TIDMIGR
RNS Number : 6033U
IG Design Group PLC
26 November 2019
26 November 2019
IG Design Group plc
(the "Company", the "Group" or "Design Group")
Results for the six months ended 30 September 2019
Double digit profit growth with significant increase to interim
dividend
IG Design Group plc, one of the world's leading designers,
innovators and manufacturers of celebrations, gifting, stationery
and creative play products, is pleased to announce its interim
results for the six months ended 30 September 2019.
Financial Highlights
-- Reported revenue up 21% to GBP248.4 million (H1 2019: GBP205.2
million) driven by organic growth and the full year effect of
the acquisition of Impact Innovations Inc.
-- Adjusted operating profit* increased 21% to GBP23.6 million
(H1 2019: GBP19.4 million)
-- Adjusted profit before tax* up 14% to GBP21.5 million (H1 2019:
GBP18.9 million)
-- Profit before tax up 22% to GBP17.1 million (H1 2019: GBP14
million)
-- Adjusted fully diluted earnings per share* up 2% at 20.1p (H1
2019: 19.7p)
-- Reported diluted earnings per share up 16% at 16.0p (H1 2019:
13.8p)
-- Net debt** reduced by GBP13.8m to GBP86.2 million (H1 2019:
GBP100.0 million) helping reduce average leverage*** to 1.0
times (12 months to 30 September 2018: 1.3 times)
-- Interim dividend per share increased by 20% to 3.0p (H1 2019:
2.5p)
*stated before exceptional items, amortisation of acquired
intangibles and LTIP charges
**excludes IFRS 16 lease liabilities
***average leverage is 12 month average debt divided by adjusted
EBITDA
Strategic and Operational Highlights
Group sales and profits growth delivered from strong performances
-- in the USA, Europe and the UK
-- Performance to date achieved despite the backdrop of US-China
tariff headwinds. Considerable progress made to mitigate tariff
impact going forward which will benefit our performance in the
coming year
-- Continued to implement fast payback capital investments, ensuring
we remain market leaders, and to support the growth of the Group
going into the 2020/21 selling season
Outlook
With good forward visibility from our order book, which is at
record levels, we remain on course to deliver full year performance
in line with expectations and to exploit opportunities for further
growth in 2021.
Commenting on the performance, Paul Fineman, Group CEO,
said:
"Our strong start to the year highlights the strength and
agility of our business. Our initiatives and investments are
bearing fruit and will drive further growth into the future.
Our long-established relationships with many of the world's
leading and 'winning' retailers provides a strong foundation for us
to meet ambitious growth targets, both organically and through an
active pipeline of acquisition opportunities, whilst maintaining
prudent average leverage.
We remain focused on driving growth, maintaining our financial
strength and continuing to deliver in line with expectations,
whilst ensuring we continue to make the most of our many exciting
future prospects."
This announcement contains inside information
- Ends -
For further information, please contact:
IG Design Group plc
Paul Fineman, Chief Executive Officer
Giles Willits, Chief Financial Officer Tel: 0152 588 7310
Canaccord Genuity Limited (NOMAD and Broker)
Bobbie Hilliam - NOMAD
Alex Aylen - Sales Tel: 020 7523 8000
Alma PR
Rebecca Sanders-Hewett
Susie Hudson Tel: 020 3405 0205
Sam Modlin designgroup@almapr.co.uk
EXECUTIVE REVIEW
Overview
The Group is again pleased to deliver double digit growth for
the first half of the year, with revenue increasing 21% compared to
the same period last year to GBP248.4 million (H1 2019: GBP205.2
million) driving a 21% increase in adjusted operating profit to
GBP23.6 million (H1 2019: GBP19.4 million). Adjusted profit before
tax was up 14% on the prior year period to GBP21.5 million (H1
2019: GBP18.9 million). This strong financial performance has been
driven through organic growth and the full year effect of the
Impact Innovations Inc. ('Impact') acquisition in the prior year
and ensures we enter the second half with good momentum and a
confident outlook for the full year.
Our performance continues to be underpinned by our focus on the
Group's strategy of 'working with the winners' to produce high
quality products with innovative designs, while benefiting from
scale and efficiency. Reported profit before tax at GBP17.1 million
was 22% up on the prior year (H1 2019: GBP14.0 million). It should
be noted that our H1 2020 metrics throughout the executive review
reflect IFRS 16 Leases accounting impacts. For more detail on the
impact on our key metrics, please refer to note 9.
Average leverage improved to 1.0 times for the twelve month
period ending 30 September 2019 from 1.3 times in the comparative
period in 2018. Net debt at the half year was GBP86.2 million (H1
2019: GBP100.0 million), GBP13.8 million lower than last half year,
largely driven by the improved opening cash position at the
beginning of the financial year. As always, our half year debt
position reflects our peak manufacturing and working capital needs,
with forecast second half cash receipts from customers moving us to
an anticipated closing net cash position as in previous years. We
expect the closing position as at 31 March 2020 to be improved
compared to 31 March 2019.
Adjusted earnings per share increased 2% on the prior half year
to 20.1p (H1 2019: 19.7p). The reason this increase is lower than
the 14% increase in adjusted profit before tax noted above, is the
strong prior year comparative which saw a benefit from the timing
of the Impact acquisition. We acquired Impact on 31 August 2018,
just ahead of its peak selling period in September and as a result
our half year results included a significant proportion of Impact's
first half profits, while the calculation of adjusted earnings per
share reflected only one month's weighting for the equity raise
associated with the acquisition. Reported diluted earnings per
share up 16% at 16.0p (H1 2019: 13.8p).
A final dividend of 6.0p in respect of the year ended 31 March
2019 was paid in September 2019, resulting in a total dividend of
8.5p representing 3.4 times dividend cover for the 2019 financial
year compared to 3.7 times in 2018. The Board is pleased to declare
an interim dividend of 3.0p in respect of the half year ended 30
September 2019 (H1 2019: 2.5p).
Our strategy
Our strategy underpins everything we do and helps drive each of
our regional businesses forward. Our focus on working with the
winners has again delivered success with our top ten customers
continuing on an upward trajectory. During the period, we have also
developed new business streams with some of the world's leading
retailers, in particular developing exciting and innovative selling
programmes with both new and existing customers. We continue to
successfully use our local knowledge and expertise to tap into the
market and retail trends in each of the key territories that we
serve around the world. We aim to be our customers' partner of
choice and our focus on service and quality helps differentiate us
as a key supplier.
Our mantra is that 'design is at the heart of everything we do'
and our focus on design and innovation is fundamental to our future
success. Our team of talented and commercial designers across the
world are working closely with our customers and our suppliers to
bring fresh, innovative and vibrant designs to our products and
into retail stores. We are already in advanced discussions with our
customers about exciting new product and display ideas for 2020 and
it is this passion for quality, design-led products which will help
drive the Group forward year-on-year.
The final component of our strategy is efficiency and scale
which combines investments in people and capital expenditure as
well as growing through acquisition, alongside our organic growth.
This year will see the launch of our second paper bag production
line in Wales, driving growth in our 'not--for--resale' product
offering. Over the coming months we will also be making further
investment in Europe, with our first ever automated converting and
packaging line. In the United States, we are installing our largest
ever printing press, which will help take our manufacturing
facilities to new levels of market leading efficiency.
Outlook
With a strong sales pipeline, which is ahead of the prior year
and in line with our expectations, our teams around the world are
focused on the delivery of our order book during the balance of
this year while securing new business for 2020 and beyond. This
focus, together with other major commercial and operational
initiatives and investments throughout the Group, will support our
growth going into the 2020/21 selling season. We also have a strong
and active pipeline of acquisition opportunities throughout all
regions, providing incremental growth and an exciting outlook for
the future.
The Group is on track to meet full year market expectations
including year--end average leverage showing further improvement
against the prior year.
Operational regional highlights
We are delighted with the growth we have seen in adjusted
operating profit in the US, UK and Europe. In Australia, our
business is performing in line with expectations but, as previously
communicated, at a lower level than the prior year. Despite market
headwinds the Group maintained adjusted operating margin at 9.5%.
Reported operating profit increased 30% on the comparable prior
year period when including exceptional items, acquisition
amortisation and LTIP charges.
Segmental revenue Adjusted operating Adjusted margin
profit(a)
------- ------------- ---- -------------------------- -------------------------- -----------------
% Group H1 2020 H1 2019
revenue H1 2020 H1 2019 % growth H1 2020 H1 2019 % growth % %
------- ------------- ---- ------- ------- -------- ------- ------- -------- -------- -------
60% Americas $m 183.8 131.6 40% 17.6 13.9 27% 9.6% 10.6%
22% UK GBPm 58.3 60.6 (4%) 5.4 4.9 9% 9.2% 8.1%
12% Europe EURm 32.3 30.7 5% 4.3 3.8 13% 13.3% 12.3%
7% Australia AU$m 30.0 36.7 (18%) 2.9 4.1 (28%) 9.2% 11.1%
Elims/Central
(1%) costs GBPm (3.3) (3.8) - (1.7) (2.0) - - -
------- ------------- ---- ------- ------- -------- ------- ------- -------- -------- -------
100% Total GBPm 248.4 205.2 21% 23.6 19.4 21% 9.5% 9.5%
------- ------------- ---- ------- ------- -------- ------- ------- -------- -------- -------
(a) Segmental profit is calculated as adjusted operating profit
before management charges. The 2020 results include the impact of
IFRS 16.
Americas
Following the acquisition of Impact, our Americas business has
doubled in size and at the half year represents 60% of the Group's
revenues. The first half of the financial year has been a
significant period of change with the merging of our manufacturing
facilities into one location in Memphis, Tennessee, the
continuation of the implementation of a new ERP system across the
Americas group, a restructuring of the management team, and the
ongoing integration of the Impact team within the Group.
