Likewise Group plc (LON:LIKE) Chief Executive Officer Tony Brewer caught up with DirectorsTalk to discuss the successful fundraising, the new Corby distribution hub, increased cutting capacity, current trading, and the Group’s longer-term revenue ambitions.
Q1: Tony, could you just explain for us the successful fundraising that was announced and closed yesterday?
A1: I think if we go back into our history, we formed Likewise in 2018 with the acquisition of a doormat and rug business and we saw opportunities to grow a meaningful floor covering distribution business. We believed the best way of getting capital, notwithstanding the significant investment myself and the other founder shareholders made, was to use the equity markets.
So, we chose to list on The International Stock Exchange in Guernsey in January 2019 and I have to say we had huge support from Ravenscroft as an institution to do that, along with other institutions, and particularly John Ravenscroft himself, and that’s continued.
We then acquired a business in the spring of 2019 called Heatseam Factory Flooring, progressed and developed the business, and then moved to AIM in the autumn of 2021. We then acquired Valley Wholesale Carpets at the beginning of 2022, equally by using the equity markets.
Going forward, we see a lot of opportunities in the floor covering industry, specifically the opportunity to acquire the freehold of a new distribution hub in Corby and other plans. Again, we felt rather than overleverage the business, we should use equity and keep our flexibility.
If you take our overall property portfolio around the UK, which even prior to Corby is valued at £33 million with just £5 million of debt, we see a number of other opportunities both to enlarge our logistics footprint, but also, as time goes by, to enhance some of the other existing sites we’ve got or potentially move into bigger and better sites.
Q2: So, where does that position the Group with capacity?
A2: Well, I think in terms of property, as I’ve said, we have those 13 sites currently, soon to become 14.
I think some key things we’ve done this year are the acquisition of the additional distribution hub in Leeds, primarily to make our incoming containers of palletised goods, particularly luxury vinyl tile and laminate, more efficient, and then feed those pallets into our network.
Also, the extension to the distribution centre in Newport to turn that into a fourth hub for Likewise Floors, that is now becoming operational. The cutting table went in at the beginning of this week, it’s being assembled currently and being commissioned, and that will be operational within the next two weeks.
In terms of the Corby layout, that will be put together over the coming months, with all of the racking and cutting tables on order and that site is intended to be operational by the beginning of next year.
I think that the key thing there is it gives us a huge amount of extra cutting capacity. So, if you take our existing centres in Glasgow, Leeds, and Birmingham, we can effectively, across those three centres, do 1,800 cut lengths of carpet, residential vinyl, and artificial grass per day. Similarly, in Valley Wholesale Carpets in Erith, again, three large cutting tables, 1,800 cuts per day.
The development with the extension in Newport – we previously extended the Derby facility within the Valley network – and with Corby coming on stream, that gives us literally 50% more capacity.
So, if you think of our annualised run rate of sales revenue being £200 million, that quite clearly allows us to gear up towards £300 million.
Q3: Speaking of which, how has trading been so far this year?
A3: It’s been very good. I think there are lots of opportunities there. You’ll see from the sales graph that January and February are typically the lower trading period, building up in the spring and softening a little bit in the summer months.
As you’ll probably appreciate, hot weather is not kind to us in many respects because people probably have other priorities than buying floor covering on Saturday afternoon.
Equally, you can again see from the sales graph that the development has been very positive, and I think we are looking with some optimism towards the autumn trading period.
Q4: How much more capacity does the Group intend to invest in over the next five years?
A4: I think in the short term, we have a number of projects ahead of us.
Obviously, Corby being the first one. We are aware of other distribution centres quite similar to Corby so that 60,000-square-foot high-bay distribution centre, there are a number around the country and we’re also aware of pieces of land with planning permission.
So, I think we would be looking to, as I say, extend our footprint, and we have a number of specific projects in mind.
Q5: What sales revenue does that enable?
A5: Well, as I said, I think the development Likewise has done to date, particularly with Corby, Newport and Derby, could take us to £300 million.
I think going forward, if we look at some other sites we have in mind, both existing buildings and development opportunities, that could take us well over £300 million towards £400 million.
I think we’ve said throughout our history that we aspire to realistically a 5% return on sales, maybe going towards a 6% return on sales at a profit-before-tax level. I think with an improving gross margin, with operational gearing, then I think that’s very achievable.
