Sanderson Design Group plc (SDG.L) Earnings Call Transcript & Summary

Good morning, everybody. Thank you for joining us today. I'm Lisa Montague. I think I know pretty well everybody in the room. And I'm here with my CFO, Mike Woodcock, to present and share with you the results for the interims for the first half of this fiscal year ending the end of July 2025. Our Chairman, Dame Diane Thompson, is with us in the room, and the rest of our Board are joining us online today. So I will share with you an overview of the year and then ask Mike to share a little more financial detail. He'll then hand back to me to talk about the future and progress and our strategic initiatives. So for anyone who knows us less well, our business at a glance is a leading interiors furnishings group that designs and makes world-class fabrics and wallpapers and with a strong licensing channel that delivers finished goods with specialist partners in our core markets. We employ some 500 people, of whom 455 are based in the U.K. and all are working together to deliver our promise to lead the industry in the way we work. Moving on to highlights for the first half. To summarize our first half performance, our group revenues of GBP 48 million were slightly below last year, while the profit for the first half was in line with last year at GBP 2.2 million, thanks to the management initiatives that we took to protect the bottom line. Licensing, performed strongly, is now a core channel for us. The total was up 6%. And within that, underlying performance from our partners was strong at 22%. We had some good collection launches. High growth by Sanderson has been a highly visible and important collaboration that benefits The King's Foundation and has driven record demand for Sanderson with sampling and sales both running slightly ahead of forecast. Morris & Co.'s collaboration with the Huntington in America has resulted in 50 new designs being brought to life. This is relative to a portfolio of Morris designs ever produced of 250. So 50 new designs is not just a collection, but a whole new chapter of art history. Moving on to our digital transformation that we accelerated. We've really moved at pace with this strategy, replatforming to Adobe Commerce and the new trade hub was launched at the end of August, serving all of our trade customers with far better content. And our consumer site for Harlequin was launched just 2 weeks ago on the 1st of October and will be followed at the beginning of November with the Sanderson single branded site. Cost savings have been strong, continuing the reviews across the business. So this year, we are yielding a further GBP 1 million of savings in central overheads above the GBP 1.5 million that we announced earlier in the year coming from factory savings. That's all on an annualized basis. And cash balances have increased significantly to GBP 7.8 million at the half year from GBP 5.8 million at the beginning of the year. So thanks to this half year improvement, we will maintain the interim dividend at the same level as last year at 0.5p per share. I'm now going to ask Mike to take you through a bit more detail behind those numbers, and I shall be back with you shortly. Thank you.