Against this backdrop and despite the rapid escalation of
tariffs from China to the US over the period, the business has
delivered a good financial performance reflecting a full year
effect of Impact together with organic revenue growth and the
delivery of synergies associated with the acquisition. Revenue was
up 40% on the prior year at $183.8 million (H1 2019: $131.6
million), with adjusted operating profit up 27% year--on--year to
$17.6 million (H1 2019: $13.9 million). Due to the nature and
extent of the integration of the operations since the acquisition
of Impact, it is not possible to provide a split of revenue and
operating profits between legacy America growth and that of the
combined business. Adjusted operating margin was down to 9.6% (H1
2019: 10.6%) against the prior year period. This is due to the
timing of the Impact acquisition which drove a higher margin
percentage for the prior year than that which would have been
achieved in a full six month trading period.
We remain a key supplier of choice to the top US retailers and
have worked on developing relationships and initiatives with new,
as well as existing, customers. We go into the second half of the
year with a strong order book and growth initiatives already
developed for the 2020/21 selling season. Walmart, the largest
retailer in the world and in the United States, with whom our
revenues continue to grow, remain our biggest customer representing
over 20% of the overall Group's revenues.
The China-US tariff situation has presented a significant
challenge to our business in the first half of the year. The
evolution of the tariffs came quickly, moving from 0% to 10% and
then rapidly to 25% within just a few months, and became applicable
to more of our product categories with no advance warning. Whilst
mitigation strategies were in place, we have nevertheless had to
react quickly to work with our customers and suppliers to manage
the impact as far as possible. With further developments expected
over the coming months we continue to create as many options as
possible to ensure we are flexible to the situation and in a
position to offer our customers an even more compelling portfolio
of products and services.
One opportunity that is already underway is the imminent arrival
in Memphis of our new printing press, the most efficient and
largest in the Group to date. This will not only deliver
significant efficiencies but also provides the Americas group with
the competitive advantage of increased capacity and the capability
for US domestic production, ensuring we and our customers are no
longer exposed to tariffs on gift wrap imports from China. We are
now looking to broaden our US manufacturing portfolio across paper
products other than gift wrap, as well as further diversifying our
supply chain and increasing volumes from our established non-China
based sources of supply.
Importantly, we are keeping close to our customers and pursuing
opportunities to be their one key supplier of choice as they seek
to consolidate their supply base with those suppliers who have
demonstrated the ability to navigate through tariff dynamics as
well as having a broad portfolio of products to offer.
In addition to the work in Memphis, we continue to focus on
delivering the operational synergies identified at the time of the
Impact transaction and remain on track to deliver in 2021 the
targeted $5 million of annualised operational synergies. The
business incurred some further one--off expenditure associated with
the integration in Memphis which included incremental costs
associated with managing the first peak period with a newly
combined manufacturing conversion process. More detail on the
exceptional costs can be found in note 3 to the interim financial
statements.
UK
Revenues in the UK business at GBP58.3 million (H1 2019: GBP60.6
million) were slightly behind the prior year, reflecting the timing
of customer shipments in the current year (which were being managed
by customers in preparation for an end of October Brexit). Second
half sales are forecast to come back in line with our expectations
for the full year. Adjusted operating profit was up 9% at GBP5.4
million (H1 2019: GBP4.9 million) reflecting improved product mix
and the impact of efficiency savings gained as a result of the
restructuring of our UK business which has continued to consolidate
activities and processes to leverage scale in the UK.
In the first half of the year, the UK business extended its
licensing portfolio securing new agreements in respect of some key
brands, including Harry Potter, Peppa Pig, Toy Story 4 and Frozen
2. We continue to invest in our 'not--for--resale' bags initiative
and are in the process of commissioning our second bag making
machine in Wales. Our order book for these products is showing
encouraging growth in the second half of this financial year and
into 2021 as we secure new customers and brands.
The Group continues to keep the potential implications of Brexit
under review as we await further developments. We are currently
prepared for Brexit, in whichever form it takes, and have
workstreams in place to mitigate risks. We believe that the effect
of Brexit on the strength of sterling will be the main impact to
the Group.
Europe
Our business in Europe is as strong as ever and showed good
revenue growth, up 5% compared to the prior year, at EUR32.3
million (H1 2019: EUR30.7 million). Adjusted operating profit at
EUR4.3 million has grown 13% compared to last year (H1 2019: EUR3.8
million) with adjusted operating margin growing to 13.3% (H1 2019:
12.3%). The European team continue to deliver excellent results,
capitalising on their commitment to our 'working with the winners'
strategy by forming key partnerships with some of the fastest
growing retailers in the European market.
The new printing press which came fully online in the
Netherlands during the last financial year has improved operational
efficiencies and allowed the team to accelerate production ahead of
schedule this year. This leaves capacity for any additional orders
for the back half of the year including the ability to support the
rest of the Group.
We have printed a record volume of 157 million metres of wrap to
date (compared to 149 million metres at this time in the previous
year). This is an excellent example of the benefits we can derive
from our investment in state-of-the-art production equipment. We
are also in the process of upgrading the converting lines in our
European facility to deliver an automated production line from
converting to packing. A bespoke design, this is the very first
automated process of its kind and we look forward to being able to
have this available for production from April 2020.
Our order book in Europe is at its highest ever level as we
continue to grow in both existing and new product categories.
Australia
Our performance in Australia has been in line with expectations
and, as previously communicated, with revenues and profits having
stepped back as a result of reduced business from certain national
retailers in the region. Some of this relates to a conscious
decision by the Group to move away from customers whose performance
has been volatile. Revenues of AU$30.0 million were down 18% (H1
2019: AU$36.7 million), with adjusted operating profit down 28% at
AU$2.9 million (H1 2019: AU$4.1 million). Our team in Australia
have plans in place to grow the business, which include further
diversifying our product portfolio.
Our products and brands
The Group continues to evolve as a diversified, multi-category,
multi-channel and multi-product manufacturer and supplier, and we
are continually looking at ways in which we can offer a one-stop
product and service solution to make ourselves the market leading
supplier of choice to our customers.
30 Sep 2019 30 Sep 2018
Revenue by product category % GBPm % GBPm
----------------------------- ---- ------- ---- -------
Celebrations 77 188.7 77 157.3
Stationery and creative play 11 27.9 9 19.4
Gifting 9 23.2 10 21.3
'Not-for-resale' consumables 3 8.6 4 7.2
----------------------------- ---- ------- ---- -------
Total 248.4 205.2
----------------------------- ---- ------- ---- -------
Whilst products suitable for the Christmas season still dominate
our product portfolio, it is pleasing to see growth in all
non--Christmas categories at the half year, in line with our
strategic aims, with a 44% growth in our Stationery and Creative
Play category.
The UK business has taken a lead in developing more
environmentally friendly products for our customers. This included
the launch of our sustainable product portfolio, including fully
recyclable Christmas crackers and stationery made from recycled
materials, which have been positively received by both customers
and consumers. The Group's commitment to environmental
sustainability was also recognised with the WWF 3 Trees award,
which rewards businesses for using only paper from sustainable
forestry and from responsible suppliers.
We are creating exciting product and display solutions across
our product portfolio, including our new 'Impulse' category of
all-year-round seasonal gift and décor products. These will be
launched in the second half of the year and extensive programmes
delivered in 2021.
Detailed financial review
The Group has delivered another strong performance in the half
year to 30 September 2019.
30 Sep 30 Sep %
2019 2018
GBPm GBPm change
---------------------------- ------ ------ ------
Revenue 248.4 205.2 21
Gross profit 51.3 44.2
Overheads (27.7) (24.8)
---------------------------- ------ ------ ------
Adjusted operating profit 23.6 19.4 21
Adjusted operating margin % 9.5% 9.5%
Finance charge (2.1) (0.5)
---------------------------- ------ ------ ------
Adjusted profit before tax 21.5 18.9 14
Exceptional items (1.5) (3.0)
Acquisition amortisation (1.4) (0.4)
LTIP charges (1.5) (1.5)
---------------------------- ------ ------ ------
Profit before tax 17.1 14.0 22
Tax (3.8) (3.7)
---------------------------- ------ ------ ------
Profit after tax 13.3 10.3 29
---------------------------- ------ ------ ------
Group revenue has grown 21% over the prior year to GBP248.4
million (H1 2019: GBP205.2 million) and at like--for--like exchange
rates revenue was up 18% compared to this time last year. Adjusted
operating profit of GBP23.6 million (H1 2019: GBP19.4 million)
increased by 21%. On a constant currency basis the increase was
18%.
Finance charge
Our total finance charge as at 30 September 2019 was GBP2.1
million (H1 2019: GBP0.5 million excluding exceptional finance
charge). The increased charge reflects our change in average debt
year-on-year along with the impact of the adoption of IFRS 16 (see
note 9 for more detail).
Exceptional items
The exceptional costs incurred in the half year to 30 September
2019 are GBP1.5 million (H1 2019: GBP3.0 million including
exceptional finance charge). The costs relate largely to the
restructure of our US operations following the Impact acquisition,
including non-recurring costs associated with the integration of
our manufacturing facilities into Memphis, in particular during its
first manufacturing cycle as an integrated facility. Given the
Group were part way through the peak manufacturing cycle as at 30
September 2019, it is anticipated that further one--off costs will
be incurred before the cycle finishes.
Other exceptional costs incurred in the first half relate to
further restructuring costs within the UK rationalisation programme
and transaction costs incurred by the Group.
LTIP charges
A charge of GBP1.5 million (H1 2019: GBP1.5 million) has been
incurred in relation to long-term incentive plans.
Taxation
The taxation charge for the half year is GBP3.8 million (H1
2019: GBP3.7 million) with the effective tax charge on adjusted
profit before tax at 22.5% (H1 2019: 24%). This is slightly lower
than the weighted blend of statutory rates in the countries in
which we operate as a result of the recognition of previously
unrecognised deferred tax assets relating to losses that are
expected to be recovered against forecast taxable profits. The
effective rate on profit before tax is 22.2% (H1 2019: 26.8%).
