A market leader in retail logistics 2018 Interim Results - - PowerPoint PPT Presentation

A market leader in retail logistics Logistics evolved: Agility and Ability

2018 Interim Results Presentation 6 December 2018

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Disclaimer

This presentation 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 “believe”, “estimates”, “plans”, “projects”, “anticipates”, “expects”, “intends”, “may”, “will”, or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not historical facts and include statements regarding the Company’s intentions, beliefs or current expectations. Any forward-looking statements in this presentation reflect the Company’s current expectations and projections about future events. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These risks, uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Forward-looking statements contained in this presentation regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this presentation. No representations or warranties are made as to the accuracy of such statements, estimates or projections. Please note that the Directors of the Company are, in making this presentation, not seeking to encourage shareholders to either buy or sell shares in the Company. Shareholders in any doubt about what action to take are recommended to seek financial advice from an independent financial advisor authorised by the Financial Services and Markets Act 2000.

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Agenda

Highlights – Steve Parkin 1 Financial review – David Hodkin 2 Operational review – Tony Mannix 3 Summary and Q&A – Steve Parkin 4

Highlights

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Highlights

Group revenue growth of 14.1% to £227.9m (H1 FY18: £199.7m) Group EBIT growth of 16.1% to £10.7m (H1 FY18: £9.2m) Group EPS growth of 14.3% to 7.2p per share (H1 FY18: 6.3p) Interim dividend of 3.2p per share, up 14.3% (H1 FY18: 2.8p) Strong growth in e-fulfilment and returns management, with revenue up 40.7% (excluding Clicklink) Clicklink well positioned to enhance earnings due to new customer wins and rate enhancements Non e-fulfilment EBIT in H1 adversely impacted by activity levels, offset by property-related income. New contract wins provide positive earnings momentum into H2 European operations growing strongly, driven by e-fulfilment and returns management Commercial vehicles EBIT reduced due to lack of manufacturer support on new vehicle sales Strong pipeline of new business opportunities in logistics

Financial review

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Financial Highlights

Group revenue growth of 14.1% to £227.9m (H1 FY18: £199.7m), driven by strong growth in logistics Group EBIT growth of 16.1% to £10.7m (H1 FY18: £9.2m):

• E-fulfilment and returns management services – EBIT of £6.2m, up 17.1% (H1 FY18: £5.3m)
• Non e-fulfilment logistics – EBIT of £7.3m, up 16.4% (H1 FY18: £6.3m) including property related

advisory service fees of £2.8m (H1 FY18: £nil)

• Commercial vehicles – EBIT of £0.9m, down 36.9% (H1 FY18: £1.4m)

Profit before tax and amortisation up 17.3% to £9.9m (H1 FY18: £8.4m) EPS of 7.2p, up 14.3% (H1 FY18: 6.3p) Interim dividend of 3.2p per share, up 14.3% (H1 FY18: 2.8p)

Note: The highlights are for the 6 months ended 31 October 2018, as compared to the 6 months ended 31 October 2017 (“H1 FY18”)

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Summary Income Statement

• Strong top-line performance in the period

driven by e-fulfilment & non e-fulfilment business units

• Key EBIT metric saw continuing growth of

16.1%, again driven by logistics, including property-related advisory fees

• Finance costs up slightly, due to prior year

acquisitions

• Profit before tax and amortisation up 17.3%

to £9.9m (H1 FY18: 8.4m)

• Profit before tax ahead by 16.9% to £9.3m

(H1 FY18: £7.9m)

• EPS ahead by 14.3% to 7.2p (H1 FY18:

6.3p)

• Interim dividend up 14.3% to 3.2p (H1

FY18: 2.8p)

£m 6m to 31 October Change Year to 30 2018 2017 % April 2018 Revenue 227.9 199.7 14.1% 400.1 Cost of sales (164.9) (142.1) (283.3) Gross profit 63.0 57.6 9.3% 116.8 Other net gains 0.1 0.1 2.4 Admin expenses (52.3) (48.3) (98.4) Operating profit before share of equity-accounted investees, net of tax 10.8 9.4 14.6% 20.8 Share of equity-accounted investees, net of tax (0.6) (0.6) (0.9) Operating profit 10.3 8.8 15.9% 19.9 EBIT 10.7 9.2 16.1% 20.9 Less: amortisation of other intangible assets (0.6) (0.5) (1.1) Share of tax and finance costs of equity-accounted investees 0.2 0.1 0.1 Operating profit 10.3 8.8 19.9 Net finance costs (1.0) (0.9) (1.9) Profit before income tax 9.3 7.9 16.9% 18.0 Income tax (1.9) (1.7) (3.7) Profit for the financial period 7.3 6.3 14.3 Basic earnings per share (p) 7.2 6.3 14.3% 14.2 Interim dividend per share (p) 3.2 2.8 14.3%

