REG - IG Design Group PLC - Full Year Results
28/06/2022 07:00
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RNS Number : 3733Q IG Design Group PLC 28 June 2022
EMBARGOED UNTIL 7.00 AM, 28 JUNE 2022
IG Design Group PLC
(the "Company", the "Group" or "Design Group")
Results for the year ended 31 March 2022
IG Design Group plc, one of the world's leading designers, innovators and
manufacturers of Gift Packaging, Celebrations, Craft & Creative Play,
Stationery, Gifting and related product categories announces its results for
the year ended 31 March 2022.
Highlights for the year ended 31 March 2022
Financial Highlights FY2022 FY2021((b))
Revenue $965.1m $873.2m
Adjusted((a))
- (Loss) / Profit before tax ($1.3m) $32.8m
- Diluted (loss) / earnings per share (7.7)c 22.2c
Reported
- Profit before tax $2.2m $14.7m
- Diluted (loss) / earnings per share (3.3)c 8.4c
Net cash as at the period end $30.2m $76.5m
Dividend 1.7c 11.8c
Average leverage 1.0x 0.0x
((a)) Adjusted Results are before Adjusting Items - for further detail see
Alternative Performance Measures reconciliation within the Detailed Financial
Review
((b)) All prior year Adjusted results have been restated throughout our
results to reflect the inclusion of share-based payment credits/charges within
Adjusted metrics
· Focused on delivering customer commitments, the Group increased
revenues by 11%, demonstrating continued strong demand for the Group's
products
· A challenging year saw margins and earnings significantly reduced by
unprecedented supply chain cost increases and freight availability
· The Group remained net cash positive at year-end, at $30.2 million,
with the year-on-year reduction reflecting increased costs and working capital
requirements
· In line with the Board's previous guidance, no final dividend is being
declared. As a result, the full year dividend remains 1.25 pence (1.7 cents)
· A recent banking covenant amendment to March 2023, and facility
extension to March 2024, has secured access to financing to support working
capital requirements
· Board changes include the appointment of Stewart Gilliland as
Non-Executive Chair in September 2021, and subsequently to Interim Executive
Chair in June 2022; Paul Bal as Group CFO; Lance Burn as Interim Group COO;
and Clare Askem and Claire Binyon as independent Non-Executive Directors
· The priority of the Group is a recovery in its financial performance
with particular focus on DG Americas, with a change in leadership, this work
is already underway and progress made to date
Outlook
· A strong orderbook for FY2023, which is already at 71% of budgeted
revenues (FY2022: 60%), indicates customer relationships have been sustained
with good ongoing demand. The cost environment remains challenging but where
possible cost inflation is being passed through in pricing for customers,
resulting in a slight operating margin improvement being expected for FY2023
· Higher financing costs are expected due to revised banking facilities
and the Group maintaining higher working capital as it seeks to manage the
higher cost environment in FY2023
· Strategy to restore profitable and sustainable growth being developed
Stewart Gilliland, Interim Executive Chair, commented:
"The extent of the impact of the inflation and supply chain challenges in
FY2022 have given us cause to re-examine our business, and we are therefore
laying out today a foundation for a strategy with a clear focus on restoring
profitable and sustainable growth. While it will no doubt evolve further over
the coming months, the Board and wider management team are fully aligned,
focused on mitigating cost pressures and creating a more resilient business.
This will provide a stronger base on which we can build in the future.
We have already made some good progress against these goals, including
implementing organisational change, but we know that there remains much more
work to be done. While macro-economic uncertainty is an unavoidable headwind,
there are many elements of our business that give us confidence. We have a
wonderful team, substantial scale, very strong customer relationships, and
have recently secured an extension to our banking facilities, all of which
gives us the flexibility to implement the changes we need to make to move
forward. Most importantly, our management team truly believe in Design Group's
ongoing potential, and we are committed to working together to execute our
strategic initiatives."
For further information:
IG Design Group plc 01525 887310
Stewart Gilliland, Interim Executive Chair
Lance Burn, Interim Chief Operating Officer
Paul Bal, Chief Financial Officer
Canaccord Genuity Limited 020 7523 8000
Bobbie Hilliam, NOMAD
Alex Aylen, Sales
Alma PR
Susie Hudson 020 3405 0205
Sam Modlin designgroup@almapr.co.uk (mailto:designgroup@almapr.co.uk)
OVERVIEW
The Group has experienced a very challenging FY2022. Despite continued strong
demand from our customers which delivered double-digit revenue growth of 11%
over the prior year, the full year earnings performance has been significantly
impacted by unprecedented cost headwinds and supply chain availability issues
experienced during the year. Therefore, Group Adjusted operating margins
reduced from 4.3% to 0.4% in the year.
This impact was most significantly felt in DG Americas which delivered an
Adjusted operating loss, despite growing revenues by 7%. As previously
announced, in early 2022 the Board took the decision to change the leadership
of DG Americas, with Lance Burn, who was previously CEO of DG International,
also taking on the role of Group Interim Chief Operating Officer ('COO'),
including the role of Interim CEO of DG Americas.
DG International benefitted from a 16% increase in revenue which helped offset
some of the cost challenges. Adjusted operating margins for DG International
reduced to 6.8%, a 260 bps drop year-on-year.
The Group has experienced significant cost increases in relation to freight
and raw materials. Freight presented the most significant challenge across the
Group with the scarce availability of sea containers, driven by increased
demand and Covid-19 related shipping delays, significantly increasing the
freight rates paid, and reducing the Group's operating margin. Freight rates
in FY2022 were significantly higher than the prior year with the average rate
paid nearly triple that from the prior year, a situation further exacerbated
by the timing of these increases which limited the ability of the business to
renegotiate pricing with customers to recover the higher costs. Raw material
costs have also increased significantly during FY2022, as a result of the
Group's two major categories of material purchases, paper and polypropylene
(used in the DG Americas ribbons and bows business) increasing in cost. The
average prices paid for paper increased beyond 50% during the year and beyond
100% for polypropylene compared to that paid for the financial year ending
March 2020.
The Group's financial performance was further impacted by the challenges
experienced in the labour markets. The 'Great Resignation' which has been
experienced across most economies of the world following the Covid-19
pandemic, also impacted the Group, particularly in the UK and the US. This
resulted in driving up labour rates whilst also reducing operating
efficiencies. As market rates increased, reflecting the lower availability of
labour in the market, employee turnover within the Group also increased,
particularly in our manufacturing and distribution facilities. As a result,
the Group responded by increasing wages and salaries in order to remain
competitive in the market and ensure operational continuity.
The disappointing financial performance in the year overshadows some notable
commercial and operational achievements across the Group. In the US, DG
Americas was again awarded "Supplier of the Year for Seasonal and Celebrations
Products" by Walmart, and delivered further cost synergies from the
acquisition of CSS Industries, Inc. acquisition and strong growth in certain
product categories. In DG UK, the focus on sustainable product innovation was
recognised by the receipt of Tesco's "Supplier Partner Award for
Sustainability", while DG Europe delivered 26% revenue growth by working
swiftly with customers to address the challenging market conditions.
On 1 June 2022, the Company signed an amendment to the existing banking
facilities primarily to extend the agreement to March 2024 and replace the
existing covenants with two new covenants which run to March 2023. This was a
necessary change, and a result, the Directors believe the Group has sufficient
facilities that secure funding to support the working capital requirements of
the business through the current financial year. As originally planned, the
Group aims to complete a full refinancing in the second half of FY2023. More
details relating to the amended and restated facility arrangements are
included in the Detailed Financial Review.
BOARD CHANGES
In addition to the leadership change in DG Americas, the Group has also seen
changes at Board level.
In September 2021 Stewart Gilliland, having joined the Board in July 2021,
took over from John Charlton as Chair of the Group's Board. John stepped down
from the Board, and we thank him for his service to the Board and the Group.
The Group announced in February 2022 that Paul Fineman, was stepping down from
his role as Group CEO, after 14 years in the role. Paul's contribution to the
Group has been significant and the Board thank him for his committed service
and contribution. Also in February, Executive Board Director Lance Burn, who
has been with the Group for over 10 years, took on the role of Interim Group
COO. This follows his previous role as CEO of DG International.
From June 2022, Stewart has assumed the role of Interim Executive Chair,
pending the appointment of a new Group CEO, for which the search is
underway.
The Group also welcomes Paul Bal who joined the Board in May 2022 following
the resignation of Giles Willits in August 2021. The Board would like to thank
Giles for his contribution during his time with the Group and particularly
appreciate him working beyond his notice period to ensure the Group remained
under steady leadership during this period of transition. Giles steps down
from the Board at the end of June 2022.
In addition, the Group are pleased to welcome two new independent
Non-Executive Directors: Clare Askem, who joined the Board in July 2021 and
Claire Binyon, who joined in June 2022, replacing Elaine Bond who stepped down
from the Board in December 2021. We thank Elaine for her service to the Group.
INCENTIVE SCHEME
On 19 February 2021, the Company put in place a Long-Term Incentive Value
Creation Scheme (the "VCS"). The Remuneration Committee of the Company,
alongside consultation with participants of the VCS, intends to cancel grants
made under the VCS effective 28 June 2022.
The Remuneration Committee no longer believes the VCS aligns to the interests
of employees and shareholders and therefore a more appropriate incentive
scheme will be developed over the coming months.
OUTLOOK
The challenges faced this year, have caused the Group to review its
priorities, plans and strategy. The sheer scale and speed of the change in the
cost architecture of the Group's product ranges, particularly in DG Americas,
has resulted in the need to challenge the assumptions that underpin the
commercial operations to ensure that the business going forward is delivering
profitable product ranges based on more sustainable cost structures. As a
result, the Growth Plan announced in June 2021, which set out targets aiming
to double the size of the Group by FY2025 is to be replaced by a strategy to
restore profitable and sustainable growth. This is explored in more detail in
the Strategy section below.
Looking ahead, macroeconomic challenges are expected to continue in the new
financial year bringing further uncertainty. However, the Board are encouraged
by the ongoing strength of the Group's customer relationships which has
delivered an increased orderbook at over 71%, compared to 60% in the prior
year. Operating margins are forecast to improve gradually over the year,
particularly in DG Americas. However, these gains will be offset by higher
finance charges resulting from increased borrowing costs following the recent
facility amendment and the increased average debt to support the higher
working capital required to deliver the FY2023 seasonal orderbook
Consequently, as announced in the April 2022 Trading Update the Group expects
to deliver a marginal profit improvement in FY2023, reflecting progress being
made in DG Americas, with the Adjusted loss before tax expected to be broadly
flat on the FY2022 results and driven primarily by the increased finance costs
in the year ahead. Average debt across the Group is expected to increase to c.
$75-80 million over FY2023, compared with c. $15 million in FY2022 reflecting
the expected higher working capital requirements throughout FY2023 as the
Group navigates the outlined challenges. The Board aspires to return to paying
dividends in line with its historic policy but based on the current outlook
for the Group, the Board does not expect to be in a position to pay a dividend
in relation to the 2023 financial year.
SUMMARY FY2022 FINANCIAL RESULTS
Revenue increased by 11% to $965.1 million (FY2021: $873.2 million). Despite
the increase in sales, the supply chain cost headwinds, most significantly
related to freight and raw materials reduced Adjusted operating margins to
0.4% (FY2021: 4.3%). As a result, Adjusted loss before tax was $1.3 million
compared to the prior year profit of $32.8 million and Adjusted loss per share
was 7.7 cents (FY2021: Adjusted earnings per share of 22.2 cents) reflecting
primarily the decline in adjusted earnings alongside a non-cash one-time
reversal of UK deferred tax assets.
The Group finished the year with a net cash balance of $30.2 million (FY2021:
$76.5 million) with average leverage for the year at 1.0 times (FY2021: 0.0
times) reflecting the reduced EBITDA as well as the additional working capital
requirements in the year to fund the cost increases.
Adjusting items in FY2022 were a net credit of $3.5 million (FY2021: charge
$18.1 million) reflecting the receipt of insurance proceeds from the prior
year DG Americas IT security incident alongside reversals of lease impairments
following the successful negotiation of exits and sub-leasing from some of the
properties left vacant as part of the US integration following the acquisition
of CSS. These credits were partially offset by costs associated with the US
integration, expenses incurred in relation to aborted acquisitions and
acquisition amortisation.
The Group ended the year with a profit before tax at $2.2 million (FY2021:
$14.7 million) decreased by $12.5 million year-on-year. Consequently, diluted
loss per share was 3.3 cents (FY2021: diluted earnings per share of 8.4
cents).
In line with the Group's Trading Update in January 2022, the Board are not
recommending a final dividend, and as a result the full year dividend is 1.25
pence (1.70 cents) comprising only the interim dividend announced at the
half-year and paid in January 2022.
OUR STRATEGY
The experiences of the past year have exposed areas in the Group to be
addressed and strengthened. Our immediate priorities are building a strong
management team, repairing margins and reducing working capital levels,
particularly in DG Americas. However, as the global business backdrop remains
challenging and uncertain, the Group's medium-to-long term strategy is also
being revisited by the new Board, with the intention of communicating it
alongside the announcement of the FY2023 interim results later in this
calendar year.
A key purpose of the new strategy will be to ensure that the Group emerges
more resilient in its financial performance to the types of shocks encountered
in FY2022, of which some of the impacts will persist into FY2023. This
resilience will also provide a more secure platform for continued organic
growth.
Therefore, it is expected that the strategy will address the following
objectives:
· reducing complexity and better leveraging expertise and scale,
and improving mix: by reviewing the portfolio of categories, products, markets
and activities in which the Group participates
· improving margins: through customer terms, product design,
improved mix and more efficient procurement and processes
· a more resilient supply chain: through reviewing our sourcing
approach, our supplier and customer terms and our manufacturing footprint
· lowering working capital levels: through the various initiatives
already outlined, as well as improved forecasting and planning processes
· strong leadership and management teams at all levels of the
Group: by revisiting the organisational design and fostering closer alignment
that better leverages expertise across the Group as well as the Group's scale
REGIONAL HIGHLIGHTS
Overall, the Group grew revenue 11% with Adjusted operating profit down to
$3.8 million (FY2021: $37.8 million) following the significant cost headwinds
incurred by the Group. The split between our Americas and International
divisions is as follows:
Segmental Revenue Adjusted Operating (Loss)/Profit Adjusted Operating Margin
% Group revenue FY2022 FY2021 % growth FY2022 FY2021 % growth FY2022 FY2021
% %
68% DG Americas $m 659.0 614.0 7% (11.7) 19.9 (159%) (1.8%) 3.2%
32% DG International $m 307.9 265.3 16% 20.8 25.0 (17%) 6.8% 9.4%
- Elims / Central costs $m (1.8) (6.1) (5.3) (7.1)
100% Total $m 965.1 873.2 11% 3.8 37.8 (90%) 0.4% 4.3%
Design Group Americas
Our business in the US which makes up nearly 70% of the Group's total
revenues, grew revenue by 7% to $659.0 million (FY2021: $614.0 million),
driven particularly by Celebrations (up 16%), stationery and goods
not-for-resale (up 21%) and creative play (up 78%). These increases were
offset by a decline in craft sales compared to the previous year which had
benefitted from the multiple lockdowns with consumers turning to crafting
whilst spending more time at home. Total DG Americas sales in FY2022 were
slightly ahead of proforma pre-Covid-19 FY2020 sales (i.e. including CSS
FY2020 sales). Despite the sales growth, however, the DG Americas finished the
year generating an Adjusted operating loss of $11.7 million, significantly
down compared to the previous year's Adjusted operating profit of $19.9
million. This reflects primarily the significant cost headwinds in freight and
raw material alongside labour wage rate inflation which more than offsets the
actions taken by the business to mitigate the impact of the costs increases.
Despite the challenges experienced, the consolidation and integration of the
DG Americas business post the acquisition of CSS at the end of the 2020
financial year continued to progress with total synergies in excess of the
initial estimates. Significant projects that were undertaken during the year
included the consolidation of our pattern-printing facilities, leading to the
closure of the Manhattan, Kansas site. The Kansas site is fully-owned by the
Group and at the end of the financial year was in the process of being
actively marketed for sale. In April 2022, the Group completed on the sale for
net proceeds of approximately $6.7 million, delivering a profit on disposal of
$4.5 million.
Furthermore, during the year, we were successful in sub-leasing certain legacy
sites that had been exited as part of the CSS consolidation plan. This
included the design office at Budd Lake, New Jersey where we have sub-let the
majority of the property, with part of the original lease having been
cancelled. Additionally, we agreed a sub-lease for the Plymouth Meeting office
(the former head-office of the CSS business) for a significant proportion of
the rental outflows. The Group also entered an agreement to sub-lease the
Midway, Georgia site, which we exited as part of the distribution facilities
consolidation project. All of these represent cash savings to the business
with regards to rental outflows going forward.
However, certain other projects, which were anticipated to drive additional
synergies for the Group in FY2022, had to be delayed because of the
operational challenges and are now expected to be delivered in FY2023.
Further operational progress was also made in relation to the expansion of the
Byhalia, Mississippi site where we have now combined the DG Americas
division's printing, converting and wrap distribution into one site, with the
final phase of this project, the move of our printing facilities completed in
March 2022. This project will deliver cost efficiencies and aims to remove
completely the need to outsource any of the DG Americas' future printing
requirements. This year saw record levels of in-house printing volumes, in
excess of one billion linear feet of wrap, with even higher volumes of
converting achieved.
DG Americas has won Walmart's "Supplier of the Year for Seasonal and
Celebrations Products" award for the third year, which is the first time this
has been achieved by any of Walmart's suppliers. This is a very notable
achievement highlighting our focus on customer delivery in the midst of a very
challenging year. This gives us confidence that our strong customer
relationships will help support our focus on restoring profitability in DG
Americas.
As announced in January 2022, following the poor financial performance of DG
Americas during FY2022, the Board decided to undertake a detailed commercial,
operational and organisational review of that business. This began with an
immediate change of leadership with Lance Burn taking over as Interim CEO of
DG Americas whilst a permanent replacement is found, replacing Gideon
Schlessinger, the former DG Americas CEO who left the Group in February 2022.
The review has, so far, identified the following three priorities that aim to
drive an improvement in the financial performance of the DG Americas business
back to an operating margin of c.5-6% by FY2025:
i) balancing customer pricing to supply chain cost inflation
ii) driving immediate and longer-term cost savings
iii) addressing the commercial proposition to align the product offering to
the new price/cost environment by simplifying the commercial architecture and
reducing inventories
As part of this three-step plan one of the first actions has been a
reorganisation of the commercial and operational teams to simplify our
activities in DG Americas. Realigning the commercial and operational
organisation will enable the team to focus resources to better navigate the
short-term challenges expected over the coming year while also establishing a
customer-facing and integrated organisation able to achieve success in the
longer-term. The reorganisation will deliver significant cost savings in
FY2023 but has incurred severance costs in FY2022 which have been treated as
Adjusting items. More information on the restructure costs is detailed in the
Adjusting items section below.
Following the reorganisation, the business has already been successful in
mitigating a significant proportion of the ongoing cost pressures through
discussions with customers while at the same time delivering operational cost
savings such as reducing external storage and freight-handling expenditure.
Although there is a long way to go to restore the profitability of the DG
Americas business, significant progress has already been made in the past four
months, with further initiatives already underway, which are set to deliver
further value in FY2023 and beyond.
Post the year end, the Group purchased the remaining 49 per cent of Anker Play
Products, LLC ('APP'), bringing its total ownership to 100 per cent. This was
completed pursuant to the exercise of a put option by Maxwell Summers, Inc.,
the holder of the 49 per cent, which the Group was legally obliged to purchase
under the APP limited liability company agreement dated 30 March 2017.
Design Group International
The DG International business saw strong growth in revenues in FY2022 across
all regions, up 16% year-on-year at $307.9 million (FY2021: $265.3 million)
and up 12% on FY2020 pre-Covid-19 sales. The most significant improvements
were in DG Europe and DG Australia, demonstrating the 'bounce back' post the
impact of Covid-19 on the prior year. Adjusted operating profit at $20.8
million was down $4.2 million (FY2021: $25.0 million) as inflationary cost
headwinds could not be fully mitigated.
DG UK sales, whilst showing growth year-on-year, were still behind
pre-Covid-19 levels as consumer demand has yet to fully recover. Freight, raw
material and labour costs, resulted in the UK's Adjusted operating margin
halving year-on-year. The focus on sustainable product ranges saw strong sales
of the Eco Nature(®) brand where sales have grown over 200% compared to
FY2021 and we continue to have an excellent orderbook into FY2023.
DG Europe delivered another good year with revenue up 26% on the prior year
and profit only marginally down despite the cost inflation pressures
experienced.
DG Australia, which of all our regions has had the most prolonged set of
lockdowns as a result of Covid-19, has still grown sales by 15% over FY2021
and has delivered strong profits despite the decline in margins. It should
also be noted that DG Australia benefitted from AUD $3.0 million of government
assistance in FY2021 but had no assistance in the FY2022 year.
OUR PRODUCTS, BRANDS AND CHANNELS
The Group aims to be our retail partners' 'supplier of choice' and our diverse
product portfolio is a good demonstration of this in action.
