Sanderson Design Group PLC

LSE:SDG

Good morning, everybody, and welcome. I think I know everybody in the room. But for those online, good morning, everybody. My name is Lisa Montague, I'm the CEO of Sanderson Design Group; and I'm pleased to be here today with my colleague, CFO, Mike Woodcock, to share with you the first year results up to the end of July. Our Chairman, Dame Dianne Thompson, is in the room with us and our non-exec colleagues are online. I'll share with you an overview of the first half of this year and then Mike will share a little more financial detail and around the numbers and hand back to me to talk to you about the future and our proposal to reshape and accelerate some key strategic and transformational initiatives.

So at a glance. Our business is a leading interior furnishings group that designs and makes world-class fabrics and wallpapers with a strong licensing channel that delivers finished goods and our applied creativity in our core markets. We employ close to 600 people, of whom the majority around 550 are in the U.K., and all working to deliver our Live Beautiful promise to lead the industry in the way we work. To summarize the first half of this year, it has been and remains a challenging business environment for trade. Revenues dropped 11% compared to the prior year, particularly in the U.K. where sales were 14% below last year in the first half. Licensing held up in underlying performance, but the timing of licensing was quite different this year to last.

I'm sure you'll all remember the 2 big agreements that were signed in the first half of last year, in fact in the first quarter, with NEXT and with the Sainsbury's Group as well, and so those delivered quite significant accelerated income that of course hasn't repeated. So the pattern this year is quite different. New launches have been holding up and very well received. Sampling is actually at a record level with the Harlequin Henry Holland launch that we just brought to market a couple of weeks ago, but it's early days for that. We're excited to work with Huntington and I just wanted to share a little bit around this because we did announce it to get it off NDA. But the Huntington Museum, Gallery and Botanical Gardens in Pasadena, California, has a very extensive rich archive and within that archive has found some unfinished works of William Morris that they've invited us to bring to life.

And so a significant new body of work is being brought to life as we speak and we'll launch it in September next year, September 2025. So I wanted to share with you how important that is. Relevant too, there are about 250 unique designs that were ever produced since 1860 by Morris & Co. and this will bring 50 new ones in that context. Manufacturing has remained stable although the same downturn in the U.K. is evident across the business while the U.S. and our international business has held up on third-party customer base. And as a consequence of timing of our licensing agreements impacting the H1/H2 split last year which was exceptional, profits in this first half are down at GBP 2.2 million. We do still have cash on hand and propose to continue to pay an interim dividend albeit reduced to reflect performance.

So thank you. Now I'd like to invite Mike to take you through a little more color behind the numbers.

Thank you, Lisa. Good morning. So as usual, I'll start by focusing on the 10 KPIs we use to track our performance and this provides a high level view of the results for the year or the half year and then I'll cover each in more detail on subsequent slides. As Lisa's mentioned, we've been experiencing challenging trading conditions particularly in our key U.K. market and also forecast the signing of key licensing agreements to be more heavily weighted towards the second half than in the prior year. Consequently, all the P&L focused KPIs you see on this slide show a decline to half 1 last year including a reduction in turnover from GBP 56.7 million to GBP 50.5 million and a decline in adjusted profit before tax from GBP 6.8 million to GBP 2.2 million.

The second slide looks at the balance sheet and more cash focused indicators. Capital expenditure this year was always expected to be more front-loaded than last given that 2 key projects were delayed from the second half of the last financial year. And the net cash position is impacted by an exceptional oneoff GBP 2.3 million payment to support a buy-in insurance investment for one of our legacy defined benefit pension schemes, which I'll explain in more detail later. The following slides will look at the financial results in more detail starting with a review of revenue by segment. So just a quick reminder of how we report group revenues. Our business model has 3 pillars: brands, licensing and manufacturing. The brands and licensing segments comprise our 6 consumer brands whilst our 2 manufacturing businesses print for both our third-party customers and our own brands.

In total, sales of GBP 50.5 million were down just over 11% on the same period last year. As Lisa has mentioned, brand sales were heavily impacted by challenging conditions in the U.K. market whereas the licensing performance is marked by a particularly strong half 1 in the prior year. Now going into a bit more detail starting by looking at the brand product sales by geography. The difficult consumer environment in the U.K. led to domestic brand product sales being down 14% to GBP 16.7 million. A review to deliver a more efficient sales model for the home market was completed in July with a reduction of 13 roles. The new sales team is in place with renewed energy and the service proposition to benefit the changing customer profile with more remote and fewer field roles. This initiative achieved annualized savings of approximately GBP 600,000, of which half will be delivered in the current financial year.

Our strategic growth segment of North America showed 6% increase in constant currency as we continue to build our presence in this important U.S. market. The Sanderson brand has performed particularly well in the U.S. with sales up 31% in the first half driven by enhanced brand awareness with the Layers of Legacy campaign and the Giles Deacon collaboration. Trading in Northern Europe saw sales down 2% in constant currency with Scandinavia, historically a strong market for the company, starting to show signs for improvement after a tough couple of years. And then trading in the Rest of the World was down 9% at GBP 4.6 million with positive performance from Spain being offset by weaker trading elsewhere.

