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Samarkand Group PLC - Annual Results FY24 and Update on Future Strategy


Announcement provided by

Samarkand Group plc · SMK

12/08/2024 07:00

Samarkand Group PLC - Annual Results FY24 and Update on Future Strategy
RNS Number : 9879Z
Samarkand Group PLC
12 August 2024
 

12 August 2024

Samarkand Group plc

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

 

Full year results FY24, Update on Future Strategy, Share Option Grant

 

Samarkand Group plc, (AQSE:SMK), the consumer brand owner and cross border eCommerce distribution services group announces full year results for the year ended 31 March 2024 ("FY24").

 

FY24 Financial highlights

·     Revenue decreased by 3% to £16.9m (2023: £17.5m).

§ Brand Ownership revenues increased 16% to £7.7m (2023: £6.7m).

§ Brand Acceleration revenue decreased 18% to £8.2m (2023: £9.9m).

§ Distribution revenues increased 13% to £0.74m (2023: £0.66m).

·     Gross margin increased from 55% to 60%.

·     Adjusted EBITDA* loss decreased by 60% to £0.9m (2023: £2.2m), a second year in a row of over 50% reduction in adjusted EBITDA losses.

·     Net loss after taxation increased by 4.3% to £4.8m (2023: £4.6m) as a result of a non-cash impairment charge of £2.1m (2023: £nil).

·     Q4 adjusted EBITDA loss was £80k demonstrating ongoing improvement in run rate.

·     Cash and cash equivalents at 31 March 2024 was £0.9m (2023: £2.0m).

·     Owned brands, Napiers the Herbalists and Zita West revenues grew 90% and 9% respectively over the prior year on the back of strong sales in the UK and ROW.

·     Sales of third-party brands in China declined c18% year over year. We do not see any short to mid-term improvement in the trading environment in China and will continue to adjust our portfolio and operations accordingly. 

·     The independent auditor's reports on the Annual Report and Accounts for the year ended 31 March 2024 was unqualified but included a material uncertainty in respect of going concern (note 2).

 

FY24 Strategic and operational highlights

 

·      Significant reduction in adjusted EBITDA losses compared to prior year as a result of adjustments to the Group's cost base and an improvement in gross profit margins as the Group focuses on its core activities and its goal of moving the Group into profitability.

·      Strong growth in Brand Ownership year over year which has contributed to improving gross margins and reduction in losses as well as reducing the Group's dependency on the Chinese market. Brand Ownership now accounts for c46% of Group revenues

·      Our portfolio of owned consumer brands has maintained strong momentum with revenues increasing 16% compared to last year. Napiers the Herbalists, a natural herbal health and wellness brand and Zita West a highly specialised supplements brand for fertility and reproductive health, grew revenues in their core UK market at 90% and 9% respectively year on year.

·      Brand Ownership growth was generated by product quality and packaging upgrades, new product development, marketing enhancements, development of social commerce channels, successful launch into the China market leveraging our existing capabilities and flexible manufacturing capacity enabling the Group to respond quickly to consumer and channel demand.

·      Napiers the Herbalists run rate revenues are in the range of £3.0m to £4.0m and Zita West run rate revenues are in the range of £2.0m to £3.0m and with significant potential for further growth and development for both propositions.

·      Recognising the changing market dynamics in China in terms of weaker consumer demand, increased competitive intensity, heavy promotional discounting, rising cost of sales and high levels of in market inventory across the industry, the Group adopted a more selective approach to distributing third party brands in China, concentrating its resources on fewer brands where it believed the conditions are right for success in the current operating environment.

·      Investment in Nomad Checkout solution was withdrawn in the year as a result of insufficient market traction from merchants and logistics partners. In the current operating environment, the Group does not see the conditions for sustainable commercialisation of this offering therefore, an impairment charge of £2.1m has been recognised which represents the carrying value of the Nomad platform.

·      Continued selective reduction in operating costs as the Group concentrates more of its resources on the most attractive and profitable activities. Key highlights include warehouse relocation to a more cost-effective fit for purpose site and the reduction in Group administrative expenses, before exceptional costs, by 17% when compared to prior year.

Post year end highlights

 

Q1 FY 25 Trading

·      Q1 FY25 revenues were 17% below prior year despite healthy growth in our owned brands and distribution in the UK and ROW which grew 40% compared to the same period last year. The decrease in revenues is attributable to challenging trading conditions in China and disruption while we adjust the Group's strategy and operations in the market.

·      Q1 adjusted EBITDA loss is estimated to be 27% lower than the prior year despite the reduction in top line revenues.

·      Owned brands sales in the UK have started strongly with Napiers the Herbalists and Zita West achieving year over year growth of 122% and 20% respectively.

