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

Good morning, everybody. I'm Lisa Montague, CEO of Sanderson Design Group. Delighted to be here today together with my colleague, Mike Woodcock, our Chief Financial Officer, to share with you the company's interim results for the first half of the year to the end of July 2023, which for us is fiscal year '24. I will give you a brief overview of the highlights before Mike takes you through the detail of the numbers and then I'll share a little more around our strategic progress and outlook. And just to make you aware, our Chairman, Dame Dianne Thompson, is here in the room with us today and our other Board colleagues are joining online. So without further ado. In terms of highlights, the first half of the year delivered enhanced profitability with adjusted underlying profit before tax reaching GBP 6.8 million, an improvement of 8% over the first half of the prior year. Licensing is the star of the year now firmly developed as a strategic pillar of the business. In the first half, 2 major new agreements were signed and announced and we'll mention those again later in the presentation. The U.S.A. continues sales momentum, which is a key element of our growth strategy and across all channels led by designers using Zoffany and Morris & Co. in particular in important residential and hospitality projects. In the challenging U.K. consumer environment as we've closely examined our operations, we have carefully controlled costs especially the cost to serve in the U.K. market. The balance sheet remains strong with increased cash reserves through working capital management, including inventory reduction and efficiency of SKUs as planned. We will pay an interim dividend in line with last year. And all in all, the Board believes that we will deliver on our full year expectations. So Mike, over to you for a little more detail. Thank you.

