Since the second part of our interview with evo CEO Andrew Gale was published (read On stable ground), the group and several of its individual subsidiaries have filed their 2023 accounts with Companies House. A chance, therefore, for us to circle back to Gale and get his take on evo’s progress – from a financial perspective – during his first full year as CEO.
Gale prefers to look forward rather than back, but – as he stated in evo’s strategic report – the 2023 accounts are “an important set of results for the group” and they clearly demonstrate the business is heading in the right direction.
Starting with the overall group results – which include the VOW, Banner, Complete, Premier Vanguard and Staples trading divisions – 2023 revenue was £505.1 million, up from £442 million in 2022. The increase was mainly driven by the addition of Complete, although higher demand and price increases at Banner and Premier Vanguard also had a positive impact on the top line.
As Gale notes, a key metric for a private equity-owned business is EBITDA, and this is used as the main profit measure at evo. In 2023, the reported EBITDA was up by 50% to £15.1 million. This included a £3.5 million loss at Complete and results-driven bonus payments that were not made in 2022. Excluding these factors, underlying EBITDA was just over £20 million compared with £10.1 million in 2022.
An important factor behind the vastly improved bottom line was evo dealing with the impact of high cost inflation. “I understood our suppliers needed to pass through higher costs to us, but we, therefore, needed to pass those costs onto our customers,” says Gale. “However, for some of our channels, such as Banner, that is harder to do than in others. We fell behind in 2022, but were able to catch up last year.”
He adds: “The job now is to keep up with inflation as we move forward.”
Filling the gaps
The largest individual business in the evo portfolio remains VOW, with sales of £226 million and a much improved EBITDA of £10.4 million (£5.1 million in 2022), with better margins and lower operating costs driving the improvement. Stock fill rates were also up, growing from 92.9% in 2022 to 95.7% last year, very close to where Gale thinks the level should be. As he notes: “A 99% fill rate tells me we’re investing too much cash in inventory; if we’re sub 93%, the phones start ringing.”
Gale has learnt plenty from what and how Complete was buying and saw gaps in the VOW model which needed filling. Initiatives have included the introduction of a new 7,000-8,000-SKU workwear range in 2024 and the creation of a VOW Specials department that, in the first quarter of 2024, already surpassed VOW’s total specials sales for the whole of last year.
Banner is second in revenue terms and also had a good year in 2023. Sales were £179.1 million, a year-on-year increase of almost 5%, while EBITDA (before exceptional items) rose by 50% to £6.8 million.
In addition to the pricing measures already referenced, Banner took action to drive down its cost base during the year. Staff numbers were reduced by 15%, with the number of employees in 2023 standing at 404 versus 473 in the previous year.
Banner’s management report referred to “critically [reviewing] our resources in legacy areas”. Explaining this, Gale says he is willing to invest in categories across the sales channels that have positive growth prospects.
Today, these include areas such as facilities supplies, furniture, workwear, paper and feminine hygiene – the latter a start-up category in 2023 which is predicted to grow materially this year. On the flip side, segments that are expected to decline may require the headcount investment to be “revisited”. For the CEO, this ties in with a change of mindset (at group level) over the past couple of years regarding category diversification and resetting the business.
“Broadly speaking, it’s about providing anything an employer is prepared to pay for,” he states. “Whether it’s PPE, a lever arch file or a box of chocolates, we’ll do it – as long as a product fits our distribution model.”
Readers may be surprised to learn that, currently, only around 20% of evo’s sales are what would be classified as ‘traditional stationery’.
A good balance
The beginning of 2023, of course, saw the acquisition of Complete. While its numbers have not officially been filed yet, Gale told Workplace360 that approximately 80% of Complete’s revenue was retained. The purchase price was recovered through trade debtors and the sale of the opening stock. The cost to evo has been the – not unexpected – trading loss and exceptional items in the early months following the buying of the reseller.
Today, the business is on a stronger footing. A lot of integration and property rationalisation work has taken place over the past 12 months and is now almost finished. The company was on budget in March, and Gale expects it to be EBITDA positive this year.
“We made the right decision [acquiring Complete], but a lot of blood, sweat and tears have gone into rebuilding it,” he notes. “Taking a business out of administration and fixing it is never easy, especially when [competitors] are vying for its people and contracts.”
Gale believes Complete brings a better balance to evo’s direct operations. The same can be said of the Staples online business, which is set to be one focus area for the group this year. A longer-term licensing deal for the name has been struck with Staples in the US and evo will now look at tailoring the product offering more towards consumers, which make up about two-thirds of the Staples UK customer base.
Something else to look out for over the coming months is further acquisitions. Gale confirms there are several deals in the pipeline, and he is hopeful of getting them finalised before the year is out.
In the meantime, evo began 2024 with its best-ever month as a company, and now it’s very much a question of Gale and his team looking forward with a growing sense of confidence.
