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

Good morning, everybody. My name is Lisa Montague. I'm the CEO of Sanderson Design Group. And together with my colleague, CFO, Mike Woodcock, we're delighted to be here today to share with you the full year results to the end of January 2023. And this presentation is being recorded for your convenience and available on our Investor website, sandersondesign.group. Our plan is that I will share the highlights and summary of the year's performance with you and then hand over to Mike to take you through the details of the numbers before coming back to you with a bit more on strategic progress. For anyone less familiar with the Group, we are a house of high-end interiors, furnishing brand with unique advantage of U.K. manufacturing capability. Our revenues are derived around 80% from brands and 20% from manufacturing. And geographically, around 50% of revenues come from the U.K. market and significant opportunity is identified in international markets. As the name suggests, design is firmly at the center of everything that we do. We are pleased this year to have delivered the numbers in line with expectations in what was clearly a challenging year. The year delivered GBP 12.6 million of adjusted underlying profit before tax on sales maintained at GBP 112 million, despite the U.K. drop in consumer confidence and our decision to stop trading with Russia due to the war with Ukraine. Growth in the U.S.A. of 19% continues to show the effectiveness of our plan to develop internationally. Morris & Co. is a brand that has continued to lead the growth, both in direct sales and partnerships. Licesning growth, which delivers 100% to the bottom-line and its nature of recent longer term agreements with sizable partners, builds momentum for the next 3 to 5 years. Margins grew due to both the efficiency of a more productive product portfolio and also the increased licensing contribution dropping through. Balance sheet remains strong with cash reserves of GBP 15.4 million. Tight cost control ensured that we could live up to our commitments to our people and to our business, investing in Live Beautiful initiatives, reducing emissions ahead of our road map plan and earning our 5th year of certification from Planet Mark. Thanks to these results, the Board proposes a final dividend to be paid at 2.75p per share in addition to the 0.75p paid as an interim, making a total of 3.5p per share for the year. So now, I'll hand over to Mike to take you through a little more detail of the financial results.

