REG - Sanderson Design Grp - Full Year Financial Results
18 May 2021
SANDERSON DESIGN GROUP PLC
("Sanderson Design Group", the "Company" or the "Group")
Financial Results for the year ended 31 January 2021
Sanderson Design Group PLC (AIM: SDG), the luxury interior design and furnishings group, announces its financial results for the year ended 31 January 2021.
Financial highlights
Year ended 31 January
2021
2020
Change
Revenue
£93.8m
£111.5m
(15.9)%
Adjusted underlying profit before tax*
£7.1m
£7.4m
(3.7)%
Adjusted underlying EPS*
8.00p
9.26p
(13.6)%
Statutory profit before tax
£5.0m
£4.4m
14.6%
Statutory profit after tax
£3.9m
£3.7m
4.9%
Net cash excluding 'Leases'
£15.1m
£1.3m
> 1000%
Net cash/(debt) including 'Leases'
£9.3m
£(7.1)m
n.m.
*excluding share-based incentives, defined benefit pension charge and non-underlying items
· Revenue of £93.8m (2020: £111.5m), reflecting the difficult global marketplace in the first half year caused by the effects of lockdowns worldwide. Trading in the second half recovered to pre-pandemic levels resulting in the previously announced upwards revision to Board expectations for the financial year.
· Brand sales down 15.4% during the year but just 1.1% down in the second half compared with H2 2020:
o Morris & Co. sales continue to exceed expectations, particularly in Northern Europe.
o Brand product sales in Northern Europe were down just 5.0% in constant currency, 4.3% in reportable currency, with Scandinavia's performance proving resilient.
o Core licensing income** was up 3.3% despite the pandemic.
· Manufacturing sales down 20.2% reflecting first half-year factory closures, partly offset by strong demand from UK and export markets with third-party sales of £11.0m in the second half (H2 2020: £11.7m).
· Adjusted underlying profit before tax £7.1m (2020: £7.4m), including net £2.7m Coronavirus Job Retention Scheme ('CJRS'), with stronger sales in the second half-year, coupled with the effect of the measures to reduce discretionary and fixed costs.
· Strong cash inflow from operating activities of £18.2m (2020: £9.6m) leading to increased liquidity and headroom of £30.5m at 31 January 2021 (2020: £13.8m) with net cash position of £15.1m (2020: £1.3m).
** core licensing income excludes the recognition of fixed minimum guaranteed licensing income under IFRS 15
Operational highlights
· Board and leadership team completed in February 2020. The new team successfully took the business through the pandemic and continues to execute the strategy.
· Efficiency and cost-saving initiatives, including restructuring in August 2020 with the reduction of 68 positions, delivered £3m of annualised cost savings.
· Investment to elevate the brands and increase online presence through new brand websites and collaborations.
· Change of name to Sanderson Design Group PLC*** in December 2020, and simplification of the corporate and business structures.
· Launch of Scion online shop expected in early June 2021 following agreement with leading internet retailer Jane Clayton and Company in November 2020.
· Clarke & Clarke's partnership with Kravet in North America performing ahead of expectations.
· Launch of Live Beautiful sustainability strategy in April 2021 with ESG targets and the second annual Planet Mark certification.
*** formerly known as Walker Greenbank PLC
Dianne Thompson, Sanderson Design Group's Chairman, said:
"First, I would like to put on record my gratitude to all of the Group's employees for their commitment and adaptability throughout the pandemic. It has been a difficult time for everyone but colleagues' support for each other, for customers and suppliers has been exemplary, for which I thank them deeply.
"Whilst Covid-19 affected our operational activity during the year, it accelerated the strategic development of the Group. It concentrated our focus on improving the underlying efficiency, agility and productivity of the business. It also sharpened our focus on digital strategy and sustainability.
"Current sales trends in February, March and April 2021 were slightly ahead of our expectations reflecting increased demand for home interiors. The Group has a strong balance sheet with net cash at 31 January 2021 of £15.1 million, which positions the business strongly in the event of further disruption. Overall, we remain cautiously optimistic in our outlook for the year ahead."
Analyst conference call
A conference call for analysts and institutional investors will be held at 10.00 a.m. today, 18 May 2021. For dial-in details, please contact Buchanan at SDG@buchanan.uk.com.
For further information:
Sanderson Design Group PLC
c/o Buchanan +44 (0) 20 7466 5000
Lisa Montague, Chief Executive Officer
Michael Williamson, Chief Financial Officer
Caroline Geary, Company Secretary
Investec Bank PLC (Nominated Adviser and Broker)
+44 (0) 20 7597 5970
David Anderson / Alex Wright / Ben Farrow
Buchanan
+44 (0) 20 7466 5000
Mark Court / Sophie Wills / Toto Berger / Charlotte Slater
Notes for editors:
About Sanderson Design Group
Sanderson Design Group PLC is a luxury interior furnishings company that designs, manufactures and markets wallpapers, fabrics and paints. In addition, the Company derives licensing income from the use of its designs on a wide range of products such as bed and bath collections, rugs, blinds and tableware.
Sanderson Design Group's brands include Zoffany, Sanderson, Morris & Co., Harlequin, Scion, Anthology and Clarke & Clarke.
The Company has a strong UK manufacturing base comprising Anstey wallpaper factory in Loughborough and Standfast & Barracks, a fabric printing factory, in Lancaster. Both sites manufacture for the Company and for other renowned interiors brands.
Sanderson Design Group employs approximately 600 people and its products are sold worldwide. It has showrooms in London, New York, Chicago, Paris, Amsterdam and Dubai.
Sanderson Design Group trades on the AIM market of the London Stock Exchange under the ticker symbol SDG.
For further information please visit: www.sandersondesigngroup.com
CHAIRMAN'S STATEMENT
The financial year ended 31 January 2021 was a challenging year during which Covid-19 was the dominant theme for individuals, businesses and society.
First, I would like to put on record my gratitude to all the Group's employees for their commitment and adaptability throughout the pandemic. It has been a difficult time for everyone but colleagues' support for each other, for customers and suppliers has been exemplary, for which I thank them deeply. The over-riding priority for the Company throughout the pandemic has been the health, safety and wellbeing of all at the Company, and it will continue to be so.
Whilst Covid-19 affected our operational activity during the year, it accelerated the strategic development of the Group. It concentrated our focus on improving the underlying efficiency, agility and productivity of the business. It also sharpened our focus on digital strategy and sustainability.
To prepare the business for the future, we changed the Company's name in December 2020 from Walker Greenbank PLC to Sanderson Design Group PLC. The name change, which has been well received, is part of the simplification of the corporate structure of the Group and gives us a much better online presence. The new name, which leverages the international recognition of the Sanderson brand, better represents our brand and manufacturing assets and highlights design as being at the centre of what we do.
Whilst the name has changed, our heritage continues, and we remain a business that was first incorporated on 3 May 1899; the custodian of brands dating back to 1860. We have a responsibility to protect and preserve the past, in terms of the heritage of our business, brands and manufacturing, and, as importantly, to ensure the longevity of this heritage for future generations.
Sustainability is, therefore, imperative for our business and will underpin our growth. During the year we developed our sustainability strategy, Live Beautiful, which was launched on 16 April 2021 this year with the ambitious but achievable objective of becoming net carbon zero by 2030. Sustainability is high on the Board's agenda and I am passionate about Sanderson Design Group leading the industry on this important issue.
Our strategy for the Group's growth remains unchanged and is focused on five key areas:
• Driving the individual brands
• Focusing on core products of wallpaper, fabric and paint
• Partnering with core customers
• Investing in people
• Growing key geographies - UK, Northern Europe and US
Whilst inevitably Covid-19 has had an impact on the delivery of this strategy, considerable progress was made during the year. Further details are provided in the Chief Executive Officer's Strategy and Operational Review.
