REG - 4imprint Group PLC - Final Results
15/03/2023 07:00
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RNS Number : 9756S 4imprint Group PLC 15 March 2023
15 March 2023
4imprint Group plc
Final results for the period ended 31 December 2022
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
4imprint Group plc (the "Group"), a direct marketer of promotional products,
today announces its final results for the 52 weeks ended 31 December 2022.
Financial Overview 2022 2021 Change
$m $m
1,140.29 787.32 +45%
Revenue
102.90 30.65 +236%
Operating profit
103.71 30.23 +243%
Profit before tax
86.75 41.59 +109%
Cash and bank deposits
Basic EPS (cents) 285.57 80.46 +255%
Total paid and proposed regular dividend per share (cents) 160.00 45.00 +256%
Total paid and proposed regular dividend per share (pence) 132.24 33.82 +291%
Proposed special dividend per share (cents) 200.00 - -
Proposed special dividend per share (pence) 165.38 - -
Operational Overview
· Strong trading momentum; strategic revenue target of $1bn
surpassed and profit before tax exceeded $100m
· 1,860,000 total orders processed in 2022 (2021: 1,429,000);
307,000 new customers acquired in the year (2021: 263,000)
· Brand investment driving a step change in the productivity of the
overall marketing mix
· Very strong financial position, with cash and bank deposits of
$86.8m; no debt
· Special dividend proposed of 200.00c per share
· Good progress on ESG, including completion of the $2m solar array
project at the Oshkosh distribution centre
Paul Moody, Chairman said:
Following an extremely strong trading performance in 2022, we enter the 2023
financial year with momentum and confidence. Trading results in the first few
weeks of 2023 have been encouraging.
The person responsible for arranging the release of this announcement on
behalf of 4imprint Group plc is David Seekings, its Chief Financial Officer.
For further information, please contact:
4imprint Group plc MHP Group
Tel. + 44 (0) 20 3709 9680 Tel. + 44 (0) 7884 494112
hq@4imprint.co.uk 4imprint@mhpgroup.com (mailto:4imprint@mhpgroup.com)
Kevin Lyons-Tarr - Chief Executive Officer Katie Hunt
David Seekings - Chief Financial Officer Eleni Menikou
Chairman's Statement
Overview
2022 was an outstanding year for 4imprint. Two major financial milestones were
achieved:
· We surpassed our strategic revenue target of $1bn; and
· For the first time in the Group's history, profit before tax
exceeded $100m.
Underpinning the numbers, 2022 was characterised by the resilience and
scalability of our direct marketing business model and, above all, by the
extraordinary dedication and tenacity of our people in providing the best
possible service to our customers in the face of unprecedented growth in
demand.
Financial performance
After a relatively quiet first quarter, strong trading momentum was evident in
the Group's financial performance for the remainder of the year, prompting
several unscheduled positive market updates.
Enhanced productivity from our marketing activities, relative stability in
gross margins and operational leverage over fixed and semi-fixed elements of
the cost base joined together to produce a powerful combination of growth,
profitability and cash generation for the year.
Group revenue for 2022 was $1.14bn, an increase of $353.0m or 45% over 2021.
Profit before tax for the year was $103.7m (2021: $30.2m), resulting in basic
earnings per share of 285.57c, (2021: 80.46c). The Group ended 2022 in a
strong financial position, with cash and bank deposits of $86.8m (2021:
$41.6m).
Strategic direction
The Group's progress in 2022 is a direct consequence of both the clarity of
our strategic direction and our deep-seated cultural commitment to 'doing the
right thing' for all stakeholders. In particular, we took a long-term view of
the business and its prospects throughout the pandemic-affected years of 2020
and 2021. Notably:
· We did not deviate from our commitment to our people. They are
the cornerstone of the 4imprint culture and are essential to producing such
impressive financial results.
· We continued to develop and invest in the increasingly important
brand component of our marketing programme. This sustained strategic
commitment has given us the flexibility we anticipated and is clearly having a
beneficial impact on the efficiency of our marketing mix.
The Board recognises that adding more than $350m of organic revenue in 2022
was an outstanding achievement, particularly after a two-year period marked by
the significant adverse impact of the pandemic. As such, following on from its
annual strategic review in Oshkosh in early November 2022, the Board has
approved significant incremental investment in the business in 2023, primarily
in people, in order to consolidate gains already made and to drive future
profitable revenue growth.
In this context, the Board remains committed to the Group's strategy and
business model as well as confident in the strength of its competitive
position.
ESG
There have been several important developments in 2022 in support of the
Group's ESG objectives. We were re-certified as a CarbonNeutral® company by
Climate Impact Partners, and the team has worked on several additional energy
reduction initiatives, most notably the installation of a 2,660 panel solar
array at the Oshkosh distribution centre. In addition, there has been
significant progress in expanding and developing Better Choices™, our
sustainable product initiative.
Dividend
The Group enters 2023 in a very strong financial position, with cash and bank
deposits of $86.8m. In view of the Group's financial performance in 2022 and
its likely cash requirements in 2023, the Board recommends a final dividend
per share of 120.00c (2021: 30.00c), giving a total paid and proposed 2022
regular dividend per share of 160.00c (2021: 45.00c).
In addition, and consistent with both the Group's capital allocation framework
and its balance sheet funding guidelines, the Board is pleased to recommend an
additional, special dividend per share of 200.00c (2021: 0.00c), to be paid in
June 2023 alongside the 2022 final dividend.
Outlook
Following an extremely strong trading performance in 2022, we enter the 2023
financial year with momentum and confidence. Trading results in the first few
weeks of 2023 have been encouraging.
Paul Moody
Chairman
14 March 2023
Chief Executive's Review
Revenue 2022 2021 Change
$m $m
North America 1,120.52 773.71 +45%
UK & Ireland 19.77 13.61 +45%
Total 1,140.29 787.32 +45%
Operating profit Change
2022 2021
$m $m
Direct Marketing operations 107.91 34.54 +212%
Head Office costs (5.01) (3.89) +29%
Total 102.90 30.65 +236%
Performance overview
2022 was a remarkable year for 4imprint. Guided by a clear strategic plan and
driven by the tremendous efforts of our teammates and supplier partners, we
have emerged from the pandemic stronger than we entered it, generating record
levels of revenue and profitability, increased market share and excellent
progress on several important initiatives.
The first quarter of 2022 was broadly in line with our initial expectation to
deliver another solid step forward in the recovery of the business after two
years that were badly affected by the pandemic. Total orders received in the
first quarter were up a respectable 7% when measured against 2019, the last
'normal' comparative. However, from the start of the second quarter through to
the end of 2022 the trading performance of the Group improved markedly. Total
orders in that period were up over the same 2019 comparative by an aggregate
of 20%.
Comparisons to the prior year are equally impressive. In total, 1,860,000
orders were processed in 2022, representing an increase of 30% over 2021.
Importantly, the proportion of new customers acquired has been very
encouraging. In 2022 we acquired 307,000 new customers, a 17% increase over
the 263,000 acquired in the prior year. The recovery in new customer
acquisition in both 2021 and 2022 drove robust existing customer order counts
which had previously been hindered by the sharp decrease in customer
acquisition activity during the worst of the pandemic in 2020. It is
reassuring that customers acquired during the pandemic/recovery timeframe have
demonstrated typical or even slightly improved retention characteristics,
indicating that they are squarely within our target profile.
