FY20 Results and Q1 FY21 Trading Update

 

 

Watches of Switzerland Group PLC

FY20 Results and Q1 FY21 Trading Update

for the 52 weeks to 26 April 2020 and 13 weeks to 26 July 2020

 

Record year performance in FY20

Q1 trading ahead of management expectations with sales growth in June/July vs prior year

Group expects gradual traffic improvement with localised market disruption

 

Watches of Switzerland Group PLC ("the Group") today provides the following financial results for the 52 weeks ending 26 April 2020 (FY20) and an unaudited trading update for the 13 weeks ending 26 July 2020 (Q1 FY21).

 

Brian Duffy, Chief Executive Officer, said:

 

"I am delighted with our achievements during FY20, our first year as a public company.  We delivered a strong performance during the first 46 weeks of the year before adapting with speed and agility to the challenges presented by the COVID-19 pandemic.  Momentum accelerated in our US business adding to the positive performance in the UK and we remain confident in our strategy to drive profitable growth in both markets.

 

I am extremely proud of the dedication and enthusiasm of our teams who have remained highly engaged and continued to deliver impressive results.  We are pleased to have maintained full job security and salaries for all our staff in the UK and in the US during the lockdown period.  We will continue to prioritise the health and wellbeing of our colleagues and customers throughout this challenging time.

 

While we began FY21 with our global store portfolio closed due to the pandemic, we were well prepared for the re-opening of our stores during Q1 and trading has exceeded our expectations in both the UK and the US.  The UK has been driven by continued strong ecommerce sales and domestic demand in regional stores, partly offsetting greater declines in London (due to reduced tourism) and our airport stores.  The US continued to gain momentum during the period with all re-opened stores performing strongly versus the prior year.  This continued strong performance is testament to our long-standing brand partnerships, focus on exceptional customer experience, well-established multi-channel leadership and the strong fundamentals of the luxury watch category in our markets, where demand continues to exceed supply.  Our encouraging Q1 sales performance underpins the strength of our supply-driven business model and provides the basis on which we provide FY21 guidance.

 

Looking ahead, we will continue to invest in delivering on our strategic priorities to leverage our leading position in the UK and to become a leader in the US luxury watch market.  We are confident that we are well positioned to emerge even stronger from these uncertain and challenging times."

 

 

FY20 Highlights

Record year of sales and profit despite COVID-19 impact

 

FY20 Revenue Breakdown: weeks 1-46, weeks 47-52

 

	FY20			YoY variance %
(£m)	46 weeks to 15 March 2020	6 weeks to 26 April 2020	52 weeks to 26 April 2020	46 weeks to 15 March 2020	6 weeks to 26 April 2020	52 weeks to 26 April 2020
UK pre-reclassification	575.9	15.7	591.6	9.4%	(74.6)%	0.6%
Reclassification[1]	0.0	(6.1)	(6.1)	-	-	-
UK	575.9	9.6	585.5	9.4%	(84.5)%	(0.5)%
US pre-reclassification	221.8	5.9	227.7	36.4%	(74.1)%	22.9%
Reclassification	0.0	(2.7)	(2.7)	-	-	-
US	221.8	3.2	225.0	36.4%	(85.9)%	21.4%
Group Revenue pre-reclassification	797.7	21.6	819.3	15.8%	(74.4)%	5.9%
Reclassification	-	(8.8)	(8.8)	-	-	-
Group Revenue	797.7	12.8	810.5	15.8%	(84.9)%	4.8%

 

 

·      FY20 Group revenue +5.9% to £819.3 million (£810.5 million after reclassifications)

§ Strong trading during 46 weeks to 15 March 2020 (pre-lockdown) with Group revenue +15.8%, across both UK +9.4% and US +36.4%, driven by luxury watches +19.3% vs prior year

§ COVID-19 related closures of all stores in the UK and US impacted the final 6 weeks of the year

§ UK +0.6% (-0.5% after reclassifications) and US +22.9% (+21.4% after reclassifications)

·      Adjusted EBITDA[2] increased +13.6% to £78.1 million, at the top end of revised guidance

·      Operating profit increased +6.2% to £48.3 million (FY19: £45.5 million)

·      Capital expenditure of £23.4 million (FY19: £35.3 million), with five new stores opened (FY19: eight), six relocated stores (FY19: three) and nine refurbishments (FY19: nine) , expansions and relocations; some projects delayed into FY21 due to COVID-19 (Knightsbridge expansion, Rolex boutique Glasgow and Tudor boutique White City)

·      Four stores acquired from Fraser Hart in March 2020

·      Return on capital employed[3] increased to 15.8% (FY19: 14.7%)

·      Net debt[4] reduced to £129.7 million as at 26 April 2020 (28 April 2019: £240.6 million) reflecting disciplined cash management and proceeds from the IPO

 

Q1 FY21 Trading Update

Increased domestic demand offsets tourism decline; July sales +7.4% vs prior year

·      Colleagues' job security and salaries maintained in full and strong communication with colleagues throughout

·      Group revenue for the 13 weeks to 26 July 2020 (Q1 FY21) was ahead of management expectations with June/July positive:

§ Q1 -27.6% to £151.6 million (Q1 FY20: £209.4 million), impacted by store closures during the period

§ Stores traded for c.38% of potential trading hours due to COVID-19 related lockdown

§ The majority of stores re-opened during the quarter with a strong performance during the month of July +7.4% vs prior year, the first full month when the majority of the network was re-opened (June +0.3%, May -83.0%)

§ Since re-opening, traffic to the Group's stores has been low but offset by higher conversion rates, good supply of key brands and new technology to further enhance clientelling initiatives

§ Continued strong ecommerce performance with Q1 sales +79.3%

§ Luxury watch sales increased to 86.8% of Group revenue (Q1 FY20: 84.8%) with key brands outperforming

·      UK revenue -30.1% to £108.3 million (Q1 FY20: £155.0 million)

§ Stores traded for c.35% of potential trading hours, beginning to reopen from mid-June

§ Strong UK domestic sales during Q1 +20.4% offsetting lower tourism and airport business -92.8%

§ Post re-opening, regional stores outperformed London and airport stores, which remain adversely impacted by a lack of tourism and travel business

§ Sales by month vs prior year: July +1.1%, June +1.4%, May -86.8%

·      US revenue -20.4% to £43.3 million (Q1 FY20: £54.4 million)

§ Stores traded for c.44% of potential trading hours, beginning to reopen during May

§ Post re-opening, all areas of the business performed strongly driven by enhanced clientelling and good product availability

§ Sales by month vs prior year: July +27.0%, June -2.7%, May -72.7%

·      Luxury watches are a considered purchase, with less browsing store traffic and high conversion rates from discerning shoppers for the category; these characteristics enabled the Group to introduce the necessary health and safety measures in its stores with relative ease

·      Enhanced digital activities include exclusive product launches, introduction of automated remote selling, new digital campaigns, enhanced social and digital media, virtual events and virtual PR launches

·      Mono-brand boutique network further expanded with a new Rolex boutique opened in Glasgow at the end of Q1, the brand's first mono-brand store in Scotland, and three new TAG Heuer boutiques opened in Watford, Kingston and Oxford; in addition a Grand Seiko pop-up store was opened in Soho, New York

·      The Group renegotiated contracts for its airport stores and agreed a short-term extension to the end of FY21 on revised terms reflecting reduced traffic expectations

·      Net debt at 26 July 2020 of £91.2 million with financial headroom of £161.1 million

·      As previously stated, new £45.0 million facility agreement secured during May 2020, further strengthening liquidity position

 

Outlook

Supply-driven business model forms key consideration behind FY21 guidance

·      Despite the macroeconomic uncertainties, the Group is providing guidance for FY21 on the basis of a continued strong luxury watch market in the UK and US

·      The Group's Q1 sales performance since re-opening underpins the strength of its supply-driven business model which forms a key consideration behind the FY21 guidance

·      The FY21 outlook is based on the assumption that there are no further national lockdowns in the UK or the US impacting the Group's sales or in Switzerland impacting the Group's brand partners' production during the period; localised disruption is expected to continue for the balance of the financial year

·      During FY21, whilst the Group expects domestic demand to remain buoyant in both the UK and the US, it anticipates limited but improving airport traffic and foreign tourism in the UK and limited domestic tourism in the US, with gradual and moderate improvement throughout the financial year

·      The Group provides the following guidance for FY21 pre-IFRS 16 adjustments and based on a 53-week period:

§ Revenue: £840.0-860.0 million

§ EBITDA and Adjusted EBITDA margin %: flat vs last year

§ Depreciation, amortisation, impairment and profit/loss on disposal of fixed assets: £21.0-£23.0 million

§ Total finance costs: £5.3-£5.8 million

§ Underlying tax rate: 21.0%-22.5%

§ Capex: £28.0-30.0 million

§ Net debt: £90.0-£110.0 million

·    The Group continues to invest in its store portfolio in the UK and US with a strong pipeline of store projects planned

 

Q1 FY21 Revenue Performance by Geography

 

	Q1
(£m)	13 weeks to 26 July 2020	13 weeks to 28 July 2019	YoY variance %	Constant currency YoY variance %
UK	108.3	155.0	(30.1)%	(30.1)%
US	43.3	54.4	(20.4)%	(20.8)%
Group Revenue	151.6	209.4	(27.6)%	(27.7)%

