27 June 2024

Watches of Switzerland Group PLC

FY24 Results

for the 52 weeks ended 28 April 2024

Continued market share gains and strategic progress

Re-iterating confidence in FY25 full year guidance and Long Range Plan targets

Brian Duffy, Chief Executive Officer, said:

"I am proud of the performance that our team delivered this year in what was undoubtedly a more challenging market. We cemented our position as a leading international luxury watch and jewellery retailer and delivered further market share gains in both the UK and US, driven by our proven, differentiated business model. In particular, our US business went from strength to strength, growing 11% and will soon represent half of Group sales.

"The UK market is starting to show signs of stabilisation. In FY24, UK and Europe sales were down 5% impacted by significant price increases overall at a time of reduced consumer confidence influencing discretionary spending, and we see these pressures easing in FY25.

"During the year, we continued to invest for high-quality growth across showroom projects and strategic acquisitions including the 15 Ernest Jones showrooms acquired last November, and the acquisition of Roberto Coin Inc. post year end, which dramatically accelerates our luxury branded jewellery strategy.

"We have an impressive programme of showroom developments on both sides of the Atlantic and our strongest ever pipeline of committed projects, which includes the flagship Rolex boutique on Old Bond Street, London, Audemars Piguet Townhouse in Manchester, Rolex boutique in Atlanta, Georgia and a Rolex anchored multi-brand in Plano, Texas.

"Pre-owned represents a significant opportunity for our Group, with pre-owned luxury watch sales doubling year-on-year in Q4 FY24. Within this category, the new Rolex Certified Pre-Owned programme is performing ahead of our expectations in both the US and UK and is set for further roll-out in FY25 with improved methods of supply in the UK.

"Our strategic momentum underpins our confidence in our FY25 guidance and Long Range Plan objectives of doubling sales and profit by 2028, capitalising on our leading market positions and the unique growth opportunities ahead."

FY24 Financial Highlights

·      Group revenue of £1,538 million, +2% at constant currency, flat at reported rates on prior year

o  Luxury watches revenue +3% in constant currency, +1% reported, with a particularly strong performance in the US

§ Luxury watches² represents 87% of Group revenue

§ Demand for our key brands, particularly products on the Registration of Interest lists, continued to be strong and outstripping supply, with consistent additions and conversions

§ Market share gains in the luxury watch market in both the UK and US as a result of our differentiated offering and investments

§ Our markets were characterised by significant average selling price increases in a time of reduced consumer confidence, particularly in the UK market

o  Luxury jewellery² revenue -13% in constant currency, -14% reported, but sequential improvement through the year with Q4 FY24 the best performing period

§ Luxury branded jewellery significantly outperformed non-branded jewellery

§ Post year end, on 8 May 2024, the Group acquired the entire share capital of Roberto Coin Inc., the exclusive distributor for Roberto Coin in the USA, Canada, Central America and Caribbean, for $130 million³, representing a significant milestone in the Group's luxury branded jewellery strategy as outlined in the Long Range Plan

§ Addition of prestigious luxury jewellery brands within the UK and US portfolios, including the introduction of David Yurman, Pomellato, FRED, Repossi, Pasquale Bruni and Faberge and expansion with existing brands such as Messika

o  Rolex Certified Pre-Owned launched in the US in July 2023 and the UK in September 2023 

§ Performing ahead of expectations, with further roll out planned in FY25 as supply conditions in the UK improve

§ Total pre-owned and vintage revenue (including Rolex Certified Pre-Owned) doubled against the prior year in Q4 FY24 to become the second biggest brand within the Group

o  Excellent progress with showroom expansion and refurbishment programme

§ Expansionary capex² of £78 million, with 22 new showrooms opened and 15 showrooms refurbished

FY24 Operating Highlights

·      Continued strong momentum in the US, with revenue of £692 million (FY23: £653 million), +11% at constant currency, +6% at reported rates

o  Sustained growth reflecting the success of our model and strength of client demand

o  Showroom development programme continues:

§ New Watches of Switzerland multi-brand showrooms in American Dream, New Jersey and One Vanderbilt, New York

§ Relocation and expansion of Mayors Dadeland, Florida and Rolex Millenia mono-brand boutique, Florida

§ Eight mono-brand boutiques opened for Breitling, TAG Heuer and Grand Seiko

§ Secured a new Rolex mono-brand boutique in Lenox, Atlanta; opening in FY25 replacing the existing Mayors multi-brand showroom

§ Significant programme of showroom investment projects agreed with Rolex and other brands through to FY27

o  FY24 ended with 25 multi-brand showrooms (FY23: 24) and 31 mono-brand boutiques (FY23: 23)