Average order values in 2022 were 5% above prior year, the result of changes
in the merchandising mix as well as general inflationary price adjustments
through the year. This led to a total increase at the demand revenue (value of
orders received) level of 36% over 2021.
These very strong demand numbers translated into significant gains in
year-on-year financial performance.
· Group revenue for 2022 was $1.14bn, representing an increase of
45% or $353.0m over 2021. It should be noted that 2022 revenue was boosted by
a timing effect of around $30m related to an unusually high order backlog at
the 2021 year-end. This was caused by global and local supply chain issues
delaying orders in process. As anticipated, this situation largely unwound to
the benefit of 2022 reported revenue as the supply situation improved and
orders were completed.
· In terms of profitability, the Group delivered a step change in
results. Operating profit for 2022 of $102.90m was 236% above the 2021
comparative of $30.65m. Clearly, the revenue volume growth outlined above was
a key factor in driving this very favourable profitability dynamic, but the
effect was amplified by: (i) gross margins remaining broadly stable in an
inflationary environment; (ii) significant gains in the productivity of our
marketing investment; and (iii) operational gearing over the fixed and
semi-fixed elements of the cost base.
· The 4imprint direct marketing business model remains very cash
generative, with free cash flow in the year of $63.88m (2021: $5.95m) leading
to cash and bank deposits at the 2022 year-end of $86.8m (2021: $41.6m).
We are convinced that the strength of the Group's financial performance in
2022 is a direct result of our strategic commitment to keep investing in the
business even during a severe economic downturn. We know that this continued
investment, primarily in people and marketing, forms the foundation necessary
to take advantage of the significant market share opportunity that lies ahead.
Operational highlights
Beyond the financial performance, much progress was made on operational
initiatives, all set in the context of the stresses and strains on the
organisation from delivering more than $350m of incremental organic revenue
growth in a short space of time.
· People. Our people are crucial to our current and future success.
This was clearly demonstrated in the context of the very strong demand levels
seen in the business from the second quarter of 2022 onwards. Our team members
across the entire business were willing to go above and beyond to deliver the
best possible customer service in the face of record order intake volumes and
an improving but still challenging supply chain. We have invested in
remuneration and benefit initiatives in the year, including the full
restoration of quarterly payouts under our quarterly 'gainshare' and other
leadership bonus plans that had been paused during the pandemic. In addition,
in September 2022 we paid a special "one-off" bonus of $1,000 or local
equivalent to all team members in recognition of extraordinary effort and an
attitude of mind that so clearly reflects 4imprint's culture and values. So
far we have been successful in attracting, recruiting and training the
additional team members that we need to service our further growth
aspirations.
· Marketing. Our commitment to staying in front of our customers
during an economic downturn was validated as the pandemic receded. The
strategic evolution of our marketing mix in recent years to include and
increasingly invest in a brand awareness element was accelerated and we have
used the improved flexibility this new mix offers to take full advantage of
the immediate market share opportunity, at the same time as strengthening the
business for the long term. The success of this approach to managing our
marketing budget in 2022 was reflected in large part in our revenue per
marketing dollar KPI in the year of $8.86, an increase of 44% over prior year
(2021: $6.17).
· Supply. As anticipated, the supply chain constraints seen in 2021
continued into the first half of 2022. The deep relationships that we have
with our key tier 1 suppliers again proved to be invaluable in dealing with
these situations, with the effect that the logistics, inventory and production
labour pressures eased considerably in the second half of the year. In
common with most businesses, we experienced significant inflationary pressure
on cost of product during the year. Whilst we implemented carefully considered
price increases to help address these increasing costs, we continued to
approach pricing thoughtfully so as to remain very well positioned in the
market, supporting the strong customer acquisition and retention numbers
described above.
· Screen-printing. In April 2022 we completed the purchase of the
business and assets of a small, nearby apparel screen-printing business that
had been a long-standing and valued supplier. The assets, but more importantly
the expertise acquired will provide the seed from which we can expand our
apparel decorating capabilities and capacity in support of the continued
growth of this category. In terms of strategic rationale, the parallel is the
substantial in-house embroidery operation, built from small beginnings, that
has underpinned our significant growth in this important category.
ESG
Even as the team worked incredibly hard to manage the swift and sharp
recovery, excellent progress was made on our ESG agenda in 2022.
· We maintained and renewed our CarbonNeutral® business
certification.
· The team has worked on further energy and waste reduction
initiatives, with the ultimate goal of moving towards clean energy initiatives
and reducing reliance on carbon offset products.
· A 2,660 panel solar array was installed and became operational
in the year at the Oshkosh distribution centre.
· There has been exciting progress in expanding and developing
our Better Choices™ sustainable products range.
Looking ahead
We are proud of what our business has achieved in 2022. Our strategy is clear,
our business model is flexible and scalable and we see opportunities to take
more share in the markets in which we operate.
Financial Review
2022 2021
$m $m
Operating profit 102.90 30.65
Net finance income/(cost) 0.80 (0.42)
Profit before tax 103.70 30.23
Taxation (23.56) (7.64)
Profit for the period 80.14 22.59
The Group's operating result in the period, summarising expense by function,
was as follows:
2022 2021
$m $m
Revenue 1,140.29 787.32
Gross profit 321.94 226.02
Marketing costs (128.68) (127.53)
Selling costs (38.64) (32.16)
Administration and central costs (50.36) (34.73)
Share option charges and related social security costs (0.84) (0.61)
Defined benefit pension scheme administration costs (0.52) (0.34)
Operating profit 102.90 30.65
Operating result
Following the recovery of the business from the effects of the pandemic in the
prior year, the positive trading momentum continued throughout 2022, resulting
in record levels of demand. This trading profile, along with an increase in
average order values and improved supply chain conditions, drove full year
revenue to $1.14bn, an increase of $0.35bn or 44.8% compared to $0.79bn in
2021.
The gross profit percentage declined 0.5% to 28.2% (2021: 28.7%). Persistent
inflationary pressures in the challenging macroeconomic and geopolitical
environment increased product, transportation and labour costs, which were
partially offset by a considered approach to selling price adjustments taken
to maintain customer acquisition to drive future growth.
Marketing costs reduced to 11.3% of revenue, compared to 16.2% of revenue in
2021. 2022 saw a step change in marketing productivity driven by investment in
the brand element of marketing mix, and our commitment to staying in front of
customers during the pandemic. This has led to the revenue per marketing
dollar KPI rising to $8.86, a 43.6% increase over prior year (2021: $6.17).
Selling, administration and central costs together increased 33.1% to $89.00m
(2021: $66.89m). This increase is attributable to additional investment in
team members, particularly in customer service and at our operational
facilities to support elevated demand activity, and higher incentive
compensation costs and bad debt reserves in line with trading performance.
These factors, when combined together, demonstrate the financial leverage in
the business model, thereby delivering material uplifts in both operating
profit to $102.90m (2021: $30.65m) and operating margin to 9.02% (2021:
3.89%).
Foreign exchange
The primary US dollar exchange rates relevant to the Group's 2022 results were
as follows:
2022 2021
Period-end Average Period-end Average
Sterling 1.20 1.24 1.35 1.38
Canadian dollars 0.74 0.77 0.79 0.80
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 2022 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
and the UK cash balances, which produced exchange losses of $0.20m and $1.21m
respectively for 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 2022 meant that every US$1m converted to Sterling
was worth around £89,000 more at the 2022 closing rate compared to the 2021
closing rate.
