REG - IG Design Group PLC - Full Year Results
20/06/2023 07:00
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RNS Number : 2254D IG Design Group PLC 20 June 2023
20 June 2023
IG Design Group PLC
(the "Company", the "Group" or "Design Group")
Results for the year ended 31 March 2023
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 audited
results for the year ended 31 March 2023.
Highlights for the year ended 31 March 2023
Financial Highlights FY2023 FY2022
Revenue $890.3m $965.1m
Adjusted((a))
- Profit/(loss) before tax $9.2m ($1.3m)
- Diluted loss per share (0.2c) (7.7c)
Reported
- (Loss)/profit before tax ($18.9m) $2.2m
- Diluted loss per share (28.6c) (3.3c)
Net cash as at the period end $50.5m $30.2m
Full year dividend - 1.7c
Average leverage 0.6x 1.0x
(a) Adjusted results exclude the impact of adjusting items - for further
detail see alternative performance measures reconciliation within the detailed
financial review
· Adjusted profit before tax was significantly ahead of initial
expectations mostly driven by strong trading in Europe, and further benefits
from ongoing restructuring initiatives in the US
· We delivered on customer commitments, but reported revenues were down
by nearly 8% (4% on constant currency) mainly as a result of adverse foreign
currency movements, lower second-half volumes in DG Americas and the strategic
decision to continue to exit from unprofitable contracts in the US
· Margins improved due to continued efforts to manage costs, simplify the
business and some recovery of prices in the face of continued high cost
inflation
· Reported profit before tax was significantly impacted by a non-cash,
one-off write-down of the historic goodwill in the UK business
· The Group remained net cash positive at year-end, at $50.5 million,
with the strong year-on-year improvement reflecting better working capital
management
· In line with the Board's previous guidance, no dividend is being
declared for the year (FY2022: 1.25 pence)
· Post year end, the Group announced that it had completed the
refinancing of its banking facilities to June 2026 which has secured access to
appropriate financing to support the seasonal working capital cycle
· Board changes include the appointment of Paul Bal, previously Group
CFO, as Group CEO from April 2023; Rohan Cummings joins as Group CFO from July
2023; Lance Burn stepped down as Interim Group COO at the end of March 2023;
and Claire Binyon joined as an independent Non-Executive Director in June 2022
· Senior management team strengthened with the appointments of new CEO
and CFO for DG Americas and two new MDs within the DG International businesses
· Supported our workforce through additional cost of living enhancements
Outlook
· The immediate priority of the Group remains continued recovery in its
financial performance with particular focus on DG Americas, where the
leadership team has been strengthened
· The FY2024 orderbook continues to build, at 62% of budgeted revenues
(FY2022: 71%), reflecting a return to more normalised phasing of orders
between H1 and H2 than experienced last year, as customers expect more stable
supply chains
· Inflation remains an issue, with pricing challenges in all markets, but
especially so in the UK
· A new strategy to restore sustainable, profitable growth is being
developed and cascaded through the Group
· During FY2024, the Board anticipates continued progress with its
aspiration to return to pre-pandemic operating profit margins by the end of
FY2025
Stewart Gilliland, Non-Executive Chair, commented:
"FY2023 was a strong year of recovery and delivery by the Group,
notwithstanding continued economic challenges across our markets. Last year's
decision to place stronger, immediate focus on recovering margins, simplifying
the business model and better managing working capital delivered results ahead
of our expectations. I thank our teams across the Group for their
extraordinary efforts. Our aspiration to return to pre-pandemic operating
margins by the end of FY2025 remains, and we hope to continue growing profits
and margins in FY2024 despite the continuing tough market back-drop and the
uncertainty it is creating for our customers and our consumers.
We have made good progress in strengthening our leadership teams, both at
Board and local level, and especially so in the US. We have been able to
attract high calibre individuals as well as promote talent from within. With
more stability in future leadership, we are able to outline a new strategy
designed to return the Group to more sustainable and profitable growth,
building on the recovery that is underway. We have a refreshed team, scale
that we can leverage, very strong customer relationships, and have recently
secured longer-term financing, all of which gives us a stronger foundation
from which to build a more resilient business."
For further information:
IG Design Group plc 01525 887310
Paul Bal, Chief Executive Officer and Chief Financial Officer
Stewart Gilliland, Non-Executive Chair
Canaccord Genuity Limited 020 7523 8000
Bobbie Hilliam, NOMAD
Alma PR
Josh Royston 020 3405 0205
Sam Modlin designgroup@almapr.co.uk (mailto:designgroup@almapr.co.uk)
Pippa Crabtree
EXECUTIVE REVIEW
Overview
Twelve months ago, as we looked at the coming year, it was expected to be a
year where our focus would be on stabilising the Group's falling
profitability. It is therefore pleasing to report that during the year ended
31 March 2023 we have stabilised profitability, delivering a significant
improvement in adjusted profit before tax ($9.2 million up from $1.3 million
loss in the prior year). This highlights a good start in the journey to
turnaround performance, growing profitability and margins as a result.
Whilst FY2023 was not without its challenges, as consumer demand weakened in
the last quarter in some markets and paper and energy-driven costs continued
to rise, the Group has delivered adjusted profit growth ahead of our earlier
expectations. The adjusted operating profit more than quadrupled to $16.1
million, with the reported operating loss at $12.0 million which includes a
non-cash $29.1 million impairment of goodwill. Adjusted operating profit
margins similarly more than quadrupled to 1.8%. The Group remains on track to
meet its aspiration to return to pre-pandemic operating profit margins by
FY2025.
The two main drivers behind this result were stronger than anticipated trading
within DG International, notably in continental Europe, and benefits coming
from the turnaround initiatives underway in the DG Americas division which
resulted in the division returning to profitability. During the year we have
strengthened the DG Americas leadership team and are currently in the process
of doing the same in DG international. These improvements more than offset a
weakening in the UK market in the last quarter of the year, predominantly
driven by lower consumer demand, and will have consequences for the outlook
for the year ahead. It has also led to a significant non-cash write-down of
historically acquired goodwill in that market. Adverse currency movements and
softening of demand in some of our markets are reflected in the year's revenue
performance. Group revenue was down 4% in constant currency (8% in reported
terms) versus prior year. Much of the revenue decline was experienced in DG
Americas, where revenue was 10% lower. This resulted from a combination of the
strategic decision to exit loss-making business, as well as lower volume in
the second half of the year. DG International, though down 3% in reported
revenue, grew 10% in constant currency with growth in all markets on a
full-year basis.
The improved profit generation has been complemented by better than expected
cash generation, with the Group ending the year with a net cash balance of
$50.5 million, a year-on-year improvement of over $20.0 million. Improving
working capital management has been a focus for the year, and this should
continue to deliver further benefits in the year ahead. We have just completed
a re-financing of the Group, which secures the funding of our working capital
cycle for at least 3 years. Further details of the new arrangements are set
out in note 15.
As previously anticipated, in light of the Group's current position on the
path to profit recovery and the challenges around reduced consumer demand, the
Board is not proposing a dividend in respect of the year ended 31 March 2023.
Board changes
Paul Bal was appointed Group Chief Financial Officer (CFO), joining the Board
in May 2022. Giles Willits, the outgoing CFO left at the end of June 2022.
In November 2022, following an extensive selection process involving internal
and external candidates, Paul Bal was appointed Group Chief Executive Officer
(CEO), effective from April 2023 when the Chair of the Board, Stewart
Gilliland, stepped down from the Interim Executive Chair role that he had
assumed in June 2022.
Rohan Cummings will be joining the Board in July 2023 as the new Group CFO.
Rohan joins the Group from Devro Limited (formerly Devro plc which was listed
on the LSE), a global leader in the supply of collagen casing and films, where
he has been the group's CFO since 2020. Rohan has extensive PLC experience, as
well as significant commercial and strategic capabilities having worked in
complex global operations.
Lance Burn, Interim Chief Operating Officer (COO), stepped down from the Board
at the end of March 2023, and will stay with the Group to the end of October
2023. The Board is very grateful for his dedication and contribution to the
business for over a decade, and especially as it navigated the various
challenges of the past eighteen months. The leadership team of DG Americas,
which Lance had been supporting since March 2022, has been strengthened with
the appointment of a new DG Americas CEO and CFO. The DG International
leadership team is also being strengthened, and this will remove the
requirement for a COO.
Claire Binyon joined as a Non-Executive Director in June 2022.
Incentive schemes
The Value Creation Scheme (VCS) was terminated in June 2022 as it was no
longer aligning the interests of shareholders and employees, and all awards
were cancelled.
Awards under a new Long-Term Incentive Plan (2022-2025 LTIP) were granted on
11 August 2022. This incentive plan is considered a more appropriate and
standard mechanism to align interests and reward sustained future financial
delivery and value creation. Further details are set out in note 23.
Our strategy
The challenges experienced in FY2022 caused the Board to revisit its
priorities, plans, strategy and aspirations. The sheer speed and scale of the
impact required an immediate pivot toward quickly making the Group's
operations more resilient. This was done with a 5-point focus on:
· reducing complexity and better leveraging expertise and scale,
and improving mix,
· improving margins,
· a more resilient supply chain,
· lowering working capital levels, and
· strong leadership and management teams at all levels of the
Group.
Good overall progress has been made in these areas, ahead of our expectations.
This is witnessed through the delivery of the improved profit margins,
stronger cash generation in the year, and strengthening leadership. The
current difficult economic environment, with pressure on consumer spend,
dictates that we must continue to concentrate on these areas for now.
Nevertheless, given the long planning cycles associated with our business, we
must look beyond our current goal of recovering to pre-pandemic operating
profit margins, and chart a course that will also grow the business. To that
end, in late 2022, the Board commissioned a strategic exercise using
professional external support. The output from that exercise has been
articulated into a high-level strategy aimed at returning the Group to
profitable growth over the coming 3 to 4 years.
In summary, the new strategy concentrates on two areas:
· being the partner of choice for our customers, by strengthening
and better leveraging our unique business model, particularly where there is
opportunity for competitive advantage, and
· winning together with our customers, through better execution and
developing sustained category value
The strategy is being rolled-out across the business units over the summer and
will be driven through a combination of centrally co-ordinated as well as
local initiatives. At the half-year, we hope to share with shareholders
further details of our progress as well as sharing case studies further down
the line to highlight some of the initiatives underway. Further details on the
new strategy are set out in the Annual Report and Financial Statements for
2023.
Outlook
FY2023's financial performance exceeded our aspirations for the year. Not only
was the profit decline stabilised, but it was also turned around. This
performance puts us ahead in our journey to restore pre-pandemic operating
profit margins in FY2025. The Board does however now expect FY2024 to present
continued demand and pricing challenges given the depressed consumer demand
experienced in several of our markets since Christmas 2022. This may temper
some of our progress during FY2024, but we still anticipate further operating
profit growth and margin improvement over the full year. Within the year, we
anticipate a return to a more normalised H1/H2 split, reversing the
accelerated ordering experienced in H1 FY2023. The Board remains encouraged by
the enduring strength of our longstanding customer relationships, which has
already generated an orderbook representing 62% of FY2024's budgeted revenues
(71% at this stage last year). We still believe our FY2025 operating profit
margin aspiration to be achievable. Additional support to deliver this will
come from the new strategy as initiatives get underway.
The combination of continued improvements in cash generation and management,
as well as the terms of the new financing arrangements should limit the rise
in financing costs being driven by higher market interest rates. Over the
coming year average net debt should continue to reduce from the current levels
of c$17.0 million. This means that operating profit gains in the year ahead
should substantially pass through to improved adjusted profit before tax.
The Board still aspires to return to paying dividends, but based on the
immediate outlook, and the need to strengthen the business model, the Board
does not expect to be in a position to do so during FY2024.
Summary FY2023 results
Revenue at reported rates fell by 8%, due in part to adverse currency effects.
The decline in constant currency terms was 4%, with a 10% decline in DG
Americas more than offsetting the 10% growth in the smaller DG International
division. The decline resulted from a combination of softer consumer demand in
the later stages of the year in some markets more than offsetting growth in
others, coupled with a conscious exit from unprofitable or very low margin
business in DG Americas.
The Group's adjusted operating profit margin rose 140 basis points, to 1.8%,
with the growth coming from DG Americas returning to profitability, as the
various restructuring and turnaround initiatives gained traction and delivered
benefits. Consequently, DG Americas' adjusted operating profit margin rose 230
basis points to 0.5%. Some slippage in the DG International adjusted operating
profit margin predominantly reflected the adverse foreign exchange effects and
the tougher UK market. The improved operating profits, helped by better cash
generation, kept interest costs below expectation and resulted in an adjusted
profit before tax of $9.2m, versus last year's loss of $1.3m. Taking into
account the tax charge, this resulted in a small adjusted diluted loss per
share of 0.2 cents versus last year's loss of 7.7 cents.
The year's adjusting items are a net cost of $28.1 million (FY2022: $3.5
million credit). This mainly results from the non-cash write-down of the
goodwill allocated to the UK and Asia Cash-Generating Unit (CGU); offset by
insurance receipts related to a prior acquisition, net proceeds from surplus
site disposals and other business restructurings, some minor prior year
provision releases; and the amortisation of acquired intangibles.
The goodwill write-down results in an enlarged reported loss before tax of
$18.9 million (FY2022: $2.2 million profit). The effective tax rate for the
year is largely distorted by the mix of profits and losses generated across
the jurisdictions in which the Group operates and certain loss making units
not realising a tax benefit due to restrictions on recognition of deferred tax
assets. The diluted reported loss per share of 28.6 cents (FY2022: loss of 3.3
cents) reflects the reported loss, driven by the goodwill write-down.
