Watches of Switzerland Group PLC

FY21 Results

for the 53 weeks to 2 May 2021

 

Strong FY21 performance delivers record Group revenue and profitability

Well positioned to accelerate strategic delivery plans in FY22

 

Watches of Switzerland Group PLC ("the Group") today reports its financial results for the 53 weeks ending 2 May 2021 (FY21).

 

Brian Duffy, Chief Executive Officer, said:

"I am delighted to report a year of strong growth.  Our performance is testament to the resilience and hard work of our colleagues, good support from our brand partners and our proven model, including our leading online platform and bold, impactful marketing approach.  The luxury watch market remains predominantly supply-driven with demand exceeding product availability for key brands and models.

 

In spite of the headwinds faced during the year, our teams delivered fantastic results.  We generated outstanding growth and strong momentum in the US and are well positioned for future growth.  In the UK, where our stores were closed for approximately half the year, we further enhanced our market-leading position.

 

We were pleased to maintain employment and full salaries during the entire year and our performance has allowed us to repay furlough money received in the year.

 

I am delighted that we are launching The Watches of Switzerland Group Foundation, which will provide essential support in the communities where we live and work in the UK and in the US with an initial committed contribution of £1.5 million and plans to build this during FY22 and beyond.

 

Trading has remained strong in both the UK and the US since the year-end. Our customer has accumulated disposable wealth and our category is an attractive option.  Our growth projections reflect our best estimate of future supply based on our past experience of investment and expansion.

 

The momentum we bring into FY22 underpins our confidence for the financial year ahead.  Sustained capital investment will continue to support our growth plans in the UK.  Our success in the US proves our model works in this market and we will continue to invest in our stores and new projects, whilst pursuing selective acquisitions at attractive returns in our ambition to become the clear leader in the market.

 

We are confident in our plans to build on our long term track record of sustained growth to capitalise on the significant growth opportunities available."

 

 

FY21 Financial Highlights

·      FY21 Group revenue +13.3% in constant currency[1] (+11.7% in reported terms) to £905.1 million (FY20: £810.5 million), and +17.9% in constant currency relative to FY19[2]

·      Adjusted EBITDA[3] increased +34.9% to £105.4 million (FY20: £78.1 million)

·      Adjusted EBIT3 +38.9% to £77.6 million (FY20: £55.9 million)

·      Statutory operating profit +69.5% to £81.9 million (FY20: £48.3 million)

·      Statutory profit before tax £63.7 million (FY20: £1.5 million)

·      Capital expenditure of £26.0 million (FY20: £23.4 million), with 18 new stores opened (FY20: five), four expanded stores (FY20: six) and four refurbishments (FY20: nine)

·      Return on Capital Employed3 increased to 19.7% (FY20: 15.8%)

·      Net debt3 reduced to £43.9 million as at 2 May 2021 (26 April 2020: £129.7 million)

 

Operational Highlights

·      Strong performance driven by further development of the multi-channel business model, adapting with speed and agility to conditions created by COVID-19 disruption

·      Luxury watch sales1 +16.0% to represent 87.1% of Group revenue (FY20: 83.9%)

·      Outstanding and broad-based growth in the US with revenue +38.5% vs FY20 and +64.8% vs FY19 (both in constant currency)

o  Dynamic consumer trends for the category, driving high conversion rates and offsetting lower store traffic

o  Investments and initiatives exceeding expectations

o  Strong sales uplifts from refurbishments in first four Mayors stores

o  Encouraging early results from the relaunch of luxury jewellery in Mayors

·      Robust UK growth despite significant headwinds with revenue +3.6% to £606.5 million (FY20: £585.5 million); +3.1% vs FY19

o  Strong sales to domestic customers offsetting lower tourist and airport trade which accounted for 5.3% of Group revenue (FY20: 27.5%)

o  Positive Average Selling Price (ASP)3 development due to brand mix

o  Sales supported by a more than doubling online, click and collect during 46 weeks and strong trading in the 26 weeks during which the stores were open

o  Stores closed for approximately 26 weeks during the year

o  Strong conversion rates offset significantly reduced store traffic and airport and tourist spend

·      Group ecommerce sales +120.5% with strong UK sales and encouraging start in the US

·      The Group adapted to a changing retail environment through enhanced CRM and clienteling and the introduction of new initiatives including the Luxury Watch and Jewellery Virtual boutique (UK) and the "By Personal Appointment" system, which helped drive significantly improved conversion rates

·      Stores continue to be a focus of investment with the completion of several important projects including:

o  Opening of the new Watches of Switzerland flagship store in Broadgate, London and expansion of the Watches of Switzerland Knightsbridge store, including a new Rolex Room

o  First Rolex mono-brand boutique in Scotland (Glasgow)

o  Mono-brand network further developed with the opening of nine boutiques in the UK and eight boutiques in the US to bring the total across both markets to 39 at 2 May 2021

o  Continued programme of store refurbishment and elevation

·      Acquisition of Analog Shift, US retailer of vintage and pre-owned watches to further advance the Group's position in the US market

·      Further development of the National Service Centre in Manchester with an increase in capacity

·      Launch of The Watches of Switzerland Group Foundation ("the Foundation") with the initial committed Company donation of £1.5 million and an additional £1.5 million planned in FY22

·      Furlough monies received in the UK in the year have now been repaid and we have cancelled and repaid the borrowings under the Coronavirus Large Business Interruption Loan Scheme (CLBILS)

 

 

Outlook

Well positioned to accelerate strategic delivery in FY22

·      The Group is confident it is well placed to continue to deliver on its strategic objectives and confirms the guidance provided at the Q4 trading update on 20 May 2021 

§ This assumes 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

§ 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 improving domestic tourism in the US

·      Trading has remained strong in both the UK and the US since the year-end

·      The Group confirms the following guidance on a pre-IFRS 16 and 52-week basis:

§ Revenue: £1.05 billion to £1.10 billion (implied +16% to +21% vs last year)

§ EBITDA and Adjusted EBITDA margin %: flat to +0.5% vs last year

§ Depreciation, amortisation, impairment and profit/loss on disposal of fixed assets: £30.0 million to £32.0 million

§ Total finance costs: £4.0 million to £4.5 million

§ Underlying tax rate: 21.0% to 22.5%

§ Capex: £40.0 million to £45.0 million

§ Net debt: £20.0 million to £30.0 million

§ USD/GBP rate of $1.40

§ Additional £1.5 million planned contribution to the Foundation

·      Since the year-end, we have opened one Goldsmiths store and two mono-brand boutiques in Edinburgh

·      In addition, the Group has an exciting programme of store projects planned for the remainder of FY22:

§ Significant refurbishment/relocation programme in the US with Aventura, Boca Raton and Mall of Millenia as well as the Rolex boutique in the Wynn Resort, Las Vegas

§ New Watches of Switzerland multi-brand stores: Battersea (London, UK), American Dream (New Jersey, US), Cincinnati (US)

§ Further mono-brand boutique activity in the UK and the US

§ Refurbishment of three stores acquired from Fraser Hart (two have been completed since year-end)

§ Commencement of roll-out of Goldsmiths Luxury elevated store formats

·      The Group will publish its Q1 FY22 trading update on 10 August 2021 before markets open

 

FY21 Results Conference call

A webcast conference call for analysts and investors will be held at 9.00am (UK time) today to announce the FY21 results. To join the call, please use the following details:

 

United Kingdom (Local): +44 (0)330 336 9125

Participant Access Code: 7785267

Webcast link: https://webcasting.brrmedia.co.uk/broadcast/60d20fd38ed35a79f70a3ccd

 

Long Range Plan Conference call

A separate conference call for analysts and investors will be held at 2.00pm (UK time) today to discuss the Group's long range plan.

