9 December 2021

Dr. Martens plc

First half results for the period ended 30 September 2021

STRONG FIRST HALF PERFORMANCE; CONFIDENT IN FULL YEAR EXPECTATIONS

"Our strong performance in the first half is testament to the strength of our business model, the under penetration of our brand globally, our agility in adapting to changing conditions and the passion and dedication of our people. We continue to take a long-term custodian approach to growing the brand, prioritising DTC channels and our seven priority markets. At the start of the period we took Italy and Iberia back under direct control and we are very pleased with their performance to date.

"We took the decision to enter the year with higher inventory levels, made possible by the continuity and carryover nature of our product and our partnership approach to supplier relationships. This meant that DTC availability levels remained relatively high and gross margin was not impacted, despite the supply chain disruption and global shipping delays experienced across the industry. Our Americas performance was again particularly strong, notwithstanding our wholesale business here being most impacted by these delays.

"Our strong first half performance combined with the continued momentum in DTC trading into the second half gives us confidence in achieving market expectations for the full year. I remain hugely excited about the growth potential of the Dr. Martens brand." Kenny Wilson, Chief Executive Officer

£m	H1 FY22	H1 FY21	% change Actual	% change CC3
Revenue	369.9	318.2	16%	24%
EBITDA1	88.8	86.3	3%	17%
PBT	61.3	41.9	46%
Adjusted2 PBT	61.3	44.9	37%
Profit After Tax	48.6	29.5	65%
EPS (p)	4.8	3.0	60%
Adjusted2 EPS (p)	4.8	3.3	45%

¹ EBITDA - Earnings before exchange gains/losses, finance income/expense, income tax, depreciation, amortisation and exceptional items.

² Before exceptional items of £nil (H1 FY21: £3.0m). See pages 34 and 35 for alternative performance measures.

³ Constant currency applies the same exchange rate to the H1 FY22 and H1 FY21 non-GBP results, based on FY22 budgeted rates.

 

·      Revenue grew 16% and Profit before Tax was up 46%

·      DTC mix of 40%, up 6pts:

o  Retail recovering strongly, with revenue up 92%, to 18% mix (up 7pts), and up 2% on a two-year basis ("LY-1")

o  Ecommerce revenue continued to grow double-digits, up 10% and up 117% LY-1

·      Wholesale revenue up 6%, with c.£20m of revenue delayed from Q2 into the second half, predominantly in relation to the Americas

·      Regional performance as expected, with continued strong Americas growth, up 57% CC, EMEA up 12% CC and APAC up 4% CC, as Covid-19 restrictions continued to impact this region

·      Gross margin grew 2.8pts to 61.3%, driven by the shift to DTC, with increased freight costs offset by delivery of supply chain efficiencies

·      EBITDA¹ margin was 24.0% (H1 FY21: 27.1%) and was in line with our expectations. As guided, the period was impacted by the annualization of PLC related costs, increased marketing spend and the return to business as usual operating costs. In line with our usual trading patterns EBITDA margins are stronger in the second half

·      PBT of £61.3m up 46% or 37% on an adjusted basis

·      As part of our commitment to be net zero by 2030, we have further expanded our sustainability team and in October we committed to a 1.5°C trajectory with the Science Based Targets initiative

·      Declaration of our inaugural interim dividend, at 1.22p per share, equating to a 25% earnings payout ratio

 

 

Current trading and outlook

The momentum seen in retail in the first half has continued to strengthen during October and November. Ecommerce trading trends remain positive and in line with the first half performance. While we have seen a gradual improvement, our USA wholesale business continues to be impacted by shipping delays and uncertainty around the timing of shipments being processed through ports; we expect these to continue into the next financial year. We remain confident in achieving market expectations for FY22. Further guidance is provided on page 5.

From FY23 and over the medium-term we continue to anticipate mid-teens revenue growth and are targeting ecommerce to grow to at least 40% mix, with total DTC, including retail, to at least 60% mix, together with a medium-term target of a 30% EBITDA margin.

 

 

Presentation of results

Kenny Wilson, CEO and Jon Mortimore, CFO will be presenting the first half results at 09:30 (UK time) on 9th December. The presentation will be streamed live, and the link to join the webcast is below:

https://webcasting.brrmedia.co.uk/broadcast/619b9bd256c12f2f143149bd

A playback of the presentation will be available on our corporate website after the event, at https://www.drmartensplc.com/investors/

 

Financial calendar

The next scheduled announcement is the Q3 trading statement on 27^th January 2022.

 

About Dr. Martens

Dr. Martens is an iconic British brand founded in 1960 in Northamptonshire. Originally produced for workers looking for tough, durable boots, the brand was quickly adopted by diverse youth subcultures and associated musical movements. Dr. Martens have since transcended their working-class roots while still celebrating their proud heritage and, six decades later, "Docs" or "DMs" are worn by people around the world who use them as a symbol of empowerment and their own individual attitude. 

The Company successfully listed on the main market of the London Stock Exchange on 29 January 2021 (DOCS.L) and is a constituent of the FTSE 250 index.
 