So I'll start by focusing on the 10 KPIs that we regularly use to track our performance. This first slide shows that despite a slight decline in headline revenues, the impressive performance of the licensing channel saw profit before tax, adjusted profit before tax and adjusted earnings per share, all improving versus the first half of the prior year. The second schedule highlights an improvement in our inventory position compared to the prior year and, most importantly, the strength of our balance sheet as we ended H1 with GBP 15.9 million of cash. The following slides will now look at the financial results in more detail starting with a review of revenue by channel. So just a quick reminder of how we report group revenues. The business is split into 6 consumer brands, 2 manufacturing businesses that print for both our own brands and also for third-party customers. Sales in the brands business are split between product and license from 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 number. In total sales of GBP 56.7 million were down just over 2% on the previous year with growth in licensing income partially offsetting declines in brand product and in particular, third-party manufacturing revenues. At a more detailed level, looking firstly at brand product sales by geography. The difficult consumer environment in the U.K. saw brand product sales down 11.8% to GBP 19.5 million. We're encouraged by recent product introductions; including Sophie Robinson's Harlequin Collection and Disney Home Sanderson collaboration. Sampling from both these collections has been strong; but given the timing of the launches, this is yet to be converted into top line revenue. Trading in our Northern European region reflects similar challenges to those experienced in the U.K. with brand product sales down 7.3% in reported currency. Our strategic growth segment of North America, which now represents about 1/4 of brand product sales, showed growth of 10.3% in reported currency and 5.9% in constant currency. This was driven by Morris & Co. and Zoffany brands along with a robust performance from Clarke & Clarke. Progress in the first half included relaunching our New York showroom, developing relationship with designers and collaborative partners and accelerating the renewal of our distribution agreement with Kravet Inc. for Clarke & Clarke for a further 5 years starting in September '23. Clarke & Clarke sales have grown by approximately 25% since the initial agreement was signed back in 2020 and we look forward to the continued success of this relationship. Trading in the rest of the world was up 2% to GBP 5 million benefiting from contract sales to the hospitality market in the U.A.E. So now looking at the revenue on a brand-by-brand basis. Clarke & Clarke, the company's biggest selling brand, saw its sales in the first half resilient at GBP 11.6 million, a decrease of 2.2% in reported currency compared with the first half last year. The brand has also recently begun to attract licensing partners and in February this year, NEXT signed a master agreement to produce a broad range of Clarke & Clarke homeware including bedding, toweling, tableware, furniture and lighting. Morris & Co. has grown rapidly during the past few years to become our second biggest selling brand in terms of product sales and it also attracts substantial licensing income. Morris & Co's brand product sales in the first half were broadly unchanged at GBP 9.4 million. The brand continues to perform well in the U.S. where initiatives have included the launch of an outdoor performance collection and a special edit in collaboration with McGee & Co., a direct-to-consumer website created by the influential interiors company Studio McGee. Harlequin is a predominantly U.K. focused brand and consequently its sales performance was impacted by the softness we have seen in our home market. However, the brand remains the biggest selling wallpaper and fabric brand in John Lewis and we're beginning to gain traction from our strategy to promote the brand, including the color science initiative. We're encouraged by the recent launch of the Sophie Robinson collection, which has been well received. The Sanderson brand was resilient in the first half with sales of GBP 6.9 million, an increase of 4% in reported currency. Its big product launch this year was Arboretum, which was introduced in the spring and is performing strongly. As I mentioned previously, we're excited by the potential of the Sanderson brand in the months ahead following the recent launch of the Disney Home Sanderson collection of vintage-inspired wallpapers and fabrics. Zoffany returned to its growth in the first half of the year, a result of our work to restore the brand to its luxury roots, positioning it for high-end bespoke projects. The brand has performed well, particularly in the U.S. where the company has been collaborating directly with designers on major residential projects. Turning now to look at manufacturing revenue. Manufacturing is a core part of our value proposition as an integrated design company that designs, scales and prints. The world-class capabilities of our manufacturing operations include the use of multiple printing techniques with the share of digital printing rising significantly. During H1, external manufacturing revenues returned to the prepandemic level of GBP 9.5 million although this does represent a 20% reduction versus the prior year, a period when customers were still heavily restocking