Portmeirion Group PLC (PMP) Earnings Call Transcript

Hello, and welcome to Portmeirion Group's Interim Results Presentation for 2026. I'm Michael Scheepers, Chief Executive of Portmeirion Group. Over the next 25 minutes, I will take you through our first half performance, the progress we are making with our transformation and our priorities for the remainder of this year and into 2027. Before turning to the results, I would like to share why I joined Portmeirion and why I'm excited about the opportunity ahead. I joined as Group Commercial Director in December 2025 and became Chief Executive in May this year. I spent the previous 9 years at Lacruse in a number of commercial and leadership roles. I was part of the team that delivered significant growth and improved profitability of Lacruse in EMEA. I see many parallels between that work and the opportunities here at Portmeirion particularly in leveraging our strong brands and improving the commercial and operational execution behind them. Portmeirion has a portfolio of well-regarded brands with a heritage stretching back more than 250 years. Our free hero brands have craftsmanship and authenticity at their heart and products that resonate with consumers in the U.K. and internationally. That gives us a substantial foundation to build on. I've also been struck by the support and camaraderie of colleagues across the group. I want to thank them for the welcome they have given me and for the commitment they are showing as we work through change together. We should be candid about our starting point. The business has faced significant challenges and its financial performance has not been where it needs to be. My team and I are focused on fixing legacy issues. The strength of our brands must translate into better financial results. That is the task for me and our newly appointed senior leadership team. There's a lot to do, but we are working at pace with a clear view of our priorities over the next 12, 24 and 36 months. These plans were the foundation of equity raise we completed in June, with the GBP 17.2 million of net proceeds received from new and existing shareholders. I would like to thank them for that support. Our ambition is substantial, delivering it will require consistent execution over time. With that, let me turn to the first half results. First half trading was in line with management expectations. Our core tableware business grew by 4.1% at constant currency. That's encouraging, particularly given the difficult conditions in some of our markets. As expected, the headline loss before tax increased to GBP 4.5 million. We're obviously not satisfied with that level of performance. The result reflects cost pressures, including elevated energy costs and higher employment costs from the minimum wage and national insurance. It also reflects deliberate investment in the people and capabilities needed to improve performance over the short to medium term. We have made good progress with Portmeirion Elevated, our transformation strategy. Our full senior leadership team is now in place following the most recent appointments a couple of months ago. We have also made progress against the 12 operational KPIs we set out for 2026, which we believe give investors a clear way to follow our delivery. Alongside this, we have fundamentally reset our capital structure through our equity raise. Our new 36 million asset-based lending facility is also now in place. These steps move us towards the fortress balance sheet that the Board and I want to establish. They give us a stronger financial foundation and further reducing debt and interest costs remains a priority. We've made a good start to the second half. The macroeconomic backdrop remains challenging, but the order book for spurred Christmas tree in North America is encouraging, and our direct Amazon model is progressing well in the United States. Turning to the financial summary. Group sales declined by 1.9% on a reported basis and by just 0.2% at constant currency. Within that, the performance was mixed. Core tableware sales grew by 4.1% at constant currency, while Wax Lyrical sales declined by 18%. I'll explain the drivers of both in the following slides. The headline loss before tax was GBP 4.5 million. Operating expenses increased by GBP 1.6 million or just under 10%, reflecting investment in capability, alongside higher freight, warehousing and employment costs. Our net debt position improved significantly, principally because of the equity raise and the United States tariff refund of GBP 2.3 million. We also had a seasonal working capital outflow alongside the impact of trading losses. We are not declaring an interim dividend. Our priority remains to reduce debt and interest expense while delivering the transformation of the business. The group sales bridge shows the different conditions across our markets. North American sales grew by 9.7%. Spode performed well, and we continue to see momentum in the independent channel. Early signs from the move to a direct relationship with Amazon are encouraging, and we expect further progress in the second half. U.K. sales declined by 12.5%. The consumer environment remains difficult, and the market has been highly promotional, including the impact of clearance activity following some high-profile competitor administrations. The U.K. result also includes Wax Lyrical where sales were down 18%. A key supplier was unable to provide core components, resulting in canceled orders. That disruption was a significant factor in the decline. Wax Lyrical remains noncore to the group. In the meantime, the team is implementing its getting match fit plan with a focus on profit improvement simplifying the business and developing further national sales opportunities. South Korean sales declined by 16.9%. The consumer backdrop remained challenging with elevated inventory in the market. We also took a deliberate decision to tighten credit controls with a number of commercial partners. As expected, that reduced sales in the period. Protecting our exposure is important as we reset the business in that market. Elsewhere, International sales grew by more than 25% with good momentum in Malaysia and Europe. We also entered Turkey where the early signs are positive. The next slide separates out our core tableware business, which grew by 4.1% at constant currency. North American growth was 9.7%, as shown on the previous slide, the Canadian market remaining weak. U.K. tableware sales were down 6%. This reflects the consumer and promotional pressures I have already described, but it's also more resilient performance than the overall U.K. figure, which includes Wax Lyrical. International