 

This will be followed by a live Q&A for analysts and investors, which can also be accessed using the following details:

United Kingdom (Local): +44 (0)330 336 9125

Participant Access Code: 3169793

Webcast link: https://webcasting.brrmedia.co.uk/broadcast/60d30e6155a96337f0d9c113

 

 

 

Contacts

The Watches of Switzerland Group

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

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

investor.relations@thewosgroup.com 

 

Headland

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

wos@headlandconsultancy.com 

 

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.

 

As at 2 May 2021, the Watches of Switzerland Group has 148 core stores across the UK and US (which includes 39 dedicated mono-brand stores in these two markets in partnership with Rolex, TAG Heuer, OMEGA, Breitling, Audemars Piguet, Tudor and FOPE) 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.

 

thewosgroupplc.com

 

Disclaimer

Cautionary note regarding forward-looking statements

This announcement has been prepared by Watches of Switzerland Group PLC (the "Company"). It includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "plans", "goal", "target", "aim", "may", "will", "would", "could" or "should" or, in each case, their negative or other variations or comparable terminology. They appear in a number of places throughout this announcement and the information incorporated by reference into this announcement and may include statements regarding the intentions, beliefs or current expectations of the Company Directors or the Group concerning, amongst other things: (i) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; (ii) business and management strategies, the expansion and growth of the Group's business operations; and (iii) the effects of government regulation and industry changes on the business of the Company or the Group.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond the Company's ability to control or predict. Forward-looking statements are not guarantees of future performance. The Group's actual results of operations, financial condition, liquidity, and the development of the industry in which it operates may differ materially from the impression created by the forward-looking statements contained in this announcement and/or the information incorporated by reference into this 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 which are described in the Annual Report and Accounts 2021 in Risk Management and Principal Risks and Uncertainties.

 

 

 

 

Chief Executive Officer's Review

 

Today, the UK and the US continue to make great strides on the COVID-19 vaccination programmes, as do many other countries.  Our stores are open and we are not experiencing any COVID-19 related supply disruption.  While the COVID-19 pandemic may continue to impact on daily life, we look forward to a further relaxation of restrictions and a return to more normal retail conditions.  We are optimistic and positive for FY22 and beyond.

 

I am delighted to welcome our new Chair, Ian Carter, who joined the Group in November 2020, bringing with him a wealth of relevant international luxury experience.

 

Looking back on FY21, our teams did an outstanding job in challenging circumstances, delivering Group revenue of £905.1 million, +13.3% in constant currency, and +34.9% year on year improvement in Adjusted EBITDA.  We generated strong cash flow, a record level of Return on Capital Employed of 19.7% (FY20: 15.8%) and closing net debt of £43.9 million as at 2 May 2021 (26 April 2020: £129.7 million), with net debt to Adjusted EBITDA of 0.42x (FY20: 1.66x).

 

In the US, we added $110.5 million in sales, an increase of +38.5% vs last year despite the loss of approximately four weeks trading to lockdown in May 2020, and significant traffic reductions in Las Vegas (-54.6%), New York (-83.0%) and at Mayors (-34.1%) in Florida and Georgia.  In the UK, we generated equally impressive revenue growth of +3.6%, adding £21.0 million in incremental sales despite enforced store closures for approximately half of the year, as well as reduced tourist spend (-80.7%) and airport business (-74.7%).

 

In both the UK and the US, our teams responded to the challenges and opportunities with enthusiasm, creativity, and positivity.  I am pleased that we have maintained full employment and salaries during the year despite lockdowns.

 

Our advanced technology supported the development of our CRM and clienteling efforts and the introduction of a very effective appointment system.  We remained very active in marketing, increasing our digital advertising spend in the UK and driving both the awareness of our brands and direct traffic to our websites and stores.  In the US, our teams were able to continue with impactful PR events and VIP client events.

 

We fully engaged in remote activities and social media, conducting many product launches with brand partners or media partners, personal remote appointments with clients and of course, all of our business meetings, investor engagements and colleague communications.  We set up the Luxury Watch and Jewellery Virtual Boutique staffed with fully trained sales consultants to assist those researching or shopping online.  We introduced new brands to our ecommerce websites including the addition of the Tudor brand.  During the year, our ecommerce business was up strongly +120.5%, reflecting a more than doubling in the UK and a successful launch in the US.

 

We continued with capital expenditure plans, investing in our store network, IT and systems.

 

The summary of our sales performance in FY21 is very strong momentum throughout the US and in the UK, where the combination of online, strong sales productivity during the periods of stores opening and click and collect during the second and third lockdowns offseting the huge challenges of store closures and the loss of international trade and airport business.

 

The luxury watch industry once again proved its resilience in responding to the COVID-19 pandemic challenges with innovative digital activity and a very impressive programme of new product introduction.  We continue to work more closely with our brand partners and during the year successfully adopted a new virtual format for new product introductions, primarily on Instagram, and partnered on remote customer presentations.

 

The success of our business has allowed us to repay the UK furlough support received in FY21 and to repay the UK Government Coronavirus Large Business Interruption Loan Scheme borrowings.

 

 

 

My takeaways from FY21 are:

·      We operate in a great category which is underpinned by demand outstripping supply, as evidenced during the past year

·      The Watches of Switzerland Group model works, consisting of strong brand partnerships, multi-channel contemporary retail formats, scale, advanced systems technology, impactful marketing targeted at a broad demographic audience, and luxury client services from well trained, expert and enthusiastic sales colleagues

·      Our positive approach to the challenges of the past year was key to our success. We remained confident and optimised the opportunities to drive our business forward

·      COVID-19 has accelerated developments, particularly digital, and retail has been permanently changed

·      We are fundamentally a people business and the power of the team spirit and "can-do" attitude in our Group is immense.  Our colleagues deserve the credit for the successful results of FY21.

Looking ahead, our FY22 guidance issued on 20 May 2021 projects sales growth of between +16% and +21% and profitability flat to +0.5% relative to last year.  Our projections assume no further lockdowns in the UK, the US and Switzerland, and no acquisitions or uncommitted projects.  We closed FY21 with borrowings of £43.9 million which we project will be £20.0 million to £30.0 million by end of FY22.  This assumes capex of £40.0 million to £45.0 million, including some carry forward projects from FY21 in the US.

 

As our corporate governance framework evolves, I am delighted that we have established an Environmental, Social and Governance (ESG) Committee, chaired by Rosa Monckton, who is also our designated workforce Non-Executive Director and the ideal person to chair this Committee.

