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Samarkand Group plc : FY23 Results
Samarkand Group plc (SMK) 7 August 2023 Samarkand Group plc ("Samarkand", the "Company" or together with its subsidiaries the "Group")
FY23 Results Samarkand Group plc, the cross-border eCommerce technology solution provider, is pleased to announce its audited results for the year ended 31 March 2023 ("FY23"). FY23 Financial highlights:
FY23 Strategic and operational highlights:
Post period end highlights:
“I am delighted that we have been able to grow the business and to make strong progress towards profitability in an unprecedented and challenging trading environment. This demonstrates the resilience and adaptability of the business and in particular the capability of our colleagues. The reopening of the Chinese economy, a growing pipeline of new clients and channel partners and an ongoing focus on operational efficiency puts us in a good position to capitalise on opportunities that may emerge in the market. We are encouraged by the start of the new financial year and remain confident that the interplay of our China market development capabilities, underlying eCommerce technology and owned brand portfolio will put us in a good position to make further progress towards our goal of profitability.” For more information, please contact:
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 platform, which is integrated across all necessary touchpoints required for eCommerce in China including eCommerce platforms, payments, logistics, social media and customs. The Nomad platform is the foundation on which the Group's Nomad technology and service solutions are built. The core products include Nomad Checkout, Nomad Storefront and Nomad Distribution.
Founded in 2016, Samarkand is headquartered in London, UK with offices in Shanghai.
For further information please visit https://www.samarkand.global/
I am delighted with the progress being made at Samarkand despite operating in a period of ongoing disruption, as result of the extended zero tolerance approach to COVID in China. The fact that the business has produced growth and significantly reduced losses in a volatile and uncertain environment is of great credit to the whole team. I would like to take this opportunity to thank the entire team for their contribution and commitment, as well as their resilience and adaptability in moving the group forward over the last 12 months. The business has responded well to an evolving situation in China and continued to make strategic progress despite the disruptions. It is particularly pleasing to note the growing contribution of the 2021 acquisitions Zita West and Napiers the Herbalists and their impact on the group performance, providing some protection from the disruption in China. The team’s focus on becoming profitable is abundantly clear from the excellent progress made in reducing losses through improvements in gross margins, cutting costs, and better financial planning and analysis across the business. A well-timed open offer in September 2022 received strong backing from existing shareholders enabling the team to focus on delivering their ambition and making progress towards their goal of becoming profitable. Financial Results The Group delivered revenues of £17.5m which equates to growth of 5.4% over the prior year. More importantly adjusted EBITDA losses were reduced by over 60% to £2.2m and operating losses reduced by 40% to £4.6m as result of stronger gross margins and reduction in operating costs. Strong growth in owned brands and a small decline in revenues from acceleration and distribution activities which were most impacted by COVID related issues in China, combined to produce year over year growth in revenues in what was another year of disruption. People The Samarkand team has responded well to the challenges of the year and demonstrated their ability to deal with disruption on many fronts as well their willingness to take difficult decisions and execute at speed. I would like to give a special mention to our colleagues in China who despite extended lockdowns followed by a sudden and unexpected reopening were able to continue to operate and serve our partners and clients in the most difficult of circumstances. The team’s performance can largely be attributed to the sense of community we have built across the Group and a culture that encourages our teams to grow and take on new challenges. They have not only displayed resilience in the face of various challenges throughout the year but have also consistently exhibited their capacity to adapt and thrive. Board and Governance Our Board which was established at the time of the IPO is operating well, bringing a wealth of experience to the Group. Sustainability, Remuneration, Nomination and Audit committees have been established and I would like to thank my fellow Directors for their service and flexibility in the last year in which their guidance has been invaluable. Summary and Outlook The Chinese economy has reopened and is recovering from two years of extended and extremely tough lockdowns. There is ground for optimism as consumers and channels return to some degree of normality although it is