7 December 2023

Watches of Switzerland Group PLC

H1 FY24 Results

for the 26 weeks to 29 October 2023 (H1 FY24)

Good H1 performance with continued strong momentum in the US

Full Year guidance unchanged

Brian Duffy, Chief Executive Officer, said:

"Our good first half performance reflects the Group's growing leadership position in our chosen markets as the strength of our longstanding brand partnerships and our proven business model continue to drive our performance forward. We are particularly pleased with performance in the US, where we grew revenue +11% in the period, and the US now comprises 43% of Group revenue. The consumer environment in the UK continues to be more challenging and UK and Europe revenue was -4% in the period, impacted by the timing of product intake in Q1 FY24 and temporary showroom closures for refurbishment.

"We have expanded our retail network at pace in the first half, opening a total of 19 showrooms globally, whilst investing in elevating the luxury experience for our clients through significant refurbishments across seven showrooms. We were also delighted to complete the acquisition of selected luxury showrooms from Ernest Jones in November 2023. Looking ahead into the balance of the financial year, we will integrate the Ernest Jones portfolio and continue to deliver on our exciting pipeline of new projects.

"Demand dynamics remain strong, and our client registration lists continue to grow, whilst the pre-owned market remains a significant opportunity. We are encouraged by the early performance of the Rolex Certified Pre-Owned programme following its launch in the first half in both the US and UK. We will continue to expand the number of showrooms to meet demand for all pre-owned luxury watches and are excited by the growth potential in this category.

"Looking ahead, we are well positioned for a good holiday trading period as we present our clients with our strongest ever range of luxury watches and luxury branded jewellery. We remain on track to deliver full year guidance, with our confidence for H2 underpinned by the reopening of several high revenue showrooms which were closed for upgrade in H1.

"Looking further ahead, we are confident in our Long Range Plan objectives of doubling sales and profit by 2028  through capitalising on our leading market positions and the unique growth opportunities available to us as the world's largest luxury watch retailer."

H1 FY24 Financial Highlights

·      Group revenue £761 million (H1 FY23: £765 million), +2% at constant currency, flat at reported rates

o  Continued growth in luxury watches with the reduction in the broader jewellery market reflecting temporary softer consumer sentiment and a repositioning to full price sales in the US

o  Excellent progress with showroom expansion and refurbishment programme

o  Launch of Rolex Certified Pre-Owned in both the US and UK markets with encouraging early performance

o  Group ecommerce sales¹ -3% on last year at constant currency against strong comparatives in the prior year and impacted by the higher proportion of jewellery sales through this channel

·    Adjusted EBIT² of £73 million ahead of previously guided at £70-72 million (-15% on a reported basis (H1 FY23: £87 million))

o  Adjusted EBIT margin 9.6% (H1 FY23: 11.3%), limited leverage in H1 FY24 alongside headwinds from Interest Free Credit, which annualise in the second half of the year

·      Statutory operating profit £78 million (HY FY23: £93 million), -16% on a reported basis

·     Expansionary capital expenditure³ of £48 million (H1 FY23: £27 million) with 19 (H1 FY23: 20) new showrooms opened and seven showrooms refurbished

·    Free cashflow² of £57 million (H1 FY23: £56 million) with conversion of 60% (H1 FY23: 53%), improvement driven by lower working capital investment, offsetting lower Adjusted EBITDA²

·      Net cash² of £16 million as of 29 October 2023 (30 October 2022: net debt² of £26 million)

H1 FY24 Operating highlights

·     Continued strong momentum in the US with revenue of £328 million (H1 FY23: £311 million), +11% at constant currency, +5% at reported rates

o  Sustained growth in core business, reflecting the success of our model and strength of client demand

o  Further investment in showroom network with opening of eight mono-brand boutiques and one new Watches of Switzerland multi-brand showroom, anchored by Rolex at American Dream in New Jersey

o  The first half of FY24 ended with 25 multi-brand showrooms (H1 FY23: 24) and 31 mono-brand boutiques (H1 FY23: 23)

