TIDMIGR
RNS Number : 5626C
IG Design Group PLC
29 June 2016
29 June 2016
IG Design Group plc (formerly International Greetings plc)
Preliminary Results for the year ended 31 March 2016
Strong growth coupled with defined vision for the future
IG Design Group PLC ('Design Group' or the 'Group'), one of the
world's leading designers, innovators and manufacturers of gift
packing and greetings, social expression giftware, stationery and
creative play products, is pleased to announce its preliminary
results for the year ended 31 March 2016.
Financial Highlights
-- Group revenue up 3.5% to GBP237 million (2015: GBP229
million), and up 4.4% at like for like exchange rates
-- Overall gross margin up 0.8% (before exceptional items in
prior year) underpinned by a full year's impact of manufacturing
efficiencies and commercial initiatives
-- Group operating profit increased by 26% to GBP12.7million
(2015: GBP10.0 million). Underlying operating profit* increased by
14% to GBP13.5 million (2015: GBP11.9 million).
-- Profit before tax up 35% to GBP9.9 million (2015: GBP7.3
million). Underlying profit before tax* up 18% to GBP10.8 million
(2015: GBP9.2 million).
-- Fully diluted earnings per share up 29% at 12.0p. Adjusted
fully diluted earnings per share* up 15% at 13.2p (2015: 11.5p)
-- Group cash generated from operations up 16% to GBP20.7 million (2015: GBP17.9m)
-- Net debt down 40% to GBP17.5m (2015: GBP29.4m), with leverage
down 0.8 times to 1.0 times comfortably ahead of schedule
-- Increased final dividend per share at 1.75p for the year
(2015: 1p), which together with the interim dividend of 0.75p
(2015: NIL), produces a total dividend in respect of the year of
2.5p per share.
Operational Highlights
-- Significant progress across all geographies:
- Non-UK revenues by customer destination are now 66% (2015: 67%) of Group
- In local currency, sales and operational initiatives drive 66% profit growth in Australia
- Strengthened management team in USA delivers 34% growth in profits in local currency
-- Capital investments deliver improved productivity and quality with fast payback
- Major capital investment project to drive efficiencies in
paper converting completed on time and on budget in the USA
-- Existing categories performing strongly
- Record Group sales of gift packaging and greetings related
products, including over 60 million gift bags sold
- High volume sales of Star Wars, Spiderman, Minions and Peppa Pig products
-- Product design and service standards remain high, resulting
in a 'No one tries harder for customers' Supplier Award from
Tesco
-- Completed sale for GBP1.45 million of property in Aberbargoed, Wales
-- Post period, flexible and competitive global funding
arrangements secured for all wholly owned businesses
*(stated before exceptional items and LTIP charges)
Paul Fineman, CEO Commented
"I am delighted to report that the Group has delivered another
year of strong growth with all metrics again exceeding our
financial, commercial and operational goals. We have, once again,
demonstrated our ability to turn profit into cash and successfully
deliver fast payback on investments made, allowing us to increase
dividends from 1p to 2.5p.
"We have a defined vision for the future, focused on profit
growth alongside a unique blend of creativity and reliability. As
such, our new brand will provide the platform for this next phase
of Group development, accelerating our ability to leverage our
global scale, simplifying our structure and illustrating the extent
of our offering to our existing and future customers.
The evolution of our Group into a multi-category, design-focused
and global business signals a new phase of growth opportunities
both through exciting organic opportunities and through well
considered acquisitions."
EU Referendum Outcome
Whilst it is too early to know the full long-term impacts of the
UK's exit from the EU, the Board feels that Design Group's
diversified global portfolio of activity, together with our new
global funding arrangements, means we are well positioned to manage
the effects, and this outcome of itself results in no material
change in outlook for the Group's near term financial results or
future growth prospects.
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 igr@redleafpr.com
Sarah Fabietti-Dallison
Susie Hudson
The financial information set out below does not constitute the
company's statutory accounts for the years ended 31 March 2016 or
2015 but is derived from those accounts. Statutory accounts for
2015 have been delivered to the registrar of companies, and those
for 2016 will be delivered in due course. The auditor has reported
on those accounts; their reports were:
i. Unqualified (3),
ii. did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their
report and
iii. did not contain a statement under section 498 (2) or (3) of the Companies Act 2006
OUR YEAR AT A GLANCE
UK
-- A further year of ongoing improvements in manufacturing efficiencies
-- Additional enhancements and refinements of wrap manufacturing capability
-- Successful launch of Star Wars licensed products
-- Enlarged customer base includes broader presence in discount sector
-- Sales to over 250 UK customers of new everyday gift bags through channel focused teams
-- Product design and service standards results in a "No One
Tries Harder for Customers" Supplier Award from Tesco
-- Pan--European approach to materials sourcing and
collaborative sharing of technical expertise
-- Completed the sale of our property at Aberbargoed, Wales,
previously vacated following the installation of new printing
presses in our gift wrap manufacturing plant in Ystrad Mynach,
Wales
Asia
-- Record levels of cracker manufacturing with over 72 million
crackers produced on time, in full
-- Production of gift bags and cards also reached record levels
underpinned by a perfect execution of customer requirements
-- 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 Hong Kong and Ningbo based teams
-- A cohesive and collaborative Group--wide approach to third party sourcing
USA
-- Management Team strengthened in all aspects of the business,
providing a strong platform for future growth
-- Asia based sourcing and supplier management resources also enhanced to support growth
-- Record sales and trading profit levels
-- US focused phase of upgrading global manufacturing platform completed on time and on budget
-- Commercially focused design and product innovation, combined
with excellent customer service, facilitates sales growth in all
channels
-- Successful launch in USA of "Kids Create" branded products
demonstrates the scope to leverage Group--wide product knowledge
and expertise
Mainland Europe
-- Gift wrap manufacturing volumes at highest ever level
-- Continued fast payback of investment recently made in wrap manufacturing capability
-- Sales growth particularly strong in Poland and Slovakia
-- European profits growth achieved despite significant dollar/euro foreign exchange headwinds
-- Additional resources now in place to grow new product
development capability outside of gift packaging category
Australia
-- In local currency 17% sales and 66% profits growth driven by
commercial and operational initiatives put in place in previous
year
-- Complete re--modelling of design studio, product development and showroom facilities
-- New regional showroom and marketing facilities now planned
-- Successful implementation of enhanced logistics/order picking facilities
-- Another year of excellent growth in sales of licensed partyware products
Group
-- Group sales up GBP7.9 million (3.5%) or GBP10.0 million
(4.4%) at like--for--like foreign exchange compared to 2014/15
-- Non--UK revenues by customer destination now 66%
-- Gross margin increased 0.8%
-- Profit before tax, exceptional items and LTIP increased to GBP10.8m (18%)
-- Cash generated from operations was up 16% to GBP20.7 million
-- Leverage reduction from 1.8x to 1.0x (44%)
-- Adjusted fully diluted earnings per share up from 11.5p to 13.2p (15%)
-- Dividend up 150% from 1p to 2.5p, proposed final dividend of 1.75p
CHIEF EXECUTIVE OFFICER'S REVIEW
The growing sense of "community" that prevails amongst our
global team is positively impacting our bottom line, enabling broad
solutions for our global customers and helping us to leverage
expertise and scale across all areas of our business. We are
excited to foster a new level of coherence and collaboration
symbolised throughout the Group by our refreshed brand "Design
Group".
I am delighted to report a strong set of results for the year
during which we have, once again, exceeded our objectives in profit
generation, cash generation and earnings per share growth.
It is especially pleasing to have achieved excellent financial
performance whilst also making good progress in meeting commercial
and operational goals, including making further fast-payback
capital investments, which will underpin future opportunities
across our Group.
During a year when sales increased by 3.5% to GBP237 million,
profit before tax, exceptional items and LTIP charges increased by
18% to GBP10.8 million, whilst net debt reduced by a very
satisfactory 40% from GBP29.4 million in 2015 to GBP17.5 million in
2016, reflecting the effectiveness of our focus on converting
profit into cash and the highly cash generative dynamics within our
business.
Continuing the trend of recent years, we have substantially
reduced year--end leverage with the reduction to 1.8x in 2015
progressing to 1.0x in 2016. The combination of reduced leverage
and significant cash generation has underpinned a material increase
in dividend payments from a level of 1p for 2014/15 to a total of
2.5p for 2015/16.
Fully diluted earnings per share (pre--exceptional items and
LTIP charges) are up by 15%, on the prior year, to 13.2p (2015:
11.5p).
Having very successfully enhanced and contemporised our
manufacturing facilities in Holland and the UK, 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 wrap converting facilities.
This investment will underpin our ability to drive further growth
opportunities.
Geographical highlights
Our businesses focus activities around customer channels,
supported by dedicated teams 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
Our UK and Asia business accounted for 46% (2015: 47%) of our
Group's revenue for the year.
Revenues included contributions from a portfolio of generic,
customer bespoke and licensed brands with the "Star Wars" range of
gift packaging and stationery products proving highly successful.
Additionally we achieved record sales of the ever--popular Tom
Smith branded range of gift packaging and greetings products and we
are honoured to remain Royal Warrant holders for gift wrap and
crackers.
Our recent years of growth reflect the changing dynamics in the
UK marketplace with our subsequent focus on:
-- value and innovation tailored for the traditionally dominant grocery multiples;
-- a bespoke product offering that meets the needs of the
rapidly expanding Pan--European discounters;
-- providing compelling products created for the specialist GBP1 only retail multiples; and
-- the ever expanding online presence of existing and new customers.
The seamless collaboration of our teams based in the UK and also
within our sourcing and manufacturing operations based in Hong
Kong, Ningbo and Huizhou, China, have further continued their
terrific track record of delivering a standard of service that
encourages the ongoing loyalty of our large customer base.
We have exceeded efficiency levels targeted as a result of our
major programme of investment in gift wrap manufacturing and now
will enhance our capability even further with new added features to
our facilities, ensuring that we remain market leading in all
aspects of our operation. The year ended with the completion of the
sale of a property at Aberbargoed, Wales, which we vacated having
installed our new state of the art printing presses at our plant in
Ystrad Mynach.
Whilst our share of the UK market for gift packaging remains
substantial, there is still scope for profitable growth, across
this and other categories - both online and through "bricks and
mortar" retailers - particularly specialist areas, including garden
centres and card and gift multiples, as well as through a broad
network of regional groups and independent stores.
Mainland Europe
Our business in Mainland Europe accounted for 14% (2015: 16%) of
the Group's sales.
The polarisation of buying power has continued within
Continental Europe, with the top 10 retail groups enjoying a very
dominant market share. We are now trading with each of these top 10
retail groups, having enjoyed strong trading relationships with
many of them for a considerable number of years.
Through a focus on design and innovation and by adding value
through incremental service to our customers, our businesses
successfully combatted the headwinds that prevailed on imports from
China into Europe as a result of adverse foreign exchange rates
during the year.
Of particular note, our sales to customers in Poland and
Slovakia enjoyed double digit growth, underpinned by our strong
track record of trading partnerships with those major retail groups
in Western Europe who have expanded into fast growing markets to
the East.
USA
In the USA, our business has grown its share of overall Group
sales to 28% (2015: 25%) with sales now reflecting the broader
opportunities being developed in other countries within the
Americas.
The powerful combination of experience, energy and inspiration
in our new leadership team has resulted in outperformance against
each and every metric that was set, with sales growth, achieved
across all channels, totalling 13% and with stronger foundations
laid for future sales and profits growth through enhanced
commercial and operational capability.
Our business is significantly design--led, and our insight into
consumer and customer trends and demands is greater than ever
through the use of enhanced market research and analytics.
This enhanced understanding of growth opportunities has been
reflected in the establishment of some significant new customers
and product launches as well as activity in new channels and
territories across the broader "Americas" reflected in the launch
of Spanish language greeting cards to satisfy the demands of the
more than 40 million Spanish speaking citizens of the USA.
