Finance Performance Results Finalised for 2023

Analysing Net Sales Performance in 2023: A Deep Dive into Growth, Price Contributions, and Market Dynamics

We ended 2023 with a strong December sales performance which resulted in a full-year sales increase vs 2022 of £4.9m or +4.1%, with price contributing +1.9% (mainly on loose tubes) and volume +2.1% (split 2/3^rd on loose and 1/3^rd on sets). Liquitex and W&N grew (North America driven) and LB reduced a little.

The effects of high consumer inflation were continued to be felt in our main markets limiting our recovery from the reduced sales in 2022 (which was impacted by post-pandemic factors and the war in Ukraine). 2023 sales growth by geography was predominantly driven by North America where we lapped the H2 2022 destocking at Michaels – the impact of this was partially offset by adverse 2023 sales performance in International where we saw further destocking and a lagged effect of reduced consumer purchasing power.

2023 Gross Margin: Factors Driving a 1.9ppt Increase and its Impact on Profits.

Gross Margin of 42.7% increased by 1.9ppt vs 2022 as a result of:

• Favourable supply chain variances as cost pressures on raw materials and logistics lessened
• Selective customer price increases and favourable sales mix (W&N and Liquitex)
• Production volumes in the factories (driven by inventory destocking and lower than planned sales vs Budget) continued to result in surplus capacity – this creates higher unit costs due to the fixed element of our cost base

This margin gain on improved sales vs 2022 resulted in an additional £4.4m of Gross Profit vs 2022.

Savings and Challenges: 2023 Opex Highlights

Opex (marketing spend and overheads) reduced by £1.4m vs 2022 as we continued to manage our cost base, seeking the balance between investing for long term growth and ensuring that we met our short-term profit goals. Although we grew sales vs 2022 we were well behind our 2023 Budget ambition which would have given us a profit challenge had we not continued to manage Opex, as well as drive margin higher. Our performance in 2023 across our target financial and sustainability metrics meant we returned to positive territory in our performance-related incentives.

In addition to Opex reductions 2023 also benefited from a COVID-related support scheme in North America, with income totalling £1.5m.

2023 exceptional costs totalled £1.7m, most notably the Q4 restructuring at the Tianjin manufacturing site (2022 exceptional cost was £1.2m).

2023 EBIT Success: £6.9m Gain Through Sales Growth and Opex Management

EBIT of £5.3m (4.2% of sales) was £6.9m higher than 2022 (excluding goodwill impairment) as a result of higher sales at improved margin, Opex management and favourable one-off items.

Strong OCF Performance in 2023

OCF was £15.6m (£21.8m favourable to 2022) driven by:

• EBIT of £5.3m
• A cash outflow in respect of Capex of £1.3m, more than offset by depreciation add-back of £6.5m
• A decrease in working capital vs 2022 of £5.0m, predominantly driven by a £6.2m reduction in inventory offset by higher Accounts Receivable (which resulted from the increased sales in December)

This OCF generation allowed us to reduce our Net Bank Debt by nearly £7m, a great outcome which was well recognised by Lindéngruppen.

Kind regards,

Jonathan Spight,
Chief Financial Officer