REG - Watches of Switzlnd. - H1 FY24 Results
07/12/2023 07:00
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RNS Number : 9509V Watches of Switzerland Group PLC 07 December 2023
7 December 2023
Watches of Switzerland Group PLC
H1 FY24 Results
for the 26 weeks to 29 October 2023 (H1 FY24)
Good H1 performance with continued strong momentum in the US
Full Year guidance unchanged
Brian Duffy, Chief Executive Officer, said:
"Our good first half performance reflects the Group's growing leadership
position in our chosen markets as the strength of our longstanding brand
partnerships and our proven business model continue to drive our performance
forward. We are particularly pleased with performance in the US, where we grew
revenue +11% in the period, and the US now comprises 43% of Group revenue. The
consumer environment in the UK continues to be more challenging and UK and
Europe revenue was -4% in the period, impacted by the timing of product intake
in Q1 FY24 and temporary showroom closures for refurbishment.
"We have expanded our retail network at pace in the first half, opening a
total of 19 showrooms globally, whilst investing in elevating the luxury
experience for our clients through significant refurbishments across seven
showrooms. We were also delighted to complete the acquisition of selected
luxury showrooms from Ernest Jones in November 2023. Looking ahead into the
balance of the financial year, we will integrate the Ernest Jones portfolio
and continue to deliver on our exciting pipeline of new projects.
"Demand dynamics remain strong, and our client registration lists continue to
grow, whilst the pre-owned market remains a significant opportunity. We are
encouraged by the early performance of the Rolex Certified Pre-Owned programme
following its launch in the first half in both the US and UK. We will continue
to expand the number of showrooms to meet demand for all pre-owned luxury
watches and are excited by the growth potential in this category.
"Looking ahead, we are well positioned for a good holiday trading period as we
present our clients with our strongest ever range of luxury watches and luxury
branded jewellery. We remain on track to deliver full year guidance, with our
confidence for H2 underpinned by the reopening of several high revenue
showrooms which were closed for upgrade in H1.
"Looking further ahead, we are confident in our Long Range Plan objectives of
doubling sales and profit by 2028 through capitalising on our leading market
positions and the unique growth opportunities available to us as the world's
largest luxury watch retailer."
H1 FY24 Financial Highlights
· Group revenue £761 million (H1 FY23: £765 million), +2% at
constant currency, flat at reported rates
o Continued growth in luxury watches with the reduction in the broader
jewellery market reflecting temporary softer consumer sentiment and a
repositioning to full price sales in the US
o Excellent progress with showroom expansion and refurbishment programme
o Launch of Rolex Certified Pre-Owned in both the US and UK markets with
encouraging early performance
o Group ecommerce sales(1) -3% on last year at constant currency against
strong comparatives in the prior year and impacted by the higher proportion of
jewellery sales through this channel
· Adjusted EBIT(2) of £73 million ahead of previously guided at
£70-72 million (-15% on a reported basis (H1 FY23: £87 million))
o Adjusted EBIT margin 9.6% (H1 FY23: 11.3%), limited leverage in H1 FY24
alongside headwinds from Interest Free Credit, which annualise in the second
half of the year
· Statutory operating profit £78 million (HY FY23: £93 million),
-16% on a reported basis
· Expansionary capital expenditure(3) of £48 million (H1 FY23: £27
million) with 19 (H1 FY23: 20) new showrooms opened and seven showrooms
refurbished
· Free cashflow(2) of £57 million (H1 FY23: £56 million) with
conversion of 60% (H1 FY23: 53%), improvement driven by lower working capital
investment, offsetting lower Adjusted EBITDA(2)
· Net cash(2) of £16 million as of 29 October 2023 (30 October
2022: net debt(2) of £26 million)
(£million) 26 weeks ended 29 October 2023 26 weeks ended 30 October 2022 YoY change YoY change
Reported rates Constant currency(2)
Group revenue 761 765 0% 2%
UK and Europe 433 454 (4%) (4%)
US 328 311 5% 11%
Adjusted EBITDA 94 104 (10%)
Adjusted EBITDA margin 12.3% 13.6% (130bps)
Adjusted EBIT 73 87 (15%)
Adjusted EBIT margin 9.6% 11.3% (170bps)
Adjusted basic EPS(2) (p) 21.5 27.8 (23%)
Statutory operating profit 78 93 (16%)
Statutory operating margin 10.2% 12.1% (190bps)
Statutory basic EPS (p) 19.8 27.2 (27%)
Statutory profit before tax 67 83 (20%)
Free cash flow 57 56 2%
Return On Capital Employed(2) 23.9% 27.6% (370bps)
Net cash/(debt) 16 (26)
H1 FY24 Operating highlights
· Continued strong momentum in the US with revenue of £328 million
(H1 FY23: £311 million), +11% at constant currency, +5% at reported rates
o Sustained growth in core business, reflecting the success of our model and
strength of client demand
o Further investment in showroom network with opening of eight mono-brand
boutiques and one new Watches of Switzerland multi-brand showroom, anchored by
Rolex at American Dream in New Jersey
o The first half of FY24 ended with 25 multi-brand showrooms (H1 FY23: 24)
and 31 mono-brand boutiques (H1 FY23: 23)
· UK and Europe performance driven by domestic clientele, with
revenue of £433 million (H1 FY23: £454 million), -4% vs H1 FY23
o Q1 FY24 was impacted by the unwinding of the benefit of product intake in
Q4 FY23, which meant Q1 FY24 revenue was down -8% vs the prior year. Revenue
in Q2 FY24 was flat on prior year, with several high turnover Goldsmiths and
Mappin & Webb showrooms closed for upgrade during the period and trading
out of pop-ups. These reopened pre-Christmas in the second half of the
financial year
o Investment in seven new UK showroom openings; six mono-brand boutiques and
one Goldsmiths multi-brand in Bromley
o Continued rollout of Goldsmiths Luxury concept most notably in Liverpool
with our largest Goldsmiths Luxury showroom to date, and the launch of our
first new contemporary showroom concept for Mappin & Webb
o The first half of FY24 ended with 89 UK multi-brand showrooms (H1 FY23:
91) and 57 UK mono-brand boutiques (H1 FY23: 46)
o Further European expansion through the opening of three new mono-brand
boutiques including our first showroom in Germany, a TAG Heuer boutique in
Berlin. This takes the total number of European mono-brand boutiques to nine
· Agreed purchase of luxury watch showrooms from Ernest Jones
o Acquisition completed in November 2023
o Multi-brand showrooms already re-branded to Goldsmiths or Mappin &
Webb
o During the balance of the financial year, we will be working on systems,
merchandising, training and marketing in order to have the full beneficial
impact from this acquisition in FY25
· Xenia, the Group's elevated Client Experience Programme, is now
embedded across all showrooms, further enhancing the relationship we have with
our clients
· The Watches of Switzerland Group Foundation has now donated £3.5
million to charities since formation and continues to support disadvantaged
communities in both the UK and US
Outlook
· FY24 guidance remains unchanged, based on our sequential trading
improvement and the large showroom refurbishments reopening pre-Christmas. Our
guidance does not reflect any expectation of an improvement in consumer
confidence in the remainder of the financial year. Guidance reflects current
visibility of supply from key brands and confirmed showroom refurbishments,
openings and closures, and excludes uncommitted capital projects and
acquisitions.
· The Group has an exciting schedule of new showroom projects for the
remainder of FY24, a number of which have completed since the end of Q2
o Relocation of the Rolex boutique Millenia, Orlando to a showroom three
times the previous size (opened November 2023)
o Continued roll-out of the Goldsmiths Luxury format, including the expansion
of the Birmingham Bullring showroom (opened November 2023), and relocation of
Trafford Centre Manchester and Metrocentre Newcastle showrooms (December 2023)
o Further roll-out of the Mappin & Webb contemporary format with
refurbishments in Glasgow (opened November 2023) and Bluewater (December
2023)
o Watches of Switzerland multi-brand showroom at One Vanderbilt, New York
due to open early 2024
o Expansion of the mono-brand portfolio with four boutiques planned across
the UK, US and Europe
· Unchanged FY24 guidance (on an organic pre-IFRS 16 basis):
o Revenue: £1.65 - £1.70 billion, growth of 8-11% at constant currency
o Adjusted EBIT margin %: In line with FY23
o Total finance costs: c.£5 million
o Underlying tax rate: 27% - 28% reflecting the increase in UK corporation tax
o Capex: £70 - 80 million
o Operating cash conversion: c.70% weighted towards H2 in line with the seasonal pattern
The equivalent guidance on an IFRS 16 basis is:
o Adjusted EBIT margin %: In line with FY23
o Total finance costs: £26 - £30 million
· The Group is exposed to movements in the £/$ exchange rate when
translating the results of its US operations into Sterling. The actual average
exchange rate for FY23 was 1.20
H1 FY24 Revenue Performance by Geography
H1 FY24 H1 FY23 H1 FY24 vs H1 FY23
26 weeks to 26 weeks to Reported YoY %
29 Oct 2023 30 Oct 2022 Constant currency YoY %
(£m)
UK and Europe 433 454 -4% -4%
US 328 311 +5% +11%
Group Revenue 761 765 0% +2%
H1 FY24 Revenue Performance by Category
H1
26 weeks to 26 weeks to Reported YoY %
29 Oct 2023 30 Oct 2022 Constant currency YoY %
(£m)
Luxury watches(3) 670 667 0%
+3%
Luxury jewellery(3) 47 56 -17% -15%
Services/other 44 42 +6% +7%
Group Revenue 761 765 0% +2%
H1 FY24 Results Presentation
A webcast conference call for analysts and investors will be held at 9.00am
(UK time) today to announce the H1 FY24 results. To join the call, please use
the following details:
Webcast link: https://brrmedia.news/WOS_H1FY24
(https://brrmedia.news/WOS_H1FY24)
Conference call dial-in: +44 (0) 33 0551 0200
Contacts
The Watches of Switzerland Group
Anders Romberg, CFO
+44 (0) 207 317 4600
Caroline Browne, Group Finance
Director
+44 (0) 1162 817 420
investor.relations@thewosgroup.com (mailto:investor.relations@thewosgroup.com)
Headland
Lucy Legh / Rob Walker / Joanna
Clark
+44 (0) 20 3805
4822
wos@headlandconsultancy.com (mailto:wos@headlandconsultancy.com)
About the Watches of Switzerland Group
The Watches of Switzerland Group is the UK's largest luxury watch retailer,
operating in the UK, US and Europe comprising five prestigious brands; Watches
of Switzerland (UK and US), Mappin & Webb (UK), Goldsmiths (UK), Mayors
(US) and Betteridge (US), with a complementary jewellery offering.