In a year of tremendous progress for our US business, we were
honoured to establish the Rick Eckman Scholarship programme in
memory of our former CEO and to provide an inaugural award to its
first beneficiary.
Australia
Our strategy to combat the overall slow down in the Australian
economy has delivered excellent results with Australian revenues
still representing 12% of Group sales (2015 12%), but with a
greatly improved bottom line result reflecting a very effective
outcome to the commercial and operational initiatives put in place
during 2015.
Despite an overall "flat" market, we achieved 17% sales growth
during the year in local currency. All product categories enjoyed
market share growth, largely through a highly effective combination
of great design, together with tremendous value for money being
applied to our overall product offering.
Partyware sales were especially buoyant, with the combination of
our own generic designs alongside a portfolio of leading licensed
brands, providing us with a potent product offering for many
customers throughout Australia and New Zealand.
Top line growth was supported by an excellent performance in
order fulfilment, the outcome being that we have returned to growth
in profits in a region that has proven to be particularly
challenging in recent years.
Our products and brands
Design remains the "common thread" that binds our businesses
together throughout the Group. This is reflected in the significant
variety of products that we manufacture and source, all of which
are carefully designed to optimise consumer, customer and
commercial appeal.
Great "design" is, however, not only applicable to the aesthetic
appeal of our products, but to every aspect of our business.
Today, Group sales are generated across three core categories.
"Celebrations", including gift packaging, greetings and partyware
products contribute 78% of our sales, "Stationery and Creative
Play", including home, school and office products, are 16% of our
sales, and "Design--led giftware" amounts to 6% 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
33% - GBP79 million carry our Group's generic and licensed
brands.
We will continue to increase our capability to launch products
which can be adapted for sale throughout our worldwide customer
base.
Our team
The appetite of our teams throughout the Group to continue to
"raise the bar" in all aspects of our business is an inspiration to
me and to my colleagues on the Board.
Our team's dedication was symbolised when, during the year, we
received a "No one tries harder for customers" Supplier Award from
Tesco. This demonstrates the culture that prevails throughout our
Group and the team's wish to continuously improve. We will continue
to make every effort to live up to this very pleasing accolade.
Our strategy
Whilst our strategic objectives are reviewed and refined, the
fundamentals have remained consistent and essential to the Group's
recent years of growth and success.
The future
Our Group today provides our worldwide customer base with a
complete service, from design to distribution. We provide a unique
blend of creativity and reliability.
Our business has been built on solid foundations and recent
years of fast payback investment in state of the art capital
equipment, together with the enthusiastic efforts of our capable
and dedicated team, has consistently produced strong cash
generation and profits growth.
Our progressively cohesive Group will continue to create value
for all stakeholders as we apply our expertise across existing and
new markets and product categories.
Throughout our business, irrespective of activity, discipline,
season or product category our focus is on design - it is at the
heart of all we do.
We remain highly focused on delivering profitable growth
throughout the Group, both organically and through well considered
acquisitions.
The strength of our team, combined with our financial
performance and culture of continuous improvement, demonstrate that
more than ever before, we are "designed to succeed".
Paul Fineman
Chief Executive Officer
28 June 2016
CELEBRATIONS
Focusing on excellence in design and manufacturing as well as
sourcing expertise, our product offering further expanded to
include greetings cards and crackers, which are produced in
customer bespoke, generic and licensed brands.
All categories are designed and tailored to help celebrate all
of life's special occasions, with our products created in many
languages, styles and genres to meet the demands of consumers
throughout the world.
Recent years of significant investment in state of the art wrap
manufacturing together with semi--automated cracker manufacturing
have underpinned our position as the world's largest producers of
both wrap and crackers. To illustrate the scale of our gift wrap
business, our annual volumes of wrap produced and sold would
stretch from the Earth to the Moon and back, whilst in 2015/16 we
sold in excess of 80 million crackers.
Of particular note is the fact that whilst crackers have
traditionally been a Christmas focused category, everyday and
special occasion crackers are now sold to over 20 countries, with
our strategy being for crackers becoming as much a part of all year
round "table decor" as they are an essential feature of Christmas
festivities.
With social and environmental responsibilities at the core of
our values, we strive to ensure compliance with the demands of the
world's leading retailers and licensors.
Our attention to detail and focus on quality is best
demonstrated by the great honour of holding the Royal Warrant from
Her Majesty the Queen as manufacturers of gift wrap and
crackers.
Already strong in the areas of gift packaging, single cards and
crackers, we seek out new related categories to drive additional
growth. This year, we further enhanced our portfolio, developing a
broad and innovative range of partyware products to dovetail
perfectly with other "Celebrations" categories.
Our ability to provide a comprehensive "one stop shop" solution
across a wide range of "Celebrations" based products provides
growth opportunities throughout all regions and market channels
including the fast growing market share of online retailers.
To help fill the demand for new and innovative design and
products, we continuously populate our Group--wide archive of
Intellectual Property, design concepts and unique products, storing
them in a user friendly digital asset bank of product development,
innovation and display options. This reservoir of ideas and
initiatives is carefully managed to optimise speed to market and
provide a nimble and flexible design to distribution service whilst
also protecting customer interests.
Further scope is evolving for complete all year round programmes
of "Seasonal Solutions" including our core categories and also
offering us the opportunity to introduce other incremental and
complementary formats, materials and components to provide our
customers with an even deeper, and broader cross--category design,
product and distribution based service.
GIFTING
Having established ourselves as a design--led business,
providing a unique blend of creativity and reliability, enables us
to apply these core strengths across a number of product categories
and a wide array of materials.
Today, amongst many materials used, our designs are applied to
ceramics, tinware, metalware, textiles, wood and plastics all
produced to exacting standards and under bespoke, generic and
licensed brands.
Multi--component collections are complex and challenging to
source and therefore provide incremental opportunities to benefit
from the long established relationships that we enjoy with many of
the world's leading retail groups.
In 2015/16 we have continued to create wonderful ranges of
products providing stylish solutions and great value for gifting
and also for own use.
Recent highlights include the broadly appealing "Rosie's Pantry"
collection which perfectly illustrates the application of design to
a wide variety of substrates, formats and price points.
Our sales of design themed and "celebrations" related
collections have also included products that help capture special
moments and memories, under the category of "photo related gifts",
resulting in over 9 million design/gift themed photo frames being
sold in UK and across Continental Europe.
Our ability to apply our strengths and expertise across core and
related product categories is dependent on an approach of
continuous improvement to each and every aspect of our business. In
effect whilst "aesthetic" and "surface" design is the most evident
aspect of our design capabilities, the reality is that each and
every member of our team is a "designer". We design product that is
commercial, as well as aesthetically pleasing, we design efficiency
into our manufacturing and into our processes. We design innovation
into everything we do. We constantly nurture our business to ensure
that we remain competitive and a compelling "partner of choice" for
our customers, suppliers and stakeholders.
STATIONERY AND CREATIVE PLAY
With the vast majority of our global customer base retailing
many categories of stationery and related product areas, the
Group's stationery product offering spans a wide variety of
formats, price points and brands.
No longer dominated by basic utilitarian products, the market
demands design co--ordinated, fashion led collections including
unique, customer bespoke ranges with a good, better, best approach.
Through collaborative relationships with our key strategic
suppliers, we provide exceptional value from entry level products
and formats to highly innovative premium ranges.
Our own generic brands including, A Star, B Stationery,
Papercraft and Pepperpot are now sold worldwide and are regularly
refreshed, ensuring maximum and "on trend" appeal.
Licensed products feature strongly within the Stationery and
Creative Play category, with stickers being hugely popular. In
2015/16, the Group sold over 750 million stickers.
Longstanding licensor relationships and licensing agreements
covering many of the world's best--loved characters including those
from Disney, Marvel, Universal and Entertainment One have resulted
in high volume sales of the highly popular Star Wars, Spiderman,
Minions and Peppa Pig collections with carefully considered new
licences being introduced to ensure optimum appeal is
maintained.
The close relationship of stationery to art, craft and creative
play products has led to the opportunity to deploy our product
development know--how to create globally appealing products, mainly
marketed under the "Kids Create" brand. The understanding of local
markets whilst leveraging our global scale has been particularly
effective in 2016, with creative play products now adapted for sale
in US, UK, Continental Europe and Australia. Careful attention is
applied to local compliance standards, supported by our Quality
Control and Assurance teams throughout the Group.
FINANCIAL REVIEW
Group performance
2015/16 was a strong year, with growth in profitability and
especially operating cash flow exceeding our expectations, enabling
us to increase the dividend to shareholders faster than previously
anticipated.
All of our businesses grew sales and profitability in local
currency, with only Europe declining slightly after translation
into sterling. With excellent performances last year from the UK
and Europe sustained into 2015/16, it was the turn of the US and
Australian businesses to improve profitability substantially by 34%
and 66% respectively in local currency. A number of changes in the
leadership team were made in our US business early in the year by
the new US CEO, and with that fresh perspective the business has
thrived. Our investment in gift wrap converting equipment in the
USA also completed in Q4, generating early efficiencies. In
Australia the business posted record sales levels and made
significant headway in recovering margins.
Last year I reported that the Group's ability to generate cash
should now be strong enough to support continued deleveraging,
ongoing investment in growth and a sustainable dividend. We have
exceeded expectations in all of these areas this year.
Continuing operations
Revenues for the year to 31 March 2016 were up from GBP229
million in 2015 to GBP237 million, a solid 3.5%, though 4.4% at
constant exchange rates. Underlying revenue in local currency grew
in every marketplace, exceeding our expectations and despite some
further modification of mix in the UK where our Celebrations
activity grew strongly while Stationery and Creative Play sales
fell back. Sales growth in Australia was particularly pleasing with
new product categories and customer wins in the Celebrations space
through a re--energised sales capability.
After a drop in gross profit margin last year, we recovered
ground this year to 18.3% (2015: 17.5% pre--exceptional items)
reflecting the continued and full year effects of our investments
and constant search for efficiency. Likewise net pre--tax and
exceptional profit margins have improved to 4.2% (2015: 3.7%).
Pleasingly, operating margins have held steady or improved in every
geographical area in the Group. In Europe the already strong 10%
net operating margin was sustained (against our expectations given
exchange rate headwinds) with progress in the USA and Australia the
most meaningful as anticipated, up 1.3 and 1.6 percentage points
respectively to 6.3% and 5.4% respectively. The full year effect of
our investment in Wales contributed, lifting margins in the UK
segment 0.6 percentage points to 6.7%. 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 slightly, reflecting mainly investment in our US business
and other capability to allow us to grow, but these costs remained
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 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 14% to GBP13.5
million (2015: GBP11.9 million). Operating profit after exceptional
items and LTIP charges increased even more markedly by 26% to
GBP12.6 million (2015: GBP10.0 million).
There were no exceptional items during the year (2015: GBP1.2
million before tax) and this was the main reason for the strong 26%
improvement in operating profit as stated above. The residual cash
flow effect from prior year exceptional charges was incurred in the
year but this was not material.
Finance expenses (before exceptional charges) in the year were
marginally up on the prior year at GBP2.8 million (2015: GBP2.7
million) but this reflects the effect of marking to market certain
hedging contracts that did not qualify to be hedge accounted,
mainly in Australia. Stripping out the effect of these, the
underlying interest cost and associated charges were GBP2.2 million
(2015: GBP2.7 million) demonstrating that we continue to reap the
rewards of lower margins and lower average debt levels. The mark to
market effect reverses in 2016/17. Notes 8 and 26 to the financial
statements provide further information.
Underlying profit before tax, exceptional items and LTIP charges
was up 18% to GBP10.8 million (2015: GBP9.2 million) while profit
before tax was up 35% to GBP9.9 million (2015: GBP7.3 million). The
strong increase of course reflects the fact that there were no
exceptional items in the current year (2015: GBP1.2 million). The
largely non-cash LTIP charges of GBP0.9 million (2015: GBP0.6
million) are higher because 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 3 awards running on a rolling
basis.