Okay. Thank you, Lisa. Good morning, everybody. So my first 2 slides will focus on the 10 KPIs that we consistently use to track our performance. These provide a high-level view of our result for the half year, and then we cover each area in more detail subsequently. Following a challenging prior year, as Lisa mentioned, the first half of FY '26 has been a period of stabilization. As Lisa mentioned, revenues fell by GBP 2.2 million to GBP 48.3 million, but the mix of the revenue and the benefits of the various cost reduction initiatives we have implemented meant that adjusted underlying profit before tax remained flat at GBP 2.2 million. The first half has also seen a significant improvement in our cash performance and the strengthening of the balance sheet. The absence of any major capital expenditure projects and a planned GBP 2.5 million reduction in inventory has helped increase our net cash position from GBP 5.8 million at the year-end to GBP 7.8 million at the end of half 1, and we would expect cash to grow further in H2. So starting the deeper dive with revenue, this table shows the group sales performance in the half year and includes our 3 key revenue streams of brand product sales, licensing and third-party manufacturing income. The key feature of half one was growth in brand sales in North America and in licensing revenue, along with a steady performance in external manufacturing, but sales were offset by weakness in consumer markets elsewhere. So looking into brand sales in more detail, shows a mixed picture. In North America, despite a hiccup in April and May following the announcement of the Liberation Day tariffs, brand sales grew by 4% in constant currency. Revenues were boosted by a strong performance from Harlequin and our heritage brands and a bounce back in the contract sector. However, these gains were more than offset by the continuing weakness in consumer markets in the U.K., Northern Europe and the rest of the world. As a result, brand sales ended half one 5% below the prior year at GBP 34.7 million. Pleasingly, though, we are seeing improving trends. In our trading update in early August, we flagged that sales in June and July, although slightly below the same period last year, were better compared with the full 6 months to 31 July '25. This improvement has continued in the early part of the second half with brand sales in August and September 5% above the comparable period. Looking now at these revenues on a brand-by-brand basis, you can see the impact of the challenging consumer environment in the first half on the sales for each brand, although as I mentioned previously, the performance in North America was much better than in the U.K. and elsewhere. Consequently, those brands with a lower concentration of sales in the U.S. fared worse than on average. This particularly impacted Clarke & Clarke at the top there, which sees its sales heavily weighted towards the home market, with revenue falling 10% overall in the half year, owing largely to the U.K. sales performance. However, in North America, sales were up 4%. Morrison & Co. sales were down 3% year-on-year, but up 6% in half one in North America. As Lisa mentioned, sales in the second half are expected to be boosted by the launch of the first collaboration of the Morris & Co. Huntington collection. In the Sanderson brand, the high-growth collection was the key new product launch during the half year. The collections retail launch was in May 2025 and has been very well received in all markets with request for samples continuing to run at unprecedented levels for the brand. And Harlequin appears to be turning a corner following our concerted efforts to reenergize the brand and introduce products aimed at the North American consumer. Sales in that territory were up 13% in constant currency, driven by the Henry Holland collection. So moving on now to look at manufacturing revenue. And I think as most of you know, our 2 factories, Standfast & Barracks textiles and Anstey Wallpaper Company, print for our own brands and for third-party customers, positioning them at the center of the industry. External revenue was unchanged at GBP 9.2 million in the half year, showing stabilization in third-party volumes. Current third-party manufacturing order books are showing improved momentum with a much better mix of new business and higher-margin repeat business compared with the same time last year. Internal manufacturing in the first half was down 34%, reflecting our focus on reducing the level of finished goods we hold across the wider group. Digital printing at the bottom here now accounts for 61% of our output, up from 51% in the previous year. And our factories are well invested in terms of digital capacity. There were no major capital expenditure projects in the first half, and nothing major is currently planned for the second half either. Cost saving and efficiency initiatives have transformed the financial performance of our manufacturing operations and the flexibility of our manufacturing workforce. We continue now, therefore, to expect manufacturing to breakeven or even slightly better for the whole current financial year. Moving on now to look at licensing. Revenue was up 7% (sic) [ 6% ] from GBP 4.1 million in half one last year to GBP 4.4 million this year. Underlying revenue, which excludes the impact of IFRS 15 accounting standard that you see in the first column here, grew by 22% to GBP 3.9 million and represents the cash received by the group from licensing activities during the period. Accelerated income in column 3, recognition of which is a requirement of IFRS 15, represents the total minimum guaranteed sales associated with newly signed contracts. First half accelerated income was GBP 2.4 million and includes new licenses, renewals and extensions. Notable agreements signed in the first half include a renewal in the U.S.A. with Tile Shop for the Morris & Co. brand and an extension for Sanderson with Portmeirion's Royal Worcester tableware. We're continuing in H2 to progress a pipeline of further licensing opportunities, leveraging our brands and our design archives and expect revenue for the full year to be broadly the same as in FY '25. So this next slide analyzes the first column on the previous table, looking at underlying licensing income by brand at the top and by territory at the bottom -- sorry, the other way around. In the U.K., underlying revenues reflect a full 6 months revenue from Clarke & Clarke agreement with NEXT compared to only 3 months in the prior year and Sanderson's collaboration with Habitat and the National Trust. The growing importance of North America in terms of the group's licensing income can be seen with a 44% increase versus last year, driven by Morris & Co.'s agreements with both Ruggable and the Williams Sonoma Group. And then at the bottom there, from a brand perspective, Morris & Co. remains the group's most licensed brand, and it continues to win new partners. However, a positive feature of H1 is the performance of Sanderson, our other heritage brand, which has seen underlying revenues double compared to half 1 last year. Gross profit for the period was GBP 33 million compared with GBP 34.8 million in half one FY '25, largely due to the lower revenues from the Brands segment. Our overall gross profit percentage fell 60 basis points to 68.3%. Within the Brands segment, the gross profit percentage fell by 90 basis points versus the prior year. This slight reduction was caused by changes in market and channel mix and a minor increase in the cost of stock provisions due to the timing of liquidation activity this year versus last year. The benefits of the restructuring exercises undertaking in our 2 factories can be seen with gross profit percentage in the Manufacturing segment increasing by 410 basis points. That was despite a reduction of GBP 2.7 million in the internal sales versus the prior year and as we've worked to reduce inventory levels across the wider group. And then on to the P&L. Adjusted underlying profit before tax for the period was GBP 2.2 million, in line with the first half of the prior year, with lower revenues being offset with cost reductions across the group. Selling and distribution costs in this table are shown net of other operating income of GBP 1.7 million, which comprises consideration received from the sales of pattern books, the cost of which is also included in the distribution and selling expense line. Our approach to issuing these books changed compared to the prior year. Under our old book scheme, members paid a monthly fee to receive a pattern book for all new collections. Under our new loyalty scheme, members pay only for each book on an individual basis. This change has seen a reduction in both other operating income and distribution and selling expenses and a net saving to the group of GBP 700,000 compared to half one last year. Aside from the impact of pattern books, distribution and selling expenses have also been reduced by GBP 500,000 versus the prior year due to a change and renegotiation of our haulage and carriage contracts. And then administration expenses fell by GBP 900,000 due to the restructuring exercises undertaken across all areas of the business in both the prior and the current year. And then moving on to look at the group's balance sheet and cash position. We ended the first half with net funds of GBP 7.8 million, up from GBP 5.8 million at year-end. Our headroom is enhanced by a committed but undrawn Barclays facility of GBP 10 million. Contributions to pension funds are significantly lower than in prior years following the one-off injection of GBP 2.3 million in the prior year to facilitate the buy-in insurance transaction for the smaller of our 2 legacy defined benefit pension schemes. And capital expenditure is also lower than in half one FY '25 with no major head office or manufacturing projects planned this year. However, as Lisa mentioned, the key driver behind the improved cash position is inventory, which at year-end, we'd highlighted as a key area of focus for us this year. On the 31st of July, net inventory was GBP 24.7 million, down from GBP 27.2 million reported on the 31st of January, with the opportunity for further reductions in the future. So that concludes the financial review of half one. I'll now hand back to Lisa, who will talk about our strategy for half two and beyond. Lisa?