post COVID. Additionally, the general consumer slowdown has reduced the requirement for repeat orders from third-party customers. Importantly though, orders for new collections have held up well and order books have further improved over recent weeks. Digital printing at Anstey, our wallpaper factory, has grown rapidly since the investment in the new digital printer at the end of last year. The percentage of digital wallpaper printing compared with traditional techniques increased from 18% to 22% of the factory's output during the first half and is currently at about 25% at the beginning of H2. As in recent presentations, the next slide shows licensing revenue for both an IFRS perspective where we're required to recognize accelerated income based on minimum guaranteed royalties and in the first column on an underlying or cash basis that reflects the sell-out performance of our license partners. Our licensing segment delivered an outstanding half year with revenue up 82% to GBP 6.9 million driven by accelerated income of GBP 5 million. Major licensing agreements signed in the first half include the Clarke & Clarke NEXT collaboration highlighted previously, which generated accelerated income of GBP 3 million. The company also signed a major agreement with J Sainsbury plc's Habitat brand for Morris & Co and its Tu brand for Scion for a wide range of products. Both agreements highlight our strategic emphasis on collaborating with sector experts. The underlying performance of licensing in the half year of GBP 2.7 million that you see in the first column there, up 8% versus the prior year, reflected good growth from our core license revenue along with an earlier than expected contribution from Morris & Co.'s agreement with Ruggable, the U.S. specialist in washable rugs. As we move into H2, in early October, the second year of the Morris & Co womenswear licensing renewal with NEXT was confirmed, which generates accelerated income of a further GBP 300,000. Gross profit for the period was GBP 38.5 million compared with GBP 38.1 million in H1 FY '23 while gross profit margin at 67.9% represents an increase of 210 basis points over the prior year. Excluding the impact of licensing income, which generates 100% gross profit, margins remained flat at 63.5%. Brand product margins have improved year-on-year though as the benefits of our SKU reduction programs start to take full effect. However, manufacturing margins have been negatively impacted by increased electricity costs, salary inflation and reduced volumes in H1. As we previously communicated, our 2-year fixed price gas supply contract, which was negotiated prior to the Russian invasion of Ukraine, expired on the 1st of October this year. Given the significant increases in wholesale prices since that contract was signed, we estimate that will increase our costs by about GBP 900,000 per annum. Profit before tax was GBP 6.2 million, up from GBP 5.5 million last year and adjusted underlying profit before tax was GBP 6.8 million, up from GBP 6.3 million. As discussed, the resilient performance is driven by the strength of licensing revenues, gross margin improvement in the brands channel and a continued focus on cost control. Distribution and selling expenses of GBP 12.8 million represented 22.6% of revenue in the period compared with 21.9% last year. The increase as a percentage of revenue can be attributed to commission payments as our sales mix has shifted towards those markets where we employ an agency model. Conversely, administration expenses fell to GBP 22.1 million from GBP 22.4 million for the prior year despite general inflationary pressure, including an average 7% salary increase as we continue our commitment to be a real living wage employer. Marketing investment has also been refocused following the investment in the Chelsea Flower Show in H1 FY '23. Within the U.K. business, we remain focused on cost control and have recently completed a reorganization of our U.K. support function, which is expected to yield annualized savings of GBP 600,000. This reorganization aligns the business to the lower volumes of the current consumer environment and mitigates some of the significant inflationary pressures of the recent past. 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 first half with net cash of GBP 15.9 million compared to GBP 15.4 million at the 31st of January year-end. Net inventory of GBP 26.2 million was GBP 1.5 million lower than at year-end. Most of this fall can be attributed to the brand segment where the benefit of SKU reduction strategy is starting to be realized. Within the manufacturing division, lower sales volumes have meant that planned reductions in raw materials are taking longer to take effect in finished goods, but should start to be realized in H2. As I previously highlighted, during the year several long-term licensing agreements were agreed, but the way these revenues are recognized means there's a time lag before the cash flows from the agreements are received and means that licensing receivables increased by GBP 4 million in the first half of the year. Capital expenditure of GBP 1.5 million was focused on our 2 factories and included the final payments for our new digital printer identity at Anstey and a new modern steamer for Standfast, which should both reduce our utility bills and support our Live Beautiful sustainability strategy. I'll now hand back to Lisa, who will talk about our strategy for H2 and beyond in some more detail. Lisa?

