REG - 4imprint Group PLC - Final Results
16/03/2022 07:00
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RNS Number : 8953E 4imprint Group PLC 16 March 2022
16 March 2022
4imprint Group plc
Final results for the period ended 1 January 2022
4imprint Group plc (the "Group"), a direct marketer of promotional products,
today announces its final results for the 52 weeks ended 1 January 2022.
Financial Overview 2021 2020 Change
52 weeks 53 weeks
$m $m
787.32 560.04 +41%
Revenue
30.65 3.97 +672%
Operating profit
30.23 3.84 +687%
Profit before tax
41.59 39.77 +5%
Cash
80.46 11.03 +629%
Basic EPS (cents)
45.00 -
Total paid and proposed dividend per share (cents)
33.82 -
Total paid and proposed dividend per share (pence)
2021 is a 52 week period and 2020 is a 53 week period. See Financial Review.
Operational Overview
· Strong trading recovery in 2021 after pandemic-impacted performance
in 2020
· 1,429,000 total orders processed in 2021 (2020: 960,000); 263,000
new customers acquired in the year (2020: 173,000)
· Evolving marketing mix, including significant acceleration of brand
component
· Complex and disruptive supply chain issues in the second half of
2021 resulting in elevated order backlog at year end
· Commitment to $2m in capital expenditure in 2022 for clean energy
solar project at Oshkosh distribution centre
· Strong financial position: cash balance of $41.59m; no debt
· Re-introduction of Shareholder dividends; Interim (paid): 15.00c;
Final (proposed): 30.00c
Paul Moody, Chairman said:
The recovery in the Group's financial performance in 2021 has been very
encouraging. Most importantly, it was driven by decisions and actions fully
aligned with the Group's strategy, culture and focus on the sustainability of
the longer-term health of the business.
Challenges continue with regard to the ongoing pandemic, supply chain
disruption and inflationary pressures. However, the Group has a clear strategy
and is financially strong. Our business model is flexible and resilient and
our market opportunity remains attractive.
Trading results in the first few weeks of 2022 have been encouraging.
For further information, please contact:
4imprint Group plc MHP Communications
Tel. + 44 (0) 20 3709 9680 Tel. + 44 (0) 7884 494 112
hq@4imprint.co.uk 4imprint@mhpc.com
Kevin Lyons-Tarr - CEO Katie Hunt
David Seekings - CFO
Chairman's Statement
Performance summary
Throughout 2021 we have been focused intently on the recovery of our business
after the unprecedented trading environment seen in 2020. Although the true
extent and impact of the pandemic is yet to be fully realised, the significant
improvement in the demand profile and financial results during the year
demonstrates the strength of the business model and gives continued confidence
in the long-term prospects of the Group.
Given that the 2020 demand numbers suffered such material disruption from the
effects of COVID-19, the most informative indicator to gauge the extent of the
recovery in demand in 2021 is the 2019 comparative (the most recent 'normal'
year'). Total order count in the first half of 2021 was 79% of 2019 levels,
rising to 101% in the second half and producing 90% of 2019 for the year. New
customer acquisition was 88% of 2019, evidence of a very encouraging recovery
of demand in the business.
Consequently, the financial results for 2021 showed a sharp improvement over
prior year. Group revenue for 2021 was $787.3m, an increase of $227.3m or 41%
over 2020. Profit before tax for the year was $30.2m (2020: $3.8m), resulting
in basic earnings per share of 80.46c, (2020: 11.03c). The Group ended 2021 in
a strong financial position, with a cash balance of $41.6m (2020: $39.8m).
Strategic direction
The Board is very pleased with the nature and extent of the Group's recovery
from the COVID-19 pandemic. Our team's clear and deliberate actions have been
informed at all stages by a desire to protect the long-term prospects of the
business by staying true to our culture and in so doing reinforcing our
strategic objectives.
Our team members throughout the entire organisation are at the heart of our
culture. It was therefore natural to pursue a people-led approach through the
pandemic. This has resulted in direct benefits in employee retention in
difficult labour markets, and will also be important as we look for new
opportunities to enhance our culture and customer service capabilities based
on the team's experience with remote working and flexible scheduling.
We have continued to work very closely with our supplier partners in the year.
These long-standing and innovative relationships remain crucial in enabling us
to navigate the complex and evolving supply chain issues resulting from the
pandemic, and in facilitating the future development of our product range.
Our business model is founded on an effective and efficient marketing engine.
We believe that our team has been able to take advantage of extremely
difficult market conditions by making bold moves in re-shaping the marketing
mix. It is clear that we have been able to accelerate change, particularly in
building the prominence of the 4imprint brand, that might otherwise have
occurred over a longer timeframe.
In combination, these decisions and actions taken in 2021 have contributed
materially to the improving financial performance of the Group and remain
fundamental to our strategy.
ESG
The team has made significant progress in 2021 in the further development and
execution of the Group's ESG agenda. Highlights include our certification as a
CarbonNeutral(®) company and the development of our recently introduced
better choices™ sustainable product initiative.
Board
John Warren retired from the Board at the AGM in May 2021. He was succeeded as
Chair of the Audit Committee by John Gibney, who had been appointed to the
Board on 8 March 2021.
In addition, I am delighted that we were able to strengthen significantly the
depth and diversity of the Board through the appointment, on 1 September 2021,
of two new Non-Executive Directors. Jaz Rabadia MBE brings extensive
experience in energy management and sustainability. Lindsay Beardsell brings a
wealth of domestic and international commercial experience in combination with
her public company background in legal and governance matters.
Dividend
We reintroduced dividend payments at the half year, when the Board declared an
interim dividend of 15.00c per share (2020: nil). In view of the Group's
financial performance in the second half of the year, and in line with our
balance sheet funding and capital allocation guidelines, the Board is pleased
to recommend a final dividend per share of 30.00c (2020: nil), giving a total
paid and proposed 2021 dividend of 45.00c (2020: nil).
Outlook
The recovery in the Group's financial performance in 2021 has been very
encouraging. Most importantly, it was driven by decisions and actions fully
aligned with the Group's strategy, culture and focus on the sustainability of
the longer-term health of the business.
Challenges continue with regard to the ongoing pandemic, supply chain
disruption and inflationary pressures. However, the Group has a clear strategy
and is financially strong. Our business model is flexible and resilient and
our market opportunity remains attractive.
Trading results in the first few weeks of 2022 have been encouraging.
Paul Moody
Chairman
15 March 2022
Chief Executive's Review
Revenue 2021 2020
52 weeks 53 weeks
$m $m
North America 773.71 549.87 +41%
UK & Ireland 13.61 10.17 +34%
Total 787.32 560.04 +41%
Operating profit
2021 2020
52 weeks 53 weeks
$m $m
Direct Marketing operations 34.54 7.56 +357%
Head Office costs (3.89) (3.59) +8%
Total 30.65 3.97 +672%
Performance overview
In the first half of 2021 we saw a continued recovery in demand for our
products after the severe downturn in 2020 directly caused by the COVID-19
pandemic. Despite the complications caused by new virus variants, severe
supply chain disruption in the fourth quarter and other lingering effects of
the pandemic in the second half of 2021, significant further progress was made
on the road to recovery.
Throughout the year our team members responded in typical fashion to meet the
ongoing challenges resulting from the pandemic. Their 'can do' attitude,
empathy and resilience has been essential in allowing us not only to deal with
daily challenges but equally to look forward to future opportunities.
Due to heavily disrupted trading patterns in 2020, we have found that the most
informative comparative against which to assess current year demand
performance is the last 'normal' year, 2019. Demand activity in January and
February was relatively quiet, with total orders received running at an
average of 65% of 2019. By the half year orders were up 79% year to date
against 2019, evidencing the beneficial effect of vaccine rollouts and the
easing of restrictions in our primary US market. Total orders in the second
half were 101% of 2019 levels, leaving counts for the full year at 90% of the
same comparative.
In total 1,429,000 orders were received from both new and existing customers
in 2021 (2019: 1,587,000; 2020: 960,000). It is encouraging that we have
continued to acquire new customers at a relatively steady rate throughout the
pandemic. In 2021 we acquired 263,000 new customers (2019: 297,000; 2020:
173,000). It is also a good sign that customers acquired during the pandemic
have demonstrated typical retention rates, indicating that they are within our
target profile. The average order value has remained higher than historical
comparatives through 2021.
This improving trading environment during the year resulted in gains in
year-on-year financial performance. Group revenue for 2021 was $787.32m, a
gain of 41% over the prior year. Operating profit for 2021 of $30.65m (2020:
$3.97m) is a clear demonstration of the progress made by the business in the
year.
The Group has remained financially strong throughout the pandemic and had a
cash balance of $41.59m at the 2021 year-end, demonstrating the flexibility of
our direct marketing business model.
Operational highlights
In 2021 we made several key decisions and took various actions that have been
central to the encouraging revival of the Group's fortunes. We are confident
that these choices reflect 4imprint's culture and values and were made with an
eye to securing the Group's long-term future.
· People. From the start of the pandemic we have pursued a people-led
approach. The health and safety of our team members has remained paramount,
and we have consistently observed best practice COVID-19 related protocols.
Further, we are in no doubt that, in a business based on delivering excellent
service, our team members are a crucial element of our success. As such, we
have invested in the retention of our people as a top priority since the early
days of the pandemic. Apart from being simply the right thing to do, this
approach has delivered tangible benefits in recent months as we have retained
the necessary resource to deal with the recovering demand levels as the year
progressed, particularly at a time of serious labour constraints in our North
American markets.
· Flexible working. The vast majority of our office-based team members
have been working from home from the early weeks of the pandemic. This has
allowed us to make considerable progress in testing new working practices,
rolling out the necessary computer solutions and considering future options in
the context of our developing experience with remote working and flexible
scheduling. Our aim is to learn from the lessons this experience has offered
to enhance our culture and therefore our competitive position for the future.
