Wickes Group plc - Interim Results 2023

for the 26 week period to 1 July 2023

Strategy continues to deliver, with positive first half LFL sales; full year expectations maintained

Financial Highlights

●     Revenue growth of 0.7% to £827.7m (H1 2022 £822.3m) driven by the sales uplift in DIFM¹

o  Core LFL -0.8%² with growth in the second quarter as weather patterns normalised;

o  DIFM delivered LFL sales up 5.8%² as we continue to work through the elevated order book and with ongoing growth in ordered sales

●     £34.8m adjusted profit before tax and SaaS IT investment costs³ (H1 2022 re-presented £41.3m⁴), with cost inflation exceeding revenue growth

●     Adjusted PBT £31.1m after £3.7m of SaaS IT investment costs³ expensed as required by IAS38

●     Reported profit before tax of £21.1m primarily reflecting IT separation costs (H1 2022 £33.5m)

●     Cash position of £190.0m (H1 2022 £166.5m), improved from the year end position of £99.5m reflecting the seasonal working capital cycle in the business

●     Interim dividend declared of 3.6p (H1 2022 3.6p), reflecting our intention to maintain the same full year cash dividend as FY 2022

●     £25m share buyback programme under way

Operational and Strategic Highlights

●     Our strategy continues to deliver with growth levers all supporting further market share gains⁵

●     Continued strong growth in our TradePro loyalty scheme, with 65,000 new customers signing up in the first half, and a period end base of 811,000

●     Launch of Wickes Lifestyle Kitchens, with a free design service, to capture a larger share of the mass market

●     Improved click & collect capacity and service levels drive meaningful channel shift back to stores, reducing distribution costs

●     Six refits in the first half, with 11 in total planned for the full year; ROIC in line with plan at >25%

●     Three store openings in the second half, including Chelmsford in July, as the opening programme accelerates and we look to open around 20 new stores over five years

●     Good progress on productivity gains, offsetting cost inflation with the exception of energy costs, as previously outlined

●     Updated capital allocation policy announced in July, with a strong balance sheet supporting investment in growth levers and enhanced shareholder returns

Current Trading & Outlook

Trading in July and August has been in line with our expectations, and we continue to expect full year adjusted profit before tax in line with market consensus (£45-48m after the impact of SaaS IT investment costs). Our next trading update for the third quarter is scheduled for the end of October.

David Wood, Chief Executive, commented:

"This was another positive period for the business, underpinned by the strength of our balanced business model and outstanding customer service delivered by our colleagues. We achieved a sales uplift and strong conversion rates in DIFM, while delivering another strong performance in Local Trade due to our market leading value on the lines that matter most.

"As we head into the Autumn, we are well-stocked with our extensive range of energy-saving products, as we look to support our customers in insulating their homes. While we remain mindful of the external environment, we are seeing customers turn to Wickes for our great value proposition. We are well on track for the remainder of the year and we have the right strategy in place to make further market share gains within the large home improvement sector."

Summary of half year financial results

Investor & Analyst meeting

A webcast for investors and analysts will be available today at 8.30am (UK time), followed by a live Q & A with the Wickes management team. The webcast can be accessed at: https://brrmedia.news/WIX_HY23

Dial in: +44 (0) 33 0551 0200

Password (if prompted): Wickes Half Year

A recording of the webcast will be available on the Wickes Group plc website later today: https://wickesplc.co.uk 

Contacts

1 Do It For Me, our kitchen and bathroom showroom business

2 For a definition of LFL sales, see note 3 of the interim financial statements

3 For a reconciliation of this profit measure, and definition of these costs, see note 13 of the interim financial statements

4 For an explanation of the re-presentation, see note 2 of the interim financial statements

5 Source: GfK GB Point of Sales: DIY Total Store (Leader Panel) Reporting, year to date July 2023

6 Adjusted profit before tax and Adjusted basic earnings per share have been re-presented as disclosed in note 2 and note 8 respectively.