Share option charges
A total of $0.84m (2021: $0.61m) 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 Deferred Bonus Plan (DBP) and 2015 Incentive Plan; and (ii) charges
in respect of the 2019 UK SAYE and the 2021 US Employee Stock Purchase Plan.
Current options and awards outstanding are 2,059 shares under the UK SAYE,
89,388 shares under the 2021 US Employee Stock Purchase Plan, and 29,633
shares under the 2015 Incentive Plan. Awards under the DBP in respect of 2022
are anticipated to be made in late March 2023.
Net finance income/(cost)
Net finance income for the year was $0.80m (2021: net finance cost $0.42m).
This comprises interest earned on cash deposits, lease interest charges under
IFRS 16, and the net income/(charge) on the defined benefit pension plan
assets and liabilities.
Interest income increased significantly during the year to $1.16m (2021:
$0.03m), driven by improving yields on higher cash deposits, particularly in
the US where interest rates have been steadily raised during the year in
response to economic conditions.
Taxation
The tax charge for the year was $23.56m (2021: $7.64m), giving an effective
tax rate of 23% (2021: 25%). The charge comprises a current tax charge of
$23.99m representing tax payable on US taxable profits; a current tax charge
of $1.19m in respect of UK profits; and a deferred tax credit of $1.62m.
The decrease in the effective tax rate is principally due to UK tax losses
utilised in the year and the recognition of a deferred tax asset for UK tax
losses that, following a review of updated forecasts of UK taxable profits,
are expected to be utilised in the next three years. The US business also
benefitted from a federal tax credit of $0.47m in respect of its investment in
a solar array at the Oshkosh distribution centre.
Earnings per share
Basic earnings per share was 285.57c (2021: 80.46c), an increase of 255%. This
reflects the 255% increase 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.
The Board has proposed a final dividend of 120.00c per share (2021: 30.00c)
which, together with the interim dividend of 40.00c per share, gives a total
paid and proposed regular dividend relating to 2022 of 160.00c per share
(2021: 45.00c), an increase of 256% compared to prior year.
The final dividend has been converted to Sterling at an exchange rate of
£1.00/$1.2093. This results in a final dividend per share payable to
Shareholders of 99.23p (2021: 22.99p), which, combined with the interim
dividend paid of 33.01p per share, gives a total dividend per share for the
year of 132.24p (2021: 33.82p).
In addition to the interim and final dividends, the Board has also proposed a
special dividend of 200.00c per share (165.38p) (2021: nil), which will be
paid at the same time as the final dividend in June 2023. This special
dividend is non-recurring in nature and is in accordance with the Group's
established balance sheet funding and capital allocation policies which are
described in more detail below.
The final and special dividends, together amounting to 320.00c per share
(264.61p), will be paid on 1 June 2023 to Shareholders on the register at the
close of business on 5 May 2023.
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 accrual for several years. The Plan
has 118 pensioners and 210 deferred members.
At 31 December 2022, the surplus of the Plan on an IAS 19 basis was $1.23m
(2021: $1.97m). Gross Plan assets under IAS 19 were $21.52m, and liabilities
were $20.29m.
The change in the net IAS 19 Plan position is analysed as follows:
$m
IAS 19 surplus at 1 January 2022 1.97
Company contributions to the Plan 4.37
Defined benefit pension scheme administration costs (0.52)
Pension finance income 0.07
Re-measurement gain due to changes in assumptions 11.91
Return on scheme assets (excluding interest income) (16.37)
Exchange loss (0.20)
IAS 19 surplus at 31 December 2022 1.23
The net IAS 19 surplus decreased by $0.74m in the year. This was mainly the
result of a fall in the Plan asset values driven by high inflation (the assets
are held in gilts, the values of which move with inflation and interest rate
expectations, and liquidity funds), partly offset by the increase in the
discount rate used to measure the Plan liabilities. In Sterling, the net IAS
19 surplus decreased by £0.44m in the year to a surplus of £1.02m.
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. As the Plan moves towards
becoming 'buyout ready', the Company and the Trustee continue to assess
options on the timing and route to achieving this objective.
A triennial actuarial valuation of the Plan was completed in September 2019
and this forms the basis of the 2022 IAS 19 valuation set out above. The next
triennial Plan valuation is underway and is expected to be completed in the
first half of 2023.
Business combination
On 25 April 2022, the Group acquired the trade and assets of Fox Graphics Ltd,
a private company based in Oshkosh, Wisconsin, that specialises in
screen-printing services. The acquired screen-printing operations will enable
the Group to bring this capability in-house. With future investment the
objective is to secure the capacity to meet the anticipated growth in demand
for the apparel category.
The acquisition constitutes a business combination as defined in IFRS 3, as
the three elements of a business (input, process, output) have been identified
as having been acquired. Accordingly, the acquisition has been accounted for
using the acquisition method.
The fair value of the consideration transferred was $1.70m and the net
identifiable assets acquired and liabilities assumed as at the date of
acquisition have been determined at $0.69m. The resulting goodwill of $1.01m
has been recognised on the balance sheet during the period.
Further information on this acquisition is provided in note 5.
Cash flow
The Group had cash and bank deposits of $86.75m at 31 December 2022, an
increase of $45.16m against the 1 January 2022 balance of $41.59m.
Cash flow in the period is summarised as follows:
2022 2021
$m $m
Operating profit 102.90 30.65
Share option charges 0.82 0.60
Defined benefit pension scheme administration charge 0.52 0.34
Depreciation and amortisation 4.02 3.67
Lease depreciation 1.51 1.34
Change in working capital (8.44) (13.76)
Capital expenditure (8.01) (3.47)
Underlying operating cash flow 93.32 19.37
Tax and interest (20.06) (6.82)
Consideration for business combination (1.70) -
Defined benefit pension scheme contributions (4.37) (4.59)
Own share transactions (0.87) (0.84)
Capital element of lease payments (1.23) (1.12)
Exchange and other (1.21) (0.05)
Free cash flow 63.88 5.95
Dividends to Shareholders (18.72) (4.13)
Net cash inflow in the period 45.16 1.82
The Group generated underlying operating cash flow of $93.32m (2021: $19.37m),
a conversion rate of 91% of operating profit (2021: 63%). The net working
capital position, whilst remaining elevated, has fallen significantly as a
percentage of revenue compared to the 2021 year-end reflecting the improved
supply chain conditions. Capital expenditure includes $1.82m on a solar array
at the Oshkosh distribution centre which became fully operational in December
2022, and $2.93m on equipment and facility build out costs in relation to the
acquired screen-printing operations.
Free cash flow improved by $57.93m to $63.88m (2021: $5.95m). This is
attributable to the excellent trading performance during the period and is net
of $1.70m of business acquisition consideration.
The 2021 final dividend of $8.14m was paid in May 2022 and the 2022 interim
dividend of $10.58m was paid in September 2022.
Balance sheet and Shareholders' funds
Net assets at 31 December 2022 were $140.22m, compared to $82.97m at 1 January
2022. The balance sheet is summarised as follows:
31 December 1 January
2022 2022
$m $m
Non-current assets (excluding pension asset) 46.71 38.04
Working capital 20.84 12.27
Cash and bank deposits 86.75 41.59
Lease liabilities (13.75) (12.09)
Pension asset 1.23 1.97
Other assets - net (1.56) 1.19
Net assets 140.22 82.97
Shareholders' funds increased by $57.25m since the 2021 year-end. Constituent
elements of the movement were net profit in the period of $80.14m and share
option related movements of $1.01m, net of equity dividends paid to
Shareholders $(18.72)m, own share transactions of $(0.87)m, the after tax
impact of returns on pension scheme assets and re-measurement gains on pension
obligations of $(2.70)m, and exchange losses of $(1.61)m.
