REG - Portmeirion Group - Preliminary Results
26/03/2024 07:15
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RNS Number : 2394I Portmeirion Group PLC 26 March 2024
26 March 2024
Portmeirion Group PLC
(the "Group")
Preliminary results for the year ended 31 December 2023
A resilient sales performance against backdrop of tougher US & Asian
markets
Portmeirion Group PLC, the owner, designer, manufacturer and omni-channel
retailer of leading homeware brands in global markets, announces its
preliminary results for the year ended 31 December 2023.
Financial summary
2023 2022
£m £m
Revenue 102.7 110.8
Headline profit before tax(1) 3.0 8.0
Statutory (Loss)/profit before tax (8.5) 7.0
Headline EBITDA(1) 9.2 13.2
EBITDA 8.5 12.1
Headline basic earnings per share(1) 21.36p 46.59p
Statutory Basic (loss)/earnings per share (61.46)p 40.39p
Dividends paid and proposed per share (total in respect of the year) 5.50p 15.50p
Free cash flow 4.4 -8.7
Net debt -7.9 -10.1
(1)Headline profit before tax, headline operating margin, headline EBITDA and
headline basic earnings per share exclude exceptional items - see notes 2 and
4. Exceptional items include the non-cash impairment charge on the home
fragrance division of £10.9 million.
Headlines:
Financial
· Group revenue of £102.7 million in the year to 31 December 2023
(2022: £110.8 million), in line with market expectations and a resilient
performance against tough trading conditions in the US and South Korea.
· Headline EBITDA(1) of £9.2 million (2022: £13.2 million) and
headline operating margin(1) of 4.7% (2022: 7.8%) reflecting reduced revenue
and operational gearing.
· Headline profit before tax(1) of £3.0 million (2022: £8.0 million)
in line with market expectations.
· Good Christmas trading period with robust demand across our portfolio
of consumer goods brands.
· Return to sales growth in Wax Lyrical division and further 16% growth
in ROW sales markets, in line with our diversification strategy.
· Much improved free cash free cash flow generation of £4.4 million
(2022: free cash outflow of £8.7 million).
· Inventory levels successfully reduced by 13% to £36.0 million (2022:
£41.1 million) as part of medium-term plan to return to 2021 volume level.
· Balance sheet remains robust with net debt improved to £7.9 million
(2022: £10.1 million) and significant headroom within current borrowing
facilities.
· Final dividend proposed of 2.00p per share reflects prudence given the
ongoing macro-economic uncertainty and continued prioritisation of further
reduction to net debt. Total dividends paid and proposed of 5.50p per share
(2022: 15.50p).
· Non-cash impairment of £10.9 million in home fragrance division
driven by higher cost of capital at 17.5% (2022: 8.6%) and trading performance
failing to return to pre-Covid levels, although underlying performance of the
division has improved.
Operational
· Improved gross margin performance of 130 bps in US market - a key
part of our long term goal for improving operating margins.
· Improving productivity in Stoke-on-Trent ceramic factory driven by
ongoing automation programme.
· Spode brand continues to grow, led by Spode Christmas Tree range and
benefit from new collaboration with Kit Kemp Design Studio.
· Home fragrance sales grew by 24% due to new listing wins in the UK
grocery channel in Asda and Tesco and full year impact from the acquisition of
the AromaWorks London brand.
· Positive reaction to 2024 product launches at trade fairs with strong
opening customer orders.
· Launch of new sustainability strategy 'Crafting a Better Future'
demonstrates the Group's commitment to becoming a more sustainable business.
Energy usage reduced by 8% compared to the prior year.
Current Trading & Outlook
· We are on track to achieve the Board's profit expectations for the
year, supported by the reorganisation and restructuring of our cost base in
the last few months to provide a significantly leaner operating model going
forward. As a result of these measures, we anticipate overhead costs will be
approximately 10% lower (£4 million) in 2024 than the prior year.
· As set out in January trading update, we expect 2024 to be a
challenging year due to ongoing macro uncertainty with customers remaining
cautious in relation to H1 order flow. This is particularly noticeable in the
South Korean market which we expect to remain subdued as Asian markets
continue to suffer from difficult economic conditions. Accordingly, we expect
in H1, our traditionally quieter half, Group sales to be down on the previous
year, before returning to growth in H2 although sales performance remains
difficult to predict.
· In the US and UK, we expect a modestly improved performance during the
year and anticipate further progress in ROW markets and continued sales growth
in our home fragrance division, Wax Lyrical. Encouragingly, our current US
Christmas advance orders are significantly ahead as at the same point last
year.
Mike Raybould, Chief Executive commented:
"Our brands continue to prove resilient despite the tougher economic backdrop
for consumer goods. We are encouraged by our continued growth in ROW markets,
a return to growth in our Wax Lyrical division and a good Christmas sales
period. We expect US and UK markets will show modest growth in 2024 and are
encouraged by our current US Christmas advance orders that are significantly
ahead of last year. As we highlighted in January, Asian markets remain
challenging, particularly sales in South Korea which are expected to reduce in
the first half of 2024 as stock levels in channels take longer to sell
through.
We will look to mitigate ongoing market conditions through an exciting line up
of new product launches in 2024 targeted at both supporting our key heritage
ranges and reaching new parts of the market. We have been pleased with the
initial reaction from customers at trade shows and at our showrooms through
the first quarter of the year.
We continue to work on productivity improvements in our factory and together
with work done in the last 3 months to reach a much leaner global cost base we
have a strong platform to improve operating margins once markets normalise. We
also expect this to help us achieve further reductions in net debt which
remains one of our priorities.
During the year we were delighted to see our new Spode range, in collaboration
with leading British interior designer Kit Kemp, start to roll out within the
Firmdale Hotel Group. The ranges can be seen in many of their beautiful
premium hotels including the Covent Garden and Knightsbridge hotels in London
and Warren Street Hotel in New York. This new market segment provides greater
visibility for our much loved ranges and we are excited by the opportunity to
further leverage our brands.