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 GBP2.2
million (2015: GBP1.3 million) though of course on a higher profit
base. The effective underlying tax charge on profits before
exceptional items is slightly higher than the prior year at 22.5%
(2015: 20.0%). This is still well below the underlying blended rate
that would arise from the Group's current geographical profile of
profits were it not for our increasing ability to access (and
therefore recognise in the accounts) tax losses arising in prior
years as our profitability improves.
The underlying blended rate is currently 27%. This underlying
blended rate will likely increase as our profile of profitability
increases in the USA and Australia where tax rates are higher at
35% and 30% respectively and our actual tax rate will trend towards
the underlying blended rate over the next few years as unrecognised
losses are fully recognised in the balance sheet. There are
currently tax losses not yet recognised in the balance sheet in the
USA with a current tax value of GBP1,385,000 and in the UK and
Asian segment with a current tax value of GBP458,000.
Actual taxation paid in cash during the year was greater than
the prior year at GBP1.8 million (2015: GBP1.3 million) as our
businesses in Australia, the Netherlands and China do not have
losses to shield their profits. With improving and sustained
profitability, we expect to pay cash tax in the UK in the near
future, and in the USA shortly thereafter.
Profit for the year
Overall net profit for the year increased by a very material 28%
to GBP7.6 million (2015: GBP6.0 million); even after removing the
effect of exceptional items and LTIP charges the underlying
profitability still improved by 15% to GBP8.6 million (2015: GBP7.5
million).
Earnings per share and dividends
Basic earnings per share were 12.3p (2015: 9.7p). After removing
the effect of exceptional items and LTIP charges, the adjusted
earnings per share were 13.5p (2015: 12.0p) representing an
increase of 13%.
However, in order to properly reflect the dilutive effect of
employee share incentive schemes, the Company's key target is
determined by reference to adjusted 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 13.2p, up 14.8% on the prior year
(2015: 11.5p), securing another year of double digit growth in
earnings.
Accordingly, the Board is pleased to propose a final dividend of
1.75p per share for the year (2015: 1p) which will be paid during
September, subject to shareholder approval. Together with the
interim dividend of 0.75p (2015: nil) this makes for a total
dividend in respect of the year of 2.5p per share. This dividend is
comfortably covered by underlying earnings and there should be
scope to increase this further in future periods while still
investing in growth and managing average leverage still lower. The
Board has determined that any dividend will always be covered not
less than three times by underlying earnings per share and the
Company currently intends to trend towards this level of pay--out
over time. Dividend policy will be balanced against the attractive
opportunities to invest in efficiency and growth that continue to
present themselves and the desire to further reduce average net
leverage to our target of 2.5 times.
Balance sheet and cash flow
Net debt at 31 March 2016 was again much improved at GBP17.5
million (2015: GBP29.4 million). The ratio of year end net debt to
EBITDA, exceptional items and LTIP charges (leverage) was 1.0 times
(2015: 1.8 times) and having easily achieved our target in this
respect of no more than 2.0 times, the Company now targets average
leverage (the ratio of average net debt to EBITDA). At the year end
this metric was 3.2 times, much improved on 4.0 times in 2015 and
entirely on track to achieve our target of 2.5 times by 2018/19 or
earlier.
Year--end net debt included amounts denominated in US dollars of
$0.3 million (2015: $7.9 million) and in euros of EUR7.2 million
(2015: EUR7.2 million). The year--end exchange rates were $1.44
(2015: $1.48) and EUR1.26 (2015: EUR1.38). Therefore, at
like--for--like exchange rates debt would have improved by a
further GBP0.7 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 remained largely
stable at GBP18.6 million (2015: GBP18.3 million) at the year end
despite generally higher sales.
The charge for bad and doubtful debts in the year was GBP0.2
million again less than 0.1% of turnover.
Net stock levels after provisioning for older stock also
remained largely flat at GBP46.0 million (2015: GBP46.2 million)
even 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 slightly to GBP5.9 million (2015: GBP5.6 million).
Provisioning remains adequate and similar to prior periods. Our
businesses consistently achieve 100% recovery against written down
values of old stock.
Group cash generated from operations was again very strong at
GBP20.7 million (2015: GBP17.9 million), reflecting the strength of
operating profitability and assisted again by a net reduction in
working capital of GBP3.4 million (2015: reduction of GBP2.0
million).
Investment in capital expenditure during the year was slightly
higher than depreciation at GBP4.4 million and certainly higher
than the prior year (2015: GBP2.3 million). 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.
However, the greatest opportunity remains the USA where we have
now invested in a Casepacker and a high efficiency gift wrap
converting line. The business case for the final phase to update
our printing capability in the USA is now under way. Other modest
but still seven figure organic capital investment opportunities are
now arising, offering the opportunity to expand into new product
categories and customer channels. These are not built into our
existing core plans but we look favourably upon such opportunities
where the payback is sufficiently attractive. Our cash flow is
strong enough to absorb these investments and build foundations for
additional future growth.
At the half year, we reported that our site at Aberbargoed was
now available for sale and at the very end of the financial year we
completed the sale of this site, releasing GBP1.4 million in cash
net of costs, just over book value. The Group is also now in the
fourth year of a five--year period by which a company has the
option to purchase part of another under--utilised site (net book
value GBP0.8 million) for a price of GBP2.4 million. This is also
generating premium income of GBP0.1 million p.a. over the option
period, recognised within other operating income.
Equity attributable to shareholders has increased to GBP68.0
million from GBP59.7 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; and
-- lower average leverage measured as the ratio of average net
debt to pre--exceptional EBITDA, which we aim to achieve through
improved 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 1.48 to 1.44, the euro from 1.38 to 1.26 and the
Australian dollar rate from 1.95 to 1.87. As noted above, this
change in rates had a material impact on the sterling value of
sales although the impact to net profit during the year was modest
at only GBP0.4 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 most noticeable in the weakness of the euro and
Australian dollar and our European and Australian businesses are
finding their margins are squeezed through substantial foreign
exchange headwinds on products bought in from the Far East.
Balanced against this, we have seen the renminbi weaken against the
US dollar and thus it has been possible to negotiate lower prices
to mitigate at least in part. It is also a feature of our business
that we innovate, invest and commercially redesign product to
combat this effect but this can take more than one season.
Of course, as I write, the risk of Britain's exit from the
European Union is particularly high profile. Our business would
undoubtedly be impacted by this but our global presence and
diversity is again our protection in this regard. The principal
impact would manifest itself through movements in foreign exchange
rates as our European businesses largely sell in the European
markets with limited export from the UK to the European Union or
vice versa other than one major customer where existing hedging for
the 2016/17 season would provide protection. Weaker sterling
against the dollar would make those goods we import from China more
expensive but again, we are well hedged into 2016/17 allowing us
the benefit of time to see macroeconomic considerations settle and
for us to re--engineer our product to hit required price points.
Meanwhile our earnings from our US and European businesses would be
translated at more favourable rates. Conversely a substantially
stronger sterling would result in weaker translated overseas
earnings but provide us with a platform for cost efficient imports
into the UK, still our largest business segment. As we fund the
working capital needs of our overseas businesses in local currency,
the translation impact is in any event 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 are costs
associated with cancelling the old facilities and setting up the
new, we still expect to see some benefit in 2016/17.
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 will move our worldwide
operational banking to HSBC other than minor niche requirements in
selected territories. The HSBC facilities comprise:
-- a particularly low cost three--year revolving credit facility
("RCF") for GBP18 million which is sufficient to fund the Group's
core financing requirements at year end. This facility is capable
of extension on the same terms for a further two years if the
parties agree;
-- a hire purchase agreement for GBP2.3 million in respect of
the equipment installed in Wales in 2014 and maturing in 2021 -
this is the only part of our facilities that is unchanged in the
new arrangements;
-- 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 GBP110 million, more than sufficient to cover even our peak
requirements. The facilities have additional flexible elements
within them that mean they can also grow with us. 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.
Since the year end, the Group's remaining interest rate swaps
and caps have now either expired or been cancelled. While we will
keep this risk under review, our debt is at its lowest point in
many years and expected to fall further relative to profitability.
Interest rates and margins alike remain low such that we are
comfortable with this position. The hire purchase arrangement noted
above is at a fixed rate but this is immaterial. 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 another very 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 our continued growth in profitability
for many years ahead. Net debt and earnings per share performance
were especially pleasing and 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.
Anthony Lawrinson
Chief Financial Officer
28 June 2016
CHAIRMAN'S CORPORATE GOVERNANCE REVIEW
Dear shareholder
As you will have already seen, we are very pleased indeed with
the performance of our Group, during the year ended 31 March 2016.
We have exceeded the goals that we set ourselves in terms of profit
and earnings per share, but we are particularly pleased that we
have continued to reduce our debt, which in turn has improved our
borrowings to profit ratio considerably. Over the past four years
we have authorised significant capital expenditure projects to
reduce costs and improve efficiencies, mainly within our operations
in Holland, UK, USA and Australia. These projects have been well
implemented and the benefits are now coming through in respect of
cost efficiencies. At the end of the financial year being reported,
we embarked upon some capital expenditure initiatives to improve
manufacturing efficiency and increase capacity within our Company
in the USA.
We operate within a climate whereby pressure on margins is
relentless. Accordingly, one of our key strategies is to improve
efficiencies, reduce our cost of goods and eliminate unnecessary
expense. To this end, we believe that we are continuing to
strengthen 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.
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
within our Group. We believe in this objective strongly and we
endeavour to practise this in the way that we communicate with our
customers, suppliers, shareholders, advisers and of course all our
people. 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.
Corporate governance
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 works 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
I advised last year that Phil Dutton, one of our Non--Executive
Directors and also Chair of our Audit Committee, would be stepping
down at our AGM in September last year, since it became necessary
for him and his family to live in the USA. We are however delighted
to have appointed Mark Tentori to succeed Phil. Mark is an ACA, who
qualified with Price Waterhouse. Mark has considerable Board, Audit
Committee, Non--Executive and Group CFO experiences in both the
public and private arena. Mark was appointed to the Board in
January 2016. There were no other 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
then 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.
Following a competitive tender process for the audit of the
Company and its subsidiary undertakings in the year ended 31 March
2016 KPMG LLP ("KPMG") were appointed to replace Ernst and Young
LLP as the Company's auditor and consequently were appointed to
fill a casual vacancy in accordance with the Companies Act 2006.
The appointment of KPMG will be put forward for approval at the
next AGM.
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 also holds the position of Non--Executive
Director on the Board. 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 eight times during the year, including an
in--depth review of 2016/17 budgets, annual operating plans and
strategic objectives with senior management of each of our
businesses. This took place over four days during March 2016. 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. 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.
Finally, whilst this report provides an overview of the policies
and procedures that we adopt in following good corporate
governance, I wish to thank 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 thanks and
appreciation to all our employees and associates throughout the
Group. It is through their efforts and support that we continue to
make the excellent progress that we have. We value greatly their
commitment and loyalty.
I should also take this opportunity to thank our shareholders,
bankers, customers, suppliers and advisers for their input and
contributions to all our businesses throughout the world. We never
take their support for granted and we are grateful for the
excellent working relationship and partnership that we enjoy with
them.
John Charlton
Chairman
28 June 2016
DIRECTORS' REPORT
The Directors present their annual report and the audited
financial statements for the year ended 31 March 2016.
On 24 June 2016 the Company changed its name from International
Greetings plc to IG Design Group plc.