Acquisition amortisation
Acquisition amortisation charged in the period was GBP1.4
million (H1 2019: GBP0.4 million) of which GBP0.5 million relates
to the accelerated amortisation of the Impact trade name.
Earnings per share
Adjusted earnings per share at 20.1p were 2% up over the prior
year adjusted earnings per share of 19.7p. The slower growth in
comparison to the other income statement metrics is a result of
last year's earnings per share being affected by the timing of the
Impact acquisition.
As discussed above, we acquired Impact on 31 August 2018, just
ahead of its peak selling period in September and as a result our
half year results included a significant proportion of Impact's
first half profits, while the calculation of adjusted earnings per
share reflected only one month's weighting for the equity raise
associated with the acquisition.
Reported fully diluted earnings per share were 16.0p (H1 2019:
13.8p) and reported basic earnings per share were 16.0p (H1 2019:
14.1p).
Return on capital employed
The Group's return on capital employed, based on twelve months
average net capital employed increased from 24.3% at 31 March 2019
to 25.4% as at 30 September 2019.
Cash flow and net debt
As at 30 September 2019 net debt (excluding IFRS 16 lease
liabilities) was GBP86.2 million (H1 2019: GBP100.0 million).
Average leverage as at the half year was 1.0 times from 1.3 times
for the comparative prior period demonstrating continued focus on
cash management through the period.
30 Sep 30 Sep
2019 2018
GBPm GBPm
---------------------------------------------------- ------- -------
Adjusted EBITDA 30.4 22.1
Change in trade and other receivables (116.2) (108.5)
Change in inventory (56.1) (32.3)
Change in creditors, provisions and accruals 61.6 43.9
---------------------------------------------------- ------- -------
Adjusted cash generated from operations (80.3) (74.8)
Exceptional items from operations (1.2) (1.1)
LTIP (0.4) (0.6)
---------------------------------------------------- ------- -------
Cash generated from operations (81.9) (76.5)
Proceeds from sale of property, plant and equipment - 0.5
Net capital expenditure (4.1) (3.6)
Business acquired - (67.1)
Tax paid (2.3) (2.2)
Interest paid (including exceptional items) (1.7) (0.6)
Payments of lease liabilities (3.1) -
Equity dividends paid (4.7) (2.6)
Proceeds from issue of share capital - 48.3
Other (5.5) (0.6)
---------------------------------------------------- ------- -------
Movement in net debt (103.3) (104.4)
Opening net cash 17.1 4.4
---------------------------------------------------- ------- -------
Closing net debt (86.2) (100.0)
---------------------------------------------------- ------- -------
Working capital
The Group's working capital movement this half year includes the
full effect of Impact. We acquired Impact on 31 August 2018 at its
peak working capital cycle when trade receivables, inventory and
creditors were close to their highest level in the annual cycle,
and as such, as at 30 September 2018 the Group only reflected one
month's working capital movements in respect of the Impact
business. Excluding Impact, our working capital movements are
consistent with the previous half year.
Capital expenditure
During the first half of this year we invested GBP4.1 million
(H1 2019: GBP3.6 million). The key projects include:
-- a new, state-of-the-art printing press in the US;
-- the automated converting line project in the Netherlands; and
-- a new ERP system in the US.
Full year guidance remains between GBP11 million and GBP13
million.
Alternative performance measures
This review includes alternative performance measures ('APMs')
that are presented in addition to the standard IFRS metrics. The
Directors believe that these APMs provide important additional
information regarding the adjusted performance of the business
including trends, performance and position of the Group. APMs are
used to enhance the comparability of information between reporting
periods and segmental business units by adjusting for exceptional
or uncontrollable factors which affect IFRS measures, to aid the
understanding of the Group's performance. Consequently, APMs are
used by the Directors and management for strategic and performance
analysis, planning, reporting and reward setting.
The APMs are adjusted EBITDA, adjusted operating profit,
adjusted profit before tax, adjusted profit after tax and adjusted
earnings per share.
The definitions of APMs used are listed below:
-- Adjusted EBITDA - EBITDA before exceptional items and LTIP charges
-- Adjusted operating profit - Profit before interest, tax,
exceptional items, acquisition amortisation and LTIP charges
-- Adjusted profit before tax - Profit before tax, exceptional
items, acquisition amortisation and LTIP charges
-- Adjusted profit after tax - Profit after tax, before
exceptional items, acquisition amortisation and LTIP charges
-- Adjusted earnings per share - Fully diluted earnings per
share before exceptional items, acquisition amortisation, LTIP
charges and associated tax effect
Exceptional items
These include acquisition related costs and reorganisation and
restructuring costs. These items are excluded to present the
performance of the business in a consistent manner and in line with
how the business is managed and measured on a day-to-day basis.
Further detail can be seen in note 3 to the interim financial
statements.
Acquisition related costs
These costs, in our view, form part of the capital transaction
and as they are not attributed to investment value under IFRS 3,
they are excluded from our adjusted measures for the purposes of
reporting underlying results. Similarly, where acquisitions have
employee related payments (exclusive of LTIPs) which lock in and
incentivise legacy talent, we have also excluded these costs.
Reorganisation and restructuring costs
In order to maximise efficiencies, as well as realise synergies
from acquisitions, work is often undertaken outside of the normal
day--to--day operations of the business to achieve these.
This is particularly relevant during a large scale restructuring
that can result in some disruption to the normal business (for
example manufacturing patterns) leading to operational
inefficiencies occurring in this time frame. If we deem this to be
the case, we will present the details and associated costs of the
projects separately in our financial statements and exclude them
from our adjusted measures.
LTIP costs
As part of our senior management remuneration, the Group operate
a Long Term Incentive Plan ('LTIP') in the form of options for
ordinary shares of the Group. In accordance with accounting
principles, despite this plan not being a cash cost to the
business, a share--based payments charge is taken to the income
statement. We consider that these charges do not form part of the
underlying operational costs and therefore exclude them from our
adjusted measures.
Acquisition amortisation costs
Under IFRS, as part of the acquisition of a company, it is
necessary to identify intangible assets such as customer lists and
brands which form part of the intangible value of the acquired
business but are not part of the acquired balance sheet. These
intangible assets are then amortised to the income statement over
an appropriately judged period. These are not operational costs
relating to the running of the acquired business and are directly
related to the accounting for the acquisition. As such we exclude
them from the underlying results of the business.
A full reconciliation between our adjusted and reported results
is provided below:
30 Sep 30 Sep
2019 2018
GBPm GBPm
------------------ ------ ------
Adjusted EBITDA 30.4 22.1
Exceptional items (1.5) (3.0)
LTIP charges (1.5) (1.5)
------------------ ------ ------
EBITDA 27.4 17.6
------------------ ------ ------
GBPm GBPm
-------------------------- ----- -----
Adjusted operating profit 23.6 19.4
Exceptional items (1.5) (2.7)
Acquisition amortisation (1.4) (0.4)
LTIP charges (1.5) (1.5)
-------------------------- ----- -----
Reported operating profit 19.2 14.8
-------------------------- ----- -----
GBPm GBPm
--------------------------- ----- -----
Adjusted profit before tax 21.5 18.9
Exceptional items (1.5) (3.0)
Acquisition amortisation (1.4) (0.4)
LTIP charges (1.5) (1.5)
--------------------------- ----- -----
Reported profit before tax 17.1 14.0
--------------------------- ----- -----
GBPm GBPm
-------------------------- ----- -----
Adjusted profit after tax 16.7 14.3
Exceptional items (1.2) (2.4)
Acquisition amortisation (1.0) (0.3)
LTIP charges (1.2) (1.3)
-------------------------- ----- -----
Reported profit after tax 13.3 10.3
-------------------------- ----- -----
Pence Pence
------------------------------------------------ ----- -----
Adjusted earnings per share 20.1 19.7
Exceptional items (including tax effect) (1.4) (3.6)
Acquisition amortisation (including tax effect) (1.2) (0.4)
LTIP charges (including tax effect) (1.5) (1.9)
------------------------------------------------ ----- -----
Reported diluted earnings per share 16.0 13.8
------------------------------------------------ ----- -----
The APMs are also used in a number of the Group's performance
metrics detailed below:
-- Adjusted operating margin - Adjusted operating profit divided by revenue
-- Return on capital employed - Adjusted operating profit
divided by monthly average net capital employed (excluding cash and
intangibles)
-- Average leverage - Average debt divided by adjusted EBITDA
-- Dividend cover - Adjusted earnings per share divided by total dividends for the year
New accounting standards
IFRS 16 Leases is effective for accounting periods beginning on
or after 1 January 2019 and as such the Group have adopted the
standard in this half year. The Group have used the modified
retrospective approach resulting in a right-of-use asset as at 30
September 2019 of GBP35.6 million and a corresponding lease
liability as at the same date of GBP40.3 million. The Group has
elected not to recognise right--of--use assets and lease
liabilities for short--term leases or low-value assets and will
continue to expense the lease payments associated with these leases
on a straight-line basis over the term of the lease. The impact on
the Group's income statement is an increase in depreciation and
interest charges, offset by the removal of related rental costs
previously charged under IAS 17 Leases. The net effect on the
income statement is a net increase in charges of GBP0.2 million as
at 30 September 2019. The effect of IFRS 16 on our key metrics can
be seen in note 9.
Principal risks and uncertainties
The Group's continued success is influenced by how well we
manage our risks. As at 30 September 2019, the Group's principal
risks and uncertainties, as detailed in our financial statements
for the year ended 31 March 2019, are all still considered to be
valid risks and there have been no significant movements in these
risks in the past six months. These will be reviewed again at the
year end.