Thank you, Lisa. Turning on the highlights that Lisa has just shared, I'll start my presentation by focusing on the 10 KPIs we recluse to track our performance. The first slide shows that despite a slight decline in revenues, improved gross margins and tight cost control, we saw profit before tax, adjusted profit before tax and adjusted earnings per share, all improving versus the prior year. This second schedule highlights some strategic investments we've made in inventory and capital expenditure, but also displays the strength of our balance sheet as we ended the year with GBP 15.4 million of cash. The following slides will now look at the financial results in more detail, starting with a review of revenue by channel. Quickly, before I start, a reminder of how we report Group revenues. The business, as Lisa has explained, is split into 6 consumer brands and then the 2 manufacturing businesses that print for both our own 6 brands and for third-parties. Sales of the brands business are split between product and license revenue. And for the factories, we report both third-party and intercompany revenues, although the latter are eliminated on consolidation to arrive at the Group result. In total, sales of GBP 112 million were flat from the previous year with growth in licensing income largely offsetting small declines in the brand product and third-party manufacturing revenues. At a more detailed level, looking firstly at the brand sales by geography, weak consumer confidence in the U.K. resulted in a slight decline of 2.5% in brand product sales in our home market. Our larger accounts delivered a robust performance, whereas with smaller independent retailers where we experienced the greater challenges. The U.S., where the Group's brands have historically been under-represented is an area of strategic focus and it's pleasing to report that product sales were up 6.3% in constant currency during the year. Product sales in Northern Europe were down 16% in constant currency, impacted in particular by the cessation of trade in Russia where prior year sales were GBP 1.8 million. Additionally, the prior year FY '22 number of both Northern Europe and the rest of the world were boosted by GBP 600,000 dispatches held over from FY '22 because the customs delays occurred following Brexit. If we exclude these 2 one-off impacts, total brand sales were up 2% year-on-year in constant currency. Across all the brands, 2 rounds of price increases were implemented in the year to offset inflationary pressure we experienced within our own factories and from third-party suppliers. These price rises averaged 15%, but were weighted towards the brands with greater pricing power. For example, Morris & Co., and away from our lowest position brand, Clarke & Clarke. Consequently, although brand sales in value terms are broadly flat, we've seen a reduction in product volumes over the last 12 months. Now looking at revenues on a brand-by-brand basis. Clarke & Clarke, our biggest selling brand was the first to be impacted by the downturn in the U.K. economy. However, the brand resorted its best ever performance in North America. Historically, Clarke & Clarke as a brand has been almost entirely focused on fabric. So a key strategic initiative for the brand is to launch complementary wallpapers. We've made progress by launching 2 small wallpaper collections this year and plan to launch a further 2 in FY '24. Morris & Co. had another year of strong growth and is now our second biggest selling brand with sales of GBP 19 million, up 16% compared with FY '22. Again, North America was a highlight with revenues up 37% in constant currency, driven by the Simply Morris collection, which was launched in autumn 2021 and is a modern interpretation of Morris & Co. design targeting the sunshine states. It was a year of consolidation for Harlequin where the focus was embedding the colour science initiative into the brand. Importantly, John Lewis has embraced this concept with the launch of Harlequin colour pods in 2 of its top stores, which have been well received and give confidence in the strategy with further partnerships planned for this year. Brand product sales at Sanderson were down by 3%, heavily impacted by the challenges in Northern Europe. However, in the strategic North America market, revenues were up 4% in constant currency. In line with our strategy of fewer stronger launches, Sanderson collections have been rationalized to one big launch each year with Water Garden being the key focus for FY '23. And then Zoffany is the Group's interior design-led brand, which occupies the top price point in the Group's brands. During the year, brand product sales were up 1%, again driven by North America where revenues were up 5% in constant currency. And finally, on to Scion, which we now view as predominantly a licensing brand. It makes its main contribution to the Group via royalty income. As a result, we no longer produce full collections of wallpapers and fabrics, but instead launch capsule collections to bring newness to the brand. As I mentioned earlier, our 2 factories, Standfast & Barracks and Anstey, print for both our own brands and third-parties, positioning them at the center of our industry. This unique integrated vertical supply chain is an important pillar in our growth strategy and continues to be the focus of increased investment, particularly in digital printing technology. The performance of both