REG - IG Design Group PLC - Interim Results
28/11/2023 07:00
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RNS Number : 8257U IG Design Group PLC 28 November 2023
EMBARGOED UNTIL 28(th) NOVEMBER 2023
IG Design Group PLC
(the "Company", the "Group" or "Design Group")
Results for the six months ended 30 September 2023
Improving operational efficiency and simplifying the business results in
profits and margin recovery
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 unaudited
results for the six months ended 30 September 2023 ('the period').
Highlights for the six months ended 30 September 2023
Financial Highlights HY2024 HY2023
Revenue $444.1m $521.2m
Adjusted((a))
- Operating profit $38.2m $30.5m
- Profit before tax $34.8m $27.4m
- Diluted earnings per share 25.0c 19.6c
Reported
- Operating profit $37.5m $35.1m
- Profit before tax $34.1m $32.0m
- Diluted earnings per share 24.4c 23.1c
Net debt as at the period end $15.1m $73.7m
((a)) Adjusted results exclude the impact of adjusting items - for further
detail see alternative performance measures reconciliation within the detailed
financial review
· Improved profit and margin recovery across both of the Group's
divisions, ahead of the Board's expectations for the period
· Adjusted operating profit improved by 26% year-on-year, and margin up
270 bps to 8.6%, driven by continued benefits from strategic initiatives in DG
Americas, strong trading in DG International and reduced costs
· As previously announced, revenues down nearly 15%, mainly in DG
Americas, driven by lower demand across both seasonal and everyday categories,
as well as a return to more traditional seasonality and ordering patterns
· Net debt significantly improved year-on-year reflecting strong working
capital management and improved underlying profitability
· Appointment of Rohan Cummings as Group CFO in July 2023, with Paul Bal
appointed Group CEO in April 2023
· Senior management team strengthened with the internal promotion of two
new MDs within the DG International division
· Continued investment in more sustainable gift packaging solutions
· In line with the Board's previous guidance, no dividend is being
declared.
Outlook
· There remains some continued uncertainty over consumer demand, and
therefore ordering by our customers, given the current economic climate
· FY2024 orderbook at 86% (prior year: 92%) indicates that although
strong relationships with our customers are sustained, the retail environment
continues to be challenging
· Full year profits and margins expected to remain in line with the
Board's expectations, with good growth year-on-year
· Cash delivery over the year is expected to be above Board expectations
· Remain on track for aspiration of pre-Covid-19 operating profit margin
recovery by 31 March 2025
Stewart Gilliland, Chair, commented:
"We are pleased with the progress we have continued to make on our journey of
improving operational efficiency and simplifying our business. As a result, at
the half year we have delivered significant growth in profit and margin. In
addition, net debt is significantly lower than a year ago, reflecting strong
cash flow. I would like to thank all of our colleagues for their collaborative
efforts and hard work; their commitment has been instrumental in our
collective success thus far.
Whilst the challenging external environment, particularly in the US, has
impacted our revenue performance, we have seen increased collaboration in
navigating the uncertainty together with our customers. Our strategy of
winning together with those customers that are succeeding has certainly been
evident and we continue to provide a product portfolio that resonates with our
customers. Looking ahead, we do detect continued overall caution in our
customers' ordering and their outlook. However, our efforts to build a more
efficient model, unlocking synergies and trapped value, will continue and we
expect to deliver full year profits and margins in line with the Board's
expectation. We are becoming increasingly confident that a more resilient
business model is taking shape and that we will realise our stated aspiration
to return the Group to pre-Covid-19 operating profit margins by 31 March
2025."
For further information, please contact:
IG Design Group plc Tel: +44 (0)1525 887310
Paul Bal, Chief Executive Officer
Rohan Cummings, Chief Financial Officer
Canaccord Genuity Limited (Nomad and Broker) Tel: +44 (0)20 7523 8000
Bobbie Hilliam, NOMAD
Alex Orr
Alma Strategic Communications Tel: +44 (0)20 3405 0205
Rebecca Sanders-Hewett designgroup@almastrategic.com
Sam Modlin
Josh Royston
Overview
We are very pleased with what has been delivered in the period, testament to
the hard work across the Group with colleagues increasingly working together
to achieve our goals. Thanks to this, we are able to report a strong start to
delivering continued margin and profit growth this year. Cash delivery during
this period has also been beyond our original expectations. Alongside these
significant achievements, we are making good progress in realising our stated
aspiration to return the Group to pre-Covid-19 adjusted operating profit
margins by 31 March 2025. Our achievement over this period is all the more
commendable as it has been reached during a time when consumer demand is under
pressure from a number of external forces, which is reflected in lower
customer orders.
As reported in June, we have experienced lower order quantities since early
2023 in our Everyday categories and products. Since then, as announced in our
trading update, we have seen lower quantities being ordered for the
forthcoming seasons, especially Christmas. Further, we have experienced some
reversal in the seasonality shifts seen last year when customers had
accelerated their ordering following the supply chain disruption of mid-2021,
meaning that some sales have returned to the second half of our financial
year. The combination of these factors, along with tender gains and losses and
favourable currency movements has resulted in an almost net 15% reduction in
revenue during the period. The decline occurred primarily in the DG Americas
division, while our businesses in continental Europe drove the DG
International division to overall revenue growth.
Currency exchange rates have only had a small favourable impact on these
results.
The Group's adjusted operating margin rose from 5.9% to 8.6%, delivering $38.2
million of adjusted operating profit which represents a growth of over 25%.
The half year profit and margin exceed pre-Covid-19 levels and are the highest
experienced in the first half of any year since the CSS Industries Inc.
('CSS') acquisition in March 2020. The seasonality of our business cycle means
that first-half profit and margin delivery is diluted in the second half of
the year. Nevertheless, our delivery in HY2024 is an encouraging milestone in
our aspiration for margin growth and recovery on a full-year basis.
This profit and margin delivery comes from concerted efforts to simplify our
business models after the multiple acquisitions of the past decade and improve
our operational efficiency at the same time. In addition to enhancing our
sales mix following the exit from unprofitable arrangements last year, further
benefits have come through improved sourcing of bought-in products. This
progress is supported by the easing of some of the cost headwinds experienced
in recent years, notably sea freight, though other costs such as labour
continue to rise in the present inflationary environment.
Board changes
As previously announced, Paul Bal took on the Chief Executive Officer position
on 1 April 2023.
Rohan Cummings was appointed Chief Financial Officer (CFO), joining the Board
in July 2023. Rohan came to the Group from Devro Limited (formerly Devro plc
which was listed on the LSE), a global leader in the supply of collagen casing
and films, where he was the group's CFO from 2020. Rohan has extensive
experience of operating in a listed environment, as well as significant
commercial and strategic capabilities having worked in complex global
operations.
Our strategy
In June 2022 our short-term strategic focus shifted to build a stronger
management team, reduce working capital and restore margins. Good progress has
been made in these areas with the aspiration for the third being to restore
the Group's adjusted operating profit margin to pre-Covid-19 levels by 31
March 2025 (namely, at least 4.5%, being the proforma calculated margin
including the full year equivalent of CSS following its acquisition in March
2020). We are about half-way through the journey to deliver this, and we
remain confident of achieving this outcome. We further anticipate that
achieving that overall margin should return the Group to its highest level of
profit delivery (which was an adjusted profit before tax of c$35.8 million
delivered in FY2019). Our FY2025 aspirations are sales of $825.0 million at a
5.0% adjusted operating margin.
In June this year we set out our new growth-focused strategy that will guide
the Group beyond this first milestone of margin recovery. The overall
aspiration of our new strategy is to deliver sustained profitable growth that
is primarily driven by organic efforts; and that is underpinned by a resilient
and less complex business model.
This new strategy is summarised in the chart below, first shared in our FY2023
results:
Be the partner of choice that is:
Strategic Adaptive Dependable
· Purposeful · Design-led · Resilient supply chain
· Providing good value · Innovative · Responsible
Strong Collaborative Informed
· Talent-rich · Open-minded · Data driven
· Flexible footprint · Learning · Seasoned
Enabling us to win together
Through excellent partnering to grow our categories Bringing consumer-focused solutions
· Identifying and developing the required capabilities · Brand and product development
· A better shopper experience
· Sustainable products and solutions
This new strategy is purposefully articulated as a series of attributes that
we believe should differentiate our services from those of our competitors.
Demonstrating those attributes day-in-day-out everywhere across the entire
Group should be our strategic aspiration. Set out in this way, the strategy
provides a check-list for our various Business Units (as well as our
customers) to assess their level of service, their competitiveness and the
value they bring.
On launching this new strategy some months ago, we committed to sharing more
details of our strategic aspirations and plans at our FY2024 interim
reporting. In recent months, all of our Units have carried out detailed
strategic reviews that apply our new strategic aspirations to their local
setting. As expected, these reviews have identified gaps and opportunities
which have been translated into initiatives to pursue by the Business Units.
Some, being common themes or issues, such as more effective sourcing, will be
addressed collectively through cross-Unit functional forums, leveraging the
best expertise and experience available in the Group.
