Portmeirion Group (LSE:PMP) — Interim Results for the six months ended 30 June 2022

0:01 Good afternoon, and welcome to the PORTMEIRION GROUP PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. The type your question, press end. Company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Mike Raybold, CEO and David Sprottling, CFO. Good afternoon.

0:32 Good afternoon, everybody, and thank you for joining us. This is PORTMEIRION GROUP's first half interim roadshow. We're gonna talk today in terms of agenda, first of all, in terms of an overview of our first half results. We'll then skip through a section on on business model, which is something we've had in our in our roadshow presentation for a number of years, and we'll be able to be seen in more detail on our website later. We'll then really focus on our strategic progress and then finally look at our forward view and outlook. So if we can start with an overview of our first half results. Following a record sales year last year in 2021, we're delighted that we've continued to add top line growth 5% year on year. Clearly, the world is in a very different place in terms of consumer sentiment to that which we had last year and and that we we expected.

1:29 So we're pleased to continue to be able to grow. In particular, you can see on the right hand side, a chart shows our first half results over the last four or five years. We've made clear progress against twenty nineteen's pre COVID level with sales now 30 ahead. Really, we benefited in this period from the work we've done in the last few years to diversify our geography, our sales markets.

1:55 Less than 30% of our sales now in this period come from The UK. Secondly, we've benefited from the work we've done in the last couple of years to really expand our online channel penetration. And we managed to retain and hold on to the growth in The UK and US online channels that we developed during the last couple of years during the pandemic despite physical retail now reopening. We're also benefiting from the productivity gains from the investments we've made accelerated investments we've made in the last couple of years on automation in our factories, particularly in our Stoke And Trent ceramic factory, and productivity is up 5% year on year too. All that means that despite the macro environment and macro headwinds, we've managed to grow operating margins and grow profit by about third.

2:46 We're pleased following the reinstate reinstatement of our dividend full year dividend last year to also reinstate our interim dividend at this point. So in summary, and before we move on, some pleasing top line growth in in a very difficult set of macro conditions, good growth on the bottom line, benefits from the work we've done to diversify both in terms of geography and channel as well as the early signs of good productivity gains coming through from the capital investments we've made. I'm now gonna hand over to Dave Sproston, our finance director, who will talk about our p and l balance sheet. Thank you, Mike, and good afternoon to everyone on the call. So just going to cover the the financial summary. So in terms of first half performance, as Mike said, first half growth, 5% year on year, and sales are now 30% ahead of pre pandemic levels, of 2019.

3:45 In terms of macroeconomic challenges, obviously, a number of cost price inflationary, metrics that are impacting the first half of the year. But what we've been able to do pleasingly is continue to grow in terms of our strategic aim to increase operating profit margins. So we're actually able to grow that from 4% to 4.3%, and that meant that that revenue increase dropped through to an increase in headline profit before tax, which increased from £1,500,000 last year to £2,000,000 this year. In terms of dividend, we've reintroduced our interim dividend, which demonstrates the confidence that we have in our short and medium term trading outlook.

4:31 And the increase in net debt that we've highlighted on this slide, I'm going to cover in a little bit more detail on the next slide, but that's largely driven by increased inflation, foreign exchange impact and earlier purchasing of inventory, specifically into our US division.

4:52 So moving on to balance sheet now. We continue to maintain a strong balance sheet and increased net assets by 8% over the prior year. Net debt had increased to GBP 6,800,000, largely driven by inventory increase. And we've put this slide in and this bridge in before in terms of understanding the underlying increase in movement in inventory. So about a third of the year on year increase of inventory has been driven by foreign exchange and then the core underlying increase in cost price inflation and the increase of freight costs that make up part of the cost of goods.

5:31 And then the other two thirds has been driven by timing of inventory purchases. So going back to q three twenty twenty one, there was a significant amount of disruption in supply chain, container boats being moored off ports, specifically in The US. So we took the conscious decision to move inventory earlier in the year. So that is largely timing in terms of moving that product in ahead of the seasonal trading period. And even with that increase in inventory and increase in net debt, we continue to maintain significant facility headroom. So at peak working capital outflow, we still have more than £10,000,000 in facility headroom and expect that to increase as inventory decreases over the second half of the year.

