TIDMIGR
RNS Number : 2093J
IG Design Group PLC
27 June 2017
IG Design Group PLC
(the "Company", the "Group" or "Design Group")
Preliminary Results for the year ended 31 March 2017
A record year of financial progress
IG Design Group plc, one of the world's leading designers,
innovators and manufacturers of celebration, gifting, stationery
and creative play products, is pleased to announce its preliminary
results for the year ended 31 March 2017.
Financial Highlights
-- Revenue up 31% to GBP311 million (2016: GBP237 million)
- Up 11% at like for like exchange rates and after removing the
effect of an acquisition made during the year
-- Underlying operating profit* increased by 29% to GBP17.5
million (2016: GBP13.5 million)
- Up 6% at like for like exchange rates and after removing the
effect of an acquisition made during the year
-- Profit before tax up 32% to GBP13.0 million (2016: GBP9.9
million).
- Underlying profit before tax* up 51% to GBP16.3 million (2016: GBP10.8 million).
-- Fully diluted earnings per share up 25% at 15.0p (2016:
12.0p).
- Underlying fully diluted earnings per share* up 38% at 18.2p (2016: 13.2p)
-- Cash generated from operations up 52% to GBP31.5 million
(2016: GBP20.7 million)
-- Year-end debt free, with a cash balance of GBP3.0m (2016:
GBP17.5m debt), and year-end leverage down from 1.0 times to
nil
-- Average leverage of the Group during the year was at 2.3
times (2016: 3.2 times), which meets the Company's internal target
of below 2.5 times, two years ahead of schedule
-- Increased final dividend per share of 2.75p for the year
(2016: 1.75p), which, together with the interim dividend of 1.75p
(2016: 0.75p), produces a total dividend in respect of the year of
4.5p per share up 80% (2016: 2.5p). Dividend cover is in excess of
4 times.
*(stated before exceptional items and LTIP charges)
Operational Highlights
-- Continued geographic and customer diversification
- Overseas revenues by destination are now at 73% (2016: 66%)
- Traded with over 10,000 customers, with products sold in over
200,000 stores in over 80 countries
-- Standout performance in USA and Continental Europe
- Excellent revenue and profits growth across all channels of business in Continental Europe
- Profits* in the USA up by 37% through organic growth,
including a first year's payback on recent capital investments in
manufacturing
-- Significant achievements in all geographies
- A significant three year commitment secured for the solus
supply of greetings cards to Australia's largest discount chain
- Record levels of gift bag and greetings card production in our factory in China
- A year of strong growth in the Celebrations product category in the UK
-- Unified and re-organised our three UK businesses under one
leadership team to underpin future profits growth across all
categories
-- Successful integration of The Lang Group of Companies,
acquired during the year
Paul Fineman, CEO, commented:
'It is a great pleasure to once again be reporting a year of
tremendous progress, with many record outcomes achieved throughout
our business.
Not only have sales and profits exceeded our goals, but our
continued focus on cash generation is such that we have been able
to fund growth with fast payback capital expenditure, eliminate
year end debt yet simultaneously accelerate dividends from 2.5p to
4.5p. Whilst continuing to perform with strength, pleasingly we are
also ensuring our business is well diversified, invested for the
future and with a distinct competitive advantage.
Having re-branded as 'Design Group', we are increasingly able to
leverage our global scale as a diversified, design-led,
multi-product category and multi-channel business supported by
world-class manufacturing and sourcing operations.
We are very well placed to continue to grow organically and
through product development and innovation, well-considered
acquisitions, capitalising on our growing market share and the
excellent momentum prevailing throughout the Group.'
27 June 2017
For further information:
IG Design Group plc 01525 887310
Paul Fineman, Chief
Executive
Anthony Lawrinson,
Chief Financial Officer
Cenkos Securities plc 020 7397 8900
Bobbie Hilliam, Corporate
Finance
Redleaf Communications 020 7382 4730
Rebecca Sanders-Hewett designgroup@redleafpr.com
Susie Hudson
This announcement contains
inside information.
CHIEF EXECUTIVE OFFICER'S REVIEW
2016/17 has been a year of exceptional progress as illustrated
by some of the highlights below:
-- Underlying profit(a) before tax increased by 51% to GBP16.3m
-- Operating cash flow increased to GBP31.5m from GBP20.7m in 2016
-- Cash generation up 52% resulting in being debt free at year end
-- Average leverage(a) reduced by 28% from 3.2x in 2016 to 2.3x in 2017
-- Non-UK revenues by customer destination are 73% of total Group revenues
-- Capital expenditure projects in USA, UK and China completed on time and on budget
-- Our Group has delivered a 2.3% gross margin(b) increase
whilst sustaining a highly competitive offering
-- A further year of record production levels, together with an
excellent service record, from all of our manufacturing
facilities
-- Our award winning rebranding campaign captures our global scale and expertise
(a) Stated before exceptional items and LTIP charges.
(b) Stated before exceptional items. Statutory gross margin was 20.1%.
I am delighted to report a year of very strong overall progress
with record sales revenues, increased gross margins and excellent
operating cash flow. Our diversified yet increasingly cohesive
Group continues to leverage its global scale whilst utilising local
expertise. This has resulted in excellent profit and earnings per
share growth, fuelling increased shareholder returns and enabling
us to initiate further fast payback investment to sustain
incremental future progress.
During a year when sales increased by 31% to GBP311.0 million,
profit before tax, exceptional items and LTIP charges increased by
51% to GBP16.3 million. Profit before tax increased by 32% to
GBP13.0 million. Net debt reduced by a very satisfactory 117% from
GBP17.5 million in 2016 to being cash positive by GBP3.0 million in
2017, once again reflecting the effectiveness of our focus on
converting profit into cash and the highly cash generative dynamics
within our business.
With year-end leverage now eliminated, our focus has been on
average leverage and we have successfully improved this from 3.2x
EBITDA in 2016 to 2.3x in 2017, beating our target of 2.5x two
years ahead of plan. The combination of reduced leverage and
significant cash generation has underpinned an 80% increase in
dividend payments from a level of 2.5p for 2015/16 to a total of
4.5p for 2016/17.
Fully diluted earnings per share (pre-exceptional items and LTIP
charges) are up by 38% on the prior year, to 18.2p (2016: 13.2p).
After allowing for exceptional items and LTIP charges, diluted
earnings per share was up by 25% to 15.0p (2016: 12.0p).
Having very successfully enhanced and contemporised our
manufacturing facilities in Holland and the UK in prior years, we
can report that the next phase of creating a "state of the art"
gift wrap manufacturing platform has been completed on time and on
budget in the USA, where we have installed new gift wrap converting
facilities. This investment will underpin our ability to drive
further growth opportunities.
2017 2016
Reconciliation to underlying measures GBPm GBPm
-------------------------------------- ---- ----
Profit before tax 13.0 9.9
Exceptional items 1.1 -
LTIP charges 2.2 0.9
-------------------------------------- ---- ----
Underlying profit 16.3 10.8
-------------------------------------- ---- ----
2017 2016
------------------------------------ ----- -----
Fully diluted EPS 15.0p 12.0p
Cost per share on exceptional items 0.4p -
Cost per share on LTIP charge 2.8p 1.2p
------------------------------------ ----- -----
Underlying EPS 18.2p 13.2p
------------------------------------ ----- -----
Geographical highlights
Our unique blend of creativity and reliability results in teams
focusing on customer channels, supported by experts deployed in
core product categories. This product expertise is shared across
all Group companies thereby leveraging design, product development
and innovation across our global customer base.
UK and Asia
With sales volumes and value at record levels, our UK and Asia
business accounted for 37% (2016: 46%) of our Group's revenue for
the year, reflecting even larger growth outside of the UK.
We enjoyed a particularly successful year within our
Celebrations products categories with sales underpinned by an
excellent manufacturing performance from our gift wrap
manufacturing operation in Wales and card, bag and cracker
production facility in Huizhou, China.
Building on the success of our recent investment in state of the
art printing technology, we have further enhanced our capability by
introducing new and leading edge finishing capability enabling us
to cost effectively provide very attractive, innovative and market
leading products to our customers and their consumers. We were
delighted that our continued progress was acknowledged when we
received European Flexographic Industry Association (EFIA) awards
for sustainable manufacturing and technical innovation.
With a track record of well implemented and fast payback capital
investment projects, we are pleased to have identified further
opportunities to enhance our capability, improve efficiency and
strengthen our market presence. Having already established a new
channel of activity through the supply of bags produced in our
facilities in China, 2017/18 will see our first UK manufactured
"retail collateral" products, including bags produced for fashion
and beauty retailers to provide to their customers.
There remain opportunities to improve sales and margins of our
design-led stationery, creative play and gifting products, which
are well established across all channels in the UK but not
currently performing at their full potential. To address this, and
reflecting the growing cohesiveness across our businesses, the year
saw the union of our three UK based businesses under one overall
leadership team.
Combining the resources of these businesses, where advantageous
to do so, enables us to present a unified set of product and supply
solutions to our total customer base, leverage our scale across all
areas of our activities and utilise the strengths and deep
knowledge that our respective teams possess. Whilst our share of
the UK market for gift packaging is substantial, there remains
scope for profitable growth, across this and all other categories -
both online and through "bricks and mortar" retailers as well as
through a broad network of regional groups and independent
stores.
We continue to embrace the changing dynamics in the UK
marketplace and have achieved growth by:
-- providing innovative, broad and compliant ranges of manufactured and outsourced products;
-- a flexible approach to creating bespoke products, as well as
our own generic and licensed brands;
-- meeting the needs of the rapidly expanding Pan-European discounters;
-- providing highly attractive products created for the specialist GBP1 only retail multiples;
-- expanding our business with new and existing online customers;
-- delivering value and innovation tailored for the
traditionally dominant grocery multiples; and
-- developing new, adjacent categories, including the
development of "retail collateral" products.
Our activities are underpinned by our team of experts based in
the UK and also within our sourcing and manufacturing operations
based in Hong Kong and throughout China, who have further continued
to maintain their track record of delivering a standard of service
that encourages the ongoing loyalty of our large customer base.
Mainland Europe
Our business in Mainland Europe accounted for 14% (2016: 14%) of
the Group's sales.
Mirroring the polarisation of buying power within Continental
Europe, we have focused on "working with the winners" and, in
particular, with the retail groups enjoying strong market share. We
are now trading with each of Europe's top ten retail groups within
our product categories, having established strong trading
relationships with many of them for a considerable number of
years.
As in the UK, our excellent track record of well executed
capital investment programmes has given us the confidence to commit
to a further state of the art printing press, which will provide
further opportunities for efficiency and growth, underpinning our
competitive market position for the future.
Our investment has not only focused on gift wrap manufacturing,
but in our talented team who outsource design-led and constantly
refreshed, innovative products to provide our customers with an
exciting and on-trend value added offering.
We were especially pleased to sustain double-digit growth
momentum in Poland and Slovakia, underpinned by our strong trading
partnerships with those major retail groups in Western Europe who
have expanded into these fast growing markets in central Europe, as
well as with local companies.
Americas
In the USA, our business has grown its share of overall Group
sales to 38% (2016: 28%) reflecting organic sales growth across all
channels as well as the acquisition and successful integration of
the Lang Group of Companies ("Lang").
With significant change in the leadership structure of our US
business during 2015, our now established team delivered major top
line and bottom line growth and identified further opportunities
throughout all areas of our business.
Our team outperformed against each and every metric that was
set, with organic sales growth achieved across all channels,
totalling 27% and with stronger foundations laid for future sales
and profits growth through enhanced commercial and operational
capability.
Having integrated Lang within our US business, we have now begun
to exploit the synergy opportunities that were identified and are
on course to meet the planned outcomes of this exciting
acquisition.
Our continued and enhanced understanding of growth opportunities
within our established and new customer base is supported by our
commercially focused creative team and the year has seen the
expansion of our product offering to include design coordinated
ranges of partyware, giftware, celebrations and stationery products
to both regional and national retailers. We are also very
encouraged with the momentum in sales growth achieved with our
Creative Play products and see considerable scope for expansion not
only within the Americas, but across all of the Group's
markets.
Australia
Our business in Australia accounted for 11% of overall Group
sales (2016: 12%). A year of significant investment across all
aspects of our Australian business saw the appointment of David
Birch as CEO. We are delighted that we will continue to benefit
from the input and experience of the business' founder - Frank
Pynakker - who will continue with the business in the role of
Chairman.
We were very pleased to have won a three-year contract for the
supply of greetings cards to Australia's largest discount retailer,
which compensated to some degree for headwinds with more
commoditised Christmas product. This exciting opportunity required
investment in infrastructure and in-store fixturing and we look
forward to seeing the benefits of this begin to flow through during
the coming year.
We believe that this opportunity provides economies of scale
that put us in an excellent position to further grow our market
share in the higher margin product category of single greetings
cards.
Our business provides our customers with a product offering
which is a compelling blend of great design and value for money and
for many, we are increasingly seen as a "one-stop shop" supplier
and a natural partner of choice.
This has been well illustrated by the successful growth of our
partyware products, which are delivered alongside other generic and
licensed brands of Celebrations categories, including cards and
gift packaging.
Our products and brands
As appropriately captured in the re-naming of our Group as "IG
Design Group plc", design is at the heart of everything we do and,
as always, design is not only applicable to the aesthetic appeal of
our products, but to every aspect of our business.
Whilst we have made important strides in deploying the
collective expertise and scale that exists across our Group, we are
mindful that local knowledge and understanding is vital in ensuring
commercial success.
We were therefore particularly sensitive to the importance of
preserving local identity and culture during the transition to "IG
Design Group." It was extremely gratifying that our efforts were
acknowledged in our winning the Gold prize for the implementation
of a global rebrand at the prestigious Transform Europe Awards
2017.
The Award reflected our imaginative campaign to "bind" our
businesses together under one Group-wide "umbrella". To celebrate
this transformation and to capture the essence of our products and
activities throughout the world, our "Smiling Jigsaw Project"
brought together nearly a thousand members of our team who applied
their creative talents to individual puzzle pieces to form a giant
image, and, in doing so, helped to raise contributions to worthy
charitable causes worldwide.
We have evolved into a diversified, multi-category,
multi-channel and multi-product producer and supplier with our
activities and sales generated across three core categories.
"Celebrations", including gift packaging, greetings and partyware
products contribute 75% of our sales, "Stationery and Creative
Play", including home, school and office products, are 15% of our
sales, and "Gifting", our design-led giftware products category
amounts to 10% of our sales.
We estimate that over half a billion items have been
manufactured, sourced and delivered to our customers during the
year, of which 46% - GBP144.5 million sales carry our Group's
generic and licensed brands.
Our strategy
As has been the case in recent years, our strategic objectives
are reviewed and refined on a regular basis. Fundamentals have
remained consistent and essential to the Group's recent years of
growth and success.
Our team
It is very evident that the Group's overall success serves to
fuel even greater determination from our team throughout the Group
to continue to drive our business forward and to meet and beat new
goals and objectives.
The passion, talent and ambition of our team has enabled us to
deliver ongoing overall improvement in performance in highly
competitive markets and, once again, it is my privilege and
pleasure to thank all of my colleagues for their tremendous efforts
during what has been an excellent year.
The future
Recent years of strong cash generation have been achieved whilst
simultaneously investing in state of the art capital equipment. We
are pleased to have identified further opportunities across our
business for investment in manufacturing, infrastructure,
commercial initiatives and in people. This will enable us to
continue to grow profitably whilst providing our worldwide customer
base with a complete and highly competitive service, our unique
blend of creativity and reliability spanning design and
distribution.
We are excited at the fact that there remains considerable scope
for further progress across all aspects of the business and are
confident that we have the team, agility and the strategy to
deliver further success, both organically and through well
considered acquisitions.
Together our team round the world, will continue to provide the
world's biggest retailers with a design-focused multi-category
offering and by doing so, strive to create value for all
stakeholders through a highly cash-generative business built on
diversified income streams across broad categories and markets.
Paul Fineman
Chief Executive Officer
26 June 2017
Group
-- Group sales up GBP74.0 million (31%), of which GBP29.9
million (11%) is organic at like-for-like exchange rates (see table
below)
-- Non-UK revenues by customer destination now 73%
-- Gross margin before exceptional items increased 2.3%
-- Profit before tax, exceptional items and LTIP increased to GBP16.3 million (up 51%)
-- Cash generated from operations was up 52% to GBP31.5 million
-- Average leverage reduction from 3.2 times to 2.3 times (28%)(a)
-- Underlying(a) fully diluted earnings per share up from 13.2p to 18.2p (38%)
-- Dividend up 80% from 2.5p to 4.5p, proposed final dividend of 2.75p
UK and Asia
-- A record year of sales of gift bags and single greetings cards
-- On time and on budget installation of new gift wrap finishing capability - "Cast and Cure"
-- Successful launch of Paw Patrol licensed products
-- Enlarged business with online e-tailers and distributors
-- Improved leverage of Group scale through a Pan-European
approach to materials sourcing and collaborative sharing of
technical expertise
-- Unification of three UK businesses under one leadership team
-- A 100% on time in full delivery of crackers manufactured for the Christmas season
-- Production of gift bags and greetings cards reached record levels
-- Enhanced manufacturing efficiencies through fast payback
investment in semi-automated processes
-- Ongoing focus on quality control and quality assurance
standards meeting the world's largest retailers and licensors'
needs
-- Product sourcing and quality control capability managed
through teams in Hong Kong and three China based operating hubs
-- A cohesive and collaborative Group-wide approach to third party sourcing
Americas
-- Record sales and trading profit levels
-- Successful acquisition and integration of the Lang Group of Companies
-- The replacement and upgrading of gift wrap converting
facilities delivers a full year of enhanced manufacturing
efficiencies
-- Commercially focused design and product innovation, combined
with excellent customer service, facilitates sales growth in all
channels
-- Significant further momentum within the Creative Play product category
Mainland Europe
-- Highest ever profitability in Europe despite significant
dollar/euro foreign exchange headwinds
-- A record year of gift wrap manufacturing volumes
-- Continued fast payback of investment recently made in gift wrap manufacturing capability
-- Sales growth continues to be strong in Poland and Slovakia
-- Incremental sales growth in non-gift packaging categories
fuels enhanced future growth prospects
Australia
-- Won a large, new three-year contract to supply Australia's
largest discounter with single greetings cards
-- Appointment of new CEO, whilst retaining the business'
founder as Chairman, lays foundations for future growth
-- New regional showroom and marketing facilities now established
-- Successful deployment of dedicated Far East based sourcing team
Growth
----------------------------------
2016 Organic(b) Acquisitions Exchange 2017
GBPm GBPm GBPm GBPm GBPm
-------------------------------- ----- ---------- ------------ -------- -----
Sales 237.0 9.9 20.4 23.7 311.0
11% 8% 12% 31%
-------------------------------- ----- ---------- ------------ -------- -----
Underlying profit before tax(a) 10.8 2.7 0.6 2.2 16.3
21% 6% 24% 51%
-------------------------------- ----- ---------- ------------ -------- -----
(a) Underlying measures are reported before exceptional items and LTIP charges.
(b) At like-for-like exchange rates.
FINANCIAL REVIEW
Key achievements
-- Sales up 31% on prior year (11% at constant exchange rates and excluding acquisition)
-- Increased total dividend payable in respect of the year to 4.5p (2016: 2.5p)
-- Profit before tax, exceptional items and LTIP charges up 51%
at GBP16.3 million (2016: GBP10.8 million Profit before tax was up
32% to GBP13.0 million (2016: GBP9.9 million)
-- Cash generated from operations up 52% at GBP31.5 million (2016: GBP20.7 million)
-- Fully diluted earnings per share before exceptional items and
LTIP charges increased 38% to 18.2p (2016: 13.2p). Diluted earnings
per share increased 25% to 15.0p (2016: 12.0p)
-- Net debt down GBP20.5 million from GBP17.5 million at 31
March of 2016 to a net cash balance of GBP3.0 million at 31 March
2017; average leverage down from 3.2 times EBITDA to 2.3 times,
comfortably beating our target of 2.5 times, two years ahead of
plan
(a) Underlying profit is before tax, exceptional items and LTIP charges.