Performance summary

The first six months of FY22 resulted in DTC growing to 40% of revenue, up 6pts, driven by a good retail recovery and strong ecommerce performance with continued double-digit growth despite the reopening of retail. Whilst wholesale revenues grew by 6% (13% CC), they were impacted in the second quarter by supply chain disruption which delayed approximately £20m of revenue into the second half. We benefitted from our decision to enter the year with relatively high inventory levels, meaning that availability was less affected overall. In addition, the continuity and carryover nature of the majority of our product range also reduced the impact from supply chain disruption.

Gross margin increased, up 2.8pts to 61.3%, driven by higher DTC mix, with higher freight costs offset by the delivery of further supply chain efficiencies. Our strong trading performance combined with the previously guided £10m of incremental operating costs (a combination of annualization of PLC costs together with a return to business as usual operating costs) and planned increased marketing spend resulted in EBITDA of £88.8m, up 3% (up 17% CC). EBITDA margin therefore declined year-on-year, as expected to 24.0% (H1 FY21: 27.1%).

At a regional level, we delivered 44% revenue growth in Americas (57% CC), driven by the USA, with strong growth across all channels. EMEA revenue grew by 5% (12% CC) driven by the recovery in our retail estate and continued ecommerce growth. We successfully completed the conversion of Italy and Iberia to wholly-controlled markets in June, and are very encouraged by the early trading results and improved presentation of the brand in the marketplace. APAC revenue was down 2% (up 4% CC) as the region continues to be most impacted by Covid-19 restrictions and lockdowns in Japan, Australia and China. APAC, particularly Japan and China, remain a significant growth opportunity for us in the medium to long-term.  

Profit before tax was £61.3m, up 46%. Earnings per share were 4.8p, up 60%, with adjusted earnings per share up 45%. Operating cash flow after capex was £41.9m, with cash conversion of 47% (H1 FY21: 80%). When temporary changes to supplier payments terms are adjusted for, underlying cash conversion was 60% compared to 33% in H1 FY21. As at 30 September 2021 we had cash of £113.2m and undrawn facilities of £197.0m, with gross bank debt of £290.6m.

 

The DOCS strategy

Across the entire organisation we act as brand custodians, focussing on protecting and enhancing the brand and the business for future generations. This long-term view guides everything we do and ensures that we make the right decisions and investments for the future.

Our strategy has four pillars, 'DOCS', which are:

• D - Direct-to-consumer acceleration. We aim to fuel growth through ecommerce, supported by stores as profitable brand beacons. By focusing on DTC we can control brand engagement with our consumers and ensure the best possible environment to showcase our products, both digitally and physically.
• O - Operational excellence. We are investing and improving our operational and IT infrastructure to enable growth and unlock value. Our supply chain and technology teams are the backbone of our business, and we strive to ensure our future capacity and data requirements are met to support our growth.
• C - Consumer connection. We are focused on creating deeper connections with more consumers, using insights to develop effective marketing strategies aimed at increasing engagement and broadening the Group's consumer base. Our sustainability strategy is a key element of our consumer connection, and we continue to accelerate our journey here.
• S - Sustainable global growth. This means growing our business in the right way. We focus predominantly on seven priority markets: UK, France, Germany, Italy, USA, Japan and China, as these have the biggest headroom for growth over the medium-term. 

 

Executing against our strategy

Against an exceptionally strong comparative, we continued to drive ecommerce revenue growth, of 10%, with revenue mix marginally declining, reflecting the rebound of retail, to 22% compared to 24% in H1 FY21. Retail experienced a strong recovery as stores re-opened or operated with fewer Covid-19 restrictions. Footfall has improved through the period, although remains below pre Covid-19 levels, however conversion is higher. Retail revenues grew 92% (101% CC) and compared to LY-1 grew by 2%. Retail accounted for 18% of mix, compared to 10% in H1 FY21. The recovery of retail combined with continued ecommerce strength resulted in DTC revenue mix growing by 6pts to 40%.

We opened 13 own stores during the first six months of the financial year, including four new stores in Germany, our first store in Spain in Barcelona, three new stores in USA, and one new store in APAC. Since the period end we have opened our second store in Italy.

The biggest operational challenge during the half was the closure, due to Covid-19, of three of our third-party factories in South Vietnam, for around three months, representing approximately 33% of production capacity, together with industry difficulties in booking containers and ships. In the prior year, we maintained purchasing volumes from factories, as we anticipated it would be prudent to build inventory levels, given the wider demand and supply uncertainties coming out of the pandemic. This decision proved very valuable, as it then enabled us to cover much of the supply shortfall from factory closures and shipping delays. The strength of our supply chain operation - particularly the geographic spread of our third-party factories, our long-standing relationships with them and the agility of our teams, also meant that we were able to move production between locations, again reducing the overall impact of the disruption.

The experience of supply chain disruption and shipping delays also reinforced some of the strengths of our business model. These include the simplicity of our product range; the ability for customers to cross shop across the range, reducing the impact on demand in cases of reduced availability; and the high level of non-seasonal continuity lines within our product offering.

Our approach when dealing with supply chain disruptions is to prioritise inventory towards our own channels first and our seven priority markets whenever possible, whilst maintaining good communication with our wholesale customers.  