Looking at revenue now on a brand-by-brand basis. Clarke & Clarke is the company's biggest selling brand. Its sales in the first half year were GBP 10.6 million, a decrease of 8% in constant currency compared with the first half of last year. In the U.S.A., the brand benefits from a strong collaboration with Bregan Jane, a designer and influencer with a strong following on social media, and overall globally from an increased wallpaper offering. Morris & Co is our second biggest selling brand and it also continues to attract substantial licensing income, which we'll see later. Morrison & Co's brand product sales in the first half were broadly unchanged. The brand continues to perform very well in the U.S. and has an exciting pipeline of launches, including the Huntington collaboration that Lisa has just mentioned.

Sanderson brand reported growth in the first half year with sales up 3% in constant currency. As I noted previously, the launch of the capsule collection with Giles Deacon was highly successful with sales of the brand up 31% in North America and 11% in Northern Europe, both markets responding to our strategic emphasis that we've placed on driving this particular brand's growth. Harlequin is predominantly a U.K. brand and its performance is therefore heavily impacted by the softness we see in our home market with sales of GBP 6.2 million representing a decrease of 13% compared with the first half last year. And then Zoffany, our high end luxury brand, saw sales in half 1 down 19% compared with a particularly strong first half of last year, which included 1 major residential project in the U.S.A.

So moving on now to look at manufacturing revenue. Our manufacturing segment forms a core part of our value proposition as an integrated group that designs and prints. The share of digital printing has risen significantly and now accounts for over 50% of volume and this creates new opportunities for the business moving forward. During the first half, third-party manufacturing was down 2% compared with the same period last year. This was due to a lower level of repeat orders from our U.K. customers reflecting the weak domestic consumer environment we've also seen in our brands business. However, current order intake remains encouraging particularly from the U.S. customers.

Moving on now to look at licensing. So our licensing activities leverage our designs and archives and bring wider consumer awareness to our brands across multiple categories of finished goods meaning licensing has the potential to stimulate sales of core products of fabric, wallpaper and paint. Under IFRS, we're required to recognize the full value of any guaranteed royalties receivable at the point the contract is signed. This table shows the value of this as accelerated income in the third column as well as the underlying or cash based revenue that you see in the first column here. So total IFRS licensing income was in line with the Board expectations at GBP 4.1 million compared with GBP 6.9 million in the same year. As we noted, this is heavily impacted by an exceptional performance last year with 2 deals with NEXT and Sainsbury's contributing to accelerated income of over GBP 4 million.

This year, accelerated income of GBP 2.7 million reflects the signing of new licenses along with renewals and extensions including those with window coverings company Blinds2go and the rugmaker Brink & Campman, which together represented accelerated income of approximately GBP 2 million. This next slide looks at the same licensing revenue, but analyzes it based on brand and territory from an underlying performance perspective. It illustrates the growing importance of North America in terms of the group's licensing income with a 50% increase versus half 1 last year driven by Morris & Co's agreements with Ruggable and the Williams Sonoma Group. Although the numbers are relatively low, it was also encouraging to see Sangetsu in Japan deliver a strong performance in the first half following its launch last year of its Morris & Co collections.

And then on a brand-by-brand basis, in addition to Morris & Co, you can see the continued importance of Scion here as a licensing brand and also the potential for the Sanderson brand, which we started to exploit with 2 agreements signed since the half year, which Lisa will talk about further later. Gross profit margin at 68.9% represent an increase of 100 basis points over last year. If we exclude the impact of licensing income, which generates 100% gross profit, margins improved by 270 basis points to 66.1%. Within the Brands division, gross margin improvement reflects a lower level of clearance activity, a shift in market mix towards the higher margin territory of North America and a significantly reduced level of sales of lower margin homeware products of Clarke & Clarke now sold under license by NEXT. Within our Manufacturing division, gross margins have remained largely in line with half 1 2024.

Improved performance at our Anstey wallpaper facility followed the restructuring announced at year-end, but that's been offset by weaker performance at Standfast & Barracks fabric mill, which has experienced an increase in utility prices following the end of our favorable gas contract which expired in October 2023. Adjusted underlying profit before tax for the period was GBP 2.2 million, down from GBP 6.8 million last year. The result was significantly impacted by the GBP 2.8 million reduction in licensing revenue mentioned earlier and the reduction in brand product revenue. Distribution and selling expenses increased by GBP 1.7 million year-on-year. This was due to patterning and sampling costs, which were impacted by the timing of our product launch schedule this year with collection launches skewed further to the first half than they had been last year.

The increase was partially offset by GBP 0.7 million increase in patterning revenues, which we report through the other operating income line. Administration expenses grew slightly by GBP 0.2 million compared with the prior year entirely down to the restructuring and reorganization of the U.K. sales support function, which is then eliminated in arriving at the adjusted underlying profit before tax. We also continue to be impacted by increases in the Real Living Wage, which has seen our average salary grow by 7% per annum over each of the last 2 years although we have been able to minimize the impact of this increase by continuing to identify other cost efficiency measures. So moving on now to talk about the group's balance sheet and cash position. This chart shows that we ended the first half with net cash of GBP 9.6 million compared to GBP 16.3 million at the previous year-end.