Revenue by product category FY2022 FY2021
Celebrations 63% $604.1m 60% $521.6m
Craft & creative play 16% $154.3m 18% $155.3m
Stationery 4% $44.8m 4% $34.6m
Gifting 10% $94.4m 12% $104.8m
'Not-for-resale' consumables 7% $67.5m 6% $56.9m
Total $965.1m $873.2m
Despite the supply chain cost challenges experienced during the year, the
Group saw growth in the Celebrations category as families and friends came
back together to celebrate life's special occasions. This was also highlighted
by the growth in the 'not-for-resale' consumables category which includes
paper retail bags as the retail market re-opened fully.
During the pandemic, the advantage of our well-diversified product portfolio
was evident as our 'stay-at-home' products in the Craft & creative play
category kept families and individuals entertained throughout lockdowns. It
was therefore not a surprise to see Craft & creative play volumes
normalise compared to the higher levels experienced in the prior year. In
particular, the Group saw a reduction in Craft revenues being partly offset by
growth in Creative play, predominantly through our APP venture. Furthermore,
as many families had been spending more time in their homes during the
pandemic, sales of home accessories which are included in the Gifting
category, had surged in FY2021, and now normalised in FY2022, post the
pandemic.
Revenue by customer channel FY2022 FY2021
Value & Mass 67% $643.9m 66% $576.4m
Specialist 15% $144.4m 17% $153.2m
Independents 16% $156.5m 14% $121.0m
Online 2% $20.3m 3% $22.6m
Total $965.1m $873.2m
The channels through which we sell are broadening. However, the majority of
our sales remain through the Value and Mass channel which includes the world's
biggest retailers, positioning us well for any downturn in consumer
sentiments. We continue to strengthen our relationship with some of our
biggest customers, including Walmart who accounted for over 20% of revenues
during the year and once again have awarded us "Supplier of the Year for
Seasonal and Celebrations Products" for a third year. Overall, our top 20
customers account for 68% of the Group's sales (FY2021: 67%).
Revenue by season FY2022 FY2021
Christmas 40% $390.9m 43% $375.4m
Minor seasons 7% $65.8m 7% $59.7m
Everyday 53% $508.4m 50% $438.1m
Total $965.1m $873.2m
The Group has significantly changed the mix of its sales since the CSS
acquisition, which introduced a portfolio more based on Everyday. FY2022 has
shown a continuation in that trend. This diversified mix of seasons helps
alleviate the pressures on seasonal working capital requirements.
Revenue by brand FY2022 FY2021
Licensed 9% $84.2m 12% $104.8m
Customer own brand / Bespoke 48% $459.8m 48% $418.1m
Design Group / Generic brand 43% $421.1m 40% $350.3m
Total $965.1m $873.2m
A review of revenues by brand type highlights a margin-enhancing movement from
Licensed products to Design Group / Generic brand products. In part this was
due to the reduction in new licenses available during FY2022, but it also
reflected our creative teams' focus on the innovative design and development
of new and exciting products.
SUSTAINABILITY
During FY2021, the Board launched the Group's sustainability framework
'helping design a better future', which defined the Group's approach by
identifying three pillars that will deliver a more sustainable future. These
three pillars are People, Product and Planet.
The Group's sustainability strategy is underpinned by our overall aim to
minimise our impact on the environment by constantly challenging ourselves to
find ways in which we can use our scale and people to influence and drive
positive, proactive change. We understand that our impact and responsibilities
extend beyond our immediate surroundings, into the lives of our employees, the
environment, and our local and global communities. We continue to believe we
have a moral as well as a commercial necessity to strive for the highest
standards of ethical behaviour and to innovate to reduce the environmental
impact of our operations to protect and preserve our planet, for this and
future generations.
Over the past year we have continued to refine the Group's approach to
sustainability and the associated key performance indicators ('KPIs'). During
the year, the Board have spent time finalising our Sustainability KPIs and are
pleased to report our performance against these and the progress the Group has
made during the year as seen in the Group's FY2022 financial statements. We
recognise that we are still at the early stages of our sustainability journey
but as we move forward, we are focusing on further expanding the number of
metrics we monitor whilst also looking to set targets by which to measure our
success.
People - Our people are key to the business and in the challenging times we
are facing, it is even more important to ensure that we are recognising and
investing in the many talented individuals and teams across the Group.
Notable achievements in FY2022 include training opportunities such as our
leadership development programmes for emerging leaders in DG UK and DG
Americas and a women's development network providing training opportunities
for aspiring female leaders in DG Americas. DG UK has trained mental health
first aiders across the business and run a monthly health programme with both
mental and physical challenges for employees to get involved with.
Product - There is no question that the nature of our products requires us to
be innovative in our design to create more sustainable collections to promote
to our customers and theirs.
Notable achievements in FY2022 include DG UK winning Tesco's Supplier Partner
Award for Sustainability for the supply of our Eco Nature(®) products, with
selected lines rolled out in 750 stores nationwide following the successful
trial last year. The development of our first to market shrink-free wrapping
paper, which eliminates plastic waste through the use of recyclable paper
labels, is another success story in the UK with Sainsburys using only
shrink-free gift wrap ranges for Christmas 2021.
Planet - This year the Group formally recognised Climate Change as a principal
risk (formerly an emerging risk) as we know we have a responsibility to
protect and preserve our planet and its environment.
Notable achievements in FY2022 include DG Europe being awarded a climate
neutral status on their gift wrap collections following investment in
innovative Smartwrap™ technology. This, coupled with DG UK and DG Europe
powering their manufacturing, warehousing, and office facilities with 100%
renewable electricity, drives us forward on our journey towards net zero
emissions.
DETAILED FINANCIAL REVIEW
The Group's financial results summarised below now include the credit/charge
associated with share-based payments, both within the reported and the
adjusted results. They are no longer treated as an Adjusting Item. The prior
year has been restated to include the impact of this change in accounting
presentation.
FY2022 FY2021
Reported Adjusting Items Adjusted Reported Adjusting Items Adjusted
$m $m $m $m $m $m
Revenue 965.1 - 965.1 873.2 - 873.2
Gross profit 122.2 (2.5) 119.7 153.8 (1.0) 152.8
Overheads (114.5) (1.4) (115.9) (133.9) 18.9 (115.0)
Operating profit 7.7 (3.9) 3.8 19.9 17.9 37.8
Finance charge (5.5) 0.4 (5.1) (5.2) 0.2 (5.0)
Profit/(loss) before tax 2.2 (3.5) (1.3) 14.7 18.1 32.8
Tax (2.5) (0.8) (3.3) (4.3) (4.5) (8.8)
(Loss)/profit after tax (0.3) (4.3) (4.6) 10.4 13.6 24.0
Revenue for the year ended 31 March 2022 grew 11% to $965.1 million (FY2021:
$873.2 million) driven by strong demand from customers post Covid-19, with
proforma sales up 7% on FY2020. Constant currency Group revenues grew 10%
year-on-year. Adjusted operating profit saw a significant decrease
year-on-year to $3.8 million (FY2021: $37.8 million) reflecting the impact of
significant cost headwinds incurred by the Group which reduced Adjusted gross
margin to 12.4% (FY2021: 17.5%). Adjusted overheads as a percentage of revenue
decreased back to pre-pandemic levels at 12.0% (FY2021: 13.2%). Adjusted
operating margin at 0.4% (FY2021: 4.3%) was down significantly year-on-year
reflecting the lower gross margins. Overall Adjusted loss before tax was $1.3
million (FY2021: profit before tax $32.8 million).
The Group finished the year with a reported profit before tax of $2.2 million
(FY2021: $14.7 million). This is higher than the Adjusted loss before tax,
reflecting the Adjusting items net credit in the current year of $3.5 million
compared to $18.1 million net charge in the prior year. Further details of the
Adjusting items are detailed below.
Adjusted loss after tax was $4.6 million (FY2021: Adjusted profit after tax of
$24.0 million) with loss after tax for the year at $0.3 million (FY2021:
profit after tax of $10.4 million).
Finance expenses
Finance costs were marginally higher than the prior year at $5.5 million
(FY2021: $5.2 million) resulting from higher underlying finance costs at $2.0
million (FY2021: $1.7 million) which reflected the increase in working capital
during the year. The IFRS 16 related lease liability interest was in line with
the prior year at $3.5 million, of which $0.4 million (FY2021: $0.2 million)
was treated as an Adjusting item as it related to exited properties as part of
the DG Americas integration.
Adjusting items
Adjusting items are material items of an unusual or non-recurring nature which
represent gains or losses which are separately presented by virtue of their
nature, size and/or incidence. The Group's Adjusting items in the year to 31
March 2022 result in a net credit of $3.5 million compared to a net charge of
$18.1 million in the prior year. The main items relate to the receipt of
insurance proceeds relating to the FY2021 IT security incident, along with the
reversal of asset impairments netted primarily against aborted acquisition
costs incurred during the year. The treatment of share-based payment
credits/charges has changed in the year such that they no longer form part of
Adjusting items, with the comparatives restated. Details of all Adjusting
items are included below:
Adjusting items FY2022 FY2021
Losses/(gains) and transaction costs relating to acquisitions and disposals of $3.7m $0.3m
businesses
Acquisition integration and restructuring costs ($1.7m) $15.4m
(Reversal of impairment)/impairment of assets ($2.6m) ($5.8m)
Incremental Covid-19 costs - $1.5m
IT security incident (income)/costs ($5.7m) $2.2m
Amortisation of acquired intangibles $2.8m $4.5m
Total (credit)/charge ($3.5m) $18.1m
Losses/(gains) and transaction costs relating to acquisitions and disposals of
businesses - $3.7 million (FY2021: $0.3 million)
In the year, the final tranche of acquisition-related employee payments of
$0.3 million which locked-in and incentivised legacy talent relating to the
Impact Innovations Inc. acquisition in 2019 were incurred as we passed the
three-year anniversary of the transaction. There will be no further costs
associated with these incentive payments.
The balance of these costs in the year have been incurred on potential M&A
projects before the decision not to proceed was taken. These all related to
advisor costs associated with the relevant projects.
Acquisition integration and restructuring costs - credit $1.7 million (FY2021:
charge $15.4 million)
In order to realise synergies from acquisitions, integration projects are
undertaken that aim to deliver future savings and efficiencies for the Group.
These are projects outside of the normal operations of the business and
typically incur one-time costs to ensure their successful implementation. As
such the costs associated with projects of this nature are included as
Adjusting items. The costs incurred in FY2022 relate to the following DG
Americas restructuring initiatives:
Site closures - As announced in previous years, CSS was acquired with a large
portfolio of owned and leased sites, and part of the integration project
included an assessment of the requirement for these sites as the Group
consolidated its footprint. As sites were vacated and closed, the lease assets
associated with those properties were impaired in the event that no
prospective sub-tenants could be found. In addition, there were provisions for
costs of moving and consolidating sites. These costs were all treated as
Adjusting items in the prior year.
In the current year, however, we have successfully negotiated the return of
part of the lease associated with the Budd Lake, New Jersey property as well
as sub-let both the Midway, Georgia property and the Plymouth Meeting,
Pennsylvania property which were impaired in the acquisition balance sheet of
CSS. This has resulted in a write- back of the impairments previously taken in
respect of these properties totalling $2.8 million in the year. All sub-lease
income is also treated as an Adjusting item.
All costs (including rates and utilities) associated with the continuation of
being responsible for a property no longer in the Group's use are taken as an
Adjusting item, with a provision made on vacating. In the event of any
sub-letting (for example with the Plymouth Meeting site), this provision has
been released back to Adjusting items once the responsibility for the costs
passes to the new tenants.
In the year costs were incurred in relation to the closure of the Manhattan,
Kansas site also inherited as part of the CSS acquisition, and the
consolidation of those operations into the Neenah, Wisconsin site. The
facility in Kansas was a legacy McCalls' facility for which the Group holds
the freehold title, and Neenah was a legacy Simplicity facility which is
leased and run by a third party (The Outlook Group). The costs include
severance costs, incentive payments to critical workforce to remain with the
business during transition, inventory write-off and destruction, fixed asset
disposal costs and labour and freight costs associated with the move to
Neenah.
The Kansas property was being actively marketed since the decision to vacate
the site was made. In April 2022, the sale of the site was completed,
resulting in an approximate accounting gain of c$4.5 million, which will be
accounted for in FY2023 Adjusting items.
Wrap manufacturing consolidation - Costs have been incurred in the year
relating to the project to move wrap manufacturing (both printing and
converting) from the Memphis site to Byhalia, consolidating all wrap
manufacturing under one roof.
DG Americas review - The Group has already started to implement plans in
relation to the review of the US business, and therefore costs such as staff
severance and incremental costs associated with the travel and accommodation
of the Interim DG Americas CEO have been treated as Adjusting items.
(Reversal of impairment)/impairment of assets - credit $2.6 million (FY2021:
credit $5.8 million)
In light of the impact of Covid-19 on the business, a review of inventory,
trade receivables and fixed assets was undertaken as at 31 March 2020 at the
onset of the pandemic. Inventories were assessed at 31 March 2020 for their
net realisable value, and an impairment of $7.4 million was taken. Similarly
trade receivables were assessed for their expected credit loss in line with
IFRS 9 and an impairment of $3.8 million was taken. Finally, the UK's bag line
machines were impaired based on expected future cash flows associated with the
'not-for-resale' business. The assessment has been continued throughout FY2021
and into FY2022.
During the FY2022 year, the $2.6 million credit relates solely to reversal of
previous impairments no longer required.
Incremental Covid-19 costs - $nil (FY2021: $1.5 million)
As a result of the Covid-19 outbreak the Group was affected in every region.
Certain direct labour costs that related to Covid-19 and were incremental in
FY2021, of $1.5 million, were included in Adjusting items. The most
significant element of these costs relate to additional 'hazard pay' labour
costs across our manufacturing facilities in the USA and Mexico in order to
ensure our employees returned to work. No such costs have been incurred in
FY2022.
IT security incident (income)/costs - credit $5.7 million (FY2021: charge $2.2
million)
The IT security incident which occurred in DG Americas in FY2021 resulted in
one-off costs being incurred during FY2021 which were treated as Adjusting
items to the value of $2.2 million. This did not include lost profits
resulting from downtime in the business. During FY2022 two insurance pay-outs
were received, totalling $5.7 million (net of a small amount relating to
advisor costs associated with the claim) which have been recognised as
Adjusting items.
Amortisation of acquired intangibles - $2.8 million (FY2021: $4.5 million)
Under IFRS, as part of the acquisition of a company, it is necessary to
identify intangible assets such as customer lists and brands which form part
of the intangible value of the acquired business but which are not part of the
acquired balance sheet. These intangible assets are then amortised to the
income statement over their useful economic lives. These are not considered
operational costs relating to the running of the acquired business and are
directly related to the accounting for the acquisition. These include
tradenames and brands acquired as part of the acquisition of Impact
Innovations Inc. and CSS Industries Inc. in the USA. As such we include these
as Adjusting items. Note that the trade names acquired as part of the
acquisition of Biscay Pty Greetings Ltd in Australia were fully amortised in
the prior year.
Taxation
The Group aims to manage its tax affairs in an open and transparent manner,
including being fully compliant with all applicable rules and regulations in
tax jurisdictions in which it operates. We have not entered into any tax
avoidance or otherwise aggressive tax planning schemes and the Group continues
to operate its tax affairs in this manner.
The Group's Adjusted tax charge for the year is $3.3 million (FY2021: $8.8
million) despite the losses incurred in the year. A significant element of
this charge relates to the de-recognition of brought forward deferred tax
assets relating to the UK business. The de-recognition has occurred as a
result of the assessment of future taxable profits, resulting from growing
costs in the plc business, against which the asset could unwind. The remainder
relates to a tax charge on the profitable businesses offset by a tax credit
associated with losses generated in the year in the USA.
Tax paid in the year was $5.2 million (FY2021: $2.2 million). This is $3.0
million higher than the prior year reflecting higher profits in the Group's
tax-paying jurisdictions as well as catch up payments in both Australia and
Europe which were required in relation to FY2021 where taxable profits were
better than originally anticipated and associated cash tax payments were
estimated.
(Loss) / Earnings per share
Adjusted loss per share at 7.7 cents (FY2021: Adjusted earnings per share 22.2
cents) is lower year-on-year driven by the significantly lower Adjusted
earnings attributable to equity holders of the Company primarily reflecting
the one-time non-cash reversal of deferred tax assets in the year. Diluted
loss per share at 3.3 cents (FY2021: diluted earnings per share of 8.4 cents)
are marginally better than Adjusted reflecting the Adjusting items credit in
the FY2022 year. The reconciliation between reported and Adjusted loss per
share is shown below:
(Loss) / Earnings per share FY2022 FY2021
(Loss) / Earnings attributable to equity holders of the Company ($3.3m) $8.2m
Adjustments
Adjusting items (net of non-controlling interest effect) ($3.5m) $18.2m
Tax charge/(relief) on adjustments (net of non-controlling interest effect) ($0.8m ) ($4.6m)
Adjusted (loss) / earnings ($7.6m) $21.8m
Weighted average number of shares
Basic weighted average number of shares outstanding 98.1m 97.7m
Dilutive effect of employee share option plans 0.1m 0.4m
Diluted weighted average ordinary shares 98.2m 98.1m
(Loss) / Earnings per share
Basic (loss) / earnings per share (3.3c) 8.4c
Adjustment (4.4c) 13.9c
Basic Adjusted (loss) / earnings per share (7.7c) 22.3c
Diluted (loss) / earnings per share (3.3c) 8.4c
Diluted Adjusted (loss) / earnings per share (7.7c) 22.2c
Dividend
The Board are not recommending a final dividend in light for the Group's
second half trading performance. As a result, the full year dividend is 1.68
cents (1.25 pence) (FY2021: 11.8 cents, 8.75 pence) based on the interim
dividend which was paid in January 2022.
Return on capital employed
Improving the return on capital employed continues to be a key target for each
of the business units, however given the challenges faced this year, the Group
saw the return on capital employed reduce year-on-year to 1.3% (FY2021: 15.8%)
reflecting the reduced profitability and increased working capital
requirements.
Cash flow and net cash
The Group ended the year with its net cash balance at $30.2 million (FY2021:
$76.5 million). The decrease in cash year-on-year is a direct result of the
reduced EBITDA contribution and the increased working capital outflow
resulting in Adjusted cash generated from operations significantly lower at
$5.8 million (FY2021: $68.4 million).
Cash flow FY2022 FY2021
Adjusted EBITDA $38.3m $73.3m
Add back for share-based payment (credit)/charge ($0.8m) $4.2m
Movements in working capital ($31.7m) ($9.1m)
Adjusted cash generated from operations $5.8m $68.4m
Adjusting items ($6.2m) ($0.7m)
Cash generated from operations ($0.4m) $67.7m
Capital expenditure (net of disposals of property, plant and equipment) ($8.3m) ($8.1m)
Tax received/(paid) ($5.2m) ($2.2m)
Interest paid (including Adjusting items) ($4.2m) ($4.3m)
Payments of lease liabilities ($16.8m) ($15.9m)
Dividends paid ($12.6m) ($11.3m)
FX and other $1.2m ($1.8m)
Movement in net cash ($46.3m) $24.1m
Opening net cash $76.5m $52.4m
Closing net cash $30.2m $76.5m
Working capital
The working capital cash outflow in the year is driven primarily by the
inventory-build of $56.9 million as the Group managed the increasing raw
material cost, particularly in the last quarter of FY2022, and built volume to
ensure availability. As a result, raw materials held at the end of the year
were 62% higher in value than the prior year-end. Finished goods at the end of
the year were 31% higher than the prior year primarily reflecting the
increased cost to purchase or manufacture finished goods.
More than ever, the Group continues to actively track debtors and credit risk
profiles of all of our customers to mitigate as far as possible any additional
exposure to credit risk. Doubtful-debt write off in the year was less than
0.2% of revenue (FY2021: 0.5%), reflecting our continued proactive approach to
mitigating credit risk exposure.
Capital expenditure
Capital expenditure in the year remained in line with the prior year at $8.3
million (FY2021: $8.1 million). There were no significant capital projects in
the year to 31 March 2022. Capital expenditure in FY2023 is expected to remain
in line with the current year.
Average leverage
Average leverage is a key measure for the Group measuring the seasonality of
our working capital demands across the business and the need to ensure the
Group manages its peak funding requirements within its bank facility limits.
As at 31 March 2022 average leverage was 1.0 times, up from 0.0 times in the
prior year. This reflects the decline in Adjusted EBITDA compared to the prior
year and an increase in average debt from $2.2 million in FY2021 to $17.2
million in FY2022.
Our measure of average leverage excludes lease liabilities from our
measurement of debt and we reduce Adjusted EBITDA for lease payments. This
mirrors the approach taken by our banks in measuring leverage for the purposes
of the banking facilities and therefore is considered the most relevant
measure for management to adopt.
Banking facilities
The Group maintains its banking facilities through a club of five banks chosen
to reflect and support the geographical spread of the Group. The banks within
the club are: HSBC, NatWest, Citigroup (who replaced BNP Paribas), Truist Bank
(as successor by merger to SunTrust Bank) and PNC.
As previously announced, on 1 June 2022 the Company extended the term of its
existing banking agreement to 31 March 2024. As part of this extension,
covenants have been revised for the period to 31 March 2023. The amended
facilities comprise:
· A revolving credit facility ('RCF A') which has reduced from
$95.0 million to $90.0 million
· A further flexible revolving credit facility ('RCF B') with
availability varying from month to month of up to a maximum level of £92.0
million (reduced from a maximum level of £130.0 million)
The Group also have access to invoice financing in Hong Kong with a maximum
limit of $18.0 million, depending on the level of eligible receivables
alongside local overdraft facilities. In total, accessible bank finance
facilities are considered sufficient to cover the Group's peak requirements.
