7 July 2022

 

Watches of Switzerland Group PLC

FY22 Results

for the 52 weeks to 1 May 2022

 

Record sales and profits; revenue +40%¹ and Adjusted EBIT² +68%

Performance driven by strength of model, good market conditions and international development.  Strong start to FY23 with waitlists extending.

 

Brian Duffy, Chief Executive Officer:

 

"This has been a tremendous year for the Group, producing record sales and profits. It is particularly pleasing to have delivered this performance against such strong prior year comparatives, with the expertise and dedication of my colleagues proving invaluable.

 

"We are undoubtedly operating in a growing segment, but it is our distinctive and proven business model, the strength of our brand partnerships, our international scale, our bold marketing campaigns and our dedication to client service which sets us apart. Taken together, these inherent strengths have seen us attract new consumers and continuously gain market share, strengthening our position as the destination for luxury watches and luxury jewellery.

 

"Our sustained capital investment has continued to support our growth plans. We have seen a strong performance from our recently opened and refurbished showrooms in the UK and US, and we have big plans for our European business. In addition, I am pleased that a year on from launch, we have donated £4.5 million to The Watches of Switzerland Group Foundation, in order to support the communities in which we operate.

 

"We enter FY23 with strong momentum with consumer demand continuing to outpace supply, and within this environment, we are benefitting from our strength both in showrooms and online.

 

"Watches of Switzerland is uniquely positioned within a large and growing market, and we look to the future with confidence as we focus on capitalising on the considerable sustainable growth opportunities available to us."

 

FY22 Financial Highlights

 

Revenue performance by geography

 

£ million	52 weeks ended 1 May 2022	53 weeks ended 2 May 2021	YoY change 52 vs 53 week reported basis	Constant currency excluding FY21 53rd week YoY%
UK	810	606	34%	36%
US	428	299	44%	48%
Group revenue	1,238	905	37%	40%

 

Other key metrics

 

	52 weeks ended 1 May	53 weeks ended 2 May	YoY change 52 vs 53 week
£ million	2022	2021	Reported basis
Adjusted EBITDA2	162	105	54%
Adjusted EBITDA margin	13.1%	11.6%	+150bps
Adjusted EBIT2	130	78	68%
Adjusted EBIT margin	10.5%	8.6%	+190bps
Adjusted basic EPS2 (p)	41.8	23.8	76%
Statutory operating profit	142	82	74%
Statutory operating margin	11.5%	9.1%	+240bps
Statutory profit before tax	126	64	98%
Statutory basis EPS (p)	42.2	21.1	100%
Free cash flow2	112	110	2%
Return On Capital Employed2	27.4%	19.7%	+770bps
Net debt2	14	44	+£30 million

 

·      The Group delivered record sales in FY22, with revenue up 40% on a constant currency basis and excluding the FY21 53^rd week:

§ Continued strong demand for luxury watches and luxury jewellery

§ Average selling price (ASP) growth across brands

§ Group ecommerce sales grew a further 5%¹ on prior year (up 128% vs FY20)

§ Good progress with store expansion and refurbishment programme

·      Adjusted EBITDA² increased 54% to £162 million. Adjusted EBITDA margin up 150bps to 13.1% benefitting from favourable product mix and operational leverage

·      Adjusted EBIT² increased 68% to £130 million with Adjusted EBIT margin up 190bps to 10.5%

·      Expansionary capex³ of £41 million (FY21: £21 million) including 18 new showrooms opened and 17 refurbishments

·      Return on Capital Employed² up 770bps to 27.4% demonstrating improved capital efficiency

·      Strong balance sheet with net debt² down £30 million to £14 million as at 1 May 2022

 

Group Highlights

·      Growth underpinned by strength of position as the destination for luxury watches and luxury jewellery

·      Consistent investment in marketing, stores, systems and people has driven growth

·      FY22 luxury watch sales +36%¹ on last year, with demand for luxury watches continuing to be strong in both the UK and US, consistently exceeding supply

·      FY22 luxury jewellery sales +86%¹ on last year, reflecting a strong market, continued improvement in ranging, incremental growth from the Betteridge acquisition and the opening of our first BVLGARI mono-brand boutique

·      Xenia, the Group's elevated client service programme, launched in all showrooms

 

US Highlights

·      Outstanding and broad-based growth in the US with revenue £428 million, +48%¹ vs FY21

o  Further investment in showroom network, including opening of our flagship Watches of Switzerland in Kenwood Towne Center, Cincinnati, Ohio

o  The year ended with 23 multi-brand showrooms (FY21: 17) and 17 mono-brand boutiques (FY21: 13) in the US

o  Investment in pre-owned and vintage business Analog:Shift including a new website, new office in New York and enhanced marketing

o  US ecommerce is performing well with significant year on year growth driven by expanded brand offerings, dedicated inventories, and marketing investment

o  Completed the acquisition of a showroom anchored by Rolex in New Jersey on 22 June 2022

 

UK Highlights

·      Excellent UK performance with revenue £810 million, +36%¹ vs FY21

o  Sales driven through our multi-channel approach supported by digital marketing

o  Continued investment in our showroom network including the introduction of Goldsmiths Luxury concept to seven showrooms and the rollout of a further 12 mono-brand boutiques

o  We ended the year with 93 multi-brand showrooms (FY21: 98) and 38 mono-brand boutiques (FY21: 26)

 

Europe Highlights

·      Expansion into Europe commenced

o  Opened one mono-brand boutique with Breitling in Stockholm in June 2022

o  Secured a further five mono-brand boutiques in Sweden, Denmark and Republic of Ireland which will open in FY23

 

Environmental, Social and Governance (ESG) Highlights

·      ESG Board Committee established and Head of ESG appointed

·      Committed to Net Zero emissions by 2050 and have set near-term reduction targets aligned to 1.5°C in line with the Paris Climate Agreement

·      Invested in our pre-owned business and repairs and aftersales service contributing to a more circular economy

·      Launched The Watches of Switzerland Group Foundation with a £4.5 million donation (£1.5 million was accrued in FY21) to support vulnerable people living in poverty within our communities

·      Awarded all colleagues a stake in the long-term success of our business with a gift of 50 free shares, supported by the option of investing in a Share Save scheme

________________________

 

¹ Revenue growth metric presented on a constant currency basis excluding the FY21 53rd week.

² This is an Alternative Performance Measure and is shown on a pre-IFRS 16 basis. Refer to the Glossary for definition, purpose and reconciliation to statutory measures where relevant.

³ Refer to the Glossary for definition and reconciliation to statutory measures where appropriate.

⁴ Luxury watches are defined as those that have a Recommended Retail Price greater than £1,000.

⁵ Luxury jewellery is defined as those that have a Recommended Retail Price greater than £500.