7 Adjusted measures represent results on an IFRS basis and exclude adjusting items which comprise significant restructurings, significant write downs or impairments of current and non-current assets, the costs of separating the business from Travis Perkins Plc's IT systems, the impact of fair value movements on derivatives through the profit and loss statement, the effect of changes in corporation tax rates on deferred tax balances, and in FY2022 a reclaim of overpaid VAT relating to prior years. (See note 2 of the interim financial statements for a detailed explanation of these items).

About Wickes

Wickes is a digitally-led, service-enabled home improvement retailer, delivering choice, convenience, value and best-in-class service to customers across the United Kingdom making it well placed to outperform its growing markets. In response to gradual structural shifts in its markets over recent years, Wickes has a balanced business focusing on three key customer journeys - Local Trade, DIY (together "Core") and Do-it-for-me ("DIFM").

Wickes operates from its network of 229 right-sized stores, which support nationwide fulfilment from convenient locations throughout the United Kingdom, and through its digital channels including its website, TradePro mobile app for trade members, and Wickes DIY app. These digital channels allow customers to research and order an extended range of Wickes products and services, arrange virtual and in-person design consultations, and organise convenient home delivery or click-and-collect.

Forward looking statements

This announcement may include statements that are, or may be deemed to be, forward-looking statements. By their nature forward-looking statements involve opportunity, risk and uncertainty since they relate to future events and circumstances, and actual results may differ materially. Any forward-looking statements in this announcement reflect management's view with respect to future events as at the date of this announcement.

Business review

Wickes delivered a resilient sales performance in the first half, benefitting from its market-leading value proposition and underpinned by its uniquely balanced business model. Despite a challenging market backdrop, we were pleased to report an increase in revenue with further strong performances from our Local Trade and DIFM businesses. DIY sales remained down year-on-year, although the pace of decline moderated in the second quarter. As expected, profits declined in the half, with cost inflation and investment costs (especially in IT) not fully offset by efficiency gains.

Market

UK home improvement remains a large and attractive market, of which we have a relatively small share. Over time, this market has grown broadly in line with GDP, although Wickes has a long track record of market share gains as a result of its business model, digital investment and focus on customer service. Market share is again ahead in the year to date (source: GfK) despite the strength of the comparable period in 2022, when a number of storms were very beneficial to our sales performance.

In the first half of the year, the market continued to be affected by pressure on disposable income, rising mortgage rates and a decline in the number of housing transactions. However, it is important to note that only around one third of UK households have a mortgage, with the remainder either owned outright or privately / socially rented. The level of new home sales has declined, although we have minimal exposure to this sub-sector.

While the impact of higher mortgage rates may take some time to work through, other pressures on disposable income, such as petrol and energy, have started to unwind, while the pace of food price inflation has slowed from very high levels. Our latest Mood of the Nation survey shows only a moderate slowing of demand for home improvement, while order books for the trade remain strong, with over 20% of those surveyed having order books for 12 months or more.

Looking further ahead, we believe that market fundamentals remain strong. Many businesses have retained or fully incorporated hybrid working practices, increasing the dwell time at home, fuelling further desire for homeowners and tenants to invest in their properties. Household formation looks set to continue growing, underpinned by high employment levels and a rising population. Despite the recent decline in energy prices, work is also likely to continue to decarbonise the UK housing stock, which will further support project work in the home.

The homeowning demographic into which our Local Trade and DIFM end propositions face also leave us well placed to continue to take share, as do our credentials for value, quality and convenience. Although as yet we have seen little sign of trading down or rising own label participation, our surveys tell us that customers are becoming more discerning on price and are shopping around more. We believe that our value credentials, the strength of the Wickes brand, our simple and clear pricing policy, alongside our 10% flat rate discount to all TradePro members, stand us in good stead if market conditions remain challenging.