 

Finally, I am very proud to announce the launch of The Watches of Switzerland Group Foundation (the "Foundation") with an initial contribution of £1.5 million committed in FY21 and a further planned contribution of £1.5 million in FY22.  The aim of the Foundation will be to further enhance our charitable initiatives and to provide essential support to local and national charities focused on poverty, social mobility and hardship in both the UK and the US.  The Foundation will be managed by an independent Board of Trustees that I will personally chair.

 

UK

 

Our business proved its resilience in the UK where our stores were closed for approximately 26 weeks during FY21 and we faced headwinds with significantly reduced footfall, minimal international tourism and a lack of airport business.  We adapted with ease and agility, increasing our activity on digital platforms, investing in our people and positively embracing new ways of engaging with our customers and colleagues via remote solutions.

 

Trading through our stores during opening periods was robust, reflecting pent up demand as well as the resumption of click and collect during the second and third lockdowns.  We continued to invest in the store network with two important projects in our London multi-brand flagship stores; in December 2021, we opened the new store in Broadgate and the refurbished and expanded Knightsbridge flagship, including an enhanced Rolex Room.  We also opened the first Rolex mono-brand boutique in Scotland, in Glasgow, in July 2020.   In addition, we completed four further refurbishments, two further expansions and opened eight mono-brand boutiques with Breitling, OMEGA, TAG Heuer and Tudor.

 

During the year, our teams adapted to the new circumstances by driving their own footfall through utilisation of CRM systems and clienteling activities including the newly introduced "By Personal Appointment" and the launch of the Luxury Virtual Boutique.

 

Revenue growth was driven by our strong online platform, where ecommerce sales increased by +115.4% relative to the prior year.

 

We further enhanced our digital marketing initiatives, with continued successful performance marketing campaigns executed across a combination of channels.  During lockdowns, we looked to drive brand awareness and maximise reach through impactful and innovative digital media including a series of Instagram Lives in conjunction with our luxury watch brand partners as well as traditional print campaigns to keep our brands front of mind.  We remained highly active on our multi-media luxury watch communication platform, Calibre.  We also launched an exclusive virtual events platform, through which we hosted over 1,300 VIP customers, and supported our colleagues in store to enhance their reach out to customers to drive footfall and engagement.  Our teams managed very strong sales during the periods when stores were open and strong click and collect business during the second and third lockdowns.

 

We continued to invest in our people with enhanced learning and development initiatives including over 32,000 e-learning modules and a new Rolex training programme completed.

 

We continue to develop our after-sales and servicing proposition and further expanded our National Service Centre in Manchester.

 

As a result of our efforts, conversion rates were up relative to last year, more than compensating for reduced footfall during the year.

 

We have further built on our leadership standing in the UK and are well positioned to continue to invest for further growth in this market.

 

Craig Bolton, Executive Director UK:

 

"I am immensely proud of how our teams have responded to the significant challenges and disruptions faced during the year, embracing the need to adapt with enthusiasm and dedication as well as engaging with our community and charitable initiatives.  We have further strengthened our position and are well-positioned for continued success in the future."

 

US

 

Our business in the US benefitted from strong underlying category dynamics, underpinned by an increase in discretionary income and the attractive value-retention and investment qualities of luxury watches.   In addition, the market was open for most of the financial year, enabling us to continue to actively pursue our strategy with continued investment. 

 

Despite facing significant COVID-19 pandemic-related challenges, we further expanded and enhanced the store portfolio.  We opened eight mono-brand boutiques during the year across the Breitling, OMEGA and TAG Heuer brands, bringing our total network to 30 stores at year-end (FY20: 22 stores).  We completed the first phase of a major refurbishment of our Mayors Aventura store, as well as the refurbishment of the Rolex mono-brand boutique in the Wynn Resort, Las Vegas.  The success of our Grand Seiko Nature of Time pop-up in Spring Street in Soho has prompted us to open a permanent mono-brand boutique in FY22.

 

Our marketing efforts were further enhanced during the year.  We extended our reach in this market through our multi-channel performance marketing campaign, a wider digital activation, increased PR activity and a combination of virtual and in-person events.  On the luxury jewellery side, we unveiled a new Mayors campaign supported by our brand partners.

 

We relaunched our online presence in the US with encouraging initial results.

 

We also continue to invest in our people and completed 13,250 hours of training over the year.

The acquisition of Analog Shift, a specialist US retailer of vintage and pre-owned watches, in September 2020 further advanced our strong and growing position in the US market.

 

Despite the US being open for most of the year, traffic to our stores was subdued.  Through these various initiatives, we were able to generate a strong uplift in conversion rates and deliver an outstanding increase in sales during the year.

 

We are generating strong results and believe there is a significant growth opportunity in the US, where we are well positioned to continue delivering on our ambition to become the clear market leader.

 

David Hurley, Executive Vice President US:

 

"Our strategy is working well in the US, delivering outstanding results and positioning us well to become market leader.  We have significant opportunities for growth, both organically and through selective acquisitions, and will continue to invest in developing the business in the years ahead."

 

Delivering on our Strategic Priorities Despite Headwinds

The Group continued to deliver on its six strategic priorities during FY21 despite facing COVID-19 pandemic-related headwinds throughout the year, further building on its leadership position in the UK luxury watch market and continuing to expand its growing presence in the US. 

1.             Grow Revenue, Profit and Return on Capital Employed

2.             Enhance Strong Brand Partnerships

3.             Deliver an Exceptional Customer Experience

4.             Drive Customer Awareness and Brand Image Through Multi-Media with Bold, Impactful Marketing

5.             Leverage Best in Class Operations

6.             Expand Multi-Channel Leadership

1.    Grow Revenue, Profit and Return on Capital Employed

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

·      Elevate and expand store portfolio to provide luxurious, inviting, welcoming, spacious and browsable store environments

·      Continue to develop the multi-channel network in response to brand direction and changing consumer preference

·      Open new stores in new retail developments and underserved markets to expand our footprint

·      Make selective complementary acquisitions

·      Continue to research further growth potential in the luxury watch category

The Group delivered profitable growth and improved Return on Capital Employed, driven by sustained, consistent investment across the business despite facing pandemic-related challenges and delays.  In a year of significant disruption characterised by prolonged periods of store closure, subdued store traffic and reduced airport business and tourist spend, new ways of reaching customers and doing business were adopted.   Several new initiatives were introduced to enable an even more personalised and differentiated experience, some of which the Group anticipates will remain permanent features of the business going forward, strengthening the Group's multi-channel business model.

 

 

FY21 Achievements 

In FY21, the Group delivered another year of growth, with revenue +13.3% (constant currency) and Adjusted EBIT +38.9% relative to last year, and a further expansion of Return on Capital Employed to 19.7% (FY20: 15.8%) despite significant COVID-19 pandemic-related headwinds.  To adapt to a highly changed retail landscape, new initiatives were introduced to enable a more personalised and relevant customer experience such as "By Personal Appointment" and our Virtual Luxury Watch and Jewellery Boutique; we enhanced our clienteling activity, supported by learning and training programmes and we maintained COVID-19 secure operations through our stores and work spaces.