 

 

Outlook and Guidance

·      The Group enters FY23 with strong momentum and anticipates that disruption from the pandemic is now largely behind us with ongoing recovery in footfall and airport traffic

·      Whilst we are cognizant of the wider macro-economic environment, we believe that the strength of the luxury watch category, with unique supply/demand dynamics, together with the success of our model will continue to support sustainable strong sales growth

·      Our FY23 guidance reflects current visibility of supply of key brands and confirmed showroom refurbishments, openings and closures and excludes uncommitted capital projects and acquisitions

 

·      The Group reiterates the following guidance on an organic pre-IFRS 16 basis:

o  Revenue:                       £1.45 - £1.50 billion

o  Adjusted EBITDA %:     flat to +0.5%

o  Depreciation:               £33 - £35 million

o  Adjusted EBIT:              £157 - £169 million

o  Total finance costs:      c£4.5 million

o  Underlying tax rate:    21.5% - 22.0%

o  Capex:                            £70 - £80 million including new offices in the UK

o  Year-end net cash:      £35 - £45 million

The equivalent guidance on an IFRS 16 basis is:

o  EBIT:                               £172 - £184 million

o  Depreciation:               £79 - £83 million

o  Total finance costs:      £18 - £21 million

 

FY22 Results Conference Call

A webcast conference call for analysts and investors will be held at 9.00am (UK time) today to announce the FY22 results. To join the call, please use the following details:

 

Webcast link: https://stream.brrmedia.co.uk/broadcast/62b9b1c171203e42c1fbf6c4

United Kingdom (Local): +44 (0)330 165 4012

Participant Access Code: 7712409

 

Contacts

The Watches of Switzerland Group

Bill Floydd, CFO                                                                                                                                  +44 (0) 207 317 4600

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

investor.relations@thewosgroup.com

 

Headland

Lucy Legh / Joanna Clark / Will Smith                                                                                              +44 (0) 203 805 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 five prestigious brands; Watches of Switzerland (UK and US), Mappin & Webb (UK), Goldsmiths (UK), Mayors (US) and Betteridge (US), with a complementary jewellery offering.

 

As at 1 May 2022, the Watches of Switzerland Group had 171 showrooms across the UK and US including 55 dedicated mono-brand boutiques in partnership with Rolex, OMEGA, TAG Heuer, Breitling, TUDOR, Audemars Piguet, Grand Seiko, BVLGARI and FOPE and has a leading presence in Heathrow Airport with representation in Terminals 2, 3, 4 and 5 as well as seven retail websites.

 

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

 

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

 

 

https://www.thewosgroupplc.com

 

Chief Executive Officer's Review

Looking back on FY22, our teams did an outstanding job, delivering Group revenue of £1,238 million, +40% in constant currency and excluding FY21's 53^rd week. Profitability was also strong with Adjusted EBIT² of £130 million, +68% on the prior year and Adjusted Profit Before Taxation² of £127 million, +76%.  We generated strong cash flow, a record level of Return on Capital Employed² of 27.4% and closing net debt² of £14 million as at 1 May 2022 (2 May 2021: £44 million).

 

FY22 is the third year for the Watches of Switzerland Group reporting on the London Stock Exchange as a public listed company. All three years were impacted significantly by the pandemic through showroom closures, reduced traffic or supply disruption. Despite these challenges our Group delivered increased sales of +62% at a CAGR of +17% (in constant currency) between FY19 and FY22.  Adjusted EBIT² has grown by +152% over that same period. Our advanced technology, our multichannel approach, our in-house resources and, more than anything, our team's motivation and creativity allowed the Group to respond positively to disruption and optimise our results for the benefit of our clients, brand partners and shareholders. During this time, we actively pursued investment opportunities for new showrooms, refurbishments, and acquisitions in addition to increased marketing, particularly digital, to support our growing business. The above sales CAGR was achieved despite the loss of international sales (tourist and airport) which represented 33% of sales in FY19 and 3% in FY22.  Our performance, despite the disruption experienced during the pandemic, gives us confidence in the strength of the market and the resilience of our business model. We are well on our way to deliver against our Long Range Plan, shared with the Market in July 2021.

 

Our Group provides the largest selection of luxury watches covering a wide range of prices and consumer preferences, including the largest and best known brands alongside smaller independent brands.  We stock confidently, which provides our clients with a greater width and depth of availability.  Our merchandising approach underpins our positive watch sales momentum in FY22.

 

Luxury jewellery also had an exceptional year, with sales +86%¹ on last year, reflecting a strong market, improved ranging and incremental growth from the Betteridge acquisition and the opening of our first BVLGARI mono-brand boutique in Miami, Florida.

 

This year saw the launch of our Xenia Client Experience Programme in all our showrooms.  We see this as a market-leading programme, which will lift our interactions with our clients to new levels.

 

We were really pleased with the performance of ecommerce this year, with Group sales for FY22 +5%¹ on last year, when our showrooms were closed for approximately 26 weeks during the pandemic. On a two-year comparison basis, sales were up +128% on FY20.  We have had great success with our Luxury Watch and Jewellery Virtual Boutique, which was launched during pandemic lockdowns and which we are expanding. The Luxury Virtual Boutique bridges the gap between online and showrooms, offering unparalleled client service in the industry under a truly multi-channel approach.

 

We have also commenced our journey of expansion into the European market, which begins with six mono-brand boutiques in Stockholm, Copenhagen, and Dublin in FY23. 

 

I am also proud of the progress we are making on ESG. Our ESG Committee was established in the year and we have made great strides in developing our strategy, targets and commitments. Additionally, the Watches of Switzerland Group Foundation was also launched, the aim of which is to provide essential support to charities located in the communities within which we operate, focusing on poverty, the advancement of education and relief to those in need in both the UK and the US.  The Foundation is managed by a Board of Trustees, the majority of whom are independent, which I personally chair, and the Group donated £4.5 million in the year (£1.5 million of which was accrued in FY21).

 

Looking ahead, our FY23 guidance issued on 18 May 2022 projects sales between £1.45 - £1.50 billion and Adjusted EBIT of £157 - £169 million.  Our projections assume no further lockdowns in the UK, the US and Switzerland, and only includes committed projects.  We closed FY22 with net debt of £14 million and project that we will have net cash of between £35 - £45 million by the end of FY23.  This assumes capex of £70 - £80 million, including new offices in the UK.

 

Finally, I am delighted to welcome our new CFO, Bill Floydd, who joined the Group in January 2022, bringing with him a wealth of financial and listed company experience. I look forward to working closely with him over the coming years. I would like to thank Anders Romberg for his help and support over the past seven years, we wish him every success for the future.

 

UK and Europe

UK

The UK business bounced-back from the pandemic year strongly, with UK sales of £810 million + 36%¹ on last year. This sales performance was driven by strong demand across both luxury watches and luxury jewellery.  Luxury watch sales were +33%¹ on last year and luxury jewellery sales were +71%¹, reflecting a strong post-pandemic consumer appetite for these products.

 

This was a busy year for showroom developments; we rolled-out our Goldsmiths Luxury concept to seven showrooms (Canterbury, Reading, Braehead, Brighton, Lincoln, Leeds White Rose and Leicester).  The Goldsmiths Luxury design concept provides a modern, contemporary, browsable space with a focus on hospitality.   We have seen positive results in terms of client feedback and significant sales uplifts from these showrooms following the renovations. The enhancement of our showroom network also extends to non-Rolex anchored showrooms where we have created a new design concept.  A further seven showrooms will be converted to the Goldsmiths Luxury concept during FY23.  The elevation of our showroom portfolio does not end with Goldsmiths, we are also developing our Watches of Switzerland and Mappin & Webb showrooms, with a number of projects planned.

 

We have continued to expand our mono-brand boutique footprint opening a further 12 mono-brand boutiques across the UK. Plymouth, a new city for us, showcased our first triple mono-brand boutique, with each brand standing side by side and sharing back of house facilities.  The mono-brand boutique concept continues to allow us to provide a superior presentation of brands, which in turn increases our market share.  We have a further ten mono-brand boutiques contracted for FY23.

 

We are excited to have relocated and upgraded our Mappin & Webb showroom in the historic town of Chester.    During the year, we also refurbished a further five showrooms, including two of the ex-Fraser Hart stores and our Mappin & Webb showroom on Regent Street, London.

 

The next year financial year will see the opening of our new Battersea showroom in the renovated old power station.  As well as this Watches of Switzerland showroom, we are opening another four mono-brand boutiques including a Breitling boutique with a Breitling café, a first for the UK.

 

We ended the year with 93 multi-brand showrooms and 38 mono-brand boutiques in the UK.

