REG - IG Design Group PLC - Interim Results
30/11/2022 07:00
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RNS Number : 9977H IG Design Group PLC 30 November 2022
EMBARGOED UNTIL 30(th) November at 7.00am
IG Design Group PLC
(the "Company", the "Group" or "Design Group")
Results for the six months ended 30 September 2022
IG Design Group plc, one of the world's leading designers, innovators and
manufacturers of Gift Packaging, Celebrations, Craft & Creative Play,
Stationery, Gifting and related product categories announces its results for
the six months ended 30 September 2022.
Highlights for the six months ended 30 September 2022
Financial Highlights HY2023 HY2022((b))
Revenue $521.2m $483.9m
Adjusted((a))
- Operating profit $30.5m $22.6m
- Profit before tax $27.4m $20.3m
- Diluted earnings per share 19.6c 14.2c
Reported
- Operating profit $35.1m $21.4m
- Profit before tax $32.0m $18.9m
- Diluted earnings per share 23.1c 12.3c
Net debt as at the period end $73.7m $58.8m
Half year dividend 0.0c 1.7c
( )
((a)) Adjusted results exclude the impact of adjusting items - for further
detail see alternative performance measures reconciliation within the detailed
financial review
((b)) All prior year adjusted results have been represented to exclude
share-based payment credits/charges from adjusting items
· Group revenue increased 8% to $521.2 million, with both of the Group's
divisions, DG Americas and DG International, performing ahead of last year
reflecting an acceleration of orders as customers seek to de-risk supply
chains as well as catch-up pricing.
· Improved profits and margin recovery across both of the Group's
divisions, with Group adjusted operating profit up 35%, and margin up 120 bps
to 5.9%, reflecting cost-savings achieved.
· The Group has operated well within its banking covenants, with working
capital requirements tightly managed and net debt lower than expected
throughout the period.
· The Group appointed Paul Bal as Chief Executive Officer effective from
1 April 2023.
· Good progress with the DG Americas turnaround and recruiting a new DG
Americas CEO.
· In line with the Board's previous guidance, no dividend is being
declared.
Outlook
· A strong orderbook for FY2023, which at the end of October 2022 was at
93% of budgeted revenues (end October 2021: 91%), indicating customer
relationships have been sustained and there is strong ongoing demand for the
Group's products.
· The cost environment remains challenging, but where possible cost
inflation is being mitigated, resulting in an operating margin improvement
expected in FY2023.
· Improved working capital and cash performance is expected to mitigate
the impact of higher interest base rates.
· The Group aims to complete a full refinancing in the second half of
FY2023, and work on this has started.
· The Group saw an acceleration of customer orders related to Christmas
trade, during the first half of the financial year, leading the Board to
conclude that there will be a strong first half weighting to the financial
results for the full year to 31 March 2023.
· The Group has also seen stronger trading in certain Everyday categories
than previously had been anticipated. Due to this, the Board believes that the
financial results for the full year to 31 March 2023 will be ahead of
expectations, delivering a small full year adjusted profit before tax. As
previously communicated the Board remains cautious on its outlook due to
uncertainties relating to the current macroeconomic environment.
· With the senior team being reassembled and a turnaround commenced, the
Board will shortly initiate the development of a growth-focused strategy.
· Risk around deteriorating consumer sentiment in some markets causes the
Board to remain cautious as to the outlook beyond FY2023.
Stewart Gilliland, Interim Executive Chair, commented:
"Our strong performance during this period has undoubtedly benefitted from
customers seeking to avoid last year's supply chain issues by ordering
earlier, but also from recognising our high level of service and commitment to
them. Pleasingly, the restructuring and simplification of the DG Americas
business is progressing well. The turnaround of the Group has commenced and is
expected to now gather momentum following the recently announced senior
leadership appointments. Looking forward, the development of a growth-focused
strategy alongside the establishment of a more resilient business model will
benefit shareholders.
While the challenging external backdrop and the uncertain impact of sustained
cost inflation on consumer sentiment in some markets does temper our optimism
notwithstanding the strong start to this year, the Group has once again proved
that it has extremely strong relationships with its customers and there is
ongoing demand for our products."
For further information:
IG Design Group plc 01525 887310
Stewart Gilliland, Interim Executive Chair
Paul Bal, Chief Financial Officer
Lance Burn, Interim Chief Operating Officer
Canaccord Genuity Limited 020 7523 8000
Bobbie Hilliam, NOMAD
Alex Aylen, Sales
Alma PR
Josh Royston 020 3405 0205
Sam Modlin designgroup@almapr.co.uk
Pippa Crabtree
OVERVIEW
The Group has had a strong start in FY2023, contrasting with the challenges
faced through much of FY2022. Revenue increased across both the DG Americas
and DG International divisions. Wishing to de-risk their supply chains and
ensure product availability, many of our customers accelerated their seasonal
ordering. Through our 'catch-up' pricing they also recognised our consistent,
high service-levels in the face of significant inflation and supply chain
uncertainties. As a consequence of this, as well as product redevelopments, we
have delivered increased revenue of 8% over the equivalent period last year.
The Group's adjusted operating margin recovered from 4.7% to 5.9%
year-on-year. It is further pleasing to deliver Group results that are now
ahead of HY2020 and before the disruption of the Covid-19 pandemic.
Furthermore, good progress has been made in the turnaround of the DG Americas
division.
Currency exchange rates have not been favourable during this period,
especially with the strength of the US dollar versus most other currencies.
This has impacted reported sales levels and profitability versus underlying
results.
Since the summer of 2021, the Group has experienced significant cost
increases, particularly in relation to freight, raw materials and labour.
Freight presented the most significant challenge across the Group with the
scarce availability of sea containers significantly increasing the freight
rates paid. Freight rates in FY2023 so far, though stabilising, have remained
higher than the prior period on a number of our key shipping routes. Raw
material costs have increased significantly during this year, especially where
higher energy costs are a factor. The average prices paid for paper, the
Group's major category of material purchases, increased around 50% compared to
the prior period.
On 1 June 2022, the Company signed an amendment to the existing banking
facilities to extend the agreement to March 2024 and replace the existing
covenants with two new covenants which run to March 2023, and as a result the
Directors believe the Group has sufficient facilities to support the working
capital requirements of the business through the current financial year.
During the current period, the Group has operated comfortably within the
covenants, with overall working capital levels managed to well below expected
levels notwithstanding the accelerated trading. Consequently, net debt was
below expectation throughout the period. As previously announced, the Group
aims to complete a full refinancing in the second half of FY2023, and work on
this has started.
BOARD CHANGES
On 3 November 2022, the Board announced the appointment of Paul Bal as CEO
Designate, ahead of his appointment as CEO with effect from 1 April 2023. This
followed an extensive search and selection process involving both external and
internal candidates. From that date Stewart Gilliland will revert to the role
of Non-Executive Chair. The search for a replacement Chief Financial Officer
is underway. Lance Burn has agreed to remain in role as Interim Chief
Operating Officer through to 31 October 2023 to continue to lead the
transformation of the DG Americas business and assist Group transition.
INCENTIVE SCHEME
A new Long-Term Incentive Plan ("2022-2025 LTIP") was granted on 11 August
2022, following the cancellation of grants made under the Long-Term Incentive
Value Creation Scheme (the "VCS") on 28 June 2022. The 2022-2025 LTIP is
subject to certain performance criteria being achieved during a three year
period: relative Total Shareholder Return ("TSR") versus FTSE SmallCap
(excluding Investment Trusts) constituents; and EPS growth, with an 'underpin'
condition to reduce vesting levels if unwarranted 'windfall gains' from share
price movements arise. The Remuneration Committee believe the 2022-2025 LTIP
is a more appropriate incentive scheme and aligns to the interests of
employees and shareholders.
OUTLOOK
Looking ahead, a high inflationary environment is expected to continue, with
the challenge transferring from freight and labour to energy and raw
materials. This is expected to translate into depressed consumer sentiment in
our main markets to varying degrees, meaning continued uncertainty. However,
the Board are encouraged by the ongoing strength of the Group's customer
relationships with the resultant 'catch-up' pricing and accelerated ordering,
with a strong orderbook at over 93% at the end of October 2022, compared to
91% at October 2021. The Group's core strategic pillar of 'working with the
winners' continues to resonate as working with the winning retailers of now
and the future is key to driving revenue growth and delivering profits. Full
year operating margins are expected to improve year-on-year across the Group.
These margins are not expected to be as impacted by higher finance charges as
initially thought, despite increased borrowing rates, as working capital and
average net debt are now expected to remain below previous expectations.
Average net debt across the Group is expected to be below $40 million for
FY2023, which although better than originally indicated, is higher than the
prior year average net debt of $17.2 million, reflecting a lower opening net
cash position at the start of the year.
