- Annual revenue down 7 per cent to £103mn
- Adjusted pre-tax profit down from £8mn to £3mn
- Free cash flow of £4.4mn
- Net debt cut from £10.1mn to £7.9mn
Stoke-on-Trent-based Portmeirion (PMP: 245p), a leading British ceramics manufacturer and retailer, released annual results in line with downgraded profit guidance.
Weaker consumer sentiment and de-stocking by major retail customers impacted sales in both North America (down 13 per cent to £42.3mn) and South Korea (down 19 per cent to £21.5mn), as previously announced. The regions accounted for more than two-thirds of 2022 revenue, so Portmeirion did well to mitigate at least some of the £11.7mn sales shortfall.
Although ceramic sales were flat in the UK, the group’s second-largest market, a rebound in home fragrance sales meant revenue from the region increased by 9 per cent to £30.8mn (30 per cent of group revenue). The directors are guiding shareholders to expect a modestly improved performance this year from both the UK and US, and further progress in the group’s rest-of-the-world markets, which increased revenue by 16 per cent to £8.1mn in 2023.
The sting in the tail is a £10.5mn non-cash impairment charge on the group’s Wax Lyrical fragrance brand, which continues to trade below pre-Covid levels despite last year’s improved performance. Portmeirion acquired the business for £17.5mn in 2016. Also, the directors expect the South Korean market to remain subdued given that Asian markets continue to suffer due to difficult economic conditions. They cut the annual dividend per share from 15.5p to 5.5p to cut borrowings, too. That said, with £1.4mn being saved on dividends, analysts expect net debt to be slashed to £4.3-4.9mn by the year-end, so there could be scope for a return to dividend growth.
Restructuring creates a leaner cost base
The positive for shareholders is that productivity improvements and restructuring have taken £4mn of costs out of the business, so the group has a much leaner cost base to improve operating margins once trading conditions in end markets normalise.
So, although analysts at both Shore Capital and Singer have reined in their 2024 and 2025 revenue estimates by £5mn to £105mn and £110mn, respectively, they are maintaining pre-tax profit estimates at £4.5mn (2024) and £7mn-£7.2mn (2025) based on operating margins improving to 6.4 per cent (2024) and 8.4 per cent (2025). On this basis, expect 2023 adjusted earnings per share (before impairment and restructuring costs) of 21.3p to recover to 25p (2024) and 39p (2025). This implies the shares are rated on prospective price/earnings ratios of 10 and 6.
Although Portmeirion’s share price dipped 8 per cent post results on news of the dividend cut, it’s modestly higher than when I rated the shares a hold at the pre-close trading update in mid-January 2024. The deep discount to tangible book value of 339p is attractive, but overseas headwinds need to abate first. Hold.
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