Thank you. Thank you, Mike. So in the next few slides, I'd like to summarize where we believe we are in our journey and our road map ahead. The results of the accelerated transformation in manufacturing, the introduction of our omnichannel sites and sharpening our pencils on costs will deliver the results this year and into the future. North America remains the strongest market for us with the greatest potential in the foreseeable future, as we remain a very small player in the largest global market. We have momentum. We have great teams in place, and there's appetite for our brands. Back in April, the tariff regime did slow progress as momentum paused for a couple of months globally, in fact, but we're seeing double-digit growth again in the U.S. market. We're now applying a 6% tariff surcharge, which remains very competitive due to our U.K. manufacturing advantage. Digital transformation has accelerated. The Brands improved Trade Hub launched at the end of August and is giving trade customers a far better experience. And our first consumer sites are also up and live. In digital printing, we're seeing the benefit of reduced lead times and inventory being held tighter. Cash is up significantly, thanks to significant ongoing savings and the strong inventory reduction that we mentioned of GBP 2.5 million in the first half. The impacts of both of these measures will deliver more in H2 and beyond. And CapEx requirements do remain low, really thanks to the good investments of recent years. So on -- in terms of strategic vision, if our ambition is to decorate spaces that make their owners dream, then our priority must be to achieve this in collaboration with top interior designers around the world, giving them what they need, when they need it and where they need it. This is how the U.S. market works. Our designs are loved, and we need to spread that love with a wider network, amplified stories and inspiring creatives that can easily be accessed and quickly delivered. Our clear focus in the U.S. market is with interior design practices and wallpaper as a category where we have greater market share in a smaller market for wallpaper and strong momentum as a recognized specialist. These things together work and all tie up together as a benefit, as the U.S. is driven by interior designers and wallpaper sells on digital platforms. Digital platforms help us to penetrate these vast global territories with core collections and our finished goods programs as well through licensing partners. Combined, this will enhance margins and lead to increased profitability and stronger shareholder return. I think you're all familiar with our key strategic framework. This is a slide that's been in the pack for a while now and hasn't changed, you'll be pleased to hear, but we've drawn out here the key focus within each pillar. So interior designers as customers and our omnichannel platforms to reach them with key messages. In Brands, we're focusing on heritage brands where we have the most momentum from recent collaborations and from their licensing appeal. Within products, wallpaper is drawn out to reflect our expertise and the market opportunity. And the U.S. remains our growth market until at least our penetration there has doubled. As underpins, we've added the digital innovation as a vital foundation for growth. And in brands, most of you are familiar with our brand portfolio and our pyramid that we've shown previously. Zoffany is our luxury offer where we work on bespoke projects at the high end, and we have an exciting collaboration launching next summer with a U.S. celebrity designer. Heritage brands have traction currently through recent launches and volume in our business is driven by our contemporary brands, Harlequin and Clarke & Clarke. So in the next couple of slides, I'm going to focus on heritage brands, which is where we're seeing the current momentum. And I'll talk a bit about contemporary as well. So with a little artistic license from AI, we're showing William Morris as the cool artist of today, and we hope you'd be proud of the new designs that we're bringing to market that give us a whole new chapter of protected IP and unique competitive advantage, cementing our position as authentic owners of Morris & Co. and the integrity of a creator and maker of those original designs. For both Morris and Sanderson, the approach is similar, although the aesthetics are quite different. Morris is unique and has no style competitors, which is rare for any brand in any sector. And here, you can see the FT press launch of the Huntington collaboration. This is in HTSI, as it's now known, on the 2nd of August. Press feedback has been phenomenal, and these are just the first 26 designs of the 50 that I mentioned that have come to market so 24 to go. Probably you'll see those next year. The Huntington project has been really manner from heaven. I brought along a couple of copies of the Cabana magazine. I'm not sure how well read they are in the city. This is a biannual publication launched in 2014 by style influencer, Martina Mondadori in Milan, who in just 10 years has built a global destination for creatives to be inspired and quite a rarefied following. It was a major step for us to invest in sponsoring this cover, following in the footsteps of brands that you may have heard of like Ralph Lauren, Gucci and Valentino with limited editions that have become collectors items, have a look at the website. Martina chose 9 of the Huntington, Morris & Co. fabrics, including 2 special limited editions. And then her dear friend, Gwyneth Paltrow, stepped in as the first-ever guest editor and Oprah Winfrey commented on what a marvelous edition this was. So we really got a lot more coverage than we bargained for when we committed to our sponsorship. Sometimes we have to credit to good fortune. This feels like a turning point for the business, definitely in terms of recognition. And Highgrove by Sanderson gave us access this year to the highest house in the land and resulted in a decorating collection that I hope you allow me to proclaim it's beautiful. Demand is high and support is strong. Sales are ahead of forecast and the boss of Highgrove seems happy with the benefit that goes to The King's Foundation. On contemporary brands, Clarke & Clarke is our biggest brand by volume and distributed in the U.S. by market leader, Kravet, where, as Mike mentioned, we're seeing good growth. It's growing well and with strong ambitions for the brand in that market and in their portfolio. Scion has also now joined the Kravet family as part of their boutique line offering. Harlequin appeals to the design sector of hospitality with its graphic designs, color sensibility and also keen value for high design. And then moving on to channels and our digital-first pledge, we have really transformed now from a purely B2B business to an omnichannel business. And that's happened this year with digital platforms driving new high-margin growth, offering a great customer experience, telling our powerful brand stories and supporting us in a changing market where online is the first port of call for a consumer to research. The benefits derived from data and CRM learnings will drive better