Thank you, Mike. So to summarize where we are in our journey. I do believe that if we were facing a stable economic outlook, the business is poised for global growth having built strong foundations and efficiency with the trajectory of increasing margins, a steady investment program and a sharp eye on cost control and cash. Organic growth is planned in international markets with the primary focus on the U.S. as the most significant opportunity for all of our brands, all under-indexed and each capable of a far greater share of voice in this significant market where our share by any measure is very small. The U.K. is our major market where we have a significant market share and an important job to do now supporting our customers through tough times to maintain that position. Japan is identified as a growth market both through imported product distribution and established licensing partnerships. And growth in Europe, we expect to be led by France and Germany, each representing opportunities to develop revenues. We have a rich portfolio of brands and in this next phase, Sanderson is the heritage brand with archived power to drive demand and a marketing campaign you've seen throughout this presentation, to drive awareness and desirability for this nostalgic brand to be future famous. Licensing grows ahead of product sales in the short term capturing the momentum of the past 2 years and building on those powerful relationships firmly established with category specialists, U.K. retailers and top designers. And Sanderson again is the brand with the most opportunities and the U.S., the market with the most partnership interest, having started licensing there last year with Morris & Co. successfully with Williams Sonoma and moving on with Ruggable, both of which have been extended in the meantime. And both manufacturing units have earned their design credentials to stay at the forefront of print with continued investment in technology to enhance productivity and drive innovation and volume, helping us along the road map with environmental benefit as each investment that we make is of course measured also on this Live Beautiful impact. So moving on to our purpose. Most of you in the audience today are familiar with our strategic framework with our promise to bring the beautiful into people's homes and lives and to do that boldly; forging our own way, challenging the status quo and finding innovative solutions and always with respect to those around us and to the world in which we live. We're proud of our Live Beautiful pledge and the transversal initiative across the entire business that is delivering emissions reductions ahead of our road map. Now we're in year 5 of Planet Mark certification as evidence of our progress towards our 2 ambitious goals to be net 0 by '30 and the #1 employer of choice in our industry. Within the framework, looking forward to next year and beyond, we've identified here the key focus of each pillar: identifying the strongest growth opportunities of brands with Sanderson and Clarke & Clarke with core products and licensing opportunities, working closely across all brands with interior designers and all markets with professional designers and with a sharp focus on the U.S. Those of you familiar with our previous presentations will detect a shift in format here as we move away from the granularity of fixing things that were fundamentally broken into a phase of more progressive growth enabling plans. So I'm not going to read them all out, you'll be pleased to hear. But for instance next year we will launch the Sanderson collaboration with Giles Deacon in London and we've invited U.S. designers to come and celebrate with us. Later in the year, we then plan to take Giles on a road show to the U.S. and then to Japan for launch events. We will translate all of our assets into French and German to support our European markets and customers and increase our PR activity in key international territories. With 1 major big bang event per year, we're planning to boost Sanderson first with Americans in London and then Japan next year followed by Paris also aimed at American buyers and designers in January '26. And next year, we celebrate the centenary Standfast with a 100 years party for trade partners at the proposed fabric fair in Italy and celebrations throughout the year in Lancaster and across the group. So to succeed, we will keep a laser sharp focus on becoming the biggest imported fabric and wallcoverings resource for designers in the United States of America. How we will deliver on this is by continuing to build influence in the design community as we have been doing. I hope some of you might have caught my recent podcast, my first ever podcast, with Business of Home, the U.S.A. industry authority on interiors. We will host regional events to celebrate collaborations. As we are doing this week actually, the team is in New York with the London design duo Salvesen Graham celebrating their Sanderson collaboration. Disney is introducing new opportunities and we're encouraged by the support throughout the Walt Disney Corporation with executive offices being redecorated as we speak and a buzz of excitement in the air. Developing a U.S. first culture and global outlook across the business will offer our teams growth opportunities and it's an important cultural shift and an exciting journey to phase into. Our agreement with Kravet moving into its second chapter is also exciting as the support in their network increases with enhanced brand visibility in their showrooms and a dedicated landing page coming soon on their website. The U.K. of course remains our biggest market and our valued customer base needs our support in these challenging times. So in the U.K., our ambition is to be a great partner when times are tough. Our team will help our clients to deliver on their individual ambitions. We will be there with eye-catching window displays to attract in footfall. We will offer inspiring room sets in stores to seduce these customers that do venture into an interior design retailer. Disney is putting a smile on everybody's face and the window competition can win a lucky customer a magical trip. We can offer creative content for our partners and freely distribute that for them to use on their websites and to tempt their clients. We have to accept that the market is challenging and that U.K. consumer confidence is weak. But we can be sure to take every opportunity to leverage our strength in design, availability of stock and service to be the most dependable resource and to cement our reputation as the U.K. market leader in British design and high-end interiors. And licensing is growing with great momentum, gives us building blocks for the future. We're working with strong partners thanks to our strong brands and our talented teams and it's a testament to our rich brand portfolio and unique design capability that we continue to attract and build partnerships with category specialists and major retail groups. Showcasing our designs on finished goods with product experts raises brand awareness, which is discrete