As at 29 October 2023, the Watches of Switzerland Group had 211 showrooms
across the UK, US and Europe including 97 dedicated mono-brand boutiques in
partnership with Rolex, OMEGA, TAG Heuer, Breitling, TUDOR, Audemars Piguet,
Longines, Grand Seiko, BVLGARI and FOPE and has a leading presence in Heathrow
Airport with representation in Terminals 2, 3, 4 and 5 as well as seven retail
websites.
The Watches of Switzerland Group is proud to be the UK's largest retailer for
Rolex, OMEGA, Cartier, TAG Heuer and Breitling watches.
www.thewosgroupplc.com (http://www.thewosgroupplc.com)
Disclaimer
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, losses 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
announcement.
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 and,
except as required by law or regulation, the Company undertakes no obligation
to update these forward-looking statements. No statement in this
announcement should be construed as a profit forecast or profit estimate.
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 as
detailed above.
Chief Executive Officer's Review
Our Group delivered a strong first half of the financial year notwithstanding
the difficult consumer environment, as we enhanced our leadership position in
our existing markets of the UK and the US and continued to expand within
Europe. Revenue improved throughout the period with growth of +2% at constant
currency vs H1 FY23 (flat at reported rates), profitability was impacted by
the lack of leverage and headwinds from interest free credit and inflation.
Luxury watches demand remained consistently high with demand continuing to
outstrip supply for high demand product, with revenue +3% vs H1 FY23 at
constant currency with growth in the period driven by increases in average
selling price. Our pre-owned watch category continues to grow, and we were
delighted to launch Rolex Certified Pre-Owned in both the US and UK in the
half, with encouraging early client engagement and trading. The luxury
jewellery market was challenging in the half with sales -15% at constant
currency vs H1 FY23, however the luxury branded jewellery relatively
outperformed and remains a category where we see significant opportunity as
presented in our Long Range Plan.
In the US, revenue increased by +11% vs H1 FY23 at constant currency with the
US now representing 43% of Group revenue. We continued to expand our US
network, opening eight mono-brand boutiques alongside one multi-brand
showroom, anchored by Rolex at American Dream, in New Jersey. We are building
our team and resources, in what is now the number one market globally for
luxury Swiss watches and remain confident in the long term growth potential of
the US market.
UK and Europe revenue declined by -4% during the period but showed an
improving trend in Q2 FY24. Sales were driven by domestic clientele and the
Group continued to gain market share. Q1 FY24 was impacted by unwinding of the
benefit of product intake in Q4 FY23, which meant Q1 FY24 revenue was down -8%
in Q1 vs the prior year. Revenue in Q2 FY24 was flat on prior year, with
several high turnover Goldsmiths and Mappin & Webb showrooms closed for
upgrade during the period and trading out of pop-ups. These reopened
pre-Christmas in the second half of the financial year.
In the UK, we made significant investment in our showrooms during the period,
opening seven new showrooms, and have continued with the rollout of Goldsmiths
Luxury concept including the reopening of our largest showroom to date in
Liverpool. The first half also saw the launch of our new Mappin & Webb
concept in York, and we have subsequently reopened our expanded showroom in
Guernsey. The refurbishment of certain UK showrooms during H1 FY24 and
replacement with temporary pop-ups moderately impacted our top line
performance, however all refurbished showrooms will be opened ahead of the
holiday period.
I am delighted to welcome our new colleagues from Ernest Jones and look
forward to them developing within our business following the acquisition of 15
luxury showrooms, including one mono-brand boutique. We believe these are
great showrooms and highly complementary to our portfolio. During the balance
of the fiscal year, we will be working on systems, merchandising, training and
marketing in order to have the full beneficial impact from this acquisition in
FY25.
We opened a further three showrooms in Europe including our first showroom in
Germany, a TAG Heuer mono-brand boutique in Berlin. We have great teams in
place across all showrooms and received strong feedback both from clients and
brands, and look forward to continuing to grow our presence in Europe.
We will continue to invest in our showroom portfolio in the UK, US and Europe
with an exciting pipeline of future projects in H2 FY24 and beyond, some of
which have already opened, including:
· Third Watches of Switzerland showroom in Manhattan at One
Vanderbilt anchored by OMEGA and Cartier, open in early 2024
· Continued roll out of Goldsmiths Luxury with Birmingham Bullring,
Metrocentre Newcastle, and the relocation of our Trafford lower showroom
opening pre-Christmas
· New Flagship Rolex Boutique on Bond Street with around 7,000 sq.
ft of selling space in Autumn 2024
· First Watches of Switzerland multi-brand in Europe at Mall of the
Netherlands in Autumn 2024 anchored by OMEGA and Cartier
· New Rolex anchored showroom at Legacy West, Plano, Texas opening
October 2024 as part of showroom relocation
We continue to deliver an elevated client experience based on the highest
standards of hospitality using our Xenia principles. This is complemented by
high quality client events in conjunction with our brand partners. We continue
to invest in developing quality marketing assets highlighting our status as
the key destination for luxury timepieces and jewellery.
During the first half of FY24, in the UK, we achieved an average monthly
digital social media reach of 41 million, and a total of 2 billion digital
impressions. In the US, we delivered 213 million impressions and had a monthly
average social media reach of 25 million, in addition to generating over 10
billion PR impressions over the last 12 months.
We were delighted to host the Grand Prix D'Horlogerie De Geneve (GPHD) or
'Watch Oscars' in New York at our Soho Flagship for the second year running.
The announcement of the exhibition alone generated over 20 million
impressions.
Our strong and long-standing relationships with the most recognised and
prestigious luxury watch brands have remained a point of distinction. We have
continued to collaborate on exclusive product which in the half included
products such as the OMEGA Seamaster 75 years, Breitling Avenger and TAG Heuer
F1 Chrono. The colleagues within our showrooms and Luxury Watch and Jewellery
Virtual Boutique are watch and jewellery experts, and much of this comes from
the collaboration and investment with the brands on significant training
programmes.
With the full support of, and guidance from, our Board and ESG Committee, we
continue to develop our ESG governance and sustainability strategy, which puts
our Purpose at its core.
Highlights during the period:
· UK accredited as a Real Living Wage Employer
· Continued to build our repair capability and our new Midlands
Service Centre will open in H2 FY24
· Launched colleague incentive to encourage and reward eco-friendly
behaviours
· Mappin & Webb named CSR Jewellery Retailer of the Year in
2023 Professional Jeweller Awards
I would like to thank our teams who continue to inspire and deliver. Their
hard work and commitment continue to enable the Group to be successful.
Finally, I am very proud to report that our Foundation Trustees have donated
over £800,000 of funds so far in FY24 in the UK and US. We have strengthened
our relationship with The Prince's Trust with a commitment of £1.5 million
over the next two years to fund their education work, and the Group was again
the headline sponsor for The Prince's Trust Palace to Palace Bike Ride and
through our colleagues participation raised a further £80,000.
Looking ahead, we were delighted to share our updated Long Range Plan on the 7
November 2023 which reiterated our confidence in the sector and our belief in
our ability as the world's largest luxury watch retailer to capitalise on our
leading market position and unique growth opportunities available. We expect
sales and profits to more than double by FY28.
Financial Review
The Group's Consolidated Income Statement is shown below which is presented
including IFRS 16 'Leases' and includes exceptional items.