 

Throughout the year, we continued our investment in performance marketing, which was successfully executed across a combination of channels.  In addition to the digital activity, we have supported activity with traditional media as well as giving our colleagues in showrooms clienteling guides to enable one-on-one reach out. 

 

In FY22, our colleagues and clients were delighted to be able to host in-person events once again.  Working with our brand partners, this year's event series ranged from intimate, unique client experiences and dinners, through to showroom exhibitions and new launches, showing our appreciation to clients for their ongoing loyalty and encouraging clients back into our showrooms. 

 

Europe

The team has been working hard on our entry into the European market.  Six mono-brand boutique opportunities have been secured in Stockholm, Copenhagen and Dublin.  Our first European opening took place in June 2022, with our Breitling mono-brand boutique in Stockholm, and the remainder are planned to open during FY23.  Significant market research has been performed and we look to extent our mono-brand boutique model into other countries in the years that follow.

 

We have further built on our leadership position in the UK and are well positioned to continue to invest for further growth in this market alongside commencing our European journey.

 

"I am delighted with the success of our UK division throughout FY22. We positively delivered strong sales growth across both luxury watches and jewellery, and in turn we focused on the growth of our domestic client base. We continued the development of our digital first approach to marketing subsequently driving awareness, conversion and sales.  Our enhanced showroom development programme across our network, with specific focus on mono-brand boutiques, new showrooms and the elevation of our Goldsmiths brand was all delivered successfully."

 

Craig Bolton, President UK & Europe

 

US

US sales of £428 million were +48%¹ on last year.  Luxury watch sales growth was +43%¹ on the prior year, this significant growth was very broad based with all brands performing excellently.  Luxury jewellery growth has also been impressive at +130%¹, boosted by the strong market, the relaunch of our luxury jewellery in our Mayors showrooms, the acquisition of Betteridge and the opening of a BVLGARI mono-brand boutique.

 

In September, October and December 2021, we successfully executed three acquisitions totalling five showrooms. These new showrooms in Minneapolis Minnesota, Plano Texas, Greenwich Connecticut, Vale and Aspen Colorado, extend our showroom estate into four new US States.  These showrooms bring with them a very strong portfolio of luxury watch agencies and in the case of Betteridge, strong high value jewellery expertise. We are pleased with the performance of these showrooms and have welcomed new colleagues to the wider Watches of Switzerland family.

 

Following the year end, we also completed the acquisition of one Rolex anchored multi-brand showroom in New Jersey on 22 June 2022.

 

There has been lots of development activity in the US, across multi-brand showrooms and the expansion of our mono-brand boutique networks. In March 2022, we opened our new Watches of Switzerland showroom in Kenwood Towne Centre, Cincinnatti Ohio.  This marks our first showroom in Ohio, which was also anchored by Rolex.

 

Refurbishment of our existing estate was a key priority in the year. Four showrooms were refurbished or expanded, which included our Rolex mono-brand boutique in the Wynn Resort, Las Vegas, Mayors Aventura in Miami, Florida, Mayors Millenia Mall in Orlando, Florida and Mayors Boca Raton, Florida. To date we have refurbished half of the Mayors estate acquired in 2017 and have been delighted by the performance of these showrooms post investment.

 

This was a year of firsts for US mono-brand boutiques, demonstrating our strong partnership with luxury watch and jewellery brands.  We opened our first TUDOR boutique in the US at the Millenia Mall, Orlando and our first ever BVLGARI mono-brand boutique in Aventura, Miami.  The boutique also includes one-of-a-kind high jewellery exclusive to this location. Following the success of the Grand Seiko "pop-up" we had last year, this is now a permanent feature through a mono-brand new boutique in New York.  We have also continued our strong relationship with Breitling, opening a mono-brand boutique in Short Hills, New Jersey.  This boutique joins our portfolio of Breitling mono-brand boutiques in Nashville, Tennessee and San Jose, Philadelphia.

 

We ended the year with 23 multi-brand showrooms and 17 mono-brand boutiques in the US.  We now operate in 14 states in the US.

 

We have an exciting pipeline of projects for FY23, including the opening of our flagship Watches of Switzerland showroom in American Dream, New Jersey. This showroom will be anchored by both Rolex and Cartier. Our Mayors refurbishment programme continues with a further three showrooms in Florida and we will continue to expand our mono-brand boutique network with a further nine boutiques.

 

Since our acquisition of Analog:Shift last year, our vintage and pre-owned proposition has gone from strength to strength. During the year, we rebranded Analog:Shift, extended showroom distribution, launched a new transactional website and invested in a new office space which includes hospitality for clients. We have also invested in pre-owned product and with the success of the dedicated Analog:Shift space in our Watches of Switzerland Soho showroom, introduced a similar concept to our newly refurbished Mayors at Millenia showroom and our newly acquired Watches of Switzerland showroom in Plano Texas.  As we refurbish and expand our multi-brand showrooms, we will look to include Analog:Shift where we see market opportunity.  Analog:Shift also helps support the circular economy through expanding the life of luxury watches.

 

The marketing focus for the year was on driving brand awareness with investment in performance marketing, social media, visual merchandising, events, private clienteling, traditional advertising and PR.

 

FY22 saw the launch of "Anytime. Anywhere.", a ground-breaking advertising campaign featuring eight leading brand partners including OMEGA, TAG Heuer, Breitling, Grand Seiko, MB&F and Ulysse Nardin.  

 

The year also saw a return to in-person events providing exceptional client experiences such as invites to our customised "Anytime. Anywhere." Airstream which served as a multi-branded retail location throughout the summer at its residency in the Hamptons, New York, through to a partnership with Longines at the Hamptons Classic Horse Show.  We also partnered with Rolex to create an off-site event celebrating the Spring release of the Rolex Novelty Collection. 

 

In March 2022, we unveiled a limited-edition milestone watch with DOXA.  James Lamdin, Director of Vintage and Pre-owned, worked with DOXA to create the special new Watches of Switzerland limited edition of the DOXA Army watch.  Watches of Switzerland is the exclusive distributor for DOXA in the US.

 

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.

 

"At the Watches of Switzerland Group, we continue with our multi-channel approach. The client ultimately decides their shopping preference. We are delighted to open our first BVLGARI and TUDOR mono-brand boutiques adjacent to our newly refurbished Mayors showrooms in Aventura and Orlando respectively.  Our newly refurbished Rolex mono-brand boutique in the Wynn Resort, Las Vegas elevates our presence in Las Vegas even further."

 

David Hurley, President North America & Deputy CEO

 

Group Strategy Delivering Outstanding Results

 

The Group delivered an outstanding sales and profit performance during FY22, while delivering against the strategic priorities laid out in our Long Range Plan to FY26, issued in July 2021. 

 

In recognition of our commitment to ESG matters, we have now added to our strategic priorities a commitment to continue to advance our ESG agenda.

 

Within the framework of our seven strategic priorities, we made significant progress through elevated levels of investment and focus on further developing our client-centric business model. 

 

1) Grow revenue, profit and return on capital employed

               

Against a backdrop of more normalised trading patterns, with our showroom network being open throughout the year, we spent £41 million of expansionary capex to both further enhance and build out our showroom portfolio, in the UK and the US.  

 

During the year, projects included:

 

UK

·      Introduction of Goldsmiths Luxury concept in seven showrooms

·      Relocation and upgrade of our Mappin & Webb showroom in Chester

·      Further development of the showroom network with five refurbishments across the estate, including two of the ex- Fraser Hart stores and one new Goldsmiths showroom in Edinburgh St James

·      Opening of 12 mono-brand boutiques in the UK

 

US

·      Opening of our new Watches of Switzerland showroom in Cincinnatti, Ohio.  The showroom is anchored by Rolex and features prestigious luxury brands such as Cartier and TUDOR

·      Refurbishment and expansion of Mayors Aventura

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

·      Expansion of the US mono-brand boutique footprint with four new boutiques, including our first BVLGARI, TUDOR and Grand Seiko mono-brand boutiques

 

These showroom development projects were achieved while the Group continued to adhere to its strict capex payback metrics.  Prior to entering into any lease agreement, we confirm brand support for the project.

