------------------ ----------- ----------------------- ---------
GBP'000 GBP'000 GBP'000
Net book value
At 2 May 2021 1,506 92,176 93,682
Additions 591 19,016 19,607
Acquisitions (note 14) - 214 214
Disposals (36) (961) (997)
Depreciation (151) (12,978) (13,129)
Foreign exchange differences 1 434 435
------------------------------ ----------- ----------------------- ---------
At 31 October 2021 1,911 97,901 99,812
------------------------------ ----------- ----------------------- ---------
For impairment testing purposes, the Group has determined that
each store is a separate cash generating unit ('CGU'). Each CGU is
tested for impairment at the balance sheet date if any indicators
of impairment have been identified.
During the 53 week period to 2 May 2021 the Group recognised an
impairment charge relating to property, plant and equipment and
right-of-use assets as a result of store impairment testing. The
impairment followed a full review of the profitability of the store
network considering the impact of COVID-19 on the Group. Further
detail can be found in the 2021 Annual Report, a copy of which is
available on the Watches of Switzerland PLC (the 'Company') website
at www.thewosgroupplc.com .
Impairment has further been considered as at 31 October 2021 in
line with the current trading environment. It has been concluded
that the impairment made at 2 May 2021 remains appropriate, and
asset values held at 31 October 2021 are supported by expected
future cashflows.
10. Leases
Right-of-use assets
Properties Other Total
------------------------------ ----------- -------- ---------
GBP'000 GBP'000 GBP'000
At 2 May 2021 253,219 490 253,709
Additions 16,151 26 16,177
Disposals (22) - (22)
Depreciation (19,297) (127) (19,424)
Leases renewed during the
period 4,793 - 4,793
Lease modifications 22 - 22
Foreign exchange differences 918 - 918
------------------------------ ----------- -------- ---------
At 31 October 2021 255,784 389 256,173
------------------------------ ----------- -------- ---------
Lease liabilities
Properties Other Total
------------------------------ ----------- -------- ----------
GBP'000 GBP'000 GBP'000
At 2 May 2021 (300,860) (506) (301,366)
Additions (15,582) (26) (15,608)
Disposals 116 - 116
Interest (5,823) (10) (5,833)
Leases renewed during the
period (4,401) - (4,401)
Lease modifications (135) - (135)
Payments 25,202 138 25,340
Foreign exchange differences (1,229) (1) (1,230)
------------------------------ ----------- -------- ----------
At 31 October 2021 (302,712) (405) (303,117)
------------------------------ ----------- -------- ----------
11. Government grants
During the 26 week period to 25 October 2020, government grants
were received to support certain administrative expenses during the
COVID-19 pandemic. All attached conditions were complied with
before recognition in the Consolidated Income Statement.
There were two grant schemes that operated differently from one
another. One scheme operated on claims basis, where cash was
received after the expense has been incurred (UK furlough scheme),
and the other on an up-front basis, where cash was received prior
to the expense being incurred (US Paycheck Protection Program).
These have been presented separately on the face of the
Consolidated Balance Sheet and also below.
During the 53 week period to 2 May 2021, the Group made a
voluntary decision to repay all UK furlough scheme support. The
GBP6,832,000 support received was repaid in July 2021.
Below is the reconciliation of government grants receivable (UK
furlough scheme):
31 October 25 October 02 May
2021 2020 2021
------------ ----------- --------
GBP'000 GBP'000 GBP'000
Opening balance - 2,575 2,575
Received during the period - (5,998) (9,407)
Released to Income Statement - 3,423 6,832
------------ ----------- --------
Receivable at period end - - -
------------ ----------- --------
Below is the reconciliation of government grants received (US
Paycheck Protection Program):
31 October 25 October 02 May
2021 2020 2021
----------------------------------- ----------- --------
GBP'000 GBP'000 GBP'000
Opening balance - (1,186) (1,186)
Received during the period - (2,926) (2,926)
Released to Income Statement - 3,982 4,056
Foreign exchange movements - 56 56
----------------------------------- ----------- --------
Balance at period end - (74) -
----------------------------------- ----------- --------
12. Borrowings
31 October 25 October 02 May 2021
2021 2020
------------------------------------ ----------- ----------- ------------
GBP'000 GBP'000 GBP'000
Non-current
Term loans 120,000 142,500 120,000
Associated capitalised transaction
costs (1,748) (2,786) (2,115)
------------------------------------ ----------- ----------- ------------
Total borrowings 118,252 139,714 117,885
------------------------------------ ----------- ----------- ------------
On 4 June 2019, the Company initially drew down the term loan on
a new facility consisting of a term loan for GBP120,000,000 and a
revolving credit facility of GBP50,000,000. Interest is currently
charged at LIBOR plus 1.75% on the term loan and LIBOR plus 1.5% on
the revolving credit facility. The margin on the term loan ranges
from 1.75% to 2.80% and the revolving credit facility ranges from
1.50% to 2.55% based on the Net Debt to EBITDA covenant test of the
Group. The term loan facility expires on 4 June 2024. The term loan
facility is unsecured and is cross guaranteed by subsidiary
entities.
