Weakening UK demand adversely affects the full-year profit outlook

Sanderson Design Group (SDG) noted in its full-year results announcement in April that trading conditions would likely remain challenging in the current financial year (FY25). Trading conditions in the UK, its largest geographic market, have since deteriorated further in May and June, with UK product sales down 14% in the year to date. Manufacturing activity is in line with last year but below current-year expectations. Consequently, current-year trading performance and profitability are expected to be significantly below earlier expectations.

Weakening UK demand adversely affects the full-year profit outlook

G4M’s FY24 results were in line with the headlines delivered in the April trading update, with margin and profit recovery despite a top-line decline, and an impressive reduction in net debt. Alongside a number of board changes confirmed for 5 July, G4M has unveiled a refreshed and updated strategy to drive profitable sales growth over the medium term from the stabilised base and return to positive PBT achieved in FY24.

Moving onto the front foot to drive profitable sales growth

IG Design’s FY24 results confirmed another year of significant progress in the second year of its three-year turnaround journey, notwithstanding ongoing macroeconomic challenges. The scene is now set for a transition to top-line revenue growth supporting further leverage of profitability and margins. This move is embodied in the relaunch of the group’s purpose, vision and mission statements, to support execution of the growth strategy launched in the year.

Foundations laid for the transition to a profitable growth strategy

The AGM trading update for the first three months of FY25 (to 31 May) confirms that Vertu has seen an encouraging start to the year and that management expects to report FY25 results in line with current market expectations. We maintain our forecasts. Vertu is seeing progress across its business, with used car values showing signs of a return to normal. Uncertainties remain, most notably regarding the Zero Emission Mandate, but the underlying story of growth-driven value remains firmly intact.

Growth and value generation engine

FY23 results are as expected and confirm the progress this management team has made in recent years. DP Poland is now on the front foot, with improving trading, a strengthened balance sheet and an ambitious plan for growth. As we discussed in our recent initiation note (Management delivery, 23 May), DP Poland is well positioned to see the franchise-driven growth that has been so successful for Domino’s Pizza master-franchisees and their investors elsewhere.

Still hot

DP Poland is a UK-quoted means to gain exposure to the roll-out potential of the world-leading Domino’s Pizza brand in relatively stable and growing economies. DP Poland is the master-franchisee for Domino’s Pizza in Poland and Croatia. Although DP Poland has built a pizza company, only since the August 2022 arrival of CEO Nils Gornall, with his many years of experience as a ‘Dominoid’, has it truly started building a Domino’s Pizza company. Results have improved significantly, and DP Poland is starting to show the sort of metrics that position the business for the franchise-driven growth that has been so successful for Domino’s Pizza master-franchisees and their investors elsewhere.

Management delivery

The results for the year ended 29 February released today show a robust performance across a difficult year, but they also provide good grounds for optimism. Revenue of £4,720m was a 17.6% advance on FY23, helped by the successful acquisition of Helston in FY23. Underlying operating profit of £59.3m was a 21.5% improvement on the £48.8m achieved in FY23. The net debt (pre-leases) result of £(54.0)m, vs our estimate £(62.0)m and FY23 £(75.3)m, is impressive. Encouragingly the recommended dividend per share has been increased 9% to 2.35p and management has announced a further £3m of planned and approved share repurchases. The year has started well with trading ahead of management expectations for the first two months.

Smoother roads ahead

IG Design Group’s trading update for the year ended 31 March 2024 has exceeded market expectations in terms of both profitability and, most significantly, cash generation. The FY24 results confirm the progress the group has made on its strategic journey to simplify the business and improve operational efficiency. Notwithstanding ongoing uncertainty on the economic backdrop and consumer expenditure, the group remains confident of delivering its target of returning to its pre-Covid adjusted operating margin level (4.5%) for the year ending 31 March 2025 (FY25E).

FY24 results well ahead of expectations – on course to hit operating margin target for FY25E

Sanderson Design Group (SDG) has announced its FY24 full-year results, which are in line with the headline figures from its February trading update. A record year for Licensing and a strong performance in the key North America market helped to offset a challenging consumer environment in other geographies, most notably the UK. While this backdrop is set to persist in FY25E, the group will continue to focus on its strategic growth drivers, notably North America and Licensing, to deliver shareholder value.

Strategic growth drivers show their value in challenging trading conditions

At its FY23 results in June 2023, G4M announced its intention to focus on product margins, overhead cost reduction, and efficiency ahead of revenue growth, along with further net debt reduction, in FY24. The FY24 year-end trading update confirms G4M has delivered on these rebalanced priorities, with gross margin rising and net debt almost halving compared with FY23. Cost savings achieved in FY24 and the continued development of higher-margin categories should deliver further upside in FY25E.

FY24 trading in-line and debt reduction ahead of market expectations

Vertu is the fourth largest automotive retailer in the UK, with 188 sales outlets and a track record of cross-cycle growth, principally through businesses it has acquired, funded by equity, debt and most importantly cash generation. Vertu operates across the entire vehicle lifecycle, including new and used vehicle sales, and vehicle servicing, repair and parts. Service and repair is a 40+% gross margin repeating business. With economic headwinds, the transition to electric vehicles, recent overseas investment in the UK market and noise about new business models, the next few years should be interesting. Vertu is well placed to be a winner on several fronts.

Traction control

Sanderson Design Group (SDG) has announced it is to launch a dedicated online store for its iconic and second largest brand, Morris & Co, in the second half of 2024. This marks a major step-up for the group in terms of e-commerce and the direct-to-consumer (DTC) channel, where its presence to date has been limited to the smaller Scion brand. While not anticipated to make a significant financial contribution in FY25E, this represents an important strategic initiative for SDG to exploit another channel to market and optimise distribution of its heritage brand assets.