·      China revenues were impacted by shifts in the portfolio of third party brands we distribute, weak overall eCommerce market performance and reduction in historical sales peaks as the market adjusts to weaker consumer sentiment. Our focus on profitability also meant that a number of potentially unprofitable sales activities were rejected in the first quarter.

Owned Brand Portfolio Adjustments - Acquisition and Disposal

·      Acquisition of Optimised Energetics Ltd completed on the 21 May 2024, a natural health and healing brands owner and a manufacturer of premium skincare. 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.

·      Disposal of our probiotic brand Probio7 completed on the 13 June 2024 for a total consideration of £1.3m to be satisfied by initial consideration of £1.1m in cash and deferred consideration of £0.2m payable in cash, in equal instalments over a 12-month period.

·      The disposal of Probio 7 enables the Group to increase resources behind our faster growing brands Napiers the Herbalists, our natural herbal apothecary brand and Zita West, our specialist supplement brand for fertility and reproductive health.

·      Unsecured, unconvertible loans made by the Directors on a bridging basis to enable the acquisition of Optimised Energetics Ltd were repaid on 18 June 2024 following the disposal of Probio7.

 

Strategy Update

·      Our strategy has shifted in the course of the last 18 months as the performance of our owned brands primarily in the UK has continued to deliver strong growth in revenue and generate positive contribution. At the same time, due to evolving China market dynamics and the costs of operating in the market, the returns generated from distributing third party brands have become less favourable.

·      As a result, we increased resources behind our owned brands and adopted a more selective approach to distributing third party brands in China. In the future we intend to work as the China market partner for a smaller portfolio of third party brands.  

·      Our future is as a scale up platform for meaningfully different, high potential, niche brands in the health and healing space, brands targeted at specific consumer segments with long term growth potential, specifically natural herbal health and beauty and fertility and reproductive health

 

·      Our platform offers brands shared sales, marketing, supply chain and logistics and corporate services. Our growth playbook covers innovation and product development, DTC, eCommerce and premium retail sales, social commerce and internationalisation. Our operations playbook includes warehousing and logistics, manufacturing and sourcing services.

·      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. 

 

FY23 Option Grant

 

As communicated in our FY23 annual report, the Remuneration Committee and the Board approved a bonus payout of 90% to the Executive Directors. The Bonus Scheme was based on the achievement of pre-set Group Financial and Non-Financial Performance Targets for the year ending 31 March 2023.

 

To align the executives' interests with those of shareholders, and manage cash costs, 100% of the bonus payable is deferred into Company Share Awards in the form of nil cost options. The number of options to be granted will be determined by the price of the last equity transaction by the Company, which was the open offer in September 2022. 50% of the bonus award was to be granted after the approval of the 31 March 2023 accounts and will vest one year from the date of grant, the remaining 50% to be granted a year from the first grant date.

 

As the Company has been in a close period since the signing of the Accounts last year, due to the expected Acquisition of Optimised Energetics Ltd and the disposal of Probio 7, the first tranche of the award was not granted after last year's signing of the accounts. The Company will therefore grant both tranches of the bonus options shortly after the signing of the 31 March 2024 accounts.

 

David Hampstead, Chief Executive Officer of Samarkand Group, commented:

 

"I am pleased with the progress being made in shifting the business towards profitability and in defining the future direction of the Group as a scale up platform for high potential, meaningfully different, health and healing brands, anchored in fast growing consumer segments, with the ability to introduce those brands to the Chinese consumer. The disposal of Probio7, the acquisition of Optimised Energetics Ltd and adjustments we are making to our approach to the China market leave us well positioned for future growth and profitability as a platform for brands.

 

Once our goal of moving the Group into profit is secure we will focus on increasing investment behind the scaling of our owned brands and to selectively add to the portfolio in the future through acquisition.

 

Whilst the underlying value of the Company, in terms of its assets, capabilities and potential, is not currently reflected in the share price, we remain focused on improving the underlying performance of the business, reaching profitability and increasing shareholder value.

We are also delighted to separately announce the appointment of Guild Financial Advisory as our new Corporate Adviser."

A copy of the full accounts will be made available on the Company's website www.samarkand.global

For more information, please contact:

 

Samarkand Global plc

David Hampstead, Chief Executive Officer

Eva Hang, Chief Financial Officer

 

Via Guild: 

 

http://samarkandglobal/

Guild Financial Advisory Limited - Corporate Adviser

Ross Andrews

Tomas Klaassen

 

 

T: +44 (0)7973 839767

E: ross.andrews@guildfin.co.uk

 

T: +44 (0)7834 458 095

E: tomas.klaassen@guildfin.co.uk

 

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 Herbalists, 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.