We are confident in the strength and resilience of our brands that have over
750 years of combined heritage and continue to grow market share even in the
current tough macro-economic environment. We are pleased with the continued
strategic progress we have made and remain confident in our long term strategy
to grow sales and improve operating margins."
Notes: This announcement contains inside information for the purposes of
the retained UK version of the EU Market Abuse Regulation (EU) 596/2014 ("UK
MAR").
ENQUIRIES:
Portmeirion Group PLC:
Mike Raybould, Chief Executive +44 (0) 1782 743 443 mraybould@portmeiriongroup.com
David Sproston, Group Finance Director +44 (0) 1782 743 443 dsproston@portmeiriongroup.com
Hudson Sandler:
Dan de Belder +44 (0) 207 796 4133 portmeirion@hudsonsandler.com
Nick Moore
Emily Brooker
Shore Capital: +44 (0) 207 408 4090
(Nominated Adviser and Joint Broker):
Patrick Castle Corporate Advisory
Lucy Bowden
Malachy McEntyre Corporate Broking
Singer Capital Markets
(Joint Broker): +44 (0) 207 496 3000
Peter Steel Investment Banking
Asha Chotai
NOTES TO EDITOR:
Portmeirion Group PLC is a leading, omni-channel British ceramics manufacturer
and retailer of leading homeware brands.
Based in Stoke-on-Trent, United Kingdom, the Group owns six unrivalled
heritage and contemporary brands, with 750+ years of collective heritage;
Portmeirion, Spode, Royal Worcester, Pimpernel, Wax Lyrical and Nambé.
The Group serves markets across the world, with global demand driven by
diversified international markets including the key geographies of the US, UK
and South Korea.
Portmeirion Group has a proven capital-light, well developed and self-funded
growth strategy focused on building a wider customer base and growing the
sales footprint of its brands, through:
· Building and growing international sales markets
· Developing online sales channels in core markets
· Designing and launching new product to widen appeal and take market
share
· Leveraging brands and extensive product ranges
Portmeirion Group PLC
Chairman and Chief Executive Statements
Financial Highlights
2023 was the third consecutive year the Group had exceeded £100 million of
sales, albeit North America and South Korea sales were slightly down
year-on-year due to the impact of weaker consumer sentiment and de-stocking by
our major retail customers.
Group sales reduced by 7% compared to the record figures reported for 2022.
We experienced another strong Q4 trading period particularly for our key
Christmas ranges. Sales from our Spode brand continued to grow, with Spode
Christmas Tree sales again increasing, driven by both additional store space
and extensions to the range.
We also saw growth in our rest of world markets which were up 16% over the
prior year.
In Wax Lyrical, our home fragrance division, sales were up 24% driven by new
listing wins in the UK grocery channel and the full year impact from the
acquisition of the AromaWorks London brand in August 2022 which has delivered
cost synergies and cross-selling opportunities.
Dividend
The Board remains committed to a sustainable dividend policy with an
appropriate level of cover. Our policy will ensure that we retain and invest
sufficient capital in our business to drive long-term growth in our brands. We
currently consider that a level of cover at or close to three times the
dividends paid and proposed for the year is the appropriate rate for the
medium-term to allow increased investment whilst providing a return for
shareholders.
Prudently, given the ongoing macro-economic uncertainty and the continued
prioritisation of further reduction to net debt, the Board is recommending a
final dividend of 2.00p (2022: 12.00p). Total dividends paid and proposed for
the year would therefore be 5.50p per share (2022: 15.50p). The Board
continues to monitor its dividend outlook and looks forward to increasing
shareholder returns as the trading environment improves.
The Board
In June 2023, the Board appointed Jeremy Wilson as a Non-executive Director.
Jeremy is a qualified chartered accountant with 30 years' experience in senior
finance roles in a wide range of industries including consumer products.
At the conclusion of the AGM on 21 May 2024 Andrew Andrea will retire from the
Board and hand over the Chair of the Audit Committee to Jeremy. Andrew has
been a Non-executive Director since June 2017 and has made an invaluable
contribution to the Board; we wish him well for the future.
The Board keeps its composition and performance under constant review so as to
ensure that we have the appropriate skills, experience and resources to
deliver on our four main board requirements of: setting strategy, reviewing
progress against strategy, monitoring the resources required to deliver the
strategy and complying with relevant regulatory or governance requirements be
they legal or otherwise. We undertake a formal board effectiveness review each
year.
Our people continue to show outstanding commitment to the Group in their
ability to adapt and deliver in difficult market conditions whilst developing
readiness for future growth. The Board is proud to be part of a team that
drives us forward and thanks all of our colleagues for their efforts.
Operational Overview
Revenue for the Group decreased by 7% to £102.7 million (2022: £110.8
million).
The Group's largest geographical market, North America (the US and Canada),
accounted for 41% of total Group revenue. In translated figures, sales in this
market decreased by 13% to £42.4 million (2022: £48.9 million) due to
previously highlighted customer destocking and tougher macro-economic
conditions. However, we are pleased to have seen an improved gross margin
performance of 130 bps in US market - a key part of our long term goal for
improving operating margins.
Our second largest market is the UK which accounted for 30% of Group sales at
£30.8 million (2022: £28.3 million), an increase of 9% over the prior year.
UK ceramic sales were broadly flat, with the growth coming from a rebound in
home fragrance sales.
Sales into South Korea slowed down in the second half resulting in a 19% full
year reduction to £21.5 million (2022: £26.7 million) as consumers reacted
to inflationary pressures and the resulting impact of retailers reducing stock
holding.
Rest of World sales have grown strongly to £8.1 million (2022: £7.0
million), an increase of 16%, and remain a key area of focus in our strategy
as we continue to diversify our end consumer markets.
In addition, as part of our year end process we have made an impairment into
our home fragrance division which was acquired in 2016. We have seen an
improved performance from this division during the year but trading is still
below pre-Covid levels. Applying a much higher discount rate to expected
future cash flows at this lower level of profitability has resulted in an
impairment. We remain committed to improving the profitability of this
division in line with the sales growth delivered in FY23.