 

Q1 FY21 Revenue Performance by Category

 

	Q1
(£m)	13 weeks to 26 July 2020	13 weeks to 28 July 2019	YoY variance %
Luxury Watches	131.6	177.5	(25.9)%
Luxury Jewellery	10.0	16.1	(37.9)%
Other	10.0	15.8	(36.7)%
Group Revenue	151.6	209.4	(27.6)%

 

Q1 FY21 Revenue Performance by Month

 

	Q1
	May 2020	June 2020	July 2020	Total Q1 FY21
UK sales YoY variance %	(86.8)%	1.4%	1.1%	(30.1)%
% traded hours[5]	0%	34%	78%	35%
US sales YoY variance %	(72.7)%	(2.7)%	27.0%	(20.4%)
% traded hours	22%	59%	64%	44%
Group Revenue YoY variance %	(83.0)%	0.3%	7.4%	(27.6)%
% traded hours	10%	40%	74%	38%
Ecommerce sales[6] YoY variance %	117.8%	77.7%	46.2%	79.3%

 

 

[1] During FY20 the Group has reclassified certain costs and revenue, mainly to correctly reflect interest-free credit costs under IFRS 9, with no impact on net profit.  As the impact is not material to the financial statements the comparatives have not been restated.  The result shown above is prior to making this adjustment to aid comparability.  These adjustments would reduce the FY20 revenue as stated by £8.8 million.  If the prior year revenue was restated, revenue would have reduced by £10.7 million.

2 Adjusted EBITDA is Earnings Before Interest, Tax, Depreciation and Amortisation and IFRS 16 impact.  Refer to the glossary on page 56.

3 Return on Capital Employed is defined as Adjusted EBIT divided by average capital employed.  Average capital employed is total assets less current liabilities on a pre-IFRS 16 basis. Refer to the glossary on page 56.

4 Year-end net debt as disclosed in our trading update of 14 May 2020 was £131.4m, the difference being restricted cash held on retention for the settlement of the consideration for the store acquisitions.  Net debt is defined as total borrowings (excluding capitalised transaction costs) less cash and cash equivalents.  Refer to the glossary on page 56.

5 Hours during which stores traded as a % of total potential trading hours during the period

6 Ecommerce sales included within Group Revenue and UK sales

 

Conference call

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

 

United Kingdom (Local): 020 3936 2999

All other locations: +44 20 3936 2999

Participant Access Code: 361627

Webcast link: https://www.investis-live.com/thewosgroupplc/5f298187a6d096120087ab75/zvxc 

 

 

Contacts

The Watches of Switzerland Group

Anders Romberg, CFO                                                                          +44 (0) 116 2817 401

Allegra Perry, Investor Relations                                                            +44 (0) 20 7317 4600

[email protected] 

 

Headland

Lucy Legh / Rob Walker                                                                         +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 both the UK and US, comprising four prestigious brands; Watches of Switzerland (UK and US), Mappin & Webb (UK), Goldsmiths (UK) and Mayors (US), with complementary jewellery offering.

 

The Watches of Switzerland Group has 135 core stores across the UK and US (which includes 22 dedicated mono-brand stores in these two markets in partnership with Rolex, TAG Heuer, OMEGA and Breitling) and has a leading presence in Heathrow Airport with representation in Terminals 2, 3, 4 and 5 as well as five transactional websites.

 

The Watches of Switzerland Group is proud to be the UK's largest retailer for Rolex, Cartier, OMEGA, TAG Heuer and Breitling watches.

 

Mappin & Webb holds Royal warrants as goldsmiths, silversmiths and jeweller to Her Majesty The Queen and silversmiths to His Royal Highness The Prince of Wales. The Mappin & Webb master jeweller has been Crown Jeweller, custodian of the Crown Jewels of Her Majesty The Queen since 2012.

 

https://www.thewosgroupplc.com

 

Disclaimer

This trading statement does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Watches of Switzerland Group Plc shares or other securities nor should it form the basis of or be relied on in connection with any contract or commitment whatsoever. It does not constitute a recommendation regarding any securities. Past performance, including the price at which the Company's securities have been bought or sold in the past, is no guide to future performance and persons needing advice should consult an independent financial adviser.

 

Certain statements in this trading statement constitute forward-looking statements. Any statement in this document that is not a statement of historical fact including, without limitation, those regarding the Company's future plans and expectations, operations, financial performance, financial condition and business is a forward-looking statement. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in this statement. As a result you are cautioned not to place reliance on such forward-looking statements. Nothing in this statement should be construed as a profit forecast.

 

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

 

 

 

 

Chief Executive's Review

 

FY20 was an interesting year; the first year for the Watches of Switzerland Group as a public company listed on the London Stock Exchange, a successful year of record growth for the 46 weeks through to mid-March and then the closure of all of our stores in the UK and US due to the COVID-19 pandemic.

 

Through week 46 of FY20 we were tracking at 15.8% revenue growth with the UK +9.4% and the US +36.4% driven by strong LFL sales +9.3% (UK +9.2%, US +9.8%) and new store projects contributing positively. Ecommerce sales in the UK were +15.9%.  Sales growth was driven by luxury watches +19.3% representing 83.8% of total sales (FY19: 81.6%).  Jewellery sales were +5.4% in the UK but -11.0% in the US as we transition our positioning in that market.  All in all, a very satisfactory performance and further evidence of having successfully executed our strategy in recent years.

 

As a result of the store closures, our sales performance for the 52 weeks to 26 April 2020 was +5.9% to £819.3 million (+4.8% to £810.5 million post reclassifications).  Adjusted EBITDA of £78.1 million grew by 13.6% and operating profit of £48.3 million grew by 6.2%.

 

Our UK business continued to perform strongly, leading us to gain market share and further cement our leadership position in this market.  We continued the successful development of our multi-channel proposition with enhancements made to our store estate, including our mono-brand and travel retail channels, and to our ecommerce platform, supported by bold, impactful, digitally led marketing and best in class technology and systems.  With an exciting pipeline of projects lined up, we continue to pursue growth and expansion opportunities in the UK.

 

We are particularly pleased with the performance of our US business during the period.  At year-end, the Watches of Switzerland Group had only been operating in the US for less than three years and in that time we have successfully integrated acquisitions (Mayors and Wynn Resort, Las Vegas), launched the Watches of Switzerland brand in New York with the opening of two flagship stores, implemented all of our systems and expanded the Head Office functions in Fort Lauderdale, Florida.  We have established strong working relationships with all US based key brand management and with all major landlords and mall operators.  We have created both awareness and popularity with the discerning watch consumer audience in the US.  Importantly, we have demonstrated that our approach to store design, namely stores that are luxurious and contemporary but also warm and welcoming, appealing to the US consumer. We have implemented these designs in the new New York flagships and in the refurbishments in Wynn Resort, Las Vegas and in some Mayors stores including Lenox Square (Atlanta), Avalon (Atlanta), Merrick Park (Miami) and Miami International. In all cases, the sales performance post refurbishment has met or exceeded expectations. We have retained and integrated experienced talented teams in Mayors and the Wynn Resort and added new talent in New York and in our corporate organisation.

 

We have built an impressive infrastructure and established a significant presence in the US market, making a major step towards our goal of becoming leaders in this market.  We have great momentum and we have significant opportunity to grow in this attractive market.

 

In FY20 we progressed our programme of mono-brand boutiques. At year-end there were 22 mono-brand boutiques in our portfolio, with the opening of a further three TAG Heuer boutiques and Scotland's first Rolex boutique during Q1.  We have announced plans to open a further 17 mono-brand boutiques in the UK and the US.

 

We also expanded our presence in the travel retail channel with the opening of our first store in Gatwick North Terminal.

 

We acquired four stores from Fraser Hart in Stratford, Brent Cross, Kingston and York in March 2020. The stores' fascias have been changed to either Watches of Switzerland or Mappin and Webb and we have implemented all of our Group systems. Most importantly we welcomed four new teams of colleagues into our organisation. The stores have all traded well during the initial period following the acquisition and we have plans to invest and upgrade these stores in the near future.

 

In September 2019, we opened a National Watch Service Centre in Manchester. We currently have 12 watchmakers and two technicians in the centre and we have plans to expand. The centre has accreditation from Rolex and other key brands.  Watch servicing and repair has historically been a challenge for the industry, particularly in terms of turnaround times. Our new purpose-built centre, which is fully set-up with the latest equipment and technology, allows the Group to respond to client needs locally and quickly and also supports our growing pre-owned business.

 

Overall market conditions in both the UK and US markets remained strong, with demand for popular products, particularly those of Rolex, Patek Phillippe and Audemars Piguet outstripping supply for the total markets and for the Watches of Switzerland Group. We believe that these conditions will continue for the foreseeable future.

 

The closure of our stores in mid-March 2020 clearly resulted in a major shortfall in sales revenues. Our main source of sales during this period was our ecommerce business in the UK.  In the six weeks to year-end, ecommerce sales increased 45.8% versus last year and in the month of April 2020 were +82.8%.  We added new brands and supported online with marketing that contributed to this market leading performance.  We expect there to be a permanent step up in our ecommerce business as a result of these enhancements.  In addition, we also increased our marketing support on all digital and social media including direct support of our online sites during this time.