The Group ended the year with a net cash balance of $50.5 million (FY2022:
$30.2 million), reflecting our focus on cash generation and management,
especially through working capital improvements. Correspondingly, average
leverage for the year has improved to 0.6 times (FY2022: 1.0 times), also
benefitting from the improved (both pre-IFRS 16 basis and post) EBITDA.
As the Group is still on a path to profit-recovery and given the challenging
retail outlook in a number of markets, the Board is not recommending a
dividend in respect of the year end 31 March 2023.
Regional highlights
Overall, there was a reduction in Group revenue of 8% with adjusted operating
profit up to $16.1 million (FY2022: $3.8 million) as the Group benefits from
the execution of the turnaround in DG Americas. The split between our DG
Americas and DG International segments is as follows:
Segmental revenue Adjusted operating profit/(loss) Adjusted operating margin
% Group revenue FY2023 FY2022 % growth FY2023 FY2022 % growth FY2023 FY2022
66% DG Americas $m 593.0 659.0 (10.0%) 2.9 (11.7) 124.9% 0.5% (1.8%)
34% DG International $m 299.6 307.9 (2.7%) 19.8 20.8 (4.8%) 6.6% 6.8%
- Elims / Central costs $m (2.3) (1.8) (6.6) (5.3)
100% Total $m 890.3 965.1 (7.7%) 16.1 3.8 321.2% 1.8% 0.4%
Design Group Americas
Our business in the US, which makes up about two-thirds of the Group's total
revenues, saw revenue decline 10% to $593.0 million (FY2022: $659.0 million).
This was driven by a combination of softer demand for certain categories in
the second-half of the year, as well as the conscious decision to exit
loss-making, marginally profitable, and unduly onerous business. Categories
particularly impacted by these factors were Celebrations and Craft &
creative play, the latter having benefitted from the Covid-19 lockdowns in
recent years. These declines more than offset the benefits that came from
catch-up pricing through two waves in order to recover margins lost in the
previous year.
Despite the decline in revenues, DG Americas returned to profitability, and
delivered an adjusted operating profit of $2.9 million (FY2022: loss of $11.7
million). The drivers behind this turnaround are benefits coming from the
various initiatives set in motion last year following the collapse in the
division's profitability. The initiatives focused on delivering pricing,
cost-savings and simplifying our commercial proposition. They delivered
benefits of c$56 million at an adjusted operating profit level in the year.
The initiatives included: the closure of 4 surplus sites; sale of the
Manhattan, Kansas site in April 2022 for net proceeds of $6.7 million,
yielding a profit on disposal of $4.6 million; further utilisation of Mexican
facilities for near-shoring; more effective procurement and shipment; and a
net headcount reduction of 100. In addition, our category teams were
reorganised and underpinned with additional support for product development,
design, sales and account management. New initiatives and opportunities
continue to be identified, and the Design Group Americas team expects further
value to be generated from these activities in FY2024 and beyond. Capabilities
are also being developed and strengthened to support future profitable revenue
growth. This is being complemented by further reorganisation, investment in
technology, and training and development of our commercial organisation to
streamline our product cycles and improve execution in the retail environment.
Good progress was also made with working capital reduction, especially with
inventory levels and trade receivables.
On 23 May 2022, the Group purchased the remaining 49% interest in Anker Play
Products LLC (APP), bringing our total ownership to 100%. This was completed
pursuant to the exercise of a put option by the holder of the 49%, which the
Group was legally obliged to purchase under a 2017 agreement. APP develops and
sources craft products, toys and games for the US retail market. The
transaction, made through DG Americas, was satisfied by a cash payment of $3.0
million funded from existing banking facilities.
Design Group International
This division largely comprises the Group's businesses in the United Kingdom,
continental Europe, the Far East and Australia. It saw a 3% revenue
year-on-year decline at reported rates, to $299.6 million. The main driver of
this decline was adverse foreign currency impacts due to the strength of the
US dollar versus all of the other key currencies transacted by the businesses
in the segment. At constant exchange rates, revenues were up 10%, with
increases experienced in all key markets. The second half of the year saw
marked softening in DG UK, and a slight reduction in our DG Australia joint
venture as the economic environment deteriorated and put pressure on consumer
discretionary spend.
Adjusted operating profit at $19.8 million (FY2022: $20.8 million) was down
5%. However at constant currency rates adjusted operating profit was up 10%.
This result was driven by the strong trading performance from our businesses
operating in continental Europe, which did not experience the same degree of
softness in the second half of the year. Consumer sentiment in Europe was more
resilient, and our key customers emerged as "winners" in the current
value-focused retail environment. The weakness in the UK market in the second
half of the year was volume-driven and meant DG International's adjusted
operating profit margin retreated slightly by 20 basis points to 6.6%.
DG UK's revenue for the year grew just over 5%, but the second half was
challenging as demand declined after Christmas. As a result, the business only
delivered a small operating profit with continued inflation in paper and
energy costs largely offsetting improved pricing. Our key brands in the UK
have continued to perform well with Eco Nature(TM) sales and profits growing
10% and 11% respectively, with more details set out in the section on
sustainability in the Annual Report and Financial Statements for 2023. Our
premium Tom Smith® brand celebrated the 175(th) birthday of the Christmas
cracker, holding a Royal Warrant for the supply of Christmas crackers to the
Royal Household since 1906. Recently DG UK was proud to receive Tesco's
supplier innovation award for our collaborative work on category development.
Looking ahead, in response to the demand challenges experienced in the second
half, we have recently undertaken a restructuring of the UK business, which
represents c15% of the Group's FY2023 revenues. The intention is to develop a
more competitive and agile business model that is better suited to today's UK
retail environment. Whilst this has regrettably involved a net headcount
reduction of 31, the leadership team is being strengthened. The business has
also formed a creative collaboration with the University of Northampton to
leverage their capabilities as well as foster relationships with up and coming
design talent.
DG Europe benefitted from strong demand from our more value-orientated key
customers which are winning in the current economic climate. The business
enjoyed very strong revenue growth of 18%, which included improved pricing to
recover continued inflation in paper and energy prices. Adjusted operating
profit grew 41%, and margins improved further, as the team continues to adopt
a continuous improvement approach, combined with high automation.
Similarly, DG Australia saw revenue growth of 5% as its Independents customer
channel grew market share. The business continues to be active in new product
development, developing a compelling assortment. Unfortunately, labour
shortages and cost inflation in that market reduced adjusted operating profits
by 10%.
Our products, brands and channels
The Group continues to aspire to be our retail customers' "partner of choice"
for our categories, and our diverse product portfolio is a good demonstration
of this.
Revenue by product category FY2023 FY2022
Celebrations 60% $533.7m 63% $604.1m
Craft & creative play 17% $150.8m 16% $154.3m
Stationery 5% $45.0m 4% $44.8m
Gifting 11% $96.9m 10% $94.4m
'Not-for-resale' consumables 7% $63.9m 7% $67.5m
Total $890.3m $965.1m
The 12% decline in the Celebrations category was driven by the sales
performance in DG Americas, with declines in most product-types, but
especially giftwrap and ribbons & bows. This more than offset the growth
in these product types in all DG International markets and the progress with
cards in DG Americas. Whilst stationery remained stable, giftware gains were
driven by photo frames in DG International. The decline in 'not-for-resale'
consumables came from reduced demand for floral packaging in DG Americas. The
Craft & creative play category continued to normalise from Covid-pandemic
lockdown highs.
Revenue by customer channel FY2023 FY2022
Value & mass 67% $597.1m 67% $643.9m
Specialist 14% $120.4m 15% $144.4m
Independents 17% $153.7m 16% $156.5m
Online 2% $19.1m 2% $20.3m
Total $890.3m $965.1m
The Value & mass channel saw a small decline of 7% driven by the adverse
DG Americas dynamics. This more than offset good progress in all of the DG
International businesses where this channel benefitted from recent
consumer-driven focus on value. Similarly, the 17% decline in Specialists is
largely driven by DG Americas, where we consciously exited unprofitable
business, offsetting the progress in continental Europe. Overall, our top 20
customers represent 68% of our sales (FY2022: 68%).
Revenue by season FY2023 FY2022
Christmas 42% $374.7m 40% $390.9m
Minor seasons 9% $76.5m 7% $65.8m
Everyday 49% $439.1m 53% $508.4m
Total $890.3m $965.1m
The reversal of the trend seen in recent years towards more Everyday business
reflects the pressures experienced in certain markets post-Christmas 2022,
particularly in DG UK. There was also a general reduction in DG Americas
revenues, offsetting strong progress in DG Europe, with photo frames in
particular.
Revenue by brand FY2023 FY2022
Licensed 9% $82.2m 9% $84.2m
Customer own brand/Bespoke 54% $474.3m 48% $459.8m
Design Group/Generic brand 37% $333.8m 43% $421.1m
Total $890.3m $965.1m
The reduction in DG branded sales reflects the adverse DG Americas revenue
dynamics, which more than offset the gains in all DG International markets.
Sustainability
The Board launched the Group's sustainability framework 'helping design a
better future' in FY2021, 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 sustainability indicators
(KPIs). We report our performance against these and the progress the Group has
made during the year as seen in the Sustainability report in the Annual Report
and Financial Statements for 2023. We recognise that we are on a
sustainability journey so as we move forward, we'll seek to further enhance
the metrics we monitor whilst also looking to set targets by which to measure
our success.
In the year we have made more progress in our journey towards compliance with
Taskforce for Climate-related Financial Disclosures (TCFD) through the
completion of a risk assessment exercise to identify the Group's
climate-related risks and opportunities over the short, medium and long term.
In future this will be integrated into our wider risk management processes.
People - Our people are key to the success of our business, and in the
challenging times we are facing it is even more important to ensure that we
are recognising performance and loyalty, and investing in the many talented
individuals and teams across the Group. Given the "cost of living crisis"
being experienced across the world, we took various additional steps in our
businesses, over and above the normal, to try and mitigate the impact on our
employees and their families.
This year saw the launch of the first Group-wide employee engagement survey:
"Your Voice, Our Future". There was a pleasing 78% participation rate, and it
was encouraging to learn that despite the significant changes taking place
across the business, our teams remain positive about their roles, Design Group
as a place to work, and its future. The survey has also provided management
with areas for further improving the working environment, and these are now
being followed-up.
Other notable achievements in FY2023 include the launch of the "DG Bravo"
recognition programme in DG Americas, 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. Extending beyond leadership, the
DG Europe Academy has had another successful year with internal training
programmes available for our employees to develop their knowledge and skills
across a range of topics. DG UK has trained mental health first aiders across
the business and run a monthly health programme focused on both mental and
physical wellbeing with 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 solutions and
collections to promote to our customers and theirs. A notable achievement is
the continued development of our shrink-free wrapping paper, which eliminates
plastic waste through the use of recyclable paper labels, with the launch of
Smartwrap™ in continental Europe this year. This complements our Eco
Nature(TM) ranges already established in the UK which have continued to
perform well. We will look to further improve our sustainable solutions in
these markets where there is traction with consumers. Numerous other
initiatives are underway finding innovative solutions with both customers and
external specialists and academic institutions to continue to reduce the
environmental impact of our products. For example, in DG Europe, all plastic
frames now have 100% recycled frames.
Planet - The Group has formally incorporated Climate Change as a principal
risk (formerly an emerging risk) acknowledging our responsibility to protect
and preserve our planet and its environment, as well as the sustainability of
our business. Notable achievements in FY2023 include DG Europe being awarded
Ecocert's climate neutral status on their giftwrap collections following
investment in innovative Smartwrap™ technology to provide next-generation
shrink-free solutions. 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. In
the area of sea freight, DG Europe is seeking to achieve carbon neutrality on
half of its shipments. Finally, also testament to our efforts was DG Americas
achieving Walmart's Giga-Guru status, recognising our collaboration with our
biggest customer in the area of supply chain carbon reduction.
Detailed financial review
The Group's financial results are summarised below, setting out both the
reported and the adjusted results.
FY2023 FY2022
Reported Adjusting items Adjusted Reported Adjusting items Adjusted
$m $m $m $m $m $m
Revenue 890.3 - 890.3 965.1 - 965.1
Gross profit 131.7 1.4 133.1 122.2 (2.5) 119.7
Overheads (143.7) 26.7 (117.0) (114.5) (1.4) (115.9)
Operating (loss)/profit (12.0) 28.1 16.1 7.7 (3.9) 3.8
Finance charge (6.9) - (6.9) (5.5) 0.4 (5.1)
(Loss)/profit before tax (18.9) 28.1 9.2 2.2 (3.5) (1.3)
Tax (7.6) (0.2) (7.8) (2.5) (0.8) (3.3)
(Loss)/profit after tax (26.5) 27.9 1.4 (0.3) (4.3) (4.6)
Operating (loss)/profit (12.0) 28.1 16.1 7.7 (3.9) 3.8
Impairment of goodwill 29.1 (29.1) - - - -
Depreciation and impairment of PPE and software 14.6 - 14.6 16.4 0.3 16.7
Depreciation and impairment of right of use assets 18.4 (0.7) 17.7 15.3 2.5 17.8
Acquisition amortisation 2.8 (2.8) - 2.8 (2.8) -
EBITDA 52.9 (4.5) 48.4 42.2 (3.9) 38.3
Diluted loss per share (28.6c) 28.4c (0.2c) (3.3c) (4.4c) (7.7c)
Revenue for the year ended 31 March 2023 reduced by 8% to $890.3 million
(FY2022: $965.1 million) driven by combination of adverse foreign exchange
movements in DG International, the strategic decision to exit loss-making
business in DG Americas, and lower volume in the second half of the year in a
number of our markets. Constant currency Group revenues reduced by 4%
year‑on‑year.