decisions and open opportunities for a marketplace in the future, possibly even an app. The model employed is through partnership with a specialist provider and therefore, a low-cost model without any significant CapEx. And omnichannel means touching all touch points with our brands, specific activities and making the proposition a win-win for all of our customers. The actions taken this year in the first column here, with all sites live by the end of this year, will accelerate the adoption and finesse the propositions over the next year to build full advantage of efficiency and an industry marketplace in the future. Looking at territories, there do remain many challenges and uncertainties across pretty well all markets. But we have clear plans to fight to retain and grow our market share as outlined in our road maps by region. When we talk about interior designers, we work now really closely with top interior designers globally. And here, you can see a few of our notable collaborators, including Ben Pentreath at the end there, who we've just worked alongside in the U.S. and have worked with extensively in the U.K. previously. We saw him in New York at the launch of the Kips Bay show home. This is the 50th anniversary of a fundraising initiative that was started to support Kips Bay as a charity for underprivileged children akin to the Boy Scouts, I suppose, in the U.K. Show homes are decorated by celebrity designers each year in New York, Palm Beach and Dallas to raise money for the children. And Ben was invited for the first time, and we believe is the first British designer to decorate the main drawing room where we were delighted that he used Highgrove Sanderson wallpaper across all the room. He's also a keen supporter of The King's Foundation, who's worked closely with his majesty on many architectural projects. So apologies for the next few dense slides, but you all know I do like a road map. If you just take note of the beginning and the end, that's probably the way to read these or just don't. I'll just skip over it for you and summarize. Our presence in the U.S. is growing and our audiences are growing. But all of the regions are quite different, which is why we've set them out as 3 different slides. Our profile of fans in the U.S. is also changing and has lifted dramatically to include really renowned top designers now, evident in our recent guest list celebrating Kips Bay and the like. This year, with key roles in place and Scott, our Sales Vice President, leading the charge on sales, our Trade Hub relaunched and branded sites now generating new leads, integration in industry circles that includes business of home, design leadership network and design destination London initiative as well as the strong presence we've had at Kips Bay and at the furniture fair High Point in North Carolina, our network is now strong and sizable. So this, together with the momentum that we see, will seed us to land our 2029-'30 objectives that you see here to be a go-to partner for interior designers, having built trust in our brands and through dialogue, including social media platforms. The U.K., of course, is quite different. U.K. market has shifted both cyclically and structurally. And unfortunately, we do sell less than we did before. We're not waiting for the market to recover. We've taken lots of initiatives as we've outlined. Our digital initiatives are designed to combat the shrinking exposure of our traditional network of high street retailers. Often, these people have work rooms and unfortunately, they're seeing diminished business. So our Trade Hub and our branded sites, our refreshed loyalty schemes that Mike mentioned and our CRM insights are all engaged to nurture the interior designers, to nurture their businesses and to gain a greater share of what might be a smaller top end market. And then international, rest of the world, is really split. So internationally, besides the U.S., the Middle East, Germany, Scandinavia and the Iberian Peninsula all have opportunities that we have identified, working through our agent networks and establishing also omnichannel propositions in those markets, again, with a focus on wallpaper on digital platforms. And moving into licensing, the momentum in licensing continues in this key strategic pillar, bringing iconic brand designs to market on finished goods. As we predicted, this year will deliver results in a different shape, as newer partnerships mature and established partnerships continue to grow underlying sales, and you could see that in the numbers. Ruggable, the U.S. supplier of washable rugs, is a notable contributor, as mentioned by Mike, and has recently expanded from Morris & Co. also into Sanderson as a brand. And Habitat and the Sainsbury's Group in the U.K. is growing and performing strongly with their Morris & Co. and Scion partnerships. I think everybody recognizes that manufacturing was challenging last year, and we've been through 2 rounds of restructuring that are now yielding benefits and will show in the breakeven or better results at the end of the year. The role of manufacturing in the group is to drive vertical business advantage. Having performed poorly last year with reduced volumes denting profitability, both -- due to both group and third-party customers pulling back and repeat business lacking demand, particularly in the U.K., but both factories have since been restructured with headcount reduction and cross-skilling across the business that this year will deliver better results. Conventional designs are migrating to digital and the group's digital printing now accounts for the 61% we mentioned over 51% last year, with the major shift being at Anstey on wall coverings, where we've made the investments in technology to support that transition, and that now gives that factory quite a unique creative advantage. And over the past 6 years, we've reduced emissions by a phenomenal 40%, and that's been achieved, making Sanderson Design Group recognized now as a champion in the industry in this regard, important credentials as a warrant holder and as an employer with integrity. So if we look at outlook, in terms of outlook, we are absolutely focused on ensuring the future success of the group. And we've clearly taken swift action to respond to market challenges. Those challenges remain, and we're controlling everything within our grasp, while looking out for opportunities and fighting for market share. This is showing progress and sales are up in the last 2 months. We restructured both factories for the second time at Anstey and also head office functions, reducing headcount and making significant savings that you'll see from head office coming through the second half and into next year. We've accelerated the digital launches and created new momentum. The 2 big launches this year have been really strongly backed and well received. So thanks to these measures, the Board is confident in the progress made and believes that the company is on track to deliver the results in line with expectations for the full year. So thank you very much for being with us today. And if you'd like to ask any questions, Mike and I will be happy to take them. Thank you for your support.

