15 September 2022

PORTMEIRION GROUP PLC

('the Group')

Interim results for the six months ended 30 June 2022

Top and bottom line growth building on record 2021 sales year in H1

Portmeirion Group PLC, the designer, manufacturer and worldwide distributor of high quality homewares under the Portmeirion, Spode, Royal Worcester, Pimpernel, Wax Lyrical and Nambé brands, is pleased to announce its results for the six months ended 30 June 2022.

The Group experienced healthy trading in the first half with year-on-year sales growth of 5% despite worsening consumer sentiment due to the significant macro-economic headwinds. Sales are now 30% above pre-pandemic 2019 levels as we continue to successfully expand our customer base through developing online channels, new product and new geographies.

Headlines

Financial

·    Record H1 Group revenue of £45.5 million, an increase of 5% over the prior year (H1 2021: £43.1 million).

·    Group sales 30% ahead of pre-pandemic 2019 levels demonstrating significant expansion in our customer base.

·     Headline profit before tax¹ grew by 30% to £2.0 million (H1 2021: £1.5 million).

·   H1 headline operating profit margin¹ increased from 4.0% to 4.3% as part of our long term ambition to achieve full year operating margin of 13% (FY 2021: 7.2%).

·    Maintained strong online channel sales growth achieved during the pandemic despite physical retail reopening. Total online channel sales in our core UK and US sales markets now 55% (H1 2021: 53%). Own ecommerce sales declined by 16% as long term market trends stabilise but remain 111% ahead of pre-pandemic 2019 levels.

·     Headline basic earnings per share¹ up to 12.00p per share (H1 2021: 9.12p).

·     Strong balance sheet maintained and significant headroom within current borrowing facilities.

·     Interim dividends to be resumed with dividend of 3.50p per share (H1 2021: nil).

·    Expectation of sales to be at least in line with record sales year in 2021, with profit also ahead of the prior year.

Operational

·   Productivity in Stoke-on-Trent ceramic factory up 5% as we start to obtain the benefits from automation capex.

·     Long term energy hedge until Q1/2024 continues to insulate the Group against ongoing volatility in energy prices.

·   Nambé brand (acquired in 2019) continues to grow, up 14% over 2021 as we successfully execute on acquisition integration.

·  Strategic focus on international markets yields ongoing, encouraging growth from markets including South Korea, Canada and China.

·   New product launches continue to represent more than 10% of Group sales, including new collections to celebrate the 50^th anniversary of Portmeirion Botanic Garden.

·   Our Wax Lyrical factory achieved ISO9001:2015 accreditation, demonstrating the high quality standards in our UK home fragrance facility.

·    Post-period end, AromaWorks London brand and intellectual property acquired in August 2022 to add scale and synergies to home fragrance division operations.

¹ Headline profit before tax, headline operating profit margin and headline basic earnings per share excludes exceptional items - see note 3.

Mike Raybould, Chief Executive, commented:

"Whilst we are not immune to the significant macro headwinds initiated by the war in Ukraine, our brands remain in strong demand around the world, and we have seen encouraging year on year growth continue through July and August. Off the back of a record revenue year in 2021 our increasingly diversified sales markets and continued execution of our strategy have enabled us to again grow top line sales and bottom line profits in the first half, and we expect to see sales at least in line with the record performance in 2021 and profit for the full year also ahead of the prior year. Although the ongoing impact of input cost inflation and labour market disruption is more significant than previously forecast we still expect to grow operating margins in the short term in 2022 and see significant upside in the medium and long term as and when macro-economic conditions normalise and the full value of our brands and business transformation becomes clear. We have therefore reintroduced our interim dividend which was postponed during the Covid-19 pandemic.

We have a great pipeline of new product scheduled to launch over the next 24 months, and have just launched new and much improved UK and international ecommerce sites as part of our key online strategy and continue to invest in and develop new customers in rest of world sales markets. With the strength and longevity of our portfolio of brands, there remains a significant opportunity to expand our sales and customer base around the world over the coming years."

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:

Interim Review

Trading

Following a record sales performance in 2021, we are pleased to see further growth in H1 2022 despite the well-publicised macro-economic factors driven by ongoing inflation and supply chain disruption and the war in Ukraine, which have disrupted our markets and created significant inflationary pressure on energy costs and labour rates. We remain covered on our own energy prices until Q1/2024 by the long term energy hedge put in place last year.

