Portmeirion : Interim Statement 2021

OVERVIEW

Headlines

Financial Headlines

Our Brands

• Record Group revenue of £43.1 million, an increase of 35% over the prior year (2020: £32.0 million) and 24% over pre Covid-19 levels (2019: £34.9 million).
• Like-for-likesales in constant currency up 7% against 2019 ("YO2Y"), ahead of pre Covid-19 levels despite ongoing disruptions, showing the strength of consumer demand and progress with our online strategy.
• Headline profit before tax1 was £1.5 million (2020: loss before tax £2.7 million,
  2019: profit before tax £0.5 million).
• Continued strong online sales growth which increased by 15% on a constant currency basis over 2020 with gross margin improvement of +900bps and 124% growth YO2Y.
• Earnings per share up to 9.12p per share (2020: loss per share 20.71p, 2019: earnings per share 3.96p).
• Strong balance sheet maintained and significant headroom within current borrowing facilities.
• Dividends to be resumed for FY21.
• Following a strong first half of the year and with an expanding global order book, the Group remains confident of achieving market expectations for FY21.

Operational Headlines

• Good progress in developing online and digital capabilities, including further investment in online platforms and fulfilment capabilities.
• Strong growth (57% against 2020, 4% YO2Y) in key South Korean market following successful period of management action and focus on stabilisation of stock levels. Growth expected to continue in H2.
• Completed a number of automation investments in UK ceramic factory which will increase capacity to underpin future sales growth and margin improvements.
• Successful expansion of home fragrance brand portfolio at Wax Lyrical; new factory line now producing hand and body care ranges, with first products shipping in the third quarter of the year.
• New product launches including Sophie Conran for Portmeirion and Spode Creatures of Curiosity.
• Our UK businesses both achieved Investor in People (IIP) Platinum accreditation in recognition to our commitment to leading, supporting and improving our workforce.

1 Headline profit/(loss) before tax excludes exceptional items - see note 3.

Established in 1770

Contemporary yet timeless great British design.

Pictured: Spode Morris & Co.

spode.co.uk

Established in 1751

A rich and diverse design heritage.

Pictured: Royal Worcester

Wrendale Design

royalworcester.co.uk

Established in 1951

Making museum‑quality art a part of daily life.

Pictured: Nambé Harmony Salad Bowl & Servers

nambe.co.uk

Established in 1960

Beautiful designs and practicality for modern-day living.

Pictured: Sophie Conran for Portmeirion Arbor & Floret

portmeirion.co.uk

Established in 1980

The UK's largest home fragrance company, based in the British Lake District.

Pictured: Wax Lyrical Homecenter

waxlyrical.com

Established in 1945

The premier brand for placemats and coasters.

Pictured: Sara Miller London Portmeirion made by Pimpernel

pimpernelinternational.co.uk

Trading

We are delighted to announce that reported sales were up on pre Covid-19 levels despite the ongoing disruptions from the pandemic which included the closure of retail in the UK during the first four months of the period.

We have continued to grow sales in our online channels - a key part and focus of our long term strategy. At the same time, we have increased average prices and margins on our own websites sales channels versus the same period in 2020, with average gross margin increasing by +900bps. In our key UK and US markets, 51% of sales went through all online channels (2020: 48%).

We have also seen strong growth from our rest of world markets, particularly from our key South Korean market which grew 57% on a more sustainable base following a successful period of stabilisation over the last few years.

We have continued to develop new products for our customers through the pandemic and have seen successful launches including a new Sophie Conran for Portmeirion range and Spode Creatures of Curiosity.

Financial highlights

Revenue was £43.1 million for the first six months of the year, an increase of 35% over the previous year (H1 2020: £32.0 million) and 24% over pre Covid-19 levels

(2019: £34.9 million).

Like-for-like sales on a constant currency basis, excluding the benefit of sales from our Nambé division (acquired in July 2019) and additional sales from Portmeirion Canada (fully acquired in August 2020), were up by 35% over 2020 and by 7% over 2019 levels (Y02Y).

Our operating performance was encouraging; headline operating profit1 was £1.7 million which was significantly ahead of both the prior year (H1 2020: operating loss £2.2 million) and pre Covid-19 levels (H1 2019: operating profit £0.7 million). This left the Group's operating margin at 4.0% for the first half of the year, which was significantly ahead of pre Covid-19 levels in 2019 of 1.9%.