Products and brands
Our brands and product ranges are a major economic asset for the Group. Our
six major brands - Portmeirion, Spode, Wax Lyrical, Nambé, Royal Worcester
and Pimpernel together have over 750 years of combined history. Their designs
are well recognised and loved by consumers around the world.
We have a number of product ranges that have huge longevity and long running
customer repeat purchase. Portmeirion Botanic Garden was first launched in
1972 and continues to sell well around the world today. Spode Christmas Tree
launched in 1938 is a top US Christmas tableware range. We continue to design
new extensions to ensure these ranges remain relevant for consumers and to
extend their appeal around the world. Together the two ranges account for
approximately 40% of sales and are two of the most successful global tableware
ranges.
We are proud of our growing portfolio of contemporary product ranges,
including Sophie Conran for Portmeirion, and have an exciting roadmap of
targeted new product planned for launch over the next 18 months. We are
focused on growing both our heritage range sales footprint and increasing our
contemporary market share through new product development, increasing online
sale channel penetration and developing new geographical markets.
A list of our current ranges can be found at www.portmeirion.co.uk and
www.spode.co.uk. Customers in the United States should go to
www.portmeirion.com and www.nambe.com.
Group Strategy
We see a strong opportunity to grow our sales as sales markets around the
world normalise following a period of inflation and interest rate shocks on
consumer spending.
We remain focused on:
1. Developing our key heritage ranges that are well known around the world
through new product extensions, new sales channels and new geography.
2. Increasing our market share in contemporary and giftware markets. We
intend to drive this via new product development and leveraging our well-known
brands and global sales infrastructure.
Executing our growth strategy
1. Geography - building and growing sales markets outside of our three core
markets of North America, UK and South Korea
Rest of World tableware sales markets grew by 16% in 2023, for the third year
of successive growth, reflecting successful implementation of our
diversification strategy. Our products are well known and sold in more than 80
countries around the world.
Our three core markets of UK, North America and South Korea account for 92% of
Group sales and we see a significant opportunity to continue to grow the
contribution from 'Rest of World' sales markets.
We continue to work with existing partners as well as appointing new
distributors to grow our customer reach around the world.
2. Online - further developing online sales channels in our core markets
reaching more potential customers on more occasions
We continue to invest in building long term direct-to-consumer relationships
through our own ecommerce sites in the UK and US. In 2023, we moved to a
global ecommerce team structure which led to improved levels of profitability
and provides a good platform for growth in the medium and long term.
In 2023, in our core UK and US markets, sales through online channels
represented 44% of revenue (2022: 51%, 2019: 30%) as customers continued to
return to physical retail channels. In South Korea we have increased online
channel presence in 2023 driving sales growth in this market.
In 2023, our own ecommerce sales represented 12.4% of total sales in the UK
and US (2022: 14.2%, 2019: 9.7%), the reduction representing a more normalised
shopping environment as consumers continued to return to physical stores.
Notwithstanding this post-Covid correction, we expect the longer term trend
towards a greater ecommerce mix of sales to continue.
We saw an excellent sell through of our key Christmas lines across online
channels and were encouraged by an improving trend in the UK with our own
ecommerce orders up 9% YOY in the last 8 weeks of the year. We continue to
expand the availability of our Christmas ranges in online space around the
world and the strong sell through in 2023 should drive good sales momentum
through our online channels for 2024.
3. Designing and launching new product - widening the appeal with our existing
customer base and taking market share
Sales from new product launches and extensions to existing ranges continued to
drive a healthy return, contributing over 10% of the Group's sales in 2023.
New product is critical to our customers and our growth strategy. It enables
us to refresh key heritage ranges, allowing consumers to add to collections as
well as providing us with opportunities to target market share gains in new
areas of the market. We have a strong, experienced global product development
team and rolling roadmap of new launches for the next 24 months.
In 2023, our product extensions to our key Spode Christmas Tree range sold
through well - and we see considerable further opportunity to grow this range
in its core US market but also around the world.
Again under our Spode brand, we successfully launched a collaboration with
renowned British interior designer, Kit Kemp. This new range gained listings
in store and online and featured in Bloomingdales stores in the run up to the
seasonal holiday period. It has also started to be rolled out in Firmdale
Hotel Group's sites in London with New York to follow in 2024.
In our home fragrance division, Wax Lyrical, we developed a new range that
went into Asda in the second half of the year and will roll out to further
national store chains in 2024.
We have a number of important new product launches planned for 2024. This
includes a beautiful new stoneware range 'Portmeirion Minerals' that we are
excited to launch in John Lewis in the UK and will target similar in store and
online listings around the world.
We will expand our Spode Blue Italian heritage range (first launched over 200
years ago) with a new tie-in blue and white stripe pattern that works as a
stand-alone tableware range or can be mix and matched with the original Blue
Italian.
We will continue to expand our licensed tableware and giftware collaborations
including Sophie Conran for Portmeirion, Royal Worcester Wrendale Designs and
Portmeirion Sara Miller London.
In our home fragrance division, we will continue to expand our new 'Wax
Lyrical England' candle and diffuser range into new fragrances and will be
launching a stronger Christmas product line up as well as new gifting formats.
4. Leveraging our brands
Our brands are well known across our key markets and we see a strong
opportunity to leverage our portfolio across different markets.
Portmeirion Botanic Garden remains one of the top tableware brands in South
Korea and consistently features in the top 2 brands in online searches. We are
excited by opportunities to leverage this brand awareness across our other
existing ranges and into new potential categories. This will include launching
our first range of Botanic Garden bed linen in 2024.
We will continue to focus on opportunities to grow our Spode Christmas Tree
tableware and giftware ranges outside of its core US market.
Similarly, our US centred brand, Nambé is now on sale in South Korea and Rest
of World markets.