and therefore challenging when limited to fabric and wallpaper, which rarely has any office branding. Support for our partners has been increased in line with demand to ensure that we offer the best design service and continue to attract new relationships due to this differentiating benefit as well as continuing to develop existing partnerships. Now a few words about the brand portfolio and the design direction we're taking. Our portfolio of brands covers the full upper end of the fabric and wallpaper market with a strong offer in contemporary, heritage and luxury positioning. Each brand has a clearly defined personality or DNA that characterizes its design signature and this drives design direction and collection briefing, creative expression and how we communicate the collections when going to market. For instance, Zoffany is working to luxury coordinates, exquisite damasks and authentic moray wallpapers reflecting the brand's luxury positioning, Temple Newsam heritage of restoration of grand houses and product that top-end designers are asking for. Sanderson on the other hand with deep heritage back to 1860 and a touch of the chintz nostalgia will demand attention with high profile collaborations, working to the pillars that have been so successful for Morris & Co. as a heritage brand. While Clarke & Clarke takes note of the success of celebrity collaboration with the Harlequin teamed up with Sophie Robinson and Clarke & Clarke is teaming up with Breegan Jane in California, the U.S. dream makeover star, to present new collections with the U.S. first mentality. Before a collection is developed and taken to market; we have a stage gate process that estimates demand, determines sales forecasts and the likely payback of each design. Then the brand marketing teams take up the reins working with the markets to drive revenue and also monitoring soft KPIs that you can see here, looking at engagement and ultimately reporting on the impact of each activity and investment with the ultimate goal to maximize return. My favorite image of the year. This is the setup at Anstey wallcoverings factory where we hosted a customer event with House & Garden and the photographer Damien Fox who cleverly crafted these wallpaper masterpieces and styled and shot the Sanderson campaign that you've seen throughout the presentation. The images mix both new and classic collections showing the timeless appeal of Sanderson since 1860. Our operations strategy is focused on servicing all customers, both group and third party, with a design-led offer expertly crafted by blending the unique range of printing techniques that only our factories can offer. We're finding that the investment in digital printing not only reduces the need for manual intervention; it improves both speed and efficiency, reduces the need for hazardous solvents by using water-based inks and also has led to innovation and the ability to combine different print techniques with the level of creativity impossible elsewhere giving us a tangible competitive advantage for high-end creative businesses. Standfast already prints over 75% digitally on textiles and we've seen the benefits to that business over the last few years. Anstey is now on that journey having grown already from 18% last year to 22% and now running around 25% digital thanks to the new machines with more benefits to come and benefit should show in both volume and design edge. And to do all of this with operational excellence at every level starting, as you would expect, with an exemplary health and safety record and developing service levels that meet our customers' needs and exceed their expectations. So what does this mean? This means optimizing solutions with design firmly at the heart of all we do, it means balancing capacity across the lines to develop consistent capacity loads and it means staying at the forefront of British manufacturing by continuing to innovate and invest and with the new level of teamwork across the 2 factories taking the strengths of each for mutual and group benefit. And in case you didn't hear, this image is of her Royal Highness Princess of Wales, Princess Catherine, visiting Standfast & Barracks just 2 weeks ago with her interest in British manufacturing that is championing young brands and investing in young people. Our team is still walking on air after the delightful experience of a royal visit. An investment in innovation to support our Live Beautiful pledge and will deliver our road map across Scopes 1 and 2 while we step up our focus on supplier liaison to tackle Scope 3 and develop new workstreams to foster biodiversity as a positive contributor to the health of the world around us. While any company is a community of talented people aligned behind common goals and striving for the future, we are pushing forward to develop a global outlook, as I mentioned, across the whole business to drive international growth while supporting our domestic business. We're committed to fostering an environment where everybody feels valued and can thrive as their best selves and to do this with the teams aligned of course to our strategic growth levers. Reshaping the business and the teams constantly and offering training as needed to provide an environment where success is celebrated. So as we enter the last 4 months of our fiscal year, an important period, traditionally important trading period at the end of the year, the consumer environment is challenging particularly in the U.K. and remains unstable in Northern Europe and much of the rest of the world. However, our job is to focus on matters within our control, to take opportunities where they exist and we're confident in the significant opportunity in the U.S. where we are gaining traction and can do much more. Everything that we do will be focused on growing the U.S. business without taking our eyes off the home market. Licensing is now a core pillar and delivers on brand awareness building momentum into the future and solid partnerships to nurture and grow. New collection launches are stronger than before with great momentum in sampling especially from Disney Homes Sanderson collaboration and Harlequin's Sophie Robinson collaboration, strong key indicators. But it's only been a few weeks and we are yet to see how these convert through as sales start to come through towards the end of the year. To manage the cost to serve in the U.K., a challenging market, we took action in the first half to integrate the sales teams across all brands, to create a center of excellence for customer service teams in Loughborough, all under one roof. And the rightsizing delivered cost savings and brought the teams together. With costs under control, strong collections and product management that is yielding margin improvement as you heard, the structure of the business is healthy. The balance sheet is strong with cash reserves increasing. So with this in mind, the Board believes the business will meet its full year expectations. Thank you for your attention, for your continued support as we strive to take every opportunity and deliver on our mutual goals.

