REG - 4imprint Group PLC - Half-year Report
10/08/2022 07:00
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RNS Number : 4753V 4imprint Group PLC 10 August 2022
10 August 2022
4imprint Group plc
Half year results for the 26 weeks ended 2 July 2022 (unaudited)
4imprint Group plc (the "Group"), a direct marketer of promotional products,
today announces its half year results for the 26 weeks ended 2 July 2022.
Financial Overview Half year Half year Change
2022 2021
$m $m
515.54 326.81 +58%
Revenue
43.98 3.60 +1,122%
Operating profit
43.91 3.37 +1,203%
Profit before tax
67.10 52.80 +27%
Cash
118.90 9.12 +1,204%
Basic EPS (cents)
40.00 15.00 +167%
Interim dividend per share (cents)
33.01 10.83 +205%
Interim dividend per share (pence)
The results for the half year and prior half year are unaudited.
Operational Overview
· Customer demand at record levels:
• 886,000 total orders processed in H1 2022 (H1 2021: 616,000; H1
2019: 778,000)
• 146,000 new customers acquired in H1 2022 (H1 2021: 113,000; H1
2019: 147,000)
• July 2022 demand activity has remained encouraging
· Marketing efficiency led by increasing proportion of brand awareness
producing market share gains and strengthening the business for the future
· Success in attracting and retaining team members in difficult labour
markets
· Supply chain challenges being addressed in partnership with tier 1
suppliers
· Interim dividend of 40.00c per share declared (2021: 15.00c) reflects
performance in the first half of the year and the Group's strong
financial position
Paul Moody, Chairman said:
"The Board remains very confident in the Group's strategy, the strength and
resilience of its business model and its competitive position. This confidence
is expressed in our expectation of reaching our long-held revenue target of
$1bn during the 2022 financial year.
At the same time, the Board is cognisant of continuing uncertainty in the form
of geo-political and broad economic factors that could potentially slow down
the Group's performance during the remainder of 2022.
Trading momentum in the first few weeks of the second half of 2022 has
remained encouraging."
For further information, please contact:
4imprint Group plc MHP Communications
Tel. + 44 (0) 20 3709 9680 Tel. + 44 (0) 20 3128 8794
hq@4imprint.co.uk (mailto:hq@4imprint.co.uk) 4imprint@mhpc.com (mailto:4imprint@mhpc.com)
Kevin Lyons-Tarr, Chief Executive Officer Katie Hunt
David Seekings, Chief Financial Officer
Chairman's Statement
Performance summary
The Group has delivered a remarkable financial performance in the first half
of 2022.
Group revenue in the first half of 2022 was $515.54m, an increase of $188.73m,
or 58% over the same period in 2021. Profit before tax for the period was
$43.91m (2021: $3.37m), resulting in basic earnings per share of 118.90c
(2021: 9.12c). The business model remains very cash-generative, leaving the
Group with a net cash balance at the half year of $67.10m (3 July 2021:
$52.80m).
The strong trading momentum driving these results was described in our market
updates of 6 May 2022 and 19 July 2022. Measured against the 2019 comparative,
(the most recent 'normal' year), order counts at the half year were up 14%.
Average order values also increased by 14%, resulting in overall demand
revenue for the period at 30% above the 2019 comparative.
Strategic progress
The progress made in the first half of 2022 directly reflects both the clarity
of our strategic direction and our unwavering commitment to 'doing the right
thing' by taking a long-term view of the business throughout the
pandemic-affected years of 2020 and 2021. In particular:
· We remain fully committed to our people, whose hard work and
dedication has allowed us to produce such impressive results; they are at the
heart of the 4imprint culture.
· We continue to develop and invest in a brand component to our
marketing engine. This strategic initiative was launched in 2018, before the
pandemic, and has given us the flexibility we anticipated to make a positive
impact on the efficiency of our marketing.
Dividend
The Group is very well financed. In consequence, the Board has declared an
interim dividend of 40.00c per share, an increase of 167% over the prior year.
The well-established Group balance sheet funding and capital allocation
guidelines will continue to shape decisions on future dividend payments to
Shareholders.
Outlook
The Board remains very confident in the Group's strategy, the strength and
resilience of its business model and its competitive position. This confidence
is expressed in our expectation of reaching our long-held revenue target of
$1bn during the 2022 financial year.
At the same time, the Board is cognisant of continuing uncertainty in the form
of geo-political and broad economic factors that could potentially slow down
the Group's performance during the remainder of 2022.
Trading momentum in the first few weeks of the second half of 2022 has
remained encouraging.
Paul Moody
Chairman
10 August 2022
Operating and Financial Review
Operating Review
Half year Half year
2022 2021
Revenue $m $m
North America 505.86 321.70
UK & Ireland 9.68 5.11
Total 515.54 326.81
Half year Half year
2022 2021
Operating profit $m $m
Direct Marketing operations 46.29 5.69
Head Office costs (2.31) (2.09)
Total 43.98 3.60
The results for the half year and prior half year are unaudited.
Performance overview
The first half of 2022 produced outstanding financial results.