Dividends
A final dividend for the year ending 31 March 2015 of 1p was
paid on 22 September 2016 (year ending 31 March 2014: nil). An
interim dividend for the year ended 31 March 2016 of 0.75p was paid
on 18 January 2016 (2015: nil). The Directors are recommending a
final dividend for the year ended 31 March 2016 of 1.75p per share
(2015: 1p). If approved it will be paid in September 2016 to
shareholders on the register at the close of business on 8 July
2016.
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. 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
Phil Dutton (resigned 16 September 2015)
Mark Tentori (appointed 1 January 2016)
In accordance with the Company's Articles of Association, Lance
Burn and Anders Hedlund will stand for re--election and Mark
Tentori will stand for 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 Executive LTIP LTIP
Ordinary vested not yet not yet Ordinary share vested not yet
vested vested options vested
shares 2012--2015(d) 2014--2017(d) 2015--2018(d) shares 2008(d) 2012--2015(d) 2014--2017(d)
------------ --------- ------------- ------------- ------------- --------- --------- ------------- -------------
Lance Burn - - 262,083 185,877 - - - 262,083
John
Charlton(a) 620,000 - - - 620,000 - - -
Paul
Fineman(b) 4,453,534 - - 200,948 4,239,249 214,285 - -
Anders
Hedlund(c) 448 - - - 448 - - -
Anthony
Lawrinson - 500,000 283,334 160,759 60,000 - 1,107,652 283,334
------------ --------- ------------- ------------- ------------- --------- --------- ------------- -------------
In addition to the above holdings:
(a) 37,500 (2015: 57,500) shares are held by the wife of John Charlton.
(b) Paul Fineman owns a non--beneficial interest in 174,608
(2015: 174,608) ordinary shares of 5p each.
(c) 17,142,640 (2015: 17,142,640) and 5,275,116 (2015:
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 is also interested in a further 1,150,790 ordinary shares,
representing a further 1.98% 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 is interested in 23,568,994 ordinary shares, representing
39.77% of the current issued share capital of the Company.
No shares were purchased by Directors between 31 March 2016 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.
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 Group Board--level
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
28 June 2016
FINANCIALS - GROUP
Consolidated income statement
year ended 31 March 2016
2016 2015
---------------------- ----------------------
Before Exceptional
exceptional items
items (note 10) Total
Notes GBP000 GBP000 GBP000 GBP000
--------------------------- ----- --------- ----------- ----------- ---------
Revenue 4 229,025 - 229,025
Cost of sales 236,950 (189,048) (592) (189,640)
--------------------------- ----- --------- ----------- ----------- ---------
Gross profit (193,552) 39,977 (592) 39,385
43,398 18.3% 17.5% 17.2%
Selling expenses (12,609) (11,063) - (11,063)
Administration expenses (18,395) (716) (19,111)
Other operating income 7 758 745 73 818
--------------------------- ----- --------- ----------- ----------- ---------
Operating profit/(loss) 5 12,624 11,264 (1,235) 10,029
Finance expenses 8 (2,763) (2,726) - (2,726)
--------------------------- ----- --------- ----------- ----------- ---------
Profit/(loss) before
tax 9,861 8,538 (1,235) 7,303
Income tax (charge)/credit 9 (2,219) (1,708) 362 (1,346)
--------------------------- ----- --------- ----------- ----------- ---------
Profit/(loss) for the
period 7,642 6,830 (873) 5,957
--------------------------- ----- --------- ----------- ----------- ---------
Attributable to:
Owners of the Parent
Company 7,261 5,605
--------------------------- ----- --------- ----------- ----------- ---------
Non--controlling interests 381 352
--------------------------- ----- --------- ----------- ----------- ---------
Earnings per ordinary share
2016 2015
--------------- ---------------
Notes Diluted Basic Diluted Basic
------------------------------ ----- ------- ------ ------- ------
Adjusted earnings per
share excluding exceptional
items and LTIP charges 23 13.2p 13.5p 11.5p 12.0p
Cost per share on LTIP
charges 23 (1.2p) (1.2p) (0.8p) (0.8p)
------------------------------ ----- ------- ------ ------- ------
Adjusted earnings per
share excluding exceptional
items 23 12.0p 12.3p 10.7p 11.2p
Cost per share on exceptional
items 23 - - (1.4p) (1.5p)
------------------------------ ----- ------- ------ ------- ------
Earnings per share 12.0p 12.3p 9.3p 9.7p
------------------------------ ----- ------- ------ ------- ------
Consolidated statement of comprehensive income
year ended 31 March 2016
2016 2015
GBP000 GBP000
-------------------------------------------------------------- ------ -------
Profit for the year 7,642 5,957
Other comprehensive income:
Exchange difference on translation of foreign operations (net
of tax) 1,794 (1,405)
Transfer to profit and loss on maturing cash flow hedges (net
of tax) (572) 577
Net (loss)/profit on cash flow hedges (net of tax) (223) 572
Other comprehensive income for period, net of tax items which
may be reclassified to profit and loss in subsequent periods 999 (256)
Total comprehensive income for the period, net of tax 8,641 5,701
Attributable to:
Owners of the Parent Company 8,191 5,601
Non--controlling interests 450 100
-------------------------------------------------------------- ------ -------
8,641 5,701
-------------------------------------------------------------- ------ -------
Consolidated statement of changes in equity
year ended 31 March 2016
Share
premium
and Share- Non--
capital
Share redemption Merger Hedging Translation Retained holder controlling
capital reserve reserves reserves reserve earnings equity interest Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- ------- ---------- -------- -------- ----------- -------- -------- ----------- -------
At 31 March
2014 2,896 4,776 17,164 (577) (672) 29,925 53,512 3,649 57,161
Profit for
the year - - - - - 5,605 5,605 352 5,957
Other comprehensive
income - - - 1,149 (1,153) - (4) (252) (256)
---------------------- ------- ---------- -------- -------- ----------- -------- -------- ----------- -------
Total comprehensive
income for
the year - - - 1,149 (1,153) 5,605 5,601 100 5,701
Equity--settled
share--based
payment (note
25) - - - - - 512 512 - 512
Options exercised
(note 22) 14 25 - - - - 39 - 39
Equity dividends
paid - - - - - - - (829) (829)
---------------------- ------- ---------- -------- -------- ----------- -------- -------- ----------- -------
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
---------------------- ------- ---------- -------- -------- ----------- -------- -------- ----------- -------
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 2016
As at As at
31 March 31 March
2016 2015
Notes GBP000 GBP000
--------------------------------- ----- -------- --------
Non--current assets
Property, plant and equipment 11 30,190 29,875
Intangible assets 12 32,236 31,692
Deferred tax assets 13 4,296 4,121
--------------------------------- ----- -------- --------
Total non--current assets 66,722 65,688
--------------------------------- ----- -------- --------
Current assets
Inventory 14 46,006 46,162
Trade and other receivables 15 21,187 21,525
Derivative financial assets 26 218 779
Cash and cash equivalents 16 8,380 2,846
--------------------------------- ----- -------- --------
Total current assets 75,791 71,312
--------------------------------- ----- -------- --------
Total assets 142,513 137,000
--------------------------------- ----- -------- --------
Equity
Share capital 22 2,963 2,910
Share premium 3,512 3,461
Reserves 18,181 17,251
Retained earnings 43,346 36,042
--------------------------------- ----- -------- --------
Equity attributable to owners of
the Parent Company 68,002 59,664
--------------------------------- ----- -------- --------
Non--controlling interests 30 3,370 2,920
--------------------------------- ----- -------- --------
Total equity 71,372 62,584
--------------------------------- ----- -------- --------
Non--current liabilities
Loans and borrowings 17 18,349 23,089
Deferred income 18 1,145 1,277
Provisions 19 869 862
Other financial liabilities 20 2,095 3,466
Deferred tax liability 13 352 -
--------------------------------- ----- -------- --------
Total non--current liabilities 22,810 28,694
--------------------------------- ----- -------- --------
Current liabilities
Bank overdraft 16 1,508 1,568
Loans and borrowings 17 3,584 3,546
Deferred income 18 118 632
Provisions 19 212 106
Income tax payable 1,945 2,192
Trade and other payables 21 27,221 26,868
Other financial liabilities 20 13,743 10,810
--------------------------------- ----- -------- --------
Total current liabilities 48,331 45,722
Total liabilities 71,141 74,416
Total equity and liabilities 142,513 137,000
--------------------------------- ----- -------- --------
These financial statements were approved by the Board of
Directors on 28 June 2016 and were signed on its behalf by:
Paul Fineman Anthony Lawrinson
Director Director
.
Consolidated cash flow statement
2016 2015
Notes GBP000 GBP000
------------------------------------------ ----- ------- --------
Cash flows from operating activities
Profit for the year 7,642 5,957
Adjustments for:
Depreciation 11 3,596 4,535
Amortisation of intangible assets 12 285 428
Finance expenses 8 2,763 2,726
Income tax charge 9 2,219 1,346
Loss on sales of property, plant
and equipment 5 (186) 206
Loss on external sale of intangible
fixed assets 1 10
Equity--settled share--based payment 25 908 623
------------------------------------------ ----- ------- --------
Operating profit after adjustments
for non--cash items 17,228 15,831
Change in trade and other receivables 1,041 (1,269)
Change in inventory 1,219 3,223
Change in trade and other payables 1,863 1,409
Change in provisions and deferred
income (607) (1,343)
------------------------------------------ ----- ------- --------
Cash generated from operations 20,744 17,851
Tax paid (1,797) (1,263)
Interest and similar charges paid (1,961) (2,775)
------------------------------------------ ----- ------- --------
Net cash inflow from operating activities 16,986 13,813
------------------------------------------ ----- ------- --------
Cash flow from investing activities
Proceeds from sale of property,
plant and equipment 1,568 55
Acquisition of businesses 31 - (1,451)
Acquisition of intangible assets 12 (382) (234)
Acquisition of property, plant and
equipment 11 (4,377) (2,322)
Receipt of government grants - 401
------------------------------------------ ----- ------- --------
Net cash outflow from investing
activities (3,191) (3,551)
------------------------------------------ ----- ------- --------
Cash flows from financing activities
Proceeds from issue of share capital 22 74 39
Repayment of secured borrowings (5,708) (7,133)
Net movement in credit facilities 184 (4,840)
Payment of finance lease liabilities (1,712) (599)
New bank loans raised - 365
Loan arrangement fees - (183)
Equity dividends paid 24 (1,032) -
Dividends paid to non--controlling
interests - (829)
------------------------------------------ ----- ------- --------
Net cash outflow from financing
activities (8,194) (13,180)
------------------------------------------ ----- ------- --------
Net increase/(decrease) in cash
and cash equivalents 5,601 (2,918)
Cash and cash equivalents at beginning
of period 1,278 5,582
Effect of exchange rate fluctuations
on cash held (7) (1,386)
------------------------------------------ ----- ------- --------
Cash and cash equivalents at 31
March 16 6,872 1,278
------------------------------------------ ----- ------- --------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Accounting policies
IG Design Group plc (formerly International Greetings 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 3 June 2016. 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 that derivative financial instruments 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 2015.
Basis of consolidation
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.
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.
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:
-- 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
-- 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 buildings life of lease
-- 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.
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 (formerly
International Greetings 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.
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:
Effective To be adopted
by
New pronouncement date the Group
------------------------------- ---------- -------------
Annual Improvements
2012-2014 Cycle 1 Jan 2016 1 Apr 2016
IFRS 15 Revenue from Contracts 1 Jan 2017 1 Apr 2017
with Customers(a)
IFRS 9 Financial Instruments(a) 1 Jan 2018 1 Apr 2018
IFRS 16 Leases 1 Jan 2019 1 Apr 2019
------------------------------- ---------- -------------
(a) Not yet endorsed by EFRAG.
-- 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. The Group are currently assessing the impact of IFRS 9.
-- 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.
-- 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.
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
In the prior year the Directors had 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. There are no exceptional items in the current year.
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.
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 GBP31.5 million
(2015: GBP31.1 million). No impairment (2015: nil) was required.
