Portmeirion has now released their interim results for the year ending 2017.
Revenues increased when compared to the first half of last year as a £2.4M decline in Korean revenue and a £1.2M fall in US revenue was more than offset by a £2.6M growth in UK revenue and a £5.6M increase in ROW revenue. There were no acquisition costs, which amounted to £170K last time but amortisation increased by £148K, depreciation was up £83K and other operating costs grew by £4.3M to give an operating profit £344K higher. Interest payments increased by £67K and tax charges were up £30K which meant the profit for the period was £1.3M, a growth of £221K year on year.
When compared to the end point of last year, total assets declined by £3.4M, driven by a £4.7M decrease in receivables, a £353K decline in property, plant and equipment and a £319K fall in cash partially offset by a £2.2M growth in inventories. Total liabilities also declined during the period due to a £980K fall in borrowings, a £513K decline in the pension deficit and a £419K decline in payables. The end result was a net tangible asset level of £22.1M, a decline of £897K over the past six months.
Before movements in working capital, cash profits increased by £482K to £2.7M. There was a cash inflow from working capital due to a decrease in receivables and after an £89K increase in interest payments was offset by a £154K decline in tax payments, the net cash from operations was £3.1M, an improvement of £4.5M year on year. The group spent just £372K on tangible assets which meant that the free cash flow was £2.8M which just about covered the dividends of £2.7M. The group also repaid £1M of borrowings so there was a cash outflow of £304K and a cash level of £6.2M at the period-end.
Excluding Wax Lyrical sales, sales for the core business were 3% ahead of last year but this was due to favourable forex movements and on a like for like, constant currency basis revenues declined by 2%. Sales in the UK grew by 29% due to the additional four months revenue from Lax Lyrical. Excluding this, the market was marginally down on last year due to the phasing of orders, but it is expected to be up for the full year.
The US remained a challenging market. Sales decreased by 25% in dollar terms (15% on actual terms). The impact of some 2016 orders not repeating and some one–off customer specific challenges were the main reasons for the decline. The board 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 was down on the same period last year. The board anticipate strong demand in the second half of the year, in line with last year, however. The group have also received their first order for home fragrance from this market that will ship in the second half. ROW sales have more than doubled with strong growth in Europe and the Far East. There was no mention of India, which was a growing market last year.
Wax Lyrical made a net profit of £100K during the period. 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 they have visibility of a good order book for the second half against these new ranges.
This year the group launched a new collection with Sara Miller which has received a positive reaction, along with key introductions into the Sophie Conran for Portmeirion and Royal Worcester Wrendale Design ranges. New items have also been developed with Wax Lyrical and home fragrance products are now available in their key ranges including Botanic Garden and Sophie Conran.
Mike Raybould joined the board as Finance Director in May and he also has management responsibility for Wax Lyrical. Mike Knapper was promoted to the board as Operations director having been with the group since 1998. Going forward, given the revenue and profit reported in the first half, the board are confident of meeting expectations for the full year.
At the current share price the shares are trading on a PE ratio of 16.5 which falls to 14.7 on the full year consensus forecast. After a 5.7% increase in the interim dividend, the shares are yielding 3.3% which increases to 3.5% on the full year forecast. At the period-end the group had a net debt position of £1.7M compared to £9.7M at the same point of the prior year.
Overall then this has been a bit of a mixed period for the group. Profits were up, as was he operating cash flow with a satisfactory amount of free cash being generated but net assets declined. The group benefited from the Wax Lyrical acquisition, which seems to be performing OK, and favourable forex movements. Without the benefit of these, sales would have declined during the period.
The UK saw like for like declines due to phasing, the US was very difficult and South Korea continued its decline. The board seem to think all these markets will improve in the second half, however, but this puts some pressure on the performance. The one ray of light was European and Far East sales which seem to have exploded. There is not much more info on this, however, so I’m not sure if it is one-off in nature or not. With a forward PE of 14.7 and yield of 3.5% on balance I feel this is a bit pricey given the uncertain nature of the market at the moment.
On the 18th January the group released a trading update covering the year as a whole. They expect record revenues of £84.5M, an increase of at least 10% over the prior year. Excluding the full year impact of the Wax Lyrical acquisition, like for like sales growth exceeded 5%. They also expect pre-tax profit to be slightly ahead of market expectations.
The year on year sales growth strengthened as they moved through the year and the second half results exceeded management expectations. Highlights included the US, export markets and online sales that achieved double digit revenue growth, aided by well receive new product launches. With this momentum they look forward with confidence to 2018 and I have bought back in.