Sanderson Design Group plc

Good morning everybody, thank you for joining us today. I'm Lisa Montagu, I think I know pretty well everybody in the room and I'm here with my CFO Mike Woodcock to present and share with you the results for the interims for the first half of this fiscal year ending the end of July 2025. Our chairman Dame Diane Thompson is with us in the room and the rest of our board are joining us online today. So I will share with you an overview of the year and then ask Mike to share a little more financial detail and he'll then hand back to me to talk about the future and progress and our strategic initiatives. So for anyone who knows us less well, our business at a glance is a leading interiors furnishings group that designs and makes world-class fabrics and wallpapers and with a strong licensing channel that delivers finished goods with specialist partners in our core markets. We employ some 500 people of whom 455 are based in the UK and all are working together to deliver our promise to lead the industry in the way we work. Moving on to highlights for the first half. To summarise our first half performance, our group revenues of £48 million were slightly below last year, while the profit for the first half was in line with last year at £2.2 million, thanks to the management initiatives that we took to protect the bottom line. Licensing performed strongly, is now a core channel for us. The total was up 6% and within that underlying performance from our partners was strong at 22%. We had some good collection launches. Highgrove by Sanderson has been a highly visible and important collaboration that benefits the King's Foundation. and has driven record demand for Sanderson with sampling and sales both running slightly ahead of forecast. Morrison code's collaboration with the Huntington in America has resulted in 50 new designs being brought to life. This is relative to a portfolio of Morris designs ever produced of 250. So 50 new designs is not just a collection but a whole new chapter of art history. moving on to our digital transformation that we accelerated we've really moved at a pace with this strategy re-platforming to Adobe commerce and the new trade hub was launched at the end of August serving all of our trade customers with far better content and our consumer site for Harlequin was launched just two weeks ago on the 1st of October and will be followed at the beginning of November with a Sanderson single branded site Cost savings have been strong continuing the reviews across the business. So this year we are yielding a further £1 million of savings in central overheads above the £1.5 million that we announced earlier in the year coming from factory savings. that's all on an annualised basis and cash balances have increased significantly to £7.8 million at the half year from £5.8 at the beginning of the year so thanks to this half year improvement we will maintain the interim dividend at the same level as last year at 0.5 pence per share and now I'm going to ask Mike to take you through a bit more detail behind those numbers and I shall be back with you shortly

Thank you Lisa, good morning everybody. So my first two slides will focus on the 10 KPIs that we consistently use to track our performance. These provide a high level view of our result for the half year and then we cover each area in more detail subsequently. Following a challenging prior year as Lisa mentioned, the first half of FY26 has been a period of stabilisation. As Lisa mentioned, revenues fell by £2.2 million to £48.3 million, but the mix of the revenue and the benefits of the various cost reduction initiatives we have implemented meant that adjusted underlying profit before tax remain flat at £2.2 million. The first half has also seen a significant improvement in our cash performance and a strengthening of the balance sheet. The absence of any major capital expenditure projects and a planned £2.5 million reduction in inventory has helped increase our net cash position from £5.8 million at the year end to £7.8 million at the end of half one and we would expect cash to go further in H2. So starting the deeper dive with revenue, this table shows the group sales performance in the half year and includes our three key revenue streams of brand product sales, licensing and third party manufacturing income. The key feature of half one was growth in brand sales in North America and in licensing revenue, along with a steady performance in external manufacturing, but sales were offset by weakness in consumer markets elsewhere. So looking into brand sales in more detail shows a mixed picture. In North America, despite a hiccup in April and May following the announcement of the Liberation Day tariffs, brand sales grew by 4% in constant currency. Revenues were boosted by a strong performance from Harlequin and our heritage brands and a bounce back in the contract sector. However, these gains were more than offset by the continuing weakness in consumer markets in the UK, Northern Europe and the rest of the world. As a result, brand sales ended half won, 5% below the prior year at £34.7 million. Pleasingly though, we are seeing improving trends. In our trading update in early August, we flagged that sales in June and July, although slightly below the same period last year, were better compared with the full six months to 31 July 25. This improvement has continued in the early part of the second half, with brand sales in August and September 5% above the comparable