The revised covenants (measured on pre IFRS 16 accounting definitions), which
operate for a maximum period to 31 March 2023 are as follows:
· Minimum Adjusted earnings before interest, depreciation and
amortisation (Adjusted EBITDA), as defined by the banking facility, measured
quarterly at the end of June, September, December and March, which requires
the Group to be within $10.0 million of its Adjusted EBITDA budget at each
quarter end, based on the last twelve-month EBITDA performance at each
measurement point; and
· Minimum liquidity level, which requires the Group to maintain a
minimum of $35.0 million headroom to the maximum available facility on a
monthly basis
The amendment also stipulates that any dividends to be paid by the Group
during the remaining term of the agreement will require majority lender
approval. Banking and legal fees associated with the amendment and extension
of the facility totalled c.$1 million.
From April 2023 the Group will revert to the previous covenants which are as
follows:
· Interest cover, being the ratio of Adjusted EBITDA, as defined by
the banking facility, to interest on a rolling twelve month basis; and
· Leverage, being the ratio of debt to Adjusted EBITDA, as defined
by the banking facility, on a rolling twelve-month basis.
There is a further covenant tested monthly in respect of the working capital
RCF by which available asset cover must not fall below agreed levels relative
to amounts drawn.
We also have access to supplier financing arrangements from certain customers
which we utilise at certain times of the year.
The Group intends to complete a more comprehensive refinancing exercise in the
second half of FY2023.
Foreign exchange exposure management
Our foreign exchange ('FX') exposure is split into two areas:
Translational FX exposure - This exposure is the result of the requirement for
the Group to report its results in one currency. This necessitates the
translation of our regional business units' local currency financial results
into the Group's adopted reported currency. The Group's reporting currency is
US dollars in light of the fact that a significant proportion of the Group's
revenues and profits are in US dollars. There remains a smaller part of the
Group whose functional currency is something other than US dollar. However,
the overall impact on revenue and profits from currency movements in FY2022
when compared to FY2021 is not significant relative to the balances. Revenue
in FY2021 would have been $5.0 million higher if translated at FY2022 FX
rates, with FY2021 Adjusted profit before tax $0.1 million higher.
Transactional FX exposure - This FX exposure is managed carefully by the Group
as it can result in additional cash outflows if not managed appropriately. In
response to this risk the Group adopts an active hedging policy to ensure
foreign exchange movements remain mitigated as far as possible. In addition, a
reasonable proportion of this hedging is achieved through natural hedges
whereby our purchases and sales in US dollars are offset. The balance of our
hedging is achieved through forward exchange contracts and similar
derivatives.
Financial position and going concern basis
The Group's net assets decreased by $22.3 million to $369.7 million at
31 March 2022 (FY2021: $392.0 million) primarily reflecting the reduced cash
held at the end of the year given the higher working capital requirements in
the last quarter resulting from inventory build and ongoing cost pressures.
As at the 31 March 2022 balance sheet date, in light of the FY2022 results and
the outlook for FY2023, the Directors have paid particularly close attention
to their assessment of going concern in preparation of these financial
statements. The Group is appropriately capitalised at the year end with a net
cash position of $30.2 million ($50.2 million of cash and $20.4 million of
bank overdraft excluding loan arrangement fees).
Going concern forecasts have been produced using the Group's FY2023 and FY2024
budgets and plans. These forecasts which have been produced and reviewed in
detail by the Board and take into account the seasonal working capital cycle
of the business, have been sensitised to reflect severe but plausible adverse
downturns in the current assumptions including a miss in achieving the DG
Americas FY2023 plan as well as increased inflationary pressures in the DG
International business, beyond those risks already factored into the budgets
and plans. The base forecasts and additional sensitivity analysis have been
tested against the amended banking covenants to March 2023 described above as
well as beyond this time point as and when the covenants revert back to the
original covenants. The analysis demonstrated that the Group has sufficient
excess headroom for the Group to meet its obligations as they fall due for a
forecast period of more than twelve months beyond the date of signing these
accounts and will also be compliant with all covenants within this time frame
and beyond. As such, the Directors do not see any practical regulatory or
legal restrictions which would limit their ability to fund the different
regions of the business as required as the Group has sufficient resources.
Accordingly, the Directors have continued to adopt the going concern basis of
accounting in preparing the financial statements.
Alternative performance measures
This review includes alternative performance measures ('APMs') that are
presented in addition to the standard IFRS metrics. The Directors believe that
these APMs provide important additional information regarding the underlying
performance of the business including trends, performance and position of the
Group. APMs are used to enhance the comparability of information between
reporting periods and segmental business units by adjusting for exceptional or
uncontrollable factors which affect IFRS measures, to aid the understanding of
the Group's performance. Consequently, APMs are used by the Directors and
management for strategic and performance analysis, planning, reporting and
reward setting. APMs reflect the results of the business excluding Adjusting
items, which are items that are material and of an unusual or non-recurring
nature.
The APMs and the definitions used are listed below:
· Adjusted EBITDA - EBITDA before Adjusting items
· Adjusted operating profit/(loss) - Profit/(loss) before finance
charges, tax and Adjusting items
· Adjusted profit/(loss) before tax - Profit/(loss) before tax and
Adjusting items
· Adjusted profit/(loss) after tax - Profit/(loss) after tax before
Adjusting items and associated tax effect
· Adjusted (loss)/earnings per share - Fully diluted (loss)/earnings per
share before Adjusting items and associated tax effect
In addition, the Group uses APMs in order to calculate other key performance
metrics including:
· Average leverage - Average bank debt (being average debt measured
before lease liabilities) divided by Adjusted EBITDA reduced for lease
payments
· Cash conversion - Adjusted cash generated from operations divided by
Adjusted EBITDA
· Adjusted operating margin - Adjusted operating profit divided by
revenue
· Return on capital employed - Adjusted operating profit divided by
monthly average net capital employed (excluding cash and intangibles)
· Adjusted interest cover - Adjusted operating profit divided by finance
charges (excluding IFRS 16 and one-time interest income)
Adjusting Items
Further details of the items categorised as Adjusting items are disclosed in
more detail in note 3. Note that all prior year comparatives have been
restated to include the share-based payments credit/charge within adjusted
metrics.
A full reconciliation between our adjusted and reported results is provided
below:
APM Reconciliation FY2022 FY2021
Reported operating profit $7.7m $19.9m
Depreciation and impairment of property, plant and equipment $13.4m $13.6m
Depreciation and impairment of right-of-use assets $15.3m $24.0m
Acquisition amortisation $2.8m $4.5m
Amortisation of software $3.0m $3.8m
EBITDA $42.2m $65.8m
Adjusted EBITDA $38.3m $73.3m
Adjusting items $3.9m ($7.5m)
EBITDA $42.2m $65.8m
Adjusted operating profit $3.8m $37.8m
Adjusting items $3.9m ($17.9m)
Reported operating profit $7.7m $19.9m
Adjusted (loss) / profit before tax ($1.3m) $32.8m
Adjusting items $3.5m ($18.1m)
Reported profit before tax $2.2m $14.7m
Adjusted (loss) / profit after tax ($4.6m) $24.0m
Adjusting items $4.3m ($13.6m)
Reported (loss) / profit after tax ($0.3m) $10.4m
Adjusted (loss) / earnings per share (7.7c) 22.2c
Adjusting items 4.4c (13.8c)
Reported diluted (loss) / earnings per share (3.3c) 8.4c
Statement of directors' responsibilities in respect of the financial
statements
The directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have prepared the Group financial
statements in accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and the company financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 102 "The
Financial Reporting Standard applicable in the UK and Republic of Ireland",
and applicable law).
Under company law, directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs
of the Group and Company and of the profit or loss of the Group for that
period. In preparing the financial statements, the directors are required to:
• select suitable accounting policies and then
apply them consistently;
• state whether applicable international
accounting standards in conformity with the requirements of the Companies Act
2006 have been followed for the Group financial statements and United Kingdom
Accounting Standards, comprising FRS 102 have been followed for the Company
financial statements, subject to any material departures disclosed and
explained in the financial statements;
• make judgements and accounting estimates that
are reasonable and prudent; and
• prepare the financial statements on the going
concern basis unless it is inappropriate to presume that the Group and Company
will continue in business.
The directors are also responsible for safeguarding the assets of the Group
and Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's and Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and Company and enable them to ensure that the financial statements
comply with the Companies Act 2006.
The directors are responsible for the maintenance and integrity of the
Company's website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in other
jurisdictions.
Directors' confirmations
The directors consider that the annual report and the financial statements and
accounts, taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the group's and company's
position and performance, business model and strategy.
Each of the directors, whose names and functions are listed in the Board of
Directors confirm that, to the best of their knowledge:
• the group financial statements, which have been
prepared in accordance with UK-adopted international
accounting standards, give a true and fair view of the assets, liabilities,
financial position and loss of the group;
• the company financial statements, which have
been prepared in accordance with United Kingdom Accounting Standards,
comprising FRS 102, give a true and fair view of the assets, liabilities and
financial position of the company; and
• the Chief Financial Officer's Review includes a
fair review of the development and performance of the business and the
position of the group and company, together with a description of the
principal risks and uncertainties that it faces.
In the case of each director in office at the date the directors' report is
approved:
• so far as the director is aware, there is no
relevant audit information of which the group's and company's auditors are
unaware; and
• they have taken all the steps that they ought to
have taken as a director in order to make themselves aware of any relevant
audit information and to establish that the group's and company's auditors are
aware of that information.
CONSOLIDATED INCOME STATEMENT
YEAR ENDED 31 MARCH 2022
2022 2021
Note $000 $000
Revenue 2 965,093 873,216
Cost of sales (842,926) (719,396)
Gross profit 122,167 153,820
Selling expenses (48,305) (43,909)
Administration expenses (66,604) (93,659)
Other operating income 5 870 4,066
Loss on disposal of property, plant and equipment (436) (256)
Loss on disposal of subsidiary - (208)
Operating profit 3 7,692 19,854
Finance expenses 6 (5,491) (5,179)
Profit before tax 2,201 14,675
Income tax charge 7 (2,517) (4,234)
(Loss)/profit for the year (316) 10,441
Attributable to:
Owners of the Parent Company (3,277) 8,207
Non-controlling interests 2,961 2,234
(Loss)/earnings per ordinary share
Note 2022 2021
Basic 21 (3.3c) 8.4c
Diluted 21 (3.3c) 8.4c
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 MARCH 2022
2022 2021
$000 $000
(Loss)/profit for the year (316) 10,441
Other comprehensive (expense)/income:
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit pension and health benefit schemes (715) (32)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translation of foreign operations (net of tax) 8,686 (15,769)
Transfer to profit and loss on maturing cash flow hedges (net of tax) (301) 863
Net unrealised gain/(loss) on cash flow hedges (net of tax) 686 (1,269)
9,071 (16,175)
Other comprehensive income/(expense) for the year, net of tax 8,356 (16,207)
Total comprehensive income/(expense) for the year, net of tax 8,040 (5,766)
Attributable to:
Owners of the Parent Company 5,173 (9,081)
Non-controlling interests 2,867 3,315
8,040 (5,766)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 MARCH 2022
Attributable to the owners of the Parent Company
Share
premium
and capital Non-
Share redemption Merger Hedging Translation Retained Shareholders' controlling
capital reserve reserve reserve reserve earnings equity interests Total
$000 $000 $000 $000 $000 $000 $000 $000 $000
At 1 April 2020 5,974 215,417 40,175 320 (4,389) 113,703 371,200 4,643 375,843
Profit for the year - - - - - 8,207 8,207 2,234 10,441
Other comprehensive (expense)/income - - - (406) (16,850) (32) (17,288) 1,081 (16,207)
Total comprehensive (expense)/income for the year - - - (406) (16,850) 8,175 (9,081) 3,315 (5,766)
Transactions with owners in their capacity as owners
Equity-settled share-based payments (note 23) - - - - - 3,668 3,668 - 3,668
Tax on equity-settled share-based payments (note 11) - - - - - 214 214 - 214
Recognition of non-controlling interests (note 27) - - - - - - - 539 539
Options exercised (note 20) 34 - - - - (34) - - -
Equity dividends paid (note 22) - - - - - (11,288) (11,288) - (11,288)
Exchange differences on opening balances 659 23,725 4,425 - - - 28,809 - 28,809
At 31 March 2021 6,667 239,142 44,600 (86) (21,239) 114,438 383,522 8,497 392,019
Attributable to the owners of the Parent Company
Share
premium
and capital Non-
Share redemption Merger Hedging Translation Retained Shareholders' controlling
capital reserve reserve reserve reserve earnings equity interests Total
$000 $000 $000 $000 $000 $000 $000 $000 $000
At 1 April 2021 6,667 239,142 44,600 (86) (21,239) 114,438 383,522 8,497 392,019
(Loss)/profit for the year - - - - - (3,277) (3,277) 2,961 (316)
Other comprehensive income/(expense) - - - 385 8,780 (715) 8,450 (94) 8,356
Total comprehensive income/(expense) for the year - - - 385 8,780 (3,992) 5,173 2,867 8,040
Transactions with owners in their capacity as owners
Equity-settled share-based payments (note 23) - - - - - 241 241 - 241
Derecognition of deferred tax asset - share-based payments (note 11) - - - - - (1,179) (1,179) - (1,179)
Derecognition of deferred tax asset - IFRS 16 (note 11) - - - - - (346) (346) - (346)
Options exercised (note 20) 13 - - - - (13) - - -
Equity dividends paid (note 22) - - - - - (9,274) (9,274) (3,365) (12,639)
Option over non-controlling interest (note 18) - - - - - (3,069) (3,069) - (3,069)
Exchange differences on opening balances (307) (10,999) (2,051) - - - (13,357) - (13,357)
At 31 March 2022 6,373 228,143 42,549 299 (12,459) 96,806 361,711 7,999 369,710
Merger reserve
The merger reserve comprises premium on shares issued in relation to business
combinations.
Capital redemption reserve
The capital redemption reserve comprises amounts transferred from retained
earnings in relation to the redemption of preference shares. For ease of
presentation, the amount of $1.8 million relating to the capital redemption
reserve has been included within the column of share premium and capital
redemption reserve in the balances at the end of the year (2021: $1.8
million). The only movement in this balance relates to foreign exchange.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net
change in the fair value of cash flow hedging instruments related to hedged
transactions that qualify for hedge accounting and have not yet matured.
Translation reserve
The translation reserve comprises all foreign currency differences arising
from the translation of the financial statements of foreign operations.
Shareholders' equity
Shareholders' equity represents total equity attributable to owners of the
Parent Company. Share capital, share premium, capital redemption reserve,
merger reserve and hedging reserve are translated into US dollars at the rates
of exchange at each balance sheet date and the resulting cumulative exchange
differences are included in other reserves.
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2022
2022 2021
Note $000 $000
Non-current assets
Property, plant and equipment 8 78,911 88,203
Intangible assets 9 107,398 114,874
Right-of-use assets 10 86,731 95,380
Long-term assets 13 5,105 5,721
Deferred tax assets 11 16,317 18,357
Total non-current assets 294,462 322,535
Current assets
Asset held for sale 8 2,150 -
Inventory 12 230,885 176,165
Trade and other receivables 13 127,850 129,219
Income tax receivable 1,234 2,368
Derivative financial assets 24 316 207
Cash and cash equivalents 14 50,179 132,760
Total current assets 412,614 440,719
Total assets 2 707,076 763,254
Equity
Share capital 20 6,373 6,667
Share premium 226,382 237,296
Capital redemption reserve 1,761 1,846
Merger reserve 42,549 44,600
Hedging reserve 299 (86)
Translation reserve (12,459) (21,239)
Retained earnings 96,806 114,438
Equity attributable to owners of the Parent Company 361,711 383,522
Non-controlling interests 7,999 8,497
Total equity 369,710 392,019
2022 2021
Note $000 $000
Non-current liabilities
Loans and borrowings 15 (20) (103)
Lease liabilities 10 80,215 94,582
Deferred income 16 523 486
Provisions 17 5,016 5,742
Other financial liabilities 18 21,557 15,526
Deferred tax liabilities 11 381 2,115
Total non-current liabilities 107,672 118,348
Current liabilities
Bank overdraft 14 20,380 57,033
Loans and borrowings 15 (340) (620)
Lease liabilities 10 19,628 19,340
Deferred income 16 465 424
Provisions 17 1,342 1,617
Income tax payable 7,359 10,061
Trade and other payables 19 143,318 120,763
Other financial liabilities 18 37,542 44,269
Total current liabilities 229,694 252,887
Total liabilities 2 337,366 371,235
Total equity and liabilities 707,076 763,254
The consolidated financial statements were approved by the Board of Directors
on 27 June 2022 and were signed on its behalf by:
Giles Willits
Director
CONSOLIDATED CASH FLOW STATEMENT
YEAR ENDED 31 MARCH 2022
2022 2021
Note $000 $000
Cash flows from operating activities
(Loss)/profit for the year (316) 10,441
Adjustments for:
Depreciation and (reversal of impairment)/impairment of property, plant and 8 13,378 13,535
equipment
Depreciation and (reversal of impairment)/impairment of right-of-use assets 10 15,284 24,047
Amortisation of intangible assets 9 5,817 6,918
Finance expenses 6 5,491 5,179
Income tax charge 7 2,517 4,234
Loss on disposal of a business - 208
Loss on disposal of property, plant and equipment 436 165
Loss on disposal of intangible fixed assets - 106
Equity-settled share-based payments - (income)/expense 23 (848) 4,192
Operating profit after adjustments for non-cash items 41,759 69,025
Change in trade and other receivables (994) (11,914)
Change in inventory (58,096) 1,772
Change in trade and other payables, provisions and deferred income 21,237 (4,504)
Cash generated from operations 3,906 54,379
Tax (paid)/received (5,205) 14,353
Interest and similar charges paid (4,626) (4,082)
Net cash (outflow)/inflow from operating activities (5,925) 64,650
Cash flow from investing activities
Proceeds from sale of property, plant and equipment 131 147
Acquisition of intangible assets 9 (381) (1,000)
Acquisition of property, plant and equipment 8 (8,140) (7,390)
Net cash outflow from investing activities (8,390) (8,243)
Cash flows from financing activities
Repayment of secured borrowings 14 - (1,158)
Lease liabilities principal repayments 10 (20,717) (19,184)
Loan arrangement fees 14 (494) -
Equity dividends paid 22 (9,274) (11,288)
Dividends paid to non-controlling interests (3,365) -
Net cash outflow from financing activities (33,850) (31,630)
Net (decrease)/increase in cash and cash equivalents (48,165) 24,777
Cash and cash equivalents at beginning of the year 14 75,727 52,197
Effect of exchange rate fluctuations on cash held 2,237 (1,247)
Cash and cash equivalents at end of the year 14 29,799 75,727
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 MARCH 2022
1 Accounting policies
a. Basis of preparation
On 31 December 2020, IFRS as adopted by the European Union at that date was
brought into UK law and became UK-adopted International Accounting Standards
('UK IFRS'), with future changes being subject to endorsement by the UK
Endorsement Board. The Group transitioned to UK IFRS in its consolidated
financial statements on 1 April 2021. This change constitutes a change in
accounting framework. However, there is no impact on recognition, measurement
or disclosure in the period reported as a result of the change in framework.
The consolidated financial statements have been prepared in accordance with UK
IFRS and with the requirements of the Companies Act 2006 as applicable to
companies reporting under those standards.
The preparation of financial statements that conform with adopted UK IFRS
requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of income and expense during the reporting period. Although
these estimates are based on management's best knowledge of the amount, event
or actions, actual results may ultimately differ from those estimates. The
estimates and underlying assumptions are reviewed on an ongoing basis (see
Critical accounting judgements and estimates section below). Revisions to
accounting estimates are recognised in the period in which the estimate is
revised and future periods if relevant.
For the purposes of these financial statements 'Design Group' or 'the Group'
means IG Design Group plc ('the Company') and its subsidiaries. The Company's
ordinary shares are listed on the Alternative Investment Market (AIM).
The accounting policies used in the preparation of these financial statements
are detailed below. These policies have been consistently applied to all
financial years presented.
The financial information set out in this document does not constitute
statutory accounts for IG Design Group plc for the year ended 31 March 2022
but is extracted from the Annual Report and Financial Statements. The Annual
Report and Financial Statements 2022 will be delivered to the Registrar of
Companies in due course. The auditors' report on those accounts was
unqualified and neither drew attention to any matters by way of emphasis nor
contained a statement under either Section 498(2) of Companies Act 2006
(accounting records or returns inadequate or accounts not agreeing with
records and returns), or section 498(3) of Companies Act 2006 (failure to
obtain necessary information and explanations).
Re-presentation of Adjusting items
Share based payments
The treatment of share-based payment credits/charges has changed in the year
such that they no longer form part of Adjusting items in line with best
practice guidance. The comparative figures relating to Adjusting items have
been restated to exclude share-based payments where necessary in these
financial statements.
Restatement of comparative amounts
Financial instruments
There has been a restatement between gross trade receivables and provision for
doubtful debts of $6.6 million in note 24, Financial Instruments, due to
misclassification in the prior year's data.
Presentation currency
The presentation currency of the Group is US dollars.
The functional currency of the Parent Company remains as pound sterling as it
is located in the United Kingdom and substantially all of its cash flows,
assets and liabilities are denominated in pound sterling, as well as its share
capital. As such, the Parent Company's functional and presentational currency
differs to that of the Group's reporting currency.