The carrying amount of property, plant and equipment was GBP30.2
million (2015: GBP29.9 million). No impairment loss (2015: nil) was
required (see note 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
GBP5.6 million to GBP5.9 million and the Group has provisions of
GBP4.6 million (2015: GBP3.8 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 of the
financial statements and a discussion of risks and uncertainties
can be found in the financial statements along with the Group's key
risks. 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 Hong Kong procurement
operations are now 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. The Chief Operating Decision Maker is the
Board.
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 Europe USA Australia Eliminations Group
Asia
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 1,494 - 13,533
-------------------------- --------- --------- -------- --------- ------------ --------
Central administration
costs (909)
Net finance expenses (2,763)
Income tax (2,219)
-------------------------- --------- --------- -------- --------- ------------ --------
Profit for the 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
-------------------------- --------- --------- -------- --------- ------------ --------
UK and Europe USA Australia Eliminations Group
Asia
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- --------- -------- --------- --------- ------------ --------
Year ended 31 March
2015
Revenue - external 108,255 35,871 57,921 26,978 - 229,025
- inter segment 1,572 180 - - (1,752) -
------------------------- --------- -------- --------- --------- ------------ --------
Total segment revenue 109,827 36,051 57,921 26,978 (1,752) 229,025
-------------------------- --------- -------- --------- --------- ------------ --------
Segment result before
exceptional items 5,258 3,263 2,409 1,092 - 12,022
Exceptional items (see
note 10) (786) (99) (350) - - (1,235)
-------------------------- --------- -------- --------- --------- ------------ --------
Segment result 4,472 3,164 2,059 1,092 - 10,787
-------------------------- --------- -------- --------- --------- ------------ --------
Central administration
costs (758)
Net finance expenses (2,726)
Income tax (1,346)
-------------------------- --------- -------- --------- --------- ------------ --------
Profit for year ended
31 March 2015 5,957
-------------------------- --------- -------- --------- --------- ------------ --------
Balances at 31 March
2015
Segment assets 101,139 15,692 8,242 7,806 4,121 137,000
-------------------------- --------- -------- --------- --------- ------------ --------
Segment liabilities (36,695) (9,957) (21,725) (3,721) (2,318) (74,416)
-------------------------- --------- -------- --------- --------- ------------ --------
Capital expenditure
- property, plant and
equipment 1,562 355 325 80 - 2,322
- intangible 157 12 25 40 - 234
Depreciation 2,862 731 714 228 - 4,535
Amortisation 282 41 64 41 - 428
-------------------------- --------- -------- --------- --------- ------------ --------
(a) Capital expenditure consists of additions of property, plant
and equipment, intangible assets and goodwill.
(b) No single customer accounts for over 10% of total sales.
(c) The assets and liabilities that have not been allocated to
segments consist of deferred tax assets GBP4,296,000 (2015:
GBP4,121,000) and income tax payable of GBP1,945,000 (2015:
GBP2,192,000), deferred tax liability GBP352,000 (2015: GBPnil) and
VAT payable of GBPnil (2015: GBP126,000).
(d) 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
----------------
2016 2015
GBP000 GBP000
-------------------------- ------- -------
UK and Asia 38,857 40,655
USA 7,939 6,568
Europe 13,683 12,727
Australia and New Zealand 1,947 1,617
-------------------------- ------- -------
62,426 61,567
-------------------------- ------- -------
All turnover arose from the sale of goods.
Turnover by customer destination
2016 2015 2016 2015
GBP000 GBP000 % %
-------------------------- ------- ------- ---- ----
UK 80,010 75,419 34 33
USA 79,629 73,473 33 32
Europe 43,836 48,148 19 21
Australia and New Zealand 27,871 26,978 12 12
Rest of the world 5,604 5,007 2 2
-------------------------- ------- ------- ---- ----
236,950 229,025 100 100
-------------------------- ------- ------- ---- ----
5 Expenses and auditor's remuneration
Included in profit are the following charges/(credits)
2016 2015
Notes GBP000 GBP000
-------------------------------------------- ----- ------- ------
Profit on sales of property, plant and
equipment and intangible assets (186) (216)
Release of deferred grant income 7 (645) (645)
Sub--lease rental income 7 (547) (447)
Depreciation 11 3,596 4,535
Amortisation of intangible assets 12 285 428
Operating lease payment - minimum lease
payment 27 3,889 3,765
Write down of inventories to net realisable
value 14 4,316 2,565
Reversal of previous write downs on
inventory 14 - (224)
Gain on foreign exchange (1,100) (896)
-------------------------------------------- ----- ------- ------
Auditor's remuneration
2016 2015
GBP000 GBP000
------------------------------------------------- ------ ------
Amounts receivable by auditor and its associates
in respect of:
Audit of these financial statements 30 42
Audit of financial statements of subsidiaries
pursuant to legislation
- overseas subsidiaries 143 136
- UK subsidiaries 50 58
Other services relating to taxation 26 12
------------------------------------------------- ------ ------
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
------------
2016 2015
---------------------------- ----- -----
Selling and administration 418 370
Production and distribution 1,554 1,323
---------------------------- ----- -----
1,972 1,693
---------------------------- ----- -----
The aggregate payroll costs of these persons were as
follows:
2016 2015
GBP000 GBP000
---------------------- ------ ------
Wages and salaries 39,647 36,848
Social security costs 2,904 2,899
Other pension costs 2,957 2,676
---------------------- ------ ------
45,508 42,423
---------------------- ------ ------
7 Other operating income
2016 2015
GBP000 GBP000
------------------------------------------ ------ ------
Grant income received 645 645
Sub--lease rentals credited to the income
statement 547 447
Other (434) (347)
------------------------------------------ ------ ------
758 745
Exceptional items - 73
------------------------------------------ ------ ------
758 818
------------------------------------------ ------ ------
8 Finance expenses
2016 2015
GBP000 GBP000
---------------------------------------------- ------ ------
Interest payable on bank loans and overdrafts 1,622 2,106
Other similar charges 349 421
Finance charges in respect of finance leases 149 190
Unwinding of fair value discounts 74 14
---------------------------------------------- ------ ------
Interest payable under the effective interest
method 2,194 2,731
Derivative financial instruments at fair
value through income statement 569 (5)
---------------------------------------------- ------ ------
2,763 2,726
---------------------------------------------- ------ ------
9 Taxation
Recognised in the income statement
2016 2015
GBP000 GBP000
----------------------------------------------- ------ ------
Current tax expenses
Current year - UK corporation tax 67 (1)
Current year - foreign tax 1,506 1,264
Adjustments for prior years (53) 215
----------------------------------------------- ------ ------
1,520 1,478
----------------------------------------------- ------ ------
Deferred tax expense
Original and reversal of temporary differences 913 123
Adjustments in respect of previous periods (214) (255)
----------------------------------------------- ------ ------
699 (132)
----------------------------------------------- ------ ------
Total tax in income statement 2,219 1,346
----------------------------------------------- ------ ------
Reconciliation of effective tax rate
2016 2015
GBP000 GBP000
---------------------------------------------- ------ ------
Profit before tax 9,861 7,303
---------------------------------------------- ------ ------
Profit before tax multiplied by the standard
rate of corporation tax rate of 20% in the
UK (2015: 21%) 1,972 1,534
Effects of:
Expenses not deductible for tax purposes 138 277
Previously unrecognised tax assets (367) (984)
Deferred tax effect on tax rate changes 140 131
Differences between UK and overseas tax rates 704 363
Other items (102) 64
Adjustments in respect of prior years (267) (39)
---------------------------------------------- ------ ------
Total tax in income statement 2,219 1,346
---------------------------------------------- ------ ------
10 Exceptional items
There were no exceptional items in 2016.
Loss
on
Other disposal
of
Cost Admin operating property,
of plant
sales expenses income and Total
equipment
2015 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ------- -------- --------- ---------- -------
Restructuring of operational
activities
Efficiency programmes in the
UK and Asia(a) 481 145 (73) 233 786
Management restructuring in
the USA(b) 111 239 - - 350
Costs relating to acquisition
of Enper Giftwrap Business(c) - 99 - - 99
------------------------------- ------- -------- --------- ---------- -------
Total before tax 592 483 (73) 233 1,235
------------------------------- ------- -------- --------- ---------- -------
Income tax credit (362)
------------------------------- ------- -------- --------- ---------- -------
873
------------------------------- ------- -------- --------- ---------- -------
(a) Costs associated with major upgrade to manufacturing
facilities in Wales, they included accelerated depreciation of
GBP571,000. Other operating income relates to accelerated release
of a grant.
(b) Costs associated with restructuring the leadership team in
the USA.
(c) Costs relating to acquisition of trade and certain assets of
Enper Giftwrap BV.
Impact of exceptional items on cash flow
There was a GBP200,000 impact on the current year's cash flow
(2015: GBP1,114,000) which included GBP200,000 (2015: GBP812,000)
of outflow deferred from last year. None of the prior year's items
remains to be paid in 2016/17.
11 Property, plant and equipment
Land and Plant Fixtures Motor
buildings and and
-------------------
Freehold Leasehold equipment fittings vehicles Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- -------- --------- --------- -------- -------- --------
Cost
Balance at 1 April 2014 23,476 7,142 54,184 447 642 85,891
Additions 566 161 1,311 175 109 2,322
Disposals - (9) (12,512) (41) (104) (12,666)
Additions on acquisition
of business - - 328 - 14 342
Transfer between categories - 269 (234) (35) - -
Effect of movements in
foreign exchange (922) 913 823 (73) (48) 693
---------------------------- -------- --------- --------- -------- -------- --------
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
---------------------------- -------- --------- --------- -------- -------- --------
At 31 March 2016 21,404 8,970 44,851 (1,229) 769 74,765
---------------------------- -------- --------- --------- -------- -------- --------
Depreciation and impairment
Balance as at 1 April
2014 (11,031) (2,550) (39,701) (119) (441) (53,842)
Depreciation charge for
the year (892) (520) (2,731) (282) (110) (4,535)
Disposals - 9 12,264 48 84 12,405
Transfer between categories - (269) 234 35 - -
Effect of movements in
foreign exchange 287 (361) (767) 61 45 (735)
---------------------------- -------- --------- --------- -------- -------- --------
Balance 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)
---------------------------- -------- --------- --------- -------- -------- --------
At 31 March 2016 (11,469) (4,216) (29,914) 1,476 (452) (44,575)
---------------------------- -------- --------- --------- -------- -------- --------
Net book value
At 31 March 2016 9,935 4,754 14,937 247 317 30,190
---------------------------- -------- --------- --------- -------- -------- --------
At 31 March 2015 11,484 4,785 13,199 216 191 29,875
---------------------------- -------- --------- --------- -------- -------- --------
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 GBP3,725,000 (2015: GBP5,328,000) in respect of assets
held under finance leases. Depreciation with respect of these
assets was GBP290,000 (2015: GBP397,000).
