Boohoo Group plc (LON:BOO) has announced its interim results for the six months ended 31 August 2020.
| 6 months to 31 August 2020 | 6 months to 31 August 2019 | Change | |
| £ million | £ million | ||
| Revenue | 816.5 | 564.9 | +45% |
| Gross profit | 449.2 | 306.6 | +47% |
| Gross margin | 55.0% | 54.3% | +70bps |
| Adjusted EBITDA(1) | 89.8 | 60.8 | +48% |
| % of revenue | 11.0% | 10.8% | +20bps |
| Adjusted EBIT(2) | 79.0 | 51.3 | +54% |
| % of revenue | 9.7% | 9.1% | +60bps |
| Adjusted profit before tax(3) | 79.4 | 51.9 | +53% |
| Profit before tax | 68.1 | 45.2 | +51% |
| Adjusted diluted earnings per share(4) | 4.53p | 2.91p | +56% |
| Diluted earnings per share (2019 restated(5)) | 3.99p | 2.80p | +43% |
| Net cash(6) at period end | 344.9 | 207.3 | +137.6m |
Highlights
· Revenue £816.5 million, up 45% (44% CER(7))
· Strong revenue growth across all geographies and brands (UK: +37%; international: +55%, including US +83%). International now 47% of group revenue (2019: 44%)
· New customer acquisition in Q1 driven by pandemic’s impact on consumer behaviour
· Healthy customer KPIs with a continued improvement in share of wallet
· Acquisition of the remaining 34% minority shareholding in PrettyLittleThing
· Acquisition and integration of the Oasis and Warehouse brands, complementary additions to the group’s scalable, multi-brand platform
· Robust balance sheet with net cash of £344.9 million (2019: £207.3 million), healthy operating cash flow of £147.2 million (2019: £55.9 million) and net cash flow of £99.5 million (2019: £15.5 million)
· Non-participation in UK Government’s financial support schemes to support jobs and businesses
· Successful £198 million share placing to support future acquisitions
· Independent Review (“Independent Review”) of working conditions of supply chain in Leicester published. All recommendations accepted, improvements in supply chain governance to be robustly implemented in full
Guidance and current trading
Group revenue growth for the year to 28 February 2021 is expected to be 28% to 32%, up from approximately 25% as previously guided, with adjusted EBITDA margin for the year at around 10%, increased from the 9.5% to 10% as previously guided. The group has made a good start to the second half of the year, with momentum continuing into September. At this stage we feel it is prudent to continue to plan for a period of economic uncertainty in the second half of the financial year, including possible reduced consumer spending. It is also prudent to plan for return rates returning to normal levels, continued near-term carriage inflation in some of our overseas markets and increased marketing spend likely in the second half. Capital expenditure is expected to be higher than previously anticipated, in the region of £80 million to £100 million, reflecting the step-up of investments into automation at our Sheffield facility, further expansion of existing automation at the Burnley facility and significant IT projects to support the growth of the business and improve efficiency.
Our medium term guidance for 25% sales growth per annum and a 10% adjusted EBITDA margin remains unchanged.
John Lyttle CEO, commented:
“Our business, along with many others, has faced some of its most challenging times in recent months: the onset of the pandemic meant we had to adapt our operations with nearly all office-based colleagues working from home; we introduced new ways of working safely in our distribution centres; and we have comprehensively investigated reports on concerning and unacceptable working practices in our Leicester supply chain.
Immediately after the media reports regarding Leicester garment factories that supply the group, we commissioned an Independent Review, headed by Alison Levitt QC, to investigate the allegations of low pay and the extent of the group’s knowledge of the allegations, to establish the group’s compliance with the law and to make recommendations for the future. We published that report on 25 September and we have established a programme to implement the recommendations of the report to make substantive, long-lasting and meaningful change that all stakeholders in the boohoo group will benefit from. We will keep shareholders updated on our progress.
There are many challenges still ahead due to uncertainties posed by the COVID-19 pandemic, but despite these challenges there are many positives from our activities in the first half. The resilience of our business model and the commitment and flexibility of our colleagues and partners has enabled us to continue to operate our business successfully. We are grateful to all and pleased to be able to report a strong performance with continued high growth rates in revenue and strong profitability. We also acquired two new well-known women’s brands, Oasis and Warehouse, and we acquired the remaining minority interest in PrettyLittleThing, all of which will support our continued growth and profitability. The group has continued to gain market share in all key markets and we remain optimistic about the group’s prospects with the belief that it is well-positioned to continue making progress towards leading the fashion e-commerce market globally.”
Investor and analyst webcast
boohoo group plc will today host a video webcast for analysts and investors at 9.30am (UK time) via the following link:
https://webcasting.buchanan.uk.com/broadcast/5f60844783507b593b4677e3
A replay will subsequently be available from 12 noon via the same link.
boohoo group plc’s interim results 2020 are available at www.boohooplc.com
Review of the business
Group overview
Group revenue for the half-year increased by 45% (44% CER) on the first half of the previous year to £816.5 million (2019: £564.9 million). Revenue growth across all geographic segments and brands was strong.