Financial Results
Our results for the year ended 31 January 2021 reflect the impact of Covid-19 on the business. This impact was mitigated by careful cost control, the UK Government's Coronavirus Job Retention Scheme ("CJRS") and other measures. The first half of the year saw the greatest impact from lockdown measures, including temporary factory closures, whereas trading in the key autumn selling period in the second half was better than anticipated. Our balance sheet strengthened considerably throughout the year, protecting the business against uncertainties and reflecting the money saved through delaying product launches and capital expenditure and through a restructuring programme which is expected to deliver annualised cost savings of £3 million.
Dividend
The Board recognises the importance of dividend income to shareholders and is committed to recommencing dividend payments as soon as conditions allow. Whilst our financial position improved during the financial year, there remains significant uncertainty in the external trading environment as the result of the ongoing pandemic. We do not, therefore, believe it would be prudent to declare a final dividend for the financial year 2021. The Board will continue to review the dividend policy during the coming months and an update will be provided at the time of the announcement of the Company's interim results later in 2021 with the objective of the Company returning to dividend payments at the earliest opportunity.
People
The success of any business is built on its people. On behalf of the Board, I would like to thank all of our colleagues for their continued hard work and dedication during the year, particularly in light of the exceptionally challenging circumstances that have characterised the pandemic.
Dianne Thompson
Non-executive Chairman
17 May 2021
CHIEF EXECUTIVE OFFICER'S STRATEGY AND OPERATIONAL REVIEW
Covid-19
Our 2021 financial year started well. The new leadership team was in place and we were focused on delivering the growth strategy for the business that we had formulated and announced during the previous year. Almost immediately we were affected by Covid-19, which brought the temporary closure of our factories in March 2020 along with lockdowns and severe disruption across our target markets. Against this challenging backdrop, I am pleased to report that we made significant progress across the business during the year.
Most importantly, we acted quickly to protect the health and safety of our employees. We also took significant operational and financial measures to protect the liquidity of the Group.
Trading was impacted by the three national lockdowns in the UK, starting on 23 March, 4 November and 28 December 2020, and by lockdowns in our export markets. During the first UK lockdown our manufacturing facilities were closed. With the phased reopening of our factories and the relaxation of lockdown measures worldwide, trading improved from a low in April 2020 and gained momentum towards the half year end and continued strongly in the key autumn selling period.
Our manufacturing facilities operated at full capacity in the second half of the financial year, during which trading overall was more in line with prior years.
We are grateful for the support we received from the UK Government's CJRS, particularly during the critical weeks of the first lockdown. In April 2020, a total of 510 employees in the UK were furloughed, which reduced to just 133 at the half-year end and reduced further to 15 by 31st January 2021. During the financial year, we received a total of £3.1 million from the CJRS. From 1 April 2021, we have no staff furloughed. We returned £0.4 million to the UK Government in February 2021 relating to 68 employees made redundant in a restructuring exercise completed in August last year. We have also returned all CJRS monies (totalling £0.1 million) received in the current financial year in April 2021.
On 7 May 2020, the Group entered a loan contract with Wells Fargo for US$565,818 under the US Paycheck Protection Payment scheme. No repayments have been made in relation to this loan. On 20 April 2021, the Group applied for forgiveness of the loan in accordance with the US Government Small Business Administration guidance. Whilst we expect the loan to be forgiven, in the event that forgiveness is not granted it is the Group's intention to repay the loan before 31 January 2022.
Internal communications have been very important throughout Covid-19. I have communicated regularly with all colleagues, which has made us more cohesive as a business, and used video conferencing to create a forum for discussion. This enhanced internal communication will continue going forwards.
Strategy and progress
It is a credit to everyone at the Company that we have been able to deliver underlying pre-tax profits of £7.1 million (2020: £7.4 million) on sales of £93.8 million (2020: £111.5 million). I would like to send my thanks to all colleagues for this achievement, which reflects everyone's hard work and persistence.
We set out our growth strategy for the Group in October 2019 and it remains unchanged. The key elements are summarised below:
Driving the brands: The Group has a strong and broad portfolio of powerful brands, each with clear market positioning. Our intention is to focus precisely on the individuality of each brand, giving each its own market, channel, product and communications strategy; thereby strengthening their appeal to drive demand in their respective marketplaces.
Focusing on core products: The Group has two strong manufacturing arms that benefit the brands' business. Our short- and medium-term strategy is to focus on our core products of wallpaper, fabric and paint and to build our finished-goods offer with our licensing partners.
Partnering with core customers: The strategic focus on the individuality of each brand, and our tailored service, will help cement relationships with key customers, while enhanced communication will drive demand for both heritage and contemporary brands from consumers, through our interior design partners, retail channels and hospitality partners. We will continue to deepen our relationships with existing licensing partners and seek new opportunities.
Investing in people: People, and creativity, are at the heart of our business. In our industry, Sanderson Design Group is a favoured destination for emerging new designers, and we will benefit from doing even more to bring in new creative and other talent, nurture it and create a high-performance culture. The commitment, flexibility and agility demonstrated during the pandemic has already achieved a step change towards a more responsive organisation with a strong, aligned team.
Growing key geographies: Our brands have significant international market potential, reflected in their being sold in more than 85 countries worldwide. To ensure focus, we are concentrating our efforts on building market share in three key geographies: the UK, Northern Europe and the US. Our approach is tailored to each individual region.
We have made significant progress during the year in pursuing this strategy despite the pandemic.
Efficiency
Historically, the Company has launched around 55 new collections each year. We planned to reduce this to 37 collections in the 2021 financial year but, owing to Covid-19, we launched just 33 collections.
An important strategic objective to improve the efficiency of the business is to significantly reduce the number of colourways and other options within the collections so there are fewer, stronger launches. This will give a corresponding reduction in the number of new stocked options (SKUs) of fabric and wallcoverings.
New SKUs launched in financial year 2021 reduced from 2,311 in financial year 2020 to 1,293. It is expected that the number of SKUs launched will reduce further in the current financial year to about 1,000 and to remain around this level each year going forward.
One of our first responses to the pandemic was to suspend the launch of new collections as our factories were closed and our markets severely disrupted. This had the effect of avoiding a very significant amount of spend on pattern books, launches and inventory, therefore strengthening our cash position.
In December 2020 we renamed the Company from Walker Greenbank PLC to Sanderson Design Group PLC, to create a better platform from which to elevate the Company's brands and other assets. Walker Greenbank's corporate structure had become over-complicated, with multiple holding companies and sub-brands. Walker Greenbank itself was a holding company with little resonance in the industry.
The Group undertook a restructuring exercise in August 2020 resulting in a cost saving of £1.2 million in the year ended 31 January 2021, and is expected to deliver total annualised savings of £3.0 million going forwards. The Group is now leaner, more agile and better prepared for the future.
Whilst Covid-19 impacted our planned launches, it propelled innovation in the niche launches that we did proceed with. It enabled us to accelerate some of our ideas to improve efficiency in the launch process, particularly around the use of digital communications to mitigate the cost of traditional printed pattern books.
In future, all product pre-launches will be digital. This is because the customer feedback from the initial sampling can be used to inform the launch marketing, pattern book content and inventory.
The launch of Scion's online shop, initially announced in November 2020, is now planned for early June 2021. The shop, dedicated solely to Scion, will sell the brand's products direct to consumers under a franchise agreement with Design Online Limited ("Design Online"), a company formed by the leading internet retailer Jane Clayton and Company. The online shop, to be called Scion Living, will serve customers in the UK and Europe before potentially expanding internationally. The shop's product range is expected to include all Scion fabrics and wallcoverings along with bespoke furnishings and an extensive range of licensed products.
The communication of the Company and its brand assets has been simplified with the name change to Sanderson Design Group, which was implemented ahead of the relaunch of our brand, trade and corporate websites. The new websites represent a major improvement to the online presence of our brands. They are more engaging for consumers, which in turn will help drive sales for our trade customers. The trade site itself has better functionality to accommodate the increase in online transactions by trade customers.
Sustainability
We also unveiled our Company's purpose statement during the year: "To Bring the Beautiful into People's Homes and Lives." This purpose statement has been developed alongside our Live Beautiful sustainability strategy and other ESG initiatives, which have progressed significantly during the year.