Seasonality of the business
The business of the Group is seasonal and although revenues accrue relatively
evenly in both halves of the year, working capital requirements including
inventory levels increase steadily in the first half from July and peak in
October as manufacturing and distribution of Christmas products builds ahead
of shipping. The second half of the year sees the borrowing of the Group
decline and move to typically a cash positive position as the Group collects
its receivables through January to March.
Going concern
Information regarding the financial position of the Group, its cash flows,
liquidity position and borrowing facilities are described in the detailed
financial review above. Note 24 to the financial statements includes the
Group's objectives, policies and processes for managing its capital, its
financial risk management objectives, details of its financial instruments and
hedging activities and exposures to credit, market and liquidity risk. Cash
balances and borrowings are detailed in notes 14 and 15.
On 5 June 2019, to meet the funding requirements of the Group, the business
refinanced with a banking group comprising HSBC, NatWest, Citigroup (who
replaced BNP Paribas), Truist Bank (as successor by merger to SunTrust Bank)
and PNC Bank as part of a three year deal. This facility was then subsequently
amended and extended on 17 January 2020 with the same banking group to
accommodate the acquisition of CSS Industries, Inc. ('CSS'). The facilities
were then further extended in May 2021.
In June 2022, the facilities were amended and extended through to March 2024.
The amendment to the terms of the banking agreement comprise of a revolving
credit facility ('RCF') of $90.0 million (reduced from $95.0 million) and a
further flexible RCF of up to £92.0 million (reduced from a maximum level of
£130.0 million) to meet the Group's working capital requirements during peak
manufacturing and selling season. The financial covenants were also amended -
see note 14 for more details on these.
We also have access to supplier financing arrangements from certain customers
which we utilise at certain times of the year. The largest of these supplier
financing arrangements are subject to the continuing support of the customers'
banking partners and therefore could be withdrawn at short notice.
The Group financial statements have been prepared on a going concern basis as
the Directors have a reasonable expectation that the Group has adequate
resources to continue trading for a period of at least 12 months from the date
of this report based on an assessment of the overall position and future
forecasts for the going concern period. This assessment has also considered
the overall level of Group borrowings and covenant requirements, the
flexibility of the Group to react to changing market conditions and ability to
appropriately manage any business risks.
The Directors have prepared detailed plans and forecasts from the date of
signing these financial statements up to 30 June 2023. These forecasts reflect
the fact that the Group continued to generate strong sales growth this year,
albeit there were significant cost pressures in the supply chain impacting
profitability that are assumed to continue in the going concern period. They
also reflect the seasonal operating cycle of the business and a recovery
associated with the DG Americas plan.
These forecasts have been sensitised to reflect severe but plausible adverse
downturns in the current assumptions. Specifically, the severe but plausible
downside scenario has taken account of the following risks:
· A range of pressures which could affect the attainment of the DG
Americas plan including inflation in various parts of the business, sales
shortfalls, sales timing and a disruption event such as a short term
manufacturing disruption leading to increased temporary labour costs; and
· Additional inflationary pressure in the DG International business,
noting that the potential risks in a severe but plausible downside scenario
are not considered to be as significant as in the DG Americas business.
In the severe but plausible scenario modelled, there remains significant
headroom in our forecast liquidity and sufficient headroom under the covenant
requirements for both the amended covenants to March 2023 and the reverted
covenants from June 2023 onwards.
Based on this assessment, the Directors have formed a judgement that there is
a reasonable expectation the Group will have adequate resources to continue in
operational existence for the foreseeable future.
Changes in accounting policies
There have been no changes to accounting policies during the year.
Other standards and interpretations
The Group also adopted the following new pronouncements at the start of the
year, which did not have any material impact on the Group's financial
statements:
· Amendments to IFRS 16 Leases - Covid-19-Related rent concessions
· Amendments to IFRS 4 Insurance Contracts - deferral of IFRS 9
· Amendments to IFRS 7, IFRS 4 and IFRS 16 interest rate benchmark
reform - phase 2
Certain new accounting standards and interpretations have been published that
are not yet effective and have not been early adopted by the Group. These
standards are not expected to have a material impact on the entity in the
current or future reporting periods and on foreseeable future transactions.
b. Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the
Group is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect those returns through its power
over the investee. The financial statements of subsidiaries are included in
the financial statements from the date that control commences until the date
that control ceases.
(ii) Transactions eliminated on consolidation
Intragroup balances and any unrealised gains and losses or income and expense
arising from intragroup transactions are eliminated in preparing the
consolidated financial statements.
(iii) Business combinations
Business combinations are accounted for using the acquisition method as at the
date on which control is transferred to the Group.
The Group measures goodwill at the acquisition date as:
· the fair value of the consideration transferred; plus
· the recognised amount of any non‑controlling interests in the
acquiree; plus
· if the business combination is achieved in stages, the fair value
of the existing equity interest in the acquiree; less
· the net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
When the result is negative, a 'bargain purchase' gain is recognised
immediately in the income statement.
Provisional fair values allocated at a reporting date are finalised within
twelve months of the acquisition date.
c. Foreign currency
Items included in the financial statements of the Group's subsidiaries are
measured using the currency of the primary economic environment in which the
subsidiary operates ('functional currency'). The consolidated financial
statements are presented in US dollars.
(i) Foreign currency transactions
Transactions in foreign currencies are recorded at the rate of exchange at the
date of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are translated into the
functional currency of the entity at the exchange rate prevailing at that date
and recognised in the income statement unless hedge accounting criteria apply
(see policy for financial instruments).
(ii) Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on consolidation, are translated into US dollars at
the exchange rate prevailing at the balance sheet date. The revenues and
expenses of foreign operations are translated at an average rate for the
period where this rate approximates to the foreign exchange rates prevailing
at the dates of the transactions.
(iii) Net investment in foreign operations
Exchange differences on retranslation at the closing rate of the opening
balances of overseas entities are taken to other comprehensive income, as are
exchange differences arising on related foreign currency borrowings and
derivatives designated as qualifying hedges, to the extent that they are
effective. They are released into the income statement upon disposal or loss
of control and on maturity or disposal of the hedge respectively.
Exchange differences arising from a monetary item receivable from or payable
to a foreign operation, the settlement of which is neither planned nor likely
in the foreseeable future, are considered to form part of a net investment in
a foreign operation and are recognised in other comprehensive income in the
translation reserve. The cumulative translation differences previously
recognised in other comprehensive income (or where the foreign operation is
part of a subsidiary, the parent's interest in the cumulative translation
differences) are released into the income statement upon disposal of the
foreign operation or on loss of control of the subsidiary that includes the
foreign operation. Other exchange differences are taken to the income
statement.
d. Financial instruments
Interest-bearing loans and borrowings and other financial liabilities
(excluding derivatives and put options over non-controlling interests) are
held at amortised cost, unless they are included in a hedge accounting
relationship.
Derivatives are measured initially at fair value. Subsequent measurement in
the financial statements depends on the classification of the derivative as
follows:
(i) Fair value hedges
Where a derivative is used to hedge the foreign exchange exposure of a
monetary asset or liability, any gain or loss on the derivative is recognised
in the income statement.
(ii) Cash flow hedges
Where a derivative is designated as a hedging instrument in a cash flow hedge,
the change in fair value is recognised in other comprehensive income to the
extent that it is effective and any ineffective portion is recognised in the
income statement. Where the underlying transaction results in a financial
asset, accumulated gains and losses are recognised in the income statement
in the same period as the hedged item affects profit or loss.
Where the hedged item results in a non-financial asset the accumulated gains
and losses previously recognised in other comprehensive income are included in
the initial carrying value of the asset.
(iii) Unhedged derivatives
The movements in the fair value of unhedged derivatives are charged/credited
to the income statement.
The potential cash payments relating to put options issued by the Group over
the non-controlling interest of subsidiary companies acquired are measured at
estimated fair value and accounted for as financial liabilities. Subsequent to
initial recognition, any changes to the carrying amount of non-controlling
interest put option liabilities are recognised through equity.
e. Cash and cash equivalents
Cash and cash equivalents comprise cash balances. Bank overdrafts that are
repayable on demand and form an integral part of the Group's cash management
are included as part of cash and cash equivalents in the statement of cash
flows.
f. Loans and borrowings
Loans and borrowings are initially measured at cost (which is equal to fair
value at inception) and are subsequently measured at amortised cost using the
effective interest method.
g. Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently
measured at amortised cost, which is generally equivalent to recognition at
nominal value less impairment loss calculated using the expected loss model.
The Group applies a simplified model to recognise lifetime expected credit
losses for its trade receivables and other receivables, including those due in
greater than twelve months, by making an accounting policy election. For any
receivables not expected to be paid, an expected credit loss of 100% is
recognised at the point this expectation arises. For all other receivables,
the expected loss is calculated based on reasonable and supportable
information that is relevant and available without undue cost or effort. This
includes both quantitative and qualitative information and analysis, based on
the Group's historical experience and informed credit assessment and including
forward‑looking information.
h. Trade and other payables
Trade payables are non-interest bearing and are recognised initially at fair
value and subsequently at amortised cost.
i. Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and impairment losses. Where parts of an item of property, plant and equipment
or other assets have different useful lives, they are accounted for as
separate items. The carrying values of property, plant and equipment and other
assets are periodically reviewed for impairment when events or changes in
circumstances indicate that the carrying values may not be recoverable.
Property, plant and equipment are depreciated over their estimated remaining
useful lives on a straight-line basis using the following estimated useful
lives:
Land and buildings
- Freehold land Not depreciated
- Buildings 25-30
years or life of lease
Plant and equipment 4-25 years
Fixtures and
fittings 3-5 years
Motor vehicles 4 years
The assets' useful lives and residual values are reviewed, and adjusted if
appropriate, at each balance sheet date. Included within plant and equipment
are assets with a range of depreciation rates. These rates are tailored to
the nature of the assets to reflect their estimated useful lives.
Where the Group identifies assets held for sale, they are held at the lower of
current value and fair value less costs to sell.
j. Lease liabilities and lease right-of-use assets
The Group leases various offices, warehouses, equipment and motor vehicles.
Rental contracts are typically made for fixed periods of one to 20 years but
may have extension options as described below. Lease terms are negotiated on
an individual basis and contain a wide range of different terms and
conditions. The lease agreements do not impose any covenants, but leased
assets may not be used as security for borrowing purposes.
Leases greater than twelve months in length, and those not of low value, are
recognised as a lease right‑of‑use asset with the associated future lease
payment terms recognised as a lease liability. The right-of-use assets and the
associated lease liabilities are recognised by unwinding the future lease
payments at the rate implicit to the lease or, if the rate implicit to the
lease cannot be readily determined, at the relevant incremental borrowing
rate.
Lease liabilities include the net present value of the following lease
payments:
· fixed payments (including in‑substance fixed payments), less any
lease incentives receivable;
· variable lease payments that are based on an index or a rate;
· amounts expected to be payable by the lessee under residual value
guarantees;
· the exercise price of a purchase option if the lessee is reasonably
certain to exercise that option; and
· payments of penalties for terminating the lease, if the lease term
reflects the lessee exercising that option.
The lease right-of-use assets are amortised over their useful economic lives
or the lease term, whichever is shorter. The lease liabilities are
derecognised by applying the future lease payments.
Extension and termination options are included in a number of property and
equipment leases across the Group. These terms are used to maximise
operational flexibility in terms of managing contracts. The majority of
extension and termination options held are exercisable only by the Group and
not by the respective lessor. In determining the lease term, management
considers all facts and circumstances that create an economic incentive to
exercise an extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in the lease
term if the lease is reasonably certain to be extended (or not terminated).
The assessment is reviewed if a significant event or a significant change in
circumstances occurs which affects this assessment and that is within the
control of the lessee.
Rentals associated with leases that are of low value or less than twelve
months in length are expensed to the income statement on a straight line
basis. The associated lease incentives are amortised in the income statement
over the life of the lease.
On acquisition, right-of-use assets and lease liabilities are recognised in
accordance with IFRS 16. The acquired lease liability is measured as if the
lease contract was a new lease at the acquisition date. The right‑of‑use
asset is measured at an amount equal to the recognised lease liability. The
right‑of‑use asset is adjusted to reflect any favourable or unfavourable
terms of the lease relative to market terms.
Right-of-use assets are impaired in line with the impairment accounting
policy below.
k. Intangible assets
(i) Goodwill
Goodwill is stated at cost less any impairment losses.
Acquisitions are accounted for using the purchase method. For acquisitions
that have occurred since 1 January 2004, goodwill represents the difference
between the fair value of the assets given in consideration and the fair value
of identifiable assets, liabilities and contingent liabilities of the
acquiree. For acquisitions made before 1 January 2004, goodwill is included
on the basis of its deemed cost, which represents the amount previously
recorded under UK GAAP.
The Group has expensed costs attributable to acquisitions in the income
statement. Given their one‑off nature, these costs are generally presented
within Adjusting items.
(ii) Acquired intangible assets
An intangible asset acquired in a business combination is recognised at fair
value to the extent it is probable that the expected future economic benefits
attributable to the asset will flow to the Group and that its cost can be
measured reliably. Intangible assets principally relate to customer
relationships, which are valued using discounted cash flows based on
historical customer attrition rates, and trade names/brand, which are valued
using an income approach. The cost of intangible assets is amortised through
the income statement on a straight line basis over their estimated useful
economic life and as these are assets directly attributed to the acquisition
of a business, the amortisation costs are also presented within Adjusting
items.
(iii) Other intangible assets
Other intangible assets which are not acquired through a business combination
are recognised at cost to the extent it is probable that the expected future
economic benefits attributable to the asset will flow to the Group and that
its cost can be measured reliably, and amortised on a straight line basis over
their estimated useful economic life.
Intangibles are amortised over their estimated remaining useful lives on
a straight-line basis as follows:
Goodwill
Not amortised
Computer
software 3-5
years
Trade names 3-5 years
Customer relationships 3-15 years
Other intangibles 3-5 years
Customer relationships are wide ranging in useful economic lives, from shorter
relationships derived from smaller acquisitions to the long relationship with
Walmart acquired as part of the acquisition of Impact Innovations, Inc.
('Impact').
l. Impairment
All assets are reviewed regularly to determine whether there is any indication
of impairment. Goodwill is tested for impairment annually.
An impairment loss is recognised whenever the carrying amount of a
non-financial asset or the cash‑generating unit ('CGU') to which it belongs
exceeds its recoverable amount, being the greater of value in use and fair
value less costs to sell, and is recognised in the income statement. Value in
use is estimated based on future cash flows discounted using a pre-tax
discount rate based upon the Group's weighted average cost of capital.
Financial assets are assessed for impairment using the expected credit loss
model which requires expected credit losses and changes to expected credit
losses at each reporting date to reflect changes in credit risk since initial
recognition.
The reversal of an impairment loss should be recognised if there has been a
change in the estimates used to determine the asset's recoverable amount since
the last impairment test was carried out. Impairment losses relating to
goodwill are not permitted to be reversed.
m. Inventories
Inventories are valued at the lower of cost (on a weighted average basis) and
net realisable value. For work‑in‑progress and finished goods, cost
includes an appropriate proportion of labour cost and overheads based on
normal operating capacity. For acquisitions, inventory acquired will be
assessed for fair value in accordance with IFRS 3 and if applicable an uplift
applied to stock on hand relating to sales orders already attached to the
acquired stock. The unwind of the uplift in value is treated as an Adjusting
item.
n. Income tax
Income tax in the income statement comprises current and deferred tax. Income
tax is recognised in the income statement except to the extent that it relates
to items recognised in equity or other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year
using the applicable tax rates enacted or substantively enacted at the balance
sheet date and any adjustment to tax payable in prior years. Deferred tax is
provided, using the balance sheet liability method, on temporary differences
arising between the tax bases and the carrying amounts of assets and
liabilities in the financial statements. The following temporary differences
are not provided for: initial recognition of goodwill not deductible for tax
purposes, the initial recognition of assets or liabilities that affect neither
accounting nor taxable profit or loss other than in a business combination,
and differences relating to investments in subsidiaries to the extent that
they will not reverse in the foreseeable future. Deferred tax is determined
using tax rates that are expected to apply when the related deferred tax asset
or liability is settled, using the applicable tax rates enacted or
substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profit will be available against which the asset can be
utilised. Deferred tax assets are impaired to the extent that it is no longer
probable that the related tax benefits will be realised.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against liabilities and when
they relate to income taxes levied by the same tax authority and the Group
intends to settle its current tax assets and liabilities on a net basis.
o. Revenue
Revenue from the sale of goods is recognised in the income statement net of
expected discounts, rebates, refunds, credits, price concessions or other
similar items, when the associated performance obligation has been satisfied,
and control of the goods has been transferred to the customer.
The Group recognises revenue on sales of Celebrations, Craft & creative
play, Stationery, Gifting and 'Not‑for‑resale' consumable products across
two reporting segments. Typically the products that we supply form the only
performance obligations within a customer agreement, and although the Group
can provide ancillary services such as merchandising, these are not separately
identifiable obligations. Each customer arrangement/contract is assessed to
identify the performance obligations being provided to the customer. Where
distinct performance obligations are deemed to exist, an element of revenue is
apportioned to that obligation.
Revenue from sales is recognised based on the price specified in the contract,
net of any estimated volume discounts, rebates and sell-through provisions.
Accumulated experience is used to estimate and provide for these discounts,
using the expected value method, and revenue is only recognised to the extent
that it is highly probable that a significant reversal will not occur. A
refund liability (included in trade and other payables) is recognised for
these items payable to customers based on sales made in the period. No
significant element of financing is deemed present as the sales are made with
credit terms of 30‑60 days, which is consistent with market practice.
A significant part of the Group's businesses sell goods on a
'free‑on‑board' (FOB) basis, where the Group as the seller makes its goods
ready for collection at its premises on an agreed upon sales date and the
buyer incurs all transportation and handling costs and bears the risks
for bringing the goods to their chosen destination. In this situation,
revenue is recognised on collection by the customer.
Where the Group operates non‑FOB terms with customers, revenue is recognised
when the control of the goods has been transferred to the customer. These
terms include consignment stock agreements, where revenue is recognised upon
the customer removing goods from consignment stock.
p. Finance income and expense
Finance income and expense is recognised in the income statement as it
accrues. Finance expenses comprise interest payable, finance charges on
finance leases, interest on lease liabilities, amortisation of capitalised
fees, and unwinding of discounts on provisions. Net movements in the fair
value of derivatives which have not been designated as an effective hedge, and
any ineffective portion of fair value movement on derivatives designated as a
hedge, are also included within finance income or expense.
q. Supplier financing
The Group is party to supplier financing arrangements with one of its key
customers. This arrangement is considered non-recourse factoring and on
receipt of payment from the banks the associated trade receivable is
derecognised in accordance with IFRS 9.
r. Segment reporting
A segment is identified on the basis of internal reports that are regularly
reviewed by the Board in order to allocate resources to the segment and assess
its performance.
s. Pensions
(i) Defined contribution schemes
Obligations for contributions to defined contribution pension schemes are
expensed to the income statement as incurred.
(ii) Defined benefit schemes
Two pension schemes, one of which is in the Netherlands and the other in the
UK, are defined benefit schemes.
The Netherlands subsidiary operates an industrial defined benefit fund, based
on average wages, that has an agreed maximum contribution. The pension fund is
a multi‑employer fund and there is no contractual or constructive obligation
for charging the net defined benefit cost of the plan to participating
entities other than an agreed maximum contribution for the period, that is
shared between employer (4/7) and employees (3/7).
The Dutch Government is not planning to make employers fund any deficits in
industrial pension funds; accordingly, the Group treats the scheme as a
defined contribution scheme for disclosure purposes. The Group recognises a
cost equal to its contributions payable for the period.
Following the acquisition of CSS, on 3 March 2020, the Group also administers
a defined benefit scheme in the UK.
The net obligation for this scheme is calculated by estimating the amount of
the future benefit that employees have earned in return for their service in
the current and prior periods; that benefit is discounted to determine its
present value, and the fair value of the scheme assets is deducted. The
calculation is performed by a qualified independent actuary.
t. Share-based payments
The cost of equity-settled transactions with employees is measured by
reference to the fair value of the options at the date on which they are
granted. The fair value is determined by using an appropriate pricing model.
The fair value cost is then recognised over the vesting period, ending on the
date on which the relevant employees become fully entitled to the award.
The quantum of awards expected to vest and the relevant cost charged is
reviewed annually such that at each balance sheet date the cumulative expense
is the relevant share of the expected total cost, pro-rated across the vesting
period.
No expense is recognised for awards that are not expected to ultimately vest,
for example due to an employee leaving or business performance targets not
being met. The annual expense for equity-settled transactions is recognised in
the income statement with a corresponding entry in equity.
In the event that any scheme is cancelled the Group recognises immediately the
amount that otherwise would have been recognised for services received over
the remainder of the vesting period. The Group calculates this charge based on
the number of the awards expected to achieve the performance conditions
immediately before the award was cancelled.
Employer social security charges are accrued, where applicable, at a rate
which management expects to be the prevailing rate when share‑based
incentives are exercised and is based on the latest market value of options
expected to vest or those already vested.