The strength of our digital offer is reflected in our strategically important TradePro customer base, which has increased by 65,000 since the start of the year taking the period end total to 811,000. Sales through TradePro continue to grow strongly, and we are exploring a number of initiatives to drive basket size and frequency further.

Operational progress

We have made good progress in the first half developing and extending our growth levers. These all contribute to an improvement in our products and services, making life easier for our customers and helping them through challenging economic conditions. This is reflected in a further increase in market share in the year to date. Looking ahead, the investment we are making behind these growth levers will underpin further progress over the next few years.

LFL sales in the first half were ahead by 0.7% with growth in Core sales in the second quarter as weather conditions normalised. Local Trade sales continue to grow strongly, helped by the growth in our TradePro customer base. DIFM LFL sales were ahead by 5.8%, as we continue to work through the elevated order book.

Within Core, our operating model continues to evolve making it easier for our customers to shop when and where they want. A combination of store refits and refreshes, plus our investment in IT systems, has allowed us to improve click and collect capacity and  collection speed. This has proved popular with both Local Trade and DIY customers, with click & collect sales rising by 5.6% in the half. There may also have been some benefit to self-serve sales, which have also grown within the mix.

The popularity of click & collect, together with changes in thresholds and delivery charges instigated last summer, has seen the proportion of home delivery sales decline. This has been beneficial for our cost to serve, reducing distribution costs which are taken against gross margin. Improved click & collect service levels will hopefully see these trends continue.

The normalisation of volumes following the COVID period has also allowed us to reduce other distribution costs, both in terms of units shipped and also eliminating overflow capacity which is no longer required. This should continue to benefit the second half, although on a more limited basis as volume declines are now abating in line with lower inflation. Further savings have been generated from the outsourcing of some additional distribution functions.

Price inflation was around 7% in the first half, slowing from 9% in Q1 to 4% in Q2. Much of the decline has been driven by lower commodity costs, for example with timber - which accounts for up to one third of our total sales - now being down significantly year-on-year. In contrast, other products such as cement and insulation continue to inflate, reflecting energy and wage costs in supply chains. Into the second half, inflation in these categories should start to decline, in line with energy costs, and overall we would expect retail selling price inflation in the second half to continue to be low single digits.

Our volume performance in Core continues to improve, with a 6% decline in the first half versus a 15% decline in FY2022. While this makes volume-related cost savings more difficult to achieve, we have made good progress in offsetting some of the inflationary cost pressures which we highlighted at the full year results.

In the first half, cost inflation excluding utilities was around £13m, much of which related to increases in the national minimum wage (NMW). This will also affect the second half. Despite a reduction in energy usage from energy-saving measures, there was also a £2.7m increase in utility bills as a result of the ending of our fixed term contract at the end of March. We continue to expect a year-on-year increase of c£6m in the second half as we have bought forward our requirements for the remainder of the year.

We have made good progress as expected in productivity gains, offsetting all the inflationary pressures with the exception of energy. Savings have accrued in distribution (as outlined above), store wages costs and improved marketing efficiency. We have similar plans in place for the second half of the year.

As expected, growth investment for the full year will be around £5m, of which £2.2m was expensed in the first half. Much of this relates to additional IT investment, especially headcount to underpin the shift to SaaS platforms and to develop new functionality across the business.

Growth Drivers

1.    Winning for Trade

Our TradePro membership scheme continued to show strong momentum in the period. We enrolled 65,000 new members in the period, taking the total membership to 811,000. Once again, there was double digit year-on-year growth in TradePro sales. As was the case during 2022, local trade customers are turning to us for low prices, quality branded and own brand products, excellent availability, and seamless service.

Our 30-minute click & collect offer, and higher order handling capacity as stores are refitted and refreshed, continue to gain traction. We are seeing a channel shift away from home and site delivery towards in-store collection. Although some of this is likely to have been influenced by modest changes to delivery thresholds and delivery charges last year, we believe the changes we are making are also driving this trend, which is also lowering our cost to serve.