factories during the year was robust against a strong comparator in FY '22, which saw both our own brands and third-party customers restocking after COVID. Third-party sales fell by 3% year-on-year, whereas Group sales dropped by 10% despite some strategic investments in inventory. Looking at the 2 sites on an individual basis. Our fabric print at 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 a relatively buoyant U.S. market. Conversely, our wallpaper manufacturer Anstey has traditionally been more focused on the European market where trading conditions in the year were significantly tougher. Our plans for growth at Anstey are focused on our digital printing offer. Towards the end of the year, we purchased 2 new digital printers, which offer enhanced capabilities, including speed, the full benefit of which should be seen in FY '24. As in recent presentations, this next slide shows licensing revenue from both an IFRS perspective where we're required to recognize accelerated licensing income based on minimum guaranteed royalties. And in the first column, on an underlying basis, that reflects the sell-out performance of our license partners. These underlying revenues were up 6% versus the prior year to GBP 5.3 million. Notable licensing agreement signed during the year included a 3-year renewal with Bedeck, which has rights in multiple geographies to a wide range of bedlinen and towelling for Morris & Co., Sanderson, Harlequin and the Scion brands and also a renewal of our Morris & Co. womenswear with collaboration for up to 2 with NEXT for up to 2 years. The Morris & Co. kitchenware partnership with Williams Sonoma, our first U.S. exclusive agreement initially signed in August 2021, has now been extended by a further 2 years to 2025. The Group's gross margin grew from GBP 73.8 million in FY '22 to GBP 74.2 million. Excluding the impact of licensing income, which generates 100% gross profit, margins improved to 64.2% versus 64.1% in the prior year. This margin performance was gained through the improving efficiency of the business and a proactive approach to product pricing with price increases in February and August last year, along with a tight control of costs. Our fixed price electricity contract was renewed in October 2022 and our long-term gas fixed rate agreement will expire in October '23. We continue to focus on our consumption, including installing energy-saving technology at both manufacturing locations and amending production schedules at Standfast so that our industrial boilers are only lit for 4 days a week. Despite these efforts, we still expect our utility cost to increase by approximately GBP 1.7 million in the year to January '24. Moving on now to look at the Group income statement. Profit before tax was GBP 10.9 million, up from GBP 10.4 million in FY '22 and adjusted profit before tax was GBP 12.6 million, up from GBP 12.5 million. As discussed earlier, this resilient performance is driven by the strength of licensing revenues, gross margin improvement and a continued focus on cost control. Distribution and selling expenses of GBP 25.1 million represented 22% of revenue, in line with prior year levels. Inflationary pressures impacted all areas of administration expenses. We continue to implement cost efficiency measures, which meant we were able to limit this increase to only 1% compared to the prior year and we still see administration expenses GBP 2.7 million below pre-COVID 2020 levels. I'll now move on to talk about the Group's strong balance sheet and cash position, which in the current consumer market provides significant protection in the event of any further deterioration in trading conditions. We ended the year with net cash of GBP 15.4 million compared to GBP 19.1 million in the prior year. Net inventory increased by GBP 5.1 million to GBP 27.8 million at the year end. This reflected a combination of cost increases for both finished goods and raw materials and strategic investments to assure strong availability of our best-selling ranges. Whilst our SKU reduction strategy is substantially complete for range planning purposes, margin improvement, better product management and stock efficiency are expected to be realized in future periods. As a result, we anticipate inventory levels will reduce in FY '24. As I previously highlighted, during the year, several long-term licensing agreements were agreed, including those with NEXT and Bedeck. The way these revenues are recognized means there is a time lag before the cash flows from the agreements are received, which is shown as a GBP 1.2 million outflow on this slide. During the year, we also made GBP 1 million of payments related to the restructuring of our French subsidiary that we announced at this time last year. Capital expenditure of GBP 4.8 million was focused on our 2 factories, including the investment in digital printing technology at Anstey that Lisa talked about. As we've previously flagged, we'd expect capital expenditure to increase to around GBP 6 million per annum as we continue our investment in digital printing technology and also projects that reduce our utility bills and support our Live Beautiful sustainability strategy. FY '23 also marked a return to paying full dividends to shareholders. And as Lisa has mentioned, the Board is proposing the same level of distribution again this year. I'll now hand back to Lisa who will talk about our key areas of strategic progress.