On 14 May 2020, the Group entered into a new GBP45,000,000
financing facility which was agreed under the Governments' CLBILS
scheme. This comprised of an additional term loan of GBP22,500,000
with a term of 18 months and a revolving credit facility of
GBP22,500,000 for the same period. At 31 October 2020, the
GBP22,500,000 term loan was fully drawn down and none of the
revolving credit facility was drawn. On 5 March 2021, the CLBILS
term loan was repaid in full following a review of the Group's cash
position. The repayment irrevocably and unconditionally released
the Company from all obligations, guarantees and security created
as part of the CLBILS scheme.
Short term borrowings consist of the remaining revolving credit
facility noted above and an asset backed lending (ABL) facility
held in US Dollars of $60,000,000. The ABL facility expires in
April 2023 and interest would be charged at US LIBOR plus the
margin which ranges from 1.25% to 1.75%. Amounts outstanding on the
revolving credit facility totalled GBPnil and amounts outstanding
on the ABL facility totalled GBPnil - $nil.
Amounts undrawn on the facilities totalled GBP93,925,000.
Borrowing on the US ABL facility is restricted to the lower of
$60,000,000 and the borrowing base which is determined by reference
to the assets held by the US entities.
Analysis of net debt
2 May 2021 Cash flow Non-cash Foreign 31 October
charges(1) exchange 2021
--------------------------- ----------- ---------- ------------ ---------- -----------
GBP'000 GBP'000
Cash and cash equivalents 76,076 73,133 - 833 150,042
Term loans (120,000) - - - (120,000)
--------------------------- ----------- ---------- ------------ ---------- -----------
Net (debt)/cash
excluding capitalised
transaction costs
(Pre-IFRS 16) (43,924) 73,133 - 833 30,042
--------------------------- ----------- ---------- ------------ ---------- -----------
Capitalised transaction
costs 2,115 - (372) 5 1,748
Net (debt)/cash
(Pre-IFRS 16) (41,809) 73,133 (372) 838 31,790
--------------------------- ----------- ---------- ------------ ---------- -----------
Lease liability (301,366) 25,340 (25,861) (1,230) (303,117)
Total net debt (343,175) 98,473 (26,233) (392) (271,327)
--------------------------- ----------- ---------- ------------ ---------- -----------
1. Non-cash charges are principally lease liability interest
charges, additions and revisions.
13. Post-employment benefit obligations
During the 26 weeks to 31 October 2021 (prior period: 26 weeks
to 25 October 2020), the Group operated two (prior period: two)
defined contribution pension schemes and one defined benefit scheme
(prior period: one).
The movement in the defined benefit deficit in the period is as
follows:
26 weeks 26 weeks 53 weeks
to 31 October to 25 October to 2 May
2021 2020 2021
------------------------------------ --------------- --------------- ----------
GBP'000 GBP'000 GBP'000
Net pension liability at the
beginning of the period (2,570) (2,714) (2,714)
Current service cost (13) (11) (23)
Past service cost and curtailments - - (90)
Administration costs (76) (38) (142)
Net interest (24) (29) (55)
Employer contributions 340 349 702
Actuarial gains/(losses) 184 (2,417) (248)
------------------------------------
Net pension liability at the
end of the period (2,159) (4,860) (2,570)
------------------------------------ --------------- --------------- ----------
The IAS 19 (accounting) valuation of the defined benefit
obligation was undertaken by an external qualified actuary at 31
October 2021 using the projected unit credit method.
