Samarkand Group PLC (AQSE:SMK) has highlighted an improvement in the near-term trading outlook in its key market, China, and said it continues to make progress towards reaching its key objective of becoming profitable in the coming financial year.
In a trading update, the cross-border eCommerce technology, services and consumer brand group pointed out that in December 2022, the zero-Covid policy that had been in effect in China since the start of the coronavirus pandemic was reversed.
It said the lifting of many of the restrictions that had been in place resulted in a rapid spread of Covid through the Chinese population and this wave of infection caused disruption in late December, which lasted for several weeks, but since the Chinese New Year in late January, these impacts have significantly abated and the early signs of returning consumer confidence are encouraging.
In a statement, David Hampstead, chief executive officer of the Aquis-listed group, commented: “The past 18 months have been difficult for us and many businesses in our industry. That said, with the reversal of China’s zero COVID policy and its rapid re-opening, we are looking forward to a much-improved trading environment this year. We retain unwavering confidence in the value of our offering and we are well-positioned to capitalise on the strong market opportunity ahead, having already been encouraged by the positive signals we are already seeing just a few weeks after the policy changes.”
During the pandemic, the company noted, Chinese households accumulated savings which had resulted in a 42% increase in family bank balances since the start of 2020. This increase amounts to US$4.8tn, a sum which is larger than the gross domestic product (GDP) of the United Kingdom.
The company said it assesses that the combination of this high level of savings, the lifting of restrictions and pent-up demand point to a more positive outlook for the Chinese eCommerce market in the coming year. While the external environment appears to be improving, however, the company noted that the situation on the ground remains hard to predict as China emerges from a period of extended lockdowns.
eCommerce Acceleration
Samarkand said the eCommerce business, where it operates as the China market development partner for prestigious international brands, has been the most impacted by the disruption in the country. With Covid restrictions being removed, however, the mid-term outlook has strongly improved for this part of the business and most of its existing partner brands are planning for strong China growth in the coming year and the company has added several new premium beauty brands to its platform.
The company said its owned brands continue to trade well in the months since its interim update. It noted that Napiers was launched into the Chinese market with the first eCommerce livestream taking place from the historic Edinburgh apothecary store in December on the Chinese platform Douyin. The 4-hour event exceeded the company's expectations, generating a material level of sales of Napiers skincare products and the brand has also secured prominent listings in premium Chinese retailer SKP as part of its plan to leverage its cross-border eCommerce infrastructure to introduce the brand in the China market.
Samarkand said its premium fertility brand Zita West continues to attract customers in line with expectations and is also benefiting from growth generated by its China market eCommerce capabilities. Probio7 has returned to growth in its domestic market and has been able to protect gross margins by effectively managing cost inflation, it added
As noted in the company's December interims, the adoption of its cross-border DTC Checkout solution is progressing at a slower pace than expected, driven in part by the uncertainty around China over the last 18 months and longer sales cycles than anticipated. The company said it continues to seek efficiencies in this specific solution while maintaining investment in its underlying Nomad technology platform.
Further to its December update, Samarkand said the key trading period of November resulted in a profitable performance for the group at a net profit level and it continues to make progress towards reaching its key objective of becoming profitable in the coming financial year through improving gross margin and a reduction in variable costs.
With six weeks remaining of the current financial year, it expects results to be in line with expectations, Samarkand said.