Portmeirion Group (LSE:PMP) — Year End Results

0:00 Good morning, ladies and gentlemen, and welcome to the PORTMEIRION GROUP PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so, and these will be available via your investor meet company dashboard.

0:33 Before we begin, I would like to submit the following poll. And as usual, if you could give that your kind attention, I'm sure the company would be most grateful. I'd And now like to hand you over to CEO, Mike Raybold. Good morning, sir. Good morning, everybody, and thank you, Jake. You have myself, Mike Raybold, chief executive, and also Dave Sproston, our group finance director. We're gonna cover a few things this morning. I'm gonna talk to you a little bit about our company, who we are, and what makes us special. We'll then move into a section where we review how we performed in full year 2022, and then we'll move on to our ambition looking forward in group strategy before covering sustainability in a summary. And then as we just said, there's an opportunity for questions at the end.

1:28 Okay. So in terms of who we are, PORTMEIRION GROUP is a collection of six consumer homeware brands with a huge amount of history and heritage. We're globally distributed. At last count, we were selling to around 80 markets around the world. We have two UK factories and also an extensive source op sourcing operation. We sell tableware, home frames products, giftware, and hand and body. Our key geographies and key markets are The US, UK, and South Korea, and then footprints across a number of other markets. Turning to our brands on slide five, you can see our six main brands.

2:15 These brands are incredibly well established in their markets. Our youngest brand is 1980, and then we have brands that go all way back to 1770 and 1751. So well known, well established, and well respected brands in their markets.

2:35 In terms of our group's investment case, what we think makes PORTMEIRION GROUP special, well, first of it starts with those well known, well established brands, which are sold globally around the world. During COVID, we've established a lot of new and different markets. We're now at a place where 75% of our sales are outside of our core home UK market, and we have a significant exposure in The US with 40% of our sales coming in The US. We have heritage and contemporary ranges. The heritage ranges provide significant and important revenue underpin and could give good visibility of future revenue.

3:22 Two of our heritage ranges alone, Port Marion, Botanic Garden, and Spode Christmas Tree account for 40% of the group's sales. Botanic Garden is 50 years old, and Spotted Christmas Tree is around 90 years old. So both of those two give good sustainable long term revenue and reliability. We see a significant opportunity over the next three to five years to not only increase our top line sales, and I'm gonna talk through our forward strategy for doing that later in the presentation, But, also, we see a substantial margin improvement opportunity, which together with the sales growth will help transform the profitability of the business.

4:09 So our vision is to deliver on that opportunity, both long term revenue and the operating margin target growth, and we're gonna do that by leveraging the brands that I've just gone through with you across that global geography and through all the different routes to market that we have.

4:31 I thought it'd be interesting to share with you some of our key retail customers around the world. I think this slide really demonstrates the breadth and strength of customer base that we have across The UK, US, South Korea, and then some of the smaller markets that we're in the process of developing further. And in particular, now highlight that customers like John Lewis and Dunelm in The UK, Macy's, Bloomingdale's in The US

5:02 are increasingly omnichannel, physical retail, and their own retail.com platforms. We've very successfully moved from being physical retail to being omnichannel and having a huge online exposure as well. In Korea, Shinjigae and Lotte are premium physical retail stores that also have their own .com platforms, and KUP PANG is a significant pure play online platform in Korea.

5:35 That concludes the first section, which is a bit about the company, our business model. We're now gonna talk to the year full year 2022. I'm gonna start off with an overview, and then Dave Sproston will take over and talk through some of the details. So in summary, we're very pleased to better report another year of growth, 5% sales growth, and that's against a tough comp. 2022 in itself was a record sales year for the growth. And, clearly, 2022 had tougher economic conditions as well for the consumer. We've really started to benefit from two things that we've been working on over the last two or three years. Firstly, the work we've done to increase our sales market geographical diversification, and secondly, the work we've done to increase our presence on online sales platforms around the world.