Adjusted operating profit saw an increase year-on-year to $16.1 million
(FY2022: $3.8 million) and adjusted gross margin increased to 14.9% (FY2022:
12.4%), reflecting stronger than anticipated trading within DG International
particularly continental Europe, benefits from the turnaround initiatives in
DG Americas and some catch-up pricing to offset some of the inflation
continuing in our inputs. Inventory provisions made in the year were $19.3
million (FY2022: $18.3 million) and inventory provision releases were $6.3
million (FY2022: $5.0 million). Adjusted overheads as a percentage of revenue
increased to 13.1% (FY2022: 12.0%). Adjusted operating margin at 1.8% (FY2022:
0.4%) was up year-on-year, reflecting the higher gross margins and cost
management. Overall adjusted profit before tax was $9.2 million (FY2022: loss
before tax $1.3 million). The Group finished the year with a reported loss
before tax of $18.9 million (FY2022: profit before tax of $2.2 million). This
is significantly adverse to the improvement in adjusted profit before tax
reflecting the (largely non-cash) adjusting items in the current year of $28.1
million compared to a net credit of $3.5 million in the prior year. Further
details of the adjusting items are detailed below.
Adjusted profit after tax was $1.4 million (FY2022: adjusted loss after tax of
$4.6 million) with loss after tax for the year at $26.5 million (FY2022: $0.3
million).
Finance charges
Finance costs were higher than the prior year at $6.9 million (FY2022: $5.5
million), resulting from higher financing costs at $4.0 million (FY2022: $2.0
million) which reflected the significant increase in interest rates during the
year. The IFRS 16 related lease liability interest was marginally lower than
the prior year at $2.9 million (FY2022: $3.5 million), of which $0.4 million
was treated as an adjusting item in the prior year.
Adjusting items
Adjusting items are material items or 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 2023 result in a (largely non-cash) net charge of $28.1
million compared to a net credit of $3.5 million in the prior year. Details of
all adjusting items are included below:
Adjusting Items FY2023 FY2022
Goodwill impairment $29.1m -
(Gains)/losses and transaction costs relating to acquisitions and disposals of ($1.5m) $3.7m
businesses
Acquisition integration and restructuring (income)/costs ($2.0m) ($1.7m)
Reversal of impairment of assets ($0.2m) ($2.6m)
IT security incident income ($0.1m) ($5.7m)
Amortisation of acquired intangibles $2.8m $2.8m
Total $28.1m ($3.5m)
Goodwill impairment - $29.1 million charge
In the year an impairment of $29.1 million has been recorded to write down the
goodwill from historical acquisitions in the UK and Asia CGU.
Following the deterioration of the result experienced in UK and Asia CGU
already referred to, especially in the second half of FY2023, the longer-term
impacts on the forecasts for future cash flows have resulted in an impairment.
The calculation was further exacerbated by the significant increase in the
discount rate, mainly as a result of higher interest rates. Further details of
this impairment are set out in note 9.
(Gains)/losses and transaction costs relating to acquisitions and disposals of
businesses - $1.5 million credit (FY2022: $3.7 million charge)
In the year $1.5 million of insurance income was received relating to the
Impact Innovations, Inc acquisition Representations & Warranties insurance
settlement relating to accounting and tax issues present at acquisition.
Acquisition integration and restructuring (income)/costs - $2.0 million
credit (FY2022: $1.7 million credit)
In order to realise synergies from acquisitions, or existing businesses,
integration and restructuring projects are respectively 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 it is appropriate that
costs associated with projects of this nature be included as adjusting items.
The costs incurred in the year relate to the reorganisation, business
simplification and impairment expenses in DG Americas and the reorganisation
of the DG UK businesses as follows:
Site closures - In April 2022, the Manhattan, Kansas property was sold for
proceeds of $6.7 million resulting in a profit on disposal of $4.6 million
recognised as an adjusting item. In March 2023, a decision was made to exit a
surplus site in Clara City, Minnesota. This resulted in an impairment of the
right-of-use asset associated with the underlying lease of $0.8 million.
Additional costs of $0.3 million were incurred in relation to the relocation
and closure of these sites, as well as the consolidation of other US sites.
DG America and DG UK business reorganisation - In the year further
restructuring costs, relating to staff, of $0.8 million have been recognised
in DG Americas following the announcement of further business reorganisation.
Similarly, in March 2023 the UK business internally announced a business
simplification in light of the downturn of the UK market outlook, resulting in
the recognition of one-off restructuring costs of $0.7 million.
Reversal of impairment of assets - $0.2 million credit (FY2022: $2.6 million
credit)
At the onset of the Covid-19 pandemic a review of inventory, trade receivables
and fixed assets was undertaken. Inventories were assessed at 31 March 2020
for the net realisable value and an impairment of $7.4 million was recognised.
Trade receivables were assessed for their expected credit loss in line with
IFRS 9 and an impairment of $3.8 million was recognised. The UK's bag-line
machines were impaired by $0.3 million based on expected future cash flows
associated with the 'not-for-resale' consumables business.
In the year a credit of $0.2 million has been recognised relating to reversal
of impairments no longer required. There are no remaining provisions relating
to these costs.
IT security incident income - $0.1 million credit (FY2022: $5.7 million
credit)
The IT security incident which occurred in DG Americas in October/November
2020 resulted in one-off costs of $2.2 million being incurred during the year
ended 31 March 2021. This did not include the lost profits incurred as a
result of downtime in the business for which an insurance claim was made. In
the year final insurance income was received of $0.1 million in relation to
this incident.
Amortisation of acquired intangibles - $2.8 million charge (FY2022: $2.8
million charge)
Under UK 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 comprise mainly trade
names and brands acquired as part of the acquisition of Impact Innovations
Inc. (Impact) and CSS Industries Inc. (CSS) in the USA.
Taxation
The Group aims to manage its tax affairs in an open and transparent manner,
with the objective of full compliance 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 $7.8 million (FY2022: $3.3
million) against an adjusted profit before tax of $9.2 million (FY2022: loss
of $1.3 million). Deferred tax assets relating to the entities in the UK (both
UK trading and PLC) are not being recognised as the assessment of future
taxable profits shows insufficient future taxable profits against which to
utilise the deferred tax assets. Consequently, the absence of tax relief on
current year tax losses significantly inflates the effective tax charge for
the Group. The profits in DG Europe and Australia, which are the main
contributors to adjusted profit before tax, are taxed at higher statutory tax
rates (25.8% and 30% respectively). In DG Americas, the impact of movements in
uncertain tax positions together with permanent items adds to the tax charge.
Further details of this tax charge are set out in note 11.
Tax paid in the year was $7.3 million (FY2022: $5.2 million). This is $2.1
million higher than the prior year, reflecting higher profits in the Group's
tax-paying jurisdictions.
Loss per share
Diluted adjusted loss per share at 0.2 cents (FY2022: 7.7 cents) is improved
year-on-year driven by the significantly higher adjusted earnings attributable
to equity holders of the Company. Diluted loss per share at 28.6 cents
(FY2022: 3.3 cents) is significantly lower than adjusted, reflecting the
adjusting items charge in the FY2023 year. Further details are set out in note
21.
Dividend
In light of the Group's current position on the path to profit and margin
recovery, and the challenges due to forecast reduced consumer demand in
certain markets, the Board are not recommending a final dividend (FY2022:
nil). As a result, the full-year dividend is nil (FY2022: 1.68 cents (1.25
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 as well as the Group overall. The Group saw the return
on capital employed increase year-on-year to 5.6% (FY2022: 1.3%), reflecting
the improved profitability and our efforts to reduce our working capital
requirements.
Cash flow and net cash
The Group ended the year with its net cash balance at $50.5 million (FY2022:
$30.2 million). The significant increase in the cash balance year‑on‑year
is a direct result of the higher EBITDA contribution and the improved working
capital management resulting in adjusted cash generated from operations
significantly higher at $60.4 million (FY2022: $5.8 million).
Cash flow FY2023 FY2022
Adjusted EBITDA $48.4m $38.3m
Add back for share-based payment charge/(credit) $0.8m ($0.8m)
Movements in working capital $11.2m ($31.7m)
Adjusted cash generated from operations $60.4m $5.8m
Adjusting items within cash generated from operations ($1.4m) ($1.9m)
Cash generated from operations $59.0m $3.9m
Adjusting items within investing and financing activities $8.3m ($4.3m)
Capital expenditure (net of disposals of property, plant and equipment) ($5.8m) ($8.3m)
Acquisition of non-controlling interest ($3.0m) -
Tax paid ($7.3m) ($5.2m)
Interest paid ($5.3m) ($4.2m)
Lease liabilities principal repayments ($20.4m) ($16.8m)
Dividends paid (including those paid to non-controlling interests) ($3.0m) ($12.6m)
Purchase of own shares ($0.9m) -
FX and other ($1.3m) $1.2m
Movement in net cash $20.3m ($46.3m)
Opening net cash $30.2m $76.5m
Closing net cash $50.5m $30.2m
Working capital
The working capital cash flow improved from a $31.7 million outflow in the
prior year to a $11.2 million inflow. This was driven primarily by improved
working capital management across the Group. The lowering of working capital
levels will remain a focus of the Group.
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
0.1% of revenue (FY2022: 0.2%), reflecting our continued proactive approach to
mitigating credit risk exposure.
Capital expenditure
Capital expenditure in the year reduced in relation to the prior year at $5.8
million (FY2022: $8.3 million). There were no significant capital projects in
the year to 31 March 2023. Capital expenditure in FY2024 is expected to be
higher with investment in new ERP and manufacturing capabilities.
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 2023 average leverage was 0.6 times, improved from 1.0 times in
the prior year. This reflects the improvement in adjusted EBITDA compared to
the prior year and stabilised average debt at $17.1 million (FY2022: $17.2
million).
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
On 1 June 2022 the Company amended and extended the term of its revolving
credit facility, and operated under revised covenants during the financial
year. The Group operated well within these covenant requirements with excess
headroom throughout the year.
On 2 June 2023, the Group announced the successful negotiation of a $125.0
million three-year refinancing with HSBC and NatWest banks. The new facility
is structured as an Asset Backed Lending (ABL) arrangement secured with an
all-assets lien in the USA and an all-assets security in the UK. The Group has
also extended its overdraft facility provided by HSBC. This facility replaces
the previous revolving credit facilities originally agreed in 2019.
The new facility carries an initial bank margin of 1.75% to 2.25%, based on
average excess availability (plus 0.1% spread adjustment) over the
forward-looking term rate based on the US Secured Overnight Financing Rate
(SOFR) which is lower than the margins on the 2019 facilities.
The Board believes that the new ABL facility, which flexes in line with the
receivables in the USA, provide more than sufficient headroom to fund the
Group's working capital needs over the period of the facility.
Further details are set out in note 15.
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 dollars. The
constant currency results recalculate the prior year based on the exchange
rates of the current year to enhance the comparability of information between
reporting periods. The overall impact on revenue and profits from currency
movements in FY2023 when compared to FY2022 is significant relative to the
balances. The increase in revenue would have been $36.4 million higher if
FY2022 revenues are translated at FY2023 foreign currency exchange rates, and
the growth in adjusted loss before tax would have been $2.4 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 $35.3 million to $334.4 million at 31
March 2023 (FY2022: $369.7 million), primarily reflecting impairment of
goodwill in the current year.
As at the 31 March 2023 balance sheet date, in light of the FY2023 results and
the outlook for FY2024, 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 $50.5 million.
The Directors of the Group have performed an assessment of the overall
position and future forecasts for the purposes of going concern. The going
concern assessment has been performed using the Group's FY2024 and FY2025
budgets and plans. These forecasts have been reviewed in detail by the Board
and take into account the seasonal working capital cycle of the business. They
have been sensitised to reflect severe but plausible adverse downturns in the
current assumptions including the potential impact of a significant disruption
in one of our major customer's business, as well as increased inflationary
pressures in the DG International and DG Americas business segments, beyond
those risks already factored into the budgets and plans. The base forecasts
and additional sensitivity analysis have been tested against the ABL facility
limits and covenants. The analysis demonstrated that the Group has sufficient
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 UK 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 UK 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 or
of an unusual or non-recurring nature.
The APMs and the definitions used are listed below:
● Adjusted EBITDA - Profit/(loss) before finance charges, tax,
depreciation, amortisation, impairment (EBITDA) and adjusting items
● Adjusted gross profit - Gross profit 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 tax - Tax before adjusting items
● Diluted adjusted earnings/(loss) per share - Diluted
earnings/(loss) per share before adjusting items and associated tax effect
● Adjusted overheads - Selling costs, administration expenses, other
operating income, profit/(loss) on disposal of property, plant and equipment
(overheads) before adjusting items
● Adjusted cash generated from operations - Cash generated from
operations before the associated cash impact of those adjusting items
● Net cash - Cash and cash equivalents, bank overdraft and loan
arrangement fees
In terms of these APMs, a full reconciliation between our adjusted and
reported results is provided in the detailed financial review above, from
which the following key performance metrics have been derived:
● Adjusted gross margin - Adjusted gross profit divided by revenue
● Adjusted operating margin - Adjusted operating profit divided by
revenue
● Adjusted EBITDA margin - Adjusted EBITDA divided by revenue
● Cash conversion - Adjusted cash generated from operations divided by
adjusted EBITDA
In addition, the Group calculates the following key performance measures using
the above APMs:
● Return on capital employed - Adjusted operating profit divided by
monthly average net capital employed (where capital employed is net assets
excluding net cash and intangible assets)
● Average leverage - Average bank debt (being average debt measured
before lease liabilities) divided by adjusted EBITDA reduced for lease
payments
Further details of the items categorised as adjusting items are disclosed in
more detail in note 3.
