Portmeirion : Interim Results for six months ended 30 June 2017

RNS Number : 9559M Portmeirion Group PLC 03 August 2017

Portmeirion Group is pleased to announce its performance for the six months ended 30 June 2017.

• Revenue of £33.1 million up by 16% on the comparative period (2016: £28.5 million).

• Profit before tax up by 18% to £1.6 million (2016: £1.4 million).

• EBITDA up by 27% to £2.7 million (2016: £2.1 million).

• Earnings per share increased by 21% to 11.94p (2016: 9.87p).

• Interim dividend increased by 5.7% to 7.40 pence per share (2016: 7.00 pence per share).

• Net debt reduced by £8.0 million to £1.7 million (30 June 2016: £9.7 million).

• Good progress on growth and diversification in export markets.

• Integration of Wax Lyrical continues, including the launch of co-branded home fragrance products including Botanic Garden, Sophie Conran for Portmeirion and Wrendale Designs.

• Senior management team strengthened with the appointments of Mike Raybould as Group Finance Director, Mick Knapper as Operations Director, Moira MacDonald as Company Secretary and Andrew Andrea as Non-executive Director.

"We are pleased to announce a positive trading performance for the first six months of 2017. We remain confident in our ability to create shareholder value in the short, medium and long term."

Portmeirion Group is pleased to announce a positive trading performance for the first six months of 2017. As reported in our trading statement issued on 7 July 2017, total Group sales are up 16% for the six months ended 30 June 2017 compared to the same period last year, although 2016 only included two months of Wax Lyrical sales from its acquisition in May 2016. Excluding sales from Wax Lyrical, sales for the core Portmeirion business are 3% ahead of prior year.

The trading seasonality within the business continues to place further importance upon our second half trading, with the acquisition of Wax Lyrical increasing the weighting to second half revenue and profit. In 2016, our first half revenue was 37% of the full year and our pre-tax profit was 17% of the full year, whilst in 2015 the percentages were 41% and 21% respectively.

Accordingly, we remain confident for meeting expectations of the full year given the revenue and profit reported for the first half year.

The Board is declaring an interim dividend of 7.40 pence per share (2016: 7.00 pence per share) an increase of 5.7% (2016: 14.8% increase) which is in line with the increase in the final dividend for the prior year. The interim dividend will be paid on 2 October 2017. The ex-dividend date will be 7 September 2017 with a record date of 8 September 2017.

We continue with our long-held policy of having any increase in the interim dividend determined by the increase in the prior year final dividend, rather than the interim being a predictor for the following final dividend, subject of course to prevailing conditions. The final dividend will be determined when we know the results for 2017. This approach allows us to better determine dividend increases and allocate cash outflows in proportion to our important second half year's performance.

The Board remains committed to a progressive dividend policy; we believe that this is what our shareholders expect of us. We aim to maintain a sustainable and fair level of dividend cover, with regard to the immediate past and our view forward, and increase our dividends whenever our results, cash balances and prudent views of future trading and business investment needs allow us so to do. We have now increased our dividends for eight consecutive years.

Last year we reduced dividend cover slightly to 1.85 times, we remain of the view that a cover level of approximately 2.0 times is in the long term interests of the company and shareholders; subject to our full year performance and our views of future prospects we will look to rebuild the level of cover over time.

Revenue for the first six months of 2017 was £33.1 million (2016 first half year: £28.5 million), 16% higher than the comparative period. Our 2016 total Group revenue was £76.7 million. The Wax Lyrical sales for the period were £5.4 million (2016: £1.5 million for two months of ownership).

Excluding sales from Wax Lyrical, sales for the core Portmeirion business were £27.7 million (2016:

£27.0 million), an increase of 3% over 2016. If we express our half year figure excluding Wax Lyrical at a constant exchange rate then our total revenue would have been 2% below prior year.

The United Kingdom became our largest geographical market in 2017 as the majority of Wax Lyrical's sales are currently in this market. Overall sales in the UK grew by 29% over 2016 because of the additional four months revenue from Wax Lyrical. Excluding Wax Lyrical this market was marginally down on prior year due to the phasing of orders but we expect it to be up for the full year. We continue to monitor the impact of Brexit and potential economic uncertainty. Our

emphasis in this market is on seeking new opportunities in own retail and e-commerce, new product development and new trade customers.

Our second largest market, the United States, remains a challenging market with some well documented difficulties in the retail environment. Our sales decreased by 25% in local currency and by 15% when translated into sterling. The impact of some 2016 orders not repeating and some one-off customer specific challenges were the main factors in this decrease. We are confident of growth in the second half and expect strong orders for Christmas Tree and the new home fragrance ranges.