 

The US online platforms for Watches of Switzerland and Mayors were upgraded and a new platform for Analog:Shift implemented.  We continue to invest in growing our US online business.

 

US Acquisitions

During the year, we purchased five showrooms through three separate acquisitions.  These showrooms provide the Group entrance into four new states with locations in Plano (Dallas), Texas; Vail and Aspen, Colorado; Greenwich, Connecticut and Minneapolis, Minnesota. These showrooms come with an impressive portfolio of luxury watch brands.  We have plans to expand and refurbish these showrooms over the next few years.  The total consideration for these acquisitions was £48 million and had combined annual sales of c.$100 million under their previous ownership.

 

Following the year end, we completed the purchase of one Rolex anchored showroom in New Jersey on 22 June 2022.

 

Future pipeline

We will continue to invest in our showroom portfolio in the UK and US and have an exciting pipeline of future projects, including:

 

·      A new Watches of Switzerland showroom in Battersea, London, alongside mono-brand boutiques

·      Opening of our new Watches of Switzerland flagship showroom in the American Dream complex, New Jersey

·      Continued roll out of Goldsmiths Luxury with a further seven elevated showroom formats

·      One further showroom to be refurbished in the Mayors network in Florida

·      Expansion of the portfolio in the UK and US with a further 19 mono-brand boutiques

 

European expansion

In our Long Range Plan, we discussed our strategy to enter into the European market.  Significant progress has been made in our European entry and FY23 will see the following:

 

·      Opening of three mono-brand boutiques in Stockholm, Sweden

·      Two new mono-brand boutiques in Copenhagen, Denmark

·      One mono-brand boutique in Dundrum Dublin, Republic of Ireland

 

2) Enhance strong brand partnerships

Our strong and long-standing relationships with the most recognised and prestigious luxury watch and jewellery brands have remained a point of distinction. These relationships have been forged over many years, but also include new relationships with exciting brands. This year saw the first physically held Watches and Wonders event in Geneva, which was a fantastic opportunity to reconnect with the brands in person and view their exciting new products.

We continue to open new boutiques anchored by Rolex such as Watches of Switzerland Battersea and American Dream, New Jersey, which are due to open in FY23. 

We have also expanded our mono-brand boutique network, with the support of brand partners, which includes the entry into the European market in FY23. We now have mono-brand boutique relationships with Rolex, Audemars Piguet, OMEGA, TAG Heuer, Breitling, TUDOR, Grand Seiko, BVLGARI and Fope.

This year saw us further develop our partnerships with luxury jewellery brands. This included the opening of our first BVLGARI mono-brand boutique and the hosting of our High-End Jewellery events in the US. These events were partnered with GUCCI, Messika and Uneek where we accessed first to market jewellery pieces.

We are also proud to have launched Watches of Switzerland Group exclusives with Breitling, DOXA, Girard-Perregaux, Grand Seiko and Hublot and 'first to market' with Jaeger-LeCoultre, Longines, Panerai, Rado and Tissot.

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

Our colleagues within our showrooms and Luxury Virtual Boutique are watch and jewellery experts and much of this comes from the collaboration and investment with the brands on significant training programmes.

3) Deliver an exceptional client experience

 

Our showrooms remain a cornerstone of our multi-channel offering. They are designed to appeal to a broad audience and make our clients 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.

To further elevate our client experience, this year saw the launch of Xenia, our internal Client Experience Programme, which takes inspiration from the world of luxury hospitality.  The programme was named Xenia - an ancient Greek concept of hospitality typically translated as 'guest-friendship' or 'ritualised friendship' - and internally transformed into "Xenia - The Art of Hosting".

We have also seen a continued success with our Luxury Watch and Jewellery Virtual Boutique, which was launched during the pandemic lockdowns. The Luxury Virtual Boutique bridges the gap between online and showrooms, offering unparalleled client service in the industry under a truly multi-channel approach.  Fully trained colleagues assist online clients with their purchases or setting up appointments within our showrooms.  We also have watch valuation experts who are able to assist in pre-owned trade ins or purchases.  This year we have increased the number of Luxury Virtual Boutique colleagues from ten on launch to 31 and have plans to extend further to c45 in FY23.

In the UK, we continued to develop and enhance our client experience through our online appointment system, 'By Personal Appointment' accounting for approximately 45% of our UK sales during the period.  Appointments can be pre-booked by either clients or colleagues, in-store, by phone, or with video conferencing.  The 'By Personal Appointment' service allows colleagues to get to know what the client would like to see prior to the appointment and therefore provides an opportunity to enhance the overall experience.  It also allows colleagues to discuss as a team, the client appointments for the day and how they can support each other to deliver an exceptional client experience.

We measure client satisfaction through a variety of tracking methods in the UK and the US including Net Promoter Score (NPS) via our 'Voice of the Client' survey in the UK, Trust Pilot, Mystery Shops and Podium. In the UK, our NPS score remained over 80% whilst in the US, we use Podium to measure in-store experiences and received a rating of 4.9 out of 5.0. Our Trust Pilot score across all our brands average 4.5 out of 5.0.  We also undertake a mystery shopping programme to ensure consistency of our luxury service offering and this year also introduced elements to the mystery shop programme to measure our development of the Xenia Client Experience Programme. Consisting of physical showroom 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 to enhance the client experience, through several dedicated service centres, including the National Watch Service Centre in Manchester, complemented by 12 watch workshops located in showrooms in the UK and in the US, the HQ service centre in Fort Lauderdale, Florida as well as eight additional workshops located in showrooms. The capacity in the primary centres in both the UK (Manchester) and the US (Fort Lauderdale) has recently been expanded.

Client experiences continue to be an important part of our strategy, whether that be intimate dinners with our clients, events to celebrate product launches, or sporting events, we focus on ensuring we give our clients exceptional experiences.  In the US in FY22, we also saw an elevated strategy to private clienteling through one-on-one appointments which were focused on the high-net-worth clients.  Through these elegant hospitality moments, clients were able to view new and exclusive product with a concentration on high jewellery pieces and custom curated timepiece pairings.

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

 

UK

 

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 a broad luxury audience, underpinned by bold, impactful creative and innovative bidding strategies. The campaign showcased a breadth of range across men's, women's, and icons, reinforcing the Group as the leading destination for luxury watches in the UK. This activity was complemented by seasonal jewellery content campaigns for Goldsmiths and Mappin & Webb, in total generating 5.7 billion impressions and 125 million views.  As the UK pandemic-related restrictions eased, we launched local campaigns with enormous success which had a significant impact on the growth we've seen through display.

 

Social media also continues to be an important channel to inspire, engage and target a new, younger audience. The varying social channels allow us to communicate and share exciting new content in different formats, showcasing our expertise in the horology and jewellery world, whilst humanising our brands and producing authentic content that are bespoke to us.  Themes included luxury gifting, new luxury showrooms, unboxing gifts, and new launches.

 

We invested in several traditional print media and outdoor advertising campaigns, partnering with key brands such as Rolex, Patek Philippe, OMEGA, TUDOR, Breitling, TAG Heuer and Grand Seiko. This helped to create brand awareness and drive footfall to our local showrooms and mono-brand boutiques.