The Group had a net positive working capital balance of $20.84m at 31 December
2022 (2021: $12.27m), reflecting the build-up of accrued revenue and inventory
on orders in process at year-end. As a percentage of revenue, the net working
capital balance has reduced materially from the prior year-end, which was
significantly impacted by global and local supply chain issues caused by the
pandemic.
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
different economic cycles. The Group will therefore typically remain ungeared
and hold a positive cash and bank deposits 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.
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 Special dividends most likely method: other methods may be considered.
In keeping with these capital allocation priorities and taking into account
both the cash-generative nature of business operations and the Group's
investment plans for 2023 and beyond, the Board has recommended a return to
Shareholders of around $56.1m by way of a special dividend of 200.00c per
share, payable in June 2023.
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 the
Secured Overnight Financing Rate (SOFR) plus 2.1%, and the facility expires on
31 May 2024. In addition, an overdraft facility of £1.0m, with an interest
rate of the Bank of England base rate plus 2.0% (or 2.0% if higher), is
available from the Group's principal UK bank, Lloyds Bank plc, until 31
December 2023. The Group expects these facilities to be renewed prior to their
respective expiry dates.
The Group had cash and bank deposits of $86.75m at the year-end and has no
current requirement or plans to raise additional equity or core debt funding.
Estimates and judgments
The preparation of the consolidated financial statements requires management
to make judgments and estimates that affect the application of accounting
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.
Critical accounting judgments are those judgments, apart from those involving
estimations, that have been made in the process of applying the Group's
accounting policies and that have the most significant effect on the amounts
recognised in the financial statements. Key assumptions and sources of
estimation uncertainty are those that have a significant risk of resulting in
a material adjustment to the carrying amounts of the Group's assets and
liabilities within the next financial year.
Management considers the critical accounting judgments to be in respect of
revenue and the retirement benefit asset, and key assumptions and sources of
estimation uncertainty to relate to the valuation of the defined benefit
pension plan liabilities.
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). This did not lead to formal impairment reviews being undertaken
for either CGU. The Company has released £329k from the expected credit loss
provision 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 and Appendix 1.
· Information contained in this Financial Review concerning the
Group's financial position, cash flows and liquidity.
· Regular management reporting and updates from the Executive
Directors.
· Recent detailed financial forecasts and analysis for the
three-year period to 27 December 2025.
Principal risks and uncertainties
The Directors have carefully considered the Group's principal risks and
uncertainties in assessing the Group's prospects, which include strategic
risks, operational risks, reputational risks, and environmental risks. Whilst
all the risks identified could have an impact on the Group, given the
prevailing external climate and potential to impact the Group's financial
position and longer-term viability, macroeconomic and environmental risks are
considered in further detail below.
Macroeconomic risks
Whilst the risk of a negative effect on demand for our products from the
pandemic is considered to have receded during the year, the macroeconomic and
geopolitical environment remains challenging.
The ongoing uncertainty associated with the outlook for a potential global
recession and continued geopolitical unrest poses downside risks to growth and
the cost base. Inflationary pressures (mainly in relation to product,
transportation, and labour costs) have persisted since the onset of the
pandemic although the impact on the business has to date been successfully
mitigated through appropriate and timely adjustments to the customer
proposition, the marketing mix and expense budgets. In addition, the
maintenance of high levels of liquidity has facilitated continued investment
in the business for future growth.
The operational and financial resilience of the business through the pandemic
and current economic and political uncertainty, coupled with the strong
financial position of the Group, give the Board confidence that the strategy,
competitive position, and business model remain entirely relevant and that
despite residual uncertainty as to future market conditions, the Group expects
to be in a good position both to withstand further economic stress and to take
market share opportunities as they arise.
The potential impacts from the current macroeconomic risks and associated
mitigating actions have been reflected in the demand and cost assumptions of
the financial forecasts used to assess viability and going concern.
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.
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, the
installation of a solar panel array at our distribution centre in Oshkosh, the
introduction of our Better Choices™ programme to make it easier for our
customers to find products with the characteristics that are most important to
them, and participation in the UPS carbon neutral shipping programme. 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 its strategic objectives and
sees climate change and other aspects of environmental stewardship as a
fundamental part of a commitment to build a commercially and environmentally
sustainable business that delivers value to all stakeholders.
The cash flow impacts 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 27 December 2025, 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
reliable.
The Group's business model does not rely heavily on fixed capital, long-term
contracts, or fixed external financing arrangements.
Assessment of viability
Whilst the principal risks and uncertainties outlined in this Financial Review
and Appendix 1 could all have an impact on the Group's performance, 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. Over the three-year period 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. These 'downside' scenarios assume a significant deterioration in
demand patterns during 2023, similar to those experienced in 2020 when the
pandemic started, with order volumes for the first year of the three-year
forecast period dropping back to around 70% of 2022 levels, before gradually
recovering back to 2022 order levels by 2025. Marketing and direct costs were
flexed in line with revenue, capital expenditure was moderated to reflect the
reduction in demand, and dividend payments were reduced in line with earnings
per share, but other payroll and overhead costs remained at 2022 levels with
an allowance for inflationary increases. These 'downside' scenarios are
intended to simulate a severe shock to demand resulting in sustained
diminished corporate demand in a downsized promotional products market.
Even under the severe stress built into the 'downside' models, the Group
retains strong 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 the onset of the pandemic in 2020 its
ability to flex its marketing and other costs to mitigate the impact of falls
in revenue 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 2024 and a small overdraft facility with its UK bankers that
expires on 31 December 2023, 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 low fixed cost base, and enters the 2023 financial year with
a strong cash and bank deposits position of $86.8m, 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 27 December 2025.
Going concern
Based on their assessment, the Directors have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group's and Company's ability
to continue as a going concern from the date the financial statements are
approved until 29 June 2024. Accordingly, they continue to adopt the going
concern basis in preparing the Group's and Company's financial statements.
Principal Risks & Uncertainties
The Board recognises that effective risk management and a robust system of
internal control are integral components of good corporate governance and are
fundamental to the long-term sustainable success of the Group. Risk appetite,
the risk management process, and associated mitigating activities and controls
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 numerous 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 oversight and management of risk and
control across the Group. The Audit Committee assists the Board in fulfilling
its responsibilities to maintain effective governance and oversight of the
Group's risk management and internal controls.
Risks are identified on a top-down and bottom-up basis from many sources,
including internally, through the Board and operational and functional
management teams, and externally, to ensure that emerging risks are
considered. Risk identification focuses on those risks which, if they
occurred, have the potential to have a material impact on the Group and the
achievement of its strategic, operational and compliance objectives. Risks are
categorised into the following groups: strategic risks; operational risks;
reputational risks; and environmental risks.
Management is responsible for evaluating each significant risk and
implementing specific risk mitigation activities and controls with the aim of
reducing the resulting residual risk to an acceptable level, as determined in
conjunction with the Group's risk appetite. The Business Risk Management
Committee reviews the consolidated Group risk register and the mitigating
actions and controls at regular meetings and provides updates to the Audit
Committee on a bi-annual basis. This process is supplemented with risk and
control assessments completed by the operating locations and Group function
annually.