Group performance
Overall 2016/17 proved to be another very strong year for the
Group despite some surprises impacting the macroeconomic backdrop.
It was a year in which financial performance was excellent across
nearly all our businesses but in which the operational groundwork
was also laid to sustain our momentum. Profits(a) increased 51% and
cash generated from operations was especially strong, reaching
GBP31.5 million and resulting in the Group closing the year with
net cash for the first time in well over a decade. Given this
performance, we have again increased the dividend pay-out ahead of
plan. It remains evident that we have opportunities to do better
still and further investment opportunities to grow.
Our Group continues to offer investors the resilience of a
global portfolio, with different regions of strength advancing our
financial performance each year, while we continuously manage
change in others so that they may advance in their turn. Weaker
sterling has of course boosted the translated value of overseas
earnings and we made a small acquisition (The Lang Companies Inc or
"Lang") in the year, but even at constant exchange rates and
excluding the acquisition, underlying profits(a) advanced by an
impressive 21%, demonstrating real momentum.
The Group's diversity and ability to invest in future growth
continues to drive sustained value creation for shareholders.
After two years of strong progress, our UK businesses again
increased turnover but overall sales and margin development in the
categories of Stationery and Creative Play masked growth in the
core Celebrations business. Our decision to accelerate the
unification of our three UK based businesses and associated
investment also pushed 2016/17 operating profits down. Likewise our
Australian joint venture faced with increasingly commoditised
Christmas business, elected instead to invest in and win more
Everyday single card business, though this incurred set up costs in
the process and pushed operating profits in that region down by 2%
in local currency. Both areas now represent an excellent
opportunity to improve profitability and margins in 2017/18. Of
particular note is the appointment of a new CEO in our Australian
joint venture at the beginning of April 2017 following the
retirement of the Founder and 50% partner, who will retain his
investment and take the role of non-executive Chairman in Australia
after a short period of transition.
By contrast, substantial growth in Europe was yet again
sustained into 2016/17 with sales increasing by 13% and operating
profits by an impressive 30% in local currency in this very
polarised marketplace. The US business particularly stands out with
excellent organic growth in sales of 27% yielding 25% improvement
in profitability in local currency. Our investment in gift wrap
converting equipment last year in the USA yielded a full year of
efficiencies. Supplemented by the acquisition of Lang in the
period, total profitability in the USA improved by 41% in local
currency (and much more after translation into sterling).
Our watchword remains that "It's not profit until it's cash" and
the operating cash flow generated by this improved profitability
pushed us over the line into a cash positive year end close
position. Average leverage is a more meaningful measure of the
average indebtedness of the business relative to profitability and
this reduced to average net debt of 2.3 times EBITDA, comfortably
beating our goal of 2.5 times, two years ahead of our original
plan.
Acquisition and associated equity issue
The Group acquired the Lang Group of Companies in Wisconsin, USA
in June 2016. Lang is a design-led supplier of high-quality branded
consumer home décor and lifestyle products. Lang is a natural fit
with the Group, being a design-led company with complementary
products and markets. There are natural synergy opportunities with
the Group in sourcing and cross selling. While the purchase price
was four times underlying EBITDA, the price paid was $3.4 million
(GBP2.7 million) after adjustment in respect of working capital
(further details can be found in note 31).
The Group issued three million new shares during the year for
aggregate net proceeds of GBP5.0 million to fund the acquisition of
Land and associated working capital.
Continuing operations
Revenues for the year to 31 March 2017 were up 31% from GBP237.0
million in 2016 to GBP311.0 million. In essence, 8% of the increase
related to the acquisition of Lang and 12% to exchange rates
meaning that at constant exchange rates, the increase in organic
revenues was still a pleasing 11%.
Gross profit margins (stated to exclude exceptional items)
improved further to 20.6% (2016: 18.3%) thus achieving our internal
target and reflecting the continued and full year effects of our
ongoing investments and constant search for efficiency. The Lang
business has higher gross margins but a much greater overhead
structure and removing this effect to compare like with like,
organic gross margins improved to 19.7%. Profit margins pre-tax,
exceptional and LTIP charges have improved substantially to 5.2%
(2016: 4.5%) with a significant benefit arising from our lower
interest rates following our refinancing with HSBC. In reality it
is more helpful to examine operating margins at local currency
level because the effects of recent sterling weakness can
materially impact the outcome. Pleasingly these have held steady
overall despite the pressures noted above in the UK and Australia,
and have again improved in Europe, while holding in the USA even as
we have added substantial new business to the top line. Lang's
operating margin is currently lower than the rest of the Group and
we expect to improve this as planned synergies in buying are
realised in 2017/18. The Group aims to improve margins commercially
by increasing the balance of own brand products and non-Christmas
business but efficiencies in sourcing and manufacturing are also
continuing to contribute materially.
Another important dynamic to margin continues to be the level of
FOB business delivered directly to major customers at ports in
China. This type of business continues to grow in all territories
especially in the USA with the major value chains. This typically
attracts lower gross margins but it is a means of retaining or
winning large volumes of business in a manner that avoids other
costs and risks associated with domestic delivery; winning this
business can therefore enhance net margins and return on capital
even as gross margins are diluted.
Overheads (before exceptional items and LTIP charges) have
increased in absolute terms, reflecting the higher overheads in
Lang, increased investment in people and future growth, foreign
exchange effects as well as the effect of increased performance pay
following this year's result. However, the underlying trend in
these costs remains largely steady year-on-year as a percentage of
sales. Tight cost control is a feature of our business and
opportunities to remove or reduce costs are constantly sought out.
As we invest to develop further sales opportunities such as we are
currently doing in the USA, overheads will continue to increase in
absolute terms. We will ensure that new costs are only incurred
where actual or prospective value can be demonstrated.
As a result of the above, underlying operating profit before
exceptional items and LTIP charges increased by 29% to GBP17.5
million (2016: GBP13.5 million) or 13% after exceptional items and
LTIP charges. Excluding the effect of acquisitions and at
like-for-like exchange rates, underlying operating profit increased
by 6% to GBP16.9 million (2016: GBP15.9 million).
Exceptional charges of GBP1.0 million arising during the year
(2016: nil) relate to the costs of acquisition and subsequent
restructuring of the Lang business, and to restructuring of the US
printing platform. The charges are less than previously expected
because the balance of GBP0.2 million is expected to arise in
2017/18 as the restructuring completes. Of this amount, GBP0.9
million has been or will be settled in cash and a net amount of
GBP0.3 million is the non-cash effect.
The non-cash element includes a "bargain purchase" gain on the
acquisition of Lang of GBP1.3 million which arose because the cost
of the investment was less than the fair value of the net assets.
As indicated in the half year report, this non-cash gain is offset
by non-cash write downs of assets in the US business of GBP1.7
million in anticipation of a more holistic Group approach to
printing across our worldwide assets (further details can be found
in note 10).
Finance expenses in the year were significantly lower than the
prior year at GBP1.2 million (2016: GBP2.8 million); this partly
reflects a reversal of last year where certain foreign exchange
contracts that did not qualify to be hedge accounted were marked to
market. Stripping out the effect of these, the underlying interest
cost and associated charges were GBP1.9 million (2016: GBP2.2
million) reaping the rewards of lower average debt levels and lower
margins particularly following our global refinancing in June 2016
with HSBC. Notes 8 and 26 to the financial statements provide
further information.
Underlying profits(a) were up 51% to GBP16.3 million (2016:
GBP10.8 million) while profit before tax was up 32% to GBP13.0
million (2016: GBP9.9 million). The strong increase reflects the
benefit of a much lower interest charge but also takes in the cost
of exceptional items in the current year GBP1.0 million (2016:
GBPnil) and a much higher LTIP charge. The largely non-cash LTIP
charges of GBP2.2 million (2016: GBP0.9 million) are higher
because:
a) we have a clear leadership incentive programme under which a
new award is made each year for a three-year period and we now have
three awards running on a rolling basis;
b) the Group's performance is well ahead of plan and with the
current trajectory, schemes are likely to vest at maximum levels;
and
c) the substantial share price rise increases the charges
associated with Employer's National Insurance. However, the Group
will also receive a much increased corporation tax deduction
(mainly in the UK) based upon market value at exercise.
(a) Profits - profit before tax, exceptional items and LTIP charges.
Taxation
The Group manages its tax affairs in an open and transparent
manner, observing full compliance with all applicable rules and
regulations in countries in which it operates and not entering into
any tax avoidance or otherwise aggressive tax planning schemes. The
headline taxation charge is higher as anticipated at GBP2.7 million
(2016: GBP2.2 million) though of course on a higher profit base.
The effective underlying tax charge on profits before exceptional
items and LTIP charges is higher than the prior year at 24.2%
(2016: 22.5%). This is still well below the underlying blended rate
that would arise from the Group's current geographical profile of
profits.
Recent performance has been sufficiently strong in those areas
with historical tax losses, that we have now recognised all
material tax losses in the accounts. The underlying blended rate is
currently 30% and this rate will likely increase as our profile of
profitability increases in the USA where the tax rate is higher at
35%. Our actual tax rate will therefore now trend quite quickly in
future periods towards the underlying blended rate. The tax losses
not yet recognised in the balance sheet in the UK and Asian segment
have a current tax value of GBP673,000 and GBPnil in the USA,
compared with the prior period of GBP719,000 and GBP1,385,000
respectively.
Actual taxation paid in cash during the year was slightly higher
than the prior year at GBP2.0 million (2016: GBP1.8 million) as our
businesses in Australia and the Netherlands do not have losses to
off-set their profits. With improving and sustained profitability,
we expect to pay cash tax in the USA in 2017/18 and in the UK in
the following year.
Profit for the year
Overall net profit for the year increased by 35% to GBP10.3
million (2016: GBP7.6 million); after removing the effect of
exceptional items and LTIP charges, the underlying profitability
increased still more by 45% to GBP12.4 million (2016: GBP8.6
million).
Earnings per share and dividends
Basic earnings per share were 15.7p (2016: 12.3p). After
removing the effect of exceptional items and LTIP charges, the
underlying earnings per share were 19.0p (2016: 13.5p) representing
an increase of 41%.
However, in order to properly reflect the dilutive effect of
employee share incentive schemes, the Company's key target is
determined by reference to underlying fully diluted earnings per
share (which is stated before the effect of exceptional items and
the largely non-cash LTIP charges but after the dilutive effect of
share options which have vested but not yet been exercised). This
ensures that incentive plan outcomes and shareholder interests
remain aligned. Details of share plans can be found in note 25 to
the financial statements.
Fully diluted earnings per share (stated before exceptional
items and LTIP charges) were 18.2p, up 38% on the prior year (2016:
13.2p), securing another year of double digit growth in
earnings.
Accordingly, the Board is pleased to propose a final dividend of
2.75p per share for the year (2016: 1.75p) which will be paid
during September, subject to shareholder approval. Together with
the interim dividend of 1.75p (2016: 0.75p) this makes for a total
dividend in respect of the year of 4.5p per share. This dividend is
covered four times by underlying earnings and there should be scope
to increase this further in future periods while still investing in
growth and managing average leverage comfortably. The Board has
determined that any dividend will always be covered not less than
two and a half times by underlying earnings per share. Dividend
policy will be balanced against the attractive opportunities to
invest in efficiency and growth that continue to present
themselves.
Balance sheet and cash flow
At 31 March 2017 net debt had been eliminated with a net cash
balance of GBP3.0 million (2016: GBP17.5 million net debt) though
of course the seasonal nature of the business means debt levels
will build again in anticipation of the peak trading period before
again falling in late November onwards. Thus the ratio of year-end
net debt to EBITDA, exceptional items and LTIP charges (leverage)
was nil compared with 1.0 times in 2016. Furthermore, the Group has
now achieved its target for average leverage (the ratio of average
net debt to EBITDA). At the year end this metric was 2.3 times,
much improved on 3.2 times in 2016, better than our target of 2.5
times and two years ahead of plan. The current average leverage of
2.3 times sits within our target long-term range of 2.0-2.75 times
EBITDA.
Year-end net cash included amounts denominated in US dollars of
$3.3 million (2016: $0.3 million debt) and in euros of EUR0.6
million net debt (2016: EUR7.2 million net debt). The year-end
exchange rates were $1.25 (2016: $1.44) and EUR1.17 (2016:
EUR1.26). Therefore, at like-for-like exchange rates the net cash
balance would have improved by a further GBP0.4 million.
Working capital management continues to be a priority.
Outstanding debtors are monitored closely, both to maximise cash
but also to reduce our credit risk. Trade debtors are higher at
GBP26.0 million (2016: GBP18.6 million) at the year end, but this
is unsurprising given the higher value of sales and the acquisition
of Lang. Debtor days remain tightly controlled and the charge for
bad and doubtful debts in the year was only GBP0.7 million, less
than 0.2% (2016: 0.1%) of turnover.
Net stock levels after provisioning for older stock were higher
at GBP49.5 million (2016: GBP46.0 million) as the business is
growing. Stock levels fell particularly in the UK through good
working capital management enabled by the investment in Wales,
offsetting increases in faster growing geographies.
Older stock (measured as over 15 months since last purchase)
increased to GBP7.2 million (2016: GBP5.9 million). Provisioning
increased to GBP8.4 million from GBP4.6 million in the prior
period, substantially increasing the level of provisioning against
stock and thus improving the quality of the balance sheet. This
reflects our desire to adopt a more consistent approach to
provisioning across our businesses.
Group cash generated from operations was again very strong at
GBP31.5 million (2016: GBP20.7 million), reflecting the strength of
operating profitability and assisted again by a net reduction in
working capital of GBP10.9 million (2016: reduction of GBP3.5
million).
Investment in capital expenditure during the year of GBP4.6
million (2016: GBP4.4 million) was at a similar level to
depreciation. The Group continues to invest wherever we see strong
returns and improved efficiencies. The manufacturing platforms
across all our sites in China, UK and Europe are up to date,
underpinning our competitive position, and yet we still see further
opportunities for bolt-on capital investment in these locations to
add further capability.
In particular we have approved the investment in the Netherlands
in a second high speed, high definition printing press. Once in
place in 2018/19, this additional press will reduce risk, increase
efficiency and sustain further growth in profitability. In the USA
the business case for the final phase to update our printing
capability is still under appraisal but likely to take place later
than previously anticipated as we exploit our other Group assets to
the full first. The US business in co-ordination with appropriate
Group colleagues is currently defining a new ERP solution that will
underpin future growth and create efficiencies, while in the UK and
Asia a range of smaller investments are progressing to develop new
product solutions, add increased capacity and to provide
operational efficiencies. Our cash flow is strong enough to absorb
these investments and build foundations for additional future
growth while still meeting our plans to increase dividends,
especially now that our leverage target has been achieved.
Equity attributable to shareholders has increased to GBP86.2
million from GBP68.0 million predominantly reflecting profits
generated in the year.
Risks and key performance indicators
Our areas of primary focus are:
-- improved earnings attributable to shareholders, which we aim
to achieve through top-line growth and mix management in selected
markets and channels together with strong cost and gross margin
management;
-- seeking out value creating areas of investment so that we can
sustain double digit growth in earnings for shareholders; and
-- maintaining at prudent levels, our average leverage measured
as the ratio of average net debt to pre-exceptional EBITDA, which
we aim to achieve through strong and increasing profitability
together with close management of our working capital and focused
investment.
Operationally this means a focus on:
-- nurturing valuable relationships: monitoring the
profitability, product mix and service delivered in respect of our
customer base; growing those relationships in existing and new
territories and product categories;
-- creating a toolbox of expertise: ensuring that we have
market-leading design and product capability in our categories,
sharing knowledge through common platforms;
-- providing best quality, value and service: monitoring and
benchmarking the key elements of our cost bases, buying or
manufacturing as efficiently and effectively as possible from a
total cost perspective across the whole season so that we can
deliver great value to customers and strong returns to
shareholders;
-- balancing our business: we monitor the mix and profitability
in each of our businesses across season, brand and product
categories, seeking out those opportunities that yield the best
returns on our scarce capital while rooting out those activities
that consume resources for little or no gain; and
-- providing differentiated product offerings: across the value, mass and upscale markets.
Foreign exchange impact to profit and earnings
Our diverse geographical revenue and profit streams continue to
provide us with market resilience, but naturally this carries with
it the volatility of currency.
As noted above in the context of net debt, foreign exchange
rates can impact significantly on the translation of our overseas
figures relative to prior years. During the year the US dollar rate
moved from 1.44 to 1.25, the euro from 1.26 to 1.17 and the
Australian dollar rate from 1.87 to 1.64. As noted above, this
change in rates had a material impact on the sterling value of
sales and profits during the year - though the impact to net profit
was lower at only GBP1.5 million because the Group matches the
currency of costs and funding where possible.
Additionally, the relative strength of the US dollar against
other currencies can materially impact purchase prices out of
China. This is noticeable across all our non-US trading businesses
which are all finding that their margins are squeezed through
substantial foreign exchange headwinds on products bought in from
the Far East. It is also a feature of our business that we
innovate, invest and commercially redesign products to combat this
effect but this can take more than one season.
With Brexit negotiations now to take place and the outcome of
the UK general election removing the previous majority of the
Conservative government, movements in foreign exchange rates,
prices and markets in general could be material and are very
unpredictable. We import substantial amounts of raw material and
finished product from overseas markets, notably China and to a
lesser degree we export from the UK to the USA and Europe. It is
important to the Group that we have clarity on the future trading
environment so that we can adapt appropriately. For the year ahead,
our Group has strong natural hedges in terms of US dollar to
sterling, and no material transaction exposure to euro movements.
Our European and Australian businesses have greater outstanding
exposures to volatility in the US dollar as a result of world
events with a weaker dollar favouring them. As noted above, our
business is flexible and with the benefit of time to see
macroeconomic considerations settle, we can re-engineer our product
to hit required price points.
The greatest impact of such volatility as we have seen this year
remains the translation effect on our sales, profits and working
capital cash flows. Weak sterling has provided us with the
advantage this year of higher reported profits and a reversal of
this position would clearly slow our growth in sterling terms,
though this would now appear less likely. However, our portfolio of
businesses is strong enough to move forwards regardless of
circumstances and we forecast and plan prudently to try to
accommodate these risks. We also fund a large part of the working
capital needs of our overseas businesses in local currency, so the
translation impact on facilities headroom is less pronounced than
otherwise would be the case.
Treasury operations
Our global refinancing (announced in June 2016) is a milestone
moment for the Group as it represents the opportunity to fund our
operations in an innovative and truly joined-up manner, optimising
efficiency and cost. The terms and conditions of the refinancing
are materially more favourable than those previously in place both
financially and in respect of freedom to act. While there were
costs associated with cancelling the old facilities and setting up
the new, the benefits in 2016/17 were greater than expected. More
expensive hire purchase facilities were repaid in the year,
yielding further savings.
Since the year end, the Group has also exercised an option to
extend the core facilities for a further year and increased the
facility value of the invoice financing arrangements to support our
growth. The Group is now funded globally with HSBC providing a full
suite of cost effective facilities available to all wholly owned
businesses while Westpac continues to support our Australian joint
venture. To support this structure, we have now moved our worldwide
operational banking to HSBC other than minor niche requirements in
selected territories.
The HSBC facilities comprise:
-- a three-year revolving credit facility ("RCF") of GBP18
million. This facility is capable of extension on the same terms
for a further year if the parties agree;
-- invoice financing arrangements for an initial term of three
years in the UK, European, US and Asian markets; and
-- a further flexible RCF with availability varying from month
to month. This is reviewed annually but capable of extension to
match the maturity of the core RCF. This working capital RCF is
designed to meet our requirements during those months when stock is
being built but will be undrawn for that part of the year where the
invoice financing facilities are sufficient to provide our
needs.
In total we estimate the effectively available facilities at
over GBP125.5 million more than sufficient to cover even our peak
requirements. The facilities have flexible elements within them
that mean they can also grow with us. The facility includes an
additional uncommitted amount to finance potential acquisitions.