Bricks and mortar stores are expected to continue to form the main component of a successful multi-channel luxury watch business and as such, the Group continued to invest in the store portfolio with £23.1 million in expansionary capex¹ (FY20: £23.4 million) on the opening of new stores and the enhancement of existing stores, despite facing pandemic-related challenges and delays.

NETWORK EXPANSION

The network was further expanded with a net 13 stores opened during the year, bringing the total in the UK and the US to 148 core¹ stores as at 2 May 2021 (26 April 2020: 135).

In the UK, the network reached 118 stores as at 2 May 2021 (FY20: 113).  A new Watches of Switzerland flagship store was opened in Broadgate, London during December 2020 featuring a dedicated Rolex Room, a partnered OMEGA boutique as well as eight branded areas from partners Audemars Piguet, Tudor, Cartier, IWC, Jaeger-LeCoultre, Panerai, Hublot and Breitling.

In addition, the UK mono-brand boutique network was expanded by nine new boutiques to bring the total to 26.

The US mono-brand boutique network has now been firmly established following the opening of eight new boutiques, bringing the total to 13.

STORE ELEVATION

The Group continues to elevate the store network.  The flagship Watches of Switzerland store in Knightsbridge, London was expanded and refurbished, featuring a new dedicated Rolex Room.  The Watches of Switzerland store in Glasgow was converted to a Rolex mono-brand boutique, the brand's first dedicated boutique in Scotland.  A number of regional stores were also refurbished during the year. 

Finally, the four Fraser Hart stores acquired in March 2020 were rebranded to Watches of Switzerland and Mappin & Webb, generating a strong uplift in sales in the first year of trading, excluding the lockdown periods.  The Group's store design has now been introduced to three of these stores in FY22.

In the US, the four Mayors stores which have been elevated since the Group's acquisition have generated a strong uplift in sales in the first full year of trading (excluding periods of store closure during lockdowns).  The remaining stores are planned to be completed by end FY24.

Looking ahead, the Group will roll out the new Goldsmiths Luxury concept across the core regional portfolio in the UK from FY22.

 

 

STRONG PIPELINE OF STORE PROJECTS

We will further enhance and build our store network across both our markets with major projects including:

·      New Watches of Switzerland multi-brand stores: Battersea (London, UK), American Dream (New Jersey, US), Cincinnati

·      Further development of mono-brand boutique network

·      Continued elevation of the Mayors store estate in Florida: Aventura, Boca Raton

·      Roll out of Goldsmiths Luxury concept across our core regional portfolio in the UK

·      Refurbishment of the Rolex mono-brand boutique in the Wynn Resort, Las Vegas

We will continue to evaluate potential selective, strategic acquisitions.

2.    Enhance Strong Brand Partnerships

We are proud of our strong and long-standing relationships with the most prestigious luxury watch brands, which have been developed over many years.  Luxury watches have grown further to represent 87.1% of our sales (FY20: 83.9%) with the top eight luxury watch brands rising to 81.9% of our sales (FY20: 75.3%).

Collaboration with our key brand partners spans all areas of our business and has been further enhanced throughout the COVID-19 pandemic.  We work together to identify distribution opportunities, and partner on demand forecasting, product launches, store projects, online platform, clienteling initiatives and marketing activities.

During the year we continued to collaborate on product launches, with new virtual formats adopted and exclusives introduced with brands such as Hublot and Breitling, whilst for IWC we partnered on an online exclusive.

With our brand partners' support, we further elevated the emphasis on learning and development and training to ensure we deliver an exceptional customer experience to our customers.  During the year, we launched a wide range of product-related e-learning modules to support new product launches on the new e-learning platform.

We continue to develop the mono-brand boutique channel in the UK and have established a significant presence in the US with a growing network of 39 boutiques as at 2 May 2021 with further stores planned.

As a key component of our multi-channel business model, our UK ecommerce platform has been further enhanced with the addition of new brands which had previously only been transacted in store: Jaeger-LeCoultre, Panerai, Vacheron Constantin, Piaget, Grand Seiko, Tudor.  We have received good support from our brand partners for the US ecommerce launch.

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

3.    Deliver an Exceptional Customer Experience

Delivering an exceptional customer experience has taken on a new meaning and has never been of greater importance as we adapt to a changing retail landscape.  During the year, we innovated and found new ways to offer an increasingly elevated and personalised level of service to our customers, whether our stores were open or closed, which we believe is a key point of difference.

 

 

Our stores remain a cornerstone of our multi-channel offering and are designed to appeal to a broad audience and make our customers feel welcome through unintimidating, inviting, browsable, modern and luxurious environments, whilst offering the greatest choice of brands and products in the world of luxury watches and jewellery. 

Across all our channels, the experience we offer our customers is underpinned by the deep product knowledge and expertise of our colleagues, which is supported by our extensive learning and development programme.  During the year we introduced new training initiatives, including the development and launch of a new Rolex Academy.

Backed by our leading-edge IT and systems, we introduced a number of initiatives to reach our customers with a more personalised, seamless experience despite a significant period of store closures during the year, particularly in the UK.  The Group believes many of these new introductions will remain permanent features of the business model going forward. 

·      CRM and clienteling: CRM and clienteling tools have become increasingly important as a result of the COVID-19 pandemic.  We rolled out a number of relevant training programmes to support our colleagues and maximise customer engagement.

·      "By Personal Appointment": Appointments can be pre-booked by either customers or colleagues, in-store, by phone or with Zoom, enabling an uninterrupted experience to be offered to our customers throughout the year including during periods of store lockdown.  Since its launch in July 2020, a total of over 140,000 appointments have been booked in the UK and the US.

·      Virtual Luxury Watch and Jewellery Boutiques: the Virtual Luxury Watch Boutique was launched in October 2020 for which a team was reassigned from our airport stores, ensuring exceptional customer service and expertise.  The Virtual Luxury Jewellery Boutique was introduced in April 2021.

Mirroring the wider luxury watch industry, we also transitioned our event format from physical to virtual during the year, with a series of virtual clienteling events including exclusive product launches.

We measure satisfaction through a variety of tracking methods in the UK and the US including Net Promoter Score (NPS), Feefo, Medallia and Podium. In the UK, our NPS score was maintained at 85% whilst in the US, we use Podium to measure in-store experiences and received a rating of 4.9 out of 5.0.  We also undertake a mystery shopping programme 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.

We continue to develop our after-sales and service proposition as a way to further enhance the customer experience, through a number of dedicated service centres, including the National Watch Service Centre in Manchester, complemented by 13 watch workshops located in stores in the UK and in the US, the HQ service centre in Fort Lauderdale, Florida as well as five additional workshops located in stores.  The capacity in the primary centres in each of the UK (Manchester) and the US (Fort Lauderdale) has recently been expanded.

4.    Drive Customer Awareness and Brand Image through Multi-Media with Bold, Impactful Marketing

During the year, whilst typical trading was significantly impacted as a result of the COVID-19 pandemic, our marketing communications have been at the heart of the business, with a nimble approach focused on digital, content and social whilst adapting to the changing consumer environment.

