Timeless Design Report and Accounts for the year ended 31 December 2019 Stock code: PMP Strategic Report 1 Headlines 2 At a Glance 4 Our Brands 6 Chairman’s Statement 8 Chief Executive’s Statement 12 Markets 14 Business Model 16 Our Strategy 18 Section 172 (1) Statement on the Discharge of Directors’ Duties 19 Key Performance Indicators 20 Risk Management 21 Principal Risks and Uncertainties 22 Financial Review 24 Going Concern and Outlook 25 Corporate Responsibility Corporate Governance 28 Board of Directors 30 Corporate Governance Statement 36 Audit Committee Report 38 Nomination Committee Report 39 Directors’ Remuneration Report 47 Report of the Directors 50 Statement of Directors’ Responsibilities 51 Independent Auditor’s Report Financial Statements Our vision is to be a leading force in 55 Consolidated Income Statement the global homeware sector focused 56 Consolidated Statement of on growing our great brands. We aim Comprehensive Income 57 Consolidated Balance Sheet to achieve this strategically through 58 Company Balance Sheet sustainable revenue growth and 59 Consolidated Statement of continued product development across Changes in Equity 60 Company Statement of Changes in Equity our six established homeware brands. 61 Consolidated Statement of Cash Flows 62 Company Statement of Cash Flows Our Brands pages 4 and 5 63 Notes to the Financial Statements 96 Five-year Summary 97 Company Information and Financial Calendar Visit our website at portmeiriongroup.com Pictured on front cover (clockwise from top): Nambé Classic and Gourmet, Royal Worcester Wrendale Designs and Spode Blue Italian Pictured above: Sophie Conran for Portmeirion Mistletoe Strategic Report Headlines Strategic Report Headline profit before Dividends paid and Revenue (£’000) tax (£’000) Headline basic EPS (p) proposed per share (p) £92,816 £7,415 56.32p 8.00p 19 92,816 19 7,415 19 56.32 19 8.00 18 89,594 18 9,714 18 72.12 18 37.50 17 84,769 17 8,822 17 65.07 17 34.66 16 76,677 16 7, 8 06 16 59.60 16 32.25 15 68,669 15 8,649 15 66.02 15 30.00 Financial Headlines Operational Headlines • Full year results are in line with market expectations. • Growth in key markets including UK, USA and • Group revenue increased by 3.6% to £92.8 million South Korea. (2018: £89.6 million). • Strong growth in online sales with core UK and USA • Like-for-like revenue declined by 5.1% to £85.0 million markets growing by 17%, representing 30% of our total (2018: £89.6 million). sales in these markets. • Headline profit before tax1 of £7.4 million (2018: • Rest of the world sales down due to reducing sales £9.7 million). of Portmeirion Botanic Garden to export markets to protect South Korean market from overcapacity • EBITDA of £11.4 million (2018: £11.8 million). and excessive parallel shipping. • Headline basic earnings per share1 of 56.32p (2018: 72.12p). • Good progress made to resolve short term issues • Our intention was to maintain our total dividends in South Korea, with growth in sales to both existing paid and proposed for 2019 at 37.50p per share distribution partner and new major retailer stocking other (2018: 37.50p). However, due to the unprecedented brands within our portfolio. This will remain a key area of uncertainty facing businesses around the world from focus throughout 2020. Covid-19, we are not recommending a final dividend • Completed $12 million acquisition of Nambé LLC, at this time. We will review in three months and consider a US premium branded homewares business, providing declaring an additional interim dividend in line with exciting opportunities of sales growth and synergies. the final dividend for 2018 (29.50p). This will preserve Strong progress has been made on integration into approximately £3.1 million in forecast cash as part our existing US business. of Covid-19 contingency measures. • Appointments of Mike Raybould as Chief Executive • We have a strong balance sheet and extensive and David Sproston as Group Finance Director. bank facilities and headroom in place. We have put contingency plans in place across our business. These • Excited about opportunities in 2020 including continued include looking after the health and safety of our staff penetration in online channels and marking the 250th as well as managing both potential supply chain risk and anniversary of our iconic Spode brand through marketing impacts on sales markets around the world. At the time of activities and new product launches. writing, we have seen only minor disruption to our supply chains and our factories are working against good sales order books. We continue to monitor our key sales markets around the world closely. Given that South Korea, our third largest market, has already seen a substantial outbreak of the virus and the fast changing situation in the UK and USA it is prudent to assume there will be further disruption to come. We will continue to adapt and flex our contingency plans over the coming weeks. (1) Headline profit before tax and headline