 

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

 

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

 



Chairperson's Statement

I am delighted with the progress being made in Samarkand in shifting the business towards profitability and in defining the future direction of the Group as a scale up platform for niche, differentiated, health and healing brands with the special ability to introduce those brands to the Chinese consumer.

 

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, particularly in the face of an increasingly difficult trading environment for international consumer brands in China.

 

The momentum behind the Group's portfolio of owned brands is encouraging and the future for those brands looks promising on the basis of the categories, segments and trends which they tap, their differentiated positioning and the agility of the teams that are managing these brands.

 

The acquisition of Optimised Energetics Ltd and disposal of Probio7 are positive strategic adjustments to the portfolio of owned brands which improve the growth profile of the portfolio and lock in manufacturing flexibility as well as providing the group with some additional working capital to enable it to pursue its strategy.

 

While China no longer defines the entirety of the Group's activities it remains an important aspect of the platform and gives the Group a differentiated capability in offering niche brands the opportunity to reach Chinese consumers.

 

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 I would like to thank my fellow Directors for their service and commitment in the last year in which their guidance to the business has been invaluable.

 

Summary and Outlook

Samarkand has consistently demonstrated its ability to adapt to changing market conditions and keep moving forward. The shift to focus on the portfolio of owned brands will accelerate the Group's path to profitability. The Group has proven it is able to acquire niche, premium health and healing brands and improve the top and bottom line in those brands. I look forward to seeing further growth and development of the Group's owned brands including the recently acquired Natures Greatest Secret and BeNatural Essentials.

 

Tanith Dodge

Chairperson

CEO REVIEW

We have made strong progress towards our goal of becoming profitable despite an increasingly challenging trading environment in the Chinese market where consumer confidence remains low, competitive intensity is accelerating and promotional warfare between brands and channels is now the norm.

 

By concentrating our resources on profitable activities, scaling back and withdrawing from less attractive activities we have further reduced adjusted EBITDA losses by c60% year over year despite a small decline in headline revenue year over year.

 

I am especially pleased with the growth and contribution generated from our portfolio of owned brands and am excited about the future potential for these brands. Both Napiers the Herbalists and Zita West are well positioned against key trends, and we are confident in their long-term growth potential. I would like to welcome the Optimised Energetics team to the Group and while we have known them for a long time through our Napiers partnership we look forward to working with them to grow and develop their brand, Natures Greatest Secret and to solidify their position as our platform manufacturing capability.

 

The disposal of Probio7 and the addition of Optimised Energetics Ltd leave us with a well-positioned portfolio of high growth, high potential, differentiated owned brands and the addition of vertically integrated manufacturing further strengthens the competitiveness of our platform.

 

We are clear that our future lies in building a portfolio of high growth, high potential niche health and healing brands and leveraging our resources across these brands as a shared platform for profitable growth. We see lots of opportunity to further expand our brands to new consumers and markets and will increase investment in them selectively as and when funds are available to do so.

 

The ability to introduce brands to the Chinese consumer will remain an important group capability and a differentiating factor in our platform for brands. As a result of changes in the Chinese market place the balance of risks and rewards of distributing third party brands in China has become less favourable. Therefore, we are being far more selective on the number and nature of third party brands we work with and increasingly work with local partners to leverage their sales and marketing reach vs doing everything with our own resources. In line with our overall strategy more of our China resources will be focused on the development of our owned brands in the market and a smaller portfolio of select third party brands.

 

Once our goal of moving the Group into profit is secure we will work on increasing investment behind the scaling of our owned brands and to selectively add to the portfolio in the future through acquisition in terms of brands and additional platform services.

 

Whilst the underlying value of the Company, in terms of its assets, capabilities and potential, is not currently reflected in the share price, we remain focused on improving the underlying performance of the business, reaching profitability and increasing shareholder value.

 

David Hampstead
Chief Executive Officer

FINANCIAL REVIEW

Overview

Group revenues for the year decreased by 3% to £16.9m (2023: £17.5m). Revenue in China decreased as the changes in the market dynamics with weaker consumer demand, increasing competition, rising promotional discounting impacted the Group's ability to generate good quality revenue in this Market, revenues decreased 17% to £9.8m (2023: £11.7m). Revenue growth in the UK and ROW increased significantly due to strong growth in Brand Ownership, with new sales channels, new product development, increasing marketing focus and reach. Revenues in the UK and ROW increased by 24% to £7.2m (2023: £5.8m).

 

Revenues in Brand Ownership up 16% to £7.7m (2023: £6.7m), Brand Acceleration is down 18% to £8.2m (2023: £10.0m). Distribution revenues increased by 13% to £0.74m (2023: £0.66m).

 

The Group's gross margin increased to 60% from 55% in FY 2023, driven by increase in revenues from Brand Ownership as a % of total revenue and a change in channel mix.