Adjusted EBITDA was £89.8 million (2019: £60.8 million), an increase of 48% on the first half of the previous year, with slightly higher gross margins and reduced marketing helping to offset increased distribution costs across the group, leading to an adjusted EBITDA margin of 11.0% (2019: 10.8%). Profit before tax was £68.1 million (2019: £45.2 million), an increase of 51%. Adjusted diluted earnings per share was 4.53p, up 56% on the prior half-year. Basic earnings per share rose to 4.08p, an increase of 42% (2019 restated: 2.88p).
Cash generation was strong, with operating cash flow of £147.2 million (2019: £55.9 million). Net cash flow was £99.5 million (2019: £15.5 million), following significant capital expenditure of £27.1 million, the acquisition of the two new brands for £5.2 million and the acquisition of the remaining minority interest in PrettyLittleThing for £161.9 million. The share placing raised £195.7 million net of issue costs and £25.7 million was spent on the purchase of own shares for the Employee Benefit Trust. Our net cash balance at the period end increased to £344.9 million (2019: £207.3 million).
Our priority throughout the pandemic has been to ensure the safety of our colleagues, customers and partners by following government guidelines on safe working practices. We have been able to continue operating our facilities on this basis, which has kept the business functioning with the support of all parties involved. During this period, in light of its strong trading performance, the group made the decision to not take advantage of any of the UK Government’s financial support packages for businesses.
The group has continued to benefit from strong growth across all brands and geographies, as the convenience, pricing, product range and customer service resonated with consumers, even more so in these unprecedented times. New customer acquisition was significant in Q1 as consumers migrated to the safety of online shopping during lockdown. This has since trended towards more normal but strong levels in Q2 as lockdowns were eased. Customer return rates across all geographic regions have been lower than in the pre-pandemic period, although they are increasing and are expected to return gradually to normal levels in the second half of the year. Consequently, profitability in the first half has been improved because of the low returns rate.
Active customer numbers in the last 12 months increased by 34% to 17.4 million, with an exceptional increase in new customer acquisition in Q1 during lockdown. We have also seen a 10% increase in the number of items per basket, particularly in overseas markets, which we are attributing largely to the impact of the pandemic. Session growth has also been above prior period levels. Website conversion has decreased slightly from 3.26% to 3.09%.
The three brands that we acquired in the previous financial year, Miss Pap, Karen Millen and Coast, are growing well, with solid foundations being built to enable bright futures. In June 2020, we acquired a further two new women’s brands, Oasis and Warehouse, which have a great heritage and a strong following in the UK. Both brands started to trade on new websites from late July. We are excited about the potential of these new brands as they complement our successful and comprehensive, multi-brand platform.
The remaining 34% minority interest in PrettyLittleThing was acquired in May 2020, ahead of the original 2022 option-to-acquire date, for a combination of cash and shares with initial consideration £269.8 million, potentially rising to £323.8 million. PrettyLittleThing has traded well in the period and our expectation remains unchanged for the acquisition to be immediately significantly earnings enhancing on a fully diluted basis.
At the start of the financial year, we commenced a supplier compliance programme under the supervision of our Sustainability Director and in conjunction with compliance specialist, Verisio. The objective of this programme was to undertake a thorough mapping exercise of our UK supply chain, raise standards through an enhanced audit programme that would be ongoing in future years, and to look to replicate this in our overseas sourcing markets.
Following the allegations of supply chain malpractice in early July, the group took the decision to accelerate the UK compliance programme as well as launch an Independent Review of its supply chain, led by Alison Levitt QC. As part of our own review, the frequency and coverage of our regular, independently-operated supplier audits has increased to detect any instances of non-compliance and to work with suppliers on remedial action plans. This reflects our determination to continue to support Leicester factories to benefit the local community, its individual workers and the city, whilst continuing to provide a viable source of supply to the group.
The group has recognised that the progress in upscaling its supplier compliance function that began in late 2019 needs to be substantially improved and accelerated and, following the recommendations of the Independent Review, has established a programme of management, structural and procedural changes, some of which the group was already adopting. This agenda for change programme is comprehensive and includes independent oversight of the change agenda, the appointment of two non-executive directors, one of whom it is our intention shall be an individual experienced in dealing with Environmental, Social and Governance (ESG) matters, and embedding supply chain compliance at every board meeting through a new committee.
The group has recruited a Director of Responsible Sourcing to lead our compliance programme and to establish new buying principles including more predictable ordering to assist suppliers in load planning and to consolidate the number of Leicester suppliers. We will support this through publication of our UK supplier list later this year, and we will improve auditing control and supply chain compliance through the use of a software solution. We will also create a Garment and Textiles Community Trust to provide advice and support to garment workers in Leicester and set up our own manufacturing facility to showcase the best of British manufacturing.
