Samarkand Group plc : Interim Results
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Samarkand Group plc (SMK)
11 December 2023
Samarkand Group plc ("Samarkand", the "Company" or together with its subsidiaries the "Group")
Interim Results
Samarkand Group plc, the cross-border eCommerce technology, services and consumer brand group, announces its unaudited interim results for the half year ending 30 September 2023 (“H1 2024”).
Financial Highlights
Operational Highlights
David Hampstead, Chief Executive Officer of Samarkand Group, commented: “The forecast recovery of the Chinese market has not yet materialised, impacting our growth in China in FY 2024. Achieving profitability remains our top priority and as such, we have taken another significant step towards achieving this goal. The Board is confident that we continue to make strong progress towards profitability albeit behind our planned timetable. We are demonstrating that we are able to acquire and grow a portfolio of owned brands and are establishing a successful scaleup platform for niche brands. We acknowledge that the current share price does not reflect the value of the business, as is the case with many listed companies in the micro-cap arena. We are focused on delivering on our strategy and expect that as we make progress, this will ultimately be reflected in the market value of the Company.”
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Notes to Editors
Samarkand is a cross-border eCommerce technology and retail group focusing on connecting International Brands with China, the world's largest eCommerce market. The Group has developed a proprietary software platform, the Nomad technology platform, which is integrated across all necessary touchpoints required for eCommerce in China including eCommerce platforms, payments, logistics, social media and customs. The Group owns a portfolio of niche UK health and beauty brands that it develops in China and international markets.
Founded in 2016, Samarkand is headquartered in London, UK with an office in Shanghai.
For further information please visit https://www.samarkand.global/
CEO Review The first half of this financial year has brought some challenges, particularly in the core Chinese market, causing a slowdown in our topline growth. Despite the setback, I’m pleased to report significant year on year reductions in our losses, although the weaker first half has delayed our overall progress towards profitability within this financial year.
In the period, sales decreased 1% against the prior period (H1 2023: £8.3m) however gross profit increased 11% to £4.9m (H1 2023: £4.4m) which demonstrates our ability to create a more profitable mix. June, which is traditionally a peak shopping period for Chinese consumers fell short of our initial expectations broadly in line with market trends as Chinese consumer behaviour shifts away from peak shopping festivals. Excluding June, Group sales grew on average 7% compared to the previous year which is a positive trend albeit a lower overall growth rate than forecast at the beginning of the year.
Adjusted EBITDA losses reduced to £0.7m from £1.4m, a 47% reduction from the same period last year. We continue to make strong progress towards profitability.
UK based sales of our owned brands grew 11% versus last year due to channel expansion, new product launches and effective customer engagement. We are pleased with the momentum on our owned brands and expect this to be maintained as we see the benefit of improvements made to them. Throughout the first half, excluding China, UK and rest of the world sales of owned brands and our distribution activities accounted for 41 % of Group revenues and grew 13% compared to the prior year creating a better balance between China and UK based activities across the Group.
China based sales decreased 9% compared to last year and have, as yet, not matched our expectations following the end of lockdowns. The main contributing factors to this shortfall has been the slower than forecast performance in June and the introduction of new brands to our portfolio taking longer to convert to material sales. This is against the backdrop of a cautious Chinese consumer environment and increased competition in the form of higher levels of discounting across sales channels.
On my recent visit to China, I was able to work closely with our local team and our channel partners. This visit has already begun to yield new sales opportunities which started to materialise in H2 2024. Additionally, we have appointed a new senior leader for our China operations, who brings extensive experience in China’s eCommerce landscape and a proven track record of operating as a senior executive for multinational consumer goods companies in China.
We have taken further selective cost action in the period and are working on additional structural cost actions to be implemented in H2.
Following a review of the commercial impact and the future prospects of our Checkout website plugin product, we have decided to stop supporting this specific product. The decision aligns with the Group’s commitment to its strategic objective to move towards profitability. As a result we have recognised a non-cash impairment expense of £1.49m for the carrying value of the intangible asset. Whilst the adoption of our Checkout website plugin product has not met our expectations, our Nomad technology platform remains integral to our core cross-border eCommerce transactions.
Our cash position at the end of September was £1.65m, down from £2.0m at the end of March 2023.
Outlook Q3 is off to a positive start with revenues in October 2023 19% ahead of last year and losses 63% lower than last year. November is historically our peak trading month, however in line with industry trends, November 2023 has traded behind the prior year in China. Our owned brands in the UK have traded well ahead of prior year.
