WKGBF (WKGBF) Q2 2027 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to the Sanderson Design Group plc Interim Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation. I'd now like to hand over to CEO, Lisa Montague. Lisa, good morning.

Good morning, and thank you for joining us for Sanderson Design Group's interim results presentation. This morning, we're pleased to have announced an excellent set of results, showing that our strategy is delivering with double-digit growth in both North America and manufacturing and strong performance in our licensing and direct-to-consumer channels. We've seen continued momentum into the second half, and we remain on track to meet full year expectations. Before we present the results, I want to briefly address the general meeting that has been requisitioned by one of our shareholders. This proposes to remove our chair with immediate effect and to appoint a named Non-Executive Director to the Board. This morning, we've published a detailed circular setting out the Board's firm position and recommendation to vote against these resolutions. I'd encourage all shareholders to read that document in full. As Mike and I will explain throughout this morning, our presentation, our strategy is delivering measurable results, supported by a strong independent Board, and the proposed resolutions would only serve to cause significant disruption to that progress and to our ability to continue to build shareholder value. Every vote counts, so please, whatever the size of your holding, make sure that your voice is heard. Details of how to vote are set out in the circular. This morning, however, our focus is on the interim results and on updating you with the progress that we are making across the business. So with that, let me turn to the results. The cover of our presentation, and throughout it, shows our stunning new Morris & Co. campaign, honoring William Morris as the original design rebel. This is particularly aimed at the U.S. and international audiences who may be less familiar with the life and works of Morris and his reputation as the father of design. So now as promised, I will be delighted to cover the highlights and to pass over to Mike to share more financial detail. Then, I will come back to share some strategic initiatives that will take us forward. For anyone less familiar with the group, we are an international house of luxury interior brands, designing and manufacturing in the U.K. and around the world. We employ 500 people around the country with factories in Lancaster and Loughborough, a logistics center in Milton Keynes, showroom and head offices in London and around 50 staff abroad, notably 35 on our North American team. You have known us for our 6 consumer brands, now 7. We're delighted to have won the opportunity to give Designers Guild a future, recently signing a 10-year licensing agreement to design, make and distribute worldwide. We looked at this previously, and we believe that the brand is very strong, the creative vision clear and that it appeals to a different customer with a whole home decorating vision that we can also transmit well online with visualization tools. Financial constraints burdened the business, but the brand can be quickly reenergized, and we believe, deliver top line growth with positive contribution from the start as soon as we've made the initial investment in opening stock. Our heritage brands and the rich archives that we hold also drive licensing opportunities that build awareness by applying our designs on to finished goods, such as bedding or rugs or cushions in specialist retailers or in large retail chains. Design is in the center of our name and at the heart of everything we do. I'm delighted to share our good progress in the first half of this year. As you will have seen from the trading update on the 7th of August, group revenues grew 6% to GBP 51.4 million. Our focus market and the biggest luxury market in the world, North America, grew a stunning 19% with momentum now that suggests our growth rate has accelerated above competitor trends in the U.S. market. Manufacturing turnaround is evident, thanks to all the measures taken, now growing 19% with strong U.S. demand and healthy margins projected to continue. Online activity to engage with designers and customers alike has delivered high-margin sales, reaching new customers through this channel, driven by Morris & Co. that launched first and with 6 dedicated brand sites now transactional in the U.K. and the U.S. And you could expect the Designers Guild site to follow. Cash increased to GBP 10.4 million, up from GBP 9.8 million at the end of the year. That's after GBP 1.3 million invested in share purchases into the Employment Benefits Trust. Adjusted profit before tax in the first half has increased to GBP 3.3 million from this time last year, GBP 2.2 million. And on these results, the Board proposes an interim dividend in line with last year of 0.5p per share. I'd now like to hand over to Mike Woodcock to present to you the detail behind the numbers. Thank you, Mike.

