13 July 2023

Watches of Switzerland Group PLC

FY23 Results

for the 52 weeks to 30 April 2023

 

Record year of revenue, profitability and return on capital employed

Entering FY24 well-set for further growth and significantly ahead of Long Range Plan

 

Brian Duffy, Chief Executive Officer, said:

"Our record performance is testament to our unique combination of longstanding luxury brand partnerships, dedicated colleagues focused on delivering exceptional client service, and our well-invested network of showrooms, which are supported by leading multi-channel capabilities. Luxury watch demand remains strong and continues to outpace supply, with our client registration lists extending and average selling prices growing.

 

"We have been busy expanding our international network of showrooms, adding a total of 28 across the UK, US and Europe, whilst also upgrading a further 13 showrooms, including the rollout of our Goldsmiths Luxury format. Our Xenia Client Experience Programme, which we have now introduced across our business, elevates our client service proposition even further, taking inspiration from the world of luxury hospitality. We take great pride in doing what we can to care for our people, our communities and our planet, and are pleased to have achieved an MSCI ESG Rating of AAA in recognition of our ESG credentials.

 

"We start the new financial year with some great projects, with the opening of our Watches of Switzerland showroom at American Dream in New Jersey, upgrading and relocating our Mayors showroom in Dadeland Florida, the first opening of our new Mappin & Webb contemporary showroom design, and five mono-brand boutiques in the UK and Europe including our first showroom in Germany. We reiterate our guidance for FY24 which reflects our continued confidence in the strength of our organic growth strategy, whilst we continue to actively pursue additional inorganic growth opportunities to enhance that growth.

 

"We enter FY24 significantly ahead of where we expected to be when we presented our Long Range Plan in 2021, and we look forward to presenting our Long Range Plan update, which will outline our growth ambitions beyond FY26 to FY28, in Autumn this year."

  

 

£million	52 weeks ended 30 April 2023	52 weeks ended 1 May 2022	YoY change Reported rates	YoY change Constant currency2
Group revenue	1,543	1,238	25%	19%
UK and Europe	890	810	10%	10%
US	653	428	52%	35%
Adjusted EBITDA1	201	162	24%
Adjusted EBITDA margin	13.1%	13.1%	-
Adjusted EBIT1	165	130	27%
Adjusted EBIT margin	10.7%	10.5%	20bps
Adjusted EPS1 (p)	52.7	41.8	26%
Statutory operating profit	179	142	26%
Statutory operating margin	11.6%	11.5%	10bps
Statutory basic EPS (p)	51.2	42.2	21%
Statutory profit before tax	155	126	23%
Free cash flow1	146	112	30%
Return On Capital Employed1	27.9%	27.4%	50bps
Net cash/(debt)1	16	(14)

 

FY23 Financial Highlights

·      Group revenue £1,543 million, +25% at reported rates, +19% at constant currency on prior year

o  Luxury watch sales grew 28% year-on-year (representing 87% of Group revenue) driven by a combination of increased average selling price (ASP) as well as volume growth

o  Luxury jewellery sales grew 10% driven by an increase in ASP with focus on full price sell through

o  Excellent progress with showroom expansion and refurbishment programme

·      Adjusted EBIT¹ +27% to £165 million (FY22: £130 million)

o  Adjusted EBIT margin +20bps to 10.7% (FY22: 10.5%, when margins benefited from £5 million of UK business rates relief) driven by sales and operational leverage against an inflationary backdrop

·      Statutory operating profit +26% to £179 million (FY22: £142 million)

·      Expansionary capital expenditure² of £68 million (FY22: £41 million) with 27 (FY22: 18) new showrooms opened and 13 showrooms refurbished (FY22: 17)

·      Free cashflow1 of £146 million (FY22: £112 million) with conversion +330bps to 72% (FY22: 69%) benefiting from strong trading in the year partially offset by investment in inventory

·      Return on Capital Employed¹ increased 50bps to 27.9% (FY22: 27.4%)

·      Net cash¹ of £16 million as of 30 April 2023 (1 May 2022: Net debt¹ of £14 million)

 