During the year, we received Planet Mark sustainability certification for measuring and reporting our carbon footprint. In the year to 31 January 2020, our total carbon footprint was 7,977.8 tonnes (2019: 9,246.9 tonnes) of carbon dioxide equivalent.
On 16 April 2021, we announced ambitious plans to become net carbon zero by 2030, which we believe is achievable through our Live Beautiful strategy of transforming the way we design, manufacture and distribute our products. Further details are available at this link: https://www.sandersondesign.group/media/1477/live_beautiful_sustainability_strategy.pdf. In addition to the net carbon zero target, we have another major sustainability pledge focused on ensuring the job satisfaction and fulfilment of our people, with our ultimate aim to be the employer of choice in our industry. We have developed a roadmap for continuous improvement towards our sustainability goals and I am excited by the level of interest from everyone at the Company that this initiative has prompted.
Operational Review
Trading during the year reflected the effects of the pandemic with the first half being particularly affected followed by a strong recovery in the second half.
· The Brands
Total Brands comprise Sanderson, Morris & Co., Harlequin, Zoffany, Scion, Anthology and Clarke & Clarke. The Brands segment includes the licensing income derived from the brands as well as global trading from our brands, including our overseas subsidiaries in the US, France, Russia and Germany.
Year ended 31 January (£m)
Change (%)
2021
2020
Reported
Constant currency
Total Brand sales
76.3
90.2
(15.4)
(15.6)
Comprising:
Licensing
3.7
5.5
(33.0)
(33.2)
UK Brand product sales
38.1
44.9
(15.3)
(15.3)
International Brand product sales
34.5
39.8
(13.1)
(13.5)
- North America
12.5
14.4
(13.0)
(13.3)
- Northern Europe
12.5
13.0
(4.3)
(5.0)
- Rest of the World
9.5
12.4
(22.5)
(22.8)
The table above shows the impact of the pandemic on brand sales, which primarily affected the first half of the financial year. Total Brand sales were down 15.4% in reportable currency at £76.3 million.
Brand product sales in Northern Europe were down just 4.3% in reportable currency, reflecting the continued strength of the Morris & Co. brand in Scandinavia.
The performance of the individual brands is discussed below. To improve transparency, this report marks the last time that the Harlequin, Scion and Anthology brands and the Sanderson and Morris & Co brands will be grouped together. In future, the trading performance of each brand will be set out separately to enable investors to gain a better insight into the performance of each brand.
Harlequin incorporating Scion and Anthology
Worldwide sales of Harlequin, Scion and Anthology were £18.4 million in reportable currency, a decrease of 27.3% on the previous year (2020: £25.3 million).
Sales in the UK were down 24.2%, sales in North America were down 14.0% in constant currency and sales in Northern Europe were down 18.7% in constant currency.
Harlequin's children's collection, the Book of Little Treasures, was launched in July 2020 and was our first digital launch. We collaborated with Mumsnet, the internet forum for parents, on the launch, which was well received. This launch highlighted the benefits of a digital launch, particularly in terms of the feedback from the sampling process in which we can see which of the designs and colourways are the most popular and therefore the ones we should focus on. The collection was reduced from 76 SKUs to just 40 and sales are performing as forecast with strong uptake from John Lewis in particular for the Little Home offer.
Scion is an upbeat brand conveying fresh ideas for modern living. In addition to wallpaper and fabric, Scion is a valuable brand for licensing, where the contemporary and graphic nature of the designs have stretched very successfully to a wide range of products, ranging from bedding and bathroom products to window furnishings, gifting, tableware and stationery. In March 2020, Scion announced a homewares collection with the major retailer NEXT plc, underscoring the strength of the brand's licensing potential. This collection launched in the summer of 2020 and has performed well.
Anthology, aimed at the Contract market with its creative finishes, subtle textures and sophisticated complexity remained popular with interior designers and hotel groups worldwide.
Arthur Sanderson & Sons incorporating the Morris & Co. brand
Worldwide sales of these two brands were £24.2 million (2020: £24.1 million) in reportable currency, almost unchanged compared with the same period last year, despite the pandemic, reflecting the trend for more decorative finishes and the renewed appeal of Arts & Crafts design.
Sales in the UK were down 9.5%, sales in North America were up 13.4% in constant currency and sales in Northern Europe increased by 11.1% in constant currency.
As one of the oldest surviving English soft furnishing brands, Sanderson, a Royal Warrant holder, is famous today for a signature style that is informed by heritage and designed for modern living.
In January 2020, we announced Sanderson's collaboration with the National Trust to create a unique collection of fabrics to celebrate the Trust's 125th anniversary. The collaboration was announced prior to Covid-19 and was well received when previewed at Chelsea Harbour in March 2020. We were unable to print the pattern books, which were due to be printed in April 2020, owing to the temporary closure of the printer during the first UK lockdown. We already had inventory and launch photography, and there was demand in the market, so we gained our first experience of using digital communication to replace a traditional launch. This led also to our first webinars, which were hosted by designers and brand managers and were greatly appreciated by our distributors, particularly in export markets, who were struggling to access new collections.
Sanderson's 160th anniversary was officially last year but we delayed the launch of an anniversary collection until April 2021. A limited preview of 12 styles was launched exclusively with John Lewis in December 2020 with strong results. Wallpaper Direct, the online wallpaper business, launched an exclusive collection of 50 SKUs in honour of the anniversary and reported strong demand from its March 2021 launch. The wider collection launch during London Design Week in May 2021 will be supported by the first significant media campaign for many years, featuring England rugby star Maro Itoje as the new face of the Sanderson brand. The media campaign will look back to the Very Sanderson campaigns of the 1970s, which featured British celebrities of the day such as Petula Clark, Diana Rigg and Robert Carrier.
The Morris & Co. brand enjoyed a very strong sales performance, up 9.0% during the year, reflecting sustained consumer interest in the Arts & Crafts movement, particularly in Scandinavia and the United States.
An exciting collaboration with the highly regarded designer Ben Pentreath, who created the Queen Square edit from our archive using a new and vibrant colour palette, was our next experience of a digital launch. The sampling from the pre-launch showed that 25% of sampling was on one wallpaper, a green and turquoise colourway. We focused attention on the colourway for our inventory and marketing material, receiving a huge amount of positive media coverage on launch. Sales of the collection have exceeded expectations and a follow up is planned.
Digital communication has been an important part of marketing all the brands with the number of Instagram followers being a key metric. Morris & Co. achieved the milestone of 100,000 Instagram followers in December 2020 and that has since increased to 121,000 Instagram followers in May 2021. Morris & Co. had 65,000 Instagram followers at 31 January 2020.
This year marks the 160th anniversary of the Morris & Co print works. We intend to mark the anniversary by launching a compilation collection of his most signature designs this year. We have several other exciting launches planned in a calendar of anniversary events throughout the year.
Zoffany
Zoffany, positioned at the upper end of the premium market, is a fusion of luxury and art and is the lead brand for the Group in North America. Total worldwide sales fell 18.0% to £7.8 million in reportable currency (2020: £9.5 million). Sales in the UK decreased by 22.8%, sales in North America were down 7.5% in constant currency and sales in Northern Europe were down 9.7% in constant currency.
Zoffany's Palladio collection, an exciting, screen-printed wallpaper collection that draws on the original Palladio wallpapers launched in the 1950s, was launched in September 2020. The collection includes Precarious Pangolins by the influential designer and conservationist Sam Wilde. The design adds a contemporary dimension to the collection and continues the tradition established in the 1950s of talented new designers creating Palladio wallpapers.
We ran the Zoffany Visual Arts Award championing new design talents. The winner was announced in April 2021 and will receive funds towards the second-year studies.
Clarke & Clarke
Clarke & Clarke is positioned at the more affordable end of our premium target markets. Total sales were down 14.2% at £21.7 million compared with the same period last year (2020: £25.3 million). Sales in the UK decreased by 4.5%, sales in North America were down 33.0% in constant currency and sales in Northern Europe were down 13.3% in constant currency. The reported sales decline in North America was due to the changing contract and operating in financial year 2020 from a commission agency to a new distributor.