Our "Tough as You" campaign has evolved into an initiative for empowering and inspiring underrepresented and emerging creative individuals. We have launched a "Tough as You" year-long mentorship programme, enlisting mentoring collaborations with names such as Grammy nominated singer-songwriter, Mahalia, and Ivor-Novello nominated rapper, Kojey Radical.  Through this programme we hope to influence the future of music culture by providing creative opportunities for up and coming artists.

Since launching our ambitious sustainability targets at our full year results, we have been focused on building detailed sustainability roadmaps, metrics and KPIs to track our progress against these targets. As part of our commitment to be net zero by 2030, we have further expanded our sustainability team and are working with the Carbon Trust on carbon footprint mapping. In October we also committed to a 1.5°C trajectory with the Science Based Targets initiative. By aligning our net zero strategy to a warming limit of 1.5°C we can play a small part to help prevent the most severe impacts of climate change. We also continue to invest and work towards our 2040 goals: all footwear being made from sustainable materials without compromising quality; all products having a sustainable end of life option and 100% of the natural materials in products coming from regenerative agriculture.

 

Product

Our product strategy continues to be centred around our icons and innovation. Our iconic product, led by the 1460, has been relevant through the decades, adopted by grassroots cultural pioneers and fashion leaders alike. Continuity product, that is product which is carried over across multiple seasons, continues to represent the vast majority of our Group revenue, at 84%. Innovation around this core is key for us, in order to continually present consumers with new adaptations and cutting-edge design. 

We built on the success of the 60^th anniversary of the 1460 last year, this year highlighting the same anniversary of the 1461, emphasising our shoe proposition to consumers. This programme incorporated collaborations with designers including Supreme, Bodega, Clot and A-Cold-Wall.

Our sandals business continues to grow strongly, with revenues up 45%, with the Voss and Blaire performing particularly strongly. We continue to invest in our sandals proposition, ensuring that, in relevant markets, sandals are a year-round offering.

During the half we launched a new sole construction, Quad Neoteric, which first launched with the Heaven by Marc Jacobs collaboration before being rolled out within our Fusion category with the Audrick collection. Our new casual innovation, Tarian, designed to appeal to the sneaker-wearing male, was rolled out with the Tarik utility boot. Again we used collaborations, with Yohji Yamamoto and Atmos, to first introduce the range.

Over the summer we carried out a detailed study across all seven priority markets to assess brand strength and consumer pricing perception. This included consumer testing and validation of potential pricing changes to calculate elasticity of demand. As a result of this study we will be increasing price in Americas and EMEA from AW22, maintaining current pricing architecture and we anticipate no impact on demand. These pricing changes are in line with our medium-term approach of raising prices in line with inflation, and our volume-led growth strategy remains unchanged.

Quarterly revenue performance 

As previously highlighted, Q2 was against a materially stronger comparative than Q1. Compared to LY-1 the growth rate in Q2 accelerated from Q1, driven by strong momentum in retail. Ecommerce continued to deliver good growth. Wholesale performance in Q2 was impacted by supply chain disruption and global shipping delays, particularly in Americas, which pushed some revenue into the second half.

	Q1	Q2	H1
Group revenue	£147.3m	£222.6m	£369.9m
% change yoy	+52%	+1%	+16%
% change yoy CC	+64%	+6%	+24%
% change LY-1	+31%	+43%	+38%
Revenue by channel
Ecommerce: % change yoy	+11%	+8%	+10%
: % change LY-1	+155%	+94%	+117%
Retail: % change yoy	n/a	+49%	+92%
: % change LY-1	(6%)	+8%	+2%
Wholesale: % change yoy	+50%	(10%)	+6%
: % change LY-1	+19%	+44%	+33%

 

On a regional basis, Americas revenue grew 106% in Q1 (132% CC) and 17% in Q2 (24% CC), against a significantly tougher comparative, with LY-1 growth rate accelerating quarter on quarter. EMEA revenue was up 30% in Q1 (36% CC) and down 5% in Q2 (broadly flat in CC); against LY-1 the growth rate more than doubled quarter on quarter driven by retail recovery. APAC revenues grew 17% in Q1 (30% CC) and declined by 14% in Q2 (down 8% CC), and were up double-digit against LY-1 in both quarters.

 

Guidance

We remain confident in achieving market expectations for FY22. This assumes that we do not experience material country-wide lockdowns on either the demand or supply side for a significant period of time. From FY23 and over the medium-term we continue to anticipate mid-teens revenue growth and are targeting ecommerce to grow to at least 40% mix, with total DTC, including retail, of at least 60% mix. Our medium-term target of a 30% EBITDA¹ margin is also unchanged. 

For FY22 specifically, we anticipate:

• New own store openings of 20 to 25 stores
• Depreciation and amortisation of £42m to £44m, including the impact of IFRS16
• Net finance costs of £15m to £17m
• Underlying tax rate of c.21%
• Capital expenditure of around 3.5% of revenue
• Year-end leverage of around 1x, including IFSR16 leases
• Operating cash conversion of 65% to 75% of EBITDA
• We will pay our first interim dividend of 1.22p in February 2022. Our dividend policy remains unchanged, targeting a progressive dividend with a payout ratio of between 25% to 35%.