FY23 Operating Highlights

·      Continued strong momentum in the US, with revenue of £653 million (FY22: £428 million), +35% at constant currency, +52% at reported rates

o  Revenue growth excluding acquisitions +27% at constant currency, with newly acquired showrooms performing well

o  Further investment in showroom network with opening of six mono-brand boutiques and one new Watches of Switzerland showroom acquisition, anchored by Rolex, opened in New Jersey in July

o  FY23 ended with 24 multi-brand showrooms (FY22: 23) and 23 mono-brand boutiques (FY22: 17)

·      Strong UK and Europe performance driven by domestic clientele, with revenue of £890 million (FY22: £810 million), +10% vs FY22

o  Improved performance in airport business as traffic recovers

o  Significant investment in 15 new UK showroom openings including four mono-brand boutiques and a Watches of Switzerland multi-brand showroom at Battersea Power Station, London

o  Continued rollout of Goldsmiths Luxury concept with nine showrooms refurbished in FY23 and significant enhancements to two Watches of Switzerland multi-brand showrooms

o  FY23 ended with 89 multi-brand showrooms (FY22: 93) and 51 mono-brand boutiques (FY22: 38)

·      Opened six mono-brand boutiques in Europe. Consumers responding well to elevated showroom experience and client service

·      Pre-owned luxury watch revenue grew strong double digits with pricing and margins maintained

 

Outlook

·    Despite the current macroeconomic sentiment our FY24 guidance remains unchanged from that provided with our Q4 trading update on 17 May 2023. Guidance reflects current visibility of supply from key brands and confirmed showroom refurbishments, openings and closures, and excludes uncommitted capital projects and acquisitions

 

·      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.£3 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:	£23 - £27 million

·      The Group has an exciting schedule of new showroom projects for FY24, some of which have already been completed and others which will be completed in the balance of the year, including:

o  Watches of Switzerland multi-brand showroom in American Dream, New Jersey opened in May

o  Expansion of the mono-brand portfolio with 20 boutiques planned across the UK, US and Europe:

§ Opened two mono-brand boutiques, Breitling and TAG Heuer, in Cabot Circus, Bristol and one Breitling mono-brand boutique in York in June

§ Opened our first showroom in Berlin, Germany and another mono-brand boutique in the Mall of Scandinavia, Stockholm, both in partnership with TAG Heuer in June

o  Continued refurbishment and expansion of the showroom network including:

§ Refurbishment and expansion of Mayors Dadeland, Florida opened in May

§ Launched our first new contemporary showroom concept for Mappin & Webb in York in June

§ Continued roll-out of Goldsmiths Luxury showroom format

o  Launch of Rolex Certified Pre-Owned in the US next week and in the UK in September

o  Expanding Rolex Boutique in Millenia (Orlando) Florida in Autumn 2023

o  Watches of Switzerland multi-brand showroom at One Vanderbilt, New York due to open early 2024

 

·      In FY25:

o  Old Bond Street Rolex flagship boutique due to open Summer 2024

o  AP House in Manchester, via a Joint Venture partnership with Audemars Piguet due to open Autumn 2024

o  Expanding Rolex boutique in Glasgow due to open Autumn 2024

o  Relocating and expanding Watches of Switzerland multi-brand showroom in Plano (Dallas), Texas with a new Rolex agency

 

·    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.

 

Conference call

A webcast conference call for analysts and investors will be held at 9.00am (UK time) today to announce the FY23 results. To join the call, please use the following details:

 

Webcast link:  https://brrmedia.news/WOSG_FY23

Conference call dial-in: +44 (0) 33 0551 0200

Password: Watches of Switzerland  

Contacts

The Watches of Switzerland Group

Anders Romberg, CFO                                                                                                                      +44 (0) 207 317 4600

Stephanie Crinnegan, Director of Investor Relations & Corporate Affairs                               +44 (0) 776 710 0603

[email protected]

 

Headland

Lucy Legh / Rob Walker / Joanna Clark                                                                                         +44 (0) 20 3805 4822

[email protected]

 