So if you'd like to ask any questions, Mike and I will be very happy to answer them. Ben?

Ben Hunt from Investec. I was just wondering if you could talk a little bit about the picture of the margin going forwards. You've got sort of a few nice potential tailwinds coming away having reduced the inventory and all the good work with SKU reduction and you've obviously put through the price hikes. And I guess working against that, you've got the impacts of lower volume. But I was wondering if you can maybe talk a bit about your sort of medium-term view on how we should sort of start to think about that going forward?

Ben, tailwinds would be lovely, wouldn't they? I'll take a stable environment and just a fewer headwinds would be great. In terms of margin, you're right. All of the work that we've done on inventory reduction, SKU reduction; gives inventory efficiency that we would expect to see coming through and I think we're just starting to see that coming through now on brand product margin. We don't split it out of course. So the fact that it's stable is the offset of the manufacturing margins with lower volume. So once that has stabilized, which we're back to manufacturing volumes of pre-COVID as we start to see growth hopefully coming through across the business, you could expect to see margin progress.

Okay. And I guess the second question is obviously there's some softness around the brands at the moment specifically in the U.K. You've held your guidance for this year. So what can we sort of pin on in the second half that gives you faith that you can deliver that guidance I guess particularly with reference to licensing income?

You can see that the business has been strengthened. The shape of the business in the first half whilst you can't replicate the licensing strength because we had 2 quite exceptional agreements in the first half, there is still a strong pipeline in licensing. We are renewing existing relationships regularly and perhaps at the year-end, we'll give a bit more color around that and how that's progressed through the year in terms of the number of relationships and how you can believe in the strength of those going forward as those are definitely, as I said, building blocks and as you look forward, accelerated income that we book ahead becomes real sales. So those 2 agreements that we signed in the first half of this year will launch product into the market in spring '25. So that's sort of thinking about next year. And for the rest of this year, unless anybody knows any different, I would expect the shape of the business probably to continue. I don't think there are any sort of particular green shoots out there in U.K. retail. We are probably outperforming in our sector in terms of things like John Lewis, our biggest customer although nobody is more than 5% in that respect. So it's not a major risk in any way. It's performing particularly well with Sophie Robinson that if you look on the website, they've backed really heavily. Sophie's been in to talk to the sales teams and is doing customer events and is really helping to drive interest in that respect. So I think there's a lot that we've done to boost interest in the brands for the second half, whether that's to what degree offset with the general malaise remains to be seen, but we are certainly driving hard.

Okay. And sorry, just 1 final question. How do you feel your propensity to be able to implement more price hikes going forward? Do you think you're sort of done there now?

We're generally seeing incoming pressures stabilizing and so we're expecting to return to sort of normalized annual pricing reviews, which would always have taken place in February and expected by the market. So we're starting to work on that now and there doesn't look to be anything exceptional so we would be running with our usual sort of annual increases probably not flat across all brands because we tend to look at obviously SKU by SKU and market by market and brand by brand. But on average, it shouldn't be anything unexpected.

Caroline Gulliver from Equity Development. Just following on from Ben's question on that sort of inflation outlook. Have you noticed any differences in price sensitivity by geography that you could talk to? Any difference in the U.S. versus U.K. as you put those price increases through?

Yes, there's a very marked difference generally because of the structure of the industry. So in the U.K., the market is predominantly led by retail and therefore, consumers see the finished goods price and are more price sensitive potentially in any case. And for the U.S., all of the projects go through interior designers and so the consumer is not necessarily aware of the retail value of a roll of wallpaper, it's all within the project cost. And so yes, we do see that just probably through the structure of the market.

That's interesting. And then you mentioned I think in the presentation that you were going to do more cultural awareness training as you expand those growth markets. Can you give us an example of what that is?

We have teams in Lancaster and Loughborough, in Denham, in London, in Chelsea Harbor. To have eyes on America and think America first, take some cultural immersion. And so that's why we're working with things like the podcast with Business of Home. Then if I do that, all of the team hears it as well as our American customers hearing it and that brings those messages of that market home. At the moment, we've got our Marketing Director out in the U.S. with the Salvesen Graham sort of roadshow meeting all of the publishers in the press and some key influencers looking at the show. And so that we start to get a feel that everybody at every opportunity feels the touch points of what this American business looks like.

Just final question for me and apologies because I'm fairly new to this. But in terms of the licensing agreement with NEXT, are there any early learnings from that? I appreciate it's early days, you haven't actually launched product yet. But any early learnings from that would inspire you for future licensing agreements because you talked about the growth opportunity there?

So we've worked with NEXT for a couple of years now. So I can take you through that separately at some point. But yes, we started working with NEXT actually shortly after I started, which was when NEXT started to really develop the brand business having been own label before that. And so we first started to work with Scion brand and then we developed into Morris. We had a very successful experience with Morris & Co. womenswear in particular and also very strong in the sort of nightwear, sleepwear sector. And so we've had great experience and that relationship's built over the last couple of years. NEXT has taken a great share of that retail department store business and done a phenomenal job and I think we enjoy a really strong partnership. So yes, it continues to build. Of course that Clarke & Clarke product won't launch until next spring.