The Board
The Board undertakes a formal review of the Group's principal and emerging
risks at least annually, assessing them against the Group's risk appetite and
strategic objectives. The Executive Directors will routinely update the Board
on urgent emerging issues and principal risks where the residual risk exceeds
the Group's risk appetite to allow the Board to determine whether the actions
being taken by management are sufficient.
Outlined in Appendix 1 are the current principal risks and uncertainties that
would impact the successful delivery of the Group's strategic goals. These are
consistent with those disclosed in the prior year. 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
14 March 2023
Group Income Statement for the 52 weeks ended 31 December 2022
Note 2022 2021
$'000 $'000
Revenue 1 1,140,286 787,322
Operating expenses (1,037,384) (756,676)
Operating profit 1 102,902 30,646
Finance income 1,162 33
Finance costs (425) (435)
Pension finance income/(charge) 67 (15)
Net finance income/(cost) 804 (417)
Profit before tax 103,706 30,229
Taxation 2 (23,563) (7,643)
Profit for the period 80,143 22,586
Cents Cents
Earnings per share
Basic 3 285.57 80.46
Diluted 3 284.95 80.26
Group Statement of Comprehensive Income for the 52 weeks ended 31 December
2022
Note 2022 2021
$'000 $'000
Profit for the period 80,143 22,586
Other comprehensive income
Items that may be reclassified subsequently to the income statement:
Currency translation differences (1,614) (97)
Items that will not be reclassified subsequently to the income statement:
Return on pension scheme assets (excluding interest income) (16,374) (1,391)
Re-measurement gains on post-employment obligations 11,916 2,506
Tax relating to components of other comprehensive income 2 1,756 (1,411)
Other comprehensive income for the period, net of tax (4,316) (393)
Total comprehensive income for the period, net of tax 75,827 22,193
Group Balance Sheet at 31 December 2022
Note 2022 2021
$'000 $'000
Non-current assets
Property, plant and equipment 29,255 24,667
Intangible assets 957 1,045
Goodwill 5 1,010 -
Right-of-use assets 13,103 11,725
Deferred tax assets 2,381 600
Retirement benefit asset 7 1,234 1,974
47,940 40,011
Current assets
Inventories 18,090 20,559
Trade and other receivables 87,511 63,589
Current tax debtor - 2,034
Other financial assets - bank deposits 34,913 -
Cash and cash equivalents 51,839 41,589
192,353 127,771
Current liabilities
Lease liabilities 6 (1,435) (1,150)
Trade and other payables (84,761) (71,877)
Current tax creditor (1,205) -
(87,401) (73,027)
Net current assets 104,952 54,744
Non-current liabilities
Lease liabilities 6 (12,315) (10,939)
Deferred tax liabilities (357) (850)
(12,672) (11,789)
Net assets 140,220 82,966
Shareholders' equity
Share capital 18,842 18,842
Share premium reserve 68,451 68,451
Other reserves 4,406 6,020
Retained earnings 48,521 (10,347)
Total Shareholders' equity 140,220 82,966
Group Statement of Changes in Shareholders' Equity for the 52 weeks ended 31
December 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 3 January 2021 18,842 68,451 6,117 (581) (27,458) 65,371
Profit for the period 22,586 22,586
Other comprehensive income
Currency translation differences (97) (97)
Re-measurement gains on post-employment obligations 1,115 1,115
Tax relating to components of other comprehensive income (note 2) (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 UK tax losses (228) (228)
Dividends (4,134) (4,134)
Balance at 1 January 2022 18,842 68,451 6,020 (851) (9,496) 82,966
Profit for the period 80,143 80,143
Other comprehensive income
Currency translation differences (1,614) (1,614)
Re-measurement losses on post-employment obligations (4,458) (4,458)
Tax relating to components of other comprehensive income (note 2) 1,756 1,756
Total comprehensive income (1,614) 77,441 75,827
Proceeds from options exercised 344 344
Own shares utilised 1,191 (1,191) -
Own shares purchased (1,210) (1,210)
Share-based payment charge 815 815
Deferred tax relating to share options 52 52
Deferred tax relating to UK tax losses 148 148
Dividends (18,722) (18,722)
Balance at 31 December 2022 18,842 68,451 4,406 (870) 49,391 140,220
Group Cash Flow Statement for the 52 weeks ended 31 December 2022
Note 2022 2021
$'000 $'000
Cash flows from operating activities
Cash generated from operations 8 97,040 18,257
Tax paid (20,755) (6,414)
Finance income received 1,130 33
Finance costs paid (33) (65)
Lease interest (398) (377)
Net cash generated from operating activities 76,984 11,434
Cash flows from investing activities
Purchases of property, plant and equipment (7,719) (3,083)
Purchases of intangible assets (341) (382)
Proceeds from sale of property, plant and equipment 49 -
Consideration for business combination 5 (1,700) -
Increase in current asset investments - bank deposits (35,003) -
Net cash used in investing activities (44,714) (3,465)
Cash flows from financing activities
Capital element of lease payments (1,225) (1,117)
Proceeds from share options exercised 344 -
Purchases of own shares (1,210) (843)
Dividends paid to Shareholders 4 (18,722) (4,134)
Net cash used in financing activities (20,813) (6,094)
Net movement in cash and cash equivalents 11,457 1,875
Cash and cash equivalents at beginning of the period 41,589 39,766
Exchange losses on cash and cash equivalents (1,207) (52)
Cash and cash equivalents at end of the period 51,839 41,589
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 principal accounting policies applied in these financial statements are
consistent with those of the annual financial statements for the period ended
1 January 2022, as described in those annual financial statements, except for
the additional accounting policy detailed below.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost
of an acquisition is measured as the fair value of the consideration
transferred. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair value at the acquisition date. The excess of the cost of acquisition over
the Group's share of identifiable net assets is recorded as goodwill.
Acquisition-related costs are expensed as incurred.
For the purpose of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated to the Group's
cash-generating units that are expected to benefit from the combination.
Goodwill is not amortised but is reviewed annually for impairment.
Basis of preparation
This announcement was approved by the Board of Directors on 14 March 2023. The
financial information in this announcement does not constitute the Group's
statutory accounts for the periods ended 31 December 2022 or 1 January 2022
but it is derived from those accounts. Statutory accounts for 1 January 2022
have been delivered to the Registrar of Companies, and those for 31 December
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.
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 is still
developing and therefore all possible future outcomes are uncertain, risks
known to the Group have been considered in forming 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 29 June 2024, 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.
· Regular management reporting and updates from the Executive
Directors.
· Recent detailed financial forecasts and analysis.
Principal risks and uncertainties
The Directors have carefully considered the Group's principal risks and
uncertainties in assessing the Group's prospects, which include strategic
risks, operational risks, reputational risks, and environmental risks. Whilst
all the risks identified could have an impact on the Group, given the
prevailing external climate and potential to impact the Group's financial
position and longer-term viability, macroeconomic and environmental risks are
considered in further detail below.
Macroeconomic risks
Whilst the risk of a negative effect on demand for our products from the
pandemic is considered to have receded during the year, the macroeconomic and
geopolitical environment remains challenging.
The ongoing uncertainty associated with the outlook for a potential global
recession and continued geopolitical unrest poses downside risks to growth and
the cost base. Inflationary pressures (mainly in relation to product,
transportation, and labour costs) have persisted since the onset of the
pandemic although the impact on the business has to date been successfully
mitigated through appropriate and timely adjustments to the customer
proposition, the marketing mix and expense budgets. In addition, the
maintenance of high levels of liquidity has facilitated continued investment
in the business for future growth.
