CMO Group Plc

("CMO" or "the Group")

Trading Update

CMO Group PLC, the UK's largest online-only retailer of building materials, today announces an update on trading for the period up to 31 October 2022 and its expectations for the full year. 

Since reporting its interim results on 30 September 2022, the Group has continued to achieve sales growth in H2 to £29m (period to date, excluding carriage), 15% over the same prior year period and LFL sales of +5%, despite the ongoing challenging macro-economic climate. Encouragingly, the Group continues to build market share, further disrupting the traditional building products market.

Stock valuation revisions at Total Tiles

As part of its ongoing and periodic stock reconciliations, the Company has identified an isolated issue, resulting from human error, in cost and consequent pricing update procedures carried out at Total Tiles. This resulted in miscalculation of the stock valuations at Total Tiles at the half year and, consequently, an overestimation of achievable margins in this business during the second half.

Following thorough investigation, the Board has concluded that the required revisions to the Total Tiles stock valuations will result in a c.£0.7m reduction in FY22 EBITDA. It is expected that the majority of this one-off adjustment will impact H2 2022 EBITDA, with a £0.2m reduction in H1.

Swift action was taken upon identifying this issue and an improvement plan has been implemented to rectify the issues caused, which is expected to improve margins going forward. The changes include a correction to the cost and retail prices of Total Tiles products, a new purchasing team, and appropriate changes to our operations to ensure that this is an isolated occurrence, and the situation cannot recur.

Balance Sheet

Cash balances at the end of November of £5.5m. The year-end cash balance is anticipated to be c.£5m, with a forecast net cash position of c.£0.2m and an undrawn working capital facility of £4m, providing the Group with a sound funding position.

Current trading and outlook

The ongoing macro-economic headwinds mean that although revenue in the year to date is running ahead of last year's comparative period, we do not expect fulfilment of the order book to unwind at the usual pace in the balance of the year because of stock availability and customers extending the completion times of their projects. Further, changes in customer buying patterns have shifted some product sales to lower margin categories. We anticipate this trend continuing as the market adapts to the cost-of-living challenges.

We have therefore, when taking into account these trends in consumer behaviour towards lower margin product mix and the impacts of the macro-economic situation, coupled with the one-off cost of the stock revaluation at Total Tiles, revised our expectations for the full year. FY22 Adjusted EBITDA is now expected to be in the region of £2.2m, with expected revenues of approximately £84m.

Our strategic growth projects of brand evolution, the homeowner project and development of a new superstore vertical are all progressing well and are on budget and to schedule. CMO remains a profitable growth company, backed by its unique proposition of direct sales to customers, a product range of over 100,000 SKUs and an efficient direct service through its dropship model which will enable the Group to continue to disrupt the traditional market and drive further growth.

Dean Murray, CEO of CMO Group PLC said:  

"While the one-off revision in stock valuation in our Total Tiles operation is frustrating, it is an isolated issue which the Board has taken immediate and decisive action to rectify.

We have a differentiated and proven model which continues to take market share. We have also continued to grow sales across the Group in the second half, further underlining the success of our pure play online model in disrupting the marketplace.

Whilst we remain mindful of the economic backdrop, we are confident that both individuals and tradesmen will continue to become ever more digitally savvy and that our proposition will continue to gain traction"

2 December 2022