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 30 April 2023, the Watches of Switzerland Group had 193 showrooms across the UK, US and Europe including 80 dedicated mono-brand boutiques in partnership with Rolex, OMEGA, TAG Heuer, Breitling, TUDOR, Audemars Piguet, 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

 

 

CEO Review

 

FY23 was another record year for revenue and profitability, with Group revenue growth of 25% at reported rates against the prior year (+19% at constant currency) and continued Adjusted EBIT¹ margin expansion. Although, as expected, the second half of FY23 saw a more challenging trading environment, luxury watch demand remained strong and continues to exceed supply. We generated strong cash flow, a record level of Return on Capital Employed¹ (ROCE) of 27.9% (FY22: 27.4%) and closing net cash¹ of £16 million as at 30 April 2023 (1 May 2022: net debt¹ £14 million). We have over 2,800 colleagues at the Watches of Switzerland Group and I would like to thank all our colleagues for their continued hard work and dedication, which is key to our success.

 

The US business delivered exceptional growth, +52% at reported rates against the prior year (+35% at constant currency), generating sales of £653 million, and now represents 42% of Group revenue. We continued to expand our US network, opening six mono-brand boutiques, one new showroom acquisition, anchored by Rolex, in New Jersey and expanded our presence in Mayors Boca Raton, Florida. 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.

 

In the UK and Europe, revenue increased 10% vs FY22, driven by domestic clientele with encouraging ongoing improvement in our airport business. We made significant investment in our showrooms during the year, opening 15 new UK showrooms including five in Battersea Power Station, a standout project. We have continued with the rollout of our Goldsmiths Luxury concept with the reopening of nine showrooms including our flagship in Meadowhall, Sheffield which now features a large, dedicated Rolex room and Cartier 'Espace'.

 

We are delighted to have launched our entry into the European market with the opening of five mono-brand boutiques in Stockholm and Copenhagen and in the final quarter of the year we opened our first mono-brand boutique in Dublin. Following the year end we opened our first mono-brand boutique in Berlin, Germany and another in the Mall of Scandinavia, Stockholm, both in partnership with TAG Heuer. Our new stores in Stockholm and Copenhagen are performing in line with our expectations. Our teams in these new cities are full of enthusiasm and doing a fantastic job. Consumers in these markets are responding well to our elevated showroom experience and client service.

Luxury watches sales grew 28% year-on-year (representing 87% of Group revenue) driven by a combination of increased average selling price as well as volume. Luxury jewellery sales increased at a more modest 10% in the year reflecting a tougher macroeconomic backdrop and focus on full price sales. Growth was driven by average selling prices as we continued to merchandise to higher price points and reduce discounting in the US.

 

Turning to full year profitability, we generated an FY23 Adjusted EBIT¹ of £165 million and operating profit of £179 million. FY23 saw another year of margin expansion, with Adjusted EBIT¹ margin increasing 20bps, as we continued to leverage our fixed cost base, despite headwinds from product mix and Interest Free Credit.

Having closed out FY23, I would like to reflect on where we stand against the Long Range Plan we presented to the market back in the summer of 2021. Following two years of exceptional performance, sales are significantly ahead of plan, by over £200 million (excluding the benefits of favourable movements in foreign exchange, which makes the differential even greater). We are delighted with our progress, our momentum and our prospects for future profitable investment and growth.

I am writing this on my return from the Watch & Jewellery Initiative 2030 CEO Forum in Paris, where as industry leaders, we acknowledged the critical importance of us coming together to create a fully sustainable watch and jewellery industry that is resilient to climate change, preserves natural resources and fosters inclusivity. I'm delighted with the progress we are making across these areas, including the verification of our science-based emission reduction targets, development of new ESG Partner Standards, our continuing focus on protecting human rights, and most recently achieving an MSCI ESG Rating of AAA. We look forward to further advocating the aims of the initiative in FY24.

I am proud of the strong culture at the Watches of Switzerland Group, which is based on our Purpose to 'WOW our clients while caring for our colleagues, our communities and our planet'. Our Company values of respect, trust and confidence, underpin our approach to talent and equal opportunity.  We continue to elevate our offer to colleagues to ensure that we attract and grow a loyal, diverse team of highly trained and engaged colleagues who are well rewarded for their expertise and committed to developing their careers with our Group. Social mobility is an important part of our DNA across the Group and we have continued to sharpen our focus on this in FY23. I am pleased to support the investment in the development of our colleagues and to providing development opportunities for all.