Our latest Mood of the Nation survey (August) shows that around half of respondents have an order pipeline of over 3 months, with over 20% a pipeline of over 12 months. These figures are stable compared with the position reported in March. The end-user of trade professionals services - older, wealthier homeowners - are likely to be more resilient to current pressures facing the consumer, especially from rising mortgage rates. The survey also highlights that cancellation rates for the trade are unchanged from January.

Although lower levels of price inflation are slowly feeding through to our Mood of the Nation survey, around half of those surveyed still view price increases as "significant". This search for value is likely to be one of the driving forces of TradePro growth.

Looking ahead, we have plans to evolve the TradePro offer to include additional functionality and new services. These will be supported by the investment in our IT capabilities. We continue to see significant upside in terms of share of wallet, and will focus further on loyalty and engagement with our new suite of services.

2.    Accelerating DIFM 

We are pleased to report another increase in delivered DIFM LFL sales, with ordered sales also ahead. Delivered sales increased by 5.8% as we continued to work successfully through the elevated order book. LFL ordered sales were up by 1.8%, with record attachment rates of installation and further growth in bathrooms. Lower leads and higher conversion may reflect different pressures across segments of the customer base, but our stronger conversion rate could support growth as and when the market recovers.

During the period we successfully rebranded our kitchen offer between Bespoke and Lifestyle. Our new Lifestyle ranges build on our successful ready-to-fit-kitchen offer (RTFT), but ranges have been extended, point of sale has improved, and we are offering a free design service. Lifestyle Kitchens allow us to access the mass market with an added-value design service; in the past, customers unable to afford our bespoke service may have shopped elsewhere. Sales of Lifestyle Kitchens with a design service are included within DIFM sales; those without a design service remain in Core sales.

New ranges continue to perform well. Eight new ranges were launched in Lifestyle Kitchens and eight in our Bespoke range. The latter was supplemented by new ranges in  worktops, appliances, sinks and taps.

Our bathroom business continues to thrive, with 300 new product launches including an expanded range of top brands. Wickes is now the  most prominent bathroom retailer in the UK (source: Salience Search Marketing survey of search and social media rankings).

Our installer network now has over 3000 teams of independent contractors. In addition to facilitating the build out of the order book, installation participation on new orders is now at record levels, driving up the average order value.

3.    DIY Category Wins

The DIY market has normalised from its Covid highs, with additional pressure from the external environment. More DIY shoppers are likely to have a mortgage, compared with those using the local trade to complete a project.

The state of the market is reflected in our latest Barometer Survey (April 2023, as this survey runs semi-annually) which shows that intention to undertake projects remains high, but with smaller projects, such as decorating and shelving. This may be a helpful signal for when external pressures subside.

Wickes has responded to consumer trends through the launch of new ranges across painting, decorating and tiling, as well as energy saving products such as lighting and insulation. Service improvements to click & collect have also driven DIY uptake through this channel, with sales up by over 5% on the first half last year. As with local trade, this is helpful for our cost to serve.

4.    Digital developments

We have made further significant progress in our digital capabilities in the first half, with the proportion of sales originating online rising further, web sessions gaining market share, and the launch of Lifestyle Kitchens with a digital design service. We also launched a new Customer Experience Centre to provide improved service levels for Bespoke Kitchen customers.

Digital and marketing support continues to drive strong growth in our TradePro customer base, as outlined above, and our 30 minute collection window is gaining traction both with local trade and DIY customers. We launched our Klarna credit proposition, driving new customers and higher average transaction values (ATVs).

Looking ahead, we will use the successful combination of our digital, IT and marketing strengths to continue to broaden the appeal of our TradePro scheme to increase basket size and share of wallet.