Lower than planned brand product sales and reduced production volumes in our factories have meant that inventories remain above the optimal level and it will be an area of focus for us in the second half. As I previously highlighted, the way licensing revenues are recognized means there's a time lag before cash flows from the agreements are received. Licensing receivables increased by GBP 1.3 million during the period. During the period as well, the group made a oneoff contribution of GBP 2.3 million to 1 of our 2 legacy defined benefit pension schemes, which was to support a trustee decision to transfer all of the scheme's risks to an insurer under a buy-in insurance policy investment. Scheme administration and advisory costs will continue to be paid by the group over the life of the scheme, but the core financial and demographic risks associated with funding member benefits has transferred to the insurer.

This agreement means the group will no longer be required to fund shortfalls to the Abaris Scheme, which might arise from changes in market conditions and should reduce our ongoing cash contribution to both schemes by around GBP 1 million per annum. Capital expenditure in the period totaled GBP 2.6 million compared to GBP 1.6 million last year. Key expenditure in the period include the continued investment in Standfast & Barracks including a new digital pigment printer and the fitting out of the group's new head office and archive at Voysey House.

So I'll now hand back to Lisa, who will talk more about our strategy moving forwards. Lisa?

Thank you, Mike. So we've achieved a lot in the last 5 years and we'll continue to push forward with the strategic changes to reshape the business to be future proof. We have a track record, I hope you agree, of improving margins. We've made careful and steady investment for the long-term benefit of the business and we continue to maintain tight cost control and to manage cash, which I hope gives you confidence. The U.K. market is suffering, particularly for us with fabric sales in traditional retail channels, and that's been the historic backbone of the business. So we are making fundamental changes to our service proposition as we move forward and face the future shape of the market. We propose to help our customers as we together find omnichannel solutions to grow in this new environment.

And it is our view that digital transformation to serve all customers in the way they need will grow market share as the profile changes, engaging with designers working from home and multiple retailers at different end of the spectrum, which polarizes the market although each with the same basic needs. Digital transformation will also enable greater efficiency in manufacturing led by technology. We will reduce inventory and move eventually towards a print-to-order service proposition for our brands and also for our third-party customers. Centralizing services: we do print essentially the same designs for the same brands on different bases across our different locations so we can enhance our service and performance by learning from best practices of each site and leaning our processes.

I think you're all familiar with our key strategic framework. Our customers take priority and are firmly upfront at Sanderson Design Group as we shift brands and manufacturing to digital-first thinking to deliver fast and efficient service on sales, stock and go-to-market strategy that facilitate sales. The brands, Sanderson and Morris & Co, are heritage brands, take the lead growing with the heritage and archive profile. And as we project Sanderson as well forward launching, as I mentioned, with Huntington next year and we have a very high profile Sanderson project that I can't yet reveal, but you'll be very happy with in the spring. Licensing of finished goods continues to grow in all markets with a clear focus on the U.K. and the U.S. particularly and the U.S. remains our geographic focus for all activity.

When we talk about accelerated transformation and bringing forward strategic projects, this is really where we are looking at what we can do while the U.K. sales are challenged and how the group can lead the transformation in our sector to ensure that customers are supported, that consumers are attracted to the brands and that interior designers can easily access our work and samples and our design projects. Competitors confirm that the headwinds in the U.K. and across Europe are a real challenge and part is cyclical due to the low consumer confidence that we're seeing and some geopolitical events around the world, but part of it is also structural in the way that fabric is consumed. And there's no doubt that fabric and wallpaper continue to be consumed albeit in a slightly different way in this market, less so in the U.S. where it's already a very different structure led by interior designers.

So if we look at the way we go to market and particularly how we service the U.K., we can challenge the volume of pattern books that we produce, the way we sample, the waste that we potentially put into the market in terms of sampling and fabric patterning. And as those sales reduce through those channels, we need to work differently to maintain the top line and increase margins so that we can thrive with our customers in the future. Manufacturing has also been fully reviewed and we do this every few years anyway, but really determine what value does manufacturing bring to the group and the role that it plays for the future. We really believe that there is a role and there's a value to the control and to the vertical integration from retail back through to manufacturing. But we do need to continue to reshape and to continue to move towards digital, which enables consolidation of processes and delivers ongoing benefits.

We've started the process of reengineering designs for our group brands on to new techniques so that we can optimize productivity in the future. And what does digital transformation mean? We're not ahead of the curve on this, but digital transformation at Sanderson means a full business overhaul and a change program to keep us moving forward to stay at the forefront of technology and to take market share in a market that has been challenged all the way around us. So digital for us is an impact across the full business; whether it's digital marketing, digital selling, data management, digital printing. Our aim is to incubate and to accelerate digital technology end-to-end to enhance process, culture, customer experience and to secure growth in a changing landscape. I'd love you to take a look, please, at the Morris & Co. website, which has been up and live since beginning of September.