Paul Bal
Director
19 June 2023
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 UK‑adopted international accounting
standards 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 UK‑adopted international accounting
standards 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 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 also 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
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 2023
2023 2022
Note $000 $000
Revenue 2 890,309 965,093
Cost of sales (758,569) (842,926)
Gross profit 131,740 122,167
Selling expenses (47,097) (48,305)
Administration expenses - costs (75,112) (66,604)
Administration expenses - impairment of goodwill 3 (29,100) -
Other operating income 5 2,951 870
Profit/(loss) on disposal of property, plant and equipment 3 4,595 (436)
Operating (loss)/profit 3 (12,023) 7,692
Finance expenses 6 (6,873) (5,491)
(Loss)/profit before tax (18,896) 2,201
Income tax charge 7 (7,563) (2,517)
Loss for the year (26,459) (316)
Attributable to:
Owners of the Parent Company (27,987) (3,277)
Non-controlling interests 1,528 2,961
Loss per ordinary share
Note 2023 2022
Basic 21 (28.6c) (3.3c)
Diluted 21 (28.6c) (3.3c)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 MARCH 2023
2023 2022
$000 $000
Loss for the year (26,459) (316)
Other comprehensive (expense)/income:
Items that will not be reclassified to profit or loss
Re-measurement of defined benefit pension and health benefit schemes (37) (715)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translation of foreign operations 10,621 8,686
Transfer to profit and loss on maturing cash flow hedges (683) (301)
Net unrealised gain on cash flow hedges 419 686
Income tax relating to these items - -
10,357 9,071
Other comprehensive income for the year, net of tax 10,320 8,356
Total comprehensive income for the year, net of tax (16,139) 8,040
Attributable to:
Owners of the Parent Company (17,024) 5,173
Non-controlling interests 885 2,867
(16,139) 8,040
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 MARCH 2023
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 2022 6,373 228,143 42,549 299 (12,459) 96,806 361,711 7,999 369,710
Loss for the year - - - - - (27,987) (27,987) 1,528 (26,459)
Other comprehensive income/(expense) - - - (261) 11,261 (37) 10,963 (643) 10,320
Total comprehensive (expense)/income for the year - - - (261) 11,261 (28,024) (17,024) 885 (16,139)
Change in ownership interest
Option over non-controlling interest (note 18) - - - - - 3,069 3,069 3,069
Acquisition of non-controlling interest (note 28) - - - - - (3,558) (3,558) 607 (2,951)
Transactions with owners in their capacity as owners
Equity-settled share-based payments (note 23) - - - - - 656 656 - 656
Purchase of own shares (note 29) - - - - - (865) (865) - (865)
Options exercised (note 20) 51 - - - - (51) - - -
Equity dividends paid (note 27) - - - - - - - (2,961) (2,961)
Exchange differences on opening balances (365) (13,298) (2,480) - - - (16,143) - (16,143)
At 31 March 2023 6,059 214,845 40,069 38 (1,198) 68,033 327,846 6,530 334,376
In line with the Group's accounting policies, 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 translation reserve.
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 $1.7 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 (2022: $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.
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
Option over non-controlling interest (note 18) - - - - - (3,069) (3,069) - (3,069)
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)
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
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2023
2023 2022
Note $000 $000
Non-current assets
Property, plant and equipment 8 70,306 78,911
Intangible assets 9 71,325 107,398
Right-of-use assets 10 69,332 86,731
Long-term assets 13 5,647 5,105
Deferred tax assets 11 15,401 16,317
Total non-current assets 232,011 294,462
Current assets
Asset held for sale 8 - 2,150
Inventory 12 206,426 230,885
Trade and other receivables 13 92,402 127,850
Income tax receivable 2,428 1,234
Derivative financial assets 24 340 316
Cash and cash equivalents 14 85,213 50,179
Total current assets 386,809 412,614
Total assets 2 618,820 707,076
Non-current liabilities
Loans and borrowings 15 - (20)
Lease liabilities 10 62,717 80,215
Deferred income 16 2,038 523
Provisions 17 5,474 5,016
Other financial liabilities 18 19,071 21,557
Deferred tax liabilities 11 221 381
Total non-current liabilities 89,521 107,672
Current liabilities
Bank overdraft 14 34,979 20,380
Loans and borrowings 15 (250) (340)
Lease liabilities 10 17,470 19,628
Deferred income 16 263 465
Provisions 17 1,339 1,342
Income tax payable 6,918 7,359
Trade and other payables 19 92,977 143,318
Other financial liabilities 18 41,227 37,542
Total current liabilities 194,923 229,694
Total liabilities 2 284,444 337,366
Net Assets 334,376 369,710
Equity
Share capital 20 6,059 6,373
Share premium 213,187 226,382
Capital redemption reserve 1,658 1,761
Merger reserve 40,069 42,549
Hedging reserve 38 299
Translation reserve (1,198) (12,459)
Retained earnings 68,033 96,806
Equity attributable to owners of the Parent Company 327,846 361,711
Non-controlling interests 6,530 7,999
Total equity 334,376 369,710
The consolidated financial statements were approved by the Board of Directors
on 19 June 2023 and were signed on its behalf by:
Paul Bal
Director
CONSOLIDATED CASH FLOW STATEMENT
YEAR ENDED 31 MARCH 2023
2023 2022
Note $000 $000
Cash flows from operating activities
Loss for the year (26,459) (316)
Adjustments for:
Depreciation and impairment/(reversal of impairment) of property, plant and 8 12,532 13,378
equipment
Depreciation and impairment/(reversal of impairment) of right-of-use assets 10 18,471 15,284
Amortisation of intangible assets 9 4,817 5,817
Goodwill impairment 9 29,100 -
Finance expenses 6 6,873 5,491
Income tax charge 7 7,563 2,517
(Profit)/loss on disposal of property, plant and equipment (4,595) 436
Equity-settled share-based payments - expense/(income) 23 805 (848)
Add back income from insurance settlement 3 (1,500) -
Operating profit after adjustments for non-cash items 47,607 41,759
Change in trade and other receivables 36,929 (994)
Change in inventory 17,790 (58,096)
Change in trade and other payables, provisions and deferred income (43,352) 21,237
Cash generated from operations 58,974 3,906
Tax paid (7,307) (5,205)
Interest and similar charges paid (5,270) (4,626)
Net cash inflow/(outflow) from operating activities 46,397 (5,925)
Cash flow from investing activities
Proceeds from sale of property, plant and equipment 6,809 131
Acquisition of intangible assets 9 (368) (381)
Acquisition of property, plant and equipment 8 (5,459) (8,140)
Proceeds from insurance settlement 3 1,500 -
Net cash inflow/(outflow) from investing activities 2,482 (8,390)
Cash flows from financing activities
Acquisition of non-controlling interest 28 (2,951) -
Purchase of own shares 29 (865) -
Lease liabilities principal repayments 10 (20,428) (20,717)
Loan arrangement fees 14 (1,079) (494)
Equity dividends paid 22 - (9,274)
Dividends paid to non-controlling interests (2,961) (3,365)
Net cash outflow from financing activities (28,284) (33,850)
Net increase/(decrease) in cash and cash equivalents 20,595 (48,165)
Cash and cash equivalents and bank overdrafts at beginning of the year 14 29,799 75,727
Effect of exchange rate fluctuations on cash held (160) 2,237
Cash and cash equivalents and bank overdrafts at end of the year 14 50,234 29,799
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 MARCH 2023
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. The consolidated financial statements
have been prepared in accordance with UK-adopted international accounting
standards 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 financial information set out in this document does not constitute
statutory accounts for IG Design Group plc for the year ended 31 March 2023
but is extracted from the Annual Report and Financial Statements. The Annual
Report and Financial Statements 2023 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).
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.
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 distribution. 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
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 twelve 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.
On 5 June 2023, the business entered into a new banking facility with HSBC and
NatWest bank as part of a three-year deal to meet the funding requirements of
the Group. This facility comprises an Asset Backed Lending (ABL) arrangement
with a maximum facility amount of $125.0 million. Cash balances, borrowing and
the financial covenants applicable to the facility are detailed in notes 14
and 15.
In addition to the above facility, the Group has also increased its unsecured
overdraft facility provided by HSBC to £16.5 million, which reduces to £8.5
million from August 2023. As such, after making appropriate enquires, 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.
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. As the new
ABL arrangement is linked to trade debtors, any withdrawal of these facilities
would be largely offset as the borrowing base under the facility would
increase.
The Directors have assessed detailed plans and forecasts up to 30 September
2024. These forecasts reflect the fact that the Group has now returned to
profitability and continues the journey to more robust performance, growing
profitability and margins as a result. They also reflect the seasonal
operating cycle of the business and further 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:
· the potential impact of a significant disruption in one of our
major customer's business, reflected in a c$20-$25 million reduction in sales
performance and related cash and working capital impacts; and
· the potential impact over peak periods by of the effects of
inflation on disposable incomes and demand for products in the DG
International and DG Americas business segments, reflected in a c$40 million
reduction of sales.
In the severe but plausible scenario modelled, there remains sufficient
headroom in our forecast liquidity, and sufficient headroom under the covenant
requirements.
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:
· Property, Plant and Equipment: Proceeds before Intended Use -
Amendments to IAS 16
· Onerous contracts - Costs of Fulfilling a Contract - Amendments
to IAS 37
· Annual Improvements to IFRS Standards 2018-2020
· Reference to the Conceptional; Framework - Amendments to IFRS 3
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. Specifically, the Group
controls an investee if, and only if, the Group has power over the investee
(i.e. existing rights that give it the current ability to direct the relevant
activities of the investee), exposure, or rights, to variable returns from its
involvement with the investee and the ability to use its power over the
investee to affect its returns. The financial statements of subsidiaries which
we consider the Group to have control are included in the consolidated
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.
Share capital, share premium, capital redemption reserve, merger reserve are
denominated in pounds sterling, the Parent Company's functional currency. They
are translated into US dollars at the rates of exchange at each balance sheet
date and the resulting cumulative exchange differences are included in
translation reserve.
(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;
· 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') in August 2018.
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 inventory on hand relating to sales orders already attached to the
acquired inventory. 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 majority of sales
are made with credit terms of 30‑120 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
when deferred tax assets are recognised in that territory.
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) is 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 deferred income on the balance sheet
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 are appropriately classified
as adjusting items and that the values assigned are appropriate. Adjusting
items relate to impairments of assets, costs associated with acquisitions or
disposals, and significant items by virtue of their size or incidence.
Adjusting items are approved by the Board. Further details on the rationale
for classification are disclosed in note 3.
(ii) Goodwill impairment assessment
In reaching the conclusion that the Fair Value less Costs to Sell (FVLCTS)
model does not yield a higher recoverable amount than the Value in Use (VIU)
model, management considered various factors, including current market
conditions, observable market prices, and assumptions related to potential
buyers' perspectives. The judgment was applied in assessing the relevance and
reliability of the market-based approach, immediate sale perspective, and
market participant assumptions within the FVLCTS model. Additionally,
management considered the associated costs and time required for the sale
process, considering a conservative and realistic assumption.
The conclusion was reached based on management's experience, market knowledge,
and the assessment of available data and information. While the judgments
exercised by management were made in good faith and believed to be reasonable,
actual results may differ from these judgments due to inherent uncertainties
and external factors affecting market conditions.
The assessment of the future impacts of climate change is undoubtedly another
area where judgement must be applied. The evolving and dynamic nature of
climate change, along with the uncertainties surrounding future regulatory
frameworks, technological advancements, and market dynamics, make it difficult
to precisely predict the medium and long-term effects on our financial
performance, assets, and liabilities.
While the judgments exercised by management were made in good faith and
believed to be reasonable, actual results may differ from these judgments due
to inherent uncertainties and external factors affecting climate change.
The disclosures in Note 9 provide further details regarding the key
assumptions and judgments made by management in determining the recoverable
amount of goodwill related to the CGUs of the Group.
Accounting estimates
(i) Intangible assets - Goodwill
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. An
estimate is 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. Tests for impairment are based
on discounted cash flows and assumptions (including discount rates and growth
prospects) which are inherently subjective. They involve a degree of
uncertainty, and changes in these estimates could have a material impact on
the financial statements in future periods. The Group performs various
sensitivity analyses in respect of the tests for impairment, as detailed in
note 9.
(ii) Taxation
Estimates are required in determining the Group's tax assets and liabilities.
Deferred tax assets have been recognised to the extent that management believe
that they are recoverable based on profit projections for future years. These
forecasts are consistent with those used elsewhere in the financial statements
(including impairment). Note 11 provides information on the gross temporary
differences and unused tax losses on which deferred tax assets have not been
recognised.
Included within current tax liabilities are estimations related to uncertain
tax positions. These calculations are based on management's best estimates of
potential tax liabilities that could arise in the future. These estimates are
reassessed when facts and circumstances change.
(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 DG Americas
integration. 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 early
termination agreed with the landlord.