In total, 886,000 orders were processed in the first half of 2022. This
represents an increase of 44% against 616,000 in 2021, and an increase of 14%
compared to 778,000 in 2019. Importantly, we have continued to attract new
customers at an encouraging rate; in the first half of 2022 we acquired
146,000 new customers, a 29% increase over the 113,000 acquired over the same
period in 2021.
These markedly improved demand numbers translated into significant gains in
year-on-year financial performance. Group revenue for the 2022 half year was
$515.54m (2021: $326.81m), an increase of 58%. Operating profit for the period
was $43.98m, compared to $3.60m in the first half of 2021.
The 4imprint direct marketing business model remains very cash generative,
with free cash flow of $33.65m in the period (2021: $13.04m), contributing to
a cash balance at the 2022 half year of $67.10m (3 July 2021: $52.80m).
We are in no doubt that the strength of the Group's financial performance in
the first half of 2022 is a direct result of our strategic commitment to
maintain the financial resource to keep investing in the business even during
an economic downturn. We are secure in the knowledge that this continued
investment, primarily in people and marketing, lays the foundation for the
significant market share opportunity ahead.
Operational highlights
Progress has been made in the following operational areas in the period.
· People. Our people are a crucial element in our success. This was
readily apparent in the context of the very strong demand seen in the first
half of 2022. The willingness of our team members across the entire business
to go above and beyond to deliver outstanding customer service in the face of
a rapid increase in demand and a challenging supply chain is indicative of
4imprint's culture and values. Despite an extremely tight labour market, we
have been able to attract the necessary talent to service the increasing
demand that we are seeing. To further strengthen this ability to attract and
retain great people we have invested in remuneration and benefit initiatives
and will continue to do so in the second half of the year. In addition, with
input from our team we have continued with the development of a permanent
'hybrid' working environment for our office-based team members. As well as
improving the resilience of the business, this reduces our need for future
office space without sacrificing our ability to provide a remarkable customer
experience.
· Marketing. We have always understood the importance of staying in
front of our customers during an economic downturn. The pandemic years of 2020
and 2021 were no exception. The strategic evolution of our marketing mix in
2018 to include and increasingly invest in a new brand awareness programme was
accelerated during this time. We 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. This approach has
clearly been successful in the first half of 2022 as an essential driver of
our revenue per marketing dollar KPI in the period of $8.19, a 50% increase
over prior year (2021: $5.46).
· Supply. As anticipated, the first half of 2022 saw sometimes
acute pressure due to challenges around global logistics, inventory
availability and production capacity to keep up with demand. The deep
relationships that we have with our key tier 1 suppliers again proved to be
invaluable in dealing with these supply chain issues. In addition, we
experienced significant inflationary pressure on cost of product in the
period. Whilst we have implemented carefully considered price increases to
help address these increasing costs, we continue 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. Our intention is to use the
assets and, more importantly, the expertise acquired to scale up our apparel
decorating capacity in support of the continued growth of this category. In
terms of strategic direction, the parallel is the substantial in-house
embroidery operation that we have built from small beginnings over the last
several years.
· Solar array project. We are pleased to report good progress in
our carbon reduction initiatives. Our $2m solar array project at the Oshkosh
Distribution Center recently produced its first power and is expected to be
fully operational by the end of August 2022. This project will help reduce the
amount of carbon offsets required to retain our CarbonNeutral(®)
certification.
Summary
The financial performance of the Group in the first half of 2022 provides firm
validation that our strategy remains fully relevant. The opportunities in the
markets in which we operate are attractive and we see strong potential for
further market share gains.
Financial Review
Half year Half year
2022 2021
$m $m
Operating profit 43.98 3.60
Net finance cost (0.07) (0.23)
Profit before tax 43.91 3.37
Taxation (10.54) (0.81)
Profit for the period 33.37 2.56
The results for the half year and prior half year are unaudited.
The Group's operating result in the period, summarising expense by function,
was as follows:
Half year Half year
2022 2021
$m $m
Revenue 515.54 326.81
Gross profit 147.94 95.61
Marketing costs (62.94) (59.89)
Selling costs (18.05) (15.43)
Administration and central costs (22.33) (16.19)
Share option related charges (0.46) (0.33)
Defined benefit pension scheme administration costs (0.18) (0.17)
Operating profit 43.98 3.60
Revision to the definition of underlying profit measures
In previous half year results announcements, defined benefit pension charges
were not included in the definition of underlying operating profit. These
charges have now become relatively stable and are not material, therefore they
are now included in underlying, which is defined as before exceptional items.
There are no exceptional items in the half year 2022 or half year 2021, so the
term underlying is not used in relation to any measurements of profit in these
2022 half year results.
Operating result
The momentum built in the second half of 2021 has continued into the first six
months of 2022. Strong demand activity resulted in both total order counts and
average order values at the half year up 14% over the first half of 2019 (the
most recent 'normal' year), leading to revenue for the period increasing to
$515.54m (H1 2021: $326.81m; H1 2019: $405.06m).
The gross profit percentage has stabilised at 28.7% (H1 2021: 29.3%), despite
the high inflationary environment. A considered approach to selling price
adjustments has helped to offset supplier cost increases. Other factors
affecting gross margin percentage include continuing strength in average order
values and increases in other directly variable costs such as transportation.