Has landed really well and is exposing Morris and showcasing the full breadth of Morris & Co, including licensed products to a new audience. We're seeing a lot of interesting data and insights already. So it's early days, but quite exciting to show us the way forward. We will build powerful hubs and storytelling platforms, expanding our reach, showing all of our products together including those from our partners. And all this will give us valuable data as future business currency. An omnichannel strategy is one where everybody wins and that's absolutely key to our approach. Omnichannel offers a range of benefits to our wholesale customers and licensing partners who we work with to involve them closely to come on the journey with us. Homeowners will receive the full choice and enhanced services from a trusted source. Interior designers have one port of call supported by the brand and promoting their work.

And investors will see results from improved margins, commercializing our brand assets including our rich design archive, all adding tangible value to the business over time. And little bit more about future factory. Future factory is our project continues the reshaping that started at Anstey earlier this year and is delivering tangible improvements to business performance at that site. We're aligned in our ambition to be the best design-led premium printer in the world and there's a task to engage across the manufacturing communities. There's a natural fear of change of course and fear of new technology, but we can see across the business. It's been 8 years since Standfast employed digital technology in printing and a full year now that Anstey's seen the benefit. So the workforce was reduced earlier this year. Those remaining have really come together and can see the positive impact on business performance.

Future factory is being communicated across the business as a strategy to improve efficiency across processes on our current sites. And having invested to be at the forefront of technology, we need to maintain that position and drive competitive edge. And it's a chance to be much more joined up as a group and to bring together one ambition across group brands and third-party customer requirements. So again, everyone is a winner. Here's our clock tower renovated and working for the first time in 50 years. You can tell the time at the gateway to Lancaster. Initiatives are already underway at both sites at Standfast and at Anstey to reduce inventory and moving designs from conventional printing to digital where possible, really exploring which digital -- which conventional printing techniques add value and which can be replaced more efficiently through digital options. And that's not everything.

We won't move to 100% probably ever, but we can already see at Standfast we're at 80% and now combined over 50% digital. Moving on to responsive launches. What does that mean? We mean challenging the go-to-market strategy with fewer launches of full collections and tailoring our marketing strategies to be sharper, to be really focused on the target audience and to produce tools that work for them. This used to be my favorite chart, it still is. Here you can see our SKU reduction from the orange line that shows coming down from [ 20,000 ] SKUs, which is designs and color options, down to our 10,000. And before you get your rulers out and see what the line says, it's going to maintain more or less the 10,000 going forward. So maintaining that discipline, but increasing the returns per option which are the pretty blue blocks.

So this is a projection of how the return per option will increase by holding steady on the SKUs with sharper marketing techniques. So the plan is to further reduce collection launches focusing on high profile collaborations that drive press and marketing interest and we've mentioned a few, those are really working for us, and then dropping in other products to fill market requirements. So it might be another color of a bestseller or a particular function of a fabric or a wallpaper or new techniques through new innovations that we're driving. And really utilizing the product merchandising team is pivotal to the center of all of this. Looking at the full commercial landscape including wholesale, omnichannel, contract and licensing channels. International growth is our focus on all of those axis. U.K. recovery is important, but growth will come from the U.S. and that's our clear priority.

Our contract business remains quite buoyant. The return of hospitality projects is interesting although it's less predictable to forecast and lumpy by nature. But it's an opportunity that we've now integrated in the whole overall sales team rather than being separated and we are engaging also with specialist agents in that area who are very connected into the architects and the specifiers. It's a slightly different world. It's not really our core business. So we're engaging with specialists there to be on the boards of all of those projects. And our valuable archive also offers commercial opportunities. We've got everything now digitized. We're cataloging to derive the benefit from the important and unique asset that we're holding of some 65,000, 70,000 historic documents. The design archive is a real opportunity to commercialize a major asset and to determine those future opportunities. It will probably take us a year to finish the cataloging so we'll come back on that.

And with the U.S. as top priority, we've made great progress. We're really seeing momentum across the brands with Sanderson responding well, as Mike said, up 31% in the first half of the year thanks to the activity that's been building over the last 12 months, say, with the campaign, with the Disney activity and now the Giles roadshow at the beginning of this year, also sample as well. It really resonated in North America and he was fantastic with the audience. And then just a couple of weeks ago we were back on the road showcasing the Henry Holland Harlequin collaboration that was unveiled at the Atlanta Design Week. Henry did the blue areas. So that's the South where we have Texas is very strong, Atlanta, Georgia, Tennessee, the Carolinas and then also up to the Tri-State area. So he was in Atlantic Design Week, which was apparently a riot, and then celebrated with the DLN in New York.

Just to touch on the DLN. The DLN is the Design Leadership Network in America and it's a membership of some 400 top U.S. designers and owners of interior companies. We're building a close relationship with them, which is really valuable both in the States, but also now internationally. So we hosted, there was a supper. They have an annual summit, this year it's in Edinburgh; but they came to London for a prelude and we hosted them on Sunday evening stretching the working week and also Monday with some arts and crafts tours, a visit to our Voysey House that we're now well in and visitors really enjoy coming to that building and all the history. It tells our story for us, which is wonderful. Our partnership with Kravet is also further strengthening and they are launching our small Scion brand into North America from next month.