tableware sales grew by nearly 20%, with Malaysia and Europe, again, performing well. These figures show that the core business is growing overall, although that the recovery is uneven. Our task is to build on the stronger markets while addressing the specific issues in those that remain under pressure. Gross margin increased by 180 basis points to 42.9% in the first half. It's important to look at the components of that improvement. The U.S. tariff repayment provided a one-off benefit of 300 basis points. Volume and mix made a small positive contribution, partly offset by continued investment in our made in Stoke-on-Trent onshoring strategy. We are seeing operational improvements in the factory. We continue to believe that onshoring is the right long-term direction for our brands and that customers value products made in Stoke. Alongside our brand benefit, improving the economics of the factory remains essential. Excess inventory clearance reduced gross margin by 150 basis points. We are managing this activity responsibly with attention to how and where products are sold. We expect a similar level of clearance activity in the second half as we work towards our GBP 4 million full year target. So while the reported margin improvement is welcome, we remain focused on the underlying drivers: product mix, pricing, manufacturing efficiency and the reduction of excess stock. Turning to operating expenses. The total increase was GBP 1.6 million. Around GBP 700,000 related to the investment in capability and the senior leadership team. Those appointments are now in place, and the priority is to translate that investment into better execution and financial performance. Warehousing and related freight costs increased by a similar amount, reflecting higher charges and the increase in volumes in our U.S. business. We also faced the employment cost pressures discussed earlier. We delivered around GBP 300,000 of cost savings. Our move to a single eCommerce platform across the U.K. and U.S. website carries annualized savings of around GBP 200,000. We need the right capabilities to deliver the plan, but we're equally conscious of the cost base. The leadership team's focus is on ensuring that the investment produces results while continuing to identify efficiencies across the business. Inventory remains a core management priority. We need to improve stock turn and reduce the amount of cash tied up in working capital. We reduced excess inventory by GBP 1.8 million in the first half. It's worth distinguishing the clearance of excess stock from movements in the total inventory. Finished goods increased principally because we built spore stock in the U.S. ahead of the key selling season and continue to progress our onshoring manufacturing strategy. There was also an inventory benefit of just over GBP 1 million from the tariff reversal relating to unsold goods. Separately, the inventory position reflects the GBP 3.1 million provision associated with the accounting policies implemented at the end of 2025. We utilized a small amount of that provision during the first half as we cleared excess inventory, and we expect further utilization in the second half. The objective is to meet demand in our stronger product ranges while reducing legacy stock and improving the efficiency of our working capital. The balance sheet has changed substantially during that first half. Our ambition is to establish a fortress balance sheet. There are two practical reasons for this: A stretched balance sheet can force poor management decisions, particularly when a business needs time to transform. It also carries a significant interest cost. We want to reduce that burden and move towards a net cash position over time. The principal first half inflow was the GBP 17.2 million of net proceeds from the equity raise. We also received GBP 2.3 million from the U.S. tariff claim equivalent to approximately $3 million. Working capital absorbed around GBP 2 million, mainly reflecting the seasonal build ahead of the busier second half. Trading losses also affected cash generation. Our new 36 million asset-based lending facility with Bank Lumi supports the business through this period of change. The funding reset is an important step but the next stage must come from improving the operations of the business. Best Stoke-on-Trent, lower debt and improved trading performance are central to making the balance sheet stronger on a sustained basis. I'll now turn to the commercial initiatives behind those regional results. In North America, sales increased by 13.6% at constant currency, compared with a 9.7% reported growth shown earlier. Spode's recovery continued, supported by changes to a couple of key commercial relationships at the start of the year. These had a positive effect on brand positioning and pricing integrity in the United States. We have also undertaken responsible clearance through discount channels. We are pleased with the overall progress while remaining conscious of the importance of the second half selling season. In the U.K., weak consumer demand and promotional activity continue to affect tableware. Wax Lyrical sales were GBP 1.5 million lower year-on-year, primarily because of the order cancellations arising from supply disruption. South Korea is in a period of reset. We're expanding our direct distribution model and made progress in the first half. That was not sufficient to offset the impact of tighter credit controls with some distributor partners. We expect the market to remain in transition during the second half with elevated inventory also continued to affect trading. Across our international markets, growth has been broad-based, including Europe, Asia Pacific and the Middle East. We have further opportunities under development and continue to expect sales recovery in the second half of 2026. There's a great deal of activity across our brands. We have extensive product ranges, amazing archives and long-standing partnerships that provide a basis for new collections. The group opened a new showroom at Atlanta Mart this year, receiving a very positive response from core U.S. customers. It's an important opportunity to present the brand and its collections to the trade. We are celebrating 20 years of collaboration with Sophie Conran and the Portmeirion brand, and we have new products in development for Spring and Summer 2027, including the new Salthrop range. Spode has also collaborated with the digital lifestyle magazine, Glassette. That has increased social media engagement and brought the brand to a younger audience. The commercial opportunity is to turn that interest into future demand. Christmas Tree remains a