Thank you, Mike. This image depicts my favorite moment of the year. To share with you, the Morris & Co., main avenue garden at RHS Chelsea that won the very talented Ruth Willmott landscape designer, the gold medal. And it makes an inspiring screen saver. I can share with you. So now I'm going to take you through some of the strategic progress made through the year and our forward view. For anyone new to our story, our strategic framework was agreed in October '19, against which we've continued to report progress. And we continue to review the strategy with the Board and regularly update with the half year results in October. Our key pillars are brand, products, customers and geographies, all underpinned by our teams, strong financial health and a healthy respect for our planet. Our purpose is to bring the beautiful into people's homes and lives. And to do that by being intrepid, boldly forging our own way, imaginative, challenging the status quo and respectful, sensitive to the impacts of everything that we do. And with this in mind, we're committed to a plan for the business to be net zero carbon by 2030, and we're currently ahead of our emissions reduction targets in our well defined road map. We're also committed to providing great place to work, nurturing our talent and providing a safe environment where everyone can be their best, which enables a high performance culture. In summary, the second half of the year continued much as expected when we presented the interims in October. Management navigated headwinds in a pretty challenging year and emerged stronger. We focused on customer centricity this year, really exploring how we can support the various different cohorts and profiles of our customers. This year, interacting with the various cohorts on our road shows, I received lots of positive feedback about the trade hub. Our trade hub is well appreciated by retail partners and we have 1,400 visits per day on average, accessing information. And consistently, we're processing 60% of our orders through the platform. We continue to make progress also with our organic growth of Instagram followers, which is a great measure for any creative business, reaching nearly 600,000 followers at the end of the financial year, an increase of 18%. And with that -- within that number also, Morris & Co. reached their 100,000, which was also very pleasing. Editorial value achieved GBP 17 million, including the GBP 1.8 billion that we have mentioned from the Chelsea Flower Show. Strategic progress has been made generally giving us a solid platform from which to grow as we will evidence on the next few slides. So each year up to now, we've set out these milestones that we believe demonstrate delivery of our plan. For the fiscal year ending '23, although overall growth alluded us, we did reach all of the strategic markets along the way, as you can see, I've ticked off here in this first column. Interestingly, we're starting to see contract business return, led by the refurbishment of hospitality, mainly hotels and resorts, some of which have been in the pipeline for 3 years now. On D2C, we enjoyed great learnings with our fun Archive brand. And after review, have decided not to invest in scaling up for the time being. So we're continuing to pursue our partnership route to reach consumers until such a time as the payback on the cost of implementing the necessary tech stack is more compelling. And moving on to '24, we're working well on all fronts and making progress on the milestones that you can see here and focusing on growth opportunities as most of the heavy lifting is now done, and we can look forward for a stronger platform. The more of that when we come back in October and cover off more strategic next steps. So as the U.S.A. is highlighted as the single biggest market opportunity, the next slide highlights our momentum in that important North American market. So these are total numbers, which we haven't shown before. This is a new slide, reported in pound sterling, which includes both the brands' direct wholesale portfolio managed by the subsidiary and also the distribution income of Clarke & Clarke through our partner, Kravet. Due to the change in distribution, which was in fiscal 2020, Clarke & Clarke sales actually declined and then have climbed back to being level and built back very well. Brand sales during the same period of 4 years have grown nearly 50% from GBP 10.6 million to GBP 15.7 million over the 4 years and showed great traction, thanks to all the efforts of our teams on improving the network known as our Boots on the Ground initiative. We believe that we can drive strong growth in the U.S. now that we've got a stronger sales network in place. There's also opportunity for partnerships, licensing and collaborations to drive brand awareness in this most important market, which remains our full focus and #1 growth opportunity. Here, you can see hopefully, some lovely images of our new showroom in New York that just opened. Still in the important D&D Building on Manhattan's 3rd Avenue, we've gone up in the world to the 9th floor with the corner space that's filled with natural light and enjoys views downtown. We're looking forward to celebrating in a couple of weeks' time when our Chairman, Dianne and I welcome guests and host them in our new welcoming space that is beautifully decorated of course. Claire Vallis in the meantime, our Design Director across all brands, is hosting Harlequin Colour Panel at the Texas Design Show next week with our University of Leeds, Professor of Colour Science, Stephen Westlan and well-known interior designers from Houston and Texas. We're all switching our thinking to U.S. first when it comes to brand initiatives and product requirements. So let's take a look at the brands. Starting with the architecture of our consumer brands and how they relate to each other in the global marketplace, showing Zoffany as our luxury offering at the peak of the pyramid and Clarke & Clarke keenly priced for a broad appeal, driving our highest volume of product sales. So I'm quickly going to skip through each brand to show you the unique approach we take to each one. Clarke & Clarke is the biggest brand, as I mentioned, by volume of product sales. Opportunities to note are in developing wallpaper as a category, which represents 30% to 40% of sales for the other brands on average and 2% on average with Clarke & Clarke, which has been very fabric-focused up until now. Big news for Clarke & Clarke is a significant homewares license that we signed with NEXT, announced in February for a 5-year period that gave us GBP 2.6 million of accelerated income. We also launched a collection of Morris-inspired designs in the spring collections this year to capitalize on the demand for heritage Archive designs at a keen price point. And outdoor performance fabrics are also greatly in demand in the U.S. and other warm climates as well. And we're launching our first capsule outdoor performance collection for Clarke & Clarke this summer. So U.S. is again the key growth market with Kravet distribution partnership moving into its second chapter and an exciting collaboration, the first for Clarke & Clarke and U.S. focused with TV Home Makeover star, Breegan Jane. Harlequin is all about colour science and color is very strong. The work we've done has been well received and all 4 colour profiles of Rewild, Renew, Retreat and Reflect are in the market and performing well. TV campaign delivered strong viewing numbers. And the colour panel talks I mentioned have been really well received and will be boosted in the second half with Sophie Robinson, our own British TV queen of colour. Colour pods have driven growth and confidence in Harlequin from the John Lewis partnership, back to being Harlequin's biggest customer. And the next collaboration that we're working on for 2024 is with the lovely Henry Holland, London's designer and tastemaker who's transitioned from fashion designer to ceramics potter and is a perfect partner for Harlequin's Reflect