We continued with our successful performance marketing campaign executed across a combination of channels such as Search & Shopping, YouTube, Display and Paid Social Media, with our strategy focused on reaching high intent luxury customers, underpinned by bold, impactful creative and innovative bidding strategies. Activity included a YouTube first watches campaign featuring key luxury watch brand partners such as Breitling and TAG Heuer. The campaign showcased a breadth of range across men's, women's, and icons, reinforcing the Group as the leading destination for luxury watches both in the UK and US. This activity was complemented by seasonal jewellery content campaigns for Goldsmiths, Mappin & Webb and Mayors. In total, activity generated 3.2 billion impressions and 195 million views in the UK and 373 million impressions and 83.7 million views in the US.

To complement our performance marketing campaign, wider digital activation focused on driving brand awareness and maximising reach among key target audiences. During lockdown periods in the UK, tactics included impactful and innovative social media, including an engaging series of Instagram Lives hosted by Brian Duffy, CEO in conjunction with our luxury watch brand partners to our UK community of over 625,000, with an average monthly reach of 46 million. In the US, standalone social pages were launched specifically for Watches of Switzerland with customised brand content, leveraging brand co-op funding to deliver paid social media campaigns to support key launches and events.  The US social communities continue to grow with a combined audience of over 35,000 and impressions of 2.5 million per month.

As we recognised the need for more content through lockdown, with our customers and potential customers being more active on social media and the internet as a whole, we increased our output on our digital Calibre channels. Our multi-media luxury watch communication platform allows us to inspire purchase and increase loyalty, through the sharing of innovative and exclusive watch expertise across a yearly magazine, online editorial, monthly email newsletter to a combined UK and US database of over 250,000 subscribers, and regular podcast episodes with over 94,000 total downloads.

Another key element to our marketing strategy is our customer event programme.  When the COVID-19 pandemic began in early 2020 we devised a virtual event programme, maintaining the level of quality and prestige of our in-person events held in stores and other venues.

In the UK, we launched an exclusive virtual events platform, capable of hosting hundreds of customers. By adapting and embracing this new approach, the virtual events world allowed us to be at the forefront of the market and become reactive and agile to continual changing circumstances and restrictions. Overall, in FY21 we hosted a number of virtual and in-person events entertaining over 1,300 customers.

A similar approach was taken in the US, with Watches of Switzerland and Mayors holding a number of virtual and physical events during FY21 including three exclusive product releases and a series of first to market experiential opportunities, hosting over 1,300 customers.  In September 2020, our Watches of Switzerland store in Soho, New York partnered with Haute Living and musician, actor and producer Curtis "50 Cent" Jackson to host a private dinner which combined media, influencer and collector attendees and garnered 108 million in resulting social media impressions. The Watches of Switzerland store in Hudson Yards, New York hosted three days of customised, one on one client appointments to unveil the new Patek Philippe novelties.

In addition, we supported our store colleagues in both the UK and US in enhancing their own direct customers reach-out to drive footfall and engagement through the production of over 40 clienteling guides covering topics such as new product launches, key focus lines and brands.

Within our luxury jewellery category, Mayors unveiled a breakthrough image campaign designed to resonate with modern women and bring a 110-year-old business into the future. The campaign kicked off a series of initiatives including a revamped ecommerce site featuring "shop the look" and an updated visual merchandising schematic in-store with a case line curated from on-model looks showcased in the campaign.  The campaign was featured in outlets Elle, Harper's Bazaar, Town & Country and WWD.  In the UK, we have developed a new store concept for our Goldsmiths Brand which we will be excited to launch in Autumn 2021 with a new 360 marketing campaign.

PR is a key part of our marketing strategy, particularly in the US where the Watches of Switzerland Group is still relatively new and in the process of being established.  In FY21, PR activity generated 5.1 billion media impressions including brand and executive profiles in Esquire, New York Times, Town & Country, Wall Street Journal and Yahoo.com.  The PR activities included strategic influencer alliances including Bethany Frankel, Kevin O'Leary and Chef Rōze Traore. 

Our marketing continues to drive high brand awareness in the UK and we have been successful in driving a surprisingly high level of awareness in the US.

5.    Leverage Best in Class Operations

IT SYSTEMS

Our leading-edge IT systems have continued to be a fundamental competitive advantage for the Group, further increasing in importance during the COVID-19 pandemic as we looked to implement innovative solutions to reach and engage with our customers. 

Our systems comprise a single and shared SAP instance for ERP, ecommerce and business intelligence. This SAP core is supported by a specialist point-of-sale and CRM front-end, served on mobile tablets across all our stores. Our single IT template has been deployed across the Group and can support further expansion as required. Our retail payment partner Adyen equips us with a fully featured, mobile and international payment platform across all sales channels, and both stores and ecommerce benefit from a shared inventory, shared digital assets, and click and collect capabilities.

Our stable IT infrastructure allowed our colleagues to access our platform 24 hours a day, seven days a week, throughout the year.  Our colleagues have found their transition to home and hybrid working over the last year seamless, as many were already equipped with mobile IT technology with secure VPN access. We have successfully scaled our cloud-based telephony to support all remote contact centres.

MERCHANDISING

Powered by leading-edge systems and analytics, our merchandising function provides a unique point of difference in the way we run our stores.

Through a customer-focused approach, our dynamic merchandising capabilities optimise stock availability, enhance store productivity and allow for nationwide coverage.  SAP software provides us with market analysis which in turn enables extensive store profiling, productivity and trend analyses, seasonal changes and sales and inventory forecasting.

Our merchandising approach is highly collaborative and we are working increasingly closely with our brand partners to further improve supply chain efficiencies through vendor managed inventory programmes.  These are being trialled in our mono-brand boutiques in the US as well as for top selling Cartier products in the UK, enabling us to further enhance availability in our stores.

RETAIL OPERATIONS

We run all our stores to be profitable which requires a high level of accountability and performance management across 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 with a regular monitoring of operational KPIs.

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

6.    Expand Multi-Channel Leadership

We transitioned seamlessly between bricks and mortar stores (including mono-brand boutiques and travel retail) and online as we faced a changing retail landscape and a period of significant disruption.  Our multi-channel leadership enabled us to further develop our business with the UK domestic clientele in light of limited tourism and airport business due to the ongoing disruption to travel retail and removal of duty-free shopping in the UK.  In the US we launched our ecommerce platform and expanded our recently established mono-brand boutique network.

ONLINE

We continue to leverage our position as the authorised luxury watch and jewellery partner, 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 Artificial Intelligence (AI)-driven marketing approach.

Due to the rapidly changing retail landscape, we continue to focus on offering the widest array of shopping opportunities, allowing our customers to reach out to local store expertise remotely through video, voice or in-person utilising our by personal appointment booking system, alongside our centralised Luxury Watch and Jewellery Virtual Boutique, two initiatives introduced during the financial year.

Our web-enabled store platform has been further improved and provides our customers access to shop the full online catalogue whilst in our 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. We have dedicated inventory for our luxury watches across all of our websites, which allows us to offer a next day delivery service until 9pm seven days a week.