Deferred tax assets are recognised in respect of share-based payment schemes.
u. Investment in own shares
The shares held in the Group's Employee Benefit Trust (IG Employee Share
Trustee Limited) for the purpose of fulfilling obligations in respect of share
option plans are treated as belonging to the Company and are deducted from its
retained earnings. The cost of shares held directly (treasury shares) are also
deducted from retained earnings.
v. Provisions
A provision is recognised when there is a probable legal or constructive
obligation as a result of a past event and a reliable estimate can be made of
the outflow of resources that will be required to settle the obligation. If
the effect is material, provisions are determined by discounting the expected
future cash flows at a pre‑tax rate that reflects current market assessments
of the time value of money and, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision due to the
passage of time is recognised as borrowing costs.
w. Government grants
Government grants are recognised when it is reasonable to expect that the
grants will be received and that all related conditions will be met, usually
on submission of a valid claim for payment. Government grants in respect of
capital expenditure are included within the carrying amount of the related
property, plant and equipment, and are released to the income statement on a
straight line basis over the expected useful lives of the relevant assets.
Grants of a revenue nature, other than those associated with Covid-19, are
credited to the income statement so as to match them with the expenditure to
which they relate. Covid-19 related grants are recognised gross in either
other operating income or cost of sales.
x. Dividends
Dividends are recognised as a liability in the period in which they are
approved by the shareholders of the Company (final dividend) or paid (interim
dividend).
y. Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or
production of an asset that necessarily takes a substantial period of time to
get ready for its intended use or sale are capitalised as part of the cost of
the respective asset. Costs directly attributable to the arrangement of new
borrowing facilities are included within the fair value of proceeds received
and amortised over the life of the relevant facilities. Other borrowing costs,
which can include costs associated with the extension of existing facilities,
are expensed in the period they occur.
Borrowing costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds.
z. Use of non-GAAP measures
These financial statements include alternative performance measures ('APMs')
that are presented in addition to the standard GAAP metrics. The Directors
believe that these APMs provide important additional information regarding the
underlying performance of the business including trends, performance and
position of the Group. APMs are used to enhance the comparability of
information between reporting periods and segmental business units by
adjusting for factors which affect IFRS measures, to aid the understanding of
the Group's performance. Consequently, APMs are used by the Directors and
management for strategic and performance analysis, planning, reporting and
reward setting. The APMs are Adjusted EBITDA, Adjusted operating
profit/(loss), Adjusted profit/(loss) before tax, Adjusted profit/(loss) after
tax and Adjusted earnings/(loss) per share.
Adjusting items are items that are material and/or, in the judgement of the
Directors, of an unusual or non‑recurring nature. These items are adjusted
to present the performance of the business in a consistent manner and in line
with how the business is managed and measured on a day‑to‑day basis. They
are gains or costs associated with events that are not considered to form part
of the core operations, or are considered to be a non-recurring event
(although they may span several accounting periods) including fair value
adjustments to acquisitions.
Further detail of Adjusting items can be seen in note 3 to the financial
statements.
aa. Like-for-like comparators
Figures quoted at like-for-like exchange rates are calculated by retranslating
the prior year figures at the current year exchange rates.
Critical accounting judgements and estimates
The following provides information on those policies that management considers
critical because of the level of judgement and estimation required which often
involves assumptions regarding future events which can vary from what is
anticipated. The Directors believe that the financial statements reflect
appropriate judgements and estimates and provide a true and fair view of the
Group's performance and financial position.
The following are the critical judgements, apart from those involving
estimations (which are dealt with separately below), that the Directors have
made in the process of applying the Group's accounting policies and that have
the most significant effect on the amounts recognised in the financial
statements.
Accounting judgements
(i) Adjusting items
Judgement is required to determine whether items should be included within
Adjusting items by virtue of their size or incidence.
Specific judgements have been made in the estimates associated with Adjusting
items and further details of the items categorised as Adjusting items and how
estimates have been made are disclosed in note 3.
Accounting estimates
(i) Intangible assets
Goodwill is not amortised but is tested annually for impairment, along with
the finite-lived intangible assets and other assets of the Group's CGUs. Tests
for impairment are based on discounted cash flows and assumptions (including
discount rates and growth prospects) which are inherently subjective. An
estimate is also required in identifying the events which indicate potential
impairment, and in assessing fair value of individual assets when allocating
an impairment loss in a CGU or groups of CGUs. The Group performs various
sensitivity analyses in respect of the tests for impairment, as detailed in
note 9.
The useful lives of the Group's finite‑lived intangible assets are reviewed
following the tests for impairment annually.
Judgement and estimates may also be required in determining the fair value of
other assets acquired and liabilities (including contingent liabilities)
assumed.
(ii) Taxation
There are many transactions and calculations for which the ultimate tax
determination is uncertain. Estimates are required in determining the Group's
tax assets and liabilities. Deferred tax assets have been recognised to the
extent that they are recoverable based on profit projections for future years.
Management make a judgement in respect of the length of future cash flows
against which to assess the future taxable profits and this aligns to other
assessments that use similar forecasts including impairment. Income tax
liabilities for anticipated issues have been recognised based on estimates of
whether additional tax will be due. Notwithstanding the above, the Group
believes that it will recover certain tax assets within the Group and has
adequate provision to cover all tax risks across all business operations. See
note 11 for more details.
(iii) Lease asset impairments
The Group has impaired the right‑of‑use assets in respect of several
properties that the Group has exited as part of the ongoing integration
following the CSS acquisition. This is based on the properties themselves
being a CGU in line with IAS 36 as they are being actively marketed for
sub-tenants. The impairments are assessed at each reporting date and if
necessary reversed should there be available sub-tenants for the properties,
or an early termination had been agreed with the landlord.
As at 31 March 2022, the Group had offers agreed with sub-tenants on two of
the seven properties that had been impaired and a portion of another property
which terminated the lease earlier than the expiry date. This resulted in $2.5
million of impairment reversal in the year. For the remaining properties the
Group had no offers from potential sub-tenants and given that this position is
expected to continue for the foreseeable future, these leased properties
remain impaired in full. As at 31 March 2022, if there was a reversal of the
remaining impaired right-of-use assets, the right-of-use assets would increase
by $6.5 million (2021: $13.1 million).
(iv) Provision for slow moving inventory
The Group has guidelines for providing for inventory which may be sold below
cost due to its age or condition.
The Directors assess the inventory at each location and in some cases decide
that there are specific reasons to provide more than the guideline levels, or
less if there are specific action plans in place which mean the guideline
provision level is not required. Determining the level of inventory provision
requires an estimation of likely future realisable value of the inventory in
various time frames and comparing with the cost of holding stock for those
time frames. This is not a precise estimate and is based on best data at the
time of recognition. Regular monitoring of stock levels, the ageing of stock
and the level of the provision is carried out by the Directors to reassess
this estimate. The assumptions made in relation to the current period are
consistent with those in the prior year. As at 31 March 2022, inventory
provisions were $38.4 million against a gross inventory value of
$269.3 million (2021: $46.3 million provision, $222.5 million gross inventory
value). This provision estimate is subject to potential material change, for
example if market conditions change because expected customer demand
fluctuates, or shipping delays reduce our ability to deliver on time and in
full. A 10% change in the provision would create a difference of approximately
$4.0 million (2021: $4.0 million).
2 Segmental information
The Group has one material business activity, being the design, manufacture
and distribution of Celebrations, Craft & creative play, Stationery,
Gifting and 'Not-for-resale' consumable products.
The business operates under two reporting segments which are reported to, and
evaluated by, the Chief Operating Decision Makers for the Group. The DG
Americas segment includes overseas operations in Asia, Australia, UK, India
and Mexico, being the overseas entities of US companies. The DG International
segment comprises the consolidation of the separately owned UK, European and
Australian businesses.
Inter‑segment pricing is determined on an arm's length basis. Segment
results include items directly attributable to a segment as well as those that
can be allocated on a reasonable basis.
Financial performance of each segment is measured on Adjusted operating profit
before management recharges. Interest and tax are managed on a Group basis
and not split between reportable segments. However, the related financial
liability and cash has been allocated out into the reportable segments as this
is how they are managed by the Group.
Segment assets are all non-current and current assets, excluding deferred tax
and income tax, which are shown in the eliminations column. Inter-segment
receivables and payables are not included within segmental assets and
liabilities as they eliminate on consolidation.
DG DG Central and
Americas((a)) International eliminations Group
$000 $000 $000 $000
Year ended 31 March 2022
Revenue - external 658,953 306,140 - 965,093
- inter-segment 16 1,725 (1,741) -
Total segment revenue 658,969 307,865 (1,741) 965,093
Segment (loss)/profit before adjusting items and management recharge (11,738) 20,836 (5,290) 3,808
Adjusting items (note 3) 5,667 1,570 (3,353) 3,884
Operating (loss)/profit (6,071) 22,406 (8,643) 7,692
Finance expenses (5,105)
Finance expenses treated as an Adjusting item (note 3) (386)
Income tax (2,517)
Loss for the year ended 31 March 2022 (316)
Balances at 31 March 2022
Segment assets 451,270 237,625 18,181 707,076
Segment liabilities (212,083) (100,500) (24,783) (337,366)
Capital expenditure additions
- property, plant and equipment 5,237 2,860 43 8,140
- intangible assets 223 158 - 381
- right-of-use assets 4,331 4,850 - 9,181
Depreciation - property, plant and equipment 7,803 5,891 11 13,705
Reversal of impairment - property, plant and equipment - (327) - (327)
Amortisation - intangible assets 5,634 183 - 5,817
Depreciation - right-of-use assets 12,406 5,352 18 17,776
Impairment - right-of-use assets - - 22 22
Reversal of impairment - right-of-use assets (2,514) - - (2,514)
(a) Including overseas entities for the Americas operating segment.
DG DG Central and
Americas((a)) International eliminations Group
$000 $000 $000 $000
Year ended 31 March 2021
Revenue - external 613,909 259,307 - 873,216
- inter-segment 66 5,995 (6,061) -
Total segment revenue 613,975 265,302 (6,061) 873,216
Segment profit/(loss) before adjusting items and management recharge((b)) 19,934 24,968 (7,072) 37,830
Adjusting items((b)) (note 3) (18,599) 628 (5) (17,976)
Operating profit 1,335 25,596 (7,077) 19,854
Finance expenses (5,016)
Finance expenses treated as an Adjusting item (note 3) (163)
Income tax (4,234)
Profit for the year ended 31 March 2021 10,441
Balances at 31 March 2021
Segment assets 469,192 230,590 63,472 763,254
Segment liabilities (216,940) (86,553) (67,742) (371,235)
Capital expenditure additions
- property, plant and equipment 4,589 2,711 90 7,390
- intangible assets 963 37 - 1,000
- right-of-use assets 30,207 2,733 - 32,940
Depreciation - property, plant and equipment 7,760 5,774 1 13,535
Amortisation - intangible assets 6,510 408 - 6,918
Depreciation - right-of-use assets 12,739 5,265 74 18,078
Impairment - right-of-use assets 5,969 - - 5,969
(a) Including overseas entities for the Americas operating segment.
(b) The prior year comparatives above have been re-presented. For more
detail please refer to note 1.
· The Group has one customer that accounts for 23% (2021: 24%) of the
total Group revenues. In the year ended 31 March 2022 total sales to that
customer were $223.9 million (2021: $211.9 million). This customer falls
solely within the DG Americas operating segment above. No other single
customer accounts for over 10% of total sales.
· The assets and liabilities that have not been allocated to segments
include deferred tax assets of $16.3 million (2021: $18.4 million), income
tax receivable of $1.2 million (2021: $2.4 million), income tax payable of
$7.4 million (2021: $10.1 million) and deferred tax liabilities of $381,000
(2021: $2.1 million).
The Group's information about its segmental assets (non-current assets
excluding deferred tax assets and other long-term assets) and revenue by
customer destination are detailed below:
Non-current assets
2022 2021
$000 $000
DG Americas 166,823 184,331
DG International 106,217 114,126
273,040 298,457
Revenue by customer destination
2022 2021 2022 2021
$000 $000 % %
Americas 665,059 621,734 69 71
UK 112,539 97,383 12 11
Rest of the world 187,495 154,099 19 18
965,093 873,216 100 100
All revenue arose from the sale of goods.
3 Operating expenses and Adjusting items
Included in the income statement are the following charges/(credits):
2022 2021((a))
Note $000 $000
Depreciation of tangible fixed assets 8 13,705 13,535
Reversal of impairment of tangible fixed assets 8 (327) -
Depreciation of right-of-use assets 10 17,776 18,078
(Reversal of impairment)/impairment of right-of-use assets 10 (2,492) 5,969
(Profit)/loss on sales of property, plant and equipment and intangible assets (436) 256
Release of deferred grant income 5 17 (130)
Amortisation of intangible assets - software 9 2,980 3,840
Sub-lease rental income 5 (752) (559)
Write down of inventories to net realisable value 12 18,285 19,623
Reversal of previous write downs of inventory 12 (6,219) (4,472)
Loss/(income) foreign exchange 602 (483)
(a) The prior year comparatives above have been re-presented to include
Adjusting items in the various categories.
2022 2021((a))
$000 $000
Operating profit analysed as:
Adjusted operating profit 3,808 37,830
Adjusting items 3,884 (17,976)
Operating profit 7,692 19,854
(a) The prior year comparatives above have been re-presented. For more
detail please refer to note 1.
Adjusting items
Cost of Selling Admin Other operating Loss on disposal of Other
finance
sales expenses expenses income plant expenses Total
Year ended 31 March 2022 $000 $000 $000 $000 $000 $000 $000
Losses/(gains) and transaction costs relating to acquisitions and disposals of - - 3,710 - - (15) 3,695
businesses((1))
Acquisition integration and restructuring costs/(income)((2)) (980) - (1,336) (124) 348 401 (1,691)
(Reversal of impairment)/impairment of assets((3)) (1,544) (1,112) - - - - (2,656)
Incremental Covid-19 costs((4)) - - - - - - -
IT security incident (income)/costs((5)) - - (5,683) - - - (5,683)
Amortisation of acquired intangibles((6)) - - 2,837 - - - 2,837
Adjusting items (2,524) (1,112) (472) (124) 348 386 (3,498)
Other
Cost of Selling Admin Loss on finance
sales expenses expenses disposal expenses Total
Year ended 31 March 2021 $000 $000 $000 $000 $000 $000
Losses/(gains) and transaction costs relating to acquisitions and disposals of
businesses((1)) - - 74 208 - 282
Acquisition integration and restructuring costs/(income)((2)) 993 (162) 14,402 91 163 15,487
(Reversal of impairment)/impairment of assets((3)) (3,709) (2,100) - - - (5,809)
Incremental Covid-19 costs((4)) 603 - 913 - - 1,516
IT security incident costs((5)) 1,107 - 1,093 - - 2,200
Amortisation of acquired intangibles((6)) - - 4,463 - - 4,463
Adjusting items((a)) (1,006) (2,262) 20,945 299 163 18,139
(a) The prior year comparatives above have been re-presented. For more
detail please refer to note 1.
Adjusting items are separately presented by virtue of their nature, size and
incidence. These items are material items of an unusual or non-recurring
nature which represent gains or losses and are presented to allow for the
review of the performance of the business in a consistent manner and in line
with how the business is managed and measured on a day-to-day basis and allow
the reader to obtain a clearer understanding of the underlying results of the
ongoing Group's operations. They are typically gains or costs associated with
events that are not considered to form part of the core operations, or are
considered to be a 'non-recurring' event (although they may span several
accounting periods) including fair value adjustments to acquisitions.
These losses/(gains) relating to the year ended 31 March 2022 are broken down
as follows:
(1) Losses/(gains) and transaction costs relating to acquisitions and
disposals of businesses
Costs directly associated with acquisitions, including legal and advisory fees
on deals, form part of our reported results on an IFRS basis. These costs
however, in the Board's view, form part of the capital transaction, and as
they are not attributed to investment value under IFRS 3, they are included as
an Adjusting item. Similarly, where acquisitions have employee related
payments (exclusive of Long Term Incentive Plans) which lock in and
incentivise legacy talent, we also include these costs as Adjusting items.
Furthermore, gains or losses on the disposal of businesses, including any
transaction costs associated with the disposal, are treated as Adjusting
items.
In the year, the Group has incurred expenditure relating to acquisitions
totalling $3.7 million, of which $113,000 related to previous acquisitions and
the balance relates to aborted acquisitions. In addition, the final tranche of
acquisition related employee payments which lock in and incentivise legacy
talent relating to the Impact Innovations Inc. transaction in 2019 have been
incurred ($278,000) as we celebrate our third anniversary of the acquisition.
In the year to 31 March 2021 an additional $208,000 of transaction costs
associated with the disposal on 24 February 2020 of Zhejiang Shaoxing Royal
Arts and Crafts Co. Ltd ('Shaoxing') were incurred along with expenditure in
relation to other potential acquisitions reviewed in that year.
(2) Acquisition integration and restructuring costs/(income)
In order to realise synergies from acquisitions, integration projects are
undertaken that aim to deliver future savings and efficiencies for the Group.
These are projects outside of the normal operations of the business and
typically incur one-time costs to ensure successful implementation. As such,
the Board considers it is appropriate that costs associated with projects of
this nature be included as Adjusting items.
The main activity in the year related to the integration of CSS into the
enlarged DG Americas business.
The CSS business includes a large portfolio of owned and leased sites, and
part of the integration project includes the consolidation of these locations.
As certain sites were closed and exited since acquisition, in the absence of
being able to sub-lease or break leases this resulted in impairments of lease
assets in the prior financial year. In the year we were able to partially exit
some of the property we lease in Budd Lake, New Jersey as well as sub-lease
our sites in Plymouth Meeting, Philadelphia and Midway, Georgia. This has
resulted in a reversal of the lease asset impairments and associated
provisions for costs to run the exited sites of $2.8 million going through
Adjusting items. Ongoing costs including associated right-of-use asset
depreciation and lease liability interest relating to all of the properties we
have exited continue to be treated as Adjusting items.
In respect of the remaining vacant leased properties, marketing for
sub-tenancy is ongoing. As at 31 March 2022, the Group has had no offers from
potential subtenants and given that in the Directors' opinion there is no
realistic prospect of subleasing in the foreseeable future, these leased
properties remain impaired in full. As at 31 March 2022, if there was a
reversal of the remaining right-of-use assets, the right-of-use assets would
increase by $6.5 million (2021: $13.1 million).
Other costs associated with the ongoing consolidation of operations around the
Group, have been incurred including the enlarged printing and converting
business moving from Memphis to a larger facility in Byhalia, Mississippi that
also houses distribution. In addition, costs associated with the exit of the
owned property in Manhattan, Kansas to consolidate our pattern printing
facilities into one site have been incurred. The total costs associated with
this integration was $1.1 million.
The remaining costs incurred in the year relate to severance costs associated
with the wider DG Americas restructure programme.
The main costs in the year to 31 March 2021 also related to the integration of
CSS into the enlarged DG Americas business. These included integration
consultancy expenditure, severance and temporary labour costs, as the newly
integrated team structures following the acquisition were established, and the
impact of the impairment of the lease assets and costs associated with the
closure of excess sites.
The tax refund as a result of the US Covid-19 Coronavirus Aid, Relief and
Economic Security ('CARES') Act attracted interest income which was recognised
in Adjusting items in the prior year.
Furthermore, in the UK and Australia, as a result of Covid-19, workforce
restructuring costs were treated as Adjusting items in the year to 31 March
2021.
(3) (Reversal of impairment)/impairment of assets
In light of the impact of Covid-19 on the business, a review of inventory,
trade receivables and fixed assets was undertaken as at 31 March 2020 at the
onset of the pandemic. Inventories were assessed at 31 March 2020 for the net
realisable value and an impairment of $7.4 million was taken. Similarly trade
receivables were assessed for their expected credit loss in line with IFRS 9
and an impairment of $3.8 million was taken. Finally the UK's bag line
machines were impaired based on expected future cash flows associated with the
'not-for-resale' business.
During the year, the $2.7 million credit relates solely to reversal of
impairments no longer required.
As at 31 March 2022, for inventory, $1.6 million of the impairment brought
forward has been utilised (based on sell-through of the impaired products),
with $1.2 million being reversed through Adjusting items as the inventory has
been sold or committed to sale at a higher than expected price. As at 31 March
2022, $362,000 remains reserved for inventory that will be scrapped post year
end.
Similarly for trade receivables, $332,000 in total has been utilised, and $1.1
million reversed as it is no longer required as the reserved customers have
been able to pay. As at 31 March 2022, a very small amount remains ($43,000)
relating to specific debtors that have been put into administration.
The UK bag line machines were reassessed in accordance with IAS 36 to
determine whether the impairment has decreased or no longer exists. In light
of the expected future sales increases in the 'not-for-resale' business in the
UK, a reversal of the impairment has been put through Adjusting items as at 31
March 2022. The reversed amount of $327,000 is based on the net book value of
the assets as at the reversal date.
As at 31 March 2021, $2.4 million of the trade receivables impairment was
reversed as it was no longer required and following a review of sell-through
rates in respect of inventory, $4.0 million was released. These releases were
partially offset by $599,000 of additional Covid-19 related impairment charges
taken during the year.
(4) Incremental Covid-19 costs
The Covid-19 outbreak developed rapidly in 2020 and continued into 2021, with
measures taken around the world to contain the virus affecting economic
activity. The Group was affected in every territory in which we operate and
the impact on the general economic environment and the reduced demand of goods
from our customers as well as the closures of our businesses has had a
significant impact. Certain incremental costs relating to the pandemic equal
to $1.5 million were included in Adjusting items in the year to 31 March 2021.