6:31 Both of those have helped mitigate the tougher economic conditions. So sales up five points, profit up 11 points, which means that we have a gain in operating margins, a 60 basis point gain in operating margins to 7.8%. And this is key and important because it's a part of our long term strategy to get operating margins to around 12 and a half percent, which actually is in line with historic levels in 2015 to 2018. Looking forward for a moment, it's very early days in terms of 2023. We're a couple of months in, but I'm pleased to report that trading has started well, and it is in line with forecasts so far this year. And we have good and healthy order books across our key markets.

7:21 We're excited about the strong pipeline of new product launches that we have lined up for the next year to eighteen months. And that together with momentum and work that we're doing to expand some of our rest of world geography, we think should mitigate any short term market and consumer conditions. I'm now gonna hand over to Dave, who'll look at some of the slides on full year 2022 in more detail. Thank you, Mike, and good morning to everybody on the call. So I'm just going to take you through the core financial metrics from the 2022 financial year. In terms of revenue, as Mike has just said, we saw 5% year on year revenue growth, and we think that demonstrates the strong repeat nature of a lot of our revenues. And that now leaves us 19% ahead of pre COVID levels.

8:21 We were able to increase operating profit margins by 60 basis points to 7.8%, and that improvement meant that there was a strong drop through of that revenue increase with headline profit before tax increasing by 11% to 8,000,000.

8:37 And because of that improved trading performance and ongoing confidence, we increased our dividend by 19%. And then finally, we saw a net debt increase due to cost inflation and foreign exchange retranslation, particularly in higher inventory levels.

8:59 So moving on to balance sheet. We continue to maintain a strong balance sheet, and net assets increased by 8% over the prior year. We did see an increase in net debt due to inventory, but we continue to maintain significant headroom within our borrowing facilities. And then in terms of inventory, the year on year increase was largely driven by retranslation of sterling to dollar, increased container freight rates, and an increase in underlying labor material cost prices. So about two thirds was covered by those items. And then we had a like for like increase of about one third in volume terms, although we are targeting normalizing that inventory back to 2021 volume terms by the end of twenty twenty three.

9:56 Moving on to sales by geographical market. The The US is our biggest market, 40% of sales, 3% year on year increase, and we saw a particularly strong Christmas trading period. The UK was negatively impacted by weak consumer sentiment due to cost of living pressures and decreased by 14% over the prior year. Our third largest market, South Korea. We continue to expand the number of ranges that we sell into that marketplace and and open new online distribution routes. And then in in other markets, we saw further growth in Canada. We we bought our long standing joint venture, the other half of our joint venture in 2022 2020 and continue to see positive momentum in that marketplace.

10:51 And then in other markets, we had strong performance in China and the Far East, albeit from a small base, 100% increase year on year. And then in Europe, Russia and Eastern Europe was negatively impacted by the Ukraine war, and that meant that we saw a decrease in that market. But, actually, excluding that that that region, rest of world markets were up 6% over the prior year, and that meant that we were 81% ahead of pre COVID levels in 2019.

11:27 And finally, on on sales by brand, our Spo brand continues to to to see positive momentum, 4% increase in sales over the prior year, now 39% ahead of pre COVID levels, strong sell through of seasonal products. And we have an exciting new collaboration with the British interior designer, KitKamp, which launches next month. In the Nambe brand, another strong performance, 13% up year on year, and it's now 17% ahead of its pre acquisition base in US dollar terms. And we see further opportunities to grow this brand in The US, and around the world.

12:14 And and Mike will cover this a little bit with a bit of a deeper dive in terms of the home fragrance category, but for the wax local brand, we saw a 7% reduction. Home fragrance category was particularly impacted. It's mainly a UK centric brand, but we actually acquired the AromaWorks brand out of administration in August last year. And that gives us the opportunity to add additional scale to our home fragrance category, particularly in our manufacturing plant.