 

With the loss of store revenue, we were required to review and restrict all areas of expenditure and focus on cash. Most importantly, our priority during this period was the job security of our colleagues and maintaining the salaries of colleagues. As our stores began to re-open in June, I am pleased to report that we were successful in preserving jobs and salaries.  Government support during this period has been important in achieving these objectives.

 

The health and wellbeing of our colleagues and customers remains our priority throughout this challenging time and beyond and we have taken the necessary actions to adapt to the new requirements.  Our business model is robust and we are well equipped to adapt to changing consumer behaviour and heightened safety concerns created by the COVID-19 pandemic.  Luxury watches and jewellery are a considered purchase, with over 80% of transactions being digitally driven and researched by the customer prior to visiting a store.  As a result of the category's characteristics, our stores typically have limited traffic and high conversion rates, enabling us to practically adopt the required social distancing measures.  PPE and hygiene materials have been introduced to all stores.  In addition, we have continued to invest in new technology and recently launched our "By Personal Appointment" service, a booking system for clients to make both in-store and virtual appointments with their chosen store, for a personalised one-to-one experience.  A survey we recently conducted suggests our customers are highly satisfied with the changes we have made to prioritise their health and safety.  Lastly, our colleagues can view regularly updated COVID-19 secure audits across support centres, service centres and stores on our internal ONE communication platform.

 

During lockdown, we kept our workforce informed of business developments and management plans whilst progressing on learning and development initiatives.  We implemented a number of social initiatives including a virtual pub (the 'Cog & Carat') in the UK and a virtual Water Cooler chat room in the US, which enabled colleagues to stay in touch with one another while a 'Daily Read' was circulated to keep teams up to speed with their industry knowledge.   UK colleagues completed over 13,000 e-learning modules while colleagues in the US attended nearly 2,300 hours of virtual webinar training sessions delivered by 21 different brand partners.  Our teams returned to their workplaces informed, confident and enthusiastic and we were pleased to have protected salaries throughout the period of lockdown. We opened our stores as soon as we were able and have no plans for any major restructuring of the business.

 

As a precaution against any further lockdown measures, we negotiated additional borrowing facilities of £45.0 million under the UK Government's Coronavirus Large Business Interruption Loan Scheme ("CLBILS") , which significantly increased liquidity.

 

During the first quarter of FY21 we re-opened the majority of our stores.  This began in the US with Mayors throughout Florida and Georgia from early May 2020, Wynn Resort, Las Vegas in early June 2020 and Soho, New York in late June.  Hudson Yards, New York remains closed.  In the UK we opened in England in mid-June 2020, followed by Wales and Scotland in late June and finally, Heathrow Terminal 2 and Terminal 5 on 1 July 2020 and Gatwick North Terminal in early August.  We calculated our opening hours versus normal conditions for Q1 at approximately 38%.

 

While the UK retail sector began a recovery in July 2020, there remained a significant reduction in traffic and this was particularly evident in London and Heathrow.  Traffic in regional centres was approximately -50%, -75% in London and more than -80% in Heathrow.

 

Despite these fundamental challenges, during Q1 we delivered sales of -27.6% to last year, which is a very positive performance considering that stores were closed for a significant part of the period, with performance rebounding strongly on re-opening with July sales +7.4%.  In the UK, Q1 ecommerce sales were very strong at +79.3% while UK domestic sales +20.4% offsetting lower tourism and airport business -92.8%.  Overall regional stores and domestic customers offset the greater declines in London, airport and tourist business.  In the US post re-opening, all areas of the business performed strongly driven by enhanced clientelling and good product availability.

 

We are very pleased with our Q1 performance which we believe is clear evidence of the strength of our brand partner portfolio and our customer-centric approach to modern retail.  Our encouraging Q1 sales performance underpins the strength of our supply-driven business model and provides the basis on which we provide FY21 guidance.

 

The most compelling take away for me from FY20, the 12-week lockdown (half in Q4 FY20, half in Q1 FY21) and the period of store re-opening (Q1 FY21), is that we have the best teams in the business.  Throughout these periods our colleagues have supported each other; have learned and trained; have remained positive and forward thinking; and have hit the ground running as our business returned.  Thank you all.  The Directors and Executives will do all that we can to continue to support you as we drive our business on to greater success.

 

Strategy Continuing to Deliver Results

 

During FY20, the Group made further progress in advancing on its strategic priorities and delivered profitable growth despite the unprecedented challenges presented by the COVID-19 pandemic.  The Group's leading position in the UK was further cemented whilst momentum in the growing US business accelerated.

 

1) Grow revenue, profit and return on capital employed

 

The Group continues to grow revenue, profit and return on capital employed through the following key drivers:

 

·      Increasing sales productivity through excellent customer service, impactful marketing including extensive use of CRM; improved product availability through analytical merchandising; continual improvement of brand representation

·      Elevating and expanding of existing store portfolio to provide luxurious, inviting, welcoming, spacious and browsable store environments

·      Further developing multi-channel network in response to brand direction and changing consumer preference

·      Expanding our footprint with new stores in new retail developments and underserved markets

·      Making selective complimentary acquisitions

·      Continuing to research further growth potential in the luxury watch category both geographical and market sector

 

Since FY14, the Group has generated average UK like for like growth of 9.0%, increased its market leading position in the UK and grown UK adjusted EBITDA by a CAGR[7] of 29.8%.  Prior to the COVID-19 pandemic, the Group had been on track to deliver double digit sales growth; revenue for the 46 weeks to 15 March 2020 increased by 15.8% relative to the prior year period, with UK sales increased by 9.4% and US sales increased by 36.4%. 

 

FY20 Adjusted EBIT[8] increased by 7.8% to £55.9 million (FY19: £51.8 million).  Return on Capital Employed increased to 15.8% (FY19: 14.7%).

 

As at 26 April 2020, the Group's store network comprised 135 stores, excluding non-core, of which 113 in the UK and 22 are in the US.

 

In FY20 the Group incurred £20.7 million in expansionary capex⁷ including, but not limited to, the following store projects:

 

UK

 

·      Watches of Switzerland Regent Street flagship, expanded to include a dedicated Rolex Room, new IWC room opened (November 2019)

·      Four Fraser Hart stores acquired and converted (March 2020):

o  Stratford and Brent Cross rebranded as Watches of Switzerland

o  Kingston and York rebranded as Mappin & Webb

·      New FOPE jewellery mono-brand boutique opened on Old Bond Street (November 2019)

·      First Watches of Switzerland boutique opened in Gatwick Airport, North Terminal, extending the Group's presence in the travel retail channel (August 2019)

·      Mappin & Webb Old Bond Street refurbished (June 2019)

·      Mappin & Webb Manchester refurbished (October 2019)

·      Mappin & Webb Bluewater refurbished (November 2019)

·      Goldsmiths Merry Hill refurbished (May 2019)

·      Goldsmiths Watford refurbished (June 2019)

·      OMEGA boutique in Glasgow relocated and fitted to the new store design (November 2019)

·      Watches of Switzerland Brighton relocated and fitted to the new store design (July 2019)

·      Goldsmiths Nottingham Victoria Centre store enhanced to the new store design (August 2019)

·      Goldsmiths Edinburgh Fort new store opened (November 2019)

·      Three new UK TAG Heuer mono-brand boutiques opened in Watford (June 2020), Kingston (July 2020), Oxford (July 2020)

·      Mappin & Webb Cambridge refurbishment and expansion including a dedicated Rolex Room (July 2020)

·      Conversion of Watches of Switzerland Glasgow to a Rolex mono-brand boutique (July 2020)

 

US

 

·      Four Mayors stores were converted to the new concept through relocations and refurbishments:

o  Mayors Miami International mall store relocated and refitted to the new store design (May 2019)

o  Mayors Merrick Park, Coral Gables relocated and refitted to the new store design (June 2019)

o  Mayors Lenox Square, Atlanta relocated and refitted to the new store design; introduction of a dedicated Rolex space and opening of the Group's first mono-brand Audemars Piguet boutique (July 2019)

o  Mayors Avalon, Atlanta relocated and refitted to the new store design (February 2020)

·      Watches of Switzerland Encore Boston Harbour opened (July 2019)

 

In addition, we have a very strong store project pipeline:

 

UK

 

·      Two new UK TAG Heuer mono-brand boutiques Trafford Upper & Cardiff (Spring 2021)

·      Watches of Switzerland Broadgate London, Rolex anchor (Autumn 2020)

·      Watches of Switzerland Knightsbridge expansion and refurbishment including a Rolex Room (Autumn 2020)

·      First Tudor mono-brand boutique White City London (Autumn 2020)

·      Breitling and OMEGA Bluewater mono-brand boutiques refurbishment (Autumn 2020)

·      Goldsmiths Trafford Upper relocation (Winter 2020)

·      Watches of Switzerland Stratford refurbishment (Spring 2021)

·      Mappin & Webb Kingston expansion including a Rolex Room (Spring 2021)

·      Watches of Switzerland Oxford St refurbishment including Rolex and Vacheron Constantin expansion (Spring 2021)

·      Goldsmiths Cardiff refurbishment (Spring 2021)

·      Goldsmiths Edinburgh St James new store (Spring 2021)

·      Three new Breitling mono-brand boutiques Cardiff, Glasgow and Edinburgh St James (Winter 2020/Spring 2021)

·      Three new OMEGA mono-brand boutiques Broadgate London (Autumn 2020), Edinburgh St James (Spring 2021) and Meadowhall (Spring 2021)

·      Watches of Switzerland Battersea (FY22)

 

US

 

·      Nine new mono-brand boutiques in four locations (TAG Heuer, OMEGA, Breitling and Bulgari) (Summer/Autumn 2020)

·      Mayors Aventura refurbishment to new design (Autumn 2020)

·      Watches of Switzerland American Dream New Jersey (FY22)

 

7 Refer to the Glossary on page 56 for definition.

8 This is an Alternative Performance Measure.  Refer to the Glossary on page 56 for definition and reconciliation to statutory measures.