6:26 And the final slide on financials, geographical market. So sales in our biggest market of The US decreased by 7% year on year, and that was largely driven by significant destocking exercise by one customer who has now started to to purchase, including a seasonal trading program. In The UK, weak consumer sentiment due to significant cost of living pressures, and we consider the outlook, for The UK for the remainder of the year to be a challenging position. In terms of sales out data that we're continuing to receive, actually, sales out to end consumers continues to be robust.

7:14 And I think a lot of the year on year decrease that we can see is due to retailer caution and destocking in our major markets. In South Korea, we continue to see growth following the stabilization work that we've done in 2019 and 2020 as we sell further ranges and products into that market place. And then finally, in rest of world markets, we're starting to see the benefit in terms of the strategy, which Mike will cover a little bit later on, trying to expand our rest of world sales. So particularly in Canada, we're starting to see the recovery, from strict COVID lockdowns in 2021. Although from a small base, we've seen sales, in China increase by a 100%, And then in most of the markets around the world, Australia and Europe, we've managed to maintain the strong growth that we'd experienced in 2021.

8:14 So rest of world markets were up 28% and are now 78% ahead of pre pandemic levels.

8:25 So I'm going to hand back to Mike to cover the brand. Thank you, Dave. So we split our sales in the first half down to brand level, then we get some interesting interesting performance data. I've said for some time that PORTMEIRION GROUP is is a lot more than just the core PORTMEIRION brand, and it was a significant opportunity that we saw from really focusing on some of the smaller brands like Spode, Royal Worcester, and Pimpernel, significant opportunity for increasing the sales footprint around the world. So this table shows the performance of those brands and an update on our progress. And in particular, look at the highlights that we put on the slide against 2019, Spode plus 56%, Robust plus 24%, Pimperdal plus a 136%.

9:21 So really good early indications of the new focus, the reset, if you like, that we've done on those brands is starting to pay dividends, and we think there's there's a lot more to come from these brands in the coming years. Interestingly, Nambay, the Nambay brand was up 14% year on year. Strong performance. This was The US brand that we acquired in 2019 to add more critical mass to our US division. And it is also the brand that has the highest RRPs of anything that we really have in our group portfolio of ranges. And so, again, a good indicator that the top end of the market is being less impacted by cost of living crisis, cost of living impacts around the world. We see a good opportunity to take Nombe on to the next level and as well as continue to grow in The US. We are now looking to get listings and traction in The UK, in South Korea, in Australia, and Canada, for example.

10:20 Wax Lyrical, finally, on this slide is our home frames business, and it's been the business that has been most impacted through the COVID COVID years. That is because the product hasn't migrated to online channels as successfully as some of our other categories. Typically, a product is an impulse purchase or a self gift, a product that a buyer wants to smell and pick up, and so it's not not been as easy to to transition to online channels. So we have some work to do to get back to pre COVID levels. We have a strong roster of new product coming through, and we're doing a lot of work with the team in that business to get back to the levels that we were previously at.

11:06 If I turn for a moment to our historical trend, both top line revenue on the top chart, but also that critical metric of operating profit margins at the bottom, then I think there's a very interesting picture here that the business has consistently grown over the last eight or nine years despite the the macro political headwinds of firstly COVID and and then more recently the Ukraine war. We believe we can continue that trend, and the way we're gonna do that is by expanding our customer base. I'm gonna talk in a little bit more about the the mechanisms and drivers by which we will do that. The second chart, the operating margin, really is about our ambition, our stated ambition of getting our operating margins back to 12 to 13% in the medium to long term.

11:53 And, clearly, we have been there in the past as a business back in 2014 and 2015, and there's a lot of work going on now to get back to those levels. If we can do that and grow the top line, then we're gonna transform the earnings and profitability of the business. The next section in this presentation is an introduction to our business and business model. We're not gonna cover these slides today, but they will be saved in the deck that can be accessed at a later date from this platform or indeed from our website. So I'm now gonna turn to our strategic progress, and I'm gonna start with our commercial strategic progress. Our commercial strategy is centered around growing our customer base our customer base around the world.