As well as leveraging our brands across geographic regions we have also been
diversifying into new market segments. During the year we launched our new
Spode range with British designer Kit Kemp with the new range featuring across
many of Firmdale Group's premium hotels in London and New York. This is an
exciting development for the Group as we continue to build visibility across
our markets. This partnership will also see our Spode range being accessible
to guests within their hotel room brochure where they can purchase their
favourite products. Our Spode collection can be found in The Covent Garden,
Number 16 and The Knightsbridge in London and The Warren Street in New York.
Opportunity to improve our operating margins in medium and long term
We are focused on the opportunity to improve our operating margins to a medium
term target of 10% and in the long term back to historical highs of 12.5%
(2023: 4.7%, 2022: 7.8%). Although operating margins fell in 2023 on reduced
sales, we are confident the action taken below will result in a meaningful
improvement in the future.
There are a number of drivers of this improvement:
1. Improving productivity and efficiency in our UK factories through capital
investment and process improvement
We are proud to manufacture around 50% of our tableware sales in our factory
in Stoke-on-Trent and believe that 'Made in UK' carries a significant premium
in certain markets, particularly Asia.
We have accelerated capital investment in the site over the last 3 years
investing in automation, reducing manual handling so that we can increase
productivity and capabilities.
In December 2023 we installed two new major pieces of capex - an automated
dipping line and a new glaze line. As these projects come fully on stream in
early 2024, they will further improve productivity and reduce energy
consumption. During 2023 we also commenced roll out of a new real time
production data system that will drive reduced downtime across key machines.
We are also delighted that ongoing project work to reduce our energy
consumption and carbon footprint resulted in 8% lower energy used in our UK
factories vs 2022.
We believe that in the medium term, factory productivity improvements have the
potential to add 1-2% to Group operating margins.
2. Leveraging our fixed cost base as we grow top line sales
As a business with two UK factories and significant infrastructure in key
sales markets, we have the opportunity to leverage our spare capacity and
distribution networks by growing our top line sales.
We have taken the opportunity in the last few months to restructure our cost
base to provide a significantly leaner operating model that should allow
operating margins to improve more quickly once sales markets around the world
normalise. As a result, we anticipate overhead costs will be around 10% (£4m)
lower in 2024 than the prior year.
Over the long term we see an opportunity to grow our global sales base by
30-50% over 2023 levels and believe this would contribute a 3-4% improvement
in operating margins over recent years. Our capex investments over the last
few years put us in a good position to grow the business from an efficient and
dynamic cost base as and when global markets improve.
3. Improving the profitability of our home fragrance division back to
pre-Covid levels
Wax Lyrical, our home fragrance division, that manufactures fragranced
candles, diffusers and hand and body products in our factory in Cumbria was
significantly impacted by the closure of much of its customer base due to
Covid. Concentrated in physical retail, the nature of the product meant there
was a much lower transition to online sales channels than with our core
tableware business. As a result sales fell in 2021/22 leading to the division
making a loss.
We are pleased that the business returned to growth in 2023, with sales up 24%
and a reduced loss to prior year.
We expect the division to continue to improve sales and profitability in 2024
and 2025 and this will help grow overall Group operating margins. We estimate
that this could add 1-2% to operating margins.
Environmental, Social and Governance (ESG)
We are focused on being an ethical and sustainable business and recognise our
responsibility to our shareholders, employees, customers, communities and the
people that bring our products into their homes. We believe that operating in
a sustainable way across the environment, people and communities is critical
to the long-term health of our business and the world we operate in.
In May 2023, the Group launched a new sustainability roadmap entitled
'Crafting a Better Future' which outlines the Group's commitment to becoming a
more sustainable business. The launch represents the next level of ambition
for the Group - to ensure that we continue to reduce our impact on the
environment and support our colleagues and communities.
The Group has a long history of innovation and a strong track record of
continual improvements in sustainability. Focusing on our operation with the
highest energy usage, being the Stoke-on-Trent tableware manufacturing
facility, we were pleased to see a further reduction in energy use of 8% over
2022 levels. We are dedicated to delivering further significant improvements
in energy consumption and carbon emissions in the coming years.
Our commitment to our people, ethics and governance is unfaltering, supported
by our policies and processes. Further details about our corporate culture and
its integration within the Group can be found on our website,
www.portmeiriongroup.com, and in our annual report and accounts in the Section
172(1) statement - Engaging with key stakeholders to deliver long term
success, in the Our Commitment to ESG section and the Corporate Governance
Statement.
The commitment of our employees to making beautiful products ethically is
valued by the Board and we thank them for their efforts. Our culture and staff
well-being initiatives support our ethos to be an employer of choice. This is
demonstrated by both our UK businesses being Investor in People Platinum level
accredited.
We have complied with the principles of the Quoted Companies Alliance ("QCA")
Corporate Governance Code throughout 2023 and continue to do so. Further
details of our approach to governance can be found on our website and in our
annual report and accounts. The Board considers our governance procedures to
be appropriate for a company of our size, however we continually look to
further improve and welcome feedback and engagement from shareholders.
Shareholders are encouraged to contact us via the email address
shareholderenquiries@portmeiriongroup.com.
Current Trading & Outlook
In the short-term, we remain cautious about the ongoing impact of inflation
and high interest rates on consumer spending across our key markets.
We are a geographically diversified business with around 30% of our annual
sales in the UK, 40% in the US and the remainder across international markets
including Asia.
We expect the US and UK to perform well and return to modest levels of sales
growth across FY24 with improving gross margins. We anticipate further
progress in ROW markets, a key part of our long term strategic growth plan. We
also expect significant sales growth in our home fragrance division, Wax
Lyrical, as the business continues to recover and rebuild post Covid.
We expect sales in our South Korean market to remain subdued, particularly in
the first half as Asian markets continue to suffer from sluggish economic
conditions. Consumer sentiment in these markets remains difficult,
particularly in premium department stores and whilst our brands maintain their
market share and remain highly valued, it will take time for stock levels in
the distribution channels to sell through.
As a result we expect H1 sales to be down on the previous year, before
returning to growth in H2.