Marketing costs reduced to 12.2% of revenue in the period, compared to 18.3%
of revenue in the first half of 2021. The improved productivity of our
marketing programme, driven by the shift towards the brand component and
efficiencies in search engine marketing yields, has resulted in our revenue
per marketing dollar KPI in the period rising to $8.19, a 50% increase over
prior year (2021: $5.46).
Selling, administration, and central costs together have increased 27.7%
year-on-year. This reflects additional investment in team members,
particularly in customer service and at our operational facilities to support
elevated demand activity, and higher incentive compensation accruals and
revenue reserves in line with trading performance.
These factors, when combined together, demonstrate the financial leverage in
the business model, thereby delivering a material uplift in operating profit
to $43.98m for the period (H1 2021: $3.60m).
Foreign exchange
The primary US dollar exchange rates relevant to the Group's results were as
follows:
Half year 2022 Half year 2021 Full year 2021
Period end Average Period end Average Period end Average
Sterling 1.20 1.30 1.38 1.39 1.35 1.38
Canadian dollars 0.77 0.79 0.81 0.80 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 the
majority of the Group's revenue arising in US dollars, the Group's reporting
currency. The net impact on the 2022 half year 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 UK cash balance, which produced exchange losses of $0.12m and $1.05m
respectively in the first half of 2022.
· 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.
To the extent that Sterling weakens against the US dollar, more funds are
available in payment currency to fund these cash outflows.
Share option charges
A total of $0.46m (H1 2021: $0.33m) was charged in the period in respect of
IFRS 2 'Share-based Payments'. This was made up of two elements: (i) executive
awards under the 2015 Incentive Plan, now replaced by the Deferred Bonus Plan
("DBP"); and (ii) charges in respect of the 2019 UK SAYE Scheme and the 2021
US Employee Stock Purchase Plan.
Current options and awards outstanding are 13,833 share options under the UK
SAYE scheme, 91,838 share options under the 2021 US Employee Stock Purchase
Plan, and 29,633 share awards under the 2015 Incentive Plan.
Net finance cost
Net finance cost in the period was $0.07m (H1 2021: $0.23m). This comprises
lease interest charges under IFRS 16, the net finance income/cost on the
defined benefit pension plan assets and liabilities, and interest earned on
cash deposits.
The net finance cost has reduced year-on-year due to improving yields on cash
deposits, particularly in the US where interest rates have steadily increased
during the period, and net interest on the defined benefit pension plan
becoming positive as the Plan has moved into a net asset position on an IAS 19
basis.
Taxation
The tax charge for the half year was $10.54m (H1 2021: $0.81m), giving an
effective tax rate of 24% (H1 2021: 24%). The tax charge relates principally
to taxation payable on profits earned in North America.
Earnings per share
Basic earnings per share was 118.90c (H1 2021: 9.12c). This reflects the
strong financial results in the period, a consistent effective tax rate, 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 declared an interim dividend per share of 40.00c, (2021:
15.00c), an increase of 167%. In Sterling, the interim dividend per share will
be 33.01p (2021: 10.83p). The dividend will be paid on 16 September 2022 to
Shareholders on the register at the close of business on 19 August 2022.
Defined benefit pension plan
The Group sponsors a legacy UK defined benefit pension plan (the "Plan") which
has been closed to new members and future accruals for several years. The Plan
has 114 pensioners and 221 deferred members.
At 2 July 2022, the surplus of the Plan on an IAS 19 basis was $0.72m,
compared to a surplus of $1.97m at 1 January 2022. Gross Plan assets under IAS
19 were $26.14m, and liabilities were $25.42m.
The change in the surplus is analysed as follows:
$m
IAS 19 surplus at 1 January 2022 1.97
Company contributions to the Plan 2.20
Defined benefit pension scheme administration costs (0.18)
Pension finance income 0.03
Re-measurement gain due to changes in assumptions 8.20
Return on scheme assets (excluding interest income) (11.38)
Exchange loss (0.12)
IAS 19 surplus at 2 July 2022 0.72
The surplus reduced by $1.25m in the period. This was mainly the result of a
fall in the Plan asset values driven by the high inflation to 2 July 2022 (the
assets are held in gilts, credit funds and liquidity funds, the value of which
move with inflation and interest rate expectations), partly offset by the
increase in the discount rate used to measure the Plan liabilities.
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 half year IAS 19 valuation set out above.
The next triennial Plan valuation is scheduled for September 2022.
Business combination
On 25 April 2022, the Group acquired the trade and assets of Fox Graphics Ltd,
an unlisted 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 7 to these interim
financial statements.
Cash flow
Net cash was $67.10m at 2 July 2022 (3 July 2021: $52.80m; 1 January 2022:
$41.59m).