Essentially, the initiatives are about driving sustainable and profitable
growth, both by building the capabilities required to further develop our
various businesses, as well as further simplifying the Group's operations,
allowing more leverage of scale.
The following are the key initiatives that are being undertaken over the next
three years to 31 March 2027, in line with our new strategy:
· Strategic
o Purposeful
‐ Adopting clearer category architecture and product portfolios,
leveraging opportunities provided through moving into adjacent categories and
product-groups to fill gaps in our offers, thereby ending up with fuller
assortments in every market we serve
‐ Widening our customer base, especially across Europe, whilst also
further developing our business with our existing customers through presenting
a wider range of offerings
‐ Developing a single-enterprise culture in our more fragmented
businesses so that they integrate and simplify further, and so better leverage
the full extent of their resources and capabilities
o Providing good value
‐ Further entry into Value, Discounter and Club channels reflecting their
increased weighting in the retail environments in all of our markets
‐ Improving segmentation of our customers, especially the "long tail"
of small accounts; and more appropriately segmenting our service levels and
route-to-market
‐ Cost optimisation in manufacturing through further site rationalisation
as well as leveraging best practice followed elsewhere in the Group, combined
with seeking lower-cost warehousing and domestic fulfilment opportunities
· Adaptive
o Design-led
‐ Continuing to invest in the design and development of products that
reflect design trends and consumer preferences, creating unique selling
propositions for our customers
‐ Identifying the key brands and further licencing opportunities that
best support more premiumisation in our offers
‐ Improving the segmentation of our offers and service levels to provide
more targeted solutions at different value propositions
o Innovative
‐ Better adoption of social-media and e-commerce to engage, market and
sell to a wider audience
‐ Adapting our structures and processes in response to increased
centralised sourcing by some of our global customers
· Dependable
o Resilient supply chain
‐ Embarking on further near-shoring opportunities to de-risk our current
supply chains, finding solutions that offer more sustainable options
o Responsible
‐ Continue to develop and sell more sustainable products, including full
roll-out of Smartwrap(TM), and gaining further distribution of our Eco
Nature(TM) range
‐ Develop more sustainable transportation solutions for road and
sea-freight
· Strong
o Talent-rich
‐ Strengthening our sales and account management skills to better
serve our customers, including the provision of insights
‐ Developing our category management skills to improve the
presentation of our assortments to the consumer at retail, helping them to
better navigate our offers
o Flexible footprint
‐ Re-designing our organisations to simplify operations, improve
effectiveness, and enhance efficiency to become more competitive and more
sustainable at both a local and overall Group level
· Collaborative
o Open-minded
‐ Digitise and standardise our intellectual property management
processes across the Group to share and exploit the Group's intellectual
property more effectively
‐ Establish a Group-wide approach to sourcing
o Learning
‐ Improving our level of knowledge in the areas of e-commerce,
data-analysis, category management and selling skills
‐ Investing in the continued development of our teams, especially in
the commercial arena, leveraging a variety of tools and approaches
· Informed
o Data-driven
‐ Consolidating our current fragmented ERP landscapes within each
business
‐ Developing improved, deeper market insights to inform our focus and
decision-making
o Seasoned
‐ Leveraging experience, expertise and best-practice from across the
Group to fine-tune our business processes to make them more effective and
efficient
‐ Strengthening our key account contact teams, and better reflect the
increasingly globalised approach of our biggest customers
Successful execution and delivery of these initiatives will significantly
strengthen our partnership capabilities and enable our teams everywhere across
the Group to deliver even more consumer-focused solutions, first to our
existing and longstanding customers - helping them to continue winning at
retail; and then to potential customers attracted to what we can offer and
deliver. The resulting, better presented, product solutions will enhance the
value of our categories in the retail-space; and through the development of
more sustainable product and packaging solutions, delivered responsibly, the
win will extend beyond the shoppers and consumers of our products, to our
planet itself.
The Group remains well-capitalised in terms of its installed manufacturing
base. Therefore, the prime use of capital investment over this period will be
in the deployment of innovation and technology to support growth, especially
the pursuit of sustainable products and solutions, and support the widening of
our present assortments to better serve changing trends. Selective "bolt-on"
M&A opportunities will only be considered where they can accelerate entry
into new product groups, new categories, new channels and customers, or new
geographies where we can leverage our existing category strengths.
Transformative M&A is not on the agenda. This should also mean that the
Board can introduce a sustainable dividend policy once the turnaround is
assured, thereby reinstating more tangible investor returns.
Initial projections of the financial impact from the successful execution of
these initiatives suggest that by 31 March 2027, the Group should have
delivered three consecutive years of profitable sales growth, with annual
sales exceeding $900 million by that time; whilst delivering an adjusted
operating profit margin of over 6%. This translates to an adjusted profit
before tax exceeding $50m. We also expect strong cash conversion to continue,
with average annual leverage held to no more than 1.0x under normal
conditions. These projections will be further defined as we make progress with
these initiatives.
In future reporting we shall highlight examples of our progress and
achievement against a selection of the initiatives and projects set out above.
Outlook
The current economic climate continues to create an uncertain environment for
shoppers and consumers, and therefore in turn, our customers. This has been
experienced in several of our markets since the start of 2023, and we expect
it to continue to at least the end of our current financial year.
Nevertheless, we are pleased to see our strategy of winning together with our
customers succeeding in this environment, though we do detect continued
overall caution in their ordering and their outlook. It remains a testament to
our longstanding relationships with our customers that we see increased
collaboration in navigating the uncertainty together. Our orderbook stands at
86% at the end of October 2023, compared to 92% at the end of October 2022,
reflecting both these strong relationships as well as the uncertainty in the
environment.
Full year profits and margins are expected to remain in line with the Board's
expectation, namely good year-on-year growth across both measures, remaining
on the path to the 31 March 2025 aspiration of margin recovery to pre-Covid-19
levels of at least 4.5%. Cash flow delivery is now expected to be stronger
than in the prior year. As announced in our trading update, revenue is now
expected to remain below prior year as a result of the continued pressures on
consumers. Offsetting the impact of this, we expect continued contribution
from our efforts to build a more efficient model, unlocking synergies and
trapped value.
Facing continued uncertainty over consumer demand, the Board wishes to wait
before it resumes paying dividends. Greater confidence in achieving the 31
March 2025 margin aspiration, coupled with further progress with the new
growth-focused strategic initiatives will bring that important milestone
closer. As our strategic aspirations for the years following FY2025 form, we
are becoming increasingly assured that a more resilient business model is
taking shape. This is reflected in the articulation above of our financial
aspirations in the next-stage of our new strategy.
Sustainability
Our approach to sustainability is underpinned by the intention to minimise our
impact on the environment by leveraging our global scale, innovation, and
people. As a market leader within our industry, we aim to continually evolve
and adapt our products and practices into more environmentally sustainable
solutions and continue to believe we have a moral as well as a commercial
necessity to strive for the highest standards of ethical behaviour. We are not
only driven by the aspiration to effect positive change and operate
sustainably, to protect and preserve our planet for future generations, but
also recognise it as a catalyst for enhancing our competitive edge.
People - Our people are key to the success of the Group, it is therefore
paramount they feel valued and supported, whether it be through the
recognition of performance, loyalty, or investment in their development.
Training opportunities continue to be a focus around the Group to nurture both
personal and professional development. Notably, our leadership development
programmes for emerging leaders in DG UK and DG Americas have seen another
cohort of members enrolled. Internal promotions of two DG International MDs
have strengthened the Operating Board, which also improves its gender
diversity. Our development and training opportunities extend beyond emerging
leaders, with the DG Europe Academy internal training institute striving to
develop knowledge and skills of our employees through internal and external
trainers across a broad range of subjects. Following the launch of the first
Group-wide employee engagement survey last year, areas for improvement have
been established and actions have been identified following the feedback of
results to all employees. Nonetheless, it was encouraging to see a high
participation rate, with 76% of employees recommending the Group as a good
employer, and employees on the whole remaining positive about their roles and
the company.
Product - We recognise that the nature of our products requires us to be
innovative in our design to create more sustainable solutions and collections
to promote to our customers and theirs. This, in turn, enables us to support
our customers and consumers in minimising the use of single-use products,
those containing plastic, and products that are not recyclable. This is
necessary to prevent these products from ending up as waste in landfills and
thereby mitigating their contribution to global warming. The development of
our shrink-free wrapping paper, Smartwrap(TM), has fully eliminated plastic
waste through the use of recyclable paper labels. Following the successful
development and launch in continental Europe, the Group is currently
investigating its expansion and investing further in the technology to enable
Smartwrap(TM) to be manufactured and sold in other markets such as the UK.
This complements our Eco Nature(TM) range already established in the UK which
has continued to perform well, and is gaining distribution.