 

Another key element to our marketing strategy for watches was the continued investment in Calibre, our in-house watch content. We integrated Calibre into our brand websites, allowing for a greater access to our editorial content with clients already within the buying funnel. We launched a Calibre-specific amplification campaign that focused on supporting the move of Calibre to our websites, specifically for Watches of Switzerland across paid search, display and social channels such as Facebook, Instagram as well as trialling Pinterest and LinkedIn paid activities. We increased the frequency of our Calibre podcast from January 2022 to further reinforce the Watches of Switzerland Group as the leading expert in luxury watches. 

 

Our colleagues were delighted to be able to host in-person client events once again.  Working with our brand partners, this year saw one of our largest series of events hosting more than 5,000 clients over 122 in-person events. The event series ranged from intimate, unique client experiences and dinners, showroom exhibitions and new launches, through to showing our appreciation to clients for their ongoing loyalty and encouraging clients back into our showrooms. 

 

We held a press event in London in September to launch the new Goldsmiths Luxury showroom concept.  39 local, regional and trade journalists attended the event, which generated both interest and coverage ahead of the launch of the first new showroom, in Canterbury, at the beginning of October. Each of the new luxury showrooms that opened this year, were supported with new elevated luxury creative, through advertising, PR, editorial and client events, a level of support which will continued into next year as we open further locations throughout the UK. 

 

US

 

Marketing in the US continued to drive brand awareness and value with a strategy encompassing custom content across digital, social, visual merchandising, events, private clienteling, outdoor and performance enhanced marketing and advertising.

 

Following the launch of @WatchesofSwitzerland_USA in autumn of 2021 and the acquisition of Timeless and Betteridge Jewelers social accounts, we have expanded the US social media footprint by over 59,000 followers across social channels Facebook and Instagram.

 

In the US, we debuted a ground-breaking advertising campaign which served as the most extensive multi-branded timepiece campaign the industry has ever seen.  Featuring eight leading brand partners and entitled "Anytime. Anywhere.", it was produced in partnership with Creative Director and Photographer, Jay Gullion.  The film imagines a life well-lived, marking exceptional moments with a curated selection of world-class timepieces, worn by industry changemakers in spectacular settings set across the US.  Watches of Switzerland US conducted a first of its kind multi-media campaign in partnership with brand partners simultaneously featuring lifestyle creative for brand awareness and product assets content for commercial conversion.  The dual campaigns were customised to complement one another for maximum US exposure and impact across programmatic media titles, display, search, YouTube, Instagram and Facebook.  The campaigns came to life across Watches of Switzerland, Mayors and Analog:Shift visual merchandising channels running throughout the year on screen and in vitrines throughout our showrooms.  Overall, the campaign has generated over 1 billion digital impressions and 2.2 billion media impressions.

 

Serving as the physical embodiment of the "Anytime. Anywhere." ethos, a mobile Airstream retail unit was launched in conjunction with the debut of the film.  The fully customised Airstream served as a multi-branded retail location throughout the Summer at its residency in the Hamptons, New York.

 

Experiential marketing continued through physical events in the US this year.  The Summer season culminated with Watches of Switzerland hosting the Hamptons Classic Horse Show as their only retail partner in history, and in partnership with long time event partner, Longines.  The mobile retail unit was on site to greet the 45,000 spectators throughout the event and made the front page of the Washington Post in a headline titled "Far from Fifth Avenue: Luxury brands flock to suburbs and vacation hot spots where the rich are riding out the pandemic".

 

Public Relations remains a hallmark for brand awareness success in the US. The Watches of Switzerland Group is focused on consistency and visibility of messaging throughout the US market.  FY22 public relations activity has generated 10 billion in media impressions including brand and executive profiles in Esquire, Forbes, GQ, New York Times, Robb Report and Yahoo.com. 

 

5) Leverage best in class operations

 

Merchandising

 

Our merchandising function is a key client-focused driver of product availability and access and provides a unique point of difference in the way we run our showrooms.

 

Our merchandising capabilities utilise a client-centric approach and best in class systems to optimise stock availability, enhance showroom productivity and allow for nationwide coverage. Our advanced product trend tracking is run on SAP software which enables extensive showroom profiling, productivity and trend analyses, and sales and inventory forecasting.   We are able to monitor the key attributes, such as dial colour and case size, for the variety of luxury watches we sell, providing us with insight into market trends.

 

This year, we focused on product availability across our brands, we anticipated the strong demand over the holiday period and bought deeper into popular product lines.  We have also extended the level of SKUs we have for key brands for our Ecommerce platform, to ensure we have the full range of products available by brand.

 

Retail operations

 

Our programme of continued investment has enabled us to further drive productivity in both the UK and the US platforms. In the UK, we introduced Goldsmiths Luxury to seven showrooms in the period. In the US, we are focused on generating high returns from refurbishing and upgrading the remaining showrooms in the Mayors network which have not yet been modernised.

 

The Xenia Client Experience Programme has enhanced our retail operations, unlocking the full potential of our sites.  For example, providing additional hosts within the showrooms, additional technology in-store, dedicated operations managers in larger showrooms and dedicated hospitality staff.

 

The Group's showroom base is largely run via fixed rent agreements, having successfully renegotiated certain contracts and transitioned from turnover rent to fixed rent agreements in the prior year period. We have also renegotiated the contracts for our showrooms in Heathrow Airport on revised terms.

 

IT Systems

 

Our leading-edge IT systems have continued to be a fundamental competitive advantage for the Group.  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 showrooms. Our single IT template has been deployed across the Group and can support further expansion or acquisitions as required. Our retail payment partner Adyen equips us with a fully featured, mobile and international payment platform across all sales channels, and both showrooms and ecommerce benefit from a shared inventory, shared digital assets, and click and collect capabilities.

 

During the year, we have continued to work on the system preparations necessary for the launch of our first European showrooms. We have successfully tested the core system capabilities needed to support our move into Europe.  Further, our latest US acquisition has again proved the adaptability of our IT systems and we have completed the migration of acquisitions onto our global IT template.

We continue to refresh and expand our in-store technology, ensuring showroom teams have the best technology to hand in support of every client transaction.

6) Expand multi-channel leadership

Our multi-channel business model is a key competitive advantage and underscores our ability to react with speed and agility to a rapidly evolving consumer environment whilst offering our clients an exceptional experience. We continue to invest in expanding and enhancing our platform, consisting of multi-brand showrooms, online, travel retail and mono-brand boutiques.

Multi-brand showrooms

Our multi-brand showroom network has nationwide scale in the UK and is continuing to build at pace in the US, where we have an established presence in Florida, Georgia, New York and Las Vegas and recently entered the new markets of Cincinnati, Minneapolis, Plano (Dallas), Vail, Aspen and Greenwich.

Our modern and welcoming showroom environments showcase a selection of the world's finest watches whilst inviting our clients to have an exceptional experience. Our investment programme continues to focus on elevating and upgrading the existing network as well as opening in new, strategic locations.

Online

We continue to leverage our market-leading position significantly building on the largest portfolio of luxury watch brands in the UK.  We have a competitive advantage in the volume of traffic generated via our technically advanced Artificial Intelligence (AI)-driven marketing approach and further expanded our always-on digital performance marketing campaigns with refreshed creative and further optimisation through automation.

Due to the changing retail landscape, we continue to focus on offering the widest array of shopping opportunities, allowing our clients to reach out to local showroom expertise remotely through video, voice or in-person utilising our "By Personal Appointment" booking system, alongside our centralised Luxury Watch and Jewellery Virtual Boutique, which we have significantly expanded due to the continued client demand of this channel.

Since September 2020, we have extended the brand offering and invested in our US websites; US ecommerce is growing impressively.

Following our user experience audits with Baymard, Google and SAP we made several enhancements to our platform to improve both client experience and improve conversion.

We expanded our payment options to offer more consumer choice and enhance the checkout process experience.