The deficit in the schemes moved from GBP2,570,000 at 2 May 2021
to GBP2,159,000 at 31 October 2021. The movement results from
changes in the principal actuarial assumptions used in the
valuation as follows:
31 October 25 October 2 May 2021
2021 2020
-------------------------------- ----------- ----------- -----------
Discount rate 1.90% 1.50% 2.00%
Rate of increase in salary 4.50% 4.35% 4.30%
Rate of future inflation -
RPI 3.50% 3.10% 3.30%
Rate of future inflation -
CPI 2.90% 2.50% 2.70%
Rate of increase in pensions
in payment 3.40% 3.00% 3.25%
Proportion of employees opting
for a cash commutation 100.00% 100.00% 100.00%
-------------------------------- ----------- ----------- -----------
14. Business combinations
Ben Bridge Jeweler, Inc. ('Ben Bridge')
On 2 September 2021, the Group acquired the trade and assets of
one showroom from Ben Bridge Jeweler Inc.
Timeless Watch Exchange LLC. ('Timeless')
On 15 October 2021, the Group acquired the trade and assets of
one showroom from Timeless Watch Exchange LLC.
Both acquisitions contributed revenue of GBP602,000 from the
date of the acquisition to 31 October 2021 and contributed a net
profit of GBP30,000 during this initial setup period.
The following table summarises the consideration paid for both
acquisitions, and the provisional fair value of assets acquired at
the acquisition date:
GBP'000
------------------------------------ ---------
Total cash consideration 9,163
------------------------------------ ---------
Initial assessment of values on acquisition
-----------------------------------------------
GBP'000
------------------------------------ ---------
Inventories 3,366
Property, plant and equipment 214
Trade and other payables (167)
Right-of-use assets 1,691
Lease liabilities (1,691)
Total identifiable net assets 3,413
Goodwill 5,750
------------------------------------ ---------
Total assets acquired 9,163
------------------------------------ ---------
An amount of GBP159,000 is held with a third party on retention
in relation to the Ben Bridge Jeweler, Inc. acquisition. This will
be paid within 12 months of the acquisition date.
The values stated above are the initial assessment of the fair
values of assets and liabilities on acquisition. These will be
finalised within the coming year.
The contribution to revenue and profit before tax, if these
business combinations had occurred on the first day of the period,
would not be material to the results of the Group and therefore
have not been disclosed separately.
Acquisition-related costs of GBP347,000 have been charged to
exceptional items (note 4) in the Consolidated Income Statement for
the 26 week period ended 31 October 2021.
15. Related party transactions
Transactions with related undertakings
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
In the prior period, the Group has traded products and provided
services to Watch Shop Holdings Limited and The Watch Lab Holdings
Limited, entities with the same significant investor. In the 26
week period to 31 October 2021 there were GBPnil products and
services traded (October 2020: GBP449,000). The Group has an
outstanding balance with these entities of GBPnil (October 2020:
GBP1,000, May 2021: GBPnil).
16. Financial instruments
Categories
31 October 25 October 2 May 2021
2021 2020
-------------------------------- ----------- ----------- -----------
GBP'000 GBP'000 GBP'000
Financial assets - held at
amortised cost
Trade and other receivables* 10,146 9,935 7,288
Cash and cash equivalents 150,042 119,814 76,076
-------------------------------- ----------- ----------- -----------
Total financial assets 160,188 129,749 83,364
-------------------------------- ----------- ----------- -----------
Financial liabilities - held
at amortised cost
Term loans (net of capitalised
transaction costs) (118,252) (139,714) (117,885)
Trade and other payables** (164,365) (169,021) (127,132)
-------------------------------- ----------- ----------- -----------
Net financial liabilities
(pre-IFRS 16) (282,617) (308,735) (245,017)
-------------------------------- ----------- ----------- -----------
Lease liability (IFRS 16)
(note 10) (303,117) (311,110) (301,366)
-------------------------------- ----------- ----------- -----------
Total financial liabilities (585,734) (619,845) (546,383)
-------------------------------- ----------- ----------- -----------
*Excludes prepayments of GBP3,789,000 (October 2020:
GBP1,735,000, May 2021: GBP3,064,000) that do not meet the
definition of a financial instrument.