12:46 Now I'm gonna hand back to Mike for the strategy update. Thank you, Dave. So the next section is gonna cover our ambition and forward strategy. I'm gonna talk to two particular areas. Firstly, the significant opportunity that we see for top line sales growth over the next five years, and then how we intend to drive up our operating margins. Starting with the sales growth strategy, I've laid out here the four key drivers that we see for our sales growth in the medium term. Firstly, geography. We're expecting to continue to grow our rest of world sales markets over the next few years. We're doing a number of different things here. Firstly, developing new markets in Asia such as China and Malaysia, but also we expect to leverage our full portfolio of products, ranges, and brands across some of the other territories that we already have small footholds in.

13:52 And that will include countries like Australia, Canada, Scandinavia, and Germany. So geography, increasing our geographical diversification is the first key driver. The second bucket is all about online, further developing our online sales channels, reaching more potential customers more times. This will cover not only our own websites in The UK and The US and building that long term direct to consumer relationship with the end consumer, but also working and continuing to work with our retail customers have omnichannel models as well. Thirdly, new product launches. We have a great pipeline of new product lined up for the next couple of years, And, really, we focus our product development and new product launches in two particular areas. Firstly, how do we extend our successful heritage ranges? Ranges like Portmere and Botanic Garden and Spode Christmas Tree. How do we take them into new places?

15:00 How do we extend the ranges as they are into new markets? Secondly, our product development is focused on taking market share in the more contemporary and giftware parts of the market. Together, we expect those two parts of new product launches to help us grow in the next three years. The fourth area and driver of growth is about leveraging our portfolio of products, ranges, and brands more effectively. This will include cross selling

15:35 within our ecommerce platforms, cross selling products, driving up basket size, average purchase price. It would include leveraging more of our ranges, more of our products across our existing customers. If we have a customer or distributor that's taking in one brand or one range, how do we get them to take more of our portfolio of products? So all four of these drivers are about bringing more customers into our brands. If I turn to look at the progress we've made in the last twelve months on some of these key buckets of growth, Then on slide 17, I've put some charts down. First chart I'd like to talk to is the top left chart, which shows the progress that we're making on rest of world sales markets.

16:22 We've got a really good trajectory of growth. It's a small part of our business at the moment accounting for around about 10%,

16:29 but we expect that trajectory of growth to continue both through new markets like China and Malaysia, but also from further establishing and working with existing distributors in some of the other countries that we operate in around the world. So that's rest of world sales. On the top right hand side, you can see the ongoing progress we're making with online sales channel penetration in our US and UK markets. We started on this journey back in 2019 pre COVID with around 30% of our sales in these markets going through online channels, whether that be retailer online channels or our own websites. We've now reached 51% in 2022. And, critically, I would highlight that as physical retail reopened in the last year, in the last twelve months, we managed to retain that growth, that online growth that we've had despite that physical retail reopening.

17:27 On the bottom of this slide, you can see both our non base sales and spoke sales, two of our brands, and, again, the increasing footprint we're getting from both of those brands. We think those two brands in particular will continue to drive us

17:42 to drive growth and drive the group's growth in the next three to five years. SPOED has been highlighted as an area of focus, and we have a lot of new product launches coming in as well as the very very well performing SPOED Christmas tree range that already exists. And non bay, we expect to continue to grow both in The US, but also to get traction in new markets outside The US as well.

18:10 So that is our sales forward strategy and the areas that we're focused on as a management team. Turning now to the significant operating margin growth opportunity. We set a medium term target, by which we mean 2024 of getting to 10% and a longer term target of getting back to historical highs of around 12 and a half percent. 12 and a half percent would be a roughly 60% uplift on where we are today. Again, a number of areas that we're focused on here. First area is getting productivity gains in our ceramic factory through the automation capital projects that we've been putting in the last couple of years. We're just over halfway through a four year accelerated program of investment.