12:44 And we're doing that through developing new channels, particularly online. We're doing it through developing new geography and increasing our rest of world market sales, and we're doing it through having a more healthy new product development engine. And so in terms of highlights in the first half, firstly, with online, we've maintained the channel growth we've gotten online in our core UK and US markets despite physical retail reopening in 2022. Those two markets account for nearly two thirds of the group sales. Within total online channels, which includes our websites but also retailer websites, Our own websites have come back slightly from the stellar growth we had 16%, but it's still up a 111% on a y o three y basis. So we're really pleased with the work we've put in to develop these online channels, our stock.

13:34 And even when physical retailers reopened, we're still at that level. We think there's still considerable opportunity in online channels to increase penetration further, not only in our core UK and US markets, but also with our distributors around the world. In terms of the second area of building new geography, as Dave said a few slides ago, we're really pleased with the reset that we did in this area. Sales in our rest of world markets are up 28% in the first half year on year and nearly 80% now on a y three to y basis. Clear evidence that the new team, the new focus, the new model that we have is starting to pay dividends. And, again, we see this as being an area that should continue to grow over the next three years.

14:21 Thirdly, our new product development engine, again, has delivered sales contribution of at least 10% of our sales coming from new products launched within twelve months. We now have a twenty four month rolling road map of new products that we're gonna launch to support and grow our key brands over the next few years, and we're very excited to bring that product to fruition, get it out to the customer in the market. In terms of our operational strategy, then we're working hard on getting our operating margins up back to 12 to 13, and that will come from a number of different ways. Firstly, by growing our top line, leveraging our factories, our fixed cost base around the world more effectively.

15:07 Two, it will come from increasing our ecommerce direct to consumer sales that come with a higher gross margin. Three will come from driving the productivity gains that we're getting from the automation investments in our factories. And four, it will come from keeping tight control over our costs in every area of the business. So within this period that we're reporting on, we're very pleased to start to see the productivity gains coming through from the capital investments in our Stoke factory. We're up 5% in the first half, and we expect that number to grow and snowball as new projects come online. Secondly, we've continued to benefit from the long term energy hedge that we had in place, and that goes out all the way to March 2024.

15:54 We continue to work on taking carbon out of our operation. We're very aware that as a business, we have a significant carbon footprint as a company with manufacturing sites, a company that sells around the world. And I'm pleased that the initiatives that we've done in the first half have reduced again our carbon per sales ton by a further 8%, and that's on top of the reductions we made last year. Our home frames factory, Wax Lyrical up in Cumbria has achieved a higher level of ISO compliance for the first time. And, again, this is really important as we take that factory and try and drive more volume through it working with UK retailers. If I go through some of these areas in a little bit more detail, then in terms of online, as I said, key point here is that we've managed to maintain and retain the growth that we achieved during the COVID years despite physical retail reopening.

16:50 We've just launched in the last couple of weeks completely new UK websites, three new websites. They launched in the second half of of August, and those new platforms will give us a much more solid foundation to build the next level of schemes, projects, and growth that we expect to get from our own websites. In particular, we've worked on more branding more brand engagement. We're gonna be cross selling more effectively across our range and across our brands to the end consumer. The checkout and the customer journey is improved. And so as these sites bed down, we'd expect to see significant improvement in our metrics in terms of taking traffic and converting them into sales. Now we have those new websites in place. We're gonna build loyalty programs on top, new email data and marketing platforms to resell more effectively as well as increasing the amount of exclusive products and exclusive format that we have only selling on our own websites.

17:51 As part of the new website project, we have particularly focused on mobile traffic. Just over 50% of our traffic to our UK websites was coming from mobile devices, and so we've worked on having a mobile ready platform that we think will give a much enhanced customer experience, much enhanced customer journey, and get our consumers to the product that they want much more effectively.