·      UK and Europe revenue £846 million, -5%, impacted by macroeconomic conditions in the UK

o  UK performance continues to be driven by a domestic clientele with minimal return of tourist spending due to lack of VAT free shopping

o  Acquisition of 15 luxury watch showrooms from Ernest Jones. Rebranding, colleague training and system conversions complete.  Early trading from these showrooms is in line with our expectations

o  Ecommerce revenue⁴ -11% on last year, impacted by the mix of products through this channel and performance of the UK regional market

o  Showroom development programme continues with several projects completed during the year:

§ Major expansion of the Patek Philippe space in Watches of Switzerland 155 Regent Street, London

§ Continued rollout of the Goldsmiths Luxury concept with seven showrooms refurbished/expanded in FY24 including Liverpool, Birmingham Bullring and Manchester Trafford Centre

§ Mappin & Webb contemporary concept launched in Glasgow, York, Guernsey and Bluewater

§ One multi-brand Goldsmiths showroom opened (Bromley) along with eight mono-brand boutiques

§ Progress made on important projects, including the flagship Rolex boutique on Old Bond Street, London, Audemars Piguet Townhouse, Manchester and Mappin & Webb luxury jewellery boutique, Manchester; all opening in FY25

o  In line with our disciplined approach to capital allocation and given the pipeline of high returning opportunities in the UK and US, the Group intends to reallocate investment from the European market into these higher returning regions over the period of the Long Range Plan.  We are in negotiations with our brand partners for the transfer of certain existing European mono-brand boutiques

o  FY24 ended with 99 multi-brand showrooms (FY23: 89) and 68 mono-brand boutiques (FY23: 57)

Outlook for FY25

·      Reiteration of FY25 outlook and guidance provided at Q4 Trading Update on 16 May 2024:

o  Following the more challenging trading conditions of FY24, we are cautiously optimistic about trading in FY25. The industry as a whole is being more conservative on production, which we believe is a responsible approach to the long-term stability of the luxury watch market

o  FY25 guidance reflects current visibility of supply from key brands and confirmed showroom refurbishments, openings and closures, and excludes uncommitted capital projects and acquisitions

o  FY25 guidance includes the annualisation of the Ernest Jones acquisition, and Roberto Coin Inc. from 9 May 2024

·      The Group provides the following FY25 guidance on a pre-IFRS 16 basis, assuming a £/$1.26 exchange rate:

The equivalent guidance on an IFRS 16 basis is:

·      The Group is exposed to movements in the £/$ exchange rate when translating the results of its US operations into Sterling. The Actual average exchange rate for FY24 was $1.26. FY25 guidance assumes a £/$1.25 exchange rate, with a five cent move resulting in an adjustment of c.£30 million to full year Group revenue and c.£4 million on full year Adjusted EBIT, on a pre-IFRS 16 basis

·      The Group has an exciting pipeline of new showroom projects planned in FY25:

o  Flagship Rolex boutique on Old Bond Street, London

o  New Audemars Piguet Townhouse, operated as a joint venture, Manchester

o  New Mappin & Webb luxury jewellery boutique, Manchester

o  New Mappin & Webb, Edinburgh

o  New Watches of Switzerland Ross Park, Pittsburgh

o  Relocation and addition of Rolex to Watches of Switzerland Legacy West, Plano, Texas

o  Relocation/expansion of Mayors Tampa, Mayors St Johns and Mayors Sarasota, Florida

o  Expansions of Betteridge Greenwich, including enhanced Patek Philippe space and Betteridge Vail, Colorado

o  Conversion of Mayors multi-brand Lenox, Atlanta into a Rolex mono-brand boutique

Reporting timetable

As the Company enters its sixth year listed on the London Stock Exchange, the Board has reviewed its reporting schedule and has decided it is in the best interests of the Company and shareholders to align its reporting calendar more closely with luxury and non-luxury retail peers. Routine updates will occur as part of the half year and full year results, normally in December and July each year, as well as two qualitative trading updates normally in January and September each year.

Webcast and conference call

A webcast presentation and conference call for analysts and investors will be held at 9.00am (UK time) today to announce the FY24 results. To join the call, please use the following details:

Webcast link: https://brrmedia.news/WOSG_FY_24

Conference call dial-in: +44 (0) 33 0551 0200

Password: WOSG FY24

Contacts

The Watches of Switzerland Group

Anders Romberg, CFO                                                                                                                      +44 (0) 207 317 4600

Caroline Browne, Group Finance and Investor Relations Director                                          +44 (0) 116 281 7420

investor.relations@thewosgroup.com

Headland

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

wos@headlandconsultancy.com

About the Watches of Switzerland Group

The Watches of Switzerland Group is the UK's largest luxury watch retailer, operating in the UK, US and Europe comprising six prestigious brands; Watches of Switzerland (UK and US), Mappin & Webb (UK), Goldsmiths (UK), Mayors (US), Betteridge (US), and Analog:Shift (US) with a complementary jewellery offering. From 8 May 2024, the Group also owns the exclusive distribution rights for Roberto Coin in the USA, Canada, Central America and the Caribbean.

