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

Right. Good morning, everybody. Thank you for joining us today. My name is Lisa Montague and as CEO of Sanderson Design Group, I'm pleased to share with you our results for the first half of fiscal 2023. This presentation is being live broadcast, and you can reference it on our investor website. I'm also delighted to welcome our Chairman, Dame Dianne Thompson, who joins us in the room today. The agenda for today is as follows. I will summarize the performance of the first half of the year and then hand over to Chief Financial Officer, Mike Woodcock, to take you through the finances before coming back to you with an update of strategy. As a reminder of the shape of our business, we design, manufacture and market core products of fabric and wallpaper. The group has it's 7 consumer brands and 2 factories. We have strong presence in the U.K. and a growing network in the U.S. where we are under-indexed. The licensing of our brand's designs to specialist partners who produce finished goods makes an important contribution as royalty income. In summary, the performance of the first half of this year to the end of July has evidenced that strategy has continued to deliver. You can see strong licensing performance, U.S. growth, continued traction from Morris as a brand and our strong balance sheet, all strategically targeted performance areas. Revenues reached GBP 57.9 million with 10.9% profit at GBP 6.3 million. Profits were driven by strong growth in licensing and good performance from Morris & Co. as a brand and the U.S.A. as a region. Our digital and D2C projects continue, manufacturing demand has continued from last year, and we have made further progress towards our ambitious Live Beautiful sustainability strategy. Today, we announced a 0.75p interim dividend, which is in line with last year. And now I would like to invite Mike to take you through some of the detail of those results.