18:20 Moving on to the second driver of in growing our customer base, which is the rest of world markets building new geography. As we said, really good pickup in sales, 28% year on year, nearly 80% up on on pre COVID now. In particular, we're pleased that the distributor that we signed last year to build our Chinese market has made good progress. They were a 100% up albeit from a small base in 2022, and we'd expect that market to continue to grow. Canada also has grown very well, and we'd expect that to continue as we continue to open up online channels in that market. Australia had a very good last year first half, and we've maintained that volume. Put a great distributor in Australia, and we're also working on The Middle East, other parts of the Far East, and various other markets in Europe too.

19:14 So looking forward in terms of building new markets, our aim in the medium term is to double the revenue stream we get from this bucket of customers,

19:23 and we're looking forward to working with all of our partners around the world to achieve that.

19:31 In terms of our new product development engine, more than 10% of our sales in the first half came from new product launches, which is a much improved much improved rate of rate of sale. We also celebrated the fiftieth anniversary of the launch of Botanic Garden. PORTMEIRION Botanic Garden is the single biggest range we have in the business. Sales around the world is particularly strong in export markets like South Korea. So we're delighted to work with customers and distributors to celebrate that launch. We've extended the range into new categories, including home fragrance and hand and body. Looking forward, we now have a twenty four month rolling road map of new launches to come out, and they will support our ambition to grow all of our brands, but in particular, to focus on some of the brands that are below PORTMEIRION like Spode, Rollwister, and PMPINEL.

20:28 We have new Spode Christmas tree lines coming out for this Christmas and already have in place new product for the following Christmas in 2023.

20:40 And finally, turning within the commercial agenda to how we can leverage our brands more effectively. As I said, we're very pleased with the results of our Nombe acquisition in 2019. We had back to back years of strong growth, high RRPs, premium market. We still think there's a lot of a lot of room to grow nonbe further. In terms of our wax lyrical, excuse me, wax lyrical business, we still have work to do to get back to pre pandemic levels. We've done a reset in this business and are refining our strategy, working with customers and potential customers to get more volume through our factory in the next twelve months. Our new UK ecommerce sites come with additional functionality that will enable us to cross sell and create bundles from different ranges and from different categories.

21:34 Looking forward, we see growth by leveraging our brands across our geography. So taking brands like Nombe, which is predominant in The US, and selling to different parts of the world. We've worked on extending the scale of our home fragrance business by acquiring Aroma Works London, a small home fragrance business in the second half of August twenty twenty two, and we're working on extending our key heritage ranges like botanic garden and Spode Christmas tree.

22:04 Turning now to our operational strategy and our goal of getting our operating margin back up to 13%. Progress in the first half in terms of productivity, progress in covering input cost inflation, an exceptionally difficult period for input cost inflation, progress, and success in passing on our sales price rises to our customers. 30 basis point improvement in in operating cost. We would have hoped for more, but clearly, the world has been very disrupted in terms of raw material and labor markets. Looking forward, we have further schemes coming through in our factory in Stoke in terms of automation, and we'd expect those productivity gains to extend and improve.

22:50 We're well advanced in our projects in our US business to align systems, order systems, and warehouse systems that, again, will drive efficiencies and cost savings in our US business. And we're looking to increase the volume not only through our home frames factory in Cumbria, but also through our factory in Stoke On Trent. And as we add volume and leverage those factories more effectively, it would drive up our operating margin.

23:18 I'd like to turn now to ESG in particular to sustainability. As a company with factories in The UK and a company that sells around the world, we're very aware of the impact and our responsibilities in this area. We have a good track record of working each year and putting projects in that take energy and take carbon and emissions out of our supply chain. This year was no exception. Through investments we've made, we've taken a further 8% in terms of carbon per sales ton out of our supply chain, and that builds on the reductions that we achieved last year. We're looking at further projects, and we're also working on a long range ambition document, which we hope to have ready and launched by the end of this year that will target and commit to long term ambitions for carbon net zero and reducing c o two emissions from our supply chain. We're excited to be bringing that to the market, and I think it will give a a level of commitment for what we're going to do going forward.