Working collaboratively with key partners such as Google (digital marketing), our Luxury Watch and Jewellery Virtual Boutique 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 our websites, which allows us to offer a next day delivery service until 9pm seven days a week in the UK.

Our online business had a good year, with Group ecommerce sales +5%¹ versus last year.  This is compared to a year where showrooms in the UK were closed due to the pandemic.

Mono-brand boutiques

 

We have further developed and enhanced our mono-brand boutique channel.  During the year, we opened 16 new mono-brand boutiques, bringing our global network to a total of 55 boutiques (UK: 38, US: 17) as at 1 May 2022.  Our UK network saw the opening of 12 new mono-brand boutiques, including three in Plymouth, a new location for the Group. In the US we opened four mono-brand boutiques, for Grand Seiko, Breitling, TUDOR and BVLGARI.

 

During the year, we also refurbished our Breitling mono-brand boutique in the Trafford Centre, Manchester and the Rolex boutique in the Wynn Resort, Las Vegas.

 

Next year will see us further develop our mono-brand boutique network, most excitingly with our entry into the European market with OMEGA, Breitling, and TAG Heuer.

 

Travel retail

 

Travel retail in the UK has grown exponentially since the global relaxation of pandemic restrictions, although passenger numbers and global travel remains below pre-pandemic levels. Passenger numbers improved over the Easter holiday period and we expect strong passenger numbers over the Summer.  However, since the removal of tourist VAT free shopping on Brexit, we do not believe conversion at the airports will achieve pre-Brexit levels. 

 

We have renegotiated the contracts for our showrooms in Heathrow Airport on revised terms, which retains profitability at lower passenger levels.

 

7) Continue to advance the ESG agenda

Operating a responsible business that delivers enduring, sustainable value for all our stakeholders is at the heart of what we do.  In FY22, we undertook a programme of work to reset our purpose and values and thereby create a framework to help govern our commercial strategy and behaviours.

With our expertise, stunning showrooms, prestigious brand partners and rich heritage, we are uniquely positioned to WOW our clients, while, at the same time, caring for our colleagues, our communities and our planet: this is our Purpose.

With the full support of, and guidance from, our Board, we have strengthened our ESG governance and developed a sustainability strategy which puts our Purpose at its core.

During the year we have:

·      Established an ESG Board Committee and appointed a Head of ESG

·      Committed to Net Zero emissions by 2050 and set near term carbon reduction targets, in line with the Paris Climate Agreement to limit global temperatures to 1.5°C

·      Grown our After Sales and Servicing operation and increased sales of pre-owned watches across the Group

·      Achieved a post-pandemic colleague engagement score of 86%

·      Awarded all colleagues 50 free shares - with the option to further invest through a new share save plan

·      Ranked #11 in the FTSE 250 Women on Boards Review

·      Donated £4.5 million (of which £1.5 million was accrued in FY21) to The Watches of Switzerland Group Foundation to support local communities, with an emphasis on helping vulnerable people in poverty  

 

 

Financial Review

 

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

 

Statutory Income Statement (£million)	52 weeks ended 1 May 2022	53 weeks ended 2 May 2021	YoY variance
Revenue	1,238.0	905.1	37%
Operating profit	142.1	81.9	74%
Net finance cost	(15.9)	(18.2)	13%
Profit before taxation	126.2	63.7	98%
Taxation	(25.2)	(13.1)	(92)%
Profit for the financial period	101.0	50.6	100%
Basic Earnings Per Share	42.2p	21.1p	100%

 

Management monitor and assess the business performance on a pre-IFRS 16 and exceptional items basis, which is shown below. This aligns to the reporting used to inform business decisions, investment appraisals, incentive schemes and debt covenants. A full reconciliation between the pre- and post-IFRS 16 results is shown in the Glossary.

 

Income Statement - pre-IFRS 16 and exceptional items (£million)	52 weeks ended 1 May 2022	53 weeks ended 2 May 2021	YoY variance
Revenue	1,238.0	905.1	37%
Net margin2	470.6	332.3	42%
Showroom costs	(226.7)	(166.6)	(36)%
4-Wall EBITDA2	243.9	165.7	47%
Overheads	(73.3)	(55.8)	(31)%
EBITDA2	170.6	109.9	55%
Showroom opening and closing costs	(8.4)	(4.5)	(87)%
Adjusted EBITDA2	162.2	105.4	54%
Depreciation, amortisation and loss on disposal of fixed assets	(31.9)	(27.8)	(15)%
Segment profit (Adjusted EBIT)2	130.3	77.6	68%
Net finance costs	(3.7)	(5.5)	31%
Adjusted profit before taxation2	126.6	72.1	76%
Adjusted Earnings Per Share2	41.8p	23.8p	76%

 

Revenue

 

Group revenue increased by +37% to £1,238.0 million. FY21 was a 53-week year; excluding the 53^rd week showed growth of +40% in constant currency.

 

Our UK showrooms were fully operational for the whole year compared to 26 weeks in the prior year, where click and collect was in place during various lockdowns. The US was fully operational throughout FY22 and FY21.  During FY22, footfall remained behind pre-pandemic levels, but a strong product offering supported by digital marketing, and a focus on clienteling, and new space delivered significant growth in the year. Group ecommerce sales increased +5%¹, despite strong comparatives when a higher proportion of clients were shopping at home during the pandemic.

 

Revenue by geography and category

 

52 weeks ended 1 May 2022 (£million)	UK	US	Total	Mix
Luxury watches4	663.9	382.6	1,046.5	85%
Luxury jewellery5	72.4	36.4	108.8	9%
Other	73.3	9.4	82.7	6%
Total revenue	809.6	428.4	1,238.0	100%

 

53 weeks ended 2 May 2021 (£million)	UK	US	Total	Mix
Luxury watches4	512.2	276.3	788.5	87%
Luxury jewellery5	43.8	16.9	60.7	7%
Other	50.5	5.4	55.9	6%
Total revenue	606.5	298.6	905.1	100%

 

UK revenue increased by +34% (+36% excluding the FY21 53rd week) during the period through a combination of continued demand, investment in the showroom portfolio, new showrooms and strong clienteling activity by the Group. Consumer appetite for products remained very strong and well above the levels supplied by certain brands. Luxury watches saw significant sales growth, alongside luxury jewellery. The business continued to optimise consumer experience with the expansion of personal appointments available in showrooms and online through the Virtual Boutique. The launch of 'Xenia', our elevated client experience programme, backed up by strong digital marketing campaigns and offline marketing events to showcase product will build even stronger client relationships.

US revenue increased by +44% (+48% on a constant currency basis and excluding the FY21 53^rd week) and the US business made up 35% of the Group's revenue in FY22 (FY21: 33%). Strong growth was seen across all locations with New York and the Wynn Resort, Las Vegas seeing the biggest benefit from returning footfall, compared to Mayors which had a limited impact from the pandemic lockdowns and travel reductions in the prior year. In line with the UK, consumer appetite for high demand product remained strong, and significant growth was achieved in luxury watches. This was accomplished through a quality product offering, backed up by strong marketing campaigns and superior client experience.

 

During the period, the Group opened four mono-brand boutiques in the US and a Watches of Switzerland showroom in Cincinnati. During Autumn 2021, the Group completed the acquisition of five showrooms (three under the Betteridge brand and two showrooms now branded Watches of Switzerland). The showrooms have a combined last twelve months annual revenue of c.US$100.0 million and future profitability is expected to be in line with the Group's US average. Our US ecommerce platform has continued to grow, and sales of vintage and pre-owned luxury watches have been encouraging as we continue to leverage the Analog:Shift brand following the acquisition in 2020.

 

Group revenue from luxury watches grew by +33% and made up 85% of revenue, marginally down (250bps) on the prior year as jewellery sales became a greater part of the mix.