Following the strong revenue and operating performance, headline profit before tax1 was £1.5 million (2020 H1: loss before tax £2.7 million, 2019 H1: profit before tax £0.5 million).

Headline basic earnings per share1 was 9.12p per share (2020: basic loss per share 20.71p, 2019: basic earnings per share 3.96p).

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

Operational overview

Our increased focus on online sales channel development allowed us to continue to grow and deliver our products into the hands of end consumers despite the ongoing challenges associated with the Covid-19 pandemic. Our experienced teams have worked hard to mitigate Covid-related disruption to our supply chains, including the extremely tight global container freight market.

Our two UK manufacturing sites both operated throughout the first half of the year. Demand for "Made in Britain" ceramics has remained strong and our Stoke-on-Trent factory is now operating above pre Covid-19 output levels. Our Wax Lyrical site in the Lake District has continued to produce our home fragrance lines, and following the completion of the hand and body product line extension, has launched a number of new collections which we have already started to ship in the third quarter.

The Group continues to prioritise the health and safety of our workforce and customers and ensure appropriate measures are in place at all of our premises.

The Group has continued to generate operating cash which has supported ongoing strategic investment. From the time of the equity raise in June 2020, the Group has spent a net sum of £4.0 million on capital expenditure, and has a number of further new projects already at the later stages of planning to accelerate future sales growth.

We continue to monitor the impact of Brexit on our trading markets. We have seen some disruption to shipping product into the EU from the UK and additional duty costs, but this has not had a material impact on H1 profitability.

Geographical performance

Following the acquisition of Nambé in July 2019, the USA became the Group's largest geographical market and accounted for 35% of total Group revenue. With the lifting of Covid-19 restrictions across the USA, this market grew by 44% compared to the first half of 2020 and like-for-like sales are now above 2019 levels. We see good opportunity

for further growth in our US market in the next few years driven by further online penetration and new product launches.

Our second largest market is the UK, which accounted for 31% of total Group sales. Despite ongoing Covid-19 restrictions in the UK, with non-essential retail closed for the first quarter of the year, sales increased by 5% in this market. This was driven by the continued growth in online sales both on our own ecommerce site and third party platforms.

In international markets, sales in South Korea grew by 57%. South Korea was one of the first countries to enter national lockdown in 2020, and sales in H1 2020 were duly impacted. Our sales into the market rebounded strongly in the second half of 2020 and we continued to see growth due to new ranges and collections launched with our distributor.

In our rest of world markets, sales were up 93% over the same period in 2020 as various restrictions around the world ended and economies started to recover from the pandemic. Rest of world sales benefitted from additional sales in Canada due to the Group owning 100% of the share capital of Portmeirion Canada (fully acquired in August 2020). We also experienced strong growth in Australia and the Middle East.

Our own ecommerce sales increased by

15% at a constant currency rate in the first half of 2021 and are up 124% on 2019 pre Covid-19 levels as we start to see the benefit of our focus and online transformation strategy. This is a key ongoing area of focus and we continue to invest in increasing resource and expertise in this area.

Segmental performance

At Portmeirion UK, the main trading entity of the Group, sales increased 45% to £21.9 million (2020: £15.1 million). This increase was driven by a return to growth in both the UK and international markets following the impact of Covid-19 on H1 2020.

Sales from the Portmeirion North America division include sales made through our long standing Portmeirion USA entity, sales from the Nambé business, acquired in July 2019, and sales made by Portmeirion Canada which was fully acquired in August 2020. Sales made by the division increased by 59% to £16.7 million for the first half (2020: £10.5 million); on a like-for-like basis, to exclude the benefit of additional sales from Portmeirion Canada, sales were 44% ahead of the prior year.

Sales from our global home fragrance division decreased by 28% over the prior year to £4.6 million (2020: £6.4 million). This decrease was driven by a reduction in hand sanitiser sales which benefitted the first half of 2020; the majority of these sales were not repeated as supply from overseas became more readily and cheaply available. Excluding these sales underlying home fragrance sales were above 2020 levels, but below historic levels due to the impact of the closure of physical UK retail stores.

• Like-for-likesales exclude the benefit in 2021 and 2020 of a full year sales of Nambé (acquired in July 2019) and additional sales from Portmeirion Canada (acquired August 2020) previously held as an associated company.