Segmental performance

• Strong organic growth in e-fulfilment driven by:
• Continued migration online and consequent growth in activity

levels on established customers – e.g. ASOS, Wilko, Browns

• Benefit of prior year contract wins - e.g. M&S returns, River

Island, ASOS Poland

• New contract wins in FY19 – e.g. Pretty Little Thing, Ginger Ray
• Clicklink: loss of £0.7m (H1 FY18: £0.7m loss):
• Profitability expected to improve substantially in H2 due to:
• Seasonality: 40% of annual volume in Nov-Jan
• Rate enhancements
• New customer onboarding
• Non e-fulfilment EBIT adversely impacted by activity levels as a key

customer re-shapes their network, and a reduction in tobacco activity,

• ffset by property-related advisory fees of £2.8m (H1 FY18: nil):
• Contract wins and increased tobacco activity will provide

earnings growth into H2 and beyond

• Commercial vehicles EBIT down due to lack of manufacturer support:
• Cost base addressed
• Continued investment in solutions development and IT infrastructure
• Share based payment credit £0.7m (H1 FY18: charge £0.6m)

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£m 6m to 31 October Change 2018 2017 % E-fulfilment & returns management services 107.1 76.1 40.7% Non e-fulfilment logistics 76.1 65.7 15.8% Total value-added logistics services 183.2 141.8 29.2% Commercial vehicles 45.4 58.8

• 22.8%

Inter-segment sales (0.7) (0.9) Group Revenue 227.9 199.7 14.1% £m 6m to 31 October Change 2018 2017 % E-fulfilment & returns management services 6.2 5.3 17.1% Non e-fulfilment logistics 7.3 6.3 16.4% Central logistics overheads (2.5) (2.5) Total value-added logistics services 11.0 9.1 21.2% Commercial vehicles 0.9 1.4

• 36.9%

Head office costs (1.2) (1.3) Group EBIT 10.7 9.2 16.1%

Revenue EBIT

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Summary cash flow statement

• EBITDA ahead 14.5%
• Working capital outflow due to higher than

normal accrued revenue

• Strong underlying cash flow and cash

conversion

• Majority of capex is back-to-back with

agreements by customers to repay the capital through open-book contract mechanisms

£m 6m to 31 October Year to 30 2018 2017 April 2018 EBIT 10.7 9.2 20.9 Depreciation & Amortisation 3.8 3.4 6.9 Other non-cash items1 0.3 1.2 (0.1) Change in working capital (4.4) (1.2) (3.2) Cash generated from operations 10.1 12.6 24.5 Net interest paid (1.0) (0.9) (1.9) Tax paid (1.9) (2.0) (4.0) Net cash flows from operating activities 7.2 9.7 18.6 Net capital expenditure (7.4) (3.6) (1.0) Acquisition of subsidiaries (0.5) (11.8) (11.8) Net cash flows from investing activities (7.9) (15.4) (12.8) Loan advance to joint venture

• (0.5)

Net drawdown of bank loans 8.5 14.1 8.1 Finance leases advanced 0.3

• Repayment of capital on finance leases

(3.4) (3.7) (7.3) Shares issued 0.1 0.2 1.6 Dividends paid (5.7) (4.8) (7.6) Net cash flows from financing activities (0.2) 5.8 (5.7) Net increase / (decrease) in cash & cash equivalents (0.9) 0.1 0.1

1. Other non cash items comprise share of equity-accounted investees, share based payments and exchange differences 2. EBITDA calculated as EBIT plus depreciation and amortisation