Cash flow in the period is summarised as follows:
Half year Half year
2022 2021
$m $m
Operating profit 43.98 3.60
Share option related charges 0.44 0.32
Defined benefit pension scheme administration costs 0.18 0.17
Depreciation and amortisation 1.98 1.76
Lease depreciation 0.68 0.67
Change in working capital 4.58 11.32
Capital expenditure (2.44) (0.96)
Underlying operating cash flow 49.40 16.88
Tax and interest (9.25) (1.04)
Consideration for business combination (1.70) -
Defined benefit pension scheme contributions (2.20) (2.07)
Own share transactions (0.97) (0.30)
Capital element of lease payments (0.58) (0.55)
Exchange and other (1.05) 0.12
Free cash flow 33.65 13.04
Dividends to Shareholders (8.14) -
Net cash inflow in the period 25.51 13.04
The Group generated underlying operating cash flow of $49.40m (H1 2021:
$16.88m), a conversion rate of 112% of operating profit. The net working
capital position, whilst remaining elevated, has improved since the 2021 year
end as the open order book has been closely managed and supply chain issues
have started to stabilise. Capital expenditure includes $1.71m on a solar
array at the Oshkosh Distribution Center which recently produced its first
power and is expected to be fully operational by the end of August 2022.
Free cash flow improved by $20.61m to $33.65m (H1 2021: $13.04m). 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.
Balance sheet and Shareholders' funds
Net assets at 2 July 2022 were $103.79m, compared to $82.97m at 1 January
2022. The balance sheet is summarised as follows:
2 July 1 January
2022 2022
$m $m
Non-current assets 39.51 38.04
Working capital 7.77 12.27
Net cash 67.10 41.59
Lease liabilities (11.62) (12.09)
Pension asset 0.72 1.97
Other assets - net 0.31 1.19
Net assets 103.79 82.97
Shareholders' funds increased by $20.82m since the 2021 year-end. Constituent
elements of the change were retained profit in the period of $33.37m and share
option related movements of $0.44m, net of equity dividends paid to
Shareholders of $(8.14)m, own share transactions of $(0.97)m, the after tax
impact of returns on pension plan assets and re-measurement gains on pension
obligations of $(2.62)m, and currency translation differences of $(1.26)m.
The Group had a net positive working capital balance of $7.77m at 2 July 2022
(1 January 2022: $12.27m). This reflects the build-up of accrued revenue and
inventory on orders being processed and has been impacted by global and local
supply chain issues. The working capital balance has reduced since the
year-end as orders have been completed and the supply of product has
stabilised.
Financing and liquidity
Full details of the Board's balance sheet funding guidelines and capital
allocation priorities are set out on page 33 of the 2021 Annual Report. The
Board retains the same guidelines in both areas.
The primary aim of these guidelines is to provide operational and financial
flexibility through economic cycles, to be able to invest in opportunities as
they arise, and to meet commitments to Shareholders through dividend payments
and to the defined benefit pension plan through regular contributions.
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 2.00% (or 2.00% if higher), is
available from the Group's principal UK bank, Lloyds Bank plc, until 31
December 2022.
The Group had cash balances of $67.10m at the period end and has no current
requirement or plans to raise additional equity or core debt funding.
Critical accounting policies
Critical accounting policies are those that require significant judgments or
estimates and potentially result in materially different results under
different assumptions or conditions. It is considered that the Group's only
critical accounting policies are in respect of revenue, leases, and the
retirement benefit asset.
Key sources of estimation uncertainty
Determining the carrying amount of some assets and liabilities requires
estimation of the effects of uncertain future events. The key sources of
estimation uncertainty are considered to be in relation to the valuation of
the defined benefit Plan liabilities and assets.
Principal risks and uncertainties
The Board has ultimate responsibility for the Group's risk management process,
although responsibility for reviewing specific risks and controls is delegated
to the Audit Committee. The Executive Directors and operational management
teams, co-ordinated by the Business Risk Management Committee ("BRMC"), are
responsible for the identification and evaluation of risks and the subsequent
implementation of specific risk mitigation activities.
The Group's risk management process identifies, evaluates, and manages the
Group's principal risks and uncertainties. These risks are identified through
a variety of sources, both internal and external, to ensure that emerging
risks are identified and considered on a timely basis.
The principal risks and uncertainties, including emerging risks, faced by the
Group are set out on pages 36 to 43 of the 2021 Annual Report, a copy of which
is available on the Group's investor relations website at
https://investors.4imprint.com (https://investors.4imprint.com) . These are:
1. Macroeconomic conditions.
2. Markets & competition.
3. Effectiveness of key marketing techniques and brand development.
4. Business facility disruption.
5. Domestic supply and delivery.
6. Failure or interruption of information technology systems and
infrastructure.
7. Cyber threats.
8. Supply chain compliance & ethics.
9. Legal, regulatory, and compliance.
10. Climate change.
11. Products and market trends.
Whilst these risks have not changed materially since year-end, updates to the
risk environment in respect of COVID-19, the availability of labour, and the
fulfilment of customer orders are provided below.
COVID-19 pandemic
Whilst concerns remain with respect to potential new virus variants, the risk
of a negative effect on demand for our products arising from the pandemic is
considered to have receded over the period. Demand activity for our primary
North American business has fully recovered and is now exceeding pre COVID-19
levels, with total order counts at the half year 14% ahead of 2019 (the most
recent 'normal' year).
Availability of labour
The labour market in the US remains extremely tight. This is presenting
challenges in hiring production and support staff to meet the material
increase in demand activity. Considerable resource has been invested to ensure
4imprint remains an employer of choice. This has included a review of wage
levels in light of the high inflationary environment and strong employment
market to ensure we remain competitive, as well as ensuring that the IT
infrastructure is in place to support the flexible working practices that are
highly valued by our office-based teammates.