Statement of Directors' responsibilities
We confirm to the best of our knowledge that:
-- the condensed interim set of financial statements has been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the European Union;
-- the interim report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the
first six months and description of the principal risks and
uncertainties for the remaining six months of the year); and
-- the interim report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties transactions
and any changes therein).
By order of the Board
Paul Fineman
Chief Executive Officer
Giles Willits
Chief Financial Officer
26 November 2019
CONDENSED CONSOLIDATED INCOME STATEMENT
SIX MONTHSED 30 SEPTEMBER 2019
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 30 Sep 31 Mar
2019 2018 2019
Note GBP000 GBP000 GBP000
----------------------------- ---- ---------- ---------- ---------
Revenue 2 248,371 205,238 448,362
Cost of sales (197,597) (161,754) (365,533)
----------------------------- ---- ---------- ---------- ---------
Gross profit 50,774 43,484 82,829
Selling expenses (10,658) (10,557) (23,095)
Administration expenses (21,336) (18,363) (40,596)
Other operating income 398 284 620
----------------------------- ---- ---------- ---------- ---------
Operating profit 19,178 14,848 19,758
Finance expenses (2,083) (827) (2,476)
----------------------------- ---- ---------- ---------- ---------
Profit before tax 17,095 14,021 17,282
Income tax charge 5 (3,792) (3,757) (4,031)
----------------------------- ---- ---------- ---------- ---------
Profit for the period 13,303 10,264 13,251
----------------------------- ---- ---------- ---------- ---------
Attributable to:
Owners of the Parent Company 12,799 9,553 11,925
Non-controlling interests 504 711 1,326
----------------------------- ---- ---------- ---------- ---------
Operating profit analysed as:
Adjusted operating profit 23,605 19,440 32,646
Exceptional items 3 (1,503) (2,661) (8,274)
Acquisition amortisation (1,411) (429) (1,609)
LTIP charges (1,513) (1,502) (3,005)
------------------------------ -------- ------- -------
Operating profit 19,178 14,848 19,758
------------------------------ -------- ------- -------
Finance expenses analysed as:
Adjusted finance expenses (2,083) (547) (2,318)
Exceptional items 3 - (280) (158)
------------------------------ -------- ----- -------
Finance expenses (2,083) (827) (2,476)
------------------------------ -------- ----- -------
Earnings per ordinary share
Unaudited six months Unaudited six months Twelve months
ended 30 Sep 2019 ended 30 Sep 2018 ended 31 Mar 2019
---------------------- ---------------------- -------------------
Diluted Basic Diluted Basic Diluted Basic
Note pence pence pence pence pence pence
------------------- ---- ------------ -------- ------------ -------- ---------- -------
Earnings per share 6 16.0 16.0 13.8 14.1 15.9 16.2
------------------- ---- ------------ -------- ------------ -------- ---------- -------
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
SIX MONTHSED 30 SEPTEMBER 2019
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 30 Sep 31 Mar
2019 2018 2019
GBP000 GBP000 GBP000
-------------------------------------------------------------------------------------- ---------- ---------- ------
Profit for the period 13,303 10,264 13,251
Other comprehensive income:
-------------------------------------------------------------------------------------- ---------- ---------- ------
Exchange difference on translation of foreign operations 860 611 240
Transfer to profit and loss on maturing cash flow hedges (118) 27 27
Net (loss)/gain on cash flow hedges (326) (630) 118
-------------------------------------------------------------------------------------- ---------- ---------- ------
Other comprehensive income for period, net of tax, items which may be reclassified to
profit
and loss in subsequent periods 416 8 385
-------------------------------------------------------------------------------------- ---------- ---------- ------
Total comprehensive income for the period, net of tax 13,719 10,272 13,636
Attributable to:
Owners of the Parent Company 13,123 9,476 12,372
Non-controlling interests 596 796 1,264
-------------------------------------------------------------------------------------- ---------- ---------- ------
13,719 10,272 13,636
-------------------------------------------------------------------------------------- ---------- ---------- ------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
SIX MONTHSED 30 SEPTEMBER 2019
Share
premium
and capital Non-
Share redemption Merger Hedging Translation Retained Shareholder controlling
capital reserve reserves reserves reserve earnings equity interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ ------- ----------- -------- -------- ----------- -------- ----------- ----------- -------
At 31 March 2019
(restated) 3,918 57,663 32,399 118 1,607 75,801 171,506 4,051 175,557
Impact of adopting
IFRS 16 (see note
9) - - - - - (1,867) (1,867) (440) (2,307)
------------------ ------- ----------- -------- -------- ----------- -------- ----------- ----------- -------
Restated equity at
31 March 2019 3,918 57,663 32,399 118 1,607 73,934 169,639 3,611 173,250
------------------ ------- ----------- -------- -------- ----------- -------- ----------- ----------- -------
Profit for the
period - - - - - 12,799 12,799 504 13,303
Other
comprehensive
income - - - (444) 768 - 324 92 416
------------------ ------- ----------- -------- -------- ----------- -------- ----------- ----------- -------
Total
comprehensive
income for the
period - - - (444) 768 12,799 13,123 596 13,719
------------------ ------- ----------- -------- -------- ----------- -------- ----------- ----------- -------
Equity-settled
share-based
payment - - - - - 1,180 1,180 - 1,180
Tax on
equity-settled
share-based
payments - - - - - 255 255 - 255
Recognition of
non-controlling
interest - - - - - - - 98 98
Options exercised 36 - - - - (36) - - -
Equity dividends
paid - - - - - (4,732) (4,732) - (4,732)
------------------ ------- ----------- -------- -------- ----------- -------- ----------- ----------- -------
At 30 September
2019 3,954 57,663 32,399 (326) 2,375 83,400 179,465 4,305 183,770
------------------ ------- ----------- -------- -------- ----------- -------- ----------- ----------- -------
SIX MONTHSED 30 SEPTEMBER 2018 (RESTATED SEE NOTE 1)
Share
premium
and capital Non--
Share redemption Merger Hedging Translation Retained Shareholder controlling
capital reserve reserves reserves reserve earnings equity interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ ------- ----------- -------- -------- ----------- -------- ----------- ----------- -------
At 31 March 2018 3,194 9,815 17,164 (27) 1,305 65,404 96,855 3,661 100,516
------------------ ------- ----------- -------- -------- ----------- -------- ----------- ----------- -------
Profit for the
period - - - - - 9,553 9,553 711 10,264
Other
comprehensive
income - - - (603) 526 - (77) 85 8
------------------ ------- ----------- -------- -------- ----------- -------- ----------- ----------- -------
Total
comprehensive
income for the
period - - - (603) 526 9,553 9,476 796 10,272
------------------ ------- ----------- -------- -------- ----------- -------- ----------- ----------- -------
Equity-settled
share-based
payments - - - - - 1,014 1,014 - 1,014
Tax on
equity-settled
share-based
payments - - - - - (286) (286) - (286)
Shares issued 641 47,830 15,235 - - - 63,706 - 63,706
Disposal of
non--controlling
interest - - - - - - - (110) (110)
Options exercised 79 18 - - - (68) 29 - 29
Equity dividends
paid - - - - - (2,597) (2,597) - (2,597)
------------------ ------- ----------- -------- -------- ----------- -------- ----------- ----------- -------
At 30 September
2018 3,914 57,663 32,399 (630) 1,831 73,020 168,197 4,347 172,544
------------------ ------- ----------- -------- -------- ----------- -------- ----------- ----------- -------
YEARED 31 MARCH 2019 (RESTATED SEE NOTE 1)
Share
premium
and capital Non--
Share redemption Merger Hedging Translation Retained Shareholder controlling
capital reserve reserves reserves reserve earnings equity interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------- ------- ----------- -------- -------- ----------- -------- ----------- ----------- --------
At 1 April 2018 3,194 9,815 17,164 (27) 1,305 65,404 96,855 3,661 100,516
----------------- ------- ----------- -------- -------- ----------- -------- ----------- ----------- --------
Profit for the
year - - - - - 11,925 11,925 1,326 13,251
Other
comprehensive
income - - - 145 302 - 447 (62) 385
----------------- ------- ----------- -------- -------- ----------- -------- ----------- ----------- --------
Total
comprehensive
income for the
year - - - 145 302 11,925 12,372 1,264 13,636
----------------- ------- ----------- -------- -------- ----------- -------- ----------- ----------- --------
Equity--settled
share--based
payments - - - - - 2,333 2,333 - 2,333
Tax on
equity--settled
share--based
payments - - - - - 764 764 - 764
Shares issued 641 47,830 15,235 - - - 63,706 - 63,706
Recognition of
non-controlling
interest - - - - - - - 311 311
Disposal of
non-controlling
interest - - - - - - - (110) (110)
Options exercised 83 18 - - - (72) 29 - 29
Equity dividends
paid - - - - - (4,553) (4,553) (1,075) (5,628)
----------------- ------- ----------- -------- -------- ----------- -------- ----------- ----------- --------
At 31 March 2019 3,918 57,663 32,399 118 1,607 75,801 171,506 4,051 175,557
----------------- ------- ----------- -------- -------- ----------- -------- ----------- ----------- --------
CONDENSED CONSOLIDATED BALANCE SHEET
AS AT 30 SEPTEMBER 2019
Unaudited Unaudited Restated
as at restated as at
as at
30 Sep 30 Sep 31 Mar
2019 2018 2019
Note GBP000 GBP000 GBP000
---------------------------------------------------- ---- --------- --------- --------
Non-current assets
Property, plant and equipment 41,276 45,221 39,835
Intangible assets 86,570 80,502 85,002
Right--of--use assets 35,586 - -
Deferred tax assets 4,167 2,909 3,610
---------------------------------------------------- ---- --------- --------- --------
Total non-current assets 167,599 128,632 128,447
---------------------------------------------------- ---- --------- --------- --------
Current assets
Inventory 128,213 110,233 69,571
Trade and other receivables 163,143 183,571 45,405
Derivative financial assets 415 341 129
Cash and cash equivalents 4 117,982 126,014 77,608
---------------------------------------------------- ---- --------- --------- --------
Total current assets 409,753 420,159 192,713
---------------------------------------------------- ---- --------- --------- --------
Total assets 577,352 548,791 321,160
---------------------------------------------------- ---- --------- --------- --------
Equity
Share capital 3,954 3,914 3,918
Share premium 56,323 56,323 56,323