central collection for Spode in North America. Our new collection features hand-painted designs that draw on the Spode archive and bring a contemporary interpretation to this familiar range. This product activity is part of what supports the encouraging second half order book. It also demonstrates how we can use the heritage of our brands to develop relevant products for today's customers. Let me now turn to Portmeirion Elevated, the strategic framework we presented at the time of the equity raise. Our purpose remains to create timeless ceramics and homewares that resonate globally, reimagining tradition with creativity and crafting products that inspire. Our vision is to build to GBP 300 million of global brand sales at retail value. To be clear, that's an ambition for the retail value of sales under our brands rather than a group revenue target. The strategy has three pillars: Driving higher returns, focused expansion and excellence everywhere. These are supported by our ambition for a fortress balance sheet and by the people, culture and data needed to execute effectively. The framework brings together the work I have described today. Improving inventory and product margins support higher returns. Licensing and distribution partnerships provide roots for expansion. Factory performance and simpler systems support operational excellence. We set out 12 operational KPIs for 2026 so that investors could assess our progress against specific Five have already been achieved, strengthening the balance sheet, receiving the U.S. tariff refund entering China through social selling, hiring and embedding the leadership team and moving to a single eCommerce platform for the U.K. and U.S. The remaining KPIs are progressing, and we remain on track to deliver our 2026 milestones. That includes the preparatory work for the Royal Worcester relaunch in the first half of 2027. These measures help us maintain focus and make our progress visible. Ultimately though, delivery must translate into better profitability, cash generation and returns. Completing the operational milestones is an important step towards that outcome. Looking ahead, we have a clear set of actions under each of our three pillars. Under driving higher returns, excess inventory clearance remains a priority, with just over GBP 2 million still to deliver against our full year target. To support this, we have secured three pop-up locations in premium outlet centers with low capital expenditure requirements and turnover only rents. We are considering similar retail opportunities out of Christmas and the new year. We're also working on pricing architecture, range planning and new product development with a focus on bringing through products at higher gross margins. At Wax Lyrical, getting match fit includes reducing range complexity, prioritizing national retail sales opportunities and expanding into selected categories, including in-car fragrance. We're also reviewing contracts and sourcing arrangements to identify savings and in the final stages of implementing a significant SKU rationalization. On the focused expansion, our priority is to convert the licensing pipeline into signed agreements. Licensing is particularly attractive because of its high margins and strong return on capital employed. We are building on the work in the first half to secure further deals. We're also seeking new distribution partners in South America and Europe, alongside preparing for the Royal Worcester relaunch in the first half of 2027. Under excellence everywhere, we will continue to onshore production through made in Stoke-on-Trent, and improve the operational performance of the factory. We have seen progress in the first half and need to sustain that momentum. We're also implementing a number of pilot AI projects to explore operational efficiencies. These sit alongside the practical work on systems and processes that support the wider transformation. Royal Worcester deserves particular attention. It's a brand with remarkable heritage, established in 1751 and we have not made enough of its potential within the group. During the first half, the teams completed market research and a full market mapping exercise. Our design and buying teams have also reviewed the extensive archives, identifying opportunities to develop products with commercial relevance today. The first patterns have been designed. Prints are in development and the Made-in-Stoke manufacturing strategy is in place. We remain on track for launch in the first half of 2027. There are substantial preparation behind that timetable and the focus now is on bringing the product positioning and manufacturing plans to get up for launch. To conclude, second half trading is in line with expectations. We announced earlier this week that John Hill, our CFO, has taken the decision to step back from the business due to health reasons. We have appointed Adrian Wilding as Interim CFO, bringing a wealth of public market experience. We all wish John a speedy recovery and welcome Adrian. In the U.S., demand for the iconic Spode Christmas Tree collection is encouraging, and our direct Amazon model continues to progress. Our energy costs are hedged until April 2027, providing visibility over that part of the cost base. However, we remain realistic about the challenges. The U.K. consumer environment is difficult. South Korea remains in transition with the ongoing effects of tighter credit controls and elevated market inventory. We have also more work to do to improve the group's profitability. The leadership team is focused on executing Portmeirion Elevated and delivering all 12 of our operational milestones for 2026. The financial reset gives us a stronger foundation and we now need to demonstrate sustained operational improvement. We are awaiting further details of potential U.K. government support for the ceramics industry, depending on its scope and timing, that could provide upside in the second half and into 2027. At this stage, it remains a potential opportunity rather than a confirmed benefit. We remain in active dialogue with policymakers as a leading voice for the U.K. ceramic sector. I joined Portmeirion because I believe in the strength of its brands and the opportunity to improve its performance. The first half has reinforced that conviction while also making clear the work still required. We have the leadership team in place, a clearer financial foundation and a defined plan. Our focus is on delivery and returning the group to sustainable profit growth. Thank you for your time today and for your continued interest in the Portmeirion Group. I look forward to meeting many of you during the upcoming roadshow.