 

Operating expenses

Selling and distribution expenses, have increased to 34% (2023: 31%) of revenue, as a result of increasing promotional discounting and competition in China. Although, contribution margin is 2 points ahead of FY 2023 because of the structural changes in the sales mix and the focus on operational efficiency.

 

Administrative expenses increased to 48% (2023: 44%) of revenue as the Group has taken a non-cash impairment charge in relation to its Nomad Platform. In addition to the impairment charge, the Group incurred a number of significant non-recurring costs which have been shown separately 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 changing market in China. Excluding significant non-recurring costs, administrative expenses have decreased to 32% (2023: 37%) of revenue with selective adjustments made to its cost base. The Group's total head count as at 31 March 2024 was 87 (2023: 104).

 

Depreciation and amortisation

The total depreciation and amortisation costs were £0.3m and £0.7m respectively (2023: £0.4m and £0.8m).

 

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 £0.9m (2023: £2.2m), after deducting £2.1m in impairment charges, £0.5m in restructuring costs, £0.2m for share-based payment expenses and £1.0m in depreciation and amortisation expenses. The decrease in losses is a result of the adjustments made to the Group's cost base, improvements made in operating efficiencies and continued strong growth in our owned brands. 

 


Mar-24

Mar-23

Operation loss

(4,612,714)

(4,587,848)

Depreciation and amortisation

989,208

1,140,524

Share-based payment

191,800

712,271

Impairment Loss

2,080,746

-

Restructuring costs

457,594

507,085

Adjusted EBITDA

(893,366)

(2,227,968)

 

Earnings per share

Basic and diluted loss per share was 8.15 pence per share (2023: restated 8.03 pence per share).

 

Net debt


Mar-24

Mar-23

Cash and cash equivalents

867,524

2,017,150

Right-of-use lease liabilities

(717,400)

(573,785)

Borrowings

(1,496,488)

(1,453,298)

Net debt

(1,346,364)

(9,933)

 

At the year end, the Group's net debt position was £1.3m (2023: £0.01m), excluding the IFRS 16 lease liabilities, net debt was £0.6m (2023: net cash £0.6m). 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 £0.6m from £2.4m.

 

The decision to stop support for our Nomad Checkout product saw a reduction in cash outflow from investing activities by £1.0m to £0.2m (2023: £1.2m). Repayment of borrowings and lease liabilities, the net cash used financing activities was £0.3m (2023: £1.5m).

 

Financing costs of £0.26m (2023: £0.16m) comprised of interest expenses of £0.1m (2023: £0.1m).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME



Year ended 31 March 2024

 

Year ended 31 March 2023

Restated


 

£

 

£

Revenue


16,922,669


17,476,825

Cost of sales


(6,695,544)


(7,814,362)

Gross profit


10,227,125


9,662,463

Selling and distribution expenses


(5,715,219)


(5,381,270)

Administrative expenses


(8,135,412)


(7,728,517)

Adjusted EBITDA*


(893,366)


(2,227,968)

Share-based payment and related expenses


(191,800)


(712,271)

Impairment on intangible assets


(2,080,746)


-

Restructuring costs


(457,594)


(507,085)

EBITDA*


(3,623,506)


(3,447,324)

Depreciation and amortisation


(989,208)


(1,140,524)

Operating loss


(4,612,714)


(4,587,848)

Finance income


6,856


20

Finance costs


(261,722)


(162,502)

Loss before taxation


(4,867,580)


(4,750,330)

Taxation


69,520


150,437

Loss after taxation


(4,798,060)


(4,599,893)

 





Other comprehensive income and loss:





Exchange differences on translation of foreign operations


(7,227)


(47,859)

Items that may be reclassified to profit and loss in subsequent periods


(7,227)


(47,859)

Total comprehensive loss for the year


(4,805,287)


(4,647,752)

 





Loss attributable to:





Equity holders of the Company


(4,756,999)


(4,550,522)

Non-controlling interests


(41,061)


(49,371)

 

 

(4,798,060)

 

(4,599,893)

 





Loss per share (basic and diluted)


(0.0815)


(0.0778)

 





Comprehensive loss attributable to:





Equity holders of the Company


(4,764,226)


(4,598,381)

Non-controlling interests


(41,061)


(49,371)

 


(4,805,287)


(4,647,752)

 


CONSOLIDATED STATEMENT OF FINANCIAL POSITION



31 March 2024

 

31 March 2023

Restated


 

£

 