 

2) Enhance strong brand partnerships

 

Our strong and long-standing relationships with the most recognised and prestigious Swiss luxury watch brands are a key point of distinction.  The top seven luxury watch brands represent 73.9% of our sales.

 

We are proud of our collaborations with these key partners across all operational areas of our business. We actively work with our brand partners to identify distribution opportunities and partner on demand forecasting, product development and launches, store projects, online platform, clientelling initiatives and marketing activities.

 

In partnering with the most prestigious Swiss luxury brands, our goal is to deliver an exceptional customer experience that is welcoming, engaging and underpinned by the deep category knowledge of our teams.  We work collaboratively with our brand partners to focus on extensive learning and development in order to ensure our colleagues are well equipped for the task.

 

We are working closely with our partners to further develop multi-channel opportunities in both the UK and the US.  During the year, we further enhanced and extended the Rolex boutique within our Regent Street flagship.  In the US, we opened an Audemars Piguet mono-brand boutique in Mayors Lenox Square, Atlanta, the first within the Mayors portfolio.  A number of mono-brand boutiques are planned to be opened in both the UK and the US during FY21 and beyond.  We have also agreed new Rolex agencies for Broadgate, Battersea and American Dream (US).

 

In addition, we are further developing our ecommerce capabilities, enhancing the range of brands transacted online with the addition of several brands which had previously only been transacted in store: Jaeger-LeCoultre, Panerai, Vacheron Constantin, Piaget, Roger Dubuis, Grand Seiko.  

 

We continue to increase our cooperation with the brands on all aspects of co-operative marketing, including digital communications, events and advertising.

 

During 2019, we celebrated the 100-year anniversary of our partnership with Rolex.  Together with Rolex, we hosted a wide range of events, including a major launch event in Newcastle, to allow our customers even greater access to our successful relationship with the world's leading manufacturer of luxury watches. 

 

The unusual circumstances created by the COVID-19 lockdown further strengthened the relationships we have with our brand partners resulting in enhanced collaboration, increased communication and an even greater focus on brand training.

 

3) Deliver an exceptional customer experience

 

Maintaining a clear customer perspective and ensuring customers feel valued and supported throughout the celebration of special moments are central to our priority of delivering an exceptional experience.  We look to create modern, active, welcoming, inviting, browsable, luxurious store environments.  We provide the greatest choice of brands and products in the world of luxury watches and jewellery.  Our stores are designed to appeal to a broad audience, catering to customers across all demographics.

 

The way we make our customers feel is always a primary focus and we pride ourselves on offering a warm and welcoming customer experience as a major point of difference. With an emphasis on local reputation, trust and networking, every customer is treated as a potential loyal client for life by our retail colleagues.

 

We continue to provide our colleagues with extensive training to develop their brand knowledge and retail expertise, to allow our staff to provide customers with in-depth product mastery.  Through dedicated customer focus, our regular monthly Net Promoter Score in the UK has improved further to 85% (FY19: 80%), as measured through our voice of customer surveys (approx. 1,000-1,500 responses per month). This is supported by a 92% positive Goldsmiths Google rating as provided by post-purchase online Feefo reviews. We also undertake an extensive programme of mystery shopping to ensure consistency of our luxury service offering.  Consisting of physical store visits and digital enquiries, supplementary programmes are also conducted to measure the joint expectations of key partner brands.  In the US, we use Podium to measure in-store experiences and received a rating of 4.7 out of 5.0. 

 

Supporting the in-store customer journey we offer a range of events tailored to our customers, enabled by our superior CRM capabilities.

 

During the year we opened a purpose-built National Watch Service Centre in Manchester to further enhance the customer experience.  This has allowed us to expand our after-sales and service proposition for luxury watches, and further strengthen our market position.  The centre features 12 watchmakers on site, two technicians, three skilled case polishers and six colleagues focused on quality control.

 

Despite our stores being closed during the lockdown period, selected store teams continued their dialogue and engagement with clients.  The introduction of enhanced clientelling initiatives enabled our colleagues to remain engaged throughout the period of store closure.  Our store colleagues continued to advance their development during lockdown, completing over 13,000 e-learning modules during this period.

 

4) Drive customer awareness and brand image through multimedia with bold, impactful marketing

 

Growing brand awareness                                                                   

 

	UK			US
	2012	2019		2020
	Total Awareness	Total Awareness	High Net Worth	Total Awareness
Watches of Switzerland	46%	70%	78%	84%
Mappin & Webb	35%	66%	70%
Goldsmiths	84%	93%	97%

 

UK Source:  Pragma Watch and Jewellery Survey 2012 & ID Consulting Consumer Brand Awareness for the Watches of Switzerland Group June 2019

US Source: Schlesinger Watches of Switzerland Brand Research June 2020 conducted in NYC, with focus on the tri-state area

 

Marketing

 

During the year, we sustained a high level of marketing investment, with a focus on digital activities, particularly digital communications and CRM.

 

During FY20, we further enhanced our digital communication strategy by deploying highly successful and innovative YouTube and Google campaigns that focused on delivering engaging high-quality content to luxury watch and jewellery consumers. This strategy in total delivered over 1.1 billion impressions and 76.6 million views, which equals over 48 years of branded watch time. 

 

As part of this strategy, the first Watches of Switzerland Group campaign was introduced. Led by a digital-first approach, the campaign ran from November to December 2019, with an extension online until March 2020. The campaign utilised a breadth of traditional media, out of home and digital activation on YouTube, Google and social media channels. Through these mediums we inspired consumers with a range of key luxury Swiss watch brands across iconic women's and men's ranges. Through the digital channels the campaign in total delivered over 660 million impressions and 34.1 million video views, which equals over 15 and a half years of branded watch time.

 

Social media also continue to be an important part of our strategy across the UK and US with a social community of over 500,000 and a monthly reach of 17 million across the Group.  The strategic focus on acquisition and amplification is supported by content creation, in particular in-house brand assets with a consumer centric and mobile first approach through video and impactful stylish photography.

 

We continue to engage with our luxury watch partners through cooperative campaigns, with an increased focus and heavy investment in Paid Search.  This enables the Group to improve its rankings and visibility on Google and drive a return on investment online or instore. It also strengthens its position and awareness of being Authorised Retailers.

 

A key focus of our centralised marketing activity is Calibre, our industry leading luxury watch communications platform, which is produced globally to support the UK and US client base and which showcases the brands the Group sells and provides an opportunity to share our knowledge and expertise within luxury watches.  Calibre started as an annual printed publication, with the first edition published in 2003 and whilst the magazine still exists,  Calibre has become much more digitalised including monthly newsletters to a database of over 260,000 watch clients,  Calibre Online, www.calibre-online.com, which hosts the Group's content for our clients and a series of successful Podcasts hosted by our CEO, with interviews and insight from industry leading figures.  Podcasts alone have achieved over 60,000 downloads in total since launch in October 2018.  Throughout the COVID-19 pandemic, our CEO also hosted a series of Instagram Lives, with key brand partners, watched by both our UK and US audiences.

 

In addition to the centralised marketing activity, our store colleagues in both the UK and US are focused on their own direct client reach out to drive footfall and engagement.  To support the stores in their outreach to customers, over 45 clientelling guides were produced in FY20 covering topics such as new product launches, key focus lines and brand guides.

 

A key focus of our CRM strategy is hosting loyal clients at various events, from exclusive factory trips with our watch brand partners, intimate dinners launching new product collections, hosting our clients at watch brand sponsored events (such as The Open Championship Golf) as well as in-store store events.  Hosting over 100 events during FY20, we executed the event programme in the most relevant way to further develop and grow our client relationships.  A significant event held during 2019 was the Group's Exclusive Partnership launch of the Bremont and 'Ronnie Wood' Limited Edition Collection. Attended by Ronnie Wood, press, VIPs and ambassadors, the Group hosted a memorable evening in its Watches of Switzerland Knightsbridge store.  The launch event accompanying the opening of the first FOPE Boutique was held at the Old Bond Street store in London and was also attended by press, VIPs and ambassadors.  Looking ahead, the Group anticipates a greater emphasis on virtual events during FY21 as it adapts to restrictions created by COVID-19.

 

Watches of Switzerland US and Mayors produced over 60 events during FY20 including three exclusive product releases and a series of first to market experiential opportunities including "Sneaker Time", a fully immersive experience in partnership with Stadium Goods and media outlet HypeBeast for an editorially curated display of rare sneakers paired with partner timepiece brands including Tudor, Ulysse Nardin and TAG Heuer.  The exhibition was covered internally and externally through digital, social, print and media coverage.  The pop-up was further celebrated through a private VIP and influencer event. 