5.    Growing our estate of new format stores

Our successful store refit programme continued with six refits in the first half at Shipley, Blackpool, Haverfordwest, Stafford, Nuneaton and Braintree. Sales uplifts remain strong, driven by an uplift in DIFM of over 50%. Our refitted stores also benefit from an improved order fulfilment layout which increases click & collect capacity. This is clearly resonating with customers with click & collect participation increasing across the chain.

Despite the impact of higher build costs, store investments continue to deliver a ROIC of over 25%. A further five refits are planned for the second half.

Our new store opening programme is gathering pace. One new store opened in July at Chelmsford, and we expect two further openings at Widnes and Torquay in the second half. We remain confident in the opportunity to expand our proven model into 20 new locations over a five-year period.

6.    Enhanced store service model

Our unique "4C" service model is designed to meet all our customers' needs through four areas of the store: DIFM, self serve, assisted selling and online order fulfilment. This offers a seamless shopping experience to our customers, and enables us to use our digital capabilities to improve service levels and operational efficiency. All four of our measures of customer satisfaction are up year-on-year.

Our new digital picking app, combined with reconfiguration of picking areas within the store, has allowed us to reduce our click & collect service time from 60 to 30 minutes. This has been reflected in the outperformance of click & collect sales, with some stores previously being capacity-constrained.

OLI (online in-store) sales also performed strongly in the first half, with machine learning helping to drive basket values and customers benefiting from efficient click & collect or home delivery options.

IT separation

The separation process from our previous parent company Travis Perkins plc has now been successfully completed. The adjusting item charge during the first half was £7.4m. Following completion, we will no longer be making any payments for services to Travis Perkins, but will instead be bearing an equivalent P&L charge relating to our own ongoing internal and external costs of IT support.

Responsible Business Strategy

At Wickes we're building a business we can be proud of, and our Responsible Business Strategy, Built to Last, sets out how we will achieve this. We continue to embed our strategy into the business, and deliver our targets to address our main social and environmental impacts.

Homes

In line with our purpose to make the nation feel house proud, we want to help customers feel proud of their homes for saving energy and protecting the environment. To that end, we are focused on providing customers with a broad range of sustainable and energy efficient products and services to achieve long term decarbonisation targets and short term relief on the cost of living.

In June, we announced our new partnership with solar panel and battery storage installation platform, 'MakeMyHouseGreen.com'. Customers visiting our website can now click through directly to MakeMyHouseGreen.com where they will be offered a complete service from helping to choose the right solar panel system using data and analytics, to final installation, with MakeMyHouseGreen's network of trusted installers.  Once installed, customers are then able to track their solar system output and savings.

People

Inclusion and diversity remains central to our people strategy. We have set ourselves gender diversity targets which are linked to the annual bonus for our Executives. We have also announced that we are the first retailer to partner with Flair Impact, a racial equity technology company to undertake an anti-racism survey amongst our 8,000 colleagues.

We are committed to building skills in our local communities and empowering our colleagues to further their development. We have set a target to offer and support 200 Early Career places each year for the next three years. We are extremely proud to have made the RateMyApprenticeship's Best 100 Apprenticeship employers for 2023.

In April 2023, we launched our new 2-year charity partnership with The Brain Tumour Charity, after a three-month long process of colleague nominations and voting. Through colleague-led fundraising we have committed to raise £2 million for the charity over the two year partnership. In the first 3 months of the partnership, our colleagues and customers have raised £275,000. 

Environment

Towards the end of last year we announced that our near-term Science Based Targets had been validated by the Science Based Targets initiative (SBTi).  We are already delivering against our targets.

●    In April 2023, we switched to a 100% renewable electricity contract across our entire estate of 230 stores, distribution centres and support office. This will go a long way to helping us to achieve our target to reduce absolute scope 1 and 2 emissions by 42% by 2030 from a 2021 base year. 

●    98% of our carbon footprint is from indirect activities across our value chain. We are collaborating with our top suppliers to achieve a target of 45% of our suppliers (by emissions from purchased goods and services) having science-based targets by 2027. We are also working with our suppliers to reduce scope 3 greenhouse gas (GHG) emissions from the use of sold products by 42% by 2030 (from a 2021 base year).