The facilities do not amortise with time.
There are financial covenants, tested quarterly, attached to our
new facilities as follows:
-- interest cover, being the ratio of earnings before interest,
depreciation and amortisation to interest on a rolling twelve-month
basis; and
-- leverage, being the ratio of debt to pre-exceptional EBITDA on a rolling twelve-month basis.
There is a further covenant tested monthly in respect of the
working capital RCF by which available asset cover must not fall
below agreed levels relative to amounts drawn.
The Group now has no interest rate hedges in place and elects to
accept floating interest rates across a range of currencies. While
we will keep this risk under review, our debt is at its lowest
point in many years and may fall further relative to profitability.
While global interest rates are rising they remain low and margins
have further capacity to fall as leverage performance improves and
we are therefore comfortable with this position. The Group also
actively manages FX transaction exposure in each of its businesses,
with advice and support from the central treasury team.
Note 26 to the financial statements provides further information
in respect of treasury matters.
Conclusion
The Group delivered an exceptionally strong year, with all
metrics well beyond our initial expectations. We are still building
further foundations for success, investing carefully and creating
new competencies that will power continued growth in profitability
for many years ahead. Achieving a debt-free year end and profits(a)
growth of almost 51% was especially pleasing. Our continued
outperformance in the arena of cash management is providing the
Group with additional flexibility and options to create value for
shareholders in the future.
(a) Profit before tax, exceptional items and LTIP charges.
Anthony Lawrinson
Chief Financial Officer
26 June 2017
CHAIRMAN'S CORPORATE GOVERNANCE REVIEW
Dear Shareholder
We are delighted to be able to share a further year of excellent
progress with you. Your Board is very pleased with the performance
of our Group during the year ended 31 March 2017. We have, once
again, exceeded the goals that we set ourselves in terms of profit
and earnings per share, but we are particularly pleased with the
excellent levels of cash generation that were achieved, resulting
in an outcome of being cash positive at year end with a significant
reduction in average leverage to the extent that we achieved our
target of below 2.5x, two years ahead of plan.
Having established an excellent record of identifying fast
payback capital investment opportunities and executing them on time
and on budget, we embarked upon some further capital expenditure
initiatives to improve manufacturing efficiency, deliver improved
margins and increase capacity within our businesses in the UK,
Holland and Australia.
The markets in which we operate remain highly competitive. It is
therefore especially pleasing to report that sales volume increases
within our core business have been achieved whilst also increasing
gross margin. This reflects the outcome of implementing one of our
key strategies to improve efficiencies, reduce our cost of goods
and eliminate unnecessary expense. We shall continue to put
considerable effort into strengthening our position as one of the
world's leading designers, manufacturers, importers and
distributors of each of the core product categories on which we
focus.
The Board continues to operate under a governance structure
which is designed to be flexible and efficient in creating
sustainable long-term growth in shareholder value. As advised in
previous reports, as Chairman, my role is to lead the Board and
help promote a culture of respect, integrity, openness, honesty and
enjoyment within each of the businesses in our Group. We believe
strongly in these objectives and we endeavour to practise these in
the way that we communicate with our customers, suppliers,
shareholders, advisers and of course all our associates employed in
our Group.
Corporate governance
As previously reported, the UK Corporate Governance Code
(formerly the Combined Code) sets out standards of good practice in
relation to board leadership and effectiveness, remuneration,
accountability, audit, risk management and relations with
shareholders.
Whilst there is no obligation for AIM-listed companies to comply
fully with this Code, the Board endorses the principles of
effective corporate governance and we are committed to maintaining
the highest standards of ethics and professional competence. That
said, the Directors do not consider that full compliance with every
aspect of the Code is appropriate for our Group at this stage in
its development. However, we shall keep the matter under review and
continue to develop procedures and policies as the Group grows.
Board of Directors
The principal duty of the Board is to represent and protect the
interests of the Company's shareholders. The Board plays an
important role in working with the executive management in each of
our businesses to ensure that our businesses are well governed,
financially strong, and that we mitigate any risks that our
managers identify. Your Board continues to work hard to strike that
essential balance between achieving our short-term objectives and
longer-term growth and development. To this end, your Board has a
policy to work closely with management in developing proposals on
strategy for each of our businesses and for our Group, as a
whole.
Division of responsibilities
There is a distinct and defined division of responsibilities
between the Chairman and the Chief Executive Officer (CEO). The
Chairman is primarily responsible for the effective working of the
Board in conjunction with management and the CEO for the
operational management of the business and for the implementation
of the strategy agreed by the Board.
Composition of the Board
There were no changes to the composition of the Board during the
year. We continue to operate with three Executive Directors
balanced by three Non-Executive Directors, with myself as Chairman.
Our Non-Executive Directors have an important role of
constructively challenging, and working closely with the Executive
Directors to develop and agree proposals on strategy, to scrutinise
management's performance in meeting agreed goals and objectives and
monitoring performance reports.
The Board has three Committees - Remuneration, Audit and
Nomination. Our Remuneration Committee is chaired by Elaine Bond,
one of our Non-Executive Directors and the Committee comprises Mark
Tentori and myself. Our Audit Committee comprises Elaine and myself
and is chaired by Mark. Our Nomination Committee is chaired by
myself, and Elaine and Mark sit on that Committee.
The Audit Committee satisfies itself on the integrity of
financial information and that controls and risk management systems
within our businesses are robust and defensible. The Committee
meets as required during the year and at least twice with the
Group's external auditor. Its role is to review the interim and
final financial statements for approval by the Board, to ensure
that operational and financial controls are functioning properly,
and to provide the forum through which the Group's external auditor
reports to the Board.
On completion of the audit, the Committee reviewed the
performance of its external auditor KPMG LLP, with feedback from
executive management. The Committee has resolved to propose KPMG's
re-appointment at the next Annual General Meeting.
Following a competitive tender process in the autumn of 2016,
the Company appointed Mazars LLP to provide internal audit services
to the Group. As the internal auditors, Mazars will perform a
series of audits across the Group in line with the risk-based
internal audit plan. This plan will be reviewed and approved
annually by the Committee. Mazars will meet with the Committee to
present the findings of their work and follow-up checks twice a
year.
The Remuneration Committee determines appropriate levels of
remuneration and compensation for Executive Directors. The
Committee meets as required during the year and is closely involved
in agreeing the positions within our senior management team that
should participate in our Long Term Incentive Plan ("LTIP"),
together with the level of awards. The Remuneration Committee is
also responsible for agreeing the performance criteria for annual
bonuses and LTIP for Executive Directors and senior management.
Anders Hedlund, who founded our Group, is a Nominee Director.
Anders Hedlund is presumed not independent, because as founder, he
has served on the Board since the Company's inception, his family
hold significant interests in the shareholding of the Company and
he also fulfils a consultancy role within one of the Group's
businesses. As reported in the financial statements, there are also
some related party transactions between certain of the subsidiaries
within our Group and companies under the ultimate control of the
Hedlund family.
As at the date of this report, all of the other Non-Executive
Directors are considered independent under the UK Corporate
Governance Code.
Board process and information
The Board met seven times during the year, including an in-depth
review of 2017/18 budgets, annual operating plans and strategic
objectives with the Executive Directors and some members of the
senior management teams of our businesses. This took place over two
days during March 2017. The Board aims to meet at least six times a
year for formal Board meetings and up to six further times in
between for informal business reviews, to review budgets and to
focus on strategy. As previously advised, where possible and cost
effective, the Board tries to meet on the premises of various of
its subsidiaries during the year, which provides an opportunity for
the Directors to visit our businesses, meet with the senior
management and be seen by our associates as a Board that genuinely
wishes to be involved.
Dialogue occurs regularly between Directors outside of scheduled
meetings. Meeting agendas include review and approval of minutes
recorded, matters arising, a review of material operational matters
relating to our businesses and other special items for discussion
or consideration. Board papers are usually circulated at least
three business days in advance to allow Directors adequate time to
prepare.
Our Non-Executive Directors also meet as a team outside of Board
meetings to discuss the performance of our Board as a whole and
various topics and matters that require their specific input and
attention.
The Board receives operational and financial information and
reports from the CEO/CFO to assist in monitoring and assessing the
ongoing performance of the businesses on a monthly basis.
Accountability and audit
All Directors have accepted a duty of care and accountability to
act in the interests of the Company.
As stated, the Audit Committee oversees how the Board monitors
risk and reviews the adequacy of the risk management framework.
Risk management
The Board of Directors has overall responsibility for the
establishment and oversight of the Group's risk management
framework. The Group's risk management systems, policies and
procedures are established to identify and analyse the risks faced
by the Group, to set appropriate risk limits and controls, and to
monitor the risks and adherence to limits. Such a system is
designed to manage, rather than eliminate, the risk of failure to
achieve business objectives and can only provide a reasonable and
not absolute assurance against material misstatement or loss.
Risk management processes are reviewed regularly by the Audit
Committee to reflect changes in market conditions and the Group's
activities. The Board's oversight covers all controls, including
financial, operational and compliance controls and general risk
management. It is based principally on reviewing reports from
management to consider whether significant risks are identified,
evaluated, managed and controlled and whether any significant
weaknesses are promptly remedied and indicate the need for more
extensive monitoring.
Whilst this report provides an overview of the policies and
procedures that we adopt in following good corporate governance, I
wish to take the opportunity of thanking my fellow Directors for
their hard work, commitment, loyalty and support that they give to
our Group. I also wish to place on record once again our sincere
thanks and appreciation to all our employees and associates
throughout the Group. It is through their efforts and support that
we are, once again, able to report another year of very strong
progress. We value greatly their commitment and loyalty. It is also
with great pride that I congratulate Paul Fineman, our Group CEO on
being recognised with the award of Chief Executive Officer of the
Year by the Quoted Company Awards 2017.
Finally, I should like to take this opportunity to thank our
shareholders, bankers, customers, suppliers and advisers for their
input and contributions to all our businesses throughout the world.
As always, we never take your support for granted and we are very
appreciative of the strong working relationship and partnership
that we continue to enjoy with you.
John Charlton
Chairman
26 June 2017
DIRECTORS' REPORT
The Directors present their annual report and the audited
financial statements for the year ended 31 March 2017.
Likely future developments
See above.
Financial risk
See above.
Dividends
A final dividend for the year ending 31 March 2016 of 1.75p was
paid on 21 September 2016 (year ending 31 March 2015: 1p). An
interim dividend for the year ended 31 March 2017 of 1.75p was paid
on 17 January 2017 (2016: 0.75p). The Directors are recommending a
final dividend for the year ended 31 March 2017 of 2.75p per share
(2016: 1.75p). If approved, it will be paid on 7 September 2017 to
shareholders on the register at the close of business on 7 July
2017.
Capital structure
Details of the Company's issued share capital, together with
details of movements in the Company's issued share capital during
the year are shown in note 22. The Company has one class of
ordinary shares which carry no right to fixed income. Each share
carries the right to one vote at general meetings of the
Company.
There are no specific restrictions on the size of a holding nor
on the transfer of shares, which are both governed by the general
provisions of the Articles of Association and prevailing
legislation.
Details on share-based payments are set out in note 25 to the
financial statements and the Directors' remuneration report. No
person has any special rights or control over the Company's share
capital and all issued shares are fully paid.
Directors and Directors' interests
The Directors who held office during the year were as
follows:
Elaine Bond
Lance Burn
John Charlton
Paul Fineman
Anders Hedlund
Anthony Lawrinson
Mark Tentori
In accordance with the Company's Articles of Association, John
Charlton and Paul Fineman will stand for re-election at the
forthcoming Annual General Meeting.
The Directors who held office during the year had the following
direct interests in the ordinary shares of the Company:
Interest at end of year Interest at beginning
of year
----------------------------------------------------- ------------------------------------------
LTIP LTIP LTIP LTIP
LTIP not not not LTIP LTIP not
yet yet yet yet
Ordinary vested vested(d) vested vested Ordinary vested vested vested
shares 2012-2015 2014-2017 2015-2018 2016-2019 shares 2012-2015 2014-2017 2015-2018
------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Elaine Bond 15,816 - - - - - - - -
Lance Burn - - 268,678 192,191 110,259 - - 262,083 185,871
John Charlton(a) 619,655 - - - - 620,000 - - -
Paul Fineman(b) 4,453,534 - - 207,774 148,999 4,453,534 - - 200,948
Anders Hedlund(c) 448 - - - - 448 - - -
Anthony Lawrinson - 500,000 290,462 166,219 119,199 - 500,000 283,333 160,759
------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
In addition to the above holdings:
(a) 37,500 (2016: 37,500) shares are held by the wife of John Charlton.
(b) Paul Fineman owns a non-beneficial interest in 174,608
(2016: 174,608) ordinary shares of 5p each.
(c) 17,142,640 (2016: 17,142,640) and 5,275,116 (2016:
5,275,116) ordinary shares of 5p each are respectively registered
in the names of AC Artistic Limited ("Artistic") and Malios
Limited, companies incorporated in the British Virgin Islands, and
under the ultimate control of the Hedlund family. In addition to
the Hedlund family's beneficial interest set out above, the Hedlund
family also holds interests in a further 1,150,790 ordinary shares,
representing a further 1.84% of the current issued share capital of
the Company. These ordinary shares are held by West Coast Trust, a
trust for the benefit of Anders Hedlund's adult children, which
holds 900,790 ordinary shares and Claes Hedlund, Anders Hedlund's
brother, who owns 250,000 ordinary shares. In total the Hedlund
family has interests in 23,568,994 ordinary shares, representing
37.63% of the current issued share capital of the Company.
(d) All of these shares formally vest on 21 June 2017 following
the Remuneration Committee and Audit Committee approval of the
results for the year ended 31 March 2017.
No shares were purchased by Directors between 31 March 2017 and
the date of this annual report.
Employees
The Group recognises the benefits of keeping employees informed
on matters affecting them as employees and on the various factors
affecting the performance of the Group. This is achieved through
employee briefings that are held in most businesses at least twice
a year and regular team briefings.
The Group conforms to current employment laws on the employment
of disabled persons and, where we are informed of any employee
disability, management makes all reasonable efforts to accommodate
that employee's requirements.
Donations
Political contributions in the year were nil (2016: nil).
Health and safety
The Group is committed to maintaining high standards of health
and safety in every area of the business.
It is the aim of the Group to exceed the requirements of health
and safety legislation and we have established a health and safety
co-ordinator to ensure continuous improvement of health and safety
across the Group.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, its performance and
position are set out in the Chief Executive Officer's review. The
financial position of the Group, its cash flows, liquidity position
and its management of both working capital and capital expenditure
are set out in the financial review. Details of bank loans and
borrowings are given in note 17 to the financial statements and
liquidity risks are given in note 26 to the financial
statements.
The Group relies on its banks for financial support and is
confident that the facilities in place are sufficient to meet its
needs for the foreseeable future (see note 1 to the financial
statements). Accordingly the Directors continue to adopt the going
concern basis in preparing the financial statements.
Purchase of own shares
The Directors are authorised to make market purchases of the
Company's own shares under an authority granted at the last Annual
General Meeting. During the year the Company did not buy back any
of its shares. The Directors will seek renewal of this authority at
the forthcoming Annual General Meeting and at each succeeding
Annual General Meeting.
Any shares purchased under this authority would either be
treated as cancelled (and the number of shares in issue reduced
accordingly) or held in treasury, available for re-sale by the
Company or transferred to an employee share scheme.
Auditor
The Directors who held office at the date of approval of this
annual report confirm that, so far as they are each aware, there is
no relevant audit information of which the Company's auditor is
unaware and, each Director has taken all the steps that ought to
have been taken as a Director to make himself aware of any relevant
audit information and to establish that the Company's auditor is
aware of that information. This confirmation is given and should be
interpreted in accordance with the provisions of Section 418 of the
Companies Act 2006.
By order of the Board
Anthony Lawrinson
Director
26 June 2017
FINANCIALS - GROUP
CONSOLIDATED INCOME STATEMENT
year ended 31 March 2017
2017
-----------------------------------
Before Exceptional
exceptional items 2016
items (note 10) Total Total
Note GBP000 GBP000 GBP000 GBP000
----------------------------- ---- ----------- ----------- --------- ---------
Revenue 4 310,992 - 310,992 236,950
Cost of sales (247,058) (1,532) (248,590) (193,552)
----------------------------- ---- ----------- ----------- --------- ---------
Gross profit 63,934 (1,532) 62,402 43,398
20.6% 20.1% 18.3%
Selling expenses (19,019) - (19,019) (12,609)
Administration expenses (29,832) 495 (29,337) (18,923)
Other operating income 7 210 - 210 758
----------------------------- ---- ----------- ----------- --------- ---------
Operating profit/(loss) 5 15,293 (1,037) 14,256 12,624
Finance expenses 8 (1,229) - (1,229) (2,763)
----------------------------- ---- ----------- ----------- --------- ---------
Profit/(loss) before tax 14,064 (1,037) 13,027 9,861
Income tax (charge)/credit 9 (3,480) 761 (2,719) (2,219)
----------------------------- ---- ----------- ----------- --------- ---------
Profit/(loss) for the year 10,584 (276) 10,308 7,642
----------------------------- ---- ----------- ----------- --------- ---------
Attributable to:
Owners of the Parent Company 9,650 7,261
Non-controlling interests 658 381
----------------------------- ---- ----------- ----------- --------- ---------
Earnings per ordinary share
2017 2016
-------------- --------------
Note Diluted Basic Diluted Basic
------------------- ---- ------- ----- ------- -----
Earnings per share 23 15.0p 15.7p 12.0p 12.3p
------------------- ---- ------- ----- ------- -----
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
year ended 31 March 2017
2017 2016
GBP000 GBP000
-------------------------------------------------------------------------------------------- ------ ------
Profit for the year 10,308 7,642
Other comprehensive income:
-------------------------------------------------------------------------------------------- ------ ------
Exchange difference on translation of foreign operations (net of tax) 3,213 1,794
Transfer to profit and loss on maturing cash flow hedges (net of tax) 223 (572)
Net gain/(loss) on cash flow hedges (net of tax) 271 (223)
-------------------------------------------------------------------------------------------- ------ ------
Other comprehensive income for period, net of tax items which may be reclassified to profit
and loss in subsequent periods 3,707 999
Total comprehensive income for the year, net of tax 14,015 8,641
Attributable to:
Owners of the Parent Company 12,795 8,191
Non-controlling interests 1,220 450
-------------------------------------------------------------------------------------------- ------ ------
14,015 8,641
-------------------------------------------------------------------------------------------- ------ ------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
year ended 31 March 2017
Share
premium
and Non-
capital
Share redemption Merger Hedging Translation Retained Shareholder controlling
capital reserve reserves reserves reserve earnings equity interest Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------- ------- ---------- -------- -------- ----------- -------- ----------- ----------- -------
At 31 March 2015 2,910 4,801 17,164 572 (1,825) 36,042 59,664 2,920 62,584
------------------- ------- ---------- -------- -------- ----------- -------- ----------- ----------- -------
Profit for the year - - - - - 7,261 7,261 381 7,642
Other comprehensive
income - - - (795) 1,725 - 930 69 999
Total comprehensive
income for the
year - - - (795) 1,725 7,261 8,191 450 8,641
------------------- ------- ---------- -------- -------- ----------- -------- ----------- ----------- -------
Equity-settled
share-based
payment (note 25) - - - - - 596 596 - 596
Tax on
equity-settled
share-based
payments - - - - - 509 509 - 509
Options exercised
(note 22) 53 51 - - - (30) 74 - 74
Equity dividends
paid - - - - - (1,032) (1,032) - (1,032)
------------------- ------- ---------- -------- -------- ----------- -------- ----------- ----------- -------
At 31 March 2016 2,963 4,852 17,164 (223) (100) 43,346 68,002 3,370 71,372
------------------- ------- ---------- -------- -------- ----------- -------- ----------- ----------- -------
Profit for the year - - - - - 9,650 9,650 658 10,308
Other comprehensive
income - - - 494 2,651 - 3,145 562 3,707
------------------- ------- ---------- -------- -------- ----------- -------- ----------- ----------- -------
Total comprehensive
income for the
year - - - 494 2,651 9,650 12,795 1,220 14,015
------------------- ------- ---------- -------- -------- ----------- -------- ----------- ----------- -------
Equity-settled
share-based
payment (note 25) - - - - - 1,555 1,555 - 1,555
Tax on
equity-settled
share-based
payments - - - - - 913 913 - 913
Shares issued 150 4,883 - - - - 5,033 - 5,033
Options exercised
(note 22) 19 34 - - - - 53 - 53
Capital
contribution from
non-controlling
investor - - - - - - - 110 110
Equity dividends
paid - - - - - (2,134) (2,134) (867) (3,001)
------------------- ------- ---------- -------- -------- ----------- -------- ----------- ----------- -------
At 31 March 2017 3,132 9,769 17,164 271 2,551 53,330 86,217 3,833 90,050
------------------- ------- ---------- -------- -------- ----------- -------- ----------- ----------- -------
Merger reserve
The merger reserve comprises premium on shares issued in
relation to business combinations.