As at 28 April 2024, the Watches of Switzerland Group had 223 showrooms across the UK, US and Europe including 99 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.

www.thewosgroupplc.com

CEO Review

FY24 was a more challenging year for the Group, but despite this we delivered revenue growth of +2% in constant currency.  Profitability was impacted by the lack of leverage and the headwinds of Interest Free Credit costs. Our US performance was particularly strong, at +11% in constant currency, demonstrating the strength and opportunity of the US market. In both the UK and US markets we have been pleased to see growth in our Registration of Interest lists for key products in limited supply.

The macroeconomic backdrop in the UK resulted in a more unpredictable year for the Group, and sales in the UK and Europe declined -5% year on year. The UK luxury watch market is going through a period of normalisation following the COVID boom, where consumers had more disposal income to spend on watches and jewellery.  High inflation and interest rates resulted in increased cost-of-living for the UK consumer and this coupled with significant price increases, mainly due to the strength of the Swiss Franc, from luxury watch brands meant that the aspirational customer was more squeezed and inclined to defer purchases. The UK market is now almost entirely domestic, following the withdrawal of VAT free shopping for tourists following Brexit, resulting in very low levels of overseas shoppers.

In both the US and the UK we have continued to gain market share, driven by our proven, differentiated business model which sets us apart in the industry. We have continued to drive high quality growth including showroom enhancement, strategic acquisitions and building infrastructure across our markets but particularly in our US business, which now makes up 45% of Group sales.

As outlined in our Long Range Plan, luxury branded jewellery has become a key part of our strategy for growth. We have built strategic partnerships defined at the Global level to support our ambitious growth plans. We are continuing to add prestigious luxury jewellery brands to our portfolio, including David Yurman, Pomellato, FRED, Repossi, Pasquale Bruni and Faberge. In addition we are expanding key existing brands within our portfolio of Roberto Coin, Chopard, Messika and Fope. We have also made significant progress with our Mappin & Webb luxury jewellery boutique in Manchester, which opens in FY25 and includes the first DeBeers mono-brand boutique in the UK outside of London.

Post year end, we completed our acquisition of Roberto Coin Inc. - the exclusive North American distributor of Roberto Coin - dramatically accelerating our luxury jewellery branded strategy, and we see enormous potential in bringing together this iconic brand with our retailing expertise and resources. Going forward we will work with our new retail partners to improve the point-of-sale experience through shop-in-shop design, develop mono-brand retailing and invest in online and marketing. 

This year saw the launch of the Rolex Certified Pre-Owned programme and we are highly encouraged by the extremely strong performance. During FY25 we will continue to roll this out to further locations and we expect that our sales will benefit from dedicated shop-in-shop formats, window displays and increased marketing.  Pre-owned sales of other brands also performed well and we are extending this offering in our showroom portfolio in FY25.

Over the year, we have continued to invest for high quality growth across showroom projects and strategic acquisitions, whilst building resources and infrastructure within our US business. We have made excellent progress on our showroom expansion and refurbishment programme, with 22 new showrooms opened and 15 refurbished. Our showroom design is a key part of our client appeal, where we focus on welcoming, browsable, modern showrooms. In the US we opened two multi-brand showrooms in American Dream, New Jersey and One Vanderbilt, New York. We also relocated our Mayors Dadeland, Florida showroom and expanded the Rolex Millenia mono-brand boutique, Orlando, Florida.  In the UK, we continued our rollout of the Goldsmiths Luxury concept with seven showrooms either expanded or refurbished including some of our larger showrooms such as Liverpool, Birmingham Bullring and Manchester Trafford Centre. We expanded our new Mappin & Webb contemporary concept with refurbishments of Glasgow, York, Guernsey and Bluewater. This new concept modernises the showroom environment, whilst maintaining the sense of heritage with the Mappin & Webb brand. We also completed the major expansion of the Patek Philippe space in Watches of Switzerland 155 Regents Street, London.

We are excited about the strong pipeline of showroom projects we have planned in FY25, including the flagship Rolex boutique on Old Bond Street, London, Audemars Piguet Townhouse, Manchester, introduction of Rolex into Watches of Switzerland Plano, Texas, relocations of Mayors Tampa, St Johns and Sarasota, Florida and expansion of Betteridge Vail, Colorado. We have also recently secured the conversion of our existing multi-brand Mayors Lenox, Atlanta into a Rolex mono-brand boutique, which will open in FY25 and are expanding the Patek Philippe space in Betteridge Greenwich, Connecticut.