period. Looking now at these revenues on a brand by brand basis, you can see the impact of the challenging consumer environment in the first half on the sales for each brand. Although, as I mentioned previously, the performance in North America was much better than in the UK and elsewhere. Consequently, those brands with a lower concentration of sales in the US fared worse than on average. This particularly impacted Clark and Clark at the top there, which sees its sales heavily weighted towards the home market, with revenue falling 10% overall in the half year, owing largely to the UK sales performance. However, in North America, sales were up 4%. Morris & Co sales were down 3% year on year, but up 6% in half one in North America. As Lisa mentioned, sales in the second half are expected to be boosted by the launch of the first collaboration of the Morris & Co Huntingdon collection. In the Sanderson brand, the Highgrave collection was the key new product launched during the half year. The collection's retail launch was in May 2025 and has been very well received in all markets, with requests for samples continuing to run at unprecedented levels for the brand. And Harlequin appears to be turning a corner following our concerted efforts to re-energise the brand and introduce products aimed at the North American consumer. Sales in that territory were up 13% in constant currency, driven by the Henry Holland collection. So moving on now to look at manufacturing revenue, and I think as most of you know, our two factories, Stanfast and Burrocks Textiles, announced a wallpaper company print for our own brands and for third party customers, positioning them at the centre of the industry. External revenue was unchanged at £9.2 million in the half year, showing stabilisation in third party volumes. Current third party manufacturing order books are showing improved momentum, with a much better mix of new business and higher margin repeat business compared with the same time last year. Internal manufacturing in the first half was down 34%, reflecting our focus on reducing the level of finished goods we hold across the wider group. Digital printing at the bottom here now accounts for 61% of our output, up from 51% in the previous year, and our factories are well invested in terms of digital capacity. There were no major capital expenditure projects in the first half and nothing major is currently planned for the second half either. Cost saving and efficiency initiatives to transform the financial performance of our manufacturing operations and the flexibility of our manufacturing workforce. We continue now therefore to expect manufacturing to break even or even slightly better for the whole current financial year. Moving on now to look at licensing, revenue is up 7% from £4.1 million in half one last year to £4.4 million less. Underlying revenue, which excludes the impact of IFRS 15 accounting standard that you see in the first column here, grew by 22% to £3.9 million and represents the cash received by the group from licensing activities during the period. Accelerated income in column 3 recognition of which is a requirement of IFRS 15 represents the total minimum guaranteed sales associated with newly signed contracts. First half accelerated income was £2.4 million and includes new licenses, renewals and extensions. Notable agreements signed in the first half include a renewal in the USA with Tileshop for the Morrison Co brand and an extension for Sanderson with Port Marion's Royal Worcester Tableware. We're continuing in H2 to progress a pipeline of further licensing opportunities, leveraging our brands and our design archives and expect revenue for the full year to be broadly the same as in FY25. So this next slide analyzes the first column on the previous table, looking at underlying licensing income by brand at the top and by territory at the bottom. Sorry, the other way around. In the UK, underlying revenues reflect a full six months revenue from Clark and Clark agreement with Next compared to only three months in the prior year and Sanderson's collaboration with Habitat and the National Trust. The growing importance of North America in terms of the group's licensing income can be seen with a 44% increase versus last year driven by Morris & Co's agreements with both Ruggable and the Williams Sonoma Group. And then at the bottom there, from a brand perspective, Morris & Co remains the group's most licensed brand and it continues to win new partners. However, a positive feature of H1 is the performance of Sanderson, our other heritage brand, which has seen underlying revenues double compared to H1 last year. Gross profit for the period was £33 million compared with £34.8 million in half one FY25, largely due to the lower revenues from the brand segment. Our overall gross profit percentage fell 60 basis points to 68.3%. Within the brand segment, the gross profit percentage fell by 90 basis points versus the prior year. This slight reduction was caused by changes in market and channel mix and a minor increase in the cost of stock provisions due to the timing of liquidation activity this year versus last year. The benefits of the restructuring exercises undertaken in our two factories can be seen with gross profit percentage in the manufacturing segment increasing by 410 basis points. That was despite a reduction of £2.7 million in internal sales versus the prior year and that as we've worked to reduce inventory levels across the wider group. And