Portmeirion Share Blog – Final Results Year Ended 2018

Portmeirion have now released their final results for the year ended 2018.

Revenues increased when compared to last year as a £964K fall in ROW revenue was more than offset by a £2.7M growth in UK revenue, a £1.5M increase in US revenue and a £1.6M growth in Korean revenue.  There was a £199K negative swing to a forex loss and other operating expenses were up £3.7M to give an operating profit £824K higher.  Interest payments fell by £53K and interest payments on the pension scheme declined by £141K before a £115K reduction in the share of profits from associates and a £79K increase in tax charges meant that the profit for the year was £7.7M, a growth of £813K year on year.

When compared to the end point of last year, total assets increased by £1.9M driven by a £2.9M growth in trade receivables, a £1.1M increase in inventories and a £489K growth in prepayments and accrued income, partially offset by a £1.3M decrease in cash and a £530K fall in the value of intellectual property.  Total liabilities also decreased during the year as an £862K growth in trade payables and a £435K increase in other payables was more than offset by a £2M decline in borrowings and a £1.7M fall in the pension deficit.  The end result was a net tangible asset level of £35.7M, a growth of £4.3M year on year.

Before movements in working capital, cash profits increased by £1.1M to £12M.  There was a cash outflow from working capital, to some extent due to Brexit preparations, but tax payments reduced by £655K to give a net cash from operations of £6.6M, a decline of £108K year on year.  The group received a £115K dividend from an associate but paid out £879K on fixed assets and £213K on intangible assets to give a free cash flow of £5.7M.  Of this, £3.8M was paid out in dividends and a net £1.3M on share purchases.  They also paid back a net £2M of loans to give a cash flow of £1.3M and a cash level of £7.2M at the year-end.

In the UK there was sales growth of 9.2% in the year driven by increased online and home fragrance sales.  The UK ceramics business saw growth of 4.3% driven by new product launches, aided by the increase in e-commerce sales, particularly Sara Miller and Royal Worcester.  The UK factory expanded production in the year and they are capable of further growth in 2019 to support key product launches being manufactured in Stoke.  They continue to experience inflationary cost pressures in labour and energy but have been able to mitigate these with efficiency savings and technological innovations.  The UK market continues to remain robust despite the continuing uncertainty of Brexit.

Home fragrance sales grew by 11%.  There is a plan to increase manufacturing capacity and output in 2019 and the board continue to believe that his business has strong potential for growth in the UK and export markets.

In the US, sales grew by 6% on a constant currency basis and 10% in local currency. This has been driven by both new product development and increased sales of heritage patterns such as Botanic Garden and Spode Christmas Tree.  The board anticipate further growth in 2019.

Sales into South Korea increased by nearly 25%.  As a result of ongoing new product development work they were able to reverse the recent trend of declining sales and remain confident of the future in this market. 

Sales to ROW countries decreased by 4%, largely driven by a planned reduction in sales to India.  Performance in Europe and Asian market is still encouraging.  They have continued with their plan of reducing their reliance on sales in their three major markets despite the fall. 

There was sales growth of 24% online and the group continues to invest in their online fulfilment capabilities so they are able to cope with the dramatic growth of their own e-commerce site. 

Going forward the board look forward to 2019 with confidence and at this very early stage of the year expect trading to be in line with expectations for the full year. 

At the current share price the shares are trading on a PE ratio of 16.3 which falls to 15.2 on next year’s consensus forecast.  After an 8.2% increase in the dividend the shares are yielding 3.2% which grows to 3.3% on next year’s forecast.  At the year-end the group had a net cash position of £2.3M compared to £1.6M at the end of last year. 

Overall then this has been a pretty good year for the group.  Profits were up and net assets increased.  The operating cash flow did decline somewhat but this was due to working capital movements related to Brexit preparations and cash profits grew.  There was a decent amount of free cash generated with dividends being covered.   Most regions saw growth, with the exception of India, which is a bit of a shame as it increases the group’s reliance on the three main markets, something they have stated they want to reverse. 

The year has started well but there are Brexit related uncertainties on the horizon.  Still, this is a quality company and the shares are probably valued about right with a forward PE of 15.2 and yield of 3.3%.

On the 14th May the group released a trading update covering the first four months of the year. They saw sales growth in the UK (up 5%) and the US (up 8%).  Having had a strong end to 2018 they expected slower demand in their export markets but actual export market sales, particularly for South Korea, have been lower than expected. 

They have been working with their Korean distributor on new product development but this will take time to bring to market and optimise for manufacturing efficiency.  As a result, group sales are down 10% against last year and the board now expects pre-tax profit for the full year to be significantly below market expectations. 

I’ve sold up.

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