The decision was made to exit Clara City, Minnesota in the year, resulting in
a lease impairment of $757,000. In the year to 31 March 2022, there was a $2.5
million impairment reversal. As at 31 March 2023, for the remaining impaired
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 2023, if there was a
reversal of the remaining impaired right-of-use assets, the right‑of-use
assets would increase by $4.7 million (2022: $6.5 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 inventory for those
time frames. This is not a precise estimate and is based on best data at the
time of recognition. Regular monitoring of inventory levels, the ageing of
inventory 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 2023, inventory
provisions were $36.5 million against a gross inventory value of $243.2
million (2022: $38.4 million provision, $269.3 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.
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 businesses in the
UK, Asia, Europe and Australia.
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 2023
Revenue - external 592,954 297,355 - 890,309
- inter-segment - 2,283 (2,283) -
Total segment revenue 592,954 299,638 (2,283) 890,309
Segment profit/(loss) before adjusting items 2,918 19,827 (6,696) 16,049
Adjusting items (note 3) 1,701 (29,773) - (28,072)
Operating (loss)/profit 4,619 (9,946) (6,696) (12,023)
Finance expenses (6,873)
Income tax (7,563)
Loss for the year ended 31 March 2023 (26,459)
Balances at 31 March 2023
Segment assets 370,276 201,650 46,894 618,820
Segment liabilities (156,053) (96,588) (31,803) (284,444)
Capital expenditure additions
- property, plant and equipment 2,452 2,941 66 5,459
- intangible assets 331 37 - 368
- right-of-use assets 727 4,094 24 4,845
Depreciation - property, plant and equipment 7,291 5,226 15 12,532
Amortisation - intangible assets 4,673 144 - 4,817
Impairment - intangible assets - 29,100 - 29,100
Depreciation - right-of-use assets 12,615 5,090 9 17,714
Impairment - right-of-use assets 757 - - 757
Profit on disposal of property, plant and equipment ((b)) 4,493 102 - 4,595
(a) Including overseas entities for the Americas operating segment.
(b) Includes $4.6 million relating to the profit on sale of a property
owned by the Group in Manhattan, Kansas; see note 3
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 (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.
· The Group has one customer that accounts for 24% (2022: 23%) of
the total Group revenues. In the year ended 31 March 2023 total sales to
that customer were $215.2 million (2022: $223.9 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 $15.4 million (2022: $16.3 million),
income tax receivable of $2.4 million (2022: $1.2 million), income tax payable
of $6.9 million (2022: $7.4 million) and deferred tax liabilities of $221,000
(2022: $381,000).
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
2023 2022
$000 $000
DG Americas((a)) 144,651 166,823
DG International 66,312 106,217
210,963 273,040
a) These figures include overseas entities relating to the DG Americas
operating segment. The overseas entities element is not material, and this
information is not readily available.
Non-current assets
DG International is made up as follows: 2023 2022
$000 $000
UK 29,030 65,103
Netherlands 25,086 24,642
Other 12,196 16,472
66,312 106,217
Revenue by customer destination
2023 2022 2023 2022
$000 $000 % %
Americas((a)) 607,470 665,059 68 69
UK 94,524 112,539 11 12
Rest of the world 188,315 187,495 21 19
890,309 965,093 100 100
a) Included within Americas is $577.2 million (2022: $637.7 million) relating
to the country, USA.
All revenue arose from the sale of goods.
3 Operating expenses and adjusting items
Included in the income statement are the following charges/(credits):
2023 2022
Note $000 $000
Depreciation of tangible fixed assets 8 12,532 13,705
Reversal of impairment of tangible fixed assets 8 - (327)
Depreciation of right-of-use assets 10 17,714 17,776
Impairment/(reversal of impairment) of right-of-use assets 10 757 (2,492)
(Profit)/loss on disposal of property, plant and equipment and intangible (4,595) 436
assets
Release of deferred grant income 5 (111) 17
Goodwill impairment 9 29,100 -
Amortisation of intangible assets - software 9 2,066 2,980
Amortisation of intangible assets - other 9 2,751 2,837
Sub-lease rental income 5 (1,253) (752)
Write down of inventories to net realisable value 12 19,295 18,285
Reversal of previous write downs of inventory 12 (6,436) (6,219)
Loss on foreign exchange 719 602
Total administration expenses of $104.2 million (2022: $66.6 million) includes
$29.1 million (2022: $nil) goodwill impairment as noted above.
2023 2022
$000 $000
Operating profit analysed as:
Adjusted operating profit 16,049 3,808
Adjusting items (28,072) 3,884
Operating (loss)/profit (12,023) 7,692
Adjusting items
Year ended Cost of Selling Admin Other Profit on Admin Total
sales expenses expenses - costs operating disposal of property, expenses - impairment of goodwill
income plant and equipment
31 March 2023 $000 $000 $000 $000 $000 $000 $000
Goodwill impairment((1)) - - - - - 29,100 29,100
Losses/(gains) and transaction costs relating to acquisitions and disposals of - - - (1,500) - - (1,500)
businesses((2))
Acquisition integration and restructuring (income)/costs((3)) 1,479 - 1,031 - (4,493) - (1,983)
Reversal of impairment of assets((4)) (154) - - - - - (154)
IT security incident income((5)) - - (142) - - - (142)
Amortisation of acquired intangibles((6)) - - 2,751 - - - 2,751
Adjusting items 1,325 - 3,640 (1,500) (4,493) 29,100 28,072
Other Loss on Other
Cost of Selling Admin operating disposal finance
Year ended sales expenses Expenses - costs income of plant expenses Total
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((2))
Acquisition integration and restructuring (income)/costs((3)) (980) - (1,336) (124) 348 401 (1,691)
(Reversal of impairment)/impairment of assets((4)) (1,544) (1,112) - - - - (2,656)
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)
Adjusting items are separately presented by virtue of their nature, size
and/or incidence (per each operating segment). These items are material or 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).
These (gains)/losses relating to the year ended 31 March 2023 are broken down
as follows:
(1) Goodwill impairment
In the year an impairment of $29.1 million has been recorded to write down the
goodwill from historical acquisitions in the UK and Asia Cash-Generating Unit
(CGU).
Following the deterioration of the result experienced in UK and Asia CGU,
especially in the second half of FY2023, the longer-term impacts on the
forecasts for future cash flows have resulted in an impairment. The
calculation was further exacerbated by the significant increase in the
discount rate, mainly as a result of higher interest rates. See note 9 for
further details.
(2) 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, $1.5 million of insurance income was received relating to the
Impact Innovations, Inc (Impact) Representations and Warranties insurance
settlement in connection with accounting and tax issues present at acquisition
in August 2018.
In the year to 31 March 2022, the Group incurred expenditure relating to
acquisitions totalling $3.7 million, of which $113,000 related to previous
successful acquisitions and the balance related to aborted acquisitions. In
addition, the final tranche of acquisition related employee payments which
lock in and incentivise legacy talent relating to the Impact acquisition in
August 2018 was incurred ($278,000).
(3) Acquisition integration and restructuring (income)/costs
In order to realise synergies from acquisitions, or existing businesses,
integration and restructuring projects are respectively 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 it is appropriate that
costs associated with projects of this nature be included as adjusting items.
The costs incurred in the year relate to the reorganisation, business
simplification and impairment expenses in DG Americas and the reorganisation
of the DG UK businesses as follows:
Profit on sale of property, plant and equipment - In April 2022, the Kansas,
Manhattan property was sold for proceeds of $6.7 million resulting in a profit
on disposal of $4.6 million recognised as an adjusting item. In addition to
this there was a loss on sale of equipment of $100,000 in relation to assets
disposed of during the exit of a site in Clara City, Minnesota.
Site closure costs - In March 2023, a decision was made to exit a site in
Clara City, Minnesota. This resulted in an impairment of the right-of-use
asset associated with the underlying lease of $757,000. Additional costs of
$273,000 were incurred in relation to the relocation and closure of this site,
the Kansas, Manhattan site, as well as the consolidation of other US sites.
DG Americas and DG UK business reorganisation - In the year further
integration costs, relating to people, of $782,000 have been recognised in DG
Americas following the announcement of further business reorganisation.
Similarly, in March 2023 the UK business internally announced a business
simplification in light of the downturn of the UK outlook, resulting in the
recognition of one-off people costs of $713,000.
In the year to 31 March 2022, adjusting items relate to the integration of CSS
into the enlarged DG Americas business. Two previously impaired properties
were sub-let, resulting in a reversal of the impairment, net of associated
provisions for costs to run the exited sites, of $2.8 million. In the year to
31 March 2022, ongoing net costs relating to these impaired and sub-leased
properties were treated as adjusting items, however given the immaterial and
recurring nature of these ongoing net costs the Group will no longer include
these as adjusting items.
In the year to 31 March 2022, costs associated with the ongoing consolidation
of operations around the Group were incurred. These included 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 were incurred. The
total costs associated with this integration were $1.1 million. The remaining
costs incurred in the prior year relate to severance costs associated with the
wider DG Americas restructure programme.
(4) Reversal of impairment of assets
At the onset of the Covid-19 pandemic a review of inventory, trade receivables
and fixed assets was undertaken. Inventories were assessed at 31 March 2020
for the net realisable value and an impairment of $7.4 million was recognised.
Trade receivables were assessed for their expected credit loss in line with
IFRS 9 and an impairment of $3.8 million was recognised. The UK's bag line
machines were impaired by $348,000 based on expected future cash flows
associated with the 'Not-for-resale' consumables business.
In the year a credit of $154,000 has been recognised relating to reversal of
impairments no longer required. During the year to 31 March 2022 there were
reversals of impairment amounting to a $2.7 million credit. There are no
remaining provisions relating to these costs.
(5) IT security incident income
The IT security incident which occurred in DG Americas in October/November
2020 resulted in one-off costs of $2.2 million being incurred during the year
ended 31 March 2021. This did not include the lost profits incurred as a
result of downtime in the business for which an insurance claim was made. In
the year further insurance income was received of $142,000 (FY2022: $5.7
million) in relation to this incident. The treatment of this income as
adjusting, follows the previous treatment of the one-off costs as adjusting.
(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 trade names and
brands acquired as part of the acquisition of Impact and CSS in the USA. As
such, we include these as adjusting items.
The cash flow effect of adjusting items
There was a $6.9 million net inflow in the current period's cash flow (FY2022:
$6.2 million outflow) relating to adjusting items which included $1.1m
(FY2022: $3.3 million) deferred from prior years. $1.4 million outflow is
included within cash generated from operations (2022: $1.9 million) and $8.3
million inflow is included within investing and financing activities (2022:
$4.3 million outflow).
Auditors' remuneration:
2023 2022
$000 $000
Amounts receivable by auditor and its associates in respect of:
Audit of these financial statements 1,192 1,021
Audit of financial statements of subsidiaries pursuant to legislation
- Overseas subsidiaries 145 87
- UK subsidiaries - 103
Other audit related services - review of interim report 85 80
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
2023 2022
Selling and administration 1,215 1,264
Production and distribution 1,877 2,051
Temporary and agency staff 624 747
3,716 4,062
The aggregate payroll costs of these persons were as follows:
2023 2022
Note $000 $000
Wages and salaries 151,284 159,197
Share-based payments 23 805 (848)
Social security costs 12,993 14,123
Other pension costs 3,176 3,300
Temporary employee costs 15,023 20,057
183,281 195,829
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
2023 2022
$000 $000
Grant income 111 (17)
Sub-lease rental income 1,253 628
Government assistance - 125
Other 87 10
Other operating income before adjusting items 1,451 746
Adjusting items (note 3) 1,500 124
2,951 870
6 Finance expenses
2023 2022
$000 $000
Interest payable on bank loans and overdrafts 1,992 598
Other similar charges 1,854 1,352
Lease liability interest 2,903 3,078
Unwinding of fair value discounts 106 80
Interest payable under the effective interest method 6,855 5,108
Derivative financial instruments at fair value through the income statement 18 (3)
Finance expenses before adjusting items 6,873 5,105
Adjusting items (note 3) - 386
6,873 5,491
7 Income tax charge
Recognised in the income statement
2023 2022
$000 $000
Current tax charge/(credit)
Current year 6,910 3,898
Adjustments in respect of previous years 65 (12)
6,975 3,886
Deferred tax charge/(credit)
Derecognition of deferred tax assets - 2,308
Origination and reversal of temporary differences (1) (3,664)
Adjustments in respect of previous periods 589 (13)
588 (1,369)
Total tax in income statement 7,563 2,517
Total tax charge on adjusting items
Total tax on profit before adjusting items 7,806 3,333
Total tax on adjusting items (243) (816)
Total tax charge in income statement 7,563 2,517
Reconciliation of effective tax rate
2023 2022
$000 $000
(Loss)/profit before tax (18,896) 2,201
Profit before tax multiplied by the standard rate of corporation tax of 19% in (3,590) 418
the UK (2022: 19%)
Effects of:
Income not taxable (50) (320)
Expenses not deductible for tax purposes - impairment 5,529 -
Expenses not deductible for tax purposes - other 629 94
Derecognition of deferred tax assets - 2,308
Effect of tax rate changes - (170)
Differences between UK and overseas tax rates 1,701 946
Movement in uncertain tax provisions 716 (1,531)
Other items (210) (182)
Adjustments in respect of previous periods 654 (25)
Current year losses for which no deferred tax asset is recognised 2,184 979
Total tax charge in income statement 7,563 2,517
See note 11 for further details.