19:00 We're making good progress.

19:03 And across the four years, this area could generate around about one and a half percent improvement in the group's operating margins. The second key driver is about leveraging the fixed cost base, the OpEx cost base that we have as we grow our top line. We've gotta utilize the capacity and spare capacity that we have in two UK factories, leverage the operating costs we already have around the world in terms of warehouses and sales teams more effectively. Again, this area over the next three to five years could be worth one and a half to 2% of operating margin accretion.

19:42 Thirdly and finally in this area, we're looking to improve the profitability of our home frames division, the wax lyrical company. This part of our business has been most impacted by the disruption from COVID. It's very UK centric and very physical retail centric. A lot of its customer base was forced to close during COVID, and it's taken some time to come back to life. And, also, home fragrance is a product category that typically is either impulse in terms of nature of purchase and or people want to smell it before purchasing it. So it hasn't translated to online in the way that other parts of our business have. That said, we're targeting new areas of business and looking to leverage our existing ranges more effectively across our global sales teams around the world.

20:35 Furthermore, in the second part of 2022, we acquired a brand called Aroma Works London out of administration. I'll talk a little bit more about that acquisition shortly, but those orders and sales now will be part of this division and should add three to maybe 4,000,000 to the top line of this business in 2023. This part of our operating operating margin strategy should add further one and a half percent over the next five years. Again, in terms of progress on our operating margin growth strategy on slide 19 on the top chart, you can see in the last couple of years that we've delivered increases in operating margin.

21:22 We expect that to continue through twenty twenty twenty four and 2025. As I said, our historical levels peaked at around 12 and a half percent, and we believe we can get back there in the long term. In terms of our home frames division, we did improve profitability in 2022 by around £500,000, but, clearly, there's still a lot of work still to do in that part of our business.

21:50 On slide 20, I wanna talk a little bit more about the bolt on acquisition of Aroma Works London. In August last year, we bought the brand and certain limited assets from the administrators. The brand itself is in the health and well-being space using 100% natural ingredients, natural essential oils. The product includes home fragrance, so candles and rediffusers, bath and body products like soaps, and also a small amount of skincare. The rationale for the acquisition really was to provide a bolt on and add scale all production now has been absorbed into our existing wax lyrical factory with no extra headcount.

22:48 We're targeting around 3 to 4,000,000 in the first year of sales, and this will add 25 to 30%

22:55 to the revenues of our home fragrance division, wax lyrical. So with minimal on cost being able to absorb that business, we expect this to help improve the profitability of our division starting in 2023. Although the brand and its business were disrupted as it was going through the painful process of administration and there was some shortages and and disruption to supplying customers, I'm pleased that our commercial teams have managed to retain all of the major customers that the brand had, and they include Waitrose, Holden Barrett, and some small online presence in Macy's in The US and Space NK. So overall, this acquisition is a small bolt on, represents a good opportunity to leverage a new customer base, and also provides some extra scale with no extra headcount going through our factory.

23:52 I'm gonna turn next to give an update on ESG and, in particular, our credentials around sustainability. We have and have had a good track record on all these areas for many, many years. We continued in the last twelve months to look for and invest in projects in our factories that reduce energy consumption, reduce our carbon emissions. We continue to have zero waste to landfill in our Stoke factory. We continue to use a wind turbine to power over 50% of the energy for our home frames factory. And a key KPI for the group is our carbon emissions per ton of saleable product.

24:37 And in our Stoke factory, I'm pleased to report a further 10% reduction in our carbon emissions per ton in 2022, and that is now a 20% reduction over two years. Importantly, in the next couple of months, we're gonna be launching a new exciting ambition document in terms of our role and and just for sustainability. We're gonna launch a pathway to get to carbon net zero. Our business is excited about it. Our management team is excited about it, and we look forward to sharing that with the wider world in the next couple of months. Similarly, in terms of our people and our communities, we continue to be committed to working with all of our people around the world, the communities that they operate in, and supporting them in every way that we can. We hold investor and people platinum accreditation in The UK and similar similar schemes in The US as well.