We continue to be a supporter of the British Retail Consortium's Climate Action Roadmap, committing to work with the retail industry to achieve net zero by 2040.

Timber is a significant part of our business representing 40% of our revenue. This year we have published our first Timber Sourcing Policy. We have also submitted to the CDP Timber category alongside the Climate Change CDP category to understand how we are performing and what more we can do.

Financial review

Our performance during the period was in line with expectations.

We are pleased to report another period of sales growth in challenging market conditions. LFL sales for the period were ahead by 0.7% with good growth in DIFM sales and an improving performance in Core sales in the second quarter as weather patterns normalised.

Adjusted profit before tax and before SaaS IT investment costs declined by 15.7% to £34.8m. With the majority of cost inflation offset by productivity gains, the decline primarily reflects the increase in energy and investment costs. SaaS IT investment costs were £3.7m in the period, resulting in adjusted profit before tax declining 24.7% to £31.1m.

Statutory profit before tax in the first half also declined from £33.5m to £21.1m. This reflected the reduction in adjusted pre-tax profit outlined above, plus higher adjusting items year on year. Adjusting items comprised IT separation costs (£7.4m in H1 2023 compared with £12.1m in H1 2022) and unrealised losses / gains relating to FX derivatives (£2.6m loss vs £4.3m gain in H1 2022).

The business continued to generate cash with period end net cash of £190.0m (HY2022 £166.5m), again reflecting seasonal working capital movements.

Revenue

Revenue for the 26 weeks to 1 July 2023 was £827.7m, an increase of 0.7% on the prior year. Like-for-like sales were also up by 0.7%², with incremental sales from the new Bolton store which opened in the second half of 2022 offset by two closures in the first half of 2023. Our volume performance is also improving, with a 6% decline in the first half compared with a decline of 15% in FY2022.

Core LFL revenue declined by 0.8%² in the first half. The first quarter was down 4.4%, with tough comps from the storms in the comparable period in 2022, which drove strong sales in fencing and related products, together with wet weather in February and March of 2023. There was a recovery in the second quarter with LFL sales growth of 2.3%, in turn helped by more seasonal weather in May. The overall first half performance is thus the best indicator of current market conditions.

Within Core, TradePro sales increased by over 10%, reflecting healthy order pipelines for trade professionals. DIY sales have been on an improving trend through the period, although remain lower year-on-year.

Selling price inflation continued to moderate over the period, in line with our supply chain inflation. Selling price inflation was 9% in the first quarter, and 4% in the second. Our key consideration remains to be competitive across a basket of popular items, with prices on average 2-3% below peers before the 10% TradePro discount.

Delivered DIFM LFL revenue increased by 5.8% in the first half. This primarily reflected the ongoing successful build out of the order book, but also moderately higher orders by value in the second half of FY2022 and into the current year. As reported previously, we are seeing a lower number of leads but higher conversion rates, reflecting different levels of confidence across UK households.

Gross profit

Gross profit is calculated by taking the gross margin on products sold and deducting distribution costs. Gross profit for the first half was £297.3m, up from £292.6m last year. Gross profit % increased by 30bp to 35.9%, reversing the trend seen in prior years.

Our product gross margin was moderately down year on year. In Core, this reflected some impact from inflation pass through, although at lower levels of inflation there is more opportunity to protect percentage margin. In addition, there was a modest mix impact from a higher proportion of TradePro sales.

Lower distribution costs (recognised within gross profit) more than offset a lower product margin and mix. There were volume-related savings, plus specific benefits from consolidation within our supply chain and also from a recovery in the proportion of sales through stores. The latter may reflect in part some final post-covid normalisation of shopping behaviour, but our efforts to improve the scale and efficiency of our click & collect operations are likely to have seen a swing from home / site delivery to click & collect. This is positive for our cost to serve.