Thanks, Lisa. Good morning. As Lisa has just highlighted, group revenue in the period of GBP 57.9 million was up 0.7% compared with the same period last year at reported exchange rates and unchanged on a constant currency basis. On a channel basis, licensing was a standout performer, generating GBP 3.8 million of revenue in the first half of the year. Both brand product sales and third-party manufacturing revenues were down 2.5% year-on-year, and we'll go into that in a little bit more detail on the coming slide. Looking firstly at revenues from a geographic perspective. Product revenue of GBP 42.2 million was down 1% against the first half of the prior year at reported rates. In the U.K., sales were 1% below the prior year with strong sales from larger accounts, offset by declines in small independent customers, which can partially be attributed to a post-COVID backlog of orders in the first half of last year. In North America, the benefits of an expanded network of third-party showrooms and sales reps is now starting to come through with revenue up 3% at constant exchange rates. Once the strong dollar is taken into account, this growth becomes 13%. We believe we have significant potential for future growth in this market, and Lisa will touch upon that later in this presentation. Sales in Northern Europe were impacted by the previously announced decision to cease trade in Russia, which resulted in the loss of GBP 800,000 of sales in the first half. Additionally, the prior year revenue of both Northern Europe and the Rest of the World were boosted by approximately GBP 600,000 of dispatches held over from the previous year because of the customs delays that occurred following Brexit. Excluding those 2 one-off factors, brands product revenue would have been up 1% against the prior year at reported rates and unchanged on a constant currency basis. Moving on now to look at the performance of the individual brands. As noted on the previous slide, total revenue of GBP 42.2 million was down 1% year-on-year. I'll touch briefly on the performance of the individual brands in the first 6 months. And then Lisa will talk about all 7 in a little more detail later on in this presentation. Morris continues to be the standout performer with total sales up 16% year-on-year. Within this overall number, the U.K. was up 21%, and the U.S. grew 42% on a constant currency basis, boosted by the Simply Morris collection that launched last year. Other notable performances to call out from a brand perspective, including Clarke & Clarke, we saw sales in North America, where the brand is distributed by Kravet Inc., grow by 9% against a strong comparator. Harlequin, which performed strongly in its large U.K. accounts, particularly John Lewis. Additionally, another key customer, Wallpaperdirect, who are owned by Brewers have launched an exclusive edit of Harlequin designs backed by stock commitment. And then I wanted to call out Scion, which at the headline level, shows a decrease of 17% on the first half of last year. However, the real power of this brand comes as a licensing vehicle with over 80% of end consumer purchases coming from licensed products and Lisa will demonstrate this later on. A key strength of our model is that we're unique amongst our competitors and having a specialist manufacturing capacity in-house. Our manufacturing operations performed robustly in the first half. Group production was up 11% year-on-year and we made strategic investments in best-selling SKUs. Third-party orders were down 2% against an exceptionally strong first half of the prior year, where customers were restocking following COVID. Looking at the 2 sites on an individual basis. Our fabric print of Standfast continues to benefit from the post-Brexit duty environment for fabrics that encourages U.K. customers to source domestically. Standfast also has a high proportion of customers in the relatively buoyant U.S. market, which has helped boost revenues in the first half. Conversely, our wallpaper manufacturer Anstey has traditionally been more focused on the European market, where current trading conditions are significantly tougher. We continue to see a shift towards digital printing in both factories, a trend which should be accelerated as we invest in 2 new digital printers at Anstey in the second half of the year. Despite global supply chain challenges, neither factory has experienced any major shortages of raw materials during the year. Although Standfast has at times struggled to source linen, a product where Belarus played a significant part of the global supply chain. Like most businesses, we've seen cost price inflation in many of these raw materials. And as a result, we're forced to increase factory prices by 6% from the 1st of August this year, in addition to the average 6% increase we also announced in February. In terms of utilities, both factories benefit from a fixed price gas contract that was signed in June 2021 and is not due for renewal until October '23. Our fixed price electricity agreement was due for renewal on the 1st of October this year, and we're now paying the government cap rate, which represents a GBP 700,000 per annum increase from previous levels. Without this support, our electricity bills would increase by a further GBP 2 million per annum. And if this were to happen, we would look to mitigate that for a variety of measures, including energy reduction strategies, coupled with ongoing price reviews. One of the highlights for the first half of the year was the performance of our high-margin licensing channel, where sales were up 90% to GBP 3.8 million. Licensing has been a significant feature of the business' development over the last few years, and we expect