The most significant element of these costs relate to additional 'hazard pay'
labour costs across our manufacturing facilities in the USA and Mexico in
order to ensure our employees returned to work. In addition to this the
business incurred direct incremental costs of $0.6 million.
In addition, laws were passed in India and Mexico that meant no workforce
reductions were allowed during closed/lockdown periods which meant higher
employee costs were being incurred than ordinarily would have in that
situation. This resulted in the business incurring direct incremental costs of
labour whilst not producing anything and incurring periods of significant
downtime. When employees returned to work post lockdown labour costs were paid
again once production started, effectively doubling the costs to produce.
(5) IT security incident (credits)/costs
The IT security incident which occurred in DG Americas in October/November
2020 resulted in one-off costs being incurred during the year ended 31 March
2021 which were treated as Adjusting items at the time to the value of $2.2
million. This did not include the lost profits incurred as a result of
downtime in the business for which an insurance claim was made. During the
year insurance pay-outs were received from two different insurers, totalling
$5.7 million. This has been taken to Adjusting items net of a small amount
relating to advisor costs associated with the claim.
(6) Amortisation of acquired intangibles
Under IFRS, as part of the acquisition of a company, it is necessary to
identify intangible assets such as customer lists and trade names which form
part of the intangible value of the acquired business but are not part of the
acquired balance sheet. These intangible assets are then amortised to the
income statement over their useful economic lives. These are not operational
costs relating to the running of the acquired business and are directly
related to the accounting for the acquisition. These include tradenames and
brands acquired as part of the acquisition of Impact and CSS in the USA. As
such we include these as Adjusting items. Note that the trade names acquired
as part of the acquisition of Biscay Pty Greetings Ltd in Australia were fully
amortised in the prior year.
In addition, in accordance with IFRS 3, on acquisition, businesses need to be
fair valued, which can result in an uplift to stock on hand relating to sales
orders already attached to the acquired stock. This uplift will distort the
margins associated with the stock, and typically unwinds quickly as stock is
sold soon after acquisition. The unwind of the stock uplift ($1.4 million)
associated with the CSS acquisition was included as an Adjusting item,
consistent with the treatment adopted with the Impact acquisition. This fully
unwound as at 31 March 2021.
The cash flow effect of Adjusting items
There was $6.2 million net outflow in the current year cash flow (2021:
$666,000 restated) relating to Adjusting items. $3.3 million of the current
year's outflow was deferred from the prior year. In the prior year the net
outflow included an inflow relating to the US tax NOL refunds received in the
year, as well as an outflow of $6.4 million deferred from the year before.
Auditor's remuneration:
2022 2021
$000 $000
Amounts receivable by auditor and its associates in respect of:
Audit of these financial statements 1,021 947
Audit of financial statements of subsidiaries pursuant to legislation
- Overseas subsidiaries 87 182
- UK subsidiaries 103 88
Other audit related services 80 65
Taxation compliance services - 498
All other taxation advisory services - 114
4 Staff numbers and costs
The average monthly number of persons employed by the Group (including
Directors) during the year, analysed by category, was as follows:
Number of employees
2022 2021((a))
Selling and administration 1,264 1,244
Production and distribution 2,051 2,349
Temporary and agency staff 747 574
4,062 4,167
(a) Production and distribution numbers in the prior year have been
re-presented for 500 temporary employees included within them relating to our
Huizhou manufacturing site. The prior year has also been re-presented to show
temporary and agency employees across the Group.
The aggregate payroll costs of these persons were as follows:
2022 2021((a))
Note $000 $000
Wages and salaries 159,197 149,732
Share-based payments 23 (848) 4,192
Social security costs 14,123 13,114
Other pension costs 3,300 2,835
Temporary employee costs 20,057 10,311
195,829 180,184
(a) Wages and salaries in the prior year have been re-presented to
exclude temporary employee costs included within them ($2.7 million) relating
to our Huizhou manufacturing site. The prior year has also been re-presented
to show the total costs associated with all temporary and agency employees
across the Group.
For information on Directors' remuneration please refer to the section titled
'Directors' remuneration' within the Directors' remuneration report within the
Group's audited financial statements.
5 Other operating income
2022 2021
$000 $000
Grant income (17) 130
Sub-lease rental income 628 559
Government assistance 125 3,263
Other 10 114
Other operating income before Adjusting items 746 4,066
Adjusting items (note 3) 124 -
870 4,066
6 Finance expenses
2022 2021
$000 $000
Interest payable on bank loans and overdrafts 598 569
Other similar charges 1,352 1,036
Lease liability interest 3,078 3,334
Unwinding of fair value discounts 80 79
Interest payable under the effective interest method 5,108 5,018
Derivative financial instruments at fair value through the income statement (3) (2)
Finance expenses before Adjusting items 5,105 5,016
Adjusting items (note 3) 386 163
5,491 5,179
7 Taxation
Recognised in the income statement
2022 2021
$000 $000
Current tax charge/(credit)
Current year 3,898 6,077
Adjustments in respect of previous years (12) (73)
3,886 6,004
Deferred tax charge/(credit)
Derecognition of deferred tax assets 2,308 -
Origination and reversal of temporary differences (3,664) (1,724)
Adjustments in respect of previous periods (13) (46)
(1,369) (1,770)
Total tax in income statement 2,517 4,234
Total tax charge/(credit) on Adjusting items
Total tax on profit before Adjusting items((a)) 3,333 8,830
Total tax on Adjusting items((a)) (816) (4,596)
Total tax charge in income statement 2,517 4,234
(a) The prior year comparatives above have been re-presented. For more
detail please refer to note 1.
Reconciliation of effective tax rate
2022 2021
$000 $000
Profit before tax 2,201 14,675
Profit before tax multiplied by the standard rate of corporation tax rate
of 19% in the UK (2021: 19%) 418 2,788
Effects of:
Income not taxable (320) (184)
Expenses not deductible for tax purposes 94 568
Derecognition of deferred tax assets 2,308 -
Effect of tax rate changes (170) -
Differences between UK and overseas tax rates 946 1,290
Movement in uncertain tax provisions (1,531) 175
Other items (182) (284)
Adjustments in respect of previous periods (25) (119)
Current year losses for which no deferred tax asset is recognised 979 -
Total tax charge in income statement 2,517 4,234
8 Property, plant and equipment
Land and buildings Plant and Fixtures and Motor
Freehold Leasehold equipment fittings vehicles Total
$000 $000 $000 $000 $000 $000
Cost
Balance at 1 April 2020 46,189 4,331 102,989 9,332 2,199 165,040
Additions 146 1,118 3,200 2,797 129 7,390
Transfer between categories - - 2,279 (2,279) - -
Disposals - (61) (203) (528) (195) (987)
Effect of movements in foreign exchange 2,179 183 5,928 567 262 9,119
Balance at 1 April 2021 48,514 5,571 114,193 9,889 2,395 180,562
Additions 625 842 5,719 844 110 8,140
Transfer to Asset held for sale (2,150) - (664) - - (2,814)
Transfer to intangible fixed assets - - - (156) - (156)
Disposals (54) (764) (3,878) (3,097) (53) (7,846)
Effect of movements in foreign exchange (1,357) 43 (2,544) (134) (61) (4,053)
Balance at 31 March 2022 45,578 5,692 112,826 7,346 2,391 173,833
Depreciation and impairment
Balance at 1 April 2020 (14,937) (2,802) (47,538) (6,731) (1,288) (73,296)
Depreciation charge for the year (1,874) (773) (8,353) (2,231) (304) (13,535)
Transfers between fixed asset categories - - (1,806) 1,806 - -
Disposals - 30 96 376 173 675
Effect of movements in foreign exchange (1,378) (167) (4,065) (426) (167) (6,203)
Balance at 1 April 2021 (18,189) (3,712) (61,666) (7,206) (1,586) (92,359)
Depreciation charge for the year (2,027) (990) (9,068) (1,377) (243) (13,705)
Reversal of impairment in the year - - 327 - - 327
Reclassification between categories (327) - 136 265 (74) -
Transfers from intangible fixed assets - - - (30) - (30)
Disposals 53 739 3,411 3,182 20 7,405
Transfer to Asset held for sale - - 664 - - 664
Effect of movements in foreign exchange 818 (57) 1,785 188 42 2,776
Balance at 31 March 2022 (19,672) (4,020) (64,411) (4,978) (1,841) (94,922)
Net book value
At 31 March 2022 25,906 1,672 48,415 2,368 550 78,911
At 31 March 2021 30,325 1,859 52,527 2,683 809 88,203
During the year a property in Manhattan, Kansas with a net book value of $2.2
million has been reclassified to Assets held for sale. The sale completed on
28 April 2022 (see note 28 for further details).
Depreciation is charged to cost of sales, selling costs or administration
costs within the income statement depending on the department to which the
assets relate.
Security
Certain freehold properties with a cost of $13.9 million in the UK are subject
to a fixed charge in support of the banking facility.
9 Intangible assets
Computer Trade Customer Other
Goodwill software names relationships intangibles Total
$000 $000 $000 $000 $000 $000
Cost
Balance at 1 April 2020 97,374 13,378 5,212 23,921 164 140,049
Additions - 1,000 - - - 1,000
Disposals - (153) - - - (153)
Effect of movements in foreign exchange 4,910 316 50 180 14 5,470
Balance at 1 April 2021 102,284 14,541 5,262 24,101 178 146,366
Additions - 381 - - - 381
Transfer from fixed assets - 156 - - - 156
Disposals - (484) - - - (484)
Effect of movements in foreign exchange (2,216) (101) (4) (15) (7) (2,343)
Balance at 31 March 2022 100,068 14,493 5,258 24,086 171 144,076
Amortisation and impairment
Balance at 1 April 2020 (13,008) (4,232) (2,177) (4,277) (141) (23,835)
Amortisation charge for the year - (3,840) (1,057) (2,021) - (6,918)
Disposals - 47 - - - 47
Effect of movements in foreign exchange (311) (265) (47) (155) (8) (786)
Balance at 1 April 2021 (13,319) (8,290) (3,281) (6,453) (149) (31,492)
Amortisation charge for the year - (2,980) (1,034) (1,803) - (5,817)
Transfer to fixed assets - 30 - - - 30
Disposals - 317 - - - 317
Effect of movements in foreign exchange 168 89 5 15 7 284
Balance at 31 March 2022 (13,151) (10,834) (4,310) (8,241) (142) (36,678)
Net book value
At 31 March 2022 86,917 3,659 948 15,845 29 107,398
At 31 March 2021 88,965 6,251 1,981 17,648 29 114,874
Computer software relates to purchased software and people costs associated
with the implementation of software.
The aggregate carrying amounts of goodwill allocated to each CGU are as
follows:
2022 2021
$000 $000
UK and Asia 33,618 35,240
Europe 6,688 7,056
USA 42,872 42,872
Australia 3,739 3,797
86,917 88,965
All goodwill balances have arisen as a result of acquisitions and are not
internally generated.
Impairment
The Group tests goodwill each year for impairment, or more frequently if there
are indications that goodwill might be impaired.
For the purposes of impairment testing, goodwill has been allocated to the
business unit, or group of business units, that are expected to benefit from
the synergies of the combination, which represents the lowest level within the
Group at which the goodwill is monitored for internal management purposes and
is referred to below as a CGU. The recoverable amounts of CGUs are determined
from the higher of value in use and fair value less costs to sell.
The Group has prepared budgets and forecasts for each CGU for the next three
years and these have been reviewed by the Board. The key assumptions in those
forecasts are sales, margins achievable and overhead costs, which are based on
past experience, more recent performance and future expectations. The
potential impacts of climate change are not currently considered a key
assumption within the relevant future cash flows as the Group is at a
relatively early stage of its climate change journey. Therefore, there are no
material risks or opportunities which should be included in the relevant
future cash flows and any future impacts of climate change are not expected to
have a material impact on the carrying value of goodwill.
The Group then extrapolates cash flows for the following two years based on
the long-term growth rates applicable to the relevant territories (shown
below) to determine the discounted cash flows for five years plus a terminal
value for each CGU.
The Group's post‑tax weighted average cost of capital ('WACC') is 7.6%
(2021: 6.8%). This has been compared to other similar companies and is
believed to be appropriate by the Directors.
The CGUs use the following pre-tax discount rates which are derived from an
estimate of the Group's post-tax WACC adjusted for the relevant tax rate for
each CGU.
Pre-tax discount rates used were:
2022 2021
UK and Asia 9.5% 9.1%
Europe 10.0% 9.5%
USA 10.1% 9.5%
Australia 10.8% 10.2%
Long term growth rates used were:
2022 2021
UK and Asia 2.0% 1.0%
Europe 1.5% 1.0%
USA 1.6% 1.0%
Australia 2.2% 1.0%
In all businesses, the carrying value of the goodwill was supported by the
recoverable amount. The Directors do not believe a reasonably possible change
to the assumptions would give rise to an impairment. The Directors have
considered a 2% movement in the discount rate, a forecast including cash flow
contingencies and a 0% growth rate assumption (for years four, five and the
terminal value). With these changes in assumptions there is still comfortable
headroom and no indication of impairment.
The base case valuation for UK and Asia shows a recoverable amount of $103.7
million, on an asset base of $71.8 million (of which goodwill is $33.6
million), resulting in headroom of $31.9 million available. This is the lowest
headroom of all the CGUs. The cash flows in this base case forecast would need
to be 23% lower throughout the forecasted period to trigger an impairment,
with all other assumptions being the same.
10 Right-of-use assets and lease liabilities
Right-of-use assets
Land and Plant and Motor Office
buildings machinery vehicles equipment Total
$000 $000 $000 $000 $000
Net book value at 1 April 2020 80,128 1,554 530 530 82,742
Additions 32,016 298 223 403 32,940
Disposals - - (17) - (17)
Depreciation charge (16,754) (629) (379) (316) (18,078)
Impairment (5,969) - - - (5,969)
Effect of movements in foreign exchange 3,467 73 23 199 3,762
Net book value at 1 April 2021 92,888 1,296 380 816 95,380
Additions 8,510 256 284 131 9,181
Disposals (1,231) - - - (1,231)
Transfers between categories (109) 1 (11) 119 -
Depreciation charge (16,718) (498) (290) (270) (17,776)
Reversal of impairment 2,492 - - - 2,492
Effect of movements in foreign exchange (1,263) (63) 25 (14) (1,315)
Net book value at 31 March 2022 84,569 992 388 782 86,731
Additions include lease modifications and extensions of $5.4 million (2021:
$2.4 million).
Income statement
The income statement shows the following charges/(credits) relating to leases:
2022 2021
$000 $000
Interest expense (included in finance expenses) 3,479 3,685
Depreciation charge 17,776 18,078
(Reversal of impairment)/impairment (2,492) 5,969
Expense relating to short-term leases 126 153
Of the interest expense detailed above $401,000 (2021: $351,000) has been
treated as an Adjusting item as it relates to exited properties from the DG
Americas integration.
Low-value lease costs were negligible in the year.
At 31 March 2022, the Group had estimated lease commitments for leases not yet
commenced of $nil (2021: $1.4 million).
Movement in lease liabilities
2022 2021
$000 $000
Balance at 1 April (113,922) (95,413)
Cash flow - financing activities 20,717 19,184
Additions (9,353) (33,200)
Disposals 1,280 17
Effect of movements in foreign exchange 1,435 (4,510)
Balance at 31 March (99,843) (113,922)
Total cash outflow in relation to leases is as follows:
2022 2021
$000 $000
Included in financing activities - payment of lease liabilities 20,717 19,184
Included in interest and similar charges paid 3,479 3,685
Short-term leases 126 130
24,322 22,999
Commitments for minimum lease payments in relation to non-cancellable low
value or short term leases are payable as follows:
2022 2021
$000 $000
Less than one year 126 153
Between one and five years - -
More than five years - -
126 153
Income from sub-leasing right-of-use assets
During the year sub-lease income from right-of-use assets was as follows:
2022 2021
$000 $000
Sub-lease income in the year from sub-leasing right-of-use assets 752 559
Of the sub-lease income detailed above $124,000 (2021: $nil) has been treated
as an Adjusting item as relates to exited properties from the DG Americas
integration.
Non-cancellable operating lease rentals are receivable as follows:
2022 2021
$000 $000
Less than one year 422 466
Between one and five years 1,542 348
1,964 814
11 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Property, plant
and equipment Tax losses
and intangible carried Share-based Doubtful Other timing
assets forward payments debts differences((a)) Total
$000 $000 $000 $000 $000 $000
At 1 April 2020 5,413 4,694 1,496 3,957 (2,051) 13,509
Credit/(charge) to income statement 96 3,146 33 (2,611) 1,106 1,770
(Charge)/credit to equity (134) 551 155 8 383 963
At 31 March 2021 5,375 8,391 1,684 1,354 (562) 16,242
Deferred tax liabilities (1,834) - (3) - (4,968) (6,805)
Deferred tax assets 7,209 8,391 1,687 1,354 4,406 23,047
5,375 8,391 1,684 1,354 (562) 16,242
Property, plant
and equipment Tax losses
and intangible carried Share-based Doubtful Other timing
assets forward payments debts differences((a)) Total
$000 $000 $000 $000 $000 $000
At 1 April 2021 5,375 8,391 1,684 1,354 (562) 16,242
(Charge)/credit to income statement (1,659) (77) (956) (1,348) 5,409 1,369
Credit/(charge) to equity 33 (745) (728) - (235) (1,675)
At 31 March 2022 3,749 7,569 - 6 4,612 15,936
Deferred tax liabilities (335) - - - (90) (425)
Deferred tax assets 4,084 7,569 - 6 4,702 16,361
3,749 7,569 - 6 4,612 15,936
(a) Other timing differences include a deferred tax asset closing
balance of $0.6 million (2021: $4.1 million liability) in respect of provision
for inventory and $3.4 million (2021: $3.1 million) in respect of leases.
Deferred tax is presented net on the balance sheet in so far as a right of
offset exists. The net deferred tax asset is $16.3 million (2021: $18.4
million) and the net deferred tax liability is $381,000 (2021: $2.1 million).
Deferred tax assets and liabilities are treated as non-current as it is
expected that they will be recovered or settled more than twelve months after
the reporting date.
The deferred tax asset in respect of tax losses carried forward at 31 March
2022 of $7.6 million (2021: $8.4 million) comprises deferred tax assets in
relation to UK tax losses of $nil (2021: $3.3 million), US tax losses of $7.2
million (2021: $5.0 million) and Asia tax losses of $337,000 (2021: $156,000).
All of these recognised tax losses may be carried forward indefinitely. The
deferred tax assets have been recognised in the territories where the Board
considers there is sufficient evidence that taxable profits will be available
against which the tax losses can be utilised. The key assumptions in those
forecasts are sales, margins achievable and overhead costs, which are based on
past experience, more recent performance and future expectations. The Group
then extrapolates cash flows for the following two years based on the
long-term growth rates applicable to the relevant territories. Based on this
assessment the Board expects that these tax losses will be recoverable against
future profits.
During the year, all previously recognised deferred tax assets in the UK were
derecognised. The derecognition has occurred as a result of the assessment of
future taxable profits (which is as a result of the growing costs in IG Design
Group plc) against which the asset could unwind.
In the UK there are gross temporary differences of $100,000 (2021: $nil) and
unused tax losses, with no expiry date, of $20.8 million (2021: $4.7 million)
on which deferred tax assets have not been provided.
In the DG Americas segment there are gross temporary differences of $59.6
million (2021: $76.4 million) and unused tax losses, with no expiry date, of
$25.0 million (2021: $23.0 million) on which deferred tax assets have not been
provided. This is as a result of restrictions under the US change in ownership
rules following the acquisition of CSS in 2020.
A deferred tax liability of $88,000 (2021: $101,000) has been recognised in
relation to the tax cost of remitting earnings (forecast dividends) from China
to the UK. No other deferred tax liability has been recognised on unremitted
earnings of the overseas subsidiaries as, if all unremitted earnings were
repatriated with immediate effect, no other tax charge would be payable.
The standard rate of corporation tax in the Netherlands increased from 25% to
25.8% effective from 1 January 2022 and therefore the deferred tax balances in
the Netherlands were remeasured to 25.8%. The standard rate of corporation tax
in the UK will rise to 25% effective from 1 April 2023. Given that no deferred
tax is recognised in the UK, this does not impact the deferred tax measurement
at the balance sheet date.
Included within current tax liabilities is $4.5 million (2021: $6.1 million)
in respect of uncertain tax positions. These risks arise because the Group
operates in a complex multinational tax environment. The amount consists of
various tax risks which individually are not material. The position is
reviewed on an ongoing basis and generally these tax positions are released
at the end of the relevant territories' statute of limitations. During the
year, there has been a decrease in the Group's total provision in respect of
uncertain tax positions of $1.5 million, the majority of which relates to the
reassessment of acquisition related tax risks and has been treated as an
Adjusting item.
A deferred tax charge of $1.5 million was recognised through the statement of
changes in equity as a result of the derecognition of deferred tax asset
balances in relation to share-based payments and IFRS 16 adoption which were
initially recognised through the statement of changes in equity in previous
years. In the prior year, a deferred tax credit of $214,000 was recognised
through the statement of changes in equity in respect of share‑based
payments. There are no deferred tax balances with respect to cash flow hedges.