Capital redemption reserve 1,340 1,340 1,340
Reserves 34,448 33,600 34,124
Retained earnings 83,400 73,020 75,801
---------------------------------------------------- ---- --------- --------- --------
Equity attributable to owners of the Parent Company 179,465 168,197 171,506
---------------------------------------------------- ---- --------- --------- --------
Non-controlling interests 4,305 4,347 4,051
---------------------------------------------------- ---- --------- --------- --------
Total equity 183,770 172,544 175,557
---------------------------------------------------- ---- --------- --------- --------
Non-current liabilities
Loans and borrowings 4 731 3,315 1,421
Lease liabilities 34,225 - -
Deferred income 552 - 751
Provisions 2,516 1,113 2,671
Other liabilities 706 1,762 1,817
Deferred tax liabilities 736 2,110 692
---------------------------------------------------- ---- --------- --------- --------
Total non-current liabilities 39,466 8,300 7,352
---------------------------------------------------- ---- --------- --------- --------
Current liabilities
Bank overdraft 4 102,051 126,921 58,150
Loans and borrowings 4 101,427 95,824 953
Lease liabilities 6,123 - -
Deferred income 355 1,047 99
Provisions 934 1,009 1,090
Income tax payable 6,030 5,077 4,771
Trade and other payables 120,109 118,421 58,563
Other liabilities 17,087 19,648 14,625
---------------------------------------------------- ---- --------- --------- --------
Total current liabilities 354,116 367,947 138,251
---------------------------------------------------- ---- --------- --------- --------
Total liabilities 393,582 376,247 145,603
---------------------------------------------------- ---- --------- --------- --------
Total equity and liabilities 577,352 548,791 321,160
---------------------------------------------------- ---- --------- --------- --------
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
SIX MONTHSED 30 SEPTEMBER 2019
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 30 Sep 31 Mar
2019 2018 2019
GBP000 GBP000 GBP000
------------------------------------------------------------------- ---------- ---------- --------
Cash flows from operating activities
Profit for the year 13,303 10,264 13,251
Adjustments for:
Depreciation 3,041 2,316 5,328
Depreciation of right--of--use asset 3,208 - -
Amortisation of intangible assets 1,944 737 2,309
Finance expenses 2,083 827 2,476
Income tax charge 3,792 3,757 4,031
Loss/(profit) on sales of property, plant and equipment 7 (4) (6)
Loss on disposal of intangible fixed assets - 311 331
Equity-settled share-based payments 1,513 1,502 3,005
------------------------------------------------------------------- ---------- ---------- --------
Operating profit after adjustments for non-cash items 28,891 19,710 30,725
Change in trade and other receivables (116,210) (108,524) 25,616
Change in inventory (56,065) (32,335) 6,508
Change in trade and other payables, provisions and deferred income 61,502 44,620 (18,086)
------------------------------------------------------------------- ---------- ---------- --------
Cash (used by)/generated from operations (81,882) (76,529) 44,763
Tax paid (2,297) (2,236) (3,694)
Interest and similar charges paid (1,672) (605) (2,053)
------------------------------------------------------------------- ---------- ---------- --------
Net cash (outflow)/inflow from operating activities (85,851) (79,370) 39,016
------------------------------------------------------------------- ---------- ---------- --------
Cash flow from investing activities
Proceeds from sale of property, plant and equipment 21 515 5,312
Acquisition of businesses - (67,055) (65,601)
Acquisition of intangible assets (908) (1,044) (2,190)
Acquisition of property, plant and equipment (3,171) (2,507) (5,699)
------------------------------------------------------------------- ---------- ---------- --------
Net cash outflow from investing activities (4,058) (70,091) (68,178)
------------------------------------------------------------------- ---------- ---------- --------
Cash flows from financing activities
Proceeds from issue of share capital - 48,348 48,348
Repayment of secured borrowings (497) (500) (2,350)
Net movement in previous credit facilities 37,976 94,868 -
Repayment of previous credit facilities (37,976) - -
Net movement in new credit facilities 100,734 - -
Payment of lease liabilities (3,055) - -
Loan arrangement fees (598) (30) (30)
Equity dividends paid (4,732) (2,597) (4,553)
Dividends paid to non-controlling interests - - (1,075)
------------------------------------------------------------------- ---------- ---------- --------
Net cash inflow from financing activities 91,852 140,089 40,340
------------------------------------------------------------------- ---------- ---------- --------
Net increase/(decrease) in cash and cash equivalents 1,943 (9,372) 11,178
Cash and cash equivalents at beginning of period 19,458 9,031 9,031
Effect of exchange rate fluctuations on cash held (5,470) (566) (751)
------------------------------------------------------------------- ---------- ---------- --------
Cash and cash equivalents at end of the period 15,931 (907) 19,458
------------------------------------------------------------------- ---------- ---------- --------
NOTES TO THE INTERIM FINANCIAL STATEMENTS
SIX MONTHSED 30 SEPTEMBER 2019
1 Accounting policies
Basis of preparation
The financial information contained in this interim report does
not constitute statutory accounts as defined in Section 435 of the
Companies Act 2006 and is unaudited.
The Group interim report has been prepared and approved by the
Directors in accordance with International Financial Reporting
Standards as adopted by the EU ('Adopted IFRS'). The financial
information for the year ended 31 March 2019 is extracted from the
statutory accounts of the Group for that financial year and does
not constitute statutory accounts as defined in Section 435 of the
Companies Act 2006. The auditor's report was (i) unqualified; (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) of the
Companies Act 2006.
The interim report does not include all the information and
disclosures required in the annual financial statements and should
be read in conjunction with the Group's annual financial statements
for the year ended 31 March 2019.
In the preparation of the interim financial statements,
comparative amounts have been restated to reflect the
following:
-- the provisional Impact acquisition accounting (note 7) has
been reviewed and hindsight adjustments made to goodwill (GBP2.0
million increase), intangibles (GBP0.7 million decrease) and
provisions (GBP1.3 million increase). These have been adjusted in
the comparative balance sheet;
-- the shares issued in 2019 as consideration for the
acquisition of Impact qualified for merger relief in accordance
with the Companies Act 2006 (Section 612). In the year ended 31
March 2019, the Group applied incorrect accounting principles in
that the excess value of shares over nominal was treated as share
premium. As a result, GBP15.2 million has been reclassified from
the share premium reserve to the merger reserve;
-- cash balances and overdraft financial liabilities have been
historically incorrectly offset within the Group's financial
statements and presented on a net basis within the Group's
consolidated balance sheet. This has been corrected to restate the
prior year balance sheet to present the respective balances on a
gross basis. Cash and cash equivalents have been restated from
GBP1.6 million to GBP126.0 million as at 30 September 2018, and
GBP19.5 million to GBP77.6 million as at 31 March 2019. A line
detailing the bank overdraft amounts as at 30 September 2018
(GBP126.9 million) and 31 March 2019 (GBP58.2 million) has also
been included; and
-- previously, segmental assets and liabilities were incorrectly
presented within the segmental information note (note 4). In order
to correct this, the respective segmental assets and liabilities
have been reallocated from the UK segment to the central and
eliminations segment, and similarly, from the Australia segment to
the US segment to reflect the correct allocation of assets and
liabilities between the Group segments. In addition, segments have
been restated to appropriately reflect investments held by each
segment as well as the gross up of cash balances detailed above.
The restated segment assets as at 31 March 2019 are as follows:
Original Restated
balance balance
Segment GBP000 GBP000
----------------------- -------- --------
UK 188,766 92,537
Europe 19,240 36,573
USA 36,306 112,825
Australia 13,776 17,198
Central & eliminations 3,610 62,027
----------------------- -------- --------
Total 261,698 321,160
----------------------- -------- --------
The restated segment liabilities as at 31 March 2019 are as
follows:
Original Restated
balance balance
Segment GBP000 GBP000
----------------------- -------- ---------
UK (28,295) (26,284)
Europe (10,457) (19,971)
USA (35,931) (84,063)
Australia (7,396) (8,284)
Central & eliminations (4,062) (6,461)
----------------------- -------- ---------
Total (86,141) (145,603)
----------------------- -------- ---------
In addition, from this financial year, the Group have adjusted
their assumptions as to the shares that are to be included in the
calculation of the weighted average number of shares for diluted
and basic earnings per share purposes. As such the numbers detailed
in respect of 2019 have been re-presented using the same
methodology in order to provide appropriate comparatives.
Going concern basis
The borrowing requirement of the Group increases steadily over
the period from July and peaks in October, due to the seasonality
of the business, as Group sales are mainly for the Christmas
market, before then reducing.
As with any Group 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 interim 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 at least twelve months
from the date of approval of the interim financial statements.
Thus, they continue to adopt the going concern basis of accounting
in preparing the financial statements.
Supplier financing
The Group are also party to supplier financing arrangements with
one of our key customers. This arrangement is considered
non-recourse factoring and on receipt of payment from the banks the
associated trade receivable is derecognised in accordance with IFRS
9. As at 30 September 2019, the Group had utilised $35.0 million of
the facility (H1 2019: $5.9 million).
Significant accounting policies
The accounting policies adopted in the preparation of the
interim report are consistent with those followed in the
preparation of the Group's annual financial statements for the year
ended 31 March 2019, with the exception of IFRS 16 which was
adopted by the Group on 1 April 2019 (see note 9).
2 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, seasonal décor, design--led
giftware, and 'not--for--resale' consumables.