 

Group luxury jewellery revenue grew by +79% (+86% on a constant currency basis and excluding the FY21 53^rd week). The UK benefitted from a full year of showrooms being open as these purchases are more footfall and impulse-driven than luxury watches. Our luxury jewellery ranges were well received and the ongoing focus on premium ranges has led to continued growth of our average selling price. Luxury jewellery revenue in the US showed strong underlying growth and was further supported by the acquisition of the Greenwich Betteridge showroom and the opening of our first BVLGARI mono-brand boutique.

 

Other revenue, consisting of servicing, repairs, insurance services and the sale of fashion and classic watches and other non-luxury jewellery grew by +48%.

 

Profitability

 

 

Profitability as a % of revenue	52 weeks ended 1 May 2022	53 weeks ended 2 May 2021	YoY variance
Net margin2	38.0%	36.7%	1.3%
Showroom costs	18.3%	18.4%	0.1%
4-Wall EBITDA2	19.7%	18.3%	1.4%
EBITDA	13.8%	12.1%	1.7%
Adjusted EBITDA2	13.1%	11.6%	1.5%
Adjusted EBIT2	10.5%	8.6%	1.9%

 

Net margin % increased by 130 bps from 36.7% in the prior year to 38.0%, driven by product mix. Within the watch category our higher margin brands grew the fastest year on year, and more generally, the jewellery category outperformed the watch category following a return of footfall to showrooms.

 

Showroom costs increased by £60.1 million (+36%) from the prior year, to £226.7 million as we opened more showrooms and reflect a full year of opening. Showroom costs as a percentage of revenue improved by 10 bps from 18.4% to 18.3%. Property related costs increased from FY21 by £18.7 million, this was as a result of the net change in UK business rates suspension (+£7 million versus FY21) and our increased showroom portfolio. Payroll costs increased by £15.6 million including the impact of new showrooms, commission on additional revenue, and yearly pay rises to colleagues. Variable showroom costs increased in line with revenue, in addition to further digital marketing investment which successfully drove traffic and conversion both online and in showrooms.

 

Overheads increased by £17.5 million (+31%) due to additional headcount and IT costs to support growth, and a £3.0 million donation to The Watches of Switzerland Group Foundation.

 

Showroom opening and closing costs include the cost of rent (pre-IFRS 16), rates and payroll prior to the opening or closing of showrooms, or during closures when significant refurbishments are taking place. This cost will vary annually depending on the scale of expansion in the period. Total costs for the year were £8.4 million versus £4.5 million in FY21 reflecting the increased number of refurbishments and openings undertaken.

 

Exceptional administrative items

 

Exceptional items are defined by the Group as those which are significant in magnitude or 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)	52 weeks ended 1 May 2022	53 weeks ended 2 May 2021
IPO costs	1.5	4.9
Legal expenses on business acquisition	0.5	0.2
Reversal of showroom impairment	(0.4)	(0.1)
Impairment of property, plant and equipment	-	3.1
Impairment of right-of-use assets	-	1.2
Reversal of expected credit losses	-	(0.2)
Total	1.6	9.1

 

IPO costs of £1.5 million in the current period relate to IPO-linked share-based payments (FY21: £4.9 million). The shares vested and were settled in the period, and there will be no further costs of this nature.

 

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

 

During the current period we have reassessed assets impaired through exceptional items in prior periods, taking into account FY22 performance and the latest discounted budgeted cashflows for each showroom. As a result of improved trading, an impairment reversal of £0.4 million has been recognised at the period end.

 

Adjusted EBIT² and statutory operating profit

 

As a consequence of the items noted above, Adjusted EBIT² was £130.3 million, an increase of £52.7 million (+68%) on the prior year.

 

After accounting for exceptional costs of £1.6 million and IFRS 16 adjustments of £13.4 million, statutory operating profit (EBIT) was £142.1 million, an increase of +74% on the prior year.

 

The Group provided updated revenue and profit guidance on 10 February 2022, which is regarded as a profit forecast for the purposes of the Financial Conduct Authority's Listing Rule 9.2.18. Revenue guidance at that time was £1.2 billion and Adjusted EBITDA² margin % of 13.1%, this compared to the actual results of £1,238 million and Adjusted EBITDA² margin % of 13.1%.

 

The Group provided updated revenue and profit guidance on 18 May 2022, which is regarded as a profit forecast for the purposes of the Financial Conduct Authority's Listing Rule 9.2.18 (and which replaced the profit forecast made in the Group's Q3 FY22 Trading Update on 10 February 2022). The Company confirms that FY22 revenue and profit for the Group is within the range previously indicated.

 

Finance costs

 

Net finance costs (£million)	52 weeks ended 1 May 2022	53 weeks ended 2 May 2021
Pre-IFRS 16 finance costs	3.7	5.5
IFRS 16 interest on lease liabilities	12.2	12.7
Total net finance costs	15.9	18.2

 

Interest payable on borrowings reduced in the period, reflecting the reduced net debt in the period, and lower interest rates.

 

In the prior year, the Group entered into a £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 prior year.

 

The IFRS 16 interest on lease liabilities has decreased by £0.5 million in line with the decreased remaining average life of our lease portfolio.

 

Taxation

 

The pre-IFRS 16 effective tax rate for the period was 20.7%. This is higher than the UK tax rate of 19.0% due to a significant proportion of the Group being in the US where the tax rate is higher than in the UK, and due to non-deductible expenses. Excluding exceptional items, the effective tax rate is 20.8%.

 

The effective tax rate reported under IFRS 16 was 19.9%, or 20.1% before exceptional items are included.

 

Balance sheet

 

Balance Sheet (£million)	1 May 2022	2 May 2021
Goodwill and intangibles	177.8	150.6
Property, plant and equipment	112.5	93.7
Right-of-use assets	293.6	253.7
Inventories	307.0	226.4
Trade and other receivables	22.3	10.4
Trade and other payables	(201.4)	(151.7)
Lease liabilities	(340.6)	(301.4)
Net debt	(14.1)	(43.9)
Other	4.2	12.5
Net assets	361.3	250.3

 

Goodwill and intangibles have increased as a result of the US acquisitions in the period, which gave rise to £21.3 million of goodwill and a brand value of £2.2m million. A further £2.2 million of computer software additions were made in the period as part of our ongoing plans to upgrade our systems.

 

Property, plant and equipment increased by £18.8 million in the 52 week period to 1 May 2022. Additions of £43.8 million, including business acquisitions, were offset by depreciation of £27.6 million, loss on disposal of £1.5 million, impairment reversals of £0.4 million and a favourable foreign exchange impact of £3.7 million.

 

Including software costs, which are disclosed as intangibles, capital additions were £43.2 million (FY21: £26.1 million) of which £41.0 million (FY21: £21.2 million) was expansionary. Expansionary capex relates to new showrooms, relocations or major refurbishments (defined as costing over £0.25 million). In the period, the Group opened 23 showrooms, expanded six showrooms and refurbished 14 showrooms. Investment in our portfolio is paramount to our strategy and the Group follows a disciplined payback policy when making capital investment decisions.

 

Right-of-use assets increased by £39.9 million to £293.6 million. Additions to the lease portfolio along with lease renewals or other lease changes have increased the balance by £72.4 million. This has been offset by depreciation of £40.6 million and a favourable foreign exchange impact of £8.1 million.

 

Lease liabilities increased by £39.2 million. The portfolio changes noted above increased the lease liability by £70.1 million. Interest charged on the lease liability also increased the balance by £12.2 million along with a foreign exchange loss of £9.9 million. Lease payments have reduced the balance by £53.0 million, giving a lease liability balance of £340.6 million.