Caring for our communities has always been a priority for us and it is humbling to see the tremendous positive impact made possible by The Watches of Switzerland Group Foundation, the aim of which is to provide essential support to charities located in the communities within which we operate, focusing on poverty, the advancement of education and relief to those in need in both the UK and the US. The Foundation is managed by a Board of Trustees who bring a unique mix of experience, expertise, drive and talent.  In a year in which the external pressures have impacted significantly on society and in particular young people, I am proud that the Foundation has helped over 20,000 people affected by poverty and we are pleased to support the following charities: The Prince's Trust, Local Food Banks, Fuel Bank Foundation, Crisis, Habitat for Humanity, Feeding South Florida, Las Vegas Food Bank. and 3 Square and NYC Food Bank.

Looking forward, our FY24 guidance issued on 17 May 2023 projects full year sales of between £1.65 and £1.70 billion, reflecting underlying sales growth of 8 to 11% at constant currency with Adjusted EBIT¹ margins in line with FY23. FY24 guidance anticipates that the more challenging trading environment of the second half of FY23 will continue into the first half of FY24.

We have an exciting pipeline of new showroom projects planned as we continue to invest in the Group. These include our Old Bond Street Rolex flagship boutique due to open Summer of 2024, AP House in the City of Manchester, via a Joint Venture partnership with Audemars Piguet due to open Autumn of 2024, and we most recently opened our flagship Watches of Switzerland showroom in American Dream, New Jersey.

Finally, I would like to thank Bill Floydd for his valuable contribution to the Group during his time here as CFO and wish him well for the future. I am delighted that Anders Romberg has re-joined the business as CFO in May 2023. Anders has a strong track record of financial leadership and thorough knowledge of our Group, as well as the specialist luxury watch and jewellery categories, and I look forward to working with him again.

 

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)	52 weeks ended 30 April 2023	52 weeks ended 1 May 2022	YoY variance
Revenue	1,542.8	1,238.0	25%
Operating profit	178.6	142.1	26%
Net finance cost	(23.8)	(15.9)	(50)%
Profit before taxation	154.8	126.2	23%
Taxation	(33.0)	(25.2)	(31)%
Profit for the financial period	121.8	101.0	21%
Basic earnings per share	51.2p	42.2p	21%

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)	52 weeks ended 30 April 2023	52 weeks ended 1 May 2022	YoY variance
Revenue	1,542.8	1,238.0	25%
Net margin1	576.3	470.6	22%
Showroom costs	(279.2)	(226.7)	(23)%
4-Wall EBITDA1	297.1	243.9	22%
Overheads	(84.1)	(73.3)	(15)%
EBITDA	213.0	170.6	25%
Showroom opening and closing costs	(11.6)	(8.4)	(40)%
Adjusted EBITDA1	201.4	162.2	24%
Depreciation, amortisation and loss on disposal of fixed assets	(36.3)	(31.9)	(13)%
Segment profit (Adjusted EBIT)1	165.1	130.3	27%
Net finance costs	(5.9)	(3.7)	(55)%
Adjusted profit before taxation1	159.2	126.6	26%
Adjusted earnings per share1	52.7p	41.8p	26%

 

Revenue

 

Revenue by geography and category

 

52 weeks ended 30 April 2023 (£million)	UK and Europe	US	Total	Mix
Luxury watches2	749.6	586.5	1,336.1	87%
Luxury jewellery2	67.8	51.4	119.2	7%
Other/services	72.5	15.0	87.5	6%
Total revenue	889.9	652.9	1,542.8	100%

 

 

52 weeks ended 1 May 2022 (£million)	UK and Europe	US	Total	Mix
Luxury watches2	663.9	382.6	1,046.5	85%
Luxury jewellery2	72.4	36.4	108.8	9%
Other/services	73.3	9.4	82.7	6%
Total revenue	809.6	428.4	1,238.0	100%

 

Group revenue increased by 25% (19% on a constant currency basis) to £1,542.8 million.