·     UK and Europe performance driven by domestic clientele, with revenue of £433 million (H1 FY23: £454 million), -4% vs H1 FY23

o  Q1 FY24 was impacted by the unwinding of the benefit of product intake in Q4 FY23, which meant Q1 FY24 revenue was down -8% vs the prior year. Revenue in Q2 FY24 was flat on prior year, with several high turnover Goldsmiths and Mappin & Webb showrooms closed for upgrade during the period and trading out of pop-ups. These reopened pre-Christmas in the second half of the financial year

o  Investment in seven new UK showroom openings; six mono-brand boutiques and one Goldsmiths multi-brand in Bromley

o  Continued rollout of Goldsmiths Luxury concept most notably in Liverpool with our largest Goldsmiths Luxury showroom to date, and the launch of our first new contemporary showroom concept for Mappin & Webb

o  The first half of FY24 ended with 89 UK multi-brand showrooms (H1 FY23: 91) and 57 UK mono-brand boutiques (H1 FY23: 46)

o  Further European expansion through the opening of three new mono-brand boutiques including our first showroom in Germany, a TAG Heuer boutique in Berlin. This takes the total number of European mono-brand boutiques to nine

·      Agreed purchase of luxury watch showrooms from Ernest Jones 

o  Acquisition completed in November 2023

o  Multi-brand showrooms already re-branded to Goldsmiths or Mappin & Webb

o  During the balance of the financial year, we will be working on systems, merchandising, training and marketing in order to have the full beneficial impact from this acquisition in FY25

·      Xenia, the Group's elevated Client Experience Programme, is now embedded across all showrooms, further enhancing the relationship we have with our clients

·    The Watches of Switzerland Group Foundation has now donated £3.5 million to charities since formation and continues to support disadvantaged communities in both the UK and US

Outlook

·   FY24 guidance remains unchanged, based on our sequential trading improvement and the large showroom refurbishments reopening pre-Christmas. Our guidance does not reflect any expectation of an improvement in consumer confidence in the remainder of the financial year. Guidance reflects current visibility of supply from key brands and confirmed showroom refurbishments, openings and closures, and excludes uncommitted capital projects and acquisitions.

·    The Group has an exciting schedule of new showroom projects for the remainder of FY24, a number of which have completed since the end of Q2

o Relocation of the Rolex boutique Millenia, Orlando to a showroom three times the previous size (opened November 2023)

o Continued roll-out of the Goldsmiths Luxury format, including the expansion of the Birmingham Bullring showroom (opened November 2023), and relocation of Trafford Centre Manchester and Metrocentre Newcastle showrooms (December 2023)

o Further roll-out of the Mappin & Webb contemporary format with refurbishments in Glasgow (opened November 2023) and Bluewater (December 2023) 

o  Watches of Switzerland multi-brand showroom at One Vanderbilt, New York due to open early 2024

o  Expansion of the mono-brand portfolio with four boutiques planned across the UK, US and Europe

·      Unchanged FY24 guidance (on an organic pre-IFRS 16 basis):

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 FY23 was 1.20

H1 FY24 Revenue Performance by Geography

H1 FY24 Revenue Performance by Category

H1 FY24 Results Presentation

A webcast conference call for analysts and investors will be held at 9.00am (UK time) today to announce the H1 FY24 results. To join the call, please use the following details:

Webcast link:  https://brrmedia.news/WOS_H1FY24

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

Contacts

The Watches of Switzerland Group

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

Caroline Browne, Group Finance Director                                                                                   +44 (0) 1162 817 420

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 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 29 October 2023, the Watches of Switzerland Group had 211 showrooms across the UK, US and Europe including 97 dedicated mono-brand boutiques in partnership with Rolex, OMEGA, TAG Heuer, Breitling, TUDOR, Audemars Piguet, Longines, 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

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.

Chief Executive Officer's Review

Our Group delivered a strong first half of the financial year notwithstanding the difficult consumer environment, as we enhanced our leadership position in our existing markets of the UK and the US and continued to expand within Europe. Revenue improved throughout the period with growth of +2% at constant currency vs H1 FY23 (flat at reported rates), profitability was impacted by the lack of leverage and headwinds from interest free credit and inflation.

