Samarkand Group PLC - Trading Update and Acquisition

Samarkand Group plc

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

Trading Update and Acquisition

(1) Trading Update

Samarkand Group plc (AQSE:SMK), the consumer brand owner and cross border eCommerce distribution services group this morning provides a trading update for the year ended 31 March 2024 ("FY24").

FY24 results are expected to be in line with market guidance in terms of adjusted EBITDA and slightly behind guidance in terms of revenue.

Group top line revenues are expected to have decreased in the range of 3% - 4% vs prior year and adjusted EBITDA losses will be reduced by over 55% vs prior year as a result of material improvements in gross margin, growth in our owned brands and the delivery of operating efficiencies across the business as we continue to focus on profitable growth.

Our portfolio of owned consumer brands has maintained strong momentum with sales growth in the region of c.15% vs last year. Revenue from our owned brands now accounts for c.46% of Group revenues. Napiers the Herbalists, our natural herbal health and wellness brand and Zita West our specialist supplement product line for fertility and reproductive health, grew revenues in their core UK market at c.90% and c.10% respectively year on year. Probio7 sales remain resilient in the UK and profits are expected to increase in China this year due to a new distribution deal. Our portfolio of owned brands is tracking annual run rate revenues of c.£7-£8 million with double digit revenue growth momentum expected to continue.

Revenues generated from distributing 3^rd party consumer brands in China have fallen year on year as a result of increasingly competitive market conditions and higher levels of price and promotional intensity in the face of a more cautious, value seeking consumer.

Reaching full year profitability in the current financial year is our primary objective and we will continue to focus more of our resources on parts of the business that can generate sustainable profitable growth and reduce our exposure to less attractive activities while continuing to improve operating efficiency across the business.

We estimate that April 2024, the first month of our new financial year, will produce a small top line decline over the same month last year with a material improvement in operating performance as a result of gross margin increases, growth in our owned brands and lower operating expenses.  

The Group cash position has remained stable in recent months as a result of reduced operating losses, more efficient stockholding and other actions taken to improve working capital across the business.

As stated in our interim update, the Company has been 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. This includes evaluating options to raise capital for growth.

Acquisition of Optimised Energetics Ltd

We are announcing the acquisition of the entire share capital of Optimised Energetics Ltd. Optimised Energetics Ltd owns natural health and healing brands Natures Greatest Secret and BeNatural and manufactures premium skincare on a contract basis for Napiers the Herbalist. This acquisition brings new on-profile, high growth and high potential brands into our portfolio and secures manufacturing services to our platform through vertical integration. The total consideration of £1.3m comprises an initial consideration of £600,000 in cash on a cash free debt free basis and deferred consideration of £700,000 payable in cash over a three-year period.

For a 12-month period ending 31 March 2024, Optimised Energetics Ltd generated £1.2m of revenue and an EBITDA of £0.3m on an unaudited basis. For the 3-month period ending March 2024 revenues grew 20% vs the same period last year.

The Directors believe the underlying value of the business is not reflected in the public market valuation. This coupled with low liquidity makes raising funds in the public market difficult. At the same time our status as a public company has made raising funds from private investors unviable. In order to support the acquisition of Optimised Energetics Ltd and to provide additional working capital the Directors, David Hampstead CEO, Simon Smiley COO and Philip Smiley Executive Director have agreed to provide unsecured loans to the value of £400,000. The Loans are at an interest rate of 2 per cent above base rate and for a term of 6 months and are repayable earlier at the Company's discretion.  The loans are nonconvertible.

The Executive Directors are considered "Related Parties" as defined under the Aquis Growth Market Apex Rulebook.  The Loans therefore constitute a related party transaction for the purposes of Rule 4.6 of the AQSE Growth Market Access Rulebook. The Independent Directors, being Tanith Dodge, Keith Higgins and Jeanette Hern confirm that, having exercised reasonable care, skill and diligence, the related party transaction is fair and reasonable as far as the shareholders of the Company are concerned.

(3) Future Outlook

As a result of shifts in business mix, improvements in gross margins and higher levels of operating efficiency we enter FY25 in a better position than prior year. Our adjusted EBITDA in the fourth quarter of FY24 was close to breakeven demonstrating the progress we have made in improving our run rate gross margins and costs.

The acquisition of Optimised Energetics Ltd gives us a better positioned portfolio of high growth, high potential brands and strengthens the capabilities of our platform through vertical integration which we consider a source of competitive advantage in the market for niche brands.

While our activities are less defined and less dependent on the China market and our cross-border eCommerce platform, we consider our ability to market international brands to the Chinese consumer a key part of our platform play-book for brands.  As a scale up platform for niche, founder led, health and wellness brands we see opportunity to invest to accelerate growth in our existing brands and scope for future acquisitions to strengthen our portfolio and add to our platform services.  

David Hampstead, Chief Executive Officer of Samarkand Group, commented: "I am pleased with the growth momentum we are generating on our owned brands and our progress towards overall profitability. The success we are having with our owned brands demonstrates our ability to acquire and build niche health and wellness brands. The acquisition of Optimised Energetics Ltd adds a new high potential health and healing brand to our portfolio and strengthens our platform capabilities through the addition of flexible vertically integrated manufacturing capacity.

We are adjusting the portfolio of 3^rd party brands which we distribute in China via cross border eCommerce to increase our focus on fewer brands which we believe have the potential for long term success as brands of scale in the Chinese market and to enable greater attention on the growth and development of our owned brands in China. Our ambition is to be a scale up platform for niche, founder led health and healing brands, offering them the capabilities and resources they need to fulfil their potential on a domestic and international front.

As stated in our interim results, we do not believe that the value of the business is reflected on the public market, particularly in comparison to private market valuations. We face increasing direct costs as a public company without the ability to raise growth capital to support our strategy. We see future growth potential in increasing investment behind our current brands and acquiring new brands and will continue to explore all options to enable us to pursue our strategy."

For more information, please contact:

Notes to Editors

Samarkand is a consumer brand owner and distributor operating a scale up platform for niche, premium, multichannel, health and healing brands. Core owned brands include Napiers the Herablists, Scotland's oldest natural herbal apothecary, Zita West, a leading specialist supplement line for fertility and reproductive health and Probio7, a long-established probiotic supplements brand. Platform services include marketing, sales and channel development with a focus on social commerce, China market entry, international expansion and manufacturing.  In addition the Group works as the exclusive China market partner for a select portfolio of niche luxury skin care brands and connects these brands to the Chinese consumer via cross border eCommerce, leveraging our Nomad technology

Founded in 2016, Samarkand is headquartered in Tonbridge, UK with offices in Shanghai.

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

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