to see it continue as a key pillar as we move forward. The growth was driven by GBP 1.9 million of accelerated income recognized under IFRS 15. In April, we announced the extension of our bedlinen and towelling agreement with Bedeck for Morris, Sanderson, Harlequin and Scion, which has minimum guaranteed revenues of GBP 1.1 million. Additionally, in July, we renewed our Morris & Co. womenswear license with NEXT which generated GBP 300,000 of accelerated income. Gross profit for this period was GBP 38.1 million compared to GBP 35.9 million in H1 FY '22. Excluding the impact of license income, which generates 100% gross profit, product gross margin improved by 2.3% to 63.4% in the current period. This improvement continues to be driven by changes in sales mix towards higher-margin brands, in particular, Morris & Co., increased levels of digital production in our 2 manufacturing locations and a boost from the timing of price rises to customers versus cost increases from suppliers. As noted on the manufacturing slide, we are, like all businesses facing inflationary pressures. However, we have the ability to generate efficiencies from further reductions in the SKU camp, and our growth levers are focused on the high-margin U.S. market and the high-margin Morris brand. As a result, we're confident in our ability to maintain margin levels despite the external headwinds we are facing. The next slide focuses on the group income statement. In the first half of the prior year, costs continued to be impacted by cuts to discretionary expenditure and a hiring freeze implemented in response to COVID-19. In the second half of last year, many of these activities recommenced and some of the impact of this can be seen in the results of the 31st of July '22. Distribution and selling expenses of GBP 12.7 million represented 22% of revenue, which as a percentage is in line with the full year to the 31st of January '22. Administration expenses grew GBP 1.4 million to GBP 22.4 million in the current period. Marketing spend has returned to pre-pandemic levels and the full year impact of recruitment in the second half of the prior year can also be seen. Despite the inflationary pressures in the wider economy, the benefits of our restructuring and ongoing cost efficiency can be seen in the administration expenses to remain GBP 0.5 million below the pre-COVID H1 FY '20 levels. Given the headwinds faced in the first half of the year, we're pleased in summary, to have delivered an adjusted profit before tax of GBP 6.3 million versus GBP 5.6 million in the prior year. We now move on to look at the group's strong balance sheet. Minimum guaranteed licensing income increased by GBP 1.5 million versus the prior year-end as a result of the additional IFRS 15 income previously highlighted. Inventory levels have increased by GBP 4 million in the first half as we've made strategic investments to ensure we are never out of stock of our best-selling fabric and wallpaper collections and can also fully support new product launches. As we move into the second half of the year, our focus has shifted to stock turn and efficiency to optimize cover on a reduced portfolio of SKUs in the current trading environment. Our trade receivable position has reduced by GBP 1.2 million since the year-end, and we continue to experience a low level of bad debt across our customer base. However, in the current economic environment, we maintain a strong focus on our credit management procedures in order to ensure we're minimizing any potential credit risk. Cash at the half year was GBP 15 million compared to a similar amount in July last year and GBP 19 million on the 31st of January '22. In addition to the cash balance of GBP 15 million, the group has an undrawn GBP 12.5 million committed credit facility with Barclays, which is not due for renewal until October '24. This provides substantial headroom in the current uncertain macroeconomic environment and also has the potential to support future growth opportunities. Moving on now to look at the group cash flow statement. EBITDA generated GBP 8.7 million of positive cash flow, slightly above last year's GBP 8.4 million. Our working capital has increased by GBP 9.1 million in the first 6 months, GBP 4 million of this relates to the investment in inventory discussed on the previous slide. A further GBP 1.5 million relates to the accelerated minimum guaranteed licensing income that does not generate an immediate cash benefit. Trade and other payables also generated a cash outflow, and we paid our first all company bonus scheme in May this year and also made a number of payments related to the closure of our French subsidiary, again, that was announced in January. Payments of GBP 1.2 million were made to our 2 legacy defined benefit pension schemes. The triennial valuation exercise at [ 5 8 for ] 2021 has now been completed, and we would expect payments to continue at a similar annualized level of GBP 2.4 million until April 2024. Capital expenditure in the period totaled GBP 1.5 million as we continue to focus investment in enhancing our digital printing capability in our manufacturing locations and projects that support our Live Beautiful target of being net carbon zero by 2030. The next 2 slides look at the 10 key KPIs we consistently report against. Compared to H1 FY '22, and despite the challenging trading conditions, all 5 related P&L metrics have improved year-on-year. The second slide now focuses on the more balance sheet and cash flow items and again highlights a healthy cash balance despite the significant increase in inventory we've previously discussed. I'll now hand back to Lisa to talk about some of the key strategic initiatives in more detail. Lisa?