25:43 I'd like to pull that that we've covered so far together in terms of a summary for 2022. We saw sales growth and profit growth despite much tougher macro tough economic conditions. Our operating margins grew by 60 basis points, and we're able to cover off the very significant input cost inflation through pricing and other improvements in productivity. Key part of our long term strategy is to take that operating margin up to 10% and then hopefully 12 and a half percent in the long term. In the last twelve months, we've continued to benefit from the work that we've done in recent years to do two things. Firstly, to diversify our sales market geography, and that includes now having 75% of sales outside of The UK.

26:34 And secondly, to make significant gains in terms of online channel penetration being available on more online platforms around the world. We see an opportunity to grow the top line and our operating margins, and this will be transformational to our profitability. In terms of looking forward, we've got a strong pipeline of new product launches, and that together with the momentum that we see in our rest of world sales geography, we think should help to mitigate short term market conditions and pressure on the consumer. Our 2023 trading, we're pleased to say, started in line with forecasts, and we have good and healthy order books for our key markets around the world.

27:22 And so as a management team, we're confident about short, medium, and long term prospects for the group. We have a clear ambition, and we're looking forward to delivering on the opportunity therein. Thank you very much for listening. I hope that has been useful. We're now at at a stage where I'm gonna hand back to Jake, and he's gonna ask you to register any questions you've got, and we'll cover those off. Perfect. Mike, David, thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the top right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard.

28:14 David, Mike, we did receive a number of pre submitted questions ahead of today's event. And as you can see in the q and a tab, we've also received a number of questions throughout your presentation today as well. So firstly, thank you to all of those on the call for taking the time to submit their questions. And, Mike, David, if I could just hand back to you to respond to those questions where it's appropriate to do so, then I'll pick up from you at the end. Thank you. Thank you very much. So we'll cover off as many of these questions as as we can. There were some presubmitted ones, but please feel free to add further questions as we talk through. I'm gonna start with South Korea. Question about South Korea. Do we see future growth? I think we do see future growth in the long term.

29:04 I think we shouldn't expect growth in 2023 in the way that we had it in 2022. The growth in 2022 came from both new ranges that we introduced, which we need to give time to settle down and hopefully get traction, but also as expanding our online sales. However, in the long term in Korea, we're looking at special specialized local product development, local market product development for our botanic garden brand as well as how we establish more contemporary ranges. The next question is about operating margins, what our target is. Have we changed it? No. Our operating margin target remains around 12 and a half percent in the long term. Obviously, we refine that year to year, but 12 and a half percent is where is where we're targeting.

29:57 Next question is around the rough £1,000,000 of restructuring costs and what was it spent on. So, Dave, I'll let you pick that one up. Thanks, Mike. Yeah. We we have moved to effectively a global sort of more global structure, so there's been an alignment of of of sales and product development and and and marketing. That that so why is it not not normal course of business? It's nonrecurring in nature. So so that was a a one off nature that we've undertaken that restructuring. Thank you, David. Do you want to pick the next couple of questions as well on pension contribution and Yes. So expected cash contribution in pen for the pension, we expect it to continue at 900,000.

30:50 In terms of the the sort of derisking derisking of the scheme, you you would move some of your how how would you derisk it? You'd move some of your assets to be more matching to the liabilities. So at the moment, there's a broadly fifty fifty split equities and bonds and and liability driven investments. You you would you would rebalance that more to reduce your equities and move more into bonds so that there's a natural alignment. In terms of why we're still contributing when we're in accounting surplus, unfortunately, the actuarial world would assess the pension with a with a more cautious set of assumptions to the accounting one. That therefore, the contributions are set on a different basis than than what we disclose in the accounts. And then in terms of the next question, which is level of bank debt, do we feel as comfortable?