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 2021 48,514 5,571 114,193 9,889 2,395 180,562
Additions 625 842 5,719 844 110 8,140
Transfer to assets 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
Additions 285 271 3,888 710 305 5,459
Disposals - (195) (55) (972) (219) (1,441)
Effect of movements in foreign exchange (986) (302) (3,502) (365) (139) (5,294)
Balance at 31 March 2023 44,877 5,466 113,157 6,719 2,338 172,557
Depreciation and impairment
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 assets 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)
Depreciation charge for the year (1,930) (892) (8,569) (934) (207) (12,532)
Disposals - 186 37 940 214 1,377
Effect of movements in foreign exchange 728 200 2,556 232 110 3,826
Balance at 31 March 2023 (20,874) (4,526) (70,387) (4,740) (1,724) (102,251)
Net book value
At 31 March 2023 24,003 940 42,770 1,979 614 70,306
At 31 March 2022 25,906 1,672 48,415 2,368 550 78,911
During the prior year a property in Manhattan, Kansas with a net book value of
$2.2 million was reclassified to assets held for sale. The sale completed on
28 April 2022 (see note 3 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 $13.2 million in the UK were
subject to a fixed charge in support of the RCF 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 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
Additions - 272 - - 96 368
Disposals - (224) - - - (224)
Effect of movements in foreign exchange (2,662) (186) (27) (99) (6) (2,980)
Balance at 31 March 2023 97,406 14,355 5,231 23,987 261 141,240
Amortisation and impairment
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)
Amortisation charge for the year - (2,066) (948) (1,803) - (4,817)
Impairments (29,100) - - - - (29,100)
Disposals - 224 - - - 224
Effect of movements in foreign exchange 165 163 27 99 2 456
Balance at 31 March 2023 (42,086) (12,513) (5,231) (9,945) (140) (69,915)
Net book value
At 31 March 2023 55,320 1,842 - 14,042 121 71,325
At 31 March 2022 86,917 3,659 948 15,845 29 107,398
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:
2023 2022
$000 $000
UK and Asia 2,561 33,618
Europe 6,543 6,688
USA 42,872 42,872
Australia 3,344 3,739
55,320 86,917
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 and approved by management and the Board as
appropriate. 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.
Climate change poses various challenges and opportunities that could affect
the future cash flows and value in use of our assets, including goodwill. The
potential impacts of climate change will, by their very nature, continue to
evolve and develop. At this stage of our climate change journey, our modelling
primarily focuses on capturing the immediate and more readily quantifiable
impacts of climate change on our operations and financial performance. We
recognise that there may be additional medium to long-term effects that are
not explicitly accounted for in our current models. This assessment involves
inherent uncertainties, and we will continue to monitor, reassess and report
on the possible impact of climate change on the Group in future reporting
periods. The assessment of climate change risks and their financial
implications is an evolving area, and conclusions may be subject to change as
new information becomes available.
The key assumptions in deriving value in use from cash flow projections are
the sales growth, EBITDA margins, discount rate applied and the long-term
expected growth rates for the business. Long-term growth rates are set no
higher than the long-term economic growth projections of the countries in
which the businesses operate. Management apply pre-tax discount rates in value
in use estimation that reflect current market assessments of the time value of
money and the risks specific to the CGUs and businesses under review.
The Group's post‑tax weighted average cost of capital (WACC) is 11.1% (2022:
7.6%). This has been compared to other similar companies and is believed by
the Directors to be appropriate. 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:
2023 2022
UK and Asia 14.6% 9.5%
Europe 14.9% 10.0%
USA 14.7% 10.1%
Australia 15.8% 10.8%
Long-term growth rates used were:
2023 2022
UK and Asia 2.0% 2.0%
Europe 2.1% 1.5%
USA 2.2% 1.6%
Australia 2.3% 2.2%
An impairment charge of $29.1 million has been recognised against the goodwill
allocated to the UK and Asia CGU (FY2022: $nil). The combination of lower
forecast expectation of the UK and Asia CGU, following the deterioration of
the results in this CGU in the second half of the year, and the significant
increase in the discount rate is driving an impairment of the goodwill related
to the CGU.
The following reasonably possible changes in key estimation assumptions used
in the VIU model would impact the impairment charge related to the UK and Asia
CGU as follows:
· A 200bps increase in the pre-tax discount rate would increase the
impairment by $4.5 million, a 200bps decrease in the pre-tax discount rate
would decrease the impairment by $6.2 million
· A reduction in the growth rate to 0.5%, applied into perpetuity,
would increase the impairment by $2.7 million
· A 7.5% reduction/increase in forecast cash flows would
increase/reduce the impairment by $2.5 million
In all other CGUs, the carrying value of the goodwill was supported by the
recoverable amount and the Directors do not believe a reasonably possible
change to the assumptions would give rise to an impairment. The Directors have
considered a 200bps movement in the discount rate, a 0.5% growth rate applied
to the terminal value, and a 7.5% movement in forecast cash flows. With these
changes in assumptions there is significant headroom in the remaining CGUs and
no indication of impairment.
The cash flows in the base case forecast of the other CGUs would need to be
significantly lower throughout the forecasted period to trigger an impairment,
with all other assumptions being the same.
The Group has evaluated the application of a FVLCTS model in relation to the
UK and Asia CGU and concluded that this model would not yield a higher
recoverable amount compared to the VIU model. While there were no recent
observable comparable market prices, management believe that under the current
market and economic conditions a potential buyer through arms-length
negotiation would apply much more prudence in their risk perceptions and much
lower expectations of future opportunities in evaluating the fair value of the
CGU. This coupled with associated costs to sell provides the basis for
conclusion.
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 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 4,329 241 197 78 4,845
Disposals (1,922) - - - (1,922)
Depreciation charge (16,820) (436) (233) (225) (17,714)
Impairment (757) - - - (757)
Transfer between categories 215 - 22 (237) -
Effect of movements in foreign exchange (1,783) (34) (19) (15) (1,851)
Net book value at 31 March 2023 67,831 763 355 383 69,332
Additions include lease modifications and extensions of $822,000 (2022: $5.4
million).
Income statement
The income statement shows the following charges/(credits) relating to leases:
2023 2022
$000 $000
Interest expense (included in finance expenses) 2,903 3,479
Depreciation charge 17,714 17,776
Impairment/(reversal of impairment) 757 (2,492)
Expense relating to short-term leases 121 126
Of the interest expense detailed above, $nil (2022: $401,000) 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 2023, the Group had estimated lease commitments for leases not yet
commenced of $nil (2022: $nil).
Movement in lease liabilities
2023 2022
$000 $000
Balance at 1 April 99,843 113,922
Cash flow - financing activities (20,428) (20,717)
Additions 4,845 9,353
Disposals (2,011) (1,280)
Effect of movements in foreign exchange (2,062) (1,435)
Balance at 31 March 80,187 99,843
2023 2022
$000 $000
Non-current liabilities 62,717 80,215
Current liabilities 17,470 19,628
80,187 99,843
Total cash outflow in relation to leases is as follows:
2023 2022
$000 $000
Included in financing activities - payment of lease liabilities 20,428 20,717
Included in interest and similar charges paid 2,903 3,479
Short-term leases 121 126
23,452 24,322
Commitments for minimum lease payments in relation to non-cancellable
low-value or short-term leases are payable as follows:
2023 2022
$000 $000
Less than one year 30 126
Between one and five years - -
More than five years - -
30 126
Income from sub-leasing right-of-use assets
During the year sub-lease income from right-of-use assets was as follows:
2023 2022
$000 $000
Sub-lease income in the year from sub-leasing right-of-use assets 1,253 752
Of the sub-lease income detailed above, $nil (2022: $124,000) 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:
2023 2022
$000 $000
Less than one year 655 422
Between one and five years 1,148 1,542
1,803 1,964
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 2021 5,375 8,391 1,684 1,354 (562) 16,242
Credit/(charge) to income statement (1,659) (77) (956) (1,348) 5,409 1,369
(Charge)/credit 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
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 2022 3,749 7,569 - 6 4,612 15,936
(Charge)/credit to income statement 251 (224) - - (615) (588)
(Charge)/credit to equity 9 - - (1) (176) (168)
At 31 March 2023 4,009 7,345 - 5 3,821 15,180
Deferred tax liabilities (277) - - - (3) (280)
Deferred tax assets 4,286 7,345 - 5 3,824 15,460
4,009 7,345 - 5 3,821 15,180
(a) Other timing differences include a deferred tax asset closing balance
of $0.6 million (2022: $0.6 million) in respect of provision for inventory and
$2.6 million (2022: $3.4 million) in respect of leases.
Deferred tax is presented net on the balance sheet in so far as a right of
offset exists.
2023 2022
$000 $000
Net deferred tax asset 15,401 16,317
Net deferred tax liability (221) (381)
15,180 15,936
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
2023 of $7.3 million (2022: $7.6 million) comprises deferred tax assets in
relation to US tax losses of $7.0 million (2022: $7.2 million) and Asia tax
losses of $345,000 (2022: $337,000). 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 Group has prepared budgets and forecasts for the next three
years. 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 profits for
the future years based on the long-term growth rates applicable to the
relevant territories.
In the prior year, all previously recognised deferred tax assets in the UK
were derecognised as a result of the assessment of future taxable profits
against which the asset could unwind. This position continues in the current
year in the UK and so deferred tax assets have not been recognised on current
year tax losses.
In the UK there are gross temporary differences of $990,000 (2022: $100,000)
and unused tax losses, with no expiry date, of $28.6 million (2022: $20.8
million) on which deferred tax assets have not been recognised.
In the DG Americas segment there are gross temporary differences of $63.3
million (2022: $59.6 million) and unused tax losses, with no expiry date, of
$20.0 million (2022: $25.0 million) on which deferred tax assets have not been
recognised. This is as a result of restrictions under the US change in
ownership rules following the acquisition of CSS in 2020. Deferred tax assets
are recognised in respect of unrestricted temporary differences and tax losses
and are supported by forecast future taxable profits.
No deferred tax liability (2022: $88,000) 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 UK has risen 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 $5.2 million (2022: $4.5 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 net increase in the Group's total provision of $0.7 million.
No deferred tax charge was recognised through the statement of changes in
equity. In the prior year 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. There are no deferred tax balances with respect to
cash flow hedges.
12 Inventory
2023 2022
$000 $000
Raw materials and consumables 36,139 37,586
Work in progress 32,676 28,925
Finished goods 137,611 164,374
206,426 230,885
During the year, materials, consumables, changes in finished goods and work in
progress of $649.7 million (2022: $701.1 million) were recognised as an
expense and included in cost of sales.
Inventories have been assessed as at 31 March 2023 and overall an expense of
$12.9 million has been recognised in the year (2022: $12.1 million). This
consists of the addition of new provisions for slow moving and obsolete
inventory of $19.3 million (2022: $18.3 million), offset by the reversal of
previous Covid-19 inventory provisions of $0.1 million (2022: $1.2 million),
and the release of previous slow moving and obsolete inventory provisions
amounting to $6.3 million (2022: $5.0 million) due to inventory either being
used or sold.
13 Long-term assets and trade and other receivables
Long term assets are as follows:
2023 2022
$000 $000
Acquisition indemnities 1,622 990
Security deposits 1,632 1,607
Insurance related assets 2,393 2,508
5,647 5,105
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:
2023 2022
$000 $000
Trade receivables 80,973 115,317
Prepayments, other receivables and accrued income 10,212 11,627
VAT receivable 1,217 906
92,402 127,850
The Group has receivable financing arrangements in Hong Kong. None of this
facility was drawn at 31 March 2023 (2022: $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 2023, $7.0 million had been drawn down on this
arrangement (2022: $6.0 million).
Please see note 15 for more details of the banking facilities.
There are no trade receivables in the current year (2022: $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
2023 2022
$000 $000
Cash and cash equivalents 85,213 50,179
Bank overdrafts (34,979) (20,380)
Cash and cash equivalents and bank overdrafts per cash flow statement 50,234 29,799
Net cash
2023 2022
$000 $000
Cash and cash equivalents 50,234 29,799
Loan arrangement fees 250 360
Net cash as used in the financial review cash flow statement 50,484 30,159
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
arrangement Cash/bank
fees overdrafts Total
$000 $000 $000
Balance at 1 April 2021 723 75,727 76,450
Cash flows 494 (48,165) (47,671)
Effect of other items
Amortisation of loan arrangement fees (824) - (824)
Effect of movements in foreign exchange (33) 2,237 2,204
Balance at 31 March 2022 360 29,799 30,159
Cash flows 1,079 20,595 21,674
Effect of other items
Amortisation of loan arrangement fees (1,143) - (1,143)
Effect of movements in foreign exchange (46) (160) (206)
Balance at 31 March 2023 250 50,234 50,484
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.
2023 2022
$000 $000
Non-current liabilities
Secured bank loans - -
Loan arrangement fees - (20)
- (20)
Current liabilities
Current portion of secured bank loans - -
Loan arrangement fees (250) (340)
(250) (340)
Secured bank loans
The Group entered into a new banking facility on 5 June 2023, this facility
comprises an Asset Backed Lending ("ABL") arrangement with a maximum facility
amount of $125.0 million. The facility with HSBC and Nat West banks has an
original term of three years, with the option of submitting two extension
notices to extend the facility twice, each by a period of one year.
The Group has also increased its unsecured overdraft facility provided by HSBC
to £16.5 million, which reduces to £8.5 million from August 2023.
Interest charged on the new Asset Backed lending facility is based, at the
option of the Group, on one of two methods:
· A margin of between 1.75% and 2.25%, based on average excess
availability, plus a 0.1% credit spread adjustment, plus the US Secured
Overnight Financing Rate ("SOFR"); or
· A margin of between 0.75% and 1.25% based on average excess
availability, plus a rate based on the higher of: the HSBC prime rate, the
Federal Funds rate plus 0.5%, or SOFR plus 1%.