Kate Calvert from Investec. Just a question on tariffs. You said momentum would come back post it. So could you sort of go into a bit more detail in terms of how your customers have reacted to the surcharges? And are there any other sort of negatives, positives we should think about within the business?

Yes, Kate. Tariffs is a big issue. I was quite stunned when I went to the States a few times recently by its other businesses worrying about where it's all going to settle. In our industry, it's quite clear cut. And obviously, as U.K., we have the best deal that there is. So our 10% tariff rate, which is on top of existing duties, is the lowest. And therefore, that makes us quite an attractive destination for manufacturing and also gives us an added appeal, if you like, for our British brands. That 10% is on top of the -- it was 14% as a duty regime for fabric, whereas there was no duty on wallpaper. So we -- in April, when they were announced, we determined to pass on only 3% to our end consumer on those invoices because obviously, we ship into our subsidiary, and so we don't have to pass on the full 10%. So that's been a competitive advantage, if you like. That was at the time when the de minimis threshold was still in place. That, of course, was removed at the end of August. So in this ever-changing scenario, applying surcharge is the best way to handle it, we believe, because we can then flex it. Also, at the end of August, the India country of origin tariff escalated to 50%, and our high-end embroideries are made in India. There's literally nowhere else to make them. It's impossible to do that in the U.K., although we have looked into it. And so to absorb that, just last Friday, we increased our rate overall to 6%, which we believe is the right way to apply it as an average, still extremely competitive under anybody else I've heard of, and that gives us an average that absorbs the extra costs, and we monitored that through September so that we could -- as long as the mix stays the same, that covers us adequately. So as I said, I think we're in a much better position than pretty well anybody on the competitive set that you might call our peer group. And there are -- there's a great appeal for grass cloth, for instance, in the U.S. That all comes out of China. There's really nowhere else to source it. So we're looking at innovation in the wallpaper factory of how we can, if you like, mimic that by printing texture and taking opportunities that will exist through some of those competitors struggling.