Adjusted operating profit

Adjusted operating profit was £42.0m, down 25.4% on the £56.3m reported in the first half last year. Of the £14.3m decline, the impact of SaaS IT investment (see below) was £3.7m.

Our adjusted operating profit margin was 5.1%, down from 6.8% last year. Gross margin, inclusive of lower distribution costs, was up by 30bp, and the cost/sales ratio deteriorated by 220bp. The decline in operating margin reflects the impact of cost inflation in wages, energy and investment costs, and the impact of SaaS IT investment.

Selling costs increased by £5.6m year on year, driven primarily by higher wage costs. Administrative expenses were up £13.9m, with the increase driven by the cost of SaaS IT investment, a normalised bonus accrual compared with minimal accrual in the prior year, and modest inflation in Support Centre costs.

IT investment - Software as a Service

As outlined in our announcement of 25 July 2023, following the successful completion of the systems separation from Travis Perkins, we now expect the majority of our future IT investments to be in Software as a Service (SaaS) applications. Our previous profit expectations had been on the basis of the majority of this cost being capitalisable and amortised over a period of 3 years, but given the nature of the spend on SaaS applications we now expect this cost to be expensed. As set out in July we expect the impact on FY2023 PBT to be an £8-10m cost increase from the previous guidance, being £9-11m of IT investment cost expensed immediately, offset by a decrease in amortisation of £1m from that previously expected. The first half of the year included a charge of £3.7m, recognised within administrative costs.

For FY2024, as already outlined the P&L impact of IT investment will be £6-11m, with an increase in IT opex of £11-17m and lower associated IT amortisation costs of £5-6m. By FY2026, the net impact of additional IT opex and lower amortisation will be minimal.

Net finance costs

Adjusted net finance costs were £10.9m, down from £15.0m last year. The two main drivers of the decline were a reduction in interest on lease liabilities from £14.9m to £13.8m, as a result of the relatively low number of lease renewals, and an increase in interest receivable from £0.4m to £3.4m as a result of higher average cash balances and the increase in short term interest rates over the last 12 months.

The prior year finance charge has been re-presented with unrealised FX gains and losses now presented as adjusting items.

Adjusted profit before tax

After finance costs adjusted profit before tax for the first half was £31.1m, a decline of 24.7%. Excluding the cost of SaaS IT investment, the decline was 15.7% to £34.8m.

Adjusting items

Pre-tax adjusting item charges for the first half were £10.0m, up from £7.8m in the prior year. Costs associated with IT separation declined from £12.1m to £7.4m.inventory

The first half this year also included a £2.6m unrealised loss on remeasurement of derivatives at fair value. In the prior year, there was an unrealised profit of £4.3m.

The tax credit on adjusting items in the 26 weeks ended 1 July 2023 was £2.3m, compared with a credit of £1.5m in the prior year.

Profit before tax

Profit before tax in the first half was £21.1m, compared with £33.5m in the prior year. The decline reflects the reduction in adjusted pre-tax profit, and higher adjusting items.

Tax

Tax for the period is charged on profit before tax, based on the forecast effective tax rate for the full financial year.  The underlying effective tax rate (before adjusting items) for the 26 weeks ended 1 July 2023 is 23.8% (26 weeks ended 2 July 2022: 19.6%, 52 weeks ended 31 December 2022: 20.2%), reflecting the increase in corporation tax rates in April 2023.

Capital investment

Capital investment in the first half totalled £14.3m, down from £21.6m in the prior year which included £6.1m for the purchase of the Braintree freehold. The main components in this first half were £7.7m investment in the store estate, of which refits were £6.3m and £1.4m for new store activity. There was also £2.8m of investment in our digital IT capability. A further £3.7m of SaaS IT investment was expensed under IAS38.