Capital redemption reserve
The capital redemption reserve comprises amounts transferred
from retained earnings in relation to the redemption of preference
shares. For ease of presentation, the amount of GBP1.34 million
relating to the capital redemption reserve has been included within
the column of share premium and capital redemption reserve in the
balances at both the beginning and end of each year, with no
movements.
Hedging reserve
The hedging reserve comprises the effective portion of the
cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that qualify for hedge
accounting and have not yet matured.
Translation reserve
The translation reserve comprises all foreign currency
differences arising from the translation of the financial
statements of foreign operations.
Shareholders' equity
Shareholders' equity represents total equity attributable to
owners of the Parent Company.
CONSOLIDATED BALANCE SHEET
as at 31 March 2017
2017 2016
Notes GBP000 GBP000
---------------------------------------------------- ----- ------- -------
Non-current assets
Property, plant and equipment 11 32,607 30,190
Intangible assets 12 33,681 32,236
Deferred tax assets 13 5,398 4,296
---------------------------------------------------- ----- ------- -------
Total non-current assets 71,686 66,722
---------------------------------------------------- ----- ------- -------
Current assets
Inventory 14 49,475 46,006
Trade and other receivables 15 29,622 21,187
Derivative financial assets 26 307 218
Cash and cash equivalents 16 3,659 8,380
---------------------------------------------------- ----- ------- -------
Total current assets 83,063 75,791
---------------------------------------------------- ----- ------- -------
Total assets 154,749 142,513
---------------------------------------------------- ----- ------- -------
Equity
Share capital 22 3,132 2,963
Share premium 8,429 3,512
Reserves 21,326 18,181
Retained earnings 53,330 43,346
---------------------------------------------------- ----- ------- -------
Equity attributable to owners of the Parent Company 86,217 68,002
---------------------------------------------------- ----- ------- -------
Non-controlling interests 3,833 3,370
---------------------------------------------------- ----- ------- -------
Total equity 90,050 71,372
---------------------------------------------------- ----- ------- -------
Non-current liabilities
Loans and borrowings 17 (39) 18,349
Deferred income 18 1,083 1,145
Provisions 19 881 869
Other financial liabilities 20 1,911 2,095
Deferred tax liability 13 525 352
---------------------------------------------------- ----- ------- -------
Total non-current liabilities 4,361 22,810
---------------------------------------------------- ----- ------- -------
Current liabilities
Bank overdraft 16 916 1,508
Loans and borrowings 17 (232) 3,584
Deferred income 18 111 118
Provisions 19 441 212
Income tax payable 3,153 1,945
Trade and other payables 21 37,450 27,221
Other financial liabilities 20 18,499 13,743
---------------------------------------------------- ----- ------- -------
Total current liabilities 60,338 48,331
---------------------------------------------------- ----- ------- -------
Total liabilities 4 64,699 71,141
---------------------------------------------------- ----- ------- -------
Total equity and liabilities 4 154,749 142,513
---------------------------------------------------- ----- ------- -------
These financial statements were approved by the Board of
Directors on 26 June 2017 and were signed on its behalf by:
Paul Fineman Anthony Lawrinson
Director Director
The notes following form part of the financial statements.
CONSOLIDATED CASH FLOW STATEMENT
year ended 31 March 2017
2017 2016
Notes GBP000 GBP000
-------------------------------------------------------- ----- -------- -------
Cash flows from operating activities
Profit for the year 10,308 7,642
Adjustments for:
Depreciation 11 4,571 3,596
Amortisation of intangible assets 12 798 285
Finance expenses 1,229 2,763
Negative goodwill release to income 10 (1,271) -
Income tax charge 9 2,719 2,219
Loss/(profit) on sales of property, plant and equipment 5 24 (186)
Loss on external sale of intangible fixed assets 5 51 1
Equity-settled share-based payment 25 2,216 908
-------------------------------------------------------- ----- -------- -------
Operating profit after adjustments for non-cash items 20,645 17,228
Change in trade and other receivables (772) 1,041
Change in inventory 2,670 1,219
Change in trade and other payables 8,940 1,863
Change in provisions and deferred income 44 (607)
-------------------------------------------------------- ----- -------- -------
Cash generated from operations 31,527 20,744
Tax paid (2,003) (1,797)
Interest and similar charges paid (1,867) (1,961)
-------------------------------------------------------- ----- -------- -------
Net cash inflow from operating activities 27,657 16,986
-------------------------------------------------------- ----- -------- -------
Cash flow from investing activities
Proceeds from sale of property, plant and equipment 58 1,568
Acquisition of businesses 31 (2,669) -
Capital contribution from non-controlling investor 110 -
Acquisition of intangible assets 12 (534) (382)
Acquisition of property, plant and equipment 11 (4,633) (4,377)
Receipt of government grants 40 -
-------------------------------------------------------- ----- -------- -------
Net cash outflow from investing activities (7,628) (3,191)
-------------------------------------------------------- ----- -------- -------
Cash flows from financing activities
Net proceeds from issue of share capital 22 5,086 74
Repayment of secured borrowings (21,774) (5,708)
Net movement in credit facilities (795) 184
Payment of finance lease liabilities (2,383) (1,712)
Loan arrangement fees (319) -
Equity dividends paid 24 (2,134) (1,032)
Dividends paid to non-controlling interests (867) -
-------------------------------------------------------- ----- -------- -------
Net cash outflow from financing activities (23,186) (8,194)
-------------------------------------------------------- ----- -------- -------
Net (decrease)/increase in cash and cash equivalents (3,157) 5,601
Cash and cash equivalents at beginning of period 6,872 1,278
Effect of exchange rate fluctuations on cash held (972) (7)
-------------------------------------------------------- ----- -------- -------
Cash and cash equivalents at end of the period 16 2,743 6,872
-------------------------------------------------------- ----- -------- -------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
year ended 31 March 2017
1 Accounting policies
IG Design Group plc is a public limited company, incorporated
and domiciled in England and Wales. The Company's ordinary shares
are listed on AIM.
The Group financial statements consolidate those of the Company
and its subsidiaries (together referred to as the "Group").
The Group financial statements have been prepared and approved
by the Directors in accordance with EU adopted International
Financial Reporting Standards.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in these
Group financial statements.
Judgements made by the Directors in the application of these
accounting policies that have significant effect on the financial
statements and estimates with a significant risk of material
adjustment in the next year are discussed in the policies
below.
Going concern basis
The financial statements have been prepared on the going concern
basis.
In forming their conclusion that the business is and will remain
a going concern, the Directors have reviewed the budgets and
forecasts prepared and sensitivity analysis thereon. The business
is highly seasonal and this results in peak funding demands.
To meet the funding requirements the business has agreed funding
in place with HSBC and this has been renegotiated as part of a new
three year deal in place from 6 June 2016 and extended for a
further year on 31 May 2017. As with any company placing reliance
on external entities for financial support, the Directors
acknowledge that there can be no certainty that this support will
continue although, at the date of approval of this report, they
have no reason to believe that it will not do so.
After making enquiries, the Directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Thus, they continue to adopt the going concern basis of accounting
in preparing the financial statements.
Measurement convention
The financial statements are prepared on the historical cost
basis except derivative financial instruments which are stated at
their fair value.
Changes in accounting policies
The accounting policies adopted in the preparation of the
financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year
ended 31 March 2016.
Basis of consolidation
a) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
considers all facts and circumstances in assessing whether it has
the power to control the relevant activities of investee and to
benefit from the results thereof, including rights arising from
shareholder agreements, contractual arrangements and potential
voting rights held by the Group. The financial statements of
subsidiaries are included in the consolidated financial statements
from the date that control commences to the date that control
ceased.
Business combinations are accounted for using the acquisition
method as at the date on which control is transferred to the
Group.
For acquisitions on or after 1 January 2010, the Group measures
goodwill at the acquisition date as:
-- the fair value of the consideration transferred; plus
-- the recognised amount of any non-controlling interests in the acquiree; plus
-- if the business combination is achieved in stages, the fair
value of the existing equity interest in the acquiree; less
-- the net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
When the result is negative, a 'bargain purchase' gain is
recognised immediately in the income statement.
Provisional fair values allocated at a reporting date are
finalised within twelve months of the acquisition date.
b) Joint arrangements
A joint venture is a contractual arrangement whereby the Group
undertakes an economic activity that is subject to joint control
with third parties.
The Group's interests in joint ventures are accounted for using
the equity method. Under this method the Group's share of the
profits less losses of jointly controlled entities is included in
the consolidated income statement and its interest in their net
assets is included in 'investments' in the consolidated balance
sheet.
Foreign currency translation
The consolidated financial statements are presented in pounds
sterling, which is the Company's functional currency and the
Group's presentational currency.
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are translated at the foreign exchange rate
ruling at that date. Foreign exchange differences arising on
translation are recognised in the income statement.
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation, are
translated at foreign exchange rates ruling at the balance sheet
date. The revenues and expenses of foreign operations are
translated at an average rate for the period where this rate
approximates to the foreign exchange rates ruling at the dates of
the transactions. Exchange differences arising from this
translation of foreign operations, and of related qualifying
hedges, are taken directly to the translation reserve. They are
released into the income statement upon disposal or loss of control
and on maturity or disposal of the hedge, respectively.
Exchange differences arising from a monetary item receivable
from or payable to a foreign operation, the settlement of which is
neither planned nor likely in the foreseeable future, are
considered to form part of a net investment in a foreign operation
and are recognised in other comprehensive income in the translation
reserve. The cumulative translation differences previously
recognised in other comprehensive income (or where the foreign
operation is part of a subsidiary, the parent's interest in the
cumulative translation differences) are released into the income
statement upon disposal of the foreign operation or on loss of
control of the subsidiary that includes the foreign operation.
Classification of financial instruments issued by the Group
Financial instruments issued by the Group are treated as equity
(i.e. forming part of shareholders' funds) only to the extent that
they meet the following two conditions:
a) they include no contractual obligations upon the Group to
deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavourable to the Group; and
b) where the instrument will or may be settled in the Company's
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company's own
equity instruments or is a derivative that will be settled by the
Company's exchanging a fixed amount of cash or other financial
assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of
issue are classified as a financial liability. Where the instrument
so classified takes the legal form of the Company's own shares, the
amounts presented in these financial statements for called up share
capital and share premium exclude amounts in relation to those
shares.
Trade and other receivables
Trade and other debtors are recognised initially at transaction
price less attributable transaction costs. Trade and other debtors
are subsequently reviewed for recoverability and impairment with
any losses taken to profit and loss immediately. If the arrangement
constitutes a financing transaction, for example if payment is
deferred beyond normal business terms, then it is measured at the
present value of future payments discounted at a market rate of
instrument for a similar debt instrument.
Trade and other payables
Where it is likely to be materially different from the nominal
value, trade and other payables are recognised initially at fair
value. Subsequent to initial recognition they are measured at
amortised cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits. Bank overdrafts that are repayable on demand and form an
integral part of the Group's cash management are included as a
component of cash and cash equivalents for the purposes of the cash
flow statement.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair
value less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised
cost using the effective interest method.
Derivative financial instruments and hedging
Derivative financial instruments
Derivative financial instruments are recognised at fair value.
The gain or loss on remeasurement to fair value is recognised
immediately in the income statement. However, where derivatives
qualify for hedge accounting, recognition of any resultant gain or
loss depends on the nature of the item being hedged.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge
of the variability in cash flows of a recognised asset or
liability, or a highly probable forecast transaction, the effective
part of any gain or loss on the derivative financial instrument is
recognised as other comprehensive income in the hedging reserve.
Any ineffective portion of the hedge is recognised immediately in
the income statement.
Amounts previously recognised in other comprehensive income are
transferred to the income statement in the periods when the hedged
item affects profit or loss (for instance when the forecast sale
that is hedged takes place). The gain or loss relating to the
effective portion of forward foreign exchange contract hedging
export sales is recognised in the income statement within 'sales'.
However, when the forecast transaction that is hedged results in
the recognition of a non-financial asset (for example, inventory),
the gains or losses previously recognised in other comprehensive
income are transferred from other comprehensive income and included
in the initial measurement of the cost of the asset. The deferred
amounts are ultimately recognised in cost of goods sold (in the
case of inventory).
When a hedging instrument expires or is sold, terminated or
exercised, or the entity revokes designation of the hedge
relationship but the hedged forecast transaction is still expected
to occur, the cumulative gain or loss at that point remains in
other comprehensive income and is recognised in accordance with the
above policy when the transaction occurs. If the hedged transaction
is no longer expected to take place, the cumulative unrealised gain
or loss recognised in other comprehensive income is recognised in
the income statement immediately.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and impairment losses.
Where parts of an item of property, plant and equipment have
different useful lives, they are accounted for as separate items of
property, plant and equipment.
Leases in which the Group assumes substantially all the risks
and rewards of ownership of the leased asset are classified as
finance leases. Where land and buildings are held under finance
leases the accounting treatment of the land is considered
separately from that of the buildings. Leased assets acquired by
way of a finance lease are stated at an amount equal to the lower
of their fair value and the present value of the minimum lease
payments at inception of the lease, less accumulated depreciation
and impairment losses. Lease payments are accounted for as
described below.
Depreciation is charged to the income statement on a
straight-line basis over the estimated useful lives of each part of
an item of property, plant and equipment. The estimated useful
lives are as follows:
freehold buildings 25-30 years
leasehold land and life of lease
buildings
plant and equipment four-25 years
fixtures and fittings three-five years
motor vehicles four years
No depreciation is provided on freehold land.
Included within plant and machinery are assets with a range of
depreciation rates. These rates are tailored to the nature of the
assets to reflect their estimated useful lives.
Depreciation methods, useful lives and residual values are
reviewed at each balance sheet date.
Intangible assets and goodwill
Subject to the transitional relief in IFRS 1, all business
combinations are accounted for by applying the purchase method.
Goodwill represents amounts arising on acquisition of subsidiaries.
In respect of business acquisitions that have occurred since 1
April 2006, goodwill represents the difference between the cost of
the acquisition and the fair value of the net identifiable assets
acquired. Identifiable intangibles are those which can be sold
separately or which arise from legal rights regardless of whether
those rights are separable.
Goodwill is stated at cost less any accumulated impairment
losses. Goodwill is allocated to cash-generating units and is not
amortised but is tested every half year for impairment.
In respect of acquisitions prior to 1 April 2006, goodwill is
included on the basis of its deemed cost, which represents the
amount recorded under UK GAAP at that time which was broadly
comparable save that only separable intangibles were recognised and
goodwill was amortised. Goodwill written off to reserves under UK
GAAP prior to 1998 has not been reinstated.
If the cost of an acquisition is less than the fair value of the
Group's share of the net assets of the subsidiary acquired, the
difference is recognised directly in the income statement.
Other intangible assets
Expenditure on internally generated goodwill and brands is
recognised in the income statement as an expense as incurred.
Other intangible assets that are acquired by the Group are
stated at cost less accumulated amortisation and impairment
losses.
The main class of other intangible assets is publishing
imprints.
Amortisation
Amortisation is charged to the income statement on a
straight-line basis over the estimated useful lives of intangible
assets unless such lives are indefinite. All other intangible
assets are amortised from the date they are available for use. The
estimated useful life of computer software and other intangibles
are three to five years.
Amortisation charges are included under 'administrative
expenses' in the income statement.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost is based on a weighted average and includes expenditure
incurred in acquiring the inventories and bringing them to their
existing location and condition. In the case of manufactured
inventories and work in progress, cost includes an appropriate
share of overheads based on normal operating capacity.
Impairment
The carrying amounts of the Group's assets other than
inventories and deferred tax assets are reviewed at each balance
sheet date to determine whether there is any indication of
impairment. If any such indication exists, the asset's recoverable
amount is estimated.
An impairment loss is recognised whenever the carrying amount of
an asset or its cash-generating unit exceeds its recoverable
amount. Impairment losses are recognised in the income
statement.
Impairment losses recognised in respect of cash-generating units
are allocated first to reduce the carrying amount of any goodwill
allocated to cash-generating units and then to reduce the carrying
amount of the other assets in the unit on a pro rata basis. A
cash-generating unit is the smallest identifiable group of assets
that generates cash inflows that are largely independent of the
cash inflows from other assets or groups of assets.
The recoverable amount of the Group's assets is the greater of
their fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time, value of money and the
risks specific to the asset. For an asset that does not generate
largely independent cash inflows, the recoverable amount is
determined for the cash-generating unit to which the asset
belongs.
An impairment in respect of goodwill is not reversed. In respect
of other assets, an impairment is reversed when there is an
indication that the impairment may no longer exist and there has
been a change in the estimates used to determine the recoverable
amount. An impairment is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if
no impairment had been recognised.
Provisions
A provision is recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a
past event and it is probable that an outflow of economic benefits
will be required to settle the obligation. If the effect is
material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the
risks specific to the liability. Where discounting is used, the
increase in the provision due to the passage of time is recognised
as borrowing costs.
Revenue recognition
Revenue represents the amounts, net of discounts, allowances for
volume and promotional rebates and other payments to customers
(excluding value added tax) derived from the provision of goods and
services to customers during the year. Sales of goods are
recognised when a Group entity has delivered products to the
customer or transferred legal title and the collectability of the
related receivable is reasonably assured. Provisions are made for
volume and promotional rebates where they have been agreed or are
reasonably likely to arise, based upon actual and forecast
sales.
Where goods are sold on a sale or return basis revenue is
initially booked net of an expectation of the proportion that will
be returned by the customer, which is based on historical
experience. This is updated for the final value of returns on
payment by the customer.
Where goods are sold on a consignment basis the revenue is
booked when the goods have been sold by the customer.
Exceptional items
Exceptional items are those items of financial performance
which, because of size or incidence, require separate disclosure to
enable underlying performance to be assessed.
Government grants
Capital-based government grants are included within other
financial liabilities in the balance sheet and credited to
operating profit over the estimated useful economic lives of the
assets to which they relate.
Supplier income
The Group does not have material retrospective supplier
incentive arrangements but where these do arise, they are
recognised within cost of sales on an accruals basis as earned for
each relevant supplier rebate.
Expenses
Operating lease payments
Payments made and lease incentives received under operating
leases are recognised in the income statement on a straight-line
basis over the term of the lease.
Finance lease payments
Minimum lease payments are apportioned between the finance
charge and the reduction of the outstanding liability. The finance
charge is allocated to each period during the lease term so as to
produce a constant periodic rate of interest on the remaining
balance of the liability.
Finance income and expenses
Finance expenses comprise interest payable, finance charges on
finance leases and unwinding of the discount on provisions.
Net movements in the fair value of derivatives which have not
been designated as an effective hedge, and any ineffective portion
of fair value movement on derivatives designated as a hedge are
also included within finance income or expense.
Interest income and interest payable is recognised in profit or
loss as it accrues, using the effective interest method.
Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement except to
the extent that it relates to items recognised in other
comprehensive income or directly in equity, in which case it is
recognised in other comprehensive income or equity
respectively.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
the balance sheet date and any adjustment to tax payable in respect
of previous years.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following
temporary differences are not provided for: the initial recognition
of goodwill; the initial recognition of assets or liabilities that
affect neither accounting nor taxable profit other than in a
business combination; and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted
or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised.
Dividend distribution
Final dividends to shareholders of IG Design Group plc are
recognised as a liability in the period that they are approved by
shareholders.
Employee benefits
Pensions
The Group operates a defined contribution personal pension
scheme. The assets of this scheme are held separately from those of
the Group in an independently administered fund. The pension charge
represents contributions payable by the Group to the fund.
The Netherlands subsidiary operates an industrial defined
benefit fund, based on average wages, that has an agreed maximum
contribution. The pension fund is a multi-employer fund and there
is no contractual or constructive obligation for charging the net
defined benefit cost of the plan to participating entities other
than an agreed maximum contribution for the period, that is shared
between employer (4/7) and employees (3/7). The Dutch Government is
not planning to make employers fund any deficits in industrial
pension funds; accordingly the Group treats the scheme as a defined
contribution scheme for disclosure purposes. The Group recognises a
cost equal to its contributions payable for the period.
Share-based payment transactions
The cost of equity-settled transactions with employees is
measured by reference to the fair value of the options at the date
on which they are granted. The fair value is determined by using an
appropriate pricing model. The fair value cost is then recognised
over the vesting period, ending on the date on which the relevant
employees become fully entitled to the award.
The quantum of awards expected to vest and the relevant cost
charged is reviewed annually such that at each balance sheet date
the cumulative expense is the relevant share of the expected total
cost, pro-rated across the vesting period.
No expense is recognised for awards that are not expected to
ultimately vest, for example due to an employee leaving or business
performance targets not being met. The annual expense for equity
settled transactions is recognised in the income statement with a
corresponding entry in equity.
National Insurance ("NI") on share-based incentives
Employer's NI is accrued, where applicable, at a rate which
management expects to be the prevailing rate when share-based
incentives are exercised and is based on the latest market value of
options expected to vest or having already vested.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of an asset that necessarily takes a
substantial period of time to get ready for its intended use or
sale are capitalised as part of the cost of the respective asset.
Costs directly attributable to the arrangement of new borrowing
facilities are included within the fair value of proceeds received
and amortised over the life of the relevant facilities. All other
borrowing costs are expensed in the period they occur. Borrowing
costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds.
New standards
There are no IFRS or IFRIC interpretations or amendments
effective for the first time this financial year that have any
material impact on the Group.
Use of non-GAAP measures
The Directors believe that reporting profits and EPS before
exceptional items and LTIP charges provides useful information for
shareholders on underlying trends and performance. These are the
measures used internally and are considered more useful measures
for understanding the true performance of the business. These
measures are not defined by IFRS and therefore may not be directly
comparable to other companies' adjusted profit or EPS measures.
They are not intended to be a substitute for, or superior to IFRS
measures.
The adjustments made to profits and EPS are:
-- exceptional items - please see note 14; and
-- IFRS 2 Share-based Payments - a non-cash charge to the income
statement for share-based payments and related NI costs. IFRS 2
requires the fair value of equity instruments measured at grant
date to be spread over the period during which the employees become
unconditionally entitled to the options. Other than the NI element,
this is a non-cash charge and has been excluded as it does not
reflect the underlying core trading performance of the Group.
New standards and interpretations not applied
Management continually reviews the impact of newly published
standards and amendments and considers, where applicable,
disclosure of their impact on the Group.
The following standards, interpretations and amendments issued
by the IASB have an effective date after the date of these
financial statements and are considered by management to be
relevant to the Group:
-- IFRS 9 Financial Instruments replaces the existing
requirements in IAS 39 Financial Instruments: Recognition and
Measurement. IFRS 9 includes revised guidance on the classification
and measurement of financial instruments, including the new
expected credit loss model for calculating impairment of financial
assets, and the new general hedge accounting requirements. IFRS 9
is effective for annual periods beginning on or after 1 January
2018. This is not expected to have a significant impact on the
Group;
-- IFRS 15: IFRS 15 replaces existing IFRS revenue recognition
requirements in IAS 18 Revenue. The standard applies to all revenue
contracts and provides a model for the recognition and measurement
of sales of some non-financial assets (e.g. disposals of property,
plant and equipment). The core principle of IFRS 15 is that revenue
is recognised to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or
services. Application is required for annual periods beginning on
or after 1 January 2017. The Group are currently assessing the
impact of IFRS 15, we do not currently anticipate that it will have
a significant impact on our results; and
-- IFRS 16 Leases: will bring all leases onto the balance sheet.
The Group are currently assessing the impact of IFRS 16.
No other standards, interpretations or amendments which have
been issued but are not yet effective are expected to significantly
impact the Group's results or assets and liabilities and are not
expected to require significant disclosure.
To be
Effective adopted by
New pronouncement date the Group
------------------------------------------------ ---------- ----------
Annual Improvements 2012-2014 Cycle 1 Jan 2017 1 Apr 2017
IFRS 15 Revenue from Contracts with Customers(a) 1 Jan 2018 1 Apr 2018
IFRS 9 Financial Instruments(a) 1 Jan 2018 1 Apr 2018
IFRS 16 Leases(a) 1 Jan 2019 1 Apr 2019
------------------------------------------------ ---------- ----------
(a) Not yet endorsed by European Financial Reporting Advisory Group.
2 Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are
described in note 1, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision only
affects that period or in the period of revision and future periods
if the revision affects both current and future periods.
The estimates and assumptions that have had a significant
bearing on the financial statements in the current year or could
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year are discussed below:
Critical judgements in applying the Group's accounting
policies
The following are the critical judgements, apart from those
involving estimations (which are dealt with separately below), that
the Directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in the financial statements.
Exceptional items
The Directors have chosen to separate certain items of financial
performance which they believe, because of size or incidence,
require separate disclosure to enable underlying performance to be
assessed. These items are fully described in note 10.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the balance sheet date, that have
significant risk of causing a material adjustment to the carrying
amount of assets and liabilities within the next financial year,
are discussed in the strategic report and below.
Consolidation of less than 100% owned subsidiaries
Where the Company owns less than 100% of the share capital and
voting rights of Group companies, the decision of whether or not
the investee should be treated as a subsidiary and consolidated in
full in the Group accounts requires judgement. Management consider
the individual facts and circumstances relating to the ability to
control and benefit from the risks and rewards of investee trading
in determining the appropriate treatment, which is then adopted
consistently and reviewed annually for any changes in these facts
and circumstances.
Impairment of goodwill and property, plant and equipment
Determining whether goodwill and property, plant and equipment
are impaired requires an estimation of the value in use of the
cash-generating units to which goodwill has been allocated or to
which property, plant and equipment belong. The value in use
calculation requires the entity to estimate the future cash flows
expected to arise from the cash-generating unit and a suitable
discount rate in order to calculate present value. The carrying
amount of goodwill at the balance sheet date was GBP32.0 million
(2016: GBP31.5 million). No impairment (2016: nil) was required.
The carrying amount of property, plant and equipment was GBP32.6
million (2016: GBP30.2 million). No impairment loss (2016: nil) was
required (see notes 11 and 12).
Provision for slow moving inventory
The Group has guidelines for providing for inventory which may
be sold below cost due to its age or condition. Directors assess
the inventory at each location and in some cases decide that there
are specific reasons to provide more than the guideline levels, or
less if there are specific action plans in place which mean the
guideline provision level is not required. Determining the level of
inventory provision requires an estimation of likely future
realisable value of the inventory in various time frames and
comparing with the cost of holding stock for those time frames.
Regular monitoring of stock levels, the ageing of stock and the
level of the provision is carried out by the Directors. Details of
inventory carrying values are provided in note 14. At the year end,
stock acquired more than 15 months previously had increased from
GBP5.9 million to GBP7.2 million and the Group has provisions of
GBP8.4 million (2016: GBP4.6 million) over the total inventory
value.
Share-based payments
The Directors are required to estimate the fair value of the
awards granted and the quantum of awards expected to vest. This
entails the use of pricing models for the fair value calculation
and the Directors use specialist advisers to support on this
calculation where the pricing model is complex. The estimate of
awards expected to vest required judgement and is reliant on the
accuracy of management forecasts. Details of the key assumptions
made in the measurement of share-based payments are provided in
note 25.
Taxation
There are many transactions and calculations for which the
ultimate tax determination is uncertain. Significant judgement is
required in determining the Group's tax assets and liabilities.
Deferred tax assets have been recognised to the extent they are
recoverable based on profit projections for future years. Income
tax liabilities for anticipated issues have been recognised based
on estimates of whether additional tax will be due. Notwithstanding
the above, the Group believes that it will recover tax assets and
has adequate provision to cover all risks across all business
operations. See note 13 for more details.
3 Financial risk management
Risk management is discussed in the strategic report. See note
26 for additional information about the Group's exposure to each of
these risks and the ways in which they are managed. Below are key
financial risk management areas:
-- currency risk is mitigated by a mixture of forward contracts,
spot currency purchases and natural hedges;
-- liquidity risk is managed by monitoring daily cash balances,
weekly cash flow forecasts, regular reforecasting of monthly
working capital and regular dialogue with the Group's banks;
and
-- credit risk is managed by constant review of key debtors and banking with reputable banks.
4 Segmental information
The Group has one material business activity being the design,
manufacture and distribution of gift packaging and greetings,
stationery and creative play products, and design-led giftware.
For management purposes the Group is organised into four
geographic business units.
The results below are allocated based on the region in which the
businesses are located; this reflects the Group's management and
internal reporting structure. The decision was made during 2011 to
focus Asia as a service provider of manufacturing and procurement
operations, whose main customers are our UK businesses. Both the
China factory and the majority of the Asian procurement operations
are overseen by our UK operational management team and we therefore
continue to include Asia within the internal reporting of the UK
operations, such that UK and Asia comprise an operating
segment.
Intra-segment pricing is determined on an arm's length basis.
Segment results include items directly attributable to a segment as
well as those that can be allocated on a reasonable basis.
Financial performance of each segment is measured on operating
profit. Interest expense or revenue and tax are managed on a Group
basis and not split between reportable segments. However the
related financial liability and cash has been allocated out into
the reportable segments as this is how they are managed by the
Group.
Segment assets are all non-current and current assets, excluding
deferred tax and income tax, which are shown in the eliminations
column. Where cash shown in one segment nets under the Group's
banking facilities against overdrafts in other segments, the
elimination is shown in the eliminations column. Inter-segment
receivables and payables are eliminated similarly.
UK and Asia Europe USA Australia Eliminations Group
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------------- ----------- --------- --------- --------- ------------ --------
Year ended 31 March 2017
Revenue - external 114,113 45,497 117,831 33,551 - 310,992
- inter segment 2,904 227 - - (3,131) -
-------------------------------------------- ----------- --------- --------- --------- ------------ --------
Total segment revenue 117,017 45,724 117,831 33,551 (3,131) 310,992
-------------------------------------------- ----------- --------- --------- --------- ------------ --------
Segment result before exceptional items 5,541 4,490 6,119 1,710 - 17,860
Exceptional items - - (1,037) - - (1,037)
-------------------------------------------- ----------- --------- --------- --------- ------------ --------
Segment result 5,541 4,490 5,082 1,710 - 16,823
-------------------------------------------- ----------- --------- --------- --------- ------------ --------
Central administration costs (2,567)
Net finance expenses (1,229)
Income tax (2,719)
-------------------------------------------- ----------- --------- --------- --------- ------------ --------
Profit for the year ended 31 March 2017 10,308
-------------------------------------------- ----------- --------- --------- --------- ------------ --------
Balances at 31 March 2017
Segment assets 95,760 20,413 21,461 11,717 5,398 154,749
-------------------------------------------- ----------- --------- --------- --------- ------------ --------
Segment liabilities (10,934) (16,382) (27,952) (5,753) (3,678) (64,699)
-------------------------------------------- ----------- --------- --------- --------- ------------ --------
Capital expenditure
- property, plant and equipment 1,866 687 812 1,268 - 4,633
- intangible 184 36 263 51 - 534
Depreciation 1,813 1,081 1,306 371 - 4,571
Amortisation 194 45 536 23 - 798
-------------------------------------------- ----------- --------- --------- --------- ------------ --------
UK and Asia Europe USA Australia Eliminations Group
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------------- ----------- --------- -------- --------- ------------ --------
Year ended 31 March 2016
Revenue - external 109,723 34,097 65,259 27,871 - 236,950
- inter segment 2,085 337 - - (2,422) -
-------------------------------------------- ----------- --------- -------- --------- ------------ --------
Total segment revenue 111,808 34,434 65,259 27,871 (2,422) 236,950
-------------------------------------------- ----------- --------- -------- --------- ------------ --------
Segment result 5,700 2,874 3,465 ,494 - 13,533
-------------------------------------------- ----------- --------- -------- --------- ------------ --------
Central administration costs (909)
Net finance expenses (2,763)
Income tax (2,219)
-------------------------------------------- ----------- --------- -------- --------- ------------ --------
Profit for year ended 31 March 2016 7,642
-------------------------------------------- ----------- --------- -------- --------- ------------ --------
Balances at 31 March 2016
Segment assets 114,171 18,029 (3,789) 9,806 4,296 142,513
-------------------------------------------- ----------- --------- -------- --------- ------------ --------
Segment liabilities (46,711) (10,499) (6,678) (4,956) (2,297) (71,141)
-------------------------------------------- ----------- --------- -------- --------- ------------ --------
Capital expenditure
- property, plant and equipment 1,508 530 1,924 415 - 4,377
- intangible 285 16 56 25 - 382
Depreciation 2,062 654 711 169 - 3,596
Amortisation 163 40 55 27 - 285
-------------------------------------------- ----------- --------- -------- --------- ------------ --------
-- Capital expenditure consists of additions of property, plant
and equipment, intangible assets and goodwill.
-- No single customer accounts for over 10% of total sales.
-- The assets and liabilities that have not been allocated to
segments consist of deferred tax assets GBP5,398,000 (2016:
GBP4,296,000) and income tax payable of GBP3,153,000 (2016:
GBP1,945,000), deferred tax liability GBP525,000 (2016:
GBP352,000).
-- Central recharges are included within the result of the
segment that takes the recharge. The balance of the central costs
are not allocated to segments.
Geographical information
The Group's information about its segmental assets (non-current
assets excluding deferred tax assets and other financial assets)
and turnover by customer destination and product are detailed
below:
Non-current assets
--------------------
2017 2016
GBP000 GBP000
------------ ---------- --------
UK and Asia 38,990 38,857
USA 9,936 7,939
Europe 14,173 13,683
Australia 3,189 1,947
------------ ---------- --------
66,288 62,426
------------ ---------- --------
All turnover arose from the sale of goods.
Turnover by customer destination
2017 2016 2017 2016
GBP000 GBP000 % %
-------------------------- ------- ------- ---- ----
UK 83,249 80,010 27 34
USA 133,452 79,629 42 33
Europe 55,122 43,836 18 19
Australia and New Zealand 33,551 27,871 11 12
Rest of the world 5,618 5,604 2 2
-------------------------- ------- ------- ---- ----
310,992 236,950 100 100
-------------------------- ------- ------- ---- ----
5 Expenses and auditor's remuneration
Included in profit are the following charges/(credits):
2017 2016
Notes GBP000 GBP000
------------------------------------------------------------------------------ ----- ------ -------
Depreciation 11 4,571 3,596
Profit/(loss) on sales of property, plant and equipment and intangible assets 75 (185)
Release of deferred grant income 7 (108) (645)
Amortisation of intangible assets 12 798 285
Operating lease payment - minimum lease payment 27 4,460 3,889
Sub-lease rental income 7 (558) (547)
Write down of inventories to net realisable value 14 7,383 4,316
Reversal of previous write downs on inventory 14 (57) -
Loss/(gain) on foreign exchange 860 (1,100)
------------------------------------------------------------------------------ ----- ------ -------
Auditor's remuneration:
2017 2016
GBP000 GBP000
---------------------------------------------------------------------- ------ ------
Amounts receivable by auditor and its associates in respect of:
Audit of these financial statements 35 30
Audit of financial statements of subsidiaries pursuant to legislation
- Overseas subsidiaries 195 143
- UK subsidiaries 50 50
Other services 158 -
---------------------------------------------------------------------- ------ ------
6 Staff numbers and costs
The average number of persons employed by the Group (including
Directors) during the year, analysed by category, was as
follows:
Number of employees
---------------------
2017 2016
---------------------------- ---------- ---------
Selling and administration 480 418
Production and distribution 1,626 1,554
---------------------------- ---------- ---------
2,106 1,972
---------------------------- ---------- ---------
The aggregate payroll costs of these persons were as
follows:
2017 2016
Note GBP000 GBP000
------------------------------------------------ ---- ------ ------
Wages and salaries 49,846 39,647
Share-based payments - Long Term Incentive Plan 25 2,216 908
Social security costs 3,792 2,904
Other pension costs 3,473 2,957
------------------------------------------------ ---- ------ ------
59,327 46,416
------------------------------------------------ ---- ------ ------
For information on Directors' remuneration please refer to the
sections titled 'Executive share options' and 'Directors'
remuneration' within the Directors' remuneration report.
7 Other operating income
2017 2016
GBP000 GBP000
--------------------------------------------------- ------ ------
Grant income received 108 645
Sub-lease rentals credited to the income statement 558 547
Other (456) (434)
--------------------------------------------------- ------ ------
210 758
--------------------------------------------------- ------ ------
8 Finance expenses
2017 2016
GBP000 GBP000
------------------------------------------------------------------------ ------ ------
Interest payable on bank loans and overdrafts 1,177 1,622
Other similar charges 580 349
Finance charges in respect of finance leases 113 149
Unwinding of fair value discounts 79 74
------------------------------------------------------------------------ ------ ------
Interest payable under the effective interest method 1,949 2,194
Derivative financial instruments at fair value through income statement (720) 569
------------------------------------------------------------------------ ------ ------
1,229 2,763
------------------------------------------------------------------------ ------ ------
9 Taxation
Recognised in the income statement
2017 2016
GBP000 GBP000
----------------------------------------------- ------ ------
Current tax expenses
Current year - UK corporation tax 607 67
Current year - foreign tax 2,533 1,506
Adjustments for prior years (8) (53)
----------------------------------------------- ------ ------
3,132 1,520
----------------------------------------------- ------ ------
Deferred tax expense
Original and reversal of temporary differences (219) 913
Adjustments in respect of previous periods (194) (214)
----------------------------------------------- ------ ------
(413) 699
----------------------------------------------- ------ ------
Total tax in income statement 2,719 2,219
----------------------------------------------- ------ ------
Reconciliation of effective tax rate
2017 2016
GBP000 GBP000
------------------------------------------------------------------------------------------- ------- ------
Profit before tax 13,027 9,861
------------------------------------------------------------------------------------------- ------- ------
Profit before tax multiplied by the standard rate of corporation tax rate of 20% in the UK
(2016: 20%) 2,605 1,972
Effects of:
Expenses not deductible for tax purposes 279 138
Previously unrecognised tax assets (1,637) (367)
Deferred tax effect on tax rate changes (8) 140
Differences between UK and overseas tax rates 1,097 704
Other items 585 (101)
Adjustments in respect of prior years (202) (267)
------------------------------------------------------------------------------------------- ------- ------
Total tax in income statement 2,719 2,219
------------------------------------------------------------------------------------------- ------- ------
10 Exceptional items
Cost of Admin
sales expenses Total
GBP000 GBP000 GBP000
------------------------------------------- ------- -------- -------
Acquisition of The Lang Companies Inc
Transaction and restructuring costs(a) - 722 722
Gain on bargain purchase(b) - (1,271) (1,271)
Restructuring of American operations(c) 1,532 54 1,586
------------------------------------------- ------- -------- -------
Total before tax 1,532 (495) 1,037
------------------------------------------- ------- -------- -------
Income tax credit (761)
------------------------------------------- ------- -------- -------
276
------------------------------------------- ------- -------- -------
(a) Transaction and restructuring costs relating to the acquisition of the Lang business.