Thank you, Lisa. So, the first 2 slides I'll talk to focus on the 10 KPIs we consistently use to track our performance. These provide a high-level view of our financial results, and then we cover each in more detail later on. The first half of FY '27 has been a period of solid improvement. Revenue improved by 6% versus half 1 FY '26 with EBITDA growing 12% and adjusted underlying profit before tax increasing by 47%. Statutory profit before tax improved by 69% year-on-year and inventory levels have continued to fall following a GBP 5.7 million reduction in FY '26. We ended half 1 with cash reserves of GBP 10.4 million after funding the EBT with the GBP 1.3 million Lisa has just mentioned. So starting with detailed revenue. This slide shows our 3 key revenue streams of brand product sales, licensing and third-party manufacturing income. Brand product sales were up 2% year-on-year with growth in North America offsetting continued weakness in our home territory. Licensing grew by 13%, boosted by GBP 3.6 million of accelerated income and a 5% increase in underlying revenues. The third-party manufacturing revenues maintained the momentum seen in H2 FY '26, growing 19% to GBP 11 million, with this segment also benefiting from strong sales to North American customers. The U.K. and, to a lesser degree, Northern Europe remained challenging amid soft consumer sentiment, but we have successfully maintained and defended our market-leading position in these regions. Our unique vertically integrated model gives us a competitive advantage to control more elements of the supply chain, and we're well positioned to capitalize on opportunities in a consolidating market as demonstrated by our recent in-licensing agreement for Designers Guild brand. As the world's largest interiors market, North America remains a clear strategic priority for the group and an important driver of high-margin growth. In half 1, U.S. brand product sales demonstrated clear forward momentum, increasing 19% in constant currency to GBP 13 million. Our expanded distribution network and ability to launch collections that resonate with the U.S. market is now translating into real demand from buyers and designers with North America now the group's most profitable, highest margin and fastest-growing territory. As noted at year-end, the Middle East only represents around 1% of group turnover, so we are not significantly exposed to that market. However, despite the geopolitical situation in the region, sales actually grew by 6% in half 1. Morris & Co. continues to see increased sales on a like-for-like basis, buoyed by The Huntington collection, which brought previously unproduced archive designs to the market for the first time and contributed to a 14% increase in the brand's North American sales. At Clarke & Clarke, which trades at the more value-conscious end of the market, performance has been more muted. U.S. sales have been constrained by a delayed launch by our U.S. partner and continued softness in the U.K. market. As we've entered the second half, trading has started to improve, and we remain optimistic for the brand's potential going forward. Across the brand, Highgrove by Sanderson has been the standout success since it launched in May 2025, being the highest grossing collection ever in its first year. This has supported the growth of the Sanderson brand globally and has been particularly well received in North America with Highgrove achieving the highest proportion of U.S. sales of any new collection. Revenue from Harlequin has stabilized after a number of years of decline and recent collection launches have recalibrated the brand, meaning it's well set for future growth. And Zoffany's collaboration with Michael S. Smith is another example of a designer-led collaboration with a range of high-end indoor/outdoor products. Michael S. Smith is one of the top interior designers in the U.S. and the partnership gives Zoffany credibility and a profile it could not achieve through conventional marketing. Additionally, it demonstrates the importance of cultivating strong relationships with leading designers in the U.S. market. The group operates a unique vertically integrated model in the luxury interiors market. Through our 2 factories, Anstey and Standfast & Barracks, we are the only designer that controls its own manufacturing across both fabrics and wallpapers, printing for both our own brands and third-party customers. We focus on delivering excellence across design, manufacturing, customer service and innovation. The restructuring programs completed last year across both sites have transformed our manufacturing operations, and we now have a more agile workforce and an increased adoption of digital printing techniques. Third-party manufacturing revenue grew by 19% to GBP 11 million on strong demand from U.S. brands and buyers. Internal manufacturing recovered strongly, up 18% to GBP 6.2 million despite us reducing group inventories by a further GBP 800,000 in the first half of the year. Our workforce across both Anstey and Standfast & Barracks have shown