Customer order fulfilment
The sustained disruption to global and local supply chains, challenges in
recruiting staff by both 4imprint and our supply partners, and elevated order
levels experienced during the first half of 2022, have increased the risk of
not being able to fulfil customer orders on a timely basis. The Group's
reputation for excellent service and reliability is a core tenet of our
customer proposition. Recruitment activity has been ongoing throughout the
period, particularly in our Oshkosh Distribution Center and for customer
service staff to help meet demand for apparel orders and to keep our customers
informed and supported through the order process.
Going concern statement
In adopting the going concern basis for preparing these condensed consolidated
financial statements, the Directors have carefully considered:
· The Group's strategy, market position and business model, as set
out in the Strategic Report section on pages 9 to 19 of the 2021 Annual
Report.
· The principal risks and uncertainties facing the Group, as
outlined in the Principal risks and uncertainties section of this Financial
Review.
· Information contained in this Financial Review concerning the
Group's financial position, cash flows and liquidity position.
· Regular management reporting and updates from the Executive
Directors.
· Recent detailed financial forecasts and analysis for the period
to 30 December 2023.
The strength of the Group's business model and market position, as evidenced
by the financial resilience shown through the COVID-19 pandemic and excellent
demand activity in the first half of 2022, leaves the Group in a very strong
financial position. In consequence, the Board has considerable confidence in
the Group's prospects, whilst remaining conscious of the current geo-political
and broad economic factors that may affect the Group's performance over the
period to 30 December 2023.
Financial position
The Group had net cash of $67.10m at 2 July 2022 (1 January 2022: $41.59m) and
maintains a $20.0m working capital facility with its principal US bank,
JPMorgan Chase, N.A., which expires on 31 May 2024, and an overdraft facility
of £1.0m with its principal UK bank, Lloyds Bank plc, which is available
until 31 December 2022. Based on our forecast, we have no requirement to draw
on either of these facilities.
Financial modelling
We undertake regular forecasting and budgeting exercises which are reviewed
and approved by the Board. On an annual basis, we also model a distressed
scenario based upon severe, but plausible, downside demand assumptions to
support our assessment of viability.
These forecasts, and our experience from the COVID-19 pandemic that resulted
in sustained diminished corporate demand in a downsized promotional products
market, have demonstrated the Group's ability to flex its marketing and other
costs to mitigate the impact of severe falls in revenue, whilst still
retaining flexibility to further reduce costs if required.
Combined with a healthy net cash position maintained in accordance with our
balance sheet funding guidelines, the Board considers the Group to be in a
strong position to withstand severe economic stress and to take market share
opportunities as they arise.
Going concern
Based on the assessment outlined above, the Directors have a reasonable
expectation that the Group will continue to operate and to meet its
liabilities as they fall due over the period to 30 December 2023. On this
basis, the Directors continue to adopt the going concern basis in preparing
these condensed consolidated financial statements.
Kevin Lyons-Tarr David Seekings
Chief Executive Officer Chief Financial Officer
10 August 2022
Condensed Consolidated Income Statement (unaudited)
For the 26 weeks ended 2 July 2022
Half year Half year Full year
2022 2021 2021
Note $'000 $'000 $'000
Revenue 6 515,536 326,808 787,322
Operating expenses (471,553) (323,213) (756,676)
Operating profit 6 43,983 3,595 30,646
Finance income 108 15 33
Finance costs (205) (228) (435)
Pension finance income/(charge) 27 (15) (15)
Net finance cost (70) (228) (417)
Profit before tax 43,913 3,367 30,229
Taxation 8 (10,539) (808) (7,643)
Profit for the period 33,374 2,559 22,586
Cents Cents Cents
Earnings per share
Basic 9 118.90 9.12 80.46
Diluted 9 118.67 9.09 80.26
Condensed Consolidated Statement of Comprehensive Income (unaudited)
For the 26 weeks ended 2 July 2022
Half year Half year Full year
2022 2021 2021
$'000 $'000 $'000
Profit for the period 33,374 2,559 22,586
Other comprehensive (expense)/income
Items that may be reclassified subsequently to the income statement:
Currency translation differences (1,269) 137 (97)
Items that will not be reclassified subsequently to the income statement:
Return on pension scheme assets (excluding interest income) (11,381) (3,440) (1,391)
Re-measurement gains on post-employment obligations 8,201 2,664 2,506
Tax relating to components of other comprehensive (expense)/income 560 147 (1,411)
Total other comprehensive expense net of tax (3,889) (492) (393)
Total comprehensive income for the period 29,485 2,067 22,193
Condensed Consolidated Balance Sheet (unaudited)
At 2 July 2022
At At At
2 July 3 July 1 Jan
2022 2021 2022
Note $'000 $'000 $'000
Non-current assets
Property, plant and equipment 25,765 24,063 24,667
Intangible assets 1,002 1,078 1,045
Right-of-use assets 11,153 12,395 11,725
Goodwill 7 1,010 - -