A further commitment/non-utilisation fee is charged at 0.25% where facility
usage is greater than 50% of the maximum credit line, and 0.375% where
facility usage is less than 50% of the maximum credit line.
The financial covenant within the facility agreement, which is a minimum fixed
charge coverage ratio of 1.0 times, is only triggered if the remaining
availability of the facility is less than the higher of $12.5 million or
12.5% of the borrowing base.
The ABL is secured with an all-assets lien on all existing and future assets
of the loan parties. The loan parties are Anker Play Products, LLC, Berwick
Offray, LLC, BOC Distribution, Inc., C. R. Gibson, LLC, CSS Industries, Inc.,
IG Design Group (Lang), Inc., IG Design Group Americas, Inc., IG Design Group
plc, IG Design Group UK Limited, Impact Innovations, Inc., Lion Ribbon
Company, LLC, Paper Magic Group, Inc., Philadelphia Industries, Inc.,
Simplicity Creative Corp., The Lang Companies, Inc., The McCall Pattern
Company, Inc.
Invoice financing arrangements are secured over the trade receivables that
they are drawn on (see note 13). The Group also has an invoice financing
arrangement in Hong Kong with a maximum limit of $18.0 million, dependent on
level of eligible receivables. This facility is being cancelled in line with
the terms of the new financing arrangement.
On 1 June 2022, the Company had extended and amended the terms of its existing
banking agreement to 31 March 2024. These facilities were cancelled on 5 June
2023. These facilities were maintained through a club of five banks: HSBC,
NatWest, Citigroup (who replaced BNP Paribas), Truist Bank (as successor by
merger to SunTrust Bank) and PNC. As part of the June 2022 extension,
covenants were revised for the period to 31 March 2023 and the amended
facilities comprised:
· a revolving credit facility ('RCF A') reduced from $95.0 million
to $90.0 million; and
· 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 million). This RCF was flexed
to meet our working capital requirements during those months when inventory
was being built within our annual business cycle and was £nil when not
required, minimising carrying costs.
The RCFs were secured with a fixed and floating charge over the assets of the
Group. Amounts drawn under RCFs were classified as current liabilities as the
Group expected to settle these amounts within twelve months.
The covenants under the extended and amended RCF facility, which operated to
31 March 2023, were 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 required
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; and
· minimum liquidity level, which required the Group to maintain a
minimum of $35.0 million of headroom to the maximum available facility on a
monthly basis.
From April 2023 the Group reverted to the previous RCF covenants. Given the
cancellation of the RCF on 5 June 2023, these covenants are no longer
applicable.
There was a further RCF 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.
All covenants under the RCF were measured on pre-IFRS 16 accounting
definitions.
The cancelled facility agreement had also stipulated that any dividends to be
paid by the Group during the remaining term of the agreement would require
majority lender approval.
The Group has remained comfortably in compliance with all of these covenants
up its cancellation.
16 Deferred income
2023 2022
$000 $000
Included within non-current liabilities
Deferred grant income 2,038 523
Included within current liabilities
Deferred grant income 211 414
Other deferred income 52 51
263 465
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 for
the Byhalia site in January 2023. Deferred income is being released in line
with the depreciation of the assets for which the grant is related to.
17 Provisions
Property Other Total
$000 $000 $000
Balance at 1 April 2022 6,247 111 6,358
Provisions made in the year 723 282 1,005
Provisions released during the year (287) (99) (386)
Unwinding of fair value discounts 106 - 106
Provisions utilised during the year (200) (5) (205)
Effect of movements in foreign exchange (70) 5 (65)
Balance at 31 March 2023 6,519 294 6,813
2023 2022
$000 $000
Non-current 5,474 5,016
Current 1,339 1,342
6,813 6,358
The property provision represents the estimated reinstatement cost of 14 of
the Group's leasehold properties under fully repairing leases (2022: 14). Of
the non-current balance, $2.2 million (2022: $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
2023 2022
$000 $000
Included within non-current liabilities
Other creditors and accruals 19,071 21,557
Included within current liabilities
Other creditors and accruals 40,912 34,455
Liability to acquire non-controlling interest - 3,069
Forward exchange contracts carried 28 -
at fair value through the income statement
Forward exchange contracts carried 287 18
at fair value through the hedging reserve
41,227 37,542
At 31 March 2022, a $3.1 million liability to acquire a non-controlling
interest had been recognised in relation to a put option that existed over the
49% of the share capital of Anker Play Products LLC ('APP') not owned by the
Group; this was extinguished when the remaining 49% share of APP was purchased
see note 28 for further details.
19 Trade and other payables
2023 2022
$000 $000
Trade payables 89,754 138,902
Other payables including social security 2,719 3,821
VAT payable 504 595
92,977 143,318
20 Share capital
Authorised share capital at 31 March 2023 and 2022 was £6.0 million, 121.0
million ordinary shares of 5p each.
Ordinary shares
In thousands of shares 2023 2022
In issue at 1 April 97,062 96,858
Options exercised during the year 932 204
In issue at 31 March - fully paid 97,994 97,062
2023 2022
$000 $000
Allotted, called up and fully paid
Ordinary shares of £0.05 each 6,059 6,373
Of the 98.0 million shares in the Company, 1.0 million (2022: 31,000) are held
by IG Employee Share Trustee Limited (the 'Employee Benefit Trust').
Long Term Incentive Plan (LTIP) options exercised during the year resulted in
932,000 ordinary shares issued at nil cost (2022: 204,000 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 per share
2023 2022
$000 $000
Earnings/(loss)
Loss attributable to equity holders of the Company (27,987) (3,277)
Adjustments
Adjusting items (net of non-controlling interest effect) 28,072 (3,498)
Tax relief on adjustments (net of non-controlling interest effect) (243) (816)
Adjusted loss attributable to equity holders of the Company (158) (7,591)
In thousands of shares 2023 2022
Issued ordinary shares at 1 April 97,062 96,858
Shares relating to share options 1,242 1,260
Less: shares held by Employee Benefit Trust (536) -
Weighted average number of shares for the purposes of calculating basic EPS 97,768 98,118
Effect of dilutive potential shares - share awards - -
Weighted average number of shares for the purposes of calculating diluted EPS 97,768 98,118
There are 209,000 (2022: 119,000) share options which are not included in the
calculation of diluted earnings per share because they are antidilutive.
2023 2022
Cents Cents
Loss per share
Basic loss per share (28.6) (3.3)
Impact of adjusting items (net of tax) 28.4 (4.4)
Basic adjusted loss per share (0.2) (7.7)
Diluted loss per share (28.6) (3.3)
Diluted adjusted loss per share (0.2) (7.7)
Adjusted loss per share are provided to reflect the underlying earnings
performance of the Group.
Basic earnings/(loss) per share
Basic EPS is calculated by dividing the profit for the year attributable to
ordinary shareholders by the weighted average number of shares outstanding
during the period, excluding own shares held by the Employee Benefit Trust.
Diluted earnings/(loss) per share
Diluted EPS is calculated by dividing the profit for the year attributable to
ordinary shareholders by the weighted average number of shares outstanding
during the period, plus the weighted average number of ordinary shares that
would be issued on the conversion of the potentially dilutive shares.
22 Dividends paid and proposed
No dividends were paid in the current year and the Directors are not
recommending the payment of a final dividend in respect of the year ended
31 March 2023.
2023 2022
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
Interim equity dividend for current year - - - 1.25 1.68 1,644
Dividends paid in the year - 9,274
2023 2022
Proposed for approval at Annual Pence Cents Pence Cents
General Meeting per share per share $000 per share per share $000
Final equity dividend for the current year - - - - - -
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 2023,
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)
2023 2022
$000 $000
Fair value plan of assets 3,269 3,241
Present value of defined benefit obligation (1,245) (1,858)
Surplus in plan 2,024 1,383
Surplus not recognised (2,024) (1,383)
Net defined benefit asset to be recognised - -
In accordance with IAS 19, the surplus on the plan has not been recognised on
the basis it is not expected to be recovered, as the Group does not have an
unconditional right to any refund, with the previously recognised asset being
derecognised in the prior year.
Reconciliation of opening and closing balances of the defined benefit
obligation
2023 2022
$000 $000
Defined benefit obligation as at 1 April (1,858) (2,528)
Interest expense (48) (50)
Benefits payments from plan assets - 384
Actuarial gains due to changes in demographic assumptions 10 52
Actuarial gains due to changes in financial assumptions 645 205
Effect of experience adjustments (113) (18)
Effect of movement in foreign exchange 119 97
Defined benefit obligation as at 31 March (1,245) (1,858)
Reconciliation of opening and closing balances of the fair value of plan
assets
2023 2022
$000 $000
Fair value of plan assets as at 1 April 3,241 3,615
Interest income 85 75
Return on plan assets 74 33
Contributions by the Company 61 68
Benefits payments from plan assets - (384)
Admin expenses paid from plan assets (7) (7)
Effect of movement in foreign exchange (185) (159)
Fair value of plan assets as at 31 March 3,269 3,241
A total of $30,000 (2022: $18,000) has been credited to Group operating profit
during the year, including $7,000 (2022: $7,000) of expense netting against
net interest income of $37,000 (2022: $25,000).
The principal assumptions used by the independent qualified actuary for the
purposes of IAS 19 are as follows:
2023 2022
Increase in salaries - -
Increase in pensions - -
- at RPI capped at 5% 3.70% 3.80%
- at CPI capped at 5% 2.40% 2.75%
- at CPI capped at 2.5% 2.40% 2.50%
Discount rate 4.80% 2.80%
Inflation rate - RPI 3.30% 3.65%
Inflation rate - CPI 2.40% 2.75%
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:
2023 2022
Male retiring today at age 60 26.1 26.4
Female retiring today at age 60 28.0 28.5
Male retiring in 20 years at age 60 27.6 27.9
Female retiring in 20 years at age 60 29.6 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:
2023 2022
$000 $000
UK pension scheme
Actuarial losses on defined benefit pension scheme (53) (73)
Derecognition of defined benefit pension scheme surplus - (664)
US health scheme 16 22
(37) (715)
Long Term Incentive Plans
The Group operates a Long Term Incentive Plan (LTIP). Under the LTIP, nil cost
options and conditional awards over ordinary shares
of 5 pence each ('ordinary shares') in the capital of the Company are awarded
to Executive Board Directors of the Company and other selected senior
management team members within the Group. During the year, awards were granted
under the 2022-2025 LTIP scheme.
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 LTIP vests is
nil. In principle, the number of ordinary shares to be granted to each
employee under the LTIP will not be more than 265% (and 325% in exceptional
cases) of the relevant employee's base annual salary. The maximum opportunity
available under the 2022-2025 scheme is up to 125% of base salary for the CFO
and Interim COO.
The Value Creation Scheme (VCS) that was introduced in February 2021, was
cancelled effective 28 June 2022.
On 29 September 2022, the trustee of the IG Design Group Plc Employee Benefit
Trust (the 'EBT'), purchased 1 million ordinary shares of 5 pence each at an
average price of 77.50 pence per ordinary share. These ordinary shares are to
be held in the EBT and are intended to be used to satisfy the exercise of
share options by employees.
Vested LTIP schemes - outstanding options
Exercise
Number of price
ordinary shares pence Exercise dates
2017-2020 LTIP scheme 48,025 nil July 2020 - August 2027
2018-2021 LTIP scheme 262,071 nil June 2021 - November 2028
310,096
All performance criteria have been met for the above schemes.
2023 2022
Weighted Weighted
average average
exercise price Number of exercise price Number of
pence options pence options
Outstanding at 1 April nil 1,088,123 nil 1,291,728
Options vesting during the year nil 154,139 nil -
Exercised during the year nil (932,166) nil (203,605)
Outstanding at 31 March nil 310,096 nil 1,088,123
Exercisable at 31 March nil 310,096 nil 1,088,123
Scheme details for plans in vesting periods during the year
During the financial year to 31 March 2023 there were two LTIP awards still
within their vesting period (2022: two).
Awards
2020-2022 2022-2025
Grant date Sep 2020 Aug 2023,
and Dec 2023,
Jan 2021 Feb 2023
Fair value per share (£) 5.57 1.00
Number of participants 2 67
Initial award 150,000 2,567,747
Dividend shares 4,139 -
Lapses and forfeitures - (47,043)
Exercises and releases (154,139) -
Potential to vest as at 31 March 2023 - 2,520,704
Potential to vest as at 31 March 2022 151,465 -
Weighted average remaining contractual life of options outstanding at Nil 3.17 years
the end of the year
The grant date fair value of the LTIP awards granted in the year, assuming
they are to vest in full, is $3.0 million.
The grant date fair values of the 2022-2025 scheme were determined using the
following factors:
Share price (£) 1.14
Exercise price Nil
Expected term 3 years (additional 2 years for holding period)
Risk-free interest rate 1.84% (1.98% for awards with holding period)
Expected dividend yield 0%
LTIP performance targets
The 2020-2022 scheme, granted to two individuals, had only a service
condition, being 1 April 2020 to 30 June 2022. It vested on 30 June 2022.
Individuals were granted performance share awards under the 2022-2025 scheme.
Some individuals were also awarded restricted share awards which are not
subject to any performance condition (other than an underpin condition) and
the vesting is dependent on a continued service requirement. The vesting of
performance share awards are subject to a continued service requirement. The
extent of vesting is subject to performance against performance conditions.