colour story. There's lots going on with Morris. Morris & Co. has enjoyed some fabulous big brand moments this year. We'll never forget the beautiful award-winning garden that I shared with you earlier and the incredible coverage it received on national TV. We've re-energized Morris & Co. in these past few years through collaborations and new lines like Simply Morris, as Mike mentioned, that have driven sales. Now we've come back to something more traditional for the purest to enjoy celebrating the House of Emery Walker. He was a great friend and collaborator of William Morris himself. It's been a true privilege to launch 7 new designs that have never before been commercialized and to support the house trust with this collection that launched in January and is off to a great start. With eyes back on the U.S.A., we're launching Morris & Co. Outdoor-Performance collection this summer. And licensing continues to go from strength to strength with Sangetsu, our Japanese partner, launching in June their first big compilation of wall coverings, floorings and fabrics that will be distributed in Japan and all the way across Southeast Asia. And here's something different for Sanderson. Sanderson is our flagship brand, established as the go-to for florals and botanicals, and we're tuning it up again to gain global attention for this heritage treasure. Here, you have a sneak peak of a high impact campaign to launch next month that blends classics with new designs. There's a lot of focus on Sanderson in the second half of this year with our exciting Disney Home capsule sure to bring a smile to everyone's faces and opportunities for partnerships there abound. Salvesen Graham is the London's styling duo, showing us their Sanderson Favorites with a special edit to come in the second half and introducing also a trimmings collection, especially designed to show us how to complete the look when decorating. And for 2024, we work with Giles Deacon, London couturier designer and illustrator, celebrated with red carpet dressing, very popular in the States. And with Giles, we're launching a collaboration that showcases his take on Sanderson classics, bringing forward to create a new modern nostalgia. Zoffany's recent collections have found a new focus in high end artistry and craftsmanship. They've been super well received and customers enjoyed our day earlier in the year last year at Temple Newsam, the grand house in New Yorkshire, the restoration of which was the birthplace of the brand. Zoffany is working on other important grand houses with interior designers right now and also winning work for hotels and restaurants. We're delighted to see Zoffany back in demand and recognized as a luxury and bespoke partner. And our 6th brand, Scion, is tiny in the wholesale network, but drives a hugely important licensing contribution. Last year, Scion collaborated with Designs In Mind, a social enterprise initiative, that brought joy to everyone it touched. This year, Scion turns 10 into double-digits. And they're celebrating with huge licensing partnership just inked last month with Sainsbury's for its homewares and also for its 2 apparel collection. The brand continues to innovate with eye-catching designs and capsule collections that are specific and very much targeted to our partners' audiences. And here, you can see in the second column, the importance of Scion and its licensing significant revenue driven by the brand's youthful designs. This is an image we introduced with the interims to show the relative retail market penetration of each brand. If we measure the brand, wholesale product revenues and volume from partners all grossed up to retail value. And it gives us an idea of the market presence with an estimated value of GBP 300 million of retail equivalent sales value for our consumer brands. This GBP 300 million business in the eye of the consumer also drives profit that can be marketing dollars for the future, invested to drive further organic growth. And this chart also highlights the opportunity for partnerships with some of the other brands, like Sanderson for instance, as a heritage brand with strong international appeal. Now anybody who knows me will understand I have mixed feelings about this slide. As Mike tells me, it's the last time I can include my favorite topic of SKU reduction. Now that we've achieved our goal of reducing our number of SKUs without dropping sales, may I add, we'll focus on keeping the discipline and working to drive the sales of each product in the collections, launching newness with careful consideration broadly on a one-in-one-out basis and maintaining that discipline with a few exceptions for new concepts like Outdoor for instance. This was at the heart of our strategy to improve efficiency. And now that we've bid fairwell to the non-performers, you will see the high performers drive sales and margin as we move forward. So thank you for supporting me on that one and goodbye to the slide. Moving on to manufacturing. In this image, you can see one of the hungry new digital printers working at Anstey. Anstey has just been awarded the highly regarded ISO45001 certification for excellent standards in health and safety, which is not an easy one to achieve. Both factories are enjoying strong order books and benefiting from working together creatively, which is new, winning new third-party business through design innovation and techniques that come from blending conventional printing with digital printing processes. We're thrilled with the new developments in manufacturing that will drive competitive advantage for the future, and the teams are upbeat and performing well. And we're in our 5th year of Planet Mark certification, which puts us ahead of our road map for emissions reduction, and I believe, ahead of our peer group in many ways. Importantly, it really shows our commitment to the transversal Live Beautiful initiative that is embedded across our Group culture. And I'm super proud of our first cohort of SFT, which is the Sanderson Futures Team, graduating from their 2-year program. We've celebrated a group of 10 talented individuals, but actually only 6 of them made it into the photo. The real living wage commitment that we made a couple of years ago has really positively impacted more than 100 people across the Group and the organization with an increase that was set this year at 10.2%. We implemented a sliding scale for this fiscal year from the cost of living crisis to protect our teams. The average pay rise of just over 7% will cost us around GBP 2 million in this current financial year. Our training, welfare support and community work have all ramped up. And the community groups at each site are very active, both internally looking after our teams and externally engaging with our local populations. And we're also delighted to support the Furniture Makers Company and QEST, which is the Queen Elizabeth Scholarship Trust, where I'm also a trustee on behalf of Sanderson as a Royal Warrant-Holder. So moving on to outlook for this financial year. At this early stage of the year, a couple of months in, as I've said and I hope you all agree, our full year results reflects strategic progress in difficult market conditions. We'll continue to deliver our strategy to control costs carefully and to focus resources on international market opportunities given the ongoing uncertainty in the U.K. consumer environment. As we start the current year, inflationary pressures on input costs persist, but U.S. market continues to perform strongly. Licensing income has performed very well and hospitality contract orders are encouraging. We're also confident in upcoming launches from our brands and collaborations, including Sophie Robinson for Harlequin and the vintage Disney Home Sanderson Collection to come in the second half of the year. The Board's expectation for the year remains unchanged. So thank you for giving me your time and attention today and for our presentation. If you'd like to ask Mike and I any questions, you'll be very welcome.