· Supply. In 2021 we tested the strength and depth of the relationships
with many of our key suppliers in a very challenging environment of supply
chain disruptions. Early problems revolved around managing production
difficulties caused by lockdowns, and a changing product mix. From around
August 2021 onwards new challenges emerged around global logistics, freight
costs, inventory availability and the difficulty and increased cost of finding
production labour to keep up with recovering demand. This has placed severe
strain on our operations, resulting in a significantly higher than usual order
backlog at the year-end. Most recently, these factors have caused inflationary
pressure on product cost to feed through from suppliers. We continue to work
to help mitigate the resulting margin pressure, including careful pricing
adjustments balancing near-term margin, customer retention, brand values and
the market opportunity.
· Marketing. Prior to the pandemic we had already made great progress
in our strategic initiative to significantly evolve our marketing portfolio
through the introduction of a brand awareness pillar. From the start we
believed that this represented an opportunity to strengthen the business for
the long-term and also to provide more flexibility than was available in our
previous marketing mix. The pandemic provided the opportunity to be bold;
indeed we have aggressively re-calibrated the marketing portfolio through the
crisis. At the start of the pandemic the flexibility of the new portfolio
allowed us to dramatically reduce costs as order volumes plummeted by
substantially reducing our print (direct mail) element, simultaneously taking
full advantage of the reduced cost of brand marketing. Our increasing
investment in brand awareness prior to, and during the pandemic has also
helped us to take full advantage of the recovery by staying 'front of mind'
with prospective and existing customers. As a result, in 2021 we took the
opportunity to accelerate strategic changes in the marketing mix (primarily
increasing the brand and decreasing the print components) that typically would
have occurred over a longer timeframe. The results we have seen so far in the
recovery phase give us confidence that these changes leave our marketing
engine in good shape and ready to power the business in the years ahead.
ESG
We continued to make progress in our ESG initiatives in 2021, particularly
with regard to environmental matters. Our Environmental Committee has met
monthly to monitor and steer a number of exciting projects, including:
· Working to understand further and audit the Scope 1 and Scope 2
carbon footprint of our operations, as well as selected Scope 3 elements
material to our business, most notably transportation.
· Progressing existing carbon reduction projects, for example
completion of the rollout of LED lighting in all of our operational
facilities.
· Achievement in October 2021, well ahead of schedule, of the
'CarbonNeutral(®)' company certification from our external consultant Natural
Capital Partners.
· Our better choices™ initiative, a broad review of our product range
and how it is presented on our website with the aim of providing our customers
with easy access to as much information and product variety as possible to
enable them to consider choices based on verified sustainability criteria.
· Our recently announced project to install a 1MW solar array at our
Oshkosh distribution centre.
Looking ahead
Our view is that the many challenges introduced by the COVID-19 pandemic have
presented an opportunity for 4imprint to become stronger and more focused than
ever. We are realistic; the residual impacts of the pandemic will continue to
be felt in various ways for some time to come. However, the encouraging
trading momentum that was built over the course of 2021 validates that our
strategy remains fully relevant, and that our markets are attractive and ready
to be addressed via our agile and resilient business model.
Financial Review
2021 2020
52 weeks 53 weeks
$m $m
Operating profit 30.65 3.97
Net finance cost (0.42) (0.13)
Profit before tax 30.23 3.84
Taxation (7.64) (0.75)
Profit for the period 22.59 3.09
The Group's operating result in the period, summarising expense by function,
was as follows:
2021 2020
52 weeks 53 weeks
$m $m
Revenue 787.32 560.04
Gross profit 226.02 157.94
Marketing costs (127.53) (92.88)
Selling costs (32.16) (30.78)
Admin and central costs (34.73) (29.26)
Share option related charges (0.61) (0.63)
Defined benefit pension scheme administration and past service costs (0.34) (0.42)
Operating profit 30.65 3.97
Revision to the definition of underlying profit measures
In previous Annual Reports and Accounts, defined benefit pension charges were
not included in the definition of underlying operating profit. These charges
have now become relatively stable and are not material, therefore are now
included in underlying, which is defined as before exceptional items. As there
are no exceptional items in 2021 or 2020, the term underlying is not used in
relation to any measurements of profit in the 2021 Annual Report and Accounts.
Operating result
The recovery of the business from the effects of the COVID-19 pandemic has
been very encouraging.
Demand returned steadily through the early part of the year, helped by the
rollout of vaccines and easing of restrictions in our primary US market. This
momentum continued to build, with aggregate order counts exceeding 2019 levels
(the most recent 'normal' year) in the second half of the year. Group revenue
for 2021 of $787.32m increased 40.6% compared to 2020 of $560.04m, recovering
to 91.5% of reported 2019 revenue of $860.84m.
The gross profit percentage stabilised year-over-year at 28.7% (2020: 28.2%).
Product cost inflation resulting from pandemic-related global and local supply
chain issues has been partially mitigated using price adjustments. Factors
including a shift in product mix towards apparel and higher average order
values mean that margin percentages remain below pre-pandemic levels.
Marketing costs were 16.2% of revenue (2020:16.6%), leading to an improvement
in our Revenue per Marketing Dollar KPI to $6.17 (2020: $6.03). Strategic
investment in a changing marketing mix has been made through the year to
capitalise on market share opportunities in recovering markets.
Selling, administration and central costs increased 11.4% to $66.89m (2020:
$60.04m). The year-on-year change is due principally to a credit of $4.1m in
2020 relating to COVID-19 assistance under the US CARES Act and UK Coronavirus
Job Retention Scheme. No similar assistance was accessed in 2021.
As a result of the above factors, operating profit increased by $26.68m to
$30.65m (2020: $3.97m).
2021 returned to the usual 52 week accounting period for the Group, compared
to the 53 week period in 2020. The effect of the extra week in 2020 on Group
revenue was an increase of around $5m and the impact on operating profit was
negligible due to a full week of payroll and overheads offsetting the gross
margin arising from a quiet trading week during the holiday period.
Foreign exchange
The primary US dollar exchange rates relevant to the Group's 2021 results were
as follows:
2021 2020
Period end Average Period end Average
Sterling 1.35 1.38 1.36 1.28
Canadian dollars 0.79 0.80 0.79 0.75
The Group reports in US dollars, its primary trading currency. It also
transacts business in Canadian dollars, Sterling and Euros. Sterling/US dollar
is the exchange rate most likely to impact the Group's financial performance.
The primary foreign exchange considerations relevant to the Group's operations
are as follows:
· Translational risk in the income statement remains low with 98% of
the Group's revenue arising in US dollars, the Group's reporting currency. The
net impact on the 2021 income statement from trading currency movements was
not material to the Group's results.
· Most of the constituent elements of the Group balance sheet are US
dollar-based. Exceptions are the Sterling-based defined benefit pension asset,
which produced an exchange loss in the year of $0.06m, and the UK cash balance
with an exchange loss of $0.14m in the year.
· The Group generates cash mostly in US dollars, but its primary
applications of post-tax cash are Shareholder dividends, pension contributions
and some Head Office costs, all of which are paid in Sterling. As such, the
Group's cash position is sensitive to Sterling/US dollar exchange movements.
By way of example, using actual exchange rates, the movement of Sterling
against the US dollar during 2021 meant that every US$1m converted to Sterling
was worth around £9,000 more at the 2021 closing rate compared to the 2020
closing rate.
Share option charges
A total of $0.61m (2020: $0.63m) was charged in the year in respect of IFRS 2
'Share-based Payments'. This was made up of two elements: (i) executive awards
under the 2015 Incentive Plan, now replaced by the Deferred Bonus Plan
("DBP"); and (ii) charges in respect of the 2019 UK SAYE and the 2021 US
Employee Stock Purchase Plan.
No awards of conditional shares under the DBP will be made in respect of 2021.
There were no awards made in 2020, resulting in the consistent IFRS 2 charge
year-over-year.
Current options and awards outstanding are 13,880 shares under the UK SAYE,
97,624 shares under the 2021 US Employee Stock Purchase Plan, and 51,925
shares under the 2015 Incentive Plan.
Net finance cost
Net finance cost for the year was $0.42m (2020: $0.13m). The increase in cost
on 2020 is attributable to lower interest rates earned on deposits, and higher
IFRS 16 lease interest charges following the extension to the Oshkosh office
lease in the prior year which resulted in a higher lease liability being
recognised on the balance sheet.
Taxation
The tax charge for the year was $7.64m (2020: $0.75m), giving an effective tax
rate of 25% (2020: 20%). The charge comprises a current tax charge of $5.92m,
representing net tax payable on US taxable profits, and a deferred tax charge
of $1.72m.
The increase in the effective tax rate is principally due to the significant
increase in profitability of the North American business that is subject to a
higher rate of corporation tax than the UK, and the derecognition of a
deferred tax asset in respect of UK tax losses following a review of updated
forecasts of UK taxable profits.
Earnings per share
Basic earnings per share was 80.46c (2020: 11.03c), an increase of 629%. This
reflects the increase of 631% in profit after tax, and a weighted average
number of shares in issue similar to prior year.
Dividends
Dividends are determined in US dollars and paid in Sterling, converted at the
exchange rate on the date that the dividend is declared.
Due to significant uncertainty as to how quickly markets might recover from
the COVID-19 pandemic, and in the interests of financial prudence, the Board
cancelled the payment of the 2019 final dividend and did not propose 2020
interim or 2020 final dividends.
Underpinned by a strong net cash position and an improving commercial outlook
for the Group, the Board re-introduced biannual dividend payments with an
interim dividend of 15.00c per share declared at the 2021 half year.