24:27 And so finally, and before we turn to questions, I'd like to summarize our first half, but also talk a little bit about our outlook, and and and forward view. So for the first half, and our first half is traditionally the smallest half in terms of the two. We are a seasonal business. We were pleased to be able to record further growth on the back of the record year we had last year. Our sales are now 30% above pre COVID levels, and in particular, we've benefited from the work we've done in terms of diversifying channel, developing online channels, diversifying geography, new markets, and building with new distributors. We've benefited from having strong differentiated brands.

25:13 We've benefited from improving our new product development engine and the impact that has on end sales to the customer. As Dave said, our cash balance sheet and facilities remain strong. We're pleased to have reinstated our interim dividend. We see a significant opportunity to continue to expand our sales and reach a wider customer base around the world, And that will come from the areas we've talked about, geography, online channels, new product development, leveraging what we have. It's hard to forecast at this point what we what we can see in in the third quarter, and we're nearly at end of our third quarter, our sales have been healthy and positive. We expect sales in that quarter to be at least in line in terms of growth as the first half was, so at least sort of 6% up.

26:04 In terms of forecasting the key quarter four and Christmas period, that is much harder. What we are seeing is improving sentiment within our largest market, The US, and we've seen a good shipments, so far and good healthy order book for our key Christmas programs. Our rest of world sales markets are also healthy, and we have a good long term order book for markets, including Korea and other markets around the world. In The UK, we are more cautious, and therefore, we've guided, analysts that we expect quarter four, in The UK and Christmas to be softer than it was last year. Despite that, we still believe that profits will grow this year by at least 10%. We still believe we will grow top and bottom line in the medium and long term.

26:53 So in summary, a difficult year in terms of difficult half year in terms of macro headwinds. We're very pleased and proud about how resilient our brands have been that we've added further top line growth. We can see a clear route to growing both our top line and operating profits, which we think will transform our profitability and earnings over the coming years. We thank you for your attendance today. We hope the slides have been a useful commentary on our first half,

27:19 and we're very welcome to answering any questions that you would like to post on the system. That's great, Mike. Thank you very much indeed, and thank you both for your presentation today. Ladies and gentlemen, please continue to submit your questions using the q and a tab situated in the right hand corner of your screen. I I just want the team to take a few moments to review those questions submitted today. I'd like to remind you the recording of the presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. Mike,

27:44 David, as you can see, we've had a number of questions that have come through during today's meeting also pre submitted from investors. And thank you all for submitting those. Can I just please ask you just to click on that q and a tab? And where appropriate to do so, just read out the question and give your response. Thank you. Thank you very much. So there are a number of questions here, and we'll we'll try and answer as many of them as we can. The first question is about our new UK ecommerce sites and the statement that we made that most of the traffic is coming from mobile users. And then there's a reference to some page speed insights from Google. So there's a link there, which I haven't had chance to to follow through. But, yes, I can confirm that slightly more than 50% of our traffic in The UK ecommerce sites comes from mobile devices, and that is why in particular we focus on improving the customer journey for mobile users coming to our website. It's very early days in terms of metrics, but early data shows that we are seeing an improved conversion and customer journey for mobile users from the new websites.

28:52 The next question is what are the exceptional items and restructuring costs in the first half? And I'm gonna ask Dave, our finance director, to answer that question. Thank you, Mike. So, yes, the the the restructuring costs in the first half of the year will all relate to an exercise that that we've been doing on aligning our UK and global teams, specifically within our home fragrance division. So we are now working with combined teams, and there've been some restructuring costs, in the first half. We don't believe that the you know, believe that exercise is over, and we don't believe there'll be any further ongoing costs of that nature.

29:30 Thank you. The next question is, how is the major ERP WMS upgrade going? This refers to a project that is underway in our US market. That upgrade is going well. It's on track and on track to launch in the first quarter of next year. And in summary, what it does is it enable us to take one customer order for our existing PORTMEIRION business, family brands, and the new Nambay business, and it enables us to process that one order through all of our warehouses as one order, whereas at the moment, they're going through as two orders. So that will simplify from a customer point of view, and it will simplify from an operational fulfillment point of view. The next question is our opinion about the strong outlook this year and the future and the share price developments on the other hand.