31:41 I think I think the the the the challenge that we have around bank debt is we do have a working capital swing, so we don't have a sort of even bank debt level. We we do have a build in working capital in the third quarter, so we always need to make sure we maintain an adequate amount of headroom as we go through the year. We always attempt to demonstrate that we've got at least £10,000,000 within our borrowing facilities. And at the end of the year, we had 17,400,000. So we believe we've got more than adequate headroom to ensure that we retain sort of maintain that buffer level should any shocks such as COVID the COVID one arise. Thank you, Dave. The next question was around energy prices.

32:28 If we bought energy at a current spot level instead of being hedged on a long term contract, what the impact operating margin would be? Guess it'd be around one and a half percent. That said, historically, we've always had long term contracts in place as part of our strategy. It would be very rare for us to buy at spot level. The next question is around the synergies that were achieved from your Romeworks acquisition. Was the factory sold? Well, no. The factory wasn't sold. We we entered when we bought the brand from administration, we entered into a license to operate within their factory for a few months while we figured out how to lift and shift and understand more about the products. So that factory has has closed, and everything now is being made from this year in in the wax lyrical factory. In terms of synergies, well, there are two synergies. The first synergy is the opportunity to bring that product to make it in our existing factory with no extra infrastructure or resource.

33:28 And the second synergy is across commercial customers. So an AromaWORKS customer comes to visit us, and we will try and try and sell wax lyrical products, and a wax lyrical customer will now try and sell AromaWORKS products. Next question is around whether we would consider doing share buybacks. I think the answer at the moment is that we can see a good use of cash within our business, in particular, in investing in our factories for the future, so not not not in the present time. Next question is how many years will our new automation equipment last until they need to be replaced? Well, that really would depend upon the piece of equipment.

34:15 You know, it's quite common in our industry to have machines that can work for twenty or thirty years. In fact, we still have machines working in our factory that were were bought twenty or thirty years ago. The new equipment we bought is top end automation and, you know, should certainly have a life of ten to twenty years, I would have thought. Dave, a question for you around interest rates and the interest rate what interest rate is paid on borrowing. Yeah. We we we do have a an interest rate cap in place on on some of the borrowings, so we're not we're not we're not totally exposed to rising interest rates, but it's it's about it's about 4%, we think, the moment is the the average interest rate that we will be paying, having the benefit of that of that cap on some of the borrowing.

35:03 Okay. Thank you. The question here is about operating margins. Is a long term target of 12 and half percent realistic given high inflation costs. Well, the answer to that really is that there's gonna be temporary. We see there's gonna be temporary input cost inflation and permanent input cost inflation. So the increases that have gone through in terms of labor rates are likely to be permanent. However, in the medium term, we think they will be covered by price rise that we've put through on our own product. The very extreme rises in energy costs and global container freight costs, which have gone up by many, many multiples, we think will be transit more transitory in nature, eventually will return to more normal levels. And, therefore, we do think that our long term operating margin target of 12 and a half percent is still realistic.

35:59 The next question is around energy price hedging. What are our views? Are we looking at hedges beyond full year '24? We're not looking to contract on energy at the moment, but between now and April 2024, which is when our current contracts end, we'll we will look for the best time to go into the market and secure some certainty on price. The next question is on the measures that we've laid out to return margins to 12 and a half, which is the most critical. I think I kind of answered that and said that each of them had a a role to play, and so, hopefully, that was clear. Next question is what went what didn't go so well in the past period?

36:55 Where do you wanna improve in in f y twenty three, and how will we do it? Well, I think it's clear from the slides, in particular, that Dave went through that the market that was most challenging for us to operate in was in was The UK. Probably no surprises there. And so we, you we're keen to see The UK market stabilize. We're not baking in enough forecast much much improvement in The UK in 2023, but hopefully by 2024, that market will have improved in terms of the consumer and their consumer spending. This is a question around ecommerce update. Can you deliver MWS? I'm not sure what that means, but we did cover online and ecommerce in some of our slides.