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Summary balance sheet

• Investment in fixed assets largely to support new
• pen-book contracts under which capital will be repaid
• ver the term of the contract
• Net debt £42.1m, slightly lower than the Board’s

expectations

£m 6m to 31 October Year to 30 2018 2017 April 2018 Intangible assets 37.7 36.8 37.2 Property, plant & equipment 51.2 46.7 45.0 Interest in equity-accounted investees 0.7 1.6 1.3 Non-current financial assets 1.9 1.4 1.9 Non-current assets 91.5 86.5 85.4 Inventories 24.7 30.9 22.1 Trade & other receivables 94.7 70.8 73.4 Cash & cash equivalents 2.1 0.9 2.3 Current assets 121.5 102.6 97.8 Trade & other payables 120.7 110.6 102.4 Borrowings 10.6 7.8 9.2 Short term provisions 0.1 0.3 0.1 Current tax liabilities 2.9 1.9 2.5 Current liabilities 134.3 120.6 114.2 Borrowings 35.5 33.3 26.7 Long term provisions 1.6 1.4 1.5 Deferred tax liabilities 0.9 1.3 1.5 Non-current liabilities 38.0 36.0 29.7 Net assets 40.7 32.5 39.3

Operational review

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Customer strategy

Review of strategy, progress to date and future plans

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Clipper’s key strategies for customer retention & growth

Increase our revenues from the major UK retailers in our existing customer base through cross-selling services Continue to target pureplay e-tailers for both fulfilment and returns operations Become the omni-channel fulfilment provider to customers where we only currently manage the e-commerce channel

The United Kingdom (€178 billion), France (€93.2 billion) and Germany (€93 billion) are the three biggest e-commerce markets in Europe Together, they account for over two-thirds of the total European e-commerce turnover 38% of all online shoppers in Europe ordered abroad in 2017, with half of them ordering goods or services over the internet from sellers from other EU countries

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E-commerce is still on the rise

2013/14 2017 2018 European e-commerce valued at no more than EUR 307 billion European e-commerce turnover increased by 11% in the year - valued at EUR 534 billion Expected European e-commerce growth rate of 13% - valued at EUR 602 billion

Online retail sales continue to soar Mintel research suggests that 45% of online customers returned at least one item last year, representing a significant cost to retailers. Financial Times, January 2018 E-commerce in UK grew to €15.6 billion in 2017 The business-to-consumer e-commerce turnover in the United Kingdom has increased to 13.7 billion pounds (15.6 billion euros), last year. This is a 13.65% increase and for next year, a growth rate of 14.3% is predicted, which means e-commerce in the UK could be worth 17.8 billion euros. Ecommerce, May 2018 Source: Ecommerce, July 2018

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Progress in 2018

• Launched in July 2018
• 615k sq. ft. warehouse in Sheffield
• Peak shipping 200k+ items per day
• Fastest growing retailer in UK
• Moved from Worsley to Selby
• Launching new crafts and anticipated growth in 2019

is +30%

Key Customer Growth

• Expanded to include Zara Home
• Now occupy 300% more space since

go-live

• Significant growth in account in 2018
• New

same day moped delivery service launched

• Planning move to dedicated site to

support growth in 2019

• Clicklink went live in 2018 for all

Superdry store deliveries

• Robotics launched
• Partnership

recognised at Supply Chain Excellence awards

• Clicklink went live in 2018 for all store deliveries
• Clipper also supported ‘pop up’ stores launch

Pureplays

Enhancing and Developing new Services

Review of strategy, progress to date and future plans

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Enhancing and Developing new services

• 1. Further develop the Click and Collect network

to support more complex stocking and replenishment strategies

• 3. Develop a Clicklink branded customer parcel

shop app and in store proposition

• 2. Explore options for software propositions to

support customer returns strategy

• 6. Target growing relationships with OEMs to provide a

wrap-around after-sales Returns, Repair & Service proposition

• 4. Grow our consolidation capability using our transport

network and click and collect technologies

• 5. Develop a solution for tobacco fulfilment for the UK

major multiples

Evolving Supply Chain Needs

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The paid click-and-collect model will increasingly count against a retailer, especially as online-only services look to make delivery costs free, or keep them low, to compete in kind. You get another opportunity to sell 2018 State of Omnichannel Retail report, customers picking up a C&C order in store could spend an average of 12% more – while returns recoup added a further 18%, as you’re keeping an engaged customer in a purchase loop. C&C tracks the effectiveness of a marketing budget – and improves loyalty Opportunity knocks: Free C&C removes another barrier to purchase certainty Putting a human face on an

• therwise faceless experience

Those that see paid-for click and collect as dispensation for logistical outlays are the ones that will suffer in the next round of retail closures.