Finance Review

We made good progress in the first half - revenue grew strongly by 16% to £369.9m (up 24% on a constant currency ("CC") basis), EBITDA¹ was up 3% to £88.8m (up 17% on a CC basis), and profit before tax grew by 46% to £61.3m.

 

Covid-19 continued to have an impact on trading in the first half of the year.  However, this was predominantly around the recovery to pre Covid-19 trading as our priority markets emerged from lockdowns and restrictions, with particularly strong demand in USA, UK and Continental Europe.

 

In the prior period nearly all of our own retail stores were closed during Q1 (as were a number of our wholesale partner stores) and therefore to provide a better picture of underlying performance we have also compared trading to H1 2020 ("LY-1").

 

Results - at a glance

£m							Two-year basis ("LY-1")
		H1 FY22	H1 FY21	% change Actual	% change CC4		H1 FY20	% change Actual
Revenue	Ecommerce	82.6	75.3	10%	16%		37.9	117%
	Retail	65.9	34.3	92%	101%		64.5	2%
	DTC	148.5	109.6	35%	43%		102.4	45%
	Wholesale3	221.4	208.6	6%	13%		166.3	33%
		369.9	318.2	16%	24%		268.7	38%
Gross margin		226.6	186.3	22%	31%		155.2	46%
EBITDA1		88.8	86.3	3%	17%		66.6	33%
Profit before tax		61.3	41.9	46%			26.2	134%
Key statistics	Pairs sold (m)	6.3	5.6	13%			4.8	32%
	No. of stores2	147	130	13%			112	31%
	DTC mix %	40%	34%	+6pts			38%	+2pts
	Gross margin %	61.3%	58.5%	+2.8pts			57.8%	+3.5pts
	EBITDA %1	24.0%	27.1%	-3.1pts			24.8%	-0.8pts

1. EBITDA - Earnings before exchange gains/losses, finance income/expense, income tax, depreciation, amortisation and exceptional items.

2. Own stores on streets and malls operated under arm's length leasehold arrangements.

3. Wholesale revenue including distributor customers.

 

Total revenue grew by 16% from £318.2m to £369.9m and was up 24% on a CC basis. The principal driver of growth was volume with 6.3m pairs sold, up 13% (H1 FY21: 5.6m pairs) with revenue also benefiting from improving footfall towards pre Covid-19 levels. As a result our more profitable DTC channels grew revenue by 35% (43% on a CC basis) and increased mix by 6pts to 40% of revenue. Compared to LY-1 total revenue was up 38%.

• Ecommerce revenue was up 10% to £82.6m (H1 FY21: £75.3m) and up 16% on a CC basis against a particularly strong period in the prior period. Compared to LY-1, ecommerce was up 117% representing 22% revenue mix versus 14% revenue mix in LY-1.  During the half we opened a new third-party DC in LA to support more efficient ecommerce pick and dispatch for the US market and are looking to extend our third-party DC in Continental Europe to also facilitate higher ecommerce volume.
   
• Retail revenue recovered very strongly in the period as consumers in EMEA and USA began to return to stores, with total revenue growing 92% to £65.9m from £34.3m (up 101% on a CC basis) and up 2% vs LY-1. Our stores in USA were open for the full period, UK stores reopened from mid-April and Continental Europe stores steadily reopened through May and June.  Retail in Japan was the most impacted, experiencing capacity and opening restrictions throughout the period.  Outside the major global cities of London and NYC (which are continuing to track below LY-1, although improving steadily), we have seen more positive weeks than negative weeks for our like-for-like stores in UK and USA led by growing footfall and better conversion, with stores in France and Germany following similar patterns of recovery to UK non-London, albeit being a few months behind in recovery due to the later reopening of stores.
   
• Wholesale revenue grew by 6% to £221.4m from £208.6m and was up 13% on a CC basis. Our wholesale channel was impacted by supply chain delays and in line with our DTC strategy, we prioritised our more profitable own ecommerce and retail channels.  This mainly impacted Q2 shipments and approximately £20m of wholesale revenue originally planned to ship in the August/September period is now expected to ship in H2 (c.£15m Americas and c.£5m EMEA).  Compared to LY-1 revenue was up 33%.

 

Gross margin improved by 2.8pts to 61.3% from 58.5% and was mainly driven by the positive impact of increased direct to customer revenue mix which improved by 6pts to 40%.  In addition, we were able to offset significantly higher in-bound freight costs and other inflationary costs with further supply chain efficiencies such that the average cost per pair was approximately level versus prior period. Finally, in the prior period, working together with wholesale customers, we agreed not to ship certain seasonal products to manage clearance activity through our own ecommerce channel which was not repeated in the current period.  Gross margin percentage therefore benefitted from more full price revenue in the period. 