Income Statement - post-IFRS 16 and exceptional items (£million) 26 weeks to 26 weeks to YoY variance
29 October 2023 30 October 2022
Revenue 761.4 765.2 (0.5)%
Operating profit 78.0 92.9 (16.0)%
Net finance cost (11.5) (10.2) (12.7)%
Profit before taxation 66.5 82.7 (19.6)%
Taxation (19.5) (18.1) (7.7)%
Profit for the financial period 47.0 64.6 (27.2)%
Basic earnings per share 19.8p 27.2p (27.2)%
Management monitor and assess the business performance on a pre-IFRS 16 and
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 is shown in the Glossary.
Income Statement - pre-IFRS 16 and exceptional items (£million) 26 weeks to 26 weeks to YoY variance
29 October 2023 30 October 2022
Revenue 761.4 765.2 (0.5)%
Net margin(2) 280.1 287.6 (2.7)%
Showroom costs (137.2) (136.3) (0.7)%
4-Wall EBITDA(2) 142.9 151.3 (5.7)%
Overheads (43.4) (40.0) (8.0)%
EBITDA 99.5 111.3 (10.6)%
Showroom opening and closing costs (5.5) (6.9) 19.0%
Adjusted EBITDA 94.0 104.4 (10.1)%
Depreciation, amortisation and loss on disposal of fixed assets (20.6) (17.7) (16.2)%
Segment profit (Adjusted EBIT) 73.4 86.7 (15.4)%
Net finance costs (1.5) (2.3) 33.1%
Adjusted profit before taxation(2) 71.9 84.4 (14.7)%
Adjusted earnings per share 21.5p 27.8p (22.7)%
Revenue
Revenue by geography and category
26 weeks to 29 October 2023 UK and Europe US Total Mix
(£million)
Luxury watches 369.0 301.1 670.1 88%
Luxury jewellery 28.3 18.7 47.0 6%
Services/other 36.3 8.0 44.3 6%
Total revenue 433.6 327.8 761.4 100%
26 weeks to 30 October 2022 UK and Europe US Total Mix
(£million)
Luxury watches 387.1 279.7 666.8 87%
Luxury jewellery 32.1 24.3 56.4 7%
Services/other 34.6 7.4 42.0 6%
Total revenue 453.8 311.4 765.2 100%
Group revenue of £761.4m increased by +2% at constant currency (flat at
reported rates).
US revenue increased by +11% at constant currency (+5% at reported rates) and
the US business made up 43% of the Group's revenue in H1 FY24 (H1 FY23: 41%).
Underlying growth was strong across all locations with continued consumer
appetite for high demand products. New York and the Wynn Resort, Las Vegas
performed particularly strongly. This was accomplished through a quality
product offering, superior client experience and backed up by strong marketing
campaigns which had significant reach across offline and online channels.
During the period, the US opened eight mono-brand boutiques in Topanga,
California; New Orleans, Louisiana; and Murray, Utah. We also opened a Rolex
anchored multi-brand showroom at American Dream in New Jersey which was fully
completed in October with the opening of a large Cartier space.
The US Rolex Certified Pre-Owned programme was launched in July 2023, with
product currently in 14 agencies and available online, early sales have been
encouraging. Other pre-owned and vintage continues to grow as we leverage the
Analog:Shift brand.
UK and Europe revenue declined by -4% during the period but showed an
improving trend in Q2 FY24. Sales were driven by a domestic clientele and the
Group continued to gain market share. Q1 FY24 was impacted by unwinding of the
benefit of product intake in Q4 FY23, which meant Q1 FY24 revenue was down -8%
vs the prior year. Revenue in Q2 FY24 was flat on prior year, with several
high turnover Goldsmiths and Mappin & Webb showrooms closed for upgrade
during the period and trading out of pop-ups. These reopened pre-Christmas in
the second half of the financial year.
During the period, the UK opened six mono-brand boutiques, and a further one
multi-brand Goldsmiths showroom in Bromley. One non-core showroom was closed
giving a net increase of six in the UK. In the period, six projects were
completed enhancing our existing estate to further elevate the partner brands
we display in those showrooms and advance our client experience, this included
our first new concept Mappin & Webb showroom in York. Tourist sales remain
very low, but traffic increases in airports continue to be encouraging.
The UK Rolex Certified Pre-Owned programme was launched in September 2023
online and in five showrooms. Early trading has been encouraging.
We continued our expansion into Europe through mono-brand boutiques during H1
FY24. This included the opening of two further boutiques in Sweden: TAG Heuer
in the Mall of Scandinavia, Stockholm and Breitling in Gothenburg. In June
2023, we opened our first boutique in Germany for TAG Heuer in Berlin. This
takes the European mono-brands total to nine. The showrooms continue to gain
strong feedback both from clients and the brands.
In November 2023, following the half year end, the Group completed the
acquisition of 15 showrooms from Ernest Jones, fourteen multi-brand and one
mono-brand. Over the second half they will be rebranded and we will be working
on systems, merchandising, training and marketing to gain the full beneficial
impact of the acquisition in FY25.
Group revenue from luxury watches grew by +3% at constant currency and made up
88% of revenue (FY23: 87%). Demand for luxury watches remains robust and
continues to exceed supply, with consistent additions to Client Registration
of Interest lists and average selling prices continue to increase.
Group luxury jewellery revenue declined by -15% at constant currency (down
-17% at reported rates). This reflected market trends impacted by overall
consumer sentiment, particularly within the bridal category. US sales were
impacted by a repositioning to full price sales, notably in Betteridge.
Other revenue, consisting of servicing, repairs, insurance services and the
sale of fashion and classic watches and other non-luxury jewellery grew by
+6%.
Group ecommerce sales declined by -3% at constant currency compared to the
prior year reflecting a higher proportion of jewellery through this channel
and strong prior year comparatives.
Profitability
Profitability as a % of revenue
Income Statement - pre-IFRS 16 and exceptional items (£ million) 26 weeks to 26 weeks to YoY variance
29 October 2023 30 October 2022
Net margin 36.8% 37.6% (80bps)
Showroom costs 18.0% 17.8% (20bps)
4-Wall EBITDA 18.8% 19.8% (100bps)
EBITDA 13.1% 14.5% (140bps)
Adjusted EBITDA 12.3% 13.6% (130bps)
Adjusted EBIT 9.6% 11.3% (170bps)
Net margin as a % of revenue was 36.8% in the period. The reduction in margin
of 80bps reflects adverse product mix and the increased cost of Interest Free
Credit.
Showroom costs increased by £0.9 million (+1%) from the prior year, to
£137.2 million. Showroom costs as a percentage of revenue increased by 20bps
from 17.8% to 18.0%. This reflects the opening of new showrooms, annualisation
of prior year openings and annual pay rises to colleagues. This was partly
offset by a reduction in business rates and efficiencies found within showroom
payroll, and digital marketing investment which continues to maximize traffic
and conversion versus cost.
Overheads increased by £3.4 million (+8%) due to investment in headcount and
IT to support future growth, along with the opening of our new support centre
in Leicester.
Showroom opening and closing costs include the cost of rent (pre-IFRS 16),
rates and payroll prior to the opening or closing of showrooms, or during
closures when refurbishments are taking place. This cost will vary annually
depending on the scale of expansion in the period. Total costs for the period
were £5.5 million versus £6.9 million in H1 FY23, reflecting timing of
refurbishments and new showroom openings.
Exceptional administrative 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.
Exceptional items (£million) 26 weeks to 26 weeks to
29 October 2023 30 October 2022
Professional and legal expenses on business acquisition 0.6 0.5
Impairment of property, plant and equipment 1.2 -
Impairment of right-of-use assets 1.9 -
Total 3.7 0.5
Costs associated with the acquisition of new showrooms, totalling £0.6m, are
treated as exceptional as they are regarded as non-trading, non-underlying
costs.
The current macroeconomic environment, increased interest rates, and
inflationary trends gave rise to indicators of impairment in the current
period. Consequently, discounted cashflows were performed on all Cash
Generating Units with indicators of impairment. This resulted in an impairment
charge of £3.1m being recorded in the period. This is allocated over the
property, plant and equipment, and the right-of-use assets of those showrooms
as required by IAS 36 Impairment of Assets. This has been booked as an
exceptional item due to the non-trading nature of the impairment.
Adjusted EBIT and statutory operating profit
As a consequence of the items noted above, Adjusted EBIT was £73.4 million, a
decrease of £13.3 million (-15%) on the prior year.
After accounting for exceptional costs of £3.7 million and IFRS 16
adjustments of £8.3 million, statutory operating profit (EBIT) was £78.0
million, a decrease of -16% on the prior year.
Finance costs
Net finance costs (£million) 26 weeks to 26 weeks to
29 October 2023 30 October 2022
Pre-IFRS 16 finance costs 3.5 2.8
Pre-IFRS 16 finance income (2.0) (0.5)
IFRS 16 interest on lease liabilities 10.0 7.9
Total net finance costs 11.5 10.2
Interest payable on borrowings increased in the period, reflecting higher
market lending rates. Interest income on cash balances and investments also
increased due the higher interest rates. The impact was a net reduction in the
pre-IFRS 16 interest charge of £0.8 million to £1.5 million.