The sales team is also going to be boosted. We have brought in a new role, a Senior Executive SVP of Sales, who brings great experience and will be joining next month. So our aim is to keep taking market share with projected targeted regional impacts and really looking at these areas where we're already strong to boost our road representation and our networks. So we've pretty well got the right coverage out there now and the right products. The team is buoyant, the activities that we're doing are working and we need to just carry on doing more of it and taking more share. It's a big area to cover so more commission road reps the way forward. And the U.K., as we've said, is our most important market and this is really interesting. We've restructured the sales team and we're working across omnichannel initiatives for prime accounts and for interior designers as well as supporting the retailers as their businesses evolve.

We've realigned the teams, the whole custom service proposition and the sales support to reflect the changing profile of those customers. Big retailers need very different merchandising support from a small retailer and from prime accounts and interior designers who might be working at home are finding us on Instagram. It's all very different. So we have now shaped the team accordingly and delivered cross selling. And then internationally, Europe is also not easy, believe it or not depending where you are, how close you are to Russia and all the difficulties; there are difficulties in Germany, there are difficulties in France. So let's just assume it's difficult. But we're very small and there's plenty of opportunity still. So Spain is quite interesting. We've changed the dynamic a bit there with the agents and it's really yielding some results. Italy as well, we've got a great opportunity. France has been lagging a bit.

Germany has got some momentum so we'll really try and get behind that to boost it. So some of the activities that we've done in Germany is a good example. Giving them sampling, which is very specific to the market, it's just different; putting some PR support down, we engaged with a new PR agency over there last year and that has really also made a difference. So really getting behind those things. Sweden, which has been difficult for the last year you'll have noticed, is actually coming back much more strongly at the moment, which is interesting and a very strong wallpaper market also for heritage brands. And then moving on to licensing. Licensing is an important strategic channel for us as you know, which is quite unique in our sector. And the momentum continues as a really strong pillar bringing our iconic brand designs to the market on finished goods, working with big retailers as well as small specialists in their product areas.

Focusing now on the U.S. and international reach as well as our strong U.K. coverage, working with Sanderson as well coming through now quite strongly and looking for really important partnerships that we can nurture for the future. Our renewal rate is over 90% now, which I hope is reassuring for everybody because obviously if those building blocks build and the momentum continues, we win new agreements, we nurture the partnerships and we're renewing at that rate; the future looks rosy for licensing. So overall commercially, our aim is to get a better balanced portfolio between the channels and particularly the geographies, which this has always been our ambition. Unfortunately, we haven't managed to get the growth internationally fast enough to offset a decline in our home market, which was so important to us.

But a more balanced portfolio in the future not by reducing one, but by growing the pie, is where we're aiming to be and obviously that's not changed. And then of course here are all our people outside our beautiful Voysey House. I do invite you all to come if you can make it out to West London, Chiswick where we're creating this design destination London and design hub. People are enjoying working there, which is also making a difference. So our ambition remains to bring the beautiful into people's homes and lives and to do that with a set of values. We're constantly going around the business of course and checking in that these are relevant, but they feel relevant. We need to be intrepid. We need to push boundaries and challenge the status quo always rather than sitting back. We can't just look at the competitors and what they're doing because we need to lead the charge.

Our values are quite well established. We are imaginative and creative. We don't see that as the preserve of the design team. And of course respectful and that's where also our Live Beautiful pledge comes in to be respectful to the planet and those around us. So still working towards our Zero by 30 pledge and if the government delivers on its ambition to be the green superpower of the future, that will help us get over the line. Everything that's within our control is ahead of our own road map, but of course there are some big questions there about green hydrogen and energy of the future. We have reduced emissions over the 5 years by a whopping 40% and we have the Planet Mark Year 6 certificate and things are going well. Most of the pressure, as I've told you before, comes from inside the business and so do the solutions.

So these emissions reductions are largely driven by the team coming up with ideas of how we can save on the precious resources, which is fantastic, and that's great. And now they're moving on to more tangible things like how we can impact positive biodiversity, digging up a bit of hard standing at the factory and [ rewilding ] it so that people can see positive impact as well. And those are good community projects that touch people across the business. And then in terms of our people plan, we're launching -- we have launched Work Beautiful. So how can we really work to be an engaged, diverse and inclusive workforce for the future with a renewed focus on talent. Driving talent from within, nurturing talent and identifying the talent that we need for the future because obviously as the shape changes, we may need some different skill sets across the business.

And so on to outlook. In terms of outlook, the environment really does remain quite uncertain evidence of U.S. election and U.K. budget paralysis, which was hopefully going to be temporary. So we remain focused on our strategic opportunities and specifically our growth opportunities in North America where whatever the outcome, we do expect a bounceback from this temporary lull once one gets to November 6. Licensing has continued to perform well and we have a number of new contracts signed in the current half. We already have some GBP 1.6 million of accelerated income put through in the second half and lots in the pipeline. So some really nice new partnerships coming through as well as many renewals that include Bedeck. We have a new agreement with Ruggable that I think Mike mentioned, that has renewed with Morris and also now extended to Sanderson.