Source: Shift Nov 2018

Boomerang

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Evolving Supply Chain Needs

Online retailers face “ returns tsunami” as try-before-you-buy trends Intensifies Returns are costing UK retailers £60 billion a year 76% of consumers would “definitely” or “maybe” purchase more items if offered a try-before-you-buy

• ption – with shoppers ordering on average three extra items each month, only to return them without

ever paying a penny 40% of retailers have seen a marked increase in “intentional returns” over the past 12 months when customers deliberately over-order multiple items knowing returns are free or cheap 69% of retailers are not deploying any technology solutions to process returns, despite shoppers increasingly wanting their returns to be processed faster. For many retailers, the new trend will result in customers returning on average three items a month, potentially tripling the cost of returns if they continue to take no action

Source: Retail Gazette, March 2018

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“Enhanced” Integrated Clicklink & Boomerang in 2019

Boomerang triage carried out in store Item can either be fast tracked through returns centre for re-sale OR Fulfilled from store to customer Reduced handling costs Improved stock availability Store based systems to link with returns centre to allow for rapid reuse of “grade A” inventory

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Use data insight on customer behaviour to drive new revenue streams

Clipper is working in partnership with Leeds University and one of our major customers to use fulfilment and returns to develop predictive analytics. This can help retailers’ decision making for ranging, merchandising, promotions and pricing strategies

Fulfilment Data Returns Data Predict & Propose Plan Analy se

• Analyse customer behaviour and trends
• Within season, week, day, hour time parameters
• Replaces traditional cumbersome forecasting &

replenishment tools

• More

responsive, based

• n

actual customer behaviour and feedback

Technical Services

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Technical services – Progress in 2018

Hi-sense: Combined power of RepairTech and Servicecare now delivering multi-channel TV repair solutions Vestel: Clipper Technical Services nominated as ‘brown goods repair partner’ Argos: Renewed contract for 2 years Amazon: Extended contract and new territory (Germany) Richer Sounds: 5 year contract extension

Geography

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Growth in Europe

Second warehouse opened in Poznan, Poland to support Westwing Retail:

• 350k sq ft new build facility
• 4 level pick tower

Expanded geography with Amazon to operate a Returns and Repair centre from within a Clipper Germany facility Strengthened relationship with s.Oliver with potential for further future growth Exploring potential European acquisitions

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Ensuring continuity of labour

• 1. Net migration continues to fall.
• Significant decrease in Polish

population in the UK.

• Uncertainty of employment and

right to remain post-Brexit

• 2. Decreasing number of labour providers in

the UK post-Brexit

• 3. Confidence around competitive

Compensation and Benefits strategy top to bottom Shift in labour strategy from a high temp to perm ratio to a more stable perm headcount with seasonal flex – pooling across site locations Full compensation and benefits review of all job levels - January – March 2019

Key strategies Influencing Factors

Solid Framework Agreements in place with key agencies and a robust PSL

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Clipper Fresh Start

FRESH START launched in May 2018 8 Key Partners including: Mencap, Scope, Remploy, Reed in Partnership, Tempus Novo 150+ people recruited directly since launch – with a target to get to 300 by end of FY Small start project with the potential for growth Significant profile for Clipper Logistics Key Labour Agencies engaged Significant CSR project for the Group Finalists in the 2018 in-house recruitment awards (Nov 2018)

Technology

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Developing technology capability

We will work with retailers to assess ‘fit for purpose’ automation solutions We will explore AI solutions for retail supply chain applications Progress in 2018 Autoboxer and conveyors installed in Ollerton to support Wilko e-commerce growth Robotic returns launched at the Superdry facility Experienced Automation Engineer recruited.

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Black Friday 2018

More UK retailers than ever before participated in Black Friday Sales this year in the face of ongoing tough trading. Ecommerce sales were up 46% compared with last year on Black Friday itself, while footfall dropped 5.4% on 2017, Springboard reports. Participation rates from retailers reached record levels and the discounts were deeper than previous years, research from sales aggregator LovetheSales.com found. A total of 72% more UK retailers took part in Black Friday this year than in 2017 and price cuts were deeper – an average discount of 37%, compared with 33% in 2017 and 30% in 2016.

Source: Springboard & LovetheSales.com– Drapers 27th Nov 18

Summary ry and Q&A

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