Our business is founded on a test and repeat model, with the speed of our supply chain fundamental to its success. The group remains confident that it can successfully embed all of the Independent Review’s recommendations into its business model, without impacting lead times or financial expectations.
We will consolidate volumes, place more consistent order flows and focus on working to achieve best practice with suppliers. Taken with the continued growth in the scale of our business, the group remains well-positioned to lead the fashion e-commerce market in the future and successfully implement an agenda for change in UK garment manufacturing.
Performance by market
UK
The group’s largest market continues to be the UK, accounting for 53% of group revenues (2019: 56%). Growth of 37% was strong across all brands, with the three new brands acquired in the prior year augmenting this growth as they build from a low base. Our multi-brand strategy continues to enable us to gain market share in the UK, through our compelling consumer proposition.
Gross margin increased from 50.3% to 52.1%, supported by a small increase in basket size and a strong product offering. During the lockdown period, we increased the offering of activewear, loungewear and tops, reacting quickly to the changes in demand from home working, which was highly successful. Returns have been lower than in the previous half-year, due to a different mix of product and consumer behaviour during the pandemic. Online shopping clearly benefitted from the lockdown, with strong customer growth continuing, and, with a prudent strategy to reduce marketing costs as a percentage of sales, we were able to achieve improved profitability in the first half. The convenience of our comprehensive range of customer payment options has also added to customer growth and purchase frequency.
Rest of Europe
Performance in the Rest of Europe was pleasing, despite the disruption to distribution caused by the restriction of movement, which impacted on carriers in a number of countries. Revenue growth of 41% to £123.7 million was good across all brands and all major countries, with exceptional growth rates from boohooMAN and NastyGal, particularly in Q1, resulting from the effectiveness of increased marketing and consumers’ shift to online shopping during lockdown. Return rates have been significantly lower than in the previous half-year, although they have been gradually returning to normal levels as time progressed during Q2. Gross margin declined slightly from 57.9% to 57.8%.
USA
Growth in the USA has been especially strong as the brands’ momentum builds and market share increases. PrettyLittleThing and boohooMAN continued their exceptional growth, and with all brands supported by the success of social media outreach and the compelling customer proposition, group revenue increased by 83%. Return rates have also been significantly lower than in the previous half-year.
Gross margin declined from 61.9% to 59.3%, driven by increased promotional activity directed at successfully gaining market share. The increase in basket size has partially offset the rise in distribution costs caused by the pandemic’s impact on carrier capacity. We expect higher distribution costs to continue for some time to come until there is a resumption of a more normal level of air traffic. New customer acquisition has been exceptional in Q1, with Q2 returning to strong growth.
Rest of world
Rest of world growth was 17%, whilst gross margin declined slightly from 55.7% to 55.3%, a small reduction given the challenging conditions in overseas territories brought about by the pandemic. Reduced airfreight capacity caused by the pandemic also increased distribution costs to the more distant markets, which is expected to continue into the second half of the year.
COVID-19
The group is continuing to monitor and implement government advice on safe working conditions in all its facilities in the UK and overseas offices so that all our colleagues are kept safe and can continue to work effectively to enable the business to operate. These measures have included office staff continuing to work from home, with limited rotational workplace visits, and warehouse staff on staggered starting and break times. The group is maintaining a rigorous control over its finances so that it is able to react rapidly to developments, but to date it has not been necessary to call upon any government support. The substantial cash resources of the group and the continuing successful trading during the pandemic are not placing any strain on the group’s financial stability at the present time, although we are keeping developments under constant review.
Independent Review
We have published the Independent Review in full on our website at www.boohooplc.com/newsroom. The board is wholly supportive of Ms Levitt’s recommendations and intends to implement these in full. Our actions to implement the recommendations are outlined in detail in our RNS announcement of 25 September 2020 and are categorised under: corporate governance; redefining our purchasing practices; raising standards across our supply chain; supporting Leicester’s workers and workers’ rights; support for suppliers; and demonstrating best practice in action.
Our action plan is focussed around a significant re-engineering of our supply chain compliance function, with an enlarged department supervised and led by a newly created executive function. A new board committee and a supply chain compliance agenda will become a mandatory item on every board meeting agenda with immediate effect.
Corporate governance
The group will also strengthen its corporate governance functions: two new non-executive directors will be appointed to re-establish a majority of non-executives on the board and one of these will be fulfilled by an individual with Environmental, Social and Governance expertise. At the board level, we have also recently constituted an additional board committee, the Risk Committee, to enable better identification and closer monitoring of the risks we face as a business. Reporting into the Risk Committee will be a new Supply Chain Compliance Committee, comprised of recognised cross-sector experts, and headed up by our new Group Director of Responsible Sourcing.
In addition, a well-respected, high profile individual will be appointed to provide independent oversight of the implementation of the Independent Review’s recommendations.