Consequently, the Board expects greater profit improvement in FY2023, mainly
reflecting progress being made in DG Americas and stronger trading in certain
Everyday categories, now expecting to deliver a small adjusted profit before
tax versus a loss last year. The Board aspires to return to paying dividends
but based on the current outlook for the Group, the Board still does not
expect to be in a position to pay a dividend in relation to FY2023. Risk
around deteriorating consumer sentiment in some markets causes the Board to
remain cautious as to the outlook beyond FY2023.
The Board's short-term focus remains on building a strong senior management
team, repairing margins lost last year, reducing working capital levels,
securing longer-term financing, and simplifying the business, particularly in
DG Americas. Following the appointment of a CEO, the Board will now also
initiate the development of a growth-focused strategy with the objective to
explore opportunities to grow the business in a sustainable manner.
SUMMARY HY2023 FINANCIAL RESULTS
Revenue increased by 8% to $521.2 million (HY2022: $483.9 million) mainly
driven by customers bringing seasonal orders forward compared to last year to
mitigate against supply chain risk experienced in the second half of last
year. During the period, the Group has also benefitted from redeveloping
product ranges and negotiated price increases with our customers reflecting
the significant increase in freight and raw material costs. The Group's
responses to effectively counter the cost headwinds through sales price
increases, in addition to the restructuring of DG Americas, has resulted in an
increased adjusted operating margin of 5.9% (HY2022: 4.7%). Adjusted profit
before tax of $27.4 million is up on the prior half year profit of $20.3
million resulting in an adjusted diluted earnings per share of 19.6 cents
(HY2022: 14.2 cents) reflecting the strong first six months of trading.
Foreign exchange, particularly the weakening pound versus the strengthening
dollar, is having a significant impact on Group performance versus prior year.
At constant currency, revenue would have increased by 12% ($54.8 million)
compared to the 8% ($37.3 million) increase. Similarly, adjusted operating
profit would have increased by 44% ($9.3 million) compared to 35% ($7.9
million).
The Group ended the half year with a net debt balance of $73.7 million
(HY2022: $58.8 million), $14.9 million higher than prior year. The opening net
cash position was $46.3 million lower than prior year and the improvement in
cash flow during the period is reflective of a lower working capital
requirement at half year, net proceeds of $6.7 million from the sale of the
property in Manhattan, Kansas, offset in part by the purchase of the remaining
49% share of Anker Play Products, LLC ("APP").
Adjusting items in the first half of the year are a net credit of $4.6 million
(HY2022: net charge $1.4 million) which includes insurance income received of
$1.5 million from the settlement of the Impact Innovations, Inc ('Impact')
Representations and Warranties insurance claim due to accounting and tax
issues present at acquisition. As part of the ongoing DG Americas integration
and restructuring, $4.6 million of profit on the sale of the property in
Manhattan, Kansas has also been recognised as an adjusting item. Alongside
these credits, there are also additional integration costs relating to the
restructure of the DG Americas business, as well as amortisation of acquired
intangibles.
The Group ended the half year with a profit before tax of $32.0 million
(HY2022: $18.9 million), an improvement of $13.1 million. Consequently,
diluted earnings per share is 23.1 cents (HY2022: 12.3 cents).
Given we are in the early stages of a turnaround, and the uncertain wider
economic backdrop, the Board are not recommending an interim dividend (HY2022:
1.7 cents).
OUR STRATEGY
The experiences of the prior year highlighted aspects of our business model
that need to be addressed and strengthened. Our immediate priorities are
building a strong senior management team, repairing margins lost last year,
reducing working capital levels, securing longer-term financing, and
simplifying the business, particularly in DG Americas.
As we are making good progress with the senior appointments, the Board will
shortly initiate the development of a growth-focused strategy. Whilst the
current focus has been on ensuring the Group emerges more resilient to the
types of challenges encountered in FY2022, some of the impacts of which
persist into FY2023, the objective of that exercise is to look beyond this and
will explore opportunities to grow the business in a sustainable manner.
SUSTAINABILITY
Progressing our environmental, social and governance (ESG) journey remains a
priority. Not only do we have ambition to drive positive change and act
sustainably, we also feel it is a driver of competitive advantage. As a market
leader in our industry, we aim to leverage our design and innovation skills to
create and manufacture sustainable products and packaging.
We continue to develop and explore new solutions, evidenced by investment in
technology to enable the manufacture of shrink-free gift wrap in two of our
key markets. Shrink-free gift wrap eliminates the use of plastic from the
product and packaging, which reduces the volume of waste sent to landfills,
aiming to reduce the pollution of our ecosystems. The manufacture of
recyclable gift bag ranges is another sustainable solution, with increasing
support from our customers. The local manufacture of giftwrap and bags
supports local economies and helps to reduce our carbon footprint. The
development of these sustainable product offerings is facilitated by
investment in both capital equipment and our people.
We recognise our employees are key to the success of the Group and value both
the talent and commitment of our teams, and so strive for an environment where
our employees feel supported. Whilst the macroeconomic environment is
challenging for the Group, we recognise that it is also challenging for our
employees, we are therefore monitoring, and responding where appropriate to
the impact of the cost-of-living crisis on our employees across the Group.
Our partnership with our customers also plays a significant role in
progressing our ESG agenda. We aim to promote our sustainability principles to
all our customers and pride ourselves on working with the winning retailers of
now and the future. Many of our customers are already calling for sustainable
solutions and recognise our achievements as a Group in providing these.
Walmart have awarded us Giga-Guru status this year in their supply chain
carbon reduction strategy project, Project Gigaton 2021.
Our sustainability framework, 'helping design a better future', launched in
FY2021, is helping the Group to monitor, improve and demonstrate our
performance as we continue to drive forward our approach to ESG.
REGIONAL HIGHLIGHTS
Overall, revenue and adjusted operating profit have increased across Group
segments as the first half results benefit from earlier shipments and the
Group mitigates margin risk seen as a result of significant cost headwinds.
Segmental revenue Adjusted operating profit Adjusted operating margin
% Group revenue HY2023 HY2022 % growth HY2023 HY2022 % growth HY2023 HY2022
% %
71% DG Americas $m 373.4 347.5 7% 15.2 12.9 18% 4.1% 3.7%
29% DG International $m 149.4 136.9 9% 18.4 11.7 58% 12.3% 8.5%
Elims / Central costs $m (1.6) (0.5) (3.1) (2.0)
100% Total $m 521.2 483.9 8% 30.5 22.6 35% 5.9% 4.7%
Design Group Americas
The DG Americas business represents over 70% of revenue and increased 7%
year-on-year to $373.4 million (HY2022: $347.5 million), driven by the
acceleration of seasonal sales which are 12% ahead of prior year. It is
particularly décor sales, as well as greeting cards and the 'trim a package'
ranges, all within our Celebrations product category, which are ahead with
customers aiming to ensure product availability ahead of Christmas. Craft and
creative play sales are also recovering. DG Americas delivered an adjusted
operating profit of $15.2 million, a strong rise compared to the previous
period of $12.9 million. This reflects the better pricing achieved to mitigate
the significant cost headwinds in freight, labour and raw materials
experienced, as well as the cost mitigating actions taken as part of the
business restructuring.
The DG Americas leadership team have been focused on the restructuring and
simplification of the DG Americas business. This is progressing well, with a
variety of initiatives beginning to deliver improved margins and cash from
cost-cutting initiatives as the business is simplified, integrated and
consolidated. Examples include more efficient supply scheduling and sourcing,
as well as headcount optimisation. The journey to becoming more commercially
driven around core product categories continues, and will help to drive the
business forward in pursuit of our strategy. As a notable example,
consolidation of our pattern-printing facilities led to the closure of the
Manhattan, Kansas site. The fully owned site was sold in April 2022 for net
proceeds of $6.7 million, delivering a profit on disposal of $4.6 million,
which is included within adjusting items. The selection process for recruiting
the DG Americas CEO is also well advanced.
DG Americas' commitment to design and innovation has resulted in the award
this year of Giga-Guru status in 'Project Gigaton 2021', demonstrating we have
been a key supplier and contributor to the Walmart supply chain carbon
reduction strategy. Once again, this is testament to our strong working
relationships with our valued customers.
On 23 May 2022, the Group purchased the remaining 49% interest in APP,
effective 1 April 2022, 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 under the APP Limited Liability Company agreement dated 30 March
2017. APP develops and sources crafts, toys and games for the US retail
market. The transaction, made through DG Americas, was satisfied with a cash
payment of $3.0 million. The consideration was satisfied from existing Group
banking facilities.
Design Group International
The DG International business saw an increase in revenue in HY2023 across all
key markets. Strong revenue growth was experienced across the European markets
we serve, as well as in the UK and Australia as we reflect the success of our
customers through our "working with the winners" approach. Overall revenue is
up 9% on the prior period at $149.4 million (HY2022: $136.9 million) and up
16% on HY2020 pre-Covid-19 sales. Adjusted operating profit at $18.4 million
(HY2022: $11.7 million) is up $6.7 million, as a result of accelerated
customer orders of higher margin seasonal products, the re-development of some
of our product offers, and a pricing 'catch-up' to mitigate the inflationary
cost headwinds. Seasonal products which have been particularly affected by
this acceleration are: giftwrap, which makes up over 40% of revenue, and
crackers (8%), which combined have grown 21% year-on-year, and are both in the
celebrations product category.