30:19 So I think I just summarized on my last slide where I think we are with quarter three. We're pleased with quarter three. I summarized that for quarter four in outlook, it's difficult to forecast because of people's concerns about consumer sentiment and Christmas that we are fairly confident in The US, fairly confident in rest of world markets, but cautious in The UK.

30:43 And in terms of share price developments, I think, you know, what we focus on internally is is is delivering on what we say we're gonna do, which is top line growth and also delivering operating margin growth. And, hopefully, that will translate into share price improvement in due course.

31:00 The next question, thank you, is about wax lyrical and that most Wax Lyrical sales are from high street retail, and should this improve in the year? So Wax Lyrical, our UK home frames business, sells across a range of channels. Those predominantly are physical retail, and they include the grocery channels, the supermarkets, includes department stores, includes the garden center category, as well as various others. And it is the category that has been been hardest impacted worst impacted from a from a COVID point of view in terms of it's not migrated online in the same way. I don't think anyone's had much success in selling home freights products online, so we need to work harder within physical retail. So we are working on getting more listings, more locations, working on better POS, and also better brand engagement. And, hopefully, that will kick in to improve sales over the next twelve months.

32:04 Similarly, next question is also on wax lyrical. Does it generate more sales in terms of high street or online? I think I've just answered that one. The next question is on the hand and body product category that we started very recently and what are our expectations.

32:22 We've had some delays on supply with this new category. These are hand and body soaps in particular and sanitizers, and that is because some key raw material ingredients were globally a global shortage of supply, and that was particularly driven by the crisis in Ukraine. Those raw materials have now started coming back into stock, and so we have an expectation that we'll be shipping more hand and body products in the second half of this year and the first half of next year, and that includes extending our botanic garden range into hand and body as well. The next question is about the acquisition of AromaWorks. What was our strategic rationale? Put simply, this came up at very short notice.

33:07 It was a small bolt on acquisition to add further scale to our wax lyrical home frames business. We're very early days, and we'll come back later this year with more information about how that is progressing. And how do I think this brand can add more value to the more brand brands? Well, as I as I said, I think this is about scale, scale in our home fragrance division, scale when we're talking to customers, end customers, and scale in terms of how efficient we operate internally. Next question. Every day I receive emails offering me money off. I've learned that would be silly to pay full price. Why are we discounting rather than pursuing a different strategy?

33:58 Okay. Well, that's a good question. So on our website, we sell products at full price, but we also do email campaigns that may offer price off discounts on full price at certain times. We have different segments of our market that buy at full price, different segments that buy at money off. In particular, in the last six months, ecommerce has been more competitive as cost of living crisis and and and pressure on on on discretionary spend has increased, but our margins are at least in line with last year in terms of our own ecommerce. In other words, we're maintaining or growing margins on our online business. So I'm happy that we have that balance that balance right. Once we have a customer and they bought from us once, we have a very high propensity to sell to them again, and that lifetime value of the customer is also an important consideration for us.

34:50 Next question is about the Russia market. What's the impact? What's our plan going forward? Well, we ceased trading with Russia back in March. As a result, our Russia and indeed our Eastern European sales are down and will be down at the end of the year, but we'll have to see how that war progresses. Next question is sales are up 30% pre pandemic. Where's the growth come from? On the brand slide let me just make sure I've got that question still. Yeah. On the brand slide, you can see that we've had above average growth from Norm Bay. We've had above average growth from Spo, Royal Western, and Pimpernel, less so from Botanic Garden, and that is a a combination of its reducing supply of Botanic Garden into Korea as much as anything else. So good growth from a number of places, and we're excited about those brands growing further.

35:48 Next question is about hedging energy beyond 2024. I don't think there's any point in taking new hedges out at the moment. You know, hopefully, we're at a peak in terms of energy prices and much much similar to the the trend on container freight prices, which peaked kind of in the second quarter of this year and now come down. We would hope that energy prices at some point will start to return in the direction of the historic average, and that would be the time to to hedge. Yep. What is our strategy to achieve our long term ambition to to get to full year operating margin of 13% given the realities of input cost inflation and energy prices? Is this still realistic?