And just a second question on the new launches this year. Obviously, initially very well received. Should we expect some sort of momentum and benefits in the first half? Or will it be more second half weighted next year, given the lag effect?

Yes, but it takes a while for the sales to come through when we launch. Classically, we've always said about 9 months. I mean, sometimes that's even longer. We've taken a couple of initiatives. So one thing is that we have launched simultaneously across all markets this time for the first time, I think, ever. So we launched Highgrove in May, went straight down the same day into the U.S. and the U.K. and all markets and on all websites. We are seeing sales come through ahead of forecast on the timing, although it's only been a few months of Highgrove, and we would expect that to build now certainly through next year and the year beyond. No reason to assume that might come off. It's being very well used as a decorating collection, whether somebody understands the Highgrove connection or not, it's just a collection of beautiful designs. Huntington is quite different because that's just launched now in September. And that's a build. If you think those 250 designs have been more or less in the catalog and portfolio for 160 years, we could expect that to give us a good chunk of future business that will last, but we won't see the sales coming through in any meaningful way until, yes, mid next year.

Matthew from Singer. A couple for me. I seem to recall asking very similar questions 6 months ago, so apologies for pressing the issue, but I think you've made great progress on manufacturing in terms of taking the cost base down and now you're seeing the order book starting to build back up again as well. How should we think about the drop-through as a result? If you get the typical mix in terms of repeats and new launches, what would you -- roughly, what would you expect the drop-through to be from incremental revenue, if and when you move back to growth?

Hopefully, we'll give you similar answers to 6 months ago. So you'll see it coming through in the second half already, as we've said. I think you can see that from the numbers and what we've predicted for the year-end that the factories will breakeven or better. We've got strong momentum there. I mean, clearly, the cost reductions are based on current volumes and where volumes to grow, we would have to increase the headcount back in order not to drop service levels. And that's just a straight-line equation on manufacturing. Do you want to say some more on that?