The IFRS 16 interest on lease liabilities increased by £2.1 million due to
recent additions to the lease portfolio as we continue to invest in showroom
portfolio expansion.
Taxation
The pre-IFRS 16 effective tax rate for the period was 29.0% and 29.2% as
reported under IFRS 16. This is higher than the applicable UK corporation tax
rate for the year of 25.0% as a result of higher chargeable taxes on US
profits, and the impact of expenses disallowed for corporation tax.
Balance Sheet
Balance Sheet (£million)
29 October 2023 30 April 2023 30 October 2022
Goodwill and intangibles 202.8 200.4 205.6
Property, plant and equipment 185.5 154.4 136.9
Right-of-use assets 402.6 359.1 352.8
Inventories 399.7 356.0 379.5
Trade and other receivables 22.3 19.8 20.6
Trade and other payables (250.7) (219.6) (243.7)
Lease liabilities (459.6) (410.4) (403.3)
Net cash/(debt) 16.1 16.4 (25.6)
Other (2.9) (6.8) 2.5
Net assets 515.8 469.3 425.3
The 30 October 2022 balances have been restated to reflect the finalisation of
the provisional fair values of Betteridge Jewelers, Inc., Gotthelfs
Acquisition Corp., and Vail Village Jewelers, Inc. ('Betteridge'). The net
impact was a reduction in inventory and deferred tax asset with the
corresponding entry to the goodwill balance.
Goodwill and intangibles increased by £2.4 million due to a favourable
exchange impact. £1.4 million of computer software additions were made in the
period as part of ongoing IT developments, which was offset by amortisation of
£1.4 million.
Property, plant and equipment increased by £31.1 million in the period.
Additions of £48.5 million and a favourable foreign exchange impact of £2.2
million were offset by depreciation of £18.3 million, impairments of £1.2
million and a loss on disposal of £0.1 million.
Including software costs, which are disclosed as intangibles, capital
additions (including accruals) were £49.9 million in the period (H1 FY23:
£37.4 million) of which £48.3 million (H1 FY23: £34.8 million) was
expansionary. Expansionary capex relates to new showrooms, relocations or
major refurbishments (defined as costing over £0.25 million). In the period,
the Group opened 19 new showrooms, and refurbished seven showrooms. Investment
in our portfolio is paramount to our strategy and the Group follows a
disciplined payback policy when making capital investment decisions.
Right-of-use assets increased by £43.5 million in the period, to £402.6
million. Additions to the lease portfolio along with lease renewals or other
lease changes were £68.1 million. Foreign exchange impact was favourable at
£3.9 million, offset by depreciation of £26.6 million, and impairments of
£1.9 million.
Lease liabilities increased by £49.2 million in the period. The portfolio
changes noted above increased the lease liability by £66.4 million. Interest
charged on the lease liability was £10.0 million along with an adverse
exchange impact of £5.0 million. Lease payments were £32.2 million, giving a
lease liability balance of £459.6 million.
Inventory levels increased by £20.2 million (+5%) compared to H1 FY23. The
increase was driven by new showrooms (£18 million) and an increase in unit
cost due to pricing. We are well stocked as we enter into the holiday season.
Trade and other receivables increased by £1.7 million compared to H1 FY23.
The increase is reflective of higher prepayments, deposits, rebate receivables
and new rent deposits as the business continues to grow.
Trade and other payables increased by £7.0 million compared to H1 FY23. The
increase principally relates to an increase in the inventory trade payable
aligned with the increased intake in the period. The increase is also as a
result of higher operational liabilities in line with the business expansion.
Other includes taxation balances, defined benefit pension and capitalised
finance costs.
Net debt and financing
Net cash on 29 October 2023 was £16.1 million, a decrease of £0.3 million
since 30 April 2023, driven by £56.7 million of free cash flow(1) offset by
£47.8 million of expansionary capex and £7.2 million for the purchase of own
shares to satisfy management incentives.
Net debt post-IFRS 16 was £441.5 million. The value comprises the pre-IFRS
net cash of £16.1 million and the £459.6 million lease liability, offset by
capitalised transaction costs of £2.0 million. The balance increased by
£47.5 million in the period, principally driven by additions to the lease
portfolio.
The Group's maximum amount available under its committed facility was £225.0
million at 29 October 2023.
Facility from 9 May 2023 Expiring Amount
(million)
Multicurrency revolving loan facility - UK SONIA + 1.50% to +2.55% May 2028 £225.0
On 9 May 2023, the Group signed a new five-year £225.0 million multicurrency
revolving loan facility with lenders. The new facility uses UK SONIA +1.50% to
+2.55%. The existing facilities were repaid and extinguished on this date.
£70.0 million of these facilities were drawn down at 29 October 2023.
Liquidity headroom (defined as unrestricted cash plus undrawn available
facilities) was £224.9 million.
Cash Flow
Cash Flow (£million) 26 weeks to 26 weeks to
29 October 2023 30 October 2022
Adjusted EBITDA 94.0 104.4
Share-based payments 1.9 2.8
Working capital (8.3) (26.7)
Pension contributions (0.3) (0.3)
Tax (23.2) (20.2)
Cash generated from operating activities 64.1 60.0
Maintenance capex(2) (1.7) (2.6)
Interest (5.7) (1.8)
Free cash flow 56.7 55.6
Free cash flow conversion(1) 60.3% 53.3%
Expansionary capex (47.8) (27.4)
Acquisitions - (20.6)
Purchase of own shares (7.2) (21.3)
Proceeds from short term borrowings - 17.5
Repayment of term loan (120.0) -
Proceeds from multi-currency revolving loan facility 70.0 -
Costs directly attributable to raising new loan facility (2.2) -
Exceptional items (0.6) (0.5)
Cash flow (51.1) 3.3
Free cash flow increased by £1.1 million to £56.7 million in the period to
29 October 2023 and free cash flow conversion was 60.3% compared to 53.3% in
the prior year.
Cash flow from trading (Adjusted EBITDA, decreased by £10.4 million), was
more than offset by a £18.4 million favourable working capital movement
driven by a lower inventory increase year on year.
Expansionary capex of £47.8 million (after taking into account the associated
creditors movement) was higher than the prior year due to an increase in new
showroom openings and refurbishments. FY24 has a higher proportion of capex
spend in the first half of the year, as we looked to complete significant
projects ahead of the holiday season.
£7.2 million of shares were purchased in the period to satisfy management
incentive schemes, which will vest in the future periods.
Return on Capital Employed (ROCE)
26 weeks to 26 weeks to
29 October 2023 30 October 2022
ROCE 23.9% 27.6%
ROCE decreased by 370bps from 27.6% to 23.9% in comparison to last year. This
is as a result of Adjusted EBIT decreasing by -15.4% in comparison to the
prior period.
Showroom portfolio
As at the 29 October 2023, the Group had 211 showrooms, the movement in
showroom numbers is included below:
UK multi-brand UK mono-brand Europe mono-brand boutiques Total UK and Europe US multi-brand US mono-brand Total US Total Group
showrooms boutiques showrooms boutiques
1 May 2023 89 51 6 146 24 23 47 193
Openings 1 6 3 10 1 8 9 19
Closures (1) - - (1) - - - (1)
29 October 2023 89 57 9 155 25 31 56 211
(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.
Certain financial data within this announcement has been rounded.
Growth rates are calculated on unrounded numbers.
Risks and uncertainties
The Group is exposed to several 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 remainder of the financial year, and, after careful consideration
of the current macroeconomic environment, has determined that the risks
presented in the 2023 Annual Report and Accounts, described as follows, remain
unchanged: Business strategy execution and development; Key suppliers and
supply chain; Client experience and market risks; Colleague talent and
capability; Data protection and cyber security; Business interruption;
Regulatory and compliance; Economic and political; Brand and reputational
damage; Financial and treasury; and Climate Change. These are detailed on
pages 116 to 121 of the 2023 Annual Report and Accounts, a copy of which is
available on the Watches of Switzerland Group PLC (the 'Company') website at
www.thewosgroupplc.com (http://www.thewosgroupplc.com) .
WATCHES OF SWITZERLAND GROUP PLC
UNAUDITED INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT
26 week period ended 26 week period ended
29 October 2023 30 October 2022
Note £m £m
Revenue 2,3 761.4 765.2
Cost of sales (659.9) (651.8)
Gross profit 101.5 113.4
Administrative expenses (19.8) (20.0)
Exceptional administrative expenses 4 (0.6) (0.5)
Exceptional impairment of non-current assets 4 (3.1) -
Operating profit 78.0 92.9
Finance costs (13.5) (10.7)
Finance income 2.0 0.5
Net finance cost 5 (11.5) (10.2)
Profit before taxation 66.5 82.7
Taxation 6 (19.5) (18.1)
Profit for the financial period 47.0 64.6
Earnings per share
Basic 7 19.8p 27.2p
Diluted 7 19.7p 27.0p
WATCHES OF SWITZERLAND GROUP PLC
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
26 week period ended 26 week period ended
29 October 2023 30 October 2022
Note £m £m
Profit for the financial period 47.0 64.6
Other comprehensive income:
Items that may be reclassified to profit or loss in subsequent periods
Foreign exchange gain on translation of foreign operations 6.7 11.8
Related tax movements (0.6) (1.2)
6.1 10.6
Items that will not be reclassified to profit or loss in subsequent periods
Actuarial (losses)/gains on defined benefit pension scheme 12 (1.0) 0.7
Related tax movements 0.3 (0.2)
(0.7) 0.5
Other comprehensive income for the period net of tax 5.4 11.1
Total comprehensive profit for the period net of tax 52.4 75.7
The notes are an integral part of the Interim Condensed Consolidated Financial
Statements.