36:33 Okay. So our strategy is about growing our top line in the areas that I've described, geography, online, new products, growing the top line, but not the not the cost base by leveraging that cost base harder, by growing our own ecommerce sales, which are much higher margin, and by getting much improved productivity, reducing our labor cost per unit within our product cost through the automation investments that we're doing in our factories. Are we looking at new warehouse sites in The UK? No. We have good capacity in our UK sites, and we'll continue to look to get more efficient. Who supplies our energy? Have you been approached? Are you part of a national grid emergency power down program?

37:24 So our energy, Dave, comes from which supplier? The the big biggest one is the gas, which is total energy. In terms of being approached, I'm not aware that we've been approached. We we've been asked to quantify in terms of the financial impact of of of a blackout, but we're certainly not not been part of a an emergency power down. Obviously, our kilns are firing twenty four seven, So, you know, there will be an impact if we had to to shut them down at short notice, but we've not been part of any emergency plans as far as I'm aware. Okay. Thank you, Dave. Next question is, can I explain where we have manufacturing facilities? I guess that means our own manufacturing facilities, what proportion of production capacity in different areas, and do we take products from other countries like China? So just less than 50% of our sales comes from our own factories. We have two factories in The UK. Our main factory in Stoke On Trent produces about a 130, 40,000 pieces of ceramic tableware every week. Our second factory is in Cumbria in the Lake District and makes candles and re diffuses and embodied products.

38:38 Both of those two sites have good capacity for growth, and that ex capacity can be extended still further through investments in productivity, but also by bringing on labor and increasing the number of hours we work within the factory. We do make products and outsource products from around the world for the for the other half of our sales, and that is across many countries, including China, Vietnam, Sri Lanka, India, Thailand. And we have successful sourcing programs, long term partnerships with factories that works very well. Next question is whether we see any distressed assets for sale. Not currently. Next question is, can we tell us what our, historically, our capacity utilization rate is and how we can understand the marginal cost of additional production in terms of filling comes improving profitability from our sales plan? Okay. That's probably a difficult question to answer succinctly.

39:50 Capacity utilization of factories goes up and down, obviously, we manage labor as effectively we can to to current order books. We do have extensive ability to increase production in both of our UK factories as well as the opportunity to turn on further production in some of our source factories, albeit with a a lead a lead time, and that lead time is slightly on longer than it would have been pre COVID. In terms of the marginal benefit, I think, of additional production, well, that is significant because we have a fixed cost base, and it's pretty fixed across the year as we add incremental sales and they drop through at a pretty good ratio. And maybe, Dave, you want to to explain what that ratio is broadly, but they do drop through at a good ratio. Yeah. I think the operating drop through of any of any additional output in sales drops through about 35% to to the bottom line. So so due to the operational gearing that we've got, we've got capacity certainly to to generate increased sales through our through our factories, through our through our current warehouse capacity.

40:55 So, you know, any any any incremental drive, and that's part of the, you know, the road map that Mike spoke about in terms of being able to increase our our operating margins going forward. Thank you. The next question was who is our closest competitor? Well, in The US, we compete with the Fiskars Group, which has Waterford, Wedgewood, Royal Dalton. We also compete with Lennox as well as a number of other brands in The UK. Similarly, we would compete with Fiskars. We would also compete with, I guess, Denby, Emma Bridgewater, or within tableware. And then within home fragrance, there's many there's many brands which starts with with Yankee Candle and then, you know, goes all way up the pre kind of more premium rates like Jo Malone and Neon, so a number of different competitors in different markets.

41:43 Next question is about whether operating margin 13% target is a ceiling or an intermediate target, and can we do better? Well, you know, our short term target is to get as quickly as we can back to 10%, and then our longer range target is to get to 13%. Have been at around 12 and a half percent historically going back to 2013, 2014, 2015. We've got work to do to get there, and I think I've articulated the methods we do that through through growing our top line, leveraging our asset base, adding ecommerce sales, which are above average margin, and getting the returns from the productivity capital investments in our factories. Next question is about South Korea as our third biggest market and all the problems that we had resolved. I think you're referring back to issues of oversupply in 2016 and 2019, and I believe those problems are resolved. We have a lot of discipline now about selling a PORTMEIRION Botanic Garden into that market and a lot of control and reporting on sales out that that enable us to monitor stock levels going forward.