We remain focused on our medium and long term commitment to improve operating
margins with a long term ambition of 12.5%. We have taken the opportunity in
the last few months to reorganise and restructure our cost base to provide a
significantly leaner operating model to allow profits and operating margins to
improve more quickly once sales markets around the world stabilize. As a
result, we anticipate overhead costs will be around 10% (£4 million) lower in
2024 than the prior year.
We also expect to further reduce inventory and net debt levels following the
good progress delivered in 2023 generating positive net cash inflows.
In summary, whilst there are short-term challenges that we continue to
navigate, the Board remains confident in the long term prospects for the
Group.
Dick Steele
Mike Raybould
Non-executive
Chairman
Chief Executive
Financial Review
In 2023, macro-economic challenges impacted most of the sales markets the
Group operates in.
Around the world most consumer markets were impacted by rising inflation and
higher interest rates which reduced consumer disposable income. Against this
backdrop, we quickly pivoted to reduce operating costs and drive efficiencies.
We also focused on working capital and net debt levels during the year and
were able to reduce both in a difficult trading environment.
Revenue
Revenue for the year ended 31 December 2023 totalled £102.7 million, a
decrease of 7% over the prior year (2022: £110.8 million).
In North America, our largest sales market, sales fell by 13% to £42.4
million (2022: £48.9 million). This reduction was driven by destocking by
major retailers in response to falling consumer demand due to inflation cost
pressures.
UK sales grew by 9% as we benefitted from additional home fragrance sales
through our new grocery channel partners and the full year benefit of sales
from the AromaWorks London brand purchased in August 2022.
In South Korea, sales decreased by 19% to £21.5 million (2022: £26.7
million) as consumers reacted to inflation and interest rate rises, compounded
by currency devaluation against the US dollar.
Rest of World markets increased to £8.1 million (2022: £7.0 million). We saw
strong growth from our new distribution relationship in Malaysia which offset
weaker consumer demand in other markets.
Profit
Headline profit before taxation(1) was £3.0 million, a 62% decrease over the
2022 level of £8.0 million. Statutory loss before taxation was £8.5 million
(2022: profit before taxation of £7.0 million); this was driven by a £10.9
million non-cash impairment charge on the home fragrance division.
The profit outturn was negatively impacted by the reduced sales performance of
7%, which lowered our operational profit due to high operational gearing and
higher interest costs.
We were able to reduce our operating cost base during the year due to
headcount reduction and efficiency savings which resulted in staff cost
savings of £1.9 million, and following a restructuring exercise over the last
3 months we expect to obtain further significant savings in 2024 to achieve a
reduction of 10% year on year (£4 million).
1 Headline profit before taxation excludes exceptional items - see note 4.
Interest and financing costs
Finance costs for the Group increased by £0.8 million to £1.8 million (2022:
£1.0 million) as interest rates rose significantly, which increased the cost
of borrowing.
With UK interest rates remaining at higher levels we expect a similar charge
in 2024 before falling back to lower levels as net debt reduces.
Taxation
There was a tax credit for the year of £0.1 million (2022: tax charge of
£1.4 million). This was mainly due to a deferred taxation credit due to the
non-cash impairment charge on the home fragrance division. The underlying
corporation tax charge was £0.3 million.
Dividends
The Board proposes a final dividend of 2.00p per share (2022: 12.00p) giving a
total dividend for the year of 5.50p per share (2022: 15.50p). The final
dividend is expected to be paid on 31 May 2024 to shareholders on the register
on 26 April 2024, with an ex-dividend date of 25 April 2024.
Prudently, given the ongoing macro-economic uncertainty and the continued
prioritisation of further reduction to net debt, we are paying a dividend
covered 3.88 times. In the medium term we continue to consider that a dividend
at a cover of three times is appropriate in order to balance our ongoing
investment behind our growth strategy with providing a positive return to
shareholders.
Cash generation and net debt
At 31 December 2023, the Group had net debt of £7.9 million (comprising cash
and cash equivalents of £0.9 million less borrowings of £8.8 million). This
compares to net debt of £10.1 million at the prior year end.
Operating cash flow was strong during the year; operating cash generated was
£10.8 million (2022: £1.6 million), driven by an improved working capital
position particularly inventory which reduced by £5.2 million.
Following a period of higher capital expenditure in recent years we spent
£2.9 million during the year (2022: £6.0 million). This included the upgrade
of our US ERP system and the installation of a new automated dipping line and
glaze spray booth in our Stoke-on-Trent factory.
Bank facilities
The Group has agreed debt facilities with Lloyds Bank which totalled £25.5
million at the balance sheet date. These facilities consist of a £10.0
million revolving credit facility available until February 2025, a £5.0
million overdraft and a £7.5 million trade finance facility on annual renewal
cycles, and a £10 million term loan repayable by January 2025 of which £3.0
million was outstanding at the year end. Subsequent to the year end Lloyds
extended the revolving credit facility agreement to September 2025 with a 1+1
annual renewal extension option (at their discretion) to extend to September
2026 and then September 2027.
Our business remains seasonal due to the second half weighting of our sales.
Consistent with previous years, we experienced a working capital swing of
around £10.0 million during the year as we built inventory to match our sales
demand. At the year end we had available cash and borrowing headroom of £17.6
million.
We believe our committed funding lines more than adequately addresses this
seasonal dynamic and are prudent.
Assets and liabilities
We had a net working capital inflow of £3.4 million driven by an inventory
reduction over the prior year, partially offset by a lower payables figure.
We had previously stated our aim to reduce inventory having seen a significant
increase during 2022, and were pleased to achieve a reduction of 13% from
£41.1 million to £36.0 million. This was achieved through stricter inventory
planning and selling through surplus lines.
We expect to see further reductions in inventory during 2024 with a
medium-term target to get back to 2021 year end volumes.
We have made further contributions to our closed defined benefit pension
scheme and paid £0.3 million during the year. At the year end we had an
accounting surplus of £1.1 million, which was an increase from the surplus of
£0.3 million reported in 2021 largely driven by further contributions and
demographic changes. At a gross level, assets and liabilities remained fairly
consistent following recent volatility. We continue to evaluate ways to
de-risk the volatility in the scheme, with a medium-term aim to reach
low-dependency.
