Finance Performance Results Finalised for 2022

£30.5m (-21%) decline in Net Sales vs Budget driven by:

• A number of retailers decreasing their purchases from Colart in order to reduce their inventory levels which had increased during the COVID pandemic
• Consumers purchasing less products due to their having products remaining from purchases during the pandemic
• Reduced consumer spending power as a result of higher inflation, in large part caused by the Russian invasion of Ukraine

Gross Margin reduced by 2.9ppt vs Budget as a result of:

• Increases in the cost of some of our raw materials, such as acrylic binders and resins
• Increases in the cost of transporting products from factories to warehouses and customers
• Lower production volumes in the factories resulting in higher unit costs due to the fixed element of our cost base

These adverse factors we in part off-set by increases in prices we charged to our customers in the second half of 2022.

Opex (marketing spend and overheads) reduced by £9.9m vs Budget in order to offset the impact of lower sales at adverse margin (totalling £16.6m less gross profit). These reductions were wide-ranging covering: (i) postponement or cancellation of strategic projects and reduced marketing and brand activities, (ii) reduced travel, (iii) not replacing certain leavers and restructuring functions and (iv) elimination of the majority of business performance incentive costs.

In addition to Opex reductions we also benefited from movement in foreign currency rates during 2022. This totalled about £1.5m.

We also had an exceptional cost of £0.8m in respect of the Q4 restructuring.

Opex savings and foreign currency movements reduced the impact of the £16.6m lower Gross Profit to leave EBIT £6.0m adverse to Budget at a loss of £1.6m.

OCF was -£6.5m (£6.5m adverse to Budget) driven by:

• The EBIT loss of -£1.6m (£6.0m adverse to Budget)
• A cash outflow in respect of Capex of £1.9m (which was £2.1m less than in Budget)
• An increase in working capital vs 2021 of £9.2m (we planned for an increase on £7.1m in Budget):
  • Increased inventory (cash outflow) of £3.9m as a result of reductions in production lagging the reduction in sales (some of this cash outflow is related to the higher cost of making products in 2022 vs 2021)
  • Decrease in amounts owed by customers (cash inflow) of £4.6m as a result of selling less products
  • Decrease in amounts owed to suppliers (cash outflow) of £5.8m as a result of reductions in manufacturing and non-manufacturing purchases of goods and services
  • Net decrease in other receivables and payables (cash outflow) of £4.1m as a result of (i) changes in VAT from changes in sales and purchases, (ii) reduction in accrued sales discounts and rebates from lower sales and (iii) reduction in accrued incentive payments as a result of the low business performance

Kind regards,

Jonathan Spight,
Chief Financial Officer