Ben Hunt from Investec. Just wondering if you could give us a few reassurances on the inventory position; obviously, elevated at the moment, volumes are negative. How clean is the stock, the age of it? And how confident you are that you can reduce it? And then secondly, I suppose related. Obviously, you've come to the end of a journey of a SKU reduction, but I wonder if there is -- you have done a lot of progress on the gross margin, but whether you perhaps are even more upside if some of these cost headwinds we faced do start to normalize? And then just finally, I think you alluded to the direct-to-consumer channel in your -- in the announcement and some of the projects you've done. I'm just wondering what your findings have been? And where you're beginning to think around that part of the strategy?

Absolutely. So inventory, yes, you know that the way our model works, we carry all the inventory risk for our customers and what we send out is 100% sold through. So sometimes, we're thought of as U.K. retail, but that's a huge difference, and that goes for the whole industry. So our inventory is heavy. It is absolutely, I would say, the cleanest it's possibly ever been since the beginning of time. We have exited the non-performing SKUs, as I mentioned. And so the inventory that we're holding is all very good quality, excellent quality and in demand. It's slightly heavier, not much honestly, possibly 10% higher than we'd like to see as an optimal level in order to not drop availability of our best-selling SKUs to be able to fulfill projects that come through and deliver on them. There's nothing more frustrating for a designer than specking a project and then we're 50 yards short or something. So it's important to keep cover, but it is good. And we're possibly a little heavy because we had the combination last year of having rates dropped during all the constraints of COVID and the shipping and the container issues that we had around the world. So we boosted our inventory to give us a buffer. And then, of course, the market took a slight step back. So we've got the combination of those 2 things, but it's not something that we are concerned about. And in fact, in the first couple of months of this year, we can already see it coming down. So I hope that's a satisfactory point on that one. In terms of SKU reduction, we could all imagine though it could be more upside, given the fact that we are now at half of the product portfolio, the things that weren't contributing have gone, and therefore, by definition, the product performance of the half that's left is performing at twice the rate that we would expect to see that continue and come through as the momentum builds and we can start to negotiate on volume and so on. Also, we're down to sort of the 10,000 that we had set as a target. We'll be back to 11,000, but those extra 1,000 SKUs will be to drive volume in some of the things that we've taken out so we can now see the gap. So clearly, the way we plan now going forward is that we work very much on forecasting ROI before we commit to the SKUs and we're much more efficient in the way we approach that. So I think you could reasonably expect us to deliver more through that and maintaining that discipline. And in fact, all of the new collection launches are performing at a much higher level than the historic ones, which you can see in the numbers. In terms of D2C, it was really interesting. So we call this an incubator project. We launched a website during COVID, bringing back developers to put something that we said was homemade and to give us a chance to test with a new brand on a new platform to a new audience for very low cost, what the opportunities might be. Interestingly, so we found that I think the team did an amazing job. Archive was beautifully executed. It was really fun. It showed the best of what we could do in terms of bringing something to life from the Archive in a slightly disruptive, but very positive way and gave direct-to-consumer with a new brand. And those things cost to launch and to scale. And I don't think we win any prizes in this environment for spending a few million pounds to do that. We've got our inflationary cost pressures on salaries that we don't have an option around. We have other inflations coming through on utilities. If it weren't for that, we'd probably be going ahead and investing in the platform. But I don't believe it's the right time to do it. And we've had the discussions with GLT and Board and decided just not to take that step at the moment. So we're not stopping anything, but we're not moving forward and investing in that activity. We have got some strong partnerships, and that's a great way for us to reach the consumer in this intervening period of time until we find it compelling enough and are convinced enough that the ROI will come from going direct.