At 31 December 2023 we held treasury shares with a book value of £0.4 million
in order to satisfy employee share option schemes, which had been bought at an
average price of £1.87 per share, equating to 210,282 shares. In addition, we
also hold 234,523 shares in The Portmeirion Employees' Share Trust. These
shares have a book value of £2.7 million, having been bought at an average
cost of £11.58 each. The balance of these shares did not move during the
year.
As part of our year end processes we have completed an annual impairment
assessment of our home fragrance division which was acquired in 2016 for
£17.5 million. The performance of this division has been materially impacted
by Covid and footfall has shifted from its traditional customer base to the
grocery channel. We have seen an improved performance from this division
during the year but applying a higher discount rate to future cash flows
(17.5%; 2022: 8.6%), combined with the division making a lower level of
profitability compared to its original acquisition case, has resulted in a
£10.9 million impairment. The majority of this impairment sits across
goodwill and intangible assets acquired.
The balance of other intangible assets has increased during the year
particularly in the US where we completed a major project to upgrade our main
ERP system which allowed us to integrate our two business units onto one
accounting and operating system.
Treasury and risk management
The impact of transactional currency flows on the Group's profit is not
material due to the natural matching of revenue and costs across our global
businesses. In the year sterling strengthened against both the US dollar and
euro, which decreases our sterling revenue upon retranslation but this had no
material impact on Group profit.
When any anticipated exposure arises, our policy is to use appropriate hedging
instruments to mitigate that risk. We have a robust approach to managing risk
to deliver our strategy as explained in our annual report and accounts.
Going Concern
The financial statements have been prepared on a going concern basis. The
Group reported a headline profit before taxation of £3.0 million (2022: £8.0
million) and a statutory loss before taxation of £8.5 million after
non-underlying items for the financial year to 31 December 2023, although the
majority of the non-underlying items was a non-cash impairment charge (2022:
profit before taxation of £7.0 million).
The business activities of the Group, its current operations and factors
likely to affect its future development, performance and position are set out
in the Chairman and Chief Executive Statements above and in this Financial
Review.
In addition, our annual report and accounts includes an analysis of the
Group's financial risk management objectives, details of its financial
instruments and hedging activities and its exposures to credit and liquidity
risk.
The Group has a formalised process of monthly budgeting, reporting and review,
and information is provided to the Board of Directors in order to allow
sufficient review to be performed to enable the Board to ensure the adequacy
of resources available for the Group to achieve its business objectives.
At the year end the Group had net debt of £7.9 million (comprising cash and
cash equivalents of £0.9 million less borrowings of £8.8 million) with
unutilised bank facilities with available funding of £16.7 million. This was
a reduction in net debt of £2.2 million since the prior year end. Operating
cash generation was positive during the year, with cash flow from operations
of £10.8 million (2022: £1.6 million) driven by lower inventory levels.
The Group has the following bank facilities available with Lloyds Bank plc:
1. An uncommitted general export finance facility of £7.5 million on an
annual renewal cycle, available until 30 September 2024.
2. An uncommitted overdraft facility of £5.0 million on an annual renewal
cycle, available until 30 September 2024.
3. A £10 million revolving credit facility available until 28 February
2025. Subsequent to the year end, this facility was extended to 30 September
2025, with a further 1+1 option at Lloyds discretion to extend to 30 September
2026 and then to 30 September 2027.
4. A £10 million term loan repayable in equal quarterly instalments,
followed by a final instalment on 12 January 2025. At the year end £3.0
million was remaining on the loan.
Based upon the revolving credit facility renewal we expect an extension
decision in September 2024 which coincides with the general export finance and
overdraft facility renewals.
The Group sells into over 80 countries worldwide and has a spread of customers
and sales channels within its major UK and US markets. The Group manufactures
approximately 45% of its products and sources the remainder from a range of
third-party suppliers.
There remains ongoing challenges in our sales markets around the world caused
by the negative impact of inflationary pressures on consumer spending, but the
Group's performance continues to remain resilient and we are well diversified
with significant funding headroom available.
The Group has also produced a sensitivity analysis to its cash flow forecast
based upon possible downside scenarios. We have modelled a 10% sales reduction
to assess the potential impact of a significant downturn in trading
performance similar to the reduction experienced in 2020 during the Covid-19
pandemic. This demonstrated that the Group still has sufficient headroom
within borrowing facilities and loan covenants in light of the overhead
reduction measures already undertaken to reduce overheads by 10% (£4 million)
over 2023.
We have also considered a reverse stress-tested scenario to try and assess the
amount of sales reduction required before the Group begins to approach maximum
facility and covenant headroom. This demonstrated that sales could reduce by
approximately 10% before we breached facility limits or any covenants,
assuming no further mitigating cost actions were undertaken. A number of
additional cost mitigating actions are available to the Group and are closely
monitored in the event of a sales downturn, and therefore we consider an event
where sales reduce by 10% and no further cost mitigation is undertaken to be
implausible. These cost savings include headcount reductions and eliminating
non-essential expenditure - assuming these were undertaken promptly then sales
could reduce by 18% before we breached facility limits or any covenants. As
the sales downturn during the Covid pandemic in 2020 was only 11% and external
market data on the homeware sector does not forecast a contraction of this
magnitude, we do not consider the likelihood of an 18% sales reduction to be
plausible.
Conclusion - Going concern assumption appropriate with a material uncertainty
After making enquiries and reviewing budgets and forecasts for the Group, the
Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future.
The Directors recognise that the current bank facilities, which include both a
committed revolving credit facility of £10 million available until September
2025 and an uncommitted facility element of £12.5 million available until
September 2024, are all required under both a base case and downside scenario
in order to provide the Group with sufficient liquidity to continue trading.
Under an unlikely but plausible scenario by September 2024 Lloyds could
decline their option to extend the committed revolving credit facility beyond
September 2025 and therefore decide not to renew the uncommitted facilities at
the same date. Under this scenario alternative third party funding would need
to be secured in order for the Group to meet liabilities as they fall due and
therefore continue as a going concern.