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 2014 39,826 3,641 24 43,491
Additions - 234 - 234
Additions on acquisition of businesses 509 - 80 589
Disposals - (108) - (108)
Effect of movements in foreign
exchange (83) 54 (2) (31)
--------------------------------------- -------- -------- ----------- --------
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
--------------------------------------- -------- -------- ----------- --------
At 31 March 2016 40,931 3,566 110 44,607
--------------------------------------- -------- -------- ----------- --------
Amortisation and impairment
Balance at 1 April 2014 (8,628) (2,909) (4) (11,541)
Amortisation for the year - (406) (22) (428)
Disposals - 98 - 98
Effect of movements in foreign
exchange (565) (49) 2 (612)
--------------------------------------- -------- -------- ----------- --------
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)
--------------------------------------- -------- -------- ----------- --------
At 31 March 2016 (9,439) (2,877) (55) (12,371)
--------------------------------------- -------- -------- ----------- --------
Net book value
At 31 March 2016 31,492 689 55 32,236
--------------------------------------- -------- -------- ----------- --------
At 31 March 2015 31,059 555 78 31,692
--------------------------------------- -------- -------- ----------- --------
The aggregate carrying amounts of goodwill allocated to each
geographical segment are as follows:
2016 2015
GBP000 GBP000
------------ ------ ------
UK and Asia 25,600 25,600
Europe 4,797 4,409
Australia 1,095 1,050
------------ ------ ------
Total 31,492 31,059
------------ ------ ------
Impairment
The Group tests goodwill each half 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 above), 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% (2015: 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:
2016 2015
% %
------------ ---- ----
UK and Asia 11.5 13.7
Europe 11.3 13.3
Australia 14.1 16.3
------------ ---- ----
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
-------------- ---------------- ---------------
2016 2015 2016 2015 2016 2015
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------ ------ ------ ------- ------- ------- ------
Property, plant and equipment 41 1,119 (1,115) (1,246) (1,074) (127)
Capital gains deferred - - (184) (280) (184) (280)
Tax loss carried forward 2,622 3,334 (1) - 2,621 3,334
Other timing differences 2,583 1,194 (2) - 2,581 1,194
------------------------------ ------ ------ ------- ------- ------- ------
Net tax assets/(liabilities) 5,246 5,647 (1,302) (1,526) 3,944 4,121
------------------------------ ------ ------ ------- ------- ------- ------
Deferred tax is presented net on the balance sheet in so far as
a right of offset exists. The net deferred tax asset is
GBP4,296,000 (2015: GBP4,121,000) and the net deferred tax
liability is GBP352,000 (2015: GBPnil).
The deferred tax asset in respect of tax losses carried forward
at 31 March 2016 of GBP2,621,000 (2015: GBP3,334,000) is comprised
of UK tax losses of GBP907,000 (2015: GBP773,000) and US losses of
GBP1,714,000 (2015: GBP2,561,000). 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 GBP340,000 (2015: GBP272,000), GBP1,385,000
(2015: GBP1,719,000) in respect of US tax losses and GBP118,000
(2015: GBP118,000) in respect of China.
No deferred tax is recognised on unremitted earnings of overseas
subsidiaries. Overseas reserves can now be repatriated to the UK
with no tax cost. If all overseas earnings were repatriated with
immediate effect, no tax charge (2015: nil) would be payable.
Reductions in the UK corporation tax rate from 23% to 21%
(effective from 1 April 2014) and 20% (effective from 1 April 2015)
were substantively enacted on 2 July 2013. Further reductions to
19% (effective from 1 April 2017) and to 18% (effective 1 April
2020) were substantively enacted on 26 October 2015. These rate
reductions have been reflected in the calculation of deferred tax
at the balance sheet date. An additional reduction to 17%
(effective 1 April 2020) was announced in the Budget on 16 March
2016. This will reduce the Company's future current tax charge
accordingly and is estimated to have a negligible effect on the
deferred tax asset 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 Recognised Recognised 31 March
2015 in income in equity 2016
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
------------------------------ ------- ---------- ---------- --------
Movement in deferred tax during the prior year
1 April Recognised Recognised 31 March
2014 in income in equity 2015
GBP000 GBP000 GBP000 GBP000
------------------------------ ------- ---------- ---------- --------
Property, plant and equipment 13 (143) 3 (127)
Capital gains deferred (294) 14 - (280)
Tax loss carried forward 2,488 358 488 3,334
Other timing differences 1,458 (97) (167) 1,194
------------------------------ ------- ---------- ---------- --------
Net tax assets 3,665 132 324 4,121
------------------------------ ------- ---------- ---------- --------
14 Inventory
2016 2015
GBP000 GBP000
------------------------------ ------ ------
Raw materials and consumables 5,981 5,495
Work in progress 8,934 7,414
Finished goods 31,091 33,253
------------------------------ ------ ------
46,006 46,162
------------------------------ ------ ------
Of the GBP46,006,000 (2015: GBP46,162,000) stock value
GBP40,899,000 (2015: GBP41,896,000) is held at cost and
GBP5,107,000 (2015: GBP4,266,000) is held at net realisable value.
The write down in the year of inventories to net realisable value
amounted to GBP4,316,000 (2015: GBP2,565,000). The reversal of
previous write downs amounted to GBPnil (2015: GBP224,000). 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 GBP169,491,000
(2015: GBP162,340,000).
Part of the Group's funding is via asset--backed loans from our
bankers. These loans are secured on part of the inventory and trade
receivables of the UK, European and American businesses. The amount
of the year--end inventory used to secure an asset--backed loan was
GBP37,981,000 (2015: GBP38,043,000). In addition bank loans to
Hoomark and International Greetings USA are secured on a freehold
property and contents, including inventory, therein.
Refer to note 17 for outstanding balance on asset--backed loans
and details of the secured bank loans.
15 Trade and other receivables
2016 2015
GBP000 GBP000
------------------ ------ ------
Trade receivables 18,634 18,281
Prepayments 1,645 1,226
Other receivables 790 2,018
VAT receivable 118 -
------------------ ------ ------
21,187 21,525
------------------ ------ ------
Part of the Group's funding is via asset--backed loans from our
bankers. These loans are secured on part of the inventory and trade
receivables of the UK, European and American businesses. The amount
of the year--end trade receivables used to secure the asset--backed
loans was GBP14,839,000 (2015: GBP15,223,000)
Refer to note 17 for outstanding balance on asset--backed
loans.
There are no trade receivables in the current year (2015: nil)
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
2016 2015
GBP000 GBP000
-------------------------------------------------- ------- -------
Cash and cash equivalents 8,380 2,846
Bank overdrafts (1,508) (1,568)
-------------------------------------------------- ------- -------
Cash and cash equivalents per cash flow statement 6,872 1,278
-------------------------------------------------- ------- -------
Net debt
2016 2015
Note GBP000 GBP000
----------------------------------------- ---- -------- --------
Cash and cash equivalents 8,380 2,846
Bank loans and overdrafts 17 (23,650) (28,537)
Loan arrangement fees 209 334
Finance leases (2,422) (4,016)
----------------------------------------- ---- -------- --------
Net debt as used in the financial review (17,483) (29,373)
----------------------------------------- ---- -------- --------
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.
2016 2015
GBP000 GBP000
------------------------------------------- ------ ------
Non--current liabilities
Secured bank loans (see below) 18,425 23,259
Loan arrangement fees (76) (170)
------------------------------------------- ------ ------
18,349 23,089
------------------------------------------- ------ ------
Current liabilities
Asset-backed loan 797 544
Current portion of secured bank loans (see
below) 2,920 3,166
------------------------------------------- ------ ------
Bank loans and borrowings (see below) 3,717 3,710
Loan arrangement fees (133) (164)
------------------------------------------- ------ ------
3,584 3,546
------------------------------------------- ------ ------
The asset--backed loans are secured on the inventory and
receivables of the larger business units within the UK, USA and
European business segments.
Terms and debt repayment schedule
2016 2015
Note GBP000 GBP000
-------------------------------------- ---- ------ ------
Due within one year:
Bank loans and borrowings (see below) 3,717 3,710
Bank overdrafts 16 1,508 1,568
Due between one and two years:
Secured bank loans (see below) 5,407 5,318
Due between two and five years:
Secured bank loans (see below) 10,250 15,087
Due after more than five years:
Secured bank loans (see below) 2,768 2,854
-------------------------------------- ---- ------ ------
23,650 28,537
-------------------------------------- ---- ------ ------
In August 2014 the Group extended the maturity profile of its
core borrowings as reflected in loans 5 and 6 shown below:
Secured bank loans
Bank overdraft and ABL
Included in the above table are bank overdrafts and ABL balances
of GBP1,508,000 (2015: GBP1,568,000) and GBP797,000 (2015:
GBP544,000). Overdrafts are secured on the assets of the Group, ABL
balances are secured over inventory and trade receivable balances
(see notes 14 and 15 for further details).
Loan 1
The principal of GBP176,000 at 31 March 2015 was repaid during
the year. The loan was secured over the freehold land and buildings
and the contents therein of International Greetings USA, Inc. and
was subject to a variable rate of interest linked to the US Federal
Funds Rate (US FFR). The currency of denomination of the loan was
US dollars.
Loan 2
The principal of GBP132,000 was repaid during the year. The loan
was secured over the freehold land and buildings and the content
therein of International Greetings USA, Inc. and was subject to a
variable rate of interest linked to the US FFR. The currency of
denomination of the loan was US dollars.
Loan 3
The principal of GBP263,000 (2015: GBP365,000) is repayable over
a five--year period ending September 2019. It is secured over part
of the plant and machinery of International Greetings USA, Inc. It
is subject to a variable rate of interest linked to the US FRR. The
currency of denomination of the loan is US dollars.
Loan 4
The principal of GBP4,553,000 (2015: GBP4,483,000) is repayable
quarterly over a 20--year period ending in July 2028. The loan is
secured over the freehold land and buildings and the content
therein of Hoomark BV and is subject to a variable rate of interest
linked to EURIBOR, that has been swapped to a fixed rate for a
notional amount of GBP5,469,000 (2015: GBP5,072,000) over a period
of five years ending in January 2017. The currency of denomination
of the loan is euros.
Loan 5
The principal of GBP9,068,000 (2015: GBP9,010,000) is repayable
in May 2018. GBP6,925,000 (2015: GBP6,925,000) is denominated in
sterling and GBP2,143,000 (2015: GBP2,085,000) is denominated in US
dollars. They are 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 (2015: GBP8 million), and a notional amount of $8
million (2015: $8 million), whereby interest payable has been
capped at 1.5% on both notional amounts.
Loan 6
The principal of GBP7,462,000 (2015: GBP12,297,000) is repayable
and amortised to May 2017. GBP4,337,000 (2015: GBP7,229,000) is
denominated in sterling and GBP3,125,000 (2015: GBP5,068,000) is
denominated in US dollars. They are subject to a variable interest
rate linked to LIBOR except for the elements that have been
swapped. At 31 March 2016, the Group had an interest rate swap in
place with a notional amount of GBPnil (2015: GBP0.6 million)
whereby it receives a floating rate of interest based on LIBOR and
pays a fixed rate of interest at 0.92% on the notional amount. The
terms of the hedge have been negotiated to match the terms of the
commitments. At 31 March 2016, the Group had an interest rate swap
in place with a notional amount of $nil (2015: $2.8 million)
whereby it receives a floating rate of interest based on LIBOR and
pays a fixed rate of interest at 0.77% on the notional amount.