Planet - The ambition to reduce our environmental impact is underpinned by the
understanding of our carbon footprint. By the end of the year, we will
endeavour to report our Group scope 1 and 2 greenhouse gas emissions which
will be one of the first steps on this journey and will not only provide more
clarity, but also support us in tracking and monitoring our emissions going
forward in our aspirational journey to net-zero. Across the Group the local
manufacture of giftwrap and bags, supported by our investment in manufacturing
and technology, helps to reduce our reliance on freight and therefore our
carbon footprint. This is evidenced by the climate neutral status of DG Europe
gift wrap and gift bag ranges. As a testament to our efforts in DG Americas,
we have achieved Walmart's Giga-Guru status for the third year in a row,
recognising our collaboration with our biggest customer in the area of supply
chain carbon reduction.
The Group reports our performance and progress against our key performance
sustainability indicators (KPIs) which can be seen in the Sustainability
report in the Annual Report and Financial Statements for 2023. In the year we
will also continue to progress on our journey towards Taskforce for
Climate-related Financial Disclosures (TCFD) reporting by the end of FY2024.
Regional highlights
Revenue has continued to be impacted by lower consumer demand, both realised,
and anticipated for the seasonal period ahead. More resilience in continental
European markets, coupled with foreign currency benefits, meant that the DG
International division delivered revenue growth, though not enough to offset
the decline in the DG Americas division. Both divisions grew margins as well
as profits, whether through higher sales volume and improved mix, or the
various initiatives to improve operational efficiency.
Segmental revenue Adjusted operating profit/(loss) Adjusted operating margin
% Group revenue HY2024 HY2023 % growth HY2024 HY2023 % growth HY2024 HY2023
64% DG Americas $m 282.4 373.4 (24.4%) 16.6 15.2 9.0% 5.9% 4.1%
36% DG International $m 161.7 149.4 8.2% 25.3 18.4 37.5% 15.7% 12.3%
Elims / Central costs $m - (1.6) (3.7) (3.1)
100% Total $m 444.1 521.2 (14.8%) 38.2 30.5 25.6% 8.6% 5.9%
Design Group Americas
The DG Americas division represents 64% of the Group's revenue. It experienced
more than a 24% decline in revenue in the period, to $282.4 million driven by
a number of factors. The largest factor was reduced consumer demand
experienced since the start of 2023. Initially this was experienced in the
Everyday categories and products, but since the summer it has also been felt
through reduced ordering by our customers in anticipation of reduced consumer
demand in the coming seasons, especially Christmas 2023. The reduction
therefore impacts across all categories, but understandably the most impacted
were Celebrations (in particular "trim-a-package", décor and cards), Craft
and Creative Play (mainly creative play products, as pure craft lines proved
resilient) and Stationery. Given the driver of lower consumer demand, this
reduction occurred across almost all customers. Other drivers of the decline
were some reversion of the timing of orders to more traditional seasonality,
and net losses from competitive tendering.
As previously reported, since early 2022 the DG Americas team have been
focused on the turnaround of their business to drive simplification and
deliver improved operational efficiency. Through this work they are also
unlocking further synergies resulting from the acquisitions of the past
decade, for example in this period six sites have been completely vacated. The
main contribution from these initiatives comes from lower headcount, more
efficient sourcing and distribution, as well as the impact of prior year
"catch-up" pricing. The division also benefited from better sourcing of
bought-in products as well as some improvement in sea freight in the period.
The combination of these factors more than offset the impact of the lower
revenue. Therefore, despite the lower revenues, the division delivered solid
adjusted operating profit growth, up 9.0% to $16.6 million, representing an
adjusted operating margin improvement of 180 basis points to 5.9%.
With a recently strengthened leadership team, the division sees further
opportunities for simplification and greater efficiency. It is also
reallocating resource to further develop its commercial capabilities, to
complement its design and innovation strengths, in order to become more
competitive and return the division to profitable revenue growth.
Design Group International
The DG International division experienced an increase in revenue of over 8% to
$161.7 million. Growth centred in continental Europe where the consumer has
thus far been more resilient than in our other markets. It is also where we
are most successfully winning alongside our key customers as we help them gain
retail-share, especially in Celebrations (mainly giftwrap) and Giftware
(mainly frames). Further benefit was derived from favourable currency
movements, which more than offset small continued decline in the UK and, more
recently in Australia, where consumer sentiment has softened following a
number of interest rate increases.
Adjusted operating profit rose over 37% to $25.3 million. This represents an
adjusted operating margin of 15.7%, up an outstanding 340 basis points. Whilst
raising our prices has proved extremely challenging in the present
environment, and some costs such as labour continue to rise, we have benefited
from reduction in other costs such as sea freight, as well as better sourcing
of bought-in products. Our product mix also improved.
The DG UK team is making good progress to address the more challenging
consumer sentiment in the UK market and its reorganisation is also progressing
well. In the period, we have seen a small reduction in revenue, but a rise in
absolute profit driven by a focus on increasing both efficiency and
effectiveness, to thereby become more competitive in the tough retail
environment. A notable achievement in the period is the successful
collaboration with a key customer, Tesco, in the development of its Paperchase
range of products since its acquisition of the brand earlier this year.
In continental Europe our innovative Smartwrap(TM) shrink-free giftwrap
solution is fast gaining traction, with over half of our customers now
stocking it. Besides its obvious sustainability credentials, it offers a more
appealing product in-store to consumers. The teams in these markets are also
broadening their categories, especially in the areas of home décor and
stationery, and expanding warehousing facilities.
Our products, brands and channels
The Group continues to offer a diverse, yet complementary, product portfolio,
providing our customers with a one-stop- shop product and service solution.
This underpins the Group's strategy to be a partner of choice for our
customers.
Revenue by product category HY2024 HY2023
Celebrations 63% $278.5m 64% $333.4m
Craft & creative play 15% $67.9m 15% $80.0m
Gifting 11% $49.2m 9% $45.4m
Not-for-resale consumables 7% $30.3m 6% $33.5m
Stationery 4% $18.2m 6% $28.9m
Total $444.1m $521.2m
Celebrations continue to be the leading category for the Group, consisting
mostly of gift packaging and seasonal décor. This category has been affected
by the fall in seasonal demand this year in DG Americas, yet still makes up
63% of sales in the period. Craft sales have stabilised this year following
the normalisation from Covid-19 pandemic lockdown highs, however creative play
sales have decreased due to lower order volumes from our customers in the
period. Despite the fall in Group sales, our Gifting category remained
resilient in the current environment with strong frame sales, which are 30% up
in the period, mostly in continental Europe.
Revenue by season HY2024 HY2023
Christmas 50% $223.3m 50% $258.8m
Minor seasons 4% $19.2m 5% $26.6m
Everyday 46% $201.6m 45% $235.8m
Total $444.1m $521.2m
Given that the decline in revenue in some of our markets has been in both
Everyday products and the seasonal ranges, our mix of revenue by season has
broadly stayed in line with the prior period.
Revenue by customer channel HY2024 HY2023
Value & Mass 72% $317.6m 71% $369.3m
Independents 16% $71.4m 16% $84.2m
Specialists 10% $46.6m 12% $60.8m
Online 2% $8.5m 1% $6.9m
Total $444.1m $521.2m
Our distribution of revenue by channel has remained consistent with the prior
period, with no specific channel experiencing a disproportionately significant
impact compared to the others, with all channels apart from Online facing a
15-25% decline in line with the overall pressure on revenue.
Revenue by brand HY2024 HY2023
Licensed 10% $45.2m 9% $47.6m
Customer own brand / bespoke 55% $243.1m 60% $312.1m
DG brand 35% $155.8m 31% $161.5m
Total $444.1m $521.2m
The reduction in customer own branded sales reflects the adverse DG Americas
seasonal revenue dynamics mainly in the Celebrations category.
Detailed financial review
The Group's financial results for the first six months of the year are
summarised below.
HY2024 HY2023
Reported Adjusting items Adjusted Reported Adjusting items Adjusted
$m $m $m $m $m $m
Revenue 444.1 - 444.1 521.2 - 521.2
Gross profit 93.0 0.4 93.4 86.6 - 86.6
Overheads (55.5) 0.3 (55.2) (51.5) (4.6) (56.1)
Operating profit 37.5 0.7 38.2 35.1 (4.6) 30.5
Finance charge (3.4) - (3.4) (3.1) - (3.1)
Profit before tax 34.1 0.7 34.8 32.0 (4.6) 27.4
Tax (9.5) (0.2) (9.7) (8.5) 1.2 (7.3)
Profit after tax 24.6 0.5 25.1 23.5 (3.4) 20.1
Operating profit 37.5 0.7 38.2 35.1 (4.6) 30.5
Depreciation and impairment of PPE and software 6.9 - 6.9 7.5 - 7.5
Depreciation and impairment of right of use assets 7.6 0.6 8.2 8.8 - 8.8
Acquisition amortisation 0.9 (0.9) - 1.4 (1.4) -
EBITDA 52.9 0.4 53.3 52.8 (6.0) 46.8
Diluted EPS 24.4c 0.6c 25.0c 23.1c (3.5c) 19.6c
Basic EPS 24.6c 0.6c 25.2c 23.1c (3.5c) 19.6c
Revenue for the period decreased by 15% to $444.1 million (HY2023: $521.2
million) driven by reduced order quantities guided by lower customer
expectations, especially of the forthcoming Christmas season, as well as lower
consumer demand for Everyday products in some markets, the normalisation of
seasonal ordering, and net losses from competitive tendering. The Group
revenues, when assessed in constant currency terms, decreased 16% year-on-year
with foreign exchange having a small positive impact on the year-on-year
perspective.