David Jeary from Progressive. A little follow-up on the range, first of all, if I may. If you could expand a little bit more on where those extra 1,000 SKUs are coming from? You obviously alluded to the outdoor products, but particularly in the context of eliminations and where you might be re-adding, that would be interesting to hear a little bit about. And also roughly over what kind of a timeframe do you envisage returning to that 11,000 mark? And secondly, if I may, [ re-Anstey ] on the digital penetration going forward. There's a little blip at the end of last year. And just to understand a little bit more about that. But more importantly, I guess, given the introduction of these 2 new machines, where do you anticipate if you're prepared to say that digital penetration might go to over the next year or 2?

2 very full questions. On the range, a good chunk of the 10,000 SKUs that have come out were -- well, they clearly weren't performing enough, but some of them were fulfilling a function or they wouldn't have been there in the first place. They just weren't performing to our expectations. And so there are now little gaps, things like, for example, [indiscernible] that interesting product. But wide width shares for people who have conservatives, big windows and they run the wave and that's a particular voile that tends to be a wide width then you can -- what they call railroad it, turn it around, but it has to be the wide width. And that's a product category that's particularly in demand and we don't have fully covered right now. So that would bring with it a range of colours and would be a reasonable SKU count of 20 or 30 options and that will come through. It's already in the plan. So some of that will come through this year and some the following year. So you'll see us build back, but not beyond those 11,000 outdoors we mentioned, it's another one. And then some categories of upholstery-type plains where there's demand for upholsteries and weaves. That's not something we produce through our own factories. So we've got the prints covered. You need that sort of back-up support products that comes through. Clearly, that on its own doesn't crack it. So we focused on getting all the showstoppers out there and some plains now to sort of support those stars in the window where we're just focusing now. So that you could expect to bring some yardage -- meterage with it. They call it yardage in the States. And then on digital, there was a little dip last year, most peculiarly because we were introducing 2 new big digital machines. We have to close the digital department to reconfigure it to get the new machines in. And actually, that's what caused the dip. So it went back literally from 18% to 16%, but we'll build back very strongly. Where it can go is a big question. The new -- we have 2 new machines. One is in HP White and the other one is a [ Dust ] which goes faster. They're both incredibly productive and in demand already at the beginning of this year. So working really hard on sampling and offering new solutions. So very much in demand to both third-party customers and to our brands. The Dust is printing the new Clarke & Clarke collections, for instance, empowering those through the wallpaper for their collections. So it's all really, really positive. Where we'll end up? I would think we'll be significantly ahead of where it was last year. And then the opportunity, we're not yet at the full solution of the fully integrated web solution, which will probably come in the next couple of years. And there's no reason that we can see why we wouldn't get at least a sort of 50-50 kind of split and probably move much more towards where Standfast is ended up, which is about 80-20. But it's the application of the 2 things together that's important and could possibly be more important at Anstey than Standfast because most printers have either conventional or digital, very few have both. And what we're seeing is that we can win with new innovation and techniques and designs that other people can't offer. So already the traction and the demand for those is really exciting.

It's Matthew from Singer. 3 questions from me as well. Just going back to Clarke & Clarke and the new initial wallpaper collections, it's early days, I guess, but what's the signs like from your partners? Are customers buying into that new collection? And the new launches you've got lined up, I think they're imminent, if not already out there. What -- how much extra scale does that add to the wallpaper collection? If you could go through that first, that would be great.

So I think Clarke & Clarke wallpaper grew 23% last year off a very low number. But of course, those new collections only came in partway through the year. So it takes some time to get mature in the market and the U.S. launches are a little behind. So we're not seeing that yet. The U.S. market is interesting because wallpaper has been classically in our brands historically sort of 35% of the total on average. We're seeing it shift in the U.S. particularly much more 50-50. That's where all the growth is coming through, well particularly. It's also of course a product that sells online. So our online influencers like the [ Gango ] Studio McGee I referenced. They're the wallpaper editor for SKUs for Morris. It's wallpaper that they focus on because it's something people can do themselves. They can sell it online. You can't sell meters of fabric that need turning into something so readily. So we would expect growth to come through from the U.S. as well when it lands, which it hasn't yet. And I think there's a significant opportunity. We've put it down on the strategic milestones, I think it's 20% growth opportunity for the brand, which of course, would represent GBP 45 million, which is great. 2 more collections coming this year.

The next one just in relation to the manufacturing profit. I mean, obviously, a big reduction versus the prior year. Just maybe give us a little bit of a flavor as to how much that's a reflection of the super normal level of profit in the prior year or perhaps as an element of as you've been destocking in the final quarter and changing some of the printing capacity over whether or not you regard that you just finished as a low point as well? Is it -- if you could give us a flavor of that, that would be helpful.

It's a combination. As you know. it's all about volumes through manufacturing. And last year, we had the super boost at the end of the year that came from the post-COVID restocking, which of course, didn't happen in this FY '23. And Mike, do you want to pick up more on that?

Yes. So I think you sort of asked the question yourself. I think it's 6.5% of the other. I think you are right. Last year was particularly strong. This year that we've just ended, slightly softer in terms of volumes, as I discussed earlier. I think we cut back on Group production more than third-parties. So Group production was down more. Now obviously, the factories run on quite a high fixed cost base. The other thing clearly that didn't help, as Lisa just mentioned, is shutting down the digital room for a period of time to advance the towards the end of the year to facilitate the introduction of the new printers. So I'm not sure we'd see the budget year returning to sort of FY '22 levels, but we'd certainly see it start to head back in that direction. Particularly now we've got the new capabilities, particularly at Anstey in terms of the new digital printing technology that we have.

And then the final question was in relation to dividend. A few questions today from investors around what's shaping your policy around the final dividend and the full year dividend? Are you using a mixture of cash cover, earnings cover? What's your thinking around that? If you could give us a bit more flavor.

So I think while the dividend is we've proposed flat on last year, and of course, '20 and '21 was -- if we go back to 2019, it's ahead of that. So when we talked about being progressive, I think we're using that as a sort of starting point. Now if you go back before that, the dividend was more generous in 2018, of course, that's a long time ago before we were here. So we would expect -- profit was flat and cash was a little behind. We'd expect to be more cash generative going forward. And therefore, to live up to that, you could expect to see more generous approach coming through.

[ Tim Mayo ], an investor. Just on the U.S. Obviously, you've got Kravet supporting you strongly now, and you've showed the slide there, which demonstrates that 50% growth. Just remind me, Lisa, are you exclusive? Are there geographic areas in the U.S. that you can't go to because they have the whole U.S. or could you use other people?