In the second half, we plan to accelerate investment into our IT capabilities and refit activity. Capital investment will be £30-35m, with a further £9-11m expensed under IAS38. The combined total will be in line with our previously issued guidance of £40-45m capital investment.

Cash / net debt

Cash at the half year end was £190.0m, reflecting strong operating cash flow and the favourable impact of the normal working capital cycles in the business. Investment in IT projects and our other growth levers is weighted to the second half, and, together with the normal seasonal working capital unwind and the cash outflow associated with the share buyback, there will be a cash outflow in the second half.

The inventory position of £201.9m compared with £205.5m in the prior year, with the decline reflecting Core sales growth in the second quarter and the unwind of slightly elevated stock levels from 2022.

IFRS 16 net debt⁸ reduced to £480.9m, driven by the increase in net cash levels and the fall in lease liabilities to £670.9m due to the low level of lease renewals during the period.

Dividend

In line with our announcement of 25 July 2023 that we plan to maintain the FY 2023 full year dividend at 10.9p per share, the Board has declared an interim dividend of 3.6p. This will be paid on 3 November 2023 to shareholders on the register at the close of business on 29 September 2023.

The shares will be quoted ex-dividend on 28 September 2023. Shareholders in the UK may elect to reinvest their dividend in the Dividend Reinvestment Plan (DRIP). The last date for receipt of DRIP elections and revocations will be 13 October 2023.

8 Equivalent to statutory net debt as calculated in note 11 to the interim financial statements

Outlook and technical guidance

The following represents full year guidance for FY2023:

●    Trading in July and August is in line with our expectations;

●    We are comfortable with FY consensus expectations (adjusted PBT £45-48m after the impact of SaaS IT investment costs);

●    Continue to expect productivity gains to offset inflation (excluding energy) in the second half, although there will be a full six months of higher energy costs versus three months in the first half;

●    Full year net finance charge of c£20m;

●    Full year adjusted tax rate of 24-25%;

●    Plan to maintain the full year dividend at 10.9p per share;

●    Capex £30-35m plus IAS38 SaaS project expense of £9-11m;

●    Year end cash is expected to be slightly higher than the £99.5m reported in FY2022, before share buybacks.

Appendix

Risks and Uncertainties

A formal risk management process has been adopted to help the Group reinforce our short, medium and long term success, safeguard value and enable us to meet and exceed the expectations of our stakeholders.

The Board has continued to refresh the principal risks and uncertainties since the publication of the annual report for the 53 week period ended 1 January 2023. The principal risks and uncertainties comprise:

●    Cyber security and data

●    People, culture and safety

●    Finance and treasury

●    Reputation and brand integrity

●    Climate change

●    Operations

●    Customer service and experience

A detailed explanation of the risks and uncertainties which were identified for the 53 week period ended 1 January 2023 can be found on pages 67 to 70 of the 2022 Annual Report. The Board continues to review changes to risks and uncertainties that may arise, remaining mindful of the external environment, and the potential impact of inflation on our customers' buying behaviours.  We note that since the date of the Annual Report, the systems separation from Travis Perkins plc has successfully completed, and the Autonomy risk has therefore been removed.

Condensed consolidated income statement

* For details of re-presentation please see note 2

Condensed consolidated balance sheet

The interim condensed consolidated financial statements of Wickes Group plc, registered number 12189061 were approved by the Board of Directors on 11 September 2023 and signed on its behalf by:

Condensed consolidated statement of changes in equity

Condensed consolidated cash flow statement

*The comparative cash flows have been re-presented to include interest paid as a financing rather than an operating cash flow. The change in presentation represents a voluntary change in accounting policy in line with IAS 8 and represents a more relevant grouping of cash flows in line with the nature of the business. This re-presentation increases the net cash inflow from operating activities and the net cash outflow from financing activities for the 26 weeks ended 2 July 2022 by £15.4 million (52 weeks ended 31 December 2022: £30.4 million). No change has been made to the total cash flow for either period.