important to note that while COVID related restrictions are now lifted, Chinese consumer confidence has yet to recover to pre-COVID levels. The Group is well positioned to capitalise on a reopening economy with a strong portfolio of desirable, premium international brand partners and proprietary technology which enables merchants and brands to sell direct to Chinese consumers in a compliant cross-border manner. The Group has demonstrated its ability to adapt to an ever-changing eCommerce landscape in China where market dynamics shift rapidly, and new channels emerge at great speed – as evidenced by the strong growth in sales we have been experiencing through livestream influencer commerce. The brands we acquired in 2021, Zita West and Napiers the Herbalists are well placed for further growth as investments made in FY23 begin to translate into higher sales with the added benefit of being less dependent on the China market. In line with their goal of becoming profitable, I am confident that the team continue to challenge costs and look for opportunities to improve operational efficiencies across the business. Tanith Dodge Chairperson CEO REVIEW In our third year as a public company, we have made strong progress towards our goal of becoming profitable despite encountering a significant amount of disruption as strict lockdowns continued in China, disrupting sales and distribution activities. We acted quickly to adjust our cost base and benefited from strong growth in our UK based acquisitions, the combination of which enabled to us to deliver revenue growth year over and reduce our Adjusted EBITDA losses by over 60%. I am proud of how our team adapted and pulled together throughout the year, enabling us to make good progress against our strategic goals despite a volatile situation on the ground with China. We moved quickly to open new sales channels and navigate the supply side disruptions throughout the year and have made positive improvements to the brands we acquired, this is testimony to our ability to execute at speed. At 31 March 2023, cash and cash equivalents was £2.0m and net current assets of £3.3m. Following a successful open offer it is our intent use the proceeds to reach profitability in the coming 12 months. In a fast-evolving industry we remain open to potential new strategic investors. China Market Environment The zero-tolerance approach to COVID was rapidly abandoned in December 2022 and the following months were a period of adjustment for the market as restrictions were lifted almost overnight and the disease spread quickly through society. The macroeconomy appears to be recovering with most analysts predicting GDP growth in the 5%-6% range, lower than historical levels but still a growth leader among the world’s largest economies. Household savings balances in China are at record levels and while some analysts have predicted a major rebound in consumer spending. Our assessment is slightly more cautious based on the fact that Chinese consumer confidence is yet to recover to pre-pandemic levels, although we do observe undoubtedly improving prospects. Overall, we are more optimistic about the year to come given lockdowns are now a thing of the past and, despite mixed economic signals, we are confident in the secular trends for eCommerce, cross-border eCommerce and consumer appetite for niche, premium brands in beauty and health and wellness. We note that the geopolitical environment between China and the West in particular is strained at the moment and while we are optimistic that the impact of potential future developments on trade will be limited, it is conceivable that shifts in the political environment could impact trade in the future. The continued growth of our owned brand portfolio in markets outside of China provides the Group with some protection against this. Strategic Progress Our overriding goal is to become profitable and I am pleased to report that we made strong progress towards this objective in the year. This can be attributed to a strong performance from our owned brand portfolio, a focus on profitable growth in everything we do, as well as selective adjustments to our cost base. Our owned brand portfolio grew at 48% in the year, or 27% on a like-for-like basis, in turn improving our gross margin mix. Zita West revenues grew 85% from prior year or 70% on a like-for-like basis and Napiers the Herbalists grew by 419% or 201% on a like-for-like basis. We were able to make material improvements to both brands in terms of marketing, customer acquisition, expanding sales channels and developing international sales. In China eCommerce acceleration we strengthened the portfolio of brands we work with adding high potential brands in trending areas including Doctor led skincare, beauty tools and haircare. We are excited about the potential for our existing partner brands and have put strong plans in place for the year to come designed to capitalise on the reopening of the economy. We strengthened our capabilities in the fast-growing livestream eCommerce market and have been able to offer new sales opportunities to our brands all enabled by our underlying Nomad platform. With our cross-border eCommerce technology