Adjusted operating profit has improved year-on-year to $38.2 million (HY2023:
$30.5 million) with adjusted gross margin at 21.0% (HY2023: 16.6%). This
improvement reflects the benefits of efforts to simplify our business models
and improving operational efficiency. The improvement is also helped by the
better sourcing of bought-in products, the easing of some cost headwinds
experienced in recent years, notably sea freight. Adjusted overheads as a
percentage of revenue increased to 12.4% (HY2023: 10.8%) reflecting the
increased cost of labour offset only in part by the ongoing efforts to manage
costs across the Group.
Overall, the Group finished the half year with adjusted profit before tax of
$34.8 million (HY2023: $27.4 million), and a reported profit before tax of
$34.1 million (HY2023: $32.0 million). Profit before tax is marginally lower
than the adjusted profit before tax, reflecting the adjusting items net
charge. Further details of the adjusting items are detailed below. Profit
after tax is $24.6 million (HY2023: $23.5 million) for the six months to 30
September 2023.
Finance expenses
Finance costs in the year of $3.4 million are higher than prior year (HY2023:
$3.1 million) driven by significantly higher interest rates in this half year
when compared to the same period last year. The higher finance costs have been
largely mitigated by lower average net debt levels.
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 2023 total a net debit of $0.7 million compared to a net credit of
$4.6 million in the prior year. Details of these items can be seen below.
Adjusting items HY2024 HY2023
$m $m
Acquisition integration and restructuring income (0.2) (4.4)
Amortisation of acquired intangibles 0.9 1.4
(Gains)/losses and transaction costs relating to acquisitions and disposals of - (1.5)
businesses
IT security incident - (0.1)
Total 0.7 (4.6)
Acquisition integration and restructuring income - $0.2 million
In order to realise synergies, from acquisitions or existing businesses,
integration and restructuring projects are respectively undertaken that aim to
deliver future savings and efficiencies for the Group. These are projects
outside of the normal operations of the business and typically incur one-time
costs to ensure successful implementation. As such it is appropriate that
costs associated with projects of this nature be included as adjusting items.
The costs incurred in HY2024 relate to the reorganisation and business
simplification in DG Americas as follows:
Reversal of impairment: Following the integration of some of DG America's
sites in FY2021, a portion of a leased site in Budd Lake, New Jersey was
exited, and the right-of-use asset was impaired. In the period ended 30
September 2023, the landlord re-acquired a portion of the impaired site
resulting in a reversal of impairment of $0.6 million.
DG Americas business reorganisation: In the period ended 30 September 2023
further restructuring costs, relating to staff, of $0.4 million have been
recognised in DG Americas. This follows the announcement in March 2023 of
further business reorganisation.
Amortisation of acquired intangibles - $0.9 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, as such these are
included in adjusting items. These include tradenames and brands acquired as
part of the acquisitions of Impact, with the tradenames and brands related to
CSS fully amortised in the prior year.
Taxation
The taxation charge for the half year on profit before tax is $9.5 million
(HY2023: $8.5 million) with the effective tax rate at 27.9% (HY2023: 26.3%).
The taxation charge on adjusted profit before tax is $9.7 million (HY2023:
$7.3 million) with the effective tax rate at 27.8% (HY2023: 26.5%).
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. The changes in profit mix
across the various territories, together with the impact of unrecognised
deferred tax on assessed losses in the UK territory, are the main drivers that
impact the effective tax rate.
Earnings per share
Adjusted diluted earnings per share of 25.0 cents (HY2023: 19.6 cents) is 28%
higher year-on-year driven by the increased profits. Diluted earnings per
share is 24.4 cents (HY2023: 23.1 cents) which is lower than adjusted diluted
earnings per share reflecting the small adjusting items charge in the period.
The reconciliation between reported and adjusted diluted earnings per share is
shown in the table above.
Dividend
The Board are not recommending an interim dividend.
Cash flow and net debt
The Group ended the period with a net debt balance of $15.1 million (HY2023:
$73.7 million), $58.6 million lower than the same period in the prior year.
This is particularly significant given the prior year benefited from proceeds
from the sale of properties. The year-on-year progress is mainly reflective of
both the higher opening net cash position of $50.5 million (HY2023: $30.2
million) as well as improvements in working capital outflows.
Cash flow HY2024 HY2023
$m $m
Adjusted EBITDA 53.3 46.8
Add back for share-based payment charge 0.6 0.3
Movements in working capital (99.5) (136.3)
Adjusted cash used by operations (45.6) (89.2)
Adjusting items within cash utilised by operations (1.8) (1.0)
Cash used by operations (47.4) (90.2)
Adjusting items within investing and financing activities - 8.2
Capital expenditure (net of disposals of property, plant and equipment) (5.2) (3.2)
Acquisition of non-controlling interest - (3.0)
Tax paid (1.3) (3.1)
Interest paid (2.3) (2.3)
Lease liabilities principal repayments (9.7) (10.8)
Dividends paid (including those paid to non-controlling interests) - (2.6)
Purchase of own shares - (0.9)
FX and other 0.3 4.0
Movement in net debt (65.6) (103.9)
Opening net cash 50.5 30.2
Closing net debt (15.1) (73.7)
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 levels of the Group decline
and typically move to a net cash position as Christmas-related receivables are
collected. The working capital outflow in the period was $99.5 million
(HY2023: $136.3 million), a $36.8 million improvement on the prior year. This
is largely due to better working capital management across the Group as well
as the impacts of the lower volumes in DG Americas.
Adjusting items
During the period there was a $1.8 million net cash outflow (HY2023: $7.2
million inflow) in relation to adjusting items, of which $1.4 million outflow
related to costs incurred in previous years. Further detail on adjusting items
can be seen above.
Capital expenditure
Capital expenditure in the period was higher than the prior year at $5.2
million (HY2023: $3.2 million) reflecting strategic investment in sustainable
Smartwrap(TM) technology, as well as nearshoring and consolidation of our
sites.
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 decrease would have been $6.3 million
more than prior year if a consistent currency was applied. and the increase in
adjusted profit before tax would have been $0.6 million lower.
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 2023 were $355.6 million which is $15.9
million lower than last year (HY2023: $371.5 million).
As at the 30 September 2023 balance sheet date, the Directors have assessed
going concern in preparation of these financial statements and the outlook for
FY2024 and beyond. The Directors are of the opinion the Group has adequate
liquidity at the half year with a net debt position of $15.1 million ($7.3
million of cash and $24.0 million of asset backed lending reduced by $1.6
million of facility arrangement fees).
The Directors of the Group have performed an assessment of the overall
position and future forecasts for the purposes of going concern. Going concern
forecasts have been produced using the Group's FY2024 and FY2025 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 adverse downturns in the
current assumptions including the potential impact of a significant disruption
in one of our major customer's business, as well as continued pressures on
demand in the US market, beyond those risks already factored into the budgets
and plans. The base forecasts and additional sensitivity analysis have been
tested against the facility limits and covenants. The analysis demonstrated to
the Directors that the Group has sufficient headroom for the Group to meet its
obligations as they fall due for a forecast period of more than twelve months
beyond the date of signing these accounts and will also be compliant with all
covenants within this time frame. As such, the Directors do not see any
practical regulatory or legal restrictions which would limit their ability to
fund the different regions of the business as required as the Group has
sufficient resources.
Accordingly, the Directors have continued to adopt the going concern basis of
accounting in preparing the financial statements.
Risk
The Group operates a decentralised model where risk management is embedded
within strategic and operational decision making, with an overarching role
played by the Group team and the Board to ensure oversight in the risk
management process.
The following risks are no longer recognised as principal risks for the Group:
Financing capacity due to the strong cash flows and profit and margin
recovery, coupled with the secured financing arrangement; Manufacturing
operations as the essence of this risk is now covered in the strategy and
supply chain and sourcing risks; Acquisition investment given the reduced
M&A agenda. The risk management framework, along with the remaining
principal risks and uncertainties faced by the Group, remain in line with
those set out on pages 50 to 55 of our annual report and financial statements
2023.
The key risks for the Group at present continue to be: Strategy, macroeconomic
uncertainty, and consumers. Given the journey we are on to address the Group
strategy, this risk remains more important than ever to ensure sustainable
profit growth is achieved. Macroeconomic uncertainty continues to be high
following the succession of geopolitical events impacting our business across
our suppliers, customers, consumers and workforce. Similarly, the high
inflationary environment and cost-of-living crisis is creating a heightened
Consumer risk given the risk of depressed consumer sentiment across our
markets, despite the Group focus on working together with the winning
retailers.
