Strategic growth pillars bolster results

Sanderson Design Group has delivered its full-year trading update to 31 January 2024. Group revenue has eased back 3.1% to £108.5m on a reported basis, following the 2% decline in H1. The strongest performances were delivered by the strategic growth cornerstones of Licensing and North America, offset by challenging market conditions in the UK, Europe and the Rest of the World. A strong balance sheet saw year-end cash rise to £16.2m, compared with £15.4m at year-end FY23. Having traded in line with management expectations, underlying profit of around £12m is expected for FY24, with similar also indicated for FY25 reflecting cost pressures.

Strategic growth pillars bolster results

G4M’s pattern of trading across the Q3 peak period (to 31 December) closely mirrored that seen in H1. UK revenues were marginally higher, while total group revenues were 6% lower than last year, reflecting the challenging market conditions in Europe. A strong 260bp advance in gross margin more than offset the revenue decline, delivering a £0.4m increase in gross profit against Q3 FY23. Combined with cost reductions that were in line with Board expectations, the group continues resolutely to focus on its objective of prioritising profitability over top-line growth. This in turn ensures that G4M is well positioned to deliver profitable growth in FY25E.

Strong Q3 gross margin progress in line with new operating model priorities

IG Design Group delivered a 27% increase in adjusted PBT to $34.8m for H1 FY24 (to 30 September) with a significant reduction in net debt to $15.1m, as signposted in last month’s trading update. The adjusted operating profit margin was some 270bps higher at 8.6% (vs 5.9% in H1 FY23), the highest achieved since H1 FY20 ahead of the CSS acquisition. Management has provided more details on the key attributes and initiatives for its new growth-focused strategy. The group is on track to return to pre-Covid adjusted operating margins, aspiring to a 5% level in FY25E compared with FY20’s pro forma 4.5% (including CSS on a FY basis), rising to over 6% in FY27E on a $900m revenue aspiration.

Strong profit growth, key strategy initiatives and quantified aspirations

G4M’s interim results clearly reflect the group’s previously expounded prioritisation of improved gross margins and lower costs over revenue growth against a difficult market backdrop. The former goal delivered an 80bps increase in gross margin, while the cash savings initiatives announced in October will bear fruit from H2 and beyond. Hence, despite G4M resetting FY24E revenue expectations to £144m (vs FY23’s £152m), the FY24E adjusted profit outlook remains in line with consensus market expectations.

Switching the levers to protect profitability against a challenging trading backdrop

IG Design Group has delivered substantial growth for the H1 trading period (to 30 September) in terms of key profit measures and margins, together with strong cash flow and net debt reduction, both of which exceeded management expectations. These achievements have been attained despite lower sales compared to H1 FY23, with the adjusted operating profit margin in H1 FY24E therefore set to surpass last year’s 5.9%. As such, the overall results clearly show the ongoing benefits of the group’s strategic initiatives to simplify the business and increase operational efficiency. The board believes FY24E full-year trading results remain in line with its expectations.

H1 trading sees significant net debt reduction and profit growth despite lower sales

The shape of G4M’s trading performance in H1 (to 30 September) clearly reflects the strategic prioritisation of gross margin and cost efficiencies over revenue growth in a challenging market. This strategy was clearly signposted at the FY23 results in June. While total revenue fell back 6% in the period (£62.6m vs £66.3m), an offsetting 80bps gross margin improvement holds the expected gross profit decline to 3% (£17.0m vs £17.4m). With H2 set to benefit from the £4m of annualised cash savings instigated in H1, G4M believes that the FY24E full-year outlook is in line with consensus market expectations.

H1 trading prioritising gross margin and cost savings ahead of revenue growth

Sanderson Design Group (SDG) has reported an 8% increase in interim adjusted PBT, to £6.8m. This was achieved despite a weak backdrop in the home UK market and a 2% decrease in overall group revenue. Increased profitability was driven by strong performances in two of its key and higher-margin strategic growth pillars – Licensing and North America – which grew by 82% and 10%, respectively, on a reported basis. New product launches, including Disney Home x Sanderson, have seen sampling running at encouragingly high levels, boding well for the medium term. With H2 trading likely to broadly reflect H1 patterns, we have recast the shape of our forecasts, though with unchanged PBT and EPS outturns.

Interim profits rise – reflecting strength in strategic growth pillars

Sanderson Design Group (SDG) has reported on its H1 trading performance for the six months to 31 July. The continued strong performances of both the Licensing channel and the US market, echoing last year, have offset the previously anticipated tougher market conditions in the UK. Thus, while group revenues eased back by 2.1% on a reported basis, H1 FY24E’s adjusted underlying profit before tax, supported also by some UK cost savings, is expected to be marginally ahead of last year’s £6.3m, driven by Licensing’s 82% year-on-year increase.

H1 trading driven by US and Licensing

HeiQ

IG Design’s FY23 results delivered a welcome return to underlying profitability as headlined in its April trading update. The group’s planning now shifts from turnaround to a growth-focused strategy beyond its initial aim of recovering pre-pandemic operating margins. IG Design has strengthened its central and DG Americas teams to support this strategy, with experienced hires boasting strong commercial credentials.

Formulating a new course for profitable growth with the ship successfully steadied

G4M delivered FY23 full year results in line with the guidance given in its April trading update. EBITDA came in at £7.4m with year-end net debt of £14.5m. The consumer backdrop remains challenging, especially for retailers of primarily discretionary items. In March, G4M launched its second-hand platform, which plays to both customer service and convenience as well as to its own circular economy credentials. This enhanced margin service will be expanded in terms of product and geographic coverage over the coming year.

Adopting a balanced approach for FY24E

IG Design has announced a successful and favourable outcome to the refinancing of its lending facilities. The new arrangement replaces the previous revolving credit facility (RCF) agreement from 2019, which was subsequently renegotiated in 2022. The new three-year facility is for $125m through an Asset Backed Lending (ABL) structure. This flexes in line with the group’s US receivables and provides ample headroom to finance the key working capital needs over the duration of the facility. In a world of rising central bank interest rates, the lower quantum of the facility coupled with the lower margin than the previous facility should help manage the direct finance charges associated with the facility, as well as provide savings in non-utilisation fees.