Deferred tax assets 579 3,857 600
Retirement benefit asset 11 717 - 1,974
40,226 41,393 40,011
Current assets
Inventories 22,726 12,646 20,559
Trade and other receivables 82,030 48,652 63,589
Current tax debtor 1,331 2,449 2,034
Cash and cash equivalents 67,096 52,802 41,589
173,183 116,549 127,771
Current liabilities
Lease liabilities 12 (1,246) (1,133) (1,150)
Trade and other payables (96,981) (74,110) (71,877)
(98,227) (75,243) (73,027)
Net current assets 74,956 41,306 54,744
Non-current liabilities
Lease liabilities 12 (10,370) (11,519) (10,939)
Retirement benefit obligation 11 - (2,244) -
Deferred tax liabilities (1,022) (1,478) (850)
(11,392) (15,241) (11,789)
Net assets 103,790 67,458 82,966
Shareholders' equity
Share capital 18,842 18,842 18,842
Share premium reserve 68,451 68,451 68,451
Other reserves 4,751 6,254 6,020
Retained earnings 11,746 (26,089) (10,347)
Total Shareholders' equity 103,790 67,458 82,966
Condensed Consolidated Statement of Changes in Shareholders' Equity
(unaudited)
For the 26 weeks ended 2 July 2022
Retained earnings
Share Other
capital Share reserves
premium
reserve
Own Profit Total
shares and loss equity
$'000 $'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 2,559 2,559
Other comprehensive income/(expense) 137 (629) (492)
Total comprehensive income 137 1,930 2,067
Own shares utilised 572 (572) -
Own shares purchased (301) (301)
Share-based payment charge 321 321
At 3 July 2021 18,842 68,451 6,254 (310) (25,779) 67,458
Profit for the period 20,027 20,027
Other comprehensive (expense)/income (234) 333 99
Total comprehensive income (234) 20,360 20,126
Own shares utilised 1 (1) -
Own shares purchased (542) (542)
Share-based payment charge 281 281
Deferred tax relating to share options 5 5
Deferred tax relating to losses attributable to share options (228) (228)
Dividends (4,134) (4,134)
At 1 January 2022 18,842 68,451 6,020 (851) (9,496) 82,966
Profit for the period 33,374 33,374
Other comprehensive expense (1,269) (2,620) (3,889)
Total comprehensive income (1,269) 30,754 29,485
Own shares utilised 825 (825) -
Own shares purchased (980) (980)
Proceeds from options exercised 12 12
Share-based payment charge 442 442
Dividends (8,135) (8,135)
Balance at 2 July 2022 18,842 68,451 4,751 (1,006) 12,752 103,790
Condensed Consolidated Cash Flow Statement (unaudited)
For the 26 weeks ended 2 July 2022
Half year Half year Full year
2022 2021 2021
Note $'000 $'000 $'000
Cash flows from operating activities
Cash generated from operations 13 49,639 15,770 18,257
Tax paid (9,151) (820) (6,414)
Finance income received 108 15 33
Finance costs paid (35) (42) (65)
Lease interest (176) (193) (377)
Net cash generated from operating activities 40,385 14,730 11,434
Cash flows from investing activities
Purchases of property, plant and equipment (2,263) (769) (3,083)
Purchases of intangible assets (179) (194) (382)
Proceeds from sale of property, plant and equipment 3 - -
Consideration for business combination 7 (1,700) - -
Net cash used in investing activities (4,139) (963) (3,465)
Cash flows from financing activities
Capital element of lease payments (584) (554) (1,117)
Proceeds from share options exercised 12 - -
Purchases of own shares (980) (301) (843)
Dividends paid to Shareholders 10 (8,135) - (4,134)
Net cash used in financing activities (9,687) (855) (6,094)
Net movement in cash and cash equivalents 26,559 12,912 1,875
Cash and cash equivalents at beginning of the period 41,589 39,766 39,766
Exchange (losses)/gains on cash and cash equivalents (1,052) 124 (52)
Cash and cash equivalents at end of the period 67,096 52,802 41,589
Notes to the Interim Financial Statements
1 General information
4imprint Group plc 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.
These interim condensed consolidated financial statements, which were
authorised for issue in accordance with a resolution of the Directors on 9
August 2022, do not comprise statutory accounts within the meaning of Section
434 of the Companies Act 2006. Statutory accounts for the period ended 1
January 2022 were approved by the Board of Directors on 15 March 2022 and
delivered to the Registrar of Companies. The report of the auditors on those
accounts was unqualified, did not contain an emphasis of matter paragraph and
did not contain any statement under Section 498 of the Companies Act 2006.
The financial information contained in this report has neither been audited
nor reviewed by the auditors, pursuant to Auditing Practices Board guidance on
Review of Interim Financial Information.
2 Basis of preparation
These interim condensed consolidated financial statements for the 26 weeks
ended 2 July 2022 have been prepared, in US dollars, in accordance with the
Disclosure and Transparency Rules of the Financial Conduct Authority and IAS
34 'Interim Financial Reporting', as adopted by the United Kingdom, and should
be read in conjunction with the Group's financial statements for the period
ended 1 January 2022, which were prepared in accordance with UK-adopted
International Accounting Standards.
As outlined in the Going concern section of the Financial Review, the
Directors consider it appropriate to continue to adopt the going concern basis
in preparing these interim condensed consolidated financial statements.
The tax charge for the interim period is accrued based on the best estimate of
the tax charge for the full financial year.