 

Operating expenses increased by 38% to £137.8m (H1 FY21: £100.0m), as follows:

£m		H1 FY22	H1 FY21	% change
Staff costs:	Underlying	63.3	48.7	30%
	PLC/LTIP	4.7	-	n/a
		68.0	48.7	40%
Other operating expenses		69.8	51.3	36%
		137.8	100.0	38%
% Revenue	Staff	18.4%	15.3%	+3.1pts
	Other	18.9%	16.1%	+2.8pts
	Total	37.3%	31.4%	+5.9pts

 

Included in staff costs was £4.7m in relation to PLC related costs, including an IFRS2 charge in relation to the first LTIP grant of £1.8m (which is expected to annualise to £4.7m) and incremental headcount in relation to our new Independent NED's and the strengthening of our Group Finance and Legal functions.  Other operating costs increased by 36%. This was the net impact of increased marketing spend (up 72% and in part due to the strategic decision to increase spend by 0.5pts of revenue per annum), timing of operating expenses as we moved back to pre Covid-19 business as usual (represented by travel, commissions, training and IT development activity of approximately £5m) and a net release in accruals within the period.

 

EBITDA¹ grew by 3% to £88.8m from £86.3m and was up 17% on a CC basis. The principal reason for the difference in growth rates between CC and actual currency is the impact of FX rates on revenues, cost of sales and operating costs. In line with expectations, our half year EBITDA¹ margin declined 3.1pts to 24.0% from 27.1% in part due to annualisation of costs incurred in H2 of the prior year and also the return to business as usual operating costs and is explained as follows:

EBITDA % margin	FY22	FY21	pts
First half	24.0%	27.1%	-3.1pts
Second half		30.3%
H2 v H1		+3.2pts
Full year		29.0%

 

		%pts
Gross margin		+2.8pts
Annualisation1		-1.3pts
Return to business as usual2		-2.9pts
Inflation		-1.7pts
		-3.1pts

1. Represented by PLC related costs and IFRS 2 LTIP charge, incurred in H2 in the prior year.

2. Inclusive of marketing spend of -1.5pts of which 1.0pts annualisation and 0.5pts strategic increase.

 

Compared to LY-1 EBITDA margin was down 0.8pts represented by better gross margin (up 3.5pts), annualisation of PLC related costs and inflation (combined of 3.0pts) and increased marketing.
 

Exchange translation

The profit and loss figures are prepared on an average actual currency basis for the period. These exchange rates are calculated monthly and applied to revenue and profits generated in that month such that the actual figures translated across the period are dependent upon monthly trading profiles as well as exchange movement. In addition, all distributor revenues are invoiced in US$. To aid comparability of underlying performance we have also calculated constant currency performance. These are calculated by translating non-UK revenue and profits at the same exchange rate year on year.

 

The major exchange rates that impact the Group are £/$, £/€ and £/¥. The following table summarises average exchange rates used in the period:

 

	£/$			£/€			£/¥
	FY22	FY21	%	FY22	FY21	%	FY22	FY21	%
H1	1.39	1.26	10%	1.17	1.12	4%	152	135	13%
H2		1.35			1.13			142
FY		1.31			1.12			139

 

Region analysis

£m		H1 FY22	H1 FY21	% change Actual	% change CC
Revenue:	EMEA	167.6	159.6	5%	12%
	Americas	147.5	102.6	44%	57%
	APAC	54.8	56.0	(2%)	4%
		369.9	318.2	16%	24%
EBITDA1:	EMEA	55.2	53.8	3%	15%
	Americas	40.0	28.9	38%	67%
	APAC	10.7	13.5	(21%)	(20%)
	Support costs2	(17.1)	(9.9)	(73%)	(73%)
		88.8	86.3	3%	17%
EBITDA margin by region:	EMEA	32.9%	33.7%	-0.8pts	+0.7pts
	Americas	27.1%	28.2%	-1.1pts	+2.2pts
	APAC	19.5%	24.1%	-4.6pts	-6.5pts
	Total	24.0%	27.1%	-3.1pts	-1.3pts

1. EBITDA - Earnings before exchange gains/losses, finance income/expense, income tax, depreciation, amortisation and exceptional items.

 

EMEA

Revenue grew by 5% to £167.6m (H1 FY21: £159.6m) and was up 12% on a CC basis. Ecommerce grew in the period against a particularly strong prior period with good growth across all our priority markets. As previously explained we also had higher full price revenues than in the prior period. Our retail stores re-opened during the period with UK stores opening through April and Continental Europe stores opening steadily in May and June. We opened 9 new stores including 4 in Germany, 2 in France, 2 in UK (and closed 1 store) and opened our first store in Spain in Barcelona. We successfully completed the conversion of Italy and Iberia to wholly owned markets, with trading positive and following a similar pattern to our experience in taking back the German market.

 

EBITDA¹ was up 3% to £55.2m (H1 FY21: £53.8m) and up 15% on a CC basis.