(b) Gain on bargain purchase on the acquisition of the Lang
business (see note 31 for further details).
(c) Restructuring of American printing platform.
There were no exceptional items in the year ended 31 March
2016.
Impact of exceptional items on cash flow
There was a GBP656,000 impact on the current year's cash flow
(2016: GBP200,000) which included GBPnil (2016: GBP200,000) of
outflow deferred from last year.
11 Property, plant and equipment
Land and buildings Plant and Fixtures Motor
and
--------------------
Freehold Leasehold equipment fittings vehicles Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------------- --------- --------- --------- -------- -------- --------
Cost
Balance at 1 April 2015 23,120 8,476 43,900 473 613 76,582
Additions 172 297 3,548 156 204 4,377
Disposals (2,564) (12) (3,600) (1,972) (95) (8,243)
Effect of movements in foreign exchange 676 209 1,003 114 47 2,049
---------------------------------------- --------- --------- --------- -------- -------- --------
Balance at 1 April 2016 21,404 8,970 44,851 (1,229) 769 74,765
Additions 452 220 3,166 525 270 4,633
Disposals - (72) (4,569) (538) (180) (5,359)
Additions on acquisition of business - 169 - 123 - 292
Transfers between categories(a) (1,121) (63) 2,197 4,343 9 5,365
Effect of movements in foreign exchange 658 1,277 2,527 236 87 4,785
---------------------------------------- --------- --------- --------- -------- -------- --------
Balance at 31 March 2017 21,393 10,501 48,172 3,460 955 84,481
---------------------------------------- --------- --------- --------- -------- -------- --------
Depreciation and impairment
Balance as at 1 April 2015 (11,636) (3,691) (30,701) (257) (422) (46,707)
Depreciation charge for the year (910) (441) (2,012) (145) (88) (3,596)
Disposals 1,317 12 3,467 1,972 93 6,861
Effect of movements in foreign exchange (240) (96) (668) (94) (35) (1,133)
---------------------------------------- --------- --------- --------- -------- -------- --------
Balance at 1 April 2016 (11,469) (4,216) (29,914) 1,476 (452) (44,575)
Depreciation charge for the year (742) (301) (3,201) (241) (86) (4,571)
Disposals - 25 4,571 531 150 5,277
Transfers between categories(a) 936 17 (2,057) (4,211) (50) (5,365)
Effect of movements in foreign exchange (236) (561) (1,667) (130) (46) (2,640)
---------------------------------------- --------- --------- --------- -------- -------- --------
Balance at 31 March 2017 (11,511) (5,036) (32,268) (2,575) (484) (51,874)
---------------------------------------- --------- --------- --------- -------- -------- --------
Net book value
Balance at 31 March 2017 9,882 5,465 15,904 885 471 32,607
---------------------------------------- --------- --------- --------- -------- -------- --------
At 31 March 2016 9,935 4,754 14,937 247 317 30,190
---------------------------------------- --------- --------- --------- -------- -------- --------
(a) Transfer between categories includes reclassification of
previously combined assets as well as a gross up of the brought
forward balances of certain asset cost and depreciation amounts
that had previously been netted off. The effect on net book value
of these adjustments is nil.
Depreciation is charged to either cost of sales, selling costs
or administration costs within the income statement depending on
the department to which the assets relate.
Leased plant and machinery
The net book value of property, plant and equipment included an
amount of GBP144,000 (2016: GBP3,725,000) in respect of assets held
under finance leases. Depreciation with respect of these assets was
GBP244,000 (2016: GBP290,000).
Security
All freehold properties are subject to a fixed charge.
12 Intangible assets
Computer Other
Goodwill software intangibles Total
GBP000 GBP000 GBP000 GBP000
---------------------------------------- -------- -------- ----------- --------
Cost
Balance at 1 April 2015 40,252 3,821 102 44,175
Additions - 382 - 382
Disposals - (694) - (694)
Effect of movements in foreign exchange 679 57 8 744
---------------------------------------- -------- -------- ----------- --------
Balance at 1 April 2016 40,931 3,566 110 44,607
Additions 35 487 12 534
Additions on acquisition of businesses - 261 969 1,230
Disposals - (441) - (441)
Effect of movements in foreign exchange 1,508 278 42 1,828
---------------------------------------- -------- -------- ----------- --------
Balance at 31 March 2017 42,474 4,151 1,133 47,758
---------------------------------------- -------- -------- ----------- --------
Amortisation and impairment
Balance at 1 April 2015 (9,193) (3,266) (24) (12,483)
Amortisation for the year - (258) (27) (285)
Disposals - 693 - 693
Effect of movements in foreign exchange (246) (46) (4) (296)
---------------------------------------- -------- -------- ----------- --------
Balance at 1 April 2016 (9,439) (2,877) (55) (12,371)
Amortisation for the year - (432) (366) (798)
Disposals - 390 - 390
Effect of movements in foreign exchange (1,004) (285) (9) (1,298)
---------------------------------------- -------- -------- ----------- --------
Balance at 31 March 2017 (10,443) (3,204) (430) (14,077)
---------------------------------------- -------- -------- ----------- --------
Net book value
---------------------------------------- -------- -------- ----------- --------
Balance at 31 March 2017 32,031 947 703 33,681
---------------------------------------- -------- -------- ----------- --------
At 31 March 2016 31,492 689 55 32,236
---------------------------------------- -------- -------- ----------- --------
The aggregate carrying amounts of goodwill allocated to each
geographical segment are as follows:
2017 2016
GBP000 GBP000
------------ ------ ------
UK and Asia 25,600 25,600
Europe 5,146 4,797
Australia 1,285 1,095
------------ ------ ------
Total 32,031 31,492
------------ ------ ------
Impairment
The Group tests goodwill each year for impairment, or more
frequently if there are indications that goodwill might be
impaired.
For the purposes of impairment testing, goodwill considered
significant in comparison to the Group's total carrying amount of
such assets has been allocated to the business unit, or group of
business units, that are expected to benefit from the synergies of
the combination (see table on below) which represents the lowest
level within the Group at which the goodwill is monitored for
internal management purposes, and is referred to below as a
cash-generating unit. During the last few years the businesses have
begun to work more closely with each other, exploiting the
synergies that arise. The recoverable amounts of cash-generating
units are determined from the higher of value in use and fair value
less costs to sell.
The Group prepares cash flow forecasts for each cash-generating
unit derived from the most recent financial budgets for the
following three years which are approved by the Board. The key
assumptions in those budgets are sales, margins achievable and
overhead costs, which are based on past experience and future
expectations. The Group then extrapolates cash flows for the
following seven years based on a conservative estimate of market
growth of 2% (2016: 2%).
The cash-generating units used the following pre-tax discount
rates which are derived from an estimate of the Group's future
Weighted Average Cost of Capital ("WACC") adjusted to reflect the
market assessment of the risks specific to the current estimated
cash flows over the same period. The Group's WACC has been compared
to other similar companies and is felt to be appropriate.
Pre-tax discount rates used were:
2017 2016
------------ ----- -----
UK and Asia 10.5% 11.5%
Europe 12.3% 11.3%
Australia 14.1% 14.1%
------------ ----- -----
All of the cash-generating units' values in use were determined
to be higher than fair value less costs to sell, thus this was used
as the recoverable amount. In all businesses the carrying value of
the goodwill was supported by the recoverable amount and there are
currently no reasonably foreseeable changes to assumptions that
would give rise to an impairment of the carrying value.
The Directors do not believe a reasonably possible change to the
assumptions would give rise to an impairment. The Directors have
considered a 3% movement in the discount rate and a flat budget
growth rate assumption in their assessment, with these changes in
assumptions there is still considerable headroom and no indication
of impairment.
13 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the
following:
Assets Liabilities Net
-------------- ---------------- ----------------
2017 2016 2017 2016 2017 2016
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------ ------ ------ ------- ------- ------- -------
Property, plant and equipment 46 41 (1,143) (1,115) (1,097) (1,074)
Capital gains deferred - - (76) (184) (76) (184)
Tax loss carried forward 1,794 2,622 - (1) 1,794 2,621
Other timing differences 4,439 2,583 (187) (2) 4,252 2,581
------------------------------ ------ ------ ------- ------- ------- -------
Net tax assets/(liabilities) 6,279 5,246 (1,406) (1,302) 4,873 3,944
------------------------------ ------ ------ ------- ------- ------- -------
Deferred tax is presented net on the balance sheet in so far as
a right of offset exists. The net deferred tax asset is
GBP5,398,000 (2016: GBP4,296,000) and the net deferred tax
liability is GBP525,000 (2016: GBP352,000).
The deferred tax asset in respect of tax losses carried forward
at 31 March 2017 of GBP1,794,000 (2016: GBP2,621,000) is comprised
of UK tax losses of GBP907,000 (2016: GBP1,055,000) and US losses
of GBP887,000 (2016: GBP1,566,000). US tax losses carried forward
will become irrecoverable in March 2027. UK tax losses may be
carried forward indefinitely. The deferred tax assets have been
recognised where the Board considers there is sufficient evidence
that taxable profits will be available against which the tax losses
can be utilised. The Board expects that the tax losses will be
recoverable against future profits but given the level of tax
losses brought forward, recoverability has been assessed on the
basis of expected profits currently forecast in the next three to
five years. Deferred tax assets in respect of taxable losses that
are expected to be recovered outside this forecast period have not
been recognised. This includes unrecognised deferred tax assets in
respect of UK losses of GBP305,000 (2016: GBP340,000), GBPnil
(2016: GBP1,385,000) in respect of US tax losses, GBP84,000 (2016:
GBP118,000) in respect of China, and GBP284,000 (2016: GBP261,000)
in respect of Asia.
A deferred tax liability of GBP233,000 has been recognised based
on the tax cost of remitting earnings from China. No other deferred
tax liability has been recognised on unremitted earnings of the
overseas subsidiaries as if all unremitted earnings were
repatriated with immediate effect, no other tax charge would be
payable. Reductions in the UK corporation tax rate from 20% to 19%
(effective from 1 April 2017) and 18% (effective from 1 April 2020)
were substantially enacted on 26 October 2015. A 17% UK corporate
tax rate was substantially enacted on 6 September 2016 and will
replace the 18% rate effective from 1 April 2020. Those rate
reductions have been reflected in the calculation of deferred tax
at the balance sheet date.
There are no deferred tax balances with respect to cash flow
hedges.
Movement in deferred tax during the year
1 April Acquired Recognised Recognised 31 March
with
2016 subsidiary in income in equity 2017
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------ ------- ---------- ---------- ---------- --------
Property, plant and equipment (1,074) (40) 100 (83) (1,097)
Capital gains deferred (184) - 108 - (76)
Tax loss carried forward 2,621 - (1,080) 253 1,794
Other timing differences 2,581 (772) 1,285 1,158 4,252
------------------------------ ------- ---------- ---------- ---------- --------
Net tax assets 3,944 (812) 413 1,328 4,873
------------------------------ ------- ---------- ---------- ---------- --------
Movement in deferred tax during the prior year
1 April Acquired Recognised Recognised 31 March
with
2015 subsidiary in income in equity 2016
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------ ------- ---------- ---------- ---------- --------
Property, plant and equipment (127) - (890) (57) (1,074)
Capital gains deferred (280) - 96 - (184)
Tax loss carried forward 3,334 - (677) (36) 2,621
Other timing differences 1,194 - 772 615 2,581
------------------------------ ------- ---------- ---------- ---------- --------
Net tax assets 4,121 - (699) 522 3,944
------------------------------ ------- ---------- ---------- ---------- --------
14 Inventory
2017 2016
GBP000 GBP000
------------------------------ ------ ------
Raw materials and consumables 5,933 5,981
Work in progress 8,668 8,934
Finished goods 34,874 31,091
------------------------------ ------ ------
49,475 46,006
------------------------------ ------ ------
Of the GBP49,475,000 (2016: GBP46,006,000) stock value
GBP46,346,000 (2016: GBP40,899,000) is held at cost and
GBP3,129,000 (2016: GBP5,107,000) is held at net realisable value.
The write down in the year of inventories to net realisable value
amounted to GBP7,383,000 (2016: GBP4,316,000). The reversal of
previous write downs amounted to GBP57,000 (2016: GBPnil). The
reversal is due to the inventory being either used or sold.
Materials, consumables, changes in finished goods and work in
progress recognised as a cost of sale amounted to GBP213,306,000
(2016: GBP169,491,000).
On the 6 June 2016 the Group's bank facilities were
renegotiated, the asset-backed loan facility was replaced with an
invoice discounting facility. Stock is no longer used to secure the
bank facilities except as part of a fixed and floating charge over
all other assets of the Group.
In the prior year part of the Group's funding was via
asset-backed loans from our bankers. These loans were secured on
part of the inventory and trade receivables of the UK, European and
American businesses. The amount of the prior year-end inventory
available to secure an asset-backed loan was GBP37,981,000. In
addition bank loans to Hoomark and IG Design Group USA, Inc
(formerly International Greetings USA) (which were repaid during
the year) were secured on a freehold property and contents,
including inventory, therein.
Please see note 17 for more details of the new banking
facilities.
During the year the Group reviewed the life of certain printing
consumables (printing sleeves and cylinders) resulting in a
revision to the estimated life over which their costs are charged
to cost of sales in the profit and loss account. The detailed
review considered the current usage patterns and the estimated
lives were updated to best reflect the likely future usage. The net
impact of this change in estimate was an increased underlying
charge of GBP172,000 and an exceptional charge of GBP1,137,000 in
the year.
15 Trade and other receivables
2017 2016
GBP000 GBP000
------------------------------- ------ ------
Trade receivables 25,991 18,634
Prepayments and accrued income 1,539 1,645
Other receivables 1,871 790
VAT receivable 221 118
------------------------------- ------ ------
29,622 21,187
------------------------------- ------ ------
On 6 June 2016 the Group's bank facilities were renegotiated,
the asset backed loan facility was replaced with an invoice
discounting facility and seasonal revolving credit facility. None
of this facility was drawn at 31 March 2017.
In the prior year part of the Group's funding was via
asset-backed loans from our bankers. These loans were secured on
part of the inventory and trade receivables of the UK, European and
American businesses. The amount of the prior year-end trade
receivables available to secure the asset-backed loans was
GBP14,839,000. The asset-backed loan balance at 31 March 2016 was
GBP797,000.
Please see note 17 for more details of the new banking
facilities.
There are no trade receivables in the current year (2016:
GBPnil) expected to be recovered in more than twelve months.
The Group's exposure to credit and currency risks and impairment
losses related to trade and other receivables is disclosed in note
26.
16 Cash and cash equivalents/bank overdrafts
2017 2016
GBP000 GBP000
-------------------------------------------------- ------ -------
Cash and cash equivalents 3,659 8,380
Bank overdrafts (916) (1,508)
-------------------------------------------------- ------ -------
Cash and cash equivalents per cash flow statement 2,743 6,872
-------------------------------------------------- ------ -------
Net debt
2017 2016
Note GBP000 GBP000
----------------------------------------- ---- ------ --------
Cash and cash equivalents 3,659 8,380
Bank loans and overdrafts 17 (916) (23,650)
Loan arrangement fees 271 209
Finance leases (45) (2,422)
----------------------------------------- ---- ------ --------
Net debt as used in the financial review 2,969 (17,483)
----------------------------------------- ---- ------ --------
The Group's exposure to interest rate risk and sensitivity
analysis for financial assets and liabilities are disclosed in note
26.
The bank loans and overdrafts are secured by a fixed charge on
certain of the Group's land and buildings, a fixed charge on
certain of the Group's book debts and a floating charge on certain
of the Group's other assets. See note 17 for further details of the
Group's loans and overdrafts.
17 Loans and borrowings
This note provides information about the contractual terms of
the Group's interest-bearing loans and borrowings. For more
information about the Group's exposure to interest rate and foreign
currency risk, see note 26.
2017 2016
GBP000 GBP000
-------------------------------------------------- ------ ------
Non-current liabilities
Secured bank loans (see below) - 18,425
Loan arrangement fees (39) (76)
-------------------------------------------------- ------ ------
(39) 18,349
-------------------------------------------------- ------ ------
Current liabilities
Asset backed loan - 797
Current portion of secured bank loans (see below) - 2,920
-------------------------------------------------- ------ ------
Bank loans and borrowings (see below) - 3,717
Loan arrangement fees (232) (133)
-------------------------------------------------- ------ ------
(232) 3,584
-------------------------------------------------- ------ ------
Terms and debt repayment schedule
2017 2016
Note GBP000 GBP000
-------------------------------------- ---- ------ ------
Due within one year:
Bank loans and borrowings (see below) - 3,717
Bank overdrafts 16 916 1,508
Due between one and two years:
Secured bank loans (see below) - 5,407
Due between two and five years:
Secured bank loans (see below) - 10,250
Due after more than five years:
Secured bank loans (see below) - 2,768
-------------------------------------- ---- ------ ------
916 23,650
-------------------------------------- ---- ------ ------
Secured bank loans
The Group (excluding the Australia joint venture) negotiated a
global refinancing on 6 June 2016. The wholly owned Group is now
funded by HSBC. The new facilities comprise:
-- a three-year revolving credit facility ("RCF") for GBP18
million which is sufficient to fund the Group's core financing
requirements;
-- a hire purchase agreement for GBP2.3 million in respect of
the equipment installed in Wales in 2014 and maturing in 2021 -
this was the only part of the facilities that was unchanged in the
new arrangements and was repaid later in the year.
-- receivables financing arrangements for an initial term of
three years in the UK, Europe, USA and Hong Kong; and
-- a further flexible RCF with availability varying from month
to month to meet requirements during the seasonal inventory build.
This is reviewed annually but capable of extension to match the
maturity of the core RCF.
In total the Group estimates the effectively available
facilities at over GBP125.5 million, more than sufficient to cover
the peak requirements. The facilities have flexible elements within
them that mean they can grow with the Group's requirements.
The facility was capable of extension for two further years at
the same terms should the parties agree. The first one year
extension was agreed on 31 May 2017.
Invoice financing arrangements are secured over the trade
receivables that they are drawn on. The RCF facilities are secured
with a fixed and floating charge over all other assets of the
Group. The facilities do not amortise with time.
There are financial covenants, tested quarterly, attached to the
new facilities as follows:
-- interest cover, being the ratio of earnings before interest,
depreciation and amortisation to interest on a rolling twelve-month
basis; and
-- leverage, being the ratio of debt to pre-exceptional EBITDA on a rolling twelve-month basis.
There is a further covenant tested monthly in respect of the
working capital RCF by which available asset cover must not fall
below agreed levels relative to amounts drawn.
Under the terms of the refinancing agreement the loans shown
below, where outstanding, were repaid on 6 June 2016.
The following facilities were in place at 31 March 2016 and were
all repaid during the current year.
Bank overdraft and ABL
Bank overdrafts and ABL balances were GBP1,508,000 and
GBP797,000 at 31 March 2016. The outstanding balances at 6 June
2016 were repaid. The overdraft was secured on the assets of the
Group, ABL balances were secured over inventory and trade
receivable balances (see notes 14 and 15 for further details).
Loan 1
The principal of GBP263,000 was repayable over a five-year
period ending September 2019. It was repaid early on 6 June 2016 It
was secured over part of the plant and machinery of IG Design Group
Americas Inc. It was subject to a variable rate of interest linked
to the US FRR. The currency of denomination of the loan was US
dollars.
Loan 2
The principal of GBP4,553,000 was repayable quarterly over a
20-year period ending in July 2028. It was repaid early on 6 June
2016. The loan was secured over the freehold land and buildings and
the content therein of Hoomark BV and was subject to a variable
rate of interest linked to EURIBOR, that had been swapped to a
fixed rate for a notional amount of GBP5,469,000 over a period of
five years ending in January 2017. This interest rate swap was
cancelled during the year. The currency of denomination of the loan
was euros.