As retail markets have fully reopened we have maintained our strong online channel sales growth achieved during the pandemic despite physical retail reopening. In our core UK and US markets, 55% of sales went through all online channels (H1 2021: 53%).

We continued to benefit from our efforts to diversify across international markets and saw strong growth in South Korea, Canada and China.

We have continued to invest in and develop new products for our customers and have seen a number of successful launches including a range of collections to celebrate the 50^th anniversary of Portmeirion Botanic Garden.

Financial highlights

Revenue was £45.5 million for the first six months of the year, an increase of 5% over the previous year (H1 2021: £43.1 million).

Our operating performance was encouraging; headline operating profit¹ was £2.0 million which was significantly ahead of the prior year (H1 2021: £1.7 million). This left the Group's operating margin at 4.3% for the first half of the year (H1 2021: 4.0%).

Following the strong revenue and operating performance, headline profit before tax¹ was £2.0 million (H1 2021: £1.5 million).

Headline basic earnings per share¹ was 12.00p per share (H1 2021: 9.12p).

¹ Headline profit before tax, headline operating profit and headline earnings per share exclude exceptional items (see note 3).

Geographical and online performance

The Group's largest sales market, the US, accounted for 31% of total Group revenue. Sales were 7% behind the first half of 2021, largely due to retailers reducing stock levels following Covid-19 supply chain disruption and fears of a slowdown in consumer spending. Retailer sales to the end consumer have remained robust, and we believe our diversified range of products and sizeable online penetration will result in an improved trading performance in the US market in the second half of the year.  

Our second largest market is the UK, which accounted for 25% of total Group sales. Sales were down 13% on the prior year due to a challenging retail environment, particularly due to the impact on disposable income from large inflationary pressures including significant increases in energy prices.

In South Korea, sales grew by 38% as our strategy of stabilisation and diversification of products continued to provide a robust platform for growth. We have continued to introduce new ranges in this market which have performed well and we expect further growth in 2023 with increased penetration of new products.

In our rest of world markets, sales were up 28% over the same period in 2021 as various restrictions around the world ended and economies started to recover from the pandemic. In particular we saw a strong sales rebound in Canada, where sales grew 73% and China and the Far East, with sales up 100% as we deepen our relationship with our new distributor. Sales in most of our other international markets were at least in line with 2021 levels. 

Our own ecommerce sales decreased by 16% in the first half of 2022 as physical retail stores reopened, but remain significantly ahead of pre-pandemic 2019 levels (+111%). Total online sales in our core UK/US markets now account for 55% of sales made in those markets (2021: 53%). 

Profit

In the first half of 2022, the Group made a headline profit before tax¹ of £2.0 million; this compared to a profit before tax of £1.5 million in 2021.

Given the macro-economic events in our main sales markets, it is pleasing to continue to deliver sales and profit growth which is testament to the strength of the Group's brands.   

¹ Headline profit before tax exclude exceptional items (see note 3).

Dividend

The Board is committed to a dividend policy which ensures we retain and invest enough capital in our business to drive long-term growth in our brands and maintain a prudent and sustainable level of dividend cover.

Due to the Group's ability to grow in such a challenging trading environment, and our medium term expectations for profit and cash generation, the Board is declaring an interim dividend of 3.50p per share (2021: nil). The interim dividend will be paid on 21 October 2022. The ex-dividend date will be 22 September 2022 with a record date of 23 September 2022.

The cover for dividends paid and proposed for 2021 was 3.0 times. We remain of a view that a dividend cover level of approximately 3.0 times is in the long-term interest of the Group and shareholders.

Balance sheet

The Group ended the first half of 2022 with net debt of £6.8 million at 30 June 2022; this compares to net cash of £0.1 million at 30 June 2021 and net cash of £0.7 million at 31 December 2021. In addition to the cash balance of £3.2 million and bank borrowings of £10.0 million, the Group also has unutilised committed bank facilities of £18.4 million.

Our stock balance at 30 June 2022 was £42.6 million compared to £29.3 million at 30 June 2021 and £29.2 million at 31 December 2021. Approximately one third of the inventory increase is driven by cost price inflation, freight rates and the movement in GBP/USD exchange rate which is used to revalue inventory held in our US division. The remaining increase is driven by forward purchasing of US inventory to avoid third quarter supply chain disruption, which we expect to be timing only and therefore inventory levels will reduce to more normalised levels by the end of the year.