solutions we shifted our attention to consolidating and commercialising what we have already developed vs adding new features. This enabled us to reduce our software development cost base to a core team. With the re-opening of the Chinese economy we anticipate that a growing number of merchants will see China as an opportunity market and will opt to use partners and technology to tap into this opportunity. Outlook statement As the Chinese economy reopens we are positive about the opportunities that may emerge in the year to come. Our brand portfolio and sales channels are well positioned to take advantage of demand without the supply side restrictions we experienced in FY23. In addition to accelerating top line growth, we will continue to challenge our cost base and look for opportunities to improve operating efficiency as we seek to move into profitability in the coming financial year. The reopening of international travel means our leadership can visit China for the first time in over 3 years and we look forward to getting back into the market and re-connecting with our team and partners on the ground. I recently observed first-hand the changes that have occurred over the last few years when I visited China in June 2023. The market has always been fast moving and constantly evolving and it was clear that the pace of change is accelerating. David Hampstead FINANCIAL REVIEW Overview Group revenues for the year increased by 5.4% to £17.5m (2022: £16.6m). Revenue growth in China was dampened by the disruptions caused by the continued impacts of the pandemic in China with revenues remaining flat at £11.7m (2022: £11.6m). Revenue growth in UK and ROW remained strong and was augmented by growth in the acquisitions made in the prior year, revenues in the UK increased by 16% to £5.8m (2022: £5.0m). Revenues in Brand Ownership up 48% to £6.7m (2022: £4.5m), Nomad Technology down 19.3% to £6.0m (2022: £7.5m), and distribution revenues remaining flat at £4.4m (2022: £4.5m). The Group’s gross margin increased to 55% from 50% in FY 2022, driven by increase in revenues from Brand Ownership as a % of total revenue. Operating expenses Selling and distribution expenses, have decreased significantly to 31% (2022: 42%) of revenue, as a result of increasing use of bonded warehouses in China to mitigate disruptions, more targeted investments in our own brands and structural changes in our sales mix as well as focus on improving operating efficiency across the business. Administrative expenses decreased to 44% (2022: 49%) of revenue as the Group made selective adjustments to its cost base. The Group’s total head count as at 31 March 2023 was 104 (2022: 158). During the year the Group incurred a number of significant non-recurring costs which have been shown as exceptional items in the financial statements. These items include redundancy and restructuring costs as a result of the Group’s adjustment to its cost base in light of the challenges presented by the disruptions. Depreciation and amortisation The total depreciation and amortisation costs were £0.4m and £0.8m respectively (2022: £0.3m and £0.5m). The Group continued to invest in its Nomad Technology platform with a total of £1.1m (2022: £1.1m) development costs capitalised during the year. Adjusted EBITDA Adjusted EBITDA means the non-GAAP measure which is defined as Earnings Before Interest, Taxes, Depreciation, and Amortisation and exceptional items. It provides a useful measure of the underlying profitability of the business and is used by management to evaluate the operating performance to make financial, strategic and operating decisions and provides the underlying trends on a comparable basis year on year. Adjusted EBITDA losses decreased to £2.2m (2022: £6.2m), after deducting £0.5m in restructuring costs and £0.7m for share based payment expenses. The decrease in losses is a result of the adjustments made to the Group’s cost base and improvements made in operating efficiencies.
Earnings per share Basic and diluted loss per share was 7.78 pence per share (2022: 14 pence per share). Net cash/(debt)
At the year end, the Group’s net debt position was £0.01m (2022: net cash £1.9m), excluding the IFRS 16 lease liabilities, net cash was £0.6m (2022: £2.6m). The adjustments made to the Group’s cost base including the reduction in its head count and the improvements to its operating efficiencies with targeted marketing and structural changes in its sales mix and activities saw the Group’s negative operating cash flow fall to £2.4m from £8.0m. The payment of deferred consideration in relation to the prior year acquisition of Napiers the Herbalists, together with the continued investment into its technology platform resulted in cash outflow from investing activities of £1.2m (2022: £4.7m). In September 2022, the Group received £1.9m from its existing Shareholders in an open offer together with the repayment of borrowings and lease liabilities, the net cash from financing activities was £1.5m (2022: £2.3m). Financing costs of £0.16m (2022: £0.17m) comprised of interest expenses of £0.1m (2022: £0.1m).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
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