then on to the P&L, adjusted underlying profit before tax for the period was £2.2 million. in line with the first half of the prior year, with lower revenues being offset with cost reductions across the group. Selling and distribution costs in this table are shown net of other operating income of 1.7 million, which comprises consideration received from the sales of pattern books, the cost of which is also included in the distribution and selling expense line. Our approach to issuing these books changed compared to the prior year. Under our old book scheme, members paid a monthly fee to receive a pattern book for all new collections. Under our new loyalty scheme, members pay only for each book on an individual basis. This change has seen a reduction in both other operating income and distribution and selling expenses and a net saving to the group of £700,000 compared to half one last year. Aside from the impact of patent books, distribution and selling expenses have also been reduced by £500,000 versus the prior year due to a change and renegotiation of our haulage and carriage contracts. And then administration expenses fell by £900,000 due to the restructuring exercises undertaken across all areas of the business in both the prior and the current year. And then moving on to look at the Group's balance sheet and cash position, We ended the first half with net funds of £7.8 million, up from £5.8 million at year end. Our headroom was enhanced by a committed but undrawn Barclays facility of £10 million. Contributions to pension funds are significantly lower than in prior years, following the one-off injection of £2.3 million in the prior year to facilitate a buy-in insurance transaction for the smaller of our two legacy defined benefit pension schemes. and capital expenditure is also lower than in half 1 FY25, with no major head office or manufacturing projects planned this year. However, as Lisa mentioned, the key driver behind the improved cash position is inventory, which at year end we'd highlighted as a key area of focus for us this year. On 31st July, net inventory was £24.7 million, down from £27.2 million reported on 31st January, with the opportunity for further reductions in the future. So that concludes the financial review of half one. I'll now hand back to Lisa who will talk about our strategy for half two and beyond. Lisa.

Thank you. Thank you Mike. So in the next few slides I'd like to summarise where we believe we are in our journey and our roadmap ahead. The results of the accelerated transformation in manufacturing, the introduction of our omnichannel sites and sharpening our pencils on costs will deliver the results this year and into the future. North America remains the strongest market for us with the greatest potential in the foreseeable future as we remain a very small player in the largest global market. We have momentum, we have great teams in place and there's appetite for our brands. Back in April the tariff regime did slow progress as momentum paused for a couple of months, globally in fact, but we're seeing double digit growth again in the US market. We're now applying a 6% tariff surcharge which remains very competitive due to our UK manufacturing advantage. digital transformation has accelerated the brand's improved trade hub launched at the end of August and is giving trade customers a far better experience and our first consumer sites are also up and live In digital printing we are seeing the benefit of reduced lead times and inventory being held tighter. Cash is up significantly thanks to significant ongoing savings and the strong inventory reduction of £2.5 million in the first half. The impacts of both of these measures will deliver more in H2 and beyond. and CAPEX requirements do remain low really thanks to the good investments of recent years. So in terms of strategic vision, if our ambition is to decorate spaces that make their owners dream, then our priority must be to achieve this in collaboration with top interior designers around the world, giving them what they need, when they need it and where they need it. This is how the US market works. Our designs are loved and we need to spread that love with a wider network, amplified stories and inspiring creatives that can easily be accessed and quickly delivered. Our clear focus in the US market is with interior design practices and wallpaper as a category where we have greater market share in a smaller market for wallpaper and strong momentum as a recognised specialist. These things together work and all tie up together as a benefit as the US is driven by interior designers and wallpaper sales on digital platforms. Digital platforms help us to penetrate these vast global territories with core collections and our finished goods programmes as well through licensing partners. Combined this will enhance margins and lead to increased profitability and stronger shareholder return. I think you're all familiar with our key strategic framework this is a slide that's been in the pack for a while now and hasn't changed you'll be pleased to hear but we've drawn out here the key focus within each pillar so interior designers as customers and our omnichannel platforms to reach them with key messages in brands we're focusing on heritage brands where we have the most momentum from recent collaborations and from their licensing appeal within products wallpaper is drawn out to reflect our expertise and the market opportunity and the US remains our growth market until at