 

Americas

The Americas region had very strong trading across all channels with revenue up 44% to £147.5m (H1 FY21: £102.6m) and up 57% on a CC basis. Ecommerce was strong (against very strong comparator) with our retail stores open across the full period. Outside NYC, our like-for-like stores had more positive than negative weeks of trading vs LY-1 (with stores in NYC steadily improving) despite in-store customer headcount being restricted to 75% capacity. During the period we opened 3 new stores, taking our total own stores estate to 37 stores. Wholesale in USA was particularly impacted by supply chain delays (previously described) and compounded by delays at port. This mainly impacted Q2 shipments with approximately £15m of wholesale revenue originally planned to ship in August/September now expected to ship in H2.

 

EBITDA¹ was up 38% to £40.0m (H1 FY21: £28.9m) and up 67% on a CC basis.

 

APAC

Revenue was down by 2% to £54.8m (H1 FY21: £56.0m) and up 4% on a CC basis, with the region impacted by strict social distancing rules, lockdown and store capacity restrictions. This particularly impacted Japan, our largest retail market (due to the State of Emergency being in place throughout the period), together with Australia and also China.  During the period we opened a new store in South Korea and net 3 new mono brand third-party distributors stores in China. We have also not fully implemented the DOCS strategy in China.

 

EBITDA¹ was down by 21% to £10.7m (H1 FY21: £13.5m) as we invested in people and capability in Shanghai and also in region support infrastructure in Hong Kong to prepare for the roll out of our global ERP system with Hong Kong the first country to go-live in APAC later this year.

 

Support costs

Group support costs were up 73% to £17.1m from £9.9m in prior period. The majority of this increase was from PLC/LTIP costs and excluding these costs, support costs increased by 25% as we continue to scale and invest to support our growth ambitions.

 

Retail development

During the period, we opened 13 (H1 FY21: 10) new own retail stores as follows:

 

		31 March 2021	Opened	Closed	30 September 2021
EMEA:	UK	34	2	(1)	35
	Germany	10	4	-	14
	France	11	2	-	13
	Italy	1	-	-	1
	Other	12	1	-	13
		68	9	(1)	76
Americas		34	3	-	37
APAC:	Japan	22	-	-	22
	South Korea	5	1	-	6
	Hong Kong	6	-	-	6
		33	1	-	34
Total		135	13	(1)	147

 

The Group also trades from 40 (H1 FY21: 49) concession counters in department stores in South Korea and a further 206 mono branded third-party franchise stores around the world, with 88 in China (85 at 31 March 21), 32 in Japan (32 at 31 March 21), 14 across Australia and New Zealand (11 at 31 March 21), and the majority of the balance across other South East Asia countries.

 

Leases

The Group operates its own retail stores via arm's length leasehold arrangements (apart from two stores that are freehold) and also leases two warehouses and its offices.  At 30 September 2021, the average lease term remaining across all property-related leases to end of term was 4.7 years (31 March 2021: 4.3 years) and only 2.9 years (31 March 2021: 2.9 years) to tenant-only break.  The annual rent commitment was £23.4m (31 March 2021: £22.7m) and undiscounted total lease commitment was £110.4m (31 March 2021: £97.0m), reducing to £67.1m (31 March 2021: £65.1m) to lease break.

 

At 30 September 2021, under IFRS 16 accounting rules the Group has ROU assets of £92.7m (31 March 2021: £77.4m) and lease liabilities of £98.8m (31 March 2021: £84.8m).

 

Earnings

The following table reconciles the results for the first half year from EBITDA¹ to profit before tax:

£m	H1 FY22	H1 FY21	% change
EBITDA1	88.8	86.3	3%
Exceptional items	-	(3.0)	n/a
Depreciation and amortisation	(18.0)	(18.4)	2%
Foreign exchange losses	(2.1)	(0.1)	n/a
Net interest cost on bank debt	(5.1)	(3.1)	(65%)
Non-cash interest on preference shares	-	(17.2)	n/a
Unamortised loan costs/interest on lease liabilities	(2.3)	(2.6)	12%
Profit before tax	61.3	41.9	46%
Tax	(12.7)	(12.4)	(2%)
Earnings	48.6	29.5	65%

 

The Group grew profit before tax by 46% to £61.3m (H1 FY21: £41.9m) with profit after tax of £48.6m (H1 FY21: £29.5m).

 

No exceptional costs were incurred in H1 FY22. Exceptional costs in H1 last year were £3.0m for advisory fees and charges relating to the IPO which took place on 29 January 2021.

 

The Group's net interest cost on bank debt increased to £5.1m (H1 FY21: £3.1m) due to the refinancing and increase in bank loans which took place on 29 January 2021. Non-cash interest on preference shares was £nil (H1 FY21: £17.2m) as all preference shares were redeemed in full during the prior year refinancing. 