£

ASSETS





Intangible assets


4,585,661


7,338,884

Property, plant and equipment


77,092


203,417

Right-of-use assets


688,628


489,890

Deferred Tax Asset


179,350


143,444

Non-current assets


5,530,731


8,175,635






Inventories


2,370,941


2,212,227

Trade receivables


1,175,380


1,722,637

Corporation tax recoverable


59,376


227,946

Other receivables and prepayments


625,248


706,513

Cash and cash equivalents


867,524


2,017,150

Held for sale


216,597


-

Current assets



6,886,473






Total assets



15,062,108






EQUITY AND LIABILITIES





Share capital


583,582


583,582

Share premium


22,954,413


22,954,413

Merger relief reserve


(2,063,814)


(2,063,814)

Accumulated loss


(17,446,128)


(12,880,929)

Currency translation reserve


(86,587)


(79,360)

Total equity attributable to parent


3,941,466


8,513,892

Non-controlling interest


(180,303)


(139,242)

Total equity


3,761,163


8,374,650






Right-of-use lease liabilities


617,819


260,779

Borrowings


1,434,895


1,398,787

Deferred tax liability


492,787


470,356

Accrued liabilities


-


512,441

Total non-current liabilities


2,545,501


2,642,363






Trade and other payables


3,897,739


3,349,144

Deferred revenue


480,220


328,434

Borrowings


61,593


54,511

Right-of-use lease liabilities


99,581


313,006

Total current liabilities


4,539,133


4,045,095

Total liabilities



6,687,458

 





Total liabilities and equity



15,062,108

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


Share

capital


 

Share

premium


Merger relief reserve


Currency

translation

reserve


 

Accumulated loss

Restated


Non-controlling

interests


 

Total

Equity

Restated


£


£


£


£


£


£


£

Balance at 1 April 2022

547,148


21,022,958


(2,063,814)


(31,501)


(8,546,753)


(89,871)


10,838,167

Loss after taxation (restated)

-


-


-


-


(4,550,522)


(49,371)


(4,599,893)

Other comprehensive loss

-


-


-


(47,859)


-


-


(47,859)

Total comprehensive loss for the year

-

 

-

 

-

 

(47,859)

 

(4,550,522)

 

(49,371)

 

(4,647,752)

Shares issued on subscription

35,976


1,902,413


-


-


-


-


1,938,389

Shares issued on acquisition

458


29,042


-


-


-


-


29,500

Share based payments

-


-


-


-


216,346


-


216,346


36,434


1,931,455


-


-


216,346


-


2,184,235

Balance at 31 March 2023 (restated)

583,582

 

22,954,413

 

(2,063,814)

 

(79,360)

 

(12,880,929)

 

(139,242)

 

8,374,650

Loss after taxation

-


-


-


-


(4,756,999)


(41,061)


(4,798,060)

Other comprehensive loss

-


-


-


(7,227)


-


-


(7,227)

Total comprehensive loss for the year

-


-


-


(7,227)


(4,756,999)


(41,061)


(4,805,287)

Share based payments

-


-


-


-


191,800


-


191,800

 

-

 

-

 

-

 

-

 

191,800

 

-

 

191,800

Balance at 31 March 2024

583,582

 

22,954,413

 

(2,063,814)

 

(86,587)

 

(17,446,128)

 

(180,303)

 

3,761,163

 

CONSOLIDATED STATEMENT OF CASH FLOWS



31 March 2024


31 March 2023

Restated


 

£

 

£

Cash flows from operating activities





Loss after taxation


(4,798,060)


(4,599,893)

Cash flow from operations reconciliation:





Depreciation and amortisation


989,208


1,140,524

Impairment of Intangible asset


2,080,746


-

Finance expense


113,225


20,630

Finance income


(6,856)


(20)

Income tax credit


(69,520)


(150,437)

Share based payment


191,800


216,346

Working capital adjustments:





(Increase)/decrease in inventories


(158,714)


1,508,021

Decrease in trade and other receivables


628,522


131,918

Increase/(decrease) in trade and other payables


187,942


(626,169)

Cash used in operating activities


(841,707)


(2,359,080)

Taxes received/(paid)


224,615


(7,477)

Net cash used in operating activities


(617,092)


(2,366,557)






Cash flows from investing activities





Purchase of property, plant and equipment


(37,484)


(67,602)

Purchase of intangible assets


(220,734)


(1,095,564)

Payment of deferred consideration


-


(80,000)

Disposal of property, plant and equipment


84,206


9,336

Disposal of right of use asset


(47,813)


-

Disposal of intangible asset


16,435


-

Finance income


6,856


20

Net cash used in investing activities


(198,534)


(1,233,810)






Cash flows from financing activities





Proceeds from issue of shares, net of fees


-


1,937,889

Repayment of right-of-use lease liabilities


(283,218)


(329,001)

Interest paid


(21,717)


(24,671)

Proceeds from other loans


31,363


-

Repayment of borrowings


(54,857)


(71,131)

Net cash generated used in/(from) financing activities


(328,429)


1,513,086

 





Net decrease in cash and cash equivalents


(1,144,055)


(2,087,282)






Cash and cash equivalents - beginning of the year


2,017,150


4,049,118

Effects of exchange rate changes on the balance of cash held in foreign currencies


(5,571)


55,314

Cash and cash equivalents - end of the year


867,524


2,017,150

 

 

1.    General Information

Samarkand Group plc was incorporated in England and Wales on 12 January 2021 as a public company with limited liability under the Companies Act 2006.