real drive over the course of the first half, and we thank the teams for their continued flexibility and dedication. The momentum in this segment of the group is set to continue with a positive order book moving into half 2. We continue to invest in both factories with digital printing now accounting for 64% of revenues. Total planned investment for the year will be second half weighted as we continue to upgrade our digital printing capabilities. Technological advances allow for enhanced speed and flexibility and optimize productivity and efficiency across both the sites. Licensing revenue was up 13% at GBP 4.9 million. Underlying revenue, shown in the first column in the table, which excludes the impact of the IFRS 15 accounting standards, grew 5% to GBP 4.1 million, contributing strongly to the group's cash generation. Accelerated income is a requirement of IFRS 15 and represents the total minimum guaranteed sales associated with newly signed contracts. In half 1, we recognized GBP 3.6 million of revenue, reflecting the signing of new licenses, renewals and extensions, including those with Blinds2Go and Williams-Sonoma. And looking at the pipeline of renewals and new partnerships in half 2, we expect full year licensing revenue to be broadly in line with the full year FY '26. This next slide analyzes the first column on the previous table, looking at underlying licensing income by brand and by territory. In the U.K., the 11% growth in underlying revenues reflects the continued strong performance of all our partners, including the Habitat and Tu agreement signed in FY '25 and encouraging results from our long-term and newly extended Blinds2Go partnership. North American revenues continue to be driven by Morris & Co.'s agreements with Ruggable and the Williams-Sonoma Group. And in the lower table, you can see that Morris & Co. remains the group's most licensed brand. Looking ahead, we're confident in the licensing opportunities created by our recent design launches, including the Morris & Co. Huntington collaboration, Sanderson Highgrove and the new Voysey House collection. Signing further licensing agreements remains an important focus. Beyond the direct revenue generated by leveraging the group's brands and design archive, it raises the profile of our designs more broadly and reinforces demand across the wider business. Gross profit continues its upward trajectory and at GBP 35.5 million was up GBP 2.5 million compared to H1 FY '26 with improved performance across all segments. Our overall gross profit percentage increased by 90 basis points to 69.2%. Within the Brands segment, the increase was driven by the strong performance of both the higher-margin North American market and the higher-margin direct-to-consumer channel. However, the key driver behind the group's overall improvement was in the Manufacturing segment, where a combination of sales growth, restructuring and various other efficiency projects across both factories saw gross profit increase by [ 590 ] basis points to 39.7%. Adjusted profit before tax increased 47% to GBP 3.3 million, demonstrating a sustained improvement in group profitability and was driven by a combination of the strong North American growth, the continued manufacturing turnaround and increased licensing revenue. The result also reflects management's prior actions to reduce our cost base, and we remain committed to a prudent approach to cost control. Net distribution and selling expenses have remained broadly flat with increases in carriage costs arising from fuel prices and tariffs being offset by various efficiency programs. Administration expenses increased by GBP 1.7 million compared to half 1 FY '26 due to investments in the group's IT and D2C infrastructure, the timing of certain marketing expenditure and inflationary increases. And this chart highlights that net cash increased from GBP 9.8 million on the 31st of January to GBP 10.4 million at the half year. On top of our cash reserves, headroom is further enhanced by a committed but undrawn Barclays facility of GBP 10 million. EBITDA of GBP 4.6 million was 12% higher than the corresponding period last year and contributed significantly to the cash build in the period. A highlight of FY '26 was a GBP 5.7 million reduction in inventory levels across the group, and it's pleasing to report a further GBP 800,000 reduction in H1 FY '27. Capital expenditure in half 1 totaled GBP 1 million. But as I noted earlier, we expect this to increase in the second half as we continue to invest in our factories. We also funded the purchase by our EBT of 2.2 million shares at a cost of GBP 1.3 million to satisfy the future vesting of share schemes. With these cash reserves of GBP 10.4 million and a strong balance sheet, we're well positioned to capitalize on opportunities in a consolidating market as demonstrated by our recent strategic licensing agreement to the Designers Guild brand. So that concludes the financial review of the first half of the year, and I'll now hand back to Lisa to update further on our future strategic direction. Lisa?