least our penetration there has doubled as underpins we've added the digital innovation as a vital foundation for growth and in brands most of you are familiar with our brand portfolio and our pyramid that we've shown previously Zoffany is our luxury offer where we work on bespoke projects at the high end and we have an exciting collaboration launching next summer with a US celebrity designer heritage brands have traction currently through recent launches and volume in our business is driven by our contemporary brands Harlequin and Clark and Clark so the next couple of slides I'm going to focus on heritage brands which is where we're seeing the current momentum and I'll talk a bit about contemporary as well. So with a little artistic license from AI we're showing William Morris as the cool artist of today and we hope he'd be proud of the new designs that we're bringing to market that give us a whole new chapter of protected IP and unique competitive advantage. cementing our position as authentic owners of Morris & Co and the integrity of a creator and maker of those original designs for both Morris and Sanderson the approach is similar although the aesthetics are quite different Morris is unique and has no style competitors which is rare for any brand in any sector And here you can see the FT press launch of the Huntington Collaboration. This is in HTSI, as it's now known, on the 2nd of August. Press feedback's been phenomenal and these are just the first 26 designs of the 50 that I mentioned that have come to market. So 24 to go. Probably you'll see those next year. The Huntington Project has been really manna from heaven. I brought along a couple of copies of the Cabana magazine. I'm not sure how well read they are in the city. This is a biannual publication launched in 2014 by style influencer Martina Mondadori in Milan who in just 10 years has built a global destination for creatives to be inspired and quite a rarefied following. it was a major step for us to invest in sponsoring this cover following in the footsteps of brands that you may have heard of like Ralph Lauren Gucci and Valentino with limited editions that have become collected items have a look at the website Martina chose nine of the Huntington Morris & Co fabrics including two special limited editions and then her dear friend Gwyneth Paltrow stepped in as the first ever guest editor and Oprah Winfrey commented on what a marvellous edition this was so we really got a lot more coverage than we bargained for when we committed to our sponsorship sometimes we have to credit good fortune This feels like a turning point for the business definitely in terms of recognition. And Highgrove by Sanderson gave us access this year to the highest house in the land and resulted in a decorating collection that I hope you allow me to proclaim as beautiful. Demand is high and support is strong. Sales are ahead of forecast and the boss of Highgrove seems happy with the benefit that goes to the King's Foundation. On contemporary brands Clark & Clark is our biggest brand by volume and distributed in the US by market leader Cravit where as Mike mentioned we're seeing good growth. It's growing well and with strong ambitions for the brand in that market and in their portfolio. Scion has also now joined the Cravit family as part of their boutique line offering. Harlequin appeals to the design sector of hospitality with its graphic designs, colour sensibility and also keen value for high design. and then moving on to channels and our digital first pledge we have really transformed now from a purely b2b business to an omnichannel business and that's happened this year with digital platforms driving new high margin growth offering a great customer experience telling our powerful brand stories and supporting us in a changing market where online is the first port of call for a consumer to research. The benefits derived from data and CRM learnings will drive better decisions and open opportunities for a marketplace in the future, possibly even an app. The model employed is through partnership with the specialist provider and therefore a low cost model without any significant capex. Omnichannel means touching all touch points with our brand. Specific activities and making the proposition a win-win for all of our customers. The actions taken this year in the first column here with all sites live by the end of this year will accelerate the adoption and finesse the propositions over the next year to build full advantage of efficiency and an industry marketplace in the future. Looking at territories there do remain many challenges and uncertainties across pretty well all markets but we have clear plans to fight to retain and grow our market share as outlined in our road maps by region. When we talk about interior designers we work now really closely with top interior designers globally and here you can see a few of our notable collaborators including Ben Pentreath at the end there who we've just worked alongside in the US and have worked with extensively in the UK previously. we saw him in New York at the launch of the Kips Bay Show Home this is a 50th anniversary of a fundraising initiative that was started to support Kips Bay as a charity for underprivileged children akin to the Boy Scouts I suppose in the UK Show homes are decorated by celebrity designers each year in New York, Palm Beach and Dallas to raise money for the children and Ben was invited for the first time and we believe as the first British