Clarke & Clarke is distributed in North America by Kravet Inc, whose sales have been ahead of expectations. Kravet is pleased with the first full year's performance, which has exceeded all other third- party brands they distribute, and further growth is anticipated.
Clarke & Clarke's Wilderie and Animalia collections by designer Emma J Shipley continued their strong growth during the year across fabric, wallpaper and homewares. The Emma J Shipley momentum was reinforced by a new launch into US retailer Anthropologie and an exclusive bedding launch in John Lewis. Tess Daly homewares was launched at the beginning of March 2020, shortly before the first UK lockdown. Sales were impacted but bounced back in the second half of the financial year. NEXT is the main partner for the collection and new bedding design launches are planned this financial year and next year.
Clarke & Clarke secured an exciting, exclusive licence agreement with the heritage brand Wedgwood with the product launching in Spring 2022. Under the agreement, Clarke & Clarke will launch up to five bedding designs with coordinated accessories alongside a stunning collection of fabrics and wallpapers.
· Licensing
Licensing income is a dynamic and high margin revenue stream for the Company with further potential for growth.
Core licensing income, excluding the recognition of fixed minimum guaranteed licensing income under IFRS 15, was up 3.3% in reportable currency and in constant currency, by £0.1 million, reflecting a strong performance from our core bedding, blinds and Japanese licensees.
As a result of the impact of the pandemic on our licensees during the financial year, reported licensing income was down 33.0% in reportable currency, down 33.2% in constant currency, to £3.7million (2020: £5.5 million), including a £400,000 recognition of a minimum guarantee under IFRS 15 from NEXT plc in connection with a licensing agreement signed in November 2020 with the Sanderson and Morris & Co brands. This exciting agreement is for an extensive range of clothing, homeware and accessories. With the Morris & Co brand, NEXT is producing apparel, including womenswear, men's shirts and childrenswear for Summer 21, some of which are already available instore. With the Sanderson and Sanderson Home brands, NEXT is producing a range of homeware, which is expected to be launched later this year.
Core licensing income includes bedding with Bedeck, window-coverings with Blinds2Go and a number of important strategic partners across the homewares sector in Japan, including bedding with Nishikawa, textiles with Kawashima and wallcoverings with Sangetsu.
· Manufacturing
Covid-19 had a major impact on our manufacturing operations, Standfast & Barracks and Anstey, which were both closed at the start of the first UK lockdown before being progressively reopened in May 2020. The factories performed strongly during the second half of the year.
Our unique integrated vertical supply chain is an important pillar in our strategy. The benefits of owning our production capabilities have been underlined by the pandemic in that it enabled the Group's Brands to secure supply. Our manufacturing has also proven to be an important strategic and competitive asset under current Brexit arrangements as supply from Europe and elsewhere is subject to duties and tariffs.
Total manufacturing sales in the first half decreased 38.5% to £10.5 million compared with the corresponding period, with total third-party sales down 32.5%. In the full year, total manufacturing sales decreased by just 20.2% to £28.4 million (2020: £35.5 million) and total third-party sales were down just 17.9%.
Both factories have continued to attract export orders as a result of their range of digital and conventional printing capabilities.
Standfast & Barracks ('Standfast')
Standfast, our fabric printing factory, is widely regarded, internationally, as the destination for creative, innovative and high-quality fabric printing. Standfast, in common with Anstey, attracts international orders from countries including the USA. Standfast continues to exploit its extensive archive and original artwork, with a talented design studio that reinterprets antique, heritage and classic design into prints relevant for today.
Standfast saw a decrease in sales during the year of 15.5% to £14.4 million (2020: £17.1 million). Third-party sales in the UK decreased by 15.2%; third-party export sales declined by 2.8%; whilst sales to our own Group brands decreased by 24.2%. Digital printing at Standfast increased to £8.8 million accounting for 62% of factory output during the year (2020: 49%).
In April 2020, Standfast was awarded the prestigious Queen's Award for Enterprise 2020 in the International Trade category, recognising the factory's impressive overseas sales growth in the preceding three years.
Anstey Wallpaper Company ('Anstey')
Anstey, our wallpaper printing and paint-tinting business, is an unrivalled factory in its range of wallpaper printing techniques on one site. We continue to invest in new technology to extend the potential of the factory and to build on its unique capabilities. Third-party customers reference the unique ability of Anstey to work consistently across the range of techniques and to blend them.
Sales at Anstey decreased 24.5% to £14.0 million (2020: £18.5 million). Third-party sales in the UK were down 27.5%; third-party export sales were down 20.4%; and internal wallcovering sales to our own Group brands decreased by 22.7%. Digital printing at Anstey as a proportion of factory output was 15% (2020: 12%).
Export sales to the USA and Europe reflect Anstey's premium print technologies, world-class excellence in manufacturing, customer service, quality and innovation.
Current trading and outlook
The most significant impact of the Covid-19 pandemic on performance was during the total initial lockdown and over the first six months of financial year 2021. Over the second six months, despite further lockdowns, our sales recovered to levels in line with prior periods and enabled us to previously announce the upwards revision to our expectations for the financial year.
Current sales trends in February, March and April 2021 are slightly ahead of our expectations reflecting increased demand for home interiors. The Group has a strong balance sheet with net cash at 31 January 2021 of £15.1 million, which positions the business strongly in the event of further disruption. Overall, we remain cautiously optimistic in our outlook for the year ahead.
Lisa Montague
Chief Executive Officer
17 May 2021
CHIEF FINANCIAL OFFICER'S REVIEW
The Chairman's Statement and Chief Executive's Strategic and Operating Review provide an analysis of the key factors impacting the results including the effects of Covid-19. Our business was severely disrupted in the financial year by the effects of lock downs both in the UK and in overseas markets.
Revenue Performance
Our reported revenue for the year was £93.8 million (2020: £111.5 million), a reduction of £17.7 million or 15.9% on prior year.
Year ended 31 January (£m)
2021
2020
Change (%)
Total Revenue
93.8
111.5
(15.9)
Comprising:
Brand product revenue
72.6
84.7
(15.4)
Manufacturing external revenue
17.5
21.3
(17.9)
Licensing
3.7
5.5
(33.0)
Underlying Profit Performance
Despite the effects of the pandemic on our revenues we have achieved an adjusted underlying profit before tax of £7.1 million (2020: £7.4 million). We can report an increase in margin for adjusted underlying profit before tax to 7.5% (2020: 6.6%). The profit performance has benefitted from actions to grow revenue in the second half, reduce the cost base, increase efficiencies and access government support such as the CJRS.
Our business was severely disrupted in the first half by the effects of lock downs. In the second half year, despite further lock downs, we experienced trading more in line with prior years with a strong performance in our peak selling months of October and November 2020. Our manufacturing and distribution facilities have remained open since the first lock-down and have operated at full capacity. The Group believes that this demand reflects a widely reported trend in the home improvement and furnishings sector, with consumers having directed discretionary spending on their homes during the Covid-19 pandemic.
Year ended 31 January (£m)
2021
2020
H1
H2
H1
H2
Revenue
38.8
55.0
55.9
55.6
Adjusted underlying PBT
0.4
6.7
4.9
2.5
The table above demonstrates the extreme effect of the initial lock down, when we had to close facilities and furlough a significant number of employees. During the financial year ended 31 January 2021, we received a total of £3.1 million from the CJRS. We repaid £0.4 million in February 2021 for the 68 employees made redundant in August 2020.
Income statement
The Group's income statement is summarised below.