**Excludes customer deposits of GBP14,263,000 (October 2020:
GBP11,618,000, May 2021: GBP12,208,000) and deferred income of
GBP11,772,000 (October 2020: GBP10,132,000, May 2021:
GBP12,417,000) that do not meet the definition of a financial
instrument.
Fair values
The fair values of each category of the Group's financial
instruments are materially the same as their carrying values in the
Group's Balance Sheet. The fair value of trade and other
receivables, trade and other payables, cash and cash equivalents
and revolving credit facilities all approximate their carrying
amount because of the limited movement in the short maturity of
these instruments and limited change in prevailing interest rates
since recognition.
17. Contingent liabilities
From time to time, the Group may be subject to complaints and
litigation from its customers, employees, suppliers and other third
parties. Such complaints and litigation may result in damages or
other losses, which may not be covered by the Group's insurance
policies or which may exceed any existing coverage. Regardless of
the outcome, complaints and litigation could have a material
adverse effect on the Group's reputation, divert the attention of
the Group's management team and increase its costs.
In March 2019, class action was brought against three US
subsidiaries of the Company, including Watches of Switzerland Group
USA, Inc., in the U.S. District Court for the Southern District of
Florida. The suit alleges violations of the FACTA legislation,
which requires persons that accept credit and/or debit cards for
the transaction of business to truncate all but the last five
digits of the card number on printed receipts provided to
consumers. Because the suit is protracted, and no specific monetary
amount has been claimed, the potential liability (if any) in
respect of such claim or any related claims is difficult to
quantify. The Company has robustly defended itself and, at this
point in time, the claim has been stayed by the Florida courts. Our
legal costs of defending the claim are insured subject to the
policy excess.
18. Post-balance sheet events
On 1 December 2021, the Group acquired the trade and assets of
three showrooms from Betteridge Jewelers, Inc., Gotthelfs
Acquisition Corp., and Vail Village Jewelers, Inc. for a cash
consideration of $52,000,000. The acquisition further advances the
US expansion strategy.
The assets and liabilities acquired principally comprise working
capital balances of inventory, debtors and creditors. Due to the
proximity of the acquisition date to the date of approval these
interim financial statements, the initial accounting for the
business combination is incomplete and the Group is unable to
provide a quantification of the fair values of the assets and
liabilities acquired. The Group will include an acquisition balance
sheet within the Group's Annual Report and Accounts for the 52
weeks to 1 May 2022.
Statement of Directors' Responsibilities
The directors confirm that, to the best of their knowledge, this
condensed consolidated interim financial information has been
prepared in accordance with UK adopted International Accounting
Standard 34 and that the interim report includes a fair review of
the information required by DTR 4.2.4R, DTR 4.2.7R and DTR 4.2.8R,
namely:
-- an indication of important events that have occurred during
the first 26 weeks to 31 October 2021 and their impact on the
condensed set of financial statements, and a description of the
principal risks and uncertainties for the remaining 26 weeks of the
financial year; and
-- material related party transactions in the first 26 weeks to
31 October 2021 and any material changes in the related party
transactions described in the last annual report.
There have been no changes to the directors of Watches of
Switzerland Group PLC to those listed in the Group's Annual Report
and Accounts for the 53 weeks to 2 May 2021.
A list of current directors is maintained on the Group's
website: www.thewosgroupplc.com .
For and by order of the Board:
Brian Duffy Anders Romberg
Chief Executive Officer Chief Financial Officer
8 December 2021
INDEPENT REVIEW REPORT TO WATCHES OF SWITZERLAND GROUP PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
26 weeks ended 31 October 2021 which comprises the Unaudited
Interim Condensed Consolidated Income Statement, Unaudited Interim
Condensed Consolidated Statement of Comprehensive Income, Unaudited
Interim Condensed Consolidated Balance Sheet, Unaudited Interim
Condensed Consolidated Statement of Changes in Equity, Unaudited
Interim Condensed Consolidated Statement of Cash Flows and notes 1
to 18. We have read the other information contained in the half
yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the 26 weeks ended 31
October 2021 is not prepared, in all material respects, in
accordance with UK adopted International Accounting Standard 34 and
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK and Ireland) "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
group will be prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion is based on procedures that are less extensive than
audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
8 December 2021
GLossary
Alternative performance measures
The Directors use alternative performance measures (APMs) as
they believe these measures provide additional useful information
on the underlying trends, performance and position of the Group.