Subsequent to the year end the Group secured a global
refinancing on 3 June 2016. Under the terms of the refinancing
agreement the above loans, where outstanding, were repaid on 6 June
2016. See the financial review for further details.
18 Deferred income
2016 2015
GBP000 GBP000
----------------------------------------- ------ ------
Included within non--current liabilities
Deferred grant income 1,145 1,277
----------------------------------------- ------ ------
Included within current liabilities
Deferred grant income 105 619
Other deferred income 13 13
----------------------------------------- ------ ------
Deferred grant income 118 632
----------------------------------------- ------ ------
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 2015 968 - 968
Reclassified from accruals - 110 110
Unwinding of discounts 74 - 74
Provisions utilised during the year (71) - (71)
------------------------------------ -------- ------ ------
Balance at 31 March 2016 971 110 1,081
------------------------------------ -------- ------ ------
2016 2015
GBP000 GBP000
------------- ------ ------
Non--current 869 862
Current 212 106
------------- ------ ------
1,081 968
------------- ------ ------
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 2012 for one of the
leasehold properties and the provision was reassessed and is stated
after discounting. GBP720,000 of the non--current balance relates
to a lease expiring in 2025; 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
2016 2015
GBP000 GBP000
------------------------------------------------- ------ ------
Included within non--current liabilities
Finance lease 1,948 3,390
Other creditors and accruals 147 76
------------------------------------------------- ------ ------
2,095 3,466
------------------------------------------------- ------ ------
Included within current liabilities
Finance lease 474 626
Other creditors and accruals 12,020 9,867
Interest rate swaps and forward foreign currency
contracts carried at fair value through the
income statement 678 110
Interest rate swaps and forward foreign exchange
contracts carried at fair value through the
hedging reserve 571 207
------------------------------------------------- ------ ------
13,743 10,810
------------------------------------------------- ------ ------
Finance lease liabilities
Finance lease liabilities are payable as follows:
2016 2015
----------------------------- -----------------------------
Minimum Minimum
lease lease
payments Interest Principal payments Interest Principal
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- -------- -------- --------- -------- -------- ---------
Less than one year 562 88 474 781 (155) 626
Between one and five years 2,072 124 1,948 3,268 (317) 2,951
More than five years - - - 444 (5) 439
--------------------------- -------- -------- --------- -------- -------- ---------
2,634 212 2,422 4,493 (477) 4,016
--------------------------- -------- -------- --------- -------- -------- ---------
21 Trade and other payables
2016 2015
GBP000 GBP000
------------------------------------------ ------ ------
Trade payables 26,023 25,887
Other payables including income taxes and
social security 730 855
VAT payable 468 126
------------------------------------------ ------ ------
27,221 26,868
------------------------------------------ ------ ------
22 Share capital
Authorised share capital at 31 March 2016 and 2015 was
GBP6,047,443 divided into 120,948,860 ordinary shares of 5p
each.
Ordinary
shares
--------------
In thousands of shares 2016 2015
---------------------------------- ------ ------
In issue at 1 April 58,206 57,926
Options exercised during the year 1,051 280
---------------------------------- ------ ------
In issue at 31 March - fully paid 59,257 58,206
---------------------------------- ------ ------
2016 2015
GBP000 GBP000
----------------------------------- ------ ------
Allotted, called up and fully paid
Ordinary shares of 5p each 2,963 2,910
----------------------------------- ------ ------
Share options exercised during the year resulted in 443,000
ordinary shares being issued (2015: 280,000) which generated cash
proceeds of GBP104,000 (2015: GBP39,000).
LTIP options exercised during the year amounted to 607,652
ordinary shares being issued (2015: nil) at nil cost.
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
2016 2015
--------------- ---------------
Diluted Basic Diluted Basic
-------------------------------------- ------- ------ ------- ------
Adjusted earnings per share excluding
exceptional items and LTIP charges 13.2p 13.5p 11.5p 12.0p
Cost per share on LTIP charges (1.2p) (1.2p) (0.8p) (0.8p)
-------------------------------------- ------- ------ ------- ------
Adjusted earnings per share excluding
exceptional items 12.0p 12.3p 10.7p 11.2p
Cost per share on exceptional items - - (1.4p) (1.5p)
-------------------------------------- ------- ------ ------- ------
Earnings per share 12.0p 12.3p 9.3p 9.7p
-------------------------------------- ------- ------ ------- ------
The basic earnings per share is based on the profit attributable
to equity holders of the Company of GBP7,261,000 (2015:
GBP5,605,000) and the weighted average number of ordinary shares in
issue of 58,843,000 (2015: 58,071,000) calculated as follows:
2016 2015
---------------------------------------------- ------ ------
Issued ordinary shares at 1 April 58,206 57,926
Shares issued in respect of exercising of
share options 637 145
---------------------------------------------- ------ ------
Weighted average number of shares at 31 March 58,843 58,071
---------------------------------------------- ------ ------
Adjusted basic earnings per share excludes exceptional items
charged of nil (2015: GBP1,235,000) and the tax relief attributable
to those items of nil (2015: GBP362,000), to give adjusted profit
of GBP7,261,000 (2015: GBP6,478,000).
Adjusted earnings per share excludes exceptional items and LTIP
charges of GBP908,000 (2015: GBP1,858,000) and tax relief
attributable to those items of GBP205,000 (2015: GBP487,000), to
give adjusted profit of GBP7,964,000 (2015: GBP6,976,000).
Diluted earnings per share
The average number of share options under the Executive Share
Options 2008 Scheme outstanding in the year is 1,371,739 (2015:
1,723,833) at an average exercise price of 14p (2015: 17.4p). The
average number of share options under the LTIP scheme outstanding
in the year is 638,178 (2015: nil) 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 60,745,000
(2015: 60,531,000).
24 Dividends paid and proposed
A final dividend for year ending 31 March 2015 of 1p (for year
ending 31 March 2014: nil) was paid on 22 September 2016. An
interim dividend of 0.75p was paid on 18 January 2016 (2015: nil).
The Directors are recommending a final dividend of 1.75p per share
in respect of the year ended 31 March 2016 (2015: 1p). If approved
it will be paid in September 2016 to shareholders on the register
at the close of business on 8 July 2016.
2016 2015
-------------- --------------
Pence Pence
Dividends paid in the year per GBP000 per GBP000
share share
------------------------------------ ------ ------ ------ ------
Final equity dividend for prior
year 1.00 582 - -
Interim equity dividend for current
year 0.75 450 - -
------------------------------------ ------ ------ ------ ------
Dividends paid in the year 1,032 -
------------------------------------ ------ ------ ------ ------
2016 2015
-------------- --------------
Pence Pence
Proposed for approval at Annual per GBP000 per GBP000
General Meeting share share
-------------------------------------- ------ ------ ------ ------
Final equity dividend for the current
year 1.75 1,037 1.00 582
-------------------------------------- ------ ------ ------ ------
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 2016, outstanding options were as
follows:
Exercise
Number of price Exercise
ordinary pence dates
shares
------------ --------- -------- ----------------
December 2011
Approved: 988,855 14 - December 2018
December 2011
Unapproved: 107,145 14 - December 2018
------------ --------- -------- ----------------
1,096,000
------------ --------- -------- ----------------
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 2016, the weighted
average remaining contract life was 2.7 years (2015: 3.8
years).
The numbers and weighted average exercise prices of share
options are as follows:
2016 2015
------------------- -------------------
Weighted Weighted
average average
exercise Number exercise Number
price of price of
pence options pence options
------------------------------------- -------- --------- -------- ---------
Outstanding at the beginning of
the period 16 1,589,285 17 1,874,285
Lapsed during the year 62 (50,000) 14 (5,000)
Exercised during the period 17 (443,285) 14 (280,000)
------------------------------------- -------- --------- -------- ---------
Outstanding at the end of the period 14 1,096,000 16 1,589,285
------------------------------------- -------- --------- -------- ---------
Exercisable at the end of the period 14 1,096,000 16 1,589,285
------------------------------------- -------- --------- -------- ---------
The weighted average share price at the date of exercise of
share options exercised during the period was 171.8p (2015:
73.7p).
No share options were granted under this scheme during the year
or the previous year.
Long Term Incentive Plan
On 31 March 2014, International Greetings plc 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%.
Number of Exercise Exercise
ordinary price dates
shares (p)
-------------------- --------- -------- -------------
2012--15 LTIP scheme 500,000 nil June 2016
- March 2024
-------------------- --------- -------- -------------
All performance criteria have been met.
2016 2015
Number Number
of of
options options
------------------------------------------- --------- ---------
Outstanding at the beginning of the period 1,107,652 -
------------------------------------------- --------- ---------
Options vesting during the period - 1,107,652
------------------------------------------- --------- ---------
Exercised during the period (607,652) -
------------------------------------------- --------- ---------
Outstanding at the end of the period 500,000 1,107,652
------------------------------------------- --------- ---------
Exercisable at the end of the period 500,000 1,107,652
------------------------------------------- --------- ---------
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 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 were issued during the year 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.
The total expenses recognised for the period arising from
equity--settled share--based payments are as follows:
2016 2015
GBP000 GBP000
---------------------------------------------------- ------ ------
Charge in relation to the 2012--15 LTIP scheme - 483
Charge in relation to the 2014--17 LTIP scheme 387 29
Charge in relation to the 2015--18 LTIP scheme 209 -
---------------------------------------------------- ------ ------
Equity-settled share-based payments 596 512
---------------------------------------------------- ------ ------
National Insurance charge on LTIP awards 312 111
---------------------------------------------------- ------ ------
Equity-settled share-based payments 908 623
---------------------------------------------------- ------ ------
National Insurance accrual arising from share-based
payments 320 111
---------------------------------------------------- ------ ------
The fair value of the options granted in the year was GBP825,000
(2015: GBP95,000). 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
2016 2015
GBP000 GBP000
------------------------------------------ ------ ------
Financial assets designated at fair value
through the profit and loss 218 779
------------------------------------------ ------ ------
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 2016, the Group had derivative contracts, which
were measured at Level 2 fair value subsequent to initial
recognition, to the value of an asset of GBP218,000 (2015:
GBP779,000) and a liability of GBP1,249,000 (2015: GBP317,000).
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 GBP28,022,000 (2015: GBP23,924,000)
being the total of the carrying amount of financial assets.
The maximum exposure to credit risk for trade receivables at the
balance sheet date by geographic region was:
2016 2015
GBP000 GBP000
------------ ------ ------
UK and Asia 7,882 7,754
USA 4,617 5,327
Europe 3,299 2,823
Australia 2,836 2,377
------------ ------ ------
18,634 18,281
------------ ------ ------
Credit quality of financial assets and impairment losses
The ageing of trade receivables at the balance sheet date
was:
2016 2015
------------------- -------------------
Gross Impairment Gross Impairment
GBP000 GBP000 GBP000 GBP000
-------------------- ------- ---------- ------- ----------
Not past due 13,135 (39) 14,020 (8)
Past due 0--90 days 4,365 (115) 3,704 (48)
More than 90 days 1,484 (196) 766 (153)
-------------------- ------- ---------- ------- ----------
18,984 (350) 18,490 (209)
-------------------- ------- ---------- ------- ----------
There were no unimpaired balances outstanding at 31 March 2016
(2015: nil) 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:
2016 2015
GBP000 GBP000
---------------------------------------- ------ ------
Balance at 1 April 209 281
Charge for the year 311 154
Unused amounts reversed (68) (105)
Amounts written off (115) (118)
Effects of movement in foreign exchange 13 (3)
---------------------------------------- ------ ------
Balance at 31 March 350 209
---------------------------------------- ------ ------
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
2016 is set out in note 17.
The following are the contractual maturities of financial
liabilities, including estimated interest payments:
Nominal Carrying Contractual One One Two More
year to to than
interest amount cash or less two five five
rate flows years years 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) -
Secured bank loans 2.3
- 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 leases 6.0 - - - - - -
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) - - -
Revolving credit - - - - - -
facilities
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 - - - - -
Financial liabilities - - - - - -
carried at fair
value through
the hedging reserve
- interest rate
swaps(a)
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.