Our online business had an exceptional year, with revenue +120.5% versus last year.

Following the ecommerce launch in the US, we accelerated our digital marketing strategy with a significant investment into performance marketing and believe this channel offers a significant opportunity to complement our growing store network in this market.

MONO-BRAND BOUTIQUES

We see a significant opportunity to further develop our mono-brand boutique network and have a strong pipeline of projects.  The roll-out of the format, which enables brands to be presented in a dedicated store environment, has contributed to further strengthening our brand partnerships.

As at 2 May 2021, we operated a global network of 39 mono-brand boutiques (FY20: 22).  During the year, we opened nine mono-brand boutiques in the UK, taking our network to 26 boutiques.  In the US, we expanded the mono-brand boutique channel with eight new boutiques opened, taking the total to 13.

TRAVEL RETAIL

Travel retail provides the Group and brand partners with visibility in prominent locations and exposure to a high net worth international clientele.  Whilst this channel is expected to take longer to recover from a disproportionate COVID-19 impact, the Group continues to believe travel retail represents a growth opportunity over the medium term.

 

 

Financial Review

 

The Group's Statutory Income Statement is shown below which is presented under IFRS 16 "Leases" and includes exceptional items.

 

Statutory Income Statement (£million)	53 weeks ended  2 May 2021	52 weeks ended 26 April 2020	YoY variance
Revenue	905.1	810.5	11.7%
Operating profit	81.9	48.3	69.5%
Net finance costs	(18.2)	(46.8)	61.2%
Profit before tax	63.7	1.5	4,182.2%
Tax	(13.1)	(1.0)	(1,231.2%)
Profit after tax	50.6	0.5	9,886.4%
Basic Earnings Per Share	21.1p	0.2p	n/m

Management monitors and assesses 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)	53 weeks ended  2 May 2021	52 weeks ended 26 April 2020	YoY variance
Revenue	905.1	810.5	11.7%
Net margin3	332.3	304.7	9.1%
Store costs	(166.6)	(178.2)	6.5%
4-Wall EBITDA3	165.7	126.5	31.0%
Overheads	(55.8)	(44.6)	(25.3%)
EBITDA3	109.9	81.9	34.1%
Store opening and closing costs	(4.5)	(3.8)	(18.8%)
Adjusted EBITDA	105.4	78.1	34.9%
Depreciation, amortisation and loss on disposal of fixed assets	(27.8)	(22.2)	(24.7%)
Segment profit (Adjusted EBIT)	77.6	55.9	38.9%
Net finance costs	(5.5)	(6.5)	(14.6%)
Adjusted profit before tax3	72.1	49.4	46.0%
Adjusted Earnings Per Share3	23.8p	16.6p	43.4%

 

Revenue

 

Group revenue increased by +11.7% to £905.1m, +13.3% in constant currency, despite the significant disruption faced during the year.  Relative to FY19 (pre-COVID-19), revenue increased +17.0%, +17.9% in constant currency.  FY21 was a 53-week year, with the final week contributing £17.6m to Group revenue for the year.

 

The table below shows the revenue by quarter for the US and UK businesses and demonstrates the impact of COVID-19 lockdowns in the UK and US.  Our stores in the UK were closed for approximately 26 weeks during the year. In the UK, click and collect was not permitted during the first lockdown but was subsequently resumed during the second and third lockdowns.

 

Our very strong online performance throughout the year as well as the click and collect programme and other initiatives introduced, enabled us to offset the headwinds faced.  These headwinds included significantly reduced store traffic, store closures and lack of international consumers as a result of COVID-19. US stores were closed for only four weeks in Q1 FY21 (with the exception of Hudson Yards, New York which re-opened during September 2021) and remained opened for the remainder of the year. In both the UK and US, footfall to our stores was significantly reduced during the year, offset by higher conversion rates as a consequence of the actions we took in response to the changed trading environment.

 

 

 

 

Revenue by quarter (£million)	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
UK	108.3	185.9	186.1	126.2	606.5
YoY variance*	(29.3%)	15.4%	2.7%	40.2%	3.6%
US	43.3	76.8	86.5	92.0	298.6
YoY variance*	(19.5%)	37.2%	17.5%	121.0%	32.7%
Total	151.6	262.7	272.6	218.2	905.1
YoY variance*	(26.8%)	21.0%	7.0%	65.8%	11.7%

 

*The quarterly FY20 revenue has been restated to correctly reflect the timing of the reclassification adjustment disclosed in our FY20 Annual Report and Accounts.  Q4 FY21 includes 14 weeks of trade.

 

Our strategy delivered very strong results in the US, where the market was less impacted by COVID-19 related lockdowns and disruption.   US revenue increased by +32.7%, +38.5% on a constant currency basis, and the US business made up 33.0% of the Group's revenue in FY21 (FY20: 27.8%).  In the US, Mayors stores in Florida and Georgia began to re-open from early May 2020, followed by Las Vegas in June 2020, Soho, New York in late June 2020 and finally Hudson Yards, New York in early September 2020.  Whilst stores were closed for a shorter period of time than in the UK during FY21, footfall in the US was down significantly relative to the prior year, particularly in New York (-83.0%) and Las Vegas (-54.6%).  We are particularly pleased with the performance of our recently refurbished stores in the Mayors network.

 

During the year, we opened eight mono-brand boutiques in the US and in September 2020, we completed the acquisition of Analog Shift, a US retailer of vintage and pre-owned luxury watches, to continue to advance the Group's strong and growing position in the US.  We are pleased with the performance of Analog Shift since acquisition.  FY21 also saw the launch of the US online platform and initial sales are encouraging. We have also observed positive trends in in-store sales for brands also sold online, driven in part by our successful online marketing.

 

The UK was impacted more significantly by COVID-19 lockdowns which, resulted in a loss of footfall, reduced airport business and lack of international travel.  Despite this, UK revenue increased by +3.6% during the year through a combination of continued demand, good supply of product and strong clienteling activity by the Group.  The number of transactions in the UK was down, offset by higher average selling prices.  The Group also introduced a number of successful new initiatives such as the Luxury Watch and Jewellery Virtual Boutique and "By Personal Appointment" the virtual booking system to enhance customer engagement.  During the various periods of COVID-19 lockdown, the Group leveraged its CRM capability and clienteling activities to drive sales.  We also invested in digital marketing to drive sales of core product to our online channel, with UK ecommerce sales up +115.4% on the previous year. UK revenue was driven by strong domestic sales (+54.0% vs FY20), offsetting the lower tourist and airport businesses. Tourist and airport sales accounted for 5.3% of Group sales in FY21 compared to 27.5% in the previous year. Throughout the year, Heathrow Terminals 3 and 4 remained closed.  Regional stores continued to outperform London stores where footfall was significantly weaker.

During the year, in the UK, we opened ten stores and closed ten stores.  FY21 was the first full year of trade of the recently acquired Fraser Hart stores in York, Stratford, Brent Cross and Kingston.  We are pleased with the performance of these stores, which has exceeded our expectations.