 

Watches of Switzerland partnered with Haute Living to host a cover celebration for artist Nas.  The programme included print, digital, social and event coverage.  Artist Nas created four posts of the private event to 5.5 million of his personal Instagram followers resulting in 90,600 likes and 2,019 comments.  Haute Living curated the guest list for the evening mixing collectors with influencers.  They dedicated six pages of print, multiple digital and social stories to round out the 360 programmes.

 

Our PR activity in the US has been incredibly strong throughout FY20.  We engaged with well-respected public relations agencies to promote brand storytelling, key executive profiles and the partnered brands behind the group.  This led to 2.8 billion media impressions in FY20 alone including features within Bloomberg, CNBC, GQ, New York Times, Wall Street Journal and Yahoo.com.  The public relations activities included strategic influencer alliances including Erica Pelosini Leeman, Emily Ratajkowski and Anne Hathaway which further solidified our stronghold as a culturally relevant retailer within the US market.

 

In addition to the PR in the US, media partnerships were secured utilising a 360-degree approach combining traditional print, digital, social, experiential event and visual merchandising to maximise impact.  Watches of Switzerland and Mayors engaged in a programme with Watch Journal and design outlet Surface Media to promote brand partners on the cover of the magazine distributed to subscribers and at the 250 private air terminals across the US.  The media programme included feature editorial coverage, digital online feature, social media through Instagram and Facebook and custom content for visual merchandising opportunities on the video wall of the Hudson Yards location.  Brand partners including Jacob & Co, Jaeger-LeCoultre and Zenith created an exclusive timepiece for the Group and promotion across properties including ecommerce. 

 

5) Leverage best in class operations

 

Merchandising

 

As part of the Group transformation programme, merchandising capabilities have been significantly improved and enhanced.  Powered by leading edge systems and analytics, the merchandising function has been developed into a customer-focused driver of product availability and access, providing a unique point of difference in the way we run our stores.  The availability of SKUs our key brands increased to 96% during FY20 (FY19: 91%).

 

Underpinned by a customer-centric approach, our dynamic merchandising capabilities optimise stock availability, enhance store productivity and allow for nationwide coverage.  Advanced market analysis run on SAP software enables extensive store profiling, productivity and trend analyses, seasonal changes and sales and inventory forecasting.

 

Retail operations

 

We run all our stores to be profitable.  In order to achieve this, a high level of accountability and performance management is used to run our retail network.  In order to continually drive productivity and profitability, we look to ensure there is a collective alignment, ownership and understanding at all levels within retail.  Performance is maximised through Business Planning Reviews with store managers every four to six weeks and through the monitoring of operational KPIs.

 

We have invested in the best in class expertise in the important area of security.

 

IT Systems

 

Our leading-edge IT systems are based on a single SAP platform and power point of sale, CRM, financial reporting solutions, live inventory availability and operations. 

We have adapted our systems quickly in response to the changing retail landscape created by the COVID-19 pandemic.  We have created a store appointment booking system, enabling clients to request scheduled store visits, phone or video meetings.  A Content Management system enables store teams to send high quality digital photography and copy to clients.  Mail order and telephone order card payment technology has been integrated into point-of-sale in all stores with the introduction of email receipts.

 

6) Expand multi-channel leadership

 

Thanks to our multi-channel leadership, we are well positioned to respond to evolving retail and consumer dynamics through the development of growing channels including online, travel retail and mono-brand boutiques.

 

Online

 

We continue to leverage our position as the Authorised Luxury Watch and jewellery partner of choice, significantly building on the largest portfolio of luxury watch brands in the UK.  We have a significant advantage in the volume of traffic generated via our technically advanced AI-driven marketing approach.

 

We continue to make enhancements to our sites and continue to evolve our ever-growing Web Enabled Store platform providing our clients with access to shop the full online catalogue whilst in our retail stores.

 

Working collaboratively with key partners such as Google (Digital Marketing), Vee24 (Video and Text Concierge) and DPD (Direct delivery), we use the most efficient, cutting edge digital marketing while offering a best in class, harmonised omni-channel shopping experience.

 

Mono-brand boutiques

 

We continue to develop and expand our growing network of mono-brand boutiques, a format that allows for a more tailored and brand-specific environment and has contributed to further strengthening and enhancing our brand partnerships.

 

During the year we opened our first Audemars Piguet mono-brand boutique within Mayors, Lenox Square (Atlanta).  We opened our first FOPE jewellery boutique on London's Old Bond Street.  We operated 17 mono-brand boutiques in the UK and five in the US as at 26 April 2020. 

 

Looking ahead, we believe there is a significant opportunity to grow the mono-brand boutique channel in both the UK and the US and we expect to continue to develop this format further with a strong pipeline of projects planned for FY21 and beyond.

 

Sales from mono-brand boutiques have increased by 6.1% during FY20 and represent 15.7% of revenue (FY19: 15.5%).

 

Travel retail

 

We made further strides in expanding our presence in the travel retail channel. 

 

We opened the first Watches of Switzerland store in Gatwick Airport (North Terminal), the airport's exclusive luxury watch retailer, complementing our existing five stores in Heathrow Airport.  We renegotiated the contracts for our stores in Heathrow Airport and agreed a short-term extension to end FY21 on revised terms with a view to negotiating a further contract from the beginning of FY22.

 

Whilst travel has suffered a disproportionate impact from the COVID-19 pandemic during FY20 and remains affected during FY21, the Group believes this channel represents a significant growth opportunity in both the UK and the US over the medium term.

 

During the year, sales from our travel retail channel declined by 4.5% as a result of reduced tourism from COVID-19; sales from this channel represent 10.5% of our revenue (FY19: 11.5%).

 

 

 

Chief Financial Officer Review

 

Our FY20 results have been significantly impacted by the COVID-19 pandemic, with the Group's entire store portfolio in the US closed as of 19 March 2020 and all UK stores closed as of 23 March 2020.  However, trading in the run up to these temporary store closures was strong , resulting in double-digit revenue growth over the 46 weeks to 15 March 2020 and revenue in our UK ecommerce business was up 45.8% during the final six weeks of the financial year (from 16 March 20 to 26 April 20), when stores were largely closed.  During the period impacted by the pandemic, the Group took steps to maximise revenue opportunities, eliminate discretionary expenditure, reduce working capital and delay capital projects.

 

The impact of COVID-19 on the Group's results is discussed in detail throughout this report. 

 

The following tables and commentary exclude the impact of IFRS 16 and are shown on a continuing basis, to allow for comparability of the results. A reconciliation between the results pre-IFRS 16 and post-IFRS 16 is included on page 28.

 

Income Statement (£m)	52 weeks to 26 April 2020	52 weeks to 28 April 2019	YoY variance %
Revenue as previously disclosed	819.3	773.5	5.9%
Reclassification adjustment*	(8.8)	-
Statutory revenue	810.5	773.5	4.8%
Adjusted EBITDA pre-exceptional, store opening and closing costs and other non-underlying items	81.9	78.2	4.8%
Store opening and closing costs and other non- underlying items	(3.8)	(9.4)	(59.3%)
Adjusted EBITDA	78.1	68.8	13.6%
Depreciation, amortisation and loss on disposal of fixed assets	(22.2)	(15.8)	41.2%
Other non-trading items	-	(1.2)
Segment profit8 (Adjusted Earnings Before Interest and Tax)	55.9	51.8	7.8%
Net finance costs - ongoing	(6.5)	(25.4)	(74.3%)
Adjusted profit before tax8	49.4	26.4	86.5%
Exceptional and other non-trading items	(21.7)	(6.3)
Exceptional finance costs	(28.5)	-
(Loss)/profit before tax	(0.8)	20.1	(103.8%)
Adjusted basic Earnings Per Share (pre-exceptional items)8	16.6p	11.1p	49.5%

 

The key statutory measures (including IFRS 16) are as follows:

 

	52 weeks to 26 April 2020	52 weeks to 28 April 2019	YoY variance %
Revenue (£m)	810.5	773.5	4.8%
Operating profit (£m)	48.3	45.5	6.2%
Basic EPS (p)	0.2	(1.0)	120.0%

 

* In Q4 FY20, the Group has reclassified certain costs and revenue, mainly to correctly reflect interest-free credit costs under IFRS 9 "Financial instruments", with no impact on net profit.  As the impact is not material to the financial statements the comparatives have not been restated.  These adjustments reduced FY20 revenue as stated by £8.8m.  If the prior year revenue was restated, FY19 revenue would have been £762.9m, therefore fully restated revenue growth would have been 6.2%.

 

 

 

Revenue

 

Revenue in FY20 grew by 5.9% on the prior year to £819.3m (+4.8% to £810.5m on a reclassified basis). US revenue now makes up 27.8% of Group revenue, increasing from 24.0% in the prior year, as can be seen in the table below:

 

Revenue by region (£m)	52 weeks to 26 April 2020	52 weeks to 28 April 2019	YoY variance %	Participation %
UK	585.5	588.2	(0.5%)	72.2%
US	225.0	185.3	21.4%	27.8%
Total revenue	810.5	773.5	4.8%	100.0%

 

 

Impact of COVID-19 on revenue

 

Prior to the COVID-19 pandemic, the Group had been on track to deliver double-digit sales growth, reflecting our strong brand partnerships, favourable market conditions and accelerating momentum in the US. At the end of Q3 FY20, Group revenue was up 15.6% on the prior year, with the UK up 9.2% and US up 37.0%.