designer to decorate the main drawing room where we were delighted that he used Highgrove Sanderson wallpaper across all the room. He's also a keen supporter of the King's Foundation who's worked closely with His Majesty on many architectural projects. so apologies for the next few dense slides but you all know I do like a roadmap if you just take note of the beginning and the end that's probably the way to read these or just don't I'll just skip over it for you and summarize our presence in the US is growing and our audiences are growing but all of the regions are quite different which is why we set them out as three different slides Our profile of fans in the US is also changing and has lifted dramatically to include really renowned top designers now, evident in our recent guest list celebrating Kip's day and the like. This year, with key roles in place and Scott, our Sales Vice President, leading the charge on sales, our trade hub relaunched and branded sites now generating new leads, integration in industry circles that includes Business of Home, Design Leadership Network and Design Destination London initiative, as well as the strong presence we've had at Kips Bay and at the Furniture Fair High Point in North Carolina, Our network is now strong and sizeable. So this together with the momentum that we see will seed us to land our 2029-30 objectives that you see here to be a go-to partner for interior designers having built trust in our brands and through dialogue including social media platforms. UK of course is quite different UK market has shifted both cyclically and structurally and unfortunately we do sell less than we did before We're not waiting for the market to recover, we've taken lots of initiatives as we've outlined. Our digital initiatives are designed to combat the shrinking exposure of our traditional network of high street retailers. Often these people have workrooms and unfortunately they're seeing diminished business. So our trade hub and our branded sites, our refreshed loyalty schemes that Mike mentioned and our CRM insights are all engaged to nurture the interior designers, to nurture their businesses and to gain a greater share of what might be a smaller top end market. And then international, the rest of the world, is really split. So internationally besides the US, the Middle East, Germany, Scandinavia and the Iberian Peninsula all have opportunities that we have identified, working through our agent networks and establishing also omnichannel propositions in those markets, again with a focus on wallpaper on digital platforms. Moving into licensing, the momentum in licensing continues in this key strategic pillar, bringing iconic brand designs to market on finished goods. As we predicted, this year will deliver results in a different shape as newer partnerships mature and established partnerships continue to grow underlying sales. Rugable, the US supplier of washable rugs, is a notable contributor as mentioned by Mike and has recently expanded from Morris & Co also into Sandstone as a brand. And Habitat and the Sainsbury's Group in the UK is growing and performing strongly with their Morris & Co and Scion partnerships. I think everybody recognises that manufacturing was challenging last year and we've been through two rounds of restructuring that are now yielding benefits and will show in the breakeven or better results at the end of the year. The role of manufacturing in the group is to drive vertical business advantage. having performed poorly last year with reduced volumes denting profitability both due to both group and third party customers pulling back and repeat business lacking demand particularly in the UK but both factories have since been restructured with headcount reduction and cross-skilling across the business that this year will deliver better results Conventional designs are migrating to digital and the Group's digital printing now accounts for the 61% we mentioned over 51% last year with a major shift being at Amnesty on wall coverings where we've made the investments in technology to support that transition. and that now gives that factory quite a unique creative advantage and over the past six years we've reduced emissions by a phenomenal 40% and that's been achieved making Sanderson Design Group recognized now as a champion in the industry in this regard important credentials as a warrant holder and as an employer with integrity so we look at Outlook in terms of outlook we're absolutely focused on ensuring the future success of the group and we've clearly taken swift action to respond to market challenges those challenges remain and we're controlling everything within our grasp while looking out for opportunities and fighting for market share this is showing progress and sales are up in the last two months we restructured both factories for the second time at Anstey and also head office functions reducing headcount and making significant savings that you'll see from head office coming through the second half and into next year We've accelerated the digital launches and created new momentum. The two big launches this year have been really strongly backed and well received. So thanks to these measures the board is confident in the progress made and believes that the company is on track to deliver the results in line with expectations for the full year. thank you very much for being with us today and if you'd like to ask any questions Mike and I will be happy to take them thank you for your support