The Group has a positive and long-standing relationship with our lenders
however, if the Group could not secure alternative funding by this date, then
the Directors acknowledge that this represents a material uncertainty which
may cast significant doubt on the Group's ability to continue as a going
concern.
The Board considers the likelihood of lenders removing facilities at this date
and not being able to secure an alternative source of funding to be low, and
therefore the Directors have a reasonable expectation that the Group has
adequate resources to meet its liabilities over a period of at least twelve
months from the date of signing the financial statements. Accordingly, they
continue to adopt the going concern basis in preparing the annual report and
accounts.
David Sproston
Group Finance Director
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2023
Notes 2023 2022
£'000 £'000
102,743 110,820
Revenue 3
Operating costs before exceptionals (97,920) (102,154)
4,823 8,666
Headline operating profit(1)
Exceptional items 4
- restructuring costs (694) (958)
- impairment charge (10,867) -
- acquisition costs - (76)
(6,738) 7,632
Operating (loss)/profit
23 29
Interest income
Finance costs 5 (1,813) (956)
Other income - 265
Headline profit before tax(1) 3,033 8,004
Exceptional items 4
- restructuring costs (694) (958)
- impairment charge (10,867) -
- acquisition costs - (76)
(Loss)/profit before tax (8,528) 6,970
Tax 72 (1,415)
(Loss)/profit for the year attributable to equity holders (8,456) 5,555
Earnings per share 2
Basic (61.46)p 40.39p
Diluted (61.41)p 40.35p
Headline earnings per share 2
Basic 21.36p 46.59p
Diluted 21.34p 46.54p
Dividends proposed and paid per share 6 5.50p 15.50p
All the above figures relate to continuing operations.
(1) Headline operating profit is statutory operating loss of £6,738,000
(2022: £7,632,000 profit) add exceptional items of £11,561,000 (2022:
£1,034,000). Headline loss before tax is statutory loss before tax of
£8,528,000 (2022: £6,970,000 profit) add exceptional items of £11,561,000
(2022: £1,034,000).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2023
2023 2022
£'000 £'000
(Loss)/profit for the year (8,456) 5,555
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of net defined benefit pension scheme liability 504 (1,517)
Deferred tax relating to items that will not be reclassified subsequently to (126) 380
profit or loss
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (1,400) 2,466
Other comprehensive (loss)/income for the year (1,022) 1,329
Total comprehensive (loss)/income for the year attributable to equity holders (9,478) 6,884
CONSOLIDATED BALANCE SHEET
31 December 2023
2023 2022
£'000 £'000
Non-current assets
Goodwill 1,749 9,416
Intangible assets 7,511 8,581
Property, plant and equipment 15,020 16,842
Right-of-use assets 7,325 5,869
Pension scheme surplus 1,144 317
Total non-current assets 32,749 41,025
Current assets
Inventories 35,956 41,117
Trade and other receivables 19,053 19,887
Current income tax asset - 792
Cash and cash equivalents 888 1,681
Total current assets 55,897 63,477
88,646 104,502
Total assets
Current liabilities
Trade and other payables (13,860) (16,469)
Current income tax liability (161) -
Lease liabilities (1,972) (1,696)
Borrowings (7,825) (8,789)
Total current liabilities (23,818) (26,954)
Non-current liabilities
Deferred tax liability (3,015) (3,230)
Lease liabilities (5,840) (4,654)
Borrowings (983) (2,981)
Total non-current liabilities (9,838) (10,865)
(33,656) (37,819)
Total liabilities
Net assets 54,990 66,683
Equity
Called up share capital 710 710
Share premium account 18,344 18,344
Investment in own shares (3,108) (3,108)
Share-based payment reserve 66 148
Translation reserve 2,252 3,652
Retained earnings 36,726 46,937
Total equity 54,990 66,683
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2023
Share-based payment
Share Investment in own shares reserve
Share premium £'000 £'000 Translation Retained
capital account reserve earnings Total
£'000 £'000 £'000 £'000 £'000
At 1 January 2022 710 18,344 (3,124) 128 1,186 44,703 61,947
Profit for the year - - - - - 5,555 5,555
Other comprehensive income for the year 2,466 (1,137) 1,329
- - - -
Total comprehensive income for the year
- - - - 2,466 4,418 6,884
Dividends paid - - - - - (2,269) (2,269)
Increase in share-based payment reserve
- - - 91 - - 91
Transfer on exercise or lapse of options
- - - (71) - 71 -
Shares issued under employee share schemes
- - 16 - - (16) -
Deferred tax on share- based payment
- - - - - 30 30
At 1 January 2023 710 18,344 (3,108) 148 3,652 46,937 66,683
Loss for the year - - - - - (8,456) (8,456)
Other comprehensive loss for the year (1,400) 378 (1,022)
- - - -
Total comprehensive loss for the year
- - - - (1,400) (8,078) (9,478)
Dividends paid - - - - - (2,133) (2,133)
Decrease in share-based payment reserve
- - - (82) - - (82)
At 31 December 2023 710 18,344 (3,108) 66 2,252 36,726 54,990
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2023
2023 2022
£'000 £'000
Operating (loss)/profit (6,738) 7,632
Adjustments for:
Depreciation of property, plant and equipment 1,459 1,810
Depreciation of right-of-use assets 2,058 1,881
Amortisation of intangible assets 884 813
(Credit)/charge for share-based payments (82) 91
Exchange loss (1,053) (559)
Impairment charge 10,867 -
Loss on sale of tangible fixed assets - 251
Operating cash flows before movements in working capital 7,395 11,919
Decrease/(increase) in inventories 5,161 (9,869)
Decrease in receivables 834 239
Decrease in payables (2,609) (643)
Cash generated from operations 10,781 1,646
Contributions to defined benefit pension scheme (300) (900)
Interest paid (1,569) (686)
Income taxes received/(paid) 684 (300)
Net cash inflow/(outflow) from operating activities 9,596 (240)
Investing activities
Interest received - 5
Purchase of property, plant and equipment (1,340) (4,093)
Purchase of intangible assets (1,585) (1,933)
Other income - 265
Acquisition of subsidiary - (821)
Net cash outflow from investing activities (2,925) (6,577)
Financing activities
Equity dividends paid (2,133) (2,269)
Lease payments (2,283) (1,864)
(Repayment)/drawdown of short term borrowings (964) 6,803
Repayments of borrowings (2,000) (2,000)
Net cash (outflow)/inflow from financing activities (7,380) 670
Net decrease in cash and cash equivalents (709) (6,147)
Cash and cash equivalents at beginning of year 1,681 7,616
Effect of foreign exchange rate changes (84) 212
Cash and cash equivalents at end of year 888 1,681
NOTES TO THE PRELIMINARY RESULTS
1. This announcement was approved by the Board of
Directors on 25 March 2024.