 

For the first 46 weeks of the year to 15 March 2020, total Group revenue increased 15.8%, driven by the sales of luxury watches, which rose 19.3% versus the prior period. The relaunched jewellery ranges generated a positive response from customers and the category performed well relative to the market.

 

The impact of the closure of stores due to COVID-19 was significant and sales in the final two months of the year declined sharply on the prior year.  The table below demonstrates the strong trading performance prior to the closure of the store portfolio and the impact of lockdown on sales growth:

 

Revenue (£m)	46 weeks to 15 March 2020	6 weeks to 26 April 2020	52 weeks to 26 April 2020
UK	575.9	9.6	585.5
YoY variance %	9.4%	(84.5%)	(0.5%)
US	221.8	3.2	225.0
YoY variance %	36.4%	(85.9%)	21.4%
Total	797.7	12.8	810.5
YoY variance %	15.8%	(84.9%)	4.8%

 

The revenue reclassification adjustment was made in the final month of FY20, if this adjustment had not been made the sales in the 6 week period to 26 April 2020 would have been £21.6m.

 

UK revenue

 

UK revenue sales decreased by £2.7m (0.5%) versus the prior year to £585.5m.  The increase in sales from the existing estate and projects was offset by the impact of the COVID-19 lockdown, store closures and the revenue reclassification as described earlier.  A summary of the movements is shown below:

 

	Revenue Impact (£m)
FY19	588.2
Existing estate	44.5
New stores1	6.0
Relocations / expansions2	2.5
Major refurbishments3	4.5
Closed stores	(8.0)
Lockdown4	(46.4)
Reclassification adjustment5	(6.1)
FY20	585.5

 

1.     New stores include the revenue from all stores opened in the year, along with the annualisation of stores opened in the previous year

2.     Relocation/expansion includes the incremental sales of any stores relocated/expanded during the year, along with the annualisation of stores opened in the previous year

3.     Major refurbishment includes the incremental sales of any stores undergoing major refurbishment in the year (defined as costing more than £250,000), along with the annualisation of stores opened in the previous year

4.     Lockdown represents the decrease in sales between FY20 and FY19 during the period from week 47 to week 52 when the stores were closed due to the COVID-19 lockdown

5.     Revenue reclassification as discussed on page 2

 

UK sales from the existing estate continued to be strong in the year.  £13.2m of incremental sales were achieved from our capital enhancement projects, which were offset by £8.0 million of lost revenue from closed stores. 

 

Ecommerce sales rose by 15.9% during the 46 weeks to 15 March 2020.  During the period following the closure of stores, ecommerce has performed particularly well.  Sales from this channel increased 45.8% during the last six weeks of the financial year, with a further acceleration during the month of April, when sales increased by 82.8% relative to the same prior last year.  In response to the temporary closure of the store network, the online offering has been enhanced by the addition of several brands which the Group had previously only transacted in its stores.  These additional brands will continue to be part of the online offering going forward.

 

The Group progressed its store elevation strategy with a total of seven refurbished stores, including the expansion of the Rolex Room in the 155 Regent Street flagship during November 2019, and two relocated stores. The multi-channel network was further enhanced with the opening of three new stores, the first Watches of Switzerland store in Gatwick Airport, a new Goldsmiths store in Edinburgh Fort and the first FOPE jewellery mono-brand boutique. Four Fraser Hart stores were acquired during March 2020 and were converted and integrated, with a strong initial response from customers prior to entering lockdown.

 

In comparison to the previous year, the Group lost sales of £46.8m as a result of the COVID-19 lockdown.

 

US revenue

 

Total US sales were £225.0m up by £39.7m (21.4%) on the prior year and up by 19.0% in constant currency.  Momentum in the US accelerated strongly during the 46 weeks to 15 March 2020, with sales up 36.4% relative to the prior year period and by 33.7% on a constant currency basis. 

 

 

	Revenue Impact (£m)
FY19	185.3
Existing estate	14.0
New stores	35.5
Relocations / expansions	9.1
Closed stores	(3.8)
Lockdown	(16.6)
Reclassification adjustment	(2.7)
FX	4.5
FY20	225.0

 

During FY20, sales from the flagship stores in New York were annualised, with Soho having opened in November 2018 and Hudson Yards in March 2019.  Both stores are performing in line with our expectations.

 

During the period, the Group further elevated the network of Mayors stores. Three stores were moved to more strategic locations and converted to the new design concept (Merrick Park, Coral Gables; Lenox Square, Atlanta; Avalon, Atlanta) and, in addition, the Miami International mall store was completely refurbished. Following the upgrades, these stores received a strong response from customers.  Incremental sales from new stores, along with the annualisation of the prior year new stores were £35.3m with a further £9.1m of incremental sales from relocated stores.

 

In comparison to the previous year, the Group lost sales of £16.6m as a result of the COVID-19 lockdown.

 

 

Revenue by category

 

The Group continues to increase sales from the luxury watch sector as a proportion of total Group revenue, with an increase in revenue of 7.7% in the year. The split of revenue by category is shown below:

 

FY20 Revenue by category (£m)	UK	US	Total	Mix %
Luxury watches	475.9	204.0	679.9	83.9
Luxury jewellery	54.1	15.0	69.1	8.5
Other	55.5	6.0	61.5	7.6
Total revenue	585.5	225.0	810.5	100.0

 

 

FY19 Revenue by category (£m)	UK	US	Total	Mix %
Luxury watches	471.7	159.7	631.4	81.6
Luxury jewellery	55.8	18.9	74.7	9.7
Other	60.7	6.7	67.4	8.7
Total revenue	588.2	185.3	773.5	100.0

 

As a result of high demand and the continued execution of the Group's strategy, luxury watches now make up 83.9% of Group revenue, up 230bps on the prior year.  In general, demand for key luxury watch brands continued to exceed supply throughout the year and luxury watch revenue was up 7.7% in the year and 19.2% up to week 46.

 

The relaunched jewellery ranges generated a positive response from customers and the category performed well relative to the market.  Luxury jewellery sales decreased by 7.5% in the year, but were up 1.2% up to week 46, demonstrating the impact of lockdown.

 

Other revenue consists of servicing, repairs and insurance services and the sale of fashion and classic watches and jewellery.  Sales of fashion and classic watches and jewellery now make up less than 4.0% of Group sales.

 

 

Focus on profitable growth

 

The table below analyses our key costs and margins on a continuing basis:

 

(£m)	FY20	FY19	%
Net margin8	304.7	290.2	5.0%
as % of revenue	37.6%	37.5%	0.1%
Store costs	(178.2)	(172.4)	3.4%
as % of revenue	22.0%	22.3%	(0.3%)
4-Wall EBITDA8	126.5	117.8	7.4%
as % of revenue	15.6%	15.2%	0.4%
Overheads as % of revenue	(44.6) 5.5%	(39.6) 5.1%	12.5% 0.4%
Store opening and closing costs	(3.8)	(7.5)	(48.8%)
Other non-trading items	-	(1.9)	100.0%
Adjusted EBITDA	78.1	68.8	13.6%
as % of revenue	9.6%	8.9%	0.7%

 

 

Net margin

 

Net margin % increased by 10bpts to 37.6% in FY20, with the negative impact of product mix being offset by a reduction in customer incentives. 

 

Store costs

 

Store costs increased by £5.7m (3.4%) in the period as result of new store openings and the annualisation of US stores opened in the prior year.  Despite the fact that stores were closed for a six-week period, the Group managed to leverage the store cost base, with store costs as a percentage of sales reducing 30bps from the prior year to 22.0%.

 

Impact of COVID-19 on store costs

 

During the six-week period of lockdown the Group focused on cost control and saved £5.0m in variable store related costs as a result of the store closures.  The Group also benefited from the business rates suspension, £1.1m and the UK and US governments' employee cost support schemes.  At the time of the lockdown, the Group furloughed c1,300 store colleagues but continued to supplement employee pay to the full contractual rates.  These schemes contributed £2.3m towards store colleague wage costs during the financial year. 

 

Overheads

 

Overheads increased £5.0m (12.5%) in the financial year.  During the year the Group increased marketing spend by £2.1m and incurred £1.5m of additional costs relating to additional headcount and legal, professional, board and advisory costs reflecting the newly listed nature of the business.  Overhead costs also included the expansion of our repairs and servicing business through the opening of our National Watch Service Centre.  The revenue reclassification as discussed previously increased the FY20 overhead costs by £1.9m in comparison to last year.

 

 

 

During the period of lockdown, overheads were tightly controlled with the elimination of discretionary spend, which saved £0.8m.   A further £0.4m of government employee support was obtained for head office colleagues.  

 

Due to the loss of sales during the lockdown period and the resultant impact on operating profit, no annual bonus was accrued in relation to the FY20 year (FY19: £3.1m).

 

Store opening and closure costs

 

Store opening and closure costs (£m)	FY20	FY19
Store opening costs	1.7	6.0
Store closure costs	2.1	1.5
Total	3.8	7.5

 

Store opening costs include the cost of rent (pre-IFRS 16), rates and payroll prior to the opening of the store, normally during the period of fit out. This cost will vary annually depending on the scale of expansion in the year. We opened five stores (excluding the Fraser Hart acquisition) during FY20 compared to eight in the previous year.

 

During the period the Group closed a total of eleven stores with associated costs including rent (pre-IFRS 16), rates and redundancy.  Nine of these were non-core stores⁷ and two are closed while undergoing conversion to mono-brand boutiques.