Luxury watches demand remained consistently high with demand continuing to outstrip supply for high demand product, with revenue +3% vs H1 FY23 at constant currency with growth in the period driven by increases in average selling price. Our pre-owned watch category continues to grow, and we were delighted to launch Rolex Certified Pre-Owned in both the US and UK in the half, with encouraging early client engagement and trading. The luxury jewellery market was challenging in the half with sales -15% at constant currency vs H1 FY23, however the luxury branded jewellery relatively outperformed and remains a category where we see significant opportunity as presented in our Long Range Plan.

In the US, revenue increased by +11% vs H1 FY23 at constant currency with the US now representing 43% of Group revenue. We continued to expand our US network, opening eight mono-brand boutiques alongside one multi-brand showroom, anchored by Rolex at American Dream, in New Jersey. We are building our team and resources, in what is now the number one market globally for luxury Swiss watches and remain confident in the long term growth potential of the US market.

UK and Europe revenue declined by -4% during the period but showed an improving trend in Q2 FY24. Sales were driven by domestic clientele and the Group continued to gain market share. Q1 FY24 was impacted by unwinding of the benefit of product intake in Q4 FY23, which meant Q1 FY24 revenue was down -8% in Q1 vs the prior year. Revenue in Q2 FY24 was flat on prior year, with several high turnover Goldsmiths and Mappin & Webb showrooms closed for upgrade during the period and trading out of pop-ups. These reopened pre-Christmas in the second half of the financial year.

In the UK, we made significant investment in our showrooms during the period, opening seven new showrooms, and have continued with the rollout of Goldsmiths Luxury concept including the reopening of our largest showroom to date in Liverpool. The first half also saw the launch of our new Mappin & Webb concept in York, and we have subsequently reopened our expanded showroom in Guernsey. The refurbishment of certain UK showrooms during H1 FY24 and replacement with temporary pop-ups moderately impacted our top line performance, however all refurbished showrooms will be opened ahead of the holiday period.

I am delighted to welcome our new colleagues from Ernest Jones and look forward to them developing within our business following the acquisition of 15 luxury showrooms, including one mono-brand boutique. We believe these are great showrooms and highly complementary to our portfolio. During the balance of the fiscal year, we will be working on systems, merchandising, training and marketing in order to have the full beneficial impact from this acquisition in FY25.

We opened a further three showrooms in Europe including our first showroom in Germany, a TAG Heuer mono-brand boutique in Berlin. We have great teams in place across all showrooms and received strong feedback both from clients and brands, and look forward to continuing to grow our presence in Europe.

We will continue to invest in our showroom portfolio in the UK, US and Europe with an exciting pipeline of future projects in H2 FY24 and beyond, some of which have already opened, including:

·      Third Watches of Switzerland showroom in Manhattan at One Vanderbilt anchored by OMEGA and Cartier, open in early 2024

·     Continued roll out of Goldsmiths Luxury with Birmingham Bullring, Metrocentre Newcastle, and the relocation of our Trafford lower showroom opening pre-Christmas

·      New Flagship Rolex Boutique on Bond Street with around 7,000 sq. ft of selling space in Autumn 2024

·      First Watches of Switzerland multi-brand in Europe at Mall of the Netherlands in Autumn 2024 anchored by OMEGA and Cartier

·      New Rolex anchored showroom at Legacy West, Plano, Texas opening October 2024 as part of showroom relocation

We continue to deliver an elevated client experience based on the highest standards of hospitality using our Xenia principles. This is complemented by high quality client events in conjunction with our brand partners. We continue to invest in developing quality marketing assets highlighting our status as the key destination for luxury timepieces and jewellery.

During the first half of FY24, in the UK, we achieved an average monthly digital social media reach of 41 million, and a total of 2 billion digital impressions. In the US, we delivered 213 million impressions and had a monthly average social media reach of 25 million, in addition to generating over 10 billion PR impressions over the last 12 months.