For management purposes the Group is organised into four
geographic business units.
The results in this note are allocated based on the region in
which the businesses are located; this reflects the Group's
management and internal reporting structure. The Group has a China
factory and Asian procurement operations which are overseen by our
UK operational management team and we therefore continue to include
UK owned and managed Asian operations within the internal reporting
of the UK operations, comprising one operating segment.
Since the acquisition of Impact Innovations, Inc. the Group now
has a second China factory (wholly owned) and Asian procurement
which form part of Impact's operations and therefore is included in
the overall US segment.
Inter--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 adjusted
operating profit before management recharges. Interest 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. Inter--segment receivables and payables are
not included within segmental assets and liabilities as they
eliminate on consolidation.
Central
&
UK(a) Europe USA(a) Australia eliminations Group
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Six months ended 30 September 2019
Revenue - external 55,968 27,866 147,990 16,547 - 248,371
- inter segment 2,340 949 - - (3,289) -
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Total segment revenue 58,308 28,815 147,990 16,547 (3,289) 248,371
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Segment result before exceptional items,
acquisition amortisation, LTIP charges and
management
recharge 5,365 3,838 14,504 1,622 (1,724) 23,605
Exceptional items (1,503)
Acquisition amortisation (1,411)
LTIP charges (1,513)
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Operating profit 19,178
Finance expenses (2,083)
Income tax (3,792)
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Profit for the six months ended 30 September 2019 13,303
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Balances at 30 September 2019
Segment assets 147,911 60,109 238,263 21,504 109,565 577,352
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Segment liabilities (79,309) (40,872) (158,693) (13,395) (101,313) (393,582)
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Capital expenditure additions
- property, plant and equipment 866 1,360 809 133 3 3,171
- intangible assets 109 9 721 - 69 908
Depreciation 1,278 478 981 302 2 3,041
Amortisation - - 1,258 153 - 1,411
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
(a) Including Asian manufacturing and sourcing.
Central
&
UK(a) Europe USA(a) Australia eliminations Group
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Six months ended 30 September 2018
Revenue - external 58,092 25,934 100,730 20,482 - 205,238
- inter segment 2,516 1,274 - - (3,790) -
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Total segment revenue 60,608 27,208 100,730 20,482 (3,790) 205,238
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Segment result before exceptional items,
acquisition amortisation, LTIP charges and
management
recharge 4,936 3,369 10,913 2,271 (2,049) 19,440
Exceptional items (2,661)
Acquisition amortisation (429)
LTIP charges (1,502)
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Operating profit 14,848
Finance expenses (547)
Finance expense treated as exceptional (280)
Income tax (3,757)
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Profit for the six months ended 30 September 2018 10,264
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Balances at 30 September 2018
Segment assets - restated 130,285 50,112 223,301 24,137 120,956 548,791
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Segment liabilities - restated (66,228) (35,772) (189,326) (14,193) (70,728) (376,247)
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
Capital expenditure additions
- property, plant and equipment 1,911 338 46 212 - 2,507
- property, plant and equipment on
acquisition of business - - 9,313 - - 9,313
- intangible assets 117 10 917 - - 1,044
- intangible assets on acquisition of
business - - 48,354 - - 48,354
Depreciation 1,095 428 473 320 - 2,316
Amortisation 94 15 466 162 - 737
--------------------------------------------------- -------- -------- --------- --------- ------------ ---------
(a) Including Asian manufacturing and sourcing.
Central
&
UK(a) Europe USA(a) Australia eliminations Group
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------------------- -------- --------- --------- --------- ------------ ---------
Year ended 31 March 2019
Revenue - external 123,006 63,188 223,101 39,067 - 448,362
- inter segment 4,112 1,377 - - (5,489) -
-------------------------------------------------- -------- --------- --------- --------- ------------ ---------
Total segment revenue 127,118 64,565 223,101 39,067 (5,489) 448,362
-------------------------------------------------- -------- --------- --------- --------- ------------ ---------
Segment result before exceptional items,
acquisition amortisation, LTIP charges and
management
recharge 8,073 8,871 15,522 4,278 (4,098) 32,646
Exceptional items (8,274)
Acquisition amortisation (1,609)
LTIP charges (3,005)
-------------------------------------------------- -------- --------- --------- --------- ------------ ---------
Operating profit 19,758
Finance expenses (2,318)
Finance expense treated as exceptional (158)
Income tax (4,031)
-------------------------------------------------- -------- --------- --------- --------- ------------ ---------
Profit for the year ended 31 March 2019 13,251
-------------------------------------------------- -------- --------- --------- --------- ------------ ---------
Balances at 31 March 2019
Segment assets - restated 92,537 36,573 112,825 17,198 62,027 321,160
-------------------------------------------------- -------- --------- --------- --------- ------------ ---------
Segment liabilities - restated (26,824) (19,971) (84,063) (8,284) (6,461) (145,603)
-------------------------------------------------- -------- --------- --------- --------- ------------ ---------
Capital expenditure additions
- property, plant and equipment 2,635 901 1,780 383 - 5,699
- property, plant and equipment on
acquisition of business - - 9,313 - - 9,313
- intangible assets 285 12 1,893 - - 2,190
- intangible assets on acquisition of
business - - 48,354 - - 48,354
Depreciation 2,333 920 1,452 623 - 5,328
Amortisation 167 35 1,781 326 - 2,309
-------------------------------------------------- -------- --------- --------- --------- ------------ ---------
(a) Including Asian manufacturing and sourcing.
3 Exceptional items
These include acquisition related costs and reorganisation and
restructuring costs. These items are excluded to present the
performance of the business in a consistent manner and in line with
how the business is managed and measured on a day-to-day basis.
They are typically gains or costs associated with events that are
not considered to form part of the core operations, or are
considered to be a 'non-recurring' event (although they may span
several accounting periods).
Acquisition related costs
Costs associated with acquisitions, including legal and advisory
fees on deals, form part of our reported results on an IFRS basis.
These costs, however, in our view form part of the capital
transaction and as they are not attributed to investment value
under IFRS 3, they are excluded from our adjusted measures for the
purposes of reporting underlying results. Similarly, where
acquisitions have employee related payments (exclusive of LTIPs)
which lock in and incentivise legacy talent, we have also excluded
these costs. As these costs are employment linked, they are treated
as an expense and form part of the IFRS results, however, as with
transaction costs, we do not consider these to form part of the
underlying results of the business.
Reorganisation and restructuring costs
In order to maximise efficiencies, as well as recognise
synergies from acquisitions, certain projects are undertaken to
achieve these. These are projects outside of the normal operations
of the business and typically are very sizeable in terms of costs.
This is particularly relevant during a large scale restructuring
that can result in some disruption to the normal business (for
example manufacturing patterns) leading to operational
inefficiencies occurring in this time frame. If we deem this to be
the case, we will present the details and associated costs of the
projects separately in our financial statements and exclude them
from our adjusted measures.
Cost of Selling Admin Finance
sales expenses expenses expenses Total
Six months ended 30 Sep 2019 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- ------- -------- -------- -------- -------
UK unification(a) (89) (59) (38) - (186)
US restructure(b) (454) - (735) - (1,189)
Transaction costs(c) - - (128) - (128)
----------------------------- ------- -------- -------- -------- -------
Total before tax (543) (59) (901) - (1,503)
----------------------------- ------- -------- -------- -------- -------
Income tax credit 343
----------------------------- ------- -------- -------- -------- -------
Exceptional items after tax (1,160)
----------------------------- ------- -------- -------- -------- -------
(a) Unification cost associated with the rationalisation of the
UK business, including additional redundancies associated with
restructuring our UK business.
(b) The restructure of our US operations including the
incremental costs of integration in our Memphis facility and
retention payments for legacy employees of Impact.
(c) Transaction costs associated with ongoing M&A activity.
Cost of Selling Admin Finance
sales expenses expenses expenses Total
Six months ended 30 Sep 2018 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- ------- -------- -------- -------- -------
Transaction costs(a) - - (1,701) (280) (1,981)
US restructure(b) (698) (148) (114) - (960)
----------------------------- ------- -------- -------- -------- -------
Total before tax (698) (148) (1,815) (280) (2,941)
----------------------------- ------- -------- -------- -------- -------
Income tax credit 479
----------------------------- ------- -------- -------- -------- -------
Exceptional items after tax (2,462)
----------------------------- ------- -------- -------- -------- -------
(a) Transaction costs relating predominantly to the acquisition
of Impact Innovations Inc. in the current year (including the
charge relating to the unwind of the inventory fair value
adjustment) and the acquisition of the trade and certain assets of
Biscay Greetings Pty Ltd and the remaining costs from the
acquisition of the Lang Companies Inc. in the prior year.
(b) The restructure of the US operations linked to the
acquisition of Impact Innovations Inc. and the final charges in
relation to the Lang integration.
Cost of Selling Admin Finance
sales expenses expenses expenses Total
Year ended 31 March 2019 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ------- -------- -------- -------- -------
Transaction costs(a) - - (2,254) (158) (2,412)
UK unification(b) - - (428) - (428)
US restructure(c) (1,748) (222) (3,622) - (5,592)
---------------------------- ------- -------- -------- -------- -------
Total before tax (1,748) (222) (6,304) (158) (8,432)
---------------------------- ------- -------- -------- -------- -------
Income tax credit 2,038
---------------------------- ------- -------- -------- -------- -------
Exceptional items after tax (6,394)
---------------------------- ------- -------- -------- -------- -------
(a) Transaction costs relating predominantly to the acquisition of Impact Innovations Inc.
(b) Unification cost associated with relocating a part of our UK
business to another site and associated redundancies with the
move.
(c) The restructure of our US operations including the profit on
sale of our manufacturing facility in Midway and closure costs. The
cost of relocating equipment and personnel to Memphis, Tennessee
along with manufacturing inefficiencies associated with the start
up of converting operations. The charge relating to the unwind of
the inventory fair value adjustment arising on acquisition and
final charges in relation to the Lang integration.