WATCHES OF SWITZERLAND GROUP PLC
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEET
29 October 2023 30 April 2023 30 October 2022
Note £m £m £m
Assets
Non-current assets
Goodwill 8 185.2 182.8 187.2
Intangible assets 8 17.6 17.6 18.4
Property, plant and equipment 9 185.5 154.4 136.9
Right-of-use assets 10 402.6 359.1 352.8
Deferred tax assets 3.2 6.2 6.9
Post-employment benefit asset 12 - 0.1 0.3
Trade and other receivables 2.1 2.1 2.1
796.2 722.3 704.6
Current assets
Inventories 399.7 356.0 379.5
Current tax asset 4.2 2.6 2.6
Trade and other receivables 20.2 17.7 18.5
Cash and cash equivalents 11 86.1 136.4 111.6
510.2 512.7 512.2
Total assets 1,306.4 1,235.0 1,216.8
Liabilities
Current liabilities
Trade and other payables (249.6) (218.7) (242.8)
Current tax liability - (4.9) (0.2)
Lease liabilities 10 (51.5) (47.4) (48.4)
Borrowings 11 - - (17.2)
Provisions (1.3) (1.8) (1.2)
(302.4) (272.8) (309.8)
Non-current liabilities
Trade and other payables (1.1) (0.9) (0.9)
Deferred tax liabilities (3.5) (3.0) (1.2)
Lease liabilities 10 (408.1) (363.0) (354.9)
Borrowings 11 (68.0) (120.0) (119.0)
Post-employment benefit obligations 12 (0.6) - -
Provisions (6.9) (6.0) (5.7)
(488.2) (492.9) (481.7)
Total liabilities (790.6) (765.7) (791.5)
Net assets 515.8 469.3 425.3
Equity
Share capital 3.0 3.0 3.0
Share premium 147.1 147.1 147.1
Merger reserve (2.2) (2.2) (2.2)
Other reserves (23.4) (18.4) (18.6)
Retained earnings 382.4 337.0 279.6
Foreign exchange reserve 8.9 2.8 16.4
Total equity 515.8 469.3 425.3
As disclosed within note 24 of the Group's Annual Report and Accounts for the
52 weeks to 30 April 2023, prior period balances have been restated, in line
with IFRS 3 'Business combinations', to reflect the finalisation of the
provisional fair values of Betteridge Jewelers, Inc., Gotthelfs Acquisition
Corp., and Vail Village Jewelers, Inc. ('Betteridge').
The notes are an integral part of the Interim Condensed Consolidated Financial
Statements.
WATCHES OF SWITZERLAND GROUP PLC
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share capital Share premium Merger reserve Other reserves Retained earnings Foreign exchange reserve Total equity attributable to owners
£m £m £m £m £m £m £m
Balance at 2 May 2022 3.0 147.1 (2.2) (6.7) 214.3 5.8 361.3
Profit for the financial period - - - - 64.6 - 64.6
Other comprehensive income - - - - 0.7 11.8 12.5
Tax relating to components of other comprehensive income - - - - (0.2) (1.2) (1.4)
Total comprehensive income - - - - 65.1 10.6 75.7
Transactions with owners
Purchase of own shares* - - - (14.5) - - (14.5)
Share-based payment charge - - - - 2.8 - 2.8
Share-based payments - - - 2.6 (2.6) - -
Balance at 30 October 2022 3.0 147.1 (2.2) (18.6) 279.6 16.4 425.3
Balance at 1 May 2023 3.0 147.1 (2.2) (18.4) 337.0 2.8 469.3
Profit for the financial period - - - - 47.0 - 47.0
Other comprehensive income - - - - (1.0) 6.7 5.7
Tax relating to components of other comprehensive income - - - - 0.3 (0.6) (0.3)
Total comprehensive income - - - - 46.3 6.1 52.4
Transactions with owners
Purchase of own shares* - - - (7.2) - - (7.2)
Share-based payment charge - - - - 1.9 - 1.9
Share-based payments - - - 2.2 (2.2) - -
Tax on share-based payments - - - - (0.6) - (0.6)
Balance at 29 October 2023 3.0 147.1 (2.2) (23.4) 382.4 8.9 515.8
The notes are an integral part of the Interim Condensed Consolidated Financial
Statements.
*During the period the Group purchased £7.2 million (30 October 2022: £14.5
million) of own shares to satisfy management incentives. The shares were
purchased by an Employee Benefit Trust which has been set up for this purpose.
The Group adopts a 'look-through' approach, which in substance, accounts for
the Trust as an extension of the Parent. Own shares are recorded at cost and
are deducted from equity.
WATCHES OF SWITZERLAND GROUP PLC
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
26 week period ended 26 week period ended
29 October 2023 30 October 2022
Note £m £m
Cash flows from operating activities
Profit for the period 47.0 64.6
Adjustments for:
Depreciation of property, plant and equipment 9 18.3 15.3
Depreciation of right-of-use assets 10 26.6 24.7
Amortisation of intangible assets 8 1.8 1.5
Impairment of right-of-use assets 10 1.9 -
Impairment of property, plant and equipment 9 1.2 -
Share-based payment charge 1.9 2.8
Finance income 5 (2.0) (0.5)
Finance costs 5 13.5 10.7
Gain on lease breaks and surrender 10 (0.5) (0.8)
Loss on disposal of property, plant and equipment 9 0.1 0.5
Taxation 19.5 18.1
Increase in inventories (38.7) (63.4)
(Increase)/decrease in debtors (0.8) 0.7
Increase in creditors, provisions, and pensions 27.5 34.4
Cash generated from operations 117.3 108.6
Pension scheme contributions 12 (0.3) (0.3)
Tax paid (23.2) (20.2)
Total net cash generated from operating activities 93.8 88.1
Cash flows from investing activities
Purchase of property, plant and equipment (46.2) (29.3)
Purchase of intangible assets (1.4) (0.7)
Cash outflow from purchase of non-current assets (47.6) (30.0)
Acquisition of subsidiaries net of cash - (20.6)
Total net cash outflow from investing activities (47.6) (50.6)
Cash flows from financing activities
Own shares purchased for share schemes (7.2) (21.3)
Repayment of term loan (120.0) -
Proceeds from multicurrency revolving loan facility 70.0 -
Costs directly attributable to raising new loan facility (2.2) -
Proceeds from short term borrowings - 17.5
Payment of capital element of leases 10 (22.2) (20.7)
Payment of interest element of leases 10 (10.0) (7.9)
Interest paid (5.7) (1.8)
Net cash outflow from financing activities (97.3) (34.2)
Net (decrease)/increase in cash and cash equivalents (51.1) 3.3
Cash and cash equivalents at the beginning of the period 136.4 105.9
Exchange gains on cash and cash equivalents 0.8 2.4
Cash and cash equivalents at the end of period 11 86.1 111.6
Comprised of:
Cash at bank and in hand 68.6 97.1
Cash in transit 17.5 14.5
Cash and cash equivalents at end of period 11 86.1 111.6
WATCHES OF SWITZERLAND GROUP PLC
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General information and basis of preparation
Basis of preparation
The Group's Interim Condensed Consolidated Financial Statements for the 26
weeks to 29 October 2023 (prior year: 26 weeks to 30 October 2022) were
approved by the Board of Directors on 6 December 2023 and have been prepared
in accordance with UK adopted International Accounting Standard 34.
The results for the 26 weeks to 29 October 2023 have been reviewed by Ernst
& Young LLP and a copy of their review report is given 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 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 52 weeks to 30 April 2023 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.
The Interim Condensed Consolidated Financial Statements are presented in
Pounds Sterling (£), which is the Group's presentational currency, and are
shown in £millions to one decimal place.
Going concern
The Directors consider that the Group has, at the time of approving the
Group's Interim Condensed Consolidated Financial Statements, adequate
resources to remain in operation for the period to 31 December 2024 and have
therefore continued to adopt the going concern basis in preparing the
consolidated information.
On 9 May 2023, the Group signed a new five year £225.0 million multicurrency
revolving loan facility with lenders. The existing facilities were repaid and
extinguished on this date. As a result, the going concern assessment has been
carried out using the new £225.0 million facility now in place.
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. The new £225.0 million facility covenants are in line with those
previously used, notably on a pre-IFRS 16 basis and excluding share based
payment costs. 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. At 29 October 2023 the Group satisfied the covenant tests
with net debt to EBITDA being less than 3 and the FCCR exceeding 1.6.