The operational and financial resilience of the business through the pandemic
and current economic and political uncertainty, coupled with the strong
financial position of the Group, give the Board confidence that the strategy,
competitive position, and business model remain entirely relevant and that
despite residual uncertainty as to future market conditions, the Group expects
to be in a good position both to withstand further economic stress and to take
market share opportunities as they arise.
The potential impacts from the current macroeconomic risks and associated
mitigating actions have been reflected in the demand and cost assumptions of
the financial forecasts used to assess viability and going concern.
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.
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, the
installation of a solar panel array at our distribution centre in Oshkosh, the
introduction of our Better Choices(™) programme to make it easier for our
customers to find products with the characteristics that are most important to
them, and participation in the UPS carbon neutral shipping programme. 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 its strategic objectives and
sees climate change and other aspects of environmental stewardship as a
fundamental part of a commitment to build a commercially and environmentally
sustainable business that delivers value to all stakeholders.
The cash flow impacts of our environmental initiatives are incorporated into
the financial forecasts used to assess viability and going concern.
Assessment of going concern
Whilst the principal risks and uncertainties could all have an impact on the
Group's performance, 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. Over the three-year period 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. These 'downside' scenarios assume a significant deterioration in
demand patterns during 2023, similar to those experienced in 2020 when the
pandemic started, with order volumes for the first year of the three-year
forecast period dropping back to around 70% of 2022 levels, before gradually
recovering back to 2022 order levels by 2025. Marketing and direct costs were
flexed in line with revenue, capital expenditure was moderated to reflect the
reduction in demand, and dividend payments were reduced in line with earnings
per share, but other payroll and overhead costs remained at 2022 levels with
an allowance for inflationary increases. These 'downside' scenarios are
intended to simulate a severe shock to demand resulting in sustained
diminished corporate demand in a downsized promotional products market.
Even under the severe stress built into the 'downside' models, the Group
retains strong 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 the onset of the pandemic in 2020,
its ability to flex its marketing and other costs to mitigate the impact of
falls in revenue 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 2024 and a small overdraft facility with its UK bankers that
expires on 31 December 2023, 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 low fixed cost base, and enters the 2023 financial year with
a strong cash and bank deposits position of $86.8m, enabling it to remain cash
positive even under severe economic stress.
Going concern
Based on their assessment, the Directors have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group's and Company's ability
to continue as a going concern from the date the financial statements are
approved until 29 June 2024. Accordingly, they continue to adopt the going
concern basis in preparing the Group's and Company's financial statements.
Estimates and judgments
The preparation of the consolidated financial statements requires management
to make judgments and estimates that affect the application of accounting
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.
Critical accounting judgments are those judgments, apart from those involving
estimations, that have been made in the process of applying the Group's
accounting policies and that have the most significant effect on the amounts
recognised in the financial statements. Key assumptions and sources of
estimation uncertainty are those that have a significant risk of resulting in
a material adjustment to the carrying amounts of the Group's assets and
liabilities within the next financial year.
Management considers the following to be the critical accounting judgments and
key assumptions and sources of estimation uncertainty:
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.
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 management's
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 assumptions and sources of estimation uncertainty
Pensions
As detailed in note 7, the Group sponsors a defined benefit pension scheme
closed to new members and future accrual. 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.
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 31 December 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 2022 2021
$'000 $'000
North America 1,120,517 773,710
UK & Ireland 19,769 13,612
Total Group revenue 1,140,286 787,322
2022 2021
Profit $'000 $'000
North America 107,965 36,006
UK & Ireland (54) (1,464)
Operating profit from Direct Marketing operations 107,911 34,542
Head Office costs (5,009) (3,896)
Operating profit 102,902 30,646
Net finance income/(cost) 804 (417)
Profit before tax 103,706 30,229
2 Taxation
2022 2021
$'000 $'000
Current tax
UK tax - current 1,191 -
Overseas tax - current 23,970 5,910
Overseas tax - prior periods 24 15
Total current tax 25,185 5,925
Deferred tax
Origination and reversal of temporary differences (1,537) 1,718
Adjustment in respect of prior periods (85) -
Total deferred tax (1,622) 1,718
Taxation 23,563 7,643
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:
2022 2021
$'000 $'000
Profit before tax 103,706 30,229
Profit before tax for each country of operation multiplied by rate of 25,440 7,087
corporation tax applicable in the respective countries
Effects of:
Adjustments in respect of prior periods (61) 15
Expenses not deductible for tax purposes and non-taxable income (16) 4
Other differences (417) 62
UK tax losses utilised in the period (196) (274)
UK losses (recognised)/de-recognised for deferred tax (1,187) 749
Taxation 23,563 7,643
'Other differences' includes adjustments in respect of share options, US
leases and a US Federal tax credit of $472k for the investment in a solar
array at the Oshkosh distribution centre.
'UK losses (recognised)/de-recognised for deferred tax' relates to changes to
the deferred tax asset in respect of brought forward UK tax losses which are
forecast to be utilised against UK taxable profits over the next three years.
Management does not consider that there are any material uncertain tax
positions.
Income tax credited/(debited) to other comprehensive income is as follows:
2022 2021
$'000 $'000
Current tax relating to post-employment obligations 1,191 -
Deferred tax relating to post-employment obligations (344) (213)
Deferred tax relating to UK tax losses 876 (1,198)
Effect of change in UK tax rate 33 -
1,756 (1,411)
Income tax credited/(debited) to equity is as follows:
2022 2021
$'000 $'000
Deferred tax relating to UK tax losses 148 (228)
Deferred tax relating to share options 52 5
200 (223)
3 Earnings per share
Basic and diluted
The basic and diluted earnings per share are calculated based on the following
data:
2022 2021
$'000 $'000
Profit after tax 80,143 22,586
2022 2021
Number Number
'000 '000
Basic weighted average number of shares 28,064 28,072
Adjustment for employee share options 61 68
Diluted weighted average number of shares 28,125 28,140
2022 2021
Cents Cents
Basic earnings per share 285.57 80.46
Diluted earnings per share 284.95 80.26
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 number by 21,632 (2021: 13,888).
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 2022 2021
$'000 $'000
Interim paid: 40.00c (2021: 15.00c) 10,587 4,134
Final paid: 30.00c (2021: 00.00c) 8,135 -
18,722 4,134
The Directors are proposing a final regular dividend in respect of the period
ended 31 December 2022 of 120.00c per share, as well as a special dividend of
200.00c per share. Subject to Shareholder approval at the AGM, these dividends
are payable on 1 June 2023 to Shareholders registered on 5 May 2023. These
financial statements do not reflect these proposed dividends.
5 Business combinations
Acquisition of screen-printing business
On 25 April 2022, the Group acquired the trade and assets of Fox Graphics Ltd,
a private company based in Oshkosh, Wisconsin, that specialises in
screen-printing services. The acquired screen-printing operations will enable
the Group to bring this capability in-house. With future investment the
objective is to secure the capacity to meet the anticipated growth in demand
for the apparel category.
The acquisition constitutes a business combination as defined in IFRS 3, as
the three elements of a business (input, process, output) have been identified
as having been acquired. Accordingly, the acquisition has been accounted for
using the acquisition method.