The design, production and roll-out of sustainable products remains a key
focus for DG International. Following investment over recent years in updated
machinery and technology in the UK and Europe, we are improving our
sustainable product offering. The success of shrink-free gift wrap is growing
in both the UK and Europe which has minimal packaging and eliminates plastic
from the process, resulting in less waste and pollution. The UK business is
also manufacturing ranges of recyclable gift bags as another sustainable
solution, with the number of units sold up 40% year-on-year reflecting an
increasing number of customers supporting the sustainable ranges. The growth
in these ranges not only shows innovation, but also demonstrates our ability
to work with our key customers to create successful ranges. This year Costco
has recognised DG UK for our success in reducing the packaging of the
Christmas gift wrap ranges, showing our commitment to sustainability.
OUR PRODUCTS AND CHANNELS
The Group has a diverse, yet complimentary, product portfolio which underpins
our 'working with the winners' strategy.
Revenue by product category HY2023 HY2022
Celebrations 64% $333.4m 64% $311.6m
Craft & creative play 15% $80.0m 15% $73.2m
Stationery 6% $28.9m 5% $24.4m
Gifting 9% $45.4m 9% $42.3m
'Not-for-resale' consumables 6% $33.5m 7% $32.4m
Total $521.2m $483.9m
The increased Group revenue is spread across all product categories
demonstrating the strong relationships that have been sustained with customers
and our success in aiming to be our retail partners' supplier of choice.
Celebrations are a core product category for the Group, of which giftwrap
represents a third. Most of our giftwrap is manufactured locally across a
number of our businesses in the USA, UK and Netherlands, which supports local
economies and helps to reduce our carbon footprint.
Revenue by season HY2023 HY2022
Christmas 50% $258.8m 46% $222.1m
Minor seasons 5% $26.6m 4% $21.7m
Everyday 45% $235.8m 50% $240.1m
Total $521.2m $483.9m
Our revenue by season at this point in the year is skewed towards Christmas
sales and this year this is exacerbated by our customers accelerating their
seasonal orders to mitigate against supply chain risks.
Revenue by customer channel HY2023 HY2022
Value and mass-market 71% $369.3m 62% $299.8m
Specialist 12% $60.8m 10% $47.6m
Independents 16% $84.2m 27% $129.8m
Online 1% $6.9m 1% $6.7m
Total $521.2m $483.9m
The Group's strategy is underpinned by 'working with the winners'; a key
channel for the Group is value and mass-market, which includes some of the
world's biggest retailers such as Walmart, Costco and Target. This positions
us well for any potential downturn in consumer sentiment. A lot of our
products carry a low price point which will help to sustain consumer demand
for them, thereby protecting our revenues from the worst of the current
cost-of-living crisis.
DETAILED FINANCIAL REVIEW
The Group's financial results for the first six months of the year are
summarised below. As detailed in the FY2022 results, the Group results now
include the credit/charge associated with share-based payments within both the
adjusted and reported results, as they are no longer treated as an adjusting
Item. The prior year adjusted results have therefore been represented to
include the impact of this change in accounting presentation.
HY2023 HY2022
Reported Adjusting Items Adjusted Reported Adjusting Items Adjusted
$m $m $m $m $m $m
Revenue 521.2 - 521.2 483.9 - 483.9
Gross profit 86.6 - 86.6 78.6 (0.1) 78.5
Overheads (51.5) (4.6) (56.1) (57.2) 1.3 (55.9)
Operating profit 35.1 (4.6) 30.5 21.4 1.2 22.6
Finance charge (3.1) - (3.1) (2.5) 0.2 (2.3)
Profit before tax 32.0 (4.6) 27.4 18.9 1.4 20.3
Tax (8.5) 1.2 (7.3) (5.2) 0.4 (4.8)
Profit after tax 23.5 (3.4) 20.1 13.7 1.8 15.5
Revenue for the period increased by 8% to $521.2 million (HY2022: $483.9
million) driven by customers bringing forward their seasonal ordering to avoid
the supply chain challenges experienced from the second half of calendar year
2021. The Group has also negotiated price increases with customers to adjust
for the increase in supply chain cost headwinds experienced in the last twelve
months. Foreign exchange, notably the weakening pound versus the strengthening
dollar, is also having a significant impact on the results in the year. The
constant currency Group revenues increased 12% year-on-year. Adjusted
operating profit has improved year-on-year to $30.5 million (HY2022: $22.6
million) reflecting the strong trading in the period. Adjusted gross margin at
16.6% (HY2022: 16.2%) is marginally improved on prior year partly due to the
price increases negotiated with customers to mitigate where possible against
the unprecedented cost headwinds. Adjusted overheads as a percentage of
revenue reduced to 10.8% (HY2022: 11.5%) reflecting the ongoing efforts to
manage costs across the Group. Adjusted operating profit growth at constant
currency is 44%, implying a $1.5 million foreign exchange drag compared to
prior year.
Overall, the Group finished the half year with adjusted profit before tax of
$27.4 million (HY2022: $20.3 million), and a reported profit before tax of
$32.0 million (HY2022: $18.9 million). Profit before tax is higher than the
adjusted profit before tax, reflecting the adjusting items net credit. Further
details of the adjusting items are detailed below. Profit after tax is $23.5
million (HY2022: $13.7 million) for the six months to 30 September 2022.
Finance expenses
Finance costs in the year of $3.1 million are higher than prior year driven by
rising interest rates, as well as higher net debt levels. The IFRS 16 related
lease liability interest charge of $1.5 million (HY2022: $1.6 million) is
marginally lower than prior year. In the prior year there was an additional
$0.2 million of lease liability interest recognised within adjusting items
relating to impaired, exited leases as part of the DG Americas restructuring
and integration projects. This has not been treated as an adjusting item in
the current year given the immaterial and recurring nature of these ongoing
costs.
Adjusting items
Adjusting items are material items of an unusual or non-recurring nature which
represent gains or losses which are separately presented by virtue of their
nature, size and/or incidence. The Group's adjusting items in the period to 30
September 2022 total a net credit of $4.6 million compared to a net charge of
$1.4 million in the prior year. Details of these items can be seen below. The
treatment of share-based payment credits/charges was changed in the FY2022
results, such that they no longer form part of adjusting items, with the
comparatives represented.
HY2023 HY2022
(Gains)/losses and transaction costs relating to acquisitions and disposals of ($1.5m) $3.6m
businesses
Acquisition integration and restructuring (income)/costs ($4.4m) ($2.0m)
IT security incident ($0.1m) ($0.7m)
Amortisation of acquired intangibles $1.4m $1.4m
Impairment of assets - ($0.9m)
Total ($4.6m) $1.4m
(Gains)/losses and transaction costs relating to acquisitions and disposals of
businesses - credit $1.5 million (HY2022: $3.6 million cost)
In the six months ended 30 September 2022, $1.5 million of insurance income
was received relating to the Impact Representations and Warranties insurance
settlement in connection with accounting and tax issues present at
acquisition.
Acquisition integration and restructuring (income)/costs - credit $4.4 million
(HY2022: credit $2.0 million)
In order to realise synergies from acquisitions, integration projects are
undertaken that aim to deliver future savings and efficiencies for the Group.
These are projects outside of the normal operations of the business and
typically incur one-time costs to ensure successful implementation. As such it
is appropriate that costs associated with projects of this nature be included
as adjusting items.
The adjusting items in the half year relate to the integration of CSS
Industries, Inc ('CSS') into the enlarged DG Americas business. As part of
this integration, a number of properties have been exited or sold. 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. An additional $0.2 million of costs have been incurred in relation to
the relocation and closure of Manhattan, Kansas and consolidation of other
sites.
IT security incident (income)/costs - credit $0.1 million (HY2022: credit $0.7
million)
Following the IT security incident which occurred in DG Americas in
October/November 2020, further insurance income of $0.1 million was received
in the half year.
Amortisation of acquired intangibles - $1.4 million (HY2022: $1.4 million)
Under IFRS, as part of the acquisition of a company, it is necessary to
identify intangible assets such as customer lists and brands which form part
of the intangible value of the acquired business but which are not part of the
acquired balance sheet. These intangible assets are then amortised to the
income statement over their useful economic lives. These are not considered
operational costs relating to the running of the acquired business and are
directly related to the accounting for the acquisition. These include
tradenames and brands acquired as part of the acquisitions of Impact and CSS.
As such these are included in adjusting items.
Taxation
The taxation charge for the half year on profit before tax is $8.5 million
(HY2022: $5.2 million) with the effective tax rate at 26.3% (HY2022: 27.5%).
