Portmeirion Regulatory News (PMP)

9 March 2016

Portmeirion Group PLC ('Portmeirion' or 'the Group')

Preliminary results for the year ended 31 December 2015

Financial summary

Highlights:

Financial

· Seventh consecutive year of record Group revenue which increased by 11.9% to £68.7 million (2014: £61.4 million)

· Profit before tax increased 13.6% to an all-time high of £8.6 million (2014: £7.6 million)

· Total dividend paid and proposed for 2015 increased by 13.2% to 30.00p (2014: 26.50p)

· Revenue growth in USA, UK and Asia

· Stocks reduced by £2.8 million to £12.7 million (2014: £15.5 million)

· Cash balance increased to £11.1 million (2014: £5.9 million)

Operational

· New kiln installed within timescale and budget and now in production

· Ted Baker range wins Best Licensed Home Décor, Tableware or Housewares range at The Licensing Awards

· Attained Investors in People silver level and became first company in the UK to be awarded with the new Investment in Young People (IiYP) award

· 2016 celebrates 200th Anniversary of Blue Italian range

Dick Steele, Non-executive Chairman commented:

"We are delighted to be reporting another record year. Our core values of innovation, targeted product development and operational excellence remain unchanged. Trading in the first two months of the current year is ahead of the comparative period in 2015. The outlook for 2016 is positive."

ENQUIRIES:

Portmeirion Group PLC

Business Review

Portmeirion enjoyed a seventh consecutive year of record sales in 2015 with revenues and earnings being driven to their highest ever levels. This outcome, together with our confidence for the future, has enabled us to increase our dividend for the seventh successive year. While we have improved our sales in the United States and the United Kingdom we have suffered what we believe to be a temporary slowdown in South Korean sales as the local economic conditions and attitudes towards luxury goods have softened. However, our diversified product range, supply base and wide markets have enabled us to maintain our steady progress elsewhere.

Dividends

The Board is recommending a final dividend of 23.90 pence per share bringing the total paid and proposed for the year to 30.00 pence per share, an increase of 13.2% over the total amounts paid in respect of 2014; this is a 13.8% increase over the final dividend for 2014.

The final dividend will be paid, subject to shareholders' approval at the AGM on 19 May 2016, on 25 May 2016 to shareholders on the register on 22 April 2016.

The dividends paid and proposed for 2015 are covered 2.2 times by earnings (2014: 2.2 times). The Board continues to consider that a level of dividend being twice covered is an appropriate and sustainable level for the business.

Over the last seven years we have increased our total dividends by an average of 10.7% per annum compound and our total dividend is now more than double the amount for 2008.

We listed on the London Stock Exchange 28 years ago in 1988; the issue price of our shares at flotation was £1.80 each. Our share price has grown some sixfold since 1988 and our total dividends have amounted to £3.66 per share during that period. We have never cut or withheld our dividend as a listed company.

The Board is committed to a progressive dividend policy; we believe that this is what our shareholders expect of us, why they bought Portmeirion shares and why they continue to hold them. We aim to maintain a sustainable and fair level of dividend cover and to increase our dividends whenever our results, cash balances and prudent views of future trading and business investment needs allow us so to do. Our consistent policy is to increase the interim dividend each year by the same percentage as the final dividend of the preceding year, subject of course to prevailing conditions.

Revenues

Revenues were £68.7 million for the year, an increase of 11.9% over the previous year (2014: £61.4 million). This represents a seventh consecutive year of record revenues for the Company. At a constant US dollar exchange rate our revenue increase would have been a little lower at 8.4%.

Our largest market remains the United States, which represents nearly a third of our sales. We finished the year 11.1% above last year in translated figures in the United States, but by 3.1% ahead in local currency. Continuing improvements in economic conditions in the United States give cause for optimism, however set against this must be the uncertainty around the upcoming presidential elections.

The United Kingdom remains our second largest market accounting for just over a quarter of our revenues; here we increased sales by 12.5% over 2014. The EU referendum is imminent and that carries its own uncertainties both for the UK market and our wider EU markets. However, our sales into the EU (other than the UK) are less than 3% of our revenues, so the short term impact of an exit would be slight in terms of global sales. We do continue to identify the EU as a market of major potential.