At the balance sheet date, the Group had a total of £225.0 million in
available committed facilities, of which £70.0 million was drawn down. Net
cash at this date was £16.1 million with liquidity headroom (defined as
unrestricted cash plus undrawn available facilities) of £224.9 million. The
UK bank facility of £225.0 million is due to expire in May 2028.
In assessing whether the going concern basis of accounting is appropriate, the
Directors have reviewed various trading scenarios for the period to 31
December 2024 from the date of this report. These included:
- The latest forecast approved by the Board in November 2023 which included
the following key assumptions:
- A continued strong luxury watch market in the UK, US and Europe
- Revenue forecast supported by expected luxury watch supply
- Increased cost base in line with macroeconomic environment and
environmental targets
The forecast aligns to the Guidance as given in our H1 FY24 Results. Under
this forecast, the Group has significant liquidity and complies with all
covenant tests at 28 April and 27 October 2024. Our Guidance reflects
current visibility of supply from key brands and confirmed showroom
refurbishments, openings and closures, and excludes uncommitted capital
projects and acquisitions which would only occur if expected to be incremental
to the business.
- Severe but plausible scenarios of:
- 10% reduction in sales against the forecast due to reduced consumer
confidence and lower disposable income due to the cost-of-living challenges.
This scenario did not include cost mitigations which are given below
- The realisation of material risks detailed within the Principal Risks and
Uncertainties on pages 116 to 121 and environmental risks highlighted on pages
98 to 100 of the Group's Annual Report and Accounts for the 52 weeks to 30
April 2023
Under these scenarios the net debt to EBITDA and the FCCR covenants would be
complied with.
- Reverse stress-testing of cashflows during the going concern period was
performed. This determined what level of reduced EBITDA and worst case cash
flows would result in a breach of the liquidity or covenant tests. The
likelihood of this level of reduced EBITDA is considered remote taking into
account current trading and liquidity headroom, as well as mitigating actions
within management's control (as noted below) plus the fact that this would
represent a significant reduction in sales from prior financial years.
Should trading be worse than the outlined severe but plausible scenarios, the
Group has the following mitigating actions within management's control:
- Reduction of marketing spend
- Reduction in the level of stock purchases
- Restructuring of the business with headcount and showroom operations
savings
- Redundancies and pay freezes
- Reducing the level of planned capex
As a result of the above analysis, including potential severe but plausible
scenarios and reverse stress-testing, 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 2024. For this reason, the
Board considers it appropriate for the Group to adopt the going concern basis
in preparing the financial statements.
Climate change
In preparing the Interim Condensed Consolidated Financial Statements,
management has considered the impact of climate change, particularly in the
context of the disclosures included in the Strategic Report. These
considerations did not have a material impact on the financial reporting
judgements and estimates, consistent with the assessment that climate change
is not expected to have a significant impact on the Group's going concern
assessment to 31 December 2024.
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 52 weeks ended 30 April 2023.
IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new
accounting standard for insurance contracts covering recognition and
measurement, presentation and disclosure. The overall objective of IFRS 17 is
to provide an accounting model for insurance contracts that is more useful and
consistent for insurers. The amendments did not have a material impact on the
Group's Interim Condensed Consolidated Financial Statements.
Further amendments to and the interpretation of, existing accounting standards
that became effective during the period, did not have a material impact on the
Interim Condensed Consolidated 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 52 weeks ended 30 April 2023
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 Chief Operating Decision Makers
(CODMs) and how they are measured for the purposes of covenant testing. 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.
Adjusted EBITDA represents profit for the period before finance costs, finance
income, taxation, depreciation, amortisation, and exceptional items presented
in the Group's Interim Condensed Consolidated Income Statement (consisting of
exceptional administrative expenses, exceptional finance costs and exceptional
impairment) on a pre-IFRS 16 basis.
26 week period ended 29 October 2023
UK and US Corporate Total
Europe
£m £m £m £m
Revenue 433.6 327.8 - 761.4
Net margin 157.8 122.3 - 280.1
Less:
Showroom costs (79.4) (57.8) - (137.2)
Overheads (23.3) (18.7) (1.4) (43.4)
Showroom opening and closing costs (4.0) (1.5) - (5.5)
Adjusted EBITDA 51.1 44.3 (1.4) 94.0
Depreciation, amortisation and loss on disposal of assets (13.0) (6.9) (0.7) (20.6)
Segment profit/(loss)* 38.1 37.4 (2.1) 73.4
IFRS 16 adjustments 8.3
Exceptional impairment of assets (note 4) (3.1)
Exceptional administrative costs (note 4) (0.6)
Net other finance costs (note 5) (11.5)
Profit before taxation for the financial period 66.5
26 week period ended 30 October 2022
UK and US Corporate Total
Europe
£m £m £m £m
Revenue 453.8 311.4 - 765.2
Net margin 169.2 118.4 - 287.6
Less:
Showroom costs (78.2) (58.1) - (136.3)
Overheads (20.8) (17.4) (1.8) (40.0)
Showroom opening and closing costs (5.4) (1.5) - (6.9)
Adjusted EBITDA 64.8 41.4 (1.8) 104.4
Depreciation, amortisation and loss on disposal of assets
(10.7) (7.0) - (17.7)
Segment profit/(loss)* 54.1 34.4 (1.8) 86.7
IFRS 16 adjustments 6.7
Exceptional administrative costs (note 4) (0.5)
Net other finance costs (note 5) (10.2)
Profit before taxation for the financial period 82.7
* Segment profit/(loss) is defined as being Earnings Before Interest, Tax,
exceptional items and IFRS 16 adjustments (Adjusted EBIT).
Entity-wide revenue disclosures
26 week period ended 26 week period ended
29 October 2023 30 October 2022
£m £m
UK and Europe
Luxury watches 369.0 387.1
Luxury jewellery 28.3 32.1
Services/other 36.3 34.6
Total 433.6 453.8
US
Luxury watches 301.1 279.7
Luxury jewellery 18.7 24.3
Services/other 8.0 7.4
Total 327.8 311.4
Group
Luxury watches 670.1 666.8
Luxury jewellery 47.0 56.4
Services/other 44.3 42.0
Total 761.4 765.2
'Services/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.
Entity-wide non-current assets disclosures
29 October 2023 30 October 2022
£m £m
UK and Europe
Goodwill 121.6 121.6
Intangible assets 5.3 4.5
Property, plant and equipment 109.6 83.8
Right-of-use assets 272.2 224.8
Total 508.7 434.7
US
Goodwill 63.6 65.6
Intangible assets 12.3 13.9
Property, plant and equipment 65.0 53.1
Right-of-use assets 124.4 128.0
Total 265.3 260.6
Corporate
Property, plant and equipment 10.9 -
Right-of-use assets 6.0 -
Total 16.9 -
Group
Goodwill 185.2 187.2
Intangible assets 17.6 18.4
Property, plant and equipment 185.5 136.9
Right-of-use assets 402.6 352.8
Total 790.9 695.3
As disclosed within note 24 of the Group's Annual Report and Accounts for the
52 weeks to 30 April 2023, prior period balances have been restated, in line
with IFRS 3 'Business combinations', to reflect the finalisation of the
provisional fair values of Betteridge Jewelers, Inc., Gotthelfs Acquisition
Corp., and Vail Village Jewelers, Inc. ('Betteridge').
3. Revenue
The Group's disaggregated revenue recognised under contracts with customers
relates to the following categories and operating segments.
26 week period ended 29 October 2023
Sale of goods Rendering of services Total
£m £m £m
UK and Europe 415.2 18.4 433.6
US 321.4 6.4 327.8
Total 736.6 24.8 761.4
26 week period ended 30 October 2022
Sale of goods Rendering of services Total
£m £m £m
UK and Europe 436.2 17.6 453.8
US 305.6 5.8 311.4
Total 741.8 23.4 765.2
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 Interim
Consolidated Income Statement.
26 week period ended 26 week period ended
29 October 2023 30 October 2022
£m £m
Exceptional administrative expenses
Professional and legal expenses on business combinations((i)) (0.6) (0.5)
Total exceptional administrative costs (0.6) (0.5)
Exceptional impairment of assets
Impairment of property, plant and equipment((ii)) (1.2) -
Impairment of right-of-use assets((ii)) (1.9) -
Total exceptional impairment of assets (3.1) -
Total exceptional items (3.7) (0.5)
(i) Professional and legal expenses on business combinations
Professional and legal expenses incurred in relation to business combinations
have been expensed to the Interim Condensed 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.
(ii) Impairment of property, plant and equipment and right-of-use assets
The current macroeconomic environment, increased interest rates, and
inflationary trends gave rise to indicators of impairment in the current
period. Consequently, discounted cashflows were performed on all CGUs with
indicators of impairment. This resulted in an impairment charge of £3.1m
being recorded in the period. This is allocated over the property, plant and
equipment, and the right-of-use assets of those showrooms as required by IAS
36 Impairment of Assets. This has been booked as an exceptional item due to
the non-trading nature of the impairment.
Tax on the exceptional items noted above totalled £1.0m (26 week period to 30
October 2022: £0.1m).