We carry significant goodwill and intangible asset values on our balance sheet of some £16.2 million. These balances largely relate to the acquisitions of Wax Lyrical and Nambé and the carrying value of goodwill is reviewed annually. The intangible assets are amortised over a range of ten and twenty years depending on their nature.

Environmental, Social and Governance (ESG)

We are focused on doing business ethically and sustainably - for our shareholders, the environment, our people, our customers, our suppliers and the communities we operate in. The Group has a long history of innovation and a strong track record of continual improvements in ESG.

The Group continues to drive forward our ESG agenda and assess the materiality of our impacts and make tangible progress towards a more sustainable world. We expect to provide a detailed update to investors in Q4 2022 regarding the scope of this work and a targeted, deliverable strategy.

Our commitment to our people, ethics and governance are unfaltering, supported by our policies and processes. Further details on our corporate culture and its integration within the Group can be found on our website, www.portmeiriongroup.com, and in the Section 172(1) Statement on Stakeholder Engagement, Our Commitment to ESG and Corporate Governance Statements in our Annual Report and Accounts.

Strategic areas of focus

Our homeware brands have a combined history of more than 750 years and are much loved around the world.

Our strategy is to drive sustainable long-term sales growth together whilst increasing operating margins to 13%.

We see a significant opportunity to expand our customer base by taking share in existing and new markets through:

1.   increasing sales through online channels including our own ecommerce sites;

2.   developing rest of world sales markets and new geographies;

3.   using new product development to expand share in existing new product categories; and

4.   leveraging our brands more effectively by cross selling across customer and sales markets.

We are targeting returning operating margins to historical levels in the medium term and to 13% (2021: 7.2%) over the next five years. We believe growth in operating margins will be delivered by:

1.   improved mix as we increase sales through our own ecommerce sites;

2.   productivity gains in our two UK factories from capital investments in automation;

3.   leveraging our portfolio of brands more effectively by driving higher sales against our fixed cost base; and

4.   increasing the scale and profitability of our home fragrance division, Wax Lyrical.

Accelerate our online transformation

As online sales markets have reverted to their longer term growth trajectory following the reopening of physical retail stores around the world, we are pleased to hold on to the gains we made in online channels over the past 24 months. Total online channel sales in our core UK and US markets were 55% (2021: 53%).

Although sales from our own ecommerce sites reduced by 16% versus 2021, they remain up 111% on pre-Covid 2019 levels. Following a period of stabilisation in 2022 we expect our ecommerce site sales to resume growth in 2023.

We have increased the depth and expertise of our digital marketing and online sales teams over the past two years and continue to deploy investments behind front end systems and direct to consumer warehouse capacity. Following the launch of new US market ecommerce sites in Q4 2020, we have built and launched our new UK ecommerce sites in August 2022 that will enable a much richer brand experience for our customers, improved conversion levels particularly for mobile traffic and enable improved cross-selling.

Rest of world expansion

The Group sells into more than 70 countries around the world, with more than 85% of these sales made in our three key markets of the US, UK and South Korea. We see a great opportunity to establish our brands and grow in other markets around the world. We will do this through taking on new distributor relationships and are particularly focused on Asia, Middle East and Europe.

Rest of world market sales grew by 28% over 2021 levels (from £5.0 million to £6.4 million) and by 78% from 2019. Our Canadian sales operation continued to prosper with sales growth of 73% over H1 2021 with strong online channel market growth. We have continued to build with our new Chinese distributor, signed up in 2021, with growth in H1 2022 of 100%.

Our ambition is to double the annual revenue stream from rest of world markets within the next five years.

New product development

Developing and launching new product is a key driver of sales growth and our ambition is to increase market share through new product development.

We have continued to see an improved contribution with new product launches contributing over 10% of sales in H1 2022.

We have a strong pipeline of product launches for the next 12 months. Our product roadmaps are built around:

-   maintaining and building out our key heritage ranges including Portmeirion Botanic Garden, Spode Christmas Tree and Spode Blue Italian; and

-      growing share in a younger age demographic through more contemporary product launches.

