Angling Direct AIM:ANG, the AIM-listed, retailer of fishing tackle and bait, released its results for the six months ending 31st July 2022 yesterday (17th October).
It’s been a difficult year for the Norwich-based bait and tackle store, with a lot of the problems that they have had to contend with out of their hands. The company’s busiest season, summer, was significantly affected by record high temperatures and low rainfall, with many waterways in the UK and Europe closed off to anglers due to falling water levels and low oxygen in the water, and it being just that bit too hot for anglers to go out.
Moreover – as every good fisherman knows – fish don’t strike as well in warmer water, so throughout this record-breaking summer, the sport aspect of the hobby has been affected. That said, fishing isn’t always just about catching fish. The company said post-period end, its sales had been affected by the unusually hot temperatures the country saw this summer, which caused some fishery closures and led to sales in the peak trading month of August being 7.0% down against the corresponding month the year before.
Nevertheless, Angling Direct’s group revenue did increase to by 1.3% to GBP38.9m and people were still coming into the group’s outlets with sales stores revenues increasing 9.8% 1H22 year-on-year Like-for-like store sales increased 4.6% in 1H22.
However, pre-tax profits fell 70% to GBP1.1m, down from GBP3.7m in 1H21. Despite revenue rising, the cost of sales for Angling Direct’s goods rose faster – by 6.3% to GBP25.5m- which wiped out the angling retailers’ revenue growth.
Competitive trading environment
Gross margin decreased by 280 basis points because of “competitive trading both in the UK and Europe combined with inevitable cost price inflation, albeit remains comfortably above historical levels,” said the company in a statement.
The recent economic turmoil in the UK has affected not only the financial markets, but the real economy and although Angling Direct’s total sales returned to modest year-on-year growth in September, “like many consumer-facing businesses we have recently seen volatile, unprecedented and unpredictable trading conditions both in-store and online which change significantly week-by-week for example, for trading weeks which commenced in the month of September year-on-year total UK sales ranged from 21% increase to 0.5% decrease,” the company said in a statement.
Andy Torrance, chief executive said in a call yesterday: “The general market outlook has deteriorated further in recent weeks which creates a heightened degree of uncertainty and makes short-term forecasting extremely challenging.”
“Every month we go through deteriorates in importance as we went through out peak sales month [August] which was very poor, and although sales have picked up [in September] every month that passes is less important in terms of P&L. It’s not enough to make up for a disappointing summer,” said Torrance
Reduced revenue expectations
He explained that the current economic situation and political uncertainty in the UK was making consumers cautious both in the UK and Europe, but noted: “angling is a fairly resilient pastime; history tells us that in times of recession people continue to fish, as it is actually quite low cost to access, but we would be unrealistic to think that people’s frequency to fish and to travel to fish will not be affected. We also will see delays in people’s decision to replace the high-value capital items – reels and rods – and those that need to replace reels and rods will be more price-sensitive than they were. With that in mind […] we have reduced our expectations for revenue and pre-IFRS16 EBITDA for the remainder of the year.”
He continued: “We are clearly finding trading difficult at the moment. But if it’s tough for us, it’s a lot tougher for our competitors. Our store network has been key for our growth […] we are confident however that through to the end of our financial year in 31st January 2023, sales will not be less than GBP73.8m and pre-IFRS16 EBITDA of GBP2.2m.”
Torrance explained the business is focussed on gaining market share both in the UK and Europe over the medium- to long-term and he believes that the current uncertain consumer environment coupled with the Angling Direct’s fundamental strengths mean there is a significant opportunity to gain market share in a weakening competitor landscape.
“The business is very focussed on short-term trading […] but we are also looking at capturing greater market share and have numerous significant opportunities to grow in the UK […] we currently have 12% to 14% market share in the UK, so plenty more to go for there and that’s born out of the success of the new stores we opened this year […] and clearly have opportunities to grow online,” the CEO said.
New store openings
The company opened two new stores, one in the north-east of England and the other in the Midlands this year, but Torrance sees the potential to open up 30 to 40 more stores across the country and views the business as “a consolidator” and “the clear market leader” in the UK – “eight-or-nine times larger than its nearer competitor”. Torrance said that the bait and tackle market in the UK is highly fragmented, and the independents do not have the balance sheet, distribution clout or product range that Angling Direct can offer.
As a result, the company is prepared to invest more in new stores and building out its digital marketing. The company has expanded into mainland Europe, opening a distribution centre in the Netherlands to explore opportunities in Europe, notably Germany, France and the Netherlands. In Europe, online sales grew by 36.9% with online sales to the company’s key European territories, via its German, French and Dutch websites, growing by 55%. The company has a wholly-owned Dutch subsidiary which acts as the distribution centre for European business. Setting up a EU-based entity has allowed the company to deal with the problems experienced following the UK’s withdrawal from the European Union.
Angling Direct securely positioned
The company will look to buy smaller troubled competitors to help grow its market share. It reported positive operating cashflow of GBP2.4m, down from GBP5.8m in 1H21, a strong balance sheet with net cash of GBP17.7m and maintains that the group remains well capitalised and securely positioned to meet short-term challenges.
The company will use its own resources for any potential M&A activity. Torrance said: “We are not contemplating raising any further equity to finance any potential M&A deals, and are very confident that any appropriate deals that do come along can be resourced from our current cash […] there are no particular acquisition targets we see in the UK at the moment, but we do have good relationships with reasonable businesses and should the time come along we can have the appropriate conversations.”
He continued: “However, we are committed to omni-channel in Europe […] and we won’t be able to bring the full benefits of Angling Direct to customers in Europe until we are omni-channel and that brings up the issue of developing a bricks and mortar presence on the ground in Europe, which brings up the question of M&A opportunities on the continent.”Angling Direct began in 1986 when the founders bought-up a few tackle shops in Norfolk, in 2003 the company opened up a ‘superstore’ in Norfolk and started selling tackle online in 2000. In the next decade the company grew rapidly, buying out small independent tackle shops across the country whilst expanding its footprint of superstores nationally, funded initially by working capital and debt and then after listing on AIM in 2017, through equity capital. It opened a distribution centre in Norwich to support its online retailing and stores in 2015. In 2016 the company launched its own range of products, manufacturing most of its tackle in China and sourcing bait in the UK.
The company opened trading today at 29p and has offered a -44.91% year-to-date return and a -58.5% one-year return with shares ranging between 24p and 75p over a 52-week period. The company has a market capitalisation of GBP22m.