3 Accounting policies
The accounting policies applied in these interim condensed consolidated
financial statements are consistent with those followed in the preparation of
the Group's annual consolidated financial statements for the period ended 1
January 2022, as described in those annual financial statements, except for a
new accounting policy adopted for goodwill as detailed below. New accounting
standards applicable for the first time in this reporting period have no
impact on the Group's results or balance sheet.
Goodwill
Goodwill represents the excess of the fair value of the consideration of an
acquisition over the fair value attributed to the net assets acquired
(including contingent liabilities). Goodwill is not amortised but is reviewed
annually for impairment.
4 Use of assumptions and estimates
The preparation of the interim financial statements requires management to
make judgments, estimates and assumptions that affect the application of
policies and reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience
and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making estimates about
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
There have been no changes in the critical accounting judgments and key
sources of estimation uncertainty since the 2021 year-end, other than the
assumptions and sensitivities on the recalculation of the defined benefit
pension obligations as shown in note 11.
5 Financial risk management
The Group's activities expose it to a variety of financial risks: currency
risk; credit risk; liquidity risk; and capital risk. These interim condensed
consolidated financial statements do not include all financial risk management
information and disclosures required in the annual financial statements; they
should be read in conjunction with the Group's annual consolidated financial
statements for the period ended 1 January 2022. There have been no changes in
any financial risk management policies since that date.
6 Segmental analysis
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 2 July 2022, the Group had 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.
Half year Half year 2021 Full year 2021
Revenue 2022 $'000 $'000
$'000
North America 505,864 321,698 773,710
UK & Ireland 9,672 5,110 13,612
Total Group revenue 515,536 326,808 787,322
Profit Half year 2022 Half year 2021 Full year 2021
$'000 $'000 $000
North America 46,420 6,654 36,006
UK & Ireland (132) (968) (1,464)
Operating profit from Direct Marketing operations 46,288 5,686 34,542
Head Office costs (2,305) (2,091) (3,896)
Operating profit 43,983 3,595 30,646
Net finance cost (70) (228) (417)
Profit before tax 43,913 3,367 30,229
Other segmental information
Assets Liabilities
2 July 2022 3 July 2021 1 Jan 2 July 3 July 2021 1 Jan
$'000 $'000 2022 2022 $'000 2022
$'000 $'000 $'000
North America 140,731 98,152 120,284 (105,346) (84,645) (81,674)
UK & Ireland 3,948 2,752 3,017 (3,798) (3,156) (2,618)
Head Office 68,730 57,038 44,481 (475) (2,683) (524)
213,409 157,942 167,782 (109,619) (90,484) (84,816)
Head Office assets include cash and cash equivalents, deferred tax assets and
retirement benefit assets. Head Office liabilities at 3 July 2021 include
retirement benefit obligations.
7 Business combinations
Acquisition of screen-printing business
On 25 April 2022, the Group acquired the trade and assets of Fox Graphics Ltd,
an unlisted 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 690
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; $20,000 has been
recognised at the 2022 half year in operating expenses in the income statement
and 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 2 July 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.
Total acquisition-related transaction costs of $17,000 will be expensed in
2022; $13,000 is included in operating expenses in the income statement for
the 26 weeks ended 2 July 2022 and is part of operating cash flows in the cash
flow statement; the remaining $4,000 of costs will be expensed in the second
half of the financial year.
8 Taxation
The taxation rate was 24%, based on the estimated rate for the full year (H1
2021: 24%; FY 2021: 25%). Tax paid in the period was $9.15m (H1 2021: $0.82m;
FY 2021: $6.41m).
The deferred tax assets/liabilities at 2 July 2022 have been calculated at a
tax rate of 19% in respect of deferred tax items that are expected to reverse
before 1 April 2023 (H1 2021: 19%; FY 2021: 19%) and 25% in respect of
deferred tax items expected to reverse after 1 April 2023 (H1 2021: 25%; FY
2021: 25%) for UK deferred tax items, and 25% (H1 2021: 25%; FY 2021: 25%) in
respect of US deferred tax items.
9 Earnings per share
Basic and diluted
The basic and diluted earnings per share are calculated based on the following
data:
Half year Half year Full year
2022
2021
2021
$'000 $'000 $'000
Profit after tax 33,374 2,559 22,586
Half year Half year Full year
2022 2021
2021
Number Number Number
000's 000's 000's
Basic weighted average number of shares 28,070 28,072 28,072
Adjustment for employee share options 53 65 68
Diluted weighted average number of shares 28,123 28,137 28,140
Cents Cents Cents
Basic earnings per share 118.90 9.12 80.46
Diluted earnings per share 118.67 9.09 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 by 15,931 (H1 2021: 13,340; FY 2021: 13,888).
10 Dividends Half year Half year Full year
2022 2021 2021
$'000 $'000 $'000
Dividends paid in the period 8,135 - 4,134
Cents Cents Cents
Dividends per share declared - Interim 40.00 15.00 15.00
- Final - - 30.00
The interim dividend for 2022 of 40.00c per ordinary share (interim 2021:
15.00c; final 2021: 30.00c) will be paid on 16 September 2022 to Shareholders
on the register at the close of business on 19 August 2022.