Loan 3
The principal of GBP9,068,000) was repayable in May 2018. It was
repaid early on 6 June 2016. GBP6,925,000 was denominated in
sterling and GBP2,143,000 was denominated in US dollars. They were
subject to a variable interest rate linked to LIBOR except for the
element that has been swapped. At 31 March 2016 the Group had an
interest rate cap on a notional amount of GBP8 million, and a
notional amount of $8 million, whereby interest payable had been
capped at 1.5% on both notional amounts. Both these swaps expired
during the year.
Loan 4
The principal of GBP7,462,000) was repayable and amortised to
May 2017. It was repaid early on 6 June 2016. GBP4,337,000 was
denominated in sterling and GBP3,125,000) was denominated in US
dollars. They were subject to a variable interest rate linked to
LIBOR.
See the financial review for further details.
18 Deferred income
2017 2016
GBP000 GBP000
---------------------------------------- ------ ------
Included within non-current liabilities
Deferred grant income 1,083 1,145
---------------------------------------- ------ ------
Included within current liabilities
Deferred grant income 98 105
Other deferred income 13 13
---------------------------------------- ------ ------
Deferred grant income 111 118
---------------------------------------- ------ ------
The deferred grant income is in respect of government grants
relating to the development of the site in Wales. This is being
amortised in line with depreciation on the new investment.
19 Provisions
Property Other Total
GBP000 GBP000 GBP000
---------------------------------------- -------- ------ ------
Balance at 1 April 2016 971 110 1,081
Provisions made in the year - 338 338
Provisions released during the year - (113) (113)
Unwinding of fair value discounts 79 - 79
Provisions utilised during the year (72) (3) (75)
Effect of movements in foreign exchange - 12 12
---------------------------------------- -------- ------ ------
Balance at 31 March 2017 978 344 1,322
---------------------------------------- -------- ------ ------
2017 2016
GBP000 GBP000
------------ ------ ------
Non-current 881 869
Current 441 212
------------ ------ ------
1,322 1,081
------------ ------ ------
The provision represents the estimated reinstatement cost of two
of the Group's leasehold properties under fully repairing leases
and provision for an onerous lease for one of those properties. A
professional valuation was performed during 2016 for one of the
leasehold properties and the provision was reassessed and is stated
after discounting at GBP829,000 of the non-current balance relates
to a lease expiring in 2036; the balance relates to items between
two and five years.
Other provisions represents management's best estimate in
respect of minor claims arising in the normal course of
business.
20 Other financial liabilities
2017 2016
GBP000 GBP000
--------------------------------------------------------------------------------------------- ------ ------
Included within non-current liabilities
Finance lease 13 1,948
Other creditors and accruals 1,898 147
--------------------------------------------------------------------------------------------- ------ ------
1,911 2,095
--------------------------------------------------------------------------------------------- ------ ------
Included within current liabilities
Finance lease 32 474
Other creditors and accruals 18,405 12,020
Interest rate swaps and forward foreign currency contracts carried at fair value through the
income statement 2 678
Interest rate swaps and forward foreign exchange contracts carried at fair value through the
hedging reserve 60 571
--------------------------------------------------------------------------------------------- ------ ------
18,499 13,743
--------------------------------------------------------------------------------------------- ------ ------
Finance lease liabilities
Finance lease liabilities are payable as follows:
2017 2016
----------------------------- -----------------------------
Minimum Minimum
lease lease
payments Interest Principal payments Interest Principal
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- -------- -------- --------- -------- -------- ---------
Less than one year 35 (3) 32 562 (88) 474
Between one and five years 15 (2) 13 2,072 (124) 1,948
More than five years - - - - - -
--------------------------- -------- -------- --------- -------- -------- ---------
50 (5) 45 2,634 (212) 2,422
--------------------------- -------- -------- --------- -------- -------- ---------
21 Trade and other payables
2017 2016
GBP000 GBP000
---------------------------------------------------------- ------ ------
Trade payables 36,341 26,023
Other payables including income taxes and social security 749 730
VAT payable 360 468
---------------------------------------------------------- ------ ------
37,450 27,221
---------------------------------------------------------- ------ ------
22 Share capital
Authorised share capital at 31 March 2017 and 2016 was
GBP6,047,443 divided into 120,948,860 ordinary shares of 5p
each.
Ordinary shares
-----------------
In thousands of shares 2017 2016
---------------------------------- -------- -------
In issue at 1 April 59,257 58,206
Options exercised during the year 385 1,051
Share placing 3,000 -
---------------------------------- -------- -------
In issue at 31 March - fully paid 62,642 59,257
---------------------------------- -------- -------
2017 2016
GBP000 GBP000
----------------------------------- ------ ------
Allotted, called up and fully paid
Ordinary shares of GBP0.05 each 3,132 2,963
----------------------------------- ------ ------
Share options exercised during the year resulted in 385,000
ordinary shares being issued (2016: 443,000) which generated cash
proceeds of GBP53,000 (2016: GBP104,000).
No LTIP options were exercised during the year (2016 exercises
amounted to 607,652 ordinary shares being issued at nil cost).
On 25 July 2016 the Group raised GBP5,250,000 (before expenses)
by way of a share placing of 3,000,000 new ordinary shares at a
price of GBP1.75 per share.
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company.
23 Earnings per share
2017 2016
-------------- --------------
Diluted Basic Diluted Basic
pence pence pence pence
--------------------------------------------------------------------------- ------- ----- ------- -----
Underlying earnings per share excluding exceptional items and LTIP charges 18.2 19.0 13.2 13.5
Cost per share on LTIP charge (2.8) (2.9) (1.2) (1.2)
--------------------------------------------------------------------------- ------- ----- ------- -----
Underlying earnings per share excluding exceptional items 15.4 16.1 12.0 12.3
Cost per share on exceptional items (0.4) (0.4) 0.0 0.0
--------------------------------------------------------------------------- ------- ----- ------- -----
Earnings per share 15.0 15.7 12.0 12.3
--------------------------------------------------------------------------- ------- ----- ------- -----
The basic earnings per share is based on the profit attributable
to equity holders of the Company of GBP9,650,000 (2016:
GBP7,261,000) and the weighted average number of ordinary shares in
issue of 61,539,000 (2016: 58,843,000) calculated as follows:
In thousands of shares 2017 2016
-------------------------------------------------------- ------ ------
Issued ordinary shares at 1 April 59,257 58,206
Shares issued in respect of exercising of share options 260 637
Shares issued in respect of share placing 2,022 -
-------------------------------------------------------- ------ ------
Weighted average number of shares at 31 March 61,539 58,843
-------------------------------------------------------- ------ ------
Underlying basic earnings per share excludes exceptional items
charged of GBP1,037,000 (2016: GBPnil) and the tax relief
attributable to those items of GBP761,000 (2016: GBPnil), to give
underlying profit of GBP9,926,000 (2016: GBP7,261,000).
Underlying earnings per share excludes exceptional items and
LTIP charges of GBP3,253,000 (2016: GBP908,000) and tax relief
attributable to those items of GBP1,203,000 (2016: GBP205,000), to
give underlying profit of GBP11,700,000 (2016: GBP7,964,000).
Diluted earnings per share
The average number of share options under the Executive Share
Options 2008 Scheme outstanding in the year is 835,680 (2016:
1,371,739) at an average exercise price of 14p (2016: 14p). The
average number of share options under the LTIP scheme outstanding
in the year is 500,000 (2016: 638,178) at nil cost. The diluted
earnings per share is calculated assuming all these options were
exercised, and taking into account LTIP awards whose specified
performance conditions were satisfied at the end of the reporting
period. At 31 March the diluted number of shares was 64,161,000
(2016: 60,745,000).
24 Dividends paid and proposed
A final dividend for year ending 31 March 2016 of 1.75p (for
year ending 31 March 2015: 1p) was paid on 21 September 2016. An
interim dividend of 1.75p was paid on 17 January 2017 (2016:
0.75p). The Directors are recommending a final dividend of 2.75p
per share in respect of the year ended 31 March 2017 (2016: 1.75p).
If approved it will be paid in September 2017 to shareholders on
the register at the close of business on 7 July 2017.
2017 2016
----------------- -----------------
Pence Pence
per share GBP000 per share GBP000
----------------------------------------- --------- ------ --------- ------
Final equity dividend for prior year 1.75p 1,037 1p 582
Interim equity dividend for current year 1.75p 1,097 0.75p 450
----------------------------------------- --------- ------ --------- ------
Dividends paid in the year 2,134 1,032
----------------------------------------- --------- ------ --------- ------
2017 2016
----------------- -----------------
Pence Pence
Proposed for approval at Annual General Meeting per share GBP000 per share GBP000
------------------------------------------------ --------- ------ --------- ------
Final equity dividend for the current year 2.75p 1,723 1.75p 1,037
------------------------------------------------ --------- ------ --------- ------
25 Share-based payments
Executive Share Options 2008
Options to subscribe for ordinary shares have been granted,
pursuant to the Company's approved and unapproved Employee Share
Option Schemes, which are exercisable at dates ranging up to
December 2018. At 31 March 2017, outstanding options were as
follows:
Exercise
Number of price Exercise
ordinary pence dates
shares
------------ --------- -------- -----------------------------
Approved: 638,570 14 December 2011 - December 2018
Unapproved: 71,430 14 December 2011 - December 2018
------------ --------- -------- -----------------------------
710,000
------------ --------- -------- -----------------------------
All share-based payments are equity-settled.
There were no performance conditions attached to the approved
options (other than continued employment). Conditions related to
profitability for the two years to March 2011 were attached to the
unapproved options awarded to Executive Directors. The conditions
to both schemes have now been fully met.
For the share options outstanding at 31 March 2017, the weighted
average remaining contract life was 1.7 years (2016: 2.7
years).
The numbers and weighted average exercise prices of share
options are as follows:
2017 2016
------------------- -------------------
Weighted Weighted
average average
exercise Number of exercise Number of
price price
pence options pence options
------------------------------------------- -------- --------- -------- ---------
Outstanding at the beginning of the period 14 1,096,000 16 1,589,285
Lapsed during the year 62 - 62 (50,000)
Exercised during the period 14 (386,000) 17 (443,285)
------------------------------------------- -------- --------- -------- ---------
Outstanding at the end of the period 14 710,000 14 1,096,000
------------------------------------------- -------- --------- -------- ---------
Exercisable at the end of the period 14 710,000 14 1,096,000
------------------------------------------- -------- --------- -------- ---------
The weighted average share price at the date of exercise of
share options exercised during the period was 212.7p (2016:
171.8p).
No share options were granted under this scheme during the year
or the previous year.
Long Term Incentive Plan
On 31 March 2014, the Group announced the introduction of a new
Long Term Incentive Plan ("LTIP"). Under the LTIP, ordinary shares
of 5p each ("ordinary shares") may be awarded annually to Executive
Board Directors of the Company, Managing Directors and other
selected senior management team members within the Group. Ordinary
shares only vest to the degree that stretching performance
conditions are met. The maximum dilution under the LTIP is 15% over
a ten-year period, excluding an award to Anthony Lawrinson of which
1,107,652 shares have vested. The scheme rules which have been
agreed by the Remuneration Committee include reasonable provisions
in the event of change of control, suitable flexibility to modify
performance targets in specified situations and also a mechanism
for claw-back under certain circumstances. The Board retains the
flexibility for the Employee Benefit Trust to buy ordinary shares
to mitigate future dilution.
The performance period for each award under the LTIP is expected
to be three years. The cost to employees of ordinary shares issued
under the LTIP, if the performance criteria are met, will be nil.
In principle the number of ordinary shares to be granted to each
employee under the LTIP will not in value be more than a 100% of
the relevant employee's salary based on the relevant share price at
the time of grant, although the rules allow an upper maximum of
150%.
Exercise
Number of price Exercise
ordinary pence dates
shares
------------------------- --------- -------- -----------------------
2012-2015 LTIP scheme 500,000 nil June 2016 - March 2024
2014-2017 LTIP scheme(a) 1,330,351 nil June 2017 - August 2024
------------------------- --------- -------- -----------------------
1,830,351
------------------------- --------- -------- -----------------------
All performance criteria have been met.
2017 2016
-------------------- -------------------
Weighted Weighted
average average
exercise Number of exercise Number of
price price
pence options pence options
------------------------------------------- --------- --------- -------- ---------
Outstanding at the beginning of the period nil 500,000 nil 1,107,652
Options vesting during the period(a) nil 1,330,351 nil -
Exercised during the period nil - nil (607,652)
------------------------------------------- --------- --------- -------- ---------
Outstanding at the end of the period nil 1,830,351 nil 500,000
------------------------------------------- --------- --------- -------- ---------
Exercisable at the end of the period nil 1,830,351 nil 500,000
------------------------------------------- --------- --------- -------- ---------
(a) The shares relating to the 2014-17 scheme formally vest on
21 June 2017 following the Remuneration Committee and Audit
Committee approval of the results for the year ended 31 March
2017.
The award periods now in place under the LTIP are as
follows:
2014-2017: provisional share awards totalling 1,297,698
shares
Share awards totalling 1,297,698 (1,330,351 after adjusting for
the effect of dividends) were issued during 2014/15 to 18 members
of the leadership teams across the Group. The performance condition
applied is CAGR in fully diluted earnings per share (before
exceptional items) and this must be not less than 10% for any
initial vesting to take place and up to 20% for the whole amount to
vest.
The charge for the LTIP granted during the year was based on the
share price of 72p at the time the scheme was approved and the
expected number of shares to vest.
2015-2018: provisional share awards totalling 1,176,860
shares
Share awards totalling 1,176,860 (1,216,833 after adjusting for
the effect of dividends) were issued during 2015/16 to 26 members
of the leadership teams across the Group. The performance
conditions applied are fully diluted earnings per share (before
exceptional items and LTIP charges), profit before tax, LTIP and
exceptional items and average leverage.
Weighting Threshold Stretch
----------------- --------- ----------- -------------
EPS 50% CAGR(a) 10% CAGR(a) 17.5%
PBT 30% CAGR(a) 10% CAGR(a) 17.5%
Average leverage 20% 2.5x 1.8x
----------------- --------- ----------- -------------
(a) CAGR = compound annual growth rate.
25% of the weighted award vests if the relevant threshold target
is achieved with straight-line vesting of the balance up to the
stretch target at which 100% of the weighted award is made.
The charge for the LTIP granted during the year was based on the
share price of GBP1.29 at the time the scheme was approved and the
expected number of shares to vest.
2016-2019: provisional share awards totalling 896,649 shares
Share awards totalling 896,649 (916,509 after adjusting for the
effect of dividends) were issued during the year to 28 members of
the leadership teams across the Group. The performance conditions
applied are fully diluted earnings per share (before exceptional
items and LTIP charges), profit before tax, LTIP and exceptional
items. Vesting increases on a straight-line basis and the full
number of shares are issuable when both stretch targets are
met.
Weighting Threshold Stretch
--- --------- ----------- -------------
EPS 60% CAGR(a) 10% CAGR(a) 17.5%
PBT 40% CAGR(a) 10% CAGR(a) 17.5%
--- --------- ----------- -------------
(a) CAGR = compound annual growth rate.
25% of the weighted award vests if the relevant threshold target
is achieved with straight-line vesting of the balance up to the
stretch target at which 100% of the weighted award is made.
The charge for the LTIP granted during the year was based on the
share price of GBP1.82 at the time the scheme was approved and the
expected number of shares to vest.
The total expenses recognised for the period arising from
equity-settled share-based payments are as follows:
2017 2016
GBP000 GBP000
------------------------------------------------ ------ ------
Charge in relation to the 2014-2017 LTIP scheme 517 387
Charge in relation to the 2015-2018 LTIP scheme 662 209
Charge in relation to the 2016-2019 LTIP scheme 376 -
------------------------------------------------ ------ ------
Equity-settled share-based payments 1,555 596
------------------------------------------------ ------ ------
National Insurance charge on LTIP awards 661 312
------------------------------------------------ ------ ------
Equity-settled share-based payments 2,216 908
------------------------------------------------ ------ ------
2017 2016
GBP000 GBP000
------------------------------------------------------------------------- ------ ------
National Insurance accrual arising from share-based payment transactions 973 320
------------------------------------------------------------------------- ------ ------
The fair value of the options granted in the year was
GBP1,537,000 (2016: GBP825,000). The exercise price is nil.
National Insurance ("NI") on share-based incentives
Employer's NI is accrued, where applicable, at a rate which
management expects to be the prevailing rate when share-based
incentives are exercised and is based on the latest market value of
options expected to vest or having already vested.
26 Financial instruments
Derivative financial assets
2017 2016
GBP000 GBP000
---------------------------------------------------------------------- ------ ------
Financial assets designated at fair value through the profit and loss 307 218
---------------------------------------------------------------------- ------ ------
a) Fair values of financial instruments
The carrying values for each class of financial assets and
financial liabilities in the balance sheet, which are given below,
are not considered to be materially different to their fair
values.
As at 31 March 2017, the Group had derivative contracts, which
were measured at Level 2 fair value subsequent to initial
recognition, to the value of an asset of GBP307,000 (2016:
GBP218,000) and a liability of GBP62,000 (2016: GBP1,249,000).
Derivative financial instruments
The fair value of forward exchange contracts is assessed using
valuation models taking into account market inputs such as foreign
exchange spot and forward rates, yield curves and forward interest
rates.
Fair value hierarchy
Financial instruments which are recognised at fair value
subsequent to initial recognition are grouped into Levels 1 to 3
based on the degree to which the fair value is observable. The
three levels are defined as follows:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
b) Credit risk
Financial risk management
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations and arises principally from the Group's
receivables from customers and investment securities.
The Group's exposure to credit risk is managed by dealing only
with banks and financial institutions with strong credit ratings.
The Group's financial credit risk is primarily attributable to its
trade receivables.
The Group has no significant concentration of credit risk
exposure as revenues are split across a large number of customers
in different geographical areas. The main customers of the Group
are large and mid-sized retailers, other manufacturers and
wholesalers of greetings products, service merchandisers and
trading companies. The Group has established procedures to minimise
the risk of default of trade receivables including detailed credit
checks undertaken before new customers are accepted and rigorous
credit control procedures after sale. These processes have proved
effective in minimising the level of impairments required.
The amounts presented in the balance sheet are net of allowances
for doubtful receivables estimated by the Group's management, based
on prior experience and their assessment of the current economic
environment.
Exposure to credit risk
The carrying amount of financial assets represents the maximum
credit exposure. Therefore, the maximum exposure to credit risk at
the balance sheet date was GBP23,924,000 (2016: GBP28,022,000)
being the total of the carrying amount of financial assets
excluding equity investments above.
The maximum exposure to credit risk for trade receivables at the
balance sheet date by geographic region was:
2017 2016
GBP000 GBP000
------------ ------ ------
UK and Asia 5,486 7,882
USA 13,021 4,617
Europe 3,954 3,299
Australia 3,530 2,836
------------ ------ ------
25,991 18,634
------------ ------ ------
Credit quality of financial assets and impairment losses
The ageing of trade receivables at the balance sheet date
was:
2017 2016
------------------- -------------------
Gross Impairment Gross Impairment
GBP000 GBP000 GBP000 GBP000
------------------- ------- ---------- ------- ----------
Not past due 21,875 (31) 13,135 (39)
Past due 0-60 days 3,465 (146) 3,960 (72)
61-90 days 705 (68) 405 (43)
More than 90 days 768 (577) 1,484 (196)
------------------- ------- ---------- ------- ----------
26,813 (822) 18,984 (350)
------------------- ------- ---------- ------- ----------
There were no unimpaired balances outstanding at 31 March 2017
(2016: GBPnil) where the Group had renegotiated the terms of the
trade receivable.
