Samarkand Group plc : Trading Update

7th July 2022

 

 

Samarkand Group plc

("Samarkand", the "Company" or together with its subsidiaries the "Group")

 

Trading Update

 

Samarkand Group plc, the cross-border eCommerce technology, services and consumer brand group, provides a trading update. As outlined in our previous trading update, disruptions in China impacted the group’s operations and revenue during FY22. On an unaudited basis, the financial year closed broadly in line with the revised analyst guidance at £16.5m revenue (FY21: £14.8m excluding exceptional revenues) and £6.2m adjusted EBITDA loss (FY21: £0.4m). The Company continues to benefit from a strong balance sheet with cash and cash equivalents of £4m and net current assets of £5.6m.

 

The Group has successfully managed costs and exposure to risk in response to the challenging backdrop, while continuing to make strategic progress. In light of the external volatility in which we are operating and our increased focus on improving profitability, we are targeting FY23 revenues in line with FY22, with a material reduction in operating losses through lower operating costs. Q1 has demonstrated our adaptability to a changing landscape and the impact of changes made to our cost base with top line coming in slightly ahead of prior year and our EBITDA losses significantly improved from the same period last year. 

 

Market Update

The disruptions that began in 2021 continued to escalate with widely reported shutdowns in many Chinese cities. Shanghai, where the Group’s base of operations is located, and where the Group’s largest number and highest spending customers are located, was in a near-total lockdown for two months. A further 73 of the top 100 cities were previously in lockdown since the start of 2022, severely impacting logistics.  Shipping from overseas locations has been suspended or severely delayed by parcel disinfection and quarantine procedures. This impacted the group’s ability to operate, leading to reduced revenue and increased losses which is reflected in the FY22 results.

 

There are improving prospects within the Chinese market, with Shanghai having moved out of a general lockdown at the start of June and other than localised lockdowns in Shenzhen, all the top 50 cities by economic size are now out of lockdown with less than 50 daily COVID cases reported nationally between June 20th and June 27th. However, the situation remains dynamic and future disruptions cannot be ruled out.

 

Despite the widely reported supply chain issues impacting international trade currently, global cross-border eCommerce is projected to grow from $765bn in 2021 to over $6.2trn by 2030.  The last few years have seen the emergence of highly valued technology providers and significant M&A activity in this space. China represents the single largest market with a unique set of complexities which our software and services solve, positioning us well in this rapidly developing market.

 

A focus on reducing cost and exposure to risk

In response to the market disruptions and the potential that this could continue for an extended period, measures were taken to improve the structural profitability of the business, removing costs from our run rate cost base and reducing cash burn. A cost reduction programme was introduced along with operational changes to deal with the headwinds.  The actions have had a significant impact and as mentioned, revenue will be ahead of Q1 FY22 and adjusted EBITDA loss lower. 

 

We have secured an agreement in principle from one of our major strategic shareholders to increase their investment in the Group. When complete this will put the group in the position to capitalise on the likely recovery in China and pursue our strategic goals. We continue to hold productive conversations with new strategic investors and are encouraged by the interest received.

 

 

Executing on our Strategic priorities

We continue to focus on our strategic priorities: to scale our Nomad Checkout solution, grow our owned brands, to improve margin through operating leverage and to improve contribution from our eCommerce business in China through operational discipline and leverage.

 

Our Nomad Checkout software enables merchants outside China to sell direct to Chinese consumers from their eCommerce sites. Although delayed by disruption in China, we are pleased that the solution continues to hit key milestones in terms of pilot enterprise merchants, building a sales pipeline of qualified merchant opportunity and forming partnerships with logistics companies. Our software has now been integrated across several platforms and is positioned to capitalise once the parcel delivery restrictions in China are lifted. In addition to a strong pipeline from existing partnerships, direct outreach to SME merchants is underway with 3 new clients signed in June alone. New clients and new partnership agreements will be confirmed in the coming months.

 

 

Acquisitions performing ahead of expectations

The acquisition of Zita West Products was completed in May 2021 and has performed ahead of management expectations. The business is on a strong growth trajectory with excellent unit economics. In the 12 months prior to the acquisition, revenue for Zita West Products was £1.2m. In the 12 months since acquisition, revenue has increased to £1.6m.

 

The recently acquired Napiers has been integrated into the group with encouraging results as optimisations across retail and online start to embed. The brand portfolio is expected to see further growth as the Chinese market returns to normal and other international channels are opened in the second half of the year.

 

 

David Hampstead, CEO of Samarkand Group plc commented: “In the first half of 2022 many Chinese cities experienced varying COVID measures, with Shanghai in a complete lockdown for two months and other cities in full or partial lockdown. We adapted rapidly to a new environment. Every member of our team has made a valuable contribution in navigating this turbulent period, particularly our colleagues in Shanghai, many of whom were unable to leave their homes for almost two months. With lockdowns lifting at the end of May, logistics swinging back into action and with the measures put in place earlier in the year, we have managed to achieve a Q1 revenue performance ahead of the previous year and significantly reduced losses.  

 

The continuing restrictions placed on overseas parcels and widespread logistics issues have hampered the launch of several clients using our Checkout software but we have continued to evolve the product and forge partnerships with global logistics companies. We remain confident in the prospects of our software, encouraged by its adoption and are well positioned to capitalise as logistics return to normal.

 

The brand acquisitions we made have given us diversification and performed well since joining the group, leveraging our infrastructure, expertise and technology to deliver immediate improvements.”

 

 

 

For more information, please contact:

 

Samarkand Group plc	Via Alma PR
David Hampstead, Chief Executive Officer Eva Hang, Chief Financial Officer	http://samarkand.global/
VSA Capital – AQSE Corporate Adviser and Broker	+44(0)20 3005 5000
Andrew Raca, James Deathe, Pascal Wiese (Corporate Finance) Andrew Monk (Corporate Broking)	IPO@vsacapital.com
Alma PR	+44(0)20 3405 0213
Josh Royston Lily Soares Smith Joe Pederzolli	samarkand@almapr.co.uk

 

 

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 and Tokyo.

 

For further information please visit https://www.samarkand.global/