Thank you, Mike. And I'll take us forward from here, confirming our strategic direction and the progress that we're making against our goals. There has been a major shift in the business and our focus accordingly on future opportunities as our markets have changed both cyclically and structurally and in response to the various global headwinds of recent times. The swift actions that we have taken have yielded results and secured our strong foundation from which we now look to grow in our global leadership role. We are now recognized as a global design house and experts in interiors. By the next presentation, I expect North America would be our largest market and highest margin market that it is, and the U.S. customer are #1 across both brands and manufacturing. The pipeline and momentum suggests that we have significant growth potential and are well positioned to take further market share, albeit from a small base. The customer base has shifted to high-end designers, relying on deep relationships that we enjoy with interior designers, independent retailers and large chains or specialists that we partner with on collaborations and licensing. Our omnichannel go-to-market plans make it easy to shop whenever and wherever our customers seek to connect on our newly award-winning user-friendly platform. Investment in digitalization has won new creative work in the manufacturing units now at the forefront of service and technology. And altogether, this demonstrates our scalable international business that our plan shows will deliver long-term sales growth and incremental profitability as margins continue to grow. We're unique in our verticality that will build margins as we grow and lean on our highest margin levers. Manufacturing has returned to solid contribution levels with a strong pipeline. Investments in innovation and technology support further future development. We make for third-party brands, including most of our competitors. We print all of our own wallpaper and our printed textile designs for group brands, and we work also with the best weavers in the world. Going from design to make wholesale to retail clearly gives us innovation, control and margin advantages that will continue to grow the margin and return through our vertical structure, our market and channel mix. We're a warrant holder with over 100 years of Royal Warrant as purveyors of fabrics and wall coverings to the households. Ours is not a green business, but we make as responsibly as possible with strong factory audits and sustainability credentials audited by Planet Mark, which are all important for the warrant and for our teams. Our Live Beautiful strategic framework has been in place for a few years now with 4 key pillars and underpins. We're focused on interior designers as customers and our omnichannel platforms to reach them. Heritage brands attract collaborations and lead on storytelling and licensing appeal. Within products, we're considered print experts and a market leader in wallpaper. The U.S. will remain our growth market, having grown sales and distribution threefold in the past few years, so at least until our penetration there has doubled again. Hence, our marketing activity is concentrated on the U.S. for growth, while we continue to protect and maintain our position in the U.K. and Europe, where there clearly remains opportunity but not on a comparative scale. Return on every hour and every pound invested in the U.S. gives us measurable greater return than any other. The omnichannel network that we have built gives us global awareness, consistent brand storytelling and customer engagement at every level. We will continue to optimize these platforms for growth, and we see a bright future, thanks to the insights, the data intelligence and the efficient processing that this approach has enabled. Moving to interior designers. They are our brand ambassadors. We continue to build great relationships, even resulting sometimes in collaboration in the case of Michael Smith, for instance, in California, and the recent Kips Bay Show Home roof terrace was swagged with our Zoffany outdoor fabrics for high impact at a very modest cost. Michael said in a recent interview with Business of Home that he didn't need to collaborate. He's the most famous designer in the United States of America. He came to us to solve a need that he couldn't source sophisticated outdoor designs for his discerning client. So we made it together. Strong sampling proves what our research told us that he was not alone with this problem and that there is indeed strong take-up. Wallpaper is a category that's growing with demand from all top brands in the U.S. We are the supplier of choice and also offer unique service across both factories and color matching, which no other group can do. We've been asked about market consolidation for years in the U.K. as some competitors have struggled to overcome the economic downturn, being forced to leverage and finally given up. Designers Guild, we believe, to be an exciting brand that we can energize for the future. It sits alongside our brands in the competitive landscape and speaks to different customers. The interior design approach of the brand also lends itself to online visualization and the service that we intend to build out. In North America, we believe that we have the right partnerships, the right network, the right people, the right product. And as brand awareness builds, we will also welcome more licensing opportunities. And in D2C new sales of GBP 1.6 million in the first half came from our transactional brand websites. The potential is clearly significant and could be expected to reach between 10% and 20% of high-margin brand product sales over time. Morris & Co. was the first to launch as an online proposition and represents 75% of these initial sales with the other brands launching later and developing now. A stand-alone transactional site will also soon be launched with Designers Guild by spring at least. We're also thrilled with our customers' responses to the replatformed Trade Hub and the ability they have now to self-serve 24/7, including a new Made To Measure proposition just launched last week. With this new ecosystem, more than 1.7 million users have engaged with our digital platforms since the start of the financial year. Morris & Co. is our most visited consumer site with nearly 700,000 users already across the U.K. and the U.S. This followed by Sanderson, almost 500,000. Nearly 100,000 users have interacted with our trade site since the start of the financial year and now 37% of brand sales year-to-date have come through the digital channels, up from 33% last year. In the U.S., the digital share has grown from 22% to 30%. It's our fastest shifting market. And on social, total Instagram following has increased to 802,000 followers since the end of last year, which is an increase of 4% already this year. We've enjoyed some fantastic and high-profile relationships. Sanderson's interpretation of the high-growth gardens into fabrics and wallpapers has been a very special