In November 2023, we completed the acquisition of 15 luxury watch showrooms from Ernest Jones. The rebranding, colleague training and system conversions are now complete, and these showrooms are trading in line with our expectations. 

One of our key strengths is client experience, which is underpinned by our 'Xenia' client service programme.  Xenia is at the heart of everything that we do and is based on three pillars: Know Me; WOW Me; Remember Me.  This year we have maintained our focus on embedding these fundamental pillars across our showrooms and online proposition. We also recognise that client service goes beyond our external clients, and this year we started to embed Xenia into our Support Centre, driving client service at the centre of all stakeholder interactions.

Our partnerships with the most recognised and prestigious luxury watch brands have continued to strengthen throughout FY24. In 2024, Watches of Switzerland celebrates its centenary year and with it we have showcased a number of exclusive products with key brands such as Cartier, Girard-Perregaux and BVLGARI.

We were delighted to host a Grand Prix d'Horologie De Geneve (GPHG) exhibition in New York at our Soho flagship for the second year running.  This event, which took place in October 2023, aimed to highlight the most remarkable contemporary watch designs in the world, while celebrating horology culture and excellence. 

In April 2024, we secured a three-year partnership with Academie Hologere des Createurs Independants (AHCI), which exists to preserve traditional watchmaking, support talented watch makers and promote quality, innovation and creativity.  This non-profit organisation provides watchmaking's rising stars with a platform, as well as support and guidance, as they hone their craft and begin their careers.

In February 2024, we commenced our new partnership with American Express Centurion in the US, which offers an exclusive concierge programme to US Centurion members.  The partnership was celebrated with a launch party at the Amex Centurion Club at One Vanderbilt, New York. 

Environmental, Social and Governance

We have continued to stay true to our ESG pillars of people, planet and product throughout FY24.  Highlights during the year include:

·      Expanded our repairs and servicing capacity in the UK and US as part of our focus on the circular economy.  This has doubled watchmaking capability in the UK. We also increased our circularity KPI of the number watches repaired, serviced or resold as a percentage of new watch sales to 46% from 44% in the prior year

·      UK accredited as Real Living Wage Employer

·      Met the recommendations of the FTSE Women Leaders Review and ranked top 10 for the FTSE 250

·      Maintained the recommendations for the Parker Review for the Board

·      Improved our CDP Climate Change score year-on-year from a 'C' to a 'B'

·      Launched a colleague incentive to encourage and reward eco-friendly behaviours

·      Mappin & Webb named as CSR Jewellery Retailer of the Year in the 2023 Professional Jeweller Awards

·      £7.5 million to date donated to The Watches of Switzerland Group Foundation, the aim of which is to provide essential support to charities located in the communities in which we operate, focusing on poverty, the advancement of education and relief to those in need

·      We have strengthened our relationship with the Prince's Trust and the Group was the headline sponsor for the Prince's Trust Palace to Palace Bike Ride for the second year

·      Linked our existing loan facility to the achievement of our near-term science-based emission reduction targets and circularity goals

Long Range Plan

Looking forward, we remain confident in the LRP targets to more than double sales and Adjusted EBIT by the end of FY28, from an FY23 base.  Going into FY25, we have the strongest ever pipeline of committed Rolex and other key brand projects through to FY28. The initial performance of Rolex Certified Pre-Owned has been ahead of our expectations, and we now expect Rolex Certified Pre-Owned to outperform the targets previously outlined in the LRP in November 2023. 

The recent acquisition of Roberto Coin Inc. will spearhead our luxury branded jewellery strategy and we see further potential above and beyond what was incorporated in our LRP.

In line with our disciplined approach to capital allocation and given the pipeline of high ROI opportunities in the UK and US, we have announced our intention to reallocate investment from the European market into these higher returning regions over the period of the LRP. We are in negotiations with our brand partners for the transfer of certain existing European mono-brand boutiques. The additional growth from Rolex Certified Pre-Owned and Roberto Coin Inc., together with acquisition opportunities in the US, is expected to offset the reduction from European sales within the life of the LRP.

Guidance for FY25

Following the more challenging trading conditions of FY24, we are cautiously optimistic about trading in FY25.  The industry as a whole is more conservative on production given the current volatility in the market, which we believe is a responsible approach to the long-term growth trend of the luxury watch market.  Our FY25 guidance, as issued on 16 May 2024, projects full year revenue of between £1.67 and £1.73 billion, reflecting constant currency sales growth of 9% - 12%.  We expect Adjusted EBIT margin expansion of +0.2 to +0.6 percentage points from FY24.  We will continue to invest in our showroom portfolio, with a capex spend of £60 - £70 million.