The Board has proposed a final dividend of 30.00c per share (2020: nil) which,
together with the interim dividend of 15.00c per share, gives a total paid and
proposed regular dividend relating to 2021 of 45.00c per share (2020: nil).
The final dividend has been converted to Sterling at an exchange rate of
£1.00/$1.30515. This results in a final dividend per share payable to
Shareholders of 22.99p (2020: nil), which, combined with the interim dividend
paid of 10.83p per share, gives a total dividend per share for the year of
33.82p (2020: nil).
The final dividend will be paid on 31 May 2022 to Shareholders on the register
at the close of business on 29 April 2022.
Defined benefit pension plan
The Group sponsors a legacy UK defined benefit pension plan (the "Plan") which
has been closed to new members and future accruals for several years. The Plan
has 110 pensioners and 231 deferred members.
At 1 January 2022, the surplus of the Plan on an IAS 19 basis was $1.97m,
compared to a deficit of $3.31m at 2 January 2021. Gross Plan assets under IAS
19 were $39.80m, and liabilities were $37.83m.
The change in the net IAS 19 Plan position is analysed as follows:
$m
IAS 19 deficit at 2 January 2021 (3.31)
Company contributions to the Plan 4.59
Defined benefit pension scheme administration costs (0.34)
Pension finance charge (0.02)
Re-measurement gain due to changes in assumptions 2.50
Return on scheme assets (excluding interest income) (1.39)
Exchange loss (0.06)
IAS 19 surplus at 1 January 2022 1.97
The net IAS 19 position improved by $5.28m in the year, driven primarily by
employer's contributions of $4.59m and re-measurement gains of $2.50m,
partially offset by a negative return on assets of $1.39m. In Sterling, the
net IAS 19 position improved by £3.89m in the year to a surplus of £1.46m.
The Company continues to pay regular monthly contributions into the Plan as
part of a recovery plan agreed by the Company and the Trustee that aims
towards funding on a buyout basis by mid-2024. A milestone was passed in the
year as the net balance sheet position in respect of the Plan turned from a
net deficit to a net surplus as measured on an IAS 19 valuation basis.
A triennial actuarial valuation of the Plan was completed in September 2019
and this forms the basis of the 2021 IAS 19 valuation set out above. The next
triennial Plan valuation is scheduled for September 2022.
Cash flow
The Group had net cash of $41.59m at 1 January 2022, an increase of $1.82m
against the 2 January 2021 balance of $39.77m.
Cash flow in the period is summarised as follows:
2021 2020
$m $m
Operating profit 30.65 3.97
Share option related charges 0.60 0.63
Defined benefit pension scheme administration and past service costs 0.34 0.42
Depreciation and amortisation 3.67 3.43
Lease depreciation 1.34 1.50
Change in working capital (13.76) 6.59
Capital expenditure (3.47) (3.82)
Underlying operating cash flow 19.37 12.72
Tax and interest (6.82) (0.52)
Defined benefit pension contributions (4.59) (13.28)
Own share transactions (0.84) 0.94
Capital element of lease payments (1.12) (1.42)
Exchange and other (0.05) 0.19
Free cash flow 5.95 (1.37)
Dividends to Shareholders (4.13) -
Net cash inflow/(outflow) in the period 1.82 (1.37)
The Group generated underlying operating cash flow of $19.37m ($12.72m), a
conversion rate of 63% (2020: 320%). Working capital usage at the end of 2021
was unusually high, driven by the global and local supply chain issues that
have resulted in material increases in accrued revenue and inventory balances
on orders in process at year-end. This position is expected to unwind in 2022
as the supply chain situation improves and orders are completed.
Free cash flow improved by $7.32m to $5.95m in 2021 (2020: $(1.37)m). This is
largely attributable to the recovery in operating profit in 2021 and the
special contribution to the defined benefit pension plan of $9.14m paid in
2020.
Dividends resumed in 2021 with the payment of an interim dividend to
Shareholders announced at the half year.
Balance sheet and Shareholders' funds
Net assets at 1 January 2022 were $82.97m, compared to $65.37m at 2 January
2021. The balance sheet is summarised as follows:
1 January 2 January
2022 2021
$m $m
Non-current assets 38.04 43.27
Working capital 12.27 (1.50)
Net cash 41.59 39.77
Lease liabilities (12.09) (13.21)
Pension asset/(deficit) 1.97 (3.31)
Other assets - net 1.19 0.35
Net assets 82.97 65.37
Shareholders' funds increased by $17.60m since the 2020 year-end. Constituent
elements of the movement were net profit in the period of $22.59m and share
option related movements of $0.38m, net of equity dividends paid to
Shareholders $(4.13)m, own share transactions of $(0.84)m, the after tax
impact of returns on pension scheme assets and re-measurement gains on pension
obligations of $(0.30)m, and exchange losses of $(0.10)m.
The Group had a net positive working capital balance of $12.27m at 1 January
2022 (net negative balance of $1.5m at 2 January 2021). This reflects the
build-up of accrued revenue and inventory on orders in process at year-end,
impacted by global and local supply chain issues.
Balance sheet funding
The Board is committed to aligning the Group's funding with its strategic
priorities. This requires a stable, secure and flexible balance sheet through
the cycle. The Group will therefore typically remain ungeared and hold a net
cash position.
The Board's funding guidelines are unchanged, and aim to provide operational
and financial flexibility:
· To facilitate continued investment in marketing, people and
technology through different economic cycles, recognising that an economic
downturn typically represents a market share opportunity for the business.
· To protect the ability of the business to act swiftly as growth
opportunities arise in accordance with the Group's capital allocation
guidelines.
· To underpin a commitment to Shareholders through the maintenance of
regular interim and final dividend payments.
· To meet our pension contribution commitments as they fall due.
The quantum of the cash target at each year-end will be influenced broadly by
reference to the investment requirements of the business, and the subsequent
year's anticipated full year ordinary dividend and pension payment
obligations.
As a result of this approach, the Group has maintained a substantial cash
balance and no debt throughout the COVID-19 pandemic and resulting supply
chain issues. The Group remained in a strong financial position at the 2021
year-end, enabling management to make decisions that look to the longer-term
health of the Group and which support 4imprint's distinctive culture.
The Board will keep these guidelines under review and is prepared to be
flexible if circumstances warrant.
Capital allocation
The Board's capital allocation framework is designed to deliver increasing
Shareholder value, driven by the execution of the Group's growth strategy. The
Group's capital allocation priorities are:
· Organic growth investments
o Either capital projects or those expensed in the income statement.
o Market share opportunities in existing markets.
· Interim and final dividend payments
o Increasing broadly in line with earnings per share through the cycle.
o Aim to at least maintain dividend per share in a downturn.
· Residual legacy pension funding
o In line with agreed funding schedule.
o Further de-risking initiatives, if viable.
· Mergers & acquisitions
o Not a near-term priority.
o Opportunities that would support organic growth.
· Other Shareholder distributions
o Quantified by reference to cash over and above balance sheet funding
requirement.
o Supplementary dividends most likely method: other methods may be
considered.
Treasury policy
The financial requirements of the Group are managed through a centralised
treasury policy. The Group operates cash pooling arrangements for its North
American operations. Forward contracts may be taken out to buy or sell
currencies relating to specific receivables and payables as well as
remittances from overseas subsidiaries. There were no forward contracts open
at the period end or prior period end. The Group holds most of its cash with
its principal US and UK bankers.
The Group has a $20.0m working capital facility with its principal US bank,
JPMorgan Chase, N.A. The facility has a minimum EBITDA test and standard debt
service coverage ratio and debt to EBITDA covenants. The interest rate is US$
LIBOR plus 2.0%, and the facility expires on 31 May 2023. In addition, an
overdraft facility of £1.0m, with an interest rate of bank base rate plus
2.0%, is available from the Group's principal UK bank, Lloyds Bank plc.
Critical accounting policies
Critical accounting policies are those that require significant judgments or
estimates and potentially result in materially different results under
different assumptions or conditions. It is considered that the only critical
accounting judgments are in respect of revenue, leases and the retirement
benefit asset.
Key sources of estimation uncertainty
Determining the carrying amount of some assets and liabilities requires
estimation of the effects of uncertain future events. The key sources of
estimation uncertainty are considered to be in relation to the valuation of
the defined benefit Plan liabilities and assets.
A review of internal and external indications of impairment was undertaken in
accordance with IAS 36 for both the North American and UK cash generating
units ("CGU"), leading to an impairment review being undertaken for the UK CGU
only. This review did not result in any material charges to the consolidated
Group income statement. The Company has recognised an expected credit loss
charge of £223k on a loan to a subsidiary undertaking in its individual
financial statements.
Viability statement
In accordance with Provision 31 of the UK Corporate Governance Code 2018, the
Board has assessed the prospects and viability of the Group.
Assessment of prospects
In making their assessment of the Group's prospects, the Directors have
carefully considered:
· The Group's strategy, market position and business model.
· The principal risks and uncertainties facing the Group as outlined in
this Financial Review.
· Information contained in this Financial Review concerning the Group's
financial position, cash flows and liquidity position.
· Regular management reporting and updates from the Executive
Directors.
· Recent detailed financial forecasts and analysis for the three-year
period to 28 December 2024.
Whilst the lingering effect of the COVID-19 pandemic continues to present
challenges, including on the supply chain and inflationary pressures, the
Board considers that the Group's strategy, competitive position, and business
model remain entirely relevant and, indeed, have proved to be resilient and
flexible under stress.
Business operations have adapted successfully to the challenging and rapidly
changing external conditions in a timely manner. The marketing portfolio was
reconfigured during 2020 and 2021, providing flexibility over expenditure and
the agility to invest in opportunities for growth in recovering markets.
Discretionary overhead and capital spend continues to be tightly controlled,
demonstrating the essentially minimal fixed cost base of the direct marketing
model.