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,
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.
Approved on behalf of the Group Board by Rohan Cummings.
Alternative performance measures
This review includes alternative performance measures (APMs) that are
presented in addition to the standard UK IFRS metrics. The Directors believe
that these APMs provide important additional information regarding the
underlying performance of the business including trends, performance and
position of the Group. APMs are used to enhance the comparability of
information between reporting periods and segmental business units by
adjusting for exceptional or uncontrollable factors which affect UK IFRS
measures, to aid the understanding of the Group's performance. Consequently,
APMs are used by the Directors and management for strategic and performance
analysis, planning, reporting and reward setting. APMs reflect the results of
the business excluding adjusting items, which are items that are material or
of an unusual or non-recurring nature.
The APMs and the definitions used are listed below:
· Adjusted EBITDA - Profit/(loss) before finance charges, tax,
depreciation, amortisation, impairment (EBITDA) and adjusting items
· Adjusted gross profit - Gross profit before adjusting items
· Adjusted operating profit/(loss) - Profit/(loss) before finance
charges, tax and adjusting items
· Adjusted profit/(loss) before tax - Profit/(loss) before tax and
adjusting items
· Adjusted profit/(loss) after tax - Profit/(loss) after tax before
adjusting items and associated tax effect
· Adjusted tax - Tax before adjusting items
· Adjusted diluted earnings/(loss) per share - Diluted earnings/(loss)
per share before adjusting items and associated tax effect
· Adjusted overheads - Selling costs, administration expenses, other
operating income, profit/(loss) on disposal of property, plant and equipment
(overheads) before adjusting items
· Adjusted cash generated from operations - Cash generated from
operations before the associated cash impact of those adjusting items
· Net cash - Cash and cash equivalents, bank overdraft and loan
arrangement fees
In terms of these APMs, a full reconciliation between our adjusted and
reported results is provided in the detailed financial review above, from
which the following key performance metrics have been derived:
· Adjusted gross margin - Adjusted gross profit divided by revenue
· Adjusted operating margin - Adjusted operating profit divided by
revenue
· Adjusted EBITDA margin - Adjusted EBITDA divided by revenue
· Cash conversion - Adjusted cash generated from operations divided by
adjusted EBITDA
Further details of the items categorised as adjusting items are disclosed in
more detail in note 3.
CONDENSED CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED 30 SEPTEMBER 2023
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
Note $000 $000 $000
Revenue 2 444,050 521,184 890,309
Cost of sales (351,069) (434,575) (758,569)
Gross profit 92,981 86,609 131,740
Selling expenses (22,168) (23,216) (47,097)
Administration expenses - costs (33,885) (35,098) (75,112)
Administration expenses - impairment of goodwill - - (29,100)
Other operating income 5 522 2,107 2,951
Profit on disposal of property, plant and equipment 2 24 4,721 4,595
Profit/(loss) on disposal of leases 27 (73) -
Operating profit/(loss) 3 37,501 35,050 (12,023)
Finance expenses (3,448) (3,125) (6,873)
Profit/(loss) before tax 34,053 31,925 (18,896)
Income tax charge 6 (9,485) (8,399) (7,563)
Profit/(loss) for the period 24,568 23,526 (26,459)
Attributable to:
Owners of the Parent Company 23,911 22,754 (27,987)
Non-controlling interests 657 772 1,528
Earnings/(loss) per ordinary share
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
Note
Basic 9 24.6c 23.1c (28.6c)
Diluted 9 24.4c 23.1c (28.6c)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
SIX MONTHS ENDED 30 SEPTEMBER 2023
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
$000 $000 $000
Profit/(loss) for the period 24,568 23,526 (26,459)
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss
Re-measurement of defined benefit pension and health benefit schemes - - (37)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translation of foreign operations (186) 24,790 10,621
Transfer to profit and loss on maturing cash flow hedges 139 (753) (683)
Net unrealised (loss)/gain on cash flow hedges (407) (513) 419
Income tax relating to these items - - -
(454) 23,524 10,357
Other comprehensive (expense)/income for the period, net of tax (454) 23,524 10,320
Total comprehensive income/(expense) for the period, net of tax 24,114 47,050 (16,139)
Attributable to:
Owners of the Parent Company 23,713 47,136 (17,024)
Non-controlling interests 401 (86) 885
24,114 47,050 (16,139)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
SIX MONTHS ENDED 30 SEPTEMBER 2023
Attributable to the owners of the Parent Company
Share
premium
and capital Non-
Share redemption Merger Hedging Translation Retained Shareholders' controlling
capital reserve reserve reserve reserve earnings equity interests Total
$000 $000 $000 $000 $000 $000 $000 $000 $000
At 1 April 2023 6,059 214,845 40,069 38 (1,198) 68,033 327,846 6,530 334,376
Profit for the period - - - - - 23,911 23,911 657 24,568
Other comprehensive (expense)/income - - - (271) 73 - (198) (256) (454)
Total comprehensive income/(expense) for the period - - - (271) 73 23,911 23,713 401 24,114
Transactions with owners in their capacity as owners
Equity-settled share-based payments - - - - - 599 599 - 599
Tax on equity-settled share-based payments - - - - - (5) (5) - (5)
Options exercised 16 - - - - (16) - - -
Exchange differences on opening balances (79) (2,878) (537) - - - (3,494) - (3,494)
At 30 September 2023 5,996 211,967 39,532 (233) (1,125) 92,522 348,659 6,931 355,590
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
Options over non-controlling interest - - - - - 3,069 3,069 - 3,069
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)
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
YEAR ENDED 31 MARCH 2023
Attributable to the owners of the Parent Company
Share
premium
and capital Non-
Share redemption Merger Hedging Translation Retained Shareholders' controlling
capital reserve reserve reserve reserve earnings equity interests Total
$000 $000 $000 $000 $000 $000 $000 $000 $000
At 1 April 2022 6,373 228,143 42,549 299 (12,459) 96,806 361,711 7,999 369,710
Loss for the year - - - - - (27,987) (27,987) 1,528 (26,459)
Other comprehensive income/(expense) - - - (261) 11,261 (37) 10,963 (643) 10,320
Total comprehensive (expense)/income for the year - - - (261) 11,261 (28,024) (17,024) 885 (16,139)
Change in ownership interest
Options over non-controlling interest - - - - - 3,069 3,069 - 3,069
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 - - - - - 656 656 - 656
Purchase of own shares - - - - - (865) (865) - (865)
Options exercised 51 - - - - (51) - - -
Equity dividends paid - - - - - - - (2,961) (2,961)
Exchange differences on opening balances (365) (13,298) (2,480) - - - (16,143) - (16,143)
At 31 March 2023 6,059 214,845 40,069 38 (1,198) 68,033 327,846 6,530 334,376
In line with the Group's accounting 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 translation
reserves.