 

 

 

Revenue by category

 

53 weeks ended 2 May 2021 (£million)	UK	US	Total	Mix
Luxury watches	512.1	276.3	788.4	87.1%
Luxury jewellery	43.9	16.9	60.8	6.7%
Other	50.5	5.4	55.9	6.2%
Total revenue	606.5	298.6	905.1	100.0%

 

 

52 weeks ended 26 April 2020 (£million)	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%

 

Luxury watches now make up 87.1% of Group revenue, up 320 bps on the prior year.  We have continued to observe strong demand for luxury watch brands and intake of supply constrained product was not significantly disrupted by COVID-19.

 

Luxury jewellery sales have been impacted more significantly by the COVID-19 lockdowns as these purchases are more footfall and impulse-driven than luxury watches.  Despite this, the relaunched luxury jewellery ranges generated a positive response from customers, and the category performed well relative to the market.  Luxury jewellery sales in the US, where footfall has been less impacted by store closures, increased by +13.2% relative to the prior year.

 

Other revenue consists of servicing, repairs and insurance services and the sale of fashion and classic watches and other non-luxury jewellery. 

 

Profitability

 

 

Profitability as a % of sales	53 weeks ended  2 May 2021	52 weeks ended 26 April 2020	YoY variance
Net margin	36.7%	37.6%	(0.9)%
Store costs	18.4%	22.0%	3.6%
4-Wall EBITDA	18.3%	15.6%	2.7%
EBITDA	12.1%	10.1%	2.0%
Adjusted EBITDA	11.6%	9.6%	2.0%

 

Net margin % decreased by 90 bps from 37.6% in the prior year to 36.7%, driven by product mix, as luxury watches and mix within this segment outperformed luxury jewellery. The impact on product margin mainly came from the UK while our US business growth was more broad-based.

 

Store costs decreased by £11.6 million (-6.5%) from the prior year, to £166.6 million.  Store costs as a percentage of sales decreased by 360 bps from 22.0% to 18.4%.  Property related costs reduced from FY20 by £23.3m as a result of the UK business rates suspension (£11.4 million) and UK turnover rent savings of £13.5 million mainly driven by reduced travel retail.  These savings were offset by additional store payroll costs of £5.4 million due to pay rises, commission and the impact of new stores along with £8.7 million of additional digital marketing investment, which successfully drove further traffic and conversion both online and in stores. 

 

Whilst the UK stores were closed due to COVID-19 restrictions, the Group accessed the UK Government's furlough scheme.  Throughout this period, the Group continued to supplement employee pay to the full contractual rates.  The Group has fully committed to repay all furlough received from the UK Government during the FY21 financial year; this repayment has been provided for in the FY21 results and was paid in June 2021.

 

The Group also recognised £4.1 million of income under the US Government Paycheck Protection Program (PPP), which is a loan which is convertible to a grant under certain circumstances.  The US PPP contributed to US payroll and rent costs during the period of the pandemic disruption.

 

Overheads increased by £11.2 million (+25.3%) due to employee incentives of £7.1 million, the committed Foundation donation of £1.5 million and increased salary costs of £2.0 million.

 

Store opening and closure costs

 

Store opening and closure costs (£million)	53 weeks ended  2 May 2021	52 weeks ended 26 April 2020
Store opening costs	2.4	1.7
Store closure costs	2.1	2.1
Total	4.5	3.8

 

Store opening and closing costs include the cost of rent (pre-IFRS 16), rates and payroll prior to the opening or closing of the store, normally during the period of fit out. This cost will vary annually depending on the scale of expansion in the year.

 

The following stores were opened and closed in the year:

 

Store openings and closures	53 weeks ended  2 May 2021	52 weeks ended 26 April 2020
Opened:
UK	10	7
US	8	2
Total	18	9
Closed:
UK	10	10
US	-	1
Total	10	11

 

 

Exceptional administrative items

 

Exceptional items are defined by the Group as those which are significant in magnitude and are linked to one-off, non-recurring events.  These items are detailed in the table below and are stated under IFRS 16.

 

Exceptional items (£million)	53 weeks ended  2 May 2021	52 weeks ended 26 April 2020
Impairment of property, plant and equipment	3.2	3.8
Impairment of right-of-use assets	1.1	4.8
Expected credit losses	-	0.7
Reversal of expected credit losses	(0.2)	-
IPO costs	4.9	8.0
Legal expenses on business acquisition	0.1	0.3
Total	9.1	17.6

 

 

 

The COVID-19 pandemic has significantly impacted the profitability of certain stores within our network.  The Group has reviewed the profitability of its store network, taking into account the future impact on consumer demand.  The Group identified £4.3 million of fixed asset and right-of-use asset impairment linked to COVID-19. 

 

The reversal of expected credit losses reflects the updated review of prior year (FY20) COVID-19 related provisions.  As these impairments had been treated as exceptional items in FY20, their reversal in FY21 was taken to exceptional items.

 

The IPO costs of £4.9 million in the current year relate to IPO-linked share-based payments (FY20: £3.3 million); these costs will continue to be expensed until the second anniversary of the IPO.  In the prior year, the Group also incurred a £2.1 million discretionary IPO bonus to employees following the success of the IPO and £2.6 million of legal and professional fees linked to the IPO.

 

Adjusted EBIT and statutory operating profit

 

As a consequence of the items noted above, Adjusted EBIT was £77.6 million, an increase of £21.7 million (+38.9%) on the prior year.

 

After accounting for exceptional costs of £9.1 million and IFRS 16 adjustments of £13.3 million, statutory operating profit (EBIT) was £81.9 million, an increase of +69.5% on the prior year.

 

Finance costs

 

Net finance costs (£million)	53 weeks ended  2 May 2021	52 weeks ended 26 April 2020
Interest payable on borrowings	3.9	6.7
Amortisation of capitalised transaction costs	1.1	0.8
Foreign exchange loss/(gain)	0.3	(0.6)
Other	0.4	0.3
Interest receivable	(0.2)	(0.7)
Pre-IFRS 16 and exceptional finance costs	5.5	6.5
IFRS 16 interest on lease liabilities	12.7	11.8
Pre-exceptional finance costs	18.2	18.3
Exceptional finance costs	-	28.5
Total net finance costs	18.2	46.8

 

Interest payable on borrowings reduced by £2.8 million in the period, largely due to the refinancing which took place in June 2019.  The prior year cost included 37 days of interest on the pre-IPO debt.

 

The IFRS 16 interest on lease liabilities has increased by £0.9 million as a result of new leases in the period.

 

In the prior year, the Group incurred a one-off early redemption fee of £21.7 million and wrote off £6.8 million of transaction costs capitalised under the pre-IPO facility. These were treated as exceptional finance costs.

 

Taxation

 

The effective tax rate for the year was 20.5%.  This reflects a growing US business which accounts for 33.0% of Group revenue and where the corporate tax rate is higher than the UK, as well as non-deductible expenses.

 

The pre-exceptional, pre-IFRS 16 effective tax rate was slightly higher at 20.8%. 