These actions, coupled with the strong financial position of the Group that
has been maintained throughout this global pandemic, give the Board confidence
that despite residual uncertainty as to future market conditions, the Group
will be in a good position both to withstand further economic stress and to
take market share opportunities as demand continues to recover.
Environmental risks
As a primary strategic objective of the Group and as noted above in the
assessment of prospects, environment-related risks and opportunities are
specifically considered by the Board in their assessment of viability and
going concern.
The Group has established an appropriate governance structure, in the form of
the Group Environmental Committee and Business Risk Management Committee, to
identify new and emerging risks related to climate change and the environment.
As detailed more fully in the Principal Risks & Uncertainties,
environmental risks have the potential to impact the Group's ability to
achieve its strategic objectives through damage to our reputation, our
operational facilities and those of our supplier partners, and the failure to
respond to trends and shifts in consumer product preferences.
The Group has proactively responded to these risks with several initiatives.
These include the achievement of CarbonNeutral® company status in October
2021, committed plans to build a solar panel array at our distribution centre
in Oshkosh, plans to review ESG-linked executive remuneration with the
inclusion of climate-related metrics, and the launch of our better choices(TM)
programme to make it easier for our customers to find products with the
characteristics that are most important to them. The flexible nature of our
'drop-ship' model and close relationships maintained with key and alternative
suppliers allows for relatively rapid adjustment to episodes of extreme
weather.
Whilst governmental and societal responses to climate change risks are still
developing, and therefore all possible future outcomes are not known, the
Group has embedded environmental matters into our strategic objectives and
sees climate change and other aspects of environmental stewardship as a
fundamental part of our commitment to build a commercially and environmentally
sustainable business that delivers value to all stakeholders.
The cash flow impact of our environmental initiatives are incorporated into
the financial forecasts used to assess viability and going concern.
Viability assessment period
In their assessment of viability, the Directors have reviewed the assessment
period and have determined that a three-year period to 28 December 2024, in
line with the Group's rolling strategic planning process, continues to be most
appropriate.
In the context of the fast-moving nature of the business, its markets, and the
relatively short-term nature of the order book, the Directors consider that
the robustness of the strategic plan is higher in the first three years and
recognises that forecast information beyond this period is significantly less
meaningful.
The Group's business model does not rely heavily on fixed capital, long-term
contracts, or fixed external financing arrangements.
Assessment of viability
The Board considers that the key factor that would prejudice the ongoing
viability and liquidity of the Group would be a severe downturn in demand,
which negatively impacts new customer acquisition and existing customer
retention.
The 'base case' three-year plan, developed for the purposes of the Group's
strategic planning process, provides the basis for the financial modelling
used to assess viability. The commercial underpin to this 'base case' is the
Board's view that whilst the promotional products market contracted in 2020,
for example due to the cancellation of trade shows and physical events, our
recent experience is that market demand is resilient across the product range
and customer base, as evidenced in the rapid recovery in demand during 2021.
The base case started with the total order count at 90% of pre-pandemic 2019
levels, as achieved in 2021, with consistent and sustained top-line growth
throughout the three-year period. Marketing costs were modelled to increase in
line with revenue with the Group's revenue per marketing dollar KPI remaining
stable at historic levels. This 'base case' shows improving financial results,
an accumulating cash balance and no liquidity concerns.
Severe, but plausible, downside demand assumptions were then determined and
used to adjust the 'base case' forecast to model the effects on the Group's
liquidity. This 'downside' scenario assumes a significant deterioration in
demand patterns during 2022, similar to those experienced in 2020 when the
pandemic started, with order volumes for the full year dropping back to around
70% of 2019 levels, before gradually recovering back to 2019 order levels by
2024. Marketing and direct costs were flexed in line with revenue, but other
payroll and overhead costs remained at 2021 levels with some allowance for
inflationary increases. This 'downside' scenario was intended to simulate a
severe shock to demand, similar to the experience from COVID-19, that results
in sustained diminished corporate demand in a downsized promotional products
market.
Even under the severe stress built into the 'downside' model, the Group
retains sufficient liquidity throughout the assessment period. This liquidity
is in the form of cash balances. In addition, there are further mitigating
actions that the Group could take, including further cutting marketing costs
and reducing headcount, that are not reflected in the distressed forecast but
would, if required, be fully under the Group's control.
Given the scalability of the Group's business model, as demonstrated over the
past few years, the absence of external financing, and low fixed or working
capital requirements, a reverse stress testing scenario has not been
undertaken. The Group has proven during 2020 its ability to flex its marketing
and other costs to mitigate the impact of falls in revenue driven by COVID-19
and retains flexibility to further reduce other costs should the need arise.
Though the Group maintains a $20m line of credit with its US bankers, that
expires on 31 May 2023, and a small overdraft facility with its UK bankers,
that expires on 31 December 2022, the modelling in both the 'base case' and
'downside' scenarios shows the maintenance of positive cash balances
throughout the assessment period and, as such, there is no current requirement
to utilise the facilities or intention to secure any additional facilities.
The assumptions used in the 'base case' and 'downside' scenarios and resulting
financial forecasts have been reviewed and approved by the Board. The
conclusion of this review is that the Group has significant flexibility in its
variable costs, a very low fixed cost base, and enters the 2022 financial year
with a strong net cash position of $41.6m, enabling it to remain cash positive
even under severe economic stress.
Confirmation of viability
Based on this review of the Group's prospects and viability, the Directors
confirm that they have a reasonable expectation that the Group will continue
to operate and to meet its liabilities as they fall due, for the next three
years to 28 December 2024.
Going concern
Based on the assessment outlined in the viability statement above, the
Directors have reasonable expectations that the Group and Company will have
adequate resources to continue to operate from the date these financial
statements were approved until at least 1 July 2023. Accordingly, they
continue to adopt the going concern basis in preparing the Group's and
Company's financial statements.
Principal Risks & Uncertainties
The UK Corporate Governance Code 2018 requires the Board to carry out a robust
assessment of the Group's principal and emerging risks. Risk appetite, the
risk management process, and associated mitigating activities are all
essential elements of the Group's strategic and operational planning
processes.
Risk appetite
4imprint's business model means that it may be affected by a number of risks,
not all of which are within its control. The Board seeks to take a balanced
approach to the risks and uncertainties that it faces, encouraging an appetite
for measured risk-taking that contributes to both the operational agility and
innovative culture that it believes is necessary to meet the Group's strategic
objectives. That risk appetite is, however, tempered by risk identification,
evaluation and management.
Risk management process
The Board has ultimate responsibility for the Group's risk management process,
although responsibility for reviewing specific risks and controls is delegated
to the Audit Committee. The Executive Directors and operational management
teams are responsible for the identification and evaluation of risks and the
subsequent implementation of specific risk mitigation activities. A formal
risk review is conducted by the Board at least annually. During 2021 further
progress has been made in developing the Group's risk management process,
including assessing and scoring of specific risks, delineation of 'principal'
versus 'other' risks, and implementation of revised risk categories (see
below) that we consider to be more in line with the development of the Group
in recent years and its strategic priorities. The Business Risk Management
Committee, chaired by the Group Financial Controller, has driven much of the
progress made in 2021. The lingering effects of the pandemic and some
unavoidable internal resource constraints have limited the Committee's formal
meetings in the year; our aim is for the Committee to meet quarterly in 2022.
Categorisation of risks
During 2021 the Business Risk Management Committee has developed a revised
risk categorisation process that has been reviewed and approved by the Board.
The new risk categories are briefly summarised below:
· Strategic risks. These are risks often caused by external events that
typically might affect broad economic or market conditions. Strategic risks
will generally be managed through mitigations undertaken at a strategic level.
· Operational risks. These are risks and uncertainties faced in the
course of conducting normal business activities via established procedures and
systems. Operational risks will typically be driven by internal events and
will be managed and mitigated through control activities.
· Reputational risks. These are risks that some kind of negative
circumstance could impact the brand reputation and/or image of the Group or
its businesses in the wider marketplace. Mitigations are often specific
controls or procedures aimed at ensuring compliance with regulations or
expectations.
· Environmental risks. This risk category recognises the obligation of
the Group to protect and positively impact the external environment. Risk
management might typically be in the form of longer-term mitigation projects
such as carbon footprint reduction or product range initiatives.
Emerging risks
Business operations are conducted from centralised facilities in Oshkosh and
Manchester, with short reporting lines. As a result, the Executive Directors
are close to day-to-day matters, facilitating early identification of, and
response to, shifting risk patterns. Emerging risks are a standing agenda item
of the Business Risk Management Committee. Urgent issues arising will continue
to be escalated as appropriate and discussed at regular Board meetings.
Outlined in Appendix 1 are the current principal risks and uncertainties that
would impact the successful delivery of the Group's strategic goals. The list
is not exhaustive and other, as yet unidentified, factors may have an adverse
effect.