CONDENSED CONSOLIDATED BALANCE SHEET
AS AT 30 SEPTEMBER 2023
Unaudited Unaudited
as at as at As at
30 Sep 2023 30 Sep 2022 31 Mar 2023
Note $000 $000 $000
Non-current assets
Property, plant and equipment 66,961 71,803 70,306
Intangible assets 69,469 98,460 71,325
Right-of-use assets 62,106 74,025 69,332
Long-term assets 5,236 5,839 5,647
Deferred tax assets 12,164 8,159 15,401
Total non-current assets 215,936 258,286 232,011
Current assets
Asset held for sale 1,612 - -
Inventory 218,794 264,769 206,426
Trade and other receivables 252,343 265,998 92,402
Income tax receivable 1,964 1,223 2,428
Derivative financial assets 10 664 502 340
Cash and cash equivalents 7 71,566 83,396 85,213
Total current assets 546,943 615,888 386,809
Total assets 2 762,879 874,174 618,820
Non-current liabilities
Loans and borrowings 8 (1,005) (317) -
Lease liabilities 54,836 66,322 62,717
Deferred income 1,930 463 2,038
Provisions 2,985 4,803 5,474
Other financial liabilities 14,082 17,827 19,071
Deferred tax liabilities 163 194 221
Total non-current liabilities 72,991 89,292 89,521
Current liabilities
Bank overdraft 7 64,261 69,122 34,979
Loans and borrowings 8 23,397 88,274 (250)
Lease liabilities 15,988 18,234 17,470
Deferred income 437 1,681 263
Provisions 3,626 1,205 1,339
Income tax payable 11,531 4,660 6,918
Trade and other payables 177,463 188,690 92,977
Other financial liabilities 37,595 41,522 41,227
Total current liabilities 334,298 413,388 194,923
Total liabilities 2 407,289 502,680 284,444
Net Assets 355,590 371,494 334,376
Equity
Share capital 5,996 5,455 6,059
Share premium 210,331 191,912 213,187
Capital redemption reserve 1,636 1,493 1,658
Merger reserve 39,532 36,070 40,069
Hedging reserve (233) (996) 38
Translation reserve (1,125) 13,218 (1,198)
Retained earnings 92,522 118,438 68,033
Equity attributable to owners of the Parent Company 348,659 365,590 327,846
Non-controlling interests 6,931 5,904 6,530
Total equity 355,590 371,494 334,376
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
SIX MONTHS ENDED 30 SEPTEMBER 2023
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
Note $000 $000 $000
Cash flows from operating activities
Profit/(loss) for the period 24,568 23,526 (26,459)
Adjustments for:
Depreciation and impairment/(reversal of impairment) of property, plant and 6,159 6,384 12,532
equipment
Depreciation and impairment/(reversal of impairment) of right-of-use assets 7,626 8,862 18,471
Amortisation of intangible assets 1,603 2,477 4,817
Goodwill impairment - - 29,100
Finance expenses 3,448 3,125 6,873
Income tax charge 9,485 8,399 7,563
Profit on disposal of property, plant and equipment (24) (4,721) (4,595)
(Profit)/loss on disposal of leases (27) 73 -
Equity-settled share-based payments - expense/(income) 630 312 805
Add back income from insurance settlement - - (1,500)
Operating profit after adjustments for non-cash items 53,468 48,437 47,607
Change in trade and other receivables (163,254) (146,837) 36,929
Change in inventory (14,596) (48,061) 17,790
Change in trade and other payables, provisions and deferred income 76,974 57,779 (43,352)
Cash (used by)/generated from operations (47,408) (88,682) 58,974
Tax paid (1,272) (3,092) (7,307)
Interest and similar charges paid (2,267) (2,326) (5,270)
Net cash (outflow)/inflow from operating activities (50,947) (94,100) 46,397
Cash flow from investing activities
Proceeds from sale of property, plant and equipment 42 6,839 6,809
Acquisition of intangible assets (93) (16) (368)
Acquisition of property, plant and equipment (5,123) (3,286) (5,459)
Proceeds from insurance settlement - - 1,500
Net cash (outflow)/inflow from investing activities (5,174) 3,537 2,482
Cash flows from financing activities
Acquisition of non-controlling interest - (2,951) (2,951)
Purchase of own shares - (865) (865)
Net movement in credit facilities 24,000 88,908 -
Lease liabilities principal repayments (9,666) (10,848) (20,428)
Loan arrangement fees (1,873) (1,079) (1,079)
Dividends paid to non-controlling interest - (2,616) (2,961)
Net cash inflow/(outflow) from financing activities 12,461 70,549 (28,284)
Net (decrease)/increase in cash and cash equivalents (43,660) (20,014) 20,595
Cash and cash equivalents and bank overdrafts at beginning of the period 50,234 29,799 29,799
Effect of exchange rate fluctuations on cash held 731 4,489 (160)
Cash and cash equivalents and bank overdrafts at end of the period 7,305 14,274 50,234
7
NOTES TO THE INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED 30 SEPTEMBER 2023
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. Statutory accounts for the year ended 31 March 2023 were approved
by the board of directors on 19 June 2023 and delivered to the Registrar of
Companies. The report of the auditors on those accounts was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006. These interim financial
statements have been reviewed, not audited.
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 condensed consolidated interim
financial report for the half-year reporting period ended 30 September 2023
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
2023, 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. IG Design plc
is a company limited by shares, incorporated and domiciled in the UK. Its
registered office is Howard House, Howard Way, Interchange Park, Newport
Pagnell, MK16 9PX. Its 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.
Presentation currency
The presentation and functional 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.
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.
The Group financial statements have been prepared on a going concern basis as
the Directors have a reasonable expectation that the Group has adequate
resources to continue trading for a period of at least twelve months from the
date of this report, based on an assessment of the overall position and future
forecasts for the going concern period. This assessment has also considered
the overall level of Group borrowings and covenant requirements, the
flexibility of the Group to react to changing market conditions and ability to
appropriately manage any business risks.
On 5 June 2023, the business entered into a new banking facility with HSBC and
NatWest bank as part of a three-year deal to meet the funding requirements of
the Group. This facility comprises an Asset Backed Lending (ABL) arrangement
with a maximum facility amount of $125.0 million. On 3 November 2023 the Group
made an operational amendment to the ABL arrangement and signed a supplemental
agreement with an option to access a £17.0 million RCF facility over a two
month period. This amendment offers flexibility during the months where the
Group has a requirement for funding while having limited access into the ABL.
Cash balances, borrowing and the financial covenants applicable to the
facility are detailed in notes 7 and 8.
In addition to the above facility, the Group also increased its unsecured
overdraft facility provided by HSBC to £16.5 million, which reduced to £8.5
million from August 2023. As such, after making appropriate enquires, the
Directors do not see any practical, regulatory or legal restrictions which
would limit their ability to fund the different regions of the business as
required as the Group has sufficient resources.
The Group also have access to supplier financing arrangements from certain
customers which we utilise at certain times of the year. The largest of these
supplier financing arrangements are subject to the continuing support of the
customers' banking partners and therefore could be withdrawn at short notice.
As the new ABL arrangement is linked to trade debtors, any withdrawal of these
facilities would be largely offset as the borrowing base under the facility
would increase.
The Directors have assessed detailed plans and forecasts up to 31 March 2025.
These forecasts reflect the fact that the Group has now returned to
profitability and continues the journey to more robust performance, growing
profitability and margins as a result. They also reflect the seasonal
operating cycle of the business and further recovery associated with the DG
Americas plan.
These forecasts have been sensitised to reflect severe but plausible adverse
downturns in the current assumptions. Specifically, the severe but plausible
downside scenario has taken account of the following risks:
· the potential impact of a significant disruption in one of our
major customer's business, reflected in a c$20-$25 million reduction in sales
performance and related cash and working capital impacts; and
· the potential impact of further effects of inflation on
disposable incomes and therefore demand for products in the DG Americas
business segments, reflected in a c$65-$75 million reduction of sales.
In the severe but plausible scenario modelled there remains adequate headroom
in our forecast liquidity, and under all the covenant requirements.
Based on this assessment, the Directors have formed a judgement that there is
a reasonable expectation the Group will have adequate resources to continue in
operational existence for the foreseeable future.
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 and the adoption of new and amended standards. A number of
new or amended standards became applicable 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.
New and amended standards
On 23 May 2023, the IASB issued narrow-scope amendments to IAS 12. The
amendments provide a temporary exception from the requirement to recognise and
disclose deferred taxes arising from enacted or substantively enacted tax law
that implements the Pillar two model rules published by the OECD, including
tax law that implements qualified domestic minimum top-up taxes described in
those rules. The amendments to IAS 12 are required to be applied immediately
(subject to any local endorsement processes) and retrospectively in accordance
with IAS 8, 'Accounting Policies, Changes in Accounting Estimates and Errors',
including the requirement to disclose the fact that the exception has been
applied if the entity's income taxes will be affected by enacted or
substantively enacted tax law that implements the OECD's Pillar two model
rules. This amendment has not yet been endorsed by the UK endorsement Board.
However, the group has developed an accounting policy on the recognition of
deferred taxes arising from the Pillar two model rules where no deferred taxes
are provided.
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 2023
Revenue - external 282,392 161,658 - 444,050
- inter-segment - 33 (33) -
Total segment revenue 282,392 161,691 (33) 444,050
Segment profit/(loss) before adjusting items 16,568 25,315 (3,640) 38,243
Adjusting items (note 3) (742) - - (742)
Operating profit/(loss) 15,826 25,315 (3,640) 37,501
Finance expenses (3,448)
Income tax (9,485)
Profit for the six months ended 30 September 2023 24,568
Balances at 30 September 2023
Segment assets 468,822 249,221 44,836 762,879
Segment liabilities (241,203) (137,278) (28,808) (407,289)
Capital expenditure additions
- property, plant and equipment 3,659 1,418 46 5,123
- intangible assets 59 34 - 93
- right-of-use assets 1,207 144 - 1,351
Depreciation - property, plant and equipment 3,483 2,664 12 6,159
Amortisation - intangible assets 1,533 70 - 1,603
Depreciation - right-of-use assets 5,691 2,484 4 8,179
Reversal of impairment - right-of-use assets (553) - - (553)
Profit on disposal of property, plant and equipment - 24 - 24
(a) Including overseas entities for the DG Americas operating segment.
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 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)
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
Year ended 31 March 2023
Revenue - external 592,954 297,355 - 890,309
- inter-segment - 2,283 (2,283) -
Total segment revenue 592,954 299,638 (2,283) 890,309
Segment profit/(loss) before adjusting items 2,918 19,827 (6,696) 16,049
Adjusting items (note 3) 1,701 (29,773) - (28,072)
Operating (loss)/profit 4,619 (9,946) (6,696) (12,023)
Finance expenses (6,873)
Income tax (7,563)
Loss for the year ended 31 March 2023 (26,459)
Balances at 31 March 2023
Segment assets 370,276 201,650 46,894 618,820
Segment liabilities (156,053) (96,588) (31,803) (284,444)
Capital expenditure additions
- property, plant and equipment 2,452 2,941 66 5,459
- intangible assets 331 37 - 368
- right-of-use assets 727 4,094 24 4,845
Depreciation - property, plant and equipment 7,291 5,226 15 12,532
Amortisation - intangible assets 4,673 144 - 4,817
Impairment - intangible assets - 29,100 - 29,100
Depreciation - right-of-use assets 12,615 5,090 9 17,714
Impairment - right-of-use assets 757 - - 757
Profit on disposal of property, plant and equipment((b)) 4,493 102 - 4,595
(a) Including overseas entities for the 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.