 

 

 

Earnings Per Share

 

Adjusted basic EPS from continuing operations increased by 7.2p to 23.8p in the current year and has been calculated as follows:

 

53 weeks ended 2 May 2021	Adjusted EPS	Statutory EPS
Profit after tax	£57.1m	£50.6m
Weighted average number of ordinary shares	239,455,554	239,455,554
EPS	23.8p	21.1p

 

 

52 weeks ended 26 April 2020	Adjusted EPS	Statutory EPS
Profit after tax	£38.8m	£0.5m
Weighted average number of ordinary shares	233,733,000	233,733,000
EPS	16.6p	0.2p

 

Balance sheet

 

Balance Sheet (£million)	2 May 2021	26 April 2020
Goodwill and intangibles	150.6	154.8
Property, plant and equipment	93.7	101.4
IFRS 16 right-of-use assets	253.7	251.6
Inventories	226.4	243.4
Trade and other receivables	10.4	10.9
Trade and other payables	(151.8)	(139.1)
IFRS 16 lease liabilities	(301.4)	(308.0)
Net debt	(43.9)	(129.7)
Other	12.6	14.2
Net assets	250.3	199.5

 

Property, plant and equipment decreased by £7.7 million in the year.  Additions of £24.1 million were offset by depreciation of £24.0 million, COVID-19 related impairments of £3.2 million and a foreign exchange impact of £3.9 million.

 

Including software costs, which are disclosed as intangibles, total capital additions were £26.0 million (FY20: £23.4 million) of which £23.1 million (FY20: £20.7 million) was expansionary.  Expansionary capex relates to new stores, relocations or major refurbishments (defined as costing over £250,000).  In the period, the Group opened 18 stores, expanded four and refurbished four stores.  Investment in our store portfolio is paramount to our strategy and the Group follows a disciplined payback policy when making capital investment decisions. 

 

Lease right-of-use assets have increased since 26 April 2020 by £2.1 million to £253.7 million.  Additions to the lease portfolio along with lease renewals or other lease changes have increased the balance by £51.4 million.  This has been offset by depreciation of £37.9 million, COVID-19 related impairments of £1.2 million and a foreign exchange impact of £9.9 million.

 

Lease liabilities have decreased by £6.6 million.  The portfolio changes noted above increased the lease liability by £49.3 million.  Interest charged on the lease liability also increased the balance by £12.7 million offset by a foreign exchange gain of £11.9 million.  Lease payments have reduced the balance by £56.7 million, giving a lease liability balance of £301.4 million.  This means that the net lease liability on 2 May 2021 was £47.7 million, compared to £56.4 million at the FY20 year end.

 

Inventory levels decreased by £17.0 million compared to the prior year as FY20 included higher levels of stock due to the timing of the first COVID-19 lockdown. 

 

 

 

Trade and other receivables are broadly in line with the FY20 year end.  On 16 September 2020, the Group completed a transaction to remove the recourse obligation on £1.3 million of in-house credit balances provided by a third party.  As the Group has no future liability for this, the balance is no longer recognised in the Balance Sheet.  A gain of £0.4 million was made on the transaction, of which £0.2 million has been recognised in exceptional items.  On 13 November 2020, the Group sold the remaining in-house credit debtors totaling £0.8 million (after provisions for expected credit losses) to a third party.  Following the sale, the Group has no liability in relation to these debtors and the transaction resulted in £nil gain or loss.

 

Compared to FY20, trade and other payables have increased by £12.7 million.  Included within trade creditors at the year end was the UK furlough repayment of £6.8 million and Foundation donation of £1.5 million which were fully committed to at the year end.  FY21 trade and other payables also includes employee incentive accruals, whereas bonus targets were not met in FY20. 

 

Other includes taxation balances and the defined benefit pension obligation of £2.6 million (FY20 £2.7 million). 

 

Net debt and financing

 

Net debt on 2 May 2021 was £43.9 million, a reduction of £85.8 million since 26 April 2020, driven by £109.7 million of free cash flow³ offset by £21.2 million of expansionary capex.    During the period of lockdown, management focused on cost control and cash preservation. 

 

During the period, the Group entered into a new £45.0 million facility agreement as part of the UK Government Coronavirus Large Business Interruption Loan Scheme (CLBILS) which had a maturity of November 2021.  This facility was repaid and cancelled during the year.

 

At 2 May 2021, the Group had a total of £197.5 million of maximum available committed facilities.

 

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

*Maximum subject to asset borrowing base

 

At 2 May 2021, £120.0 million of these facilities were drawn down.  Liquidity headroom (defined as unrestricted cash plus undrawn available facilities) was £143.5 million.

 

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.  On 18 June 2020, the covenant tests of the Group's facilities were replaced with a monthly minimum liquidity headroom covenant of £20.0 million 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. This liquidity covenant and the old replaced covenants were fully met throughout the period from June 2020 to June 2021.

 

 

 

Cash flow

 

Cash flow (£million)	53 weeks ended  2 May 2021	52 weeks ended 26 April 2020
Adjusted EBITDA	105.4	78.1
Share-based payments	0.8	-
Working capital	13.9	(7.3)
Pension contributions	(0.7)	(0.7)
Tax	(9.6)	(7.5)
Government grants received	5.4	1.3
Cash generated from operating activities	115.2	63.9
Maintenance capex1	(1.0)	(1.5)
Interest	(4.5)	(11.6)
Free cash flow	109.7	50.8
Free cash flow conversion3	104.1%	65.6%
Expansionary capex	(21.2)	(27.2)
Acquisition	(1.4)	(31.1)
Exceptional items	(0.2)	(5.0)
Net proceeds from IPO	-	147.8
Financing activities	(82.1)	(98.3)
Cash flow	4.8	37.0

 

 

Free cash flow increased by £58.9 million (115.9%) to £109.7 million in the period to 2 May 2021 and free cash flow conversion was 104.1% compared to 65.6% in the prior year.  In addition to the strong trading (Adjusted EBITDA increased by £27.3 million), a favourable working capital movement was achieved, £21.2 million higher than the previous year.  Working capital benefitted from the stores reopening in the UK in April 2021 compared to closure in FY20, with lower stock levels and higher creditors.  Free cash flow was used to repay all short term borrowings of £82.1 million.

 

In the prior year, £8.2 million of the interest payment related to 4.5 months of accrued interest for the listed bond, which was repaid on 4 June 2019 using the net proceeds from the IPO.

 

Expansionary capex of £21.2 million (after taking into account the associated creditors movement) was lower than the prior year due to the timing of capital projects due to UK lockdown; these projects have shifted into FY22 and are reflected in our guidance. 

 

Return on Capital Employed (ROCE)

 

	53 weeks ended  2 May 2021	52 weeks ended 26 April 2020
ROCE	19.7%	15.8%

 

ROCE increased by 390 bps from 15.8% to 19.7% in the period demonstrating improved capital efficiency.  This is as a consequence of Adjusted EBIT increasing by +38.9%, compared to the increase in average capital employed of +11.0%. 

 

 

Watches of Switzerland Group PLC

Preliminary results

For the 53 week period ended 2 May 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Registered number: 11838443