5. Net finance costs
26 week period ended 26 week period ended
29 October 2023 30 October 2022
£m £m
Finance costs
Interest payable on long term borrowings (3.3) (2.3)
Interest payable on short term borrowings - (0.1)
Amortisation of capitalised transaction costs (0.2) (0.4)
Interest on lease liabilities (note 10) (10.0) (7.9)
(13.5) (10.7)
Finance income
Bank interest receivable 1.1 0.1
Net foreign exchange gain on financing activities 0.4 0.4
Other interest receivable 0.5 -
2.0 0.5
Net finance costs (11.5) (10.2)
Further detail of borrowing facilities in place is given in note 11 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 29.2% (26 week period to 30 October 2022: 21.9%). This is higher than the
applicable UK corporation tax rate for the year of 25.0%, as a result of
higher taxes chargeable on US profits and the impact of expenses disallowed
for corporation tax.
OECD Pillar Two model rules
The Group is within the scope of the OECD Pillar Two model rules. Pillar Two
legislation was enacted in the UK, the jurisdiction in which the company is
incorporated, and will come into effect from 1 January 2025. The Group applies
the exception to recognising and disclosing information about deferred tax
assets and liabilities related to Pillar Two income taxes, as provided in the
amendments to IAS 12 issued in May 2023, and endorsed by the UKEB in July
2023.
7. Earnings per share (EPS)
26 week period ended 26 week period ended
29 October 2023 30 October 2022
Basic
EPS 19.8p 27.2p
EPS adjusted for exceptional items 21.0p 27.4p
EPS adjusted for exceptional items and pre-IFRS 16 21.5p 27.8p
Diluted
EPS 19.7p 27.0p
EPS adjusted for exceptional items 20.9p 27.2p
EPS adjusted for exceptional items and pre-IFRS 16 21.4p 27.6p
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 as increased by 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 ended 26 week period ended
29 October 2023 30 October 2022
£m £m
Profit after tax attributable to equity holders of the parent company 47.0 64.6
Add back:
Exceptional administrative expenses, net of tax 2.7 0.5
Profit adjusted for exceptional items 49.7 65.1
Pre-exceptional IFRS 16 adjustments, net of tax 1.2 1.0
Profit adjusted for exceptional items and IFRS 16 50.9 66.1
The following table reflects the share data used in the basic and diluted EPS
calculations:
26 week period ended 26 week period ended
29 October 2023 30 October 2022
Weighted average number of shares: '000 '000
Weighted average number of ordinary shares in issue 237,056 237,848
Weighted average shares for basic EPS 237,056 237,848
Weighted average dilutive potential shares 1,358 1,252
Weighted average shares for diluted EPS 238,414 239,100
8. Intangible assets
Goodwill Brands Agency agreement Computer software Total
£m £m £m £m £m
Net book value
At 1 May 2023 182.8 10.5 1.2 5.9 200.4
Additions - - - 1.4 1.4
Amortisation - (0.3) (0.1) (1.4) (1.8)
Foreign exchange differences 2.4 0.4 - - 2.8
At 29 October 2023 185.2 10.6 1.1 5.9 202.8
9. Property, plant and equipment
Land and Fittings and equipment Total
buildings
£m £m £m
Net book value
At 1 May 2023 0.8 153.6 154.4
Additions - 48.5 48.5
Disposals - (0.1) (0.1)
Depreciation (0.1) (18.2) (18.3)
Exceptional impairment - (1.2) (1.2)
Foreign exchange differences - 2.2 2.2
At 29 October 2023 0.7 184.8 185.5
10. Leases
Right-of-use assets
Properties Other Total
£m £m £m
At 1 May 2023 358.0 1.1 359.1
Additions 67.2 0.3 67.5
Depreciation (26.4) (0.2) (26.6)
Lease breaks (0.5) - (0.5)
Lease surrender (2.7) - (2.7)
Exceptional impairment (1.9) - (1.9)
Lease extensions 3.8 - 3.8
Foreign exchange differences 3.9 - 3.9
At 29 October 2023 401.4 1.2 402.6
Lease liabilities
Properties Other Total
£m £m £m
At 1 May 2023 (409.4) (1.0) (410.4)
Additions (66.2) (0.3) (66.5)
Payments 32.0 0.2 32.2
Interest (10.0) - (10.0)
Lease breaks 0.5 - 0.5
Lease surrender 3.2 - 3.2
Lease extensions (3.6) - (3.6)
Foreign exchange differences (5.0) - (5.0)
At 29 October 2023 (458.5) (1.1) (459.6)
Impairment considerations
Property, plant and equipment and other non-current assets are reviewed for
impairment if events or changes in circumstances indicate that the carrying
amount of an asset or a cash-generating unit (CGU) is not recoverable. A CGU
is the smallest identifiable group of assets that generate independent cash
flows which are monitored by management and the CODMs. Refer to note 4 for
details of the impairment booked in the period.
Impairment has been considered as at 29 October 2023 in line with the current
trading environment and cost-of-living challenges. It has been concluded that
previous impairments made remain appropriate, and remaining asset values held
at 29 October 2023 are supported by expected future cashflows.
11. Borrowings
29 October 2023 30 April 2023 30 October 2022
£m £m £m
Current
Short term borrowings - - (17.2)
Non-current
Multicurrency revolving loan facility (70.0) - -
Term loan - (120.0) (120.0)
Associated capitalised transaction costs 2.0 - 1.0
Total borrowings (68.0) (120.0) (136.2)
On 9 May 2023, the Group signed a new five year £225.0 million multicurrency
revolving loan facility with lenders. The existing facilities were repaid and
extinguished on this date.
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. The new £225.0 million facility covenants are in line with those
previously used, notably on a pre-IFRS 16 basis and excluding share based
payment costs. 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. At 29 October 2023 the Group comfortably satisfied the
covenant tests with net debt to EBITDA being less than 3 and the FCCR
exceeding 1.6.
At the balance sheet date, the Group had a total of £225.0 million in
available committed facilities, of which £70.0 million was drawn down. Net
cash at this date was £16.1 million with liquidity headroom (defined as
unrestricted cash plus undrawn available facilities) of £226.8 million. The
UK bank facility of £225.0 million is due to expire in May 2028.
Analysis of net debt
1 May 2023 Cash flow Non-cash charges^ Foreign exchange 29 October 2023
£m £m £m £m £m
Cash and cash equivalents 136.4 (51.1) - 0.8 86.1
Term loans (120.0) 120.0 - - -
Multicurrency revolving loan facility - (70.0) - - (70.0)
Net cash excluding capitalised transaction costs (Pre-IFRS 16) 16.4 (1.1) - 0.8 16.1
Capitalised transaction costs - 2.2 (0.2) - 2.0
Net cash 16.4 1.1 (0.2) 0.8 18.1
(Pre-IFRS 16)
Lease liability (410.4) 32.2 (76.4) (5.0) (459.6)
Total net debt (394.0) 33.3 (76.6) (4.2) (441.5)
^ Non-cash charges are principally lease liability interest charges, additions
and revisions.
12. Post-employment benefit obligations
During the 26 weeks to 29 October 2023 (prior period: 26 weeks to 30 October
2022), the Group operated four (prior period: four) defined contribution
pension schemes and two defined benefit schemes (prior period: two).
The movement in the defined benefit (liability)/surplus in the period is as
follows:
26 weeks to 29 October 2023 52 weeks to 30 April 2023 26 weeks to 30 October 2022
£m £m £m
Net pension asset/(liability) at the beginning of the period 0.1 (0.6) (0.6)
Administration costs - (0.2) (0.1)
Employer contributions 0.3 0.7 0.3
Actuarial (losses)/gains (1.0) 0.3 0.7
Other - (0.1) -
Net pension (liability)/surplus at the end of the period (0.6) 0.1 0.3
The IAS 19 (accounting) valuation of the defined benefit obligation was
undertaken by an external qualified actuary at 29 October 2023 using the
projected unit credit method.
The scheme valuation moved from a surplus of £0.1 million at 30 April 2023 to
a deficit of £0.6 million at 29 October 2023. The movement results from
changes in the principal actuarial assumptions used in the valuation as
follows:
29 October 2023 30 April 2023 30 October 2022
Discount rate 5.55% 4.75% 4.50%
Rate of increase in salary n/a n/a n/a
Rate of future inflation - RPI 3.35% 3.20% 3.25%
Rate of future inflation - CPI 2.75% 2.60% 2.65%
Rate of increase in pensions in payment 3.30% 3.15% 3.20%
Proportion of employees opting for a cash commutation 100.0% 100.0% 100.00%
13. Related party transactions
Transactions with related undertakings
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation.
14. Financial instruments
Categories
29 October 2023 30 April 2023 30 October 2022
£m £m £m
Financial assets - held at amortised cost
Trade and other receivables* 17.3 13.9 13.7
Cash and cash equivalents 86.1 136.4 111.6
Total financial assets 103.4 150.3 125.3
Financial liabilities - held at amortised cost
Short term borrowings - - (17.2)
Term loan*** - (120.0) (119.0)
Multicurrency revolving loan facility*** (68.0) - -
Trade and other payables** (225.0) (193.8) (220.3)
Net financial liabilities (pre-IFRS 16) (293.0) (313.8) (356.5)
Lease liability (IFRS 16) (note 10) (459.6) (410.4) (403.3)
Total financial liabilities (752.6) (724.2) (759.8)
* Excludes prepayments of £5.0 million (30 October 2022: £6.9 million, 30
April 2023: £5.9 million) that do not meet the definition of a financial
instrument.