These measures are used for performance analysis. The APMs are not
defined by IFRS and therefore may not be directly comparable with
other companies' APMs. These measures are not intended to be a
substitute for, or superior to, IFRS measures.
The majority of the Group's APMs are on a pre-IFRS 16 basis.
This aligns with the management reporting used to inform business
decisions, investment appraisals, incentive schemes and banking
covenants.
4-Wall EBITDA
Net margin less store costs.
Why used
4-Wall EBITDA is a direct measure of profitability of the store
operations.
Reconciliation to IFRS measures
GBPmillion H1 FY22 H1 FY21
Revenue 586.2 414.3
------- -------
Cost of inventory expensed (369.8) (264.9)
------- -------
Other 4.1 1.1
------- -------
Net margin 220.5 150.5
------- -------
Store costs (100.2) (72.1)
------- -------
4-Wall EBITDA 120.3 78.4
------- -------
Store costs includes rental costs on a pre-IFRS 16 basis (i.e.
under IAS 17). Refer to the IFRS 16 reconciliations below for
further details.
Adjusted Earnings Before Interest and Tax (EBIT)
Operating profit before exceptional items and IFRS 16
impact.
Why used
Measure of profitability that excludes one-off exceptional costs
and IFRS 16 adjustments to allow for comparability between
years.
This measure was linked to management incentives in the
financial year.
Reconciliation to IFRS measures
Reconciled in note 2 to the Consolidated Financial
Statements.
Adjusted EBITDA
EBITDA before exceptional items presented in the Group's Income
Statement, professional costs for non-trading. Shown on a
continuing basis and before the impact of IFRS 16 'Leases'.
Why used
Measure of profitability that excludes one-off exceptional and
non-underlying items and IFRS 16 adjustments to allow for
comparability between years.
Reconciliation to IFRS measures
Reconciled in note 2 of the Consolidated Financial
Statements.
Adjusted Earnings Per Share
Basic Earnings Per Share before exceptional items and IFRS 16
impact.
Why used
Measure of profitability that excludes one-off exceptional items
and IFRS 16 adjustments to provide comparability between years.
This measure was linked to management incentives in the financial
year.
Reconciliation to IFRS measures
Reconciled within note 7 of the Consolidated Financial
Statements.
Adjusted profit before tax
Profit before tax before exceptional items and IFRS 16
impact.
Why used
Measure of profitability that excludes one-off exceptional items
and IFRS 16 adjustments to provide comparability between years.
Reconciliation to IFRS measure
GBPmillion H1 FY22 H1 FY21
Segment profit (as
reconciled in note
2 of the financial
statements) 67.5 41.5
------- -------
Net finance costs (note
5) (7.6) (9.4)
------- -------
IFRS 16 lease interest
(note 5) 5.8 6.2
------- -------
Adjusted profit before
tax 65.7 38.3
------- -------
Average selling price (ASP)
Revenue (including sales related taxes) generated in a period
from sales of a product category divided by the total number of
units of such products sold in such period.
Why used
Measure of sales performance.
Reconciliation to IFRS measures
Not applicable.
Constant currency basis
Results for the period had the exchange rates remained constant
from the comparative period.
Why used
Measure of revenue growth that excludes the impact of foreign
exchange.
Reconciliation
(GBP/$ million)
H1 FY22 Group Revenue
(GBP) 586.2
----------------
H1 FY22 US Revenue ($) 232.0
----------------
H1 FY22 US Revenue (GBP)
@ HY22 Exchange rate 167.6
----------------
H1 FY22 US Revenue (GBP)
@ HY21 Exchange rate 180.5
----------------
HY22 Group Revenue (GBP)
@ Constant currency 599.1
----------------
H1 FY22 Exchange rate 1.385
----------------
H1 FY21 Exchange rate 1.286
----------------
_________________________________________________________________________________________________________________
Exceptional items
Items that in the judgement of the Directors need to be
disclosed by virtue of their size, nature or incidence, in order to
draw the attention of the reader and to show the underlying
business performance of the Group.
Why used
Draws the attention of the reader and to show the items that are
significant by virtue of their size, nature or incidence.
Reconciliation to IFRS measures
Disclosed in note 4 of the Consolidated Financial
Statements.