Our sales to South Korea fell back by 18.1% compared to 2014. This is the first notable sales slowdown for us in South Korea since we first started trading there nearly two decades ago; the economy has been weak and this has translated into a greater effect on the sales of luxury brands such as Portmeirion. We believe that this market is now stabilising for us. Despite such a drop in our third largest market we have still achieved overall sales growth, this is because of our emphasis on diversified global sales.

Sales growth in the rest of the world was a very impressive 56.4% during the year, with a starring performance in India which grew by 140.8% to consolidate that market as our fourth largest at over 8% of sales. Thailand and Taiwan were also areas of high growth for us. We supply our products to over sixty countries throughout the world.

Online sales, principally to United Kingdom and United States customers, were £2.5 million and are included in the sales figures quoted above. This was an excellent increase at 26.6% above 2014. This route to market continues to provide growth opportunities and sits firmly within our emphasis on diversity.

We continue to be well served by our diversified strategy encompassing widely differing geographies, products, customers and routes to market. These strategies enable us to pursue opportunities as and when they appear.

Profits

Earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 9.8% to £9.7 million in the year (2014: £8.9 million). Profit before taxation was £8.6 million, an increase of 13.6% over the comparative year (2014: £7.6 million). Both of these figures represent another record year for Portmeirion.

Basic earnings per share increased by 14.5%, dividends have been increased by 13.2%; dividend cover is well within comfort levels.

Profit growth remains ahead of revenue growth; as we have a manufacturing facility with a fixed cost base then revenue growth feeds through to improved profit growth.

We continue to suffer from the imposition of Anti-Dumping Duty which has been applied to some of our European sales. The cost to the business is cumulatively over £2 million.

Nearly all of our corporate profits are subject to taxation in either the United Kingdom or the United States. We do not engage in any exotic tax planning exercises. The corporate taxation which we paid in 2015 amounted to £2.0 million.

Balance Sheet

A significant reduction in inventories has been achieved this year, peak stocks in 2015 were £17.4 million (2014 peak: £17.3 million), our year end stock balances were £12.7 million (2014 year end: £15.5 million). This is an area for ongoing management focus in 2016. Our stock provisioning policies are unchanged and rigorous.

Cash balances finished the year at £11.1 million, being £5.2 million above 2014 year end (2014: £5.9 million). In addition to the strong revenue, profit and dividend growth this excellent increase in our cash balances is one of the most significant achievements of the year. These cash balances were delivered after paying dividends of £2.9 million (2014: £2.6 million), corporate taxation of £2.0 million (2014: £1.5 million) and capital investments of £1.5 million (2014: £0.9 million) during the year. We have a large working capital swing during the year, our year end cash balances being broadly the peak level that we achieve; it is not unreasonable for us to assume a cash swing approaching £9 million for 2016 and so in the light of this our year end cash balance is comfortable, but not excessive.

The pension scheme deficit on the defined benefit scheme which we closed seventeen years ago reduced to £3.1 million from £4.2 million at the previous year end predominantly because of the cash payment made and the discount rates used to evaluate the liabilities. £0.9 million of cash contributions were made to this scheme in 2015; there was no trading benefit to Portmeirion Group from the payment.

We have used treasury shares with a book value of £74,000 to satisfy share options exercised during the year, these treasury shares were originally bought at an average price of £1.87 each. We have 242,780 treasury shares remaining on the balance sheet which will be used to satisfy share options where appropriate. We have also acquired a further 149,377 shares for an employee benefit trust during the year. Our balance of such employee benefit trust shares now stands at 339,048, these will also be used to satisfy share options.

Products and Brands

We have four brand names - Portmeirion, Spode, Royal Worcester and Pimpernel. It is in our brands that much of the value of Portmeirion Group lies, explaining in part the difference between our balance sheet value and our stock market value. The long and illustrious history of our brands stretches back to the mid-eighteenth century with Spode and Royal Worcester. Some of our major tableware patterns are also brand names in their own rights.