Thank you, Mike, for a very clear and succinct explanation for the first half. Now I'd like to update you on our strategic progress and start by reminding you all of the framework that includes our business strategy with the Live Beautiful goals embedded in it. And strategic pillars and underpins here shown with products, people and planet drawn out to support our mission to bring the beautiful into people's homes and lives and to do that with imagination and respect. With our pledge to reach Zeroby30, which is well defined with the road map and the welfare of our people takes priority at all times as we strive to be a great place to work. In summary, on the strategy, we're well on our way to delivering business transformation with ongoing efficiencies and all in a rather challenging climate. Now we have stronger foundations. As conditions improve, the business is in good shape to enable growth with a streamlined product portfolio, a clear ESG plan underway and strong customer relationships that are becoming even closer through targeted activity and support. Rather heavy slide on our milestones. In October 2019, if you remember, we shared a set of milestones with a 3-year horizon that we have rolled forward since then and achieved and updated. Here, you can see the 3 -- the year in progress and the next year, as previously shared, plus the continued direction for 2025. A couple of highlights this year are, of course, the licensing growth, which demonstrates the strength of our brands, top U.K. customers all growing with us. Investment in technology for our factories will bring them competitive advantage, and we're making good progress on all the operational targets to improve that we set forth. A couple of things to roll forward. At the end here, I've marked with an arrow at the bottom of that column. But realistically, we'll move forward to next year's goals at this point. In the 2024 column, we've decided to keep licensing partnerships for all finished goods and hence, are not pursuing a strategy of homewares and sourcing as a third pillar that we have set out. So I've dropped that down out here, which makes space for these 3 that are going to roll over. New goals for '25 are here for the first time, including a new business category for wallpaper for Clarke & Clarke, which we estimate could bring a 20% uplift for that brand. Licensing will be extended to new brands, new products, new territories, including the continued push for greater market share in the U.S. The rich design archive will be completely digitized and cataloged all currently underway with new opportunities to develop as a result of that. And by 2025, we'll be halfway through our Zeroby30 plan with greater visibility of the role that technology will play and, of course, investing in our people to attract and nurture more diversity and talent in our industry. The U.S. will remain our targeted market for growth for the next 5 years at least. And hence, I'm going to zoom in on that region on the next slide. North America will have grown by over 50% over the past 3 years. And we are still significantly under-indexed vis-a-vis direct competition. The network of showrooms and trade has been greatly expanded and new relationships built. For instance, e-commerce is a new channel in the U.S. for us, working with influencers that sell online, such as Studio McGee; and also launching with Perigold, which is the luxury arm of Wayfair in the United States. Licensing has started in the U.S. with our big first American partnership, celebrating the 2 Williams at Williams Sonoma with a full range of table top and kitchenware for Morris & Co. It's going to the full network next week on October 17 and has already got great internal reception. We're supporting the team over in the U.S., small team with regular executive visits to cover the main markets to meet designers, press, sales teams and our relationship also with Kravet, the distributor for Clarke & Clarke remains strong, and they're very confident in the future development and opportunities in wall coverings, as I mentioned. Our brands target distinct audiences and their global positioning is shown on the next slide. A brief reminder of our positioning from heritage to modern on the vertical access and archive to freshly drawn modern designs on the horizontal axis. And each brand has a defined character with more as the eternal craftsman, Harlequin and powering through color and Zoffany celebrating the restoration of master pieces. I'm going to talk through each briefly, don't worry. Clarke & Clarke, the biggest brand in the portfolio, has a history of around 90% of sales being fabric, as I mentioned. We have just launched 2 new wallpaper collections to market and plan 2 more in spring to benefit from the renewed interest in wall coverings, especially in the U.S.A., estimating, as I said, that this could add a nice piece of new business for Clarke & Clarke over time. Clarke & Clarke's network continues to develop with some great new department store partnerships as well with NEXT, John Lewis and the Irish chain, Harvey Norman. The work we've done with Harlequin is the thought leader on color science is beginning to reward us. I am thrilled that John Lewis, Harlequin's biggest customer, has shown great confidence in the Own the Room concept. And you can see here a color room that's been installed in 2 department stores, 2 key stores for John Lewis, that are High Wycombe and Welwyn Garden City, where customers are invited to take the quiz to find their profile and then to be assisted by the John Lewis Home team to find the perfect decorating scheme for their individual preferences. And TV ads returned this month to British screens for Harlequin following the success of last year's trial. Morris & Co. traction continues. This beautiful garden was a triumph of landscape designer, Ruth Willmott at the RHS Chelsea in May, brought her a gold award and brought us a phenomenal GBP 1.8 million worth of editorial coverage measured on a straight-line basis. A lot of that was thanks to the BBC coverage of Sophie Raworth, 7-minute coverage of William Morris in her preview and continued throughout the week. Williams Sonoma, as I've already mentioned, is the other -- and other agreements, including Pooky lighting and the extension with NEXT womenswear have all been good news this year. And next year, having 1 new appeal for All Things Morris, we return with the new classic in honor of the personal friendship of William Morris and his Hammersmith Neighbor, Emery Walker, whose house is preserved in trust. We are supporting the collaboration to celebrate the treasures that have been preserved within. And moving on to Sanderson. The Sanderson suit from U.S. apparel company page sold through very well and has been followed by a new winter version this time with Morris & Co print on purple Velvet. Big news for Sanderson announced recently is the Disney partnership due to bring back to market vintage designs of their classic Fantasia characters celebrated in the 1930s and held in our very own Sanderson archives. Our designers are thrilled to be working on this project, bringing the quirky characters back to market on the capsule of fabrics and wallpapers. Next to Sanderson is to bring its heritage and nostalgic signs to a new audience. We're working with Giles Deacon, a talented illustrator and London-based couture designer to develop a whimsical capsule where fashion and interiors harmonize to give us time to bring in partnerships and for maximum impact, this important step forward for Sanderson will launch in spring '24. And Archive, the Rebel in the pack is an incubated project. Small D2C sales are being boosted with new partnerships, including Pooky lamp shades that you can see here, launched yesterday on Perigold as well, we continue to develop a broader reach for this brand. Zoffany is the niche luxury brand, celebrating restoration and master pieces. The last brand in our portfolio to have been really redefined and explored, the focus on Zoffany is on high-end beauty expert makers and unique designs artistically interpreted. Launch events will be planned for next year with a focus giving interior designers product to [ Kravet ]. I have a new slide. A new favorite slide. The point of this is to share with you the power of the brands and their market penetration. If you take our trade sales and those of our partners, all grossed up to retail value. You can see the split of trade and licensing for each brand and the weight and the importance of licensing, especially in the case of Morris & Co and also Scion, as Mike mentioned earlier, and the ongoing opportunities that licensing represents for us as a group. My favorite slide of the past few years shows how we've maintained the top line and grown sales for SKU by 69%, while reducing the number of designs by 40%. Our latest estimate is that 11,000 SKUs is probably about the right number and we'll continue to work in a very disciplined way as we get there and hold it steady. And unique in our sector we make for ourselves and others. The factories have performed well, and we continue to invest for improved productivity. Printing, especially textiles that require steam, means that our energy bill will increase as Mike mentioned, although gas remains under fixed terms until next October. Electricity was refixed for 2 years from this month with the government intervention recently relieving that hike at least for the next 6 months. Standfast again swept the Board at the BIBAs, the Northern Industry Awards, taking home both the Global Business and the Medium Business of the year trophies. And if we just check in on our soft targets that continue to progress, in fact, all are tracking ahead of or on target for the year. Remember, though, that these PR pounds include the Chelsea Garden that won't repeat next year. And then moving on to the ESG, Live Beautiful plan and the targets there. This is a quick reminder of what our Scope 1, 2 and 3 targets are and how we define those and the progress that we've made in terms of emissions reduction and other initiatives that are underway. And none of this would be possible without our people. And here they are with some talent investment in community spirit, we're nurturing our people and supporting their well-being, making sure they also have a bit of fun along the way with initiatives like these raising money for our communities, which brings us to the end of our presentation and a word on outlook. Our current year's performance to date, is a testament to the diversity of our model, and we continue to anticipate meeting Board expectations for the full year. Given uncertainties in the current macroeconomic and consumer environment, we do look forward with caution, and we continue to actively manage the headwinds. We have a high-quality brand portfolio. We have growing U.S. presence, and we have a strong cash balance. So this all supports us on the continued investment we plan to make for the future health of our business. Alongside continued management action and agility to reduce costs and increase efficiencies, we remain confident in the strategy of the business that we have set forth. So thank you for listening to me and Mike today. And if you have any questions, we'll be very pleased to take them.