We have just played out the prerecorded results presentation, and we'll now be moving to a live Q&A session.

[Operator Instructions] I'll now hand over to Phil, who will be reading out the questions today.

Great. Thanks, EB. So Michael, first question in is about the U.K. market. The question is, in your interim update, you indicated that the U.K. market is very challenging and consumers are waiting for discount and promotions. At the same time, you talk about other players leaving the market. How do you see the opportunities for Portmeirion Group in the U.K.? How do you think about gaining market share?

So U.K. without a doubt, is a challenging market, but there is still opportunity for us to grow. There's been some high-profile administrations, Denby being notable in that. And of course, that's caused some disruption in the market with heavy discounting and the selling out of stock. Where we believe there's opportunity is by engaging with our major customers, large U.K. retailers and develop towards developing ranges that really appeal to the core consumer in the U.K. As we feel that the disruption of the Denby sellout of stock, other matters in the market will be of a, let's say, shorter time until the end of this year, we feel that this disruption has a chance to abate by 2027, and we're setting the foundations for growth, developing that through new ranges, looking at opportunities with our key retailers. So -- while it is challenging and consumer confidence remains a look out for us in the U.K., we also feel that by being close to our customers, listening to our consumers and focusing on product development, there's some real good opportunity for us to grow in our channels.

A follow-up question on that, Michael, is that you obviously already worked with a number of high-profile, high-quality retailers in the U.K. market. So where are the gaps for you in terms of getting more market share?

Well, I think our D2C can be strengthened. As we mentioned in our interim report as well, we have now started looking at developing a retail and premium outlets. I think that's something that we can look at and a channel to develop. There's more to do on our eCommerce side. But there is still, I think, as brands move out of the market, if we are nimble and have a view to be opportunistic and are able to scale very quickly, these exits give us opportunity to grow in what would otherwise be quite a busy market.

Great. The next question is about your management team, your leadership team. Could you just talk about some of the key new appointments that you've made in the last few months and what skills or expertise that these new appointments bring to the business?

Well, look, success starts with having the right people around the table. We've brought in some key hires. We were able to secure Haley Badley as our Group Marketing Director. James Mason, as our new U.K. and Europe Director. They come across from Denby, so have a wealth of knowledge about the Potteries, the sector and know customers very, very well and the consumers out there. We've also been able to restructure the business, right? So coming in as CEO, the first thing I did was also make sure that when you have a senior leadership team, they're empowered to make decisions. Otherwise, why have a senior leadership team. So by making sure that people know clearly what their targets are, what's expected from them and then empowering them and holding them accountable to those roles, that's where real success starts. It's not something that you can do by yourself. Transformation is not something that you can do single handedly within a business. You need a team. And by bringing new people in and empowering people who are already part of the business, I think we've got the right people around the table to accelerate.

Great. The next question is about South Korea, one of your key markets. At the half year, you talked about sales being down 15%, 16%. And I think there were two issues that you called out. One was that there's quite a lot of inventory sitting in the channels in the market. And then also you actively introduce new strict credit controls. It's been a choppy market, South Korea for a while. How do you think about resolving some of these issues and getting the South Korea market onto a more positive fitting?