The fair values of the identifiable assets acquired and liabilities assumed as
at the date of acquisition were:
Fair value recognised on acquisition
$'000
Assets
Property, plant and equipment 686
Computer hardware 4
Right-of-use assets 111
801
Liabilities
Lease liabilities (111)
(111)
Total identifiable net assets at fair value 690
Goodwill arising on acquisition 1,010
Purchase consideration transferred 1,700
Analysis of cash flows on acquisition:
Cash paid 1,700
Net cash flow on acquisition 1,700
In addition to the purchase consideration transferred, a potential further
$560,000 is payable in annual instalments over the five-year period following
closing, subject to certain conditions being satisfied, including the
continued employment of the selling shareholder with the Group. These
contingent payments constitute remuneration for future services and will be
expensed to profit and loss as services are rendered; $67,000 has been
recognised in operating expenses in the income statement and in trade and
other payables in the balance sheet.
Reconciliation of the carrying amount of goodwill at the beginning and end of
the reporting period is presented below:
Goodwill
$'000
Cost
At 2 January 2022 -
Acquisition of screen-printing trade and assets 1,010
At 31 December 2022 1,010
The Group did not acquire any receivables as part of the business combination.
The acquired business generated revenues and net income of approximately $2.0m
and $0.4m respectively for the twelve months ended 31 December 2021. The Group
was the principal customer of the acquired business, contributing
approximately $1.7m of the total $2.0m of revenue and approximately $0.3m of
the total $0.4m net income.
The impact on the Group's financial statements, both from the date of
acquisition and as if the acquisition had taken place at the beginning of the
period, are not material as demonstrated by the full year results of Fox
Graphics Ltd noted above. As most of the revenue of the acquired business was
contributed by the Group, these transactions will be eliminated upon
consolidation from the date of acquisition as intra-group trading and thus
only external sales will impact Group revenue (based on 2021 results, this
would be expected to add circa $0.3m to revenue for a full year). The Group
will benefit from lower product costs associated with integrating the
production operations of Fox Graphics Ltd; based on 2021 results and without
any new investment by the Group, the acquisition would be expected to add
circa $0.4m to the Group's profit before tax for a full year.
The goodwill recognised is primarily attributable to the specialised
operational knowledge acquired and benefits of bringing the activities of the
screen-printing business in-house to secure capacity and support the growing
demand for decorated garments from our customers. The total amount of goodwill
that is expected to be deductible for tax purposes is $1,010,000.
As required by IAS 36 'Impairment of Assets', goodwill is required to be
tested for impairment annually. The screen-printing operations contribute to
the cash flows of the US CGU and therefore the goodwill arising on acquisition
has been tested in conjunction with the other assets of that CGU. The
recoverable amount of the US CGU exceeds the carrying amount of the assets and
thus no impairment of the goodwill balance is required.
Total acquisition-related transaction costs of $17,000 have been included in
operating expenses in the income statement and are part of operating cash
flows in the cash flow statement.
6 Leases
The Group leases premises in Oshkosh and Appleton, Wisconsin. The lease for
office premises in Oshkosh, that was renewed in 2020, has a five-year term
with a five-year extension option. New leases entered during the period as
part of the strategic decision to bring screen-printing capability in-house
are as follows:
· A seventeen-month sublease on premises in Oshkosh entered as part of
the acquisition of the trade and assets of Fox Graphics Ltd (see note 5)
resulted in additions to the lease liability and right-of-use asset of $111k
respectively.
· A new ten-year lease on premises in Appleton was subsequently entered
into to facilitate the expansion of the screen-printing operations, adding
$2,775k to lease liabilities and right-of use assets respectively. The
interest rate inherent in the lease could not be ascertained; therefore,
estimates have been used based upon incremental costs of borrowing for a
similar term and asset, obtained from the Group's US bankers. A change of plus
or minus 1.0% in the interest rate would result in a decrease/increase in the
lease liability at the year-end of $0.1m respectively.
In addition, there are various items of leasehold land and buildings (office
facilities in London) and machinery on short-term leases, and some office
equipment with low value. The Group applies the IFRS 16 exemptions for
short-term and low value leases. No leases contain variable payment terms.
Lease liabilities 2022 2021
$'000 $'000
Due within one year 1,435 1,150
Due in two to three years 2,955 2,407
Due in four to five years 3,449 2,733
Due in over five years 5,911 5,799
The movement in lease liabilities in the period is shown below:
2022 2021
$'000 $'000
At start of period 12,089 13,206
Additions 2,886 -
Interest charge 398 377
Lease interest payments - operating cash flow (398) (377)
Lease capital payments - financing cash flow (1,225) (1,117)
At end of period 13,750 12,089
7 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:
2022 2021
$'000 $'000
Defined contribution plans - employers' contributions 2,533 2,117
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:
2022 2021
$'000 $'000
Administration costs paid by the scheme 521 340
Pension finance (income)/charge (67) 15
Total defined benefit pension charge 454 355
The amounts recognised in the balance sheet comprise:
2022 2021
$'000 $'000
Present value of funded obligations (20,290) (37,826)
Fair value of scheme assets 21,524 39,800
Net asset recognised on the balance sheet 1,234 1,974
The principal assumptions applied by the actuaries, as determined by the
Directors, at each period-end were:
2022 2021
% %
Rate of increase in pensions in payment 3.08 3.25
Rate of increase in deferred pensions 2.66 2.75
Discount rate 4.82 1.80
Inflation assumption - RPI 3.16 3.35
- CPI 2.66 2.75
The mortality assumptions adopted at 31 December 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:
2022 2021
Years Years
Male currently aged 45 22.3 22.3
Female currently aged 45 24.2 24.2
Male currently aged 65 21.3 21.3
Female currently aged 65 23.1 23.0
8 Cash generated from operations
2022 2021
$'000 $'000
Profit before tax 103,706 30,229
Adjustments for:
Depreciation of property, plant and equipment 3,594 3,237
Amortisation of intangible assets 424 437
Amortisation of right-of-use assets 1,508 1,340
Loss on disposal of property, plant and equipment 84 -
Share option charges 815 602
Net finance (income)/cost (804) 417
Defined benefit pension administration charge 521 340
Contributions to defined benefit pension (4,367) (4,589)
scheme
Changes in working capital:
Decrease/(increase) in inventories 2,469 (9,288)
Increase in trade and other receivables (24,164) (26,831)
Increase in trade and other payables 13,254 22,363
Cash generated from operations 97,040 18,257
Statement of Directors' responsibilities
Each of the Directors confirm, 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 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 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
Underlying operating profit is profit before exceptional items. Exceptional
items are defined below. These items may be volatile in magnitude and distort
the underlying performance measures of the ongoing business. A reconciliation
of underlying operating profit to operating profit is shown in note 1 when
applicable.
Underlying operating margin % is underlying operating profit divided by total
revenue.
Exceptional items are income or costs that are both material and
non-recurring.
Underlying profit before tax is defined as profit before tax excluding
exceptional items. When applicable, a reconciliation of profit before tax to
underlying profit before tax is shown in note 3.
Underlying profit after tax is defined as profit after tax before exceptional
items, net of any related tax charges. When applicable, a reconciliation of
profit before tax to underlying profit after tax is shown in note 3.
Underlying earnings per share is defined as underlying profit after tax
divided by the weighted average number of shares in issue during the financial
year. When applicable, the calculation of underlying EPS is shown in note 3.