Ben Hunt from Investec. Just wondering if you could give us some assurances, obviously, there was a strategic inventory build in this first half. At the same time, I'm assuming your volumes are down at the moment and potentially the environment could deteriorate. And really how clean your inventory position is and how assured you are that you can maintain as it is?

Sure. Thanks, Ben. Great question. Of course, as we have, as I said, halved, if you like, the portfolio of SKUs, and I've said previously, they had not left the building. They now have left the building. So the stock in that respect is focused on the live SKU portfolio. And by definition, hence, is a better quality than would have previously been the case. There is some work to do on that. We deliberately increased our coverage of our best-selling items. And also, of course, we were covering supply chain shortages from last year. Now that did all rather come together in spring of this year, and so has driven that high number. Since then, volumes have softened slightly. But we're not concerned by that inventory level because we're managing to support and service our customers well. And as we said, it will sell through. And P.S., it was acquired at last year's prices. So in actual fact, I think we remain confident in that. The next exercise to do, of course, when we get to the stabilized 11,000 SKUs will be to really look at lead times as they are. Lead times have come down from the factories from -- they ran up to 20 weeks last year. We're now down at 8. So when we look at what our lead times are, the agility of that verticality gives us and what our ideal stock levels would be, then I might be able to come back to you next time with what that ideal number of inventory level would be if we had a stabilized situation.