Yes. No, I mean, I think as we said one of the highlights of H1 was the improvement in the manufacturing margin, I mean, to grow 400 basis points from where we were at this point last year is a great achievement for both the factory teams. And I think that was despite the reduction in group volume, which, again, obviously, if we get some momentum from a brand sales point of view, that starts to fall into the factories as well. So I think, again, margins were nearly 34% from a factory point of view. There's no reason why they couldn't rise in the second half and certainly into next year because, again, as Lisa said at the beginning, we announced the latest round of restructurings at 31st of January. It took a while for those to work their way through the factory. So we haven't been necessarily running on the completely restructured factories until probably May, June time. So again, there's probably some momentum from a margin point of view to come through into H2. And then I think at the end of half one, Anstey was profitable, straight breakeven. Standfast was still showing a small loss, but again, it's traded profitably for the last few months, and that's why we believe we'll get the overall manufacturing sector back to breakeven or even slightly better by the end of H2.

And the pipeline looks good.

Okay. Second question was on Trade Hub, which looks to be -- I mean, it's quite a transformation in terms of how you reach the market and how you engage on the brands. Sort of similar question in terms of how long do you think it takes to -- for awareness to build and to gain traction across your diverse customer base. What would be your expectation for it really to start deriving benefits?

It should drive benefits pretty well immediately really, but we're monitoring that quite carefully. And it's really different by market, which I probably should point out. In the U.K., well, what's very encouraging is we didn't see a drop during the transition because that's always the big watch out when you're changing platforms. We haven't seen a drop in the number of users, and we are now starting to see the number of users increase. We're also watching carefully in our customer services team. We'd like to see clearly a stark reduction in orders being placed by e-mail and customers feeling confident to self-serve more on that platform, which is what it's there for. Feedback is that it's very intuitive and so -- and that it's much easier to shop and that people can use it more for inspiration and browsing, which is great because the former site was functional, but has no creativity on it. So that's very encouraging. The U.S. is quite different because our 2 showrooms that are direct, we'll use it directly, but our partner showrooms tend not to. And so the uptake there is quite different, but it will be interesting to see from the, if you like, consumer websites, how they generate leads into that trade into those showrooms, which is something we're also quite excited about as an opportunity.

So being right in the middle of just going into your peak period, I mean, the timing is another reason for optimism in terms of the full year outlook because this is going to drive some additional momentum that didn't exist in the business in the last 6, 7 months.

Yes. I called it new momentum. It is it's a new opportunity to reach new people in -- on the new platform that we were not reaching before.

Toby Thorrington from Equity Development. Three from me, I think. Simple one to begin with, the new online platforms, just to be clear, are they transactional? Or are they for research only?

That depends where in the world you are, Toby. So they're transactional for the U.K. and U.S., not yet in Europe. So in Europe, it's purely for research due to the agent network and distribution network. So eventually, we'll get them transactional in Europe as well, but the bulk of our business is in the U.S. and the U.K., and we wanted them stabilize there first.

Are you seeing any -- perhaps it's early days, any discernible sort of cannibalization of other channels?

Well, great question. No, not yet or not currently. And that's really Morris & Co. is the best example, I think, of that. Although we launched Morris & Co. with a partner, who's a specialist online retailer, a year ago now actually in the U.K., September and March in the U.S. so that was a staggered launch, whereas now we've done simultaneously. And I can categorically say we haven't seen any discernible cannibalization. And we've looked quite carefully at probing some individual cases of looking at who the customer is that's placing the order and would we have reached them before? And the answer is generally no, we wouldn't have. So that's very encouraging as is the rate of sale in the U.S. where it really is reaching areas that we couldn't reach as territories previously. So it's really quite exciting. It's an opportunity. We'll see -- we'll monitor it carefully with Harlequin and with the other brands.

Okay. Sounds good. And a couple of sort of manufacturing type questions, so maybe over to Mike. Give us a feel for sort of run rate of utilization in the factories just now. The other side of the same question is what you think available capacity is?