 

The tax charge was £12.7m (H1 FY21: £12.4m) with an effective tax rate of 20.7% which is higher than the UK corporate tax rate of 19.0%, mainly due to non-deductibility of certain expenses (mainly depreciation) and geographical mix of profits at different tax rates as follows: 

 

	%
UK effective tax rate	19.0%
Non-UK tax mix	0.8pts
Non-deductibility of certain expenses	0.9pts
Reported tax rate	20.7%

 

Earnings per share was 4.8p (H1 FY21: 3.0p) and adjusted earnings per share (excluding exceptional items of £nil) was 4.8p (H1 FY21: EPS 3.3p). For future comparability purposes, we have also calculated a normalised adjusted EPS figure of 4.8p (H1 FY21: 5.0p), which excludes exceptional items (as described in adjusted EPS) together with legacy financing costs of preference shares, which were fully repaid at IPO (31 March 2021: £28.5m). The total number of diluted shares is detailed in note 7 in the interim financial statements. The following table summarises these EPS figures:

 

		H1 FY22 pence	H1 FY21 pence	% change
Earnings per share	Basic	4.8	3.0	60%
	Diluted	4.8	3.0	60%
Exceptionals per share		-	0.3	n/a
Add back exceptionals per share
Adjusted earnings per share	Basic	4.8	3.3	45%
	Diluted	4.8	3.3	45%
Legacy financing per share		-	1.7	n/a
Add back exceptionals per share
Normalised earnings per share	Basic	4.8	5.0	(4%)
	Diluted	4.8	5.0	(4%)

 

Dividends

The Board has approved and the Company has declared an interim dividend of 1.22p per share (H1 FY21: nil pence) calculated as a 25% earnings payout which will be paid on 4 February 2022.  As previously guided the Board has adopted a progressive dividend policy, taking into account our financial performance, market conditions and our need for financial flexibility. The policy takes into consideration the characteristics of our business, our expectations for future cash flows and our plans for organic investment in innovation and productivity. We intend to pay dividends twice a year following the normal in-year trading profile. The total cost of the declared dividend is £12.2m.

 

Operating cash flow

Operating cash flow is summarised below:  

£m	H1 FY22	H1 FY21
EBITDA1	88.8	86.3
Change in net working capital2	(38.6)	(8.9)
Share-based payments	1.8	-
Capital expenditure	(10.1)	(8.2)
Operating cash flow3	41.9	69.2
Operating cash conversion3	47%	80%

 

 

1. EBITDA - Earnings before exchange gains/losses, finance income/expense, income tax, depreciation, amortisation and exceptional items.

 

Operating cashflow generated was £41.9m (H1 FY21: £69.2m) representing a conversion of EBITDA¹ of 47% (H1 FY21: 80%). The increase in working capital was predominantly due to increased inventory ahead of peak trading and higher debtors resulting from higher levels of wholesale trading (with trade debtors days in line with the prior period at 42 days). Compared to the prior period, cash conversion was lower due to temporary adjustments to payment terms to factories; in the prior period we did not cancel any purchase orders with our factories and in return they temporarily extended payment terms from 60 days to 90 days, and in the first half we have temporarily accelerated payment terms to certain factories most impacted by Covid-19 from 60 days to 30 days. On an underlying basis cash conversion is as follows:

 

£m	H1 FY22	H1 FY21
Operating cash flow1	41.9	69.2
Extended payment terms	-	(41.1)
Accelerated payment terms	11.8	-
	53.7	28.1
% EBITDA	60%	33%

1. Alternative Performance Measures as defined in the Glossary on pages 34 and 35.

 

It is expected the acceleration of payment terms in the first half of FY22 will revert to standard payment terms by the end of the financial year.

 

Capex was £10.1m (H1 FY21: £8.2m) and represented 2.7% of revenue (H1 FY21: 2.6%) and was higher than the prior period mainly due to the resumption of retail store openings and certain larger IT related projects that had previously been delayed. Spend of £10.1m included £3.7m on new stores (H1 FY21: £3.5m) and IT and ecommerce spend of £4.9m (H1 FY21: £4.1m).

 

Net cash flow after interest

Net cash flow after interest costs is summarised below:

£m	H1 FY22	H1 FY21
Operating cash flow1	41.9	69.2
Net interest paid	(4.3)	(4.9)
Payment of lease liabilities	(11.5)	(10.7)
Taxation	(20.6)	(10.7)
Free cashflow before exceptional items	5.5	42.9
Exceptional items2	(7.5)	(1.3)
Other loans made	-	(3.4)
Net bank borrowings and facility repayments	-	(6.7)
Net cash flow	(2.0)	31.5
Opening cash	113.6	117.2
Net cash foreign exchange	1.6	(1.9)
Closing cash	113.2	146.8

1. Operating cash flow and free cash flow are Alternative Performance Measures defined in the Glossary on pages 34 and 35.

 

At 30 September 2021 the Group had cash of £113.2m compared to cash at 31 March 2021 of £113.6m.  During this six month period the Group had a cash outflow to the low point during July of approximately £28m. This was better than the typical cash profile due to the later shipping of product from factories to our DCs and hence the later timing of payments. If the delivery of product had not been impacted by supply chain delays, it is estimated that the cash outflow would have been approximately £100m, resulting in a lower closing cash balance.

Funding

The Group is funded by cash, bank debt and equity. Further details on the capital structure and debt are given in note 13 of the interim financial statements. The Group's bank debt is carried in Euros to reflect the excess Euros the Group generates from trading in Continental Europe to fund interest costs (with US dollar revenue generated broadly funding US dollar purchase of inventory and GBP generated broadly funding GBP related costs).