It's Matthew at Singer's. A couple of things sound quite material in terms of the growth coming through currently, but also as we look forward. Simply Morris was a launch, which obviously lend into a bit of the market that the brand maybe didn't reach before. That's the first. But do you want to just elaborate a little bit on how wide that's been distributed. It's obviously landed well where it's gone. And just give us a flavor as to whether or not distribution can still grow further rather than maybe just like-for-like demand in places where it's already distributed.

Yes, absolutely. Thank you, Matthew, for drawing that out. Simply Morris, I think we all agree internally has been success. In fact, it's just a year since it went to market, more or less exactly. So the collection was aimed at, if you like, sunshine markets, and it's definitely boosted Morris' distribution in the U.S., for instance, but not only. There's been great uptake from all markets on Simply Morris because it seems to be -- and this is feedback from real live customers on the ground that it does bridge that move into patterns for people who are less confident with its light background and it's more simplified color pallets. And the sales per SKU on that are running as we would have expected. So I think we had 28 -- we had about 60 SKUs in total across fabric and wallpaper, and it's running on average at about GBP 15,000 a SKU in its first year, which is actually ahead. We know we plan around GBP 10,000 in the first year. So -- it's beating the usual trends, and there's no reason why we don't see that continuing. We're not necessarily planning to bring more collections to market because it seems to do the job. So the return on that investment over time should be quite pleasing.

Yes. Great. And in relation to the wallpaper launches at Clarke & Clarke, I mean that -- I mean you've actually quoted a number could drive brand sales by 25%. I mean that...

I said 20%, Matthew.

Did you 20%. Yes. But I mean that's a material uplift. What's the sort of phasing that -- I mean you've already gone live with the collection just now. Is that right? And then the next one next year, what's...

Yes. So, books are going out to clients now as they order them. So America is slightly behind that. The books are not yet in the American market yet. Kravet are particularly keen. Kravet distributes mainly fabric, as you may all know, in the U.S., they are the market leader in terms of interior distribution of fabrics. . However, they have a very limited wallpaper offer. So they're particularly keen on that. They do represent Kohl's having said that. But no other really significant wallpaper collection. So they see it as very complementary. We'll see. I suspect we'll start to see the first sales in the first quarter. There might be something coming through in this financial year, but it's more likely by the time we work through it, it usually takes 9 months before we see real sales traction on a collection that's new to market.

Yes. So if -- I mean, if you were to succeed in your ambition to get 20% of that brand revenue from Wallpaper, the first year, you might see that would be January '25 where you get to that an annualized level of...

I think it was in that 2025 column.

Yes. Exactly, yes. It's good. Okay. And then just one further question in relation to the SKU rationalization. I mean it's clearly derived benefit on production efficiency, margin, just general efficiency, but it's a reduced choice. And therefore, over the period that you've done it, there has been a headwind on demand in your sales, which is presumably now going to ameliorate and pretty much disappear. I mean there's a little bit more to go for, but would it be fair to say that next year, you wouldn't -- whatever the headwind has been from that reduction in choice, that kind of disappears next year?