I mean, over the medium term, I don't think we've got any capacity challenges because we can always put overtime on and put new shift patterns in as required. I think we've interestingly seen, and I think we expected this that sort of there's a divergence in terms of the demand. So as you've seen on the slide, digital has increased to 61% overall. That's large -- that increase is largely driven by the wallpaper factory and that new Durst machine that we invested in 18 months ago now. And obviously, when you invest in a machine, it takes time to develop product, people to trial the product before they launch. But that's running quite 24/7 -- but close to 24/7 at the moment. Having said that, we still think there's probably more efficiencies we can get out of that machine. And then on the other side, we've got sort of some of the more traditional techniques, particularly the surface printing for Morris, which is in high demand at the moment. So again, we're looking at how we sort of stagger shift patterns, et cetera, to make sure we've got the demand there. Now as I said, over the medium term, we can always work over time. We can add shifts back if the demand were there. But we certainly have the machine capacity in terms of our forecast to sort of get through the next 18 months, 2 years without the need for any further significant capital investment across either side.

Okay. So I guess the service proposition is a bit different between digital and traditional. In other words, you have to stock traditional to a greater extent than digital shorter service. Is that broadly right?

I think for wallpaper, there is a discernible difference in terms of the minimum order quantity. And yes, from a group point of view, the stockholding required. So I think particularly shifting towards digital wallpaper printing gives us a lot more flexibility around launches and stock holdings. On fabric, I mean we said for a while, I mean, that transition has happened. We're sort of 85% digital out at Standfast now. And with fabric printing, there's a lot of prep work that goes in, then you've got the digital printing in the middle, then you've got the finishing work. So actually, it's -- digital printing and fabric is far more akin to some of the traditional techniques compared to wallpaper where that is a real step change.

Okay. And on inventory, since you mentioned it a bit more to come, I think, in terms of come out in the second half or into next year, would you prepare to quantify that?

I think both. I mean, I think the expectation would be probably we could take another GBP 1 million or so out probably in the rest of the second half of this year. But as we said, that highlight of the shift to wallpaper and digital wallpaper and as we design more, that will give us more flexibility around those areas. And I think, again, as we continue to look and analyze at the performance of collections, I think -- and probably there's possibly slightly less newness moving forward. So again, I think that allow us to be more efficient in terms of how we run our inventory. So I'd see this probably as another sort of 2 years at least to run in terms of inventory reductions, but maybe not quite at the rate that you've seen in H1.

Emmanuel from LBV Asset Management. I saw with interest on Slide 34, the developing of contract hospitality, a focus in the U.S. I think it's an extremely interesting segment. And I just wonder if you can give a bit more granularity of what the plans are, given that the opportunity set is huge. And what are you doing in Europe? Because in Europe, there are a lot of hotels. And how difficult is it to break into this segment? Because I believe it's quite profitable, and there are some players out there which make a lot of money.

Yes, it's quite a subject of its own actually. So we might follow up on that in a bit more detail. I'm not sure how much granularity I can cover in the time we've got, but yes, it's always been a smaller part of our business, predominantly because we're so print and design focused. There are specialist providers out there, and it's highly price competitive as a sector, obviously. So what we found in the past, which is slightly irritating, is that designers put us on the mood board, all of our key designs are featured and then it goes to a specifier who will modify the designs to be made for as low cost as possible in a different market, and it's virtually unrecognizable at the end of that process. So other high-end businesses that you might compare to us as a peer group, might have specialist departments where they modify their own designs to stop that happening to produce them at a different price point to fall within the requirements. And we haven't focused on that, which is what we're starting to do a little more tentatively and everything has to be signed off by the Creative Director as being something that we can be proud of having our name attached to. On the other hand, we're also working with some of those specialist companies now and allowing a small amount of our catalog to be produced under license by then in those other markets. And we're just doing that as a trial really to see how those partnerships might develop. So if we can either get the same contract through this route or this route and everything in between, we should be able to improve that -- our activity in that sector. So we've hired some people directly, particularly in the U.S., who are specialists. Our showrooms in the U.S., all have specialists for contract, and we're working with them very closely to really see what opportunity there is for our brands, and they're all different. Clarke & Clarke has got a significant opportunity through the Kravet contract. And also, they have something called a graded in-program where their own furniture line then uses the contract-ready materials for upholstery. So it's a whole world with its own and a new opportunity for us. Is that enough?

We currently have no questions from the webcast. So I'll hand over to you for any closing remarks.

Sorry, I didn't hear that.

No questions online.

Okay. All right. Well, thank you very much. It just remains for me to thank you for your support, and thank you for coming and for sharing the presentation. Have a good day.