Kevin Lyons-Tarr David Seekings
Chief Executive Officer Chief Financial Officer
15 March 2022
Group Income Statement for the 52 weeks ended 1 January 2022
Note 2021 2020
52 weeks 53 weeks
$'000 $'000
Revenue 1 787,322 560,040
Operating expenses (756,676) (556,068)
Operating profit 1 30,646 3,972
Finance income 33 168
Finance costs (435) (193)
Pension finance charge (15) (104)
Net finance cost (417) (129)
Profit before tax 30,229 3,843
Taxation 2 (7,643) (753)
Profit for the period 22,586 3,090
Cents Cents
Earnings per share
Basic 3 80.46 11.03
Diluted 3 80.26 11.00
Group Statement of Comprehensive Income for the 52 weeks ended 1 January 2022
Note 2021 2020
52 weeks 53 weeks
$'000 $'000
Profit for the period 22,586 3,090
Other comprehensive (expense)/income
Items that may be reclassified subsequently to the income statement:
Currency translation differences (97) 863
Items that will not be reclassified subsequently to the income statement:
Return on pension scheme assets (excluding interest income) (1,391) 1,261
Re-measurement gains/(losses) on post-employment obligations 2,506 (5,550)
Tax relating to components of other comprehensive income (1,411) 1,241
Total other comprehensive expense net of tax (393) (2,185)
Total comprehensive income for the period 22,193 905
Group Balance Sheet at 1 January 2022
Note 2021 2020
$'000 $'000
Non-current assets
Property, plant and equipment 24,667 24,832
Intangible assets 1,045 1,100
Right-of-use assets 11,725 13,065
Deferred tax assets 600 4,272
Retirement benefit asset 5 1,974 -
40,011 43,269
Current assets
Inventories 20,559 11,271
Trade and other receivables 63,589 36,799
Current tax debtor 2,034 1,976
Cash and cash equivalents 41,589 39,766
127,771 89,812
Current liabilities
Lease liabilities (1,150) (1,117)
Trade and other payables (71,877) (49,569)
Current tax creditor - (432)
(73,027) (51,118)
Net current assets 54,744 38,694
Non-current liabilities
Lease liabilities (10,939) (12,089)
Retirement benefit obligation 5 - (3,310)
Deferred tax liabilities (850) (1,193)
(11,789) (16,592)
Net assets 82,966 65,371
Shareholders' equity
Share capital 18,842 18,842
Share premium reserve 68,451 68,451
Other reserves 6,020 6,117
Retained earnings (10,347) (28,039)
Total Shareholders' equity 82,966 65,371
Group Statement of Changes in Shareholders' Equity for the 52 weeks ended 1
January 2022
Retained earnings
Share Other reserves Profit Total
Share capital premium reserve $'000 Own shares and loss equity
$'000 $'000 $'000 $'000 $'000
Balance at 29 December 2019 18,842 68,451 5,254 (3,029) (26,570) 62,948
Profit for the period 3,090 3,090
Other comprehensive income/(expense)
Currency translation differences 863 863
Re-measurement losses on post-employment obligations (4,289) (4,289)
Deferred tax relating to components of other comprehensive income 1,241 1,241
Total comprehensive income 863 42 905
Proceeds from options exercised 2,170 2,170
Own shares utilised 3,677 (3,677) -
Own shares purchased (1,229) (1,229)
Share-based payment charge 625 625
Deferred tax relating to share options (83) (83)
Deferred tax relating to losses attributable to share options 35 35
Balance at 2 January 2021 18,842 68,451 6,117 (581) (27,458) 65,371
Profit for the period 22,586 22,586
Other comprehensive income/(expense)
Currency translation differences (97) (97)
Re-measurement gains on post-employment obligations 1,115 1,115
Deferred tax relating to components of other comprehensive income (1,411) (1,411)
Total comprehensive income (97) 22,290 22,193
Own shares utilised 573 (573) -
Own shares purchased (843) (843)
Share-based payment charge 602 602
Deferred tax relating to share options 5 5
Deferred tax relating to losses attributable to share options (228) (228)
Dividends (4,134) (4,134)
Balance at 1 January 2022 18,842 68,451 6,020 (851) (9,496) 82,966
Group Cash Flow Statement for the 52 weeks ended 1 January 2022
Note 2021 2020
52 weeks 53 weeks
$'000 $'000
Cash flows from operating activities
Cash generated from operations 6 18,257 3,184
Tax paid (6,414) (507)
Finance income received 33 168
Finance costs paid (65) (49)
Lease interest (377) (132)
Net cash generated from operating activities 11,434 2,664
Cash flows from investing activities
Purchases of property, plant and equipment (3,083) (3,427)
Purchases of intangible assets (382) (390)
Proceeds from sale of property, plant and equipment - 93
Net cash used in investing activities (3,465) (3,724)
Cash flows from financing activities
Capital element of lease payments (1,117) (1,418)
Proceeds from share options exercised - 2,170
Purchases of own shares (843) (1,229)
Dividends paid to Shareholders 4 (4,134) -
Net cash used in financing activities (6,094) (477)
Net movement in cash and cash equivalents 1,875 (1,537)
Cash and cash equivalents at beginning of the period 39,766 41,136
Exchange (losses)/gains on cash and cash equivalents (52) 167
Cash and cash equivalents at end of the period 41,589 39,766
Notes to the Financial Statements
General information
4imprint Group plc, registered number 177991, is a public limited company
incorporated in England and Wales, domiciled in the UK and listed on the
London Stock Exchange. Its registered office is 25 Southampton Buildings,
London WC2A 1AL.
The Group presents the consolidated financial statements in US dollars and
numbers are shown in US dollars thousands. A substantial portion of the
Group's revenue and earnings are denominated in US dollars and the Board is of
the opinion that a US dollar presentation gives a more meaningful view of the
Group's financial performance and position.
Accounting policies
The accounting policies applied in these financial statements are consistent
with those of the annual financial statements for the period ended 2 January
2021, as described in those annual financial statements.
Basis of preparation
This announcement was approved by the Board of Directors on 15 March 2022. The
financial information in this announcement does not constitute the Group's
statutory accounts for the periods ended 1 January 2022 or 2 January 2021 but
it is derived from those accounts. Statutory accounts for 2 January 2021 have
been delivered to the Registrar of Companies, and those for 1 January 2022
will be delivered after the Annual General Meeting. The auditor has reported
on those accounts. Their reports were unqualified, did not include a reference
to any matters to which the auditor drew attention by way of emphasis without
qualifying their report and did not contain a statement under section 498(2)
or (3) of the Companies Act 2006.
The audited consolidated financial statements from which these results are
extracted have been prepared under the historical cost convention in
accordance with UK-adopted International Accounting Standards. 2020 was a 53
week period which started on 29 December 2019. Please refer to the Financial
Review for a discussion of the impact on the Group's key metrics of a 53 week
period versus a 52 week comparative period.
New accounting standards applicable for the first time in this reporting
period have no impact on the Group's results or balance sheet.
Environmental risks
In preparing the financial statements, management has considered the impact of
environmental risks. Whilst the impact of environmental risks are still
developing and therefore all possible future outcomes are uncertain, risks
known to the Group have been considered in judgments, estimates and
assumptions and in assessing viability and going concern. These considerations
did not have a material impact on the financial statements.
Going concern
In making their assessment of going concern from the date of approval of these
financial statements until 1 July 2023, the Directors have carefully
considered the Group's prospects:
· The Group's strategy, market position and business model.
· The principal risks and uncertainties facing the Group, as outlined
in the Financial Review.
· Information contained in the Financial Review concerning the Group's
financial position, cash flows and liquidity position.
· Regular management reporting and updates from the Executive
Directors.
· Recent detailed financial forecasts and analysis.
Whilst the lingering effect of the COVID-19 pandemic continues to present
challenges, including on the supply chain and inflationary pressures, the
Board considers that the Group's strategy, competitive position, and business
model remain entirely relevant and, indeed, have proved to be resilient and
flexible under stress.
Business operations have adapted successfully to the challenging and rapidly
changing external conditions in a timely manner. The marketing portfolio was
reconfigured during 2020 and 2021, providing flexibility over expenditure and
the agility to invest in opportunities for growth in recovering markets.
Discretionary overhead and capital spend continues to be tightly controlled,
demonstrating the essentially minimal fixed cost base of the direct marketing
model.
These actions, coupled with the strong financial position of the Group that
has been maintained throughout this global pandemic, give the Board confidence
that despite residual uncertainty as to future market conditions, the Group
will be in a good position both to withstand further economic stress and to
take market share opportunities as demand continues to recover.
As a primary strategic objective of the Group and as noted in the assessment
of prospects in the Financial Review, environment-related risks and
opportunities are specifically considered by the Board in their assessment of
viability and going concern.
The Group has established an appropriate governance structure, in the form of
the Group Environmental Committee and Business Risk Management Committee, to
identify new and emerging risks related to climate change and the environment.
As detailed more fully in the Principal Risks & Uncertainties in Appendix
1, environmental risks have the potential to impact the Group's ability to
achieve its strategic objectives through damage to our reputation, our
operational facilities and those of our supplier partners, and the failure to
respond to trends and shifts in consumer product preferences.
The Group has proactively responded to these risks with several initiatives.
These include the achievement of CarbonNeutral(®) company status in October
2021, committed plans to build a solar panel array at our distribution centre
in Oshkosh, plans to review ESG-linked executive remuneration with the
inclusion of climate-related metrics, and the launch of our better choices(TM)
programme to make it easier for our customers to find products with the
characteristics that are most important to them. The flexible nature of our
'drop-ship' model and close relationships maintained with key and alternative
suppliers allows for relatively rapid adjustment to episodes of extreme
weather.
Whilst governmental and societal responses to climate change risks are still
developing, and therefore all possible future outcomes are not known, the
Group has embedded environmental matters into our strategic objectives and
sees climate change and other aspects of environmental stewardship as a
fundamental part of our commitment to build a commercially and environmentally
sustainable business that delivers value to all stakeholders.
The cash flow impact of our environmental initiatives are incorporated into
the financial forecasts used to assess viability and going concern.
The Board considers that the key factor that would prejudice the ongoing
viability and liquidity of the Group would be a severe downturn in demand,
which negatively impacts new customer acquisition and existing customer
retention.
The 'base case' three-year plan, developed for the purposes of the Group's
strategic planning process, provides the basis for the financial modelling
used to assess viability. The commercial underpin to this 'base case' is the
Board's view that whilst the promotional products market contracted in 2020,
for example due to the cancellation of trade shows and physical events, our
recent experience is that market demand is resilient across the product range
and customer base, as evidenced in the rapid recovery in demand during 2021.