The movement in the allowance for impairment in respect of trade
receivables during the year was as follows:
2017 2016
GBP000 GBP000
---------------------------------------- ------ ------
Balance at 1 April 350 209
Charge for the year 673 311
Unused amounts reversed - (68)
Amounts written off (235) (115)
Effects of movement in foreign exchange 34 13
---------------------------------------- ------ ------
Balance at 31 March 822 350
---------------------------------------- ------ ------
The allowance account for trade receivables is used to record
impairment losses unless the Group is satisfied that no recovery of
the amount owing is possible; at that point the amounts considered
irrecoverable are written off against the trade receivables
directly.
c) Liquidity risk
Financial risk management
The Group's policy with regard to liquidity ensures adequate
access to funds by maintaining an appropriate mix of short-term and
longer-term facilities, which are reviewed on a regular basis. The
maturity profile and details of debt outstanding at 31 March 2017
is set out in note 17.
The following are the contractual maturities of financial
liabilities, including estimated interest payments:
Nominal Carrying Contractual One year One to two
interest amount cash flows or less years
rate
31 March 2017 Notes % GBP000 GBP000 GBP000 GBP000
------------------------------------------------------- ----- --------- -------- ----------- -------- ----------
Non-derivative financial liabilities
Finance leases
- euro leases(a) 20 5.0 45 (50) (35) (15)
Other financial liabilities(a) 20 20,303 (20,303) (18,405) (1,898)
Trade payables(a) 21 36,341 (36,341) (36,341) -
Other payables(a) 21 1,109 (1,109) (1,109) -
Bank overdraft(a) 4.0 - 5.3 916 (916) (916) -
Derivative financial liabilities
Forward foreign exchange contracts carried at fair
value through the income statement(b) 2 - - -
Forward foreign exchange contracts carried at fair
value through the hedging reserve(b) 60 (1,574) (1,574) -
------------------------------------------------------- ----- --------- -------- ----------- -------- ----------
58,776 (60,293) (58,380) (1,913)
------------------------------------------------------- ----- --------- -------- ----------- -------- ----------
(a) Measured at Level 3.
(b) Measured at Level 2.
Nominal
interest Carrying Contractual One One Two More
year to two to five than
rate amount cash or less years years five
flows years
---------------------------------------- ----- -------- -------- ----------- -------- ------- -------- -------
31 March 2016 Notes % GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------------- ----- -------- -------- ----------- -------- ------- -------- -------
Non-derivative financial liabilities
Secured bank loans - sterling 2.8 11,262 (11,939) (1,473) (3,085) (7,381) -
2.3
Secured bank loans - US dollar - 2.5 5,531 (5,151) (743) (2,205) (2,203) -
Secured bank loans - euros 5.0 4,552 (5,883) (552) (537) (1,522) (3,272)
---------------------------------------- ----- -------- -------- ----------- -------- ------- -------- -------
Total secured bank loans 17 21,345 (22,973) (2,768) (5,827) (11,106) (3,272)
Finance leases 20
- sterling leases 3.9 2,350 (2,555) (529) (528) (1,498) -
- euro leases 5.0 72 (79) (33) (33) (13) -
Other financial liabilities 12,167 (12,167) (12,020) (147) - -
Trade payables 21 26,023 (26,023) (26,023) - - -
Other payables 21 1,198 (1,198) (1,198) - - -
2.1
Asset-backed loans - 3.5 797 (797) (797) - - -
1.0
Bank overdraft - 3.9 1,508 (1,508) (1,508) - - -
Derivative financial liabilities
Financial liabilities at fair value
through the income statement - interest
rate swaps(a) 152 - - - - -
Forward foreign exchange contracts
carried at fair value through the
income statement 526 - - - - -
Forward foreign exchange contracts
carried at fair value through the
hedging reserve 571 (2,546) (2,546) - - -
---------------------------------------- ----- -------- -------- ----------- -------- ------- -------- -------
66,709 (69,846) (47,422) (6,535) (12,617) (3,272)
---------------------------------------- ----- -------- -------- ----------- -------- ------- -------- -------
(a) The interest rate swaps with fair values of GBP152,000
mature over a period of three years ending January 2017.
The following shows the facilities for bank loans, overdrafts,
asset-backed loans and revolving credit facilities:
31 March 2017 31 March 2016
----------------------------------------- -----------------------------------------
Facility Facility
used used
Carrying contractual Facility Total Carrying contractual Facility Total
amount cash unused facility amount cash unused facility
flows flows
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- -------- ----------- -------- -------- -------- ----------- -------- --------
Secured
bank
loans - - - - 21,345 (22,973) - (22,973)
Corporate
revolving
credit
facilities - - (18,000) (18,000) - - - -
Invoice
discounting/asset-backed
financing - - (12,123) (12,123) 797 (797) (15,459) (16,256)
Bank
overdraft 916 (916) (1,613) (2,529) 1,508 (1,508) (2,247) (3,755)
-------------------------- -------- ----------- -------- -------- -------- ----------- -------- --------
916 (916) (31,736) (32,652) 23,650 (25,278) (17,706) (42,984)
-------------------------- -------- ----------- -------- -------- -------- ----------- -------- --------
The invoice discounting/asset-backed loan facilities are
dependent upon the levels of the relevant inventory and
receivables.
The major bank facilities vary in the year depending on forecast
debt requirements. The maximum limit across all facilities with the
major bank was GBP125.5 million (2016: GBP74 million). At 31 March
2017 the facility amounted to GBP30.1 million (2016: GBP27.1
million).
Additional facilities were available at other banks of GBP2.5
million (2016: GBP14.3 million).
d) Cash flow hedges
The following table indicates the periods in which the cash
flows associated with cash flow hedging instruments are expected to
occur:
Carrying Contractual One year
amount cash flows or less
31 March 2017 GBP000 GBP000 GBP000
---------------------------- -------- ----------- --------
Forward exchange contracts:
Liabilities 60 (1,574) (1,574)
---------------------------- -------- ----------- --------
Carrying Contractual One year
amount cash flows or less
31 March 2016 GBP000 GBP000 GBP000
---------------------------- -------- ----------- --------
Forward exchange contracts:
Liabilities 571 (2,546) (2,456)
---------------------------- -------- ----------- --------
At 31 March 2016 the Group had an interest rate swap in place
with a notional amount of EUR7 million, GBP5.6 million) whereby it
received a floating rate of interest based on EURIBOR and paid a
fixed rate of interest at 2.29% on the notional amount. This swap
was to hedge the exposure to changes in the interest rate. It was
cancelled during the year.
The Group has forward currency hedging contracts outstanding at
31 March 2017 designated as hedges of expected future purchases in
US dollars and Chinese renminbi for which the Group has firm
commitments. The forward currency contracts are being used to hedge
the foreign currency risk of the firm commitments.
The terms of the forward currency hedging contracts have been
negotiated to match the terms of the commitments.
The cash flow hedges of the expected future purchases in 2017/18
were assessed to be highly effective and as at 31 March 2017 a net
unrealised gain of GBP271,000 (2016: GBP223,000 loss) with related
deferred tax debit of GBPnil (2016 GBPnil) was included in other
comprehensive income in respect of these hedging contracts.
e) Market risk
Financial risk management
Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates and equity prices, will
affect the Group's income or the value of its holdings of financial
instruments.
The Group hedges a proportion, as deemed appropriate by
management, of its sales and purchases of inventory denominated in
foreign currency by entering into foreign exchange contracts. Such
foreign exchange contracts typically have maturities of less than
one year.
The Group rarely hedges profit translation exposure, since such
hedges provide only a temporary deferral of the effects of movement
in foreign exchange rates. Similarly, the Group does not hedge its
long-term investments in overseas assets.
However, the Group holds loans that are denominated in the
functional currency of certain overseas entities.
The Group's exposure to foreign currency risk is as follows.
This is based on the carrying amount for monetary financial
instruments except derivatives when it is based on notional
amounts.
Sterling Euro US dollar Other Total
31 March 2017 Notes GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------------------------- ----- -------- ------- --------- ------- --------
Cash and cash equivalents 16 1,021 (455) 2,659 434 3,659
Trade receivables 15 4,578 3,764 14,035 3,614 25,991
Other receivables 902 30 - - 932
Financial assets at fair value through income statement 307 - - - 307
Loan arrangement fees 17 271 - - - 271
Finance leases 20 - (45) - - (45)
Bank overdrafts 16 - - - (916) (916)
Trade payables 21 (10,269) (6,054) (16,103) (3,915) (36,341)
Other payables 21 (722) (387) - - (1,109)
-------------------------------------------------------- ----- -------- ------- --------- ------- --------
Balance sheet exposure (3,912) (3,147) 591 (783) (7,251)
-------------------------------------------------------- ----- -------- ------- --------- ------- --------
Sterling Euro US dollar Other Total
31 March 2016 Notes GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------------------------- ----- -------- ------- --------- ------- --------
Cash and cash equivalents 16 2,281 (390) 5,303 1,186 8,380
Trade receivables 15 6,630 3,163 5,506 3,335 18,634
Other receivables 793 16 - - 809
Financial assets at fair value through income statement 218 - - - 218
Secured bank loans 17 (11,262) (4,552) (5,531) - (21,345)
Loan arrangement fees 17 162 - 47 - 209
Finance leases 20 (2,350) (72) - - (2,422)
Asset-backed loans 17 - (797) - - (797)
Bank overdrafts 16 - - - (1,508) (1,508)
Trade payables 21 (9,533) (3,318) (10,082) (3,090) (26,023)
Other payables 21 (817) (381) - - (1,198)
-------------------------------------------------------- ----- -------- ------- --------- ------- --------
Balance sheet exposure (13,878) (6,331) (4,757) (77) (25,043)
-------------------------------------------------------- ----- -------- ------- --------- ------- --------
The following significant exchange rates applied during the
year:
Average rate Reporting date spot
rate
-------------- ---------------------
2017 2016 2017 2016
---------- ------ ------ ---------- ---------
Euro 1.19 1.36 1.17 1.26
US dollar 1.30 1.50 1.25 1.44
---------- ------ ------ ---------- ---------
Sensitivity analysis
A 10% weakening of the following currencies against sterling at
31 March 2017 would have affected equity and profit or loss by the
amounts shown below. This calculation assumes that the change
occurred at the balance sheet date and had been applied to risk
exposures existing at that date.
This analysis assumes that all other variables, in particular
other exchange rates and interest rates, remain constant. The
analysis is performed on the same basis for 31 March 2016.
Equity Profit/(loss)
-------------- ---------------
2017 2016 2017 2016
GBP000 GBP000 GBP000 GBP000
---------- ------ ------ ------- ------
Euro 286 89 (732) 18
US dollar (54) 432 (635) (959)
---------- ------ ------ ------- ------
On the basis of the same assumptions, a 10% strengthening of the
above currencies against sterling at 31 March 2017 would have
affected equity and profit or loss by the following amounts:
Equity Profit/(loss)
-------------- ---------------
2017 2016 2017 2016
GBP000 GBP000 GBP000 GBP000
---------- ------ ------ ------- ------
Euro (350) (109) 895 (22)
US dollar 66 (529) 777 1,172
---------- ------ ------ ------- ------
Profile
At the balance sheet date the interest rate profile of the
Group's interest-bearing financial instruments was:
2017 2016
Notes GBP000 GBP000
-------------------------- ----- ------ --------
Fixed rate instruments
Financial liabilities - (19,112)
Variable rate instruments
Financial assets 3,659 8,380
Financial liabilities (916) (4,538)
Loan arrangement fees 271 209
Finance leases (45) (2,422)
Net cash/(debt) 16 2,969 (17,483)
-------------------------- ----- ------ --------
The fixed rate borrowings in the prior year above are shown
after taking account of interest rate swaps and interest rate
caps.
A change of 50 basis points (0.5%) in interest rates in respect
of financial assets and liabilities at the balance sheet date would
have affected equity and profit or loss by the amounts shown below.
This calculation assumes that the change occurred at the balance
sheet date and had been applied to risk exposures existing at that
date.
This analysis assumes that all other variables, in particular
foreign currency rates, remain constant and considers the effect on
financial instruments with variable interest rates, financial
instruments at fair value through profit or loss. The analysis is
performed on the same basis for 31 March 2016.
2017 2016
GBP000 GBP000
--------------- ------ ------
Equity
Increase 14 -
Decrease - 24
Profit or loss
Increase 14 -
Decrease - 24
--------------- ------ ------
f) Capital management
The Board's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the business. The Group is dependent on the
continuing support of its bankers for working capital facilities
and so the Board's major objective is to keep borrowings within
these facilities.
As stated in note 17 the Group secured a global refinancing on 6
June 2017.
The Board manages as capital its trading capital, which it
defines as its net assets plus net debt. Net debt is calculated as
total debt (bank overdrafts, loans and borrowing as shown in the
balance sheet), less cash and cash equivalents. The banking
facilities with our principal bank have covenants relating to
interest cover, cash flow cover and leverage, and our articles
currently permit borrowings (including letter of credit facilities)
to a maximum of four times equity.
Equity
-----------------
2017 2016
Notes GBP000 GBP000
-------------------------------------------------------- ----- -------- -------
Net assets attributable to owners of the Parent Company 86,217 68,002
Net cash/(debt) 16 (2,969) 17,483
-------------------------------------------------------- ----- -------- -------
Trading capital 83,248 85,485
-------------------------------------------------------- ----- -------- -------
The main areas of capital management revolve around the
management of the components of working capital including
monitoring inventory turn, and months' production or cost of sales
outstanding, age of inventory, age of trade receivables, balance
sheet reforecasting, monthly profit and loss, weekly cash flow
forecasts and daily cash balances. Major investment decisions are
based on reviewing the expected future cash flows and all major
capital expenditure requires sign off by the Chief Executive
Officer and Chief Financial Officer or above certain limits, by the
Board. There were no major changes in the Group's approach to
capital management during the year. A particular focus of the Group
is leverage measured as the ratio of net debt to pre-exceptional
EBITDA which is measured on a monthly basis.
27 Operating leases
Non-cancellable operating lease rentals are payable as
follows:
2017 2016
GBP000 GBP000
--------------------------- ------ ------
Less than one year 4,515 4,051
Between one and five years 11,064 11,698
More than five years 19,419 5,853
--------------------------- ------ ------
34,998 21,602
--------------------------- ------ ------
Non-cancellable operating leases are receivables as follows:
2017 2016
GBP000 GBP000
--------------------------- ------ ------
Less than one year - 908
Between one and five years 790 2,355
--------------------------- ------ ------
790 3,263
--------------------------- ------ ------
The Group leases a number of warehouse and factory facilities as
well as vehicles and office equipment under operating leases. The
leases of warehouse and factory facilities typically have an option
to renew at the end of the lease term and lease payments are
subject to five-yearly rent reviews.
One of the leased properties has been sublet by the Group and
part of a second. The main sub-leases have periods to run of
between one and five years. Sub-lease payments of GBP558,000 (2016:
GBP547,000) were received during the financial year.
During the year GBP4,460,000 was recognised as an expense in the
income statement in respect of operating leases (2016:
GBP3,889,000).
28 Capital commitments
At 31 March 2017, the Group had outstanding authorised capital
commitments to purchase plant and equipment for GBP575,000 (2016:
GBP160,000).
29 Related parties
2017 2016
GBP000 GBP000
---------------------------------------- ------ ------
Sale of goods:
AB Alrick - Hedlund 1 8
Hedlunds Pappers Industri AB 149 121
Festive Productions Ltd 37 128
Hedlund Import AB 4,596 7,003
S A Greetings (South African Greetings) 26 8
---------------------------------------- ------ ------
4,809 7,268
---------------------------------------- ------ ------
Purchase of goods:
Hedlund Import AB 60 86
Festive Productions Ltd - 18
Mattr Media Ltd 69
---------------------------------------- ------ ------
129 104
---------------------------------------- ------ ------
Receivables
Hedlund Import AB 112 320
Hedlunds Pappers Industri AB 7 19
---------------------------------------- ------ ------
Balance at 31 March 119 339
---------------------------------------- ------ ------
Payables
Hedlund Import AB - (1)
---------------------------------------- ------ ------
Balance at 31 March - (1)
---------------------------------------- ------ ------
Identity of related parties and trading
Hedlund Import AB and AB Alrick - Hedlund are under the ultimate
control of the Hedlund family. Anders Hedlund is a director of
Hedlunds Pappers Industri AB which is under the ultimate control of
the Hedlund family. Festive Productions Ltd is a subsidiary
undertaking of Malios Holding AG, a company under the ultimate
control of the Hedlund family.
John Charlton is Chairman of SA Greetings (Pty) Ltd.
During the year the Company paid GBP69,000 for rebranding and
marketing services to Mattr Media Ltd, a company controlled by
Joshua Fineman who is the son of the Group CEO.
The above trading takes place in the ordinary course of business
and on normal commercial terms.
Other related party transactions
Directors of the Company and their immediate relatives have an
interest in 46% (2016: 49%) of the voting shares of the Company.
The shareholdings of Directors and changes during the year are
shown in the Directors' report.
30 Subsidiary with significant non-controlling interest
The Company has one subsidiary company which has a material
non-controlling interest, IG Design Group Australia Pty Ltd
(Australia). Summary financial information in relation to Australia
is shown below.
2017 2016
Australia balance sheet as at 31 March GBP000 GBP000
--------------------------------------- ------- -------
Non-current assets 2,611 1,418
Current assets 10,800 9,831
Current liabilities (5,699) (4,281)
Non-current liabilities (146) (227)
--------------------------------------- ------- -------
2017 2016
Australia comprehensive income for the year ended 31 March GBP000 GBP000
----------------------------------------------------------- ------ ------
Turnover 33,551 27,873
Profit after tax 1,325 761
Total comprehensive income 1,563 502
----------------------------------------------------------- ------ ------
2017 2016
Australia cash flow for the year ended 31 March GBP000 GBP000
----------------------------------------------------- ------ ------
Net increase/(decrease in cash and cash-equivalents) (807) 1,294
----------------------------------------------------- ------ ------
2017 2016
Australia non-controlling interest GBP000 GBP000
--------------------------------------------------- ------ ------
1 April 3,370 2,920
Share of profits for the year 658 381
Other comprehensive income 119 (130)
Capital contribution from non-controlling investor 110
Dividend paid to the non-controlling interest (867) -
Currency translation 443 199
--------------------------------------------------- ------ ------
31 March 3,833 3,370
--------------------------------------------------- ------ ------
31 Acquisition of business
On 11 July 2016, the Group acquired all of the shares capital of
The Lang Companies Inc ("Lang") for a cash consideration of
GBP2,669,000 ($3,443,000). Acquisition costs of GBP260,000 were
incurred during the period and expensed in the income statement as
an exceptional item. Lang is a design-led supplier of high-quality
branded consumer home décor and lifestyle products, based in the
USA. Lang is a natural fit with the Group, being a design led
company with complementary products and markets. There are natural
synergy opportunities with the Group in sourcing and cross selling.
In the period from acquisition to 31 March 2017 Lang contributed
net profit of GBP528,000 to the consolidated Group net profit for
the year ended 31 March 2017. If the acquisition had occurred on 1
April 2016, Group revenue would have been GBP316,160,000 and net
profit would have been GBP9,224,000. In determining these amounts,
management has assumed that the fair value adjustments that arose
on the date of acquisition would have been the same if the
acquisition occurred on 1 April 2016.
Effect of acquisition
The acquisition had the following effect on the Group's assets
and liabilities:
Recognised
fair values
on acquisition
GBP000
------------------------------------------------------------------------ --------------
Property, plant and equipment 292
Intangible assets 1,230
Inventories 2,967
Trade and other receivables 6,005
Trade and other payables (5,742)
Deferred tax liabilities (812)
------------------------------------------------------------------------ --------------
Net identifiable assets and liabilities 3,940
------------------------------------------------------------------------ --------------
Total cash consideration paid 2,669
------------------------------------------------------------------------ --------------
Gain on bargain purchase recognised immediately in the income statement 1,271
------------------------------------------------------------------------ --------------
The gain on bargain purchase arose as a result of the sum of the
net assets acquired being greater than the amount paid. This was
possible due to the low number of potential acquirers for the
business.
ENDS
This information is provided by RNS
The company news service from the London Stock Exchange
END
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