The South Korean market, our third largest for many years, remains under focus. The first half was down on the same period last year. We anticipate strong demand in the second half of the year in line with the prior year. On an encouraging note, we have received our first order for home fragrance from this market that will ship in the second half of the year.

We have had a strong first half and have been able to diversify our Group sales to the rest of the world, with revenue more than double the same period in 2016. We have seen strong growth in Europe and the Far East, which is very pleasing given our aim of reducing the reliance on our three key markets and diversifying our range of distribution channels and products.

Profit before tax has increased by 18% over the comparative period to £1,614,000 (2016 first half year: £1,363,000, 2016 full year: £7,806,000); earnings before interest, taxation, depreciation and amortisation increased by 27% to £2,686,000 (2016 first half year: £2,111,000, 2016 full year:

£9,746,000).

Our first half profit continues to not be a reliable indicator of our full year profit; in particular this is because of our anticipated second half revenue increase against a largely evenly dispersed fixed cost base. The 2016 acquisition of Wax Lyrical has further accentuated the importance of the second half of the year, with increased profit generated during the busy UK Christmas trade period and acquisition financing costs being broadly incurred on a straight line basis across the year.

We acquired Wax Lyrical in May 2016 for a headline cash price of £17.5 million which reduced to

£16.7 million taking account of cash in the business at the date of acquisition. Wax Lyrical is the UK's largest manufacturer of home fragrances and is based in the Lake District. For the year to 31 December 2016, Wax Lyrical contributed £10.4 million to Group revenue and £1.5 million to operating profit over the 8 months of consolidated ownership. The revenue generated by Wax Lyrical for the first six months of 2017 amounts to £5.4 million, compared to £1.5 million for the two month period of ownership in the first six months of 2016. The trading profit impact of ownership compared to 2016 is an increase of £0.4 million, less the financing and amortisation costs of £0.3 million which leaves a net profit benefit of £0.1 million.

Good progress has been made on leveraging synergies from this acquisition. These include developing new UK accounts, expanding in export markets and co-developing product. In total 147 home fragrance products have been developed in the first half and we have visibility of a good order book for the second half against these new ranges. We remain pleased with the addition of Wax Lyrical to the Group and are confident for its future prospects.

Our net debt position at 30 June 2017 was £1.7 million, which compares with net debt of £9.7 million at 30 June 2016 and net debt of £2.3 million at 31 December 2016. We are pleased with the £8.0 million reduction in net debt and this is ahead of our expectations. This was driven by a number of factors including improved working capital with both lower inventory and trade receivables. Our committed bank facilities total £20.0 million.

Our stock balances are £18.5 million compared to £20.0 million at 30 June 2016 and £16.3 million at 31 December 2016. Due to the seasonal working capital needs of the business an increase from the year end position is to be expected, and the reduction from the prior half year figure is creditable given the growth experienced in the first half year and expected in the second half.

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

We continue to introduce new products, launching both exciting new ranges as well as refreshing and extending existing collections. In 2017, we launched a new collection with Sara Miller which has received a very positive reaction, along with key introductions into the Sophie Conran for Portmeirion and Royal Worcester Wrendale Designs ranges. We are very excited about our new Portmeirion Choices range which has received an extremely positive response from customers around the world. New items have also been developed with Wax Lyrical and home fragrance products are now available in our key ranges including Botanic Garden and Sophie Conran for Portmeirion.

Pictures, descriptions, prices and availabilities of our current patterns can be found at www.portmeirion.co.uk, www.spode.co.uk, www.royalworcester.co.uk, www.pimpernelinternational.co.uk and www.wax-lyrical.com. Customers in the United States can find us at www.portmeirion.com. Online purchasing is available at all these sites.

The management team has been significantly strengthened, with immediate benefit being felt by the business. Mike Raybould joined the board on 26 May 2017 as Group Finance Director, and also has management responsibility for Wax Lyrical. Mick Knapper was promoted to the main board as Operations Director on 1 March 2017; he is responsible for production, sourcing, logistics and IT and has been with the Group since 1998. Andrew Andrea was appointed as a Non- executive Director on 20 June 2017, bringing wide-ranging experience in finance and consumer brands. Moira MacDonald, who joined the Group in 2007, was promoted to Company Secretary on 1 March 2017.

We are delighted with these promotions and appointments, and with the ripple effect that they cause throughout the company. The business is now benefitting from the new thinking that such changes bring.

We remain confident in our ability to create shareholder value in the short, medium and long term.

The powerful combination of our brands, heritage, quality standards, people, production facilities, logistics and designs is without equal in our worldwide markets, and we continue to leverage these assets to drive profitable growth.

Our strategy remains unchanged.

Non-executive Chairman Chief Executive