So there's some really nice partnerships coming through that will be a great benefit going forward. And I mentioned that first half/second half split is just different this year. Trading conditions have been more challenging than we expected since the update in almost all territories, particularly in the U.K. and particularly in Europe. Our total brand product sales for the first 8 months of the financial year are at 10% compared with the 9% we talked about after the first 22 weeks. So delivery of our expectations is reliant on a projected improvement of that trading over the remainder of the financial year. We've got 3.5 months to go and we'll do everything within our power obviously to support every opportunity there is to take out there.

So thank you very much for listening and if anybody would like to ask questions, here we are.

Matthew from Singers. Can I kick off with a couple on the sort of intensification of strategy in couple of areas in particular? Just could we start off with future factory and maybe give us a flavor as to the pace that you can achieve change and how you'll be measuring the financial success of that? How quickly can you derive financial benefits, in particular thinking about releasing working capital? Maybe we could start off with that one.

Absolutely. Shall I go first? Well, you know us, Matthew; bigger, better, faster, more. We'd like to go very fast. Obviously we need to make a step change that's not disruptive. But the change in Standfast over those last 8 years, as I mentioned, has been quite radical and we've got to sort of 80% digital printing. We can probably get to 50% at Anstey quite quickly. We're 50% overall at the moment and that's Anstey running at about 27% at the moment. I know there was a drawback in the first half, but it caught up in the second half. That was mainly because of the inevitable disruption of the changes of the workforce. But now that those shift patterns have settled, we do believe it is going quite quickly.

The big digital machine that we invested in last year that was implemented is obviously up and fully running now and we have the order book to really move that on. We're running at 24/5 at the moment. We're moving shortly to 24/6 and then obviously 24/7 will follow I would think by early next year. And then we'll be looking at what we can do to release some of the conventional capacity into there and how we then drive that forward with new solutions. We're working in the background on research and development with some of the engineering companies of what comes next. Do we get to a point of another one of those machines or is there new technology that will enhance it even further? That technology is in development at the moment. So yes, and we're obviously doing test and learn on our own brands first.

So looking at something like Morris, which is a very specific collection. There's a lot of conventional printing, but there's also a lot of opportunity to move that forward as the quality of digital printing has improved so greatly. So really challenging ourselves now on our house brands, if you like, of what can we launch digitally. So no conventional launches unless it's going to really add value. And so which of those processes add the most value and which can be retired over time that will then unlock obviously margins, cost benefits. It also reduces minimum order quantities, lead times, raw material holding stock reduction and the benefit in margin will be across the business. And the benefit then will also be passed obviously directly on to our third-party customers.

And you mentioned about the vat ink changes. I mean will you end up mothballing parts of the infrastructure or can you maintain it for bespoke third-party ordering?

Well, we already do in terms of so for instance hand block printing. We have it. We offer it, very rarely have called upon it. But there are a few palaces and important houses around the country, national trust and so on that do require it because if something was hand block printed and they're redecorating, they need to do that. So we have it. We have it in our armor. We don't use it on a day-to-day basis. It's extremely expensive so it wouldn't fit into our efficiency, high productivity range, but it's there. There will be some requirement for some long table surface screen printing no doubt because that offers something really very different. But there are other processes that digital simply will replace in the future.

Okay. That's very clear. And then on the responsive launches, you're already going down that line. I think in the presentation you talked trying to move towards print on demand. Again can you give us a flavor as timing? What are the key milestones and when do you think you can hit them?

That's going to take a bit longer because we're not there yet and we have big collections in the market. But whereas we started on the other journey, this one is an inevitable opportunity to do that because the future factory also unlocks the opportunity to do that, which we wouldn't be able to do if we were working with a full network of third-party suppliers for instance. So in that respect, it's something that we're challenging ourselves on now. And the next launches that are coming up so new products coming into the market for spring and then the following autumn next year, we'll start to explore the opportunities piece by piece, collection by collection, brand by brand. So by the end of next year, we should be looking with some more concrete evidence to point to.

So let's come back to working capital, if we can, maybe one for Mike. I mean you kind of have blue sky over a couple of years, how much can you release out of working capital do you think? I mean you're currently sitting with excess stock, which hopefully you'll eat into in the second half. But thinking maybe a 2-year view, what's the opportunity here from these changes?

I mean back on the excess stock piece, I mean I think we said before, but just to be clear we're slightly long on stock. But because most of our products have a sort of 5-year life cycle, it doesn't create any huge exposure in terms of the recoverability. It just means we're using slightly more working capital than we would like. I mean I think as Lisa says, we're at the early stages of this project, but clearly there should be or there will be a working capital efficiency. I mean again I'd like to think that over a period of time, we could take sort of 3 months cover out of the inventory. But I think we've got to get into the detail and just work and I think it probably will be -- honestly it will be some of the lower volume brands such as Zoffany for example, which is maybe where we'd explore that opportunity the first, which isn't clearly our highest inventory part of the business. So I think until we've got the plan worked out, I wouldn't like to put a full number out there. But yes, it would run into millions, yes.