The taxation charge on adjusted profit before tax is $7.3 million (HY2022:
$4.8 million) with the effective tax rate at 26.5% (HY2022: 23.5%).
There is a higher effective tax rate in each jurisdiction than the relevant
statutory rate due to permanently disallowable items. The effective tax rate
in the UK is 0% as deferred tax is not recognised.
Earnings per share
Adjusted diluted earnings per share of 19.6 cents (HY2022: 14.2 cents) is 38%
higher year-on-year driven by the increased profits. Diluted earnings per
share is 23.1 cents (HY2022: 12.3 cents) which is higher than adjusted diluted
earnings per share reflecting the adjusting items credit in the period. The
reconciliation between reported and adjusted diluted earnings per share is
shown below:
Earnings per share HY2023 HY2022
Earnings attributable to equity holders of the Company $22.8m $12.1m
Adjustments
Adjusting items (net of non-controlling interest effect) ($4.6m) $1.4m
Tax charge on adjustments (net of non-controlling interest effect) $1.1m $0.4m
Adjusted earnings $19.3m $13.9m
Weighted average number of shares
Basic weighted average number of shares outstanding 98.3m 98.1m
Dilutive effect of employee share option plans - 0.1m
Diluted weighted average ordinary shares 98.3m 98.2m
Earnings per share
Basic earnings per share 23.1c 12.3c
Adjustment (3.5c) 1.9c
Basic adjusted earnings per share 19.6c 14.2c
Diluted earnings per share 23.1c 12.3c
Adjusted diluted earnings per share 19.6c 14.2c
Dividend
The Board are not recommending an interim dividend.
Cash flow and net debt
The Group ended the half year with a net debt balance of $73.7 million
(HY2022: $58.8 million). Net debt is $14.9 million higher than prior year,
despite a lower opening net cash position of $30.2 million (HY2022: $76.5
million). This improvement in cash flow during the period is reflective of a
lower working capital requirement at half year, net proceeds of $6.7 million
from the sale of the property in Manhattan, Kansas, offset partially by the
purchase of the remaining 49% share of subsidiary APP. Adjusted cash utilised
by operations is $23.4 million favourable compared to prior year due to a
combination of a higher adjusted EBITDA and working capital requirements.
HY2023 HY2022
Adjusted EBITDA $46.8m $40.2m
Add back for share-based payment charge/(credit) $0.3m ($0.4m)
Movements in working capital ($136.3m) ($152.4m)
Adjusted cash utilised by operations ($89.2m) ($112.6m)
Adjusting items $7.2m ($4.4m)
Cash utilised by operations ($82.0m) ($117.0m)
Capital expenditure (net of disposals of property, plant and equipment) ($3.2m) ($3.1m)
Acquisition of non-controlling interest ($3.0m) -
Tax paid ($3.1m) ($3.5m)
Interest paid (including adjusting items) ($2.3m) ($1.8m)
Lease liabilities principal repayments ($10.8m) ($8.4m)
Dividends paid (including those paid to non-controlling interests) ($2.6m) ($2.7m)
Purchase of own shares ($0.9m) -
FX and other $4.0m $1.2m
Movement in net debt ($103.9m) ($135.3m)
Opening net cash $30.2m $76.5m
Closing net debt ($73.7m) ($58.8m)
Working capital
Working capital levels of the Group increase steadily in the first half of the
year as manufacturing of seasonal product builds ahead of distribution. The
second half of the year then sees the borrowing of the Group decline and
typically move to a net cash position as Christmas debtors are collected. The
working capital outflow in the period was $136.3 million (HY2022: $152.4
million) reflecting the settlement of the accelerated seasonal orders by
customers.
Adjusting items
During the period there was a $7.2 million net cash inflow (HY2022: $4.4
million outflow) in relation to adjusting items, of which $0.9 million outflow
related to costs incurred in previous years. Further detail on adjusting items
can be seen above.
Capital expenditure
Capital expenditure in the year remained in line with the prior year at $3.2
million (HY2022: $3.1 million), with no significant capital projects.
Acquisition of non-controlling interest
The Group purchased the remaining 49% share of APP, following the exercise of
a put option by the holder of the 49% interest. The transaction was settled
with a $3.0 million cash payment.
Purchase of own shares
In the year there was an outflow of $0.9 million due to the trustee of the IG
Design Group Plc Employee Benefit Trust (the "EBT") purchasing 1 million
ordinary shares in the Company. 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 purchase of ordinary shares by the EBT has been funded by a
loan provided by the Company from its existing financing facilities.
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 period to enhance the comparability of information
between reporting periods. The revenue increase would have been $17.6 million
higher than prior year if a consistent currency was applied and the increase
in adjusted profit before tax would have been $1.4 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 at 30 September 2022 were $371.5 million which is $29.0
million lower than last year (HY2022: $400.5 million) in large part due to
foreign exchange revaluations as well as the distribution of dividends to
shareholders in the second half of FY2022.
As at the 30 September 2022 balance sheet date, the Directors have assessed
going concern in preparation of these financial statements and the outlook for
FY2023 and beyond. The Group has adequate liquidity at the half year with a
net debt position of $73.7 million ($14.3 million of cash and $88.9 million of
bank overdraft reduced by $0.9 million of loan arrangement fees).
Going concern forecasts have been produced using the Group's FY2023 and FY2024
forecasts and plans. These forecasts have been produced and 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 downturns
in the current assumptions as well as separately considering the impact of any
consumer spending squeeze, beyond those risks already factored into the
forecasts and plans. The base forecasts and additional sensitivity analysis
have been tested against the amended banking covenants to March 2023, as well
as beyond this time when the covenants revert to the original covenants. The
analysis demonstrates that the Group has sufficient facilities in place 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. The Group's
current financing arrangements expire in March 2024. The Group intends to
complete a full refinancing in the second half of FY2023 which is now
underway. As such, after making appropriate enquiries, 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.
Statement of Directors' responsibilities
The Directors confirm to the best of their knowledge that these condensed
interim financial statements have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting' and that
the interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
• an indication of important events that have occurred during the
first six months and their impact on the condensed set of financial
statements, and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
• material related-party transactions in the first six months and
any material changes in the related-party transactions described in the last
annual report.
Alternative performance measures
This review includes alternative performance measures (APMs) that are
presented in addition to the standard IFRS metrics. The Directors believe that
these APMs provide important additional information regarding the underlying
performance of the business including trends, performance and position of the
Group. APMs are used to enhance the comparability of information between
reporting periods and segmental business units by adjusting for exceptional or
uncontrollable factors which affect IFRS measures, to aid the understanding of
the Group's performance. Consequently, APMs are used by the Directors and
management for strategic and performance analysis, planning, reporting and
reward setting. APMs reflect the results of the business excluding adjusting
items, which are items that are material and of an unusual or non-recurring
nature.
The APMs and the definitions used are listed below:
· Adjusted EBITDA - EBITDA before adjusting items
· Adjusted operating profit/(loss) - Profit/(loss) before finance
charges, tax and adjusting items
· Adjusted profit/(loss) before tax - Profit/(loss) before tax and
adjusting items
· Adjusted profit/(loss) after tax - Profit/(loss) after tax before
adjusting items and associated tax effect
· Adjusted diluted earnings per share - Diluted earnings per share before
adjusting items and associated tax effect
In addition, the Group uses APMs in order to calculate other key performance
metrics including:
· Adjusted operating margin - Adjusted operating profit divided by
revenue
Adjusting items
Further details of the items categorised as adjusting items are disclosed in
more detail in note 3. Note that all prior year comparatives have been
represented to include the share-based payments credit/charge within adjusted
metrics.