We are confident in the continued growth of our owned brands in FY 2024 and are establishing a successful scaleup platform for niche brands. With the wider economic challenges in China and a fast-changing eCommerce landscape it is difficult to give a definitive forecast on Q4 trading at this stage. We expect Group revenues to be broadly in line with prior year.
While we are likely to miss our full year EBITDA target due to lower than planned revenue, the combined effect of our cost actions on an annualised basis put the business in a strong position to reach profitability in the following year. As a result of actions taken throughout FY 2024, we expect to enter FY 2025 in a materially better position than FY 2024 on a run rate basis.
The Company is exploring options to accelerate the growing parts of the business which may include new strategic partners and the disposal and/or restructuring of non-core assets.
David Hampstead Chief Executive Officer
FINANCIAL REVIEW Overview
During the period the Group’s revenues decreased by 1% to £8.1m (H1 2023: £8.3m). Gross profit increased by 11% to £4.9m (H1 2023: £4.4m) with gross margin increasing to 61% (H1 2023: 54%).
Brand ownership is up 18% to £3.6m (H1 2023: £3.1m), Nomad technology is down 11% to £2.4m (H1 2023: £2.7m) with revenues from our distribution business decreasing 22% to £1.8m (H1 2023: £2.3m). Revenue growth in China was dampened by a weaker June month caused by a combined effect of changing shopper behaviour, lower consumer confidence and cancellation of planned channel activities.
The Group’s gross profit increased in H1 2023 from £4.4m to £4.9m and gross margin has increased in H1 2023 from 54% to 61% and improved overall from those levels achieved in FY 2023. The change in gross margin is a result of changes in our product mix and sales channels.
Adjusted EBITDA loss improved by 47% from £1.4m to £0.7m.
Operating expenses
Selling and distribution expenses increased to 34% (H1 2023: 28%) of revenue, as a result of a change in sales mix and increasing distribution and inflationary costs seen in the last six months.
Administrative expenses, excluding one-off costs such share-based payment expense, acquisition and restructuring related costs, decreased to 34% (H1 2023: 42%) of revenue as a result of tighter controls over other administrative costs. The number of employees at 30 September 2023 was 85 (30 September 2022: 117), down from 158 at 31 March 2022.
Earnings per share
Basic and diluted loss per share was 5.19p (H1 2023: 3.8p per share).
Net cash/(debt)
At the period end, the Group’s net debt position was £0.2m (H1 2023: net cash £1.0m), excluding the IFRS 16 lease liabilities, net cash was £0.2m (H1 2023: £1.6m). The Group’s reduction in staff and operational costs has resulted in 99% improvement in operating cashflow from negative £2.0m to £7,802.
Inventories
The Group reduced gross inventories from £3.4m to £3.0m. Improvements in inventory management and ordering process has resulted in the Group holding lower inventory levels. To reduce complexity, the Group focused on reducing the breadth of inventory in its UK and bonded warehouses.
Depreciation and amortisation
The total depreciation and amortisation costs were £0.2m and £0.4m respectively (H1 2023: £0.2m and £0.3m). The Group reduced its investment in its Nomad Technology platform and a result development cost capitalised during the period reduced to £0.1m (H1 2023: £0.6m).
Adjusted EBITDA loss
Adjusted EBITDA loss improved by 47% from £1.4m to £0.7m. The improvements in adjusted EBITDA loss is driven principally by the decrease in staff cost and operating costs.
Condensed Consolidated Statement of Comprehensive Income For the six-month period ended 30 September 2023
Condensed Consolidated Statement of Financial Position For the six-month ended 30 September 2023
Condensed Consolidated Statement of Changes in Equity For the six-month period ended 30 September 2023
Condensed Consolidated Statement of Cash Flows For the six-month period ended 30 September 2023
Notes to the Consolidated Financial Statements
Samarkand Group plc was incorporated in England and Wales on 12 January 2021. The address of its registered office is Unit 13 & 14 Nelson Trading Estate, The Path, Merton, London SW19 3BL.