 

Inventory levels increased by £80.6 million compared to the prior year. This includes inventory from acquisitions (+£20.7 million) and increased pre-owned inventory (+£19.9 million), in addition to the inventory in the new showrooms and higher base stock levels to support revenue growth. Being able to carry a wide range of inventory to represent the brands appropriately is an important differentiator.  The inventory obsolescence risk is low and therefore we expect to grow inventory levels as more product becomes available and as the number of showrooms increases.

 

Trade and other receivables increased by £11.9 million. There is a general increase in trade receivables (+ £1.4 million), prepayments (+ £3.3 million), rebates (+ £1.6 million), and other debtors (+ £0.6 million) as the Group increases in size, in addition to the re-instatement of UK rates (+ £1.4 million) and increased brand capital contributions receivable (+ £3.6 million) in the US.

 

Trade and other payables increased by £49.7 million. Trade payables increased by £39.5 million driven by increased volume at new and acquired showrooms, in addition to the timing of intake at the period end. The Group has seen a general increase in accruals in line with the increased operations and investment in showrooms.  These include increases in capital expenditure, advertising, payroll, and insurance activity.  One off items include a £6.7 million payable for the purchase of shares at the period end to satisfy share incentive schemes, and £4.2 million held in escrow whilst the Betteridge acquisition consideration is finalised. 

 

Other includes taxation balances and the defined benefit pension obligation of £0.6 million (FY21: £2.6 million). 

 

Net debt and financing

 

Net debt2 on 1 May 2022 was £14.1 million, a reduction of £29.8 million since 2 May 2021, driven by £112.1 million of free cash flow2 offset by £41.0 million of expansionary capex and £44.1 million relating to acquisitions.  

 

The Group's maximum available committed facilities at 1 May 2022 were £217.7 million.

 

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

 

£120.0 million of these facilities were drawn down at 1 May 2022. Liquidity headroom (defined as unrestricted cash plus undrawn available facilities) was £189.6 million.

The Group maintained compliance with all of its banking covenants during the period and expects to continue to do so.

Cash flow

 

Cash flow (£million)	52 weeks ended 1 May 2022	53 weeks ended 2 May 2021
Adjusted EBITDA2	162.2	105.4
Share-based payments	1.7	0.8
Working capital	(29.8)	13.9
Pension contributions	(0.7)	(0.7)
Tax	(15.6)	(9.6)
Government grants received	-	5.4
Cash generated from operating activities	117.8	115.2
Maintenance capex	(3.0)	(1.0)
Interest	(2.7)	(4.5)
Free cash flow2	112.1	109.7
Free cash flow conversion2	69.1%	104.1%
Expansionary capex	(41.0)	(21.2)
Acquisitions	(44.1)	(1.4)
Exceptional items	(0.5)	(0.2)
Financing activities	-	(82.1)
Cash flow	26.5	4.8

 

 

Free cash flow2 increased by £2.4 million to £112.1 million in the period to 1 May 2022 and free cash flow conversion2 was 69.1% compared to 104.1% in the prior year.

 

Strong cash flow from trading (Adjusted EBITDA increased by £56.8 million), was offset by a £29.8 million adverse working capital movement, primarily driven by additional stock in new showrooms and higher base stock levels to support revenue growth.

 

The repayment of furlough monies received in the prior year forms part of the working capital movement in FY22, having been accrued for payment at FY21 period end.

 

Expansionary capex of £41.0 million (after taking into account the associated creditors movement) was higher than the prior year due to an increase in new showroom openings and refurbishments.

 

Return on Capital Employed (ROCE)²

 

	52 weeks ended 1 May 2022	53 weeks ended 2 May 2021
ROCE2	27.4%	19.7%

 

ROCE² increased by 770 bps from 19.7% to 27.4% in the period demonstrating improved capital efficiency. This is as a consequence of Adjusted EBIT² increasing by +68%, compared to the increase in average capital employed of +24%.

 

Showroom portfolio

 

As at the 1 May 2022, the Group had 171 showrooms, the movement in showroom numbers is included below:

 

	UK multi-brand showrooms	UK mono-brand boutiques	Total UK	US multi-brand boutiques	US mono-brand boutiques	Total US	Total Group
2 May 2021	98	26	124	17	13	30	154
Openings	1	12	13	1	4	5	18
Acquisitions	-	-	-	5	-	5	5
Closures	(6)	-	(6)	-	-	-	(6)
1 May 2022	93	38	131	23	17	40	171

 

Mono-brand boutiques include seven Rolex boutiques during both years.

 

Principal and emerging risks and uncertainties

 

The Group is exposed to a number of risks and uncertainties in its business which could impact its ability to effectively execute its strategy and cause actual results to differ materially from expected and/or historical results. The Board has undertaken a robust assessment of the principal and emerging risks and uncertainties facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.  The risks presented in the 2021 Annual Report and Accounts, described as follows, remain unchanged: Business strategy execution and development; Key suppliers and supply chain, Customer experience and market risks; Colleague talent and capability; Business interruption and IT infrastructure; Data protection and cyber security; Regulatory and compliance; Economic and political; Brand and reputational damage; and Financial and treasury.  These are detailed on pages 105 to 113 of the 2021 Annual Report, a copy of which is available on the Watches of Switzerland Group PLC (the 'Company') website at www.thewosgroup.com. Further to these principal risks, the Board has also identified a further principal risk relating to climate change which is detailed below.

 

Climate change: risk description

Climate change: how we manage or mitigate the risk

The Group has recognised the potential reputational, operational and financial impacts of climate change on our business, which has led to this risk being moved from an emerging risk in FY21 to a principal risk in FY22. The increased frequency of extreme weather events may lead to the significant disruption of retail showrooms, offices, and distribution centres, through flooding and strong winds.  The supply chain may also be impacted through transporting goods to showrooms. In a changing climate, there is potential regulatory mechanisms on direct carbon emissions, these may impact business financials and profit if the Group cannot transition to a more low carbon business model. The Group's reliance on premium raw materials, which is a finite resource, increases its exposure to resource scarcity and the potential increased cost of obtaining these resources in a challenging supply chain environment. The Group may fail to implement its mitigation strategy to reduce its impact on the climate and manage the risk appropriately, leading to increased scrutiny from stakeholders and investors, resulting in reputational damage.

·      Climate-related issues are addressed at least three times a year by the ESG Committee, and our CFO has taken operational responsibility for climate-related issues.  Management assess and manage climate-related risks and opportunities via the Audit Committee, where reports on progress towards carbon reduction targets are presented. ·      The Group undertook a qualitative and quantitative climate scenario analysis (CSA) in 2021 which has identified risks and opportunities for the business and provided materiality and financial impacts of these risks to the business.  Over the upcoming year, these results are being incorporated into our financial planning.  The results of the CSA are also informing our US and UK business continuity plans for extreme weather events. ·      Mitigation initiative are being implemented across the portfolio.  These include: o  Smart metering o  Temperature controls o  Collaboration with landlords to improve HVAC efficiencies o  Electric vehicles used for company car and operation fleets ·      Promoting the sustainable sourcing of our precious stones and metals, auditing our suppliers, and increasing our environmentally friendly product range. ·      The Group monitors its GHG emissions on an annual basis and has set near term SBTs aligned to the 1.5oC under the Paris Climate Agreement of 50% absolute reduction in Scope 1 & 2 and 42% absolute reduction in Scope 3 emissions by 2030 from a baseline year of FY20.

 

A full disclosure of the Group's principal risks and emerging risks and uncertainties, including the factors which mitigate them, will be set out within the Strategic Report of the 2022 Annual Report and Accounts.

 

Disclaimer

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

 

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

 

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

 

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

 

 

Watches of Switzerland Group PLC

Preliminary results

For the 52 week period ended 1 May 2022

 

 

Registered number: 11838443