12 Inventory
2022 2021
$000 $000
Raw materials and consumables 37,586 23,219
Work in progress 28,925 27,632
Finished goods 164,374 125,314
230,885 176,165
During the year, materials, consumables, changes in finished goods and work in
progress of $701.1 million (2021: $613.3 million) were recognised as an
expense during the year and included in cost of sales.
Inventories have been assessed as at 31 March 2022 and overall an expense of
$12.1 million has been recognised in the year. This consists of an impairment
of $18.3 million (2021: $19.6 million) which has been taken to reduce the
value of inventories to net realisable value. In addition to this, inventories
have been increased by previous Covid-19 write downs which have been reversed
of $1.2 million (2021: $4.0 million). The impairment expense in the year has
been reduced by the reversal of previous write downs amounting to $5.0 million
(2021: $0.4 million) due to inventory either being used or sold.
13 Long-term assets and trade and other receivables
2022 2021
$000 $000
Acquisition indemnities 990 856
UK pension surplus (note 23) - 676
Security deposits 1,607 1,011
Insurance related assets 2,508 3,178
5,105 5,721
Acquisition indemnities relate to previous acquisitions made by CSS and
indemnities provided by the seller. Security deposits relate to leased
properties and insurance related assets including a corporate owned life
insurance policy.
Trade and other receivables are as follows:
2022 2021
$000 $000
Trade receivables 115,317 115,858
Prepayments, other receivables and accrued income 11,627 13,066
VAT receivable 906 295
127,850 129,219
The Group has receivable financing arrangements in Hong Kong. None of this
facility was drawn at 31 March 2022 (2021: $nil). The Group is party to
supplier financing arrangements with one of its key customers and the
associated balances are recognised as trade receivables until receipt of the
payment from the bank, at which point the receivable is derecognised. At 31
March 2022, $6.0 million had been drawn down on this arrangement (2021: $4.1
million).
Please see note 15 for more details of the banking facilities.
There are no trade receivables in the current year (2021: $nil) expected to be
recovered in more than twelve months.
The Group's exposure to credit and currency risks and provisions for doubtful
debts related to trade and other receivables is disclosed in note 24.
14 Cash and cash equivalents/bank overdrafts
2022 2021
$000 $000
Cash and cash equivalents 50,179 132,760
Bank overdrafts (20,380) (57,033)
Cash and cash equivalents and bank overdrafts per cash flow statement 29,799 75,727
Net cash
2022 2021
$000 $000
Cash and cash equivalents 29,799 75,727
Loan arrangement fees 360 723
Net cash as used in the financial review cash flow statement 30,159 76,450
The Group's exposure to interest rate risk and sensitivity analysis for
financial assets and liabilities are disclosed in note 24.
The bank loans and overdrafts are secured by a fixed charge on certain of the
Group's land and buildings, a fixed charge on certain of the Group's book
debts and a floating charge on certain of the Group's other assets. See note
15 for further details of the Group's loans and overdrafts.
Changes in net cash
Loan Other assets
Loans and arrangement cash/bank
borrowings fees Sub-total overdrafts Total
$000 $000 $000 $000 $000
Balance at 1 April 2020 (987) 1,209 222 52,197 52,419
Cash flows 1,158 - 1,158 24,777 25,935
Effect of other items
Amortisation of loan arrangement fees - (588) (588) - (588)
Effect of movements in foreign exchange (171) 102 (69) (1,247) (1,316)
Balance at 1 April 2021 - 723 723 75,727 76,450
Cash flows - 494 494 (48,165) (47,672)
Effect of other items
Amortisation of loan arrangement fees - (824) (824) - (824)
Effect of movements in foreign exchange - (33) (33) 2,237 2,205
Balance at 31 March 2022 - 360 360 29,799 30,159
15 Loans and borrowings
This note provides information about the contractual terms of the Group's
interest-bearing loans and borrowings. For more information about the Group's
exposure to interest rate and foreign currency risk, see note 24.
2022 2021
$000 $000
Non-current liabilities
Secured bank loans - -
Loan arrangement fees (20) (103)
(20) (103)
Current liabilities
Current portion of secured bank loans - -
Loan arrangement fees (340) (620)
(340) (620)
Secured bank loans
The Group maintains its banking facilities through a club of five banks chosen
to reflect and support the geographical spread of the Group. The banks within
the club are HSBC, NatWest, Citigroup (who replaced BNP Paribas), Truist Bank
(as successor by merger to SunTrust Bank) and PNC.
On 1 June 2022, the Company extended the term of its existing banking
agreement to 31 March 2024. As part of this extension, covenants have been
revised for the period to 31 March 2023 and the amended facilities comprise:
· A revolving credit facility ('RCF A') which has reduced from
$95.0 million to $90.0 million;
· A further flexible revolving credit facility ('RCF B') with
availability varying from month to month of up to a maximum level of £92.0
million (reduced from a maximum level of £130.0 million). This RCF is flexed
to meet our working capital requirements during those months when inventory is
being built within our annual business cycle and is £nil when not required,
minimising carrying costs; and
· an invoice financing arrangement in Hong Kong, maximum limit
$18.0 million dependent on level of eligible receivables.
In total, accessible facilities are considered sufficient to cover the Group's
peak requirements. The facilities do not amortise with time and being
partially denominated in US dollars they also provide a hedge against currency
movements.
Invoice financing arrangements are secured over the trade receivables that
they are drawn on (see note 13). The RCFs are secured with a fixed and
floating charge over other assets of the Group. Amounts drawn under RCFs are
classified as current liabilities as the Group expects to settle these amounts
within twelve months.
The revised covenants, which operate for a maximum period to 31 March 2023 are
as follows:
· Minimum adjusted earnings before interest, depreciation and
amortisation (Adjusted EBITDA), as defined by the banking facility, measured
quarterly at the end of June, September, December and March, which requires
the Group to be within $10.0 million of its Adjusted EBITDA budget at each
quarter end, based on the last twelve-month Adjusted EBITDA performance at
each measurement point
· Minimum liquidity level, which requires the Group to maintain a
minimum of $35.0 million of headroom to the maximum available facility on a
monthly basis
The amendment also stipulates that any dividends to be paid by the Group
during the remaining term of the agreement will require majority lender
approval. Banking and legal fees associated with the amendment and extension
of the facility totalled c.$1 million.
From April 2023 the Group will revert to the previous covenants tested
quarterly, which are as follows:
· interest cover, being the ratio of adjusted earnings before
interest, depreciation and amortisation (Adjusted EBITDA), as defined by the
banking facility, to interest on a rolling twelve month basis; and
· leverage, being the ratio of debt to Adjusted EBITDA, as defined by
the banking facility, on a rolling twelve month basis.
There is a further covenant tested monthly in respect of the working capital
RCF by which available asset cover must not fall below agreed levels relative
to amounts drawn.
Both revised and previous covenants are measured on pre-IFRS 16 accounting
definitions.
Loan arrangement fees represent the unamortised costs in arranging the Group
facilities. These fees are being amortised on a straight line basis over the
terms of the facilities.
The Group is party to supplier financing arrangements with one of its key
customers and the associated balances are recognised as trade receivables
until receipt of the payment from the bank, at which point the receivable is
derecognised. This arrangement is not considered to have had a significant
impact on the Group's cash flow in the year.
16 Deferred income
2022 2021
$000 $000
Included within non-current liabilities
Deferred grant income 523 486
Included within current liabilities
Deferred grant income 414 136
Other deferred income 51 288
465 424
The deferred grant income is in respect of government grants relating to the
development of the Penallta site in Wales and the Byhalia site in Mississippi.
The conditions for the Wales grant were all fully met in January 2019 and the
deferred income is being released in line with the depreciation of the assets
for which the grant is related to. The conditions for the Byhalia grant have
not yet been met.
17 Provisions
Property Other Total
$000 $000 $000
Balance at 1 April 2021 6,993 366 7,359
Provisions made in the year 45 46 91
Provisions released during the year (182) (292) (474)
Unwinding of fair value discounts 80 - 80
Provisions utilised during the year (615) - (615)
Effect of movements in foreign exchange (74) (9) (83)
Balance at 31 March 2022 6,247 111 6,358
2022 2021
$000 $000
Non-current 5,016 5,742
Current 1,342 1,617
6,358 7,359
The property provision represents the estimated reinstatement cost of 14 of
the Group's leasehold properties under fully repairing leases (2021: 18). A
professional valuation was performed during the year for one of the leasehold
properties and the provision was reassessed and is stated after discounting.
Of the non-current balance, $1.4 million (2021: $1.4 million) relates to a
lease expiring in 2036; the remainder relates to provisions unwinding between
one and five years.
18 Other financial liabilities
2022 2021
$000 $000
Included within non-current liabilities
Other creditors and accruals 21,557 15,526
Included within current liabilities
Other creditors and accruals 34,455 43,976
Liability to acquire non-controlling interest 3,069 -
Interest rate swaps and forward foreign currency contracts carried
at fair value through the income statement - -
Interest rate swaps and forward foreign exchange contracts carried
at fair value through the hedging reserve 18 293
37,542 44,269
The $3.1 million liability to acquire non-controlling interest included in
current liabilities has been recognised in relation to a put option that
exists over the 49% of the share capital of Anker Play Products LLC ('APP')
not currently owned by the Group, see note 28 for further details.
19 Trade and other payables
2022 2021
$000 $000
Trade payables 138,902 107,588
Other payables including social security 3,821 12,875
VAT payable 595 300
143,318 120,763
20 Share capital
Authorised share capital at 31 March 2022 and 2021 was £6.0 million, 121.0
million ordinary shares of 5p each.
Ordinary shares
In thousands of shares 2022 2021
In issue at 1 April 96,858 96,367
Options exercised during the year 204 491
In issue at 31 March - fully paid 97,062 96,858
2022 2021
$000 $000
Allotted, called up and fully paid
Ordinary shares of £0.05 each 6,373 6,667
Of the 97.1 million shares in the Company, 31,000 (2021: 31,000) are held by
IG Employee Share Trustee Limited (the 'Employee Benefit Trust').
Long Term Incentive Plans ('LTIP') options exercised during the year resulted
in 204,000 ordinary shares issued at nil cost (2021: 491,000 ordinary shares
issued at nil cost).
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at meetings of the
Company.
21 (Loss)/earnings per share
2022 2021((a))
$000 $000
(Loss)/earnings
(Loss)/earnings attributable to equity holders of the Company (3,277) 8,207
Adjustments
Adjusting items (net of non-controlling interest effect) (3,498) 18,166
Tax relief on adjustments (net of non-controlling interest effect) (816) (4,604)
Adjusted (loss)/earnings attributable to equity holders of the Company (7,591) 21,769
In thousands of shares 2022 2021
Weighted average number of shares
Basic weighted average number of shares outstanding 98,118 97,700
Dilutive effect of employee share option plans 119 440
Diluted weighted average ordinary shares 98,237 98,140
2022 2021((a))
Cents Cents
(Loss)/earnings per share
Basic (loss)/earnings per share (3.3) 8.4
Impact of Adjusting items (net of tax) (4.4) 13.9
Basic Adjusted (loss)/earnings per share (7.7) 22.3
Diluted (loss)/earnings per share (3.3) 8.4
Diluted Adjusted (loss)/earnings per share (7.7) 22.2
(a) The prior year comparatives above have been re-presented. For more
detail please refer to note 1.
Adjusted (loss)/earnings per share are provided to reflect the underlying
earnings performance of the Group.
In thousands of shares 2022 2021
Issued ordinary shares at 1 April 96,858 96,367
Shares relating to share options 1,260 1,333
Weighted average number of shares at 31 March 98,118 97,700
Diluted (loss)/earnings per share
The diluted (loss)/earnings per share is calculated taking into account LTIP
awards whose specified conditions were satisfied at the end of the year of
119,000 (2021: 440,000) share options along with 31,000 shares held by the
Employee Benefit Trust (2021: 31,000). At 31 March 2022, the diluted number of
shares was 98.2 million (2021: 98.1 million).
22 Dividends paid and proposed
A final dividend for year ending 31 March 2021 was paid on 14 October 2021. An
interim dividend was paid on 16 January 2022. The Directors are not
recommending the payment of a final dividend in respect of the year ended
31 March 2022.
2022 2021
Pence Cents Pence Cents
per share per share $000 per share per share $000
Final equity dividend for prior year 5.75 7.92 7,630 5.75 7.13 7,329
Interim equity dividend for current year 1.25 1.68 1,644 3.00 3.89 3,959
Dividends paid in the year 9,274 11,288
2022 2021
Pence Cents Pence Cents
Proposed for approval at Annual General Meeting per share per share $000 per share per share $000
Final equity dividend for the current year - - - 5.75 7.92 7,630
23 Employee benefits
Post-employment benefits
The Group administers a defined benefit pension plan that was inherited
through the acquisition of CSS and covers certain employees of a UK
subsidiary. The scheme closed to future accrual on 31 December 2012. This is a
separate trustee administered fund holding the pension scheme assets to meet
long-term pension liabilities. The plan assets held in trust are governed by
UK regulations and responsibility for governance of the plan, including
investment decisions and contribution schedules, lies with the group of
trustees. The assets of the scheme are invested in the SPI With-Profits Fund,
which is provided by Phoenix Life Limited.
An actuarial valuation was updated on an approximate basis at 31 March 2022,
by a qualified actuary, independent of the scheme's sponsoring employer.
The major assumptions used by the actuary are shown below.
Present values of defined benefit obligation, fair value of assets and defined
benefit asset (liability)
2021 2021
$000 $000
Fair value plan of assets 3,241 3,615
Present value of defined benefit obligation (1,858) (2,528)
Surplus in plan 1,383 1,087
Net defined benefit asset to be recognised - 676
Reconciliation of opening and closing balances of the defined benefit
obligation
2022 2021
$000 $000
Defined benefit obligation as at 1 April (2,528) (2,430)
Interest expense (50) (47)
Benefits payments from plan assets 384 -
Actuarial gains due to changes in demographic assumptions 52 9
Actuarial gains due to changes in financial assumptions 205 201
Effect of experience adjustments (18) -
Effect of movement in foreign exchange 97 (261)
Defined benefit obligation as at 31 March (1,858) (2,528)
Reconciliation of opening and closing balances of the fair value of plan
assets
2022 2021
$000 $000
Fair value of plan assets as at 1 April 3,615 3,028
Interest income 75 59
Return on plan assets 33 121
Contributions by the company 68 71
Benefits payments from plan assets (384) -
Admin expenses paid from plan assets (7) (9)
Effect of movement in foreign exchange (159) 345
Fair value of plan assets as at 31 March 3,241 3,615
A total of $18,000 has been charged to Group operating profit during the year,
including $7,000 of expense netting against net interest income of $25,000.
The principal assumptions used by the independent qualified actuary for the
purposes of IAS 19 are as follows:
2022 2021
Increase in salaries - -
Increase in pensions - -
- at RPI capped at 5% 3.80% 3.70%
- at CPI capped at 5% 2.75% 2.40%
- at CPI capped at 2.5% 2.50% 2.40%
Discount rate 2.80% 2.20%
Inflation rate - RPI 3.65% 3.30%
Inflation rate - CPI 2.75% 2.40%
Due to the timescale covered, the assumptions may not be borne out in
practice.
The life expectancy assumptions (in number of years) used to estimate defined
benefit obligations at the year end are as follows:
2022 2021
Male retiring today at age 60 26.4 26.4
Female retiring today at age 60 28.5 28.5
Male retiring in 20 years at age 60 27.9 27.9
Female retiring in 20 years at age 60 30.1 30.1
In addition to the defined benefit pension scheme there is also a small
post-retirement healthcare scheme operated in the US, which was also inherited
through the acquisition of CSS. In total, the amounts taken through the
Group's statement of comprehensive income can be seen below:
2022 2021
$000 $000
UK pension scheme
Actuarial losses on defined benefit pension scheme (73) (62)
Derecognition of defined benefit pension scheme surplus (664) -
US health scheme 22 30
(715) (32)
In accordance with IAS 19, the surplus on the plan has not been recognised on
the basis it is not expected to be recovered, with the previously recognised
asset being derecognised in the year.
Long Term Incentive Plans
The Group operate two Long Term Incentive Plans ('Plans'), the 2014 Long Term
Incentive Plan ('LTIP') and the Value Creation Scheme ('VCS') launched in
February 2021.
Under the LTIP, options to subscribe for ordinary shares of a nominal value of
5p each ('ordinary shares') may be awarded annually to Executive Board
Directors of the Company, managing directors and other selected senior
management team members within the Group. Ordinary shares only vest to the
degree that stretching performance conditions are met.
The performance period for each award under the LTIP is three years. The cost
to employees of ordinary shares issued under the LTIP if the performance
criteria are met is nil. In principle, the number of ordinary shares to be
granted to each employee under the LTIP will not be more than 325% in value of
the relevant employee's base salary. The maximum opportunity available under
the LTIP is up to 175% for the CEO and for other Executive Directors up to
150% of base salary.
Under the VCS, the scheme awards will allow participants to share, in total,
up to 12.5% of the value created ('VCS Pool') provided that the performance
criteria are met. No individual award can be greater than £12.5 million. The
maximum opportunity available under the VCS is up to 17.5% of the VCS Pool for
the CEO and for the other Executive Directors up to 12.5% and 7.5%. Shares
will be released to the participants either following the calculation of the
VCS Pool or, in the case of the awards for the CEO, the other Executive
Directors and three other senior executives, following the end of a further
two year holding period. Awards may be structured as nil-cost options which
can be exercised from release until the tenth anniversary of grant of the
awards, or as conditional awards which deliver shares for nil-cost
automatically at release.
Subsequent to year end, considering the performance of the Group for the year
ended 31 March 2022, and the significant challenges and cost headwinds that
have been, and will continue to be faced over the coming financial year, the
Remuneration Committee considered whether the VCS was appropriate in light of
the required change of strategy of the Group. It concluded that the VCS no
longer incentivised nor inspired the behaviours required to drive the Group
forward and as such intends to cancel the scheme effective 28 June 2022.
For both plans together, the maximum dilution is 15% over a ten year period.
For the VCS specifically, within the 15% limit, there is a dilution limit of
7.5%.
The plan rules, which have been agreed by the Remuneration Committee, include
reasonable provisions in the event of change of control, suitable flexibility
to modify performance targets in specified situations and also a mechanism for
claw‑back under certain circumstances. The Board retains the flexibility to
buy ordinary shares through an employee benefit trust to mitigate future
dilution should it need to do so.
Vested LTIP schemes - outstanding options
Exercise
Number of price
ordinary shares pence Exercise dates
2015-2018 LTIP scheme 312,916 nil June 2018 - January 2028
2016-2019 LTIP scheme 231,726 nil June 2019 - January 2028
2017-2020 LTIP scheme 210,091 nil July 2020 - August 2027
2018-2021 LTIP scheme 333,390 nil June 2021 - November 2028
1,088,123
All performance criteria have been met for the above schemes.
2022 2021
Weighted Weighted
average average
exercise price Number of exercise price Number of
pence options pence options
Outstanding at 1 April nil 1,291,728 nil 1,359,488
Prior year adjustment nil - nil 4,650
Options vesting during the year nil - nil 418,429
Exercised during the year nil (203,605) nil (490,839)
Outstanding at 31 March nil 1,088,123 nil 1,291,728
Exercisable at 31 March nil 1,088,123 nil 1,291,728
Scheme details for plans in vesting periods during the year
During the financial year to 31 March 2022 there were two LTIP schemes still
within its vesting period (2021: three), as well as the VCS. As described
above, subsequent to year end, the intention is to cancel the VCS.
Awards
2019-2022 2020-2022
LTIP
LTIP
Grant A Grant A Grant B
Grant date July 2019 Sept 2020 Jan 2021
Fair value per share (£) 6.02 4.66 6.03
Number of participants 28 1 1
Initial award 758,782 50,000 100,000
Dividend shares - 1,816 2,323
Lapses and forfeitures (758,782) - -
Potential to vest as at 31 March 2022 - 51,816 102,323
Potential to vest as at 31 March 2021 564,027 50,917 100,548
No LTIP options have been granted in the year. The grant date fair value of
the options granted in the previous year, assuming they were to vest in full
was $1.2 million.
The grant date fair value of the VCS of £3.54 was determined using the
following factors in the binomial pricing model:
Asset price £4.50
Exercise price nil
Expected volatility 31.5%
Option life 2.43
Risk-free rate 0.14%
Dividend yield 2%
The expected volatility is based on the Group's historical three year
volatility. The number of participants in the VCS at the year end was 77.
LTIP performance targets
With the exception of the 2020-2022 scheme, LTIP awards are granted with
threshold and stretch targets. 25% of the weighted awards vests if the
relevant threshold target is achieved, with straight line vesting of the
balance up to 100% of the weighted award if the stretch target is achieved.
Weighting Threshold Maximum
2019-2022 scheme
Group Adjusted PBT((a)) $m 100% 48.4 56.0
(a) Profit before tax and before Board approved Adjusting items.
The performance criteria for the 2019-2022 LTIP award was amended during the
year from an EPS measure. The revised performance metric was not met and
therefore will not vest on approval of the results for the year ended 31 March
2022.
The 2020-2022 scheme, granted to two individuals, has only a service
condition, being 1 April 2020 to 30 June 2022 and will therefore vest on 30
June 2022 for the relevant individuals.
VCS performance targets
The VCS is based on an achievement of a minimum 7.5% CAGR on the opening
valuation of the Company over a three year performance period from 1 April
2020 to 31 March 2023. In addition, a performance underpin is included such
that, ordinarily, no VCS awards will vest unless the Adjusted profit before
tax for the twelve months to 31 March 2023 meets a set target.