Look, the Korean market is definitely a market that needs resetting. We started by making sure that the partnerships that we have are based on mutual respect and understanding of what we can expect from each other. And part of that is having good credit control processes in place and reducing our credit risk. And that's what we've done by taking these actions in Korea. That's the start of a reset. There's more to be done. We can engage with other partners. We can look at strengthening our ties with existing distributors. We can make sure that we get closer to our consumers in Korea as well so that we're actually designing developing ranges that doesn't just based the company strategy on one particular brand, but develop for the consumer in Korea. So there is absolutely some opportunity in Korea to reset that. This is just the start of it. For sure, inventory overhang and historic decisions in that particular market will -- has led to the situation that we're in now in, but we're actively resetting that.

Great. And sticking to the Asian region. Have you got any plans for the Japanese market? And then more broadly, how do you think about identifying new growth markets for Portmeirion? I think within your strategic framework, you've got expansion into some new territories as one of your objective. So what...

Absolutely. I think part of when we went to the market for the equity raise was very clearly stating that we need to focus on new market development. It's also one of the key core KPIs that we have as part of our full year plans. Expanding into new territories is critical for the business because we want to move away from a business that just rests on three pillars. U.K., U.S. and Korea. We need to diversify. We need to go into different markets. We're actively pursuing that. As I mentioned before, having the right people empowered to do that, is key to be able to be successful in developing those markets. So that's what we're doing. We're looking at China, developing social selling in China and looking how we can accelerate our entry into that market. If we look at Malaysia, we have a great distributor there, doing a lot of work for us and is really a growth market, and we see lots of potential there. We're also looking at reengaging with distributors and new partners in Australia. And then to the key question about Japan, there it's all about range. If we have the right range, we have the right product, that will allow us to accelerate growth in Japan. For now, Japan is a market that we haven't focused on a lot. I believe that there's quite a bit of potential in Japan, but we need to have the right products and the right designs to do that. So there's a process to it. We're working on that process, but I think Japan is something that I would look for as a growth driver in the years to come. Much like what we're doing also, if I can add, in South America, which was very much a blank canvas for the group and something that now we're also actively pursuing something that I believe there is definitely depth to that market for us to grow. Again, it's about designs and brands and getting that right. But we have quite a strong stable of designs that can already go into the South American market. We think it will resonate well with the consumers there. So that's something that we're actively pursuing.

Great. And maybe sticking on the theme of growth. The U.S. market, you've seen good success in the first half, how much opportunity do you think there is for the U.S. market? And can that become really your biggest growth engine for the group, the U.S?

Well, look, I think U.S. we started this Q&A with the U.K. And there you see consumer confidence being a challenge, et cetera. What we're seeing in the U.S. is a reset of that market, consumer confidence, despite the turbulence that might exist internally in the U.S. currently, there's definitely consumer confidence going into the Q4 period. Customers are engaged with us. We have reset certain very important relationships with key partners in the U.S. So we make sure that partnerships are based on mutual understanding, again, of what we can expect from each other rather than a very one-sided relationship. We've now worked very closely with those partners to reset those relationships. They are much more engaged. We're seeing a lot more engagement both from customers and consumers. Yes, that leads very much into disposed Christmas tree design, which is, of course, the iconic design, which is incredibly successful and popular in the United States, but it goes wider than that. And the team, again, being properly empowered, having all that ability to across all the channels now in the U.S. and in Canada, are firing on all cylinders and are engaging with customers looking at new range development, seeing where there is potential to grow in the different states in the U.S. So I see the U.S. as a very strong growth driver for the company going forward.

And related question to that is that this question highlights that the U.S. was strong performance in the first half, and you talked in your statement about the order book for Spode Christmas Tree being strong, and obviously, what's coming up to a critical period for selling out on Christmas Tree. Does the strategic plan, the elevated strategy have measures to ensure that the group is not becoming overly dependent on either one specific region or on Christmas-related seasonal sales?

Yes, I think that's a very valid question. I think it leads into the answer I gave a little bit about Korea as well, is that the whole drive to go into new markets and new regions is to make sure that we don't become too dependent on a certain area. And that we can offset growth and challenges in one particular market with growth in another. So that's definitely key to the strategy. It also comes to new product launches, product design. If we continue to develop for our customers and consumers, that means that you start to widen and particularly with new product launches, you start to widen the addressable audience, there's definitely an audience out there that we currently don't speak to with our designs and our products. We're working at pace to make sure that we extend our ranges and extend our design to start addressing that audience. So again, that mitigates too much reliance on one particular design or one particular region.