37:45 We're committed to growing and investing in our own websites, but also working with retail partners for their omnichannel websites as well. There's a question here from someone who's obviously familiar with the industry who's asking about a hollowware glazed dipping setup. Have we delivered it, and is it in full production? We have that piece of automation is about a year in the making and should start to go in quarter two of this year. It then normally takes a few months for these sort of things to settle down to get the full benefit, but I'm excited that that will be going in in the next quarter. Similarly, there's a question on other machinery in our factory and the status of the investments.

38:40 So the multi print machine is in. The clay pot machines are in. I've just said that the glaze dipping line is going in later this year, and we're looking at further research and development and automation for 2024. Next question is on wax lyrical sales. Better second half than first half. What made the improvement? I think that we had some product new product that went outside of The UK to new markets in the second half of twenty twenty two and a reasonable Christmas given that the market was pretty tough in The UK.

39:30 The question about turning around wax lyrical, I think I've already covered that. Rest of world sales as a driver. We've had good good growth, and we're on a good trajectory in that area. I think we grew six to 8% excluding Russia in 2022, and we're up about 80% on a y o three y basis. We think that kinda CAGR trajectory will continue. I laid out some of the countries that we've gone into in the last last kinda year to eighteen months and and our strategy for improving those sales further. There's a question around stock in the trade and whether retail customers are gonna return to more normal.

40:18 I I think that inventory levels have largely normalized already. Certainly, that's what we're seeing and hearing from our from our retail customers. There's a question on working capital. Yes. So working cap You wanna set up, Dave? Yeah. I think I think we I mean, we were still I guess, at the half year, we were still building building inventories. Our inventory levels have peaked higher than than and then declined back to the the the end of year. So I think in terms of what what is that build as we covered on the slides, about two thirds of that is down to is down to foreign exchange and inflation, and about a third is volume. And the volume really was due to to building building inventory to to sort of give us a buffer from from supply chain disruption.

41:11 I think it's just going forward. I think it's well controlled, and we've got it's just about bringing that back into balance by the end of twenty twenty three. Thank you, Dave. And I think the next question. Is there inventory? No. I think it's the the increase is largely driven by driven by core ranges in The UK and The US that that that are that are saleable. So it's about rebalancing and and either producing less or or buying less from suppliers. Thank you. There's a question about what percentage of stock can be attributed to our home frames division by Lyrica. Well, that's a as a factory that contains raw materials, the stock level would be, I think, somewhere around 16% of our total inventory.

42:05 There's a question about what proportion of our products do we make internally in our own factories versus externally, and it's really changed that. No. It's pretty flat year on year. We make around 40 low 40% of what we sell. Particularly, we make PORTMEIRION and SPOED products and wax lyrical and our REMWORKS products, whereas non bay, raw Worcester, and PMPINEL about why investors either sell shares or buy shares. We've had both funds take bigger positions in the year and funds reduce positions, and that's really a part of their strategy.

43:02 Okay. Energy hedge expires in quarter one twenty four. I think we've covered that already. Yep. How are we managing high energy costs? Will it impact future profitability? Well, you know, it'll depend on where energy costs are in just over a year's time, but we're we're focused on also taking energy out of our processes, out of our factories, out of our operations as well. And I think that whilst energy costs in likely in all likely will have a market rate above our fixed price. There'll be a lot of other costs that are going the other way that we should help to mitigate that. I've talked about online already, so thank you for that question. Should ex the question about exceptional items and whether they will continue indefinitely? Well, exceptional items are ad hoc and exceptional in nature. They're so very hard to forecast, but I think we've completed the restructuring that led to the exceptional charges in 2022.