Given the strength of our model and continued investment in the right areas for growth, I am confident that our business can come out of a difficult trading period stronger and well positioned to capitalise when the market conditions improve.  We believe fundamentally in the resilience and long-term strength of the luxury watch and jewellery markets.

Finally, we have over 2,900 colleagues at the Watches of Switzerland Group and I would like to thank all of them for their continued hard work and dedication, which is definitely the key to our success. I would also like to welcome our new colleagues from Roberto Coin Inc. and look forward to working with them on the future growth of this iconic brand.

Financial Review

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

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

Revenue

Revenue by geography and category

Group revenue was flat on last year at £1,537.9 million (+2% on a constant currency basis).

Group revenue from luxury watches grew by +1% (+3% in constant currency) on the prior year and made up 87% of revenue in line with the prior year. Demand for our key brands, particularly products on Registration of Interest lists, continues to be strong, with consistent additions and conversions.  Recent price increases across luxury watch brands, driven by cost inflation and foreign currency movements, have impacted affordability for some consumers, particularly in the UK, where the challenging macroeconomic backdrop was more pronounced as inflation remained higher through the year. We believe this has led to a deferral of purchases amongst a certain cohort of consumers.

The Rolex Certified Pre-Owned programme was launched in the US in July 2023 and in the UK in September 2023. Rolex Certified Pre-Owned is currently available in 19 agencies in the UK and 17 in the US and also available online. The performance of this programme has exceeded our expectations, and we will be rolling it into more showrooms during FY25. The sourcing of product for the UK market has become easier as we have continued to look for opportunities to grow. Total pre-owned and vintage (including Rolex Certified Pre-Owned) sales doubled year-on-year by Q4 FY24 and we see pre-owned as being a major growth factor for the Group.

Group luxury jewellery revenue declined by -14% (-13% in constant currency) on the prior year. This reflected market trends impacted by overall consumer sentiment, particularly within the bridal category, although we did see improving trends in Q4 FY24 with Group luxury jewellery revenue -1%. The majority of luxury jewellery sold by the Group is retailed under our house brands of Goldsmiths, Mappin & Webb, Mayors and Betteridge. Our strategy is to grow our luxury branded jewellery offering, where we partner with other major luxury jewellery brands. Luxury branded jewellery sales continue to significantly outperform non-branded jewellery.

Services/other revenue, consisting of servicing, repairs, insurance services and the sale of fashion and classic watches and other non-luxury jewellery grew by +4%. During the year we expanded our Manchester servicing and repairs centre, which is now dedicated to Rolex, and opened a new servicing and repairs centre in Leicester.

Group ecommerce sales declined by -11% compared to the prior year, impacted by the mix of products sold through this channel and performance of the UK market. We continue to be the market leader in ecommerce for luxury watches and jewellery in the UK and are growing our proposition in the US.

US revenue increased by +6% year-on-year (+11% on a constant currency basis) and the US business made up 45% of the Group's revenue in FY24 (FY23: 42%). Underlying growth was strong across all locations with continued consumer appetite for high demand products. New York and the Wynn Resort, Las Vegas performed particularly strongly. This was accomplished through a combination of our quality product offering and superior client experience and backed up by strong marketing campaigns which had significant reach across offline and online channels.

During the year, the US opened ten showrooms. This included eight mono-brand boutiques in three locations: Topanga, California; New Orleans, Louisiana; and Murray, Utah. A further two multi-brand showrooms were opened, being a Rolex-anchored multi-brand Watches of Switzerland showroom at American Dream, New Jersey which was fully completed in October 2023 with the opening of a large Cartier space, and our third Watches of Switzerland showroom in Manhattan, at One Vanderbilt in March 2024.

UK and Europe revenue declined by -5% during the year. Sales in the UK were driven by a domestic clientele and the Group continued to grow market share. Tourist sales continue to remain low, particularly on account of the removal of VAT free shopping for tourists. Interest in the category remains high and showroom colleagues continued to build strong client relationships, but the overall market was challenging with a reduction in spend across the category.

During the year, we opened eight mono-brand boutiques in the UK, and a further multi-brand Goldsmiths showroom in Bromley. In November 2023, the Group completed the acquisition of 15 luxury watch showrooms from Ernest Jones, comprised of fourteen multi-brand and one mono-brand showrooms. Since acquisition the showrooms have been rebranded and updated with new systems and merchandising, with training and marketing taking place to gain the full beneficial impact of the acquisition in FY25.  Six non-core showrooms were closed giving a net increase of 18 in the UK.