4 Cash, loans and borrowings
Cash and cash equivalents/bank overdrafts
Restated Restated
Six months six months twelve
months
ended ended ended
30 Sep 30 Sep 31 Mar
2019 2018 2019
GBP000 GBP000 GBP000
-------------------------------------------------- ---------- ---------- --------
Cash and cash equivalents 117,982 126,014 77,608
Bank overdrafts (102,051) (126,921) (58,150)
-------------------------------------------------- ---------- ---------- --------
Cash and cash equivalents per cash flow statement 15,931 (907) 19,458
-------------------------------------------------- ---------- ---------- --------
Net (debt)/cash
Six months Six months Twelve
months
ended ended ended
30 Sep 30 Sep 31 Mar
2019 2018 2019
GBP000 GBP000 GBP000
------------------------------------------------ ---------- ---------- -------
Cash and cash equivalents 15,931 (907) 19,458
Bank loans and borrowings (102,657) (99,201) (2,405)
Loan arrangement fees 499 62 31
------------------------------------------------ ---------- ---------- -------
Net (debt)/cash as used in the financial review (86,227) (100,046) 17,084
------------------------------------------------ ---------- ---------- -------
Split between current and non--current
Six months Six months Twelve
months
ended ended ended
30 Sep 30 Sep 31 Mar
2019 2018 2019
GBP000 GBP000 GBP000
-------------------------------------- ---------- ---------- -------
Non-current liabilities
Secured bank loans (934) (3,333) (1,421)
Loan arrangement fees 203 18 -
-------------------------------------- ---------- ---------- -------
(731) (3,315) (1,421)
-------------------------------------- ---------- ---------- -------
Current liabilities
Asset backed loan (9,145) (33,920) -
Revolving credit facilities (91,589) (60,948) -
Current portion of secured bank loans (989) (1,000) (984)
-------------------------------------- ---------- ---------- -------
Bank loans and borrowings (101,723) (95,868) (984)
Loan arrangement fees 296 44 31
-------------------------------------- ---------- ---------- -------
(101,427) (95,824) (953)
-------------------------------------- ---------- ---------- -------
On 5 June 2019, we entered into a new three year Group facility
with a club of five banks chosen to reflect and support the
geographical spread of the Group. HSBC continue to be significant
partner and have been joined in the new facility by NatWest, BNP
Paribas, Sun Trust and PNC.
The new Group facilities, which run to May 2022, comprises
of:
-- a revolving credit facility ('RCF A') of $80.0 million;
-- a further flexible revolving credit facility ('RCF B') with
availability varying from month to month of up to GBP85.0 million.
This RCF is flexed to meet our working capital requirements during
those months when inventory is being built within our annual
business cycle and is GBPnil when not required, minimising carry
costs; and
-- the existing invoice financing arrangements in Hong Kong
which will remain in place for a minimum of the first year.
In total, the available facilities at approximately GBP160
million are more than sufficient to cover our peak requirements.
Being partially framed in US dollars they provide a hedge against
currency movements. The facilities, which do not amortise with
time, include an additional uncommitted amount to finance potential
acquisitions.
Loan arrangement fees represent the unamortised costs in
arranging the three year Group facilities.
5 Taxation
Six months Six months Twelve
months
ended ended ended
30 Sep 30 Sep 31 Mar
2019 2018 2019
GBP000 GBP000 GBP000
----------------------------------------------------------- ---------- ---------- -------
Current tax charge
Current income tax charge 3,790 2,522 4,808
Deferred tax charge/(credit)
Relating to original and reversal of temporary differences 2 1,235 (777)
----------------------------------------------------------- ---------- ---------- -------
Total tax in income statement 3,792 3,757 4,031
----------------------------------------------------------- ---------- ---------- -------
Income tax expense is recognised based upon the best estimate of
the weighted average income tax rate on profit before tax,
exceptional items and LTIP charges expected for the full financial
year, taking into account the weighted average rate for each
jurisdiction.
6 Earnings per share(a)
Six months Six months Twelve months
ended 30 Sep 2019 ended 30 Sep 2018(a) ended 31 Mar 2019(a)
------------------- ---------------------- ----------------------
Diluted Basic Diluted Basic Diluted Basic
pence pence pence pence pence pence
------------------------------------------------- ---------- ------- ------------ -------- ------------ --------
Adjusted earnings per share excluding exceptional
items, acquisition amortisation and LTIP
charges(b) 20.1 20.2 19.7 20.0 29.1 29.6
Cost per share on exceptional items (1.4) (1.5) (3.6) (3.6) (8.5) (8.7)
------------------------------------------------- ---------- ------- ------------ -------- ------------ --------
Adjusted earnings per share excluding
acquisition amortisation and LTIP charges(c) 18.7 18.7 16.1 16.4 20.6 20.9
Cost per share on acquisition amortisation (1.2) (1.2) (0.4) (0.4) (0.9) (0.9)
------------------------------------------------- ---------- ------- ------------ -------- ------------ --------
Adjusted earnings per share excluding LTIP
charges(d) 17.5 17.5 15.7 16.0 19.7 20.0
Cost per share on LTIP charge (1.5) (1.5) (1.9) (1.9) (3.8) (3.8)
------------------------------------------------- ---------- ------- ------------ -------- ------------ --------
Earnings per share(e) 16.0 16.0 13.8 14.1 15.9 16.2
------------------------------------------------- ---------- ------- ------------ -------- ------------ --------
(a) From this financial year, the Group have adjusted their
assumptions as to the shares that are to be included in the
calculation of the weighted average number of shares for diluted
and basic earnings per share purposes. As such the numbers detailed
in respect of 2019 have been re-presented using the same
methodology in order to provide appropriate comparatives.
(b) Excludes exceptional items, acquisition amortisation and
LTIP charges of GBP4,427,000 (H1 2019: GBP4,372,000) plus the
effect of non--controlling interests of GBP77,000 credit (H1 2019:
GBP78,000 credit) and tax relief attributable to those items of
GBP1,028,000 (H1 2019: GBP763,000), to give adjusted profit of
GBP3,322,000 (H1 2019: GBP4,031,000).
(c) Excludes acquisition amortisation and LTIP charges of
GBP2,924,000 (H1 2019: GBP1,931,000) plus the effect of
non--controlling interests of GBP77,000 credit (H1 2019: GBP78,000
credit) and tax relief attributable to those items of GBP685,000
(H1 2019: GBP284,000), to give adjusted profit of GBP2,162,000 (H1
2019: GBP1,569,000).
(d) Excludes LTIP charges of GBP1,513,000 (H1 2019:
GBP1,502,000) and tax relief attributable to those items of
GBP337,000 (H1 2019: GBP195,000), to give adjusted profit
(including the effect of non-controlling interests) of GBP1,176,000
(H1 2019: GBP1,307,000).
(e) The basic earnings per share is based on the profit
attributable to equity holders of the Company of GBP12,977,000 (H1
2019: GBP9,553,000) and the weighted average number of ordinary
shares in issue of 79,960,000 (H1 2019: 68,002,000) calculated as
follows:
As at As at As at
In thousands of shares 30 Sep 30 Sep 30 Mar
2019 2018(a) 2019(a)
----------------------------------------------------------- ------ -------- --------
Issued ordinary shares at 1 April 78,366 63,890 63,890
Shares held by Employee Benefit Trust - (31) (31)
Shares relating to share options 1,594 2,331 2,419
Shares issued as part of the consideration for Impact - 497 1,761
Shares issued in respect of share placing - 1,315 5,571
----------------------------------------------------------- ------ -------- --------
Weighted average number of shares at the end of the period 79,960 68,002 73,610
----------------------------------------------------------- ------ -------- --------
Diluted earnings per share
The diluted earnings per share is calculated taking into account
LTIP awards whose specified performance conditions were satisfied
at the end of the reporting period of 441,000 (H1 2019: 608,000)
share options and share options under the Executive share options
2008 schemes of nil (H1 2019: 175,000). At 30 September 2019, the
diluted number of shares was 80,401,000 (H1 2019: 68,785,000).
7 Acquisitions of businesses
Impact Innovations Inc.
On 31 August 2018, the Group acquired 100% of the equity of
Impact Innovations Inc. ('Impact'), a leading supplier of gift
packaging and seasonal décor products in the US.
The provisional acquisition accounting as stated in the
financial statements to 31 March 2019 has been reviewed and
measurement period adjustments made to goodwill, intangibles and
provisions. The fair values of the assets and liabilities acquired
have been reconsidered as part of the hindsight period. The changes
made were the creation of additional provisions of GBP1.3 million
and reduction of certain intangible assets (trade name) from GBP1.8
million to GBP1.1 million.
Adjustment to provisional accounting
Provisional Adjustments Final
fair values within fair values
the
recognised measurement recognised
on acquisition period on acquisition
GBP000 GBP000 GBP000
---------------------------------------- -------------- ----------- --------------
Property, plant and equipment 9,313 - 9,313
Intangible assets 19,000 (692) 18,308
Inventories 26,295 - 26,295
Trade and other receivables 31,966 - 31,966
Cash 1,208 - 1,208
Trade and other payables (31,433) - (31,433)
Provisions (including taxation) (2,197) (1,312) (3,509)
---------------------------------------- -------------- ----------- --------------
Net identifiable assets and liabilities 54,152 (2,004) 52,148
---------------------------------------- -------------- ----------- --------------
Consideration paid in shares 15,385 - 15,385
Consideration paid in cash 66,809 - 66,809
---------------------------------------- -------------- ----------- --------------
Total consideration 82,194 - 82,194
---------------------------------------- -------------- ----------- --------------
Goodwill 28,042 2,004 30,046
---------------------------------------- -------------- ----------- --------------
8 Related parties
As at 30 September 2019, there are no changes to the related
parties or relevant transactions as disclosed at 31 March 2019.