A full reconciliation between our adjusted and reported results is provided
below:
APM Reconciliation HY2023 HY2022
Reported operating profit $35.1m $21.4m
Depreciation and impairment of property, plant and equipment $6.4m $6.9m
Depreciation and impairment of right-of-use assets $8.8m $6.8m
Acquisition amortisation $1.4m $1.4m
Amortisation of software $1.1m $1.7m
EBITDA $52.8m $38.2m
Adjusted EBITDA $46.8m $40.2m
Adjusting items $6.0m ($2.0m)
EBITDA $52.8m $38.2m
Adjusted operating profit $30.5m $22.6m
Adjusting items $4.6m ($1.2m)
Reported operating profit $35.1m $21.4m
Adjusted profit before tax $27.4m $20.3m
Adjusting items $4.6m ($1.4m)
Reported profit before tax $32.0m $18.9m
Adjusted profit after tax $20.1m $15.5m
Adjusting items $3.4m ($1.8m)
Reported profit after tax $23.5m $13.7m
Adjusted diluted earnings per share 19.6c 14.2c
Adjusting items 3.5c (1.9c)
Reported diluted earnings per share 23.1c 12.3c
CONDENSED CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED 30 SEPTEMBER 2022
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
Note $000 $000 $000
Revenue 2 521,184 483,908 965,093
Cost of sales (434,575) (405,287) (842,926)
Gross profit 86,609 78,621 122,167
Selling expenses (23,216) (21,792) (48,305)
Administration expenses (35,098) (35,859) (66,604)
Other operating income 5 2,107 427 870
Profit/(loss) on disposal of property, plant and equipment 2 4,721 (17) (436)
Loss on disposal of leases (73) - -
Operating profit 3 35,050 21,380 7,692
Finance expenses (3,125) (2,495) (5,491)
Profit before tax 31,925 18,885 2,201
Income tax 6 (8,399) (5,191) (2,517)
Profit/(loss) for the period 23,526 13,694 (316)
Attributable to:
Owners of the Parent Company 22,754 12,063 (3,277)
Non-controlling interests 772 1,631 2,961
Earnings/(loss) per ordinary share
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
Note
Basic 9 23.1c 12.3c (3.3c)
Diluted 9 23.1c 12.3c (3.3c)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
SIX MONTHS ENDED 30 SEPTEMBER 2022
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
$000 $000 $000
Profit/(loss) for the period 23,526 13,694 (316)
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit pension and health benefit schemes - - (715)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translation of foreign operations (net of tax) 24,790 3,799 8,686
Transfer to profit and loss on maturing cash flow hedges (net of tax) (753) 58 (301)
Net unrealised (loss)/gain on cash flow hedges (net of tax) (513) 395 686
23,524 4,252 9,071
Other comprehensive income for the period, net of tax 23,524 4,252 8,356
Total comprehensive income for the period, net of tax 47,050 17,946 8,040
Attributable to:
Owners of the Parent Company 47,136 16,616 5,173
Non-controlling interests (86) 1,330 2,867
47,050 17,946 8,040
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
SIX MONTHS ENDED 30 SEPTEMBER 2022
Attributable to the owners of the Parent Company
Share
premium
and capital Non-
Share redemption Merger Hedging Translation Retained Shareholders' controlling
capital reserve reserve reserve reserve earnings equity interests Total
$000 $000 $000 $000 $000 $000 $000 $000 $000
At 1 April 2022 6,373 228,143 42,549 299 (12,459) 96,806 361,711 7,999 369,710
Profit for the period - - - - - 22,754 22,754 772 23,526
Other comprehensive income/(expense) - - - (1,295) 25,677 - 24,382 (858) 23,524
Total comprehensive income/(expense) for the period - - - (1,295) 25,677 22,754 47,136 (86) 47,050
Change in ownership interest
Acquisition of non-controlling interest - - - - - (3,558) (3,558) 607 (2,951)
Transactions with owners in their capacity as owners
Equity-settled share-based payments - - - - - 283 283 - 283
Purchase of own shares - - - - - (865) (865) - (865)
Options exercised 51 - - - - (51) - - -
Equity dividends paid - - - - - - - (2,616) (2,616)
Option over non-controlling interest - - - - - 3,069 3,069 - 3,069
Exchange differences on opening balances (969) (34,738) (6,479) - - - (42,186) - (42,186)
At 30 September 2022 5,455 193,405 36,070 (996) 13,218 118,438 365,590 5,904 371,494
SIX MONTHS ENDED 30 SEPTEMBER 2021
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
Profit for the period - - - - - 12,063 12,063 1,631 13,694
Other comprehensive income/(expense)
- - - 453 4,100 - 4,553 (301) 4,252
Total comprehensive income for the period
- - - 453 4,100 12,063 16,616 1,330 17,946
Transactions with owners in their capacity as owners
Equity-settled share-based payments
- - - - - (121) (121) - (121)
Tax on equity-settled share-based payments
- - - - - (237) (237) - (237)
Options exercised 11 - - - - (11) - - -
Equity dividends paid - - - - - - - (2,650) (2,650)
Exchange differences on opening balances
(149) (5,339) (996) - - - (6,484) - (6,484)
At 30 September 2021 6,529 233,803 43,604 367 (17,139) 126,132 393,296 7,177 400,473
YEAR ENDED 31 MARCH 2022
Attributable to the owners of the Parent Company
Share
premium
and capital Non-
Share redemption Merger Hedging Translation Retained Shareholders' controlling
capital reserve reserve reserve reserve earnings equity interests Total
$000 $000 $000 $000 $000 $000 $000 $000 $000
At 1 April 2021 6,667 239,142 44,600 (86) (21,239) 114,438 383,522 8,497 392,019
(Loss)/profit for the year - - - - - (3,277) (3,277) 2,961 (316)
Other comprehensive income/(expense) - - - 385 8,780 (715) 8,450 (94) 8,356
Total comprehensive income/(expense) for the year - - - 385 8,780 (3,992) 5,173 2,867 8,040
Transactions with owners in their capacity as owners
Equity-settled share-based payments - - - - - 241 241 - 241
Derecognition of deferred tax asset - share-based payments - - - - - (1,179) (1,179) - (1,179)
Derecognition of deferred tax asset - IFRS 16 - - - - - (346) (346) - (346)
Options exercised 13 - - - - (13) - - -
Equity dividends paid - - - - - (9,274) (9,274) (3,365) (12,639)
Option over non-controlling interest - - - - - (3,069) (3,069) - (3,069)
Exchange differences on opening balances (307) (10,999) (2,051) - - - (13,357) - (13,357)
At 31 March 2022 6,373 228,143 42,549 299 (12,459) 96,806 361,711 7,999 369,710
In line with the Group's accounting policy, share capital, share premium,
capital redemption reserve, merger reserve and hedging reserve are translated
into US dollars at the rates of exchange at each balance sheet date and the
resulting cumulative exchange differences are included in other reserves.
CONDENSED CONSOLIDATED BALANCE SHEET
AS AT 30 SEPTEMBER 2022
Unaudited Unaudited
as at as at As at
30 Sep 2022 30 Sep 2021 31 Mar 2022
Note $000 $000 $000
Non-current assets
Property, plant and equipment 71,803 83,098 78,911
Intangible assets 98,460 111,066 107,398
Right-of-use assets 74,025 89,388 86,731
Long-term assets 5,839 6,321 5,105
Deferred tax assets 8,159 16,116 16,317
Total non-current assets 258,286 305,989 294,462
Current assets
Asset held for sale - - 2,150
Inventory 264,769 259,893 230,885
Trade and other receivables 265,998 298,009 127,850
Income tax receivable 1,223 1,283 1,234
Derivative financial assets 10 502 375 316
Cash and cash equivalents 7 83,396 96,340 50,179
Total current assets 615,888 655,900 412,614
Total assets 2 874,174 961,889 707,076
Equity
Share capital 5,455 6,529 6,373
Share premium 191,912 231,999 226,382
Capital redemption reserve 1,493 1,804 1,761
Merger reserve 36,070 43,604 42,549
Hedging reserve (996) 367 299
Translation reserve 13,218 (17,139) (12,459)
Retained earnings 118,438 126,132 96,806
Equity attributable to owners of the Parent Company 365,590 393,296 361,711
Non-controlling interests 5,904 7,177 7,999
Total equity 371,494 400,473 369,710
Unaudited Unaudited
as at as at As at
30 Sep 2022 30 Sep 2021 31 Mar 2022
Note $000 $000 $000
Non-current liabilities
Loans and borrowings 8 (317) (195) (20)
Lease liabilities 66,322 85,647 80,215
Deferred income 463 627 523
Provisions 4,803 5,222 5,016
Other financial liabilities 17,827 19,963 21,557
Deferred tax liabilities 194 2,513 381
Total non-current liabilities 89,292 113,777 107,672
Current liabilities
Bank overdraft 7 69,122 70,511 20,380
Loans and borrowings 8 88,274 84,840 (340)
Lease liabilities 18,234 18,687 19,628
Deferred income 1,681 839 465
Provisions 1,205 1,446 1,342
Income tax payable 4,660 8,444 7,359
Trade and other payables 188,690 223,821 143,318
Other financial liabilities 41,522 39,051 37,542
Total current liabilities 413,388 447,639 229,694
Total liabilities 2 502,680 561,416 337,366
Total equity and liabilities 874,174 961,889 707,076
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
SIX MONTHS ENDED 30 SEPTEMBER 2022
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
Note $000 $000 $000
Cash flows from operating activities
Profit/(loss) for the period 23,526 13,694 (316)
Adjustments for:
Depreciation and impairment/(reversal of impairment) of property, plant and 6,384 6,916 13,378
equipment
Depreciation and impairment/(reversal of impairment) of right-of-use assets 8,862 6,783 15,284
Amortisation of intangible assets 2,477 3,158 5,817
Finance expenses 3,125 2,495 5,491
Income tax charge 8,399 5,191 2,517
(Profit)/loss on disposal of property, plant and equipment (4,721) 17 436
Loss on disposal of leases 73 - -
Equity-settled share-based payments- expense/(income) 312 (418) (848)
Operating profit after adjustments for non-cash items 48,437 37,836 41,759
Change in trade and other receivables (146,837) (171,325) (994)
Change in inventory (48,061) (85,790) (58,096)
Change in trade and other payables, provisions and deferred income 57,779 104,669 21,237
Cash (used by)/generated from operations (88,682) (114,610) 3,906
Tax paid (3,092) (3,464) (5,205)
Interest and similar charges paid (2,326) (1,994) (4,626)
Net cash outflow from operating activities (94,100) (120,068) (5,925)
Cash flow from investing activities
Proceeds from sale of property, plant and equipment 6,839 128 131
Acquisition of intangible assets (16) (236) (381)
Acquisition of property, plant and equipment (3,286) (2,968) (8,140)
Net cash inflow/(outflow) from investing activities 3,537 (3,076) (8,390)
Cash flows from financing activities
Acquisition of non-controlling interest 13 (2,951) - -
Purchase of own shares 14 (865) - -
Net movement in credit facilities 88,908 85,441 -
Lease liabilities principal repayments (10,848) (10,532) (20,717)
Loan arrangement fees (1,079) (494) (494)
Equity dividends paid - - (9,274)
Dividends paid to non-controlling interest (2,616) (2,650) (3,365)
Net cash inflow/(outflow) from financing activities 70,549 71,765 (33,850)
Net decrease in cash and cash equivalents (20,014) (51,379) (48,165)
Cash and cash equivalents at beginning of the period 29,799 75,727 75,727
Effect of exchange rate fluctuations on cash held 4,489 1,481 2,237
Cash and cash equivalents at end of the period 7 14,274 25,829 29,799
NOTES TO THE INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED 30 SEPTEMBER 2022
1. Accounting policies
Basis of preparation
The financial information contained in this interim report does not constitute
statutory accounts as defined in Section 435 of the Companies Act 2006 and is
unaudited.