The base case started with the total order count at 90% of pre-pandemic 2019
levels, as achieved in 2021, with consistent and sustained top-line growth
throughout the three-year period. Marketing costs were modelled to increase in
line with revenue with the Group's revenue per marketing dollar KPI remaining
stable at historic levels. This 'base case' shows improving financial results,
an accumulating cash balance and no liquidity concerns.
Severe, but plausible, downside demand assumptions were then determined and
used to adjust the 'base case' forecast to model the effects on the Group's
liquidity. This 'downside' scenario assumes a significant deterioration in
demand patterns during 2022, similar to those experienced in 2020 when the
pandemic started, with order volumes for the full year dropping back to around
70% of 2019 levels, before gradually recovering back to 2019 order levels by
2024. Marketing and direct costs were flexed in line with revenue, but other
payroll and overhead costs remained at 2021 levels with some allowance for
inflationary increases. This 'downside' scenario was intended to simulate a
severe shock to demand, similar to the experience from COVID-19, that results
in sustained diminished corporate demand in a downsized promotional products
market.
Even under the severe stress built into the 'downside' model, the Group
retains sufficient liquidity throughout the assessment period. This liquidity
is in the form of cash balances. In addition, there are further mitigating
actions that the Group could take, including further cutting marketing costs
and reducing headcount, that are not reflected in the distressed forecast but
would, if required, be fully under the Group's control.
Given the scalability of the Group's business model, as demonstrated over the
past few years, the absence of external financing, and low fixed or working
capital requirements, a reverse stress testing scenario has not been
undertaken. The Group has proven during 2020 its ability to flex its marketing
and other costs to mitigate the impact of falls in revenue driven by COVID-19
and retains flexibility to further reduce other costs should the need arise.
Though the Group maintains a $20m line of credit with its US bankers, that
expires on 31 May 2023, and a small overdraft facility with its UK bankers,
that expires on 31 December 2022, the modelling in both the 'base case' and
'downside' scenarios shows the maintenance of positive cash balances
throughout the assessment period and, as such, there is no current requirement
to utilise the facilities or intention to secure any additional facilities.
The assumptions used in the 'base case' and 'downside' scenarios and resulting
financial forecasts have been reviewed and approved by the Board. The
conclusion of this review is that the Group has significant flexibility in its
variable costs, a very low fixed cost base, and enters the 2022 financial year
with a strong net cash position of $41.6m, enabling it to remain cash positive
even under severe economic stress.
Based on the assessment outlined above, the Directors have reasonable
expectations that the Group and Company will have adequate resources to
continue to operate from the date the financial statements were approved until
at least 1 July 2023. Accordingly, they continue to adopt the going concern
basis in preparing the Group's and Company's financial statements.
Judgments, estimates and assumptions
Impact of COVID-19 on estimates
The impact of COVID-19 and subsequent disruptions to the supply chain on the
consolidated financial statements has been considered in determining the
estimates required for credits and impairment provisions in relation to trade
and other receivables, inventory provisioning, impairment of property, plant
and equipment, and intangibles, and the recoverability of deferred tax assets.
Whilst the uncertainty surrounding the ultimate impact of the COVID-19
pandemic has resulted in significant estimation in respect to the future cash
flows of subsidiary companies and in determining appropriate discount rates,
growth rates, and probability of default rates necessary for undertaking
impairment reviews and assessing the recoverability of assets and levels of
provisions required, these are not considered to represent critical accounting
judgments or key sources of estimation uncertainty in the preparation of the
financial statements.
Critical accounting judgments and key sources of estimation uncertainty
The preparation of the consolidated financial statements requires management
to make judgments, estimates and assumptions that affect the application of
policies, the amounts reported for assets and liabilities as at the balance
sheet date and the amounts reported for revenues and expenses during the year.
The estimates and associated assumptions are based on historical experiences
and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making judgments about
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
Critical accounting policies are those that require significant judgments or
estimates and potentially result in materially different results under
different assumptions or conditions. Management considers the following to be
the critical accounting policies:
Critical accounting judgments
Revenue
For most of its product line, the Group operates a 'drop-ship' business model
whereby suppliers hold blank inventory, imprint the product and ship directly
to customers. In order to determine the amount of revenue to recognise, it is
necessary for the Group to make a judgment to assess if it is acting as
principal or an agent in fulfilling the performance obligations and promises
to customers for these transactions.
The Group has full discretion to accept orders, agrees artwork with the
customer, sets the transaction price, selects the suppliers used to fulfil
orders, and considers its customer satisfaction promises ('on-time or free',
price and quality guarantees) to be integral to meeting its performance
obligations.
Accordingly, the Group is of the opinion that it acts as principal in
providing goods to customers and recognises the gross amount of consideration
as revenue.
Leases
The Group signed an extension to its Oshkosh office lease commencing on 1
October 2020 for a five-year period with an option to renew for a further five
years from 2025 to 2030. In accordance with the requirements of IFRS 16, the
Group has made a judgment on the likelihood of exercising the new option to
extend in determining the lease term.
Retirement benefit asset
At the balance sheet date, the fair value of the defined benefit assets
exceeded the present value of the defined benefit obligations of the 4imprint
2016 Pension Plan. Although the Group anticipates that the surplus will be
utilised during the life of the plan to address members' liabilities, the
Group recognises the surplus in full on the basis that it is managements'
judgment that there are no restrictions on the return of residual plan assets
in the event of a winding up of the plan after all member obligations have
been met.
Key sources of estimation uncertainty
Pensions
As detailed in note 5, the Group sponsors a defined benefit pension scheme
closed to new members and future accruals. Period-end recognition of the
liabilities under this scheme requires a number of significant actuarial
assumptions to be made, including inflation rate, discount rate and mortality
rates. Small changes in assumptions can have a significant impact on the
amounts recorded in other comprehensive income and on the pension liabilities
in the balance sheet. In addition, the assets held by the scheme include funds
that may contain gilt repos and reverse gilt repos, the valuations of which
are complex.
1 Segmental reporting
The chief operating decision maker has been identified as the Board of
Directors and the segmental analysis is presented based on the Group's
internal reporting to the Board.
At 1 January 2022, the Group has two operating segments, North America and UK
& Ireland. The costs of the Head Office are reported separately to the
Board, but this is not an operating segment.
Revenue 2021 2020
$'000 $'000
North America 773,710 549,873
UK & Ireland 13,612 10,167
Total Group revenue 787,322 560,040
Profit 2021 2020
$'000 $'000
North America 36,006 9,170
UK & Ireland (1,464) (1,605)
Operating profit from Direct Marketing operations 34,542 7,565
Head Office costs (3,896) (3,593)
Operating profit 30,646 3,972
Net finance cost (417) (129)
Profit before tax 30,229 3,843
2 Taxation
2021 2020
$'000 $'000
Current tax
UK tax - current - -
Overseas tax - current 5,910 (845)
Overseas tax - prior periods 15 (53)
Total current tax 5,925 (898)
Deferred tax
Origination and reversal of temporary differences 1,718 1,575
Adjustment in respect of prior periods - 76
Total deferred tax 1,718 1,651
Taxation 7,643 753
The tax for the period is different to the standard rate of corporation tax in
the respective countries of operation. The differences are explained below:
2021 2020
$'000 $'000
Profit before tax 30,229 3,843
Profit before tax for each country of operation multiplied by rate of 7,087 523
corporation tax applicable in the respective countries
Effects of:
Adjustments in respect of prior periods 15 23
Expenses not deductible for tax purposes and non-taxable income 4 20
Other differences 62 101
Adjustments in respect of tax losses (274) (806)
De-recognition of deferred tax asset for UK losses 749 -
US BEAT liability - 892
Taxation 7,643 753
The net deferred tax asset at 1 January 2022 has been calculated at a tax rate
of 19% in respect of deferred tax items that are expected to reverse before 1
April 2023 (2020: 19%) and 25% in respect of deferred tax items expected to
reverse after 1 April 2023 (2020: 19%); and 25% (2020: 25%) in respect of US
deferred tax items.
Management does not consider that there are any material uncertain tax
positions.
'Other differences' comprises adjustments in respect of share options and US
leases.
'Adjustments in respect of tax losses' includes the tax effect of brought
forward UK tax losses utilised in the year and in 2020 includes the tax effect
of US tax losses incurred in 2020 and carried back to prior years.
Following a review of forecast UK taxable profits, the deferred tax asset for
UK tax losses has been de-recognised in the period.
US BEAT is an additional US federal tax imposed on US corporations that make
certain types of payment to foreign related parties. The US Group had no BEAT
liability for 2021.
3 Earnings per share
Basic and diluted
The basic and diluted earnings per share are calculated based on the following
data:
2021 2020
$'000 $'000
Profit after tax 22,586 3,090
2021 2020
Number Number
'000 '000
Basic weighted average number of shares 28,072 28,003
Adjustment for employee share options 68 95
Diluted weighted average number of shares 28,140 28,098
2021 2020
Cents Cents
Basic earnings per share 80.46 11.03
Diluted earnings per share 80.26 11.00
The basic weighted average number of shares excludes shares held in the
4imprint Group plc employee benefit trust. The effect of this is to reduce the
average by 13,888 (2020: 82,090).
The basic earnings per share is calculated based on the profit for the
financial period divided by the basic weighted average number of shares.
For diluted earnings per share, the basic weighted average number of ordinary
shares in issue is adjusted to assume conversion of all potential dilutive
ordinary shares. The potential dilutive ordinary shares relate to those share
options granted to employees where the exercise price is less than the average
market price of the Company's ordinary shares and which are likely to vest at
the balance sheet date.