 

UK and Europe revenue increased by 10% during the year through a combination of continued strong demand, benefits from pricing, investment in the showroom portfolio, new showrooms and strong clienteling activity by the Group. Consumer appetite for products remained strong and, in many instances, well above the levels that the Group is able to supply. Our showroom colleagues continued to build strong client relationships through Xenia, our elevated Client Experience Programme, backed up by strong digital marketing campaigns and offline marketing events to showcase product.  Clients continue to have the option to choose their experience through in-person appointments or online through the Luxury Watch and Jewellery Virtual Boutique.

 

During the year, the UK opened five showrooms at the iconic Battersea Power Station in London (one multi-brand showroom and four mono-brand boutiques) and a further ten mono-brand boutiques in the UK. Six showrooms were closed giving a net increase of nine in the UK. In the year, 12 refurbishments were completed enhancing our existing estate to further elevate the partner brands we display in those showrooms and advance our client experience. Tourist sales remain very low, but there has been consistent performance improvement at airports. The Group also opened its first six mono-brand boutiques in Europe (three in Sweden, two in Denmark and one in the Republic of Ireland). Initial trading is in line with expectations and the impact on the Group is not material for the year.

 

US revenue increased by 52% year-on-year (35% on a constant currency basis) and the US business made up 42% of the Group's revenue in FY23 (FY22: 35%). Underlying growth (+27% excluding acquisitions at constant currency) was strong across all locations with continued consumer appetite for high demand and other products. Key locations in Florida (Mayors), Las Vegas (Wynn Resort), and New York all delivered significant growth. 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 year, the US opened six mono-brand boutiques and completed the acquisition of one showroom in New Jersey. The acquired showroom is now branded Watches of Switzerland and features Rolex, TUDOR, Cartier and a significant jewellery offering. The Group also annualised the acquisition of five showrooms from the previous year (three under the Betteridge brand and two showrooms now branded Watches of Switzerland). Our US ecommerce platform has continued to grow, and sales of vintage and pre-owned luxury watches have been encouraging.

 

Group revenue from luxury watches grew by 28% and made up 87% of revenue in line with the prior year. Pre-owned revenue grew by strong double digits, with pricing and margins maintained.

 

Group luxury jewellery revenue grew by 10%. UK luxury jewellery sales declined by 6% versus the prior year, where FY23 saw a more competitive market environment including discounting. Luxury jewellery revenue in the US showed strong underlying growth and was further supported by the prior year acquisition of the Greenwich Betteridge showroom and the opening of our first BVLGARI mono-brand boutique. The US focused on the sale of full price items and the elimination of discounting in the year.

 

Other/services 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 sales² increased 3% compared to the prior year.

 

Profitability

 

	Profitability as a % of revenue
Income Statement - pre-IFRS 16 and exceptional items (£million)	52 weeks ended 30  April 2023	52 weeks ended 1 May 2022	YoY variance
Net margin1	37.4%	38.0%	(60bps)
Showroom costs	18.1%	18.3%	20bps
4-Wall EBITDA1	19.3%	19.7%	(40bps)
Adjusted EBITDA1	13.1%	13.1%	-
Adjusted EBIT1	10.7%	10.5%	20bps

 

Net margin as a % of revenue was 37.4% in the year. This was 60bps lower than the prior year driven by product mix and higher costs of Interest Free Credit due to interest rate rises in the UK and US, partly mitigated by reduced promotional discounts on jewellery.

 

 

Showroom costs increased by £52.5 million (+23%) from the prior year, to £279.2 million. This reflects the opening of new showrooms and the annualisation of prior year openings. Showroom costs as a percentage of revenue reduced by 20 bps from 18.3% to 18.1%, reflecting leverage of costs. Showroom payroll costs increased by £18.7 million including the impact of new showrooms, commission on additional revenue, and annual pay rises to colleagues. Property related costs increased from FY22 by £20.4 million, driven by our increased showroom portfolio and the reintroduction of UK business rates following their suspension during the pandemic (+£5.0 million versus FY22). Variable showroom costs increased in line with revenue.