Net debt/cash
Total borrowings (excluding capitalised transaction costs) less
cash and cash equivalents and excludes IFRS 16 lease
liabilities.
Why used
Measures the Group's indebtedness.
Reconciliation to IFRS measures
Reconciled in note 12 of the Consolidated Financial
Statements.
Free cash flow
Cash flow shown on a pre-IFRS 16 basis excluding expansionary
capex, acquisitions of subsidiaries, exceptional items and
financing activities.
Why used
Represents the cash generated from operations including
maintenance of capital assets. Demonstrates the amount of available
cash flow for discretionary activities such as expansionary capex,
dividends or acquisitions.
Reconciliation to IFRS measures
GBPmillion H1 FY22 H1 FY21
Net increase in cash
and cash equivalents 73.1 47.7
------- -------
Net financing cash
flow 26.7 88.3
------- -------
Interest paid (1.3) (2.6)
------- -------
Lease payments (IFRS
16) (25.4) (26.0)
------- -------
Acquisition of business
combinations 9.0 0.1
------- -------
Exceptional costs 0.3 0.0
------- -------
Expansionary capex 19.9 8.6
------- -------
Free cash flow 102.3 116.1
------- -------
Free cash flow conversion
Free cash flow divided by Adjusted EBITDA.
Why used
Measurement of the Group's ability to convert profit into free
cash flow.
Reconciliation to IFRS measures
Free cash flow of GBP102.3 million divided by Adjusted EBITDA of
GBP82.8 million shown as a percentage.
Net margin
Revenue less inventory recognised as an expense, commissions
paid to the providers of interest free credit and inventory
provision movements.
Why used
Measures the profit made from the sale of inventory before store
or overhead costs.
Reconciliation to IFRS measures
Refer to 4-Wall EBITDA.
Return on Capital Employed (ROCE)
Return on capital employed (ROCE) is defined as Adjusted EBIT
divided by average capital employed, calculated on a Last Twelve
Months (LTM) basis. Average capital employed is total assets less
current liabilities excluding IFRS 16 lease liabilities.
Why used
ROCE demonstrates the efficiency with which the Group utilises
capital. ROCE is linked to management incentives.
Reconciliation to IFRS measures
Adjusted EBIT of GBP103.6m divided by the average capital
employed, which is calculated as follows:
GBPmillion LTM to 31 October LTM to 25 October
2021 2020
Pre-IFRS 16 total assets 675.3 618.1
------------------ ------------------
Pre-IFRS 16 current liabilities (197.5) (200.3)
------------------ ------------------
Capital employed 477.8 417.8
------------------ ------------------
Average capital employed 447.8 384.7
------------------ ------------------
Other definitions
Expansionary capital expenditure/capex
Expansionary capital expenditure relates to new stores,
relocations or refurbishments greater than GBP250,000.
Luxury watches
Watches that have Recommended Retail Price greater than
GBP1,000.
Luxury jewellery
Jewellery that has a Recommended Retail Price greater than
GBP500.
Non-core stores
These stores are not core to the ongoing strategy of the
business and will be closed at the end of their lease term.
Store maintenance capital expenditure/capex
Capital expenditure which is not considered expansionary.
Tourist sales
Tourist sales are represented by those sales with VAT refund
claims
IFRS 16 Adjustments
The following tables reconcile from pre-IFRS 16 balances to
statutory post IFRS 16 balances.