 Samarkand Group plc's registered office is Unit 13 Tonbridge Trade Park, Ingot Way, Tonbridge, TN9 1GN.

The Consolidated Group financial statements represent the consolidated results of Samarkand Group plc and its subsidiaries, (together referred to as the "Group").

 

2.    Basis of preparation and measurement

The financial statements have been prepared in accordance in accordance with UK-adopted International Accounting Standards.

The financial information set out in this document does not constitute the Group's statutory accounts for the year ended 31 March 2024 or 31 March 2023.

Statutory accounts for the year ended 31 March 2023 have been filed with the Registrar of Companies and those for the year ended 31 March 2024 will be delivered to the Registrar in due course; both have been reported on by independent auditors. The independent auditor's report for the year ended 31 March 2024 is unmodified with the material uncertainty in respect of going concern:

We draw your attention to the going concern paragraph below, which indicates the key risks and uncertainties which may affect the future prospects and trading activities of the group. The going concern paragraph below indicates that the group's revenue has decreased by 3% against the prior year and that the group continues to be loss making. The group reported an adjusted EBITDA loss of £0.9m and total comprehensive loss of £4.8m. The Directors recognise the importance of moving the group into profitability and have made some progress towards this goal. The going concern paragraph below comments that, in addition, the Directors are actively exploring additional funding options to support the Group's operations and long-term viability. The loan of £1.4m is repayable to Global Smollan Holdings (largest shareholder) and is due in September 2025. Global Smollan Holdings have indicated their willingness to negotiate the terms and continue their support to the group. The directors are satisfied that they would be able to take mitigating action if the sales growth was slower and that cash commitments will not be met. These conditions, along with other matters as set out in the going concern paragraph below indicate that a material uncertainty exists that may cast significant doubt on the group and parent company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

The independent auditor's reports on the Annual Report and Accounts for the year ended 31 March 2024 was unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006 but included a material uncertainty in respect of going concern.

Going concern

The financial statements have been prepared on a going concern basis, assuming that the Group will continue its operations for the foreseeable future. The Directors have assessed the Company's ability to continue as a going concern, taking into consideration the current economic and market conditions, as well as the Group's financial performance and cash flow projections.

The Group's revenues have decreased by 3% against the prior year and adjusted EBITDA losses have reduced by 60 % against the 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. Cost reduction initiatives were taken to improve the Group's operating efficiency, it's financial position to mitigate the impact of challenging market conditions in China. For the year ended 31 March 2024, the Group reported an adjusted EBITDA loss of £0.9m (2023: £2.2m) and total comprehensive loss of £4.8m (2023: £4.7m).

Despite the progress made, the Group continued to face challenging market conditions in China, with revenues generated from distributing third party consumer brands in China falling 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. As such the Group is reconfiguring its focus to fewer third party brands which have the potential for long term success, this will enable greater attention and focus on development of our own brands in China.

The Directors recognise the importance of moving the Group into profitability and have made significant progress towards this goal. In addition, the Directors are actively exploring additional funding options to support the Group's operations and long-term viability. In June 2024, the Group completed the disposal of its Probio7 brand. The proceeds of the disposal have enabled the Group to acquire Optimised Energetics, a premium skincare manufacturer to secure its manufacturing services to Napiers, improving the overall Group's margins and profitability. Proceeds from the disposal will also allow the Group to increase resources to support the growing working capital requirements of Napiers and Zita West.

The Directors continue to consider various options including trade financing, 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 and in conjunction with the loan with Global Smollan Holdings becoming due in September 2025, 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. Global Smollan Holdings, our largest strategic shareholder have expressed ongoing support for the business and have indicated their willingness to re-negotiate the loan when it falls due.

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 and the progress made in exploring various strategic options to raise additional funds. The Directors believe that these factors, will enable the Group to overcome the identified challenges and continue its operations.

To address the material uncertainties, the Directors will continue to closely monitor the Group's financial performance, cash flow projections, and market conditions. They will continue to proactively manage the Group's cost base, seeking further efficiencies where possible.

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.