 

Overheads increased by £10.8 million (+15%) due to additional investment in headcount, IT costs and marketing events to support growth.

 

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 year. Total costs for the year were £11.6 million versus £8.4 million in FY22, reflecting the increased number of refurbishments and openings undertaken.

 

Exceptional items

 

Exceptional items are defined by the Group as those which are significant in magnitude or are linked to one-off events which are expected to be infrequent in nature.

 

Exceptional items (£million)	52 weeks to 30 April 2023	52 weeks to 1 May 2022
Legal expenses on business acquisition	0.9	0.5
Reversal of showroom impairment	(0.7)	(0.4)
Amortisation of capitalised transaction costs	0.7	-
IPO costs	-	1.5
Total	0.9	1.6

 

Costs associated with the acquisition of new showrooms are treated as exceptional as they are regarded as non-trading, non-underlying costs.

 

During FY23 the estimated 'value-in-use' recoverable amounts were reassessed taking into account FY23 performance and the latest discounted cash flow for each showroom. As a result of improved trading, an impairment reversal has been made at the year end, where the original impairment had been made through exceptional items.

 

After the year end, on 9 May 2023 the Group entered into a new financing arrangement by way of a £225.0 million multicurrency revolving loan facility. On this date the existing £120.0 million Term Loan and revolving credit facility of £50.0 million were extinguished. The capitalised transaction fees in relation to the existing facilities have been accelerated through exceptional items.

 

IPO costs of £1.5 million in the prior year related to IPO-linked share-based payments. The shares vested and were settled in the prior year, and there will be no further costs of this nature.

 

Adjusted EBIT and statutory operating profit

 

As a consequence of the items noted above, Adjusted EBIT was £165.1 million, an increase of £34.8 million (+27%) on the prior year.

 

After accounting for exceptional costs of £0.2 million and IFRS 16 adjustments of £13.7 million, statutory operating profit (EBIT) was £178.6m, an increase of 26% on the prior year.

 

Finance costs

 

Net finance costs (£million)	52 weeks ended 30 April 2023	52 weeks to 1 May 2022
Pre-IFRS 16 finance costs, excluding exceptionals	5.9	3.7
IFRS 16 interest on lease liabilities	17.2	12.2
Total net finance costs, excluding exceptionals	23.1	15.9

 

Interest payable on borrowings increased in the year, reflecting higher market lending rates.

 

The IFRS 16 interest on lease liabilities increased by £5.0 million due to recent additions to the lease portfolio and increased discount rates used for new leases.

 

Taxation

The pre-IFRS 16 effective tax rate for the year was 21.4%. This is higher than the UK tax rate of 19.5% largely as a result of higher taxes chargeable on US profits (26.5% including federal and state taxes). The effective tax rate reported under IFRS 16 was 21.4%.

 

Balance Sheet

Balance Sheet (£million)	30 April 2023	1 May 2022
Goodwill and intangibles	200.4	183.2
Property, plant and equipment	154.4	112.5
Right-of-use assets	359.1	293.6
Inventories	356.0	302.6
Trade and other receivables	19.8	22.3
Trade and other payables	(219.6)	(201.4)
Lease liabilities	(410.4)	(340.6)
Net cash1/(debt1)	16.4	(14.1)
Other	(6.8)	3.2
Net assets	469.3	361.3

 

The prior year 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 increased as a result of the US acquisition in the year, which gave rise to £18.2 million of goodwill, in addition to a £0.5 million adverse exchange impact. A further £2.7 million of computer software additions were made in the year as part of ongoing IT developments, offset by amortisation of £3.2 million.

 

Property, plant and equipment increased by £41.9 million in the year. Additions of £75.0 million were offset by depreciation of £32.3 million, and a loss on disposal of £0.8 million.