9 Changes in accounting policies
This note explains the impact of the adoption of IFRS 16 Leases
on the Group's financial statements and discloses the new
accounting policies that have been applied from 1 April 2019 in
section (b) below.
The Group has decided to adopt the modified retrospective
approach on transition. Under this approach, comparative
information is not restated and the impact of adopting IFRS 16 is
presented as an opening retained earnings adjustment as at 1 April
2019.
(a) Adjustments recognised on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the lessee's incremental borrowing
rate as of 1 April 2019.
2019
GBP000
----------------------------------------------------------------------------------------------- ------
Operating lease commitments disclosed as at 31 March 2019 (restated) 41,522
----------------------------------------------------------------------------------------------- ------
Discounted using the lessee's incremental borrowing rate as at the date of initial application 34,481
Less: short--term lease (235)
Add/(less): adjustments as a result of a different treatment of extension and termination
options 5,863
----------------------------------------------------------------------------------------------- ------
Lease liability recognised as at 1 April 2019 40,109
Of which are:
Current lease liabilities 5,669
Non-current lease liabilities 34,440
----------------------------------------------------------------------------------------------- ------
40,109
----------------------------------------------------------------------------------------------- ------
Lease liability recognised as at 30 September 2019 40,348
Of which are:
Current lease liabilities 6,123
Non-current lease liabilities 34,225
----------------------------------------------------------------------------------------------- ------
40,348
----------------------------------------------------------------------------------------------- ------
At transition, for leases classified as operating leases under
IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted at the lessee's incremental
borrowing rate as at 1 April 2019. Right--of--use assets are
measured at either:
-- their carrying amount as if IFRS 16 had been applied since
the lease commencement date, discounted by the lessee's incremental
borrowing rate as at 1 April 2019. The Group has applied this
methodology to 51 of its leases where sufficient historical
information has been available to facilitate this; or
-- an amount equal to the lease liability, adjusted by the
amount of any prepaid or accrued lease payments. This has been
applied to a small number of property leases where it was not
possible to ascertain sufficient historical data to enable a
retrospective calculation. This method has also been applied to the
majority of the Group's non-property leases, comprising of motor
vehicles and items of plant and equipment.
There were no onerous lease contracts that would have required
an adjustment to the right-of-use assets at the date of initial
application.
The recognised right-of-use assets relate to the following types
of assets:
30 Sep 1 April
2019 2019
GBP000 GBP000
-------------------------- ------ -------
Properties 33,945 33,733
Equipment 1,278 1,282
Motor vehicles 363 496
-------------------------- ------ -------
Total right-of-use assets 35,586 35,511
-------------------------- ------ -------
The change in accounting policy affected the following items in
the balance sheet on 1 April 2019:
-- right-of-use assets - increase by GBP35.5 million;
-- deferred tax assets - increase by GBP0.8 million;
-- lease liabilities - increase by GBP40.1 million; and
-- other liabilities - decrease by GBP1.2 million.
The net impact on retained earnings on 1 April 2019 was a
decrease of GBP2.3 million.
(i) Impact on segment disclosures and earnings per share
Segment assets and segment liabilities for 30 September 2019 all
increased as a result of the change in accounting policy. The
segments were affected by the change in policy as follows:
Segment Segment
assets liabilities
GBP000 GBP000
----------------------- ------- -----------
UK 17,550 19,975
Europe 3,997 4,015
USA 10,970 11,960
Australia 2,953 4,290
Central & eliminations 116 108
----------------------- ------- -----------
Total 35,586 40,348
----------------------- ------- -----------
Adjusted earnings per share decreased by 0.2p per share for the
six months to 30 September 2019 as a result of the adoption of IFRS
16.
(ii) Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
-- reliance on previous assessments on whether leases are onerous;
-- the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application; and
-- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
The Group has also elected not to reassess whether a contract
is, or contains a lease at the date of initial application.
Instead, for contracts entered into before the transition date, the
Group relied on its assessment made when applying IAS 17 and IFRIC
4 Determining Whether an Arrangement Contains a Lease.
(b) The Group's leasing activities and how these are accounted
for
The Group leases various offices, warehouses, equipment and
motor vehicles. Rental contracts are typically made for fixed
periods of five to 20 years but may have extension options as
described in (i) below. Lease terms are negotiated on an individual
basis and contain a wide range of different terms and conditions.
The lease agreements do not impose any covenants, but leased assets
may not be used as security for borrowing purposes.
Until 31 March 2019, leases of property, plant and equipment
were classified as either finance or operating leases. Payments
made under operating leases (net of any incentives received from
the lessor) were charged to the income statement on a straight-line
basis over the period of the lease.
From 1 April 2019, leases are recognised as a right-of-use asset
and a corresponding liability at the date at which the leased asset
is available for use by the Group. Each lease payment is allocated
between the liability and finance cost. The finance cost is charged
to the income statement over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the
liability for each period. The right-of-use asset is depreciated
over the shorter of the asset's useful life and the lease term on a
straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
-- variable lease payments that are based on an index or a rate;
-- amounts expected to be payable by the lessee under residual value guarantees;
-- the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option; and
-- payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
lessee's incremental borrowing rate is used, being the rate that
the lessee would have to pay to borrow the funds necessary to
obtain an asset of similar value in a similar economic environment
with similar terms and conditions. The weighted average incremental
borrowing rate applied by the Group upon transition was 3.9%.
Incremental borrowing rates applied to individual leases ranged
between 1.3% and 5.3%.
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement date
less any lease incentives received;
-- any initial direct costs; and
-- restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in the income statement. Short-term leases are leases with
a lease term of twelve months or less. Low-value assets comprise IT
equipment and small items of office furniture.
(i) Extension and termination options
Extension and termination options are included in a number of
property and equipment leases across the Group. These terms are
used to maximise operational flexibility in terms of managing
contracts. The majority of extension and termination options held
are exercisable only by the Group and not by the respective
lessor.
Critical judgements in determining the lease term
In determining the lease term, management considers all facts
and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in
the lease term if the lease is reasonably certain to be extended
(or not terminated).
The assessment is reviewed if a significant event or a
significant change in circumstances occurs which affects this
assessment and that is within the control of the lessee.
Impact on financial statements
The following table summarises the impact of adopting IFRS 16 on
the Group's key metrics:
Pre-IFRS Impact As reported
16 of
Sep 2019 IFRS 16 Sep 2019
------------------------------------ -------- ------- -----------
Adjusted operating profit (GBPm) 23.0 0.6 23.6
Finance expenses (GBPm) 1.3 0.8 2.1
Adjusted profit before tax (GBPm) 21.7 (0.2) 21.5
Adjusted EBITDA (GBPm) 26.6 3.8 30.4
Adjusted earnings per share (pence) 20.3 (0.2) 20.1
Average leverage (times) 1.1 (0.1) 1.0
ROCE (%) 24.7 0.7 25.4
------------------------------------ -------- ------- -----------
Net debt excludes IFRS 16 lease liabilities.
10 Capital commitments
At 30 September 2019, the Group had outstanding capital
commitments to purchase plant and equipment of GBP3,753,000.
11 Financial instruments
Derivative financial instruments
The derivative financial assets and liabilities below were
measured at Level 2 fair value subsequent to initial recognition.
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.
All other financial assets and liabilities are measured at
amortised cost.
The Group held the following financial instruments at fair value
at 30 September 2019:
30 Sep 30 Sep 31 Mar
2019 2018 2019
GBP000 GBP000 GBP000
-------------------------------------------------------------------------------------- ------ ------ ------
Forward foreign currency contracts carried at fair value through the income statement 14 23 129
Forward foreign exchange contracts carried at fair value through the hedging reserve 401 318 -
-------------------------------------------------------------------------------------- ------ ------ ------
Derivative financial assets 415 341 129
-------------------------------------------------------------------------------------- ------ ------ ------
Included within other liabilities are derivative financial
liabilities of:
30 Sep 30 Sep 31 Mar
2019 2018 2019
GBP000 GBP000 GBP000
-------------------------------------------------------------------------------------- ------ ------ ------
Forward foreign currency contracts carried at fair value through the income statement - 2 -
Forward foreign exchange contracts carried at fair value through the hedging reserve 662 896 2
-------------------------------------------------------------------------------------- ------ ------ ------
Derivative financial liabilities 662 898 2
-------------------------------------------------------------------------------------- ------ ------ ------
INDEPENDENT REVIEW REPORT TO IG DESIGN GROUP PLC
Report on the interim financial statements
Our conclusion
We have reviewed IG Design Group Plc's interim financial
statements (the "interim financial statements") in the Interim
Report of IG Design Group Plc for the 6 month period ended 30
September 2019. Based on our review, nothing has come to our
attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the AIM
Rules for Companies.
What we have reviewed
The interim financial statements comprise:
-- the condensed consolidated balance sheet as at 30 September 2019;
-- the condensed consolidated income statement and condensed
consolidated statement of comprehensive income for the period then
ended;
-- the condensed consolidated cash flow statement for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Report
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the AIM Rules for Companies.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Other Matter
The interim financial statements for the six month period ended
30 September 2018, forming the corresponding figures of the interim
financial statements for the six month period ended 30 September
2019, were not reviewed.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Report, including the interim financial statements,
is the responsibility of, and has been approved by, the directors.
The directors are responsible for preparing the Interim Report in
accordance with the AIM Rules for Companies which require that the
financial information must be presented and prepared in a form
consistent with that which will be adopted in the company's annual
financial statements.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Report based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the AIM
Rules for Companies and for no other purpose. We do not, in giving
this conclusion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Milton Keynes
26 November 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LLFEDLALEFIA
(END) Dow Jones Newswires
November 26, 2019 02:00 ET (07:00 GMT)
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