H1 FY22 Income Statement
Exceptional
GBPmillion Pre-IFRS 16 and exceptional items IFRS 16 adjustments items Statutory
Revenue 586.2 - - 586.2
--------------------------------- ------------------- ----------- ---------
Net margin 220.5 - - 220.5
--------------------------------- ------------------- ----------- ---------
Store costs (100.2) 22.3 - (77.9)
--------------------------------- ------------------- ----------- ---------
4-Wall EBITDA 120.3 22.3 - 142.6
--------------------------------- ------------------- ----------- ---------
Overheads (33.1) - (1.8) (34.9)
--------------------------------- ------------------- ----------- ---------
EBITDA 87.2 22.3 (1.8) 107.7
--------------------------------- ------------------- ----------- ---------
Store opening and closing costs (4.4) 3.4 - (1.0)
--------------------------------- ------------------- ----------- ---------
Adjusted EBITDA 82.8 25.7 (1.8) 106.7
--------------------------------- ------------------- ----------- ---------
Depreciation, amortisation and loss on
disposal of fixed assets (15.3) (19.1) - (34.4)
--------------------------------- ------------------- ----------- ---------
Adjusted EBIT (Segment profit) 67.5 6.6 (1.8) 72.3
--------------------------------- ------------------- ----------- ---------
Net finance costs (1.8) (5.8) - (7.6)
--------------------------------- ------------------- ----------- ---------
Adjusted profit before tax 65.7 0.8 (1.8) 64.7
--------------------------------- ------------------- ----------- ---------
Adjusted basic Earnings Per Share 21.8p 21.6p
--------------------------------- ------------------- ----------- ---------
H1 FY22 Balance Sheet
GBPmillion Pre-IFRS 16 IFRS 16 adjustments Post-IFRS 16
Goodwill and intangibles 155.9 - 155.9
----------- ------------------- ------------
Property, plant and equipment 100.6 (0.8) 99.8
----------- ------------------- ------------
IFRS 16 right-of-use assets - 256.2 256.2
----------- ------------------- ------------
Inventories 240.8 - 240.8
----------- ------------------- ------------
Trade and other receivables 22.1 (8.2) 13.9
----------- ------------------- ------------
Trade and other payables (219.5) 29.1 (190.4)
----------- ------------------- ------------
IFRS 16 lease liabilities - (303.1) (303.1)
----------- ------------------- ------------
Net cash 30.0 - 30.0
----------- ------------------- ------------
Other (5.7) 10.5 4.8
----------- ------------------- ------------
Net assets 324.2 (16.3) 307.9
----------- ------------------- ------------
H1 FY21 Income Statement
Exceptional
GBPmillion Pre-IFRS 16 and exceptional items IFRS 16 adjustments items Statutory
Revenue 414.3 - - 414.3
--------------------------------- ------------------- ----------- ---------
Net margin 150.5 - 0.2 150.7
--------------------------------- ------------------- ----------- ---------
Store costs (72.1) 23.5 - (48.6)
--------------------------------- ------------------- ----------- ---------
4-Wall EBITDA 78.4 23.5 0.2 102.1
--------------------------------- ------------------- ----------- ---------
Overheads (24.3) - (2.0) (26.3)
--------------------------------- ------------------- ----------- ---------
EBITDA 54.1 23.5 (1.8) 75.8
--------------------------------- ------------------- ----------- ---------
Store opening and closing costs (1.9) 1.3 - (0.6)
--------------------------------- ------------------- ----------- ---------
Adjusted EBITDA 52.2 24.8 (1.8) 75.2
--------------------------------- ------------------- ----------- ---------
Depreciation, amortisation and loss on
disposal of fixed assets (10.7) (18.9) - (29.6)
--------------------------------- ------------------- ----------- ---------
Adjusted EBIT (Segment profit) 41.5 5.9 (1.8) 45.6
--------------------------------- ------------------- ----------- ---------
Net finance costs (3.2) (6.2) - (9.4)
--------------------------------- ------------------- ----------- ---------
Adjusted profit before tax 38.3 (0.3) (1.8) 36.2
--------------------------------- ------------------- ----------- ---------
Adjusted basic Earnings Per Share 12.6p 12.0p
--------------------------------- ------------------- ----------- ---------
H1 FY21 Balance Sheet
GBPmillion Pre-IFRS 16 IFRS 16 adjustments Post-IFRS 16
Goodwill and intangibles 151.9 (0.1) 151.8
----------- ------------------- ------------
Property, plant and equipment 97.9 1.1 99.0
----------- ------------------- ------------
IFRS 16 right-of-use assets - 256.8 256.8
----------- ------------------- ------------
Inventories 221.9 - 221.9
----------- ------------------- ------------
Trade and other receivables 16.4 (4.7) 11.7
----------- ------------------- ------------
Trade and other payables (219.7) 28.9 (190.8)
----------- ------------------- ------------
IFRS 16 lease liabilities - (311.1) (311.1)
----------- ------------------- ------------
Net debt (22.7) - (22.7)
----------- ------------------- ------------
Other (1.7) 11.3 9.6
----------- ------------------- ------------
Net assets 244.0 (17.8) 226.2
----------- ------------------- ------------
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December 09, 2021 02:00 ET (07:00 GMT)
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