42:47 Next question is whether we have too many brands and that prevents concentration on our main business. Is the Cumbria diversification likely a great benefit long term? Look. That's a good question. I think we're really in in in three things, tableware, home fragrance, and gifting. All of them, I think, have a role to play in the business. Clearly, our Cumbrian business, Wax Lyrical, has has has had a tougher period in the last couple of years. We are working hard to get it back to where it was and then grow it going forward. How what is the non pay opportunity to grow out of The US base? If it succeeds, will it move the dial? So non pay is about, I think, Dave, 13%, rough 12 or 13% of the group sales.

43:41 Last couple of years, '21 and '22, it's had above average growth, double digit growth in both years, and most of that has been in The US. We're now working hard in terms of global sales and leveraging across our global geography better. And so we are actively looking at getting listings in The UK, South Korea, Australia, and Canada, for example. Right. Next question. Do we expect the working capital outflow to reverse by the end of the full year? Can we discuss the ways that we clear stock in case demand is not as strong? Do we have any specific clearance channels, or can we carry stock? Right. There's a number of different points there.

44:32 Dave, I think you've said already that we expect a large part of the working capital outflow to reverse by the end of this year where we brought forward stock production to make sure we manage to get into The US market because of all the container shipping issues that happened last year. But not all of it will reverse by the end of this year, but it would reverse through the following year in full. That's that's our stated ambition. There are channels to clear stock both online and offline, and we do partake in that from 10 to end of end of line from time to time. But equally, our our we're very fortunate in that our our portfolio of brands and ranges have a huge amount of longevity. Many of our ranges have sold for fifty, hundred years.

45:18 Spoke Christmas Tree is a good example, which I think this this this question is quite close to. You know, it's it's it's sold in The US since, I think, 1930, so we don't have any concerns if anything doesn't sell through. We'd rather it did sell through in the season, but it's not it's not gonna go out of date or expire. And the final question that I think I have on the screen at this point is why change the dividend cover from two to three. And so I'm gonna ask Dave if you wouldn't mind just picking that one up, please. Yep. Thanks, Mark. Yeah. I think the I think we sort of, again, stated externally that our aim is to balance the amount of investment and cap and specifically capital investment in the business. So, historically, our our average run rate was about one to one and a half million pounds in capital expenditure a year. We're we're running at about three times that at the moment, so our expectations are somewhere between 4 and 4,500,000, certainly in for for 2022 and for 2023.

46:18 We talked about some of the investment we're putting in in terms of automation. So we we just have have reintroduced the dividend of at a more prudent rate in order to be able to balance that that that internal investment with external return to shareholders. Fantastic. Thank you, Dave. So that was all the questions that got sent in. Thank you very much for either sending those in advance or or putting them onto the platform during this slide presentation. Thank you. Thank you, both. As always, you've covered off every single question that's come through. And, of course, if there are any further questions that do come through, the team will be able to review those and publish responses where appropriate to do so on the investor meet company platform. And, Mike, before redirecting investors to you their feedback, which I know is particularly important to you and the team, if I could just ask you for a few closing comments, please.

47:06 Thank you. Firstly, thank you for everybody for joining us this afternoon, and we hope this presentation has been useful. The full slide deck can be accessed from the platform and going forward. In terms of our business performance, we're pleased that we continue to grow. We think our brands have have been remarkably resilient in difficult market conditions, and we're confident in our strategy of reaching a wider customer base and improving our operating margins. And I hope this presentation was useful in joining up the dots on both of those counts. So thank you, everybody, and we look forward to updating you next time. Thank you. Thank you. Mike, David, thank you indeed for updating investors today. Could please ask investors not to close the session? It should be automatically redirected to provide your feedback order the team can better understand your views and expectations.

47:56 This will only take a few moments to complete, and know it's greatly valued by the company. On behalf of the management team, PORTMEIRION GROUP PLC, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you, and good afternoon to you all.