4 Dividends
Equity dividends - ordinary shares 2021 2020
$'000 $'000
Interim paid: 15.00c (2020: 00.00c) 4,134 -
Final paid: 00.00c (2020: 00.00c) - -
4,134 -
The Directors are proposing a final dividend in respect of the period ended 1
January 2022 of 30.00c. Subject to Shareholder approval at the AGM, these
dividends are payable on 31 May 2022 to Shareholders on the register of
members at close of business on 29 April 2022. These financial statements do
not reflect this proposed dividend.
5 Employee pension schemes
The Group operates defined contribution plans for its UK and US employees. The
regular contributions are charged to the income statement as they are
incurred. The charges recognised in the income statement are:
2021 2020
$'000 $'000
Defined contribution plans - employers' contributions 2,117 2,023
The Group also sponsors a UK defined benefit pension scheme which is closed to
new members and future accrual.
The amounts recognised in the income statement are as follows:
2021 2020
$'000 $'000
Administration costs paid by the scheme 340 343
Past service costs - GMP equalisation on transfers - 77
Pension finance charge 15 104
Total defined benefit pension charge 355 524
The past service cost in 2020 relates to an estimate of the Guaranteed Minimum
Pension ("GMP") equalisation provision on transfers out of the scheme
following the High Court ruling in the Lloyds case in November 2020. The
charge is an estimate calculated by the Company's actuaries and the actual
result may differ from this estimate.
The amounts recognised in the balance sheet comprise:
2021 2020
$'000 $'000
Present value of funded obligations (37,826) (42,627)
Fair value of scheme assets 39,800 39,317
Net asset/(obligation) recognised on the balance sheet 1,974 (3,310)
The principal assumptions applied by the actuaries, as determined by the
Directors, at each period end were:
2021 2020
% %
Rate of increase in pensions in payment 3.25 2.85
Rate of increase in deferred pensions 2.75 2.30
Discount rate 1.80 1.25
Inflation assumption - RPI 3.35 2.90
- CPI 2.75 2.30
The mortality assumptions adopted at 1 January 2022 reflect the most recent
version of the tables used in the September 2019 triennial valuation. The
assumptions imply the following life expectancies at age 65:
2021 2020
Years Years
Male currently aged 40 22.3 22.3
Female currently aged 40 24.2 24.2
Male currently aged 65 21.3 21.3
Female currently aged 65 23.0 23.0
6 Cash generated from operations
2021 2020
$'000 $'000
Profit before tax 30,229 3,843
Adjustments for:
Depreciation of property, plant and equipment 3,237 2,992
Amortisation of intangible assets 437 443
Amortisation of right-of-use assets 1,340 1,498
Gain on disposal of property, plant and equipment - (80)
Share option charges 602 625
Net finance cost 417 129
Defined benefit pension administration charge and past service costs 340 420
Contributions to defined benefit pension scheme* (4,589) (13,278)
Changes in working capital:
(Increase)/decrease in inventories (9,288) 186
(Increase)/decrease in trade and other receivables (26,831) 16,119
Increase/(decrease) in trade and other payables 22,363 (9,713)
Cash generated from operations 18,257 3,184
*Includes a special pension contribution in 2020 of $9.14m.
Statement of Directors' responsibilities
Each of the Directors confirms that, to the best of their knowledge:
· The financial statements within the full Annual Report and Accounts
from which the financial information within this Final Results Announcement
has been extracted, have been prepared in accordance with UK-adopted
International Accounting Standards, give a true and fair view of the assets,
liabilities, financial position and profit of the Company and the undertakings
included in the consolidation taken as a whole.
· The Chief Executive's Review and Financial Review, and Principal
Risks & Uncertainties include a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that it faces.
Alternative performance measures
An Alternative Performance Measure ("APM") is a financial measure of
historical or future financial performance, financial position, or cash flows,
other than a financial measure defined or specified within IFRS.
The Group uses APMs to supplement standard IFRS measures to provide users with
information on underlying trends and additional financial measures, which the
Group considers will aid the users' understanding of the business.
Definitions
Revenue per marketing dollar is the total revenue of the Group divided by the
total marketing expense of the Group. This provides a measure of the
productivity of the marketing expenditure, which is a cornerstone of the
Group's organic revenue growth strategy.
Free cash flow is defined as the net movement in cash and cash equivalents
before distributions to Shareholders but including exchange gains/(losses) on
cash and cash equivalents. It is a measure of cash available for allocation in
line with the Group's capital allocation policy (see the Financial Review):
2021 2020
$m $m
Net movement in cash and cash equivalents 1.87 (1.54)
Add back: Dividends paid to Shareholders 4.13 -
Less: Exchange (losses)/gains on cash and cash equivalents (0.05) 0.17
Free cash flow 5.95 (1.37)
Capital expenditure is defined as purchases of property, plant and equipment
and intangible assets net of proceeds from the sale of property, plant and
equipment. These numbers are extracted from the cash flows from investing
activities shown in the Group cash flow statement.
Underlying operating cash flow is defined as cash generated from operations,
before pension contributions, less capital expenditure. This reflects the cash
flow directly from the ongoing business operations. This is reconciled to IFRS
measures as follows:
2021 2020
$m $m
Cash generated from operations 18.25 3.18
Add back: Contributions to defined benefit pension scheme 4.59 13.28
Less: Purchases of property, plant and equipment and intangible assets (3.47) (3.82)
Add back: Gain on disposal of property, plant and equipment - 0.08
Underlying operating cash flow 19.37 12.72
Appendix 1
STRATEGIC RISKS
Macroeconomic conditions
Risk and description
The Group conducts most of its operations in North America and would be
affected by a downturn in general economic conditions in this region or
negative effects from tension in international trade. In previous economic
downturns the promotional products market has typically softened broadly in
line with the general economy. Most recently, the economic downturn associated
with the COVID-19 pandemic had a significant negative effect on demand for our
products.
Strategic relevance Mitigation Direction
· Customer acquisition and retention could fall, impacting revenue in · Management monitors economic and market conditions to ensure that · Concerns remain with respect to virus variants and resulting restrictions
current and future periods. appropriate and timely adjustments are made to marketing and other budgets. in our markets, however our business model has proved to be resilient and
continues to resonate with our target customers as demonstrated by the
· The growth and profitability levels called for in the Group's strategic · The customer proposition in terms of promotions, price, value, and continued recovery of the business from the significant negative effects of
plan may not be achieved. product range can be adjusted to resonate with customer requirements and the COVID-19 pandemic.
budgets in changing economic climates.
· Cash generation could be reduced broadly corresponding to a reduction in
· Global supply chain issues and international trade tensions continue to
profitability. · The Group's balance sheet funding policy provides operational and cause volatility in our North American and UK markets.
financial flexibility to facilitate continued investment in the business
through different economic cycles. · Brexit uncertainty remains in the Group's UK market, leading to a lack of
business confidence.
· Recent inflationary pressures could drive up labour, product and
transportation costs, affecting customer demand for our products.
Unchanged
Markets & competition
Risk and description
The promotional products markets in which the business operates are intensely
competitive. New or disruptive business models looking to break down our
industry's prevailing distributor/supplier structure may become a threat.
Buying groups and online marketplaces may allow smaller competitors access to
improved pricing and services from suppliers. Private equity interest in the
promotional products industry has increased in recent years, offering
potential funding for existing competitors or new entrants.
Strategic relevance Mitigation Direction
· Aggressive competitive activity or a disruptive new model could result in · Service level, price and satisfaction guarantees are an integral part of · The competitive landscape to date has been relatively consistent on the
pressure on prices, margin erosion and loss of market share, impacting the the customer proposition. Negative or changing customer feedback is distributor side in our main markets.
Group's financial results. investigated and addressed rapidly. Customers are surveyed regularly to
monitor changing customer interests and perceptions.
· The Group's strategy based on achieving organic revenue growth in
fragmented markets may need to be reassessed. · Merchandising and supply chain teams have extensive experience in rapidly Unchanged
adapting the product range to meet evolving consumer demand.
· Customer acquisition and retention could fall, impacting revenue in
current and future periods. · Our aim is to position the business at the forefront of innovation in the
industry, driven by an open-minded culture that is customer focused, embraces
collaborative supplier relationships, and has an appetite for technology.
· Management closely monitors competitive activity in the marketplace
including periodic market research studies.
Effectiveness of key marketing techniques and brand development
Risk and description
The success of the business relies on its ability to attract new and retain
existing customers through a variety of marketing techniques. These methods
may become less effective as follows:
· TV/Video/Brand: Fluctuations in available inventory may cause the price
of this technique to increase beyond our acceptable thresholds. The evolving
nature of how consumers access this type of content can change our ability to
effectively access our audience.
· Online: Search engines are an important source for channelling customer
activity to 4imprint's websites. The efficiency of search engine marketing
could be adversely affected if the search engines were to modify their
algorithms or otherwise make substantial changes to their practices.
· Offline: The flow of print catalogues and sample packages would be
disrupted by the incapacity of the US Postal Service to make deliveries, for
example due to natural disasters or labour activism. Pandemic conditions that
lead to increased levels of people working from remote locations may diminish
the effectiveness of this technique.
The evolving landscape around consumer data privacy preferences and data
privacy legislation potentially affects all marketing techniques if it
compromises our ability to access and analyse customer information or results
in any adverse impacts to our brand image and reputation.
Strategic relevance Mitigation Direction
· If sustained over anything more than a short time period, an externally · TV/Video/Brand: Given that this is the newest element of our marketing · Marketing diversification continues via the successful integration of a
driven decrease in the effectiveness of key marketing techniques would cause portfolio, our utilisation of this technique is still at a relatively early brand component to the marketing portfolio.
damage to the customer file as customer acquisition and retention fall. This stage of its development, allowing for a high degree of flexibility.
would affect order flow and revenue in the short-term and the productivity of
· The COVID-19 pandemic, in particular the trend towards 'work-from-home'
the customer file over a longer period, impacting growth prospects in future · Online: Management stays very close to new developments and emerging has negatively impacted response rates for print catalogues. This has resulted
years. platforms in the online space. Efforts are focused on anticipating changes and in a successful redeployment of offline/print budget towards further
ensuring compliance with both the requirements of providers and applicable investment in brand and online marketing.