** Excludes customer deposits of £5.9 million (30 October 2022: £6.4
million, 30 April 2023: £7.9 million) and deferred income of £19.8 million
(30 October 2022: £17.0 million, 30 April 2023: £17.9 million) that do not
meet the definition of a financial instrument.
*** Net of capitalised transaction costs
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 Interim Condensed
Consolidated 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.
15. Contingent liabilities
From time to time, the Group may be subject to complaints and litigation from
its clients, 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.
These are not expected to result in a material liability to the Group.
16. Post-balance sheet events
On 17 November 2023, the Group acquired the trade and assets of 15 showrooms
from Ernest Jones Limited and Signet Trading Limited for a cash consideration
of £44.2 million. The acquisition further advances the UK expansion strategy.
The assets and liabilities acquired principally comprise working capital
balances of inventory and property, plant and equipment. Due to the proximity
of the acquisition date to the date of approval these Interim Condensed
Consolidated 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 28 April 2024.
No further post balance sheet events have been identified.
WATCHES OF SWITZERLAND GROUP PLC
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 29 October 2023 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 29
October 2023 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 2023.
A list of current directors is maintained on the Group's website:
www.thewosgroupplc.com (http://www.thewosgroupplc.com) .
For and by order of the Board
Brian
Duffy
Anders Romberg
Chief Executive
Officer
Chief Financial Officer
6 December 2023
INDEPENDENT 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 29
October 2023 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 16. 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 29 October 2023 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) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. 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 are
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".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
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.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
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, including our Conclusions
Relating to Going Concern, are 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) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. 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
6 December 2023
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 showroom costs.
Why used
4-Wall EBITDA is a direct measure of profitability of the showroom operations.
Reconciliation to IFRS measures
£million H1 FY24 H1 FY23
Revenue 761.4 765.2
Cost of inventory expensed (485.3) (481.7)
Other 4.0 4.1
Net margin 280.1 287.6
Showroom costs (137.2) (136.3)
4-Wall EBITDA 142.9 151.3
Showroom 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 (Adjusted 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 periods.
This measure was linked to management incentives in the period.
Reconciliation to IFRS measures
Reconciled in note 2 to the Interim Condensed Consolidated Financial
Statements.
Adjusted Earnings Before Interest, Tax, Depreciation and Amortisation
(Adjusted EBITDA)
EBITDA before exceptional items presented in the Group's Interim Condensed
Consolidated Income Statement. Shown 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 periods.
Reconciliation to IFRS measures
Reconciled in note 2 of the Interim Condensed Consolidated Financial
Statements.
Adjusted earnings per share (Adjusted EPS)
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 periods. This measure was
linked to management incentives in the financial period.
Reconciliation to IFRS measures
Reconciled within note 7 of the Interim Condensed Consolidated Financial
Statements.
Adjusted profit before tax (Adjusted PBT)
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 periods.
Reconciliation to IFRS measure
£million H1 FY24 H1 FY23
Segment profit (note 2) 73.4 86.7
Net finance costs (note 5) (11.5) (10.2)
IFRS 16 lease interest (note 5) 10.0 7.9
Adjusted profit before tax 71.9 84.4
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
(£/$ million)
H1 FY24 Group Revenue (£) 761.4
H1 FY24 US Revenue ($) 411.1
H1 FY24 US Revenue (£) @ HY24 Exchange rate 327.8
H1 FY24 US Revenue (£) @ HY23 Exchange rate 345.5
HY24 Group Revenue (£) @ Constant currency 779.0
H1 FY24 Exchange rate 1.254
H1 FY23 Exchange rate 1.189
_________________________________________________________________________________________________________________
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 Interim Condensed 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 11 of the Interim Condensed 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, acquisitions or returns to
shareholders.
Reconciliation to IFRS measures
£million H1 FY24 H1 FY23
Net (decrease)/increase in cash and cash equivalents (51.1) 3.3
Net financing cash flow 97.3 34.2
Interest paid (5.7) (1.8)
Lease payments (IFRS 16) (32.2) (28.6)
Acquisition of business combinations - 20.6
Exceptional costs 0.6 0.5
Expansionary capex 47.8 27.4
Free cash flow 56.7 55.6
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 £56.7 million divided by Adjusted EBITDA of £94.0 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 showroom 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 £151.8m divided by the average capital employed, which is
calculated as follows:
£million LTM to 29 October 2023 LTM to 30 October 2022
Pre-IFRS 16 total assets 920.6 872.8
Pre-IFRS 16 current liabilities (257.7) (267.4)
Capital employed 662.9 605.5
Average capital employed 634.2 541.7
Other definitions
Expansionary capital expenditure/capex
Expansionary capital expenditure relates to new showrooms, relocations
or refurbishments greater than £250,000.
Showroom maintenance capital expenditure/capex
Capital expenditure which is not considered expansionary.
Luxury watches
Watches that have Recommended Retail Price greater than £1,000.
Luxury jewellery
Jewellery that has a Recommended Retail Price greater than £500.
IFRS 16 Adjustments
The following tables reconcile from pre-IFRS 16 balances to post-IFRS 16
balances.
H1 FY24 Income Statement
£million Pre-IFRS 16 and exceptional items IFRS 16 adjustments Exceptional Post-IFRS 16 and exceptional items
items
Revenue 761.4 - - 761.4
Net margin 280.1 - - 280.1
Showroom costs (137.2) 31.3 - (105.9)
4-Wall EBITDA 142.9 31.3 - 174.2
Overheads (43.4) - (0.6) (44.0)
EBITDA 99.5 31.3 (0.6) 130.2
Showroom opening and closing costs (5.5) 2.9 - (2.6)
Adjusted EBITDA 94.0 34.2 (0.6) 127.6
Depreciation, amortisation and loss on disposal of fixed assets (20.6) (25.9) (3.1) (49.6)
Adjusted EBIT / Operating profit 73.4 8.3 (3.7) 78.0
Net finance costs (1.5) (10.0) - (11.5)
Adjusted profit before tax / Profit before tax 71.9 (1.7) (3.7) 66.5
Adjusted basic Earnings per share 21.5p 19.8p
H1 FY24 Balance Sheet
£million Pre-IFRS 16 IFRS 16 adjustments Post-IFRS 16
Goodwill and intangibles 202.8 - 202.8
Property, plant and equipment 193.3 (7.8) 185.5
IFRS 16 right-of-use assets - 402.6 402.6
Inventories 399.7 - 399.7
Trade and other receivables 34.4 (12.1) 22.3
Trade and other payables (295.9) 45.2 (250.7)
IFRS 16 lease liabilities - (459.6) (459.6)
Net cash 16.1 - 16.1
Other (12.2) 9.3 (2.9)
Net assets 538.2 (22.4) 515.8
H1 FY23 Income Statement
£million Pre-IFRS 16 and exceptional items IFRS 16 adjustments Exceptional Post-IFRS 16 and exceptional items
items
Revenue 765.2 - - 765.2
Net margin 287.6 - - 287.6
Showroom costs (136.3) 26.6 - (109.7)
4-Wall EBITDA 151.3 26.6 - 177.9
Overheads (40.0) - (0.5) (40.5)
EBITDA 111.3 26.6 (0.5) 137.4
Showroom opening and closing costs (6.9) 3.9 - (3.0)
Adjusted EBITDA 104.4 30.5 (0.5) 134.4
Depreciation, amortisation and loss on disposal of fixed assets (17.7) (23.8) - (41.5)
Adjusted EBIT / Operating profit 86.7 6.7 (0.5) 92.9
Net finance costs (2.3) (7.9) - (10.2)
Adjusted profit before tax / Profit before tax 84.4 (1.2) (0.5) 82.7
Adjusted basic Earnings per share 27.8p 27.2p
H1 FY23 Balance Sheet
£million Pre-IFRS 16 IFRS 16 adjustments Post-IFRS 16
Goodwill and intangibles 205.6 - 205.6
Property, plant and equipment 139.9 (3.0) 136.9
IFRS 16 right-of-use assets - 352.8 352.8
Inventories 379.5 - 379.5
Trade and other receivables 32.6 (12.0) 20.6
Trade and other payables (282.5) 38.8 (243.7)
IFRS 16 lease liabilities - (403.3) (403.3)
Net debt (25.6) - (25.6)
Other (6.6) 9.1 2.5
Net assets 442.9 (17.6) 425.3
As disclosed within note 24 of the Group's Annual Report and Accounts for the
52 weeks to 30 April 2023, prior period balances have been restated, in line
with IFRS 3 'Business combinations', to reflect the finalisation of the
provisional fair values of Betteridge Jewelers, Inc., Gotthelfs Acquisition
Corp., and Vail Village Jewelers, Inc. ('Betteridge').
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