(a) Basis of preparation The condensed consolidated interim financial statements of Samarkand Group plc and its subsidiaries (together referred to as the “Group”), comprises the results of the Group for the 6 months ended 30 September 2023. These interim financial statements are not audited nor reviewed by independent auditors, were approved by the board of directors on [8 December 2023]. The financial information in this interim report has been prepared in accordance with UK adopted international accounting standards. The accounting policies applied by the Group in this financial information are the same as those applied by the Group in its financial statements for the year ended 31 March 2023 and which will form the basis of the 2023 financial statements. The financial information for the year ended 31 March 2023 included in these financial statements does not constitute the full statutory accounts for that year. The Annual Report and Financial Statements for 2023 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statement for 2023 was (i) unqualified, although included an emphasis of matter in respect of material uncertainty around going concern and (ii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. Unless otherwise stated, the financial statements are presented in Pounds Sterling (£) which is the currency of the primary economic environment in which the Group operates. Transactions in foreign currencies are translated into £ at the rate of exchange on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate ruling at the reporting date. The resulting gain or loss is reflected in the “Consolidated Statements of Comprehensive Income” within either “Finance income” or “Finance costs”. The financial statements have been prepared under the historical cost convention except for certain financial instruments that have been measured at fair value. The financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business. The directors of Samarkand Group plc have reviewed the Group’s overall position and outlook and are of the opinion that the Group is sufficiently well funded to be able to operate as a going concern for at least the next twelve months from the date of approval of these financial statements. Going Concern For the year ended 31 March 2023, the Group faced another challenging year with ongoing widespread COVID lockdowns in China and China’s rapid exit of the zero COVID position in December 2022. The Directors recognise the importance of moving the Group into profitability for the year ending 31 March 2024 and have made significant progress towards this goal. The Group’s continued cost actions into H1 2024, have resulted in a 47% reduction in adjusted EBITDA losses from £1.4m to £0.7m. However, a weaker first half in China has limited the Group’s progress.
The Directors continue to actively explore additional funding options to support the Group’s operations and long-term viability. In this regard the Group is considering various options, including but not limited to, trade financing, sale of non-core assets and other strategic opportunities. These efforts are ongoing, and the Directors are diligently working towards these goals.
Despite the cost base reduction and ongoing exploration of additional funding, in the event that trading does not proceed as planned, the Group’s financial performance and cash flow projections indicate the existence of material uncertainties that may cast significant doubt on the Group’s ability to continue as a going concern. Although there are material uncertainties, several mitigating factors have been considered by the Directors in their assessment of the going concern assumption. These include the steps taken to further reduce costs, the progress made in exploring various strategic options to raise additional funds and its pre-COVID trading record. The directors believe that these factors, will enable the group to overcome the identified challenges and continue its operations.
The Directors are confident in the Group’s ability to mitigate the identified risks and uncertainties. As a result, the financial statements have been prepared on a going concern basis, acknowledging the material uncertainties that may cast significant doubt on the Group’s ability to continue as a going concern.
The financial statements do not include the adjustments that would result if the Group is unable to continue as a going concern.
(b) Basis of consolidation The Consolidated Group financial statements comprises the financial statements of Samarkand Group plc and its subsidiaries. A subsidiary is defined as an entity over which Samarkand Group plc has control. Samarkand Group plc controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. Intra-group transactions, balances and unrealised gains on transactions are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group. The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests.
An analysis of the Group’s revenue and cost of sales is as follows:
Segment assets: The non-current assets of the Group are not measured or reported internally on a segmental basis as they are not considered to be attributable to any specific business segment.
An analysis of the Group’s expenses by nature is as follows:
(a) Restructuring costs are as a result of corrective actions taken in light of the challenges presented by the disruptions caused by the continued impacts of the pandemic in China.
EBITDA and Adjusted EBITDA are non-GAAP measures and exclude exceptional items, depreciation, and amortisation. Exceptional items are those items the Group considers to be non-recurring or material in nature that may distort an understanding of financial performance or impair comparability.
Adjusted EBITDA is stated before exceptional items as follows:
* During six months period ending 30 September 2023, the Group continued its efforts towards the development and roll out of Nomad Checkout, its website plugin product. Significant progress was made in onboarding new clients, signifying positive trajectory for the product. In October 2023, an anticipated key partner decided not to pursue the integration and rollout of the product, this development necessitated a review of the commercial impact and the future of the Nomad Checkout product. After careful evaluation of the product’s progress, and despite the progress made, the Group made the difficult decision to stop supporting the Nomad Checkout product. The decision aligns with the Group’s commitment to its strategic objective to move towards profitability. As a result of this decision the Group has recognised a non-cash impairment expense of £1,489,580 which represents carrying value of the Nomad Checkout product at 30 September 2023.
Net debt reconciliation:
Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. |
| ISIN: | GB00BLH1QT30 |
| Category Code: | MSCM |
| TIDM: | SMK |
| Sequence No.: | 290963 |
| EQS News ID: | 1793487 |
| End of Announcement | EQS News Service |
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