3.    Revenue from contracts with customers

During the year ending 31 March 2024, the revenue from contracts with customers have been realigned to better reflect how the Chief Operating Decision Maker (CODM) reviews financial information and manages its business units. The realignment is designed to provide enhanced transparency and better reflect the Group's evolving business model and strategy. Historical results have been adjusted to reflect his change for all periods presented.

 

Disaggregation of revenue from contracts with customers:



31 March 2024


31 March 2023


 

£

 

£

Revenue analysed by class of business:





Brand ownership


7,748,048


6,678,067

Brand acceleration


8,204,409


9,976,116

Distribution


740,999


658,538

Nomad Checkout


149,337


119,017

Other


79,876


45,087

Total revenue


16,922,669


17,476,825

 

Cost of sales by business unit:





Brand ownership


2,772,796


2,516,506

Brand acceleration


3,539,317


4,948,361

Distribution


351,413


319,947

Nomad Checkout


31,707


26,846

Other


311


2,702

Total costs of sale


6,695,544


7,814,362


4.    Intangible assets

 

Development costs


Trademarks


Brands


Goodwill


Website


Total


£


£


£


£


£


£

Cost












At 1 April 2022

2,330,437


99,596


2,484,091


2,829,718


70,198


7,814,040

Additions

1,076,159


18,624


-


-


782


1,095,565

At 31 March 2023

3,406,596


118,220


2,484,091


2,829,718


70,980


8,909,605

 

Additions

180,832


17,402


-


-


22,500


220,734

Disposal

-


-


-


(16,435)


-


(16,435)

Reclassify as held for sale

-


(70,634)


(459,916)


-


(24,130)


(554,680)

At 31 March 2024

3,587,428


64,988


2,024,175


2,813,283


69,350


8,559,224













Amortisation












At 1 April 2022

493,548


32,503


271,680


-


5,073


802,804

Charge for the year

572,744


14,108


161,960


-


19,105


767,917

At 31 March 2023

1,066,292


46,611


433,640


-


24,178


1,570,721

Charge for the year

462,365


16,770


161,938


-


19,106


660,179

Impairment

2,058,771


4,446


-


10,236


7,293


2,080,746

Reclassify as held for sale

-


(39,602)


(287,448)


-


(11,033)


(338,083)

At 31 March 2024

3,587,428


28,225


308,130


10,236


39,544


3,973,563













Net book value












At 31 March 2024

-


36,763


1,716,045


2,803,047


29,806


4,585,661

At 31 March 2023

2,340,304


71,609


2,050,451


2,829,718


46,802


7,338,884













 

  Impairment of intangible assets

At each reporting date, the Directors assess whether indications exist that an asset may be impaired. If indications do exist, the Directors estimate the asset's recoverable amount. An asset's recoverable amount is the higher of an assets or cash-generating unit's fair value less costs to sell and its value-in-use.

 

Management have assessed that there are 3 cash generating units, these include Brand Acceleration, Brand Ownership and Distribution. Brand Acceleration encompasses the technology and service solutions designed to provide Clients cross border eCommerce solutions into China, the solutions are built on the Nomad Platform and is integrated with Chinese eCommerce platforms, payment providers and logistic companies. Brand Ownership includes the sale of our owned branded products through retailers, online and other marketplaces across the UK, China and ROW. Distribution includes the sale of third-party brands to UK and European retailers.


Management have performed an impairment review as required by IAS 36 and have concluded, as a result of the decision to stop supporting the Nomad Checkout product and the changing eCommerce market in China and the Group's decision to focus on a select number of high potential brands and its our own brands, an impairment charge of £2,080,746 has been recognised which represents the carrying value of the Nomad Platform. No impairment is indicated for its other core cash generating unit, Brand Ownership.

 

The recoverable amount of the assets has been determined from a review of the current and forecasted performance of the cash generating unit through to March 2029. The key assumptions for these calculations are discount rates and revenue growth rates. In preparing these projections, a discount rate of 12% has been used based on the weighted average cost of capital and the perpetual growth rate of 4% has been assumed. Management has also made assumptions around the growth in relation to revenues generated from Brand Ownership Sales. This includes acquiring new customers, increasing the number of sales channels and partners in its distribution network and adjusting its cost base. If management's assumptions with regards to revenue were to change by 1% over the projected period with corresponding change to variable costs, the value in use calculation would result in £881k change for Brand Ownership, in the recoverable amount of the assets. If management's assumptions with regards to discount rate were to change by 1% over the projected period, the value in use calculation would result in a £2m change for Brand Ownership, in the recoverable amount of the asset.