project. The halo effect on Sanderson brand is evident. Just look at how it's driving sales in the U.S. The collaboration continues with additions including some categories like outdoor fabrics that are in demand, particularly in North America and international markets. This collection in its first year, as Mike mentioned, achieved record sales for any Sanderson collection in the last 166 years and contributed significant donations to the King's Foundation charity. The group's rich archive meanwhile, have been put to commercial use, launching a capsule of wallpapers designed by Voysey initially on our Morris & Co. website as a trial, but with plans to assess potential for this as a stand-alone brand. Meanwhile, the Morris & Co. and Huntington collaboration continues to thrive and develop with the first designs driving a 14% sales increase for the brand in North America in the first half and new designs to complete the story are ready to launch. In November, next month, we welcome 300 guests to the Design Leadership Network of America to dine in the splendor of gardens and terraces of the Huntington Museum in Pasadena, California during their annual summit in Los Angeles. Designers Guild is an exciting addition to our House of Brands with its international appeal quite different to our current offer. Designers Guild is light, airy and colorful with Mediterranean vibe shown as a whole home creative solution. built over 56 years on a strong vision that was ahead of its time with an omnichannel approach, they didn't call omnichannel then. The brand's creative ethos lends itself to online design solutions, and we expect it to thrive with our customers and on our platforms. Worldwide and in the strong international network of its loyal fan base, who've all been reaching out to us with emotional supportive messages. The nature of the agreement and the timing means that it will take us a few weeks to be back in stock of key designs and to create the platform to deliver the service. But we're confident we have a talented task force team committed to getting the engine turning as fast as possible. Licensing continues to progress positively and is on track to deliver on our expectations for the full year. We're delighted by the renewals with key partners this year, including long-standing collaborator and window coverings market leader, Blinds2Go. Ruggable has expanded their offer and Hug Rug has joined the flooring team as the U.K. manufacturer based in Yorkshire and run its primary business. We're thrilled also to welcome back PAIGE with a gorgeous capsule of Morris & Co. Womenswear, celebrating the new Huntington designs for autumn/winter '26, launching very soon. And this year, earlier in the year, Clare Brown joined us to head up the growing licensing team. Having been on the other side of the fence at National Trust for many years, we know she's tough because we had to negotiate with her. The factory turnaround is a joyful story this year and morale and motivation are palpable, recovering from two difficult years of cost cutting and reorganization in response to the market downturn. Demand is strong in both factories from high-value international brands with momentum in forecast. Group brands are also back on track from destocking actions taken last year. We continue to invest, no longer mending aged infrastructure only, but supporting our new role as market leaders at the cutting edge of technology. Digital printing across both sites, as you've heard, now accounts for 64% overall and increasing as the new machinery delivers ever enhanced product quality. And further optimization underway will deliver tighter forecasting, supply chain integration, inventory reduction and shorter lead times. Behind our brands and every product we bring to market, our colleagues whose skill and care make the difference. From our creative teams and factory floors to the colleagues serving customers and supporting the business, every role matters. The progress we have spoken about today sends on our people. Our investment in technology matters, but it is their knowledge, skill, craft and judgment that help us make the most of all. Their contribution gives us confidence in the future. For me, work beautiful is also about the experience of working here in our employee proposition. We want people to feel valued, to take pride in what they do and to know that they are valuable and their contribution counts. So from this, you can take Sanderson Design Group has returned to top line growth. We have momentum, and we project that profitability will continue to climb due to the channel mix and the market mix as projected. We are on course to deliver our full year current market expectations. We remain focused on maintaining our market-leading position with our customers in the U.K., our strength in European, Scandinavian and other markets, even amidst continuing soft consumer sentiment. Designers Guild is an exciting new opportunity to appeal to different customers and to celebrate with a different and digital lens. And we're encouraged by the ongoing demand for high growth by Sanderson and by the rapid growth that heritage brands show as a response to the boost of collaboration, this one with the highest house in the land. Manufacturing turnaround and demand is supported by a strong pipeline of high-value orders from top international brands. So all in all, we have the right product, the network, the talent and the resource plan to deliver long-term profitable growth for the benefit of all stakeholders. And we thank you enormously for your ongoing support for our strategy, our mission and our teams. Thank you all for taking the time to listen to our interim results presentation. We're proud of the progress the team has made, and we're confident that we have the right strategy, the right brands and the right people to keep delivering for shareholders. Mike and I would like to invite you to submit any questions. But before we move into the Q&A, as we've stated this morning, regarding the requisition, we don't believe that this is in the best interest of the shareholders. The disruption caused by the immediate removal of the Chair would risk jeopardizing the continued delivery of our strategy, which you can see is producing measurable results. To be clear, there is an orderly succession plan already in place. The current Board is an experienced team with the required blend of skills, independence and challenge in order to oversee the group's strategy and to operate successfully. That's not to say we wouldn't consider expanding the Board in the future to incorporate broader skills and experience at the right time. However, the proposed candidate now does not have recent listed company Board experience or experience in consumer brands, premium, interiors, licensing or U.S. distribution, which are all central to the group's strategy. The Board believes that appointment should support the group's ambitions and that they should follow a robust and transparent process as shareholders would expect and deserve.