In the period, 15 projects were completed enhancing our existing estate to further elevate the partner brands we display in those showrooms and advance our client experience; this included a number of high-turnover Goldsmith showrooms in the Trafford Centre, Manchester; the Bullring, Birmingham; and Metrocentre, Newcastle.  The new contemporary concept Mappin & Webb showrooms were opened in York, Guernsey, Bluewater and Glasgow.

Three showrooms were opened in Europe taking the total number to nine. In line with our disciplined approach to capital allocation and given the pipeline of high returning opportunities in the UK and US, the Group announced on 16 May 2024 that it intends to reallocate investment from the European market into these higher returning regions. We are in negotiations with our brand partners for the transfer of certain existing mono-brand boutiques.

Profitability

Net margin as a % of revenue was 36.6% in the year. This was 80bps lower than the prior year driven by product mix and the higher cost of Interest Free Credit due to the annualisation of interest rate rises.

Showroom costs increased by £9.9 million (+3.5%) from the prior year, to £289.1 million. Showroom costs as a percentage of revenue increased by 70bps from 18.1% to 18.8%. This reflects the opening of new showrooms, the annualisation of prior year openings, showroom costs relating to the Ernest Jones acquisition and annual pay rises to colleagues. This was partly offset by a reduction in business rates and efficiencies found within showroom payroll, and digital marketing investment which continues to maximise traffic and conversion versus cost.

Overheads increased by £1.2 million (+1%) due to IT investment to support future growth, annual pay rises to colleagues along with the opening of our new support centre in Leicester. This was partly offset by efficiencies within marketing and a reduction in colleague incentive payments.

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 refurbishments are taking place. This cost will vary annually depending on the scale of expansion in the year. Total costs for the year were £8.9 million versus £11.6 million in FY23, reflecting the decreased number of refurbishments and openings undertaken.

Exceptional items

Exceptional items are defined by the Group as those which are significant in magnitude or are linked to events which are expected to be infrequent in nature. The majority of the items below do not have a cash impact.

Business acquisition costs

Professional and legal expenses and integration costs on business combinations have been expensed to the Consolidated Income Statement as an exceptional cost as they are regarded as non-trading, non-underlying costs and are considered to be material by nature. The total cost shown here also includes expenses incurred in the year in relation to the Roberto Coin Inc. acquisition which completed post year end.

Rolex Old Bond street

A new 7,200 sq. ft showroom is being built in partnership with Rolex. This new flagship will be our largest Rolex showroom and reflects the importance of the London market and the special relevance of London to the history of Rolex. The cost shown here is the IFRS 16 depreciation charge and other costs whilst the showroom is being constructed. They are deemed to be exceptional in nature given that this unique proposition results in a project size and complexity significantly outside of a standard build, coupled with documented project delays outside of the Group's control.

European showroom impairment

The exceptional costs are reflective of both asset write downs and onerous contracts in relation to the European showrooms. In line with our disciplined approach to capital allocation and given the pipeline of high returning opportunities in the UK and US, the Group announced after the year end date, it intends to reallocate investment from the European market into these higher returning regions. We are in negotiations with our brand partners for the transfer of a number of our existing European mono-brand boutiques.

Showroom impairment

The current macroeconomic environment, increased interest rates, and inflationary trends gave rise to indicators of impairment in the current period. Consequently, discounted cashflows were performed on all Cash Generating Units (CGUs) with indicators of impairment. This resulted in a non-cash impairment charge of £26.2 million of which £16.4 million related to right-of-use assets (ROU assets).  A significant proportion of the ROU assets impairment arose due to the differences between the interest rates used to initially recognise the ROU asset and the much higher interest rates in place at the year-end used in formulating the discount rates to value the future cash flows. A further provision of £1.0 million relates to the associated onerous contracts.  See note 4 of the Condensed Consolidated Financial Statements for further details.

Reversal of inventory provision created on acquisition

In the prior period, for the Betteridge acquisition, an estimate was made of the fair value of inventory acquired with a provision recorded in goodwill. During the year, the Group achieved higher product margins on a number of these inventory lines through maximisation of our CRM database. The gain is deemed to be exceptional in nature.

Adjusted EBIT and statutory operating profit

As a result of the items noted above, Adjusted EBIT was £134.7 million, a decrease of £30.4 million -18% on the prior year.

After accounting for exceptional costs of £31.9 million and IFRS 16 adjustments of +£17.2 million, statutory operating profit (EBIT) was £120.0 million, a decrease of 33% on the prior year.