11 Employee pension schemes
The Group operates defined contribution pension schemes for its UK and US
employees. The regular contributions are charged to the income statement as
they are incurred.
The Group also sponsors a UK defined benefit pension scheme which is closed to
new members and future accrual. The funds of the scheme are held in trust,
administered by a corporate Trustee, and are independent of the Group's
finances.
The last full actuarial valuation was carried out by a qualified independent
actuary as at 30 September 2019 and this has been updated on an approximate
basis to 2 July 2022 in accordance with IAS 19. There have been no changes in
the valuation methodology adopted for this period's disclosures compared to
previous periods' disclosures.
The principal assumptions applied by the actuaries at 2 July 2022 were:
Half year Half year Full year
2022 2021 2021
Rate of increase in pensions in payment 3.10% 3.10% 3.25%
Rate of increase in deferred pensions 2.60% 2.60% 2.75%
Discount rate 3.55% 1.80% 1.80%
Inflation assumption - RPI 3.20% 3.20% 3.35%
Inflation assumption - CPI 2.60% 2.60% 2.75%
The mortality assumptions adopted at 2 July 2022 imply the following life
expectancies at age 65:
Half year Half year Full year
2022 2021 2021
Years Years Years
Male currently aged 45 22.3 22.4 22.3
Female currently aged 45 24.3 24.2 24.2
Male currently aged 65 21.3 21.3 21.3
Female currently aged 65 23.1 23.1 23.0
The movement on the net retirement benefit asset, and the value of the gross
scheme assets and liabilities, are shown in the Financial Review.
The sensitivities on key actuarial assumptions at the end of the period were:
Change in assumption Change in defined benefit obligation
Discount rate Decrease of 0.50% +8.00%
Rate of inflation Increase of 0.50% +3.30%
Rate of mortality Increase in life expectancy of one year +3.70%
12 Leases
The Group leases office and industrial space in facilities in Oshkosh. The
additions during the period relate to a sub-lease for real estate entered as
part of the acquisition of the screen-printing business (see note 7 for
further information). The movement in lease liabilities in the period is shown
below:
2 July 2022 3 July 2021 1 Jan 2022
$'000 $'000 $'000
At start of period 12,089 13,206 13,206
Additions 111 - -
Interest charge 176 193 377
Lease interest payments - operating cash flow (176) (193) (377)
Lease capital payments - financing cash flow (584) (554) (1,117)
At end of period 11,616 12,652 12,089
13 Cash generated from operations
Half year Half year Full year
2022 2021 2021
$'000 $'000 $'000
Profit before tax 43,913 3,367 30,229
Adjustments for:
Depreciation of property, plant and equipment 1,757 1,547 3,237
Amortisation of intangible assets 216 216 437
Amortisation of right-of-use assets 683 672 1,340
Loss on disposal of property, plant and equipment 3 - -
Share option charges 442 321 602
Net finance cost 70 228 417
Defined benefit pension administration charge 175 172 340
Contributions to defined benefit pension scheme (2,202) (2,069) (4,589)
Changes in working capital:
Increase in inventories (2,167) (1,375) (9,288)
Increase in trade and other receivables (18,587) (11,778) (26,831)
Increase in trade and other payables 25,336 24,469 22,363
Cash generated from operations 49,639 15,770 18,257
14 Capital commitments
The Group had capital commitments contracted but not provided for in these
financial statements of $4.1m in relation to embroidery machines and
screen-printing equipment (3 July 2021: $1.49m; 1 January 2022: $nil).
15 Related party transactions
Transactions and balances between the Company and its subsidiaries have been
eliminated on consolidation. The Group did not participate in any related
party transactions with parties outside of the Group.
16 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 users' understanding of the business.
Definitions of the Group's APMs can be found on page 134 of the 2021 Annual
Report.
Reconciliations of the free cash flow and underlying operating cash flow APMs
to their closest IFRS measures are provided below:
Half year 2022 Half year 2021
$m $m
Net movement in cash and cash equivalents 26.56 12.91
Add back: Dividends paid to Shareholders 8.14 -
Less: Exchange (losses)/gains on cash and cash equivalents (1.05) 0.13
Free cash flow 33.65 13.04
Half year 2022 Half year 2021
$m $m
Cash generated from operations 49.64 15.77
Add back: Contributions to defined benefit pension scheme 2.20 2.07
Less: Purchases of property, plant and equipment and intangible assets (2.44) (0.96)
Underlying operating cash flow 49.40 16.88
Statement of Directors' Responsibilities
The Directors confirm that, to the best of their knowledge, these interim
condensed consolidated financial statements have been prepared in accordance
with IAS 34 as adopted by the United Kingdom and that the interim management
report includes a fair review of the information required by DTR 4.2.7 and
4.2.8, namely:
· An indication of the important events that have occurred during
the first half of the year and their impact on the interim condensed
consolidated financial statements, and a description of the principal risks
and uncertainties for the remaining six months of the financial year; and
· Material related party transactions in the first half of the year
and any material changes in the related party transactions described in the
last annual report.
The Directors of 4imprint Group plc are as listed in the Group's Annual Report
and Accounts 2021.
By order of the Board
Kevin Lyons-Tarr David Seekings
Chief Executive Officer Chief Financial Officer
10 August 2022
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