Yes, we could. Yes, no. We have 2 distribution networks. One is our own subsidiary that's been there 35 years and represents all of the brands except Clarke & Clarke. Clarke & Clarke pre-acquisition was distributed by Robert Allen Duralee. You might remember, they went into Chapter 11 about the time I started. And the President of [indiscernible] marvelous. So we have those 2 distribution networks. And we decided because the President was leaving to not incorporate Clarke & Clarke into that subsidiary at the time, but to keep separate distribution, which we did with Kravet. There's nothing to say that either Kravet couldn't take more brands or we could manage any of those distributions separately. But we really believe that this model is working very well. Kravet has a -- Kravet is a market leader, has a huge network of showrooms, really professional, works really well. They have their own brands, European brands, brands like Brunschwig & Fils, GP & J Baker as well at high level, [indiscernible] have contract division. It's a big company, private, beautifully run and we have a really strong partnership. So for Clarke & Clarke that fits very much a demand for their customers that they don't have in their portfolio for a keenly priced European offer. And with the other brands, we're very happy with the share of network that we've been building with the sales network with our Boots on the Ground policy. We're still missing a couple of people. We're recruiting actively at the moment. But it's quick in the States for 2 or 3 more road reps and also another area sales manager. And then we have the network that we believe can deliver more growth in market share given how under-represented we are.

So to say, those road reps would be fully employed by yourselves?

Yes, it's a combination actually. Some of them are effectively employees engaged by the area showrooms who are third-party agents, 2 of them are direct. So we've got New York and Chicago direct and then 10 other big regional showrooms and those are agents, third-parties, so independent businesses. They're either engaged by them directly or by us, but either way we pay for them.

Just one last one, a boring one really, but quite important for cash flow for Mike. I know in the past, you've had had a bit of a deficit on the pension. Obviously, we've seen what's happened with 10-year and 30-year gilt yields, which should have helped that. Is there any commentary you'd like to give us on that? And when is the next triennial review I think?

So yes, the next triennial review is due in April '24. So we've finalized the last triennial valuation where we agreed largely to keep cash payments into the schemes consistent with the levels they've historically been at. So that's about GBP 2.5 million per annum going into those schemes. I think the view is around the time of the next triennial valuation probably a little bit beyond it, I guess, you'd be looking to get to a position where the schemes are sort of fully funded on an ongoing basis. I guess, we've mentioned in previous conferences or meetings about the potential to look at maybe stepping towards ensuring those schemes, which obviously would require a premium above and beyond that. But we'll talk to our advisers and work out an appropriate time if and when that will happen. But for now, I'd expect the cash flows into those schemes to be at roughly similar levels that they've been historically.

One more for me. It's Matthew at Singers. Just on the Disney and Sanderson collaboration. I think when you announced it, obviously, there was a lot of scope for range, territories and so forth. Are you any closer to knowing how it will launch and where it will launch?

We're a little closer, Matthew. Nothing I can disclose specifically right now, but there are some good discussions in the pipeline. As I said, it's kind of driven by Disney and we're in now detailed discussion about how that's progressing. So I hope -- well, I'll be able to tell you more as they come through. But there's nothing inked exactly precisely at the moment, but lots of interest, which is nice. And I think you're all going to love the collection. It's really charming.

So we have one question from the webcast. It comes from a private investor. Are you seeing any licensee or customer confusion between your Morris & Co. brand and the William Morris at Home brand? How do you differentiate? And how do you plan to manage this situation going forward?

So Morris & Co. is the original heritage company that was founded by William Morris. And that has driven the growth of the Morris & Co. brand that we've established and the Archive that we hold and all of the designs that are generated from those original designs. There are other institutions around the world that hold also part of the Archive, and of course, have the same right to produce designs from those that originate from them. As funding for also cultural institutions becomes tight, people are more and more looking towards commercial ventures, and we publicize how successful that's been. So I'm not at all surprised that we're seeing more interest also in Morris designs generally and heritage designs generally. And in this particular case, that's being asked about, this is something I think William Morris at Home has been around for some time, particularly in terms of hand creams and personal care items that have been distributed, particularly in John Lewis, which is also a big customer for Morris & Co. And we've not had any issues over -- any discussions over that or any kind of confusion that's unaware of at all. I think there are ambitions to grow that at the moment, and we've seen that there's a bedding collection, for instance, launched recently in Marks & Spencer, which is through William Morris at Home and not through Morris & Co. and that looks good.

Well unless there's any further questions from the room, I'll pass it back to you Lisa for any closing remarks.

Thank you. I'd just like to thank everybody for your ongoing support and for joining us today and thank you for hearing our presentation and for your feedback.