Profit

In the first half of 2021, the Group made a headline profit before tax1 of £1.5 million; this compared to a loss before tax of £2.7 million in 2020 and a profit before tax of £0.5 million in 2019.

This profit was a pleasing result and in line with management expectations, and is set against a challenging UK retail backdrop with forced non-essential retail closures for all of the first quarter of the year.

1 Headline profit/(loss) 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 we maintain a prudent and sustainable level of dividend cover.

The Board determined not to pay a dividend for FY20 due to the impact and disruption of Covid-19 on our business. On the basis of our strong first half trading performance we expect to resume dividend payments for FY21.

Balance sheet

The Group ended the first half of 2021 with net cash of £0.1 million; this compares to net cash of £1.1 million at 30 June 2020 and net cash of £0.7 million at 31 December 2020. In addition to the cash balance of £9.0 million and bank borrowings of £8.9 million, the Group also has unutilised committed bank facilities of £15.0 million.

Our stock balance is £29.3 million compared to £30.6 million at 30 June 2020 and £27.3 million at 31 December 2020. Excluding the inventory balance in Portmeirion Canada (acquired in August 2020), our like-for-like inventory has reduced by £2.5 million or

8% since the previous half year end. The business continues to invest in seasonal working capital to support the second half retail sales peak, so an increase over the year end position is to be expected.

We carry significant goodwill and intangible asset values on our balance sheet of some £15.7 million. These balances largely relate to the acquisitions of Wax Lyrical and Nambé and the 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

The Group remains committed to the vision and values which support the Group's culture of openness and integrity and encourage behaviours that will positively impact our long-term sustainability.

We remain committed to being environmentally responsible through our dedication to reducing energy consumption, improving efficiency including improved production yields and reduced waste.

At our Stoke-on-Trent ceramic factory, we continue to strive for improvement in energy efficiency and reduce carbon emissions; as a result of ongoing investment in kiln firing, energy recirculation and throughput capacity we have both improved energy efficiency and reduced carbon emissions by 10% over the prior year. We have also committed to reducing our plastic content in packaging which has yielded a 50% reduction in usage over 2020 levels. We are also focused on recycling waste material and this was resulted in less than 1% of our waste going to landfill sites, with much ceramic waste being reused in the construction industry.

At our home fragrance factory in the Lake District, we continue to utilise a wind turbine to provide 60% of the energy required on the site. As part of new product launches including the hand and body care ranges, we are using biopolymer plastic which is made from renewable energy sources which actually helps reduce CO2 emissions as part of the process. Wax Lyrical strive for continuous improvement in the environmental impact of its products, which includes using 100% recyclable future pump bottles, utilising longer-lasting diffuser oil and being a member of the Roundtable on Sustainable Palm Oil (RSPO).

We continue to employ and recruit people who share our company values. Our ethics and governance are supported by internal policies and procedures. Further details on our corporate culture and its integration within the Group can be found on our website, www.portmeiriongroup.com, and in the Stakeholder Engagement, Our Sustainability and Corporate Governance Statements in our Annual Report and Accounts.

We are proud to have achieved Investor in People (IIP) Platinum accreditation in both our UK businesses in recognition to our commitment to leading, supporting and improving our workforce to achieve business results. Platinum is the highest level of IIP accreditation, which positions Portmeirion among the elite few for its commitment to high performance through excellent people management.

Strategic areas of focus

Our brands have a combined history of more than 750 years as the much loved choice for our customers' homes. Our ambition is to be a leading force in the global homewares category.

Our long-term strategy is centred around driving profitable growth through:

• developing significant online sales channels including our own websites in key markets. In doing so we deepen the relationship with our end consumer and provide enhanced levels of satisfaction and demand for our products in the future;
• increasing our footprint in new markets through new product categories, and driving commercial activity in new geographies;
• building our brands' reach to engage even more consumers through new product design, as well as new formats of existing product and ranges including those targeted at the growing market for gifting; and
• leveraging our long established areas of core business strengths. These include investing in automation in our UK factories to drive both extra capacity and cost efficiency, our network of sourced factories around the world, and developing further direct to consumer warehouse capacity in our core markets.

We are confident that these initiatives, taken together, will drive accelerated sales growth and a sustained improvement in our operating margins which will deliver enhanced shareholder value.

Within these areas the Group has a number of specific areas of focus.