Portmeirion Botanic Garden is a major pattern with a worldwide following. Since its launch in 1972 it has continued to evolve and grow. Sales last year were over £33 million, a conservative estimate would be that over 50 million pieces of Botanic Garden are still in use and on display all over the world. Other companies have tried to imitate the success of Botanic Garden and we are alert to any infringement of our intellectual property. Botanic Garden remains at the heart of our future prosperity.

Spode Christmas Tree is our second largest pattern, its main market is in North America where it consistently achieves sales in excess of $10 million per annum. From shortly after its launch in 1938 Christmas Tree has been a dominant Christmas tableware pattern; we also have other Christmas patterns such as The Holly and The Ivy.

Our oldest continuously produced pattern is Spode Blue Italian, a traditional cobalt blue on finest English earthenware. 2016 marks the 200th anniversary of the launch of Blue Italian. Josiah Spode the Younger numbered his designs consecutively, Blue Italian being Number 2614 which gives some indication of his work ethic which we are proud to maintain. The pattern around the outer edge is an Imari design, Imari being the Japanese port from which much fine porcelain was exported to Europe five hundred years ago. The central motif of Blue Italian may be based on work by Frederik de Moucheron or perhaps that by Giovanni Battista Piranesi, the truth is lost in the mists of time. What is certain is that our annual sales of Blue Italian exceed £1.5 million. Shareholders may wish to visit YouTube and search for 'Spode UK' and watch the short video which shows how the pattern is made today in our Stoke-on-Trent factory.

Ted Baker Portmeirion tableware patterns, a range of licensed designs produced in collaboration with the popular British fashion designer, were launched in 2015; sales were above budget.

Product development remains key to our future. 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. Central to our product development work is commercial reality; innovation is important but it is subordinate to profit. The Giallo extension to Blue Italian is a good example of how some product development can build on existing ranges, as is the continuing strengthening of our Wrendale offering.

A list of our current patterns can be found at www.portmeirion.co.uk, www.spode.co.uk, www.royalworcester.co.uk and www.pimpernelinternational.co.uk. Customers in the United States should go to www.portmeirion.com.

Production and Sourcing

Whether our sales are of United Kingdom manufactured product (from our own factory, or elsewhere in Stoke-on-Trent) or overseas sourced product is determined by the products being demanded. Our Stoke-on-Trent factory produces finest English earthenware, it does not produce bone china or porcelain which are different clay mixes and have different firing temperatures. Irrespective of the place of production all of our products are manufactured to our exacting quality standards and carry our reputation on the backstamp.

Our Stoke-on-Trent factory produced volumes in 2015 at a similar level as in 2014 and maintained high quality standards at the same time as successfully coping with the building of a new tunnel kiln and major movements of equipment to accommodate it. The installation of the new kiln was not without its challenges, but it is now fully commissioned and we have just started to increase production by some 20,000 best quality pieces per week. Other bottlenecks will occur as we increase this even further, particularly in decoration, but we continue to believe that we can add another 80,000 pieces a week on top of this 20,000 pieces - subject of course to there being sufficient customer demand. We have purchased a hollowware decal application machine and will be increasing our use of heat transfer decals in order to drive greater production efficiencies.

The mix between own manufactured and sourced product during the year was 46:54 whereas in 2014 it was 48:52, in 2013 it was 44:56 and in 2012 it was 41:59. Our factory has remained at the forefront of our results for 2015 as excellent production volumes have continued to be driven out, albeit at some cost to production efficiencies.

Average weekly production of best quality pieces is a reasonable proxy for production volume; in 2015 it was 148,000 per week, in 2014 we achieved 150,000 per week, in 2013 it was 128,000 per week and in 2012 115,000 per week.

People

We created 19 new jobs in 2015; the average number of employees during the year increased from 631 to 684. We have an apprenticeship programme and a graduate programme. We anticipate further job creation in 2016. Average sales per employee were £100,393 in 2015, a marginal increase on 2014 slightly above the increase in average employment costs per person. EBITDA per employee was £14,235, also showing a marginal increase on 2014.

Staff costs are the biggest item of expense in our business. Most of our people are in the United Kingdom, and the majority are based at our Stoke-on-Trent factory and warehouse sites. We employ 37 people in the United States, mainly at our Connecticut warehouse, but also in our Manhattan office and showroom.