David Jeary, Progressive. Might I ask a little bit more about the rate of progress in the U.S. I mean you've obviously got a quantified ambition over 5 years. Presumably your new SVP coming in, you've had detailed discussions with them. Could there be upside to that sort of given your focus on that do you think or is it too early to say yet? I mean it's a huge market, it absolutely dwarfs the U.K., obviously very different in structure. But I just wondered sort of whether that might move in an even more positive direction than it's going at the moment.

David, I mean we're quite ambitious on that front. Obviously we're starting from a really low base. The growth that we've seen and we've sort of doubled the business I guess in the last few years and doubling it again in quite short order would be the obvious ambition as we've said before. I think asking me for any upside on that is surprising. But obviously we'll go as fast as we can and that's why we're bringing in somebody who -- it feels like the right time to bring in somebody with bigger experience who understands the journey that we're looking at now from GBP 25 million up rather than where we were starting at the GBP 10 million or GBP 12 million a few years ago. It's a different place and we're able to attract a different quality now and to be able to perhaps afford that extra head as well to really get that growth. And I'm sure there'll be payback because to bring somebody in who really can understand the scope of that project and the real possibilities I think will be hugely helpful. It will help us to manage the overall business and to really give that focus on sales drive.

Toby Thorrington from Equity Development. I've got a few as well. I'll give you 1 at a time if that's okay. Can I test your confidence in licensing for this year equaling last year? It looks as though even with a few already announced in the second half, you still got sort of GBP 4 million, maybe a bit more, to sign up. Just a bit of color on that would be helpful including proportion of new and renewals of that additional, please.

I mean we've signaled that we are confident we'll -- actually we were expecting a little short of last year because of the nature of the accelerated. But yes, broadly in line, that would be a good result given that we have those 2 big projects. The shape of it is quite different. So the underlying is coming through well. The Sangetsu deal that we did back in COVID times, this really takes a long time in Japan, but is showing really positive growth momentum in Japan and we're looking at other opportunities also there. And the renewals are coming through in Japan and other opportunities. We also, as we said, have signed up or are partnering with extensions on a few other new things and there's a pipeline of conversations at various different stages of development as well. So it's always a little bit complicated. It's trickier to forecast on the different parameters. But we go round and round it every week as you might imagine line by line and we are saying that we remain confident in delivering it. It will be a different shape for sure.

That's great. One for Mike I think on pensions. Trustees have resolved or neutralized the smaller of the pension schemes I think. Is that completely off the balance sheet now?

No. So it's still on the balance sheet. So it was effectively a buy-in investment so it's still on the balance sheet. We're still responsible for the administration cost of the scheme, but what we've done effectively is derisk it in terms of market fluctuations. So the volatility has gone, but the scheme still sits on the balance sheet with an investment and a liability.

And roughly the total liabilities of the 2 schemes, what did Abaris account for just roughly?

It was probably about 1/4. I mean the both schemes are currently in the middle of a triennial valuation. So obviously on the Abaris scheme, that's sort of locked up now. But the Walker Greenbank Scheme, which is the larger, is in the middle of its triennial valuation. So I think once that process has worked its way through, which could take up to I guess another 9 to 12 months, we'll have a much better idea and be able to communicate in terms of the road map for that scheme as well.

Sure. Okay. And just to clarify on cash, I think you said on an annualized basis a reduction of about GBP 1 million additional contribution to the scheme. So that takes it down to about [ GBP 1.2 million ], something like that?

Historically, we were spending about GBP 2.5 million per annum from a cash point of view for both the schemes and the administration costs. As I said that, about GBP 1 million will come out as a result of making that accelerated payment into the Abaris scheme and then we still got the deficit contribution in Walker Greenbank and the administration. And as I said, we'll wait for the triennial valuation before being able to communicate what the ongoing deficit contribution for Walker Greenbank is.

Okay. So I'm just trying to get at the cash number here. So another sort of GBP 0.75 million to go out in the second half on that?

Yes, probably.

Okay. That's fine. And completely unrelated, probably back to Lisa on this. I think in the last presentation ahead of the move to the all new head office, there was a suggestion that there might be a revaluation exercise on the brands. That doesn't appear to have appeared on the balance sheet. Did you progress with that?

I think it was the archive we were talking about, right? It would have been the archive. So the archive has moved with us. It's happily installed on the third floor having been craned over the fourth floor parapet and it's staying there, which is good. We are cataloging now. We've digitized and there's a valuation exercise going on as well as a sort of future strategy of how we might commercialize some of those pieces. I don't think we'll be close to getting that. It will take us a good 12 months to have something that we can talk to you about.

So once the cataloging is done, we might expect to hear more about that.

Yes. I think prediction at the moment is that that will be complete by September next year. So yes, I guess this time next year we'll kind of know where we are although we might still be in the planning phase at that point.

Sorry, just to my expectation on that, it's unlikely we would be able to put that on to the balance sheet. So we can disclose it, we can share it with the investor community; but from an accounting point of view, it's difficult to see a way that we would be able to put that on to the balance sheet.