Year ended 31 January
2021
2020
Revenue (£m)
93.8
111.5
Gross profit (£m)
57.0
68.1
Gross profit (%)
60.8%
61.1%
Net operating expenses (£m)
51.8
63.3
Profit from operations (£m)
5.2
4.8
Gross profit margin has held up at 60.8% (2020: 61.1%), despite the disruptive effects of Covid-19 and Brexit, and the enforced manufacturing operation closure for three months in the first half of the year. Distribution and selling costs, administration costs and net other income are included in net operating expenses. Distribution and selling costs have been reduced by £3.8 million to £19.1 million (2020: £22.9 million) on the back of lower volume of transactions and reduced samples in the first half of the financial year. Administration costs have decreased by £9.3 million to £36.5 million (2020: £45.8 million) through efficiency and cost-saving initiatives, which have included staff cost savings, reduced travel and control of consultancy, legal and professional and marketing expenditures. Net other income which represents consideration from the sale of marketing materials and additional services has reduced by £1.5 million to £3.8 million (2020: £5.3million), as a result of the closure of non-essential retail for long periods during the financial year.
The reported revenue and operating profit by reporting segments is set out below.
Year ended 31 January 2021
Brands
£m
Manufacturing
£m
Eliminations
and
unallocated
£m
Total
£m
Total revenue
76.3
28.4
(10.9)
93.8
Profit from operations
7.5
1.7
(4.0)
5.2
Year ended 31 January 2020
Total revenue
90.2
35.6
(14.3)
111.5
Profit from operations
8.2
2.2
(5.6)
4.8
Underlying profit before tax
Statutory profit before tax of £5.0 million (2020: £4.4 million) includes non-underlying charges of £1.2 million (2020: £2.0 million) as set out below.
Year ended 31 January (£m)
2021
2020
Statutory profit before tax
5.0
4.4
Add back:
Amortisation of acquired intangible assets
1.0
1.0
Restructuring and reorganisation costs
0.2
1.1
Anstey net other income
-
(0.1)
Total non-underlying charge included in profit before tax
1.2
2.0
Underlying profit before tax
6.2
6.4
Add back:
LTIP accounting charge
0.3
0.4
Net defined benefit pension charge
0.6
0.6
Adjusted underlying profit before tax excluding LTIP and defined benefit pension charge
7.1
7.4
Acquisition-related costs incurred were in respect of the acquisition of Clarke & Clarke, which completed on 31 October 2016. This comprises the amortisation of intangible assets of £1.0 million (2020: £1.0 million).
Restructuring and reorganisation costs of £0.2 million (2020: £1.1 million) reflect the rationalisation of certain operational and support functions during the year. These costs mainly comprise employee severance costs associated with the restructuring and reorganisation processes.
Net finance costs reduced to £0.2 million (2020: £0.4 million), as the Group paid down its bank debt during the year.
Taxation
Tax expense for the year is £1.1 million (2020: £0.7 million).
Earnings per share
Basic reported EPS for the year was 5.50p (2020: 5.24p). The Group also reports an adjusted underlying EPS which adjusts for the impact of the LTIP accounting charge, net defined benefit pension charge and other non-underlying items, as these items can fluctuate due to external factors outside of the control of the Group. The adjusted underlying basic EPS for the year was 8.00p (2020: 9.26p).
Key Financial Indicators
We measure and monitor key performance and financial indicators across the Group. We set out below a summary of the Group's key financial indicators.
Year ended 31 January
2021
2020
Revenue (£m)
93.8
111.5
Revenue Growth (%)
(15.9%)
(1.6%)
Adjusted underlying profit before tax (£m)
7.1
7.4
Adjusted underlying profit before tax (%)
7.5%
6.6%
Adjusted earnings per share (pence)
8.00p
9.26p
Net cash position (£m)
15.1
1.3
Net cash flow (£m)
14.4
0.9
Inventory (£m)
20.4
28.5
Capital expenditure (£m)
1.0
2.4
Reported EBITDA (£m)
12.6
12.1
Liquidity and Cash Flow
We have actively conserved cash and controlled costs to mitigate the effects of Covid-19. The Group cut its operating costs, marketing and discretionary expenditure, capital expenditure programs and dividends, due to uncertainty in the health, economic and political environment. As a result, despite significant Covid-19 disruption, the Group has increased liquidity and headroom to £30.5 million at 31 January 2021 (2020: £13.8 million), with a year end net cash position of £15.1 million (2020: £1.3 million) and repaid its UK bank debt (2020: £1.7 million).
The Group generated strong cash inflow from operating activities during the year of £18.2 million (2020: £9.6 million).
Working capital has improved significantly through the reduction in inventory and receivables in the year, as tighter working capital management controls were implemented and the strategy of reducing SKUs and scale of new collection launches were applied. The tight control of inventory continues with new operating replenishment rules and bi-weekly commercial review meetings.
Key working capital balances and their movements year on year are set out below:
Year ended 31 January (£m)
2021
2020
Inventory
20.4
28.5
Trade debtors
11.7
13.1
Trade creditors
(8.8)
(14.3)
Capital expenditure was £1.0 million (2020: £2.4 million), with tight cash controls applied in response to Covid-19. The Group made additional payments to the pension schemes of £2.1 million (2020: £1.9 million) to reduce the deficit, as part of the ongoing planned reduction. Tax paid during the year was £23,000 (2020: £0.8 million). Tax payments have been made shortly after 31 January 2021 of £1.3m.
Banking Facilities
The Group has banking facilities provided by Barclays Bank PLC. In October 2019, the Group renewed its £12.5 million multi-currency revolving committed credit facility with Barclays Bank PLC for a further five-year period. The agreement also includes a £5 million uncommitted accordion facility option to further increase available credit which provides substantial headroom for future growth. Our covenants under the facility are EBITDA and interest cover measures.
Following the outbreak of Covid-19, the Group obtained a temporary overdraft facility of £2.5 million to April 2021, to complement the headroom in our existing £12.5m revolving credit facility. Agreement was reached with Barclays Bank PLC during June 2020 to waive the interest cover covenant condition for the quarterly tests arising through to July 2021 and to waive the leverage covenant condition for the quarterly tests through to April 2021. A liquidity covenant was introduced, requiring that available headroom within the £12.5 million facility remains above £5 million through to July 2021. All covenants were complied with during the year and up to the date of this report. All of the Group's bank facilities remain secured by first fixed and floating charges over the Group's assets.
Net defined benefit pension
The Group operates two defined benefit schemes in the UK for its employees. These comprise the Walker Greenbank Pension Plan and the Abaris Holdings Limited Pension Scheme, which are both closed to new members and to future service accrual from 30 June 2002 and 1 July 2005 respectively.
Pension deficit
We reported a valuation under IAS 19 at 31 January 2021 of £5.6 million (2020: £5.7 million), despite the economic uncertainties and low interest rates for bonds. The valuation improvement from the interim results was principally due a recovery in equities and stock markets.
The triennial valuation of the defined benefit schemes is due to be carried out based upon the schemes' position on 5 April 2021. The Group has appointed independent pension and actuarial specialists to support the company through the valuation process.
The movements in the pension valuation for IAS 19 purposes is set out below:
Year ended 31 January (£m)
2021 2020
Deficit at beginning of the year
(5.7)
(9.7)
Scheme expenses
(0.4)
(0.4)
Interest cost
(1.4)
(1.9)
Expected return on plan assets
1.3
1.6
Contributions
2.1
1.9
Return on scheme assets
1.6
11.6
Experience adjustments on benefit obligation
0.7
(0.4)
Actuarial loss from the change in financial assumptions
(5.3)
(9.0)
Actuarial gain from the change in demographic assumptions
1.3
0.5
Gross deficit at the end of the year
(5.6)
(5.7)
In 2019, the Company agreed a recovery plan to pay contributions to eliminate the funding shortfall by October 2026.
Dividends
As a result of the pandemic during the year and in order to protect the Group's liquidity, no dividends were declared or paid during the financial year. The Board will continue to review the dividend policy during the coming months and an update will be provided at the time of the announcement of the Company's interim results later in 2021.
Foreign currency risk
All foreign currencies are bought and sold centrally on behalf of the Group. Regular reviews take place of the foreign currency cash flows, unmatched exposures are covered using forward contracts and working capital exposures are hedged using currency swaps, as appropriate. The Group does not trade in financial instruments and hedges are used for highly probable future cash flows and to hedge working capital exposures.