1.1 The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2023 or 2022, but
is derived from those accounts. Statutory accounts for 2022 have been
delivered to the Registrar of Companies and those for 2023 will be delivered
following the Company's Annual General Meeting. The auditors have reported
on those accounts: their reports were (i) unqualified, (ii) contained a
reference to the material uncertainty in respect of going concern to which the
auditors drew attention by way of emphasis without modifying their report,
(iii) did not contain a statement under Sections 498(2) or (3) of the
Companies Act 2006.
1.2 For the year ended 31 December 2023 the Group has prepared its
annual report and accounts in accordance with accounting standards in
conformity with the requirements of the Companies Act 2006 (International
Financial Reporting Standards).
This financial information has been prepared in accordance with the accounting
policies stated in the Group's financial statements for the year ended 31
December 2023.
The financial statements have been prepared on the historical cost basis, with
the exception of derivative financial instruments which are stated at their
fair value.
1.3 After making enquiries and reviewing budgets and forecasts for the
Group, the Directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going concern
basis in preparing the annual report and accounts. Further information on
going concern is set out in the Financial Review section above.
NOTES TO THE PRELIMINARY RESULTS
Continued
2. Earnings per share
The calculation of basic and diluted earnings per share is based on the
following data:
Earnings 2023 Earnings Earnings 2022 Earnings
£'000 Weighted per share £'000 Weighted per share
average (p) average (p)
number of number of
shares shares
Basic (loss)/earnings per share (8,456) 13,759,282 (61.46) 5,555 13,753,233 40.39
Effect of dilutive securities:
employee share options - 10,566 - - 14,773 -
Diluted (loss)/earnings per share (8,456) 13,769,848 (61.41) 5,555 13,768,006 40.35
Earnings 2023 Earnings Earnings 2022 Earnings
£'000 Weighted per share £'000 Weighted per share
average (p) average (p)
number of number of
shares shares
Headline basic earnings per share 2,939 13,759,282 21.36 6,407 13,753,233 46.59
Effect of dilutive securities:
employee share options - 10,566 - - 14,773 -
Headline diluted earnings per share 2,939 13,769,848 21.34 6,407 13,768,006 46.54
The calculation of basic and diluted headline earnings per share is based on
the following data:
( )
2023 2022
£'000 £'000
(Loss)/profit for the year attributable to equity holders (8,456) 5,555
Add back/(deduct):
Exceptional items 11,561 1,034
Tax effect of exceptional items (166) (182)
Headline earnings 2,939 6,407
NOTES TO THE PRELIMINARY RESULTS
Continued
3. Segmental analysis
The following tables provide an analysis of the Group's revenue by operating
segment and geographical market, irrespective of the origin of the products:
Operating segment 2023 2022
£'000 £'000
60,076 59,753
UK
North America 42,667 51,067
102,743 110,820
Geographical market 2023 2022
£'000 £'000
30,782 28,255
United Kingdom
North America 42,407 48,944
South Korea 21,488 26,656
Rest of the World 8,066 6,965
102,743 110,820
4. Exceptional items
Exceptional items by type are as follows:
2023 2022
£'000 £'000
694 958
Restructuring costs
Impairment charge 10,867 -
Acquisition costs - 76
11,561 1,034
5. Finance costs
2023 2022
£'000 £'000
Interest paid 1,568 686
Interest on lease liabilities 245 270
1,813 956
NOTES TO THE PRELIMINARY RESULTS
Continued
6. Dividends
The Directors recommend that a final dividend for 2023 of 2.00p (2022: 12.00p)
per ordinary share be paid. The final dividend will be paid, subject to
shareholders' approval, on 31 May 2024, to shareholders on the register at the
close of business on 26 April 2024. This dividend has not been included as a
liability in these financial statements. The total dividend paid and proposed
for the year is 5.50p per share (2022: 15.50p).
7. Reconciliation of headline earnings before interest,
tax, depreciation and amortisation (Headline EBITDA)
2023 2022
£'000 £'000
Headline operating profit 4,823 8,666
Add back:
Depreciation 3,517 3,691
Amortisation 884 813
Headline earnings before interest, tax, depreciation and amortisation 9,224 13,170
Reconciliation of earnings before interest, tax, depreciation and amortisation
(EBITDA)
2023 2022
£'000 £'000
Statutory operating (loss)/profit (6,738) 7,632
Add back:
Depreciation 3,517 3,691
Amortisation 884 813
Impairment charge 10,867 -
Statutory earnings before interest, tax, depreciation and amortisation 8,530 12,136
8. Post balance sheet events
Subsequent to the year end Lloyds extended the revolving credit facility
agreement to September 2025 with a 1+1 annual renewal extension option (at
their discretion) to extend to September 2026 and then September 2027.
9. Availability of annual report and accounts
The accounts for the year ended 31 December 2023 will be posted to
shareholders on or before 24 April 2024 and laid before the Company at the
Annual General Meeting on 21 May 2024. Copies will be available from the
Company Secretary at Portmeirion Group PLC, London Road, Stoke-on-Trent,
Staffordshire, ST4 7QQ, or from the website www.portmeiriongroup.com.
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