The performance share awards are weighted two-thirds towards a Relative Total
Shareholder Return ('TSR') metric and one-third Earnings Per Share metric as
the performance measures. The TSR metric is a measurement of TSR by the Group
relative to a peer group of the FTSE SmallCap excluding Investment Trusts.
For the Relative TSR measure, qualifying performance is within the median
quartile on a straight-line sliding scale with 25% of entitlement vesting at a
50(th) percentile (median) ranking rising to 100% vesting at a 75(th)
percentile (upper quartile) ranking performance.
For the EPS measure, there is a performance range for the Adjusted EPS metric
in absolute value terms, modelled from the recovery plan presented at the time
of the FY2023 Budget after inclusion of relevant LTIP charges. Upper and lower
limits were modelled for FY25 EPS performance (reflecting a 3-year performance
period of FY2023, FY2024 and FY2025), with 25% vesting at Threshold of 19
cents EPS and a straight-line sliding scale to Maximum at 27 cents.
An underpin condition was also applied to the awards that allows the Committee
to reduce vesting levels if it determines that vesting outcomes reflect
unwarranted windfall gains from share price movements.
Share-based payments charges/(credits)
The total expense/(credit) recognised for the year arising from
equity‑settled share‑based payments is as follows:
2023 2022
$000 $000
Charge in relation to the 2020-2022 LTIP scheme 166 723
Credit in relation to the VCS - (482)
Charge in relation to the 2022-2025 LTIP scheme 490 -
Equity-settled share-based payments charge/(credit) 656 241
Social security charge/(credit) 149 (1,089)
Total equity-settled share-based payments charge/(credit) 805 (848)
Deferred tax assets are recognised on share-based payment schemes when
deferred tax assets are recognised in that territory (see note 11).
Social security charges/(credits) 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 $160,000 (2022: $137,000).
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 are not considered to be materially different
to their fair values.
As at 31 March 2023, the Group had derivative contracts, which were measured
at Level 2 fair value subsequent to initial recognition, to the value of an
asset of $340,000 (2022: $316,000) and a liability of $315,000 (2022:
$18,000).
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 $172.2 million (2022: $170.9 million) being the total of the carrying
amount of financial assets.
The maximum exposure to credit risk for trade receivables at the balance sheet
date by reporting segment was:
2023 2022
$000 $000
DG Americas 53,569 84,966
International 27,404 30,351
80,973 115,317
Credit quality of financial assets and impairment losses
The ageing of trade receivables at the balance sheet date was:
2023 2022
Expected Provisions for Expected Provisions for
loss rate Gross doubtful debts loss rate Gross doubtful debts
% $000 $000 % $000 $000
Not past due 0.5 55,263 (250) - 71,429 -
Past due 0-60 days 0.5 14,177 (65) - 26,889 -
61-90 days 4.3 5,645 (243) 2.0 9,721 (195)
More than 90 days 15.5 7,625 (1,179) 4.5 7,825 (352)
2.1 82,710 (1,737) 0.5 115,864 (547)
There were no unimpaired balances outstanding at 31 March 2023 (2022: $nil)
where the Group had renegotiated the terms of the trade receivable. The
increase in provision year-on-year is reflective of the current macroeconomic
circumstances.
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:
2023 2022
$000 $000
Balance at 1 April 547 3,420
Charge for the year 1,705 277
Unused amounts reversed (59) (1,511)
Amounts utilised (469) (1,627)
Effects of movement in foreign exchange 13 (12)
Balance at 31 March 1,737 547
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 2023 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 2023 Note $000 $000 $000 $000 $000 $000
Non-derivative financial liabilities
Other financial liabilities 18 59,983 (59,983) (40,912) (19,032) (36) (3)
Lease liabilities 10 80,187 (84,532) (18,596) (15,258) (26,239) (24,439)
Trade payables 19 89,754 (89,754) (89,754) - - -
Derivative financial liabilities
Forward foreign exchange contracts carried at fair value through the income 18 28 (11) (11) - - -
statement((a))
Forward foreign exchange contracts carried at fair value through the hedging 18 287 (17,768) (17,768) - - -
reserve((a))
230,239 (252,048) (167,041) (34,290) (26,275) (24,442)
(a) Measured at Level 2.
Restated((b)) Restated((c)) Restated((c))
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) - - -
Derivative financial liabilities
Forward foreign exchange contracts carried at fair value through the hedging 18 18 (11,759) (11,759) - - -
reserve((a))
297,844 (321,928) (210,723) (42,192) (37,276) (31,737)
(a) Measured at Level 2.
(b) Other payables of $4.4 million have been removed from the above table
as they had been misclassified as financial instruments.
(c) The contractual cash flows relating to the forward foreign exchange
contracts carried at fair value through the hedging reserve have been restated
due to $11.2 million of USD purchases being excluded in error.
The following table shows the facilities for bank loans, overdrafts,
asset‑backed loans and revolving credit facilities:
31 March 2023 31 March 2022
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 - - (92,039) (92,039) - - (97,208) (97,208)
Bank overdraft - - (4,502) (4,502) - - (4,909) (4,909)
- - (96,541) (96,541) - - (102,117) (102,117)
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 $221.8 million
(2022: $283.7 million).
At 31 March 2023 the facility amounted to $92.0 million (2022: $97.2 million).
Additional facilities were available at other banks of $4.5 million (2022:
$4.9 million).
On 5 June 2023 the Group banking negotiated new banking facilities: see note
15 for more information.
The following table shows other facilities that are treated as contingent
liabilities:
31 March 2023 31 March 2022
Facility Utilised Facility Utilised
$000 $000 $000 $000
UK Guarantee 2,164 1,880 2,101 1,996
UK Import line 1,237 - 1,313 -
Foreign Bills 6,184 - 6,566 -
USA Guarantee 5,500 2,980 5,500 2,980
Netherlands Guarantee (Trade and Import line) 653 248 667 121
15,738 5,108 16,147 5,097
d) Cash flow hedges
The following derivative financial instruments were designated as cash flow
hedges:
2023 2022
Forward exchange contracts carrying amount $000 $000
Derivative financial assets 340 316
Derivative financial liabilities (315) (18)
The Group has forward currency hedging contracts outstanding at 31 March 2023
designated as hedges of expected future purchases in US dollars 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 1.08 for US dollar contracts (2022:
1.14), 6.96 for Chinese renminbi contracts (2022: not applicable) and not
applicable for Japanese yen contracts (2022: 152.8). At the year end the Group
held $17.6 million (2022: $11.2 million), RMB 108.9 million (2022: RMB nil)
and JPY nil (2022: JPY 60.8 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 2023, a net unrealised
profit of $419,000 (2022: $686,000) with related deferred tax credit of $nil
(2022: $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 (2022: $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 2023 Note $000 $000 $000 $000 $000
Long-term assets 13 5,647 - - - 5,647
Cash and cash equivalents 14 32,504 17,940 25,443 9,326 85,213
Trade receivables 13 54,528 8,924 12,802 4,719 80,973
Derivative financial assets - 340 - - 340
Bank overdrafts 14 (17,141) (5,419) (12,419) - (34,979)
Loan arrangement fees 15 - 250 - - 250
Trade payables 19 (61,323) (14,650) (9,388) (4,393) (89,754)
Other payables 19 (1,631) (776) (579) (237) (3,223)
Balance sheet exposure 12,584 6,609 15,859 9,415 44,467
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
The following significant exchange rates applied to US dollar during the year:
Average rate 31 March spot rate
2023 2022 2023 2022
Euro 0.96 0.86 0.92 0.90
Pound sterling 0.83 0.73 0.81 0.76
Sensitivity analysis
A 10% weakening of the following currencies against US dollar at 31 March 2023
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 2022.
Equity Loss
2023 2022 2023 2022
$000 $000 $000 $000
Euro 1,442 (651) (296) (551)
Pound sterling 601 (1,075) (251) (3)
On the basis of the same assumptions, a 10% strengthening of the currencies
against US dollar at 31 March 2023 would have affected equity and profit or
loss by the following amounts:
Equity Profit
2023 2022 2023 2022
$000 $000 $000 $000
Euro (1,762) 796 362 674
Pound sterling (734) 1,314 307 3
Profile
At the balance sheet date the interest rate profile of the Group's
interest-bearing financial instruments was:
2023 2022
Variable rate instruments Note $000 $000
Financial assets 85,213 50,179
Financial liabilities (34,979) (20,380)
Net cash 14 50,234 29,799
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 2022.
Sensitivity analysis
2023 2022
$000 $000
Equity
Increase 251 149
Decrease - -
Profit or loss
Increase 251 149
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
2023 2022
Note $000 $000
Net equity attributable to owners of the Parent Company 327,846 361,711
Net cash 14 (50,484) (30,159)
Trading capital 277,362 331,552
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 average 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 2023, the Group had outstanding authorised capital commitments to
purchase plant and equipment for $3.9 million (2022: $1.5 million).
26 Related parties
2023 2022
$000 $000
Sale of goods:
Hedlunds Pappers Industri AB 199 566
Festive Productions Ltd 3 -
SA Greetings (Pty) Ltd - 93
202 659
Receivables:
Hedlunds Pappers Industri AB - 23
- 23
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.
SA Greetings (Pty) Ltd (South African Greetings) was a related party by virtue
of John Charlton being the Chairman. It is no longer a related party since
the resignation of John Charlton from the Board on 20 September 2021.
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%
(2022: 24%) of the voting shares of the Company. The shareholdings of
Directors and changes during the year are shown in the Directors' report
within the Group's audited financial statements.
Directors' remuneration
2023 2022
$000 $000
Short-term employee benefits 3,158 2,496
Termination benefits - 890
Share-based payments charge/(credit) 224 (1,256)
3,382 2,130
27 Non-controlling interests (NCI)
The Group purchased the remaining 49% share of Anker Play Products LLC ('APP')
effective date 1 April 2022 (see note 28 for further details). Set out below
is summarised financial information for each subsidiary that has
non-controlling interests that are material to the Group. These subsidiaries
are IG Design Group Australia Pty Ltd ('Australia') and APP (up to date of
purchase).
2023 2022
Non-controlling interest - Australia APP Total Australia APP Total
balance sheet as at 31 March $000 $000 $000 $000 $000 $000
Non-current assets 7,283 - 7,283 9,625 1,253 10,878
Current assets 16,007 - 16,007 16,497 15,639 32,136
Current liabilities (7,959) - (7,959) (9,082) (10,706) (19,788)
Non-current liabilities (2,271) - (2,271) (4,355) (894) (5,249)
2023 2022
Non-controlling interest - Australia APP Total Australia APP Total
comprehensive income for the year ended 31 March $000 $000 $000 $000 $000 $000
Revenue 49,666 - 49,666 51,296 38,309 89,605
Profit after tax 3,055 - 3,055 3,756 2,211 5,967
Total comprehensive income 1,770 - 1,770 3,568 2,211 5,779
2023 2022
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 3,978 - 3,978 3,101 602 3,703
Cash flows from investing activities (131) - (131) (357) (224) (581)
Cash flows from financing activities (2,986) - (2,986) (8,348) (63) (8,411)
Net (decrease)/increase in cash and cash equivalents 861 - 861 (5,604) 315 (5,289)
2023 2022
Australia APP Total Australia APP Total
Non-controlling interest $000 $000 $000 $000 $000 $000
Balance as at 1 April 6,343 1,656 7,999 7,924 573 8,497
Share of profits for the year 1,528 - 1,528 1,878 1,083 2,961
Other comprehensive expense (3) - (3) - - -
Dividend paid to non-controlling interest (698) (2,263) (2,961) (3,365) - (3,365)
Acquisition of non-controlling interest - 607 607 - - -
Currency translation (640) - (640) (94) - (94)
Balance as at 31 March 6,530 - 6,530 6,343 1,656 7,999
28 Acquisitions
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 was legally obliged to purchase with the
exercise of the put option under the APP Limited Liability Company agreement
dated 30 March 2017. Consequently the $3.1 million current financial liability
in respect of the put option in place over the non-controlling interest was
extinguished and the related liability de-recognised, with a corresponding
movement within retained earnings.
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., was satisfied with a cash payment
of $3.0 million. The consideration was satisfied from the existing Group
banking facilities.
Immediately prior to the purchase, the carrying amount of the existing 49%
non-controlling interest was $607,000. The Group recognised a decrease in
non-controlling interest of $607,000. The effect on the equity of the owners
of the Group was as follows:
2023
$000
Carrying amount of non-controlling interest acquired 607
Cash consideration paid 2,951
Excess of consideration paid recognised in the transaction with the 3,558
non-controlling
interests reserve within equity
29 Purchase of own shares
On 29 September 2022, the trustee of the IG Design Group Plc Employee Benefit
Trust (the "EBT"), purchased 1 million ordinary shares of 5 pence each in the
Company ("ordinary shares") at an average price of 77.50 pence per ordinary
share. These ordinary shares are to be held in the EBT and are intended to
be used to satisfy the exercise of share options by employees. The EBT is a
discretionary trust for the benefit of the Company's employees, including the
Directors of the Company. The purchase of ordinary shares by the EBT has been
funded by a loan provided by the Company from its existing financing
facilities. The EBT has waived its rights to dividend payments.
30 Non-adjusting post balance sheet events
On 5 June 2023, the $90.0 million and £92.0 million revolving credit
facilities were replaced by a $125.0 million asset backed lending arrangement.
This facility has an original term of three years with the option of
submitting two extension notices to extend the facility twice, each by a
period of one year. For more details see note 15.
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