Credit risk
The Group does not generally seek credit insurance as this is not a commercial solution to reducing credit risk. The Board reviews the internal credit limits of all major customers and reviews the credit risk regularly. The ageing profile of trade debtors shows that payments from customers are close to terms. The current economic environment still presents a level of risk and in addition to specific provisioning against individual receivables, a provision has been made of £0.5 million (2020: £0.4 million), which is a collective assessment of the risk against non-specific receivables. The Group has experienced limited bad debts and in the last 12 months and has enhanced its credit management procedures to improve controls and mitigate potential credit risk.
Going concern
The Directors consider that, having considered forecasts prepared by the management team which have been stress tested, the Group and Company have adequate resources to continue trading for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
I would like to thank my finance colleagues across the Group for their efforts particularly since the start of lock-down from 23 March 2020. In these difficult circumstances, the teams have been working remotely and their dedication and professionalism has enabled the Group to deliver the improved results as presented today.
Michael Williamson
Chief Financial Officer
17 May 2021
Consolidated Income Statement
Year ended 31 January 2021
2021 2020
Note
Total
£000
Total
£000
Revenue
3
93,760
111,453
Cost of sales
(36,775)
(43,324)
Gross profit
56,985
68,129
Net operating expenses:
Distribution and selling expenses
(19,129)
(22,921)
Administration expenses
(36,502)
(45,788)
Net other income
4
3,822
5,358
Profit from operations
5,176
4,778
Finance income
1
3
Finance costs
(162)
(403)
Finance costs - net
5
(161)
(400)
Profit before tax
5,015
4,378
Tax expense
6
(1,109)
(655)
Profit for the year attributable to owners of the parent
3,906
3,723
Earnings per share - Basic
8
5.50p
5.24p
Earnings per share - Diluted
8
5.38p
5.20p
Adjusted earnings per share - Basic
8
8.00p
9.26p
Adjusted earnings per share - Diluted
8
7.82p
9.19p
All of the activities of the Group are continuing operations.
Consolidated Statement of Comprehensive Income
Year ended 31 January 2021
Note
2021
£000
2020
£000
Profit for the year
3,906
3,723
Other comprehensive income / (expense):
Items that will not be reclassified to profit or loss
Remeasurements of defined benefit pension schemes
12
(1,565)
2,727
Corporation tax credits recognised in equity
-
-
Increase / (Reduction) of deferred tax asset relating to pension scheme liability
297
(558)
Total items that will not be reclassified to profit or loss
(1,268)
2,169
Items that may be reclassified subsequently to profit or loss
Currency translation (losses) / gains
(301)
(156)
Total items that may be reclassified subsequently to profit or loss
(301)
(156)
Other comprehensive income / (expense) for the year, net of tax
(1,569)
2,013
Total comprehensive income for the year attributable to the owners of the parent
2,337
5,736
Consolidated Balance Sheet
At 31 January 2021
Note
2021
£000
2020
£000
Non-current assets
Intangible assets
28,325
29,815
Property, plant and equipment
12,061
14,101
Right-of-use assets
5,783
8,392
46,169
52,308
Current assets
Inventories
20,350
28,456
Trade and other receivables
9
18,328
20,543
Cash and cash equivalents
10
15,549
3,055
54,227
52,054
Total assets
100,396
104,362
Current liabilities
Trade and other payables
(20,472)
(22,940)
Lease liabilities
(2,676)
(2,810)
Borrowings
10
(412)
(1,719)
(23,560)
(27,469)
Net current assets
30,667
24,585
Non-current liabilities
Lease liabilities
(3,206)
(5,603)
Deferred income tax liabilities
7
(514)
(802)
Retirement benefit obligation
12
(5,637)
(5,659)
(9,357)
(12,064)
Total liabilities
(32,917)
(40,019)
Net assets
67,479
64,829
Equity
Share capital
710
710
Share premium account
18,682
18,682
Foreign currency translation reserve
(866)
(565)
Retained earnings
8,446
5,495
Other reserves
40,507
40,507
Total equity
67,479
64,829
Consolidated Cash Flow Statement
Year ended 31 January 2021
Note
2021
£000
2020
£000
Cash flows from operating activities
Cash generated from operations
11
18,222
9,588
Interest paid
(279)
(564)
Corporation tax paid
(23)
(798)
Net cash generated from operating activities
17,920
8,226
Cash flows from investing activities
Interest received
1
17
Purchase of intangible assets
(245)
(736)
Purchase of property, plant and equipment
(830)
(1,752)
Proceeds from disposal of property, plant and equipment
75
77
Net cash used in investing activities
(999)
(2,394)
Cash flows from financing activities
Payment of lease liabilities
(2,958)
(2,735)
Proceeds from borrowings
412
-
Dividends paid to Company's shareholders
-
(2,179)
Net cash used in from financing activities
(2,546)
(4,914)
Net increase in cash and cash equivalents
14,375
918
Cash and cash equivalents and bank overdraft at beginning of year
1,336
434
Effect of exchange rate fluctuations on cash held
(162)
(16)
Cash and cash equivalents and bank overdraft at end of year
10
15,549
1,336
Consolidated Statement of Changes in Equity
Year ended 31 January 2021
Attributable to owners of the parent
Other reserves
Share
capital
£000
Share premium account
£000
Retained earnings
£000
Capital
reserve
£000
Merger reserve
£000
Foreign currency
translation
reserve
£000
Total equity
£000
Balance at 1 February 2019
710
18,682
1,392
43,457
(2,950)
(409)
60,882
Profit for the year
-
-
3,723
-
-
-
3,723
Other comprehensive income/(expense):
Remeasurements of defined benefit pension schemes
-
-
2,727
-
-
-
2,727
Deferred tax relating to pension scheme liability
-
-
(558)
-
-
-
(558)
Currency translation differences
-
-
-
-
-
(156)
(156)
Total comprehensive income
-
-
5,892
-
-
(156)
5,736
Transactions with owners, recognised directly in equity:
Dividends
-
-
(2,179)
-
-
-
(2,179)
Long-term incentive plan charge
-
-
390
-
-
-
390
Balance at 31 January 2020
710
18,682
5,495
43,457
(2,950)
(565)
64,829
Consolidated Statement of Changes in Equity continued
Year ended 31 January 2021
Attributable to owners of the parent
Other reserves
Share
capital
£000
Share premium account
£000
Retained earnings
£000
Capital
reserve
£000
Merger reserve
£000
Foreign currency
translation
reserve
£000
Total equity
£000
Balance at 1 February 2020
710
18,682
5,495
43,457
(2,950)
(565)
64,829
Profit for the year
-
-
3,906
-
-
-
3,906
Other comprehensive income/(expense):
Remeasurements of defined benefit pension schemes
-
-
(1,565)
-
-
-
(1,565)
Deferred tax relating to pension scheme liability
-
-
297
-
-
-
297
Currency translation differences
-
-
-
-
-
(301)
(301)
Total comprehensive income
-
-
2,638
-
-
(301)
2,337
Transactions with owners, recognised directly in equity:
Dividends
-
-
-
-
-
-
-
Long-term incentive plan charge
-
-
294
-
-
-
294
Related tax movements on long-term incentive plan
-
-
19
-
-
-
19
Balance at 31 January 2021
710
18,682
8,446
43,457
(2,950)
(866)
67,479
Notes to the Consolidated Financial Statements
1. Accounting policies and general information
Basis of preparation
The consolidated financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 ('IFRS') and the applicable legal requirements of the Companies Act 2006. The consolidated financial statements have been prepared under the historical cost convention, except for those assets and liabilities measured at fair value, as described in the accounting policies. The accounting policies set out below have been consistently applied to all periods presented unless otherwise indicated.
The Group meets its day-to-day working capital requirements through its banking facilities. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group will be able to operate within the level of its current facilities.
A key accounting judgement for the year ended 31 January 2021 is the adoption of the going concern basis of preparation. This is described further in note 2. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, the Group continues to adopt the going concern basis in preparing its consolidated financial statements.
2. Critical accounting estimates and judgements
A key accounting judgement for the year ended 31 January 2021 is the adoption of the going concern basis of preparation.