 

The majority of the FY19 cost related to the US operations, particularly the New York flagships.

 

Other non-trading items

 

Other non-trading items in the prior year are made up of a number of costs which are either non- recurring or not related to trading. These costs have been treated as operating costs in FY20 and the FY19 costs are analysed below:

 

Other non-trading items (£m)	FY20	FY19
Non-Executive Board prior to IPO	-	0.6
Redundancy costs	-	0.4
Transitional Services Agreement* with the previous owners of Mayors	-	0.4
Share-based payments	-	0.4
Other one-off legal and professional fees	-	0.1
Total	-	1.9

 

*The Transitional Services Agreement has now ended and all operations are undertaken by the Group.

 

 

Depreciation, amortisation and loss on disposal of fixed assets

 

(£m)	FY20	FY19
Depreciation and amortisation	18.3	14.4
Loss on disposal of fixed assets	3.9	1.4
Total	22.2	15.8

 

 

Depreciation increased by £3.9m in FY20 to £18.3m as result of capital additions.  The Group incurred £3.9m (2019: £1.4m) of loss on disposal of fixed assets, where fixed assets were disposed of on the refurbishment or closure of stores ahead of the end of the lease term or their useful economic life.

 

In the prior year the Group incurred £1.2m of non-trading activities relating to management fees to former owners and legal and professional costs. 

Exceptional items

 

Exceptional items are defined by the Group as those which are significant in magnitude and are linked to a one-off, non-recurring events.  These items are broken in the table below and are shown pre-IFRS 16 adjustments.

 

Exceptional items (pre-IFRS 16) (£m)	FY20	FY19
COVID-19 linked exceptional items: Bad debt credit losses Impairment of property, plant and equipment Onerous leases	0.7 7.1 5.5	- - -
	13.3	-
Exceptional administration expenses: IPO costs Business acquisition Pension GMP equalisation	8.0 0.3 -	5.9 - 0.4
	8.3	6.3
Total	21.6	6.3

 

COVID-19 linked exceptional items

 

The COVID-19 pandemic and associated lockdown has significantly impacted the profitability of the Group and future economic outlook of the retail industry.  As a result of this the Group reviewed the profitability of its store network, taking into account the period of non-essential retail store closures and potential future impact on consumer demand.  Furthermore, during the lockdown period in the US, the Group identified a deterioration in collection rates on US in-house credit. 

 

The Group identified £7.1m of fixed asset impairment linked to the change in circumstances and forecasts due to the COVID-19 pandemic.  On a pre-IFRS 16 basis the Group also identified a further £5.5m onerous lease provision, again linked to the loss of profitability as a result of COVID-19. 

 

Based on our assessment of the worsening economic environment in the US as a result of COVID-19 we specifically increased the provision against in-house credit debtors by a further £0.7m, which, when considered with impairment, is considered exceptional by its nature.

 

Exceptional administrative costs

 

The IPO costs include legal and professional costs in relation to the premium listing of the Group in June 2019 of £2.6m (2019: £5.9m), a discretionary bonus paid to all employees on the success of the IPO of £2.1m and IPO linked share-based payments of £3.3m. Other than £3.0m of share-based payment costs linked to the success of the IPO, these costs will not reoccur in FY21.

 

During FY20 the Group incurred legal and professional costs of £0.3m in relation to the acquisition of four stores from Fraser Hart, which is considered exceptional by nature. 

 

In the prior year, the Group incurred a one-off charge in relation to the High Court ruling on the equalising of Guaranteed Minimum Payments (GMP) for the defined benefit pensions of men and women.

 

Impact of IFRS16

 

The exceptional items above are shown pre-IFRS 16 adjustments so that the accounting is comparable on a year-on-year basis.  On an IFRS 16 basis, no onerous lease provision is recognised and instead the Group has impaired the lease right-of-use assets by £4.8m.  The impairment of property, plant and equipment under IFRS 16 was £3.7m.

 

 

 

The exceptional items under IFRS 16 are as follows:

 

Exceptional items (post-IFRS 16) (£m)	FY20	FY19
COVID-19 linked exceptional items: Bad debt credit losses Impairment of property, plant and equipment Impairment of right-of-use assets	0.7 3.7 4.8	- - -
	9.2	-
Exceptional administration expenses: IPO costs Business acquisition Pension GMP equalisation	8.0 0.3 -	5.9 - 0.4
	8.3	6.3
Total	17.5	6.3

 

 

Finance costs

 

Ongoing net finance costs (pre-IFRS 16) reduced in the period by £18.9m to £6.5m as a result of the refinancing which took place in June 2019 (see below). This included 37 days of interest cost in the current year under the old financing agreement. Had the current financing facility been in place for the entire FY20 period, net finance costs would have been £1.7m lower than reported.

 

As a result of the refinancing, the Group incurred a one-off early redemption fee of £21.7m and has written off £6.8m of transaction costs capitalised under the old facility. These have been treated as exceptional finance costs in the period.

 

Profit before tax

 

As a consequence of the items noted above, adjusted profit before tax (before exceptional items and IFRS 16 adjustments) was £49.4m, an increase of £22.9m (+86.5%) on the prior year.

 

After accounting for exceptional costs of £21.6m, exceptional finance costs of £28.5m and IFRS 16 adjustments of £2.2m, statutory profit before tax was £1.5m, a reduction of £18.6m in the year as a result of the exceptional items recognised.

 

Taxation

 

The effective pre-exceptional tax rate for the year was 19.6%, 60bps higher than the UK corporation tax rate of 19.0% mainly due to non-deductible expenses. 

 

The IPO costs, fixed asset impairments and early repayment fees on the bond subject to interest restriction, were disallowed costs for tax purposes in FY20. This resulted in a higher tax charge of £1.0m against the pre-tax profit of £1.5m and a post-exceptional items effective tax rate of 66.0%.

 

 

Earnings Per Share

 

Adjusted EPS from continuing operations increased 49.5% in the current year and has been calculated as follows:

 

FY20	Adjusted EPS (before exceptional items and IFRS 16 adjustments)	EPS (before exceptional items and after IFRS 16 adjustments)	Statutory EPS (incl. IFRS 16)
Profit after tax	£38.8m	£38.2m	£0.5m
Weighted average
number of ordinary
shares	233,733,000	233,773,000	233,733,000
EPS	16.6	16.3p	0.2p

 

In FY19, the legal entity Watches of Switzerland Group PLC did not exist. For comparative purposes we have calculated basic EPS using the number of ordinary shares of Watches of Switzerland Group PLC immediately prior to the IPO, occurring on 4 June 2019. The results are as follows:

 

FY19	Adjusted EPS (before exceptional items)	Statutory EPS  (continuing operations)
Profit after tax	£20.2m	£13.9m
Weighted average number of ordinary shares	182,000,000	182,000,000
EPS	11.1p	7.6p

 

Balance sheet

 

The balance sheet below is shown pre-IFRS 16 adjustments for comparability. A reconciliation to the post-IFRS 16 balance sheet is included on page 29.

 

Balance Sheet (pre-IFRS 16) (£m)	FY20	FY19
Goodwill and intangibles	154.5	127.7
Property, plant and equipment	99.8	101.3
Inventories	243.5	200.3
Trade and other receivables	12.9	40.2
Other	1.8	5.4
Trade and other payables	(165.3)	(157.7)
Net debt	(129.7)	(240.6)
Net assets	217.5	76.6

 

 

Goodwill and intangible assets

 

Goodwill and intangible assets increased by £26.8m in the year, reflecting the goodwill of £26.1m recognised on the acquisition of the four stores from Fraser Hart.

 

Property, plant and equipment

 

Property, plant and equipment decreased by £1.5m in the year to £99.8m.  Fixed asset additions of £22.4m were offset by depreciation of £15.6m, disposals of £3.8m and impairment £7.1m. 

 

The investment in our store portfolio is paramount to our strategy as discussed previously and the capital additions are broken down in the table below.  In making capital investment decisions the Group follows a disciplined payback policy. 

 

Capital additions (£m)	FY20	FY19
Expansionary	20.7	33.1
Store maintenance capex	1.5	2.0
Acquisition of Fraser Hart stores	1.0	-
Other	0.2	0.2
Total	23.4	35.3

 

Expansionary capex relates to new stores, relocations or major refurbishments (defined as costing over £250,000).  In the year the Group opened five (2019: eight) stores, relocated six (2019: three) and refurbished nine (2019: nine).

 

Inventories

 

Inventories increased by £43.2m (21.6%) compared to the prior year, £4.6m of this increase related to the acquisition of the Fraser Hart stores. As a result of the good stock levels on hand at the year-end, the business was well placed to satisfy customer demand on the re-opening of stores during May and June 2020. 

 

Additionally, all stock on hand at the year-end has been fully paid for by the business by July 2020, aiding post re-opening working capital requirements. 

 

Trade and other receivables

 

Trade receivables have reduced by £27.3m (68.0%) in the year to £12.9m. £6.6m of this reduction related to a decrease in rent prepayments at the year-end.  At the time of lockdown, the Group negotiated with landlords to defer rental payments during the period that the stores were closed.  The Group also received supplier rebates of £3.5m prior to the year-end which also reduced the receivables balance further. The US in-house credit debtors also reduced by £7.1m from the prior year.  During the year the Group has progressively switched to offer new credit through third parties and therefore the in-house credit debtors have reduced accordingly, as customers have paid down the outstanding balance.