It's Matthew from Singer. Couple of follow-ons for me actually if that's okay. You mentioned the new launches, in particular Harlequin and Sanderson with Disney, as having driven quite kind of positive signals. Early days in terms of sampling request. Is there any way you could help us understand the significance of the sampling request compared to what you would normally see for a new collection being launched? I mean is it a multiple of or is it kind of just bubbling a little bit higher than you would ordinarily see? So I think the Disney side seems to have very broad appeal.

Yes. I can't help you enormously as you probably know and I hope -- well, we will be able to as we see it progress. But there's a lot of excitement around Disney and certainly for Sanderson, I can tell you it's the highest sampling rate we've ever seen in the first 6 or 8 weeks for that brand ever. Even though we were kind of prepared and we expected it to be high, we weren't prepared enough. So we have vanished, replenished in terms of stock samples. And I was talking to our Commercial Director's out in Florida at the moment and of course there's huge excitement in Florida about Disney and we've also sent all of our showroom decorations out for the executive officers. So there's a great buzz in the air. In terms of Sophie Robinson for Harlequin, it's running absolutely significantly higher, in fact about 5x higher than we expected on that so that's fantastic. And I think that's a real learning for us of how Sophie is so engaging. She talks directly to her audience and that sort of celebrity endorsement really of somebody who is not only a respected designer, but also a TV personality. She's absolutely amazing the way she speaks to people and the trust that she has and she's really seen as the authority on color and that has really resonated with her audience. And John Lewis has picked up very strongly as well. So it looks as if we could expect some traction on that.

Fingers crossed, it sounds like it. Second question is just in relation to your developments on the cost to serve. You've obviously taken some cost out, but you have also done some initiatives to try and improve the service element with a focus on tiered accounts in relation to the trade hub and the prime accounts. Do you want -- can you elaborate a little bit on exactly what that means for how your team is operating and what the end customer is actually getting in terms of either proactive outbound or just general communication activity as well?

Yes. We have different types of customers, as we said, in different markets and so everybody needs quite an individual approach. And that's when we were looking at the U.K., we looked at all of the markets and how that business is shifting and how the interaction with a big multiple is very different to the interaction with an independent retailer on the high street in the market town and their needs are different. So we sort of split the teams in that way. We've always had key account managers and the business development executives principally out on the road and we've shifted also our office space to reflect that. So they're really budding up, if you like, with prime accounts, with our core heart of the U.K. business of the retailers and then interior designers who don't necessarily have a shop front and therefore also need a different level of service.

So that gives us a flavor as to how you've structured yourself internally. But in terms of the engagement from the perspective of either outbound rather than just inbound, are you moving up a level in terms of activity?

Yes, very much. And one of the things we do need to do is replatform the trade hub to be better at that. And so we're slightly constrained at the moment in terms of how much we can push in terms of pushing out creativity and creative solutions that I mentioned. So it's still quite manual. But that's good in a way because there's nothing like having somebody to talk it through and we're stepping up our communication with customers particularly this time around what they can use from us, what tools they can use, window competitions and the like to just keep the dialog going.

Well, if there's no further questions in the room, we have 1 from the webcast from Mark Simpson. He's asking I assume inventory reduction due to SKU rationalization is now largely complete. Can you quantify how much inventory reduction from raw materials we can expect in H2?

Look, I think we said at year-end that we thought we were about 10% over inventory so we were running at just over GBP 27 million and I think our view at that time was that we thought GBP 25 million was a more comfortable level and I think we'd stick with that. So as we said earlier, I think it's been slightly slower in the factories because we've got raw materials on hand for volume that hasn't necessarily come through. So I think our target is still to be looking towards that GBP 25 million net inventory position, which would mean just over GBP 1 million of reduction in the second half of the year will be.

Half of that from raw materials?

I think at least half of raw materials, possibly a little more.

Thank you. As we currently have no further questions from the webcast, I'll hand back to you Lisa for any closing remarks.

Okay. Thank you. If there are no more questions, I'd just like to thank you all for coming and giving us your time and attention and of course for your support. Thank you.