We were delighted to host the Grand Prix D'Horlogerie De Geneve (GPHD) or 'Watch Oscars' in New York at our Soho Flagship for the second year running. The announcement of the exhibition alone generated over 20 million impressions.

Our strong and long-standing relationships with the most recognised and prestigious luxury watch brands have remained a point of distinction. We have continued to collaborate on exclusive product which in the half included products such as the OMEGA Seamaster 75 years, Breitling Avenger and TAG Heuer F1 Chrono. The colleagues within our showrooms and Luxury Watch and Jewellery Virtual Boutique are watch and jewellery experts, and much of this comes from the collaboration and investment with the brands on significant training programmes.

With the full support of, and guidance from, our Board and ESG Committee, we continue to develop our ESG governance and sustainability strategy, which puts our Purpose at its core.

Highlights during the period:

·      UK accredited as a Real Living Wage Employer

·      Continued to build our repair capability and our new Midlands Service Centre will open in H2 FY24

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

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

I would like to thank our teams who continue to inspire and deliver. Their hard work and commitment continue to enable the Group to be successful.

Finally, I am very proud to report that our Foundation Trustees have donated over £800,000 of funds so far in FY24 in the UK and US. We have strengthened our relationship with The Prince's Trust with a commitment of £1.5 million over the next two years to fund their education work, and the Group was again the headline sponsor for The Prince's Trust Palace to Palace Bike Ride and through our colleagues participation raised a further £80,000.

Looking ahead, we were delighted to share our updated Long Range Plan on the 7 November 2023 which reiterated our confidence in the sector and our belief in our ability as the world's largest luxury watch retailer to capitalise on our leading market position and unique growth opportunities available. We expect sales and profits to more than double by FY28.

Financial Review

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

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.

Revenue

Revenue by geography and category

Group revenue of £761.4m increased by +2% at constant currency (flat at reported rates).

US revenue increased by +11% at constant currency (+5% at reported rates) and the US business made up 43% of the Group's revenue in H1 FY24 (H1 FY23: 41%). 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 quality product offering, superior client experience and backed up by strong marketing campaigns which had significant reach across offline and online channels.

During the period, the US opened eight mono-brand boutiques in Topanga, California; New Orleans, Louisiana; and Murray, Utah. We also opened a Rolex anchored multi-brand showroom at American Dream in New Jersey which was fully completed in October with the opening of a large Cartier space.

The US Rolex Certified Pre-Owned programme was launched in July 2023, with product currently in 14 agencies and available online, early sales have been encouraging. Other pre-owned and vintage continues to grow as we leverage the Analog:Shift brand.

UK and Europe revenue declined by -4% during the period but showed an improving trend in Q2 FY24. Sales were driven by a domestic clientele and the Group continued to gain market share. Q1 FY24 was impacted by unwinding of the benefit of product intake in Q4 FY23, which meant Q1 FY24 revenue was down -8% vs the prior year. Revenue in Q2 FY24 was flat on prior year, with several high turnover Goldsmiths and Mappin & Webb showrooms closed for upgrade during the period and trading out of pop-ups. These reopened pre-Christmas in the second half of the financial year.

During the period, the UK opened six mono-brand boutiques, and a further one multi-brand Goldsmiths showroom in Bromley. One non-core showroom was closed giving a net increase of six in the UK. In the period, six 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 our first new concept Mappin & Webb showroom in York. Tourist sales remain very low, but traffic increases in airports continue to be encouraging.

The UK Rolex Certified Pre-Owned programme was launched in September 2023 online and in five showrooms.  Early trading has been encouraging.

We continued our expansion into Europe through mono-brand boutiques during H1 FY24. This included the opening of two further boutiques in Sweden: TAG Heuer in the Mall of Scandinavia, Stockholm and Breitling in Gothenburg. In June 2023, we opened our first boutique in Germany for TAG Heuer in Berlin. This takes the European mono-brands total to nine. The showrooms continue to gain strong feedback both from clients and the brands.

In November 2023, following the half year end, the Group completed the acquisition of 15 showrooms from Ernest Jones, fourteen multi-brand and one mono-brand. Over the second half they will be rebranded and we will be working on systems, merchandising, training and marketing to gain the full beneficial impact of the acquisition in FY25.