 

Following the group re-organisation which preceded the IPO, the Group made a distribution by law to Jewel UK Topco Limited, the former parent company of the Group, for £11.5m.  This was offset against the amount owed to the Group, thereby reducing trade and other receivables.

 

Other

 

Other is made up of taxation balances and the defined benefit pension obligation of £1.8m (2019: £5.4m).  The main movement relates to the timing of corporation tax payments in the year.

 

Trade and other payables

 

Trade and other payables have increased by £7.6m (4.9%) in the year.  Supplier creditor balances increased by £8.6m, mainly driven by the increase in stock holding at the year-end.  During the period of lockdown the Group generated additional cash through enhanced clientelling initiatives in the UK and US, and by continuing to take deposits on products that were delivered to customers once the stores re-opened in June 2020. This activity also increased the creditor balance at the year-end.

 

Following the impact on trading resulting from the closure of stores due to COVID-19, no bonus was accrued at the year-end compared to £3.1m in the prior year.  The interest accrual also reduced by £4.7m when compared to the prior year, a function of the reduced interest charge under the new facilities entered into during the year.  In the prior year the Group had outstanding accruals in relation to the IPO of £3.6m which were settled during FY20.  Capital expenditure accruals also reduced by £4.8m due to the timing of spend.

 

Net debt and financing

 

The net proceeds of the IPO of £148.4m were primarily used to reduce our external debt to a level more appropriate for a publicly listed company. Accordingly, on 4 June 2019 the outstanding principal of the UK bonds was repaid, including an early redemption premium of £21.7m. On the same date, the Group drew down on a new term loan facility at a significantly lower rate of interest. The facilities of the Group at 26 April 2020 were as follows:

 

Type	Expiring	Amount (£m)
UK Term Loan - UK LIBOR +2.25%	June 2024	£120.0
UK Revolving Credit Facility - UK LIBOR +2.0%	June 2024	£50.0
US Asset Backed Facility - US LIBOR +1.25%	April 2023	$60.0

 

Net debt at 26 April 2020 was £129.7m, which compares to the guidance provided prior to the COVID-19 pandemic of £120.0m to £130m.  During the period of lockdown, management focused on cost control and cash preservation, which meant net debt was maintained in line with previous forecasts.

 

Since the end of the period, the Group has further strengthened its liquidity position with new financing arrangements.  The Group has entered into a new £45.0m facility agreement as part of the UK government Coronavirus Large Business Interruption Loan Scheme ("CLBILS") which has a maturity of November 2021.  The total available facilities in place as of 12 August 2020 were £261.8m. 

 

 

 

The debt facility is subject to a six-monthly financial covenant test on leverage and fixed charge cover ratio. These tests are based on pre-IFRS 16 measures and therefore the implementation of IFRS 16 has had no impact on financial covenants.  The covenants were fully met at April 2020.

 

On 18 June 2020, the covenant tests of the Group's facilities were replaced with a monthly minimum liquidity headroom covenant of £20.0m for the period of June 2020 to September 2021.  The Directors sought the replacement of covenants to provide further flexibility to deal with any unexpected circumstances during that period.

 

Cash flow

 

Continuing basis (£m)	FY20	FY19
Adjusted EBITDA	78.1	68.8
Exceptional costs paid	(5.0)	(5.9)
Working capital and other movement	(7.4)	7.1
Cash generated from operations	65.7	70.0
Pension contributions	(0.7)	(0.7)
Tax	(7.5)	(5.0)
Capital expenditure	(28.7)	(35.5)
Interest	(11.6)	(17.3)
Acquisition	(31.1)	-
Net proceeds from IPO	147.8	-
Government grants received	1.3
Carve-out of discontinued operations	-	(6.3)
Financing activities	(98.2)	(20.2)
Cash flow	37.0	(15.0)

 

Cash generated from operations of £65.7m was £4.3m adverse to the prior year, as a result of the movement in working capital.  The working capital movement was £7.4m adverse in the year, with the beneficial impact of movements in receivables and payables (£28.1m) offset by an increase in inventories of £35.5m. 

 

Tax payments are £2.5m higher than the prior year as a result of a change in quarterly tax instalments.

 

Interest reduced by £5.7m in the year, reflecting the lower interest rate on the financing taken out in the year.  £8.2m of the interest paid in the year related to accumulated interest, representing 4.5 months of interest, for the old bond prior to refinancing. 

 

£31.1m of cash was paid during the year for the acquisition of the four stores from Fraser Hart.

 

The proceeds from the IPO were used to refinance the existing bond, this payment included the exceptional early redemption premium for the bond.

 

Impact of COVID-19 on cash flow

 

During the period of lockdown the Group controlled cash flow very tightly, to maximise liquidity.  The following actions were taken to reduce cash outflows:

 

·      £2.8m of capital expenditure was postponed

·      Government employee protection schemes were accessed in the UK and US, with £1.3m received in March and April 2020

·      Rental payments of £6.7m were deferred, of which £4.6m were paid by July and the rest have been negotiated to pay within the next 12 months

·      UK business rates holiday contributed £1.1m in the period

·      The Group negotiated longer payment terms from many suppliers. These payments were fully up to date as at the end of July 2020 and normal payment terms resumed.  Additionally, all stock on hand at the year-end has been fully paid for by the business by July 2020, aiding post re-opening working capital requirements

·      An agreement was made with HMRC to defer UK tax payments totalling £5.2m

·      Marketing and discretionary expenditure was reduced as discussed previously

·      The Group also generated additional revenue and cash during the period through enhanced clientelling initiatives in the UK and US, leveraging its strong customer relationships together with its sophisticated CRM tools

 

Between weeks 47 FY20 and the year-end the net cash outflow was £19.3m, which included stock and other purchase payments of £61.9m during that period.

 

Q1 FY21 Trading Update

 

Group revenue for the 13 weeks to 26 July 2020 (Q1 FY21) declined -27.6% to £151.6 million (Q1 FY20: £209.4 million), ahead of management expectations.  As a result of COVID-19 related closures, the Group's stores traded for approximately 38% (UK: 35%, US: 44%) of potential trading hours during the period.  By category, luxury watch sales increased to 86.8% of Group revenue (Q1 FY20: 84.8%), with key brands outperforming. 

 

Since re-opening, ecommerce sales in the UK have remained strong but traffic to the Group's stores has been significantly impacted; this has been offset by higher conversion rates, good supply of key brands and new technology to further enhance clientelling initiatives and customer service.  Reflecting these initiatives as well as pent-up demand, Group sales have been positive since re-opening and during the month of July, increased +7.4% relative to the prior year.

 

Net debt at 26 July 2020 was £91.2m (Q1 FY20: £104.6m) demonstrating strong cash management over the period.

 

UK

UK revenue declined -30.1% to £108.3 million (Q1 FY20: £155.0 million), with stores open for approximately 35% of normal trading hours as a result of COVID-19 closures.  Key brands generated encouraging performances and ecommerce sales were strong, up 79.3% relative to the prior year.  Since re-opening, regional stores have outperformed London and airport stores, which remain adversely impacted by a lack of tourism business and air travel.

 

US

US revenue declined -20.4% to £43.3 million (Q1 FY20: £54.4 million) mainly affected by store closure and reduced hours through the months of May and June.  Stores were open for approximately 44% of normal trading hours during the period.  Once stores were re-opened, all areas of the business performed strongly compared to the prior year, driven by key brands and new product launches.

 

The Group's mono-brand boutique network was further expanded with a new Rolex boutique opened in Glasgow at the end of Q1 FY21, the brand's first such store in Scotland, and three new TAG Heuer boutiques opened in Watford, Kingston and Oxford.  In addition, a Grand Seiko pop-up store was opened in New York featuring an exclusive product launch.

 

The Group renegotiated contracts for its airport stores and agreed a short term extension to end FY21 on revised terms reflecting reduced traffic expectations.

 

Outlook and guidance

 

Trading in Q1FY21 has been encouraging and the Group remains well positioned to deliver on its strategy.  The Group provides guidance for FY21 on the basis of continued strong demand for our portfolio of luxury watch brands in the UK and US and anticipates no further national lockdowns but continued localised disruption in both markets for the balance of the financial year.

 

During FY21, whilst the Group expects domestic demand to remain buoyant in both the UK and the US, it anticipates limited airport traffic and foreign tourism in the UK and limited domestic tourism in the US, with graduate and moderate improvement throughout the financial year. 

 

 

 

There continues to be a strong pipeline of projects in the UK and the US, including new stores, expansions and refurbishments.

 

Certain projects which had been expected to complete during FY21 will now fall into FY22, namely American Dream, New Jersey and Battersea.

 

Please see below the guidance for FY21 pre-IFRS 16 adjustments and based on a 53-week period.

 

	FY21 Guidance
Total revenue	£840.0m-£860.0m
EBITDA margin % and Adjusted EBITDA margin %	Flat vs last year
Depreciation, amortisation, impairment and profit/loss on disposal of fixed assets	£21.0m-£23.0m
Total finance costs	£5.3m-£5.8m
Underlying tax rate	21.0%-22.5%
Capital expenditure	£28.0m-£32.0m
Net debt	£90.0-£110.0m