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 movement in cash and cash equivalents and
other financial assets - bank deposits, 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:
2022 2021
$m $m
Net movement in cash and cash equivalents 11.46 1.87
Add back: Increase in current asset investments - bank deposits 35.00 -
Add back: Exchange loss on increase in current asset investments - bank (0.09) -
deposits
Add back: Dividends paid to Shareholders 18.72 4.13
Less: Exchange losses on cash and cash equivalents (1.21) (0.05)
Free cash flow 63.88 5.95
Cash conversion is defined as the percentage of underlying operating cash flow
to underlying operating profit and is provided as a measure of the efficiency
of the Group's business model to generate cash.
Return on average capital employed is defined as underlying profit before tax
divided by the simple average of opening and closing non-current assets,
excluding deferred tax, plus net current assets and non-current lease
liabilities. This is given to show a relative measure of the Group's efficient
use of its capital resources.
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.
2022 2021
$m $m
Purchase of property, plant and equipment (7.72) (3.09)
Purchases of intangible assets (0.34) (0.38)
Proceeds from sale of property, plant and equipment 0.05 -
Capital expenditure (8.01) (3.47)
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:
2022 2021
$m $m
Cash generated from operations 97.04 18.25
Add back: Contributions to defined benefit pension scheme 4.37 4.59
Less: Loss on disposal of property, plant and equipment (0.08) -
Less: Purchases of property, plant and equipment and intangible assets (8.06) (3.47)
Add: Proceeds from sale of property, plant and equipment 0.05 -
Underlying operating cash flow 93.32 19.37
Cash and bank deposits is defined as cash and cash equivalents and other
financial assets - bank deposits. This measure is used by the Board to
understand the true cash position of the Group when determining the potential
uses of cash under the balance sheet funding and capital allocation policies.
This is reconciled to IFRS measures as follows:
2022 2021
$m $m
Cash and cash equivalents 51.84 41.59
Other financial assets - bank deposits 34.91 -
Cash and bank deposits 86.75 41.59
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.
Strategic relevance Mitigation Direction
· Customer acquisition and retention could fall, impacting revenue in · Management monitors economic and market conditions to ensure that · Whilst concerns remain with respect to potential new COVID-19 virus
current and future periods. appropriate and timely adjustments are made to marketing and other budgets. variants, the risk of a negative effect on demand for our products arising
from the pandemic is considered to have receded.
· The growth and profitability levels called for in the Group's strategic · The customer proposition in terms of promotions, price, value, and
plan may not be achieved. product range can be adjusted to resonate with customer requirements and · A challenging macroeconomic and geopolitical environment continues to
budgets in changing economic climates. cause uncertainty in our North American and UK markets, posing downside risks
· Cash generation could be reduced broadly corresponding to a reduction in
to general economic conditions and growth.
profitability. · The Group's balance sheet funding policy provides operational and
financial flexibility to facilitate continued investment in the business · Persistent inflationary pressures could drive up product, transportation
through different economic cycles. and labour costs.
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 could 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 trend towards 'work-from-home', accelerated by the COVID-19 pandemic,
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 · Whilst concerns remain with respect to potential new COVID-19 virus
result in significant revenue loss, deterioration of customer acquisition and risk of customer service disruption is minimised. variants, the risk of potential shutdown of one or all of our facilities from
retention metrics and diminished return on marketing investment.
a return to 'lockdown' type restrictions is considered to have receded.
· 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 Decreased
provide an element of back-up in the event of facility unavailability.
· The Group's reputation for excellent service and reliability may be
damaged. · Our recently acquired screen-printing operations have been located
separately to our existing distribution centre to diversify the risk of
disruption to our facilities.
· 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 · The significant growth in demand experienced during the year has led to
negative impact on customer acquisition and retention statistics. evaluation and monitoring of quality, production capability and capacity, increased volumes being placed with certain individual suppliers. This has led
ethical standards, financial stability and business continuity planning. to an increase in the inherent risk of supplier concentration, although the
· The Group's reputation for excellent service and reliability may be
Group continues to manage this risk through relationships with alternative
damaged, leading to potential erosion of the value built up in the 4imprint · Very close relationships are maintained with key suppliers, including a suppliers.
brand. detailed shared knowledge of the supply end of the value chain, allowing swift
understanding of and appropriate reaction to events. · The disruption to global and local supply chains, initially caused by the
impact of the pandemic, continues to persist. The lessening impact from
· Wherever possible, relationships are maintained with suitable alternative COVID-19 on the Group's ability to fulfil customer orders on a timely basis
suppliers for each product category. has been offset with ongoing challenges in the recruitment of staff by both
the Group and our supply partners, the risk of strikes at our parcel delivery
· Secondary relationships are in place with alternative parcel carriers. partners, and elevated order levels experienced during the period.
· Whilst the residual risk continues to remain elevated, it is considered
to have stabilised in comparison to the prior year.
Unchanged
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 and more recently with
acquisition and retention. secure operating platform. higher levels of staff 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 · The rollout of our home working computer solution is now complete,
adversely affected as a consequence of a major IT failure. replication of data to an alternative site, to minimise the impact of enabling the vast majority of our office-based team members to work from home.
information technology interruption.
· Depending on the severity of the incident, longer-term reputational
damage could result. · Cloud-based hosting for eCommerce and elements of back-office
functionality. Unchanged
· IT Infrastructure in place to support working from home for our
office-based team members.
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 expected frequency, sophistication and publicity around cyber crime
adversely affected as a consequence of system compromise. mitigate IT security vulnerabilities. continues to increase. Accordingly, a high residual risk assessment continues
to be maintained.
· 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.
· Technical and physical controls are in place to mitigate unauthorised Unchanged
· 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.
· Whilst visits to, and audits of, both domestic and overseas suppliers
· This could have an adverse effect on our ability to acquire and retain · Specifically, we require our suppliers to comply with our supplier have increased since the start of the COVID-19 pandemic, challenges in
customers and therefore our longer-term revenue prospects and financial compliance documentation, including the '4imprint Supply Chain Code of visiting certain locations continue to persist.
condition. Conduct' and the '4imprint Factory & Product Compliance Expectations'
document.
· We are active in promoting audit coverage of our supply chain at many Unchanged
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 subject matter experts, specialist external legal · Obligations continue to be complied with and monitored.
any of these laws or regulations, such failure could subject us to fines, advisers and Government agencies as appropriate.
sanctions or other penalties that could negatively affect our brand,
reputation and financial condition. · US General Counsel recruited during 2022.
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 remains a global sense of urgency in relation to climate change. As
suppliers can have 'episodic' negative impact on revenue, customer acquisition adjustment to episodes of extreme weather. The business has very low customer such, the risks in this area remain elevated, albeit they are considered
and retention, and they can also cause increases to our product and concentration which helps mitigate an element of the risk as well. stable over the period.
distribution costs. Some of our suppliers are located in geographic areas that
are subject to increased risk of 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.
· Further, if the business is not seen to be taking deliberate and tangible
Unchanged
actions to reduce its GHG emissions, the Group's reputation and brand may be · Our solar array project at the Oshkosh distribution centre became fully
damaged. operational during 2022, significantly increasing the portion of the Group's
power requirements generated from renewable sources.
· Management is actively monitoring and measuring progress towards further
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 to 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, the fact that most of the products in our broad range are also
· Our Better Choices™ initiative has been launched to highlight sold unbranded in the retail setting, and with the launch of our Better
promotional products that have sustainable attributes, giving our customers Choices™ initiative, the pace of the transition towards sustainable choices
the ability to research product attributes and supplier standards and is likely to remain quite manageable.
certifications related to sustainability, environmental impact, workplace
culture and more.
Decreased
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