Total administration expenses are $33.9 million (HY2023: $35.1 million;
FY2023: $104.2 million which included $29.1 million goodwill impairment). The
release of previous slow moving and obsolete inventory is $3.4 million
(HY2023: $2.6 million; FY2023: $6.3 million).
3. Operating profit and adjusting items
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
$000 $000 $000
Operating profit analysed as:
Adjusted operating profit 38,243 30,453 16,049
Adjusting items (742) 4,597 (28,072)
Operating profit 37,501 35,050 (12,023)
Adjusting items
Profit on
Admin Other disposal of Admin
Cost of expenses operating property, plant expenses
Six months ended sales - costs income & equipment - other Total
30 September 2023 $000 $000 $000 $000 $000 $000
Acquisition integration and restructuring costs/(income)((1)) 394 (554) - - - (160)
Amortisation of acquired intangibles((2)) - 902 - - - 902
Adjusting items 394 348 - - - 742
Profit on Admin
Admin Other disposal of expenses
Cost of expenses operating property, plant - impairment of
Six months ended sales - costs income and equipment goodwill Total
30 September 2022 $000 $000 $000 $000 $000 $000
Acquisition integration and restructuring costs/(income)((1)) - 235 - (4,608) - (4,373)
Amortisation of acquired intangibles((2)) - 1,418 - - - 1,418
Losses/(gains) and transaction costs relating to acquisitions and disposals of - - (1,500) - - (1,500)
businesses((3))
IT security incident income ((4)) - (142) - - - (142)
Adjusting items - 1,511 (1,500) (4,608) - (4,597)
Profit on Admin
Admin Other disposal of expenses
Cost of expenses operating property, plant - impairment of
Year ended sales - costs income and equipment goodwill Total
31 March 2023 $000 $000 $000 $000 $000 $000
Acquisition integration and restructuring costs/(income)((1)) 1,479 1,031 - (4,493) - (1,983)
Amortisation of acquired intangibles((2)) - 2,751 - - - 2,751
Losses/(gains) and transaction costs relating to acquisitions and disposals of - - (1,500) - - (1,500)
businesses((3))
IT security incident income((4)) - (142) - - - (142)
Goodwill impairment((5)) - - - - 29,100 29,100
Reversal of impairment of assets((6)) (154) - - - - (154)
Adjusting items 1,325 3,640 (1,500) (4,493) 29,100 28,072
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 are broken down as follows:
(1) Acquisition integration and restructuring costs/(income)
In order to realise synergies from acquisitions, or existing businesses,
integration and restructuring projects are respectively undertaken that aim to
deliver future savings and efficiencies for the Group. These are projects
outside of the normal operations of the business and typically incur one-time
costs to ensure successful implementation. As such it is appropriate that
costs associated with projects of this nature be included as adjusting items.
The income/costs incurred relate to the reorganisation, business
simplification and impairment expenses in DG Americas and the reorganisation
of the DG UK businesses as follows:
Reversal of impairment: Following the integration of DG Americas' sites in
FY2021, a portion of a leased site in Budd Lake, New Jersey was exited, and
the right-of-use asset was impaired. In the period ended 30 September 2023,
the landlord reacquired a portion of the impaired site resulting in a reversal
of impairment of $0.6 million.
DG Americas business reorganisation: In the period ended 30 September 2023
further restructuring costs, relating to staff, of $0.4 million (FY2023: $0.8
million) have been recognised in DG Americas. This follows the announcement in
March 2023 of further business reorganisation. Similarly, in March 2023 the UK
business internally announced a business simplification in light of the
downturn of the UK market outlook, resulting in the recognition of one-off
restructuring costs of $0.7 million in FY2023.
Site closures: In FY2023, a property in Manhattan, Kansas was sold for
proceeds of $6.7 million resulting in a profit on disposal of $4.6 million
recognised as an adjusting item. Additionally, in FY2023 costs of $0.3 million
(HY2023: $0.2 million) were incurred in relation to the relocation and closure
of these sites, as well as the consolidation of other US sites.
(2) Amortisation of acquired intangibles
Under IFRS, as part of the acquisition of a company, it is necessary to
identify intangible assets such as customer lists and trade names which form
part of the intangible value of the acquired business but are not part of the
acquired balance sheet. These intangible assets are then amortised to the
income statement over their useful economic lives. These are not operational
costs relating to the running of the acquired business and are directly
related to the accounting for the acquisition. These include tradenames and
brands acquired as part of the acquisition of Impact, with the tradenames and
brands related to CSS fully amortised in the prior year. As such, we include
these as adjusting items.
(3) 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 FY2023 $1.5 million (HY2023: $1.5 million) of insurance income was received
in relation to the Impact Innovations, Inc (Impact) Representations and
Warranties insurance settlement in connection with accounting and tax issues
present at acquisition in August 2018.
(4) IT security incident income
The IT security incident which occurred in DG Americas in October/November
2020 resulted in one-off costs of $2.2 million being incurred during the year
ended 31 March 2021. This did not include the lost profits incurred as a
result of downtime in the business for which an insurance claim was made. In
FY2023 further insurance income was received of $142,000 (HY2023: $142,000) in
relation to this incident. The treatment of this income as adjusting, follows
the previous treatment of the one-off costs as adjusting.
(5) Goodwill impairment
In FY2023 an impairment of $29.1 million was recorded to write down the
goodwill from historical acquisitions in the UK and Asia Cash-Generating Unit
(CGU).
This was following the deterioration of the result experienced in UK and Asia
CGU, especially in the second half of FY2023, the longer-term impacts on the
forecasts for future cash flows have resulted in an impairment. The
calculation was further exacerbated by the significant increase in the
discount rate, mainly as a result of higher interest rates.
(6) Reversal of impairment of assets
At the onset of the Covid-19 pandemic a review of inventory, trade receivables
and fixed assets was undertaken. Inventories were assessed at 31 March 2020
for the net realisable value and an impairment of $7.4 million was recognised.
Trade receivables were assessed for their expected credit loss in line with
IFRS 9 and an impairment of $3.8 million was recognised. The UK's bag line
machines were impaired by $348,000 based on expected future cash flows
associated with the 'Not-for-resale' consumables business.
In FY2023 a credit of $154,000 was recognised relating to reversal of
impairments no longer required. There are no remaining provisions relating to
these costs.
The cash flow effect of adjusting items
There was a $1.8 million net outflow in the current period's cash flow
(HY2023: $7.2 million net inflow, FY2023: $6.9 million net inflow) relating to
adjusting items which included $1.4 million outflow (HY2023: $919,000, FY2023:
$1.1 million) deferred from prior years.
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 2023 30 Sep 2022 31 Mar 2023
$000 $000 $000
Charge in relation to the 2020-2022 LTIP scheme - 166 166
Charge in relation to the 2022-2025 LTIP scheme 452 117 490
Charge in relation to the 2023-2026 LTIP scheme 147 - -
Equity-settled share-based payments charge 599 283 656
Social security charge 31 29 149
Total equity-settled share-based payments charge 630 312 805
In August 2023, the 2023-2026 LTIP was granted. The 2023-2026 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 2023 30 Sep 2022 31 Mar 2023
$000 $000 $000
Grant income received 105 40 111
Sub-lease rental income 352 567 1,253
Other 65 - 87
Other operating income before adjusting items 522 607 1,451
Adjusting items (note 3) - 1,500 1,500
Total other operating income 522 2,107 2,951
6. Taxation
Recognised in the income statement
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
$000 $000 $000
Current tax charge
Current income tax charge 6,351 648 6,975
Deferred tax charge
Origination and reversal of temporary differences 3,134 7,751 588
Total tax in the income statement 9,485 8,399 7,563
Total tax charge/(credit) on adjusting items
Total tax on profit before adjusting items 9,670 7,250 7,806
Total tax on adjusting items (185) 1,149 (243)
Total tax in the income statement 9,485 8,399 7,563
The tax expense has been calculated by applying the effective rate of tax
which is expected to apply for the year ended 31 March 2024 by jurisdiction,
using rates substantively enacted by 30 September 2023. The tax effect of
adjusting items are recognised in the same period as the relevant adjusting
item.
The deferred tax assets in the UK continue not to be recognised based on the
assessment of future taxable profits against which the asset could unwind.
On 20 June 2023, legislation in respect of Pillar Two was substantively
enacted in the UK, Finance (No.2) Act 2023, to apply for financial years
beginning on or after 31 December 2023. The Group is in the process of
undertaking an impact assessment. The IAS 12 exception to recognise and
disclose information about deferred tax assets and liabilities related to
Pillar Two income taxes has been applied.