In the context of the current Covid-19 outbreak, the Board of Sanderson Design Group PLC has undertaken an assessment of the ability of the Group and Company to continue in operation and meet its liabilities as they fall due over the period of its assessment. In doing so, the Board considered events throughout the period of their assessment, including the availability and maturity profile of the Group's financing facilities and covenant compliance. These financial statements have been prepared on the going concern basis which the directors consider appropriate for the reasons set out below.
The Group funds its operations through cash generated by the Group and has access to a £12.5m Revolving Credit Facility ("RCF") which is linked to two covenants. These covenants are tested quarterly on 30 April, 31 July, 31 October and 31 January each year until the debt matures in October 2024. The Group also agreed a temporary overdraft facility with Barclays at the start of the pandemic of £2.5m, to April 2021, giving total facilities of £15m until April 2021 and £12.5m thereafter. In addition, there is an uncommitted accordion facility of £5m. In June 2020, the Directors successfully negotiated a waiver of the Group's interest cover covenants to July 2021 and leverage covenant to April 2021 and replaced them with a liquidity covenant that requires the Group to maintain £5m headroom against the facilities between 1 November 2020 and 31 July 2021. Throughout the financial year and up to the date of this report, the Company has met all required covenant tests and maintained headroom of well over £5m.
The total headroom of the Group at 31 January 2021 was £30.5m (2020: £13.8m), including cash and cash equivalents of £15.5m, the committed facility of £12.5m and the temporary overdraft facility of £2.5m.
In assessing going concern, management has taken account of the uncertainties caused by Covid 19. A Management Base Case (MBC) model has been prepared, together with alternative stress tested scenarios, given the uncertainty regarding the impact of Covid 19 (including variants and further waves of the virus). These indicate that the Company retains adequate headroom against its borrowing facilities and bank covenants for the foreseeable future.
There remain significant uncertainties concerning the future effects of Covid 19 in terms of variants, further restrictions and lockdowns. The actual results which will be reported will be undoubtedly different from the MBC and other scenarios modelled by the Company. In the event that there are significant negative variations from the MBC, management would act decisively, as they have done in the last year, to protect the business particularly its cash position. Having taken into account all of the comments above the Directors consider that the Group and the Company have adequate resources to continue trading for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
3. Segmental analysis
The Group is a designer, manufacturer and distributor of luxury interior furnishings, fabrics and wallpaper. The reportable segments of the Group are aggregated as follows:
· Brands - comprising the design, marketing, sales and distribution, and licensing activities of Sanderson, Morris & Co., Harlequin, Zoffany, Anthology, Scion and Clarke & Clarke brands operated from the UK and its foreign subsidiaries in the US, France, Russia and Germany.
· Manufacturing - comprising the wallcovering and printed fabric manufacturing businesses operated by Anstey and Standfast respectively.
This is the basis on which the Group presents its operating results to the Board of Directors, which is considered to be the CODM for the purposes of IFRS 8. Other Group-wide activities and expenses, predominantly related to corporate head office costs, defined benefit pension costs, long-term incentive plan expenses, taxation and eliminations of inter-segment items, are presented within 'Eliminations and unallocated'.
a) Principal measures of profit and loss - Income Statement segmental information
Year ended 31 January 2021
Brands
£000
Manufacturing
£000
Eliminations
and
unallocated
£000
Total
£000
UK revenue
38,077
11,339
-
49,416
International revenue
34,549
6,111
-
40,660
Licence revenue
3,684
-
-
3,684
Revenue - external
76,310
17,450
-
93,760
Revenue - internal
-
10,911
(10,911)
-
Total revenue
76,310
28,361
(10,911)
93,760
Profit / (loss) from operations
7,494
1,664
(3,981)
5,176
Net finance costs
-
-
(161)
(161)
Profit / (loss) before tax
7,494
1,664
(4,142)
5,015
Tax charge
-
-
(1,109)
(1,109)
Profit / (loss) for the year
7,494
1,664
(5,252)
3,906
Year ended 31 January 2020
Brands
£000
Manufacturing
£000
Eliminations
and
unallocated
£000
Total
£000
UK revenue
44,945
14,443
-
59,388
International revenue
39,754
6,809
-
46,563
Licence revenue
5,502
-
-
5,502
Revenue - external
90,201
21,252
-
111,453
Revenue - internal
-
14,291
(14,291)
-
Total revenue
90,201
35,543
(14,291)
111,453
Profit / (loss) from operations
8,161
2,235
(5,618)
4,778
Net finance costs
-
-
(400)
(400)
Profit / (loss) before tax
8,161
2,235
(6,018)
4,378
Tax charge
-
-
(655)
(655)
Profit / (loss) for the year
8,161
2,235
(6,673)
3,723
3. Segmental analysis continued
a) Principal measures of profit and loss - Income Statement segmental information continued
The segmental Income Statement disclosures are measured in accordance with the Group's accounting policies.
Inter-segment revenue earned by Manufacturing from sales to Brands is determined on normal commercial trading terms as if Brands were any other third-party customer.
All defined benefit pension costs, and LTIP expenses, are recognised for internal reporting to the CODM as part of Group-wide activities and are included within 'Eliminations and unallocated' above. Other costs, such as Group insurance, rent and auditors' remuneration which are incurred on a Group-wide basis are recharged by the head office to segments on a reasonable and consistent basis for all periods presented and are included within segment results above.
Tax charges have not been allocated to a segment.
b) Additional segmental revenue information
The segmental revenues of the Group are reported to the CODM in more detail. One of the analysis presented is revenue by export market for Brands.
Brands international revenue by export market:
2021
£000
2020
£000
North America
12,521
14,393
Northern Europe
12,480
13,039
Rest of the World
9,548
12,322
34,549
39,754
Revenue of the Brands reportable segment - revenue from operations in all territories where the sale is sourced from the Brands operations, together with contract and licence revenue:
Brand revenue analysis:
2021
£000
2020
£000
Harlequin, incorporating Anthology and Scion
18,439
25,311
Sanderson, incorporating Morris & Co.
24,220
24,081
Zoffany
7,827
9,548
Clarke & Clarke, incorporating Studio G
21,704
25,333
Other brands
436
426
Licensing
3,684
5,502
76,310
90,201
Revenue of the Manufacturing reportable segment - including revenues from internal sales to the Group's Brands:
Manufacturing revenue analysis:
2021
£000
2020
£000
Standfast
14,410
17,061
Anstey
13,951
18,482
28,361
35,543
4. Net other income
Net other income comprises consideration received from the sale of marketing materials and additional services of £3,822,000 (2020: £5,268,000), and business interruption reimbursements to cover loss of profits of £nil (2020: £54,000). In addition, there was non-underlying net other income of £nil (2020: £144,000).
5. Finance costs
2021
£000
2020
£000
Interest income:
Interest received on bank deposits
1
3
Interest expense:
Interest payable on bank borrowings
(97)
(255)
Amortisation of issue costs of bank loans
(21)
(50)
Unwind of discount on accelerated licensing income
138
147
Lease interest
(182)
(245)
Total finance costs
(162)
(403)
Net finance costs excluding non-underlying items
(161)
(400)
6. Tax expense
2021
£000
2020
£000
Current tax:
- UK current tax
1,018
744
- UK adjustments in respect of prior years
39
557
- overseas, current tax
24
40
Corporation tax
1,081
1,341
Deferred tax:
- current year
7
(26)
- adjustments in respect of prior years
21
(660)
- effect of changes in corporation tax rates
-
-
Deferred tax
28
(686)
Total tax charge for the year
1,109
655
7. Deferred income tax
A net deferred tax liability of £514,000 (2020: £802,000) is recognised in respect of future deductions for LTIP payments and other temporary differences.