Lisa, Mike, thank you very much indeed for updating investors. [Operator Instructions] But before going into the Q&A session, I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your Investor Meet Company dashboard. Okay. Well, look, guys, thank you very much indeed. And North America appears to be growing well. Is there an opportunity to accelerate that growth?

Yes, I think we are already accelerating that growth, as you can see in the numbers. We're now certainly moving at a greater momentum. And as I think I've said, I would expect that to still be able to double within the visible horizon. All of our competitors who we consider to be our market share competitors are trading at least double the revenues, and we would expect to quite quickly be able to match those.

That's great. Thank you very much indeed. I've got a question here. Could you explain the strategic importance of the Designers Guild agreement and why it is such a good fit with the existing brand portfolio? And just a follow-on, when do you expect to see a material contribution?

Yes. I think we might have to share that one. I'm very excited about Designers Guild because there was a financial issue there. We looked at it previously, as I mentioned in the presentation. And obviously, Dunelm then acquired the IP, which must have been a more attractive deal than we were offering. However, the reason remains that the brand is incredibly strong, that there's an emotional connection to the brand, which gives us the platform to quickly get the business back up and running, we believe. It sits alongside what we do in a slightly different way that we believe appeals to a different customer and that will bring us different opportunities, also stronger in certain markets than we have been in terms of distribution. It's much more international Mediterranean, less potentially English decorating style than the other brands. And so it's something that we can really synergize of our platform with all the opportunities that brings, give us more broader market appeal and also a broader network in some of the markets. And yet, there's a print, color story that we are good at. So sales have been very constrained. A very small part of that collection has been driving the sales forward. So once we get into that stock, which is quite narrow and deep to fulfill pent-up demand, we can then really excite people with a few new, hopefully inspiring collections that will really resonate with that customer. When my team close their eyes and just a business person, but the designers and the marketeers among us can see the brand very clearly, and I think that's what's exciting for us.

Great. Thank you very much indeed. Question around margins, a number of questions around margins. As the sales mix changes towards licensing digital channels in North America, what do you expect in terms of operating margins over the medium term?

I mean I think we said for a while that we thought margins could go north of 70% with a reasonable run. And I think as you say, is that shift towards the higher-margin market of North America, the higher-margin channel of D2C comes through. And obviously, we will, at some point, be launching the Designers Guild website as well. I think we could well be beyond that 70% mark and above.

Great. Thank you very much. Good question here. How do you balance manufacturing for your own brands and manufacturing for third parties?

We often get this question actually about the capacity. We are nowhere near at full capacity in our factories. We would love to be. But we still have opportunity to hire more people, to put on more shifts and to grow the capacity. And so we're not worried at all in terms of as far as we can see into the future of that being a problem. We have a great balance at the moment between group brands and flexibility for third-party brands, and we have some really good important customers that we really enjoy working with and that contribute well to that business.

Thank you. Question here around, I guess, capital allocation. Given the improved cash position, what are your thoughts on capital allocation? Would you consider initiating a buyback like Colefax?