7. Cash and cash equivalents/bank overdrafts
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
$000 $000 $000
Cash and cash equivalents 71,566 83,396 85,213
Bank overdrafts (64,261) (69,122) (34,979)
Cash and cash equivalents and bank overdrafts per cash flow statement 7,305 14,274 50,234
(Net debt)/net cash
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
$000 $000 $000
Cash and cash equivalents 7,305 14,274 50,234
Bank loans (24,000) (88,908) -
Loan arrangement fees 1,608 951 250
Net (debt)/cash as used in the financial review cash flow statement (15,087) (73,683) 50,484
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 2023 30 Sep 2022 31 Mar 2023
$000 $000 $000
Non-current liabilities
Loan arrangement fees (1,005) (317) -
(1,005) (317) -
Current liabilities
Asset backed loan 24,000 10,579 -
Revolving credit facilities - 78,329 -
Bank loans and borrowings 24,000 88,908 -
Loan arrangement fees (603) (634) (250)
23,397 88,274 (250)
Secured bank loans
Facilities utilised in current period
The Group entered into a new banking facility on 5 June 2023, this facility
comprises an Asset Backed Lending ("ABL") arrangement with a maximum facility
amount of $125.0 million. The facility with HSBC and NatWest banks has an
original term of three years, with the option of submitting two extension
notices to extend the facility twice, each by a period of one year. On 3
November 2023 the Group made an operational amendment to the ABL arrangement
and signed a supplemental agreement with an option to access a £17.0 million
RCF facility over a two month period. This amendment does not increase the
maximum facility amount and offers flexibility during the months where the
Group has a requirement for funding while having limited access into the ABL.
The Group also increased its unsecured overdraft facility provided by HSBC to
£16.5 million, which reduced to £8.5 million from August 2023. If the option
to access the RCF facility is exercised, the amounts drawn on the overdraft
facility and RCF facility may not exceed £17 million.
Interest charged on the Asset Backed lending facility is based, on one of two
methods dependant on the timing of the Group's borrowing request submission:
· A margin of between 1.75% and 2.25%, based on average excess
availability, plus a 0.1% credit spread adjustment, plus the US Secured
Overnight Financing Rate ("SOFR"); or
· A margin of between 0.75% and 1.25% based on average excess
availability, plus a rate based on the higher of: the HSBC prime rate, the
Federal Funds rate plus 0.5%, or SOFR plus 1%.
A further commitment/non-utilisation fee is charged at 0.25% where facility
usage is greater than 50% of the maximum credit line, and 0.375% where
facility usage is less than 50% of the maximum credit line.
Interest on the RCF is charged at a margin of 2.5% plus Sterling Overnight
Index Average ("SONIA").
The financial covenant within the ABL agreement, which is a minimum fixed
charge coverage ratio of 1.0 times, is only triggered if the remaining
availability of the facility is less than the higher of $12.5 million or
12.5% of the borrowing base. The amendment to the facility on 3 November 2023,
reduced the remaining availability trigger point to $6.5 million over a two
month period.
The financial covenants within the RCF agreement are as follows:
· A minimum fixed charge coverage ratio of 1.0 times, calculated
for the 12 month period to the most recent quarterly reporting period
· An asset cover ratio of no less than 200% calculated as at the
date of the last monthly reporting period
The ABL and RCF are secured with an all-assets lien on all existing and future
assets of the loan parties. The loan parties are Anker Play Products, LLC,
Berwick Offray, LLC, BOC Distribution, Inc., C. R. Gibson, LLC, CSS
Industries, Inc., IG Design Group (Lang), Inc., IG Design Group Americas,
Inc., IG Design Group plc, IG Design Group UK Limited, Impact Innovations,
Inc., Lion Ribbon Company, LLC, Paper Magic Group, Inc., Philadelphia
Industries, Inc., Simplicity Creative Corp., The Lang Companies, Inc., The
McCall Pattern Company, Inc.
Invoice financing arrangements are secured over the trade receivables that
they are drawn on. The Group also has an invoice financing arrangement in Hong
Kong with a maximum limit of $18.0 million, dependent on level of eligible
receivables. This facility was cancelled on 13 October 2023 in line with the
terms of the new financing arrangement.
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.
Facilities utilised in prior periods
On 1 June 2022, the Company had extended and amended the terms of its existing
banking agreement to 31 March 2024. These facilities were cancelled on 5 June
2023. These facilities were maintained through a club of five banks: HSBC,
NatWest, Citigroup (who replaced BNP Paribas), Truist Bank (as successor by
merger to SunTrust Bank) and PNC. The amended facilities comprised:
· a revolving credit facility ('RCF A') reduced from $95.0 million
to $90.0 million; and
· a further flexible revolving credit facility ('RCF B') with
availability varying from month to month of up to a maximum level of £92.0
million (reduced from a maximum level of £130 million). This RCF was flexed
to meet our working capital requirements during those months when inventory
was being built within our annual business cycle and was £nil when not
required, minimising carrying costs.
The RCFs were secured with a fixed and floating charge over the assets of the
Group. Amounts drawn under RCFs were classified as current liabilities as the
Group expected to settle these amounts within twelve months.
From April 2023 covenants were tested quarterly and were 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 was 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. These covenants were measured on pre-IFRS 16 accounting
definitions.
Given the cancellation of the RCF on 5 June 2023, these covenants are no
longer applicable. The Group has remained comfortably in compliance with all
of these covenants up its cancellation.
9. Earnings/(loss) per share
Unaudited Unaudited Twelve
six months six months months
ended ended((a)) ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
$000 $000 $000
Earnings/(loss)
Earnings/(loss) attributable to equity holders of the Company 23,911 22,754 (27,987)
Adjustments
Adjusting items (net of non-controlling interest effect) 742 (4,597) 28,072
Tax (relief)/charge on adjustments (net of non-controlling interest effect) (185) 1,149 (243)
Adjusted earnings/(loss) attributable to equity holders of the Company 24,468 19,306 (158)
Unaudited Unaudited Twelve
six months six months months
ended ended ended
In thousands of shares 30 Sep 2023 30 Sep 2022 31 Mar 2023
Issued ordinary shares at 1 April 97,993 97,062 97,062
Shares relating to share options 315 1,242 1,242
Less: shares held by Employee Benefit Trust (1,031) (12) (536)
Weighted average number of shares for the purposes of calculating basic EPS 97,277 98,292 97,768
Effect of dilutive potential shares - share awards 658 10 -
Weighted average number of shares for the purposes of calculating diluted EPS 97,935 98,302 97,768
In the twelve months to 31 March 2023 there were 209,000 share options which
were not included in the calculation of diluted earnings per share because
they were antidilutive.
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2023 30 Sep 2022 31 Mar 2023
Cents Cents Cents
Earnings/(loss) per share
Basic earnings/(loss) per share 24.6 23.1 (28.6)
Impact of adjusting items (net of tax) 0.6 (3.5) 28.4
Basic adjusted earnings/(loss) per share 25.2 19.6 (0.2)
Diluted earnings/(loss) per share 24.4 23.1 (28.6)
Diluted adjusted earnings/(loss) per share 25.0 19.6 (0.2)
Adjusted earnings/(loss) per share is provided to reflect the underlying
earnings performance of the Group.
Basic earnings/(loss) per share
Basic EPS is calculated by dividing the profit for the 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/(loss) 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, excluding own shares held by the Employee Benefit Trust,
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 2023, 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 2023 30 Sep 2022 31 Mar 2023
Forward exchange contracts carrying amount $000 $000 $000
Derivative financial assets 664 502 340
Derivative financial liabilities (876) (1,467) (315)
The Group has forward currency hedging contracts outstanding at 30 September
2023 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 2023, the Group had outstanding authorised capital commitments
to purchase plant and equipment for $4.0 million (HY2023: $2.3 million). At 30
September 2023, the Group has estimated lease commitments for leases not yet
commenced of $16.7m.
12. Related parties
As at 30 September 2023, there are no changes to the related parties or types
of transactions as disclosed at 31 March 2023.
13. 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 except for the amendment to the financing agreement as detailed in note
8.
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") for the 6 month
period ended 30 September 2023 (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 2023;
· the Condensed Consolidated Income Statement and 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 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 ("ISRE (UK) 2410"). 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.
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 ISRE (UK) 2410. 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 financial statements are the responsibility of, and have been
approved by the directors. The directors are responsible for preparing the
interim financial statements 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 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 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
Milton Keynes
27 November 2023
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
Exchange House
Central Business Exchange
Midsummer Boulevard
Central Milton Keynes
MK9 2DF
Public relations
Alma Strategic Communications
71-73 Carter Lane
London EC4V 5EQ
Share registrar
Link Group
Central Square
29 Wellington Street
Leeds LS1 4DL
By phone:
UK - 0371 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 9.00 - 17.30, Monday to Friday
excluding public holidays in England and Wales.
By email: enquiries@linkgroup.co.uk (mailto:enquiries@linkgroup.co.uk)
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