Finance costs

Interest payable on borrowings increased in the period, reflecting higher market lending rates and further borrowing to fund the acquisition of 15 showrooms from Ernest Jones. This was offset by higher interest rates earned on cash balances held, and the ability to be more flexible throughout the year with the new multicurrency revolving credit facility. The impact was a net reduction in the pre-IFRS 16 interest charge of £0.1 million to £5.8 million. The IFRS 16 interest on lease liabilities increased by £3.6 million due to recent additions to the lease portfolio as we continue to invest in showroom portfolio expansion.

Details of a further £1.3 million of exceptional finance costs are given in note 4 of the Condensed Consolidated Financial Statements.

Taxation

The pre-IFRS 16 Effective Tax Rate (ETR) for the period before exceptional items was 30.3%. The increase versus our guided ETR is partly driven by the impact of the reduced share price on the share based payments charge. Full detail can be found in note 5 within the Condensed Consolidated Financial Statements.

The statutory (post-IFRS 16 and including exceptionals) effective tax rate was 35.8%. This is higher than the applicable UK corporation tax rate for the year of 25.0% as a result of higher chargeable taxes on US profits, the impact of expenses disallowed for corporation tax, and non-recognition of deferred taxes in Europe.

Balance Sheet

Goodwill increased as a result of the Ernest Jones showroom acquisition in the year which gave rise to £16.0 million of goodwill, together with a £0.5 million favourable exchange impact. A further £2.4 million of computer software additions were made in the year as part of ongoing IT developments, offset by amortisation of £2.8 million.

Property, plant and equipment increased by £37.0 million in the year. Additions of £87.4 million (including £5.8 million from the Ernest Jones acquisition) were offset by depreciation of £39.7 million, impairments of £9.8 million, and a loss on disposal and foreign exchange movements of £0.9 million.

Including software costs, which are disclosed as intangibles, capital additions (including accruals) were £84.0 million in the year of which £81.3 million (FY23: £73.0 million) was expansionary. Expansionary capex relates to new showrooms, relocations or major refurbishments (defined as costing over £0.25 million). In the year, the Group opened 22 new showrooms, and refurbished 15 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 £22.7 million in the year, to £381.8 million. Additions to the lease portfolio along with lease renewals or other lease changes were £94.5 million. This has been offset by depreciation of £56.0 million and impairments of £16.4 million. The remaining movement is a £0.6 million favourable foreign exchange impact.

Lease liabilities increased by £50.0 million in the year. The portfolio changes noted above increased the lease liability by £95.5 million. Interest charged on the lease liability was £22.1 million and there was a £0.5 million adverse foreign exchange impact. Lease payments were £68.1 million, giving a final lease liability balance of £460.4 million.

Inventory levels increased by £37.3 million (+10%) compared to the prior year. £25.3 million of inventory was acquired as part of the Ernest Jones acquisition, and the Group increased pre-owned watches and Rolex Certified Pre-Owned volume by £26.9 million. This has been offset through a reduction in underlying inventory to maintain stock turn at appropriate levels. The inventory obsolescence risk remains low for the Group.

Trade and other receivables increased by £4.8 million compared to FY23. Overall the balance remains relatively low and represents prepayments, rebate receivables, rent deposits and other ad hoc receivables such as property contributions.

Trade and other payables decreased by £3.1 million. The balance remains in line with FY23 as a result of focus on inventory management and ongoing cost control.

Other includes taxation balances, defined benefit pension and capitalised finance costs.

Net cash/debt and financing

Net cash on 28 April 2024 was £0.7 million, a decrease of £15.7 million since 30 April 2023. The strong free cash flow of £117.6 million being utilised for £78.0 million of expansionary capex, £44.2 million relating to the Ernest Jones acquisition and £7.2 million for the purchase of own shares to satisfy future management incentives.

Net debt post-IFRS 16 was £458.0 million. The value comprises the pre-IFRS 16 net cash of £0.7 million and the £460.4 million lease liability, offset by capitalised transaction costs of £1.7 million. The balance increased by £64.0 million (from £394.0 million) in the period, principally driven by additions to the lease portfolio.

The Group's maximum amount available under its committed facility was £225.0 million at 28 April 2024.

During the year, on 9 May 2023, the Group signed a new five-year £225.0 million multicurrency revolving loan facility with lenders. The new facility uses UK SONIA +1.50% to +2.55%. The existing facilities were repaid and extinguished on this date. £115.0 million of these facilities were drawn down at 28 April 2024. Liquidity headroom (defined as unrestricted cash plus undrawn available facilities) was £209.3 million.  Further detail with regards to covenant tests and liquidity headroom can be found in borrowings note 7 within the Condensed Consolidated Financial Statements.