 

 

5.    Right-of-use assets

 






Land and buildings

 







£

 

Cost








At 1 April 2022






1,362,545


Additions






155,596


At 31 March 2023






1,518,141


Additions






632,461


 

Disposal






(1,362,545)


 

At 31 March 2024






788,057


 









Amortisation








At 1 April 2022






753,910


Charge for the year






274,341


At 31 March 2023






1,028,251


Charge for the year






250,370


Disposal






(1,179,192)


At 31 March 2024






99,429










Net book value








At 31 March 2024






688,628


At 31 March 2023






489,890










 

The Group leases land and buildings for its offices and warehouses under agreements of between five to ten years with, in some cases, options to extend and break clauses. The leases have initial rent-free periods and 5 yearly upward only rent reviews. No extension to these leases has been assumed, the impact is not considered material to users of the financial statements.

 

Future minimum lease payments associated with the land and building leases were as follows:



31 March 2024


31 March 2023


 

£

 

£

Not later than one year


156,430


328,491

Later than one year and not later than two years


211,990


218,190

Later than two years and not later than five years


452,910


48,750

Over five years


78,667


-

Total minimum lease payments


899,997

 

595.431

 


 

 

 

Less: future finance charges


(182,597)


(21,646)

Present value of future lease payments


717,400

 

573,785

 


 

 

 

Current


99,581


313,006

Non-current


617,819


260,779

Total lease liabilities


717,400

 

573,785

           

6.    Inventories



31 March 2024


31 March 2023


 

£

 

£

Finished goods


2,770,112


2,980,627

Provision for obsolescence


(399,171)


(768,400)

Total inventories


2,370,941

 

2,212,227






Cost of inventory recognised in profit and loss


6,695,544

 

7,814,364

 

7.    Trade receivables



31 March 2024


31 March 2023


 

£

 

£

Trade receivables


1,325,677


1,840,464

Provision for expected credit loss


(150,297)


(117,827)

Total trade receivables


1,175,380

 

1,722,637

 

 

8.    Other receivables and prepayments

 

 


31 March 2024


31 March 2023


 

£

 

£

Accrued income


15,570


-

Prepayments


376,981


423,352

Other receivables


232,697


283,161

Total other receivables and prepayments


625,248


706,513

 

9.    Borrowings

The following table provides a reconciliation of the Group's future maturities of its total borrowings for each of the periods presented:

 


31 March 2024


31 March 2023


 

£

 

£

Not later than one year:





Bank loans


57,043


54,511

Other loans


4,550


-

Current


61,593


54,511

 





Payable after one year but less than five years:





Fixed rate secured loan notes


1,366,430


1,299,746

Bank loans


41,998


99,041

Other loans


26,467


-

Non-current


1,434,895


1,398,787

Total borrowings


1,496,488


1,453,298

 

10.  Trade and other payables

 


31 March 2024


31 March 2023


 

£

 

£

Trade payables


1,533,882


1,672,907

Accrued liabilities


1,928,130


1,773,483

Other payables


130,151


164,199

Other taxes and social security


305,576


250,996

Total


3,897,739


3,861,585






               

Current


3,897,739


3,349,144

Non-current


-


512,441

Total


3,897,739


3,861,585






11.  Held for sale

In line with the Directors decision to sell Probio7, the Group has reclassified the non-current assets of Probio7 as held for sale. As at 31 March 2024, the carrying amount of the non-current assets reclassified to held for sale was £216,598. The fair value of the assets was not materially different from the carrying amount at the reporting date.

The reclassification has no impact on profit or loss for the year ended 31 March 2024. The impact of the reclassification on the statement of financial position was as follows:

 


Before reclassification


After reclassification

Non-current assets

 

£

 

£

Intangible assets


216,597


-



216,597

 

-

Current assets





Held for sale


-


216,597

 

 

-

 

216,597






12.  Material subsequent events 

On 21 May 2024, the Group acquired the entire share capital of Optimised Energetics Ltd for a total consideration of £1.3m, comprising of £650,000 in cash on a cash free debt free basis and deferred consideration of £650,000 payable in cash over a three-year period. The Executive directors provided £400,000 unsecured non-convertible loan to the Company at a rate of 2% above the base rate.

On 13 June 2024, the Group disposed of its probiotic brand Probio7 for a total consideration of £1.3m to be satisfied by initial consideration of £1.1m in cash and deferred consideration of £0.2m payable in equal instalments over a 12-month period. The loans made by the Executive directors were repaid in full.

On 15 July 2024, the Group signed a new trademark license agreement with LG, a skin care and personal care company, which enables LG to use Napiers the Herbalist's trademark and IP for a period five years.

 

* EBITDA and Adjusted EBITDA are non−GAAP measures used to represent the trading performance and results of the Group. EBITDA is defined as profit or loss before tax adjusted for finance income and expense, depreciation and amortisation. Adjusted EBITDA excludes those items the Group considers to be non−recurring or material in nature that may distort an understanding of financial performance or impair comparability.

 

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