basic earnings per share exclude exceptional items – see note 6 on page 73. Annual Report and Accounts 2019 • Portmeirion Group PLC 1 Strategic Report At a Glance A strong global outlook What we do Production and sourcing We manufacture English earthenware from our factory in Stoke-on-Trent and home fragrances at our factory in the Lake District. We also source bone china and porcelain tableware, wood, glass and metal alloy giftware and other associated homewares. All are produced to the same exacting quality standards. The mix between own manufactured and sourced product was 46:54 for 2019. Our manufacturing plant in Stoke-on-Trent is well placed to produce in line with anticipated demand and our facility in the Lake District has sufficient capacity to grow as more home fragrance collections are launched through Portmeirion Group’s existing distribution channels. Pictured: Spode Blue Italian and Nambé Classic and Gourmet Routes to market Portmeirion Group sells its products to a worldwide Who we are marketplace through a variety of channels including to trade customers such as large retailers and independent stores, via a network of agents and Our vision is to be a leading force in the global homeware distributors as well as from our own retail shops sector focused on growing our great brands. To achieve and websites. We serve our customers from our this, we need to grow profitable sales within a diversified warehouses in the UK, the US, Canada and China. product portfolio, strive for operational excellence, create high quality products, engage our people and possess a strong sense of community. Our Strategy pages 16 and 17 We have 847 valued employees and sell into over 70 countries around the world where our brands and products are enjoyed by millions of consumers. Product design and development Our Brands Our value lies with our strong brands and the patterns which underpin them. Some of our major tableware patterns are also brand names in their own right such as the classic Portmeirion Botanic Garden range, which has a worldwide following. Design is key to our business. We continue to develop, extend, refresh and refine our existing patterns, and to launch new patterns and products, so as to retain and improve customer appeal. Working closely with our major customers, our design studios are the creative hubs for new Business Model pages 14 and 15 designs and extensions to existing ranges. Markets pages 12 and 13 Corporate Responsibility pages 25 to 27 2 Annual Report and Accounts 2019 • Portmeirion Group PLC Strategic Report Where we operate UNITED KINGDOM £32.6m of sales, 35% of Group revenue SOUTH KOREA £11.4m of sales, 12% of Group revenue UNITED STATES £32.5m of sales, 35% of Group revenue OTHER MARKETS £16.3m of sales, 18% of Group revenue Investment case 1 2 3 4 Brands Established sales Strong operational Strong balance Six global brands with channels capabilities sheet and strong combined history The Group sells into over UK manufacturing track record of over 700 years. 70 countries worldwide capabilities with capacity for Cash generative and and has sales offices growth in output and strong strong funding position established in the UK, USA, distribution network. with £14.4 million of Canada, Europe and China. available facilities. Reported revenue growth for eleven consecutive years. Annual Report and Accounts 2019 • Portmeirion Group PLC 3 Strategic Report Our Brands Established brands and markets Established in 1960 Beautiful designs and practicality for modern-day living. Pictured: Sara Miller London Portmeirion portmeirion.co.uk Established in 1770 Contemporary yet timeless great British design. Pictured: Spode 1770 Italian spode.co.uk Established in 1980 The UK’s largest home fragrance company, based in the British Lake District. Pictured: RHS Wildscents wax-lyrical.com 4 Annual Report and Accounts 2019 • Portmeirion Group PLC Strategic Report Established in 1751 A rich and diverse design heritage. Pictured: Royal Worcester Wrendale Designs royalworcester.co.uk Established in 1945 The premier brand for placemats and coasters Pictured: Pimpernel Blue Lily pimpernel international.co.uk Established in 1951 Making museum‑quality art a part of daily life. Pictured: Nambé Classic nambeinternational.com Annual Report and Accounts 2019 • Portmeirion Group PLC 5 Strategic Report Chairman’s Statement Shaping for the future, a year of transition Summary • New Chief Executive and Finance Director embedded in business. The Principal Risks and Uncertainties section is on page 21. We take care to identify and mitigate risks where appropriate • Board strengthened with further and reasonable. Clearly there are external factors which independent Non-executive we can have little control over, key amongst these at the Director and another planned. moment are international trade worries whether because • Successful acquisition and of epidemics or trade wars and the continuing uncertainty integration of Nambé LLC.