I mean I think a buyback is not out of the question. I think if we look at the immediate requirement for the cash that we have, obviously, we've just talked about Designers Guild, and we will need an investment in working capital to buy back into the inventory that Lisa has just highlighted has been starved from that business. We talked about already about the fact that there's some additional capital expenditure that will be required in the second half to increase our digital capacity within our two factories, particularly our wallpaper factory. And then obviously, we do still have a defined benefit pension scheme out there, the Walker Greenbank scheme, which is -- we talked before about opportunities to possibly buy that out from an insurance point of view. And again, that probably as pricing becomes more attractive in the short term, possibly becomes a higher priority for us to buy that scheme out as opposed to returning capital to shareholders.

Great. And maybe you've touched on that, but can you provide an update on the status of the Walker Greenbank pension scheme?

Yes. I mean that's one where we have an asset from an accounting point of view. I think we've said before that it's sort of cash neutral in terms of the contribution required to maintain it on a day-to-day basis. So we're making administration -- contribution to administration expenses today. What we're not doing is making any further deficit contributions. It will require a probably GBP 2 million to GBP 3 million investment in terms of fully buying out the scheme in terms of buying an insurance policy and all the regulatory and compliance costs that would be associated with that. But as I said, that number seems to be coming down given the more competitive insurance pricing in the market. So that's something we continually monitor with the trustees of the scheme.

That's great. Very clear. Just switching over to perhaps the U.S. How important are the relationships with your U.S. interior designers, architects and other industry professionals in building the brand?

I think that's the whole business, honestly, there's no retail as such in the U.S. And so the distribution -- and it's a great question because I'm not sure this is fully understood always. The distribution is completely different in the U.S. to the U.K. We've built the business in the U.K. with a backbone of independent retailers operating on the high street in market towns, for instance, making curtains and cushions for high-end homes and residential. In the U.S., there's no John Lewis. It doesn't work like that. So there are all the chains that have finished goods at a different end of the market, low to middle. But at the high end, everybody and there are more wealthy people in the United States with more houses, with bigger windows, bigger walls, as we said. They all engage an interior designer and they put aside the budget to do that. And so you don't get the same comparison of what does the role of wallpaper cost or a yard or a meter fabric. It's very much $10 million to a house and $1 million to renovate it. And that's the contract with the interior designer who might work in a different way. So the relationship for us and the awareness of our brand to that interior design community is absolutely crucial. And that's where we believe -- and it's taken a lot of legwork to find this out, where we believe the opportunity was missed previously. So we've spent myself, Claire, our Design Director, our commercial team on the ground, hours, days, weeks of legwork in the last few years to really go into the market to meet these designers to understand what they need, to understand the projects they're working on. And they now have a dialogue with us, and it takes time to build trust as we know, longer than everybody might have the patience for me included. But it's really there now. And I can feel the confidence in London as well. But in my recent trip to New York, we don't need to introduce ourselves anymore. We are taken as being a key player in the market, which is really exciting, and that will build from there.

Great. Are you seeing any other opportunities for near-term consolidation in the market? Are you seeing anything then?

There's a lot of activity. There's -- well, there's a lot passing our desks, more than I think we've ever seen before, whether it be small independent designers who might have slightly overstretched been slightly overconfident and found the consumer softness really a barrier to growth or some manufacturers, weavers where it might have been an independent historic story, family run, lacking succession plan or the inability to access funds to support growth and from technology and development, which we know is really necessary. You can't stand still well passed to buy. All other design houses and the example we've seen in recent weeks. So there are opportunities how we approach them and the value to our group has to be around bringing synergies to what we do. We're not looking at adjacent categories currently, who knows. But I think Designers Guild is a great example there. It's -- we know the markets, we know the products. It's our core, it's what we do. And therefore, more of that works really well on our fixed cost base.

Great. Thank you. Well, look, I think I've covered off a lot of questions. I can see there's some more questions, but I think we've covered those themes of those. So thank you to everybody for your engagement today. I know investor feedback is important to you and to the company. I'll shortly redirect those on the call to give you their feedback. But before doing so, perhaps I could ask you for a couple of closing comments.

Thank you. I'm looking forward to receiving everybody's feedback quite soon and to talking to all of our shareholders. I'm really excited to come back at the end of the year and to share our continued progress. And I thank everybody for supporting us.

Lisa, Mike, thank you very much indeed for updating investors. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Sanderson Design Group plc, we'd like to thank you for your time this morning. Thank you.