A list of our current ranges can be found at www.portmeirion.co.uk, www.spode.co.uk, www.waxlyrical.com and www.portmeirion.co.uk/int/. Customers in the United States should go to www.portmeirion.com and www.nambe.com. Our Canadian website operates under www.haustopia.com.

Growing our operating margins

Our roadmap to increase automation in our Stoke-on-Trent ceramic factory continues at pace. Productivity (output per labour hour) increased by 5% as recent capital investments came into effect. Further projects are underway for launch in 2023 that together with completed projects will contribute to further improvements in efficiency.

We are on track to launch our new warehouse system and order integration in our US warehouses in early 2023 that will drive both cost and sales order synergies.

Corporate governance

The Board is committed to good governance and we have continued to apply the Quoted Companies Alliance ("QCA") Corporate Governance Code, complying with its principles throughout the period. To see how the Group addresses the key governance principles defined in the QCA Code please refer to our website at www.portmeiriongroup.com/investors.

The Board keeps its composition and performance under review to ensure that we have the appropriate skills and experience in place to deliver our strategy.

In July 2022, Jacqui Gale, our Chief Commercial Officer, stepped down from the Board and left the Group in September 2022. At the same time, the Group was pleased to announce that Bill Robedee, previously on the Board as the President of our North America division, assumed the role of Global Sales Director.

Strategic acquisitions

The Group remains committed to acquiring businesses where the combination would be earnings enhancing and support our long term strategy.

On 12 August 2022, we announced the acquisition of the AromaWorks London brand, intellectual property and certain stock, trade and assets for a total consideration of £0.44 million. AromaWorks London manufactures a range of home fragrance products using essential oils in the health and wellbeing category with a retailer customer base in the UK and US. This acquisition will add further scale to our existing home fragrance business, Wax Lyrical, and we expect to deliver cost synergies and cross-selling opportunities within the first twelve months.

Outlook

We are pleased to record continued sales and profit growth in the first half of the financial year building on the back of our record Group sales last year and for the remainder of the year we expect to continue towards another year of growth across the business. This has been despite the significant worsening in consumer sentiment due to the impact of the Ukraine war on energy prices and general cost of living. Our business benefits from increasing sales market diversification and we believe our strategy of developing new geographies, developing online channels and launching compelling new product will enable us to continue to grow market share.

We are cognisant of ongoing and significant input cost price inflation together with challenges of retention and absence levels in labour markets. We have successfully mitigated these in the first half with sales price rises and productivity gains in our factories, allowing us to report continued improvement in operating margins. However, it is clear that, at least in the very short term, these factors will limit the level of operating margin growth we can deliver.

We are pleased to see early signs that in the US, our largest sales market, consumer sentiment is improving and our order books for our key 2022 Christmas trading period in the US are strong and bolstered by range extensions. We also expect to continue to grow in rest of world markets in the second half as we leverage our portfolio of brands more effectively. Our UK sales market is difficult to forecast due to the ongoing impact of cost of living rises and the October energy price cap changes. The UK is 31% of annual Group sales and we remain cautious in this market and expect sales to remain lower in the second half of 2022.

Despite this, we remain confident in our medium and long term aspirations to grow our sales and operating margins. We have made huge progress in strengthening our business over the last two years and our brands have shown their resilience to the macro backdrop with continued growth. For 2022, we expect sales to be at least in line with a record sales year in 2021, with pre-tax profit also ahead of 2021 and operating margin growth of at least 10% on 2021.

The Group benefits from global brands and products with timeless design. We have strong market positions around the world and over 750 years of combined history. We have made and continue to make significant improvements to our business and are committed to our long term sales growth strategy and driving our operating margins by improving efficiencies in everything we do.

Dick Steele                               Mike Raybould

Non-executive Chairman        Chief Executive

Consolidated Income Statement

Unaudited

All the above figures relate to continuing operations.

¹Headline operating profit is statutory operating profit of £1,957,000 (H1 2021: £1,721,000) before exceptional items of £1,006,000 (H1 2021: £378,000). Headline profit before tax is statutory profit before tax of £2,010,000 (H1 2021: £1,544,000), after adding back the exceptional items.

Consolidated Statement of Comprehensive Income

Unaudited

Consolidated Balance Sheet

Unaudited