 

Including software costs, which are disclosed as intangibles, capital additions (including accruals) were £77.7 million in the year of which £73.0 million was expansionary. Expansionary capex relates to new showrooms, relocations or major refurbishments (defined as costing over £0.25 million). In the year, the Group opened 27 new showrooms, and refurbished 13 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 £65.5 million in the year, to £359.1 million. Additions to the lease portfolio along with lease renewals or other lease changes (including impairment reversal of £0.2 million) were £117.1 million. This has been offset by depreciation of £50.3 million and an adverse foreign exchange impact of £1.3 million.

 

Lease liabilities increased by £69.8 million in the year. The portfolio changes noted above increased the lease liability by £112.9 million. Interest charged on the lease liability was £17.2 million along with a favourable exchange impact of £1.1 million. Lease payments were £59.2 million, giving a lease liability balance of £410.4 million.

 

Inventory levels increased by £53.4 million (+18%) compared to the prior year. New showrooms and acquisitions accounted for £28.0 million of the increase. The balance of £25.4 million is a like for like increase in showroom inventory that supports sales growth and is reflective of price increases on a number of brands, in addition to an increase in average product prices. The inventory obsolescence risk remains low.

 

Trade and other receivables decreased by £2.5 million compared to FY22. Overall the balance remains relatively low and represents prepayments, rebate receivables, rent deposits and other ad hoc receivables such as property contributions.

 

Trade and other payables increased by £18.2 million compared to FY22. The increase principally relates to an increase in the inventory trade payable aligned with the increased inventory in the year. 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 30 April 2023 was £16.4 million, an increase of £30.5 million since 1 May 2022, driven by £145.8 million of free cash flow¹ offset by £67.5 million of expansionary capex, £24.9 million relating to acquisitions and £21.3 million for the purchase of own shares to satisfy management incentives.

 

Net debt post-IFRS 16 was £394.0 million. The value comprises the pre-IFRS net cash of £16.4 million and the £410.4 million lease liability.

 

During FY23 the Group had the following financing facilities in place:

 

Facility	Expiring	Amount (million)
UK Term Loan - UK SONIA + CAS + 1.75% to +2.80%	June 2024	£120.0
UK Revolving Credit Facility - UK SONIA + CAS +1.50% to +2.55%	June 2024	£50.0
US Asset Backed Facility (ABL) - US LIBOR +1.25% to +1.75%	April 2023	$60.0

 

The US ABL facility expired in April 2023. On 4 June 2019, the Group entered into a facility consisting of a UK Term Loan for £120.0 million and a UK RCF of £50.0 million. The UK Term Loan was fully drawn as at 30 April 2023.

 

After the year end, on 9 May 2023, the Group signed a new five-year £225.0 million multicurrency revolving loan facility with lenders. The new facility will use UK SONIA +1.50% to +2.55%. The existing facilities were repaid and extinguished on this date.

 

Cash Flow

 

Cash Flow (£million)	52 weeks to 30 April 2023	52 weeks to 1 May 2022
Adjusted EBITDA1	201.4	162.2
Share-based payments	3.5	1.7
Working capital	(22.5)	(29.8)
Pension contributions	(0.7)	(0.7)
Tax	(26.6)	(15.6)
Cash generated from operating activities	155.1	117.8
Maintenance capex	(4.6)	(3.0)
Interest	(4.7)	(2.7)
Free cash flow1	145.8	112.1
Free cash flow conversion1	72.4%	69.1%
Expansionary capex	(67.5)	(41.0)
Acquisitions	(24.9)	(44.1)
Purchase of own shares	(21.3)	-
Exceptional items - legal expenses on business acquisitions	(0.9)	(0.5)
Cash flow	31.2	26.5

 

Free cash flow increased by £33.7 million to £145.8 million in the year to 30 April 2023 and free cash flow conversion was 72.4% compared to 69.1% in the prior year.

 

Strong cash flow from trading (Adjusted EBITDA increased by £39.2 million), was offset by a £22.5 million adverse working capital movement, driven by the inventory increase in the year as noted above.

 

Tax cash payments increased to £26.6 million in line with the higher profit generated in the year.

 

Expansionary capex of £67.5 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.

 

£21.3 million of own shares were purchased in the year to satisfy ongoing employee share incentive schemes.