Nominal Carrying Contractual One One Two More
year to to than
interest amount cash or less two five five
rate flows years years years
31 March 2015 Notes % GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------- ----- -------- -------- ----------- -------- ------- -------- -------
Non--derivative
financial liabilities
Secured bank loans 2.9
- sterling - 3.1 14,154 (14,596) (1,493) (2,982) (10,121) -
Secured bank loans 3.1
- US dollar - 3.5 7,788 (8,099) (1,453) (2,183) (4,463) -
Secured bank loans
- euros 4.3 4,483 (6,137) (585) (644) (1,518) (3,390)
----------------------- ----- -------- -------- ----------- -------- ------- -------- -------
Total secured
bank loans 17 26,425 (28,832) (3,531) (5,809) (16,102) (3,390)
Finance leases 20
- sterling leases 3.9 2,773 (3,084) (523) (526) (1,591) (444)
- euro leases 4.9 1,242 (1,408) (257) (257) (894) -
- other leases 6.0 1 (1) (1) - - -
Other financial
liabilities 9,943 (9,943) (9,868) (75) - -
Trade payables 21 25,887 (25,887) (25,887) - - -
Other payables 21 981 (981) (981) - - -
2.1
Asset-backed loans - 3.5 544 (544) (544) - - -
Revolving credit - - - - - -
facilities
1.0
Bank overdraft - 3.9 1,568 (1,568) (1,568) - - -
Derivative financial
liabilities
Financial liabilities
at fair value
through the income
statement - interest
rate swaps(a) 110 - - - - -
Financial liabilities
carried at fair
value through
the hedging reserve
- interest rate
swaps(a) 207 - - - - -
Forward foreign - - - - - -
exchange contracts
carried at fair
value through
the income statement
Forward foreign
exchange contracts
carried at fair
value through
the hedging reserve (779) (17,710) (17,710) - - -
----------------------- ----- -------- -------- ----------- -------- ------- -------- -------
68,902 (89,958) (60,870) (6,667) (18,587) (3,834)
----------------------- ----- -------- -------- ----------- -------- ------- -------- -------
(a) The interest rate swaps with fair values of GBP110,000 and
GBP207,000 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 2016 31 March 2015
----------------------------------------- -----------------------------------------
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 (see previous
table) 21,345 (22,973) - (22,973) 26,425 (28,832) - (28,832)
Asset-backed
loans 797 (797) (15,459) (16,256) 544 (544) (16,533) (17,077)
Bank overdraft 1,508 (1,508) (2,247) (3,755) 1,568 (1,568) (4,972) (6,540)
--------------------- -------- ----------- -------- -------- -------- ----------- -------- --------
23,650 (25,278) (17,706) (42,984) 28,537 (30,944) (21,505) (52,449)
--------------------- -------- ----------- -------- -------- -------- ----------- -------- --------
The 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 GBP74 million (2015: GBP74 million). At 31 March
2016 the facility amounted to GBP27.1 million (2015: GBP35.3
million).
Additional facilities were available at other banks of GBP14.3
million (2015: GBP14.7 million), including asset--backed loans
according to the level of receivables and inventory.
The short-term overdraft, RCF and the asset--backed loan
elements of those facilities were renewed on improved terms in May
2014, which has slightly lowered the blended rate in the year.
The asset--backed loan facilities were to be renewed between
2016 and 2018, see the financial review for further details.
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 or less
flows
31 March 2016 GBP000 GBP000 GBP000
---------------------------- -------- ----------- -------
Interest rate swaps:
Liabilities - - -
Forward exchange contracts:
Liabilities 571 (2,546) (2,546)
---------------------------- -------- ----------- -------
Carrying Contractual One
year
amount cash or less
flows
31 March 2015 GBP000 GBP000 GBP000
---------------------------- -------- ----------- --------
Interest rate swaps:
Liabilities 207 - -
Forward exchange contracts:
Liabilities/(assets) (779) (17,710) (17,710)
---------------------------- -------- ----------- --------
At 31 March 2016 the Group had an interest rate swap in place
with a notional amount of EUR7 million (GBP5.6 million), (2015: $7
million, GBP5.1 million) whereby it receives a floating rate of
interest based on EURIBOR and pays a fixed rate of interest at
2.29% on the notional amount. This swap is to hedge the exposure to
changes in the interest rate. The terms of the hedge have been
negotiated to match the terms of the commitments. The fair value of
the swap at the balance sheet date was a liability of
GBP141,000.
The Group has forward currency hedging contracts outstanding at
31 March 2016 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 2016/17
were assessed to be highly effective and as at 31 March 2016 a net
unrealised gain of GBP223,000 with related deferred tax credit of
nil 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 UK subsidiaries' 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 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 15 218 - - - 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)
-------------------------------- ----- -------- ------- --------- ------- --------
Sterling Euro US dollar Other Total
31 March 2015 Notes GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ----- -------- ------- --------- ------- --------
Cash and cash equivalents 16 1,960 789 89 8 2,846
Trade receivables 15 6,827 2,742 6,179 2,533 18,281
Other receivables 1,140 22 4 - 1,166
Financial assets at fair
value through income statement 15 779 - - - 779
Secured bank loans 17 (14,154) (4,483) (7,788) - (26,425)
Loan arrangement fees 17 256 - 78 - 334
Finance leases 20 (2,773) (1,242) - (1) (4,016)
Asset-backed loans 17 - (58) (486) - (544)
Bank overdrafts 16 (346) (386) 282 (1,118) (1,568)
Trade payables 21 (11,341) (3,020) (7,419) (4,107) (25,887)
Other payables 21 (678) (303) - - (981)
Financial liabilities at
fair value through hedging
reserve 20 (207) - - - (207)
-------------------------------- ----- -------- ------- --------- ------- --------
Balance sheet exposure (18,537) (5,939) (9,061) (2,685) (36,222)
-------------------------------- ----- -------- ------- --------- ------- --------
The following significant exchange rates applied during the
year:
Average rate Reporting
date spot
rate
-------------- ------------
2016 2015 2016 2015
---------- ------ ------ ----- -----
Euro 1.36 1.29 1.26 1.38
US dollar 1.50 1.61 1.44 1.48
---------------- ------ ------ ----- -----
Sensitivity analysis
A 10% weakening of the following currencies against sterling at
31 March 2016 would have increased 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 2015.
Equity Profit/(loss)
-------------- ---------------
2016 2015 2016 2015
GBP000 GBP000 GBP000 GBP000
---------- ------ ------ ------- ------
Euro 89 127 18 (25)
US dollar 432 824 (959) (617)
---------------- ------ ------ ------- ------
On the basis of the same assumptions, a 10% strengthening of the
above currencies against sterling at 31 March 2016 would have
decreased equity and profit or loss by the following amounts:
Equity Profit/(loss)
---------------- ---------------
2016 2015 2016 2015
GBP000 GBP000 GBP000 GBP000
---------- ------ -------- ------- ------
Euro (109) (155) (22) 31
US dollar (529) (1,007) 1,172 754
---------------- ------ -------- ------- ------
Profile
At the balance sheet date the interest rate profile of the
Group's interest--bearing financial instruments was:
2016 2015
Note GBP000 GBP000
-------------------------- ---- -------- --------
Fixed rate instruments
Financial liabilities (19,112) (20,969)
Variable rate instruments
Financial assets 8,380 2,846
Financial liabilities (4,538) (7,568)
Loan arrangement fees 209 334
Finance leases (2,422) (4,016)
-------------------------- ---- -------- --------
Net debt 16 (17,483) (29,373)
-------------------------- ---- -------- --------
The fixed rate borrowings above are shown after taking account
of interest rate swaps and interest rate caps (see note 17 for
details).
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 decreased 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 2015.
Equity Profit/(loss)
-------------- ---------------
2016 2015 2016 2015
GBP000 GBP000 GBP000 GBP000
----------------------- ------ ------ ------- ------
Interest charge change 19 (24) 19 (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, subsequent to the year end, the Group
secured a global refinancing on 3 June 2016. See the financial
review for further details.
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
----------------
2016 2015
Note GBP000 GBP000
------------------------------------- ---- ------- -------
Net assets attributable to owners of
the Parent Company 68,002 59,664
Net debt 16 17,483 29,373
------------------------------------- ---- ------- -------
Trading capital 85,485 89,037
------------------------------------- ---- ------- -------
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. 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:
2016 2015
GBP000 GBP000
--------------------------- ------ ------
Less than one year 4,051 3,389
Between one and five years 11,698 9,871
More than five years 5,853 7,476
--------------------------- ------ ------
21,602 20,736
--------------------------- ------ ------
Non-cancellable operating leases are receivables as follows:
2016 2015
GBP000 GBP000
--------------------------- ------ ------
Less than one year 908 908
Between one and five years 2,355 3,268
--------------------------- ------ ------
3,263 4,176
--------------------------- ------ ------
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 more
than five years. Sub--lease payments of GBP547,000 (2015:
GBP447,000) were received during the financial year.
During the year GBP3,889,000 was recognised as an expense in the
income statement in respect of operating leases (2015:
GBP3,765,000).
28 Capital commitments
At 31 March 2016, the Group had outstanding authorised capital
commitments to purchase plant and equipment for GBP160,000 (2015:
GBP313,000).
29 Related parties
2016 2015
GBP000 GBP000
----------------------------- ------ ------
Sale of goods
AB Alrick - Hedlund 8 245
Hedlunds Pappers Industri AB 121 97
Festive Productions Ltd 128 55
Hedlund Import AB 7,003 8,078
SA Greetings (Pty) Ltd 8 -
----------------------------- ------ ------
7,268 8,475
----------------------------- ------ ------
Purchase of goods
Hedlund Import AB 86 20
Festive Productions Ltd 18 -
----------------------------- ------ ------
104 20
----------------------------- ------ ------
Receivables
Hedlund Import AB 320 144
Hedlunds Pappers Industri AB 19 4
----------------------------- ------ ------
Balance at 31 March 339 148
----------------------------- ------ ------
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 and Elaine
Bond is a shareholder.
Phil Dutton, a Non--Executive Director during the year, is
married to Judith McKenna who is Executive Vice President, Chief
Development Officer of Walmart US. Walmart are a significant
customer of the Group.
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 49% (2015: 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, Artwrap Pty Ltd (Artwrap). Summary
financial information in relation to Artwrap is shown below.
2016 2015
GBP000 GBP000
----------------------------------------------------- ------- -------
Artwrap balance sheet as at 31 March
Non-current assets 1,418 1,011
Current assets 9,831 8,145
Current liabilities (4,281) (3,242)
Non-current liabilities (227) (76)
----------------------------------------------------- ------- -------
Artwrap comprehensive income for the year
ended 31 March
Turnover 27,873 26,978
Profit after tax 761 704
Total comprehensive income 502 704
----------------------------------------------------- ------- -------
Artwrap cash flow for the year ended 31 March
Net increase/(decrease) in cash and cash-equivalents 1,294 (1,611)
----------------------------------------------------- ------- -------
Artwrap non-controlling interest
----------------------------------------------------- ------- -------
1 April 2,920 3,649
Share of profits for the year 381 352
Other comprehensive income (130) -
Dividend paid to the non-controlling interest - (829)
Currency translation 199 (252)
----------------------------------------------------- ------- -------
31 March 3,370 2,920
----------------------------------------------------- ------- -------
31 Acquisition of business
On 5 June 2014, the Group acquired the trade and certain assets
of Enper Giftwrap BV for a cash consideration of GBP1,451,000
(EUR1,854,000). The fair value of the identifiable assets and
liabilities acquired as at the date of acquisition were:
Note GBP000
-------------------------------------------- ---- ------
Intangible fixed assets 80
Plant and equipment 342
Stock 684
Accruals (54)
Finance lease acquired (110)
Total identifiable net assets at fair value 942
-------------------------------------------- ---- ------
Goodwill arising on acquisition 12 509
-------------------------------------------- ---- ------
Total purchase consideration transferred 1,451
-------------------------------------------- ---- ------
Cash consideration 1,451
-------------------------------------------- ---- ------
Transaction costs of GBP99,000 have been expensed and are
included in administrative expenses as an exceptional item.
From the date of acquisition to 31 March 2015 the Enper Giftwrap
business acquired contributed GBP2,481,000 of turnover of the
Group.
If the combination had taken place at the beginning of the year
the consolidated turnover of the Group would have been
GBP229,490,000.
The trade of Enper Giftwrap has been incorporated into that of
Hoomark BV. It is not possible to separate out and disclose
separately the profit of the Enper Giftwrap business.
32 Subsequent event
On 7 June 2016 the Group announced the successful completion of
a Group--wide funding agreement with HSBC bank, full details of
which can be found in of the financial review.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PGUUGQUPQGRR
(END) Dow Jones Newswires
June 29, 2016 02:00 ET (06:00 GMT)
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