Total staff costs were £19.6 million in 2015, an increase of 9.5% over 2014 compared to an 8.4% increase in average staff numbers. Average staff cost per head is £28,610.

We operate a non-contractual annual incentive scheme; for 2015 most of our people will receive a payment under this scheme by way of thanks for their contribution to the continuing success of Portmeirion.

We continue to recruit new people and in 2016 we anticipate making a number of senior appointments below board level with a view to helping to secure our results in future years.

The Environment

We recognise our environmental responsibilities and strive for more efficient use of resources and elimination of waste with considerable success. For example, the Company continued to beat the challenging targets on energy efficiency set as part of its ongoing membership of a Climate Change Agreement.

Corporate Governance

We are an AIM listed company and so are not subject to the full listing requirements and corporate governance rules which apply to companies on the main market. Nevertheless, we recognise and welcome the benefits of many of these corporate governance requirements which are not mandated upon us and we implement them enthusiastically when we can see tangible shareholder benefit.

We consider our approach to be forward looking in a number of areas, in particular in seeking annual re-election of all directors and in the efforts which we make to get shareholders to engage with us.

We will continue to be energetic but practical in our pursuit of effective and efficient corporate governance relative to our size, markets and business structure. The guidance provided by the Quoted Companies Alliance is a vital yardstick for companies of our size.

Outlook

Our business is worldwide for revenues and for supplies; our ranges have longevity and our brands are very strong.

Our strategy and core values remain unchanged; we believe in attentive design, assured quality, a professional sales approach, nurtured brands, prudent financing and progressive dividends. The greatest of these is dividends, and they depend on the others.

We continue to seek out acquisition opportunities to match our demanding criteria.

Trading in the first two months of the current year is ahead of the comparative period in 2015. However, as we have become increasingly second-half weighted, sales in these months are low in comparison to the rest of the year. Our brands, quality standards, people, production facilities, suppliers, logistics, designs and finances are all in fine fettle. We remain confident in our business model for the short, medium and long terms.

Richard Steele Lawrence Bryan

Non-executive Chairman Chief Executive

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2015

All the above figures relate to continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2015

CONSOLIDATED BALANCE SHEET

31 December 2015

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2015

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2015

NOTES TO THE PRELIMINARY RESULTS

1. This announcement was approved by the Board of Directors on 8 March 2016.

1.1 The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2015 or 2014, but is derived from those accounts. Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Sections 498(2) or (3) of the Companies Act 2006.

1.2 For the year ended 31 December 2015 the Group has prepared its annual report and accounts in accordance with accounting standards adopted for use in the European Union (International Financial Reporting Standards).

This financial information has been prepared in accordance with the accounting policies stated in the Group's financial statements for the year ended 31 December 2015.

The financial statements have been prepared on the historical cost basis, with the exception of derivative financial instruments which are stated at their fair value.

1.3 At 31 December 2015 the Group had a cash balance of £11.1 million and an unused bank facility with available funding of £4 million. It manufactures approximately 46% of its products and sources the remainder from third party suppliers. The Group sells into a number of different markets worldwide and has a spread of customers within its major UK and US markets.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

2. Earnings per share

The calculation of basic and diluted earnings per share is based on the following data:

3. Geographical analysis

The following table provides an analysis of the Group's revenue by geographical market, irrespective of the origin of the products:

4. Dividends

The Directors recommend that a final dividend for 2015 of 23.90p (2014: 21.00p) per ordinary share be paid, subject to shareholders' approval, on 25 May 2016 to shareholders on the register on 22 April 2016. The total dividend paid and proposed for the year is 30.00p (2014: 26.50p) per share.

5. Finance costs

6. Reconciliation of earnings before interest, tax, depreciation and amortisation (EBITDA)

The accounts for the year ended 31 December 2015 will be posted to shareholders on or before 15 April 2016 and laid before the Company at the Annual General Meeting on 19 May 2016. Copies will be available from the Company Secretary at Portmeirion Group PLC, London Road, Stoke-on-Trent, Staffs., ST4 7QQ, or from the website www.portmeiriongroup.com.