If we had an economic baseline and a stable environment, I think that would be a fair assumption. At the moment, I think we should be manufacturing crystal balls because I think my guess on that is as good as yours. And who knows, yes, we would be expecting now we've stood still, as everybody can see on the top line, having reduced the portfolio by half, which I think is a testament to that was the right thing to do. And of course, everything is now more efficient. Now as we stabilize that, we might need to add, as I said, when we get down to 10,000 SKUs, we might need to add another 1,000 over the next couple of years. We'd be expecting them to drive growth because, of course, we've reduced hopefully, the lower selling SKUs. And we've added, as I said, higher selling ones, and therefore, you'd expect some growth. I would be hoping to see that by now, but we were in peculiar times.

But I think the point is that there has been some natural headwind as a result of that. I mean we could use a relatively low sales per SKU number across what's been reduced to kind of have a guess to make it in a way.

Yes. You could.

Gavin from Stockwatch. Just 2 questions. Interested to a little bit more about how your D2C plans with Harrods are going? And also, where do you think your going back in time with Disney is going to take you in the future?

Harrods launched in April. April, I think. And they planned to go online with the offer in June. Unfortunately, that's been delayed. It's just about going live. I think yesterday, today, this month to take us into that peak period. So that's been a bit of a disappointing delay, nothing we could have done about it. It's really on the mechanics of how it's taking it online. So hopefully, now we'll see a bit of a pickup. We've never really expected to see that sales traction from the floor itself coming through, it needs the online part as well and also to work with the design interior department at Harrods, which takes time. So the jury is out a bit, I'd say, Gavin, we've extended that sort of trial period through till Christmas. And when we come back at the end of the year, we'll have more to say on it. In terms of Disney, we're quite excited. Who knows? We've redrawn those designs. Disney seems super happy with them and we're just finalizing it now. And their intention is to take that to some of their other partners it's designed as an opportunity. Now how much? I really can't tell you again, it's all bit of a guessing game at the moment. How big could that be? It could be very exciting. We will know a bit more as it develops, obviously, because there'll be 3-way partnership agreements.

The Disney product is going to be available in the shops?

Yes. So we're making a fabric and wallpaper capsule, and then they are taking it to their other partners to see who's interested in developing it further. And they're really charming designs, the old Mickey Mouse and all the Fantasia, Snow White and Alex in Wonderland and all those characters.

Would it be disingenuous for us to be able to see what those originals look like? Is it going to be reworked?

Yes. Well, I've got some fragments, but everything had to be redrawn because from the 1930s it wasn't well enough preserved to just completely reproduce it. So everything is being redrawn by our designers who are having a marvelous time with it, by the way. And we've had to sort of say stop now because it needs to develop and go to market. So Disney seems really happy with the results. And in good time, we'll be very happy to show you.

Yes. Very exciting. Just one for Mike, sorry, just on the triennial. What do you think the latest actuarial deficit has reduced to roughly just the ballpark figure or the actual number.

I mean we're scheduled to make payments of about GBP 2.5 million per annum for the next 3 years, by which point on a sort of ongoing funding perspective, those schemes should be close to being fully funded at the end of that period. So I think you can probably work it out from that, obviously. The accounting is different, which is why we have continued to maintain an accounting surplus on the face of the balance sheet.

Anybody like to ask a final question?

We have 2 questions from online from Dan Thornton of Davy. Given the moment in corporate bond yields, presumably your pension surplus has grown a lot.

The scheme is -- I mean, we're still talking through with our advisers and our [ activists ] precisely sort of the outcomes of the last couple of weeks and the movements in the bond markets. I mean, I think in common with all schemes, we have a funding deficit, the scheme would have effectively reduced in size as a result of that. And therefore, I answered to Matthew that you're looking at about a GBP 6 million funding deficit when we agreed the plan that should now be smaller as a result of the movement on the bond markets in the last couple of months or a couple of weeks, so.