The closing market capitalisation will be based on the volume weighted average
share price over the period of 30 days following announcement of the audited
results for the twelve months ending on 31 March 2023. Appropriate adjustments
shall be made in respect of any capital raised from or returned to
shareholders during the measurement period.
Following the calculation of the VCS Pool, each participant's allocation will
be converted into a number of ordinary shares in the Company by reference to
the share price used to determine the size of the VCS Pool.
As described above, subsequent to the year end, the intention is to cancel the
VCS.
Share-based payments charges
The total expense recognised for the year arising from equity‑settled
share‑based payments is as follows:
2022 2021
$000 $000
Charge in relation to the 2018-2021 LTIP scheme - 2,951
Charge in relation to the 2020-2022 LTIP scheme 723 229
(Credit)/charge in relation to the VCS (482) 488
Equity-settled share-based payments charge/(credit) 241 3,668
Social security (credit)/charge (1,089) 524
Total equity-settled share-based payments (credit)/charge (848) 4,192
Deferred tax assets are recognised on share-based payment schemes (see note
11).
Social security charges on share-based payments
Social security is accrued, where applicable, at a rate which management
expects to be the prevailing rate when share‑based incentives are exercised
and is based on the latest market value of options expected to vest or having
already vested.
The total social security accrual outstanding at the year end in respect of
share-based payment transactions was $137,000 (2021: $1.3 million).
24 Financial instruments
Derivative financial assets
a) Fair values of financial instruments
The carrying values for each class of financial assets and financial
liabilities in the balance sheet, which are given below, are not considered
to be materially different to their fair values.
As at 31 March 2022, the Group had derivative contracts, which were measured
at Level 2 fair value subsequent to initial recognition, to the value of an
asset of $316,000 (2021: $207,000) and a liability of $18,000 (2021:
$293,000).
Derivative financial instruments
The fair value of forward exchange contracts is assessed using valuation
models taking into account market inputs such as foreign exchange spot and
forward rates, yield curves and forward interest rates.
Fair value hierarchy
Financial instruments which are recognised at fair value subsequent to initial
recognition are grouped into Levels 1 to 3 based on the degree to which the
fair value is observable. The three levels are defined as follows:
· Level 1: quoted (unadjusted) prices in active markets for identical
assets or liabilities;
· Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable, either directly
or indirectly; and
· Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable market
data.
b) Credit risk
Financial risk management
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group's receivables from customers
and investment securities.
The Group's exposure to credit risk is managed by dealing only with banks and
financial institutions with strong credit ratings. The Group's financial
credit risk is primarily attributable to its trade receivables.
The main customers of the Group are large and mid‑sized retailers, other
manufacturers and wholesalers of greetings products, service merchandisers and
trading companies. The Group has established procedures to minimise the risk
of default of trade receivables including detailed credit checks undertaken
before new customers are accepted and rigorous credit control procedures after
sale. These processes have proved effective in minimising the level of
provisions for doubtful debts required.
The amounts presented in the balance sheet are net of allowances for doubtful
receivables estimated by the Group's management, based on prior experience and
their assessment of the current economic environment.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit
exposure. Therefore, the maximum exposure to credit risk at the balance sheet
date was $170.9 million (2021: $254.5 million) being the total of the carrying
amount of financial assets, excluding equity investments above.
The maximum exposure to credit risk for trade receivables at the balance sheet
date by reporting segment was:
2022 2021
$000 $000
DG Americas 84,966 94,484
International 30,351 21,374
115,317 115,858
Credit quality of financial assets and impairment losses
The ageing of trade receivables at the balance sheet date was:
2022 Restated((a))
2021
Expected Provisions for Expected Provisions for
loss rate Gross doubtful debts loss rate Gross doubtful debts
% $000 $000 % $000 $000
Not past due - 71,429 - 0.1 76,673 (69)
Past due 0-60 days - 26,889 - 0.3 24,209 (82)
61-90 days 2.0 9,721 (195) 5.3 5,926 (314)
More than 90 days 4.5 7,825 (352) 23.7 12,470 (2,955)
0.5 115,864 (547) 2.9 119,278 (3,420)
(a) There has been a restatement of $6.6 million between gross trade
receivables and provisions for doubtful debts due to a misclassification in
the prior year.
There were no unimpaired balances outstanding at 31 March 2022 (2021: $nil)
where the Group had renegotiated the terms of the trade receivable. The
movement year-on-year relates to assets impaired as at 31 March 2021 due to
Covid-19 provisions that have been utilised or released as no longer required
during the year to 31 March 2022 (please refer to note 3 for further
information).
Expected credit loss assessment
For the Group's trade receivables, expected credit losses are measured using a
provisioning matrix based on the reason the trade receivable is past due. The
provision matrix rates are based on actual credit loss experience over the
past three years and adjusted, when required, to take into account current
macro-economic factors. The Group applies experienced credit judgement that is
determined to be predictive of the risk of loss to assess the expected credit
loss, taking into account external ratings, financial statements and other
available information. The Group's trade receivables are unlikely to extend
past twelve months and, as such, for the purposes of expected credit loss
modelling, the lifetime expected credit loss impairments recognised are the
same as a twelve month expected credit loss.
There have been no significant credit risk movements since initial recognition
of impairments.
The movement in the allowance for impairment in respect of trade receivables
during the year was as follows:
Restated((a))
2022 2021
$000 $000
Balance at 1 April 3,420 10,616
Charge for the year 277 2,045
Unused amounts reversed (1,511) (5,352)
Amounts utilised (1,627) (4,000)
Effects of movement in foreign exchange (12) 111
Balance at 31 March 547 3,420
(a) There has been a restatement of $6.6 million between gross trade
receivables and provisions for doubtful debts due to a misclassification in
the prior year.
The allowance account for trade receivables is used to record provisions for
doubtful debts unless the Group is satisfied that no recovery of the amount
owing is possible; at that point the amounts considered irrecoverable are
written off against the trade receivables directly.
c) Liquidity risk
Financial risk management
Liquidity risk is the risk that the Group, although solvent, will encounter
difficulties in meeting obligations associated with the financial liabilities
that are settled by delivering cash or another financial asset. The Group's
policy with regard to liquidity ensures adequate access to funds by
maintaining an appropriate mix of short-term and longer-term facilities, which
are reviewed on a regular basis. The maturity profile and details of debt
outstanding at 31 March 2022 are set out in note 15.
The following are the contractual maturities of financial liabilities,
including estimated interest payments:
Carrying Contractual One year One to two Two to five More than
amount cash flows or less years years five years
31 March 2022 Note $000 $000 $000 $000 $000 $000
Non-derivative financial liabilities
Other financial liabilities 18 59,081 (59,081) (37,524) (21,523) (32) (2)
Lease liabilities 10 99,843 (112,186) (22,538) (20,669) (37,244) (31,735)
Trade payables 19 138,902 (138,902) (138,902) - - -
Other payables 19 4,416 (4,416) (4,416) - - -
Derivative financial liabilities
Forward foreign exchange contracts carried at fair value through the hedging 18 18 (524) (524) - - -
reserve((a))
302,260 (315,109) (203,904) (42,192) (37,276) (31,737)
(a) Measured at Level 2.
Carrying Contractual One year One to two Two to five More than
amount cash flows or less years years five years
31 March 2021 Note $000 $000 $000 $000 $000 $000
Non-derivative financial liabilities
Other financial liabilities 18 59,502 (59,502) (43,976) (15,279) (122) (125)
Lease liabilities 10 113,922 (129,399) (22,729) (20,125) (44,212) (42,333)
Trade payables 19 107,588 (107,588) (107,588) - - -
Other payables 19 13,175 (13,175) (13,175) - - -
Derivative financial liabilities
Forward foreign exchange contracts carried at fair value through the hedging 18 293 (2,100) (2,100) - - -
reserve((a))
294,480 (311,764) (189,568) (35,404) (44,334) (42,458)
(a) Measured at Level 2.
The following table shows the facilities for bank loans, overdrafts,
asset‑backed loans and revolving credit facilities:
31 March 2022 31 March 2021
Facility used Facility used
Carrying contractual Facility Total Carrying contractual Facility Total
amount cash flows unused facility amount cash flows unused facility
$000 $000 $000 $000 $000 $000 $000 $000
Corporate revolving credit facilities - - (97,208) (97,208) - - (97,136) (97,136)
Bank overdraft - - (4,909) (4,909) - - (5,002) (5,002)
- - (102,117) (102,117) - - (102,138) (102,138)
The receivables financing facilities are dependent upon the levels of the
relevant receivables.
The major bank facilities vary in the year depending on forecast debt
requirements. The maximum limit across all facilities was $283.7 million
(2021: $292.0 million).
At 31 March 2022 the facility amounted to $97.2 million (2021: $97.1 million).
Additional facilities were available at other banks of $4.9 million (2021:
$5.0 million).
On 1 June 2022 the Group banking facilities were extended to run to March
2024, see note 15 for more information.
The following table shows other facilities that are treated as contingent
liabilities
31 March 2022 31 March 2021
Facility Utilised Facility Utilised
$000 $000 $000 $000
UK Guarantee 2,101 1,996 2,203 2,092
UK Import line 1,313 - 1,377 -
Foreign Bills 6,566 - 6,883 -
USA Guarantee 5,500 2,980 5,500 2,980
Netherlands Guarantee (Trade and Import line) 667 121 704 127
16,147 5,097 16,667 5,199
d) Cash flow hedges
The following derivative financial instruments were designated as cash flow
hedges:
2022 2021
Forward exchange contracts carrying amount $000 $000
Derivative financial assets 316 207
Derivative financial liabilities (18) (293)
The Group has forward currency hedging contracts outstanding at 31 March 2022
designated as hedges of expected future purchases in US dollars and Japanese
yen for which the Group has firm commitments, as the derivatives are based on
forecasts and an economic relationship exists at the time the derivative
contracts are taken out.
The terms of the forward currency hedging contracts have been negotiated to
match the terms of the commitments. All contracts outstanding at the year end
crystallise within 24 months of the balance sheet date at average prices of
1.14 for US dollar contracts (2021: 1.23), not applicable for Chinese renminbi
contracts (2021: 6.56) and 152.8 for Japanese yen contracts (2021: not
applicable). At the year end the Group held $11.2 million (2021: $13.2
million), RMB nil million (2021: RMB 42.0 million) and JPY 60.8 million (2021:
JPY nil million) in hedge relationships.
When assessing the effectiveness of any derivative contracts, the Group
assesses sources of ineffectiveness which include movements in volumes or
timings of the hedged cash flows.
The cash flow hedges of the expected future purchases in the year were
assessed to be highly effective and as at 31 March 2022, a net unrealised
profit of $686,000 (2021: $1.3 million loss) with related deferred tax credit
of $nil (2021: $nil) was included in other comprehensive income in respect of
these hedging contracts. Amounts relating to ineffectiveness recorded in the
income statement in the year were $nil (2021: $nil).
e) Market risk
Financial risk management
Market risk is the risk that changes in market prices, such as foreign
exchange rates, interest rates and equity prices, will affect the Group's
income or the value of its holdings of financial instruments.
The Group hedges a proportion, as deemed appropriate by management, of its
sales and purchases of inventory denominated in foreign currency by entering
into foreign exchange contracts. Such foreign exchange contracts typically
have maturities of less than one year.
The Group rarely hedges profit translation exposure, since such hedges provide
only a temporary deferral of the effects of movement in foreign exchange
rates. Similarly, the Group does not hedge its long-term investments in
overseas assets.
However, the Group holds loans that are denominated in the functional currency
of certain overseas entities.
The Group's exposure to foreign currency risk is as follows. This is based on
the carrying amount for monetary financial instruments, except derivatives,
when it is based on notional amounts.
US dollar Sterling Euro Other Total
31 March 2022 Note $000 $000 $000 $000 $000
Long-term assets 13 5,105 - - - 5,105
Cash and cash equivalents 14 32,910 7,447 2,388 7,434 50,179
Trade receivables 13 87,431 12,281 11,014 4,591 115,317
Derivative financial assets - 316 - - 316
Bank overdrafts 14 (295) (14,464) (5,621) - (20,380)
Loan arrangement fees 15 - 360 - - 360
Trade payables 19 (105,299) (16,638) (14,320) (2,645) (138,902)
Other payables 19 (2,418) (1,130) (623) (245) (4,416)
Balance sheet exposure 17,434 (11,828) (7,162) 9,135 7,579
US dollar Sterling Euro Other Total
31 March 2021 Note $000 $000 $000 $000 $000
Long-term assets 13 5,721 - - - 5,721
Cash and cash equivalents 14 101,602 10,227 4,556 16,375 132,760
Trade receivables 13 95,336 9,947 6,233 4,342 115,858
Derivative financial assets - 206 - 1 207
Bank overdrafts 14 (41,582) (11,594) (3,857) - (57,033)
Loan arrangement fees 15 - 723 - - 723
Trade payables 19 (83,908) (11,769) (7,898) (4,013) (107,588)
Other payables 19 (11,650) (703) (611) (211) (13,175)
Balance sheet exposure 65,519 (2,963) (1,577) 16,494 77,473
The following significant exchange rates applied to US dollar during the year:
Average rate 31 March spot rate
2022 2021 2022 2021
Euro 0.86 0.85 0.90 0.85
Pound sterling 0.73 0.76 0.76 0.73
Sensitivity analysis
A 10% weakening of the following currencies against US dollar at 31 March 2022
would have affected equity and profit or loss by the amounts shown below. This
calculation assumes that the change occurred at the balance sheet date and had
been applied to risk exposures existing at that date.
This analysis assumes that all other variables, in particular other exchange
rates and interest rates, remain constant. The analysis was performed on the
same basis for 31 March 2021.
Equity Loss
2022 2021 2022 2021
$000 $000 $000 $000
Euro (651) (143) (551) (14)
Pound sterling (1,075) (269) (3) -
On the basis of the same assumptions, a 10% strengthening of the above
currencies against US dollar at 31 March 2022 would have affected equity and
profit or loss by the following amounts:
Equity Profit
2022 2021 2022 2021
$000 $000 $000 $000
Euro 796 175 674 17
Pound sterling 1,314 329 3 -
Profile
At the balance sheet date the interest rate profile of the Group's
interest-bearing financial instruments was:
2022 2021
Variable rate instruments Note $000 $000
Financial assets 50,179 132,760
Financial liabilities (20,380) (57,033)
Net cash 14 29,799 75,727
A change of 50 basis points (0.5%) in interest rates in respect of financial
assets and liabilities at the balance sheet date would have affected equity
and profit or loss by the amounts shown below. This calculation assumes that
the change occurred at the balance sheet date and had been applied to risk
exposures existing at that date.
This analysis assumes that all other variables, in particular foreign currency
rates, remain constant and considers the effect on financial instruments with
variable interest rates and financial instruments at fair value through profit
or loss. The analysis is performed on the same basis for 31 March 2021.
Sensitivity analysis
2022 2021
$000 $000
Equity
Increase 149 379
Decrease - -
Profit or loss
Increase 149 379
Decrease - -
f) Capital management
The Board's policy is to hold a strong capital base so as to maintain
investor, creditor, customer and market confidence and to sustain future
development of the business. The Group is dependent on the continuing support
of its bankers for working capital facilities and so the Board's major
objective is to keep borrowings within these facilities.
The Board manages as capital its trading capital, which it defines as its net
assets plus net debt. Net debt is calculated as total debt (bank overdrafts,
loans and borrowings as shown in the balance sheet), less cash and cash
equivalents. The banking facilities with the Group's principal bank have
amended covenants relating to earnings and liquidity cover and previous
covenants relating to interest cover, cash flow cover and leverage, and our
articles currently permit borrowings (including letter of credit facilities)
to a maximum of four times equity.
Equity
2022 2021
Note $000 $000
Net equity attributable to owners of the Parent Company 361,711 383,522
Net cash 14 (30,159) (76,450)
Trading capital 331,552 307,072
The main areas of capital management relate to the management of the
components of working capital including monitoring inventory turn, age of
inventory, age of trade receivables, balance sheet reforecasting, monthly
profit and loss, weekly cash flow forecasts and daily cash balances. Major
investment decisions are based on reviewing the expected future cash flows and
all major capital expenditure requires sign off by the Chief Financial
Officer, Chief Executive Officer and Interim Executive Chair, or, above
certain limits, by the Board. There were no major changes in the Group's
approach to capital management during the year. A particular focus of the
Group is leverage, measured as the ratio of average monthly net debt before
lease liabilities to Adjusted EBITDA reduced for lease payments.
25 Capital commitments
At 31 March 2022, the Group had outstanding authorised capital commitments to
purchase plant and equipment for $1.5 million (2021: $2.7 million).
26 Related parties
2022 2021
$000 $000
Sale of goods:
Hedlunds Pappers Industri AB 566 278
Festive Productions Ltd - 14
SA Greetings (Pty) Ltd 93 45
659 337
Receivables:
Hedlunds Pappers Industri AB 23 7
23 7
Identity of related parties and trading
Hedlund Import AB is under the ultimate control of the Hedlund family, who are
a major shareholder in the Company. Anders Hedlund is a director of Hedlunds
Pappers Industri AB which is under the ultimate control of the Hedlund family,
who are a major shareholder in the Company. Festive Productions Ltd is a
subsidiary undertaking of Malios Holding AG, a company under the ultimate
control of the Hedlund family.
John Charlton is the Chairman of SA Greetings (Pty) Ltd (South African
Greetings).
The above trading takes place in the ordinary course of business.
Other related party transactions
Directors of the Company and their immediate relatives have an interest in 24%
(2021: 24%) of the voting shares of the Company. The shareholdings of
Directors and changes during the year are shown in the Directors' report on
page • .
Directors' remuneration
2022 2021
$000 $000
Short-term employee benefits 2,496 1,874
Termination benefits 890 -
Share-based payments (credit)/charge (1,256) 2,266
2,130 4,140
27 Subsidiary with significant non-controlling interest
The Company has two subsidiary companies which have a material non-controlling
interest: IG Design Group Australia Pty Ltd ('Australia') and Anker Play
Products LLC ('APP'). Summary financial information in relation to Australia
and APP is shown below.
2022 2021
Non-controlling interest - Australia APP Total Australia APP Total
balance sheet as at 31 March $000 $000 $000 $000 $000 $000
Non-current assets 9,625 1,253 10,878 11,146 177 11,323
Current assets 16,497 15,639 32,136 19,525 8,328 27,853
Current liabilities (9,082) (10,706) (19,788) (8,757) (6,462) (15,219)
Non-current liabilities (4,355) (894) (5,249) (6,066) - (6,066)
Non-controlling interest - 2022 2021
comprehensive income for the year Australia APP Total Australia APP Total
ended 31 March $000 $000 $000 $000 $000 $000
Revenue 51,296 38,309 89,605 43,995 21,084 65,079
Profit after tax 3,756 2,211 5,967 4,399 1,307 5,706
Total comprehensive income 3,568 2,211 5,779 6,564 1,307 7,871
2022 2021
Non-controlling interest - Australia APP Total Australia APP Total
cash flow for the year ended 31 March $000 $000 $000 $000 $000 $000
Cash flows from operating activities 3,101 602 3,703 7,584 1,397 8,981
Cash flows from investing activities (357) (224) (581) (251) (88) (339)
Cash flows from financing activities (8,348) (63) (8,411) (2,343) (125) (2,468)
Net (decrease)/increase in cash and cash equivalents (5,604) 315 (5,289) 4,990 1,184 6,174
2022 2021
Australia APP Total Australia APP Total
Non-controlling interest $000 $000 $000 $000 $000 $000
Balance as at 1 April 7,924 573 8,497 4,643 - 4,643
Share of profits for the year 1,878 1,083 2,961 2,200 34 2,234
Other comprehensive expense - - - (94) - (94)
Recognition of non-controlling interest - - - - 539 539
Dividend paid to non-controlling interest (3,365) - (3,365) - - -
Currency translation (94) - (94) 1,175 - 1,175
Balance as at 31 March 6,343 1,656 7,999 7,924 573 8,497
28 Non-adjusting post balance sheet events
On 28 April 2022 a property owned by the Group in Manhattan, Kansas was sold
for net proceeds of $6.7 million. The net book value of the property was $2.2
million resulting in a profit on disposal of $4.5 million which will be
included in the next year's results.
On 23 May 2022 the Group purchased the remaining 49% interest in APP bringing
its total ownership to 100%. This was completed pursuant to the exercise of a
put option by Maxwell Summers, Inc., the holder of the remaining 49% interest,
which the Group is legally obliged to purchase with the exercise of the put
option under the APP Limited Liability Company agreement dated 30 March 2017.
The transaction was contractually committed on 23 May 2022, with an effective
date of 1 April 2022. The transaction, made through the Group's American
subsidiary IG Design Group Americas, Inc. is satisfied with an initial cash
payment of $1.5 million with the final cash payment subject to finalisation of
APP's financial results for the year ended 31 March 2022. The Directors
anticipate this payment to be c.$1.6 million. The consideration will be
satisfied from the existing Group banking facilities.
On 4 May 2022, the Group received confirmation of insurance proceeds regarding
representations and warranties associated with the acquisition of Impact in
August 2018. The proceeds, which will be included in the next year's results
as an Adjusting item, amount to $1.5 million.
There were no other material non-adjusting events which occurred between the
end of the reporting period and prior to the authorisation of these financial
statements on 27 June 2022.
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