2021
£000
2020
£000
Taxable temporary differences on property, plant and equipment
(647)
(677)
Taxable temporary differences on intangible assets
(1,060)
(1,121)
Taxable temporary differences on share based payments
83
-
Other temporary differences
39
14
(1,585)
(1,784)
Retirement benefit obligations
1,071
982
(514)
(802)
8. Earnings per share
Basic earnings per share ('EPS') is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares outstanding during the year, excluding those held in the Employee Benefit Trust ('EBT') and those held in treasury (note 24), which are treated as cancelled. The adjusted basic earnings per share is calculated by dividing the adjusted earnings by the weighted average number of shares.
2021
2020
Earnings
£000
Weighted average number of shares
(000s)
Per share amount
Pence
Earnings
£000
Weighted average number of shares
(000s)
Per share amount
Pence
Basic earnings per share
3,906
70,980
5.50
3,723
70,984
5.24
Effect of dilutive securities:
Shares under LTIP
1,652
545
Diluted earnings per share
3,906
72,632
5.38
3,723
71,529
5.20
Adjusted underlying basic and diluted earnings per share:
Add back LTIP accounting charge
345
395
Add back net defined benefit pension charge
531
593
Non-underlying items (see below)
1,187
1,985
Tax effect of non-underlying items
and other add backs
(287)
(126)
Adjusted underlying basic earnings per share
5,682
70,980
8.00
6,570
70,984
9.26
Adjusted underlying diluted earnings per share
5,682
72,632
7.82
6,570
71,529
9.19
Sanderson Design Group PLC's issued ordinary share capital with voting rights consists of 70,983,505 (2020: 70,983,505) ordinary shares of which no (2020: nil) ordinary shares are held in treasury and 50,000 (2020: nil) ordinary shares are held by the Walter Greenbank PLC EBT. Shares held in treasury or by the EBT are treated as cancelled when calculating EPS.
The market value of shares held by the EBT on 31 January 2021 was £56,000 (2020: £nil). The total number of shares held in the EBT at the year end represented 0.1% (2020: 0%) of the issued shares.
In calculating the adjusted earnings the Group adjusts for non-underlying items which are material non-recurring items or items considered to be non-operational in nature. The nature of these adjustments is outlined below.
Adjusted underlying profit before tax
The Group uses an Alternative Performance Measure "adjusted underlying profit before tax". This is defined as statutory profit before tax adjusted for the exclusion of share-based incentives, defined benefit pension charge and non-underlying items. This is recognised by the investment community as an appropriate measure of performance for the Group and is used by the Board of Directors as a key performance measure. The table below reconciles statutory profit before tax to adjusted underlying profit before tax.
8. Earnings per share continued
Adjusted underlying profit before tax continued
2021
£000
2020
£000
Statutory profit before tax
5,015
4,378
Amortisation of acquired intangible assets
1,016
1,016
Restructuring and reorganisation costs
171
1,059
Anstey net other income
-
(90)
Total non-underlying charge included in statutory profit before tax
1,187
1,985
Underlying profit before tax
6,202
6,363
LTIP accounting charge
345
395
Net defined benefit pension charge
531
593
Adjusted underlying profit before tax
7,078
7,351
In calculating the adjusted underlying profit before tax the Group adjusts for non-underlying items which are material non-recurring items or items considered to be non-operational in nature. The nature of these adjustments is outlined as follows:
a) Restructuring and reorganisation costs
These relate to the reorganisation of the Group and comprise of the rationalisation of certain operational and support functions. The costs mainly comprise employee severance and professional fees associated with the reorganisation process of £171,000 (2020: £702,000); compensation for loss of office and associated costs to the former Chief Financial Officer of £nil (2020: £330,000) as well as a further £nil (2020: £27,000) in respect of property termination and asset impairment costs associated with the Clarke & Clarke Haslingden site exit.
b) Anstey fire-related net other income
This comprises £nil (2020: £144,000) of proceeds arising from reimbursement of repair costs in respect of plant and equipment and related costs following a minor fire, less repair costs £nil (2020: £54,000).
c) Amortisation of acquired intangible assets £1,016,000 (2020: £1,016,000).
9. Trade and other receivables
Current
2021
£000
2020
£000
Trade receivables
12,632
14,171
Less: provision for impairment of trade receivables
(903)
(1,025)
Net trade receivables
11,729
13,146
Other taxes and social security
1,346
1,071
Accrued Accelerated Licensing Income
2,442
1,954
Other receivables
268
381
Marketing materials
581
1,184
Prepayments
1,962
2,807
18,328
20,543
There is no material difference between the carrying amount and the fair value of the trade and other receivables. The only impaired assets are within trade receivables, accrued accelerated licensing income and marketing materials. The only financial asset that is subject to IFRS 9's expected credit loss model is trade receivables for sales of inventory.
10. Analysis of net funds
1 February
2020
£000
Cash flow
£000
Other non-cash changes
£000
31 January
2021
£000
Cash and cash equivalents
3,055
12,656
(162)
15,549
Bank overdraft
(1,719)
1,818
(99)
-
Cash and cash equivalents
and bank overdraft
1,336
14,474
(261)
15,549
Short term loan
-
(412)
-
(412)
Finance lease liabilities
(8,413)
2,958
(427)
(5,882)
Net (debt) / funds
(7,077)
17,020
(688)
9,255
Other non-cash changes are exchange gains/(losses) from the retranslation of bank balances held in non-sterling bank accounts and new additions to the right of use assets. The non-cash change to the bank overdraft reflects the prepaid 5 year facility fee.
The Group took a loan under the US Paycheck Protection Payment scheme on 7 May 2020, under a scheme for businesses affected by the US lockdown. No repayments have been made in relation to this loan and it has been treated as repayable within 1 year (Sterling equivalent at 31 January 2021 £412,000).
11. Cash generated from operations
2021
£000
2020
£000
Profit before tax
5,015
4,378
Defined benefit pension charge
531
593
Net finance costs
161
400
Depreciation and impairment of property, plant and equipment and right-of-use assets
5,697
5,643
Amortisation
1,735
1,734
Loss / (gain) on disposal of fixed assets
72
(51)
Insurance reimbursements
-
(144)
Charge for LTIP recognised in equity
294
390
Unrealised foreign exchange losses included in operating profit
(52)
(112)
Defined benefit pension cash contributions
(2,118)
(1,870)
Cash generated from operating activities
pre insurance proceeds
11,335
11,003
Insurance proceeds relating to operating activities
-
144
Cash generated from operating activities
post insurance proceeds
11,335
11,147
Changes in working capital:
Decrease / (increase) in inventories
8,106
(436)
Decrease / (increase) in trade and other receivables
2,310
(1,957)
(Decrease) / increase in trade and other payables
(3,529)
834
Cash generated from operations
18,222
9,588
12. Retirement benefit obligation
Defined benefit schemes
Sanderson Design Group PLC operates two defined benefit schemes in the UK which both offer pensions in retirement and death benefits to members: the Walker Greenbank Pension Plan and the Abaris Holdings Limited Pension Scheme. Pension benefits are related to the members' final salary at retirement and their length of service. The schemes are closed to new members and to future accrual of benefits, although deferred members still in-service have a salary link to their benefits. This disclosure excludes any defined contribution assets and liabilities.
The Group's contributions to the schemes for the year beginning 1 February 2021 are expected to be £2,278,000.
2021
£000
2020
£000
Deficit at beginning of year
(5,659)
(9,663)
Scheme expenses
(449)
(370)
Interest cost
(1,395)
(1,870)
Expected return on plan assets
1,313
1,647
Contributions
2,118
1,870
Return on scheme assets
1,635
11,561
Actuarial loss from changes in financial assumptions
(5,266)
(8,996)
Experience adjustment on benefit obligation
719
(359)
Actuarial gain from change in demographic assumptions
1,347
521
Gross deficit at the end of the year
(5,637)
(5,659)
Remeasurements of the net defined benefit liability/(asset) to be shown in the Statement of Comprehensive Income
2021
£000
2020
£000
Net remeasurement - financial
5,266
(8,996)
Net remeasurement - demographic
(1,347)
521
Net remeasurement - experience
(719)
(359)
Return on assets, excluding interest income
(1,635)
11,561
Total remeasurements of the net defined benefit liability
1,565
2,727
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