 

The group financing arrangements have a total net leverage covenant test, with the first test being on 30 September 2021 and subsequent tests every 6 months. The total net leverage test is calculated with a full 12 months of EBITDA¹ with net debt being inclusive of IFRS 16 lease liabilities. At 30 September 2021 the Group had total net leverage of 1.2 times giving us significant headroom against our covenant test. 

 

Pensions

Airwair International Limited (a subsidiary of the Group) operates a defined benefit pension scheme in the UK, which was closed to new members in 2002, and provides both pensions in retirement and death benefits to members. At the most recent triennial valuation date (June 2019), on an actuarial funding valuation basis, the scheme had assets with a value of £65.4m and estimated future liabilities (technical provisions) of £60.6m, resulting in a surplus of £4.8m. The surplus under the scheme is not recognised as an asset benefiting the Group on the balance sheet on the basis that the Group is unlikely to derive any economic benefits from that surplus.  At 30 September 2021 this scheme had assets of £71.1m (31 March 2021: £67.8m). The Group also operates a defined contribution scheme for its employees and during the period the Group contributions to this scheme were £1.6m (H1 FY21: £2.5m). At 30 September 2021 this scheme had assets of £18.2m (31 March 2021: £15.5m).

 

Principal risks

The Board considers that the principal risks and uncertainties which could impact the Group over the remaining half of the financial year are unchanged from the risks presented in the 2021 Annual Report. The principal risks are summarised as: Brand and product; Social and environmental; People, culture and change; Supply chain; Information and cyber security; Financial; and Legal and compliance. These are detailed on pages 74 to 79 of the 2021 Annual Report, a copy of which is available on the Company's website at www.drmartensplc.com.

 

Balance sheet

The balance sheet is summarised below:

 

£m	30 September 2021	31 March 2021
Freeholds	6.1	6.1
Right-of-use assets	92.7	77.4
Other fixed assets	47.4	46.6
Working capital	78.9	25.5
Deferred tax	8.7	7.2
Operating net assets	233.8	162.8
Goodwill	240.7	240.7
Cash	113.2	113.6
Gross bank debt	(290.6)	(287.5)
Unamortised bank fees	5.3	5.9
Lease liabilities	(98.8)	(84.8)
Net assets	203.6	150.7

 

The working capital balance of £78.9m (FY21: £25.5m) predominantly reflects inventory of £119.8m (FY21: £101.5m), trade and other receivables of £74.3m (FY21: £59.4m), trade and other payables of £120.2m (FY21: £133.0m) and other items (derivatives, tax, and provisions). The increase in working capital was mainly due to a decline in creditors and an increase in inventories, resulting from timing of factory shipments to our DCs.

 

Equity of £203.6m at 30 September 2021 can be analysed as follows:

 

	£m
Share capital	10.0
Hedging reserve	0.1
Merger reserve	(1,400.0)
Non-UK translation reserve	4.9
Retained earnings	1,588.6
Equity	203.6

 

Included in the retained earnings of Dr. Martens plc (the Company) are distributable reserves of £1,380.5m (31 March 2021: £1,385.0m).

 

 

 

Consolidated Statement of Profit or Loss
For the six months ended 30 September 2021

			Notes	Unaudited six months ended 30 September 2021 £m			Unaudited six months ended 30 September 2020 £m		Audited year ended 31 March 2021 £m
Revenue			3	369.9			318.2		773.0
Cost of sales				(143.3)			(131.9)		(302.5)
Gross profit				226.6			186.3		470.5
Selling and administrative expenses			4	(157.9)			(121.5)		(358.0)
Operating profit				68.7			64.8		112.5
EBITDA			3	88.8			86.3		224.2
Exceptional items			4	-			(3.0)		(80.5)
EBITDA (post exceptional items)				88.8			83.3		143.7
Depreciation, amortisation and foreign exchange (losses)/gains			4	(20.1)			(18.5)		(31.2)
Operating profit			4	68.7			64.8		112.5
Finance expense1			5	(7.4)			(22.9)		(41.6)
Profit before tax				61.3			41.9		70.9
Tax expense			6	(12.7)			(12.4)		(35.2)
Profit for the period				48.6			29.5		35.7

 

			Unaudited six months ended 30 September 2021			Unaudited six months ended 30 September 2020 (restated2)		Audited year ended 31 March 2021
Earnings per share
Basic	7	4.8p			3.0p		3.6p
Diluted	7	4.8p			3.0p		3.6p
Adjusted earnings per share
Basic	7	4.8p			3.3p		11.6p
Diluted	7	4.8p			3.3p		11.6p

1. Finance expense includes non-cash interest on preference shares of £nil (Sep 20: £17.2m, Mar 21: £28.5m) and on 28 January 2021 all preference shares were redeemed in full.

2. Following a reorganisation of the Group and share dilution on IPO, the Group has applied IAS 33 to restate earnings per share to reflect the sub-division of shares during the period but where there has been no inflow of resources due to shares being issued to existing shareholders for no consideration.

 The results for the periods presented above are derived from continuing operations and are entirely attributable to the owners of the Parent Company.

 

Consolidated Statement of Comprehensive Income
For the six months ended 30 September 2021