On 31 December 2020, IFRS as adopted by the European Union at that date was
brought into UK law and became UK-adopted International Accounting Standards
(UK IFRS), with future changes being subject to endorsement by the UK
Endorsement Board. The Group transitioned to UK IFRS in its consolidated
financial statements on 1 April 2021. This change constitutes a change in
accounting framework. However, there is no impact on recognition, measurement
or disclosure in the period reported as a result of the change in framework.
This condensed consolidated interim financial report for the half-year
reporting period ended 30 September 2022 has been prepared in accordance with
the UK-adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority. The interim report does not
include all of the notes of the type normally included in an annual financial
report. Accordingly, this report is to be read in conjunction with the annual
report for the year ended 31 March 2022, which has been prepared in accordance
with UK-adopted international accounting standards and the requirements of the
Companies Act 2006, and any public announcements made by IG Design Group plc
during the interim reporting period.
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.
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).
Seasonality of the business
The business of the Group is seasonal and although revenues generally 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 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.
Re-presentation of adjusting items
The treatment of share-based payment credits/charges was changed in the year
ended 31 March 2022 such that they no longer formed part of adjusting items in
line with best practice guidance. The comparative figures relating to
adjusting items have been restated to exclude share-based payments where
necessary in these financial statements.
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 currency differs to that
of the Group's reporting currency.
Going concern
Information regarding the financial position of the Group, its cash flows,
liquidity position and borrowing facilities are described in the detailed
financial review above. Cash balances and borrowings are detailed in notes 7
and 8.
On 5 June 2019, to meet the funding requirements of the Group, the business
refinanced with a banking group comprising HSBC, NatWest, Citigroup (who
replaced BNP Paribas), Truist Bank (as successor by merger to SunTrust Bank)
and PNC Bank as part of a three-year deal.
This facility was then subsequently amended and extended on 17 January 2020
with the same banking group to accommodate the acquisition of CSS Industries,
Inc. (CSS). The facilities were then further extended in May 2021.
In June 2022, the facilities were amended and extended through to March 2024.
The amendment to the terms of the banking agreement comprise of a revolving
credit facility (RCF) of $90.0 million (reduced from $95.0 million) and a
further flexible RCF of up to £92.0 million (reduced from a maximum level of
£130.0 million) to meet the Group's working capital requirements during the
peak manufacturing and selling season. The financial covenants were also
amended - see note 8 for more details on these. The Group's current financing
arrangements expire in March 2024. The Group aims to complete a full
refinancing in the second half of FY2023 which is now underway. 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.
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.
The Directors have prepared detailed plans and forecasts up to 31 March 2024.
These forecasts reflect the fact that the Group continues to generate strong
sales this year but that cost pressures continue in the supply chain impacting
profitability. They also reflect the seasonal operating cycle of the business
and a recovery associated with the DG Americas plan.
These forecasts have been sensitised to reflect severe but plausible adverse
downturns in the current assumptions. Specifically, the severe but plausible
downside scenario has taken account of the following risks:
· a range of pressures which could affect the attainment of the DG
Americas plan, including inflation in various parts of the business, sales
shortfalls, sales timing and a disruption event such as a short‑term
manufacturing disruption leading to increased temporary labour costs; and
· the impact of inflation on disposable incomes and demand for
products in the DG International business, noting that the potential risks in
a severe but plausible downside scenario are not considered to be as
significant as in the DG Americas business.
In the severe but plausible scenario modelled, there remains significant
headroom in our forecast liquidity and sufficient headroom under the covenant
requirements for both the amended covenants to March 2023 and the reverted
covenants from June 2023 onwards.
Based on this assessment, the Directors have formed a judgement that there is
a reasonable expectation the Group will have adequate resources to continue in
operational existence for the foreseeable future.
Significant accounting policies
The accounting policies adopted in the preparation of the interim report are
consistent with those of the previous financial year and corresponding interim
reporting period, except for the estimation of income tax (see note 6) and the
adoption of new and amended standards. A number of new or amended standards
became applicate for the current reporting period. The Group did not have to
change its accounting policies or make retrospective adjustments as a result
of adopting these standards.
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, the UK,
India and Mexico, being the overseas entities of US companies. The DG
International segment comprises the consolidation of the separately owned
business 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
liabilities and cash have 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 Central &
DG Americas((a)) International eliminations Group
$000 $000 $000 $000
Six months ended 30 September 2022
Revenue - external 373,417 147,767 - 521,184
- inter-segment - 1,671 (1,671) -
Total segment revenue 373,417 149,438 (1,671) 521,184
Segment profit/(loss) before adjusting items and management recharges 15,199 18,408 (3,154) 30,453
Adjusting items (note 3) 4,597 - - 4,597
Operating profit/(loss) 19,796 18,408 (3,154) 35,050
Finance expenses (3,125)
Income tax (8,399)
Profit for the six months ended 30 September 2022 23,526
Balances at 30 September 2022
Segment assets 513,678 286,517 73,979 874,174
Segment liabilities (260,029) (158,811) (83,840) (502,680)
Other segment information
Capital expenditure additions
- property, plant and equipment 1,558 1,705 23 3,286
- intangible assets 2 14 - 16
- right-of-use assets 431 46 24 501
Depreciation - property, plant and equipment 3,689 2,688 7 6,384
Amortisation - intangible assets 2,402 75 - 2,477
Depreciation - right-of-use assets 6,335 2,521 6 8,862
Profit on disposal of property, plant and equipment((b)) 4,641 80 - 4,721
(a) Including overseas entities for the DG 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 Central &
DG Americas((a)) International eliminations Group
$000 $000 $000 $000
Six months ended 30 September 2021
Revenue - external 347,502 136,406 - 483,908
- inter-segment 16 468 (484) -
Total segment revenue 347,518 136,874 (484) 483,908
Segment profit/(loss) before adjusting items and management recharges 12,917 11,652 (1,979) 22,590
Adjusting items((b)) (note 3) 1,464 (42) (2,632) (1,210)
Operating profit/(loss) 14,381 11,610 (4,611) 21,380
Finance expenses (2,297)
Finance expenses treated as an adjusting item (198)
Income tax (5,191)
Profit for the six months ended 30 September 2021 13,694
Balances at 30 September 2021
Segment assets 586,279 282,985 92,625 961,889
Segment liabilities (321,138) (146,704) (93,574) (561,416)
Other segment information
Capital expenditure additions
- property, plant and equipment 1,866 1,062 40 2,968
- intangible assets 185 51 - 236
- right-of-use assets 2,281 591 - 2,872
Depreciation - property, plant and equipment 3,877 3,032 7 6,916
Amortisation - intangible assets 3,087 71 - 3,158
Depreciation - right-of-use assets 6,250 2,714 10 8,974
Impairment - right-of-use assets - - 22 22
Reversal of impairment - right-of-use assets (2,213) - - (2,213)
(a) Including overseas entities for the DG Americas operating segment.
(b) The prior year amounts above have been re-presented. For more detail
please refer to note 1.