Group revenue from luxury watches grew by +3% at constant currency and made up 88% of revenue (FY23: 87%).  Demand for luxury watches remains robust and continues to exceed supply, with consistent additions to Client Registration of Interest lists and average selling prices continue to increase.

Group luxury jewellery revenue declined by -15% at constant currency (down -17% at reported rates). This reflected market trends impacted by overall consumer sentiment, particularly within the bridal category. US sales were impacted by a repositioning to full price sales, notably in Betteridge.

Other revenue, consisting of servicing, repairs, insurance services and the sale of fashion and classic watches and other non-luxury jewellery grew by +6%.

Group ecommerce sales declined by -3% at constant currency compared to the prior year reflecting a higher proportion of jewellery through this channel and strong prior year comparatives.

Profitability

Net margin as a % of revenue was 36.8% in the period. The reduction in margin of 80bps reflects adverse product mix and the increased cost of Interest Free Credit.

Showroom costs increased by £0.9 million (+1%) from the prior year, to £137.2 million. Showroom costs as a percentage of revenue increased by 20bps from 17.8% to 18.0%. This reflects the opening of new showrooms, annualisation of prior year openings 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 maximize traffic and conversion versus cost.

Overheads increased by £3.4 million (+8%) due to investment in headcount and IT to support future growth, along with the opening of our new support centre in Leicester.

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 period. Total costs for the period were £5.5 million versus £6.9 million in H1 FY23, reflecting timing of refurbishments and new showroom openings.

Exceptional administrative items

The Group presents as exceptional items on the face of the Consolidated Income Statement, those material items of income and expense which, because of the nature or the expected infrequency of the events giving rise to them, merit separate presentation to provide a better understanding of the elements of financial performance in the financial period, so as to assess trends in financial performance.

Costs associated with the acquisition of new showrooms, totalling £0.6m, are treated as exceptional as they are regarded as non-trading, non-underlying costs.

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 with indicators of impairment. This resulted in an impairment charge of £3.1m being recorded in the period. This is allocated over the property, plant and equipment, and the right-of-use assets of those showrooms as required by IAS 36 Impairment of Assets. This has been booked as an exceptional item due to the non-trading nature of the impairment.

Adjusted EBIT and statutory operating profit

As a consequence of the items noted above, Adjusted EBIT was £73.4 million, a decrease of £13.3 million (-15%) on the prior year.

After accounting for exceptional costs of £3.7 million and IFRS 16 adjustments of £8.3 million, statutory operating profit (EBIT) was £78.0 million, a decrease of -16% on the prior year.

Finance costs

Interest payable on borrowings increased in the period, reflecting higher market lending rates. Interest income on cash balances and investments also increased due the higher interest rates. The impact was a net reduction in the pre-IFRS 16 interest charge of £0.8 million to £1.5 million.

The IFRS 16 interest on lease liabilities increased by £2.1 million due to recent additions to the lease portfolio as we continue to invest in showroom portfolio expansion.

Taxation

The pre-IFRS 16 effective tax rate for the period was 29.0% and 29.2% as reported under IFRS 16. 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, and the impact of expenses disallowed for corporation tax.

Balance Sheet

The 30 October 2022 balances have been restated to reflect the finalisation of the provisional fair values of Betteridge Jewelers, Inc., Gotthelfs Acquisition Corp., and Vail Village Jewelers, Inc. ('Betteridge'). The net impact was a reduction in inventory and deferred tax asset with the corresponding entry to the goodwill balance.

Goodwill and intangibles increased by £2.4 million due to a favourable exchange impact. £1.4 million of computer software additions were made in the period as part of ongoing IT developments, which was offset by amortisation of £1.4 million.

Property, plant and equipment increased by £31.1 million in the period. Additions of £48.5 million and a favourable foreign exchange impact of £2.2 million were offset by depreciation of £18.3 million, impairments of £1.2 million and a loss on disposal of £0.1 million.