 

Return on Capital Employed (ROCE)¹

 

	52 weeks to 30 April 2023	52 weeks to 1 May 2022
ROCE1	27.9%	27.4%

 

FY23 ROCE is 27.9%, an increase of 50 bps in comparison to the prior year. This is as a consequence of Adjusted EBIT increasing by +27%, compared to the increase in average capital employed of 24%.

 

Showroom portfolio

 

As at the 30 April 2023, the Group had 193 showrooms, the movement in showroom numbers is included below:

 

	UK multi-brand showrooms	UK mono-brand boutiques	Europe mono-brand boutiques	Total UK and Europe	US multi-brand showrooms	US mono-brand boutiques	Total US	Total Group
1 May 2022	93	38	-	131	23	17	40	171
Openings	1	14	6	21	-	6	6	27
Acquisitions	-	-	-	-	1	-	1	1
Closures	(5)	(1)	-	(6)	-	-	-	(6)
30 April 2023	89	51	6	146	24	23	47	193

 

¹ 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.

² Refer to the Glossary for definition.

³ Ecommerce sales are sales which are transacted online.

Certain financial data within this announcement has been rounded. Growth rates are calculated on unrounded numbers.

 

 

 

 

Principal and emerging risks and uncertainties

 

The Group is exposed to a number of risks and uncertainties in its business which could impact its ability to effectively execute its strategy and cause actual results to differ materially from expected and/or historical results. The Board has undertaken a robust assessment of the principal and emerging risks and uncertainties facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.  The risks presented in the 2022 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; Business interruption; Data protection and cyber security; Regulatory and compliance; Economic and political; Brand and reputational damage; Financial and treasury; and Climate change.  These are detailed on pages 160 to 165 of the 2022 Annual Report, a copy of which is available on the Watches of Switzerland Group PLC (the 'Company') website at www.thewosgroupplc.com.

 

A full disclosure of the Group's principal risks and emerging risks and uncertainties, including the factors which mitigate them, will be set out within the Strategic Report of the 2023 Annual Report and Accounts.

 

 

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 and future prospects; (ii) business and management strategies, the expansion and growth of the Group's business operations; and (iii) the effects of government regulation and industry changes on the business of the Company or the Group.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond the Company's ability to control or predict. Forward-looking statements are not guarantees of future performance. The Group's actual results of operations, financial condition, liquidity, and the development of the industry in which it operates may differ materially from the impression created by the forward-looking statements contained in this announcement and/or the information incorporated by reference into this presentation.

 

Any forward-looking statements made by or on behalf of the Company or the Group speak only as of the date they are made and are based upon the knowledge and information available to the Directors on the date of this announcement, and are subject to risks relating to future events, other risks, uncertainties and assumptions relating to the Company's operations and growth strategy, and a number of factors that could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements. Undue reliance should not be placed on any forward-looking statements.

 

Before making any investment decision in relation to the Company you should specifically consider the factors identified in this document, in addition to the risk factors that may affect the Company or the Group's operations as detailed above.

 

 

 

 

 

 

 

                                                                       

     

Watches of Switzerland Group PLC

Preliminary results

For the 52 week period ended 30 April 2023

 

 

 

Registered number: 11838443

 

 

 

 

Watches of Switzerland Group PLC

Consolidated Income Statement

 

		52 week period ended 30 April 2023	52 week period ended 1 May 2022
	Note	£m	£m
Revenue	2,3	1,542.8	1,238.0
Cost of sales		(1,324.1)	(1,056.7)
Gross profit		218.7	181.3
Administrative expenses		(39.9)	(37.6)
Exceptional administrative expenses	4	(0.9)	(2.0)
Exceptional reversal of impairment of assets	4	0.7	0.4
Operating profit		178.6	142.1
Finance costs		(24.0)	(16.0)
Finance income		0.9	0.1
Exceptional finance costs	4	(0.7)	-
Net finance cost		(23.8)	(15.9)
Profit before taxation		154.8	126.2
Taxation	5	(33.0)	(25.2)
Profit for the financial period		121.8	101.0
Earnings per share
Basic	6	51.2p	42.2p
Diluted	6	50.9p	42.0p