44:04 Yep. There's a question around South Korea and its strength, and are there any potential issues with with customers reshipping product to that market. I think we've got a a great deal more control visibility of of all the things that go on in our South Korean market. I was over in South Korea a couple of weeks ago with some of my team, and we had a lot of store visits, met with a lot of customers. I think the market is in a in a pretty good place. A large proportion of the Korean volume there's a question about what proportion of it is botanical garden. A large proportion of Korean volume is botanical garden, but we're also now looking to establish further range depth, more contemporary ranges as well given the strong brand awareness that Port Marion has in that market.

45:02 Have you considered contract manufacturing to utilize spare factory capacity? No. Not for our tableware factory. And, yes, we do do some contract manufacturing or own label products in our home frames factory, and we'll continue to do that going forward. What spare capacity is a question do we have in our factories? Well, we have a significant amount of spare capacity in our home frames factory. We could probably double output with a limited amount of extra labor or shifts going on in terms of infrastructure. Less so in our Stoke factory, but certainly we could grow by 25, 30%, I think, with limited extra heads and still be able to make that within the overall infrastructure of the factory. What plans do we have to drive or or revitalize declining UK sales?

45:53 Well, part of that will be product launches that aim to take share in in different parts of the market. Part of it will be, again, deepening our online presence, and part of it will be be marketing. How do I explain the drop in share price? Well, I I think you're referring to the the price of our shares that was around £7 just before the Ukraine War and then and dropped like a lot of the market. Look. We don't set the share price. Unfortunately, a huge amount of the stock market has suffered since the Ukraine war. Our job is to to deliver on what we can control, and I've laid out our strategy to do that. And, hopefully, you know, at some point, markets will normalize and and the share price will reflect the work that we've done with the business.

46:48 The question about the impact of FX on profits and whether a stronger pound would impact profits. We actually have a pretty natural hedge on FX. So a weaker pound actually grows our top line but doesn't change our bottom line really materially at all, and a stronger pound would reduce our top line but not really impact our profits. There's a question around the PORTMEIRION Sophie Conran contemporary range. How's it performing? Over the last three to five years, that range has continued to perform well, and we expect it to perform well going forward. It's one of the ranges that sells in The US, in Canada, in The UK, and Australia sells very well around the world, and we're also looking to see whether we can establish it in South Korea.

47:41 There's a question about automation opportunities. What proportion of them will be completed in the current four year program? Well, that's a good question. I think that in terms of what we know and can see, and we've been working with an automation company, the same automation company for two years now, we think that their their program would be complete through the end of twenty twenty four. And I think we're on track to do that. But if we come across other opportunities or we get to see other things that we can do, then, obviously, we will continue to invest along with a good payback. Normally, the payback on our projects average around three years, which is a pretty good payback of factory capital investments. So so long as there's a good payback, we would continue to invest in our business.

48:35 And the final question that I've got is what are our plans for the now unnecessary factory site? I think that refers to the AromaWorks factory that that came with the acquisition. Well, we never owned that site. We just agreed a license with the administrators to operate it for a few months until we could move it. So we don't have any plans for that. It's not our site. I think that completes all of the questions. I'd like to thank everybody that submitted a question, and I hope that we got to them all and that the answers made sense. Similarly, at this stage, I'd like to thank everyone again for joining and dialing in this morning. We've enjoyed this. We really like this platform.

49:21 It's a great way to to reach a lot of people, and and I hope it's been useful. We look forward to seeing you next time we do this at our half year. Thank you. Mike. Thank you. Mike, David, that's great. And thank you very much indeed for being so generous of your time there and addressing all of those questions that came in from investors today. Mike, I was just going to ask you for a few closing comments, but I think you just well delivered those, sir. So if I may, what I'll do is I'll now look to redirect those on the call for feedback. So could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations? This won't take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of PORTMEIRION GROUP PLC, we would like to thank you for attending today's presentation.

50:09 That now concludes today's session. So good afternoon to you all.