Including software costs, which are disclosed as intangibles, capital additions (including accruals) were £49.9 million in the period (H1 FY23: £37.4 million) of which £48.3 million (H1 FY23: £34.8 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 19 new showrooms, and refurbished seven 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 £43.5 million in the period, to £402.6 million. Additions to the lease portfolio along with lease renewals or other lease changes were £68.1 million. Foreign exchange impact was favourable at £3.9 million, offset by depreciation of £26.6 million, and impairments of £1.9 million.

Lease liabilities increased by £49.2 million in the period. The portfolio changes noted above increased the lease liability by £66.4 million. Interest charged on the lease liability was £10.0 million along with an adverse exchange impact of £5.0 million. Lease payments were £32.2 million, giving a lease liability balance of £459.6 million.

Inventory levels increased by £20.2 million (+5%) compared to H1 FY23. The increase was driven by new showrooms (£18 million) and an increase in unit cost due to pricing. We are well stocked as we enter into the holiday season.

Trade and other receivables increased by £1.7 million compared to H1 FY23. The increase is reflective of higher prepayments, deposits, rebate receivables and new rent deposits as the business continues to grow.

Trade and other payables increased by £7.0 million compared to H1 FY23. The increase principally relates to an increase in the inventory trade payable aligned with the increased intake in the period. The increase is also as a result of higher operational liabilities in line with the business expansion.

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

Net debt and financing

Net cash on 29 October 2023 was £16.1 million, a decrease of £0.3 million since 30 April 2023, driven by £56.7 million of free cash flow¹ offset by £47.8 million of expansionary capex and £7.2 million for the purchase of own shares to satisfy management incentives.

Net debt post-IFRS 16 was £441.5 million. The value comprises the pre-IFRS net cash of £16.1 million and the £459.6 million lease liability, offset by capitalised transaction costs of £2.0 million. The balance increased by £47.5 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 29 October 2023.

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.

£70.0 million of these facilities were drawn down at 29 October 2023. Liquidity headroom (defined as unrestricted cash plus undrawn available facilities) was £224.9 million.

Cash Flow

Free cash flow increased by £1.1 million to £56.7 million in the period to 29 October 2023 and free cash flow conversion was 60.3% compared to 53.3% in the prior year.

Cash flow from trading (Adjusted EBITDA, decreased by £10.4 million), was more than offset by a £18.4 million favourable working capital movement driven by a lower inventory increase year on year.

Expansionary capex of £47.8 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. FY24 has 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.

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

Return on Capital Employed (ROCE)

ROCE decreased by 370bps from 27.6% to 23.9% in comparison to last year. This is as a result of Adjusted EBIT decreasing by -15.4% in comparison to the prior period.

Showroom portfolio

As at the 29 October 2023, the Group had 211 showrooms, the movement in showroom numbers is included below:

¹ Ecommerce sales are sales which are transacted online

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.

Certain financial data within this announcement has been rounded.

Growth rates are calculated on unrounded numbers.

Risks and uncertainties

The Group is exposed to several risks and uncertainties in its business which could impact its ability to effectively execute its strategy over the remaining six months of the financial year and cause actual results to differ materially from expected and/or historical results.

The Board has considered the principal risks and uncertainties for the first half and the remainder of the financial year, and, after careful consideration of the current macroeconomic environment, has determined that 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 and Accounts, a copy of which is available on the Watches of Switzerland Group PLC (the 'Company') website at www.thewosgroupplc.com.

WATCHES OF SWITZERLAND GROUP PLC

UNAUDITED INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT

WATCHES OF SWITZERLAND GROUP PLC

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

The notes are an integral part of the Interim Condensed Consolidated Financial Statements.

WATCHES OF SWITZERLAND GROUP PLC

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEET

As disclosed within note 24 of the Group's Annual Report and Accounts for the 52 weeks to 30 April 2023, prior period balances have been restated, in line with IFRS 3 'Business combinations', to reflect the finalisation of the provisional fair values of Betteridge Jewelers, Inc., Gotthelfs Acquisition Corp., and Vail Village Jewelers, Inc. ('Betteridge').

The notes are an integral part of the Interim Condensed Consolidated Financial Statements.