DG Central &
DG Americas((a)) International eliminations Group
$000 $000 $000 $000
Year ended 31 March 2022
Revenue - external 658,953 306,140 - 965,093
- inter-segment 16 1,725 (1,741) -
Total segment revenue 658,969 307,865 (1,741) 965,093
Segment (loss)/profit before adjusting items and management recharge (11,738) 20,836 (5,290) 3,808
Adjusting items (note 3) 5,667 1,570 (3,353) 3,884
Operating profit/(loss) (6,071) 22,406 (8,643) 7,692
Finance expenses (5,105)
Finance expenses treated as an adjusting item (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)
Other segment information
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 DG Americas operating segment.
3. Operating profit and adjusting items
Unaudited Unaudited Twelve
six months six months months
ended ended((a)) ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
$000 $000 $000
Operating profit analysed as:
Adjusted operating profit 30,453 22,590 3,808
Adjusting items 4,597 (1,210) 3,884
Operating profit 35,050 21,380 7,692
(a) The prior year comparatives above have been re-presented. For more
detail please refer to note 1.
Adjusting items
Other Profit on
Cost of Selling Admin operating disposal Finance
Six months ended sales expenses expenses income of plant expenses Total
30 September 2022 $000 $000 $000 $000 $000 $000 $000
Losses/(gains) and transaction costs relating to acquisitions and disposals of - - - (1,500) - - (1,500)
businesses((1))
Acquisition integration and restructuring costs/(income)((2)) - - 235 - (4,608) - (4,373)
IT security incident income ((3)) - - (142) - - - (142)
Amortisation of acquired intangibles((4)) - - 1,418 - - - 1,418
Adjusting items - - 1,511 (1,500) (4,608) - (4,597)
Other Loss on
Cost of Selling Admin operating disposal Finance
Six months ended sales expenses expenses income of plant expenses Total
30 September 2021 $000 $000 $000 $000 $000 $000 $000
Losses/(gains) and transaction costs relating to acquisitions and disposals of - - 3,612 - - (15) 3,597
businesses((1))
Acquisition integration and restructuring costs/(income)((2)) (146) - (2,076) - 31 213 (1,978)
IT security incident (income)/costs((3)) - - (687) - - - (687)
Amortisation of acquired intangibles((4)) - - 1,418 - - - 1,418
Reversal of impairment of assets((5)) - (942) - - - - (942)
Adjusting items((a)) (146) (942) 2,267 - 31 198 1,408
(a) The prior year comparatives above have been re-presented. For more
detail please refer to note 1.
Other Loss on
Cost of Selling Admin operating disposal Finance
Year ended sales expenses expenses 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((1))
Acquisition integration and restructuring costs/(income)((2)) (980) - (1,336) (124) 348 401 (1,691)
IT security incident (income)/costs((3)) - - (5,683) - - - (5,683)
Amortisation of acquired intangibles((4)) - - 2,837 - - - 2,837
Reversal of impairment of assets((5)) (1,544) (1,112) - - - - (2,656)
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 items
of an unusual or non-recurring nature which represent gains or losses and are
presented to allow for the review of the performance of the business in a
consistent manner and in line with how the business is managed and measured on
a day-to-day basis and allow the reader to obtain a clearer understanding of
the underlying results of the ongoing Group's operations. They are typically
gains or costs associated with events that are not considered to form part of
the core operations, or are considered to be a 'non-recurring' event (although
they may span several accounting periods).
These (gains)/losses relating to the period ended 30 September 2022 are broken
down as follows:
(1) Losses/(gains) and transaction costs relating to acquisitions and
disposals of businesses
Costs directly associated with acquisitions, including legal and advisory fees
on deals, form part of our reported results on an IFRS basis. These costs,
however, in the Board's view, form part of the capital transaction, and as
they are not attributed to investment value under IFRS 3, they are included as
an adjusting item. Similarly, where acquisitions have employee related
payments (exclusive of Long Term Incentive Plans) which lock in and
incentivise legacy talent, we also include these costs as adjusting items.
Furthermore, gains or losses on the disposal of businesses, including any
transaction costs associated with the disposal, are treated as adjusting
items.
In the period, $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).
(2) Acquisition integration and restructuring (income)/costs
In order to realise synergies from acquisitions, integration projects are
undertaken that aim to deliver future savings and efficiencies for the Group.
These are projects outside of the normal operations of the business and
typically incur one-time costs to ensure successful implementation. As such,
the Board considers it is appropriate that costs associated with projects of
this nature are included as adjusting items.
The adjusting items in the period, and in the year to 31 March 2022, relate to
the integration of CSS (acquired in 2020) into the enlarged DG Americas
business.
In April 2022, a property in Manhattan, Kansas which was previously acquired
as part of the CSS acquisition, was sold for net proceeds of $6.7 million
resulting in a net profit on disposal of $4.6 million. An additional
$235,000 of costs have been incurred in relation to the relocation and closure
of Manhattan, Kansas and consolidation of other sites.
In the year to 31 March 2022, 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.
(3) IT security incident (income)/costs
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.
During the period ended 30 September 2022, 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.
(4) 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.
(5) 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. During the year to
31 March 2022 there was a $2.7 million credit relating to reversal of
impairments no longer required.
The cash flow effect of adjusting items
There was a $7.2 million net inflow in the current period's cash flow (HY2022:
$4.4 million outflow((a))) relating to adjusting items which included $919,000
(HY2022: $1.7 million) deferred from prior years.
(a) The prior year comparatives above have been re-presented. For more
detail please refer to note 1.
4. Share based payments charges
The total expense recognised for the period arising from equity-settled
share-based payments is as follows:
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
$000 $000 $000
Charge in relation to the 2020-2022 LTIP scheme 166 367 723
Credit in relation to the VCS - (488) (482)
Charge in relation to the 2022-2025 LTIP scheme 117 - -
Equity-settled share-based payments charge/(credit) 283 (121) 241
Social security charge/(credit) 29 (297) (1,089)
Total equity-settled share-based payments charge/(credit) 312 (418) (848)
Following a review of the VCS scheme, the Remuneration Committee of the
Company believed that the grants under the VCS no longer aligned interests of
employees and shareholders. Under the VCS rules, any material changes to the
VCS required the consent of participants holding awards which together
represent more than 50 percent of all outstanding award values. Following
consultation with participants, this minimum requirement was achieved allowing
the cancellation of the VCS to occur. The VCS scheme was cancelled effective
28 June 2022.
The 2022-2025 LTIP was announced on 11 August 2022, following the cancellation
of grants made under the VCS on 28 June 2022. The 2022-2025 LTIP is subject to
certain performance criteria being achieved during a three year period:
relative Total Shareholder Return versus FTSE SmallCap (excluding Investment
Trusts) constituents; and EPS growth, with an 'underpin' condition to reduce
vesting levels if unwarranted 'windfall gains' from share price movements
arise. There is a two year holding period for certain individuals.
5. Other operating income
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
$000 $000 $000
Grant income received 40 - (17)
Sub-lease rental income 567 325 628
Government assistance - 101 125
Other - 1 10
Other operating income before adjusting items 607 427 746
Adjusting items (note 3) 1,500 - 124
Total other operating income 2,107 427 870
6. Taxation
Recognised in the income statement
Unaudited Unaudited Twelve
six months six months months
ended ended((a)) ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
$000 $000 $000
Current tax charge
Current income tax charge 648 2,999 3,886
Deferred tax charge/(credit)
Origination and reversal of temporary differences 7,751 2,192 (1,369)
Total tax in the income statement 8,399 5,191 2,517
Total tax charge/(credit) on adjusting items
Total tax on profit before adjusting items 7,250 4,765 3,333
Total tax on adjusting items 1,149 426 (816)
Total tax in the income statement 8,399 5,191 2,517
(a) The prior year comparatives above have been re-presented. For more
detail please refer to note 1.
The tax expense has been calculated by applying the effective rate of tax
which is expected to apply for the year ended 31 March 2023 by jurisdiction,
using rates substantively enacted by 30 September 2022. The tax effect of
adjusting items is recognised in the same period as the relevant adjusting
item.
As at 31 March 2022, the previously recognised deferred tax assets in the UK
were derecognised. The derecognition occurred
as a result of the assessment of future taxable profits (which is due to the
growing costs in IG Design Group plc) against which the asset could unwind.
The standard rate of corporation tax in the UK will rise to 25% effective from
1 April 2023. Given that no deferred tax is recognised in the UK, this does
not impact the deferred tax measurement at the balance sheet date.
7. Cash and cash equivalents/bank overdrafts
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
$000 $000 $000
Cash and cash equivalents 83,396 96,340 50,179
Bank overdrafts (69,122) (70,511) (20,380)
Cash and cash equivalents and bank overdrafts per cash flow statement 14,274 25,829 29,799
(Net debt)/net cash
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
$000 $000 $000
Cash and cash equivalents and bank overdrafts 14,274 25,829 29,799
Bank loans (88,908) (85,441) -
Loan arrangement fees 951 796 360
Net (debt)/cash as used in the financial review (73,683) (58,816) 30,159
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 8
for further details of the Group's loans and borrowings.