Post year-end, the Group drew down on a new loan facility to fund the acquisition of Roberto Coin Inc.  This $115.0 million loan facility has the same interest rate and covenants as our existing RCF facility and has a term of one year, with two six-month extension periods taking the maximum term length to two years.  In taking out this additional facility we have maintained our financial flexibility to pursue further acquisitions in the future.

Cash Flow

Free cash flow decreased by £28.2 million to £117.6 million in the year to 28 April 2024 and free cash flow conversion was 66% compared to 72% in the prior year.

Cash flow from trading reduced (Adjusted EBITDA decreased by £22.5 million), in addition to a £20.3 million adverse working capital movement, driven by the inventory increase in the year as noted above. Tax cash payments increased to £33.5 million in line with the tax charge in the year.

Expansionary cash capex of £78.0 million was higher than the prior year due to an increase in new showroom openings and refurbishments. FY24 had a higher proportion of capex spend in the first half of the year, as we looked to complete significant projects ahead of the holiday season. Showrooms will therefore benefit from a full year of opening in FY25.

£7.2 million of shares were purchased in the period to satisfy management incentive schemes, which will vest in the future periods.

Exceptional cash items of £2.5 million principally relates to professional and legal expenses in relation to actual and future acquisitions, including the acquisition of Roberto Coin Inc. which took place post year end.

Return on Capital Employed (ROCE)¹

FY24 ROCE is 19.5%, a decrease of 840bps in comparison to the prior year. This is as a consequence of Adjusted EBIT decreasing by -18% compared to the prior period.

Roberto Coin Inc. Acquisition

On 8 May 2024, the Group signed and completed the acquisition of the entire share capital of Roberto Coin Inc., the exclusive distributor of Roberto Coin in the US, Canada, Central America and the Caribbean.

The acquisition completed for a total cash consideration of $130.0 million (of which $10.0 million is deferred for one year and contingent on the future profitability of the acquired business), subject to working capital adjustments.

Roberto Coin Inc. achieved annual revenue of $137.2 million and profit before taxation of $29.8 million for the audited financial year ended 31 December 2023. Gross assets at that date were $102.4 million.

The acquisition was financed via a new $115.0 million term loan facility. At the date of the acquisition, the transaction increased the Group's leverage to c.0.8x Net Debt/Adjusted EBITDA at the year-end date and c0.6x on a pro-forma basis.

The acquisition will be margin enhancing and EPS accretive from the date of acquisition.

Capital Allocation

The Group has a clear framework of capital allocation and is focused on optimising capital deployment for the benefit of all our stakeholders, with a focus on long-term sustainable growth in the business. It is also important for the Group to maintain financial and operational flexibility to be able to react tactically to opportunities, such as strategic acquisitions, at speed.  Our capital allocation framework is as follows:

1.     Showroom investments - given the attractive returns from showroom investments, this is our key focus area to allocate capital to

2.     Strategic acquisitions - this is a key pillar of our growth strategy, as outlined in our Long Range Plan to FY28.  Acquisitions must deliver return on investment in line with our disciplined financial criteria, within an appropriate timeframe

3.     Returns to shareholders - in  the event of surplus capital/cash flow above and beyond the requirements of the business for investment into showrooms or strategic acquisitions, we would consider returns to shareholders either through ordinary dividends or share buy backs, with the appropriate mechanism to be decided at the appropriate time by the Board

Showroom Portfolio

As at the 28 April 2024, the Group had 223 showrooms.  The movement in showroom numbers is included below:

Footnote references

¹ 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.

² Refer to the Glossary for definition.

³ $10 million is deferred and contingent on the future profitability of the business, subject to working capital adjustments

⁴ Ecommerce sales are sales which are transacted online.

Certain financial data within this announcement has been rounded. Growth rates are calculated on unrounded numbers.

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 2023 Annual Report and Accounts, described as follows, remain unchanged: Business strategy execution and development; Key suppliers and supply chain; Client experience and market risks; Colleague talent and capability; Data protection and cyber security; Business interruption; Regulatory and compliance; Economic and political; Brand and reputational damage; Financial and treasury; and Climate change. These are detailed on pages 116 to 121 of the 2023 Annual Report, a copy of which is available on the Watches of Switzerland Group PLC (the 'Company') website at www.thewosgroupplc.com.

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 2024 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, losses and future prospects; (ii) business and management strategies, the expansion and growth of the Group's business operations; and (iii) the effects of government regulation and industry changes on the business of the Company or the Group.

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

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 and, except as required by law or regulation, the Company undertakes no obligation to update these forward-looking statements. No statement in this announcement should be construed as a profit forecast or profit estimate.

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 as detailed above.

Watches of Switzerland Group PLC

Preliminary results

For the 52 week period ended 28 April 2024

Registered number: 11838443