It's [ Tim Mayo ]. I'm an individual shareholder. Just generally looking at the numbers, it strikes me and if this is not true, then I'm sure you'll correct me, that we're probably losing a bit of market share still in the U.K. looking at where the manufacturing numbers are down 2% overall for the group were down or 10% on a sales basis. First of all, am I correct in that or is the U.K. just absolutely [ balanced ]? And secondly, if I am correct, is that because you've already mentioned you're moving digitally? The way things are sold have very much changed. Are there easy wins in the U.K. over the next 2 to 3 years that you've targeted to get those sales going again basically?

Obviously, Tim, that's a question we've been asking ourselves and the Board has been asking for few months now is how we're performing. We get indexed data from our customers of how we're performing against the average and actually all we're hearing is that we are performing in line or better than the market in the U.K. So I don't believe we are losing market share, which is both reassuring but also concerning of what's happening to the market then. And particularly John Lewis now with the new management is very helpful. We're working very closely with them. I think there's an opportunity there to grow with them. And some of the really savvy retail partners that we have, we're all working together to find solutions and to come up with ideas together.

So one reason that we're launching a Sanderson program specifically with John Lewis next year is to drive our business with them. What we're seeing in manufacturing is that it looks as if our wallpaper business is holding up above the market. Fabric is diminishing in line or stronger and I think that comes back again to the distribution channels. So that would also evidence digital distribution. Wallpaper can be bought online, is more readily bought online. Fabric needs to be turned into something. So nobody is going to buy a roll of fabric; they're going to buy a cushion, a headboard, a pair of curtains. And so that's the difference and that's what we're sensing, which is why we're looking at how we can move more digitally to give our whole brand exposure.

So if you look at Morris & Co. website, we're offering the product, the made to measure curtains. We found partners to do that with us. Don't worry we're not sewing them up in [indiscernible]. And so it will be interesting to see and this is where we're exploring different models. So Scion was set up as a sort of franchise model. Morris & Co. is more of an operating concession where we have a partner who's operating it for us. And then our next move will be about Trade Hub and how we can offer all of our wholesale and our omnichannel proposition across the brands to our existing customers and to consumers who are finding us differently, but we can also then channel them back into the full network. Did I answer your question?

Yes. I mean I think if there was a silver bullet, you'd have used it by now. I think the market is clearly changing a lot and I like the idea that you're probably expanding the B2C offering rather than just offering, I don't know, some fabric that then the consumer goes to their interior designer with. You can actually give them a solution there and then on the website and that almost certainly is the way forward. I know companies like Dunelm are doing things like that and have been for some time. So thanks, Lisa, a difficult solution I know. Mike, just a quick one going back to the pension and the triennial review of the Walker Greenbank pension fund which, as you stated, is the largest one. It strikes me and again it may be too early to tell that with the current long-term gilt yields where they are relative to when the last triennial review was done that there should be a positive impact for the group. Do you think -- I mean is it too early to even comment on that or do you think that that's something that we should be thinking about and that that could be a future positive?

I mean I think we took advantage of the long-term gilt yields when we undertook the insurance transaction for the Abaris Scheme because I think sort of the buyout premiums were probably the most attractive they've been certainly in my time with the group and I think that's why we took that opportunity. We quickly looked at the Walker agreement, but we don't have enough surplus cash in the business to be able to fund that and we decided as a Board we didn't really want to be taking on debt to pay off the pension liability. So I think at the moment we seem to be in a fairly favorable point from the buyout market point of view. Again I think it's -- I think ideally we'd like to over time remove both the schemes from the books and I think we will sit down with the trustees and try and agree what's the most efficient way to try and to achieve that.

And I guess when you see the review, you'll be able to make that decision.

Yes.

So we have some questions from the webcast. First question comes from Gavin Turner. He's asking what is the group's goal when it comes to the split between its manufacturing and licensing revenue over the long term? Is there potential for licensing to grow to the size of manufacturing?

Yes, there is potential for growth and I guess it's about the proportion of the whole. As the whole business grows, it's about having that diversified portfolio for us against retail and omnichannel and how that grows, the manufacturing to support it. So we have the full journey from retail through manufacturing and we anticipate that our licensing program will continue to grow in step with that. It has grown ahead. If it grew in step with that overall growth for the future delivering the finished goods and all the benefit that that brings of brand awareness across the market through seeing our designs on other finished goods, then that would be a perfect solution. Thank you for asking, Gavin.

The next question is from David and he's asking what are your current priorities for the capital allocation in the next few years? What are the priorities for growth CapEx and which CapEx initiatives are you rethinking currently?

I mean I think we've talked about the future factory strategy and we've talked about the focus on digital production moving forwards. And I think we'll be sort of laser focused in making sure that that's the sort of the key area of CapEx that we sort of ring-fence moving forwards. I think in terms of the investment we were talking about there in terms of the omnichannel platform on the way the world is moving with Software as a Service, I suspect that investment will be more of a P&L style investment over a period of years as opposed to one large capital investment. And then in terms of the overall sort of capital allocation, we've touched upon pension there already during this conversation. I mean we do still have that 1 remaining defined legacy pension scheme and I think we'll continue to sort of work on our way to paying that down over a period of time.

That concludes the questions. So I'll hand back over to you for any closing remarks.

Well, thank you. Thank you for bearing with us and I look forward to seeing you again with the full year results. Thank you.