8. Loans and borrowings
This note provides information about the contractual terms of the Group's
interest-bearing loans and borrowings.
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
$000 $000 $000
Non-current liabilities
Loan arrangement fees (317) (195) (20)
(317) (195) (20)
Current liabilities
Asset backed loan 10,579 5,477 -
Revolving credit facilities 78,329 79,964 -
Bank loans and borrowings 88,908 85,441 -
Loan arrangement fees (634) (601) (340)
88,274 84,840 (340)
Secured bank facilities
The Group maintains its banking facilities through a club of five banks chosen
to reflect and support the geographical spread of the Group. The banks within
the club are HSBC, NatWest, Citigroup (which replaced BNP Paribas), Truist
Bank (as successor by merger to SunTrust Bank) and PNC.
On 1 June 2022, the Company extended the term of its existing banking
agreement to 31 March 2024. As part of this extension covenants have been
revised for the period to 31 March 2023 and the amended facilities comprise:
· a revolving credit facility ('RCF A') which has reduced from
$95.0 million to $90.0 million;
· a further flexible revolving credit facility ('RCF B') with
availability varying from month to month of up to a maximum level of £92.0
million (reduced from a maximum level of £130.0 million). This RCF is flexed
to meet Group working capital requirements during those months when inventory
is being built within our annual business cycle and is £nil when not
required, minimising carrying costs; and
· an invoice financing arrangement in Hong Kong, maximum limit
$18.0 million dependent on level of the eligible receivables.
In total, accessible facilities are considered sufficient to cover the Group's
peak requirements. The facilities do not amortise with time and being
partially denominated in US dollars they also provide a hedge against currency
movements.
Invoice financing arrangements are secured over the trade receivables that
they are drawn on. The RCFs are secured with a fixed and floating charge over
other assets of the Group. Amounts drawn under RCFs are classified as current
liabilities as the Group expects to settle these amounts within twelve months.
The revised covenants, which operate for a maximum period to 31 March 2023,
are as follows:
· minimum adjusted earnings before interest, depreciation and
amortisation (adjusted EBITDA), as defined by the banking facility, measured
quarterly at the end of June, September, December and March, which requires
the Group to be within $10.0 million of its adjusted EBITDA budget at each
quarter end, based on the last twelve-month adjusted EBITDA performance at
each measurement point; and
· minimum liquidity level, which requires the Group to maintain a
minimum of $35.0 million of headroom to the maximum available facility on a
monthly basis.
The amendment also stipulates that any dividends to be paid by the Group
during the remaining term of the agreement will require majority lender
approval. Banking and legal fees associated with the amendment and extension
of the facility totalled c.$1 million.
From April 2023 the Group will revert to the previous covenants tested
quarterly, which are as follows:
· interest cover, being the ratio of adjusted earnings before
interest, depreciation and amortisation (adjusted EBITDA), as defined by the
banking facility, to interest on a rolling twelve-month basis; and
· leverage, being the ratio of debt to adjusted EBITDA, as defined
by the banking facility, on a rolling twelve-month basis.
There is a further covenant tested monthly in respect of the working capital
RCF by which available asset cover must not fall below agreed levels relative
to amounts drawn.
Both revised and previous covenants are measured on pre-IFRS 16 accounting
definitions.
Loan arrangement fees represent the unamortised costs in arranging the Group
facilities. These fees are being amortised on a straight-line basis over the
terms of the facilities.
The Group is party to supplier financing arrangements with a number 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.
9. Earnings/(loss) per share
Unaudited Unaudited Twelve
six months six months months
ended ended((a)) ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
$000 $000 $000
Earnings/(loss)
Earnings/(loss) attributable to equity holders of the Company 22,754 12,063 (3,277)
Adjustments
Adjusting items (net of non-controlling interest effect) (4,597) 1,408 (3,498)
Tax charge/(relief) on adjustments (net of non-controlling interest effect) 1,149 426 (816)
Adjusted earnings/(loss) attributable to equity holders of the Company 19,306 13,897 (7,591)
Unaudited Unaudited Twelve
six months six months months
ended ended ended
In thousands of shares 30 Sep 2022 30 Sep 2021 31 Mar 2022
Issued ordinary shares at 1 April 97,062 96,858 96,858
Shares relating to share options 1,242 1,260 1,260
Less: Shares held by Employee Benefit Trust (12) - -
Weighted average number of shares for the purposes of calculating basic EPS 98,292 98,118 98,118
Effect of dilutive potential shares - share awards 10 79 119
Weighted average number of shares for the purposes of calculating diluted EPS 98,302 98,197 98,237
30 Sep 2022 30 Sep 2021((a)) 31 Mar 2022
Cents Cents Cents
Earnings/(loss) per share
Basic earnings/(loss) per share 23.1 12.3 (3.3)
Impact of adjusting items (net of tax) (3.5) 1.9 (4.4)
Basic adjusted earnings/(loss) per share 19.6 14.2 (7.7)
Diluted earnings/(loss) per share 23.1 12.3 (3.3)
Diluted adjusted earnings/(loss) per share 19.6 14.2 (7.7)
(a) The prior year comparatives above have been re-presented. For more
detail please refer to note 1.
Adjusted earnings per share is provided to reflect the underlying earnings
performance of the Group.
Basic earnings per share
Basic EPS is calculated by dividing the profit for the period 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 per share
Diluted EPS is calculated by dividing the profits for the period attributable
to ordinary shareholdings 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.
10. Financial instruments
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.
All other financial assets and liabilities are measured at amortised cost.
The Group held the following financial instruments at 30 September 2022, which
were measured at Level 2 fair value subsequent to initial recognition:
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
Forward exchange contracts carrying amount $000 $000 $000
Derivative financial assets 502 375 316
Derivative financial liabilities (1,467) - (18)
The Group has forward currency hedging contracts outstanding at 30 September
2022 designated as hedges of expected future purchases in US dollars, Chinese
renminbi and Japanese yen for which the Group has firm commitments, as the
derivatives are based on forecasts and an economic relationship exists at the
time the derivative contracts are taken out. The terms of the forward currency
hedging contracts have been negotiated to match the terms of the commitments.
11. Capital commitments
At 30 September 2022, the Group had outstanding authorised capital commitments
to purchase plant and equipment for $2.3 million (HY2022: $553,000).
12. Related parties
As at 30 September 2022, there are no changes to the related parties or types
of transactions as disclosed at 31 March 2022.
13. Acquisitions
On 23 May 2022, the Group purchased the remaining 49% interest in Anker Play
Products LLC ('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. 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.
14. 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.
15. Non-adjusting post balance sheet events
There were no known material non-adjusting events which occurred between the
end of the reporting period and prior to the authorisation of this interim
report.
REGISTERED OFFICE
Howard House
Howard Way
Interchange Park
Newport Pagnell MK16 9PX
IG Design Group plc
is registered in
England and Wales,
number 1401155
Visit us online at
thedesigngroup.com
ADVISERS
Financial and nominated
adviser and broker
Canaccord Genuity Limited
88 Wood Street
London EC2V 7QR
Independent auditor
PricewaterhouseCoopers LLP
40 Clarendon Road
Watford
Hertfordshire WD17 1JJ
Public relations
Alma PR
71-73 Carter Lane
London EC4V 5EQ
Share registrar
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
By phone:
UK +44 (0)371 664 0300
Calls are charged at the standard geographic rate and will vary by provider.
Calls made outside the United Kingdom will be charged at the applicable
international rate. Lines are open between 9.00am and 5.30pm, Monday to Friday
excluding public holidays in England and Wales.
By email: enquiries@linkgroup.co.uk (mailto:enquiries@linkgroup.co.uk)
Independent review report to IG Design Group Plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed IG Design Group Plc's condensed consolidated interim
financial statements (the "interim financial statements") in the Interim
Report of IG Design Group Plc for the 6 month period ended 30 September 2022
(the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the AIM Rules for Companies.
The interim financial statements comprise:
· the Condensed consolidated balance sheet as at 30 September 2022;
· the Condensed consolidated income statement and the Condensed
consolidated statement of comprehensive income for the period then ended;
· the Condensed consolidated cash flow statement for the period then
ended;
· the Condensed consolidated statement of changes in equity for the
period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Report of IG Design
Group Plc have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the AIM Rules for
Companies.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Interim Report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with this ISRE. However, future events or
conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Interim Report, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the Interim Report in accordance with the AIM Rules
for Companies which require that the financial information must be presented
and prepared in a form consistent with that which will be adopted in the
company's annual financial statements. In preparing the Interim Report,
including the interim financial statements, the directors are responsible for
assessing the group's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Interim Report based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the AIM Rules for Companies and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
Watford
29 November 2022
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