· Restrictive data privacy legislation or changes in consumer demands laws.
around data privacy could decrease the yield on our marketing activities and
· The business has significantly reduced the amount of data it shares,
might increase compliance costs and the possibility of lawsuits. · Offline: Developments in the US Postal Service are closely monitored increasingly relying on first party data.
through industry associations and lobbying groups. Alternative parcel carriers
are continuously evaluated.
· Data privacy requirements and consumer data preferences are monitored Unchanged
closely and assessed.
OPERATIONAL RISKS
Business facility disruption
Risk and description
The 4imprint business model means that operations are concentrated in
centralised office, distribution and production facilities. The performance of
the business could be adversely affected if activities at one of these
facilities were to be disrupted, for example, by pandemic, fire, flood, loss
of power or internet /telecommunication failure.
Strategic relevance Mitigation Direction
· The inability to service customer orders over any extended period would · Back-up and business continuity infrastructure is in place to ensure the · The COVID-19 pandemic raised the risk of potential shutdown of one or all
result in significant revenue loss, deterioration of customer acquisition and risk of customer service disruption is minimised. of our facilities, however the risk of a return to 'lockdown' type
retention metrics and diminished return on marketing investment.
restrictions appears to be diminishing.
· Websites are cloud-based, and data is backed up continuously to off-site
· A significant portion of our apparel orders are embroidered in-house at servers.
our distribution centre, therefore disruption at this facility would impact
our ability to fulfil these orders. · Relationships are maintained with third party embroidery contractors to Unchanged
provide an element of back-up in the event of facility unavailability.
· The Group's reputation for excellent service and reliability may be
damaged. · A significant proportion of our office and customer service staff can
work from home, mitigating some risk should offices become unavailable.
Domestic supply and delivery
Risk and description
As a consequence of the Group's 'drop-ship' distribution model, trading
operations could be interrupted if: (i) the activities of a key supplier were
disrupted and it was not possible to source an alternative supplier in the
short-term; (ii) a key supplier's own supply chain is compromised by 'force
majeure' events in the country of original product manufacture, for example
natural disasters, social/political unrest or pandemic; or (iii) the primary
parcel delivery partner used by the business suffered significantly degraded
service levels. As the Group continues to grow, the volume of orders placed
with individual suppliers becomes significant.
Strategic relevance Mitigation Direction
· Inability to fulfil customer orders would lead to lost revenue and a · A rigorous selection process is in place for key suppliers, with · Risk is inherent in increasing supplier concentration, and the COVID-19
negative impact on customer acquisition and retention statistics. evaluation and monitoring of quality, production capability and capacity, pandemic has increased this risk.
ethical standards, financial stability and business continuity planning.
· The Group's reputation for excellent service and reliability may be
· The supply chain problems seen in the second half of 2021 have
damaged, leading to potential erosion of the value built up in the 4imprint · Very close relationships are maintained with key suppliers, including a significantly heightened risk in this area and are still ongoing.
brand. detailed shared knowledge of the supply end of the value chain, allowing swift
understanding of and appropriate reaction to events.
· Wherever possible, relationships are maintained with suitable alternative Increased
suppliers for each product category.
· Secondary relationships are in place with alternative parcel carriers.
Failure or interruption of information technology systems and infrastructure
Risk and description
The business is highly dependent on the efficient functioning of its IT
infrastructure. An interruption or degradation of services at any 4imprint
operational facility would affect critical order processing systems and
thereby compromise the ability of the business to deliver on its customer
service proposition.
Strategic relevance Mitigation Direction
· In the short-term, orders would be lost and delivery deadlines missed, · There is continuous investment in both the IT team supporting the · The IT platform is mature, and performance has been efficient and
decreasing the efficiency of marketing investment and impacting customer business and the hardware and software system requirements for a stable and resilient, including through the COVID-19 pandemic with high levels of staff
acquisition and retention. secure operating platform. working from home.
· Revenue and profitability are directly related to order flow and would be · Back-up and recovery processes are in place, including immediate
adversely affected as a consequence of a major IT failure. replication of data to an alternative site, to minimise the impact of
information technology interruption. Unchanged
· Depending on the severity of the incident, longer-term reputational
damage could result. · Cloud-based hosting for eCommerce and elements of back office
functionality.
REPUTATIONAL RISKS
Cyber threats
Risk and description
Malware, ransomware and other malicious cyber threats can lead to system
failure and/or unauthorised access to and misappropriation of customer data,
potentially leading to reputational damage and loss of customer confidence.
This is a rapidly changing environment, with new threats emerging on an almost
daily basis.
Strategic relevance Mitigation Direction
· Revenue and profitability are directly related to order flow and would be · The business employs experienced IT staff whose focus is to identify and · The general incidence and publicity around cyber-crime continues to
adversely affected as a consequence of system compromise. mitigate IT security vulnerabilities. increase.
· A significant security breach could lead to litigation and losses, with a · Investment in software and other resources in this area continues to be a
costly rectification process. In addition, it might be damaging to the Group's high priority.
reputation and brand.
Increased
· Technical and physical controls are in place to mitigate unauthorised
· An event of this nature might result in significant expense, impacting access to customer data and there is an ongoing investment process to maintain
the Group's ability to meet its strategic objectives. and enhance the integrity and efficiency of the IT infrastructure and its
security.
· Due to the ever-evolving nature of the threat, emerging cyber risks are
addressed by the IT security team on a case-by-case basis.
· Third party cyber security consultants are employed as and when
appropriate.
Supply chain compliance & ethics
Risk and description
Our business model relies on direct (tier 1) and indirect (tier 2 & 3)
relationships with suppliers located both within our primary markets and at
overseas locations. 4imprint has for many years had very high ethical
expectations for supply chain compliance, but there is always a risk that our
wider supply chain partners may, from time to time, not comply with our
standards or applicable local laws.
Strategic relevance Mitigation Direction
· Significant or continuing non-compliance with such standards and laws · Key tier 1 suppliers must commit to cascading our ethical sourcing · Our supplier compliance programme is well established.
could result in serious damage to our reputation and brand image. expectations down to their tier 2 and tier 3 supply chain partners.
· The COVID-19 pandemic has restricted opportunities for visits to and
· This could have an adverse effect on our ability to acquire and retain · Specifically, we require our suppliers to comply with our supplier audits of both domestic and overseas supplier locations.
customers and therefore our longer-term revenue prospects and financial compliance documentation, including the '4imprint Supply Chain Code of
condition. Conduct' and the '4imprint Factory & Product Compliance Expectations'
document.
Increased
· We are active in promoting audit coverage of our supply chain at many
levels, and in ensuring that product safety and testing protocols are adequate
and up to date.
Legal, regulatory and compliance
Risk and description
We are subject to, and must comply with, extensive laws and regulations,
particularly in our primary US market. An example is data privacy legislation.
Strategic relevance Mitigation Direction
· If we or our employees, suppliers and other partners fail to comply with · Consultation with consultants, subject matter experts, specialist · Obligations continue to be complied with and monitored.
any of these laws or regulations, such failure could subject us to fines, external legal advisers and Government agencies as appropriate.
sanctions or other penalties that could negatively affect our brand,
reputation and financial condition.
Unchanged
ENVIRONMENTAL RISKS
Climate change
Risk and description
Climate change potentially affects our operations, facilities, supply chain,
team members, communities and our customers in a variety of ways. As such, it
presents a multitude of risks to the business and threatens our ability to
achieve our strategic objectives.
Strategic relevance Mitigation Direction
· Extreme weather-related events that impact our customers and/or our · The flexible nature of our 'drop-ship' model allows for relatively rapid · There is an increasing sense of urgency globally, and as such, the risks
suppliers can have 'episodic' negative impact on revenue, customer acquisition adjustment to episodes of extreme weather. The business has very low customer in this area will increase as well.
and retention, and they can also cause increases to our product and concentration which helps mitigate an element of the risk as well.
distribution costs. Some of our suppliers are located in geographic areas that
are subject to increased risk for these events. · The business became 'carbon neutral' in 2021 in respect of Scopes 1 and 2
and meaningful elements of Scope 3, a year earlier than originally targeted. Increased
· Further, if the business is not seen to be taking deliberate and tangible
actions to reduce its GHG emissions, the Group's reputation and brand may be · Management is actively monitoring and measuring progress towards further
damaged. environmental goals, most notably further GHG reductions in Scopes 1 and 2 and
meaningful elements of Scope 3.
Products and market trends
Risk and description
The transition to a low carbon economy may lead to changing product trends or
consumer preferences that render certain products undesirable or obsolete
whilst increasing demand for others.
Strategic relevance Mitigation Direction
· Failure to anticipate accurately and respond to trends and shifts in · Our merchandising teams actively collaborate with our suppliers to · The transition to a low carbon economy is driving changes in consumer
consumer preferences by adjusting the mix of existing product offers may lead continuously curate our range of products to adapt and meet the needs and preferences towards sustainable products.
to lower demand for our products, impacting our market position and ability to tastes of our customers.
generate revenue growth.
· However, most of the products in our broad range are also sold unbranded
· Our better choices™ initiative has been launched to highlight in the retail setting, with the pace of the transition towards sustainable
promotional products that have sustainable attributes, giving our customers choices likely to remain quite manageable.
the ability to research product attributes and supplier standards and
certifications related to sustainability, environmental impact, workplace
culture and more.
Unchanged
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