And the next question, is there scope to grow U.S. distribution of Morris & Co and Simply Morris?

Yes. Was that also from Dan? .

Yes.

Yes, Dan. I'd say so, Morris is growing strongly. Simply Morris has, if you like, enable that growth across -- and the appeal of the brand across different regions. Williams Sonoma is the big license partnership. They're already have extended that for further 2 years to -- and visited the archive to relook at designs. And so all of that would suggest that there's great traction and further development opportunity, potentially, both through distribution now that we have an extended network and also through licensing partnerships.

Thank you. There are no further questions online. Thank you.

Ben?

Sorry, just -- sorry, I'm asking all the gloomy questions today. But I mean, if the housing market does start to soften as we're sort of building ourselves up for. What assurances can you give us that you've got potential for the cost you can, if need be, take out in the face of sort of volumes going down? And to what extent do you think you're less determined by what the housing market is doing and particularly the high-end housing market?

So I'll start. Ben, I don't think we're immune to any downturn. I think it would be foolish for us to make any assumption about that. So let's assume that if the market gets difficult and we're all in a recession, the housing market is down that we will all be affected. Historically, it would appear, looking back, and I wasn't here, but it appears that our particular business is often slow in and slow out of these recessions and difficult economic times, probably because of the pipeline that we tend to have. There are projects underway now. All of our designers and retailers are sort of full until Christmas, what happens then after that, we'll see. At the moment, people are feeling positive and confident when we're out there talking to them. In terms of costs that we can take out, I mean, I hope that you are confident having seen how we responded during the COVID years that we do react that we're quite agile as a management team, and we are not afraid of making tough decisions to protect the business and the future health of that. And obviously, protecting our people first. And we did make structural adjustments during the last couple of years. So you can see that our overheads and admin costs are now lower than they were. And we did make some restructuring decisions then. Now obviously, we can be flexible. We have a good chunk of variable costs. And then there are other things that we can do and levers that we can pull as we need to. For instance, the obvious one is not to invest in new collections if the market is not demanding them. But let me see what Mike has to say.

Yes. No, look, I think I agree with everything Lisa said. I mean I think other things like marketing from a discretionary expenditure point of view, we could look at in terms of cash preservation. We've said before about our willingness or our desire to increase CapEx to help increase our digital printing capacity and to help us meet our Zeroby30 objectives. But again, we can sort of delay those slightly if necessary in order to protect cash as well as the bottom line.

David Jeary from Progressive. A softer one after Ben, but just noting the change in marketing director and given the redefined roles of all the brands and everything. Could one expect any changes there? Or what does the incoming director brings to the party that is different and fits in with the way strategically you're looking to develop the business?

Yes. Thank you, David. So the new marketing director is a lady called [ Shalini Revel ], she's just joined us, but she did have a 1-month handover in the software and then in July and then took August and Nigel Hunt left at the end of August after 3 years of really fantastic contribution. [ Shalini ], we have deliberately recruited a very different profile. We've done that first journey of defining the brands, all the rebranding, including the group name, defining the brands, their characters, the DNA, their audience, their market, that's set. We have brand managers for each one. And so that journey is actually kind of pretty well done apart from the last part of Zoffany as I mentioned. What [ Shalini ] brings is a wealth of experience in a more digital and customer experience way in agile working. And so for our D2C projects for the way we work through really analyzing data to drive decisions. That's something that we felt was really missing in marketing. And so she's bringing all that piece to the party. And I have to say she's contributing already really strongly to the leadership team. So very happy with the appointment. What we have done alongside her to strengthen her team slightly is our PR executive was leaving -- planning to leave, and we've replaced that headcount because we have hiring freeze with a stronger -- with somebody with a lot more experience on PR and product. So we've got a nice balance plan to support that. Okay. Well, thank you very much.